Good morning, everyone. Welcome, and thank you for joining the Atlas Engineered Products earnings call. My name is Jake Bouma. I'm a consultant for AEP. Today on the line discussing AEP's Q4 2024 financial results and company highlights will be CEO Hadi Abassi and CFO Melissa MacRae. Following the discussion, we will open up the call for a Q&A. Before handing over the call to Hadi, 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 the information. Also, all amounts discussed will be in CAD unless otherwise noted. Hadi, you can take it away.
Thank you, Jake. Hello, everyone. Welcome to Atlas Engineered Products' earnings call to discuss our fourth quarter and year-end 2024 performance. We are excited to be with you today, and thank you for joining us. We appreciate your time. We are very proud of our team, as we expect we executed through a challenging year for the industry volumes. While we continue to generate industry margins through the tough times and take market share, and significantly growing the wall panel and engineered wood product business, we are very encouraged that both political party candidates have well-delineated platforms that address the housing shortage in Canada. While both of the parties' plans are different in the approach in terms of public versus private sector leadership, we see upside in the industry support from both sides of the aisle.
AEP will play a pivotal role as a supplier of prefabricated structures to support the vision for more affordable housing. We are surprised that investors have not paid more attention to this potential tailwind for our industry, but we see it, and we will capture the opportunity, and we are ready for it. In terms of tariffs, as previously reported, AEP does not have material exposure to U.S. cross-border transactions. However, with our products exempt under the U.S. CMA and a strong U.S. dollar, we prudently evaluate and consider opportunities in adjacent states given the currency arbitrage situation on our lean cost structure. We expect 2025 to be the key inflection year for the company, as we are encouraged to see momentum from 2024 carrying into 2025. The code funnel and bookings are up year over year.
In the meantime, the M&A pipeline remains robust, and we are investing in automation, which is the future of our industry. We have now formalized a relationship with robotic vendors to diversify exposure and manage risks. Our first robotic hub in Clinton is under construction and is on time and budget. AEP anticipates seeing a return from the investment in time for the busy construction season of 2026. Capital allocation is important to the company. While M&A and automation have been the focus in 2024, we recently instituted an NCIB given the share price performance. The company has been active acquiring shares at attractive levels. We see deep value in our stock, and we manage our capital prudently to create accurate purchases when appropriate. We are steadfast in our approach to evaluating return on investment capital, and we'll take a balanced approach considering organic growth, M&A, and buybacks.
We have a very ambitious plan at Atlas to expand our footprint across Canada and increase our capacity through automation. We have aggressively added to our sales headcount countercyclically and anticipate material contributions from the team in 2025. These investments have been a short-term drag on our financial results, but we are positioning the company for long-term value creation. I would like to introduce Melissa MacRae, CFO of AEP, to provide commentary on our Q4 and year-end financial performance. Thank you for your time.
Great. Thank you, Hadi. Results for our Q4 and year-end of December 2024 include revenue of CAD 15.1 million for the quarter and CAD 56 million for the year to date, which represents a 6% and 13% respectively year-over-year increases. These increases were driven largely by wall panel production and engineered wood plant's organic growth, along with the strategic acquisition of LCF. Just to remind everyone, we acquired LCF in late August of 2023, and it's been one of our successful acquisitions. One of our main strategies and focus as our company is organic growth along with acquisitions. With this in mind, the company has been focusing on continuing to build its wall panel production and providing as much engineered wood products for the much-needed condo and apartment buildings on the West Coast of Canada.
These condo and apartment buildings in BC have continued despite the housing starts dropping in the province year over year recently. Gross profits of CAD 3.6 million for the quarter and CAD 4.1 million for the fiscal year. Adjusted EBITDA: CAD 2.2 million for the quarter and CAD 8.5 million for the fiscal year. No adjustments were made in these numbers associated for costs with future automation, which includes expansion of the sales and management teams for the additional support. Also, there are no adjustments for management labor costs related to the previously announced due diligence completion for a location in Western Canada, still anticipated to close in the spring of 2025. Profits, income, and EBITDA have been impacted by a more competitive market compared to the past few years. Initially, it was the higher interest rates and need to reduce inflation that impacted the construction market.
The company had seen strong signs of a rebound at the end of fiscal 2024 with positive results and continuing into 2025 with a 25% increase in quoting through the first three months. The company is working diligently to convert those quotes to orders, increase the number of jobs that include a full package of trusses, engineered wood products, and wall panels representing organic growth, and further gain market share with the bolstered sales staff. The company has a strong balance sheet with cash of CAD 13 million, long-term debt of CAD 21 million, and net carrying value of real estate of CAD 15 million. The strength of our balance sheet helps position the company to move forward with the robotic facility in Ontario and future acquisitive growth. I'd now like to open up the call for your questions. Operator, please provide the appropriate instructions.
Thank you, Hadi, and thank you, Melissa. At this time, we will be conducting a Q&A session from our analysts. Please go ahead and raise your hand if you have a question, and we will address them in order. If there are any outstanding questions at the end of this call, there will be our contact information before the end of the call, so we will be happy to answer them all. All right, the first question is going to be from David from Cormark Securities. David, the mic is yours.
He's muted, Steve.
There we go. Can you guys hear me now?
Yes, we can.
Okay. Hadi, or Melissa, you guys took a CAD 1.5 million impairment charge this year just related to a vendor deposit. I'm guessing this is related to the House of Design failure. I was hoping you guys could walk us through your ability to reclaim some of that cash. Probably secondly, what other automation partners are you considering? Is it someone more local in North America, or are you guys looking towards Europe?
I'll step in and answer the first part there, David. Under IFRS, we had to write it off. At this point in time, we don't have certainty until when and how much of that deposit we can get back. We have started legal proceedings. We do have a lawyer in the U.S. and we are confident that a portion of it will be returned. It's just when and how. They did have assets when they shut down that should be supportive of returning some of the funds. We have joined a larger group that includes some heavy hitters in the U.S. that also need software support and are going through those legal proceedings. At this point, the U.S. legal system seems a little slow, like I think any legal systems. Right now, we're just forcing them into bankruptcy. I don't know. Do you want me to address the?
No, I can do that. Hi, David. Just to add to Melissa's, the fight we're doing, we're doing it with all organizations from the private equity firms all the way down there. We are another company from Canada. We are part of it. The fight is not just us. It's a worldwide group of companies that have deposits there, and they have machinery halfway done and everything there. Rather than me getting into a legal problem and stuff there, this is a giant that the team that they're fighting this money to get back and everything there is a giant team there. It's a huge force. However, that's put aside. Lesson learned. This is part of pioneering everything. This kind of bump in the road will happen.
We have moved forward, and we have made sure we have another solid supplier that they've been in the business for a long, long time from Europe and Australia. Plans are moving ahead. Thank God we have alternative suppliers for the automation and stuff. There are more coming on stream there. We are moving forward on that. Lesson learned from the last one, and we are moving very carefully, but still a steady forward.
That's a very helpful color. Maybe, Melissa, can you provide us with a CapEx plan for 2025 and if that includes any other deposits that you have to make to the new vendors that you're establishing relationships with?
Yes. Just one moment here, actually. We are still finalizing the building at the robotics facility in Clinton. That is estimated to be about CAD 6.8 million for the budget at this point. All of that roughly will be this year. The further robotics and automation, again, still another probably about another CAD 7-9 million here, depending on how fancy we want to go with this project and on the outset. Additional capital expenditures are a little tentative at the moment, but they run about another CAD 1-2 million.
That's very helpful. Maybe just the last one for me before I turn it over. Hadi, when we think about the market in 2025, it does sound like it'll be tough once again. When you're thinking about defending market share, especially as you're expected to bring on additional capacity with robotics, how much margin are you willing to sacrifice to just maintain those same level of volumes you did in 2024?
Great question. David, the focus we've had all the time is take care of the employees, make sure everybody's working and they're feeding their family, and take care of our customers and not lose any customers. We are fighting very, very hard to do that. Usually, it depends on your hunters and your soldiers and how you manage your margin. It's an amazing chess game that you have to play. We are doing that. In terms of we have a threshold of how far we go. Sometimes we go below that, but we make it in another job. We will fight whatever it takes. However, we will make sure we make money. There are ways. There are many, many different ways. I look at this business right now.
Last year was like this and this year. We are a cyclical business. In my history in the last 35 years, I noticed is when the winter comes and the snow comes and everything, that's when everybody booked their holidays to go to a snowy destination and enjoy that holiday time. Our approach was, now competition is hibernating. Let's go fight it out harder. That's the approach we've taken even in the summertime right now. This year and we did last year because the stock's been down and it's a tough market there. However, with the power we have in our buying power, our production facilities, and the sales abilities and manufacturing abilities, we will look at it's a multidimensional way we look at an order.
How do we sell it and how do we produce it that way at the end we will make money? Because that's the main objective is we need to be positive there. That's how we do it. We take a job by job, whether it's CAD 2,000 or it's a CAD 1 million job. We analyze it. We talk to our suppliers. We look at what we can do to save money and everything, and we approach it like that. It is very, very scientific and very, very prudent thinking behind it there. I'm blessed. I have a team there that we have a team at AEP that they believe in this, and then they do it. They are amazing hunters. They don't back off, and they will make anything happen to get the job, keep people working, and make money at the same time.
Okay. That was perfect. Thanks so much for the call, Hadi and Melissa.
Thank you, David. The next question is from Russell from Beacon Securities. Russell, your mic has been unlocked. You can unmute yourself.
Good morning, and thank you for taking my question here. Congrats on the growth in wall panels. Understanding you've got a diverse customer base, but you mentioned trying to sell full packages now, including trusses, panels, and engineered wood products. I'm just wondering, roughly what share of your existing truss customers are now buying wall panels from you? Just want to understand where your penetration is on this product category.
I would say in location to locations, I would say in Maritimes, it's a major, major, I couldn't give you the exact percentage, Rogers. I apologize for that. Major part of our business in the Maritimes is from the wall panel and trusses with the customers. We are more advanced and more experienced workforce there, and the clients are more receptive to that product because of the shortage of season they have in that area. We have expanded that really. It's a small percentage at the moment, but when it comes to organic growth, especially the wall panel, we did the same approach with engineered wood a few years ago. You don't open the tap all of a sudden there because of our capability of producing it and the knowledge of the client and the knowledge of our team there.
In the rest of the country, Ontario, in one operation, it's a pretty good percentage to there. In BC and stuff, it's a very small percentage, but a very steady growth because with our business, you need to know what you're doing. You need to know how to manufacture it, how to deliver it, and the client needs to know how to install it. We're going through that process of growing. The better we become at it, the more we open the tap to the client and stuff there, really. If the customers are there and the demand is there, it's us managing the supply and not all of a sudden. It's not like a buffet dinner. You can't just go eat all you can. You have to take a prudent approach to it and be very conservative about it.
Got it. That's helpful. I think in the report you noted, you worked on a large multifamily project in Q4 that helped margins. Just wondering, has any of that carried over into Q1? Are you seeing more projects like that in the outlook for 2025? Any color around that type of business would be helpful.
Yeah. That wasn't just one of, that was one of many projects we have. Usually, there is a big segment. As the stocks went down and the housing costs went up, the rental activity in the country for rental units, and especially in BC, government gave some incentive with GST, PST, and everything there. They were there. There is a huge increase in multifamily and hotel structures and everything across the country. That's the one area we have the experts in design, and we have great suppliers and great buying powers on there. That's been a mainstay of our business. That has always been there and increases year over year there. As we can see it, as the affordability, it gets tightened. The density and the approach is not into building a big house.
Cottage countries and Vancouver Island and Maritimes, they do that. Most of the other areas, they need more square footage out of a piece of land. We had seen that in the past years, and we are ready for it with our design team and sales team. We try to capture as much market share as we can from that area. Those are big, major construction companies that have ongoing projects going through year over year. Those are condo projects, old people's homes, all kinds of projects that the density is high on it. They need our expertise and our engineered wood products and the way we do everything together with them.
Great. Maybe just one more question for me. I think this one's for Melissa just on deferred taxes. I think a notable impact there on operating cash flow. Just wondering if you can provide some color on what's behind that. Thank you.
Yeah. The completion of the LCF purchase price allocation. We had not completed that by the year-end prior. The tax account, the tax lady that we have that does everything, had an extra deferred tax allocation to the intangibles that were valued out. A non-cash item overall.
That's all for me. I'll get back in the queue. Thank you.
Thank you, Russell.
Thank you, Russell. The next question is from Frederick. Frederick from Desjardins Securities. Frederick, your mic has been unlocked. You can unmute yourself.
Hi, good morning. I wanted to follow up on the large multifamily project there. Can you clarify which products were sold into that project? Was it the full package you are talking about, or was there one product specifically that was part of that project?
Good morning, Frederick. In certain projects, we just do the roof, the floors, and the engineered wood product. Most of them, because of the height restriction and the view restriction in certain provinces and certain locations, do not use trusses on the roof. They use I-joists, we call it, or engineered wood products. It is a flat roof they put on there. In certain projects, we do everything. We do the walls with the roofs, the floors, the floor cassettes, the engineered wood products, the beams, everything we supply them. It is a mix depending on the contractor's choice, how they want to do. Some of them do a mixture of different types of wall and everything there. We just do the roofs and the floors for them and stuff.
The majority of our jobs becomes right now we're doing the walls and the floor cassettes for them too.
Okay, great.
Just to add, excuse me. Just to add, the industry is moving that way now, the construction industry and our industry. We are moving more and more towards, especially on these big multifamily projects that they need huge labor force. Because of the shortage of the labor force, once things get busier, they are moving more and more towards they want the whole package. That is the walls, the floors, the trusses, everything. It is an amazing organic growth opportunity, and we are trying to get ready for that demand.
Okay, great. Speaking of the walls, 27% growth in Q4 was really impressive. Just wondering if you could maybe dig a bit deeper on where that growth came from. I know you spoke about the Maritimes being the walls being more penetrated there and a bit earlier stage in BC. In terms of the growth you saw in Q4, was it from that sort of legacy Maritime business, or did you get contributions from earlier stage markets like BC?
We got from Maritimes business, a significant part, significant part from Ontario, from our locations in Ontario, and a small part from the BC location.
Okay, great. If I could squeeze in a last one here on M&A. On your M&A pipeline, just curious if you had any comments on the types of opportunities that you're seeing out there and sort of the M&A landscape as we move forward in 2025.
The M&A landscape is very, very healthy and is amazing. Sometimes you wish you had all the capital and all the bench power and the manpower so you could go buy everybody tomorrow. In reality, M&A is an amazing tool for adding to your location, to your footprint, and to the geography of the areas you cover. It can go sour very, very fast. We take a very prudent, conservative approach to it. We will try to keep on normal adding one or two a year if they fit into the program and everything. Now we have another I2 M&A that has added in the toolbox is the automation. We have to make a choice now.
When you are all across every province and when you have a footprint with your manpower, with your salesforce, everything, does it make sense to add another company or does it make sense to put up a new automated green belt factory in there? Those are all the factors we are looking at right now. Looking at the M&A, it's very, very healthy right now. It will get better as we go around because of the demographic of the age ownership, the age of all the ownership and the succession planning and stuff there. It's pretty healthy right now.
Great. Thanks for taking my questions.
Thank you.
Thank you, Frederick. Next, we have Andrew from Ventum Capital Markets. Andrew, you can unmute yourself now.
Great. Thanks for taking my questions. Good morning, everyone, and congrats on the Q4 results. I just want to go back to the CapEx, some of the CapEx items we were talking about earlier, CAD 6.8 million number that Melissa said. I believe that's or I'm assuming that's for Clinton. For the additional CAD 7-9 million of further automation spend, could we just get an update on the scope of those projects, the timing of when they might be implemented, and what kind of return on invested capital you might be budgeting for those investments there?
Yes. That is the robotics project. We are anticipating having those ready to go for the busy building season next year in 2026, given the fact that just taking the time to make sure it is installed and we are using the equipment effectively and efficiently. Allowing for that little bit of time in there for that project to move forward. ROI, we are looking at three to five years depending on capacity. We see a strong return once we get up to two out of the three shifts running. I think that is what we presented before when we were looking at House of Design equipment. It is about similar with the new supplier.
Great. Just to be clear, that's automation lines being installed in other existing facilities?
This is the robotics for the Clinton facility. The 6.8 was the building itself, not the robotics inside of it.
Got it. Okay. Thanks for clarifying. Just.
Andrew, if I may add to your question, for the automation that will be partly robotic and stuff for the other facilities, we have identified the facilities, and we are in the process of working with a new supplier and going through the design, the costing, and everything there and stuff there. I will have further update later on in the year for you on that. Right now, we are working on that angle too right now.
Great. That's helpful. That ties into my next question. Just on the cash balance of CAD 13 million on the books at the end of the year, I know the company is EBITDA positive and bringing in cash flow from operations. Just kind of summing up some of the items on the agenda, it looks like there's about CAD 14-16 million of total spend for Clinton, the building, and the automation, the growth CapEx there. You've also noted an acquisition of about CAD 3-4 million that's expected to close soon. You're talking to a healthy M&A pipeline ahead and potential other automation activities going on across the organization. Just wondering how you're feeling about the cash balance now, given all these opportunities ahead of you, and thoughts on self-financing that, going back to lenders, thinking about other alternatives for funding your growth options ahead of you.
Yeah. We're investigating all opportunities, and it's the best one that's going to be for the company and the shareholders. We do have a healthy cash balance, and we're anticipating healthy cash, even a positive cash flow throughout the year here. We've actually negotiated some great payment structures with suppliers and with the M&A potentials that allow for continuous payments over the course of a year, year and a half here to stretch things out and allow for our internally generated cash to help support these projects. As Hadi mentioned before, though, obviously, if more cash in the bank, and there'd be a lot more we could do a lot more acquisitions and a lot more manpower, we could get this all done right away. Being prudent and being efficient and managing our cash that way.
Thankfully, we have a great partner in our bank, and they're willing to step up should we need it.
Great. That's helpful. We'll get back in the queue. Thank you.
Thank you.
Thanks, Andrew. Before we wrap up, I wanted just to double-check to make sure all the analysts that we have invited today, if you have any questions, please go ahead and raise your hand. I'll give a few moments for you to do that. Now, just so you know, we will take questions from all the analysts that we have invited. If you're not on that list, please follow up with us by using the contact information that we will be providing before the end of this call. Thank you so much.
Thank you, Steve, and thank you, everybody, for being on the call. We appreciate your time.
Yeah, thank you. Thanks, everyone. This is then the end of our Q&A session. We will be available to answer all of the questions that you may have. I know some of you may have raised your hand, although you're not on that MIT list, but you can definitely reach out to us at info@atlasep.ca, or you can submit the contact form from our website, which is atlasep.ca. This is the end of the call, and you may disconnect now. Thank you so much, and have a great day.
Thank you. Thank you.