Atlas Engineered Products announced its revenue for the first quarter ended March 31, 2020 was $7.1 million, encrease of 14% y-o-y. This gain was driven by the organic growth of AEP’s existing operations and the first full quarter with the Company’s South Central Building Systems location in Carman, Manitoba.
Gross margins for the three months ended March 31, 2020 was 16%, which was down from a gross margin of 19% for the three months ended March 31, 2019. Gross margins declined in Q1 2020 due to lumber price volatility at the beginning of 2020. The decrease was mainly associated with the prices of lumber rising sharply in anticipation of the 2020 summer and fall building season, as shown in the graph.
The largest of these increases occurred in January and February, when most winter work being completed had already been quoted and ordered in 2019, at lower lumber prices. As lumber prices increased, inventories were purchased at higher pricing in the beginning of 2020 to meet demand. Lumber prices fell sharply from mid-February 2020 as the COVID-19 pandemic hit North America. AEP’s vendor managed inventory had to be depleted at the higher values during a time where the market was scrambling to get volumes at competitive prices.
In June 2020, AEP announced its expansion into pre-fabricated wall panels in British Columbia. This product expansion will assist AEP in its growth and product diversification. Significant cost saving and cash preservation strategies were implemented near the end of Q1 2020. This has supported the AEP’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.
“The seasonality of the construction industry has, in the past, resulted in supply and delivery challenges for all manufacturers of roof and floor trusses, wall panels, engineered wood, windows and doors,” explained AEP Vice President of Operations, Gurmit Dhaliwal. “This comprehensive approach to engineered wood supply will ensure we maximize our opportunities to expand our current markets and penetrate new geographies. We have been really successful growing our market share with engineered wood products in Western Canada. With our advanced design capabilities and this deal, we can now do the same across Canada.”
Dirk Maritz, President and CEO of AEP stated, “Despite the challenges and effects posed by COVID-19, AEP remains in a solid financial position. AEP has strong liquidity and entered 2020 with an improved financial position over the previous year. We continue to grow our orderbook despite the unprecedented times. I am incredibly proud of my team’s ability to respond quickly, significantly reduce costs from March onwards, return AEP to positive EBITDA margins and protect our cash reserves while increasing productivity and efficiency under physical distancing mandates. The AEP team counteracted the sudden lumber price free-fall as well as the incurred costs in Q4 2019 and Q1 2020 in anticipation of our acquisition plans for 2020. We have successfully eliminated the costs and we are optimistic about our targeted acquisitions for 2020. Upwards. Onwards.”
AEP expects its revenues for Q2 2020 will show further improvement over Q1 2020, and a return to strong, positive normalized EBITDA margins for Q2 2020.