Atlas Engineered Products Reports 2023 Annual Financial and Operating Results

Atlas Engineered Products (“AEP” or the “Company”) is pleased to announce its financial and operating results for the year ended December 31, 2023. All amounts are presented in Canadian dollars.

“2021 and 2022 were marked by pent-up demand, inflated material prices, and never-ending supply chain issues. 2023 was an anticipated correction year in the construction market that was exacerbated further by steadily rising interest rates.” said Hadi Abassi, the Company’s CEO, President and Founder. “Despite rising interest rates negatively impacting housing starts and intensifying competition, the Company was still able to generate solid revenues, maintain disciplined margin control, and still produce profits while also completing another significant acquisition. It was a busy year in a lot of ways, and we aren’t slowing down; we are moving forward to be ready for the house-building expansion Canada requires.”

Financial Highlights for Fourth Quarter and Fiscal 2023

On August 23, 2023, the Company acquired Léon Chouinard et Fils Co. Ltd./Ltée. (“LCF”) located in New Brunswick, Canada. The shares of LCF were acquired for $26 million in cash plus a working capital adjustment of $3,299,119. The land and buildings of LCF were also acquired by the Company for their appraised value of $2.792 million in cash. The Company financed the LCF acquisition with a term loan and mortgage for $22.4 million, issuing 1,739,129 common shares at a value of $2 million, and the rest with the Company’s existing cash generated from operations. During LCF’s fiscal year ended December 31, 2022, they generated revenues of just over $25.7 million, net income of just over $6.3 million, and a non-IFRS normalized EBITDA of approximately $9.47 million, resulting in a non-IFRS normalized EBITDA margin of 37%.

AEP revenue for the year ended December 31, 2023 was $49,413,675 compared to revenue of $61,899,620 for the year ended December 31, 2022. Revenues decreased due to the stabilization of some material prices (such as lumber and engineered wood products) at significantly lower levels than the prior two years, which are passed along to customers. The market also saw a slowdown in some areas of Canada, mainly in Ontario and recently in some parts of British Columbia as well. This has mainly been due to higher interest rates resulting in the construction industry pausing to assess the effects on new housing demand, which led to reduced housing starts during the year.

Gross margin for the year ended December 31, 2023 decreased to 27% compared to gross margin of 32% for the year ended December 31, 2022. Gross margins decreased mainly due to the more competitive market for sales driven by higher interest rates. The Company did a solid job striking a balance between generating sales and compromising slightly on the gross margin available in a more competitive market. As demand expands, the Company will continue to focus on gross margins as well as revenue generation.

Operating expenses increased by $977,616 for the year ended December 31, 2023 to $8,294,053 compared to $7,316,437 for the year ended December 31, 2022. This increase was mainly due to $630,547 of one time, nonrecurring cash outlay expenses, such as professional fees and financing charges, incurred in relation to the acquisition. These amounts are included in the operating expenses of the Company, but are added back as one time expenses for the non-IFRS normalized EBITDA noted below. Additional increases are related to non-cash items such as depreciation, amortization and share based payments. Some additional increases, but not considered one-time, resulted from the Company’s need to bolster human resources and systems to ensure the Company was ready and able to handle the resulting growth and geographical expansion from the LCF acquisition as well as anticipated future acquisitive growth.

Net income after taxes was $3,149,838 for the year ended December 31, 2023 compared to net income after taxes of $8,830,337 for the year ended December 31, 2022. The Company recorded lower net income after taxes mainly due to lower revenues in a market with reduced housing demand and a slightly reduced gross margins due to the increased market competition. Additionally, there was an increase in operating expenses due to the one-time non-recurring costs related to the LCF transaction as well as increases related to non-cash items and some additional increases to bolster human resources and systems for the Company to successfully handle the increased acquisitive growth.

Non-IFRS measure normalized EBITDA margin decreased to 20% for the year ended December 31, 2023 from 25% for the year ended December 31, 2022. This decrease was mainly due to decreased gross margins and increased operating costs. $630,547 in one-time, non-recurring acquisition costs have been added back to normalized EBITDA, but additional support costs, such and bolstering human resources and upgrading internal systems to support the acquisitive growth of the Company, were not added back as these will be ongoing costs moving forward.

Outlook for 2024

The Company is continuing to operate in a more competitive market during the first part of 2024 and anticipates this will continue until either the market adjusts to current interest rates or there is a decrease in interest rates. The Company still anticipates that increased interest rates will have a minimal overall effect on the long-term housing market due to the number of homes that are needed to support Canada’s continued population growth and the number of homes required to restore housing affordability by 2030. The Company is prepared to continue managing pricing by balancing revenues with gross margins and explore new markets in order to continue to drive organic growth as much as possible during fiscal 2024. Since the beginning of 2024, the Company has seen a steady increase in quote activity and incoming orders on a weekly basis.

In late 2023, the Company began developing a larger salesforce across Canada to drive sales through market expansion into areas the Company hasn’t generally supplied to, through product expansion with wall panels and floor cassettes, and through future expansion expected from organic growth, automation, M&A, and green builds.

“Moving forward, we anticipate taking further steps towards automation to better position AEP as the supplier of choice for contractors and developers for the additional 2 million homes needed by 2031, on top of the 1.9 million homes expected to be built in that timeframe” said Hadi Abassi. “The Company has spent a lot of time preparing for the future and we are excited to build our Company to take advantage of the need for the construction growth over the coming years.”

The recent acquisition of LCF is a great addition to the AEP group of companies. Future acquisitions remains a key part of AEP’s long term strategic growth plans. The Company has built a strong pipeline of M&A opportunities and will continue to assess more M&A opportunities that fit within the Company’s goals and strategies. We will also continue to work on bringing in the latest technology and automation to improve operational efficiencies, as well as adding new products and services to better serve our customers.

For full annual results click here.

About Atlas Engineered Products Ltd.

AEP is a growth company that is acquiring and operating profitable, well-established operations in Canada’s truss and engineered products industry. We have a well-defined and disciplined acquisition and operating growth strategy enabling us to scale aggressively and apply new technologies, giving us a unique opportunity to consolidate a fragmented industry of independent operators.

Contact:

Jake Bouma – Representative for AEP – (604) 317-3936 – jake.bouma@atlasaep.ca

Source: Atlas Engineered Products Ltd.