Adf Group Inc

TSX:DRX

Earnings Call Transcript 2025-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the ADF Group Inc. First Quarter Results ended April 30, 2024 Conference Call. [Operator Instructions]. This call is being recorded on Tuesday, June 11, 2024.

I would now like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.

[Jean-François Boursier, executive]

Good morning, and welcome to ADF's conference call covering the first quarter ended April 30, 2024. 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. We are currently at the Sheraton Laval, where we will hold our 2024 Annual Shareholders Meeting after this call at 11 a.m. I will now update you on our quarterly results, which were disclosed earlier this morning by press release.

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 first quarter ended April 30, 2024, which were filed with SEDAR this morning.

We are off to a very good start with revenues of $107.4 million, which is $27.1 million or 34% more than the first quarter ended a year ago. Gross margin as a percentage of revenues at 29.2% is up from the 16.8% margin for the quarter ended April 30, 2023, while adjusted EBITDA at $23.1 million was $13.1 million or 130% higher than the first quarter ended last year.

These increases are in line with the increase observed in recent quarters and are largely attributable to a better absorption of fixed costs, in line with the increase in the fabrication volume, the continued favorable impact of the investment in automation at ADF's plant in Terrebonne, Quebec and a mix of fabricated projects.

These favorable variances were tempered by higher SG&A expenses. This increase coming from the adjustment in the market value of the per share units and our performance share units. This mark-to-market adjustment being $5.4 million higher than last year, in line with the increase in the corporation share price.

We, therefore closed our first quarter with net income of $15.3 million or $0.47 per share compared to $5.4 million or $0.16 per share for the same quarter a year ago. Besides the adjusted EBITDA impact, the increase in net income also comes from lower net financial expenses, which benefited from interest revenues coming from our outstanding cash balances.

Looking at the balance sheet. We posted as of April 30, 2024, cash balances $24 million lower when compared to our January 31, 2024 balances. In parallel, at quarter end, we had outstanding receivable of $121.7 million, with many of these announced being collected since April 30, 2024. All this to say that our consolidated cash balances as of today are not only back to our $72.4 million year-end level but actually exceeding. In fact, as of this morning, our consolidated cash balances stood at $81.5 million.

Considering this, we are not concerned with the cash flow from operations which required $22.3 million for the first 3 months closed on April 30, 2024. CapEx first quarter ended last April 30 totaled $1.4 million and were mostly for maintenance of our [ carbon ] and [ Great Fall ] fabrication facilities. We expect full year CapEx to be under $5 million.

Finally, we closed the quarter with a backlog of $427.5 million, excluding the contracts worth $90 million announced after the quarter end on May 28. Most of these new contract from additional work relating to the second phase of a contract previously announced in December 2023.

As I just mentioned, liquidities are, as of today, back to our January 31 level and even exceeding these levels. As such, the corporation believes that the available cash exceeds the amount required to support the growth and execution of our order backlog on end as at April 2024 and to meet our financial covenants plan for fiscal 2025.

Given ADF's favorable financial position, the size of our order backlog and our cash flow generation profile, the Board of Directors evaluated the options available to the corporation with respect to the use of excess cash to create value for our shareholders, including dividends and share repurchases and opportunities to finance certain projects that could provide additional long-term competitive advantages and allow the corporation to benefit from strong payment discounts negotiated with its suppliers.

With this in mind, the corporation intends to enter into private agreements within 30 days from tomorrow with Jean, Pierre and Marise Paschini, members of the Board of Directors and corporation management team, through their respective holding companies to purchase port insulation up to a maximum of 3 million shares of the corporation had a price to be agreed upon the parties the minimum discount of 3% on the price of the last independent transaction immediately before the proposed repurchase.

The Corporation Board of Directors has established a special committee composed of independent directors to review the terms of the proposed repurchase and to make a recommended to the Board of Directors with respect thereto. A favorable decision has been obtained from the [Foreign Language] to exempt the corporation from the requirements applicable to assure bids under applicable legislation.

Such agreements are entered into. The corporation will issue a press release and information relating to the share repurchase, including the number of shares involved in the total purchase price following the competition of the proposed repairs.

Jean, Pierre and Marise Paschini have informed corporation that the shares in question will be sold to the corporation for asset diversification and estate planning purposes and that they are not considering any further share sales and that they remain fully committed to growing the cooperation.

Furthermore, the Corporation Board of Directors approved the amendment to ADF's dividend policy to eat the semiannual dividend from $0.01 per share to $0.02 per share. The amendment will apply to the net dividend payment scheduled for October 2024.

Please, however, note that the declaration of payment of dividends remains at the discretion of the Corporation Board of Directors. We are happy with our full 2025 start of the year and are favorable we look the upcoming quarters, and we will continue our efforts to grow our backlog and generate liquidity. We are also happy with the market reaction to our operational and financial performances.

On April 26, our stock reached $15.20 per share, beating ADF's historical of $15 per share, which was achieved almost 23 years ago in December 2001. We have since continued to reach new eyes, which reaffirms our strategic decision and careful approach of the past years.

We will continue our efforts to pursue our growth and achieve improved results, and we remain focused on continuing building ADF on the know-how of our personnel, our long-standing industry expertise and on our state-of-the-art facilities. Thank you for your interest and confidence in ADF. Jean and I will now answer your questions.

[Operator]

[Operator Instructions]. Your first question comes from Nicholas Cortellucci from Atrium Research.

[Nicholas Cortellucci, analyst]

Congrats on another fantastic quarter. So my first question kind of going back to the last call, I wanted to ask you guys about the longevity of this cycle.

So how are things looking for fiscal '26 and beyond? Do you think you can post another year of 10%-plus top line growth?

[Jean-François Boursier, executive]

Well, what we're seeing right now, I think for the next 2 to 3 years, there's going to be growth, okay? Grow the market, okay? The market is growing. And for us, we're going to see growth this year, next year and the year after. So we see good potential for the next 3 to 5 years.

[Nicholas Cortellucci, analyst]

Okay. Perfect. And then with that, what is the capacity situation like? And do you foresee that being a challenge?

[Jean-François Boursier, executive]

There's -- right now, there's no limit of the capacity. We don't talk about capacity. Whatever projects that we get, we're going to put them in the shop and we're going to fabricate them. So our shop right now is set up to $700 million, $800 million, even $1 billion. I have no problem there with the facility that we have.

[Operator]

[Operator Instructions]. And there are no further questions at this time. I will turn the call back over to Jean-François Boursier for closing remarks.

[Jean-François Boursier, executive]

Again, we will thank you for your interest in ADF Group and remind you that we will hold our fiscal 2024 shareholders' meeting in just a few minutes at 11 at the Sheraton Laval Hotel. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.