Adf Group Inc

TSX:DRX

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the ADF Group Second Quarter and 6-month Period Ended July 31, 2021 Conference Call. [Operator Instructions] This call is being recorded on Thursday, September 9, 2021. I would now 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, ladies and gentlemen. Welcome to ADF's Conference Call covering the Second Quarter and 6 months Ended July 31, 2021. I will first update you on our year-to-date results, which were disclosed earlier this morning by press release and then update you on our operations and new contract announcement. But 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 second quarter and 6 months ended July 31, 2021, which were filed with SEDAR this morning. Please also consider that, although for the moment, the impact of COVID-19 on ADF's operation is limited, the extent to which the virus and its variants could have an impact on results will depend on future developments, including new information that may emerge regarding the COVID-19 and the measures taken to contain -- or to contain it or address its impact among others. This said, revenues for the second quarter ended July 31, 2021, stood at $73.2 million compared with $42.5 million for the same period last year. Year-to-date, revenues at $123.6 million were $35.3 million higher than for the same period last year. These increases in revenues are in line with the increase of our backlog. Gross margins for the 3 months ended July 31, 2021, at 7.7% was lower than the 17.4% reported for the same period a year ago. Year-to-date, gross margin went from 13.9% recorded last year to 10.9% and for the 6-month period ended July 31, 2021. As mentioned in our January 31, 2021 MD&A report, a certain pressure on margins was expected at the beginning of the fiscal year due to the start-up of certain projects signed with lower prices. Although this pressure was less felt in the quarter ended April 30, 2021, because of timing, the product mix during the second quarter at the previously anticipated negative impact. In addition, during the second quarter ended July 31, 2021, we adopted a cautious approach and adjusted downwards the anticipated profitability on 1 of our ongoing projects. This said, we anticipate that this adjustment will be more than sufficient to absorb the anticipated increase in cost.Lastly, and as a reminder, gross margin for the 6 months ended July 31, 2021, includes a $1.6 million subsidy from the Canadian Emergency Wage Subsidy Program recorded during the first quarter ended April 30, 2021. At the close of the 3 months ended July 31, 2021, EBITDA stood at $3.1 million, $1.5 million lower than for the same period a year ago. This unfavorable variance coming from the lower gross margin as just explained, partially offset by the lower SG&A expenses. Year-to-date, EBITDA stood at $9.2 million, $1.6 million higher than for the same period a year ago. Year-to-date, the improved gross margins and lower selling and administrative expenses explained this favorable variance. Still year-to-date, selling and administrative expenses benefited from the $300,000 Canadian COVID Subsidy booked in the first quarter, but also from lower travel expenses following COVID-related travel guidance. For the quarter ended last July 31, net earnings stood at $1.5 million or $0.05 per share compared with net earnings of $2.1 million or $0.06 per share a year ago. Year-to-date, net earnings for the 6 months ended July 31, 2021, stood at $5.9 million or $0.18 per share, compared to net earnings of $2.2 million or $0.07 per share for the same period a year ago. Besides the elements mentioned before, the net earnings for the 6-month period ended July 31, 2021, was favorably impacted by a lower effective tax rate, considering that in light of our unrecorded U.S. tax loss, U.S. affiliates' pretax income is not tax effective. Considering our remaining unrecorded U.S. tax losses, we do expect to have similar low tax rates in the coming quarters. Working capital as of July 31, 2021, at $33.6 million was somewhat lower than the levels recorded as of April 30 and as of January 31, 2021. This situation is temporary, and as of today, has already improved with significant receivable collections since the quarter-end. Considering the July 31, 2021, receivable levels, cash flow from operations for the quarter ended at the same date required $1.9 million in cash. Year-to-date, cash flow from operations generated in excess of $10 million. In light of the market outlook, and as previously mentioned during our June 2021 Annual General Meeting of Shareholders, we are moving forward with a capital investment program to automate our Terrebonne fabrication operations. These acquisitions are currently funded from the corporation's cash flow, however, we are currently exploring various options to diversify financing sources. Including these investments, we are now expecting our full year CapEx to reach $20 million. With this, and as of July 31, 2021, we posted $14.3 million in cash and cash equivalents with no amount being drawn from our credit facilities and thus, in excellent position to pursue our backlog growth and execute our existing backlog, which stood at $374 million as of July 31, 2021.Lastly, our Board of Directors approved yesterday the payment of a semiannual dividend of $0.01 per subordinate voting shares and per multiple voting shares, which will be paid on October 15, 2021, to shareholders of record as at September 30, 2021. In addition to this backlog total, we announced this morning the signing of new contracts totaling $50 million. The largest of these new contracts was won in the transportation infrastructure sector in the Western U.S.A. Fabrication work is scheduled to begin in early 2022 at both our plants located in Terrebonne and in Great Falls and run until the fall of 2022, followed by the steal erection work. Although these new project announcements are taking a bit longer than anticipated, we are still optimistic that we will be able to continue to grow our order backlog. The recent COVID variant surge is obviously being monitored, and we are keeping all required measures to not only protect our employees, but to also maintain our operational requirements. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions.

[Operator]

[Operator Instructions] With that, there are no questions at this time. Mr. Boursier, you may proceed.

[Jean-François Boursier]

Again, I wish to thank you for your interest in ADF Group. Have a nice day and be safe. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.