ADF Group Inc. (DRX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the ADF Group fourth quarter and fiscal year ended January 31, 2020. [Operator Instructions] Also note that the call is being recorded Thursday, April 9, 2020. And I would like to turn the conference over to Jean-François Boursier, ADF Group's Chief Financial Officer. Please go ahead.

Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the 12-month period ended January 31, 2020. Before I update you on ADF's annual results and changes in financial position, which were disclosed earlier this morning by press release, and on our operations, a quick word about the COVID-19 situation. As of today, the COVID-19 virus had limited the impact on ADF's operations. We have taken all the required and recommended actions and are following local guidelines and ordinances. The security and well-being of our employees and business partners is our first priority, and we are making sure that, although still operating, we are following the strictest guidelines available. I will get back later with additional information. So as always, 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 2020 fiscal year, which will be filed with SEDAR in the coming days. Revenues for the fiscal year ended January 31, 2020, reached $179.7 million, which is $44.6 million higher than last fiscal year. The increase in revenues is mostly explained by the start of recently awarded contracts in line with the increase in the order backlog. As we explained in our Q3 call, had it not been for the write-off resulting from the out-of-court settlement booked in the third quarter ended last October 31, fiscal 2020 revenues would have totaled $187.4 million, representing a 38.7% increase compared with the previous year. It is also worth mentioning that fiscal 2019 revenues were adversely impacted by the uncertainty surrounding the U.S. import tariffs. Gross margin in dollar value increased by $7 million during the 2020 fiscal year compared with fiscal 2019. As a percentage of revenues, the gross margin went from 7.1% in fiscal 2019 to 9.2% during the fiscal year ended January 31, 2020. The increase as a percentage of revenue being mainly driven by the improvement in margins on projects included in the order backlog and by the improvement in internal efficiencies as a result of increased fabrication hours. Once again, the write-off previously mentioned significantly impacted margins during the fiscal year. Excluding this write-off, gross margin would have been 12.9% which is 5.8% higher than that recorded in fiscal 2019. EBITDA stood at $5.2 million or 2.9% of revenues compared with $1.9 million or 1.4% of revenues a year ago. Excluding the aforementioned write-off, EBITDA for the 12 months ended January 31, 2020, would have stood at $12.9 million or 6.9% of revenues. Selling and administrative expenses amounted to $16 million, $3.8 million higher than last year. Most of this variance coming from legal fees associated with the out-of-court settlement. Considering the revenue increase, selling and administrative expenses, as a percentage of revenues, stood at 8.9% compared to 9% last year. Year-to-date, we posted a net loss of $2.8 million or $0.07 basic and diluted per share compared with a net loss of $0.4 million a year ago or $0.01 basic and diluted per share. Yet again, and excluding the out-of-court negative impact, net earnings would have been $7.7 million higher than reported and at $5.5 million would have yielded an earnings per share of $0.17 basic and diluted per share. This adjusted figure's not even considering the already mentioned additional legal expenses associated to this litigation. Although liquidities are somewhat under pressure, overall, ADF's balance sheet is still in good shape. Working capital stood at $29.3 million for a ratio of 1.58:1 compared to working capital of $31.8 million a year ago. As at January 31, 2020, our overall cash position, net of the credit facilities, was $6.7 million lower than at the same date a year ago, the variance in line with the increase in activity and backlog. Yesterday, our Board of Directors approved the payment of the semiannual dividend of $0.01 per share, which will be paid on May 15, 2020, to shareholders of record as at April 30, 2020. Our order backlog stood at $328.7 million as of January 31, 2020, excluding the $65 million in new contracts announced last March 23. Quickly looking at the fourth quarter results. Revenue stood at $46.3 million compared with $28.8 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of sales stood at 8.6% compared with 7.2% during the same quarter last year. Finally, the corporation recorded a net loss of $0.1 million during the last quarter of 2020 fiscal year compared with a net loss of $0.8 million for the same period in fiscal 2019. These improvements are in line with the trends observed in recent quarters, excluding the previously mentioned write-off and attest to the positive impact of the order backlog growth. So looking specifically at our fiscal 2020 results and considering that we had to make a tough, but necessary, decision to settle an ongoing dispute out of court, the revenue growth we have posted is positive sign for ADF and shows that our business strategies are starting to pay off. We have yet again increased, year-over-year, our backlog and have further added to this backlog after year-end by adding $65 million for 2 new projects: one, as part of the construction of a new industrial building in the transportation sector in Quebec, while the other consists in the construction of a new commercial building in California. With this, ADF now has just under $400 million in backlog start fiscal 2021, and we will continue to look at our projects to further increase this backlog. This said, these positive developments are somewhat obscured by the COVID-19 situation and the uncertainty it brings. As I mentioned at the beginning of this call, and as of today, the COVID-19 virus had limited impact on our operation. Although the province of Quebec and the state of Montana are both under stay-at-home ordinances, we did receive a waiver from the Quebec government allowing our Terrebonne plans stay in operation, considering that we are working on deemed essential infrastructure projects while the state of Montana as well as other states, where we have operating construction sites, have all confirmed that construction activities are considered essential services and thus remain in operation. Most of our administrative employees are working from home, and we have taken comprehensive measures to allow for safe working conditions for all ADF employees who need to be at our facilities or construction sites. So although our backlog is growing and although we have not yet been significantly impacted by the COVID-19 virus, we have no clear guidance and visibility on what to expect for the upcoming weeks and months. We will obviously monitor this situation, continue to strictly follow all local guidance and measures, and we will use the same careful approach we have always used. Thank you for your time and interest in ADF Group. Ladies and gentlemen, I will now answer your questions.

[Operator Instructions] It appears that we have no questions, sir.

Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders' meeting on June 10 at 11 a.m. In these exceptional circumstances and among the several preventative measures adopted by the corporation to slow the spread of COVID-19, ADF Group will hold its Annual Meeting of Shareholders via webcasting. Financial results for the first quarter ending April 30, 2020, will also be disclosed during our shareholders' meeting. Webcasting connection instruction will be made available in the coming weeks. Thank you for your interest toward ADF and wish you all a nice and safe day.

Thank you. 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.