Beacon Report and raises Price Target to $2.75Atlas Engineered Products Ltd. (AEP-V) Raising PT on Robotic Implementation Russell Stanley CFA, CMT, MBA | rstanley@beaconsecurities.ca Donangelo Volpe - Associate | dvolpe@beaconsecurities.ca We are raising our PT to $2.75/sh from $2.25/sh on upward estimate revisions. Though Q1 revenue/adjusted EBITDA were slightly below consensus (though slightly above our forecast), we are now including the buildout of robotic/automation upgrades at two facilities, driving the increase in our F2025 adjusted EBITDA forecast from $19M to $24M. Q1 Rev/Adj EBITDA Beat Our Forecast/Light v. Consensus - AEP reported revenue/adjusted EBITDA of $9.1M/$0.2M, slightly ahead of our $9.0M/breakeven forecast but below consensus at $9.4M/$0.6M, reflecting two other sets of forecasts. Our estimates were the street low (revenue estimates ranging $9-$9.9M, adj EBITDA forecast $0-$1.1M). Revenue was essentially in line with our forecast, while down 5% y/y and 36% q/q. The y/y decline reflects lower raw material costs (lumber, with AEP running a passthrough pricing model) and a more competitive environment given higher interest rates, partially offset by the LCF operations acquired in August 2023. The q/q decline reflects a seasonal slowdown, particularly at the company’s LCF operations in Eastern Canada. Gross margins declined 581 bps q/q owing to seasonality (particularly in Eastern Canada), but still beat our forecast by 592 bps. This was partially offset by higher-than-forecast OPEX, with adjusted EBITDA margins still coming in 269 bps stronger than we expected. Operating cash flow before working capital was negative $0.1M, slightly below our forecast for positive $0.2M. We attribute the shortfall primarily to slightly higher-than-expected taxes. Debt Prepayments Prominent This Quarter - Atlas exited the quarter with cash/equivalents of $7.2M, long-term debt of $26.6M, and leases of $4.3M. During Q1, the company used $0.2M in cash for operations, $0.1M for CAPEX, and $7.3M for debt/lease payments (of which $6.3M count as early prepayments). The company was in compliance with all covenants, and its $7.5M committed revolving operating line remained unused at quarter end. Robotic Automation Moving Full Steam Ahead – We have updated our model to include the CAPEX/benefit of upgrades of the LCF facility in New Brunswick and the Hi-Tec operation in BC, which should be complete in time for the spring/summer 2025 season. We have also included the CAPEX associated with the development of a full robotic facility in Clinton, Ontario, though the benefit of that facility would not be evidence until F2026 (beyond our current forecast period). We expect aggregate CAPEX of $25M to be fully funded by the company’s cash/operating cash flow during the F2024-26 period, while adding that the $7.5M unused committed revolver gives AEP flexibility. Now Trading at 48% Discount to BLDR – AEP trades at 4.4x our new F2025 adjusted EBITDA forecast. This represents a 48% discount to the 8.4x at which Builders FirstSource (BLDR-NYSE, Not Rated) trades. Our estimates now contemplate a 56% adjusted EBITDA CAGR for AEP through F2025, whereas consensus estimates for BLDR imply an expected negative 3% CAGR (down slightly from negative 1% following its Q1 results in early May). As shown on page 10 (top chart), AEP has outperformed BLDR since mid-January, and given the valuation disconnect relative to their growth outlooks, we expect AEP’s outperformance to continue. Potential company-specific catalysts include updates on the automation buildout, contract wins, the Q2 results in August, and M&A activity.