ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Group second quarter results ended July 31st, 2023 conference call. At this time, all lines are in 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 has been recorded on Thursday, September 7th, 2023. I would now like to turn the conference over to Jean-François Bourcier, Chief Financial Officer. Please go ahead.

Thank you. Good morning and welcome to ADF's conference call covering the second quarter and six-month ended July 31st, 2023. I will first update you on our quarterly and year-to-date results, which were disclosed earlier this morning by press release, and then proceed with a quick update about our operations. 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 second quarter and six-month, ended July 31, 2023, which were filed with CDAR this morning. The positive trends started in our first quarter continue during our second quarter. As such, we closed the quarter ended July 31st, 2023 with revenues of $80.2 million, $13.8 million higher than for the same quarter ended a year ago. Year to date, revenues stood at $160.5 million compared to $134.4 million for the six-month period ended July 31st, 2022. These increases are in line with the past quarter's trend and our increased backlog. Gross margin as a percentage of revenues at 22.2% is up from the 12.9% margin for the quarter ended July 31, 2022, while adjusted EBITDA at $12.6 million was $5.5 million or 78% higher than the second quarter ended last year. Year-to-date, gross margins as a percentage of revenues at 19.5% is up from the 12.5% margin for the six-month period ended July 31, 2022, while adjusted EBITDA at $22.7 million was $10 million, or 78.5% higher than the six-month period ended last year. Gross margin for the three-month and six-month periods ended July 31, 2023, benefited primarily from U.S. projects presently being fabricated and installed. These favorable gross margin variance did not entirely trickle down to adjusted EBITDA, considering the increased selling and administrative expenses. For the three- and six-month years ended July 31, 2023, SG&E expenses stood at $6.6 million and $11.4 million, respectively. $3.9 million and $5 million higher than for the corresponding periods a year earlier. These increases come from the higher salary levels in line with the recent inflation trends and share-based compensation fair market valuation in line with ADF stock price increase. In addition, selling administrative expenses for the three- and six-month periods ended last year on July 31, 2022. benefited from an $800,000 gain on disposal of fixed assets. We therefore close our second quarter with net income of $10.5 million or $0.32 per share compared to $5.4 million or $0.17 per share for the corresponding quarter a year ago. Year-to-date, net income stood at $15.9 million or $0.49 per share compared to $9.7 million, or 30 cents per share, for the same period ended July 31, 2022. As of July 31, 2023, cash and cash equivalents stood at $52.2 million, $45 million higher than as of January 31, 2023, while working capital stood at $83 million, 26.5% higher than the January 31, 2023 levels. Now that our investment program for the automation of our fabrication facility in Terrebonne is finalized, we expect full-year CAPEX to be under $5 million, with $1.8 million being spent year-to-date. Yesterday, our Board of Directors approved the payment of the second $0.01 per share semi-annual dividend which will be paid on October 17 to shareholders of record as of September 29, 2023. Bolstered by our strong results, we turn to the second half of our fiscal year with sustained confidence. With a strong backlog, which reached $373.7 million as of July 31, 2023, a sound financial position, and state-of-the-art fabrication equipment and plants. We are poised to take advantage of the market conditions, allowing us to pursue our growth. Thank you for your interest and confidence in ADF. We will now answer your questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. There are no questions at this time. Please proceed.

Again, we wish to thank you for your interest in and support of ADF Group. Have a nice day.

Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.