Earnings call transcript: Atlas Engineered Products Q1 2025 beats EPS forecast

Atlas Engineered Products Ltd (AEP) posted its Q1 2025 earnings, revealing a narrower-than-expected loss per share and a significant revenue increase. The company reported an EPS of -0.01, beating the forecast of -0.015, and revenue of $11 million, surpassing the $10.02 million forecast. This performance led to a 3.9% increase in pre-market trading, with the stock price rising to $0.80 from the previous close of $0.77. With a market capitalization of $55.06 billion, AEP has attracted attention from analysts, with InvestingPro data reveals that analysts expect net income growth this year, with the company projected to return to profitability. The next earnings announcement is scheduled for July 24, 2025, offering investors another opportunity to assess the company's progress.

Executive Commentary

CEO Hadi Abbasi emphasized the company's role in supporting affordable housing initiatives, stating, "We see any 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." Abbasi also highlighted the increasing demand for housing in Canada, noting, "The increased demand for housing in Canada keeps increasing every day, every month."

Risks and Challenges

• Supply chain disruptions could impact production timelines.
• Market saturation in certain regions may limit growth opportunities.
• Macroeconomic pressures, such as interest rate hikes, could affect construction activity.
• Competition from other construction material suppliers remains a challenge.
• Regulatory changes in the construction industry could alter market dynamics.

Q&A

During the earnings call, analysts inquired about the potential Western Canada acquisition, which the company confirmed is performing steadily. Questions also focused on working capital expectations, with AEP anticipating a release in Q3-Q4. The company explained its inventory build strategy for winter and long-term contracts, addressing market conditions and builder sentiment.

Full transcript - Atlas Engineered Products Ltd (AEP) Q1 2025:

Steve, Call Moderator, Atlas Engineered Products: Alright, Jake. Take it away. Good

Jake Boma, IR Consultant, Atlas Engineered Products: morning, everyone. Welcome, and thank you for joining the Atlas Engineered Products earnings call. My name is Jake Boma, IR consultant for AEP. Today on the line discussing AEP's Q1 financial and operating results and company highlights will be CEO, Hadi Abbasi CFO, Melissa McCray and Director, Paul Andreola. Following the discussion, we will open up the call for a Q and A.

Before handing over the call to Hattie, 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, Adi.

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Hadi Abbasi, CEO, Atlas Engineered Products: Good morning, every everyone. Welcome to Atlas in the engineered products earning call to discuss our February results. We are excited to be with you today, and thank you for joining us. We are highlighting another strong quarter for our from an execution standpoint, completely bucking the industry trends and delivering on a more diversified product offering with bigger share of the customer wallets. We continue to generate industry leading margins through the tough tough market and take market share, while significantly growing the wall panel and engineered wood product business.

As we indicated in your q four 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 any 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 with both, Canada and the US elections now behind us, we accept 02/2025 to be the key inflection year for the company, and we are encouraged to see momentum from 02/2024 carrying into 02/2025. The quote log and bookings are gaining momentum, and we we see green shoots in the builder sentiment with uncertainty abating in the market.

Argumenting the organic growth, the m and 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 q two two thousand and twenty six. Capital allocation is important to the company. While m and a and automation have been the focus of in 02/2024, 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 the stock and we'll 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 and A and buybacks. We have 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 McCree, our CFO of AEP, to provide commentary on coupon financial and operational performance. Thank you.

Melissa McCray, CFO, Atlas Engineered Products: Thank you, Hattie. Results from our Q1 twenty twenty five include revenue of $11,000,000 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 multifamily 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 multifamily 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 twenty twenty five compared to last year's same quarter. Typically, margins are the lowest in our 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 twenty twenty five.

This is an increase over the prior year due to the increase in revenues and sales. Normalized EBITDA includes some adjustments to onetime 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 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 03/31/2024, but strategically leaving production capacity available in the second and third quarter where capacities are typical 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.

Steve, Call Moderator, Atlas Engineered Products: Thank you, Helly, and thank you, Melissa. So at this time, we'll be conducting a question and answer session from our analysts. So please raise your hand if you have a question, and we will address each, one of you in order. If there's any outstanding questions, still at the end of the call, there will be our contact information on the screen. So we'll be happy to take them all, by email.

So looks like our first question is from, Frederic, from Desjardins Securities. And, Frederic, your microphone has been enabled. Great.

Hadi Abbasi, CEO, Atlas Engineered Products: Thanks. Good morning. Good morning.

Frederic, Analyst, Desjardins Securities: 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 on the multifamily front. Just that sort of color would be helpful.

Thanks.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you, Farjek. The one advantage we have in Canada, we have a national footprint right now, and we're expanding on that. And it's historically it's always been like this. There's certain provinces in Canada, the construction slows down and other provinces pick up. You know?

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 coating in The Prairies and a certain part of the British Columbia and Ontario. The coat activities increased. And, of course, we do a small amount of business in US, 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. So is 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. So 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 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.

Frederic, Analyst, Desjardins Securities: Okay. Great. Maybe last question before I get back into queue. Maybe for Melissa. 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?

Melissa McCray, CFO, Atlas Engineered Products: 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 to try and allow for more capacity into the summer months, we did invest a little bit extra into this these finished goods this quarter.

So, yeah, 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.

David, Analyst, Cormark Securities: Great.

Frederic, Analyst, Desjardins Securities: Thanks very much.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you, Frederic.

Steve, Call Moderator, Atlas Engineered Products: Thank you. So now we have Danjil from Beacon Securities. Go ahead. Take it away. Angela, you're still muted.

You're still muted.

Daniel, Analyst, Beacon Securities: Sorry about that. Can can you guys can you guys hear me?

Steve, Call Moderator, Atlas Engineered Products: Yep. We can hear you now. Perfect.

Daniel, Analyst, Beacon Securities: Oh, okay. So so so sorry about that. Okay. Yeah. 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, do 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?

Hadi Abbasi, CEO, Atlas Engineered Products: Alyssa, do you wanna go on that one?

Melissa McCray, CFO, Atlas Engineered Products: Yep. Yeah. 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.

Daniel, Analyst, Beacon Securities: 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?

Hadi Abbasi, CEO, Atlas Engineered Products: No. They're more and more comfortable right now because we went to 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 there was nobody was concentrating on business, and everywhere was glued to about what's gonna happen in election They were just a lot of noise, a lot of unnecessary noise was 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 wandering, but they will getting ready. There are lots of projects that they are getting ready the green light sensor. Of course.

To press green light and go.

Daniel, Analyst, Beacon Securities: Yes.

Hadi Abbasi, CEO, Atlas Engineered Products: 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.

Daniel, Analyst, Beacon Securities: Okay. Perfect. Thank you for the color. Congratulations on the results once again, guys, and I'll hop back in the queue.

Hadi Abbasi, CEO, Atlas Engineered Products: I too, Russell. Thank you, Donahan. Will do.

Melissa McCray, CFO, Atlas Engineered Products: Thank you.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you.

Steve, Call Moderator, Atlas Engineered Products: Thank you. So now we have David from Cormark Securities. And, David, your mic has been enabled.

David, Analyst, Cormark Securities: Perfect. Thanks. Good morning, everyone. Maybe a first one just here for Melissa. We we talked about the working capital release that you expect for the back half of the year.

But, even then, like, if I take a look at the cash position, assuming that some of those proceeds do come back into the fold, $8,000,000 of cash this quarter, but call it $15,000,000 of CapEx left for your normal CapEx facilities as well as the robotics at Clinton. How how should we be thinking about that funding gap? Are you guys mostly gonna do that with with that, or or are there any other options available for you guys on the capital side?

Melissa McCray, CFO, Atlas Engineered Products: Yeah. I mean, we're definitely still Heidi's definitely still pushing that sales team to 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 what 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 the rest of the year. So, yes, we do have that strong partnership that we're in constant contact with right now.

David, Analyst, Cormark Securities: Okay. That that's that's perfect. And how much room is left on your revolver, mostly, just so just so we're aware?

Melissa McCray, CFO, Atlas Engineered Products: It it's up to seven and a half, and we haven't used it yet.

David, Analyst, Cormark Securities: Okay. Okay. That's good. And then just curious, just going back to to Fredrik's original line of questioning on on the quoting activity. You guys called out the 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 the commercial, wood frame market, or is there room to do there as well?

Hadi Abbasi, CEO, Atlas Engineered Products: We are, locations, we are we are penetrated pretty good, and we are the choice supplier in those market in those certain markets that we have been been there longer. And that's been one of the arms of the organic growth that we implement. We when we do m and a that we immediately work on, once you we purchase company because they usually trust manufacturer and some do a little bit of wall and a little bit of engineer for food 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 and a that the organic growth that you see the result we're 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 engineer with 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.

David, Analyst, Cormark Securities: Man, it does sound like an exciting opportunity. Then maybe just a last one for Melissa. I mean, you take a look at the organic growth or revenue growth for the the quarter. It was pretty strong at 20%. How how should we be thinking about it from a a volume perspective?

Like, if we stripped out the price of lumber, how how much more volumes or however you wanna define it would that look on a organic basis on a year over year number?

Melissa McCray, CFO, Atlas Engineered Products: Yeah. 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 the forward look of this year, happy with how the the costs are looking and and moving forward, but we definitely have room. We had more room in quarter one for for the growth as we move forward with our strategic plans and organic growth.

David, Analyst, Cormark Securities: Okay. That that's it for me. I'll I'll hop back in the queue. Thank you.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you, Dave.

Steve, Call Moderator, Atlas Engineered Products: Thank you. So now we have Andrew from Vantum Capital Markets. And, Andrew, your mic has been enabled.

Andrew, Analyst, Vantum Capital Markets: Great. Thank you very much, and congrats on 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 wanna clarify whether those are firm commitments or whether you're building, you know, some of the inventory on on spec. And then second, just to clarify whether this is something you've done before or a new practice, for Atlas.

Hadi Abbasi, CEO, Atlas Engineered Products: Good morning, Andrew. This is a this is 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 in our lingo we use at the at our operation base is that there are you have certain clients that twelve months a year, they manufacture they build.

And usually, those are the commercial builders or whether they building hotels, motels, and that kind of building or even housing. And once they give you a contract for a subdivision, say, for a hundred 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 to work through the winter and build ahead of time and and do the delivery when they already want to do the first 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. And you 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 manufacture custom for the building. But these are all big, big, contracts that we have. And the developers, they just built one building or two building at a time. And then we as they needed, we deliver it to them.

Andrew, Analyst, Vantum Capital Markets: Got it. Okay. So these are for longer term, larger scale projects that they got visibility on. Got it. Correct.

And then a follow-up question would be, I I 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 you know, keeps those groups excited for the remainder of the year?

Hadi Abbasi, CEO, Atlas Engineered Products: If I first, I've gotta take the stats away from VC and especially VC and GTA. And we basically take the it's in it's pretty difficult to do, but we take the staff away from the concrete high rises. That 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 there's a mood for it.

And 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 the part, but because a lot of them slowed down right after the boom we had after COVID, and they knew this is not gonna 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 the one that low rises. This is five, six story homes or townhouses and everything, and they slow down. And then they just wait. But the 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, doctor, because nothing ever stays down. Like, something you hear the politician talk and stuff there, and then we pay too much attention to their gaslighting 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 gonna do and what's the government gonna do stuff. Yes. But they know the pressure and the demand is out there, and somehow we gotta 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 expect the government to solve everything for you. They will not. They will mess it up for you sometime. And this becomes too up 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 conversation we're having with them. And at the end, you're right. If they 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 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.

Andrew, Analyst, Vantum Capital Markets: Great. That was helpful context. I appreciate that. I'll turn the call over. Thank you.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you. Thank you.

Steve, Call Moderator, Atlas Engineered Products: Thanks, Andrew. So it looks like there's no more hands raised. So this marked the end of our question and answer session. Company is available post call to answer all of your questions that you may still have via email. And contact information is right now on the screen.

And if you call in without being able to see, that's info@atlasaep.ca. Again, info@atlasaep.ca. At this time, you may now disconnect. Thanks again for joining us, and I hope you have a great day.

Hadi Abbasi, CEO, Atlas Engineered Products: Thank you, Steve. Thank you, everybody, for being on the call. Have a great day.

Steve, Call Moderator, Atlas Engineered Products: Thank you.

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