ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to ADF Group, Inc. Results for the fiscal year ended January 31st, 2025. At this time, note that all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, April 10th, 2025. And I would like to turn the conference over to Mr. Jean-François Bourcy, ADF Group's Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period and the January 31, 2025. With me today, Jean Paschini, ADF CEO, who will be available to answer your questions. Once again, we are very pleased with the improvements in our results over the recent years and more particularly during fiscal 2025. Unfortunately, these very good results are overshadowed by the uncertainty coming from the US tariffs that are not only increasing our costs, but also creating uncertainties in our markets. We will provide additional information about these tariffs later based on the most recent and available updates. 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 Group's management report for the 2025 fiscal year, which will be filed with CDAR in the coming days. Revenues for the fiscal year ended January 31st, 2025 reached $339.6 million, which is $8.6 million higher than last fiscal year. As a percentage of revenues, the gross margin went from 22% in fiscal 2024 to 31.6% during the fiscal year ended January 31st, 2025. This significant increase is explained by a very favorable fabrication mix, together with the improvement in internal efficiency from the investments made in automation in recent years at ADF plant in Terrebonne, Quebec. Adjusted EBITDA totaled $91.3 million, or 26.9% of revenues, compared with $55.9 million, or 16.9% of revenues, a year ago. Selling and administrative expenses amounted to $22.1 million, or 6.5% of revenues, which is $0.7 million lower than last year. Although the opening and closing of ADS stock price was almost at the same level, the mark-to-market valuation of ADS deferred shared units, or DSUs, and performance share units, or PSUs, Decrease the SGN expenses during the fiscal year and the general January 31st, 2025 by $3.8 million when compared to last year. The recent discussions around tariffs and trade agreements add a significant impact on the US and Canadian currencies. As such, we closed our January 31st, 2025 fiscal year with a mostly non-monetary foreign exchange loss of $5.6 million. which is $4.4 million higher than last year. Most of this variance coming from the higher end of year mark to market valuation of our FX contracts on end at year end. Year to date, ADF posted net income of $56.8 million or $1.84 basic and diluted per share compared with a net income of $37.6 million a year ago or $1.15 per share. Cash flows from operating activities generated $55.1 million, while we invested $9.1 million in CAPEX, mostly for equipment maintenance at both our plants in Terrebonne, Quebec and Great Falls, Montana. As of January 31st, 2025, working capital stood at $109.2 million, just $0.9 million lower than last year. Our January 31, 2025 cash and cash equivalent stood at $60 million, which is $12.4 million lower than a year ago. It is worth mentioning that we repurchased for cancellation just under 3.5 million subordinate voting shares during the fiscal year and the past January 31, 2025, for a total cash consideration of $54.6 million. After January 31st, 2025 until February 20th, 2025, we were purchased also for cancellation an additional 423,000 subordinate voting shares for total cash consideration of $3.5 million through our ongoing NCIB program. Yesterday, The Board of Directors approved the payment of a semiannual dividend of 2 cents per share, which will be paid on May 15, 2025 to shareholders of record as of April 24, 2025. We close the year with an order backlog of $293.1 million as of January 31, 2025. excluding the new contracts totaling $120 million announced last February 26. Given the projects currently included in the order backlog and the fabrication schedules thereof, and as announced in this morning press release, ADF has applied and will soon receive authorization from Service Canada to implement a work sharing program for some of our employees at our fabrication plant and paint shop in Terrebonne. The program would come into effect this April 14 and would allow the concerned employees to benefit from the Employment Insurance Program to compensate for their reduced working hours. This program, as already discussed with the union executive, will be submitted to a vote of our unionized employees this April 12. This program would allow ADF to closely manage its costs until the fabrication phase of the recently announced projects begins. As a result, approximately 200 employees would see their working hours reduced by 50 to 60%, hours that would be compensated by the government program. Quickly looking at the four quarter results, ADF recorded revenues of $77.4 million down by $11 million from the fourth quarter of 2024 of the 2024 fiscal year. The change quarter over quarter is explained by the fabrication schedule in line with the order backlog in hand. The gross margin as a percentage of revenues stood at 31% for the fourth quarter and the January 31st, 2025, compared with 24.4% for the corresponding quarter of fiscal 2024. The margin increase between these two quarters is also primarily explained by the mix of products in fabrication and by improvement in internal efficiencies. We recorded a net income of $9.1 million during the last quarter of fiscal 2025, compared with net income of $10.5 million for the corresponding period of fiscal 2024. The quarter ending January 31, 2025, was negatively impacted by an exchange loss of $4.3 million, as already explained before. Because the corporation carries out contracts that vary in complexity and duration, upward and downward fluctuation may occur from quarter to quarter. In light of this, revenue and order backlog growth must be analyzed over several quarters, not from one period to the next. We should be thrilled with these exceptional results, but sadly, the trade and tariffs back and forth of the past four months are putting a damper on our new fiscal year. Although our markets are still active, as shown by the $120 million new contracts we announced at the end of February, we are assessing the direct and indirect impacts of our business of set tariffs, retaliatory tariffs, and other trade measures implemented as this situation unfolds. these impacts could be material. As such, we can already confirm that revenues for our current fiscal year, 2026, will be lower than this past fiscal year, more so in our first two quarters when compared with last year. Additionally, in light of these tariffs and already confirmed still price increases, we will also see a decline in our gross margins. This said, We have been faced by other challenges in our close to 70-year history and have always find ways to navigate through uncertainty, through uncertain times, finding innovative and creative solution to minimize as much as possible these negative situations. Thank you all for your interest and confidence in ADF. Jeanne and I will now answer your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your Dutch phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First, we will hear from Nicholas Portolucci at Atrium Research. Please go ahead.

Hey, JF. Hey, John. How's it going?

Hey, good, Joe.

Not too bad. Maybe you wanted to start off talking about maybe the things you guys can do or thinking about doing on a more strategic side. So is there any plans to shift production down to Great Falls?

Absolutely. Right now we're looking at Great Falls to do more and more work in there. So that's one thing, but we have a couple of things on the drawing board right now.

Okay. And how much capacity can you guys do out of Great Falls, maybe just from like a revenue perspective?

Well, right now with revenue, you're asking revenue in Great Falls? Yeah.

Yeah.

Yeah, revenue you could do about between $100 and $150 million.

Okay. And have you guys seen anything in terms of trying to increase the percentage of revenue that's deployed in Canadian projects? You know, we've talked about Hydro Quebec before and other projects in Canada. The demand is still there. How is that kind of playing out?

Well, right now we have a few bids out, okay, in Ontario. We have a few bids here with Hydro-Québec, so we're waiting for answers.

Okay, that makes sense. All right, and then I know there's a lot of moving pieces with the tariffs, but can you guys tell us a bit more about the USMCA exemptions and what that exactly includes for you guys and doesn't include?

Well...

as of now and this is the issue we have over the past we had over the past few months is that it's sort of a moving target but as of today there are basically two tariffs sitting uh having impact on us the overall tariffs with the exclusion of usmca products and also the second tariffs on steel and aluminum As for the the overall terrorists, to your point, there isn't. There are exclusion to USMCA products, so going forward and knowing what we know now, we will obviously procure our material according to the different exceptions. The thing is that for projects that were already ongoing where some of the procurement was already done, We have procured for operating reasons and financial reasons. We have not necessarily procured all our steel and other materials from countries within the USMC. So some of our shipments since the tariffs have been put in place have been impacted by the overall tariffs because we don't necessarily meet the, on all shipments, we don't necessarily meet the USMC requirement. But again, it's not all of the volume. It's split between what's the different shipments, but there is an impact. Same could be said for the steel and the aluminum tariffs where we know there will be exemption if the raw material is poured in the U.S. from U.S. mills. Again, for upcoming projects, new projects and projects we will be looking in the future, we will procure according to these situations. But for the projects that were already in our backlog and that we ended up US projects being fabricated in Canada, so that had to go across the border. There were some impact also on tariffs. So luckily for us presently, the volume was not as high as it could be from a shipment standpoint. and we'll try as much as we can within the guidelines and as we know them then as we know them now we will try to take advantage of all the exception without within within the uh the the existing uh procedures and the existing guidelines of those different items but the challenge is really we know what we know today As we've seen yesterday and in the past weeks, all of this changes on a whim. So we know what we know today, but we can attest for what's going to happen in the coming days, in the coming weeks, and in the coming months. And that's the challenge.

Yeah, yeah, for sure. It's rapidly changing, so we'll see. Okay, and then are you guys able to share Your capex budget for the year, how much you guys are looking to spend?

Presently, we're looking at $8 million. We will obviously adapt that amount in light of the overall financial. And there are also, as Jean mentioned, a couple of things on the drawing board that we're looking at that could change that capex. But again, we're in the... analysis phase we're trying to gather all the information we can but uh for now the the number we're working with is eight million okay so you guys are still well positioned with the balance sheets you have for for the year ahead it seems like yeah the we're obviously uh getting into this new piss luckily we're getting into this new fiscal year with a with a strong balance sheet

And the backlog is strong, too, towards the end of the year. So, you know, we don't see a year that we're going to lose money. We see a year that we're going to make money. Not as much, but we're going to make money.

Got it. Okay. Those are all the questions for me. I'll jump back in the queue.

Good, Nick.

Thank you. Thanks, guys.

Ladies and gentlemen, a reminder to please press star 1 should you have any questions.

And at this time, gentlemen, we have no other questions registered.

Please proceed.

Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders meeting on June 10th at 11 a.m. And this meeting will be held this year at the Imperial Hotel in Turban, Quebec. Financial results for the first quarter ending April 30th, 2025. We'll also be disclosing our shareholders' meeting. Additional meeting information will be made available in the coming weeks. Thank you again for your interest towards ADF.

Thank you. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.