Good morning, everyone. Welcome and thank you for joining Atlas Engineered Products Q2 2025 Earnings Call. My name is Jake Bouma, and I am a consultant for AEP and moderator for this call. Today on the line discussing AEP's Q2 2025 financial results and company highlights is Company President, 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 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 CDAR 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. Welcome to Atlas Engineered Products' Earnings Call to discuss our second quarter, first half of 2025. Thank you for joining us, and we are very excited to be on the call with you. Despite the challenges faced by our industry and many other industries as a result of Canada and the United States' political and trade uncertainties during the three and six months period ending June 30, 2025, Atlas showcases resilience by delivering year-over-year growth to start 2025 compared to 2024. This is a testament to our team's ability to execute in our market environment. I would like to acknowledge their work ethic and commitment to our company and their commitment to our investors that keep us on a solid footing to achieve our strategic goals over time. While AEP's low exposure to U.S.
cross-border transactions and the inclusion of its products in the USMCA limits tariff exposure, trade uncertainties impacted broader macroeconomic stability. This uncertainty resulted in project delays and more competitive markets for sales, which impacted pricing and margins in Q2. Despite this, we notably realized record quoting activity from January to July 2025, increasing CAD 34 million versus the previous year period. Increased board footage output by 12% for the first half of the year compared to the prior period, closed the acquisition of Truss-Worthy construction system operations, and land near along the Toronto and advanced our automation investment with our new building progressing on time. The strength of AEP's national platform expertise and financial flexibility provide us a competitive advantage to manage revenue and gross margin during this environment.
To determine whether to reduce margin to generate more revenue and maintain and increase market share over time, this will allow us to deepen our market penetration and leadership position across Canada in support of addressing the country's housing shortage and affordability crisis that requires more construction activity, driving demand for our products. The government continues to signal the announcement of a new program and incentive to catalyze these activity levels sometime this fall, which we expect, if fulfilled, will positively impact our business growth and margins. As we know, Canada is extremely large and diverse geographically. This translates to significant variances in activity levels from province to province, with some provinces seeing a strong housing start and favorable market conditions, and others experiencing the opposite.
For example, recent RBC economic reporting shows the rest of Canada's housing starts are reaching a 15-year high relative to the Ontario market, which is significantly lagging on a six-month moving average basis. Atlas Engineered Products recognizes this and continues to utilize its M&A strategy and expertise to diversify exposure and capture growth. We continue to evaluate the optimal capital allocation decision, notably advancing our automation effort in Ontario, enhancing our financial flexibility and optionality with our banking partners, and remaining active on our share buyback, purchasing just over 118,000 additional shares in Q2 2025 at an average of approximately CAD 0.81 per share. Subsequent to quarter end, we also announced the acquisition of PenTrust, our first location in Saskatchewan. We saw housing starts rise over 100% in the first five months of 2025, ranking it first in the nation for growth.
We also realized a 14% increase in revenue for July 2025 to CAD 6 million, excluding recent acquisition for now, and continue to experience strong quoting levels. This paired with potential interest rate cuts, favorable government policy announcements, and further trade uncertainty creates a solid foundation to execute and build on this momentum during the remainder of 2025 and beyond. I would now like to introduce Melissa MacRae, CFO of AEP , to provide commentary on our financial performance through Q2. Go ahead, ma'am.
Thank you, Hadi. Results for Q2 2025 include revenues of CAD 13.6 million for the second quarter and CAD 24.6 million for the year-to-date, gross profits of CAD 2.3 million and gross margins of 17% for the second quarter, and CAD 4 million in gross profits and 16% gross margin for the year-to-date. Operating losses of CAD 546,000 for the second quarter and CAD 1.3 million for the year-to-date. The competitive market has been persistent, and despite revenues declining for the quarter, they are still higher for the year-to-date compared to prior periods. Internal manufacturing metrics show increased board footage output for truss manufacturing. This is a KPI that we track internally, showing that we are producing more than the comparative period for trusses specifically, but a competitive market is dictating lower pricing still.
The company has been working hard to gain market share and keep staff busy even in the competitive market, which has meant sacrificing margins and profits at this time in order to be better prepared for the turnaround in the market. Skilled staff and a strong customer base will be necessary for Q3 2025 and moving forward as the company's sales initiatives start to show more results in top-line revenues moving forward. Additionally, design and sales work has already been put into building up our quoting and future pipelines that are reflected in our year-to-date results. Normalized EBITDA was CAD 1.1 million for the second quarter and CAD 1.7 million for the year-to-date results. Normalized EBITDA does not include adjustments to one-time costs for legal and consulting fees related to the new automation facility in Ontario and acquisition projects that we had on the go, which include Truss-Worthy and PenTrust.
No adjustment has also been made for some other costs associated for future automation, which would be ongoing moving forward, but incurred now to prepare for that future expansion in organic growth. These costs continue to include the expansion of the sales teams and management teams and consulting to ensure that we are ready to go with the automation as soon as possible. Additionally, there are no adjustments for management labor costs related to two acquisitions, one of which was completed subsequent to Q2 2025. Let me just touch quickly on the balance sheet as we have major projects in progress that are utilizing our cash flow. We have been using our cash for the new automation building and the Truss-Worthy acquisition as seen on these financial statements.
We still have a cash balance of just over CAD 5 million, plus a line of credit still available to us at CAD 7.5 million on top of the CAD 5 million. Additionally, with the seasonality of our industry, typically our free cash generation is noticeable from about July-August through to January-February of each year. We are seeing this trend continue this year. Additionally, we have strong asset backing in our real estate that we own, with a net carrying value of just over CAD 15 million, most of which hasn't been appraised in the last four years. Moving forward, we're confident with our balance sheet to continue these projects that we have on the go. I'd like to open up the call for your questions. Operator, please provide the appropriate instructions.
Thank you, Melissa, and thank you, Hadi. At this time, we'll be conducting a question and answer session from our analysts. Please raise your hand if you have a question, and we will address each analyst in order. If there are any outstanding questions at the end of the call, there will be an email showing up on the screen, and we'll be happy to take them all by email. The first question is from Frederic. You can go ahead, Frederic.
Sorry about that. Good morning.
Morning.
The first question is just, you know, with the builder delays and potential announcement from the Carney government in the fall, do you think that the pent-up demand could benefit not only Q3 but also Q4 relative to prior years? Just trying to get your sense on what the timing of orders and deliveries could be for the balance of 2025.
Okay. Frederic, even on Q2, we had a lot of completed orders sitting on the ground. That's due to various delays that happen in any businesses, especially construction, with so many different trades involved, that they sat on the ground and the numbers didn't show on the actual revenue side. Those orders now, after a week or 10 days, they were all delivered. That will continue. Right now, to answer honestly from being our quotes and the orders and activities we have, there is one area that I'm paying a lot of attention right now. It's on the margin because there's a fine balance between being aggressive and protecting your clients and extending your market share to another way to making money. Those are we are managing.
Our biggest anxiety in all the operation is the labor and being able to deliver because we can see that is coming right now. That is happening. To answer your question in the long way, yes. I can see it. There has been no announcement from the government. They're just talking right now. They haven't said anything. Even when they announced that in fall we introduce a program, I wish they handed on it because that put more projects on hold with people wondering, "Oh, what is this magic government going to come? What is this magic solution?" Right now, without all of those announcements out there, I can see the wave right now coming that the demand is going to get bigger and bigger. The next issue is the labor shortage and everything that we deal with that every day. It doesn't matter.
The reason I'm saying that is it's not a worry about the labor. It's more of it is where we are paying our attention right now because we're seeing the activity is picking up right now. It's picking up across the country, and you can see it. That's been one advantage for us. We get exposure to what's coming in the next six months, and we can see the activity is happening right now.
Okay. Yeah, that's interesting on the activity picking up. Is that reflected in pricing as well? Like, is there less pricing pressure in recent weeks, and what does that imply for margins relative to Q2? Like, are you confident that you can improve margins in Q3 relative to Q2?
Yes, we can improve that. The margins will go up while the revenue goes up and different backed up. Yes, we can do that, especially with M&A, everything. We spent all the money with that. Not we spent all the money. The expenses were higher because of the two previous M&A we had and all of that stuff there. Yes, I can see that the margin's been improving quite drastically.
Okay, I'll leave it there for now and get back in the queue. Thank you.
Thank you, Fred.
Thank you. Next question is from Andrew Semple from Bantam Capital Markets . Go ahead, Andrew.
Great. Thank you. Good morning, everyone.
Hey, Andy.
I'll start. Hey, Hadi. I'll start with the outlook you provided, some color on July sales being up year-over-year relative to July 2024. I'm just wondering, we're most of the way through August here. What have you been seeing in August, month to date? Are you still seeing revenue trend higher year- over- year?
Yes. The trend is year- over- year. The one week in August, and usually the last 10 days in August before the school holiday, sometimes you see a little bit of a holiday season for everybody and stuff, that the indication that it could look like maybe a slowdown, but it's not, because the first two weeks in September, it will go crazy again once the kids go back to school. The way the trends are right now is going up and up right now. Like the revenue and everything, the orders, everything's increasing at the moment. There is a trend in there going up right now. Yes.
Right. Maybe in terms of, you know, margin expectations for the second half of this year, you highlighted that it's a key metric that the team's watching closely and trying to balance that with sales growth. What do we expect from margins in the second half compared to what we saw in Q2 here?
You can expect an improved margin, much more improved margin, but I can't give you the actual number there, Andrew. I apologize for that. You can expect a much improved margin.
Right. Okay. Maybe another one, if I may, looking at the cash resources on the balance sheet at quarter-end Q2, you also have PenTrust, which is closing subsequent to quarter-end. Do you feel like you have additional financial flexibility for M&A, or is the cash and kind of credit facility resources you have available to you today mostly geared towards Clinton? I just want to gauge what sort of liquidity buffer you feel you have to continue to pursue M&A.
On the liquidity buffer, right now, on the other potential M&As that are coming up, we are working more creative ways of doing the deal rather than depending on the cash at the moment. The one disadvantage of a slow marketplace is that you fight for margin, you fight for business, everything, and the numbers don't look good. The other positive side is the M&A is pretty good, and the appetite comes much higher. Out of that, it becomes a biased market. Right now, we're looking at different creative ways of making deals rather than using the cash because we are managing the cash flow pretty good right now. We are pretty disciplined on it. The main concentration right now and effort is for the automation to be in effect by next spring, that everything's on time.
We manage it, and we are looking at other creative deals rather than just going to the market or spending the cash money at the moment.
Great. I appreciate you taking my questions. I'll get back to Q. Thank you.
Thank you, Andrew.
Next, we have Russell Stanley from Beacon Securities. Go ahead, Russell.
Good morning. Thanks for taking my question. Maybe first, just around the price pressure that you're seeing, wondering if you can provide some color to how broad-based that is across product categories. Are you seeing any categories be particularly hit or any categories showing particular resilience, or is it fairly even? Any color there would be great. Thanks.
Hey, Russell. It's really, when I look at it, it's about on all the categories because especially the two provinces, British Columbia and Ontario, that the common correlation with the housing prices is over millions of dollars, right? Whenever there is a job available right now, there is an amount of people that you fight for it, and it reduces the margin. It's just the price category affects all the products you have. We have advantage on a lot of products with our buying power and our strength that it doesn't hurt us as much as it hurts the competition. To answer your question, I think it's all across the board that you will see products to products that once it comes to it, and if the people need that business to keep their lights on and keep the business moving, they drop the margin in those areas. And t hat's what's happened.
Got it. Thanks for that. Maybe if I could, just around CapEx expectations for H2 and perhaps the early 2026, I appreciate Melissa's comments earlier around the balance sheet flexibility, but what should we expect for CapEx in H2, and then how much more spillover might we see in Q1 as Clinton's finished?
Okay, I will let Mac answer that one, please. Yeah.
No worries. Through quarter three into the end of the year, we're expecting the building completion to be done and into quarter one a little bit. We're expecting about 50% of that still to go here, about CAD 3 million, CAD 3.5 million. The way we are starting deposits onto the equipment, that won't show into our CapEx necessarily the way you're expecting until it's in use later next year, with the vast majority of those payments actually being in quarter one and quarter two of next year too, just because of the way we've negotiated the payment plan through that project. CapEx outside of the acquisitions and the automation facility, we're still expecting to be minimal. We have a lot of equipment throughout the group that can support our operations as it is until we get these projects on the go.
Got it. That's a great color. Thanks for that. I'll get back in the queue.
Thank you, Russell.
Thanks, everyone. It looks like there's no more analyst questions. That marks the end of our question and answer session. We'll be available post-call to answer all of your questions that you may still have via email or through the contact form on the website. Also, the recording of this call will be available on the website shortly today. At this time, you may now disconnect and have a great day.
Have a great day.