Adf Group Inc

TSX:DRX

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the ADF Group first quarter results conference call. [Operator Instructions] Note that this call is being recorded on June 13, 2018. And I would like to turn the call over to Mr. Jean Paschini, Co-Chairman of the Board of Directors and Chief Executive Officer. Please go ahead, sir.

[Jean Paschini, Co]

Thank you, and good morning, ladies and gentlemen. Welcome to ADF conference call covering the first quarter ended April 30, 2018. Sitting with me this morning is Jean-François Boursier, our CFO. We're currently at the Imperia Hotel in Terrebonne, Quebec where ADF Annual Shareholder Meeting will take place right after this call. I will now ask Jean-François Boursier to update you on the quarterly results, which were disclosed earlier this morning by press release.

[Jean-François Boursier]

Thank you, Jean. Good day, everyone. 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 first quarter ended April 30, 2018, which were filed with SEDAR. Revenues for the first quarter stood at $28.5 million compared with $48.6 million last year. As you know, our revenues are based on the costs incurred on the various projects executed during the period. As evidenced by these numbers, we are presently in between project as some of our more significant projects are winding down, whereas newly announced projects have not yet started. As such, gross margin as a percent of our sales decreased from 10.7% last year to 2.8% for the 3 months ended last April. The sharp decrease can be explained by the level of activity which impacts the efficient absorption of our overhead costs. You will recall that we announced temporary layoffs of 50 of our Terrebonne shop employees late last March, but this reduction in labor costs had little impact in our quarterly results. We do expect revenues and margin to pick up in the coming quarters as our recently announced new projects start hitting the fabrication floor. At the close of the 3 months ended April 30, 2018, EBITDA was negative at $1.2 million compared to a positive EBITDA of $3.1 million a year ago. Although minimal, we were still able to continue our efforts on SG&A cost reduction, which at $3.1 million, were $151,000 lower than last year. Year-to-date, the net loss stood at $910,000 or negative $0.03 per share, basic and diluted, compared with net earnings of $354,000 a year ago or $0.01 per share, basic and diluted. Aside from the elements mentioned before, the net profit for the quarter ended last April was positively impacted by a before-tax noncash $1 million foreign exchange gain. Our balance sheet remains somewhat under pressure. In spite of this, working capital as at April 30, 2018, at $32.7 million was strong and in line with the January 31, 2018, working capital, which stood at $34.8 million. Cash flow from operation required 8 -- $4 million. We invested $1.2 million in CapEx and expect our full year CapEx program not to exceed $4 million. We grew an additional $4.8 million from our credit facility since January 31, 2018. Our order backlog stood at $158.7 million as of April 30, 2018. Finally, and after the end of our first quarter, we applied and received the approval from Service Canada to implement a work-sharing program for our Terrebonne plant employees. The program, which came into effect this past Monday, will allow certain employees to receive employment insurance benefits to make up for the reduced work hours. The program will enable ADF to closely manage its costs until the fabrication work on the recently awarded projects begins. This means that approximately 120 employees will have their working hours reduced from 40% to 60%, and these hours will be compensated by the government program. Additionally, also this last Monday, we received confirmation that our Canadian operating credit facility had been increased from $20 million to $22.5 million until August 31, 2018. This temporarily increase will provide us added leverage to support our growth objectives. Ladies and gentlemen, thank you for your attention. I will now turn the call to Jean for the closing statement.

[Jean Paschini, Co]

Thank you, Jean-François. The first quarter performance did not meet our expectation. As we have said, backlog growth is paramount to our success. And unfortunately, the uncertainty surrounding the steel import duty was a game-changer for many of our clients and negatively impacted our capacity to successfully close major bids during the first quarter. Because of this new turn of event, we were temporarily unable to fill our backlog, which -- with new contracts. And because of this delay in growing backlog, immediate measure were set in motion, including temporarily adjusting downward our staff number at our Terrebonne plant to the anticipated drop in the activity level. As the U.S. trade policy on steel became somewhat clearer and uncertainties subsided in the following weeks, we were able to secure $95 million worth of new contracts in the United States before the close of the first quarter. This is indeed welcoming news, and we will continue forging ahead and position the company for more contracts in order to reach the level of activity needed to gain efficiency within our plant.We are looking at every business opportunity for each of our plants. We have a strong pipeline of potential new contracts, both in Canada and in United States, on which we submitted a bid and/or are currently at the negotiating stage. And as always, we will only sign contracts where the risk level is acceptable to us and that do not put the company growth and future in jeopardy. No doubt, the road ahead will be challenging. But as we did in the past, we will continue to work hard, roll up our sleeves to adapt to a prevailing market condition and trend. We remain focused on growing our order backlog, achieve operational excellence and managing our liquidity. Ladies and gentlemen, thank you for your interest and confidence in ADF Group. Jean-François and I will now answer your questions.

[Operator]

[Operator Instructions] And at this time, Mr. Paschini, we have no questions in the queue. So I would like to turn the call back over to you.

[Jean Paschini, Co]

Again, I wish to thank you for your interest in ADF Group. We will remain available to answer your questions. Thank you and have a good day.

[Operator]

Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.