This year, operator. Good morning, everybody, and thank you for the AirBoss Q2 Results Conference Call.

I'm Gren Schoch, and I’m the Chairman and CEO of AirBoss. Here with me are Chris Bitsakakis, our COO; Daniel Gagnon, our CFO; and Chris Regall, Executive VP of Corporate.

In terms of an agenda, we'll take a few minutes to review some of the operational highlights for the quarter and briefly review financial results before opening the call for questions. Before we begin, I’d like to remind you that today’s remarks, including management’s outlook for the second half of fiscal 2019, anticipated financial and operating results, our plans and objectives and our answers to your questions will contain forward-looking information within the meaning of applicable securities laws.

This forward-looking information represents our expectations as of today, and accordingly, are subject to change. Such information is 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 this forward-looking information. 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 the Canadian Securities Administrators on SEDAR at www.sedar.com.

Before I hand this call over to the rest of team. I would like to remind everyone that during the quarter we appoint Chris Bitsakakis to the role of President in addition to his long duties as CEO, recognizing the strong leadership, it is strong.

This joining company just under 2 years ago, Chris has been instrumental and improving operational discipline, streamlining here is a business and attracting a highly experienced managerial talent, particularly the senior management level within the individual businesses. In combination, these changes are transforming how we operate, with Chris being able to put in place a team of many well-known to them that will guide and support the evolving long-term vision for AirBoss.

This in turn will help drive our next phase of growth over the next few years and beyond. I'd also like to know that yesterday afternoon, we announced the appointment of Anita Antenucci to our Board of Directors, Anita brings more than 25 years in investment banking experience and aerospace, defense and government services space and is currently a senior managing director with Houlihan Lokey based in Washington DC.

We believe a fresh perspective and specific expertise will be very valuable as we work to complete and then leverage, we previously announced transactions to create the AirBoss Defense Group. With that, and I'll now turn the call over to Chris to review a few operational highlights.

Thank you, Gren. Good morning, everyone.

And thank you for joining us for our second quarter investor conference call. We felt, we had a solid second quarter, especially on the Rubber Solutions side of the business were volumes measured on a pound basis were up about 11% for the year.

We believe the North American Rubber compounding market has grown at a rate of approximately 4% on a compounded annual basis over the last 5 years. So, we are pleased to have continued to replace the market with our efforts to gain share over our competitors.

There were a number of reasons for the increase, including higher volumes from a number of our large existing blue-chip customers, where we enjoy long standing relationships, as well as the addition of 18 new customers since the beginning of the year. The increased volumes and new customer add are due in part the AirBoss is growing reputation for innovative R&D, strong customer collaboration and solving technical challenges and high quality often proprietary compounds.

That said some of the strength we saw on the Rubber Solutions segment was offset by 3% decrease in net sales on the Engineered Products side. But I will let Daniel speak to the specific numbers more fully in a few minutes.

Now, as we continue to focus on short, medium, and long-term growth and improvement plans for our business, we have significantly increased our level of investment right across the business with capital expenditures through June 30th this year coming in at $7.5 million. For the Rubber Solutions segment, areas of investments include new mixing lines in Kitchener, Ontario, and Scotland Neck, North Carolina, that in addition to increasing annual capacity by £20 million and £50 million, respectively, will support production of a broader array of compounded products, white in color, for example on our new specialty line Kitchener, as well as enhance flexibility in growing our market share in key U.S.

markets. In Kitchener, we are also just finishing upgrading our building with a new state-of-the-art laboratory facility to support enhance collaboration with customers, and better reflect AirBoss's ongoing focus on innovation and proprietary technical solutions that we believe are key to our continued growth.

In the Engineered Products segment, we're piloting new injection molding presses for the Anti-Vibration business that are expected to support reduce cycle times and lower labor costs, which should help improve margins. Additionally, we have designed and ordered our first robotic work saw that will allow us to significantly improve throughput and reduce labor costs while we bid on new contracts.

More broadly, we are also investing in developing new anti-noise, vibration and harshness products in segments outside of the automotive space. While we continue to prepare for the launch of the next generation low burden mask, which is already in production for the Canadian and Australian Defense Forces.

Turning to specifics on the Anti-Vibration business, we continue to see some contraction in financial performance and are working to address key challenges head on. A near term focus remains on driving margins through better cost management and improved pricing strategies.

This includes a more proactive approach in dealing with market variables, such as commodity price fluctuations and tariffs. In addition, the recently strengthened sales and marketing team is working to both increase penetration with existing customers, as well as target new ones, including major automakers, and tier 1 in 2 parts suppliers.

Over the medium and longer term, the team is focused on launching new products that diversify initially into opportunities adjacent to the automotive space, which could include trucking, buses, construction, motorcycles, and ATVs the name a few but increasingly across a range of sectors where anti-noise, vibration harshness solutions are required, including renewable energy, marine, rail and appliances. We remain in the relatively early stages of identifying and exploring opportunities in a range of adjacent sectors and expect this will be an ongoing process.

But we believe strongly that diversifying our products across a wide variety of segments is key for future growth. As a preliminary step, we have created a dedicated new non-automotive products team, which is comprised of sales and engineering talent from North America and Europe, with extensive experience in NVH products across a wide variety of segments.

As Gren mentioned, we have made significant changes to the operational management teams across the organization and Anti-Vibration business was no exception. We have significantly strengthened our teams in each of our businesses in order to focus on innovation, growth and margin improvement.

The last quarter's call we spoke at length about the transaction to create AirBoss Defense Group. So, I won't spend a lot of time here in our prepared remarks.

All we believe there are a number of synergies inherent in the transaction. The most important will be the creation of a strong platform with a scale capabilities and flexibility to act on a ray of future growth opportunities, both organic and transactional.

In the near term, we continue to identify and submit attenders around the world similar in nature to those we successfully closed in 2018. As many of you know, these types of contracts have longer sales cycles, but also support commensurately large awards in dollar terms once awarded.

With respect to the transaction itself, we're awaiting the approval of recipients, which we currently expect in the fourth quarter of this year. In closing, I would like to remind listeners that as a management team, we remain clearly focused on four key priorities.

Growing the Rubber Solutions segment and positioning it as a supplier of choice and the consolidated North American market, completing the AVG transaction and then leveraging the new entities enhanced scale and capabilities to pursue an array of growth and value creation opportunities in the broader defense sector. Driving improved performance from the Anti-Vibration business through a combination of efficiency improvement, buying relationship and expansion, new product development and sector diversification.

And finally, we continue to take a disciplined approach to the targeting of acquisition opportunities across the business with a focus on strategic fit. We feel each of these initiatives will be important contributors to improved financial performance and growth as a business over both the mid and longer term.

With that, I will now pass the call over to Daniel for the Financial Review. Daniel?

Thank you, Chris. And good morning everyone.

As a reminder, please note all dollar amount presented are in U.S. currency for dividend per share which are in CAD dollar.

As Chris mentioned, we continued South performance from the Rubber Solutions segment, partially offset by lower net sales in the Engineered Products segment. And that was primarily in the Anti-Vibration business.

On a consolidated basis, net sales for the three- and six-month period ended June 30, 2019 increased by 1% to $82.6 million, and by 1.8% to $165.2 million, respectively compared to the same period last year. In the second quarter consolidated gross profit increased slightly to $4.5 million compared with the same period in 2018, with increases at Rubber Solutions being offset by decreases in the Engineering Product segments.

In the Engineering Product segment, gross profit in defense business was broadly similar to last year, while down in the Anti-Vibration business. Overall, gross profit margin for the quarter was consistent with last year at 15 [ph].

For the year-to-date period, consolidated gross profit decreased slightly $24.9 million compared with the same period in 2018. In the Engineered Products segment, increased gross profit in defense business was more than offset by decrease gross profit in the Anti-Vibration business.

Gross profit margin decreased slightly for the first six months of 2019 to 15.1% from 15.5% in the prior year period. Consolidated EBITDA improved by 32.3% to $9.4 million in the second quarter, and 18.2% to $17.3 million in the first half of this year.

As a result of solid performance at Rubber Solutions and some realized operational efficiencies. A portion of the increase was also due to the settlement of the insurance claim of $1.2 million recovering costs incurred as a result of a fire in our Scotland Neck, North Carolina facility, that occurred in Q1 2019.

Kudos to our team, that works so diligently to minimize the interruption to the business and our clients. And we are pleased to have the facility back functioning normally after just five weeks.

Net income total 3.3 million for the quarter compared with 2.7 million for the comparable three-month period in 2018. The basic and fully diluted net earnings per share in the quarter were $0.14, up from $0.11 a year ago.

Adjusting for the insurance claim benefit in the quarter, EPS would have been $0.12 versus $0.11 last year. Net income totaled 6.2 million for the year-to-date period, compared to $5.9 million for the comparable period in 2018.

The basic and fully diluted net earnings per share in the six-month period were $0.27, versus $0.25 last year. Now turning briefly to the segmented data, net sales in Rubber Solutions segment for the second quarter increased by 6.2% from the comparable period in 2018.

The increase in net sales was principally due to a 10.9% increase in volume that, Chris mentioned earlier. The growth in net sales was supported by many of the sectors we serve, but primarily in the off the road, tolling and defense sectors.

These increases were partly offset by softness in the chemical and track sector. Net sales in Rubber Solutions segments for the six-month period ended June 30, 2019 increased by 7.3% from the comparable period in 2018.

The increase in net sales was principally the result of a 9% increase in volume supported by many of the sectors we serve, but primarily in conveyor belt off the road, tolling and defense sectors. These decreases were partly offset by softness in the chemical sector.

Gross profit at Rubber Solutions for the three-month period, ended June 30, increased by 23.1% to $7.1 million, up from $5.8 million in the comparable period in 2018. Gross profit for the six-month period ended June 30, 2019 increased by 24.4% to $13.9 million, up from 11.2 million in a comparable period in 2018.

For both periods ended June 30, 2019. These increases were principally due to higher volumes, as we just discussed, and lower conversion costs related to labor.

For the three- and six-month period ended June 30, 2019, net sales in the Anti-Vibration business within Engineered Products segment continued net sales in vibration business within Engineered Products, segments decreased by 3.7% and 5.5% respectively, from the comparable period in 2018. For both periods ended June 30, 2019, the decreases occurred across most product lines, and in particular bushings and dampers that were partly offset by increased demand in the grommet’s product line.

In the second quarter, net sales in defense business within the Engineered Products segment decreased by 1.8% from last year. The decrease was seen in the shelters, filters and mask product lines, and was partly offset by an increase in the boots and gloves product line.

These changes were largely due to the timing of contract awards and delivery schedules, which shifted into the second half of the 2019 calendar year. For the six months period ended June 30, 2019, net sales in defense business increased by 5.7% versus a competitive period last year.

The increase was in the booth and gloves product lines and partly offset by lower demand and filters and shelters. Gross profits in the Engineered Products segments for the second quarter was 5.4 million, down 1.3 million from 6.7 million in the comparable period last year.

The decrease in gross profit and gross profit as a percentage of net sales were principally due to lower net sales and the Anti-Vibration business. Despite the decrease in net sales in defense business, gross profit was relatively similar to a comparable period of 2018 and that was due to a favorable product mix.

The gross profit in Engineered Products for the sixth -- for year-to-date period was 11 million, down 2.9 million from 13.9 million last year. A decrease in gross profit and gross profit ppercentage of net sales were principally due to lower net sales in the Anti-Vibration business and that was partly offset by higher gross profits in the defense business as a result of increased net sales, and a favorable product mix.

As Chris mentioned earlier, we continue to invest in a range of initiatives to help support the long-term growth and performance of the business with an investment of $7.5 million in CapEx. We expect to continue to invest in the business in the second half of the year and to reach a range of $18 million to $20 million for the 12-month calendar period ending in 2019.

CapEx for 2020 is expected to be closer to depreciation level. Turning to the balance sheet, cash balances were reduced in the quarter in part as we invested in property, plants and equipment and pay down debt.

Our operating revolving loan facility provides financing up to $60 million and remain undrawn at June 30, 2019. We remain in good financial health with a net debt to trailing 12-months of EBITDA sitting at two times at the end of the second quarter.

Operator that concludes our prepared remarks this morning. We would not like to open the call to questions.

Thanks. Good morning.

So, first I just want to ask on the defense business. I guess the revenue was a bit weaker this quarter.

Maybe could you just -- I know you had mentioned some items in the prepared or in the release, but just wondering if you could just comment on the lower revenue this quarter?

Yes, this is Daniel. The drop, as we mentioned is really timing of when orders come in last year, you'll recall, we were finishing off a big contract with the filters.

So, this year in the second quarter, it was just the timing of when orders would come, or appeals are coming in for deliveries. And as we mentioned, we do expect to see this pick-up in the second half of the year, mostly in the fourth quarter actually.

So, again, it's not turning cycle, turning down in defense, there is a lot of activity, a lot of business will be awards we won. And it's really just a question of time.

Okay, and then I guess, kind of on the same, on the defense business, with the transaction with CFI. Are you working collaboratively now with CFI on the defense in terms of new business, trying to win new business or what maybe could you give us an update on that front?

Yeah, Nav, now this is Chris, yeah for sure we have a fully integrated the management team of CSI into what we’re doing at AirBoss. So any new opportunities we’re working with them and because they are quite strong on the sales and marketing side of things, we’ve already seen significant benefits and how we approach new tenders, the type of lobbies that they work with, and the opportunities that we’re addressing are significant in scale and it’s starting to job quite nicely, the two teams together.

Although this transaction hasn’t closed, we are operating in a degree their teams with our team as we go forward on new contracts.

Okay, great. And then maybe just lastly workout on the Anti-Vibration business, I know there’s a lot of initiatives that you are pursuing, is there any sort of a way you can kind of give us a sense of timing when you would start to see some of the initiatives, really start to impact financial performance?

Yeah, I think, many of the initiatives have already started to improve financial performance in one perspective but a lot of those improvements are getting washed away with the sales drop that we saw. So, we continue to focus on kind of three categories of improvement, commercial, operational improvements and focusing on growth for the top line.

And all three of those have ongoing action plans that are being worked on daily and being completed. So, we see some good opportunities for the future, and we expect things to get better in the ongoing quarters.

Okay, great. Thanks very much.

Hi. Thanks.

Good morning. Just on the Anti-Vibration business, Nav kind of asked the question on the timing, but what is the basic issue with the business that sales growth and I don’t know there’s new product development has been slow than expected.

This is kind of been going on for a couple of years now.

I think it’s a, it’s a highly connected problem. There’s not one sort of root cause we're talking of those but, in the automotive space, as new contracts come in and replace old contracts, there is a continued pressure on pricing in order to be awarded those new contracts.

And if you are continuing to hit market prices, without making the commensurate improvements in operational efficiencies, you tend to take that out of margin, and it also shows on the top and the bottom line. So, what we’re doing now is as we are creating these operational improvements, we are bidding new contracts based on those improvements.

We announced earlier that we are replacing many of the older presses and machines that we have, some of the new presses and machines we have are showing significant improvements in operational efficiency. The new robotics works that we’re bringing in has taken sort of a whole other level of where we can "hit market prices" and still retain some acceptable margin for ourselves.

So, as we continue to have good relationships with our customers, instead of taking those new awards that come in out of our margin, we’re building up the operational improvement such that we can hit those prices and still make some margins. So that’s kind of the reason why we’ve seen this decline over the past year or two.

Additionally, we’ve obviously had some significant issues with tariffs and raw material increases that have also affected the bottom line and we are also from commercial strategy standpoint working on product customers to be able to pass the -

So, how do these, how do these improvements coincide with the timing of the refresh or replacement model cycle?

The model cycle is a little bit longer in automotive than in other industry, it’s normally a four to five years cycle and so right now we are bidding on new work that will starting in next few years. but much of the work that we bid on the past prior years, we’ll now be able to launch under the new technology so the margins that you would expect from the new work will actually appear versus wondering kind of where the margin is going.

So, the operational improvements will have both near term and long-term effects on the bottom line and as we focused on growth in the non-auto market there will be opportunities to grow the top line in a much shorter sales cycle. And also, in a margin level that's been less commodities.

So, we think that those plans altogether will start to continue to create the improvements that we're looking for.

So, does that mean that in the near-term, we may not see the revenue improvements, but we'll see profitability improvements -- margin improvements?

The revenue improvements always take a little bit longer, the profitability improvements will show up earlier. But of course, as the sales drop a little bit, you see that negative pressure and the profitability improvements are not as obvious.

But we are also taking steps to reduce our breakeven points. And recently, just last month, we consolidated our two -- our three factories in Detroit into two factories, and that's allowed us to reduce our breakeven point, we are constantly looking at other opportunities to reduce that breakeven point.

So that any reduction in sales doesn't have the impact to the bottom-line is currently having.

And I would add to Chris's comments that, with our strategy of leading out the organization that more operationally efficient. When the revenues do come in being lean.

We expect, we would expect it see the margins will improve even further with the project.

Great, thanks. That's very helpful.

Good morning. My first question is on the Rubber Solutions segment.

I think, it's encouraging to see that the volumes in terms of pound shipped both on tolling and on tolling business are picking up consistently. And I wanted to ask sort of on a bigger picture.

How sensitive is that trend to any potential for macro slowdown or as far as a recession going forward?

Well, Ben as you know, we are well diversified across a variety of different segments and sectors. And I think that protects us quite a bit from individual segments that may run into some trouble.

And so, I think, we're kind of saved from that perspective. Also, from a competitive standpoint, as you can see, we're outpacing market growth and we're providing solutions to our customers that many of our competitors aren't necessarily focusing on.

Our commitment to quality and delivery and service and technology and innovation allows customers that come to us over our competitors to help strengthen us a time when maybe the overall market, maybe softening a little bit. So, we're pretty comfortable with the space that we have, we're proving that we can compete with our competitors and outpaced them in terms of growth.

And so that along with the way we're diversified across many sectors, I think protects us more than the last.

Okay. And my next question is if you could just remind us on where do you stand with regards to capacity expansion in Scotland Neck and Kitchener?

And where I think the color Rubber, I think that's going to come out of Kitchener, but if you can just provide us with an update on that and how to think of the contribution for the remainder of this year and next year?

So, the colored Rubber line was launched last month. It's -- we're very pleased with the deletion and the startup.

And as of this week, we've already started accepting purchase orders. We have new customers coming in, that are there helping us fill that capacity.

And as you recall from last year, we wanted to focus on having an asset that would allow us to compete in this sort of specialty sector that we didn't have before. And we're very pleased with the amount of traction that we're getting.

We've targeted quite a few new customers for that line and already we're receiving purchase orders and starting shipments towards the end of this month. And now it's going to take us a little bit of time to fill that line.

But we are encouraged with the level of traction that we're seeing already. In terms of the Scotland Neck facility, we have now installed the second compounding line, it is up and running and we are also aggressively going after the customers in that region and across the United States to fill that capacity and we are already seeing new awards coming in.

So, we are happy with the capacity we've installed. It's going to take a little bit of time to fill it.

But so far, we are seeing good results.

So, the incremental capacity in both centers has already been, is already in place.

Just as we speak, yes. The color mix just came online a few weeks ago, and the Black mixer in Scotland Neck just came up last week.

Okay, and it's installed?

Installed in the capacity, it's available.

Perfect. Thank you so much.

Good morning.

Good morning

And can you guys tell me what the factor fact of IFRS 16 was on the reported EBITDA number?

Yeah, Maggie. So, if you look on a quarter-to-date, the depreciation and interest impact would be about well the depreciation would be about $720,000 to $900,000 would be the impact to EBITDA compared to last year.

Okay. And then with regards to your outlook for the defense business.

You mentioned that you would expect, I think orders or shipments to pick up in the second half of this year and that the Q2 softness is largely timing related. Outside of that dynamic, can you comment on the broader environment for defense spending and any new developments you may have seen with regards to demand for your product and also, under your new Airbus Defense Divisions products as well.

Maggie, we have the largest defense budgets that we've seen in years. And I think, ever.

And the forecast for next year is another big defense budget. We had record orders last year, as we announced, and in the pipeline or [indiscernible].

We are tendering on more business than we were awarded last year. So, there are some very large international and domestic contracts out for - at the request for proposal stage right now.

So, as you know, it takes a little while to get this. And takes even longer to get the order.

But the future looks better than it has a long time.

Okay, great thanks. And then just one further question, you talked about for a while diversifying the Anti-Vibration business into a number of other end markets.

And it strikes me as so that might be a nice solution to some of the pressures, Chris that you were discussing around the automotive market. And so, I'm wondering how you are going about tackling new markets, and then whether or not that might require some M&A in order to sort of get across the line.

Yeah. Thanks for the question Maggie.

We have for the first time, created a dedicated sales and engineering team that is focused on this non-automotive market for Anti-Vibration. And we've hired people with extensive experience, particularly in the construction and in truck market, heavy truck market that we don't really participate in right now.

And so, this team is now focused on all these different areas to try and grow and expand. We have already been awarded one non-automotive contract which will launch in July of next year.

We are in late development on a military application for a rubber to molded product that we expect to see some good news on that in in early 2020. And as we have now been going to many segments with our capabilities, we have also made a small acquisition of equipment in a technology that we didn't have before, that allows us to go after some of these more delicate markets.

And so, from a technical standpoint, and from a sales standpoint, we are now presenting the right product line for these non-auto customers, we're seeing good traction, there is room in that space. And we are also looking at bolt-on acquisitions that can jump start our non-auto segment on the Anti-Vibration.

And so, we're hoping that organically this team starts to do what we expect them to do. And we continue to look at acquisitions that can help bolster that and give us a head start on that.

Our goal being that we will be able to diversify and have -- and not just be an automotive focused Anti-Vibration unit. And so far, we're pretty optimistic will make that happen.

Thanks a lot.

Yeah, just to add, Maggie, I don't know if you've noticed it or not. But we put up a new investor presentation this morning on our website.

And I think there's a little bit in there on some of the non-automotive private markets.

Okay, thanks, Gren. I will take a look at that.

And Maggie, on your question on IFRS, if you would remember I was quoting was an EBITDA impact on net income impacted and [indiscernible] under 100 grams, that helps.

Okay, thank you very much, gentlemen.

Thank you, operator. And thank you to everyone for attending this morning's call.

We remain excited for the longer-term prospects for AirBoss and we feel we have taken real strides in transforming the business and positioning for long-term growth. That said, there is still work to do and we expect that our efforts on a number of fronts will continue through the balance of the year and beyond.

We look forward to updating you all on our progress, on our Q3 call in November. Thank you.

Have a great day.