ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to the ADF Group Inc. Resultats des périodes de trois mois et de neuf mois fermés le 31 octobre 2025, results for the period of three and nine months closed on October 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, December 11, 2025. I would now like to turn the conference over to Mr. Jean-François Boursier, Chef de la Direction Financière de Groupe ADF, ADF Group's Chief Financial Officer. Please go ahead.

Thank you. Good morning and welcome to ADF's conference call covering the third quarter and nine months ended October 31, 2025. I am with John 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 the first-time consolidation of Groupe Laure, the acquisition of which was finalized on September 18th. 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 third quarter and nine months ended October 31st, 2025, which were filed with CDAR this morning. Revenues for the quarter ended October 31st, 2025 at $71.4 million, were only $8.5 million lower than last year. Year to date, revenues stood at $179.9 million, compared with $262.2 million for the nine-month period ended October 31, 2024. While the corporation's order backlog is more than adequate, and as we already mentioned in previous communications, the uncertainty surrounding the U.S. tariffs has created an unrecoverable delay in fabrication hours, mainly at ADS Plant in Terrebonne, Quebec. We closed the third quarter ended October 31, 2025, with gross margin of 27.6% as a percentage of revenues, down from 30.4% for the quarter ended October 31, 2024, while the year-to-date gross margin as a percentage of revenues at 23.8% is also down from the 31.7% margins for the nine-month period ended October 31, 2024. The decrease in revenues required ADF to implement a work-sharing program during the second quarter ended July 31, 2025 at its Terrebonne plant. This program has allowed the corporation to mitigate the negative cost impact of the decrease in fabrication hours, but not entirely. Tariffs also add an indirect negative impact on the corporation's margins, which is caused by the increase in the price of steel set by the US steel mills. Adjusted EBITDA for the quarter ended October 31st, 2025 at $18.4 million, compared to $24 million for the same quarter ended a year ago, while year-to-date adjusted EBITDA stood at $32.5 million compared to $72 million for the nine months ended a year ago. Again, it is worth mentioning that while the financial results for the periods ending October 31, 2025 are severely impacted by the tariffs, and associated turmoil, last year's results benefited from an exceptionally favorable product mix. Selling and administrative expenses for the three months ended October 31, 2025 stood at $3.1 million, posting a $1.3 million increase compared to the same period ended a year ago. This variation is mostly explained by the adjustment in the market value of DSUs and PSUs in line with the corporation share price during the period analyzed. Year to date, these expenses stood at $15.3 million, which is $0.5 million lower than the same period a year earlier. This variation, although to a lesser degree, is also due to the adjustment in the market value of DSUs and PSUs. We therefore close our third quarter with net income of $10.3 million or $0.36 per share compared with $16.4 million or $0.55 per share for the corresponding quarter a year ago. Year to date, net income stood at $20 million or $0.70 per share compared with $47.7 million or $1.53 per share for the same period ended October 31st, 2024. As previously mentioned, the October 31st, 2025 quarter end included for the first time the inclusion of group log into our consolidated results. As such, And for the period starting September 18, 2025 to the end of the quarter on October 31, 2025, LAW increased our revenues by $6.2 million, adjusted EBITDA by $0.5 million, and net income by $0.2 million. We closed our third quarter with $37.7 million in cash and cash equivalent. $27.3 million lower when compared to the January 31st, 2025 closing balance. The group lar acquisition explained $16.4 million of this variance, plus the working capital we invested to support lar operations since the acquisition. Working capital as at October 31st, 2025 reached $101.4 million for a ratio of 2.27 to 1, compared with a working capital of $109.2 million, or a ratio of 2.36 to 1 as of January 31st, 2025. Year-to-date, operating cash flow reached $13.4 million for the ninth month period ended October 31st, 2025, while we spent $8.7 million on property planning equipment and intangible assets acquisitions. including the upgrade of ADF CRP system, which is scheduled to take place over the next three fiscal years. In addition, and as mentioned with the July 23rd multi-year contract announcement, we will be investing in new equipment at our Terrebonne site, which should bring our full-year CAPEX investment at approximately $11 million. Finally, We closed the quarter and nine month ended October 31st, 2025 with an order backlog of $497.1 million compared with $330.3 million on the same date a year earlier and $293.1 million on January 3rd, 2025. It should be noted that ADF's order backlog as at October 31st, 2025, includes the order backlog of group law, totaling $91.9 million, and does not include the option to extend the long-term contract announced last July by five years. Although still not at last year's level, our third quarter results have improved when compared to recently closed quarters. we are still seeing the effect of the new U.S. trade policies as they continue creating uncertainties in our markets. This said, and as we have explained at our last quarter end call and also in more detail on our October 29th analyst call, we are now working hard on group large integration into our operations. We are already seeing the impact from our acquisition as our consolidated backlogs U.S. content, which made up 95% of our January 31st, 2025 backlog, is now only representing 43% of our October 31st, 2025 backlog. This is the first of many positive impacts we will see in the coming quarters as we fully integrate group law and execute our investment plan. We are still finalizing the final detail of this important investment, but we will provide additional information in future communication as it becomes available. The U.S. market remains a key market for ADF, but we are now better positioned to face the new North American landscape. We will continue our methodical and measure development approach while maintaining our tight management of operational risks delivering solid results to our shareholders. 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 Cartellucci with Atrium Research. Your line is now open.

Hey, John and J.F. Congrats on the quarter here. Good morning. Thanks for answering my questions. First one here just on the large group acquisition. Maybe just walk us through the steps of integration you guys are going through right now and what that looks like. What kind of synergies we can expect on the revenue and the cost side?

Well, as we mentioned on the call at the end of October, still, well, besides the financial integration and the first consolidation, we're working hard. looking at how we will invest in at last plant in the Lac Saint-Jean region, we need to increase capacity in light of the upcoming volumes. Obviously, a lot of emphasis being put on this investment and also how to finance that investment. So that's really the emphasis we're putting now, also working with them on the bidding process, trying to go back because obviously through the acquisition process, they had to sort of slow down their bidding process because of other operating issues they had while we were doing the acquisition. But now that everything is behind us and that we're everybody's fully on board. We're back on the bidding trend. Good things are coming, as we also mentioned on our October call with the analysts. So really working with them on the bidding process, we're hopeful to be able to have a nice announcement in the coming quarters. But if we're successful at signing those jobs, we need to make sure also that we're able to have sufficient capacity. So working with all of that, so a lot of work going on. Obviously, the fact that both operations have similar values really helped on the integration process, so that the process really goes well and everybody is eager to get the law back on its usual trend and actually even better. As for synergies, we're still evaluating them. Obviously, some of them will come with, as the integration goes, just from an administrative perspective, there will be synergies also as we combine the operation. And obviously, once we are able to have the new investment in with the equipment, the new equipment, we can actually expect further efficiency improvement and additional synergies.

Right. Okay, perfect. Thank you for that. And then maybe just a bit on margins. You know, if we calculate the large group margins from the numbers you guys reported, it was a bit lower than what you guys report. So where do you see that going over the long term? What is kind of the target EBITDA margins or even gross margins for the acquisition?

Well, you know, like we said before, like Jean-Francois said before, you know, that facility, that shop was almost bankrupt. So right now we are working with everybody, putting up systems, a lot of integration that we're doing. uh i want this shop at law to be able to do the same margin as us here in taliban and in great hall okay by by investing the money that we're we're gonna invest if the board of director approves it uh the new facility is gonna be

uh very sophisticated and margins are going to be like i said as high as we have them here amazing and then i know you guys have made the big shift over to canada but if we are to get some type of resolution on the trade front over the next year you know how quickly can you flip the switch and get back to which you guys are doing last year and the year before with a lot of these U.S. contracts?

Well, when the switch is on, we have a lot of clients in the U.S. on the other side of the border. But right now, those clients, I'm not able to guarantee that there's not going to be any tariffs. So by doing that, they're shifting work to somebody else. But whenever there's an agreement between Canada and the U.S., then, listen, we're going to return and we're going to make sure that we will get work and produce. But still, you know what happened what happened with the with the new resident it could happen years it could happen it could it could happen again so you know we're working hard to diversify our backlog i think at the beginning of the year it was 90 u.s now we're up to now we're up to 57%? 57%. So we have to keep Canada and we have to keep, you know, all North America to make sure that, you know, we won't get, we won't get shifted again.

The next goal is really not to exit the U.S. market. From a steel manufacturing standpoint, U.S. market is still the biggest market and a key market. Obviously, there are some struggles now, as I explained, because of the tariff and the uncertainty, but we're not definitely, the idea is to have a better balanced backlog, which we achieve, but not shifting the U.S. volume to Canadian volume. It's just increasing the Canadian volume and increasing the overall backlog, and by doing that, we were still keeping the U.S. market as a key market. We have to, but This said, we need also to be smart about it, and I think with the acquisition and the better balance, we're definitely reducing, mitigating the risk coming from the tariff uncertainty.

Yeah, absolutely. Okay, that makes sense. And then just last one for me, if you could give us some commentary on Q4 and how that's shaping up, what should investors expect?

Q4 should be similar to Q3. We're expecting, again, a good quarter.

So I'll leave it at that. Q4 is going to be a good quarter. Got it. Okay. Thanks for the time, guys, and congrats on the improvements. Thanks, Nick.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. There are no further questions at this time.

I will now turn the call over to Mr. Jean-Francois for closing remarks.

Thank you. Again, we wish to thank you for your interest in and support of ADF Group. Jean and I would also like to take this opportunity to wish you all a safe and happy all-day season. 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.