Gren Schoch - Chairman and CEO Lisa Swartzman - President

Neil Linsdell - Industrial Alliance Securities Maggie MacDougall - Cormark Securities Ben Jekic - GMP Securities

Good morning, everybody and thank you for joining this conference call. My name is Gren Schoch.

I'm the Chairman and CEO of AirBoss. Here with me are Lisa Swartzman, President; Daniel Gagnon, CFO; and Darren Wasylucha, Senior EVP, Corporate.

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

These 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 and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks that may affect future results is contained in AirBoss' annual MD&A which is available on our corporate website and in our filings with Canadian Securities administrators on SEDAR at www.sedar.com.

I will now turn this over to Lisa, our President, for highlights of the quarterly report.

Good morning everyone and thank you for joining us and look forward to seeing those of you who will be at our AGM tomorrow afternoon. Just one housekeeping issue that I'd like to take care of.

Before we start, I just want to point out that we've stopped reporting EBITDA and EPS as an adjusted basis. We provided this detail at a time when we had a significant volume of equity compensation outstanding and vested.

We have since changed our executive compensation programs to better align with performance in shareholders' interests and we expect this to be less lumpy in the future. Turning to our first quarter, our results for first quarter 2017 include a number of encouraging developments and the reversal of some of the trends that we were experiencing through much of the last couple of years.

On a consolidated basis, there was a significant improvement over the fourth quarter of 2016 with net sales increasing 11% and more importantly, a 63% increase in EBITDA to $7 million and EPS doubled to $0.12. In Rubber Solution, while total volume remained relatively flat on a year-over-year basis, non-tolling volume increased by a 11%, our first year-over-year volume improvement in two years.

Compared to Q1 2016, gross profit dollars in Rubber Solutions increased approximately 6% to $5.7 million and EBITDA dollars increased 9% to $5.1 million. These results were achieved despite a volatile raw material environment, continuing challenges in our conveyor belt sector and a significant decline in conventional tolling volume.

We continue to see strong performance in our off-the-road track, automotive, oil and gas and hose sectors, a trend that is continuing in the second quarter as well. And we remain well on track with our niche tolling program.

This quarter we also began production on our first program awarded under our new Rubber Solutions umbrella. As the current supplier on only a segment of this business, we were able to secure the entire program due to the enhanced offering of the Rubber Solutions structure.

These results reflect the benefit and potential of providing a more complete and unified offering of our compounding and transformation processes services to our customers and also on our ongoing focus on diversifying our customer base, increasing the mix of higher margin compounds and our relentless attention to operational efficiencies. In Engineered Products, net sales declined 8.7% to $39.1 million as compared to Q1, 2016, primarily as a result of declines in the automotive business.

Automotive sales were negatively impacted by the previously disclosed, completion of a large muffler hanger program in the second half of 2016. And in certain of our programs in the bushings and boot product line, some of our parts had specification changes, including input component changes to plastics, which also affected sales.

These declines were partially offset by increased demand in induction bonding application. Net sales in defense also declined on a year-over-year basis primarily as a result of the timing of final deliveries on the PAPR upgrade program and two boot contracts in Q1 2016.

This softness was partially offset by increases in the glove, shelter and other cold weather boot product lines. We remain on schedule for the first article testing requirements on our delayed filter program and are extremely pleased with the results today.

We still anticipate starting deliveries on this award in the second half of this year. And on our primary glove program, which we began delivering on in 2016, we've since had two option amounts exercised and we now expect to be delivering on this program until the end of 2018.

Recent global events have generated a significant increase in inquiries and interest across all defense product lines. And while this interest is not yet translated into significant orders, we are optimistic that combined with recent announcements of increased defense budget, this signals a potential upswing in global defense spending.

As we look forward for the year, we're encouraged with our progress, but we believe there is more to be done and we are aggressively pursuing the opportunities before us. We are 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.

I'll now turn it back either to Gren for some closing comments or back to - sorry, back to the line if there any questions.

We will take questions now if there are any.

Yeah, hi guys.

Good morning.

Good results. On the product changes you were talking about on some of the automotive parts when you're putting more plastic or you're getting parts, which are going into plastic, this is affecting the amount of rubber that you're supplying yourself and you have to go out and source other materials, is that the way we should look at that one?

No, how you should look at it is that would be basically be a plastic replacement instead of a metal replacement. So it doesn't actually impact necessarily the rubber involved with it.

But we are not commercialized on plastics insert into our products yet. So that's why it's having a negative impact on sales.

Okay. And it looks like you have made some improvements in your management team to be able to address sales opportunities and improve efficiencies.

What would be, say the next steps or where do you see you can get further traction from the guys that you've put in or the changes that you've made recently? And what further changes do you think you'd need to make to take it to the next level?

Are you speaking about automotive specifically or just in general the changes to the leadership team that we've done over the last couple years?

My first thought was on the automotive side, but I'd like to get your comments across the whole organization.

Well, I'll say in automotive obviously, bringing in Brad Berghouse, as our President, has made a huge difference for us. He has a lot of experience in a variety of different ancillary markets, automotive and otherwise.

And I'd say in terms of where we want to go, which is our biggest thing is both on product development and on restructuring our sales teams and our approach to market, so that we have more of a push strategy versus a pull strategy, which is how the business has historically operated. So I'd say Brad has a couple of key positions, which I'm not going to outline titles or anything like that, but I think that we have room for some change in some of the key leadership just to surround him with the team that sort of is a like-minded in our approach.

I think that where we stand today, we are looking at that from a two-pronged approach. One is like I say, changing the way that we do our sales and our marketing with our customers and that would really be much more face time and much more interaction and work frequently with our customers.

But as you know, the automotive industry, there is limited ability to impact current year top line. So the focus that we've really got on in that business is also on continuing the improvements that we've started on the operating efficiencies and to make sure that we are both as efficient as we can be with what we've got in hand right now and very well positioned for the growth that we anticipate with the business as we move forward with the strategy.

In terms of the rest of the business, we obviously felt that particularly with the two acquisitions of Flexible and IRT a couple years ago, that there were certain members of management that we just needed a broader skill set than what we had before, and that's both to support the larger scale of the business, and also to make sure that we're positioned appropriately that should we find future acquisitions to do that the integration process is well established and smoother. The other areas that we are focused on, is really in our shared services area.

So one is in expanding what started as a centralized purchasing program and has now expanded into taking over supply chain and logistics for the entire business and implementing best practices there. And when it comes to a business like ours, small dollars start to add up very, very quickly and so that's - I mean I'm using air quotes, but that's an easy way to take cost out of the business is by managing that better.

And then the other primary area that we've added, the shared services contract - concept in, excuse me, is an information IT. And basically, what we've done there is again, I've spoken about the fact that historically the business has been rather siloed and run as distinct segment.

So we don't really have an IT system that sort of operates as efficiently as we should be across the division, particularly when it comes to acquisitions and being able to integrate them. So this is an area of focus for us over the next couple of years to make sure that our internal infrastructure and system support where the business is going.

Okay, and is there any more color you can give, if we go back to the rubber side, as far as the new customers, the products and how that is developing. It sounded last quarter you talked about your pipeline, how that looked?

So the pipeline remains stronger than ever. The areas that we are focused on - so our traditional segments are coming back somewhat and the new segments that we're focused in that I've spoken about before are much more in the industrial and infrastructure sectors.

And so that's where most of the new customer focus is, as well as in oil and gas, which the oil and gas servicing companies seem to be coming back to life a little bit.

Okay. And if - I'll just finish off with one more, on the defense side, you talked about more interest or inquiries into your products.

Can you say - I guess, this is in addition to the open tenders that you're bidding on right now that we're waiting to hear about.

Correct.

And can you say if it's within the U.S. or it's international or any specific part of the world and any specific product?

It's coming from everywhere and the other part is that a lot of the U.S. inquiries will be based out of the U.S., but the final customer in the delivery because it fits agencies - not FEMA, but agencies similar to that, that provide assistance to other nation.

So I think a lot of it is going still back out into the Middle East. The biggest uptick that we've seen and certainly that's turned into orders is on the shelter side, which, if you think about what's going on in the Middle East and in Syria, kind of makes sense that decontamination shelters is something that's of interest there.

Okay. And just one more.

Sorry, to follow-up on that. Any change in your penetration on say first responders versus military?

It's not a significant change yet now.

Okay. That's it from me, thanks.

Hi, Lisa and Gren. So we saw in the quarter you did manage to take down the operating costs a bit, excluding the corporate division.

And just wondering if you could provide a little bit of detail on this and how you see that sort of shaping up through the year, given that you've got clear focus on costs, particularly in the automotive division?

One thing I'll point out in the shift in costs and the increase in corporate is that a portion of that or probably most of that is related to the fact that we've expanded our shared service group. And so there's more of their expenses that are being shared in the corporate side versus disseminated, how we would have been doing it in the division.

On the operating cost side, our focus in automotive is much more on the operating side, so on the manufacturing side. On the people side, there are some - probably some changes and there is some movement obviously that goes on in the business.

But our focus is not really on restructuring and taking people costs out of that. It's more on sort of changing the viewpoint and approach.

Great. So that actually answers all my questions.

Most of them had already been asked. Thanks for your time.

Pleasure.

Good morning. I have two questions.

So one is on your push to sort of advance the anti-vibration platform into other areas. So I wanted a little bit more color, if you could provide at least qualitatively?

No, I'm not asking for any guidance. But if we assume that there is sort of a research innovation side and sort of sales and marketing side to the whole project, is this something that you more prepared on the existing sales and marketing infrastructure and then you need a little bit of tweaks on the research side or is it the other way around?

And when can we reasonably expect to see some progress in terms of sales and margin, is this 2019, '20 opportunity or something earlier?

It's more likely to be an opportunity then. And in terms of your question, I think that we've talked about before that the products and the parts are very, very similar to what we're currently making.

So there would be some tweaks that would be required. I mean obviously a large [indiscernible] or a combine, it's a lot bigger than an F-150.

So there will be a scale change and that sort of a thing, but I don't think - I think the effort is much more on the sales and marketing approach and that level of push rather than in the R&D and engineering side.

Okay. Perfect.

And then my second question is, if you would allow me just to dig a little bit deeper into the defense side. When you say inquiries, are these inquiries from sort of new agents or are they - are you starting to see inquiries from people you've spoken with last quarter and the quarter ago?

I'm just trying to assess, is there a greater probability of orders from certain agents - from certain sort of government agents that you've talked to before?

I think that the - so it's coming from all sides. So really, I mean we speak both directly to certain agencies and then we also have distributors and agents that come in or distributors really that are coming in and requesting for product as well.

And so there is a difference between sort of the large-scale awards and what I'll call spot orders and that's what most of this - that's coming in is, right. Some of it is related, so it's like reasonable scale size, but we're not talking like the Canadian gas mask tender or anything like that.

So I'd say that, in terms of do we think that it will turn into more orders, obviously, I hope so, but it is coming from a broader set. So it's both directly from the government - from government agencies and then from distributors as well.

Okay. But then in terms of orders, the larger orders that you sort of have them on the horizon, is there any great - is there any tangible progress there or --?

Well, I think you know, there is lots of talk. But I mean, once we put tenders out and bid on sort of larger contracts, there is a fairly significant or long-term qualification process that goes on.

So there is the ability of course for them to shorten that time period, but there's not a lot of appetite to do that because the testing is to make sure that the products work and that the soldiers will be safe. So I think that what's happening there in terms of - as we always talk about things shifting to the right, I think given what's going on globally, there is - there would appear to be more urgency in making sure that things stay on time.

Okay.

But I've not heard of anything moving to the left with the exception of these inbound inquiries that are occurring and things like our shelters. We are also seeing some pick up in PAPRs and - in inquiries for PAPRs and filters as well.

Okay, great. Thank you and very encouraging quarter.

Thank you.

Okay. If there are no further questions, we will have a much more detailed presentation, which will be available on our website or by conference call at the AGM on Thursday and we will talk to you then.