Executive Summary / Key Takeaways

• Strategic Pivot and Financial Rebase: Atlantic International Corp. (ATLN) has fundamentally transformed from a life sciences entity into a national strategic staffing firm following its June 2024 reverse merger with Lyneer. This pivot, while establishing a substantial revenue base ($442.61 million in 2024), also rebased its financial and operational foundation, marked by significant post-merger adjustments and a complex debt structure.
• Growth Ambition Amidst Headwinds: Management targets an ambitious $1 billion to $1.5 billion in revenue within the next 12 to 18 months, driven by organic growth and M&A. This outlook is supported by strong demand in permanent placements (up 9.3% YTD Q2 2025) and a new $70 million revolving credit facility, yet faces challenges from macroeconomic-induced slowdowns in temporary services.
• Debt Management and Liquidity Focus: ATLN is actively restructuring its substantial debt, including a $35 million Merger Note extended to March 2027 and the deconsolidation of joint-and-several liabilities with IDC. While a new credit facility provides immediate liquidity, the company acknowledges the need for further equity or debt financing to fully address its obligations, posing potential dilution risks.
• Operational Strengths and Competitive Landscape: ATLN leverages a national footprint of over 100 locations and a "proactive recruitment" strategy to serve diverse clients across multiple verticals. It competes effectively for large national accounts through its network, but faces intense competition from local businesses for smaller clients and larger, more diversified firms for major contracts.
• Internal Controls and Leadership Transition: The company is addressing identified material weaknesses in internal controls over financial reporting, with remediation plans in place for late 2025. The upcoming retirement of its CFO presents an additional leadership transition point to monitor.

A New Chapter: Atlantic International Corp.'s Strategic Transformation

Atlantic International Corp. (ATLN) stands at a pivotal juncture, having undergone a profound transformation that reshaped its very identity. What was once SeqLL Inc., a life science instrumentation company, has strategically pivoted to become a national strategic staffing firm. This dramatic shift was cemented by the reverse capitalization merger with Lyneer Investments LLC on June 18, 2024, effectively making Lyneer's robust staffing operations the core business of the newly branded Atlantic International Corp. The legacy SeqLL assets were subsequently divested, signaling a clear and decisive focus on the dynamic staffing industry.

ATLN's core business now revolves around providing comprehensive workforce management solutions across the United States. It specializes in placing temporary, temporary-to-permanent, and permanent labor in a wide array of sectors, including accounting and finance, administrative and clerical, information technology, legal, light industrial, and medical roles. With over 100 locations nationwide, the company aims to be a preferred employer of choice, leveraging its deep expertise to help clients optimize operations and streamline processes. This national presence and diversified service offering are foundational to its competitive strategy in an ever-evolving industry.

The staffing industry itself is characterized by intense competition and sensitivity to macroeconomic conditions. For small and medium-sized businesses, ATLN primarily competes with locally owned staffing agencies. However, for its larger national and multinational clients, which comprise over 60% of its revenue base, ATLN competes with other employment services firms that possess extensive networks of offices, often operating under agreed-upon pricing or mark-up structures. The company's strategic positioning emphasizes a "personalized approach" and "proactive recruitment" to build a pipeline of pre-vetted candidates, aiming to differentiate itself through efficiency and client-specific solutions rather than proprietary hardware.

Operational Edge and Service Innovation

While ATLN's current business does not involve the complex scientific instrumentation of its former incarnation, its operational model in staffing serves as its primary differentiator. The company's strength lies in its extensive network of over 100 offices across the USA, enabling broad geographic reach and localized support for its diverse client base. This widespread presence is critical for efficiently sourcing and placing talent, especially for large national and multinational clients who seek consistent service delivery across multiple locations.

ATLN's "proactive recruitment" strategy is a key operational advantage. This involves building a pipeline of pre-vetted candidates before job requisitions even arise, allowing for faster order fulfillment and a higher quality of placements. This approach aims to reduce client hiring cycles and improve candidate fit, directly contributing to client satisfaction and retention. Furthermore, the company offers productivity consulting and workforce management solutions, which integrate seamlessly with its placement services to provide a more holistic value proposition to clients. These solutions, while not "technology" in the traditional sense of a biotech firm, represent an operational technology stack that enhances efficiency and service delivery in a competitive market.

The company's ability to offer both temporary and permanent placement services across a broad spectrum of industries, from light industrial to specialized IT and medical roles, provides a diversified revenue stream and allows it to adapt to varying market demands. This flexibility, coupled with its established client relationships, forms the bedrock of its competitive moat in the fragmented staffing sector.

Financial Performance: A Story of Transition and Stabilization

ATLN's recent financial performance reflects a company in transition, working to stabilize its operations post-merger while pursuing growth. For the three months ended June 30, 2025, service revenue, net, decreased slightly to $102.90 million from $104.64 million in the prior-year period, a 1.7% decline. This was primarily attributed to a 1.8% decrease in temporary placement services revenue, which management linked to "slower based on economic conditions." However, the permanent placement and other services segment showed robust growth, increasing by 16.9% to $0.86 million, driven by strong demand from existing clients.

Looking at the six months ended June 30, 2025, total service revenue, net, saw a marginal increase of 0.2% to $205.71 million, compared to $205.26 million in the same period of 2024. Temporary placement services remained largely flat, while permanent placement services grew 9.3% to $1.85 million. Gross profit for the six-month period increased by 3.0% to $22.60 million, with the gross profit margin improving from 10.7% to 11.0%. This margin expansion was a direct result of the company's "initiative to sell higher margin accounts."

Despite the revenue and gross profit stability, operating expenses saw significant increases. Selling, general, and administrative (SG&A) expenses rose 32.4% for the six months ended June 30, 2025, to $38.27 million, primarily due to higher stock compensation expense and a full six months of merger-related expenses. The company reported a net loss of $21.46 million for the first half of 2025, a substantial improvement from the $59.78 million net loss in the comparable 2024 period, largely due to reduced interest expense and the absence of large advisory fees and other expenses related to the merger that impacted 2024.

Annually, 2024 revenue reached $442.61 million, a 10.3% increase from $401.37 million in 2023, showcasing the underlying growth potential of the Lyneer business. However, the company recorded a net loss of $135.48 million in 2024, compared to a $15.25 million loss in 2023, reflecting the significant one-time costs associated with the merger and debt restructuring. Operating cash flow improved from -$9.08 million in 2023 to -$5.99 million in 2024, indicating a move towards operational cash generation.

Liquidity, Debt, and Future Capital Needs

ATLN's liquidity and debt structure are central to its investment narrative. As of June 30, 2025, cash and cash equivalents stood at $374,745. A critical development for its financial stability was the closing of a new $70 million Asset-Based Lending (ABL) credit facility on April 29, 2025, replacing its previous revolving credit facility. This new facility, maturing in April 2028, had an available borrowing capacity of $7.83 million as of June 30, 2025. Management believes that cash generated from operations, combined with this new facility, will be sufficient to meet working capital needs for at least the next 12 months, including investments for new market expansion. The company has also concluded there is no substantial doubt about its ability to continue as a going concern for this period.

However, ATLN carries a significant debt load, totaling $75.37 million as of June 30, 2025. A major component is the $35 million Merger Note issued to IDC, which has been extended to March 31, 2027. The company explicitly states that it does not currently believe it will have "sufficient liquidity and capital resources to pay the Merger Note in full when due, as well as to restructure our joint and several debt obligations." This necessitates the sale of "additional equity or debt securities" prior to the Merger Note's maturity, which could lead to shareholder dilution.

The company's debt situation is further complicated by its historical joint and several liabilities with IDC Technologies Inc. (IDC). While an Allocation Agreement with IDC aimed to shift responsibility for certain debts, Lyneer remains legally a co-obligor. IDC's inability to repay its portion of this debt means ATLN could be held responsible for the full outstanding amounts. This risk was highlighted by the Term Note lender's foreclosure on IDC's 21.98 million shares of Atlantic International Corp. common stock in April 2025, which ATLN believes satisfied the Term Note in full. This event underscores the ongoing efforts to disentangle and restructure its complex debt obligations.

Outlook and Strategic Initiatives

ATLN has set an ambitious revenue target of $1 billion to $1.5 billion within the next 12 to 18 months, to be achieved through both organic growth and M&A initiatives. This target signals a strong intent for aggressive expansion in the staffing market. The company's strategy of "proactive recruitment" and expanding its national footprint will be key drivers for organic growth. The recent termination of the Staffing 360 Solutions, Inc. (STAF) merger agreement in February 2025, due to STAF's material breaches, indicates a disciplined approach to M&A, prioritizing strategic fit and operational integrity.

The company's focus on selling "higher margin accounts" is a strategic move to improve overall profitability, as evidenced by the slight increase in gross profit margin for the six months ended June 30, 2025. This, coupled with efforts to manage operating expenses, will be crucial for achieving sustained profitability.

Risks and Challenges

Despite the strategic pivot and growth ambitions, ATLN faces several material risks. The most pressing is its significant debt obligations and the need for additional financing. The potential for shareholder dilution from future equity raises is a tangible concern. Furthermore, the company's joint and several liability for IDC's debt, despite the Allocation Agreement, means ATLN could be on the hook for substantial amounts if IDC defaults, potentially leading to foreclosure on Lyneer's assets.

Client concentration is another notable risk, with one client accounting for 11% of revenues for the six months ended June 30, 2025. The loss of such a significant client, whose master service agreement can be terminated for convenience, would materially impact ATLN's revenues.

Internally, ATLN has identified material weaknesses in its internal control over financial reporting as of June 30, 2025, particularly in accounting for complex transactions and segregation of duties. While remediation plans are in progress for late 2025, these weaknesses pose a risk to financial reporting accuracy and operational efficiency. The upcoming retirement of the Chief Financial Officer in August 2025 adds a layer of leadership transition risk during this critical period of financial stabilization and growth.

Conclusion

Atlantic International Corp. is charting a new course, having successfully transformed into a national strategic staffing powerhouse. The company's core investment thesis rests on its ability to leverage a robust operational model, a national network, and a diversified service offering to capture significant market share in the growing staffing industry. Its ambitious revenue targets, coupled with a disciplined approach to M&A and a focus on higher-margin business, highlight a clear path for future growth.

However, the journey ahead is not without its challenges. The complex and substantial debt structure, including the need for future financing, presents a material risk that could impact shareholder value through dilution. The ongoing efforts to manage joint and several liabilities and strengthen internal controls are critical for building a stable foundation. Investors should closely monitor ATLN's execution on its debt restructuring, its ability to secure additional capital on favorable terms, and its progress in remediating internal control weaknesses, as these factors will be paramount in determining the long-term success of this transformed entity in the competitive staffing landscape.