Atlas Engineered Products Ltd.

Good morning, everyone. Welcome and thank you for joining the Atlas Engineered Products Earnings Call.

My name is Jake Bouma, IR Consultant for AEP. Today on the line discussing AEP's Q1 financial and operating results and Company highlights will be CEO, Hadi Abassi; CFO, Melissa MacRae; and Director, Paul Andreola.

Following the discussion, we will open up the call for a Q&A. Before handing over the call to Hadi, please note that the information we present today could contain forward-looking information that is based on management's expectations, estimates and projections.

Please consider the risk factors, including those in the filings made by Atlas on SEDAR when reviewing this information. Also, all amounts discussed will be in Canadian dollars, unless otherwise noted.

Over to you Hadi.

Good morning, everyone. Welcome to Atlas Engineered Products earnings call to discuss our first quarter of 2025 results.

We are excited to be with you today, and thank you for joining us. We are highlighting another strong quarter from an execution standpoint, completely bucking the industry trends and delivering on a more diversified product offering the biggest share of the customer wallets.

We continue to generate industry-leading margins through the tough market and take market share while significantly growing the wall panel and engineered wood products business. As we indicated in the Q4 year-end conference call last month, we are encouraged that both political parties have well-delineated platforms that address the housing shortage in Canada.

We see early signs of government funding programs that could be rolled out to fund automation. AEP will play a pivotal role as a supplier of fabricated structures to support the vision of more affordable housing.

With both Canada and the U.S. elections now behind us, we accept 2025 to be the key inflection year for the company and we are encouraged to see momentum from 2024 carrying into 2025.

The quote log and bookings are gaining momentum and we see green shoots in the builder sentiment with uncertainty abating in the market. Argumenting the organic growth, the M&A pipeline remains healthy, and we are investing in automation, which is the future of our industry.

Our first robotic hub in Clinton is under construction and is on time and budget. AEP will see a material contribution from this investor investment starting Q2 2026.

Capital allocation is important to the company. While M&A and automations have been the focus of in 2024, we also instituted an NCIB given the share price performance.

The company continues to be active acquiring shares at attractive levels. We see deep value in our stock and we will manage our capital prudently to make accretive purchases when appropriate.

We are steadfast in our approach to evaluating returns in investment capital and we take a balanced approach considering organic growth, M&A and buybacks. We have a very ambitious plan at Atlas to expand our footprint across Canada and increase our capacity through automation.

Given our established footprint, we see AEP as a logical partner of choice for builders and government as the address to a structural housing deficit in Canada. I would like now to introduce Melissa MacRae, our CFO of AEP, to provide commentary on Q1 financial and operational performance.

Thank you.

Thank you, Hadi. Results from our Q1 2025 include revenue of $11 million for the quarter, representing a 21% increase over the same quarter as last year.

This is driven largely by increased sales in the commercial and multi-family building sectors. The company has been working hard to integrate LCF since its acquisition and obtain more winter work and expand into the commercial building industry.

This winter saw successes with this expansion leading to a 56% increase in revenues at LCF period-over-period. Additionally, the company has seen a 30% increase in engineered wood product sales for this first quarter over the first quarter of last year.

The company has been able to expand its supply of engineered wood products to the multi-family building sector due to the expansion of our sales force, the skill of our design team and our buying power with our national supplier that gives us a competitive advantage. Gross margin remained consistent for the first quarter of 2025 compared to last year’s same quarter.

Typically, margins are the lowest in their first quarter due to the need to keep skilled labor, including designers and make sure our equipment is running efficiently during the busier quarters later in the year. Normalized EBITDA of just about $616,000 for quarter one 2025.

This is an increase over the prior year due to the increase in revenues and sales. Normalized EBITDA includes some adjustments to one-time costs for legal and consulting fees related to the new automation facility in Clinton and acquisition projects.

Although no adjustments have been made to some other costs associated for the future automation, which would be ongoing moving forward, but incurred now to prepare for that expansion in organic growth. These costs includes expansion of the sales and management teams to support the future growth.

Additionally, there are no adjustments for management labor costs related to the previously announced due diligence completion for a location in Western Canada, which is still anticipated to close as soon as possible. The company also continues to see strong signs of a rebound in the construction industry as quoting continues to significantly improve over last year.

Quoting is up by 29% up to the end of April 2025 at this point. The company is continuing to work diligently to convert those quotes to orders, increase the number of jobs that include a full package of trusses, EWP, and wall panels, and further gain market share with the bolstered sales staff.

In anticipation of the diligent work converting these quotes, the company has built a few design jobs ahead of the busier construction season. This increasing our finished goods and inventories as at March 31, 2024, but strategically leaving the production capacity available in the second and third quarter where capacities are typically at or close to full production.

I’d now like to open up the call for your questions. Operator, please provide the appropriate instructions.

Great. Thanks.

Good morning.

Good morning.

First question is on quoting activity, up 29% year-to-date. It feels like April was strong from a quoting perspective.

I was just wondering if you could expand a bit on what those opportunities look like for AEP regionally and maybe by type of property. If you could comment if you’re seeing some pockets of strength in certain provinces and foreseeing more work on the multi-family front.

Just that sort of color would be helpful? Thanks.

Thank you, Frederic. The one advantage we have in Canada, we have a national footprint right now and we’re expanding on that.

And historically, it’s always been like this. There’s certain provinces in Canada, the construction slows down and other provinces pick up.

One day if your dream is to all the provinces go on at the same thing, and that is coming. But right now, we have certain pockets of country.

Like, in Maritimes, we’re pretty busy quoting in The Prairies and a certain part of the British Columbia and Ontario. The quote activities increased.

And, of course, we do a small amount of business in U.S., and the activities there have increased too. Especially, all the noise from the tariff and stuff that that it just settling down, and people are not scared anymore and everything.

So business is getting back more to a normal situation. That just because everybody’s barking and making noise, it doesn’t mean actually the reality is there and it’s not affecting our business.

And one area there is there in a slow time is when you build your team to get ready for the good times. And one of the great thing about our investing at the sales force and building the team, you build a team of hunters because construction historically slows down even in the wintertime, but it never dies down.

There is always jobs to be done there. And I’m not talking about the stats you get about the concrete buildings in Downtown Toronto or Downtown Vancouver.

I’m talking about wood construction. That includes housing, condominiums, and commercial wood construction.

And with the Salesforce we have and the aggressive system we have, we do cover the geography pretty high in Canada. Like, we don’t leave a stone unturned and we go after the business.

And those are where all those activities are paying back to us right now.

Okay. Great.

Maybe last question before I get back into queue. Maybe for Melissa.

On the working cap, just the working cap drag that we saw in Q1 from higher inventories, do you expect that to reverse in Q2 or possibly Q3 as you deliver on more projects? Or so generally, some color on your working cap expectations for the coming quarters?

Yes. We do typically see drag on working capital coming out of Q1.

And really, you’ll see a little bit maybe at the end of Q2. It might not show completely in a full three quarter into Q2, but Q3 and Q4, we see that pick up quite a bit with especially with cash flow.

This year, with our investment to try and allow for more capacity into the summer months, we did invest a little bit extra into these finished goods this quarter. So yes, we’re seeing a little bit of drag on cash, but we had the availability to do this and with the results paying off later in the year.

Great. Thanks very much.

Thank you, Frederic.

Sorry about that. Can you guys hear me?

Okay. So sorry about that.

Yes. Congratulations on the results.

I’m calling on behalf of Russell Stanley. So just regarding the acquisition in Western Canada, understanding that you do not own it yet and may not have any numbers to share.

Can you guys provide any color as to how that business has been performing versus your expectations? And are there any notable differences versus the base business?

Melissa, do you want to go on that one?

Yes. We have – they are – so compared to the base business, they’re pretty steady with what we anticipated.

They are seeing a strong start to this year, which is getting us excited to get this acquisition across the finish line here. That provides some color.

Okay. Thank you.

And then just moving over to homebuilder demand. Understanding that there’s a lag between housing starts reported by the CMHC and your physical demand picture, April starts showed some surprising strength.

Can you talk about the actual homebuilder activity this spring and how it compares to last spring? Are homebuilders expressing more or less confidence?

No. They’re more and more comfortable right now because we went through two elections in both countries and then the all the tariff talks.

And while the tariff talks going on, we had the election in Canada. And nobody was concentrating on business, and everywhere was glued to about what’s going to happen in election and all of that stuff there.

It was just a lot of noise, a lot of unnecessary noise what’s going on there, and people were preoccupied. But now the politicians getting to work, and the builders is like, “Okay, time to get to work.”

So there have been a lot of posturing in the last two years and lots of wondering, but they were getting ready. There are lots of projects that they are getting ready to press green light and go.

And that’s what we see out there. It’s like, be ready.

Get ready that things could turn pretty faster. That’s the sense that you might get.

Okay. Perfect.

Thank you for the color. Congratulations on the results once again, guys, and I’ll hop back in the queue.

Say hi to Russell. Thank you.

Will do.

Thank you.

Thank you.

Perfect. Thanks.

Good morning, everyone. Maybe a first one just here for Melissa.

We talked about the working capital release that you expect for the back half of the year. But, even then, if I take a look at the cash position, assuming that some of those proceeds do come back into the fold, $8 million of cash this quarter, but call it $15 million of CapEx left for your normal CapEx facilities as well as the robotics at Clinton.

How should we be thinking about that funding gap? Are you guys mostly going to do that with debt?

Or are there any other options available for you guys on the capital side?

Yes. I mean, we’re definitely still - Hadi’s definitely still pushing that sales team to get as much work we can through the business here for the next few quarters, driving up that internally generated cash flow as much as possible.

But, yes, at this point in time, the next best thing looks like it is debt at the moment. And we do have that line of credit with our current banking partner that we can go in and out of as we need to depending on how that cash tracks in and out over the rest of the year.

So, yes, we do have that strong partnership that we’re in constant contact with right now.

Okay. That’s perfect.

And how much room is left on your revolver, just so we’re aware?

It’s up to 7.5%, and we haven’t used it yet.

Okay. That’s good.

And then just curious, just going back to Frederic’s original line of questioning on the quoting activity. You guys called out the wood frame commercial market, really benefiting LCF.

Are the markets that you’re in on your legacy plants, are you guys fully penetrated into the commercial wood frame market? Or is there room to do there as well?

We are, certain locations, we are penetrated pretty good, and we are the choice supplier in those markets – in those certain markets that we have been there longer. And that’s one of the arms of the organic growth that we implement.

We when we do M&A that we immediately work on, once you we purchase a company because they usually trust manufacturer and some do a little bit of wall and a little bit of engineered for wood product. But based on their size and cash availability and buying power, they can’t really get aggressive in that market.

And then that’s one arm of the M&A that the organic growth that you see the result were showing that we implement. And that’s the part I’m really excited about is the implementing the – that the team is a believer now into organic growth.

That we are not just a trust manufacturer. We are engineered wood product supplier, design and supply, and a wall panel supplier.

And that just become the norm of language for us right now. And those are the areas that is so positive even in the slow time for us is the organic growth that we increase in those market.

And there are lots of opportunities available in those markets. Sometimes it takes a while for the work to do the design and supply everything.

So the result shows up later. So whatever you plant your seeds right now, it could be three months, six months down the road that it turns into a revenue.

But that’s the one area that I’m really excited with the team that we are, we look at all the time and we go after at the moment. It’s a big, big, advantage for us.

Yes, it does sound like an exciting opportunity. And then maybe just a last one for Melissa.

I mean, you take a look at the organic growth or revenue growth for the quarter. It was pretty strong at 20%.

How should we be thinking about it from a volume perspective? Like, if we stripped out the price of lumber, how much more volumes or however you want to define it would that look on an organic basis on a year-over-year number?

Yes. I mean, from a production volume and capacity, there’s a lot more that we can still put into quarter one, typically the worst of the year.

But stripping out lumber, this is still the lowest, usually, it is throughout the year. We are seeing some strong rebounds or some rebound, I wouldn’t say actually strong, in the lumber, which is our pass-through cost.

So looking at the forward look of this year, happy with how the costs are looking and moving forward. But we definitely have room.

We had more room in quarter one for further growth as we move forward with our strategic plans and organic growth.

Okay. That’s it for me.

I’ll hop back in the queue. Thank you.

Thank you, Dave.

Great. Thank you very much, and congrats on the Q1 results here.

First question, just want to go back to the targeted inventory build in Q1 for projects coming in Q2, Q3. I just want to clarify whether those are firm commitments or whether you’re building some of the inventory on spec.

And then second, just to clarify whether this is something you’ve done before or a new practice, for Atlas.

Good morning, Andrew, this is not a new practice for us. This is we’ve always done it.

It’s basically, it’s a commitment and we call it winter works. That being our lingo we use at our operation base is that there are you have certain clients that 12 months a year, they built.

And usually, those are the commercial builders or whether they’re building hotels, motels, and that kind of building or even housing. And once they give you a contract for a subdivision, say, for 100 homes or 200 homes, they never change those designs or anything.

The specs are the same. Everything is the same.

And then they will give you a schedule of the time they need this product, and we use those products and stuff to work through the winter and build ahead of time and do the delivery when they are ready once they do the first building, the second building, and the third building. And those are firm purchase order commitments, and those are long-term contracts we have with most of our clients there across the country.

And those are the type of jobs we do all the time for them. And, basically – and you – and then you gauge your capacity in manufacturing either you have less capacity in the summertime when the busy season starts, and you have more capacity in the wintertime.

So we built ahead of time. We do not build anything as an inventory that hoping we get a order for it because process is not that kind of product.

You are manufactured custom for the building. But these are all big, big, contracts that we have and the developers, they just build one building or two building at a time.

And then we – as they need it, we deliver it to them.

Got it. Okay.

So these are for longer term, larger scale projects that you think visibility on. Got it.

Absolutely.

Excellent. And then a follow-up question would be, I’m keeping an eye on the resale market conditions for existing homes.

And for most of the country, it still appears the market is tight, but there are growing inventory balances in Ontario and BC. The GTA market in particular looks weak.

Have you seen homebuilders nervous about the inventory of unsold homes? Or are there some mitigating factors in your view that, keeps those groups excited for the remainder of the year?

If I – the first, I’ve got to take the stats away from BC and especially BC and GTA. And we basically take the – it’s in it’s pretty difficult to do.

But we take the stats away from the concrete high rises. That’s a huge number of unsold homes in those sectors there.

And that is the sector we are not in. We don’t do any business in that area, but it’s a smooth freight.

And really, I don’t know if I would call it nervous, like, most of the established builders this is not a first time. Like, you go usually to a cycle of five to seven years and things slow down a bit.

I don’t know if the nervousness is a part, but because a lot of them slowed down right after the boom we had after COVID, and they knew this is not going to last the way everybody was hungry and interest rate. The moment interest rate started to jump up, they started to shorten their inventory.

And this is about the low rises. This is five, six story homes or townhouses and everything, and they slow down and then they just wait.

But the moment they slow down is you but for the future, they do their planning, they do their land purchases, they do their zoning and all of that stuff, because nothing ever stays down. Like, sometimes you hear the politician talk and stop there, and then we pay too much attention to their gas lighting because then it sounds like the world has ended.

The one thing’s never ended this increased the demand for housing in Canada keeps increasing every day, every month. And the increase is completely opposite to what we supply them out there.

And developers are they were nervous for a while about what these guys are going to do and what’s the government going to do stuff. Yes.

But they know the pressure and the demand is out there, and somehow we got to find solutions for it. Even right now, we are working with them and we look at how can we make the houses more affordable for them.

And how could we do this? How could we do solutions for that?

Because really at the end of it, you can’t expect the government to solve everything for you. They will not – they will mess it up for you sometime.

And it becomes up add to us in our industry. What do we do to make these homes more affordable and make it more efficient and move forward?

And those are the conversations we’re having with them. And at the end, you’re right.

If they keep an inventory of five to 10 homes, and if they sell them, they sell one or two, they will start another ones. And if they don’t, they just wait till they find a buyer for it.

Then they become creative on lowering the down payment or helping with the financing and all of that stuff there, and that’s it. So it’s amazing once you start becoming creative in your own business and take care of your business, how you find a solution rather than always looking up for somebody else to come up with the solution for you.

And our industry, we have a lot of creative entrepreneurs that they always come up with that solution.

Great. That was helpful context.

I appreciate that. I’ll turn the call over.

Thank you.

Thank you.

Thank you, Steve. Thank you, everybody, for being on the call.

Have a great day.