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.