Mr. Hadi Abassi reports

ATLAS ENGINEERED PRODUCTS REPORTS 2023 ANNUAL FINANCIAL AND OPERATING RESULTS

Atlas Engineered Products Ltd. has released its financial and operating results for the year ended Dec. 31, 2023.

"Two thousand twenty-one and 2022 were marked by pent-up demand, inflated material prices and never-ending supply chain issues. Two thousand twenty-three was an anticipated correction year in the construction market that was exacerbated further by steadily rising interest rates," said Hadi Abassi, the company's chief executive officer, 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 Aug. 23, 2023, the company acquired Leon Chouinard et Fils Co. Ltd./Ltee. (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 $2,792,000 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 paying the rest with the company's existing cash generated from operations. During LCF's fiscal year ended Dec. 31, 2022, they generated revenues of just over $25.7-million, net income of just over $6.3-million and a non-IFRS (international financial reporting standards) normalized EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately $9.47-million, resulting in a non-IFRS normalized EBITDA margin of 37 per cent.
• Atlas Engineered Products' revenue for the year ended Dec. 31, 2023, was $49,413,675, compared with revenue of $61,899,620 for the year ended Dec. 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 Dec. 31, 2023, decreased to 27 per cent, compared with gross margin of 32 per cent for the year ended Dec. 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 Dec. 31, 2023, to $8,294,053 compared with $7,316,437 for the year ended Dec. 31, 2022. This increase was mainly due to $630,547 of one-time, non-recurring 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 herein. 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 Dec. 31, 2023, compared with net income after taxes of $8,830,337 for the year ended Dec. 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.
• Normalized EBITDA margin, a Non-IFRS measure, decreased to 20 per cent for the year ended Dec. 31, 2023, from 25 per cent for the year ended Dec. 31, 2022. This decrease was mainly due to decreased gross margins and increased operating costs. The company has added $630,547 in one-time, non-recurring acquisition costs back to normalized EBITDA, but additional support costs, such as bolstering human resources and upgrading internal systems to support the acquisitive growth of the company, were not added back as these will be continuing 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 sales force across Canada to drive sales through market expansion into areas the company has not generally supplied to through product expansion with wall panels and floor cassettes and through future expansion expected from organic growth, automation, M&A (mergers and acquisitions), 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 two million homes needed by 2031, on top of the 1.9 million homes expected to be built in that time frame," said Mr. 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 Atlas Engineered Products group of companies. Future acquisitions remains a key part of Atlas Engineered Products' 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. Atlas Engineered Products 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 its customers.

About Atlas Engineered Products Ltd.

Atlas Engineered Products is a growth company that is acquiring and operating profitable, well-established operations in Canada's truss and engineered products industry. Atlas Engineered Products has a well-defined and disciplined acquisition and operating growth strategy, enabling it to scale aggressively and apply new technologies, giving the company a unique opportunity to consolidate a fragmented industry of independent operators.

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