ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Group Results for the financial year ending January 31st, 2024 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, April 11th, 2024. I would now like to turn the conference over to Jean-Francois Bourcier, Chief Financial Officer. Please go ahead.

Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period ended January 31, 2024. With me today is Jean Paschini, ADF's CEO, who will be available to answer your questions after my comments. We are very pleased with the improvements in our results over the recent years and more, particularly during fiscal 2024. We are seeing the positive results that are coming from these sustainable and profitable investment programs we completed over the course of the past 15 years, which all put together a total over $110 million. Amongst the strategic investment we decided on, always with the future in mind, We can include a new fabrication complex in Great Falls, Montana, a major plan for engineering aiming at improving overall productivity and efficiency, and more recently, significant investments to add new generation robotics and increase automation here at our complex in Terrebonne. Tremendous work is made continually by all at ADF, and each achievement ensures we remain in the top tier experts of our industry. This said, and before I update you on ADF's annual results and changes in financial position, which were disclosed earlier this morning by press release, 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 2024 fiscal year, which will be filed with CEDAR before the end of the month. Revenues for the fiscal year and the January 31, 2024 reached $331 million, $80.1 million, or 32% higher than last fiscal year. The increase in revenues is in line with our order backlog's growth. As a percentage of revenues, the gross margin went from 14.2% in fiscal 2023 to 22% during the fiscal year and the January 31, 2024. This significant increase is explained by the level of fabrication activity compared with the previous fiscal year, thus generating a better absorption of fixed costs, as well as by the improvement in internal efficiency from the investments made in recent years in automation at ADF's plant in Terrebonne, Quebec. Adjusted EBITDA totaled $55.9 million, or 16.9% of revenues, compared with $26.1 million or 10.4% of revenues a year ago. It is worth mentioning that for the period ended a year ago on January 31st, 2023, the corporation obtained the forgiveness of a COVID-related loan of $1.3 million or $1 million US issued to one of ADF's US subsidiaries. This forgiveness resulted in the recognition of a government grant mostly against salary expense, and last year's second quarter ended on July 31, 2022. Selling and administrative expenses amounted to $22.8 million, or 6.9% of revenues, $8 million higher than last year. Most of this variance is coming from increase in wages in line with the cost of living, as well as the market value adjustment of deferred shared units and performance share units in line with the increase in the corporation share price that went from $2.12 per share as of January 31st, 2023 to $8 per share a year later as of January 31st, 2024. Year to date, ADF posted net income of $37.6 million or $1.15 basic and diluted per share compared with a net income of $14.9 million a year ago, or 46 cents basic and diluted per share. Cash flows from operating activities generated $77.9 million, while we invested $6.5 million in CAPEX, mostly for the maintenance of fabrication equipment at ADS plants in Terrebonne, Quebec, and in Great Falls, Montana. As of January 31st, 2024, working capital stood at $110.1 million, $44.5 million higher than last year. Our January 31st, 2024 cash and cash equivalent stood at $72.4 million, which is $65.2 million higher than a year ago. Yesterday, the Board of Directors approved the payment of a semi-annual dividend of $0.01 per share, which will be paid on May 15, 2024, to shareholders of record as of April 26, 2024. Our order backlog reached $510.9 million as of January 31, 2024, that is $134.4 million or 35.7% higher than the closing balance a year ago. Quickly looking at the fourth quarter results, revenues stood at $88.4 million compared with $51.5 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of revenues stood at 24.5% compared with 17.5% during the same quarter last year. Finally, the corporation recorded a net income of $10.5 million, or 32 cents per share, during the last quarter of the 2024 fiscal year, compared with a net income of $2.3 million, or 7 cents per share, for the same period in fiscal 2023. As I just mentioned, our fiscal 2020 2024 results are encouraging and attest to our steadfast approach of the past few years. The current fiscal year is off to a good start with strong liquidities and an order backlog exceeding the $50 million mark. Given the current level of our order backlog to begin this new fiscal year and the award of upcoming new contracts, we expect revenues for the fiscal year ending January 31, 2025 to increase. In light of this, we expect our liquidities to maintain their upward movement. We have initiated discussion internally and with our Board of Directors and will confirm in future communications how we plan to invest these excess funds. Obviously, these improved results could not have been achieved without the hard work of our 500-plus talented employees across our various offices, fabrication plants and paint shops, and on job sites across Canada and the U.S. They are the driving force behind ADF's success, and we are truly grateful for their great work. In these lines, in November 2023, We have signed a five-year collective agreement with our Terrebonne Union employees. Considering all of this, we are confident that we continue ADF's profitable growth. We will remain cautious in our approach and will closely monitor economic developments in order to adjust our strategies accordingly, as we've always done. Thank you all for your interest and confidence in ADF. Jean and I 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 touch-tone phone. You will hear a three-tone prop acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Nicholas Cortella-Chee. with HR and Research. Please go ahead.

Good morning, gentlemen, and congrats on another excellent quarter here.

Morning. Thanks for your name.

I mostly wanted to ask about the longevity of the cycle we're currently in. So I know you guys are contracted out for this year for growth, but how do you think about how the cycle progresses into fiscal 26 and if you're starting to contract for that period yet?

What we see right now, we see a lot of work for the next three to five years. Okay, you know, a lot of work, a lot of battery plants, a lot of airports, a lot of bridge. So I would say for the next three to five years, market's going to be very, very good.

Understood. All right, thanks for that. And then the other question I had was, more about what particular sectors or project types you're seeing most of the growth from. I know there was a big pharmaceutical project you guys took on, but is there any other key trends or drivers that we can think about?

Pharmaceutical, industrial, airports, commercials. So, you know, we see, you know, all of our... All of our, I would say, all where we work, commercial, industrial, infrastructures, I would say, you know, there's quite a bit, there's a lot of work for the next three to five years. So I cannot tell you it's going to be more industrial, more pharmaceutical. Right now, it is very, very busy.

Okay, perfect. Thank you for that. I'll hop in the call back in the queue. That's all the questions I have.

Thanks.

Thank you.

Next question comes from Jesus Sanchez with Castanar. Please go ahead.

Congrats again for a great quarter. Thank you. I want to ask you about... Do you have any plans to perform any kind of update into our Montana facility in terms of optimization like we have done in Quebec?

Well, right now the Montana facility doesn't do the exact same work that we do here in Quebec, okay? If I would have bought a robot three years ago in Montana, we would never use it because it's a different kind of work. There's a lot of trusses. There's a lot of built-ups. And so right now, as we talk today, there's no use for a robot down in Montana. And if you look at all the automation that we have, the drills, the machines, All the equipment that we have, it's state-of-the-art. It's very good equipment. So, you know, by doing different kind of work right now, there's no use to it. But you never know if we sign... another kind of contract in the next future, then yes, a robot would be suitable. But right now, as we speak right now, it's not.

Okay. Thank you very much. That will be all. Thank you. Thanks.

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. Oh, one moment, please. Next question comes from Brent Todd with Canaccord Genuity. Please go ahead.

Hey, guys. Yeah, fantastic year, great quarter. Morning. Morning. Great to talk to you. Yeah, just I think, John, that you alluded that you expect this to be a year of growth. You had a great fourth quarter in terms of margin. Given... you know, your fixed costs and stuff, do you expect those margins to increase then through the year?

No, I would say the margins are good. Okay, maybe they could increase, but right now I'm not promising anything. Right now what we're seeing for this year, it's growth, bottom line and top line. So we see a very good year. but I'm not going to promise you today that our gross margins are going to grow. I'm going to keep it like it is, and if they grow, it's going to be beneficial for everybody.

Okay, very good. Well, I'll settle for a year of growth, both top and bottom line. That'd be awesome. Great job. Thanks, guys. Thank you.

I don't know for the questions at this time.

Thank you. Before we conclude today's conference call, I would like to remind you that ADS will hold its shareholders meeting on June 11th at 11 a.m., which will be held at the Sheraton Hotel in Laval. Financial results for the first quarter ending April 30th, 2024 will also be disclosed during our shareholders meeting. Additional meeting information will be made available in the coming week. Thank you again for your interest. The word's ADF. 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.