ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Proofed, first quarter results for the period ending April 20th, 2022. At this time, all phone lines are in a listen-only mode, but following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Note that this call is being recorded on Wednesday, June 8th, 2022, and I would like to turn the conference over to Jean-François Boursier, Chief Financial Officer, please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the first quarter ended April 30th, 2022. I'm currently at our Therbonnet office where we will hold our annual shareholders meeting after this call at 11 a.m. by way of live webcast. I will first update you on our quarterly results, which were disclosed earlier this morning by press release, and then update you on our operations, including yesterday's new contracts announcement. But first, a word of caution. Please note that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the first quarter ended April 30th, 2022, which were filed with CDAR this morning. We started the first quarter of our new fiscal year with revenues of $68 million, which is $17.6 million, or 35% more than the first quarter ended a year ago. Gross margin as a percentage of revenues at 12.1% is down from the 15.4% margin for the quarter ended April 30th, 2021, while adjusted EBITDA at $5.6 million was $0.5 million lower than the first quarter ended last year. This said, it is important to note that the first quarter ended a year ago on April 30th, 2021, benefited from a COVID-related subsidy which improved gross margin by $1.6 million and adjusted EBITDA by $1.9 million. So, excluding this subsidy, The margin for the quarter ended a year ago would have been 12.2%, the same level as our quarter ended last April 30th, while adjusted EBITDA for the quarter ended April 30th, 2021 would have been $4.2 million or $1.4 million less than the EBITDA for the quarter ended last April 30th. It is also important to note that the quarter ended April 30th, 2022 was temporarily impacted downward by work related to the automation investment at our Terrebonne plant. Given the scale of the construction site, our production teams did an exceptional job of maintaining the production schedules, but our usual operational efficiency was temporarily affected. We therefore close our first quarter with net income of $4.3 million or 13 cents per share, virtually the same levels as the corresponding quarter a year ago. Taking into account the ramp up, including the purchase of steel of projects announced at the very end of our last fiscal year, cash flows from operations required funds of $4.7 million. We also, as previously mentioned, continued our CAPEX investment program at our Terrebonne facility, which required additional investment of $3.5 million during the quarter ended April 30th, 2022. As announced with our year-end results, we received the first amounts of our new financing with Investissement Québec in the amount of $15 million. we should be able to draw down the remaining $5 million of these loans within the next two quarters. Including the BBC loan announced and cashed in with our fiscal 2022 year end, the impact of these loans rebalance our balance sheet. In this sense, the quarter ended April 30th, 2022, posted a working capital of $54.4 million for a ratio of 1.9 to 1, which are levels not reached since the last five years. With this, we close the quarter ended April 30th, 2022 with $12.8 million in cash and cash equivalent with no amount being drawn from our credit facilities and thus in excellent position to pursue our backlog growth and execute our current backlog which stood at $325.4 million as of April 30, 2022. Talking about our backlog, we announced yesterday the signing of new contracts totaling $90 million. Contract amounts which are not included in our corridor and just confirmed backlog balance. These projects will be one of the first that will be fabricated using our brand new robotic line and automated equipment, a very important and exciting step for ADF. We still see many bidding opportunities and should be able to confirm additional contract signing soon. In light of these new contracts, including the ones announced last January 31st, 2022, working capital management will remain a priority for ADF. As we have previously explained, backlog growth exerts pressure on our working capital, but we are comfortable with our existing credit facilities. Our CAPEX investment program is winding down, and we expect full-year CAPEX to stand at $8 million. In light of this, we are confident that we have the operational and financial means to pursue our growth and improve our results. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions.

Thank you, Mr. Boursier. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to remove yourself from the question queue, please press star followed by two. And if you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star 1 now if you have any questions. Once again, ladies and gentlemen, if you do have any questions at this time, please press star followed by 1 on your touch-tone phone. And at this time, Monsieur Boursier, we have no questions. Please proceed.

Thank you. Again, I wish to thank you for your interest in ADF Group and remind you that we will hold our fiscal 2022 shareholders meeting this morning at 11. Connection details to access the live webcast are available on our website as well as on the press release file this morning, also available on our website. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.