ADF Group Q1 2025 Earnings Call Transcript

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June 11, 2024

There are 4 speakers on the call.

Operator

Will be available to answer your question at the end of the call. We are currently at the Sheraton Laval, where we will hold our 2024 Annual Shareholders Meeting after this call at 11 am. I will now update you on our quarterly results, which were disclosed earlier this morning by press release. First, a word of caution. Please note that some of the issues discussed today may include forward looking statements.

Operator

These are documented in ADF Group's management report for the Q1 ended April 30, 2024, which were filed with CEDAR this morning. We are off to a very good start with revenues of $107,400,000

Speaker 1

which is $27,100,000

Operator

or 34% more than the Q1 ended a year ago. Gross margin as a percentage of revenues at 29.2% is up from the 16.8% margin for the quarter ended April 30, 2023, while adjusted EBITDA at $23,100,000 was $13,100,000 or 130% higher than the Q1 ended last year. These increases are in line with the increase observed in recent quarters and are largely attributable to a better absorption of fixed costs in line with the increase in the fabrication volume, the continued favorable impact of the investments in automation at ABS plant in Terbonne, Quebec and a favorable mix of fabricated projects. These favorable variances were tempered by higher SG and A expenses. This increase coming from the adjustments in the market value of deferred shared units and of performance share units.

Operator

This mark to market adjustment being $5,400,000 higher than last year, in line with the increase in the corporation share price. We therefore closed our Q1 with net income of $15,300,000 or $0.47 per share compared to $5,400,000 or $0.16 per share for the same quarter a year ago. Besides the adjusted EBITDA impact, the increase in net income also comes from lower net financial expenses, which benefited from interest revenues coming from our outstanding cash balances. Looking at the balance sheet, we posted as at April 30, 2024, cash balances $24,000,000 lower when compared to our January 31, 2024 balances. In parallel, at quarter end, we had outstanding receivable of $121,700,000 with many of these amounts being collected since April 30, 2024.

Operator

All this to say that our consolidated cash balances as of today are not only back to our $72,400,000 year end level, but actually exceeding them. In fact, as of this morning, our consolidated cash balances stood at $81,500,000 Considering this, we are not concerned with the cash flow from operation, which required $22,300,000 for the 1st 3 months closed on April 30, 2024. CapEx for the Q1 ended last April 30 totaled $1,400,000 and were mostly for maintenance of our Terban and Great Falls Fabrication Facilities. We expect full year CapEx to be under $5,000,000 Finally, we closed the quarter with a backlog of 427 point $5,000,000 excluding the contracts worth $90,000,000 announced after the quarter end on May 28. Most of these new contracts coming from additional work relating to the 2nd phase of a contract previously announced in December 2023.

Operator

As I just mentioned, liquidities are as of today back to our January 31 level and even exceeding these levels. As such, the corporation believes that the available cash exceeds the amounts required to support the growth and execution of our order backlog on end as at April 30, 2024 and to meet our financial covenants planned for fiscal 2025. Given ABS' favorable financial position, the size of our order backlog and our cash flow generation profile, the Board of Directors evaluated the options available to the corporation with respect

Speaker 1

to the use of excess cash

Operator

to create value for shareholders, including dividends and share repurchases and opportunities to finance certain projects that could provide additional long term competitive advantages and allow the corporation to benefit from prompt payment discounts negotiated with its suppliers. With this in mind, the corporation intends to enter into private agreements within 30 days from tomorrow with Jean Pierre and Marie Spaschini, members of the Board of Directors and Corporation Management team through their respective holding companies to purchase for cancellation up to a maximum of 3,000,000 shares of the corporation at a price to be agreed upon by the parties

Speaker 1

at

Operator

the minimum discount of 3% on the price of the last independent transaction immediately before the proposed repurchase. The Corporation Board of Directors has established a special committee composed of independent directors to review the terms of the proposal repurchase and to make a recommendation to the Board of Directors with respect thereto. A favorable decision has been obtained from the Autoste des Marchif Nasi to exempt the corporation from the requirements applicable to assure this under applicable legislation. If such agreements are entered into, the corporation will issue a press release and information relating to the share repurchase, including the number of shares involved and the total purchase price following the completion of the proposed repurchase, if any. Jean Pierre and Marie Paschini have informed the corporation that the shares in question will be sold to the corporation for asset diversification and estate planning purposes and that they are not considering any further share sales and that they remain fully committed to growing the corporation.

Operator

Furthermore, the Corporation Board of Directors approved the amendment to ADF's dividend policy to increase the semiannual dividend from CAD0.01 per share to CAD0.02 per share. The amendment will apply to the next dividend payment scheduled for October 2024. Please, however, note that the declaration of payment of dividends remains at

Speaker 1

the discretion of the Corporation Board of Directors.

Operator

We are happy with our fiscal 2025 start of the year and are favorably looking at the upcoming quarters. We will continue our efforts to grow our backlog and generate liquidity. We are also happy with the market reaction to our operational and financial performances. On April 26, our stock reached $15.20 per share, beating ADF's historical I of $15 per share, which was achieved almost 23 years ago in December 2001. We have since continued to reach new eyes, which reaffirms our strategic decision and careful approach of the past years.

Operator

We will continue our efforts to pursue our growth and achieve improved results, and we remain focused on continuing building ADF on the know how of our personnel, our long standing industry expertise and on our state of the art facilities. Thank you for your interest and confidence in ADF. Jean and I will now answer your questions.

Speaker 2

Thank Your first question comes from Nicholas Cortucci from Atrium Research. Please go ahead.

Speaker 3

Good morning, gentlemen. Congrats on another fantastic quarter here.

Speaker 1

Good morning. Thanks, Mitch.

Speaker 3

So my first question kind of going back to the last call, I wanted to ask you guys about the longevity of this cycle. So how are things looking for fiscal 'twenty six and beyond? Do you think you can post another year of 10% plus top line growth?

Speaker 1

Well, what we're seeing right now, I think for the next 2 to 3 years, there's going to be growth, okay? Growth the market, okay? The market is growing. And for us, we're going to see growth this year, next year and the year after. So we see good potential for the next 3 to 5 years.

Speaker 3

Okay, perfect. And then with that, what is the capacity situation like? And do you foresee that being a challenge?

Speaker 1

There's right now, there's no limit of the capacity. We don't talk about capacity. Whatever projects that we get, we're going to put them in the shop and we're going to fabricate them. So our shop right now is set up to $700,000,000 $800,000,000 even $1,000,000,000 I've got no problem there with the facility that we have.

Speaker 3

Okay. Thank you very much. Congrats again, and I will jump back in the queue.

Operator

Thank you.

Speaker 2

And there are no further questions at this time. I will turn the call back over to Jean Francois Bossier for closing remarks.

Operator

Again, we wish to thank you for your interest in ADF Group and remind you that we will hold our fiscal 2024 shareholders meeting in just a few minutes at 11 at the Sheraton Laval Hotel. Thank you. Thank you.

Speaker 2

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.

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Earnings Conference Call
ADF Group Q1 2025
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