Atlas Engineered Products Ltd.

Good morning, everyone. Welcome and thank you for joining Atlas Engineered Products Q1 2026 earnings call. I'm Jake Boma, an IR consultant for AAP. Today on the line discussing AAP's Q1 2026 financial results and company highlights are the company's president, CEO, and founder, Hadi Abassi, and CFO, Melissa McRae. Following their remarks, we'll open up the call for an analyst Q&A session. Before handing over the call to Hattie, 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 AAP on CR when reviewing this information. Also, all amounts discussed will be in Canadian dollars unless otherwise noted. Hattie, please proceed with your remarks.

Thank you, Jake, and good morning, everyone, and thank you for joining us. The first quarter of 2026 presented a challenging operating environment, driven by different difficult market conditions in Ontario and British Columbia, as well as more severe winter weather across much of Canada compared to recent years. However, our team worked very hard through this condition While continuing to prepare for a stronger remainder of the year, we made important progress on our first automation facility, advance our sales and design capabilities, and continue to build all the book. While near-term conditions remain competitive, we believe our scale across the country, automation strategy, and growing national footprint positions as well to be market share as construction activity increases. We are continuing to report high coating volumes from the beginning of 2025. In our year-end call, we reported that the first quarter of 2026, coats exceeded $18 million. Coating has exceeded $109 million up to end of April 2026, compared to $93.4 million up to the end of April of 2025. This sustained activity is translating into a stronger order volume, with orders totaling $29 million up to the end of April 2026, up from $16 million in the same period last year. While these stronger order trends did not fully translate into the first quarter revenue due to weather-related shipping disruptions, We believe AEP's aggressiveness to increase market share despite market condition remaining similar to the prior year. A major milestone for AEP is the near completion of our first robotic thrust manufacturing facility in Clinton, Ontario. Construction of the building is expected to be completed during the second fiscal quarter. The robotic equipment already shipped, and the first shipment has arrived in Canada. Operations are still anticipated to begin in early July 2026. This automation initiative represents an important step in our long-term strategy to improve efficiency, increase capacity, enhance margin, and strengthen our competitive position. A major milestone for AP is the near composition.

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From a gross perspective, we remain focused on expanding our wall panel manufacturing capabilities and increasing our ability to deliver complete project packages, including roof, floor trusses, and wall panels and engineered wood products. This further offering strengthens customer relationship, increases average order volume, and helps reduce our exposure to recessionary pressures by driving greater revenue opportunities per project. Beyond organic growth, we remain active in evaluating acquisition opportunities across North America. With industry EBITDA currently at cyclical lows, we believe the return potential on the strategic acquisition remain attractive. We are actively reviewing additional opportunities to 2026 and beyond. That could expand our geographic footprint, manufacturing capabilities, and industry expertise. With that, I would like to turn the call to Melissa McCrae, CFO of EEP, to provide further commentary on our financial performance and position toward Q1 2026. Thank you.

Thank you, Hadi. Results for Q1, three months ending March 31, 2026. include revenues of $9.3 million, gross profits of $273,000, and normalized EBITDA of negative $800,000. Revenues decreased compared to the prior year due to marking conditions in the construction industry, especially in Ontario and B.C., as Hattie mentioned, with more severe winter weather conditions across much of eastern Canada compared to recent years. Additionally, the company had two significant winter projects in the comparative period, While the company has secured jobs of similar sizes for fiscal 2026, they are scheduled for delivery throughout the remainder of the company's fiscal year, not in the first quarter this year, unfortunately. Gross profits declined, driven by the reduction in revenues mainly. Each winter, the company maintains key staff that are needed during the busier construction months, and we don't want to risk losing them with layoffs. This increases the labor component during the winter months, along with maintenance costs as the quieter winter months are the best time to complete maintenance. These costs reduce gross profits, though especially as revenues also decline. 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 when busier in normal market conditions. Reduced revenues and increased costs, as already mentioned, contributed to the normalized EBITDA results as well. Additionally, the company has increased costs related to sales and management in preparation for the new automation facility, and its staff are trained and ready to go as soon as the plant is ready. These costs are included across cost of sales and general administrative costs, but are not added back for normalized EBITDA, as they will be ongoing costs moving forward. I'd now like to open up the call for your questions. Operator, please provide the appropriate instructions.

Thank you Melissa. At this time we'll be conducting a question and answer sessions from our analysts and please raise your hand if you have a question and we will address each analyst in order. If there's any outstanding questions at the end of this call, we will be happy to take them all by email. And the first question is from Russell from Beacon Securities. And you can go ahead Russell.

Good morning, and thanks for the question. Congrats on the order flow. It's great to see. But I'm wondering if you can talk a little bit more about what you're seeing on pricing, particularly in Ontario and BC. Is the pricing pressure moderating at all or decelerating, or is it kind of continuing with the same sort of intensity you observed? A year ago, and I guess the second question to that would be, is the pricing pressure pretty uniform across product lines, or are some more resilient than others?

Thanks.

Hello, Russell. So, I think the pricing pressure, we have found a sweet spot, and it fluctuates up and down depending to the type of product that you ask, or type of client and the Size of the product and the size of the job. But we are finding a sweet spot that we are operating in that area. And then for the moment, unless something significant changes in the volume and the future of the economy and the industry, we are going to keep operating in that sweet spot there. And keeping on it because... And we have found where our comfort level is, and we are operating in that zone right down there. And we are flowing, and we're just playing in that zone. And that's it. I'm talking about basically the Ontario and part of British Columbia, not the rest of the country. The rest of the country is a whole different economy we have there. And our was really the real severe wintertime there that nobody was working. That's all I can tell you. Unless you will see some significant action into the buyers coming into the market and Ontario, like if they come and buy, the inventory start moving and all of that stuff, and all of a sudden we see a significant increase in capacity in the factory and production, the price will remain just the same as it has been. We're going to keep the pressure on. We have found a sweet spot, and we're gaining market share, we're increasing volume, and We are doing okay. Like, we will make money, and we're going to keep our foot on the gas for now and to keep it that way.

Thank you for the color. And then my next question, just around the government grant, can you remind us what the expected cadence of how that works in terms of receiving payment or the offset there? And I guess the second question would be the latest in terms Other opportunities for grants from various levels of government. Thank you. Okay.

Melissa?

Yeah, I can answer that one. So we had to spend – so the $4 million federal grant that we did receive and announce, we had to spend $4 million from February 3rd to March 31st. So that increased – we had to actually accelerate some of our spending on the building and the equipment. to meet that requirement. We did meet it, which is where we showed the $4 million government grant receivable in our books. We did apply. We've put in all paperwork, and it's been approved at the end of April 30th. Now we're just anticipating receiving the funds by the end of this quarter. And as for... Other grants? There is possibilities. There is some provincial ones that we can still apply for. Within these grants, there is stacking rules. Some provinces limit that you can only go up to, like, say, 40% or 50% of the whole project cost. That still gives us a lot of opportunity to try and go for more. But At this point, we're also looking at what's the next project and is there any grants related to that out there that we could apply for.

Maybe my last question, and I'll get back in the queue just around the additional equipment shipments. Can you remind me, is there just one more shipment and when do you expect that to land for Clinton?

There's one more shipment for the robotics that's coming. How do you correct me if I'm wrong? It's on its way, I believe. Yeah. And should arrive in the next couple weeks. And the same with the other equipment, so we've got one shipment of the robotics already here, one shipment of the robotics on the way, and then one shipment for the saw that's on its way from Australia.

Right now, they're all on their way, and they fit the schedule of the installers in Canada that they're doing the rigging and installing. And right now, we were really anxious about all the shipping and everything happening in the world, but somehow that's all exercised right now. There's no major thing, and they could even be in the port of Montreal right now to be declared to the customer right now. Like, it's going... It's touch wood and keep your fingers crossed, it's actually going pretty good. From the pictures I got last Thursday and Friday, everything moving slowly and surely and very good, patiently. Because the robotic equipment and stuff, they're keeping away from it, from the anxiety of get it on, get it down to just do it methodically and properly and let's set everything up properly and stuff. And it's happening right now, right? It's taking shape in the warehouse right now. It's actually quite exciting to see it going stage by stage right now. That's awesome. There is some comment I'd like to make regarding the grant. I know in the past there was a norm of a public educating company. They would tell you you have access to capital in the market stock. So not much of government program was favorable to it. But For this one, being on the innovation and being such a significant move in the country, that it was actually the dollar value is very, very important for us and the contribution the federal government did. But in terms of acknowledgement and giving us credit that we've taken this initiative a step forward in our industry, that was like the validation that it gives us as to what we're doing. That is very, very important for us, and it opens the door for many, many other programs. However, it's like everything else. This is innovative. This is first-timer here. We're doing it. It's been proven in U.S. and Australia. Canada will be the first one, and we need to prove it, and I have no questions about that, that it will be a major proof and major move for us because I've seen it in action so many times. This now is for us the time from now for the next six months to diligently set it up, make it work, train the people, and prove that this concept works. And then everybody is waiting and see. It's not just the investors or our employees or everybody in the country. The competition will wait and see what happens. And once you see the contract is working, Setting it up across different areas is pretty simple because you have a proven system that is already working. And that's what, really, that's the excitement is, and that's what, when the government grant was there, was exciting for me. It was, wow, we got validation from the, actually, from the government that this is a game changer, what we are doing. And it's happening. Like, we are two or three months away from it happening, and it's just exciting to see that.

Excellent. Well, congrats again on that validation. That's all for me. I'll get back in the queue. Thanks for the color. Thank you. Thank you.

Thanks, everyone. So, next, we have Frederick from DejaDent. And, Frederick, you can go ahead, please, to see what's your questions.

Thank you. Good morning. Good morning. Thanks for the color on the strong coding and order activities so far in 2026. I was wondering if you could comment on the pace of deliveries so far in Q2. Would you say that it's meaningfully higher than Q1 as we'd expect given the Q1 dynamics? Melissa?

We're seeing shipping pick up. pick up through quarter two here, as we would anticipate. We did have, what I would say last year, we did have a higher quarter one than typical and a lower quarter two than typical, whereas this year we're seeing the normal trend more. So as we move forward here, yes, we're anticipating that the quarter two is going to follow a more normal trend and not follow the same lower trend as last year.

Okay, that's helpful. And just on the large projects that you mentioned that you do have on the books but weren't scheduled for Q1, any of that coming in Q2, or is that more of a second half of 2026 event?

It's actually going to be spread across, which is where it's going to blend in a little bit more than quite been standing out as much as last year. Heidi might be able to add more color, but there's some that are going out here at the end of Q2, but there's a lot. through quarter three and four, actually.

Yeah, you see, Frederick, after all the years I've been in the business, this business, I'm learning new. And one of the reasons is because we are a nation. We are a cross country, too. And in D.C., we dealt with the weather, but it was just crazy rain for a few days. And we didn't have the ice and the snow and everything freezing and stuff. But when I looked at the Q1, And if you look at the top line of revenue, usually most CEOs or CFOs, you panic and say, oh my God, we are not meeting the expectation, everything. And then when I looked at the difference in the order book, it was, oh my God, how are we going to deliver everything in Q2 and part of Q3? Because that's not just all the orders. The orders we keep on picking up every day, every day. And to me, it was the delivery and the panic of anxiety of labor force and manufacturing and shipping all that order. Like, I was excited that after a while, we actually, our sales force and the strategy we put forward, we went and we went to battle and we went hunting and then we filled the order book. Now it was like, how are we going to deliver it? Because you still got to design it, manufacture it and ship it. But one time I was looking for the panic and anxiety of shipping and pandemonium happening. But what I've noticed, thank God, There is a craziness hasn't happened. There is a steady flow of increasing, increasing as we move on. And it hasn't come like all of a sudden because sometimes in our business, the dam opens up and everything comes at you at once and everyone wants everything tomorrow. But there is to be some kind of a, whether we are used to it now or there is a steady flow and increase on the curve if it's moving up. And Although you love to see a double all of a sudden overnight, but that kills your system too, and it costs you money by panic and anxiety. I see a steady flow. It's moving up and moving up there, and somehow I looked at the Q1, and I looked at the book orders, the quotes, everything, and I... Like, I'm not happy with the revenue, where it was. Like, I will never be happy with that. But it was an actually amazing feeling that the game plan and the strategy is working. And everything is starting to go according to plan. And regardless of what the economy is like, because the economy is not the best. And we have learned to start increasing volume, organic growth, M&A, everything, despite all the craziness that's going on in the country and in the world right now. The sentiment is not the best. We have found that sweet spot that we are positive, we're moving forward, and we're doing everything. M&As, robotics, marketing, adding to Salesforce, everything. While everybody's trying to survive, we are building the business. And it's that sweet spot that we don't want to change. We keep there, and we operate, and we stick to the plan.

Makes sense. Thank you both for your answers. I'll get back in the queue.

Thanks, Frederick. And the last analyst we have is Nick from ATB. And Nick, please proceed with your question.

Thanks. Morning, everybody. I'm just curious, on the quoting activity that Hadi and Melissa, that you guys quoted or brought up, and especially as it ties into those larger customers, is there any change that you're seeing in terms of the dynamics, either who those customers are, the types of projects that they're trying to bring forward, or what their expectations are from you as a partner? And I'm curious if it's tying into the trust, the wall panels, everything else, pricing, availability, just what shift generally in the market you're seeing.

Nick, morning. There is a shift into the organic growth pattern or revenue is increasing percentage by percentage on the wall panel side. And that's some part of it is from existing clients. And the areas we are, and in certain areas, we have been able to add to our sales force that they work within the industry. And those are the clients that they were loyal and they were with that company or with that sales design team or whatever. And now that they have moved to us, that to me has been one significant change is happening right now too, as we are gaining that momentum in the market share through that area there. And that's been even despite, like, the compensating with the coating activities stuff there. And from certain areas, especially, say, U.S. or certain areas being quieter right now, is the change-up thing happening there really is we are taking the market share away there. And we are getting new clients that they were, We've been in the competitions for years and years, and now they have moved to us because of the creativity we have earned in those regions and the addition of the sales force we have added to our company.

Okay. That's excellent, Kalar.

Thank you. The organic growth is starting to show significantly on certain operations we have that we have adapted to the food component manufacturing. It's starting to show significantly.

Okay, got it. Would you say that the benefit of these new salespeople, is it fully captured in these results, or for the rest of the year, should we continue to expect them to steal more market share? Is this just the beginning of a trend? This is just the beginning. Okay. On the wall panel, and I guess it ties into the M&A dynamic, are you changing or updating where you want to have that new capacity, how you're thinking about growing? Has anything shifted since we last spoke?

Yes, basically nothing changed. We keep on the same game plan and we identify good targets and good results and good companies. But now, originally when we started, the target was trust manufacturers. Now we're looking at wall panel manufacturers. What size they are, what location they are, and we're looking at some M&As at that. Our target base has expanded, not just processes, the full component manufacturing. Because there are not a lot, but there are a few wall panel manufacturers in the country that strictly they manufacture wall panels and they install them. Now we're looking at in talks and software to expand in that market. That's all we're looking at. Okay.

That's perfect. Thanks, Ali. Thank you.

Thank you, Nick. And this marked the end of our question and answer sessions. And we will be available post-call to answer any questions you may still have, either via email or a phone call. And you can also go onto our website at avisap.ca to submit your question, and we will address them as well. And we thank you for your interest in Atlas Engineered Products for participating in this call. And then at this time, you may now disconnect. Thank you very much, and we hope you have a great day.

Thank you. Have a great day, everybody.