ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Group Third Quarter 2023 Results Conference Call. At this time, all lines are in lesson-only mode. 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. This call is being recorded on Wednesday, December 7, 2022. I would now like to turn the conference over to Jean-Francois Bourcy, Chief Financial Officer. Please go ahead.

Thank you. Good morning. Welcome to ADF's conference call covering the third quarter and nine-month periods ended October 31, 2022. I will first update you on our quarterly and year-to-date results, which were disclosed earlier this morning by press release, and then update you on our operations. 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 third quarter and nine-month ended October 31st, 2022, which were filed with CDAR this morning. Revenues for the quarter ended October 31st, 2022 stood at $65 million compared with $110.2 million a year earlier while year-to-date. Revenue stood at $199.4 million compared with $233.7 million for the same period a year ago. Revenues for the three and nine-month periods ended a year ago, on October 31, 2021, were favorably impacted by the fabrication of projects with high output but low margins, as we can see when looking at the gross margin at the gross margin as a percentage of revenues, which went from 5.6% for the quarter ended October 31st, 2021, to 15% for the quarter ended this October 31st, 2022. Year to date, margins as a percentage of revenues also increased, standing at 13.3% for the nine months ended October 31st, 2022, compared with 8.4% for the same period a year ago. Besides the fast-track projects with lower margins I just mentioned, margins for the nine-month period ended October 31, 2022 were favorably impacted by the forgiveness of a $1.3 million loan granted to one of the corporation's U.S. affiliate. Forgiveness, which was recorded in the second quarter, ended last July 31, 2022. Also, It is important to note that the year-to-date period ended a year ago, on October 31, 2021, benefited from a Canadian government COVID-related subsidy, which improved gross margins during the quarter ended April 30, 2021, by $1.6 million and adjusted EBITDA by $1.9 million. Considering the improved gross margins, adjusted EBITDA for the three and nine-month periods ended October 31, 2022 stood at $7.5 million and $20.2 million, respectively, compared with adjusted EBITDA of $4.7 million and $13.9 million for the same periods, respectively, a year ago. Besides the element mentioned before, adjusted EBITDA for the nine-month period ended October 31, 2022, benefited from an $800,000 gain on disposal of fixed assets recorded in the second quarter ended last July 31, 2022, which reduced selling administrative expenses by this amount. We therefore close our third quarter with net income of $2.9 million, or $0.09 per share, compared with $2.8 million, or $0.09 per share, for the corresponding quarter a year ago. Year to date, net income stood at $12.6 million, or $0.39 per share, compared with $8.7 million, or $0.27 per share, for the same period ended October 31, 2021. Operating activities generated cash inflows for the three-month period ended October 31, 2022, of $14.5 million, bringing the year-to-date cash flows from operating activities to $7.7 million. We also, as previously mentioned, continued our CAPEX investment program at our Terrebonne facility. Including this investment program, Year-to-date cash flows from investing activities require cash outflows of $10.5 million during the nine-month period ended October 31, 2022. Considering that our automation investment program is all but completed, we expect full-year CAPEX to reach $12 million. As previously confirmed, we received the first amounts of our new financing with Investissement Québec in the amount of $15 million in the quarter ended April 30, 2022. Considering that the total available financing stands at $20 million, we still have $5 million from which we could draw in the coming quarters. Our balance sheet remains strong with working capital of $58 million as at October 31, 2022, compared with $38.7 million as at January 31, 2022. With this, we close our third quarter ended October 31st, 2022, with $15.8 million in cash and cash equivalent. This puts us in an excellent position to pursue our backlog growth and execute our current backlog, which stood at $344 million as of October 31st, 2022. Although still navigating through uncertain conditions, including inflationary pressures, we have been able to yet again increase our gross margin and adjusted EBITDA, both in dollars and as a percentage of revenues. We continue to see the positive impacts of our new investments, namely our new turbine automated fabrication line, and expect further efficiency gains in the coming quarters. We have several projects under negotiation and we will be able to confirm new contract signing in the coming weeks. This additional volume coupled with the efficiency improvements bodes very well for the coming quarters and will translate into improved return for our shareholders. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session for analysts only. Should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to retry a question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Edward Collery from Pelham Investment Partners. Please go ahead.