Adf Group Inc

TSX:DRX

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the ADF Group results for the period ending October 31. [Operator Instructions] Also note that this conference is being recorded on Wednesday, December 5, 2018. At this time, I would like to turn the conference over to Mr. Jean-François Boursier, Chief Financial Officer. Please go ahead, sir.

[Jean-François Boursier]

Good morning, ladies and gentlemen. Welcome to ADF's conference call, covering the 3- and 9-month periods ended October 31, 2018. Please note that Mr. Jean Paschini, ADF Group's 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.First, 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 periods ended October 31, 2018, which were filed with SEDAR this morning.Revenues for the third quarter stood at $45.6 million compared with $37.2 million last year, while year-to-date revenues stood at $106.3 million compared with $131.1 million a year ago.The uncertainty coming from the import duties and free trade negotiations have significantly impacted our first 2 quarters' revenues. This said, and now that is uncertainty is slowly subsiding, we see the results from our recently announced contracts and negotiations of certain contractual changes favorably impacting our revenues and gross margins in the third quarter.Consequently, the third quarter gross margin as a percentage of sales, increased from 6.5% last year to 10.2% this year. For the 9 months ended last October 31, gross margin as a percentage of revenues stood at 7% compared to 9.1% for the same period a year ago.Besides the elements mentioned just before, the additional fabrication volume improved our -- the efficiency of our plants, improving the absorption of overhead costs. At the close of the 3 months ended October 31, 2018, EBITDA stood at $2.6 million compared to an EBITDA of $468,000 a year ago. Year-to-date, EBITDA stood at $1.5 million compared to an EBITDA of 7 -- of $5.7 million for the 9 months ended October 31, 2017.For the quarter, we posted net earnings of $1.9 million or $0.06 per share, basic and diluted, compared to a net loss of $698,000 or $0.02 per share, basic and diluted, last year. Year-to-date, net earnings stood at $458,000 or $0.01 per share, basic and diluted, compared with net earnings of $1.6 million a year ago or $0.05 per share, basic and diluted.Besides the elements mentioned just before, the third quarter and year-to-date results for the period ended last October 31 were positively impacted by income tax recoveries. As you may recall, during the fourth quarter of the fiscal year ended January 31, 2018, ADF wrote off certain deferred income tax assets related to its U.S. operations. Although these assets were written off, they remain available to the corporation as soon as its U.S. operations recorded a profit. As such, in light of ADF's U.S. subsidiaries' results for the quarter and 9-month period ended October 31, 2018, ADF was able to again recognize certain deferred tax assets, thus generating profits without tax expenses.The impact of these adjustments reduced the income tax expense during the 3 months and 9 months periods ended October 31, 2018, by $1.2 million and $1.4 million, respectively. As discussed on this call a quarter ago, we collected significant dollars in August, which improved our overall cash situation. Our net cash, which stood at a negative $11.7 million as of July 31, 2018, now stands at a positive $0.6 million. Working capital as of October 31, 2018, at $32.1 million was strong and in line with the January 31, 2018 working capital, which stood at $34.8 million.Evidently, cash flow from operations generated in excess of $13 million for the quarter ended October 31, 2018. Finally, we have invested year-to-date $2.8 million in CapEx and expect our full year CapEx program not to exceed $4 million.As we have previously stated on this call, volume is paramount to our success and the impact from the uncertainties mentioned earlier will, without a doubt, have a negative impact on our fiscal 2019 results.This said, and as we have done on numerous occasions, we kept our focus on the elements we can control and forged that. More specifically, we have taken cost-cutting measures earlier this year. We worked on our working capital situation, and we have grown our backlog, which stands at $215.8 million as of October 31, 2018.Since April, we have signed an excess of $200 million in new contracts, and we look forward to new announcements in the coming weeks and months. With some of these uncertainties subsiding, we look more optimistically at the remainder 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.This said, ADF's management feel that the present market evaluation of its share clearly does not reflect its real and future value, and is extremely disappointed with its evaluation. Ladies and gentlemen, thank you for your attention. I will now answer your questions.

[Operator]

[Operator Instructions] And at this time, Mr. Boursier, it appears we have no further -- no questions. I would like to turn the call over to you.

[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 indeed 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. Have yourself a great day.