Atlas Engineered Products Ltd. (AEP) Earnings Call Transcript & Summary

Good morning, everyone. Welcome, and thank you for joining Atlas Engineered Products' Q2 2026 Earnings Call. I am Jake Bouma, an IR consultant for AEP. Today on the line discussing AEP's Q2 2026 financial results and company highlights are the company's President, CEO and Founder, Hadi Abassi; and CFO, Melissa MacRae. Following their remarks, we'll 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. Good morning, everyone, and thank you for joining us. The second quarter of 2026 reflected the strength and resilience of our team, delivering a stronger financial performance over the prior year and the first quarter of 2026. While the market conditions in Ontario and British Columbia remain competitive, quoting and other activities continue to be encouraging, and we are seeing benefits from the investment we have made in sales management and operational capabilities. We have made important progress in our first robotic truss manufacturing facility in Clinton, Ontario, with equipment installed and commissioning underway as of late this July. We anticipate delivering our first truss orders from this facility in September 2026. We continue to report high quoting volumes from the beginning of 2025 and continuing in 2026 up to the end of July 2026. Quotes exceeded $176 million compared to roughly $159 million and $125 million up to the end of July 2025 and 2024, respectively. Because the quoting activity has been significantly higher in both 2025 and early 2026 than the previous years, order volumes have also been increasing. Up to the end of July 2026, orders totaled over $49 million, up from more than $33.7 million in the same period of 2025. However, while orders are being placed, we are noticing that there are more lead time on these orders than during a higher -- a busier market, and deliveries may be in the subsequent quarters instead of within the same quarter as the order was received. We are also seeing typical seasonal recovery in the market for the summer and anticipate this continuing in the fall of 2026. We remain cautiously optimistic that the HST relief on new housing in Ontario seems to have sparked some market recovery, but anticipate signs of long-term recovery will become more evident through the winter and early 2027 during a typically slower construction season. AEP continues to drive organic growth to expand its focus on wall panel manufacturing and offering customers complete project packages that include roof, floor trusses, wall panels and engineered wood products. Additionally, we are assessing the benefits of adding loose lumber material and wall panel installation to its offering to customers. These strategies can help reduce our exposure to recessionary pressures by increasing potential sales volume per order. In addition to its organic growth strategy, we continue to evaluate acquisition opportunities across North America. Each potential acquisition is evaluated based on its geography, results and growth potential. With that, I would like to now turn the call over to Melissa MacRae, CFO of AEP, to provide further commentary on the financial performance and position through Q2 2026. Thank you, everybody.

Thank you, Hadi, and welcome, everyone. Results for our Q2 3 and 6 months ending June 30, 2026 include: revenues of $16.2 million for the quarter and $25.5 million for the year-to-date; gross profit of $2.8 million for the quarter and $3.1 million for the year-to-date; normalized EBITDA of $1.7 million for the quarter and $1.2 million for the year-to-date. Revenues increased due to the expansion of the sales team for market growth and the acquisitions of Truss-Worthy and Penn-Truss later on last year. Gross profits increased in the quarter, driven by the increase in revenues. For the year-to-date, gross profits are still decreased due to the results of the first quarter, which were driven by winter weather conditions and industry market conditions in Ontario and BC. Through the winter, the company has maintained certain costs, which drives gross profits down, unfortunately, but 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, as seen by the increase in gross margins from 3% in the first quarter to 17% in the second quarter. These are typical seasonal trends in our industry. Normalized EBITDA continued this positive trend, moving from the first quarter of 2026 to the second quarter and for the second quarter of 2026 compared to the second quarter of 2025. This increase in normalized EBITDA dollars was driven by increased revenues, consistent margins and slightly reduced operating expenses, along with the add-backs related to onetime costs of the new facility -- of the new automation facility. Still, not all expansion costs have been added back as they are anticipated to be ongoing costs that are needed to scale up with an automated facility such as the sales team and some management support. The decrease in normalized EBITDA for the year-to-date results is driven by first quarter results, the same as gross profits. The winter work costs and seasonality of our business can be seen in normalized EBITDA results already moving from the first quarter to the second quarter of 2026. In Q1 2026, we had a negative 9% normalized EBITDA margin, whereas the natural seasonal increase, along with organic growth moving into quarter 2, resulted in an 11% normalized EBITDA margin, while moving forward, the remainder of the year is typically seasonally stronger than both the first 2 quarters of the year. I'd now like to open up the call for your questions. Operator, please provide the appropriate instructions.

[Operator Instructions] And it looks like our first question is from Russell, Russell from Beacon Securities.

Maybe first around the loose lumber materials and the wall panel installations. Can you elaborate on how far down the road you are in evaluating those opportunities and perhaps what you think the margin profile might look like relative to your other businesses?

So based on a full total lockup package, like that's minus the doors and windows, we actually implemented that across certain provinces in the country, especially Ontario and BC. New Brunswick, we already do it. The only thing we don't do in New Brunswick is we do not do the installation down there and the loose material. We do the walls, floors and trusses. It's the marketplace there, and the demand and the way the geography is, that's why we do that. In Ontario, with certain clients, long-term clients, we have started to do the total package as trusses, floors, walls, installation and loose materials. And we have done that in British Columbia -- starting to do that in British Columbia, where we have delivered the wall panel. So really, what we first we did was, Russell, phase by phase, firstly, set up the wall panel and the [ floater shed ] manufacturing to deliver those two components to the client. Now the next stage is we are adding the installation to it. And we have case study that it works and is successful, and we are in progress of building our team, building ourselves up to move that direction. The organic growth percentage is great. Plus, it gives the contractor and us a full control of the job. So if some delays happen, it's either them or us. There is no in-between person. And the contractors find it is cost-effective, very efficient, and that's one way to address the labor shortage we have in the country.

Got it. And maybe around government efforts to support or accelerate home construction, you talked about the HST relief. We've recently seen some announcements around infrastructure, for example. I'm wondering between that and whatever other efforts might be in the pipeline, how impactful you expect this kind of support to be?

Well, anything they do and any initiative they take is really impactful. And one thing I've learned is, I guess, once you start paying more and more attention to the announcement, sometimes you get disappointed because it doesn't happen tomorrow morning. But -- and then what I noticed is the bureaucratic system, is the governmental system, everything that they got to go through the due process. And the announcements they've made in the past and stuff, and some of it is coming to fruition. And it's because even despite all the headwinds we have. Every 5 minutes, you get a new thing about tariffs or whatever is out there in the world, it's a crazy world out there. And still, the construction in Canada, in my opinion, the two biggest provinces, Ontario and BC, it bottomed out, completely bottomed out, and there is no way to go up. And it's recovering on its own strength. And just think of all these small or big initiatives the government is talking about, the infrastructure, the HST relief. So there are all those conversations that is starting to help. But it's not an overnight remedy that, hey, let's inject billions of dollars and fix it overnight. Because everything happens overnight, it will disappear overnight too. So I actually like it. It's brought a certain toughness and resilience to our business, to many, many businesses in Canada. Stuff like this is it, and [ big daddy ] is not going to take care of it. We'll make it happen.