Atlas Engineered Products Ltd. ($AEP)

Good morning, everyone. Welcome, and thank you for joining Atlas Engineered Products Q1 2026 Earnings Call. I am [ Jake Bama ], an IR consultant for AEP. Today on the line discussing AEP's Q1 and 2026 financial results and company highlights are the company's President, CEO and Founder, Hadi Abassi; and CFO, Melissa MacRae. Following the remarks, we will open up the call for an analyst Q&A session. Before handing over the call to Hadi, please note that 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 AEP on SEDAR when reviewing this information. Also, all amounts discussed will be in Canadian dollars unless otherwise noted. Hadi, please proceed with your remarks.

Thank you, Jake, and good morning, everyone, and thank you for joining us. The first quarter of 2026 presented a challenging operational [ and ] operating environment, driven by different market -- difficult market condition in Ontario and British Columbia as well as more severe winter weather across much of Canada compared to recent years. However, our team work very hard through this condition while continuing to prepare for a stronger remainder of the year. We made important progress on our first automation facility, advance our sales and design capabilities and continue to build order book. While near-term conditions remain competitive, we believe our scale across the country, automation strategy and growing national footprint positions us well to gain market share as construction activity increases. We are continuing to report high [ coating ] volumes from the beginning of 2025. In our year-end call, we reported that the first quarter of 2026, coats exceeded $18 million. Coating has exceeded $109 million up to end of April 2026 [ compared ] to $93.4 million up to the end of April of 2025. This sustained activity is translating into a stronger order volume with orders totaling $29 million up to the end of April 2026, up from $16 million in the same period last year. [ What ] is a stronger order trends did not fully translate into the first quarter revenue due to weather-related shipping disruptions we believe AEP's aggressiveness to increase market share despite market condition remaining similar to the prior year. A major milestone for AEP is the near completion of our first robotic trust manufacturing facility in Clinton, Ontario. Construction of the building is expected to be completed during the second fiscal quarter with robotic equipment already shipped and the first shipment has arrived in Canada. Operations are still anticipated to begin in early July 2026. This automation initiative represents an important step in our long-term strategy to improve efficiency, increase capacity, enhance margin and strengthen our competitive position. From a major mass [ AP ] is the near competence [ composition ]. Sorry, mouse doesn't work for this one. From a growth perspective, we remain focused on expanding our wall panel manufacturing capabilities and increasing our ability to deliver complete project packages, including roof, flow [ causes ] and wall panels and engineered wood products. This further [ offering ] strengthens customer relationship increases average order value and helps reduce our exposure to recessionary pressures by driving greater revenue opportunities per project. Beyond organic growth, we remain active in evaluating acquisition opportunities across North America with industry EBITDA currently at cyclical lows, we believe the return potential on the strategic acquisitions remain attractive. We are actively reviewing additional opportunities for 2026 and beyond. That could expand our geographic footprint, manufacturing capabilities and industry expertise. With that, I would like to turn the call to Melissa MacRae, CFO of AEP, to provide further commentary on our financial performance and position through our Q1 2026. Thank you.

Thank you, Hadi. Results for Q1 3 months ending March 31, 2026, include revenues of $9.3 million, gross profits of $273,000 and normalized EBITDA of negative $800,000. Revenues decreased compared to the prior year due to market conditions in the construction industry, especially in Ontario and BC as Hadi mentioned, with more severe winter weather conditions across much of Eastern Canada compared to recent years. Additionally, the company had two significant winter projects in the comparative period, while the company has secured jobs of similar sizes for fiscal 2026. They are scheduled for delivery throughout the remainder of the company's fiscal year not in the first quarter this year, unfortunately. Gross profits declined driven by the reduction in revenues mainly. Each winter of the company maintains key staff that are needed through -- that are needed during the busier construction months. [ And ] we don't want to risk losing them with layoffs. This increases the labor component during the winter months, along with maintenance costs as the [ quieter ] winter months are the best time to complete maintenance. These costs reduced gross profits though, especially as revenues also declined. The company will typically work to offset these costs with as much winter work as possible and the ability to increase margins later in the year when busier and normal market conditions. Reduced revenues and increased costs, as I already mentioned, contributed to the normalized EBITDA results as well. Additionally, the company has increased costs related to sales and management in preparation for the new automation facility and [ enter ] staff are trained and ready to go as soon as the plant is ready. These costs are included across cost of sales and general and administrative costs but are not added back for normalized EBITDA as they will be ongoing costs moving forward. I'd now like to open up the call for your questions. Operator, please provide the appropriate instructions.

[Operator Instructions] And the first question is from Russell from Beacon Securities.

Congrats on the order flow, it's great to see. But wondering if you can talk a little bit more about what you're seeing on pricing particularly in Ontario and BC. Is the pricing pressure moderating at all or decelerating? Or is it kind of continuing with the same sort of intensity you observed, perhaps a year ago? And I guess, the second question to that would be, is the pricing pressure pretty uniform across product lines or some more resilient than others?

Russell. So I think the pricing pressure we have found the sweet spot look, and it fluctuates up and down depending to the type of product like you ask or type of client and the size of the product and the size of the job. But we appoint a sweet spot that we [ operate ] in that area. And then for the moment, unless something significant changes in the volume and the future of the economy and the industry. We are going to keep operating in that sweet spot there. And keep [ in ] on it because -- and we have found where our comfortable is, and we are operating in that zone right now there. And we are flowing ambitious plan in that zone. And that said, I'm talking about basically the Ontario and part of British Columbia, not the rest of the country. The rest of the country is a whole different economy we have there. And all the deli in Q1 was really the real severe winter time there that nobody was working. And that's all I can tell you. Unless you will see some significant action into the buyers coming into the market and Ontario, like if they come and buy the inventory start moving and all of tasks and all of them, we see a significant increased overall capacity in the factory and production, the price will remain just the same way as he has been. We want to keep the pressure on. We have find a sweet spot, and we're gaining market share, the increase in volume and we are doing okay, like we will make money. And we're going to keep our foot on the gas for now and to keep it that way.

And then my next question, just around the government grant, can you remind us what the expected cadence of how that works in terms of receiving payment or the offset there? And I guess second question would be the latest in terms of other opportunities for grants from various levels of government.

Okay. Melissa?

Yes, I can answer that one. So the -- we had to spend -- so the $4 million federal grant that we had received and announced. We had to spend $4 million from February 3 to March 31. So that increased -- we had to actually accelerate some of our spending on the building and the equipment to meet that requirement. We did meet it, which is where we showed the $4 million government grant receivable in our books. That is we did apply. We put an old paperwork and it's been approved as of April -- the end of April 30. Now we're just anticipating receiving the funds by the end of this quarter. And as for other other brands. There is possibilities. There is some provincial ones that we can still pie for. Within these graphs, there is stacking rules. Some provinces limit that you can only go up to like, say, 40% or 50% of the whole project cost. That still gives us a lot of opportunity to triangle for more. But at this point, we're also looking at what's the next project? And is there any grants related to that out there that we could apply for.

Got it. Maybe my last question, and I'll get back in the queue, just around the additional equipment sold. Can you remind me, is there just one more shipment? And when do you expect that to land for Clinton?

There is one more shipment for the robotics that's coming. -- you may correct me if I'm wrong, but it's on its way, I believe and should arrive in the next couple of weeks and the same with the other shipment that so we've got one equipment, one shipment of the robotics already here on shipment of the robotics on the way and then one shipment for [ Sal ] that's on its way from.

Right now, they all they've left on their way and the fit schedule of the installers in Canada that they are doing the rigging and install it. And right now is -- we were really anxious about all the shipping and everything happening in the world. But somehow, that all -- it's a side right now. There is no major thing, and they could even be in the port of Montreal right now to be declared to the customer right now like it's going -- touchwood and keep your fingers crossed, it's actually going pretty good from the pictures. I got last Thursday and Friday, everything moving slowly and surely and very good patiently because the robotic equipment and stuff there, like they keep me away from it from the anxiety of get it down, get it down to just do it methodically and properly and less everything up properly and stuff, and it's happening right now, right? It's taking shape in the warehouse right now. It's actually it's quite exciting to see a point stage by stage right now [ Ross ]. That's some comment I'd like to make regarding the grant. I know in the past, there was norm of a publicly traded company, they would tell you, you have access to capital in the market stuff there. So not much of government program was favorable to it. But -- for this one has been on the innovation and being such a significant move in the country that it was actually -- the dollar value is very, very important for us and the contribution for the government. But in terms of acknowledgment and giving us credit that we've taken this initiative a step forward in our industry. That was like a validation that it gives our sense to what we're doing. That is very, very important for us, and we opened the door for many, many other programs. However, it's like everything else. This is innovative. This is first time a year we've done it. It's been proven in U.S. and Australia. Canada will be the first one, and we need to prove it. And I have no question about that, that it will be a major proof and major move for us because I've seen it in action so many times. And it now is for us the time from now for the next 6 months, to diligently set it up, make it work, train the people and prove that this concept work. And then everybody is waiting and see. It's not just the investors or our employees or the everybody in the country. The competition will wait and see what happens. And once you see if the contract is working, setting it up across different areas is pretty simple because you have a proven system that is already working. And that's what really that the excitement is, and that's what -- when the government grant was that was exciting for me, it was, well, we got validation from the actually from the government that this is a game changer of what we are doing. And it's happening like we're 2 or 3 months from it happening, and it's just exciting to see that. So.

So next, we have Frederic from Desjardins.

Thanks for the color on the strong quoting and order activity so far in 2026. I was wondering if you could comment on the pace of deliveries so far in Q2. Would you say that meaningfully higher than Q1 as we'd expect given the Q1 dynamics?

Melissa?

We're seeing shipping pickup pick up through quarter 2 here as we would anticipate. We did have what I would say last year, we did have a higher quarter 1 than typical and a lower quarter 2 than typical, whereas this year, we're seeing the normal trend more. So as we move forward [ here ]. We're anticipating that the quarter 2 is going to follow a more normal trend and be -- not follow the same lower trend as last year.

Okay. That's helpful. And just on the large projects that you mentioned that you do have on the books, but weren't scheduled for Q1. Any of that coming in Q2? Or is that more of a second half of 2026 event?

Simon, it's actually going to be spread across, which is -- it's where it's going to blend in a little bit more than quite then standing out as much as last year. how you might be able to add more color, but it's -- there's some that are going out of here at the end of quarter 2, but there's a lot through quarter 3 and 4, actually.

Yes. You see, Frederic is that after all the years I've been in the business, this business, I'm learning new and one of it is is because we are a nation. We are across country to and -- in BC, we dealt whether body was just crazy rain for a few days, and we didn't have the [ Aland ] snow and everything freezing and after. When I look at the Q1, and if you look at the top line of revenue, usually, most CEOs or CFOs panic and say, "Oh my God, we are not meeting the expectation everything. And then when I looked at the difference in the order book, it was, "Oh my God, how are we going to deliver everything in Q2 and part of Q3 because -- that's not just all the orders. The orders will keep on picking up every day, every day. And to me, was the delivery and the panic of anxiety of labor force and manufacturing and shipping all that order. Like I was excited that a [ lot ]. [ We ] actually, our sales force and the strategy we put forward. We won and we went to battle and we want hunting and then we fill the order book. Now it was like, how are we going to deliver it? Because you still got to design it, manufacture it and ship it. But once I was looking for the panic and anxiety of shipping and pandemonium happening. But what I've noticed can go there is craziness hasn't happened. There is a steady flow of increasing as [ we ] move on. And he hasn't come look all of a sudden because sometimes in our business, the dam opens up and everything comes that you add once and every wants everything tomorrow. But there used to be some kind of -- whether we are used to it now or there is a steady flow and increase on the curve, if it's moving up. And although you love to see a double all of the sudden overnight, but that's kills your system too. And it costs you more by panic and anxiety. I see a steady flow is moving up and moving up there. And somehow I looked at the Q1 and I looked at the book orders to close everything and I'm not happy with the revenue, it where it was, like I will never be happy with that, but it was an actually amazing feeling that the game plan and the strategy is working and everything is recording to according to plan. And regardless of what the economy is like because the economy is not the best. And we have learned to start increasing volume, organic growth, M&A, everything despite all the craziness is going on in the country and in the world right now. The sentiment is not the best. We have found out to spot that we are positive. We're moving forward, and we're doing everything. M&As, robotics, marketing, adding to sales force, everything while everybody is trying to survive, we are building the business. And it starts twist that we don't want to change. We keep there and we operate and we stick to the plan.

And the last analyst, we have is Nick from ATB.

I'm just curious on the quoting activity that had an list at you guys quoted or brought up, and especially as it ties into those larger customers, is there any change that you're seeing in terms of the dynamics, either who those customers are, the types of projects that they're trying to bring forward or what their expectations are from you as a partner. And I'm curious if it's tied into the trust, the wall panels, everything else, pricing availability, just what shift generally in the market you're seeing?

Nick, there is -- there is a shift into the organic growth part and our revenue is increasing percentage by percentage on the wall panel side. And that's some part of it is from existing clients and the areas we are. And in certain areas, we have been able to add to our sales force that they work within the industry. And those are the clients that they were loyal and they will be that company or with that design team or whatever, and now that they have moved to us. That, to me, been one significant change is happening right now, too, as we are we are gaining that momentum in the market share through that area other. And that's been even despite like we compensating the coating activities after and from certain areas, especially saying U.S. or certain area has been quiet right now is the change of seen happen there really -- is we are taking the market share away there. And we are gaining new clients that they were dealing with competition for years and years, and now they have moved to us there because of the credibility we have earned in those regions and the addition of the sales force we have added to our company.

Okay. That's excellent color how you think...

But the wall panel, the organic growth is starting to show significantly on certain operations we have that they have adapted to the full component manufacturing is starting to show significant.

Okay. Got it. Would you say that the benefit of these new salespeople? Is it fully captured in these results or for the rest of the year, should we continue to expect them to steal more market share? Is this just the beginning of a trend?

This is not that beginning, of course. [ Give ] you no at gen.

Okay. On the wall panel, and I guess it ties into the M&A dynamic, are you changing or updating kind of where you want to have that new capacity, how you're thinking about growing? Has anything shifted since we last spoke?

Yes, basically, nothing changed. We keep on the same game plan, and we identify good targets and good results and good companies. But now originally, when we started the target was trust manufacturers -- now we're looking at all finder manufacturers. What size they are, what location they are and we're looking at some M&As at that. So our target base has expanded, not just process, it's the full component manufacturing side because there are not a lot, but there are a few allude manufacturers in the country that strictly they manufacture wall panels and they install. Now we're looking at in talks and software to expand in that marketplace. That's what we're looking at, yes.

And this marked our -- the end of our question-and-answer sessions. And we will be available post-call to answer any questions you may still have. Either via e-mail or a phone call, and you can also go on to our website [ and ] as to submit your questions, and we will address them as well. And we thank you for your interest in Atlas Engineered Products for participating in this call. And then at this time, you may now disconnect. Thank you very much, and we hope you have a great day.

Thank you. Have a great day, everybody.