ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to the ADF results for three months and six months ending July 31st, 2025 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 is being recorded on Thursday, September 11th, 2025. I would now like to turn the conference over to Mr. Jean-Francois Bourcier, Chief Financial Officer. Please go ahead.

Merci. Good morning and welcome to ADF's conference call covering the second quarter and six-month ended July 31st, 2025. 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, including our multi-year contract announcement from last July 33rd, and also about last week's acquisition announcement. 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, 2025, which were filed with CDAR this morning. Revenues for the corridor ended July 31, 2025 at $53 million, worth $21.9 million lower than last year. Year-to-date, revenues stood at $108.5 million compared to $182.3 million for the six-month period ended July 31, 2024. While the corporation's order backlog is more than adequate, exceeding $468 million as of July 31, 2025, the uncertainty surrounding the U.S. tariffs has created a non-recoverable delay in fabrication hours, mainly at ADS plant in Terrebonne, Quebec. As such, And as previously announced, a work-sharing program was implemented at ADS Plant in Terrebonne, Quebec, and remained in place for virtually the entire quarter and did July 31, 2025, thus reducing fabrication hours and consequently revenues for the same quarter and year to date. We closed the second quarter and did July 31, 2025, with gross margin of 20.7% as a percentage of revenues, down from the exceptionally high 36.9 percent margin for the quarter ended July 31, 2024, while the year-to-date gross margins as a percentage of revenues at 21.3 percent is also down from the 32.3 percent margin for the six-month period ended last year, July 31, 2024. As I just mentioned, the decrease in revenues required ADF to implement a work-sharing program at its Delbon plant. This program has allowed the corporation to mitigate the negative cost impacts of the decrease in fabrication hours, but not entirely. Tariffs also had an indirect negative impact on the corporation margins, impact which is caused by the increase in the price of steel set by the U.S. steel mills. Adjusted EBITDA for the quarter ended July 31, 2025 at $3.7 million compared to $24.9 million for the same quarter ended a year ago, while year-to-date adjusted EBITDA stood at $14.1 million compared to $48 million for the six-month ended a year ago. It is worth mentioning that while the financial results for the periods ending July 31st, 2025 are severely impacted by the tariff and associated turmoil, last year's results were impacted by an exceptionally favorable product mix. Again, this quarter, the market valuation of our DSUs and PSUs impacted our SD&A expenses. For the quarter, And considering the increase in ADF share price during said quarter, SG&A expenses at $8.8 million were $4.6 million higher than last year. The stock price variation for the full six months was not as significant. As such, year-to-date SG&A expenses stood at $12.2 million. actually $1.7 million lower than for the six months ended July 31, 2024. We therefore closed our second quarter with net income of $898,000, or 3 cents per share, compared to $16 million, or 51 cents per share, for the corresponding quarter a year ago. Year-to-date, net income stood at $9.6 million, or 34 cents per share, compared to $31.3 million, or 98 cents per share for the same period, ended July 31, 2024. We closed our second quarter with $50.9 million in cash and cash equivalent, $9.1 million lower when compared to the January 31, 2025 closing balance, while working capital, as of July 31, 2025, reached $105.5 million. Year-to-date, operating cash flow reached $7.4 million for the six-month period into July 31, 2025, while we spent $3 million on property, plant, and equipment and intangible assets acquisitions, including an update of ADFC RP system, which is scheduled to take place over the next three fiscal years. In addition, and as mentioned with the July 23 multiyear contract announcement, We'll be investing in new equipment at our Terrebonne site, which should bring our full-year CAPEX investment at approximately $11 million. Yesterday, our Board of Directors approved the payment of the second semiannual dividend, which now stands at $0.02 per share. This dividend will be paid on October 16 to shareholders of record as of September 26, 2025. Finally, we close the quarter and six months into July 31st, 2025 with an order backlog of $468 million. It should be noted that the order backlog as of July 31st, 2025 does not include the option to extend the contract announced last July 33rd by five years. We cannot escape from the negative impact of the U.S. tariffs on our year-to-date results. This said, we have chosen to look ahead and find innovative solutions to these new challenges. In light of the new economic realities, we have put in place solutions that will allow ADF to not only continue its growth, but also to protect itself against the uncertainties brought about these changes in trade policies. First, We announced a few weeks ago a five-year term contract, including an option to extend it five additional years for a new infrastructure project in the energy sector in Quebec. Moreover, on September 2nd, we also announced that ADF had entered into an agreement to acquire, subject to the approval of the Superior Court of Quebec, the group law, and certain of its subsidiaries. Briefly, Gauplard is a Canadian leader in the design, manufacture, and installation of mechanically welded steel structures. Primarily focused on the rapidly expanding large-scale hydroelectricity market, the Gauplard group also offers customized overhead crane solutions for the heavy industry. The law group generated close to $81 million in revenues for the fiscal year ended December 31, 2024, and add an order backlog of $104.5 million as of July 31, 2025, which should progressively be realized before the end of ADF's fiscal year ending January 31, 2027. This backlog is not included in our previously confirmed July 31, 2025, $468 million backlog and will not be until the transaction is completed. We expect this transaction to close in the next few days. Once closed, we will be able to provide you with more information. These two announcements should not only provide recurring revenues to ADF for the next years, but allow us to significantly increase the Canadian content of our order backlog, thus reducing our exposure to the U.S. market and recent uncertainties thereof. Thank you for your interest and confidence in ADF. Jeanne 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 handset before pressing any keys. One moment, please, for your first question. Your first question comes from Nicholas Cortulucci with Atrium Research. Your line is now open.

Hey, Jayon. Hey, JF. Hey, JF. Hey, Jayon. Morning. Thanks for taking my questions. First thing I wanted to ask about here was I saw on the MDNA there was mention of you guys achieving a nuclear certification. So just wanted to see if you had any more color on that and if that's a new sector you guys are looking to break into.

Yeah, we just received our certification. Of nuclear, there's quite a bit of work coming in Ontario. So that's going to be a big market for the next five to ten years. Right now we have our people working with the general contractor and companies down in Ontario. And we should see something by, I would say, beginning of next year.

Okay, got it. And you guys haven't done work in the sector before from what I understand?

Yes, we did five years ago. We did a project in Ontario. So right now we are certified. We have everything. So it's a go for us.

Okay, awesome. All right, and then shifting to Lar, maybe just walk us through the rationale behind it from a geographic perspective and how that changes your guys' geographic mix and client mix going forward?

Well, listen, with what's happening right now in the U.S., it's tougher to get work here in Taliban, okay, because of the tariffs. We don't know exactly what's going on. You know, it could change from one day to the other. So right now what we're doing, great falls. It's full. They have quite a bit of work, U.S. work in California, Oregon, and all those places. So they're good for the next year. They have a nice big backlog. Here in Terrebonne, we have work for the next, you know, the second half of the year is going to be good, okay? Plus then our project project in infrastructure is going to kick in beginning of next year, so that's and then we we are looking to to to get more work here in Taliban. In Metabish one law. They have. Good work. The the the the the. They didn't have any bonding the last few months, so they lost jobs, but not the job that we announced. You know, they have $108 million, if my memory is good. $104 million on the backlog. So right now, you know, once the acquisition is done, well, they're going to get bonding, they're going to get everything. So I would say by the end of this year, backlog is going to go up. And what they do is mostly in Quebec, Ontario, and D.C. So with the financial support, with the bonding company, with our bonding capacity, backlog will go up in the next six months. I've got no doubts at all. So backlog is going to go out. Backlog is going to go up. So there's quite a bit of work we're going to be able to do here in Terrebonne for them. And so I would say that it's going to be fantastic for the Terrebonne shop. It's going to be fantastic in Métabé Chouin, the lore shop. And then our U.S. facility in Great Fault, they have work, and we're bidding quite a bit of work down there. So I want to book them at at least 150% of their capacity. So if you look at all the three entities, it looks good for the future.

Okay. Makes sense. That's good to hear. And then what are kind of the integration steps that you guys need to go through and what are the synergies that you're looking for?

Well, as we mentioned, we'll start by closing the deal. So that's really the first step we need to do. We obviously are in discussion with them. So we're in the process of laying out Not only from a production standpoint, but also from an administrative standpoint, how we will be working together to get those synergies. I think the first one, should the deal be closed or once the deal is closed, and hopefully within the next couple of days, as we mentioned previously, But one of the first synergies for Log is that they'll be able to bond jobs going forward. That was obviously because of their actual – the present financial – their financial position. They had a tough time getting bonding agencies to follow them. So that will all be solved just because of the strength of the balance sheet of ADF. So they'll be able to get back on the bidding – the bidding – process because there's not only the good backlog as it stands now, but the pipeline is really, really good. So that's going to be the first impact. But then there's, we did mention it also in the press release, we want to invest. We're also in discussion to make sure that we do the right thing. We want to increase their capacity. We want to provide them with additional equipment because the fact of the matter is that they were performing really well with the type of equipment they were getting. So if we can improve the equipment, and to adding their know-how and their experience, they were bound to just there to improve on the efficiency, and obviously that would show up on the margin. But this is all coming up. Again, as we mentioned, we need to close the deal, and once the deal is closed and that we can actually move forward with what we need to do, we'll be able to provide more color to this acquisition.

Yeah, but I think what we're going to do is once the deal is closed, we'll do another conference call with all the investors to tell you exactly what's our game plan.

Okay, that makes sense. Thank you for that. And then just last one, JF, I know you mentioned Top X for the full year, you're targeting to be about 11 million. So that's a pretty big jump from the first half. So what does that entail? What are you guys looking to do with that?

It's basically for the project we announced at the end of July. So we need to add equipment at our turbine shop to be able to, especially since it is a long-term project, at least five years, most probably 10 years. So we want to equip ourselves properly. to be able to deliver that project more efficiently. Once we finalize the close, and as I just mentioned, we're also looking at investing for GoPlan. The $11 million obviously doesn't include anything that would happen between now, between the close and the end of the year specifically for law. So that, too, will be done in an update once we close the deal. But based on ADF, as we know it today, excluding law as of July 31st, and including the requirement for the new project we announced earlier, The $11 million is based upon these assumptions.

Perfect. Okay. Thank you for the time, guys, and I'll jump back in the queue. Thanks, Nick.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Abigail Zimmerman with Lowell Capital.

Your line is now open. Thanks for taking my questions. Thank you.

I guess, first of all, we find the company very attractive. Our question would just be, given your exposure to fixed price contracts and large customer concentration, what would you say are the key strategies that help you manage the contract risk?

Well, historically, this is something that's really part of the way our Our business is done. We are signing few contracts, and we've always had the concentration from a revenue standpoint, and it's been the case for the past years. I've been with the company for 15 years and even longer than that. So obviously, in light of that, we have a certain set of rules when we negotiate and sign contracts. First, we only deal with really major clients, general contractors and clients, which by themselves are financially strong and with strong balance sheet. Additionally, when we sign contracts, there are a number of contractual clauses that we just won't budge from or deviate from. We will, considering that, although getting bigger, but we do sign big contracts, and there's always the huge potential of the contracts going sideways, we manage the risk pretty closely. We do spend a lot of time making sure that we are not only comfortable with the operational requirement from each project, but most importantly, that we are 100% comfortable with the contractual clauses. In the past, we have passed on really interesting contract that would have provided good revenues, good margin, but the contractual clauses were just not acceptable for us, so we passed on those projects. And I think this is, not I think, but this is something IDF has been doing for the past years and has enabled us to be able to be 100% comfortable with our backlog and the fact that the backlog would deliver positive results and not have a really huge backlog but with so many risks. that you end up announcing contract, but then you end up a year, a year and a half, two years later announcing write-off. So this is something from a strategy standpoint that is well known in the market. This is something that's been the mantra for ADF for the longest time. And at the end of the day, it might not be as sexy from a contract announcement standpoint, but it does assure a steady growth to our company and also a profitable growth to our company. So this is really the way we handle these contracts and the fact that we are bound and we are stuck with having year-over-year one, two, or three major projects being the majority of our revenues. This is something also that that's part of, of the, the, of our market. So hopefully it answered your, your question.

Yes. Thank you. That's helpful. And my other question is just given your exposure to, um, the government and large scale corporate projects, would you say that you would describe yourselves as more of an infrastructure company or is that the right way to think about the business or is there a different way you'd prefer investors to kind of frame ADF's role in the market?

Well, I'm not sure how to answer that question. We're really, we're not specific to, we're in the industrial commercial market. We've done airports. We've done sports complex. We've done, so we're basically pretty much in all the complex structure market, not We do work on the private side. We also do public work. Obviously, for public work in the U.S., most of the public projects are tied to the Buy American Act. So those projects we are able to take, but they need to be manufactured from our Montana plant. So we're compliant with the Buy American Act from that standpoint. It's really, we're able to tackle pretty much all the projects. It's just that over the years, because of our experience, because of our equipment, we're definitely better known and really good at working on the more complex work, the heavy work, the fast track project. So that's really where we differentiate ourselves from the others. So that would explain the environment and the market that we're working in.

Okay, thank you. That's helpful.

That's all from me. Appreciate your time. Thanks.

Your next question comes from Jesus Sanchez Leon with Castaner Investment. Your line is now open.

Hi, how are you? Thank you very much for taking my question. I want to get your insights about the current situation. Obviously, there is a lot of talk about tariffs, a lot of talk about how contracts are lost, how contracts will have to stop. But I see a growing backlog in our company. I see 468 millions plus 100 millions of large plus 40 millions of the big contract we won recently that puts us in 600 millions. So it's kind of like my numbers are telling something different than narrative. I'm losing something in the narrative. Or what's your take on that?

Well, just to clarify, the $468 million does include our announcement from last July. So the $468 million is as of July 31st. The $100 million from law, that's their backlog. But as long as the acquisition, as I mentioned, is not closed, this is not part of the backlog. So to your point, as of July 31st, including the contract we announced, At the end of July, our backlog in Canadian dollars, ADF group, is 468. Should we close or once we close the deal by consolidating law, yes, we'll be picking up about 100 million of new backlog once we're done. And the nice thing about that backlog is it's entirely Canadian volume, so it will reduce our exposure to the U.S. market. Just wanted to clarify. This said, considering in light of the tariffs, the negotiation historically and still today from a steel manufacturing standpoint, the U.S. market is the biggest market for us, and that will remain. Because of the tariffs, signing contracts in the U.S. is really, really difficult. We know, and Jeanne mentioned that before on the call, we know the rules and the exclusion and how the tariffs work today. But what we don't know is how long those exclusions or these rules will be in place because there's nothing – that tells us that the administration won't change the way they applied the tariffs. There's nothing telling us that they won't change the actual rate of the tariffs or altogether get rid of the tariffs. So we can only work on what we know now, and that's what creates the issue, because obviously when you negotiate a contract with a U.S. client today, We're able to confirm what the reality is today, but when they ask what happens if they change their mind, the U.S. administration changes their mind in the next week, two months, or what have you, since we signed a contract that normally between the time we sign the contract and we end the project, it's anywhere between a year or two years, sometime more, we can promise them that if the tariffs rules change, and we end up having an additional 35% or even 50% or even 85% additional tariffs should they be added together, we can't tell the client that we'll absorb all these costs. And that's when you get into this what-if discussion that the negotiations start stalling and take forever. Factually, the U.S. market is still good. There are still lots of opportunities. It's just that it definitely takes longer. We've been able to announce contracts. The July 31st, the end of July contract, we announced a multi-year contract. It's a contract in Quebec, so that's Canadian content. As I just mentioned, once we close, we'll bring additional Canadian content also. So as much as we can, we try to steer away from the, at least to add Canadian content to balance out, not to be as subject to U.S. tariffs, but the fact is that we do have a plant in Great Falls. We'll try to maximize the plant in Great Falls with U.S. volume, and that's really the approach we were taking. But, and we'll see it in the next In the next quarters, the market or the contract signing or the negotiation process are definitely tougher than they've been. It creates a lot of uncertainty. People are obviously, clients are obviously concerned about potential additional costs going forward. as are we, and you try to navigate through all of these which makes for longer negotiation. But we'll try to optimize. We have the chance to have a really efficient plant here in Terrebonne. We do have a chance to have a really efficient plant in Montana that's able to handle those U.S. contracts without tariffs issues. So we'll maximize our operation. We'll maximize the different solutions we have to all of these concerns and go from there. But as you've seen in our results, it did put a strain on the results. It does add cost to our cost base. So it's a tough environment.

Understood, understood. Just another one for me. We have NCIB in place, but we stopped buying back at the end of May. Now, in retrospective, we see that there was an acquisition there, that we now are facing more CapEx expenditures to fulfill this big contract. But on the other hand, we are a no-debt company. cash generated. What are your thoughts about the NCIB? What is going to be?

Well, as you mentioned, we did complete the NCIB that was put in place in December. So it was in total just under $1.8 million. We completed it at the beginning of our second quarter. So the NCIB we initiated last December is done. By TSX rules, we cannot put a new NCIB in place before next December, but to your point, considering the acquisition, considering the additional CAPEX, and without, we haven't discussed the second NCIB, but should the deal go through, we will also look at additional CAPEX investment for Groupe Law, and we'll also need to support the initial working capital of law just to keep them going from an operational standpoint. So we haven't made a final decision on NCIB, but if I'd be putting something in, if you want to have my take on it for now, I don't think we'll be putting a second, a new NCIB program in place when December comes when we would be able to do it in light of everything I just mentioned.

Perfect. Perfect. Thank you very much. Thanks.

Your next question comes from Richard Cochon, an investor. Your line is now open.

Yes. Good morning. I would love to do this in French, but we'll stick with English. Monsieur Boursier, je vous appuie.

Vous pouvez le faire en français, si vous voulez.

Okay. Merci. Is there a capacity number at which Montana is running right now?

Right now we're running, I would say we're running right now at about 60%.

Okay, d'accord. And this is more of a political nature and I don't want to, you probably won't be able to answer, but even though you're based in the U.S., Knowing that you're a Canadian-owned company, do you feel any resistance bidding for projects out there? Obviously, your big one was Lilly, I think, in the past. Or is this all about pricing and delivering the goods on time?

No, right now, we don't see it's the price and delivering the good on time. We don't see any resistance because we're a Canadian company. Bear in mind over there, it's all U.S. people. And when we sign a contract, they want to make sure that it's going to be done in Montana and not in Taliban.

So there's no problem. Okay. And with all these pharmaceutical announcements of new plants and data processing center, are these things that you could be potentially bidding in the short term or that's part for the course?

Well, it's part of next year bidding.

Okay. Merci. I guess it's fair to say with our friends at Hydro-Québec going full tilt with the CAPEX for the next 10 years, and our friend Mr. Carney, our Prime Minister, announcing all these infra, that these are the two main, I guess, guiding avenues on which you're going to be focusing in the next year or two? Yes, and we will be focusing on all the projects in Canada.

Okay.

And just on this more technical from an accounting point of view, the revenues and gross margins were more or less as expected, a little weak. But where the net income and EBITDA were down a lot because of the PSU and the DSU, I mean, these are like your stock performance units and your deferred share units. Is this going to continue being either an expense or the volatility of stock will determine how you account for that stock?

Well, actually, I should be asking you the question because that depends on how the market reacts. So obviously, if the stock goes up, it means that we need to increase our DSU and PSU provision because we need to carry the DSUs and PSUs at market value. And market values are established per the stock price. So if the stock goes up, it means my provision goes up and my SG&A go up. If the stock goes down, Provision goes down and the SG&A goes down. So it's sort of a good news, bad news. If the stock goes up, everybody's happy. It's just that it does have an impact on our SG&A provision and the provision we carry for those DSUs and PSUs.

Okay. And maybe one last question for Mr. Paschini. Maybe to reassure the market, because there was a lot of noise, as you know, in the last year and a half, what percentage of shares does the family own as we speak today?

We own about 13 million shares.

It's about 40% of the total shares, and it's 85% of the voting shares.

Okay, so it's fair to say you still have skin in the game.

Absolutely.

Actually, even a bit more than skin, so.

Okay. Those were my questions, and good luck with Mr. Carney, and good luck with our friends at Hydro-Québec.

Thank you. Merci.

There are no further questions at this time. I will now turn the call over to Mr. Jean-François for closing remarks.

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

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.