Gren Schoch - Chairman and CEO Lisa Swartzman - President Daniel Gagnon - CFO Darren Wasylucha - Senior EVP

Neil Linsdell - Industrial Alliance Securities Ben Jekic - GMP Securities Tim James - TD Securities

Thank you. Good morning everybody, and thank you for joining this conference call.

I am Gren Schoch, and I am the Chairman and CEO of AirBoss. Here with me are Lisa Swartzman, President; Daniel Gagnon, CFO; Darren Wasylucha, our Senior EVP.

We will give a summary of results and then conference lines will be opened up for questions. Before we begin, I would like to remind you that today's remarks, including management’s outlook for fiscal 2017, anticipated financial and operating results, our plans and objectives and our answers to your questions, will contain forward-looking statements within the meaning of applicable securities laws.

These forward-looking statements represent our expectations as of today, and accordingly are subject to change. Such statements are based on current assumptions that may not materialize and are subject to a number of important risks and uncertainties.

Actual results may differ materially. Investors are cautioned not to place undue reliance on these forward-looking statements.

The description of risk that may affect future results is contained in AirBoss's annual MD&A, which is available on our corporate Web site and in our filings with Canadian Securities Administration, administrators on SEDAR at www.sedar.com. I’ll now turn this over to Lisa, President for the highlights of the quarterly report.

Thanks, Gren and good morning to everyone. Thank you for joining us.

During 2016, we made a number of internal investments, elevating key leadership capabilities in our infrastructure, as well as on a number of operational initiatives. While our fourth quarter results may not reflect it, I am confident these were the right decisions to strengthen the Company's business platform for the future, creating a stronger business that is better equipped to adapt to the rapidly changing business environment in the markets we serve.

So while we’re happy to say good bye to 2016 and are disappointed with the second half of the year's performance, it was still the second best earnings year in the Company's history. The second best isn’t our goal, and we’re focused on improving and executing on our growth prospects and operational efficiencies.

We remain in excellent financial conditions. The Company generated $23.4 million in free cash flow in 2016, an increase of 73% over 2015.

We reduced net debt by almost $20 million, exceeding the year with the net debt to trailing EBITDA ratio of 1.5 times versus 2.2 times at the end of 2015. And we have access to sufficient liquidity with which to pursue organic and potential acquisitive growth opportunities.

In Rubber Compounding, the volume decline in the fourth quarter was similar to that experienced in the third quarter, driven again by the decline in our conveyor belting and conventional tolling sectors. These declines were partially offset by improvements in the OTR sector and a positive upswing in mining volume for the first time in two years.

And we continue to be on track with our new tolling program. We also had some important milestone successes during the year that position us well for the future, including continuing our shift to higher value more complex compound, including color, which in turn is improving our margin per sale pound.

We increased our active customer base by approximately 18%, while maintaining a robust pipeline of new customers in our development funnel for 2017, and we were awarded our first program under our centralized structure with Rubber Compounding in industrial products. This is further confirmation that integrating these parts of the business provides a broader, more attractive offering to our customers.

2017 started off with what I’d call a confusion hangover from the U.S. elections.

With customers reluctant to make commitments, the recent indications have been encouraging; improvement seen in the fourth quarter in the OTR sector are holding, and we're experiencing some return in demand from the mining, and oil and gas sector; however, we anticipate our conveyor belt sector to remain in a challenged position. Sales in Engineered Products were approximately $5 million lower in 2016 versus 2015 with sales increases in the industrial products business within AEP offset by softness in our defense business.

The softness in defense was primarily related to the completion in 2015 of deliveries on an overboot contract, as well as an upgrade kit program with the National Guard. We continue to deliver as scheduled on our glove program in the fourth quarter of 2016, and are now executing on the additional option volume that was exercised.

And we also anticipate the next option amount to be exercised shortly. As a result, for 2017, we expect glove volume on this contract to be consistent with that of 2016.

On our primary filter program, our filters are half way through the first articles testing process and results so far have been very encouraging, especially considering the magnitude of performance improvements required as a result of the change in specification. We still anticipate starting deliveries on this award in the second half of 2017.

The defense business has started 2017 in a much stronger position than 2016 with the larger order book, continued progress on our new product development program and a positive global defense spending sentiment, driven by the U.S. Despite this so, there can be no certainty as to the timing or nature of government policy changes and their impacts on defense budgeting, nor with respect to timing or size of expected tenders and awards with new business.

Sales in automotive were down approximately $1.7 million versus 2015, primarily as a result of the end of production of a sizeable muffler hanger program, which was only partially offset by increases in induction bonding and dampers. There were fewer new platform launches in 2016 and 2017 for the customers we serve.

And under the new leadership of Brad Berghouse, our new President of our Automotive Division, we will be focused on improving our program lifecycle management. So that we've an appropriate mix of new programs on-boarding to offset late stage or end of production programs.

This will be done in conjunction with realigning our sales and engineering resources to provide greater customer support and product development capabilities, as well as rolling out campaigns for ancillary markets where anti-vibration and noise-abatement solutions are required, such as industrial and agricultural markets. On a consolidated basis, unadjusted EBITDA for 2016 was flat to 2015.

But on an adjusted basis, was down approximately 15% to $30.5 million. On an adjusted basis, EPS for the year was also lower than last year and came in at $0.62.

We remain committed to our healthy balance sheet and continue to invest in key leadership resources to further improve productivity and build best practices across the organization. With this, combined with management's ongoing efforts to expand and diversify our product lines, customer base and target market segments, we believe we'll be in a strong position to take advantage of growth opportunities and we'll be able to adapt to any further market volatility.

I'd now like to open up the line for any questions.

Lisa, you talking about these additional markets that you're looking at industrial, agricultural and such flexible products; can you break down the business now as far as -- are these brand new customers, brand new sectors or is it crossover with current customers that you're dealing with?

So, these would be for new customers. So, these are not things that we’ve got awards or anything for at the moment.

They're areas that we like to expand the business and to diversify that business the same as we are with our others.

So, you'd be talking about a decent ramp up period as you're getting to know the customers and their networks.

Yes.

Neil, this is really early in the process. So, don't expect anything in the ’17 from that.

And you'd mentioned in the commentary about the potential for acquisitions, given your still strong balance sheet and your free cash flow. Which sectors I mean would this be more aligned towards, the defense side or flexible products.

What’s your thinking there?

I think first of all we don't have any that we’re about today. But it would more likely where we're looking more likely is certainly on the finished goods side rather than compounding.

And I think initially or higher up on the list, if you will, would be something that would complement flexible. So, something that would be in the antivibration space, not necessarily in automotive, but certainly something that could help us to jumpstart the campaigns that we're trying to deal with the industrial and agricultural sectors, or something along those lines.

And then there's other businesses that we would look at that use a lot of rubber which is our typical way of looking at things.

And on the Rubber Compounding, are you seeing you have a lot of spare capacity. You're seeing rational pricing out there, and what's your concentration right now even after the declines, as far as say, in the conveyors or in certain customers, can you give any color on that.

Conveyors used to be number one, and they’re currently running at about number six. The largest sector is in a very big basket, tires of all description; so off-road tires, truck tires, mining tires, re-trading, so, a fairly broad group of customers dealing with all sectors of tires.

So there is no real one customer heavy concentration?

No, that group collectively is a big group. But probably -- I am just starting on the stuff I had here, but probably three of our top customers would tire related.

And then maybe just on the NCIB, can you talk about how aggressive you’re thinking about getting on that?

Well, that just depends on the market.

So it's just going to be opportunistic?

Yes.

I have two questions. And I guess the first one is just more on the conceptual side, so when you’re talking about industrial and agricultural markets.

You want to pursue through the flexible business. Are we talking about pursuing verticals where there are no antivibration operation solutions, or is there an issue of -- there is competitor and you want to displace the competitor with a better product?

Or how do you approach that, or is it a mix?

No Ben, it's -- there is about $6 billion annual market out there in non-automotive antivibration, that would include everything from locomotives; rail to; marine to; aerospace; to earthquake vibration or earthquake prevention; anti vibration products; to combined distracters et cetera. So, all products that currently use antivibration, it's a different markets to the -- the market as I -- the reason we’re interested in the market is because they use exactly the same technology and exactly the same engineering, and very similar techniques to solve the problems.

The market -- individual customers tend to be smaller, but the margins tend to be significantly higher. And the part price tends to be a lot higher.

And then my second question similarly, is there like you have been putting a lot of efforts into diversifying your Rubber Compounding volumes away from conveyor belting for a long time?

Actually it's [multiple speakers]…

I just tried to paint it more positively. But is there -- I am trying to explain -- is there an issue of -- you're just waiting for some of your markets to come back to you?

Or is there also resounding push to pursue new markets with…

Ben, we're not sitting around waiting for the markets to come back. As we discussed before, these are not market shares that we've lost with our existing customer base, it's just a lack of volume from their businesses.

So, we're certainly not going to sit around and wait for it. We're going to continue with what we're doing, which is trying to diversify the business and make it more robust and less reliance on any one customer or industry.

But as you pointed out, we do have some capacity available. And if our traditional markets come back for the right price and the right volume, we're there.

But we have made a lot of investments in both in equipment and in personnel to tackle these new markets, which we are currently doing much better in. And Lisa mentioned an example as colors, for example, we never did colors before.

But that required equipment modification and volumes are much lower, margins are much higher in a lot of these new markets. We're getting more involved in hose.

We were never in hose before. We -- above specialty custom -- specialty tolling that program is doing well and there're more in the pipeline.

Could you talk about whether you expect the defense revenue to increase in 2017 for products other than gloves, boots and masks? And I guess I'm thinking more of the products that came with IRT, the tapers, ISO-PODs, et cetera.

In short, yes. There're a couple of programs that we're expecting to come online on where it would fit in with the shelters and tent site.

So we've seen in pick-up in activity so far this year on shelters. And there's a contract that's out there that we're anticipating starting later on in the year, that's got to do with protective wrap; so not quite the ISO-POD, but something similar to that really just the opposite.

And of course the big one for IRT is filters, which we anticipate doing a lot more of in the coming years.

And then when it comes to boots, I think you're probably referring more to the overboots. So, we are also in the process of executing on a couple of cold weather boot contracts that we have.

Actually, just reasons on your question. How is that again non-glove or excluding the gloves, the overboots, the masks, maybe even for you can take the filters out of it for a minute and think about the other products that IRT sells; what's the revenue, you don't need to get into numbers?

But is the revenue being generated from those other products today comparable to what it was in the year prior to AirBoss buying IRT? Or is it down from that point?

Last year, '16 was down from when we bought it. This year should be up from when we bought it.

Just the Canadian gas mask contract, we're all just taking a lot of patience on your part. I'm just wondering if that, do you expect that to be, I mean your most recent expectations that that would be awarded later this year with revenues to begin in 2018?

Most recently, like in the last few days, we've been told that we'll be awarded by the end of Q1 ‘18.

Okay.

But deliveries would still be -- should that be on time, deliveries would still be expected to start happening in 2018 as well.

Just thinking about the Rubber Compounding and your volume expectations for 2017; I think there this must been fairly volatile market and a lot of moving parts there. But if you think about overall your expectations for volume in 2017, how's your level of confidence in that, or your maybe your visibility relative to other years?

Well, I think you know we've spoken before about in terms of visibility if you look now versus five years ago, visibility is I'll say cloudier now than it was then. Now, that's partially because we had a big customer that was 40% of our volume.

So it was pretty easy to take -- to at least have a baseline of information there. So, I’d say that that has changed.

I would also say though that the business is significantly better at being able to adapt and to scale up and down accordingly for that. At the moment, if you'd asked us, like I said, if you'd spoken to us at the end of the year of 2016 things wouldn't have felt very good; and the beginning of this year, similarly.

But things seem to be picking up right now. And so, there are, without getting too excited about things, there are a number of opportunities that are very attractive that we're pursuing right now.

Tim, the other thing was very recent that, but seems to be happening, is couple of new customers are saying they want to negotiate long-term supply agreements with us, which we haven't had for some time.

Okay, actually that's interesting, because that leads to my last question here, it was just if the visibility or the confidence that you have today, given that the mix of customers and the size of purchase orders. If this is going to be the new normal going forward.

But it sounds like maybe if some compounding customers are looking to enter longer term contracts, maybe visibility should actually -- and I'm not talking about revenue dollars here but visibility could actually improve on a more sustainable basis going forward.

Hopefully, I mean, I don’t want to make it sound overly difficult. But one of our big customers who is you know has been a long term customers of ours; we talked to them in September of last year, and they were forecasting a 30% growth, '17 over '16; we talked to them in October, and they were talking flat; and we talked to them early November, and they were telling us we would do no business in '17.

Now, they're in a pact for some deliveries from April to July timeframe work. And recently they said that will carry on at least to the end of the year, and potentially materially higher volumes than they have ever bought from us till 2020.

So, our customers just don’t know.

Okay.

But the tone is dramatically better today than it was a month ago.

Actually just one more if I could, quickly just back to the defense market. Just your commentary and the outlook regarding the defense order book being better than it was at this time last year.

Does that mean purchase orders and contracts in hand in total are higher than they were at this time last year? Or is that more indication of the pipeline of potential purchase orders in contracts?

No, the actual purchase orders on hand are higher than last year.

Okay, okay great. Thank you very much.

On hand, we currently have purchase orders for 100% of last year's volume. So, that’s all we do will be flat.

But hopefully sales to more between now and the end of the year, or get some more purchase orders between now and the end of the year. And obviously, a couple of big ones are dependent on [technical difficulty].

On the efficiency improvements and the business platforms improvements even putting in place; we’ve seen it obviously Rubber Compounding, you lowered the breakeven cost significantly; defense, you consolidated facilities; flexible, we saw some -- there was a lot of efficiency improvements going in. Is that pace going to pick up when stay the same and what might we be thinking about seeing you guys doing in 2017, and cost associated with that?

Yes, we have a number of projects on the goal that we’re looking at; we have, with some new management and new and existing management. So, we have built-in some plans to continue the improvements and we think we can achieve -- can't you numbers.

But we’ll look at what we placed within our budget. These would help improve our margin going forward.

And is it across all the segments?

It's across all the segments. But I think there is still a lot of opportunity in flexible.

And I think with new management there, the apatite, let's say, for executing on what we want to do is a lot stronger than it was before. I think that there’s some efficiencies that we can get out of the integrated units between Rubber Compounding and engineer products, just as we align their processes and implement some best practices.

And then I think for defense, the biggest thing for defense of course is volume. It's a fairly intensive infrastructure within that business.

So it's difficult to scale down. And so I think with the increase in orders that would help a lot.

I think the sales increase, the incremental impact of these cost initiatives increase on the bottom line also.

So I was just wondering if the focus is more on the synergies and the improvements to increase the revenue, or still reducing cost in a lot of areas.

Well, I mean, it's really on both. Number one, we need to be as efficient as we possibly can be on the sales base that we've got, but save your way to growth so we're much more focused on the growth side.

But we recognize that with the changes in our markets and things happening at the rapid changes and a lot of uncertainty out there that we need to make sure that our operational game is as strong as possible.

And we’re also got key investments to help that improvement going forward, as well.

Thank you very much. It was a disappointing quarter, but I think we are -- I hate to forecast, but I think we've bottomed out.

We see better days ahead in most of the businesses. For further questions we'll talk to you at the end of next quarter.