Atlas Engineered Products Turns Sharply to Profit Q2 2020 Financial and Operating Results

NANAIMO, BC, Aug. 4, 2020 /CNW/ - Atlas Engineered Products ("AEP" or the "Company") AEP (OTC Markets: APEUF) is pleased to announce its financial and operating results for the second quarter ended June 30, 2020. All amounts are presented in Canadian dollars.

"Although Q2 2020 resulted in lower revenues than in Q2 2019, I am pleased to report an 11% revenue increase in Q2 2020 over Q1 2020 amidst the most impacted months of the COVID-19 pandemic. Normalized EBITDA margin was at 14%, with positive operating profit and net income for Q2 2020. This was achieved through our comprehensive cost saving and cash preservation strategy, implemented at the end Q1 2020, as well as disciplined sales activities, and an increased focus on improving operational efficiencies and margin expansion throughout Q1 and Q2 2020," said AEP CEO & President Dirk Maritz.

Financial Highlights for Q1 2020:

• Revenue - for the three months ended June 30, 2020 was $7,900,805 compared to revenue of $9,067,334 for the three months ended June 30, 2019 and $7,097,979 for the three months ended March 31, 2020. This represents overall growth in revenue of 11% in comparison to the three months ended March 31, 2020, and a 13% lag compared to the three months ended June 30, 2019. The quarter over quarter increase in total revenues was driven by the strong resilience of the BC & Manitoba markets despite the ambiguity in the Ontario market at the time due to COVID-19 restrictions. We anticipate strong volumes throughout the rest of the 2020 fiscal year on the back of exceptional quoting activity, increased housing starts and permitting, and low interest rates that we expect will fuel further demand.
  
  
• Gross Margins - for the three months ended June 30, 2020 were 24%, down from a gross margin of 28% for the three months ended June 30, 2019, and up from a gross margin of 16% for the three months ended March 31, 2020. This represents an increase in gross margins of 51% quarter over quarter. Gross Margins declined in the first quarter of 2020 relative to 2019 due to the implementation and startup of new product lines, significant lumber price volatility, lower productivity and efficiency on the factory floor due to shift staggering, and implementing safe social distances on the factory floor. During the months of April and May, the Company worked aggressively to minimize these impacts, and restore margins, which is evident in our results for the three months ended June 30, 2020.

• Operating Expenses - were $1,620,503 for the three months ended June 30, 2020 compared to $1,723,729 for the three months ended June 30, 2019 and $1,978,758 for the three months ended March 31, 2020. This represents a 6% reduction from the same period in the prior year and an 18% reduction quarter over quarter. This was as a result of the stringent cost reduction and cash preservation plan implemented at the end of the first quarter. The Company is continuing to monitor these strategies and aiming to further reduce costs moving into the rest of 2020.
  
  
• Profitability – as a result of increased gross margins and stringent cost controls and cash preservation activities, the Company is pleased to report an operating profit and net income for the three months ended June 30, 2020. This has also lead to strong EBITDA results. Adjusted EBITDA margin for the three months ended June 30, 2020 improved to 12% and normalized EBITDA margin improved to 14%, compared to the three months ended March 31, 2020 which had an adjusted EBITDA margin of -2% and a normalized EBITDA margin of 1%. Although down from our adjusted EBITDA margins and normalized EBITDA margins of 17% each  relative to Q2 2019, our results Q2 2020 results are excellent considering the first six weeks of the second quarter were the hardest hit period of the COVID-19 pandemic, with large parts of the economy closed down across Canada.

• Cash Balance - despite typically higher working capital requirements ramping up to higher seasonal market demand from June onwards, the Company's cash balance has increased to $3,033,576 as at June 30, 2020 from $83,005 (net of bank indebtedness) as at December 31, 2019. This increase in cash was attributable to our private placement financing completed in February 2020, as well as the implementation of a number of cost reduction and cash preservation strategies.

2020 Integration, Optimization, and Expansion Strategy

• AEP continues to work incredibly hard to optimize workflows, productivity, and capitalize on economies of scale, such as a new national engineered wood product supply arrangement. This new arrangement is expected to result in cost savings, guaranteed lead times, and improved delivery of products to our locations.
• In June 2020, the Company announced its expansion into pre-fabricated wall panels in British Columbia. This product expansion will assist the Company in its growth and product diversification in British Columbia.
• In July 2020, the Company entered the Lower Mainland BC market through the acquisition and purchase of assets from a market player in Abbotsford, BC. This expands the AEP footprint into the very large and robust Greater Vancouver and Fraser Valley areas.
• Significant cost saving and cash preservation strategies were implemented near the end of the first quarter of 2020. This has supported the Company's ability to handle the impacts of the COVID-19 pandemic and move forward with 2020 activities such as product expansion, targeted acquisitions, and improved workflows and automation.

Looking forward, we expect that revenues for Quarter 3 2020 will show further improvement over Quarter 2 2020, and continued profitability rendering strong, positive EBITDA & operating margins, as well as net income growth.

Mr. Maritz stated, "Despite the challenges and effects posed by COVID-19, the team at AEP excelled in acting and responding during the developing global pandemic. Cash continues to be king, and cost reductions remain a huge priority. These continued measures have resulted in AEP's strong liquid position, as well as the Company's ability to turn the business sharply into profit for Q2 2020. We continue to aggressively grow our orderbook, and the back-half of this year looks exceptionally strong. I am incredibly proud of my team's ability to respond quickly, eliminate costs, and return AEP to positive EBITDA margins while protecting our cash reserves. The team has also been able to increase productivity and efficiency under physical distancing mandates, while countering the sudden volatility of lumber prices and eliminating incurred costs committed in Q4 2019 and Q1 2020, in anticipation of acquisition plans for 2020. We have successfully removed these costs and we are optimistic about our targeted growth, profitability and acquisitions for 2020. Onwards and upwards".

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, giving us a unique opportunity to consolidate a fragmented industry of independent operators.

Forward Looking Information

Information set forth in this news release contains forward-looking statements. These statements reflect management's current estimates, beliefs, intentions and expectations; they are not guarantees of future performance. Although AEP believes that the expectations reflected in the forward looking statements are reasonable, there is no assurance that such expectations will prove to be correct, or that such future events will occur in the disclosed time frames or at all. AEP cautions that all forward looking statements are inherently uncertain and that actual performance may be affected by a number of material factors, many of which are beyond AEP's control. Such factors include, among other things: Risks and uncertainties relating to AEP, including those to be described in the Management's Discussion and Analysis ("MD&A") for AEP's three months and six months ended June 30, 2020. Accordingly, actual and future events, conditions and results may differ materially from the estimates, beliefs, intentions and expectations expressed or implied in the forward-looking information.

This news release also includes future oriented financial information and financial outlooks (collectively, "FOFI") with respect to expected future revenues, profitability and cost reductions. The FOFI contained in this news release is subject to the same assumptions, risk factors, limitations and qualifications relating to other forward-looking statements contained in this news release. The FOFI contained in this news release is provided for the purpose of providing information regarding management's assessment of the Company's anticipated business operations, and may not be appropriate for other purposes.

Except as required under applicable securities legislation, AEP undertakes no obligation to publicly update or revise forward-looking information, including FOFI.

Selected Financial Information

Except as noted below, the financial information provided in this news release is derived from AEP's unaudited financial statements for the three months and six months ended June 30, 2020 and June 30, 2019, and the related notes thereto as prepared in accordance with International Financial Reporting Standards ("IFRS") and related IFRS Interpretations Committee ("IFRICs") as issued by the International Accounting Standards Board ("IASB"). A copy of AEP's unaudited financial statements for the three months and six months ended June 30, 2020  and the related Management's Discussion and Analysis is available on AEP's website at www.atlasengineeredproducts.com or on SEDAR at www.sedar.com.

Financial information for AEP's acquisitions are included in AEP's unaudited financial statements from the date of acquisition. Financial information for acquired businesses for periods prior to the date of acquisition were prepared by management and have not been reviewed or audited by independent auditors.

Non-GAAP / Non-IFRS Financial Measures

Certain financial measures in this news release do not have any standardized meaning under IFRS and, therefore are considered non-IFRS or non-GAAP measures. These non-IFRS measures are used by management to facilitate the analysis and comparison of period-to-period operating results for AEP and to assess whether AEP's operations are generating sufficient operating cash flow to fund working capital needs and to fund capital expenditures. As these non-IFRS measures do not have any standardized meaning under IFRS, these measures may not be comparable to similar measures presented by other issuers. The non-IFRS measures used in this news release include "EBITDA", "EBITDA margin", "adjusted EBITDA", "adjusted EBITDA margin", "normalized EBITDA" and "normalized EBITDA margin". "EBITDA" is calculated as revenue less operating expenses before interest expense, interest income, amortization and depletion, impairment charges, and income taxes. "EBITDA margin" is EBITDA expressed as a percentage of revenues. "Adjusted EBITDA" is EBITDA after adjusting for share-based payments, foreign exchange gains or losses and non-recurring items. "Adjusted EBITDA margin" is adjusted EBITDA expressed as a percentage of revenues. "Normalized EBITDA" is EBITDA adjusted for one-time items. "Normalized EBITDA margin" is normalized EBITDA expressed as a percentage of revenues.

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SOURCE Atlas Engineered Products Ltd.