ADF Group Q4 Earnings Call Highlights

Key Points

• Weak fiscal 2026 results: Revenue fell to CAD 258.7 million (from CAD 339.6M) and gross margin dropped to 23.1% (vs. 31.6% a year earlier), with adjusted EBITDA and net income also down as management blamed U.S. tariff changes, higher raw material costs and project timing/mix.
• Groupe LAR acquisition and backlog: The Sept. 2025 acquisition contributed about CAD 20 million in revenue and roughly CAD 138.2 million to backlog, helping produce an ending order backlog of CAD 561.1 million (excluding CAD 157.3M of recent contracts), while ADF works to improve LAR contract margins through tighter bidding and risk controls.
• Tariff-driven outlook and capital plans: A new U.S. 10% tariff on fabricated projects could cut margins (management estimates ~5% on some work), but ADF expects fiscal 2027 revenue growth with margins “somewhat stagnate” early; the company plans about CAD 35 million of capex for FY2027 and declared a semiannual dividend of CAD 0.02 per share.

ADF Group TSE: DRX reported fiscal 2026 results that management described as “exceptional” despite a year marked by shifting U.S. tariff rules, project timing disruptions, and a less favorable project mix than the prior year.

Fiscal 2026 results pressured by project mix and tariffs

Chief Financial Officer Jean-François Boursier said revenue for the year ended January 31, 2026, totaled CAD 258.7 million, down from CAD 339.6 million in fiscal 2025, which he characterized as “an exceptionally good year with a favorable project mix.” Gross margin declined to 23.1% of revenue from 31.6% a year earlier.

Boursier attributed the fiscal 2026 margin and volume pressures to U.S. tariffs, citing both “higher raw material costs” and delays in project signing and fabrication start. In response to the softer environment, he said ADF implemented a work-sharing program at its Terrebonne, Quebec facility earlier in the year, reducing fabrication hours while partially offsetting the cost impact through a Canadian employment program.

Adjusted EBITDA for the year was CAD 43.5 million, or 16.8% of revenue, compared with CAD 91.3 million, or 26.9% of revenue, in fiscal 2025. Selling and administrative expenses were CAD 23.2 million, up CAD 1.1 million year over year, which Boursier said was entirely due to the inclusion of Groupe LAR in consolidated SG&A.

ADF recorded a mostly non-monetary foreign exchange gain of CAD 2.1 million versus a CAD 5.6 million loss a year earlier, which Boursier said largely reflected year-end mark-to-market movements on outstanding FX contracts. Net income was CAD 26.3 million, or CAD 0.93 per basic and diluted share, compared with CAD 66.8 million, or CAD 1.84 per share, in fiscal 2025.

Groupe LAR acquisition contribution and integration

Boursier said the acquisition of Groupe LAR, finalized on September 18, 2025, contributed CAD 20 million in revenue and added CAD 2 million to consolidated gross margin since closing. In the fourth quarter, ADF posted revenue of CAD 78.8 million, up CAD 1.4 million year over year; the quarter included CAD 13.8 million of revenue from Groupe LAR.

Fourth-quarter gross margin was 21.5%, down from 31% in the comparable period of fiscal 2025. Boursier said the decrease was primarily due to product and fabrication mix, including lower-margin LAR projects. Fourth-quarter net income was CAD 6.4 million versus CAD 9.1 million a year earlier, and Boursier said LAR “basically broke even for the quarter.”

On the call, Boursier also offered context on legacy LAR backlog. He said some contracts signed before and during the acquisition period carried lower-than-usual margins, though still positive, due in part to LAR’s negotiating position at the time. He added that ADF is applying its own bidding and risk-management processes to LAR contracts, targeting improved terms, payment structures, and margins over time.

Liquidity, capital spending plans, and dividend

ADF generated CAD 49.4 million of cash flows from operating activities and invested CAD 11.1 million in capital expenditures, primarily for equipment maintenance at Terrebonne and Great Falls, Montana. Looking ahead, Boursier said the company plans to invest close to CAD 35 million in fiscal 2027, “the majority” of which will go toward Groupe LAR’s plant expansion and modernization, and that ADF is negotiating financing packages for those investments.

As of January 31, 2026, working capital was CAD 104.8 million, down CAD 4.4 million from the prior year. Cash and cash equivalents totaled CAD 62.7 million, up CAD 2.7 million year over year, which Boursier noted occurred despite the conclusion of ADF’s NCIB and the Groupe LAR acquisition.

The board approved a semiannual dividend of CAD 0.02 per share, payable May 15, 2026, to shareholders of record as of April 27, 2026.

Backlog growth and recent contract wins

ADF ended fiscal 2026 with an order backlog of CAD 561.1 million as of January 31, 2026, excluding new contracts totaling CAD 157.3 million announced the prior week. The ending backlog included CAD 138.2 million of contracts from Groupe LAR, also excluding last week’s announcement.

Boursier said the largest new award was a multi-year agreement for Groupe LAR: a four-year master contract to fabricate and deliver “various heavy steel structures” for a hydroelectric project in Quebec. However, he cautioned that the timing will be back-end weighted. Responding to Atrium’s Nicholas Cortellucci, Boursier said the contract will have “limited impact or close to no impact” on fiscal 2027 revenue, with “most of the fabrication” expected to start the following year.

Tariff update and outlook: revenue growth expected, margins seen sluggish early

Management highlighted ongoing trade uncertainty following another change in U.S. tariffs. Boursier said that U.S. projects fabricated in Terrebonne are now subject to a 10% tariff applied to the value of the commercial invoice “including profit,” even when the steel used is sourced from U.S. mills. President and COO Pierre Paschini said the change effectively penalizes the company on both fabrication and material and described the impact as “$300 a ton basically,” which he estimated could be “maybe 5% on the margin,” depending on the work.

Paschini also said ADF is bidding on projects tied to data centers and other markets, but noted the new tariff requires ADF to be “a bit more competitive.” He added that, with many U.S. plants busy, ADF may be able to “charge a bit more and compensate” for some of the tariff impact, though he emphasized execution and job selection as key.

Boursier said ADF’s backlog mix has shifted toward Canada, helped by a long-term contract signed in July 2025 and the Groupe LAR acquisition, which has reduced exposure that otherwise could have amplified the tariff impact. He added that the company is working with U.S. clients to alleviate costs, but said the latest announcement reinforced market unpredictability and could lengthen contract negotiations.

On fiscal 2027 expectations, Boursier said the company anticipates revenue growth for the year ending January 31, 2027, even as it faces challenges finalizing certain U.S. customer contracts typically fabricated in Terrebonne. He also said margins are expected to “somewhat stagnate” in the first quarters of fiscal 2027, particularly when factoring in the recent tariff change, with improvement anticipated as LAR integration advances and inherited projects are completed.

Asked by Bastion Asset Management’s Aniss Gamassi about margins next year, Boursier said ADF does not provide margin guidance, but added he would be “really satisfied” to maintain similar margins to fiscal 2026, with performance potentially “a bit more sluggish in the first half” and improving in the second half, depending on contract wins and tariff-related outcomes.

ADF said it will hold its annual shareholders meeting on June 9 at its Terrebonne office, and plans to disclose first-quarter results for the period ending April 30, 2026, during that meeting.

About ADF Group TSE: DRX

ADF Group Inc is a North American leader in the design and engineering of connections, fabrication, including the application of industrial coatings, and installation of complex steel structures, heavy steel built-ups, as well as in miscellaneous and architectural metals for the non-residential infrastructure sector. ADF Group Inc is one of the few players in the industry capable of handling highly technically complex mega projects on fast-track schedules in the commercial, institutional, industrial and public sectors.

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