Adf Group Inc

TSX:DRX

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the ADF Group results for the periods ending July 31, 2018. [Operator Instructions] This call is being recorded on Thursday, September 13, 2018. And I would like to turn the conference over to Mr. Jean-François Boursier, Chief Financial Officer. Please go ahead, sir.

[Jean-François Boursier]

Thank you. Good morning. Welcome to ADF's conference call, covering the 3 and 6 months' periods ended July 31, 2018. Please note that Mr. Jean Paschini, ADF's Group CEO, is unfortunately unavailable for today's conference call. I will update you on our most recent results and changes in financial position, which were disclosed earlier this morning by press release, and briefly discuss our operations. I will answer your questions at the end of this call. 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 periods ended July 31, 2018, which were filed with SEDAR this morning. Revenues for the second quarter stood at $32.2 million compared with $45.3 million last year, while year-to-date revenues stood at $60.7 million compared with $93.9 million a year ago. As you know, our revenues are based on the costs incurred on the various projects executed during the period. As we explained on this call a quarter ago, we are presently in between projects as some of our more significant projects are winding down, whereas newly announced projects have just started. For the second quarter, gross margin as a percentage of sales decreased from 9.5% last year to 6.4% this year. For the 6 months ended last July 31, gross margin as a percentage of revenues stood at 4.7% compared to 10.1% for the same period a year ago. These decreases can be explained by the level of activity, which impacts the efficient absorption of our overhead costs. The loss of major contracts earlier this year, following the initial uncertainties resulting from the U.S. import duties announcements, played havoc on our fabrication schedules and manpower utilization. To alleviate the negative impact on our costs, you will recall that we announced temporary layoffs of 50 of our Terrebonne shop employees late last March, and we also announced the introduction of a work-sharing program that took effect last June. These steps and others reduced our cost base and enabled us to post, in the second quarter, better margin than those of the first quarter ended last April. We do expect revenues and margin to further pick up in the coming quarters as our recently announced projects are now hitting the fabrication floor.At the close of the 3 months ended July 31, 2018, EBITDA stood at $109,000 compared to an EBITDA of $2.1 million a year ago. Year-to-date, EBITDA was negative at $1.1 million compared to a positive EBITDA of $5.2 million for the 6 months ended July 31, 2017. We continued our efforts on SG&A cost reduction. At $3.1 million and $6.2 million, SG&A expenses were $0.2 million and $0.4 million lower than for the 3 and 6 months' period ended July 31 a year earlier. For the quarter, we've posted a net loss of $532,000, or $0.02 per share, basic and diluted, compared to a net earnings of $1.9 million, or $0.06 per share, basic and diluted, last year. Year-to-date, the net loss stood at $1.4 million, or $0.04 per share, basic and diluted, compared with net earnings of $2.3 million a year ago, or $0.07 per share, basic and diluted. Besides the elements mentioned before, the second quarter and year-to-date results for this period ended last July 31 were positively impacted by a before-tax $1 million and $2 million foreign exchange gain, respectively. Our balance sheet remained somewhat under pressure as at quarter end. Since last July 31, we collected significant funds, which brings us back to a more comfortable level of net liquidities, a level we expect to maintain for the next quarters. This said, working capital as at July 31, 2018, at $30.6 million, was strong and in line with January 31, 2018 working capital, which stood at $34.8 million. Cash flow from operation generated $4.2 million for the quarter ended July 31, 2018, which brought our cash flow from operation to a breakeven point for the 6 months ended at the same date. Year-to-date, we invested $2.9 million in CapEx, and expect our full year CapEx program not to exceed $4 million. Finally, as at July 31, 2018, we grew an additional $6.7 million from our credit facility since January 31, 2018. Our order backlog stood at $141.1 million as of July 31, 2018. As we have stated on this call 3 months ago, volume is paramount to our success, and the impact from the uncertainties mentioned earlier hinged our first 6 months' results. As previously discussed, we did not sit idle, and we took important measures to mitigate these negative impacts, while keeping our focus on efficiency improvements and backlog growth. To that effect, and since the beginning of the year, we have announced a total of $95 million in new contracts, and are pushing to add to this total. This said, and as we have always done, we will only sign contracts where the risk level is acceptable to us and that do not put the company's growth and future in jeopardy. With some of these uncertainties subsiding, we will look more optimistically at the second half of our fiscal year and next year. This temporary setback has not deterred us from our overall goal of growing our order backlog, achieve operational excellence, while managing our liquidities. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions.

[Operator]

[Operator Instructions] And currently, Mr. Boursier, it appears that we have no questions from the phone line, sir.

[Jean-François Boursier]

Again, I wish to thank you for your interest in ADF Group. We will remain available to answer your questions. 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.