Thank you, operator. Good morning, everyone and thank you for joining us for the AirBoss Q2 Results Conference Call.

My name is Gren Schoch and I'm the Chairman and CEO of AirBoss. Here with me today are Chris Bitsakakis, President and COO; Frank Ientile, our CFO and Chris Figel, Executive VP and General Counsel.

In terms of an agenda, we'll take a few minutes to review some operational highlights for 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 or 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.

With that I'm going to turn this call over to Chris Bitsakakis, our President for the operating review.

Thank you, Gren, and good morning everyone. Our record financial performance this quarter was largely driven by the AirBoss Defense Group strong and rapid execution against the $96.4 million FEMA contract awarded at the end of the first quarter.

In the phase of the ongoing COVID-19 pandemic, the entire AirBoss team across all groups and divisions was mobilized to find a way to execute on the seemingly impossible task to quickly ramp up and get desperately needed protective equipment to those who needed most. Those medical personnel in the frontlines working to save lives.

By the end of the second quarter, we had delivered more than 60,000 Powered Air Purifying Respirators under the contract and we completed all deliveries on the contract on time by the end of July. In the early stages of the pandemic, we approached multiple government organizations throughout North America and beyond, in an effort to offer our proven products as the first line of defense in keeping hospital workers and first responders safe in the high shedding viral environment.

As part of our company-wide continuity planning, our supply chain team went out to its key supplier while also identifying surge capacity and [indiscernible] when it became clear than the pandemic had the potential to interrupt existing supply chain. On that basis, when tapped by FEMA to lead the charge.

We were able to protect our continuity of supply and accelerate productions to make the shipments necessary to deliver on this large contract in an extremely short period of time. In July, we were manufacturing approximately 10,000 PAPRs and 100,000 filters per week across four of our US facilities.

The ability to deliver so quickly on this contract is a testament to the dozens of hardworking people that AirBoss dedicated to this project. I would like to take this opportunity to thank each and every one of them for working so diligently to take AirBoss's capabilities to another level and put us in a position to continue to deliver our life saving products for the healthcare and first responder market.

The successful delivery of the FEMA contract was a contributing factor in HHS awarding us another PAPR contract just a couple of weeks ago. Valued at $121 million this award is initially focused on bolstering the US Strategic National Stockpile which is designed to support emergency preparedness across the country.

With the FEMA contract fully delivered, we've all the necessary elements of our supply chain and manufacturing infrastructure fine-tuned and operating well. We will transition to deliveries on the HHS contract midway through the third quarter which are expected continue through the first quarter of 2021.

I should point out that our PAPRs are already in the field like those deployed under the FEMA contract require a regular replacement of consumables including filters, hoods and hoses, which means regular restocking and an ongoing revenue stream. As an example in the third quarter we saw a $2.5 million sustaining order come from the Veterans Association which received more than 10,000 PAPRs as part of the FEMA contract.

We would expect additional orders of this type while the PAPRs remain in use on the front lines and not just against COVID-19. But as a standard protocol against the spread of all infectious diseases.

The HHS order also provided validation of a concept we expect will become an increasingly important part of our revenue growth going forward. We know that governments, healthcare providers and first responder groups are facing increased scrutiny around their emergency preparedness measures as a direct result of the COVID-19 pandemic.

The rising 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 preparedness in stockpiling of key supplies at the local, regional and national level. The first responder market has historically been characterized by significant fragmentation among individual services and complex distributor relationships.

Going forward, we expect this model to fundamentally changed and be replaced by a more unified and streamlined approach aimed at reducing complexity, shortening acquisitions timelines and building strategic stockpiles. In the face of this changing environment, ADG continues to modify its business development approach to focus on developing relationships with key decision makers at successively higher, more strategic levels within both first responder and government networks.

The formation of ADG at the beginning of 2020 saw us combine two organizations each with a solid track record in their own right of successfully delivering government contracts. Together, we've assembled a strong survivability platform supported by the scale, capabilities and relationships to drive growth in a more meaningful way going forward and as such, we continue to see a robust pipeline of potential opportunities across ADG's portfolio.

The large recent awards stemming from the COVID-19 pandemic provide a powerful validation of the organization we've built. In the near term, we expect to continue to pursue opportunities associated with COVID-19 in both the first responder and healthcare markets.

In addition to continue to target our more traditional defense markets. This includes opportunities for existing range of CBRN-E solutions as well as our Blast Gauge products.

Blast Gauge for those of you not familiar with the product is a wearable sensor that measures exposure of the blast overpressure and uploads data to soldiers file for assessment by staff physicians. Blast Gauge is currently in the midst of multi-year trial with the US Military and we believe there is a strong political will to find a solution to monitor and manage potential traumatic brain injury.

Over the last couple of years, Congress has used federal law to direct the Secretary of Defense to among other items conduct a medical study on blast pressure exposure during both combat and training, establish limitations on heavy weapon fired exposure during training, document blast exposure history and service member medical histories to determine the future illness or injury of service connected and inform on blast exposure risk mitigation effort. Widespread role at a Blast Gauge could translate into a significant source of recurring revenue for ADG.

Turning now to our engineered product segment. In late March, we saw number of OEMs as well as Tier 1 part suppliers move to shuttered production in an effort to protect their employees and stakeholders in the face of the rapid initial spread of COVID-19.

In parallel, we likewise made the decision to temporarily close our Auburn Hills facility and took immediate steps to manage our variable costs, laying off hourly and salaried employees and shortening work hours for remaining 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.

We also ramped up copper production in Auburn Hills given the very short timelines on the FEMA contract. These plain [ph] initiatives supported a return to work for some staff and allowed us to deliver against our defense contracts in hand while the NVH business was effectively shuttered.

With key customers restarting operations in May, we did begin to see signs of recovery in June with a number of customers facing strong initial orders to ensure that they had sufficient components on hand to support their near-term manufacturing requirements. As we exited the second quarter and moved into July, auto volumes climbed beyond 80% of their pre-COVID levels an improvement we've seen maintained it to August.

Our presence on vehicle lines that are more in demand such as pickup trucks, SUVs and mini-vans has helped support this rebound. Even in the phase of COVID, our ongoing efforts to transition the engineered products business towards higher value more technically sophisticated solutions and diversify into sectors adjacent to our traditional automotive offering moved ahead.

As an example, we developed hydraulic bushing for an emerging electric car manufacturer design to reduce vibration and noise in the passenger cabin which is especially important given the low noise nature of electrical vehicles. This type of product also has applications across range of sectors beyond EVs and provides a perfect example of our focus on moving products up the technology curve while also diversifying into new sectors previously untapped by AirBoss.

Finally, we're pushing ahead with the installation of the new Robotic Work Cell in Auburn Hills. This was an important part of investment in innovation and advance manufacturing in 2019 and it's designed to support further improvements in labor allocation and margins.

This equipment was tested and improved in Germany before being shipped to the US and is now fully assembled and being commissioned in Auburn Hills facility. Our Rubber Solutions business saw improvement in volumes as the quarter progressed.

In response to the COVID-19 pandemic in March. We did see some customers particularly in the tire space elect to close their operations.

Declared essential, our rubber solutions business remained open and operational with appropriate social distancing and hygiene measures in place. It did begin to experience a decline in volumes in early April which extended into May before beginning to recover partially in June.

With many tire companies reopening their facilities through the balance of Q2. We saw the improvement trend continue into July.

Although not quite yet at pre-COVID levels, the signs are very encouraging. Again, our longer-term plan for the business remains unchanged and we're 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 add specialty compounds as well as producing new white and colored compounds for both existing and new customers. In the second quarter, we moved quickly to contain cost in both rubber solutions and engineered products, coupled with the strong performance of ADG which we anticipate continuing into 2021 based on contracts in hand today.

We feel that AirBoss will be increasingly better positioned to act on ray of potential organic and inorganic growth opportunities in the second half of the year and beyond. The contract awards we've secured over the last two quarters alone mean that we'll exit 2020 on our strongest, financial putting ever offering as maximum flexibilities to deploy capital and investment in those initiatives that can support enhanced levels of growth although we're hopeful that we'll be able to put the COVID-19 pandemic beyond us before long.

It is likely that the impact will continue to be felt globally for some time. As we saw fall in the financial crisis of 2008, we expect there will be some companies that manage to get through the pandemic.

But are unable to recapitalize coming out on the other side having accumulated too much debt. This could create a growing inventory of acquisition opportunities to act on and support a more realistic valuation than we saw pre-COVID.

We continue to look to ways to leverage the strength of our balance sheet and remain focused on acquisition opportunities that would allow us to support engineered products sector diversification strategy, drive rubber solutions growth in both traditional and specialty compound and bolt-on new survivability solutions at ADG that protects soldiers, first responders and medical personnel from a broader range of threats. In the near term we continue to carefully manage the business, work and to protect the health and safety of our employees and stakeholders while also ensuring we're well prepared to deal with both the challenges and considerable opportunities facing the organization today.

With that I'll now pass the call over to Frank Ientile for the financial review. Frank?

Thank you, Chris and good morning, everyone. As a reminder please note all dollar amounts presented are in US currency except for dividends per share which are in Canadian dollars.

Consolidated results, as Chris mentioned our strong improvement and financial performance over the prior year reflected ADG's successful delivery against the number of defense and government contracts including the FEMA award made at the end of the first quarter. This helped to more than offset the lower volume seen in rubber solutions and engineered products businesses as a result of the ongoing COVID pandemic.

Net sales, on a consolidated basis net sales for the three months and six months periods ended June 30, 2020 increased by 36.1% to $112,450 and 25.1% to $206,647 respectively. This was largely due to the execution against the FEMA contract more than half of which was delivered in Q2 and the closing of the ADG transaction and the addition of revenue from CSI's legacy products.

The improvement was partially offset by some softness in the rubber solutions and engineered product segment. Gross profit.

Consolidated gross profit dollars grew by 151.4% in the quarter and 100.4% on a year-to-date basis compared to the same periods in 2019. With the improvement driven by ADG careful management of overhead costs at rubber solutions and engineered products and subsidies from the Canadian Government to those groups specifically impacted by COVID-19.

Gross profit margin improved from 15.1% in the first half of last year to 24.2% this year. EBITDA, consolidated adjusted EBITDA which removes the impact of fees associated with the completion of the ADG transaction most of which were incurred in Q1 improved by 211% to $25.7 million in the second quarter and 111.1% to $35.4 million for the first half.

The improvement was primarily the result of the strong performance of ADG. Profit and EPS.

Profit attributable to the owners of the company was $6.7 million in the second quarter and $6.2 million for the six-month period or $0.27 and $0.26 per share respectively. Adjusted profit attributable to owners of the company for the three- and six-month period and the June 30 was $6.7 million and $8.5 million respectively or $0.27 and $0.35 per share following removal of the one-time impact of fees associated with the ADG transaction which predominantly incurred in the first quarter of 2020.

As discussed on our Q1 call, basic and fully diluted adjusted earnings per share particularly for the year-to-date period were partially impacted as a result of increased income taxes due to the non-deductibility of the transaction related to professional fees as well as the allocation of interest to the minority holders of ADG. This also explains the effective tax rate of 30.9% in the second quarter and 33.6% on a year-to-date basis up from 28.2% and 26.8% in the prior year periods.

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 jurisdictions in which they operate. Now to the segments.

Rubber solutions, turning briefly to the segmented data. Net sales in the rubber solutions segment decreased by 34.2% for the quarter and 19.4% for the year-to-date period compared with the prior year.

The decrease in net sales was driven by 38.5% reduction in volumes in the second quarter as we saw softness in virtually all sectors. Tolling volumes were down 81.9% in the second quarter and 30.1% on a year-to-date basis.

Non-tolling volumes were less impacted on a percentage basis down 23.9% and 10.7% for the three and six-month periods respectively. As a reminder, in tolling applications we only realize net sales on the provisions of compounding services for customer supplied material versus non-tolling where AirBoss also supplies the raw material inputs that were reflected in net sales.

As such, net sales in isolation may not provide a complete picture of what's happening in the business. Gross profit, despite the decrease in net sales I mentioned a moment ago, gross profit as a percentage of sales grew from 15.7% in Q2, 2019 to 16.8% this year and from 15.5% in the first half of last year to 17% in the first six months of this year.

This was largely the result of careful cost containment and management of overhead cost supported by government directed weight subsidies for areas of the business that were negatively impacted by COVID-19. Engineered products, turning now to the engineered products which is now solely comprised of anti-vibration business under the new reporting segment disclosure which I will discuss in more detail at the end of my financial review.

Net sales in the engineered product segment for the three-month period ended June 30, 2020 decreased by 58.6% from the comparable period in 2019 to $13.5 million. The decrease was seen across all automotive product lines as a result of partial shutdown of the Auburn Hills, Michigan plant on March 19, 2020 tied to the corresponding shutdowns by OEMs and parts suppliers as a result of the COVID-19 pandemic.

The decline in sales was partially offset by the pivot to product molded defense products and PAPRs. The engineered products business saw volumes improved in May and June as key customer reopened and ordered inventory to support their initial restarting requirements.

That said, we expect that this business will also continue to produce PAPRs and other defense products through the balance of 2020. Gross profit.

Aforementioned closure and associated reduction in net sales translated into gross loss of $698,000 in the second quarter and 62.8% in gross profit for the year-to-date period to $1.2 million. This was the result of the lower volumes seen, but was partially offset by careful cost containment in the phase of COVID-19 related challenges.

That said, in June we were encouraged to see the performance of the business improved posting strong earnings. Now turning to the AirBoss Defense Group, net sales in the second quarter increased by 327.3% up from $19.2 million in 2019.

The significant increase was primarily the result of a strong execution against the previously mentioned FEMA contract supported by increased sales of masks and boots associated with other contracts. Net sales for the six-month period grew 191.2% for the same reasons in addition to higher sales of other products in the portfolio.

Gross profit in the second quarter increased by 451.1% to $28.3 million up from $5.1 million a year ago. Gross profit margin also grew to 34.4% up from 26.7% in the same quarter a year ago due to the higher volumes associated with the new business.

This was also supported by careful cost containment, management of overhead costs, supported by government directed wages for those portions of the business that were negatively impacted by COVID-19. Gross profit in the first half increased by 269.4% to $38.9 million up from $10.5 million a year ago.

Gross profit margin also grew to 33.2% up from 26.2% in the same period a year ago due to the reasons just mentioned. Other consideration, in previous calls we talked about CapEx funding for 2020 returning to historical depreciation levels of approximately $15 million.

Taking into the account the continued uncertainty related to the COVID-19 pandemic we're moving ahead cautiously. We remain focused on spending requirements for projects with near term growth potential as well as regular maintenance where safety is a key consideration and where preparedness to meet rising volumes in the face of a recovery is needed.

Balance sheet, on the back of our improved financial performance this quarter. Our net debt to trailing 12-month EBITDA dropped from 1.85 times at the end of 2019 to 0.71 times at the end of the second quarter of this year and our $60 million US credit facility was undrawn at the end of June.

ADG's strong performance is also facilitating accelerated payback of the $60 million Vendor TakeBack Note which is expected to further help strengthen the balance sheet as we move through 2020. At June 30, the balance of the Vendor TakeBack Note was approximately $50 million.

Free cash flow grew from by $32.6 million to $24.5 million or $1.05 per share for the first half of the year and we expect to fund our 2020 operating cash requirements including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flows from operations and our committed borrowing facilities. We believe, our improving balance sheet will not only help us navigate the ongoing challenges associated with the COVID-19 pandemic.

But also best position us to act on some of the emerging opportunities to grow the company that Chris described in his comments. Accounting changes, before opening up the call for questions.

I will briefly remind everyone of the changes we're reflecting following closing of the transaction to create ADG on January 1. We now report three separate segments.

Rubber solutions will still be shown separately. But the Rubber Compounding or Industrial Business in Acton Vale, Quebec 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 consist of our traditional anti-noise, vibration and harshness business.

We have reported our 2020 data this way and include restated data from 2019 and 2018 in our MD&A for comparison purposes. Finally, I would again remind listeners that because we have 55% ownership interest in ADG that in this quarter and going forward items below the line such as profit and adjusted profit attributable to the owners of the company reflect the allocation of the 45% minority interest to the other owners of ADG and the AirBoss of America's bottom line will be impacted accordingly.

Reflecting only our 55% ownership. Operator that concludes our prepared remarks this morning.

We would now like to open the call to questions.

Good morning. I don't know who wants to take this one.

But maybe just talk about your capacity to move on the new contract of $121 million with the Auburn Hills plant opening back up because you were using some of that capacity there so maybe just how you plan to open that plan to well off ramping up on a big contract.

I'll let Chris answer that. But just a little bit clarity.

The Auburn Hills plant never closed other than for a very brief period of time when there was some COVID related illness. The anti-vibration part of the plant closed so that when the automakers shutdown.

But we have been making PAPRs therefore 45 days at least.

Yuri to answer your question about capacity. Just to give you a little bit of context.

In 2019, we made less than a 1,000 PAPRs in our organization and now we're currently at a production rate of 2,000 PAPRs a day and we did that in four different facilities. We have now consolidated and maximized all the efficiencies that we gained through that process because when you really drive something hard you really build up efficiencies at the same time.

So for the HHS order, we're now going to be producing that HHS order between the ADG plant in Landover, Maryland and the Flexible plant in our engineered products group in Auburn Hills, Michigan. So they're going to split the production.

But the capacity has been built at a high enough level that we can deliver on this contract, on time in a short period of time. Based on just those two facilities.

So the uptick in capacity has been quite dramatic. With that, however comes also the filter production because you remember we fielded all these PAPRs but now we're developing a razor [ph] blade [ph] model.

With all these PAPRs in the field, in hospitals all over the United States. They're going to continue to consume filters, hoods and hoses and we also have to drive up our capacity in that area.

The hoods and the hoses are supplied item that we work with a partner supplier. But the filters, we have one of the most automated and advanced filtered production lines in North America and we significantly increase capacity on that as well and we're currently up to 100,000 filters a week.

So we're in a very good position to deliver on the HHS contract and in addition have a capacity available to deliver on other contracts as well.

Okay, good to hear. I mean the margin in ADG was really nice in the quarter and just to your point in terms of if there was some bug [ph] ramping up some quickly.

So maybe the margin cadence as you exited the quarter. I mean was there a big difference between when you first started to when you kind of got the process more streamlined at the end of the quarter?

Yes, definitely at the beginning of the contract you can imagine with such - almost an insurmountable task ahead of us. We had to throw a lot of resources to get this done.

We put together people that were trained. We're setting up new product lines, scrap rates were high.

So you can imagine that the efficiencies were relatively low at the start of the program. But at the exit they were significantly higher.

Okay, that's helpful. I'm sure there's other questions in the queue.

So I'll hop out. Thanks very much.

On the last call you guys provided an update sort of on your outstanding tenders. I was wondering, if we can get an update where that stands today specifically at the European gas mask contract and if you guys are doing any additional testing for the Blast Gauge product?

Yes, I'll start with the Blast Gauge product that continues in full field testing. We are continuing to deliver 10,000 units and the military is working on a lot of the software and data accumulation and analytics around that and that's being supported quite a bit through Congress in their request that there is a way for the military to monitor blast pressure.

In terms of the European gas mask contract just to give you a little bit of context as to how that rolls out. There is two countries that were leading that process; Norway and Denmark and those two countries were the countries that were also testing the masks, creating the competition and then providing the results of that competition to be available for other European NATO countries.

The gas mask contract split into two - the contest was split into two categories, the technical and the price. I'm happy to announce that we won the technical competition.

We did have the most and we continue to have the most advanced gas mask in the world and that was recognized by those two countries. Unfortunately, our competitor who had lost the last two global contracts against us significantly dropped their price to a level where their improvement in price overshadowed our advancement in the technical side of the mask because the award was based 60% on price and 40% on technical capability and our mask is a very high end mask.

And so for that, those two countries have chosen to recommend our competitors mask because of the pricing on it. Having said that, there's 26 other countries in Europe that we are contacting as we speak, we're speaking to their special forces and many of the countries would prefer to have a more technically advanced mask versus having 20-year-old technology.

So we're still although having not been recommended from those first two countries we're still actively approaching all the other countries that would be interested in the outcome of that competition. Demonstrating to them that our mask did win the technical competition and we're quite proud of the technology that's gone into that mask.

But of course it's not the cheapest mask out there. But when you think about protecting soldiers from chemical threats.

We believe and we think many military commanders will believe that saving a few dollars is not well thought through when it comes to protection of their soldiers.

Thanks for the color and that was quite good and definitely helpful for us. My next question was on your balance sheet.

It's definitely in strong shape here now and you sort of like acquisitions as a potential use for cash. With that said, are there any sectors that are particularly appealing to you, is that more defense or is also [indiscernible] towards rubber compounding?

We have a strategy that we've developed for each of our three groups and each of those three groups have really done a lot of work in the past couple of years on building a really strong organic process to deliver increased sales and we've demonstrated that in all of our groups. They also have a plan for that is more strategic in nature in terms of what an inorganic opportunity might look like for them and it could accomplish for them.

For the rubber solutions side, we're actively looking for rubber compounders both in the traditional black side [ph] of things but also on the specialty side as we go forward here and pre-COVID we were in some conversations related to that. On the engineered product side, we have a strategy there over the next five years to diversify that group to be no more than 50% auto related in terms of their top line and it's not to say we want to reduce their auto sales, we want to increase the non-automotive rubber or rubber to metal bonded products that we put [indiscernible] and if you look at some of the sales growth there related to the defense products you can see that - strategy is working out already.

So on the engineered product side however, if there was an opportunity to bolt-on a non-automotive rubber to metal or rubber molding supplier into that group, we would take advantage of that. And then of course on the ADG side, we are so excited about some of the new products that we have in development at ADG.

We have a really active Skunk Works programs and although we're not ready to talk about them yet. We've spoken about Blast Gauge but there is a variety of other products that we're working on as well.

And we're looking constantly around to see if there's other products that fit in that wearables and soldier protection or first responder market protective equipment that could fit well into the ADG Group. So each of the three groups have a criteria for what an acquisition would look like as long as it supports the overall growth strategy of the individual groups and the company as a whole.

So we are looking for opportunities for all three groups and we believe that, just like we saw in 2008. There was very few bankruptcies going into that recession year.

But coming other bit, there was a quite a few bankruptcies and we believe that there is going to be competitors with some interesting products, interesting opportunities for us that we can probably aggressively go after and utilize the strength of our very, very clean balance sheet to leverage new products into the family.

That's great and last one from me here. What was the total government grant that you received this quarter for the wage subsidies and then if you can provide that by segment, it will be great?

Thanks for that question, David. So the subsidies we received were approximately $750,000 a month for rubber solutions and $750,000 a month for defense, equating to roughly $4.5 million for the quarter.

That was obviously used to keep obviously our employees employed and keep business running and was an offset to cost.

Thanks, I'll hand the call over.

Can you guys hear me still? So just to further elaborate on your question about the backlog for defense.

I mean you asked about the Blast Gauge and European gas mask contract. Firstly, we have an immediate backlog of about $121 million from the recently announced contract and about 50% of the FEMA contract was delivered prior to the end of Q2.

So the other 50% was delivered in July. Additionally, this is only really seven or eight months into the new ADG Group with the enhanced marketing that we've never had before and already they have significantly by orders to magnitude increased our sales.

We have probably somewhere in the order of $250 million of relatively short-term when I say relatively short-term, I mean in the next 12 months prospects that we're bidding on other than the big ones that we talked about before Blast Gauge and US gas mask etc. which are both couple years out.

So we won't get all of that but we'll get some of it and I think at our last conference call, if we suggested that we were going to get another contract bigger than our first one. I'm not sure that everybody would have believed that.

So we're very optimistic that our strategy to marry a fantastic suite of defense and first responder products was world class marketing is working and we think over the next two or three years. This will become a very, very big division.

So over to the next question.

Just a little bit of a follow-up on Yuri's capacity question. Are there any low margin anti-vibration contracts that are nearing completion that you could end by not bidding and free up capacity at Auburn Hills?

We about a year or year and half ago we did a full deep dive on all the margins of all our products and we identified kind of like the top 10 hit list of the products that we felt were significantly underpriced to market. In addition to that, when the US government applied all those tariffs on steel, we saw a very dramatic impact to our profitability at flexible products.

Since then, we've gone to each and every one of our customers that we were affected by these tariffs because none of our contracts had ever envisioned tariffs is being something that would allow us to reopen them. So we went back to those customers and we received relief on those tariffs.

Unfortunately it was not retroactive relief, so the penalty was there and it was not, we weren't able to reverse it. However going forward we were able to protect ourselves against tariffs and those kinds of fluctuations in raw materials.

We also identified several products that were low margin. Most of those products we've been able to go to our customers and get a price relief on and renegotiate those contracts.

One particular customer, we were not able to negotiate that price relief with them and we worked with them to exit that business. They did apply for an injunction and so we're still in the process of trying to exit that business which we think we can do amicably somehow in the next period of time although things have been delayed here with COVID-19.

There's one other product line that is a low margin that we're currently in negotiations with one of the big three to allow us to - the resource that somewhere else or replace it with another part that we have is identical that's of higher margin. So we've done a lot of work getting these issues straightened out in terms of our pricing at flexible products and it's a long haul.

But we're knocking the mountain list and slow we're making improvements in that area.

And also mention, we're not capacity constrained in Michigan and the anti-vibration business thus being conducted out of Michigan does not constraint the capacity or ability of doing defense products there.

Okay, that's helpful. Are you seeing more competition for new contracts in PAPRs?

I'm just thinking what are the big barriers to entry. The product design, patents, production capacity, certification, all of the above or other?

I think it is all of the above and I'm glad you mentioned certification because our PAPR was previously NIOSH certified which is extremely critical and as we went into the HHS. We developed some improvements to our PAPR that we worked with the government organizations to very quickly get the new PAPR NIOSH approved as well.

I think what really differentiated us in this particular pandemic was our ability to ramp up production and create a really high-quality product. Already we have anecdotal feedback from the doctors and nurses using our product, in fact one of the doctors who's been tweeting about it also mentioned to us that we make the Ferrari of PAPRs because I guess they've tried a variety of other PAPRs that just don't perform as well as ours do.

So we have an excellent product out there. We are fully certified.

We have a new NIOSH certification that's coming into play right now as we go into the HHS award and we continue to make improvements and our engineers are looking all the time, how to make these PAPRs even better. So we think we have the best product in the market.

We have feedback from the people using it, that's very, very positive and we're really demonstrated that even compared to many of our competitors at our larger companies that what we were able to accomplish on the FEMA contract none of our competitors were able to sign up for that and we delivered.

So does that product superiority, does that insulate margins or you think there's going to be some squeezing of margins driven by government agency purchasing?

Well when we went into the FEMA contract. We really took this very seriously in terms of wanting to save lives and help our first responders survive and as such even on the FEMA contract, we gave a discount to our list price and we continued with that kind of discounting on the HHS side.

We know that our product our list pricing is very consistent with some of our key competitors in that area and it is a quite complicated product to build, it takes a lot of labor, lot of engineering and design to make sure that it's right. So we feel pretty comfortable that the FEMA award and the HHS award were large enough that we put together a discount and the fact that we have a premium product.

We don't necessarily believe that there's going to be major margin constriction because even as the more we produce, the more efficient we get. So we're not too concerned about that right now.

Okay, that's great. Last question, do you see opportunities for asset sales that you could redeploy in ADG?

Asset sales?

Specific [indiscernible] your portfolio

No, we've really crafted this portfolio to fit the survivability solutions platform and the product that we have there all fit that kind of thought process. We never want to be the pointy end of the sphere.

We want to be in a position where on the defense side we're protecting people and taking that military grade thought process to use for healthcare and first responders that need the best products. And so the product lines we have right now we're comfortable with.

Sorry, Chris. I wasn't referring to ADG defense products.

I was thinking about outside of ADG.

Yes, I would say that same comment was applied to the other two groups. We're really focusing on diversification and engineered products that we can focus on non-automotive and on the AirBoss Rubber Solutions we were broadening our product offering last year in order to be able to attain more of the share of wallet from our customers.

So there's nothing on the list now that we're looking to get out of.

Great, that's perfect. Thanks for your insight.

I was wondering if you could just walk us through how the reacceleration and demand for products in the rubber compounding and engineered products excluding defense proceeded? I noted in your release that you're 80% to 85% levels of pre-COVID.

And what I would like to understand is how the cost structure may or may not have changed and how you first of all rev back up and then second of all, looked at bringing employees back into the facilities? Thanks.

Yes, so as you can tell on the ADG side. Things were went from zero to 100 in overnight and stayed there and continued to stay there.

On the flexible product side, really April and May for all intents and purposes we shut down the automotive production. And unfortunately had to layoff significant numbers of people and do the cost containment that we did there.

The good news is that on the AirBoss engineered product side, when it comes to the automotive space, we have whether on purpose or by accident, we have selected to be in the part of the automotive space that is the most in demand. Pickup truck volume is the lowest it's been in a long time and a lot of the pickup truck plants are driving really advanced and accelerated ramp ups in order to get that vehicle inventory back into the market.

So we saw a quite a big jump back in the automotive levels particularly on the product lines that we're on. So at that point, we brought people back, scaled them back up and I'm not going to say seamlessly because there is always this element of COVID pandemic that creates a little bit of fear in people and in addition to that, some of the subsidies where people are getting paid to stay home makes it a little bit difficult for them to overcome their fear of coming back to work, even though we're taking all of those precautions to make sure that they're safe.

For example at Flexible, we have automated camera units as people come in, their temperature is taken and they get green light or red light and it happens within seconds. So we're certainly and we're social distancing and doing all those kinds of things.

So ramping back up at engineered products was really came into high gear towards the end of June and into July. We're still running maybe around 85% of where we were pre-COVID and as long as the US economy recovers, we should continue to see recovery on that side.

On the AirBoss rubber solutions really the tolling volume disappeared because the tire companies' shutdown and that was a big chunk that was missing from our volume and then some of our other customers were scaling down somewhat. So the AirBoss rubber solutions side actually never stopped producing just a few left shifts and that kind of a thing.

But bringing people back and scaling back up was not an issue for rubber solutions and come July we were also back up over the 80%, 85% level and some of the tolling volumes has also started to return.

Okay and then I'm wondering if you can comment a bit on the rubber solutions in particular and end markets. I realized that you've got quite a bit of product that goes into tier markets.

We have seen quite a recovery in the winding space recently. I'm wondering if you're seeing increased customer demand from that square and then, any differences between what you're seeing in terms of heavy equipment truck versus airlines.

Yes, I'd say we're seeing a really robust recovery on the mining side. There's always a little bit of lag, a little bit of delay for us because as we went into the pandemic, some of our customers that supplied to that market built up some inventory.

And because of that there will be a little bit of lag, so there were little bit slow getting into - slowing down and they'll be little bit slow coming out of it as well. So we've seen a really robust recovery in those areas.

On the airline side not so much. We do make the rubber for many of the airline tires that our customers make.

And that's the one area that we've not seen a recovery yet in.

Okay, great and then, can you remind us how much of the FEMA contract was left to produce in Q3? And when you expect to actually start production on the $110 million contract that you won?

We finished the last PAPR delivery for the FEMA contract at the end of July 31st and we expect to ramp up HHS towards the end of August, the last week of August.

And we're [indiscernible] FEMA contract prior to quarter end.

Okay. Sorry one final question.

Can you also let us know who you're competing with in the consumables market for the copper filters and hoses etc.?

Well the interesting thing is when you get NIOSH approval for something. You get NIOSH approval for a system.

So you have the PAPR which is a blower unit and then you have the filters attached to it, the holes and the hood. So you have a NIOSH approval for that entire system.

It's highly unlikely that hospitals that have their own health and safety committees are going to want to switch and swap with other competitors for these PAPR units because then it makes the NIOSH approval a void. So we do expect the PAPRs that we put into the field to have that continued revenue stream on filters to come to us, borrowing specific hospitals that choose to waive that NIOSH approval or make it void.

So we suspect we're going to get all that revenue coming to us on the filter side. There are other PAPRs in the field, that are made by our competitors and those particular PAPRs.

Those organizations will be buying their filters from the original equipment manufacturer. But given the HHS and the FEMA award, we really have become the premier PAPR supplier now especially when the National Stockpile is stockpiling our product.

Okay, perfect. That's great clarification.

Thanks very much

Just wanted to tie back into the previous question. I'm wondering if you're getting any early sense now for how aftermarket demand for filters in particular relates to the number of products in the field.

Do you have an idea or a sense for how frequently the filters in the PAPRs that are in the field are being replaced and therefore kind of what ongoing demand might look like for the filters?

So it's really, too early to tell. The first, we did announce $2.5 million award with the VA which was that was for consumables, so that's really the first big one.

We've had one offs with several hospitals for $200,000 here and there. Bear in mind that, at least half of these PAPRs were delivered in July with the bulk of them sort of towards the end of the month.

And a lot of them were delivered to FEMA distribution centers and had to go from there to the hospitals. So we really haven't had a lot of time with all of these in use yet [ph].

I can tell you theoretically they should be two filters per PAPR, per shift. Now obviously they aren't using that or we would have a lot more filter orders.

We have got an order for three million filters which we just announced and they did buy 600,000 filters with the initial order. But we still don't have enough data on how much these PAPRs are being used.

How long they're being used? Whether they're following the right protocols in terms of changing filters though?

So what we're doing right now to build with this, is we're putting together a group of - to go out every - we weren't allowed to contact the end users directly until after the FEMA award was over or was completed. So now we are, so now we're putting a program in place to contact everybody who has received those PAPRs, offer them training if they need it, offer them spare parts and more importantly, offer them other equipment that they may need in their hospitals.

So potentially that market for consumables is pretty big. I just don't have enough data to give you a reliable estimate going forward.

Okay, yes. That's fair enough I understand at this point.

It's difficult. My next question on the engineered products.

Chris, you had mentioned about the Robotic Work Cell coming into Auburn Hills. Can you give us a sense for how much of the anti-vibration revenue that one cell can address?

Like are there opportunities to add more cells, is this something that eventually you see being used in all of the anti-vibration products that come out of Auburn Hills?

Yes, that's a really good question, Tim. Keep in mind, that this is a really advanced work cell.

It's only the third of its kind in the world. And the technology around it, it is just amazing.

And so we did the first runoff of parts in Germany. We did the runoff by video conference.

So we had a guy as we were running off and dialing in the machine. We had video cameras running and we were interacting directly with the German engineers that were putting it together because we couldn't send our teams there to do the runoff.

It got installed last week here and it pretty much started making parts right away. There was a couple of little glitches that we're working on to get it up and running.

But what we did is, we submitted the parts that we did from the runoff in Germany as our PPAP submission. PPAP is a product qualification submission that we need to do for the auto company and we chose one of our higher volume products for this.

The idea is that, if we can get this thing running on a high volume product and really push the technology to its limit then we foresee an opportunity to start adding more of these work cells into Auburn Hills which is extremely critical because if you look at the margin compressions at Flexible over the years, a lot of it had to do with the commoditization of the product and the fact that, in a global competition you're forced meet pricing from low cost countries which Michigan is not low cost country. So the automation piece is really critical because our customers really like the fact that we're located close to their engineering teams, so we can engineer things together.

But then they want the low cost from the low-cost country. So we think we can develop the best of both worlds of a highly efficient automated process and have our strong engineering teams there with our customers engineering teams to be able to develop new products together.

So yes, our plan is to continue to see other opportunities for this kind of Robotic Work Cell. But also just want to remind you too that we've also put in seven new molding machines in Flexible just in the past six months and those molding machines are creating efficiency improvements anywhere between 25% and 45%.

So we're really investing and driving that efficiency at Flexible, so that we can compete and expand our margins on a product line that over the years has been commoditized due to the global supply chain.

Can you give us a sense approximately for the cost of acquiring, installing and getting that up and running Robotic Work Cell?

I can tell you that it's about a $1.5 million of outside cost. But then a lot of inside cost to manage the project design, the systems and then the ongoing management of it, it would be separate to that.

But that's part of our infrastructure so that's already.

Okay, but the upfronts for the capital cost were about $1.5 million or so.

Yes.

Okay and then my last question and I don't know whether you sort to care to comment at all on the sort of outlook for 2021. But in rubber solutions I'm thinking - is there any reason?

I mean is there any programs that you expect to decline in terms of volume generation in 2021 relative to 2020? Or I'm just trying to get a sense of is there any reason volumes should increase in that business next year relative to 2020?

In rubber solutions you're talking about, Tim?

Yes just rubber solutions volume and then sort of thinking about tolling and non-tolling combined. Are there any sort of big customer programs that are running off or ending?

I mean I realized obviously the world can change but at this point is there anything that you kind of see that would ramp down that mix volume next year relative to 2020 some uncertain [ph]?

No. the tires and tire demand is a strong driver and right now all the tire companies are down significantly.

So I think there's a lot of room for improvement there. The off-road tire segment which includes off-road tires for mining etc.

has recovered quite well. The other tire companies are not as strong as they were this time last year and hopefully will be stronger by this time next year.

Tim just to add to Gren's comment to - we've been getting over 10% compounded annual growth rate at rubber solutions for several years. And going into 2019 we expanded capacity in the south.

We added color compounding in the north and specialty compounding as well in terms of our asset base. And we have plans in the works for other alternative materials as well.

So we don't see any specific customer that has something ending, but is going to dig us into a hole. If anything because of that expanded product line, the investment that we made in 2019.

The new R&D tech center that we have up and running with several new PhD chemists working with our customers to develop new products. We don't see any backwards issues at rubber solutions.

It really is just all related to the overall general health of the economy.

Okay and that's kind of what I've been thinking. I just wanted to make sure it wasn't something [indiscernible] maybe something that I wasn't aware of, so, that's all it for my questions.

Thank you.

Just wanted to clarify, maybe for Frank. I understand about 40% of the FEMA contract was delivered in Q3.

But was all the revenue recognized in Q2 or will we see about 40% of the revenue recognized in Q3?

Yes, Yuri. No, revenues recognized when the product was shipped.

So obviously not all the revenue is recognized in Q2. You'll see the remaining deliveries of July's revenue recognized in Q3.

Okay, that's what I've got, just wanted to check. And then while I've got you, I don't know if I'll get an answer here.

But does the margin profile of the HHS contract look similar to FEMA?

Yes, the margin profile for HHS should be probably a little bit better than FEMA given the fact that our efficiency gains have all been built in now.

Okay, thanks guys.

Thank you and thank you everybody for attending this morning's call. We're proud of how the business has performed especially in the face of the COVID pandemic.

We look forward to updating again next quarters. We continue to deliver against key government contracts at ADG, manage to the volatility of rubber solutions and engineered products and position the business for long-term growth.

Until then, we hope you're keeping safe and goodbye.