ADF Group Inc.

Good morning, ladies and gentlemen, and welcome to the ADF Group results for the fiscal year ended January 31, 2026. Note that at this time, all lines 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 this call is being recorded on Thursday, April 16, 2026. and I would like to turn the conference over to Jean-Francois Bourcy, Chief Financial Officer. Please go ahead.

Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period at the end of January 31, 2026. I am with Tiara Paschini, President and Chief Operating Officer of ADF, who will be available to answer your question at the end of the call. I will first update you on our full year results, which were disclosed earlier this morning by press release, and then proceed with a quick update about our operations, including our recent new contracts announcement and the recent U.S. tariffs change. This said, 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 2026 fiscal year, which will be filed with CDAR in the coming days. On this very call a year ago, and in spite of exceptional results, we were confirming the significant uncertainties that the then recently announced U.S. tariffs were bringing to our markets and operations. A year later, and considering all the tariffs-related turmoil, we can confirm that we, without a doubt, close our fiscal 2026 with exceptional results and in a much better position face these uncertainties in light of group law's acquisition. Revenues for the fiscal year ended January 31st, 2026, reached $258.7 million compared to $339.6 million last year. As a percentage of revenues, the gross margin went from 31.6% in fiscal 2025 to 23.1% during the fiscal year ended January 31st, 2026. As just mentioned, fiscal 2025 was an exceptionally good year with a favorable project mix. The fiscal 2026 results have been impacted by the U.S. tariffs both directly with higher raw material costs and indirectly with delays in project signing and fabrication start. As such, and as already mentioned in previous calls, ADF implemented a work-sharing program at its Terrebonne, Quebec facility, earlier this year, which reduced fabrication hours, but also enabled ADF to reduce the cost impact, although not entirely, considering that the Canadian Employment Program compensated some of these reduced hours. The group law acquisition added $20 million in revenues since its acquisition was finalized on September 18, 2025, and added $2 million to our consolidated gross margin for the same period. Adjusted EBITDA totaled $43.5 million, or 16.8% of revenues, compared with $91.3 million, or 26.9% of revenues a year ago. The year-over-year decrease comes from the previously explained gross margin variances and by the selling administrative expenses, which, at $23.2 million, were $1.1 million higher than a year ago. all of the increase being explained by the inclusion of group log in our consolidated SG&As. We close our January 31st, 2026 fiscal year with a mostly non-monetary foreign exchange gain of $2.1 million compared to a $5.6 million loss a year ago. Most of this variance coming from the from the end-of-year mark-to-market valuation of our FX contracts on N at both year ends. Year-to-date, ADF posted net income of $26.3 million, or $0.93 basic and diluted per share, compared with a net income of $56.8 million a year ago, or $1.84 basic and diluted per share. Cash flows from operating activities generated $49.4 million, while we invested $11.1 million in CAPEX, mostly for equipment maintenance of both our plants in Terrebonne, Quebec, and in Great Falls, Montana. We plan to invest close to $35 million for our 2027 fiscal year, the majority of this amount being for our group large plant expansion and modernization. In parallel, we are presently negotiating financing packages for these investments. We will be able to provide further updates on our next call. As of January 31, 2026, working capital stood at $104.8 million, just $4.4 million lower than last year. Also on January 31, 2026, Cash and cash equivalents stood at $62.7 million, which is actually $2.7 million higher than a year ago, even considering the conclusion of RNCIB and the acquisition of Gopalov. Yesterday, the Board of Directors approved the payment of a semi-annual dividend of $0.02 per share, which will be paid on May 15, 2026, to shareholders of record as of April 27, 2020. 2026. We closed the year with an order backlog of $561.1 million as of January 31, 2026, excluding the new contracts totaling $157.3 million announced last week. The ending backlog included $138.2 million of contracts from Cochlear, which also excludes last week's announcements. Quickly looking at the four-quarter results, ADF recorded revenues of $78.8 million, up $1.4 million from the fourth quarter of 2025 fiscal year. Fourth-quarter revenues this year did include $13.8 million coming from Gopal. The gross margin as a percentage of revenues stood at 21.5% for the fourth quarter and the January 31, 2026. compared with 31% for the corresponding quarter of fiscal 2025. The margin decrease between these two quarters is primarily explained by the mix of products and fabrication, including lower margins coming from the LAR projects. We recorded a net income of $6.4 million during the last quarter of fiscal 2026, compared with net income of $9.1 million for the corresponding period of fiscal 2025 with minimal impact coming from law, which basically broke even for the quarter. 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 just from one period to the next. As mentioned at the beginning of the call, the situation was bleak a year ago, and we're definitely very satisfied with how everything turned out, including our overall financial results, our ending balance sheet and cash situation, and with the conclusion of the law acquisition. As we have seen as recently as two weeks ago with the latest terrorist announcement, we are still in for more surprises and, sadly, uncertainties. Talking about these last tariff modifications, we can now confirm that, for the time being, our U.S. projects fabricated in Terrebonne will now be impacted by a 10% tariff, which is applied on the value of the commercial invoice, including profit. And this, in spite that they're still used to fabricate these projects, comes from U.S. mills. Although not ideal, we can say that our recent backlog shift from U.S.-Canadian projects, aided by our July 2025 long-term contract and group law requisition, reduced what could have been a much higher cost increase for ADF. Additionally, we are working with our U.S. clients to alleviate some of these additional costs. With that said, What this latest announcement definitely brings is additional uncertainties to our market as it confirms the unpredictability of the overall trade situation. Nevertheless, as we announced last week, we are still focusing on the elements that we do control, and as such, we have been able to further increase our backlog. The largest of the series of new contracts in terms of values and duration is for the fabrication and delivery of various heavy steel structures for a project in the hydroelectric sector in Quebec. This project is a four-year master contract for Groupe Law. Since the acquisition, we've been able to grow Law Backlog, and we are still active as the hydroelectric market delivers its expected growth. We are on the verge of breaking ground in Métabichouin for our group law plant expansion and modernization, which is a key step in our continued growth. In light of all of this, we do anticipate revenue growth for our fiscal year ending January 31, 2027, despite the ongoing challenge of finalizing contracts with our U.S. customers that would normally be carried out at our plant located in Terrebonne, Quebec. However, Given that the capital investment I just mentioned will not have a significant operational impact in the fiscal year ending January 31, 2027, we expect margins to somewhat stagnate in the first quarters of fiscal year 2027, especially when adding the recently announced hours change. This trend will be reversed as the integration of GoClaw continues and we complete the projects and narrative at the time of GoClaw's acquisitions. The acquisition of group law, the new Canadian-U.S. allocation of our order backlog, and the optimal utilization of our fabrication facility in Great Falls, Montana, allow us to still look forward to fiscal year 2027 with optimism, allowing us to continue our orderly growth despite terrorist uncertainties. Thank you all for your interest and confidence in ADF. Pierre and I will now be happy to answer your questions.

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touch-tone 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 2. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Thank you. Please go ahead and press star 1 now if you have any questions. First question will be from Nick Cortellucci at Atrium. Please go ahead.