Gren Schoch - Chief Executive Officer Chris Bitsakakis - Chief Operating Officer, President Daniel Gagnon - Chief Financial Officer Patrick Callahan - Chief Executive Officer, Airboss Defense Group Chris Figel - Executive Vice President, General Counsel

Thank you, Operator. Good morning, everybody, and thank you for joining us for the AirBoss, Q1 conference call.

My name is Gren Schoch, and I’m the Chairman and CEO of AirBoss. As the operator mentioned, Chris Bitsakakis, President and COO; Daniel Gagnon, our CFO; Chris Figel, our Executive VP and General Counsel and Patrick Callahan, CEO of Airboss Defense Group are on the line with me.

In terms of an agenda, we’ll take a few minutes to review some operational highlights of the quarter and briefly review our financial results before opening the call to questions. Before we begin, I’d like to remind you that today’s remarks, including management’s outlook for 2020 and beyond, anticipated financial and operating results, our plans and objectives, and our answers to your questions may contain forward-looking information within the meaning of applicable securities laws.

This forward-looking information represents our expectations as of today and accordingly is subject to change. Such information is based on current assumptions that may not materialize and is 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.

Without further ado, I will turn this call over to Chris Bitsakakis, President for the operational review.

Thank you, Gren, and good morning everyone. Before turning to the operational review, I want to take a moment to recognize the tremendous impact the COVID-19 pandemic is having on businesses, communities, families and citizens around the world.

We know this is a difficult time for many of you and the thoughts of the AirBoss family are with all those affected by this global tragedy. AirBoss has been fortunate to have much of its operations designated essential, with a number of our products deemed lifesaving.

I want to acknowledge the sacrifices and efforts of our employees, many of whom have continued to perform their duties under modified conditions with the added professional and personal stress associated with this pandemic. We are committed to doing all we can to keep our employees safe during this difficult time and we continue to review and refine our operating policies in accordance with the latest medical guidance.

Finally, I want to express our gratitude to all of those who are in the front lines to this battle, those providing essential services and those looking to find solutions that will ultimately allow the world to move safety towards a recovery. Thank you.

Moving on to our results, the first quarter of 2020 got off to a strong start as we closed the transaction that merged Critical Solutions International Inc with AirBoss’s Defense business, creating the AirBoss Defense Group. The rationale behind forming ADG was to assemble and enhance survivability platform able to more effectively market and enhance portfolio products around the world.

At the end of the quarter we received a U.S. dollar $96.4 million contract from FEMA in the U.S.

to supply 100,000 PAPRs, along with 600,000 filters and related accessories. This contract awards highlighted the increased strength of ADG as our newly assembled team was able to act on a rapidly emerging opportunity to help fight the ongoing battle against COVID-19 by providing first responders and medical personnel with lifesaving personal protective equipment.

We began delivering against the FEMA order early in the second quarter, probably shipping the PAPR units we had in inventory. As part of our company-wide continuity planning for COVID-19, our supply chain team went out to existing key suppliers, while also identifying surge capacity availability when it became clear that the pandemic had the potential to interrupt existing supply chain.

On that basis, our newly expanded supply chain is working closely with us to help accelerate production that make the shipments necessary to deliver on this large contract on a relatively short period of time. The schedule envisions an exponential ramp in delivery as we move through the second quarter.

Production volumes continue to grow and we expect shipments to accelerate accordingly through June. Successful delivery against this contract is expected to offer a financial offset to any potential COVID-19 related weakness we could see in our other business units during the second quarter.

While an element of ADG’s go forward strategy was to improve its penetration of the first responder market in particular, we believe that governments, healthcare providers and first responder groups will face increased scrutiny around their emergency preparedness measures as a direct result of the COVID-19 pandemic. The specter of a second wave of COVID-19 cases globally, as well as the potential for future unrelated outbreaks are expected to help drive increased levels of preparation and stock piling of key supplies at the local, regional and national level.

The first responder market has historically been characterized by a significant fragmentation among services and complex distributor relationships. Going forward, we expect this modeled to fundamentally change and be replaced by a more unified and streamlined approach aimed at reducing complexity, shortening acquisition timelines, and building strategic stockpiles.

In the face of this changing environment, ADG intends to modify its business development approach to focus on developing relationships with key decision makers at successfully higher levels within both first responders and government networks. Beyond the significant and emerging potential and emergency preparedness, there remain meaningful opportunities in the broader defense arena where AirBoss has played historically.

ADG continues to bid on hundreds of millions of dollars in tenders globally, with a focus on our Chem/Bio or CBRN gloves and boots, as well as our new low-burden masks. ADG is also working to advance new products into commercialization.

As an example, exposure to blast overpressure is increasingly being recognized as a contributor to brain injury and PTSD and driving hundreds of millions of dollars in treatment costs, as well as raising significant quality of life concerns for veterans. Blast Gauge® is a wearable sensor that measures exposure to blast overpressure and uploads data to a soldier’s medical file for assessment by staff physicians.

Blast Gauge is currently in the midst of a multi-year trail with the U.S. military and we believe there is strong political will to find a solution to monitor and manage potential traumatic brain injury among soldiers.

Over the last couple of years, Congress has used Federal Laws to direct the Secretary of Defense to among other items conduct a medical study on Blast Overpressure Exposure during both combat and training exercises, establish limitations on heavy weapons fire exposure during training, document blast exposure history and service member medical history to determine if future illness or injury is service connected and informed on blast exposure risk mitigation efforts. Widespread rollout of Blast Gauge could translate into a significant source of recurring revenue for ADG.

ADG has also recently announced an award to the Netherlands Defense Meteriel Organisation for 500 Bandolier Multipurpose Lightweight Clearing Charge Systems and related training and support. This modular product is lighter and more flexible than previous solutions and is versatile enough to be used in a variety of battlefield breaching and clearing scenarios, including clearing a path through minefields further promoting ADG as a key player in certain soldier survivability.

The Netherlands is the first NATO country to purchase the Bandolier System and this contract establishes a model that the 30 NATO members could use to acquire their own systems. Turning now to our Engineered Product Segment, in late March we saw a number of OEMs as well as Tier I parts suppliers move to shutter production in an effort to protect their employees and stakeholders in the face of a rapid initial spread of COVID-19.

In parallel, we likewise made the decision to close our Auburn Hill facility and took immediate steps to manage our variable costs, laying off hourly employees and shortening work hours for salaried staff. In spite of the closures, we immediately began working to mitigate the impact, accelerating our strategy to begin producing certain molded defense products at the facility.

That has in turn supported a return to work for some staff and will help utilize unused manufacturing capacity until our NVH business is fully up and running again. While in the immediate near term this will support ongoing deliveries against the MALO boot contract we won last year, it could also support production and delivery against future contracts for a range of molded rubber defense products, including our low-burden masks.

We're also in the process of setting up a production line to increase production of PAPRs as we continue to deliver on the FEMA order. These initiatives would run alongside our ongoing efforts to transition the Engineered Products business towards higher value, more technically sophisticated solution and diversify into sectors adjacent to the automotive space.

Finally, we are pushing ahead with the installation of the new robotic work zone in Auburn Hills. This was an important part of our investment and innovation and advance manufacturing in 2019 and is designed to support further improvements in labor allocation and margins.

This equipment has been tested and approved in Germany and will be shipped and reassembled in Auburn Hills in the second half of the year. Turning to Rubber Solutions, in response to the COVID-19 pandemic, we did see some customers particularly in the tire space, electric to close their operations.

We did not see a significant impact from these closures in Q1, given they fell near the end of the first quarter, and actually saw volumes grow compared to Q1 of 2019. We worked to rapidly obtain essential status for many of our facilities in both Canada and the U.S.

and they have continued to operate. Although the Rubber Solutions business remains open and operational with appropriate social distancing and hygiene measures in place, it did begin to experience a decline in volumes in early April.

The decline extended into the first part of May and we expect continued weakness throughout the month, even as many of the tire company have announced plans, for their plants to reopen towards the end of May. Over the last few years, we have worked to diversify the range of sectors the Rubber Solutions business services in an effort to manage any volatility in the business, especially that brought on by shifting macro-economic conditions.

We believe this is helping curve some of the volume reductions we have seen recently as the world deals with COVID-19. Again, our longer term plan for the business remains unchanged, and we are focused on leveraging the investments we made in innovation, capacity and product diversification in 2019.

This includes using our new R&D tech center to develop higher value added specialty compounds, as well as producing new white and colored compounds for both existing and new customers. Despite the challenges we are also facing with the COVID-19 pandemic, we believe AirBoss is uniquely qualified, especially as the world continues to battle the spread of the virus and ultimately looks to recover.

We expect that broader emergency preparedness will be key consideration for all levels of government moving forward, and that ADG can help organizations both domestically and internationally address those challenges. In addition, we remain optimistic that as a recovery take shape and businesses restart and ramp up, that the strategies in place for our Rubber Solutions and Engineered Products businesses will be important contributors to long term value creation.

Until that happens, we continue to manage through this period of uncertainty, taking what steps we needed necessary to both protect the health of the business and its longer term potential. As we saw during the heart of the financial crisis in 2008, organizations with weak balance sheets emerged as possible acquisition targets.

We believe that our strong balance sheet and our access to capital, puts us in an excellent position to act on possible transaction, and we are carefully watching for opportunities that would allow us to support Engineered Products Sector Diversification Strategy, drive Rubber Solutions growth in both traditional and specialty compounding and bolt-on new survivability solutions at ADG that protects soldiers, first responders and medical personnel from a broader range of threats. 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 amounts presented are in U.S.

currency except for dividends per share, which are in Canadian dollars. Our Q1 results reflect the addition of CSI for the full quarter, which helps support our solid performance this quarter.

On a consolidated basis, net sales increased by 14.1% to $94.2 million in the first quarter. This was largely due to the closing of the ADG transaction and the addition of revenue from some of CSI's legacy products.

The improvement was partially offset by some softness in the Rubber Solutions and Engineered Products segments. Recall that closing Auburn Hills temporarily generates an impact of $2.5 million per week on net sales, which translated to approximately $3.5 million for the quarter.

Consolidated gross profit dollars grew by 49% in the quarter, compared with the same period in 2019, with the improvement driven by all three segments and ADG having the greatest impact. Gross profit margin improved from 15% last year to 19.6% this year.

Consolidated adjusted EBITDA, which removes the impact of fees associated with the completion of the ADG transaction, improved by 14.3% to $9.7 million in the first quarter and that was up from $8.5 million a year ago. The improvement was a result of solid performance at rubber [ph] solutions, some realized operational efficiencies and of course the growth in the defense business.

Loss attributable to owners of the company was $520,000 [ph] in the first quarter or a $0.02 loss per share. Adjusted profit attributable to owners of the company was $1.8 million or $0.08 per share, once removing the one-time impact of the fees associated with the ADG transaction.

As discussed in our Q4 call, basic and fully diluted earnings per share dropped as a result of increased income tax expense due to the non-deductibility of those transaction related professional fees, as well as the allocation of the 45% ownership interest to the minority holders of ADG, but more on that in a moment. This also explains the effective tax rate going to 61% in the first quarter.

For modeling purposes, we expect the rate going forward to be approximately 30%. But that will be subject to the profitability of certain segments and a jurisdiction in which they operate.

Turning briefly to segmented data, first quarter net sales in the Rubber Solutions segment decreased by 4.8% from the comparable periods in 2019. The decrease in net sales was driven primarily by the conveyor belt sector, but partially offset by the mining sector.

Overall volumes, which is measured in pounds shipped were 7.8% higher, driven by a 21.4% increase in tolling volume, despite the impact of the COVID-19 pandemic, which negatively impacted tolling orders at the end of the month of March. An increase in conventional tolling was partly offset by softness in niche applications, and non-tolling volumes for the three month period ended March 31, 2020 also increased by 3% compared to the same period in 2019.

As a reminder, in tolling applications, we only realize net sales on the provision of compounding services for customer supplied material versus non-tolling where AirBoss also supplies the raw material inputs that are reflected in the net sales. As such, net sales in isolation may not provide a complete picture of what's happening in the business.

Despite the decrease in net sales I mentioned a moment ago, gross profit dollars in Rubber Solutions for the first quarter increased by 6.6% and was 17.2% of net sales and that's versus 15.4% of net sales in 2019. This increase was principally due to the higher volumes.

Turning now to Engineered Products, which is now solely comprised of our anti vibration business under the new reporting segments disclosed, which I will discuss in more detail at the end of my financial review. Net sales in the Engineered Products segment for the three month period ended March 31, 2020 decreased by 3.1% from the comparable period in 2019.

The decrease was seen across several product lines, but was also the result of the approximately $3.5 million loss in net sales following the partial shutdown of Auburn Hills, Michigan plant on March 19, 2020 as a result of the COVID-19 pandemic. Despite the decrease in net sales in Q1, gross profit in the Engineered Products segment was $1.9 million or 6.4% of net sales, up from $1.5 million or 4.7% of net sales in the comparable period last year.

The improvement was a result of lower freight costs and continuous improvement initiatives focused on labor and overhead costs. Turning now to a newly created AirBoss Defense Group, net sales in the first quarter increased by 66.9% to $35.1 million from $21 million in the comparable period in 2019.

The increase was primarily a result of equipment sales from CSI that were not included in 2019 as the ADG transaction had not yet occurred. These included sales of ground penetrating radars for CSI's Husky route clearance vehicle, Bandoliers Lightweight Clearing Charge Systems and Blast Gauge Systems currently being trialed with the U.S.

Military. In addition, net sales in the legacy AirBoss defense business were also up.

Gross profit at ADG in the first quarter was up 97.2% to $10.7 million or 30.4% of net sales from $5.3 million or 25.7% of net sales in the comparable period in 2019. These increases were due to the reasons just discussed.

In previous calls we have talked about CapEx spend for 2020 returning to historical depreciation levels of approximately $15 million. Taking into account the account the continued uncertainty relating to the COVID-19 pandemic, we are moving ahead cautiously.

We are currently focused on spending requirements for projects with near term potential growth, as well as regular maintenance where safety is a key consideration. Our balance sheet remains strong at the end of the first quarter.

Our net debt to trailing 12 month EBITDA was dropped from 1.85x at the end of the fourth quarter in 2019 to 1.5x at the end of March 2020 and our $60 million in credit facilities remain undrawn at the end of the first quarter. Free cash flow grew by $16.1 million to $10.6 million or $0.45 per share and we expect to fund our 2020 operating cash requirements, including working capital investments, capital expenditure and scheduled debt repayments from cash-on-hand, cash-from-operations and our committed borrowing facilities.

We believe our strong balance sheet will help us navigate the challenges associated with the COVID-19 pandemic CSI emerged well positioned to execute on our growth strategy as operating conditions begin to normalize. Before opening up the call to questions, I will briefly remind everyone of the changes we are reflecting in our Q1 reporting and going forward.

Following closing of the transaction to ADG on January 1, we now report three separate segments: First, Rubber Solutions. It will still be shown separately, but the Rubber Compounding or Industrial Business in Acton Vale will now be presented within the newly created ADG segment.

Also included in the ADG segment is our defense business, along with that of Critical Solutions International. Engineered Products consists of our traditional anti-noise vibration and harshness business.

We have reported our 2020 data and you'll find included restated data for 2019 and 2018 in our MD&A for comparison purposes. I would remind listeners that because we have a 55% ownership interest in ADG, that in this quarter and going forward items below the line such as profit and adjustable profit attributable to the owners of the company will reflect the allocation of the 45% minority interest to the other owners of ADG and that AirBoss of America’s bottom line will be impacted accordingly, reflecting only our 55% ownership in the ADG segment.

Operator, that concludes our prepared remarks this morning. I would now like to turn it back to Gren.

Gren.

Well, thank you Daniel. So in summary, we had a good quarter.

We were on track for a great quarter until COVID hit mid-March. We remain very optimistic that our defense group is on a strong trajectory to significantly perform based on a strong backlog and a very large pipeline for future growth opportunities.

Obviously, our outlook for rubber and rubber products remains cloudy; however, we are starting to see some green shoots as customers in various industries begin to reopen. So, with that I will turn it over to the operator for questions.

Thanks, good morning everyone.

Good morning.

My first question is on the PAPR contract here. I am just trying to get a sense on how many units have been delivered, since it seems like the name of the game is execution with FEMA recently canceling a $55 million N95 mask order with another vendor here.

Chris or Patrick, do you want to take that?

Yeah, I’ll take it. This is Chris, hi David.

We are executing quite nicely on the contract, on the FEMA contract. We're currently running about 500 units a day.

We're accelerating to about a 1,000 units a day next week and we have a ramp-up, the chart that gets us to about 11,000 units a week as we're midway through the second quarter and towards the end of the second quarter. So we're executing well.

Our relationship with FEMA is very good. We are in constant communication with them.

We are delivering this product to hospitals and first responders all over the United States and the feedback we're getting from FEMA is quite positive. So we are on track and we're not too concerned about that particular issue that you mentioned.

Okay, and sort of on your other products, has there been any notable sales for say PPE, tents or ISO-PODs since the pandemic started?

Well, we’ve added about $9 million I think in the last six weeks or so of other orders. No other order of the size of the $96 million one; however, we have possibilities of a lot more business coming from all of the world.

Okay, and sort of how you think about your other defense sales. You guys had a number of tenders outstanding.

Have those conversations stalled or are they still sort of ongoing with respect to pandemic?

Well, they're all over the place depending on which contract you’re talking about. So some have slowed down dramatically as people focus on the current pandemic, but some of the big ones are slightly delayed, but we're told that they are still going to be awarded a pretty close to the original timeline, maybe a month or two delay.

Okay, that's it for me. I’ll hand the call over.

Thanks, good morning. I was wondering if you could elaborate on the comments that you made in your prepared statements around acquisition opportunities, in particular areas where you are seeing some opportunity emerge and then exactly what it is you would be interested in acquiring.

You did mention product and so on in certain segments, but a bit more detail would be helpful. Thanks.

Chris, do you want to take that?

Yep, I got that. Thanks Gren.

Yeah, thanks for the question Maggie. Our strategy on the acquisition side, as we’re looking at the three businesses, you know we have a Strategy and Engineered Products group to diversify our product lines to over the next five years be no more than 50% automotive and have 50% non-automotive.

So we are looking for acquisition opportunities for the Engineered Product side, which are related to non-automotive rubber molding or similar type processes that we can accommodate as flexible product. So that's kind of where we're focusing our attention on for Engineered Products.

On the Rubber Solution side, we are looking for specialty compounders that are good bolt-on opportunities for Rubber Solutions to continue our growth on the specialty side and we have already had several discussions with people before the pandemic started and we're continuing on with those conversations. And then on the AirBoss Defense Group side, we are focusing our strategy again on both military growth and first responder non-military healthcare and that sort of thing, and so we're looking for companies there that would be additional bolt-on opportunities that would allow us to continue to expand on the first responder market and other related product lines that sit well into the survivability platform that we’ve developed.

So all three of the businesses, we have keen opportunity. We are starting to see even more opportunities now as companies start to think about their future, particularly private companies that were considering what they should do, and we're in constant conversations with them.

So I can't say that anything is imminent, but we are advancing several opportunities forward as we go forward here. Now I expect over the next few months for that to really accelerate.

Okay, thanks. Perhaps a follow-up question for Daniel.

I was wondering if you could tell us what the organic growth in the defense segment was on a year-over-year basis.

Yeah, they grew about $3 million over last year.

Okay, perfect. Thanks.

And then one final question for me, the arrangement with DSI, I understand you have a right of first refusal on acquiring the remaining portion of the AirBoss Defense Group that you do not own currently. Could you provide us with some details in terms of the timeline of when you know the minority shareholder may look to exit that position, and whether or not there's a formula in place around valuation if you were to look at buying that stake or if another person was to look at buying that stake.

Thanks.

So, the timeline is -- there's a three year no-sell agreement. Obviously they could sell before that with our permission, but without our permission there's a three year no-sell.

The first right of refusal is ours. If we were going to do that, obviously we would have to match another bid if there was a bid, another bid for it, but if there wasn't, the agreement is that we have picked an evaluator and we would go with the evaluation.

Okay, perfect! Thanks.

I'll get back in the queue.

Thanks and good morning. So just a question on ADG.

The transition to the first responder market, I assume it requires developing more and deeper relationships with new agencies and influencers. Will this transition result in additional costs to the sales force.

I mean obviously it's not going to be travel in the near term, but thinking of things like personnel adding new bodies and additional marketing expenses.

Patrick, do you want to take that?

Sure, yeah, and it’s a good question. So the good news is in this environment and as Chris spoke to you in his prepared remarks, what we're seeing is a transition from this fragmented approach to a more centralized acquisition process with federal agencies and some of which you know we worked with as a defense business, right.

We've got products that we've been marketing for decades through the National Guard, even through FEMA, through CDC. Not to this volume because of the pandemic, but we know these agencies really well.

So our ability to access market with these centralized agencies for large acquisition and as Gren alluded to, we have a number of other proposals out there beyond just FEMA. We know how to do that and there's no additional cost to the infrastructure we currently have.

Beyond that, as we look at our strategy going forward, could there be some additional cost of you know more sales personnel? There could be, but nothing dramatic that's going to alter the shape of our business and dramatic overhead changes.

You know the nature of what ADG looks like today will be very similar. We’ll still lean on a lot of our reseller and partners that we have in that space.

We’re just going to redefine our strategy to make sure we access that fragmented space better, but going forward we're really going to continue to focus on those centralized acquisition authorities with the centralized government, to go after stockpiling and things of that nature. So it's not a huge change for us as a company, and certainly it will not account to a tremendous amount of cost.

So costs will scale up with sales opportunity. Is that fair?

Not really. To be clear, I don't see a tremendous amount of cost going up.

I mean we spend you know a budgeted amount of marketing every year, both in the commercial space and the defense space, but it's an intelligence fed plan, right. So we don't go out and just you know vomit the marketing material around the world.

We know where to go after it because of funded requirements. So could there be a slight increase in personnel because we're growing, and we want access some more markets?

Sure, but again I don't think it's fair to say that costs would really increase. I think we're going to be pretty stable on our costs.

Okay, that's good to hear, in this time of COVID there’s not going to be corporate vomiting.

Scott, just a minute. One thing which we are implementing, which is a little different to help deal with this and in particular to help deal with the re-ordering.

So in all these hospitals they are going have PAPRs and they're going to need more filters, more hoods, more PAPRs, that sort of thing and to the extent that they won’t come from FEMA, they’ll be ordering directly. So we’re in the process of setting up e-commerce on our website.

So a lot of the small orders will come via e-commerce on the website.

That's good to hear. And just back to Patrick – on the – I guess both notes are in first responders side.

Do you see additional procurement, like product procurement opportunities getting new suppliers for you to wrap the product?

Yeah, we've done some of that, right. I mean so we've identified – for example, at the beginning of the COVID response, there were some consumables that were primarily coming out of China.

Things like face shields and N95’s, things that the states were really focused on, high volume low margin products. Some of which were actually good margin, but we didn't necessarily have in our inventory six months ago.

Now we went out and found some partners that in North America were able to source and ramp up production for those. So we've identified some of those that was within our value proposition, because again, we don't want to just go after everything.

We want to stay within our value proposition and who we are as a business and that's worked. So because of the success we've had, we’ve had businesses coming to us saying, “Hey, it seems like you guys have access to the market.

It seems like you’re really well respected. We’ve got this great product, what do you think?”

And we do an evaluation process of the business, of their abilities and of the products. So we've done some of that and certainly we’ll do more and that’s the model we’ve been doing in defense for years.

Sounds good. Thanks very much.

Thanks, good morning. The first question is just a clarification Daniel on the – you mentioned the $3 million organic revenue growth in defense year-over-year.

Does that include the kind of Acton Vale related revenue kind of within that number or are you just speaking about defense revenue.

No, that was a net number. I understand the question with the legacy business and so that would include the Acton Vale piece.

If you split it into two, the Acton Vale was down about $1 million compared to last year and so defensive has been up about $3 million, close to $4 million.

Okay, that's helpful, thank you. My next question on the PPE opportunities for the defense business, what other companies are you generally competing with out there in this environment.

I mean, who do you come up against the most? I'm sure it probably depends a little bit on the product, but what would be the most notable companies that you see trying to sell to the same customers?

Yeah, this is Patrick. You know for our PAPR and filter space, you know we work you know not really up against, but we compete with 3M, you know the large business that does make PAPR and the first responder, medical grey PAPRs and filters.

Avon Defense, you know obviously on the chemical side they do make a number of products for PPE and also for first responder. There are a number of smaller businesses as well, but those are really the two biggest for us.

So it's not a true – in our space and the ability to make this volume, there's not – it's not a really saturated market. There's a lot of companies, but the ability to ramp up and make 100,000 PAPRs and you know a million filters and you know the volumes that we’re talking about with folks like FEMA in you know the States and HHS and CDC, you need a tremendous amount of production capability.

So it’s really folks like 3M and their partners that we’re up against. But the need is so great right now that there truly is enough to go around for the providers.

So okay, that’s helpful Patrick, which still leads to my next question. What could get in the way of not getting these significant revenue opportunities or is it really nothing.

Well, its bureaucracy right, as always. As a defense guy I can tell you and I’ve lived through times of combat, where needs are similar to pandemics, where people are dying and it's just you know there's a lot of other needs for the U.S.

budget outside of just the pandemic, and so bureaucracy can get in the way. But right now the focus has been very clear.

Money has been flowing. As Chris said, we've been executing on a tremendous opportunity with FEMA, we've been getting paid.

And as Gren said, there is a tremendous amount of other proposals that we've put out and that we're working on today to close. So I feel confident, that not just this year, but post COVID-19 and into the possibility of COVID-20 or whatever, that the country has made decision that natural stock piling needs to be improved, increased and budgets will be put aside and increased to make sure we're prepared.

So I don't see a lot of risk for us to be able to access those contracts. We just have to make sure that we collectively as a business are bettering our products that we deliver, someone made that point; execution is huge, so that we have that in our back pocket to say look, we got this contract, we executed it, we did a great job and that we get the next opportunity.

So I feel very positive about future opportunities.

Okay, thank you. My next question maybe for Chris on the Rubber Compounding.

I’m just wondering if you could comment sort of sequentially in terms of volumes. You mentioned obviously a down-tick towards the end of the first quarter, and I guess more significantly here in the second quarter.

Are you seeing any signs of – is it stabilizing at least the volumes that are being shipped as we sit here today, are they continuing to trend lower? Has there been an up-tick, any commentary on that provided would be great?

Yeah, we saw a softening beginning the last two weeks of March. April we had a more significant softening, but then it stabilized and it's been pretty stable, kind of at a base level.

I guess you know just like we are an essential service, we have lots of customers that are essential services and so we have a sort of base load of a volume that you know allows us to do okay and now we're seeing towards the end of May announcements that our key customers that did go down are coming back up again. So I think we've already stabilized and we're looking kind of optimistically towards the end of March to see some of that starting to return, end of May I should say.

Okay, that’s great, thank you. And then my final question just thinking about cash over the course of 2020, Daniel could you talk about cash requirements or generation from working capital over the remaining three quarters of the year in particular.

I think it was $7 billion that came out of working capital in the first quarter. How does the rest of the year look and what are the considerations there?

Well, I think on the – it's by business, because each one has its own sort of challenges or opportunities. But if could say on the Rubber Solutions and maybe on the Michigan site, because depending on how fast it turned around.

So far we haven't seen any major issues with collections. In fact we’ve seen collections improve over the first quarter, and we haven't seen deterioration, so it’s hard to say.

I think to answer your question kind of generally, I think free cash flow – not free cash flow, working capital should be positive for the rest of the year, just because we have a lot of those big orders coming from, as you know the FEMA order. So that’s going to generate short term working capital position for us where we would be able to collect within a very short period of time, so that’s going to be very positive for us.

So it's hard to see right now, to give you a specific answer, but I don't see any particular issues with you know being stranded with working capital and it’s in one segment areas. I think we have enough liquidity to be able to survive in that area.

Okay, actually I can just tack one on to the end of that. I'm just recalling in the Q1 report there was a reference to some inventory, some compound I guess that was targeted for a customer and that order was subsequently cancelled.

I think it was in the range of $1.5 million or $2 million worth. I mean should we just think about that as inventory that you can sort of turn around and sell in the coming months to another customer what happened there?

Yeah, it's kind of shelf life right. So I think right now we're not seeing any reason why we can’t take any provision on that or why we would not be able to use it.

Again, it all depends on how long this goes, but there are signs that there’s recovery as we mentioned through the calls, so right now I'm seeing anything material.

Okay, great. Thank you very much.

Hi, with regards to the future contract opportunities, I was hoping you can provide more color on ongoing discussions. You know how far along are you in the process with some of these negotiations and when can we expect announcements on new healthcare or military deals?

Thanks.

Sure, this is Patrick. So on the defense side, we are in the final stages of a Pan-European competition for our low-burden mask.

It is currently in the final stages, that we are one of three competitors that are remaining in the competition and as I think Gren allude to, it has been – we've been informed that we should expect an announcement in the next few weeks. Having said that, having gone through competitions of this size and with COVID going on, you know delays were expected.

So I would hope that by end of May, June time frame we would get an answer on that competition. On the healthcare side, we have a number of proposals out for state agencies that really stand a full array of PPE, all of ADG products, including ISO-PODs, PAPRs, filters, our boots and gloves and it’s really anybody's guess as to when these will be awarded.

Now we’ve seen smaller estate agencies as we talked about, close to $10 million over the first quarter that have come in addition to the FEMA order. But we are also working with large agencies outside of FEMA as well.

We're just in the beginning of some very large conversations for stockpiling needs, with the U.S., so those are ongoing as we speak, but I think that there is opportunity for some larger awards for our PPE, our filters, our masks, our hoods in the next two to three months. In addition we are working on some additional international competition right now for our ISO-PODs in the Middle East.

Right now it's Ramadan in the Middle East, so both our defense opportunities and our COVID opportunities are a little slow. Speaking of Ramadan, it takes precedence over everything.

So Ramadan ends at the end of May, so businesses will be back to usual in the Middle East and we'll see an uptick in opportunities there as well. So we are hoping that we'll see some contracts coming out of the Middle East, out of Saudi Arabia, out of Kuwait coming to us probably by the beginning of June.

Thank you, operator, and thank you again to everyone for attending this morning’s call. As a quick reminder we will be hosting our AGM at 4:30 PM Easter Time this afternoon.

I would encourage interested shareholders to attend virtually using the link provided in our Press Release dated April 23, 2020. Until next quarter, we hope you are all keeping safe and well.

Goodbye, and thank you for again.