ADF Group Inc.

This call has been recorded on Thursday, September 12, 2024. I would now like to turn the conference over to Jean-Francois Bourcier, ADF Chief Financial Officer. Please go ahead. Thank you.

Good morning and welcome to ADF's conference call covering the second quarter and six months into July 31, 2024. I am with Jean Paschini, Chairman of the Board and CEO of ADF, who will be available to answer your question at the end of the call. 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 months ended July 31, 2024, which were filed with CDR this morning. Revenues for the quarter end of July 31, 2024 at $74.9 million were $5.3 million lower than last year. This decrease is mainly attributable to one client delays in construction site preparation. We estimate that were it not for these site delays, Revenues for the quarter and year to date would have been approximately $35 million higher, these additional dollars coming from additional steel installation work. In fact, more than 300 loads of fabricated products are waiting to be delivered to the construction site. These revenues are, of course, not lost, but rather postponed to the next quarters. This said, and given that installation schedules are difficult to compress over time, these missing revenues risk being moved forward to our next fiscal year. Year-to-date, revenues stood at $182.3 million compared to $160.5 million for the six-month period ended July 31, 2023, a 13.6 year-over-year increase. The positive gross margin level observed in the first quarter continued. We closed the second quarter in July 31, 2024, with gross margins of 36.9% as a percentage of revenues, up from the 22.2% for the quarter in July 31, 2023. while adjusted EBITDA at $24.9 million compared to $12.6 million for the same quarter ended a year ago. Year-to-date, gross margins as a percentage of revenues at 32.3% is up from the 19.5% margin for the six-month period ended July 31, 2023, while adjusted EBITDA stood at $48 million, more than doubling last year's figure. The improvement in margins is in line with the increase observed in recent quarters and is largely attributable to a better absorption of fixed costs, the continued favorable impact of investments in automation at ADF's plant in Terrebonne, Quebec, and a favorable mix of projects. For the second consecutive quarter, the mix of products and fabrication was particularly favorable. With the anticipated catch-up in installation volume, as previously explained, margins should stabilize in the coming quarters. Again this quarter, the mark-to-market valuation of our DSUs and PSUs impacted our SG&A expenses. For the quarter, considering the decline in ADS share price, The mark-to-market valuation decreased SG&A expenses by $2.4 million when compared to last year, while the year-to-date increase in stock price increased the year-to-date SG&A expenses by $3 million when compared to the six-month SG&A expenses last year. We therefore close our second quarter with net income of $16 million, or 51 cents per share. per share compared to $10.5 million or 32 cents per share for the corresponding quarter a year ago. Year to date, net income stood at $31.3 million or 98 cents per share compared to $15.9 million or 49 cents per share for the same period ended July 31, 2023. Even considering the $2.8 million share repurchase finalized this past June, which required $48.3 million, we closed our second quarter with $76 million in cash and cash equivalent. $27.7 million more than the April 30, 2024 levels, and $3.7 million higher when compared to the January 31, 2024 closing balances, while working capital as of July 31, 2024 reached $90.1 million. Operating cash flow reached $82.4 million for the quarter ended July 31, 2024, driven by favorable working capital variation and improved operating results. Year-to-date, operating cash flow stood at $60.1 million, $9.7 million higher than for the first six months of last year. Yesterday, our Board of Directors approved the payment of the second semi-annual dividend, which now stands at $0.02 per share, as announced this last June. This dividend will be paid on October 17 to shareholders of record as of September 27, 2024. Even with the decrease in revenues during the three-month period closed on July 31, 2024, compared with last fiscal year, as previously explained, we were able to close the period ended July 31, 2024 with higher net income while increasing our liquidities. Although the pipeline of projects under negotiation is still very active, we are seeing a certain slowdown in the finalization of contractual agreement, mainly for projects affecting the green energy sector. This is most likely linked to the American presidential election to be held in early November, where opposite energy investment strategies are presented by the two U.S. political parties. In light of this, The next few months may see some hesitation in the markets served by ADF. However, given the size of our order backlog as at quarter end, which stood at $402.3 million, and the requirements in public infrastructure, mainly for the U.S. market, we remain optimistic about our growth prospects. Independent of this, we will continue our efforts to pursue our growth and achieve improved results, and we remain focused on continuing building ADF on the know-how of our personnel, our longstanding industry expertise, and our state-of-the-art facilities. Thank you for your interest and confidence in ADF. Ja 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 touchtone phone. You will hear a prompt that your hand has been raised. 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 hands up before pressing any keys. Your first question comes from Nicholas Cortellucci with Atrium Research. Your line is now open.