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

[Audio Gap] My name is Jake Bouma, an IR consultant for AEP and moderator for this call. Today on the line discussing AEP's Q3 2025 financial results and company highlights are the company's President and CEO and Founder, Hadi Abassi; and CFO, Melissa MacRae. Following their remarks, we will open up the call for an analyst Q&A session. Before handing over the call to Hadi, please note that the information we present 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. Hadi, please proceed with your remarks.

Thank you, Jake, and good morning, everyone. Thank you for joining us on this conference call to discuss our third quarter 2025 performance. We are excited to be with you, and thank you so much. First of all, I remain deeply impressed by the dedication and achievement of the AEP team. The third quarter marked a period of a strong performance with revenue increasing by 23% over the same period last year, and the truss board footage manufacturing was up by 11% year-to-date. While we continue to navigate a competitive market environment and a huge uncertainty in the Canadian construction business due to the political environment and the uncertainty of what's going to happen and tariffs and all that kind of stuff, our sales team's assertive efforts resulted in order generation and sustained high production level. Also with the successful acquisition of Penn-Truss, it has allowed us to expand our national footprint into Saskatchewan and more areas in the Prairies and position us well for further growth and diversification in terms of products and the geography we cover in the country. We are encouraged by the second quotation activity -- by the record quotation activity, which has increased by $55.5 million year-to-date, a 35% increase from January to September 2025 compared to the same period in 2024, which excludes the 2 acquisitions in 2025, providing us a visibility and confidence for the remainder of 2025 and into 2026. While orders have been steady, a lot of the quoting activities or jobs that are being held on hold currently and not started yet. We anticipate that orders will increase in 2026 construction season as government incentive and programs for the construction industry continues to be announced. Additionally, the ongoing housing shortage in Canada continues to intensify, contributing further pressure to the construction sector. AEP is continuing to prepare for a potential rapid shift in the market by investing in automation efficiency, training an aggressive and proactive sales force and expanding manufacturing capability. We have -- we believe that the future of the industry will be defined by highly automated manufacturing facilities capable of producing greater volumes of reduced cost. The construction of our new automation facility in Ontario continues to progress on time and on budget. We have put initial deposits on the equipments required, which includes an automated saw that will feed into the robotic system. The equipment is anticipated to arrive in the second quarter of 2026 and be installed and operational for the third quarter of 2026. I would now like to introduce Melissa MacRae, CFO of AEP, to provide commentary on our financial performance and position through Q3. Thank you.

Thank you, Hadi, and welcome, everyone. Results for our Q3 2025 include revenues of $20.3 million for the third quarter and $45 million for the year-to-date, gross profits of $4.5 million for the third quarter and $8.6 million for the year-to-date and operating income of $1.9 million for the third quarter and $311,000 for the year-to-date. Overall, revenues have increased due to acquisitive growth and organic growth related to the walls from the beginning of the year as well as roof and floor truss increases. The company has seen an increase in manufacturing metrics. But due to the competitive market, sales prices are still actually lower than the same period in 2024. The company has been working hard to gain market share and keep staff busy even in the competitive market, which means sacrificing margins and profits at this time in order to be better prepared for the turnaround in the market. The hard work has shown in our third quarter results, and we continue to work hard into quarter 4 and next year. Normalized EBITDA was $3.3 million for the third quarter and $5 million for the year-to-date results. Normalized EBITDA does include adjustments to onetime costs for legal and consulting fees related to the new automation facility in Clinton, acquisition projects that were completed in quarter 2 and quarter 3 and credit facility updates. No adjustment has been made for some other costs associated for future automation, which would be ongoing moving forward, but incurred now to prepare for the future expansion and organic growth. These costs include expansion of the sales and management teams generally. Additionally, there are no adjustments for management labor costs related to the 2 acquisitions completed in the quarter 2 and quarter 3 of 2025. The company also completed another acquisition in quarter 3 and 2025 in Saskatchewan, as Hadi mentioned. Both acquisitions in 2025 have strategically expanded our national footprint, which has provided -- proven to be valuable over the years and especially during 2025. Canada is a large and diverse country that has differing areas of affordability which are dictating whether our market is more competitive than in other. Areas such as the Prairies and Maritimes continue to see strong construction activity compared to the 2 Ontario and BC markets where affordability is more of an issue. After the acquisitions, initial deposits on automation equipment and a significant portion of the construction of the new facility complete, the company still has cash at the end of the third quarter of $3.75 million with access to an additional $7.5 million through the line of credit facility. I'd now like to open up the call for your questions. Operator, please provide the appropriate instructions.

Thank you, Melissa; and thank you, Hadi. [Operator Instructions] And if there's any outstanding questions at the end of this call, we'll be providing with the contact information, and you can reach out through those methods. So now we have Andrew from Ventum Capital Markets.

Congrats on the solid Q3 results to the Atlas team here. Quite the rebound compared to what we saw in Q2 in these Q3 results. I'm wondering whether there is any revenues or bookings that you're expecting in Q2 that trickled into the third quarter or whether this is more of a contribution from market growth and your acquisitions? Could you maybe give some additional color on that?

Andrew, all of above. There was -- like I've always mentioned it on the investor calls and with you guys calls, everything. And by the way, nice to hear your voice, sorry. And it's all of above, like we get -- we put up quarterly results, but we are in construction, and then we are a cyclical business, and we are a seasonal business. And there are times -- there are lots of events happens in the construction, whether the framing crew doesn't show up or some delays happens with the municipalities, so we get to hold off a lot of orders on the ground completed that we can't put them as a result, but the orders are finished, they are legit and the purchase orders or they even pay deposits on. So I can tell you that it's a contribution to all of above there and with the Saskatchewan and intensifying the pressure we have from our sales force. And one big one -- that's happened there. And one biggest one I've seen is the diversification of the geography of Canada we cover right now. Basically, we cover almost all of the country, the areas the construction is happening and diversification of the product as we increase into the wall panel manufacturing, the organic growth. So quarter-by-quarter, year-by-year, they will all show results on that. And still, I emphasize, this is despite all of the government's announcements of what incentive for construction and housing shortage and everything there. And there is nothing -- no program has been announced that is solid, that it's been a lot of talk. And despite all of that, and a lot of people are waiting for that in the development side to see what are they actually going to introduce. Despite all of that, there is -- it's against the headwind we have. We are producing it through diversification and into geography where we're going and to the product line and organic growth. And some orders will always will be delayed and go on to the next quarter, next quarter, and that's what we do.

Okay. Good. That's helpful. Glad to hear that some of the gains were broad based. Maybe my follow-up just on Clinton and the production, the new automated facility there. It sounds like you firmed up the time lines in your prepared remarks and in the press release. Do you think the facility will have a meaningful contribution in the second half of 2026 or do you think we should be thinking about that more as a 2027 driver? And then maybe just a second part to this question, how much capital is left on that facility?

In terms of meaningful contribution, yes, as time will go on because of the training our people and our staff to get used to -- it's a real different system in production and stuff there. And they got to get used to knowing the car they're driving and how fast they can push it around the corner because none of us have driven that car. We have seen it in action, and we have watched it. We are getting trained by it. But once you start driving it, it's a total different experience. So I foresee a gradual increase in productivity and the impact going towards the end of next year and then towards the following year. That's -- to answer that question, that's what we will see. So we are not setting also up with failure and rushing it and making a mistake. This is a huge investment for us, and we are looking at every detail, even in the buildings where the switch go, where the power goes and everything there because it's a huge investment, and it's our first one. Once we do it right, then the second, third and fourth ones we will copy that. And we are taking our time and we're doing a due diligence. And I'm confident that it will be delivered on time. They are pretty good, reliable companies we are dealing with in Europe. And we are not affected by tariffs or anything right now, and we don't be in Europe, it doesn't affect us and Europe and Australia. So yes, I'm pretty confident, and we are taking it pretty steady and cautiously there because if we want to do this properly and right to copy the next one, then the next one will be done very fast.

That's great. And sorry, maybe just following up on the capital spend remaining...

Yes. On -- Melissa, I'll let that -- thank you.

Yes. With the project, we have about $7 million to $8 million left to go in the project between the facility and the rest of the deposits left on the equipment.

Now next, we have Russell from Beacon Securities.

First, just on pricing pressure. I think on prior calls, you've noted it's more acute in BC and Ontario, I guess, not surprising. But just wondering if you can comment on how those pricing pressures are trending now? Are you seeing any more or less pressure? Is the pressure decelerating or more or less constant or even intensifying? Any color on what you're seeing now relative to when pricing really started to get pressed down? Any color would be helpful there.

Russell, nice to hear your voice. So basically, in -- usually in the winter times when the weather affects the market in construction and you can be prepared for a little bit of a price adjustment into terms of margin, so people can -- factories and companies can keep their people working through the winter. And so you could expect it to see that they could decrease a bit there on the margin.

And then I guess related to that, following up on Clinton and your expectations for bringing that capacity online gradually, as you said, in H2 of next year. Can you talk about what you're doing in terms of filling the order book? Are we too far out or [indiscernible] have those conversations with customers now? And can you talk about how far afield geographically you're talking to people on that front? Any color on what the book looks like at this point or how aggressively you can work on that, would be good.

Yes. We are too far out to -- look, most of our clients that they're familiar with your company, they read the news like the investor do and a lot of whom are investors in AEP, so -- but in order to sit down in front and to talk too much stuff there, I believe we are too far out, what we do right now is we're working on our design department, on our staff and our sales force to shore it up to be ready for the equipment and to produce the volume that equipment needs. And really, that's where we're spending our energy right now at the moment is on internally and mainly all our sales force to solidify our team, make it bigger and train them and that's what we're working on right now.

Okay. Maybe one last question, and I'll get back in the queue. Just around revenue mix. I think wall panels ticked up to a 13% share of sales in the quarter, which looks like a new high. Did the acquisitions contribute to that at all or is that all organic growth? And I guess, secondly, can you talk to where the margins are on that product now compared to truss'? Are they in line?