ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Group Fourth Quarter 2023 Results Conference Call. At this time, all lines are in a listen-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 Thursday, April 13, 2023. I would now like to turn the conference over to Jean-Francois Bourcy, Chief Financial Officer, please go ahead.

Welcome to ADF's conference call covering the 12-month period ended January 31st, 2023. Before I update you on ADF's annual results and changes in financial position, which were disclosed earlier this morning by press release, and on our operations, let me remind you that some of the issues discussed today may include forward-looking statements. These are documented in ADF Groups Management Report for the 2023 fiscal year, which will be filed with CDAR in the coming days. Revenues for the fiscal year ended January 31st, 2023 reached $250.9 million, $29.9 million lower than last fiscal year. The decrease in revenues is mostly explained by the inclusion last year of projects with accelerated production schedules. As a percentage of revenues, the gross margin went from 8.8% in fiscal 2022 to 14.2% during the fiscal year ended January 31st, 2023. This significant increase being explained by the projects mentioned before which given their lower complexity at lower margins, but also by the commissioning of our new automated fabrication equipment at our Terrebonne, Quebec fabrication facility, which started to bring improved fabrication efficiencies. Adjusted EBITDA stood at $26.1 million, or 10.4% of revenues, compared with $17.8 million or 6.3% of revenues a year ago. Besides the improved gross margins, the fiscal 2023 and 2022 adjusted EBITDA were also favorably impacted by the recognition of COVID-19 pandemic-related grants and subsidies. For the period ended January 31st, 2023, The corporation obtained the forgiveness of a COVID-related loan of $1.3 million or $1 million U.S. issued to one of our U.S. subsidiaries. This forgiveness resulted in the recognition of a government grant, mostly against salary expenses in the second quarter and the July 31st, 2022. As for the period and the January 31st, 2022, ADF received $1.9 million, all from the Canadian Emergency Wage Subsidy Program, and all in the first quarter. $1.6 million of this amount being booked against gross margins, the balance being booked against SG&A. Selling administrative expenses amounted to $14.8 million, or 5.9% of revenues. $2.8 million higher than last year. Most of this variance coming from a $2.1 million gain on fixed asset disposal recorded in the fiscal year and the January 31st, 2022. Year to date, we posted net income of $14.9 million or 46 cents basic and diluted per share compared with a net income of $9.6 million a year ago. for $0.29 basic and diluted per share. Cash flows from operating activities required $2.6 million in line with the financial requirements coming from the December 2022 $228 million contracts announcement. We also invested $12.2 million in CAPEX, mostly for our two-year $30 million investment program initiated in early 2021 to equip our fabrication plant in Terrebonne with a brand new robotic production line, the only one of its kind in North America, as well as new programmable and automated equipment. As of January 31st, 2023, working capital stood at $65.6 million, $26.9 million higher than last year. Our January 31st, 2023 and 2022 liquidities were basically at the same level at $7.2 million and $7.1 million, respectively. On this subject, on January 14 and January 18, 2022, we obtained two bank loans from Investments Québec totaling $20 million, which went towards financing the capital expenditure program previously mentioned. this amount being fully drawn in the fiscal year close, January 31st, 2023. After the close of our January 31st, 2023 fiscal year on February 10th, 2023, we reach an agreement with our financial institution to increase our short-term credit facility from $30 million to $40 million. This increase will enable ADF to pursue its backlog growth providing us with additional financing leeway. Yesterday, our Board of Directors approved the payment of a semiannual dividend of one cent per share, which will be paid on May 17, 2023, to shareholders of record as of April 28, 2023. Our order backlog stood at $376.5 million as of January 31, 2023, just above last year and still at a very acceptable level with good prospect of signing new contracts in the coming months. Quickly looking at the four-quarter results, revenues stood at $51.5 million compared with $47 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of sales stood at 17.5% compared with 10.8% during the same quarter last year. Our January 31st, 2023 fourth quarter benefited from contractual changes finalization, which increased the margin. Finally, the corporation recorded net income of a net income of $2.3 million or 7 cents per share during the last quarter of the 2023 fiscal year. compared with a net income of $0.9 million or 3 cents per share for the same period in fiscal 2022. ABF closed its fiscal year on January 31st, 2023 with encouraging results. Despite the variables of the economy in general, including not only rising interest rates, but also the impact of inflation, ADF closed its fiscal year with an increase in the order backlog, better margin, and a net income 56% higher than a year ago. Given the order backlog in N to begin this new fiscal year, ADF's management expects its revenues for the fiscal year ending January 31, 2024 to increase. Although our cost structure is under pressure, Given the impact of inflation on our inputs, including the cost of labor, the corporation is confident it will remain competitive and will generate higher margins given all the operational improvements implemented, including the automation of the fabrication processes at its plants in Terrebonne, Quebec. The major investment in automation over the last two fiscal years are now completed and allow us to face economic challenges with confidence. We are now well positioned to continue to grow, generate cash, and improve profitability. However, we remain cautious in our approach and will closely monitor economic developments in order to adjust our strategies accordingly. Thank you for your time and interest in ADF Group. Ladies and gentlemen, I will now answer your questions.

Thank you. Ladies and gentlemen, we will now take questions from our analysts. Should you have a question, please press the star followed by the one on your touch-tone phone. If you'd like to retry a question, please press the star followed by the two. Again, if you'd like to ask a question, press star one on your touch-tone phone. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your touchtone phone. There are no questions at this time.

Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders meeting on June 7th at 11 a.m. Again, this year, ADF Group will hold its annual meeting of shareholders via webcasting. Financial results for the first quarter ending April 30, 2023, will also be disclosed during our shareholders' meeting. Webcasting connection instruction will be made available in the coming weeks. Thank you for your interest toward ADF, and we wish you all a nice and safe day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.