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.