ADF Group Q2 Earnings Call Highlights

Key Points

• Strong financial growth: Second-quarter revenue increased to C$95 million, while adjusted EBITDA rose to C$8.4 million and net income reached C$3 million. First-half revenue climbed 79% to C$194.3 million, partly reflecting an easier comparison with 2025’s work-sharing program.
• Record backlog and solid liquidity: ADF ended the quarter with a record C$693.7 million order backlog and C$91.4 million in cash, supported in part by a C$25 million customer-claim settlement inflow.
• Tariff pressures and investment plans: Although ADF does not expect direct exposure to the latest 50% U.S. tariff, higher steel costs and tariff-related charges are weighing on margins. The company expects more than C$40 million in full-year capital spending, including expansions in Quebec and Montana.

ADF Group TSE: DRX reported higher revenue, adjusted EBITDA and net income for its fiscal second quarter and first half ended July 31, 2026, supported by increased fabrication activity, a customer-claim settlement and a record order backlog.

Chief Financial Officer Jean-François Boursier said quarterly revenue reached C$95 million, up C$42 million from a year earlier. Six-month revenue rose 79% to C$194.3 million from C$108.5 million in the comparable 2025 period.

Boursier noted that the prior-year comparison was affected by a work-sharing program at ADF's Terrebonne, Quebec plant. The program had been implemented amid tariff uncertainty and remained in place for virtually all of the quarter ended July 31, 2025, reducing fabrication hours and revenue at that time.

Profitability and settlement impact

Second-quarter gross margin was 18.7% of revenue, compared with 20.7% a year earlier. For the first six months, gross margin was 21.5%, broadly in line with 21.3% in the prior-year period.

The company said higher revenue helped absorb fixed costs, but that benefit was partly offset by higher input costs, including steel prices and tariff-related changes. ADF also recorded the final settlement of a claim against a Groupe LAR customer during the quarter.

The settlement had a cumulative positive effect of C$20.2 million on Groupe LAR revenue and C$5.3 million on ADF's gross margin for both the quarter and first half, according to Boursier.

Adjusted EBITDA rose to C$8.4 million in the second quarter from C$3.7 million a year earlier. For the six-month period, adjusted EBITDA increased to C$26.9 million from C$14.1 million.

Net income for the quarter was C$3 million, or C$0.10 per share, compared with C$0.9 million, or C$0.03 per share, in the prior-year quarter. First-half net income was C$15 million, or C$0.52 per share, versus C$9.6 million, or C$0.34 per share, a year earlier.

Boursier said reported earnings were adversely affected by non-cash mark-to-market costs associated with deferred share units, performance share units and restricted share units following an increase in ADF's share price since Jan. 31. Those programs reduced net income by C$4.3 million, or C$0.15 per share, in the quarter and by C$5.6 million, or C$0.20 per share, in the first half.

Foreign-exchange losses also reduced quarterly net income by C$1.8 million, or C$0.06 per share, and first-half earnings by C$1.4 million, or C$0.05 per share.

Backlog reaches record level

ADF ended the quarter with a record consolidated order backlog of C$693.7 million, including C$243.3 million at Groupe LAR. The backlog excludes a five-year extension option tied to a long-term contract announced in July 2025.

Canadian projects represented 64% of the consolidated backlog at July 31. During the question-and-answer session, Boursier said the proportion declined from about 72% at the end of the first quarter because of U.S.-based project announcements near the end of June.

Still, he described the geographic mix as favorable in the current trade environment, noting that Canadian content had been about 5% as recently as April 2025. He said a mix approaching 50% Canadian and 50% U.S. projects would be positive for the company.

On margins, Boursier said ADF does not provide formal guidance, but described the first-half gross margin of 21.5% as a “pretty good indication” of expected results. He said the company continues to work through Groupe LAR's legacy backlog, which carries margins below ADF's historical level, and expects margins to improve as that work is completed.

Tariffs, liquidity and capital spending

Boursier said ADF is not currently affected by the recently announced 50% U.S. tariff on products, and expects relief from Canadian counter-tariffs that took effect earlier in the week. Based on information available at the time of the call, he said the company also did not expect to be directly affected by U.S. presidential proclamations signed Tuesday night.

However, ADF continues to face indirect effects from tariffs, including higher steel costs. The company has also been paying approximately 10% of the commercial invoice value on Canadian fabrication shipped for U.S. projects since an April 2026 proclamation, Boursier said. Those costs are reflected in current margins.

ADF reported C$91.4 million of cash and cash equivalents at July 31, up C$28.7 million from Jan. 31. Working capital was C$109.5 million. A C$25 million cash inflow from the claim settlement occurred shortly before quarter-end and contributed to the cash balance.

Operating cash flow totaled C$47.1 million in the first half. The company spent C$15.5 million on property, plant and equipment and intangible assets, including modifications to a fabrication bay in Terrebonne, Groupe LAR's plant expansion and an enterprise resource planning upgrade.

• ADF expects full-year capital expenditures of slightly more than C$40 million.
• The Groupe LAR expansion in the Lac-Saint-Jean region is on time and on budget, Boursier said.
• The company plans to invest just over US$10 million to expand output and add equipment at its Great Falls, Montana facility.
• ADF's board approved a second semiannual dividend of C$0.02 per share, payable Oct. 15 to shareholders of record on Sept. 25.

Boursier also said the search for his successor is progressing. He is scheduled to retire as CFO on Dec. 31 after more than 16 years with ADF, and plans to serve as a strategic adviser beginning Jan. 1, 2027, to support the transition.

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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