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

Good morning, ladies and gentlemen, and welcome to ADF Group Fourth Quarter 2023 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 13, 2023. I would now like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.

Welcome to ADF's conference call covering the 12-month period ended January 31, 2023. 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, 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 2023 fiscal year, which will be filed with SEDAR in the coming days. Revenues for the fiscal year ended January 31, 2023, reached $250.9 million, $29.9 million lower than last fiscal year. The decrease in revenues is mostly explained by the inclusion last year of projects with accelerated production schedules. As a percentage of revenues, the gross margin went from 8.8% in fiscal 2022 to 14.2% during the fiscal year ended January 31, 2023. This significant increase being explained by the projects mentioned before, which, given their lower complexity add lower margins but also by the commissioning of our new automated fabrication equipment at our Terrebonne, Quebec fabrication facility, which started to bring improved fabrication efficiencies. Adjusted EBITDA stood at $26.1 million or 10.4% of revenues compared with $17.8 million or 6.3% of revenues a year ago. Besides the improved gross margins, the fiscal 2023 and 2022 adjusted EBITDA were also favorably impacted by the recognition of COVID-19 pandemic-related grants and subsidies. For the period ended January 31, 2023, the corporation obtained forgiveness of a COVID-related loan of [ CAD 1.3 million ] or USD 1 million issued to one of our U.S. subsidiaries. This forgiveness resulted in the recognition of a government grant mostly against salary expenses in the second quarter ended July 31, 2022. As for the period ended January 31, 2022, ADF received $1.9 million, all from the Canadian emergency wage subsidy program and all in the first quarter. $1.6 million of this amount being booked against gross margins, the balance being booked against SG&A. Selling and administrative expenses amounted to $14.8 million or 5.9% of revenues; $2.8 million higher than last year. Most of this variance coming from a $2.1 million gain on fixed asset disposal recorded in the fiscal year ended January 31, 2022. Year-to-date, we posted net income of $14.9 million or $0.46 basic and diluted per share compared with a net income of $9.6 million a year ago, or $0.29 basic and diluted per share. Cash flows from operating activities required $2.6 million, in line with the financial requirements coming from the December 2022, $228 million contract announcement. We also invested $12.2 million in CapEx, mostly for our 2-year $30 million investment program initiated in early 2021 to equip our fabrication plant in Terrebonne with a brand-new robotic production line, the only one of its kind in North America as well as new programmable and automated equipment. As of January 31, 2023, working capital stood at $65.6 million, $26.9 million higher than last year. Our January 31, 2023 and 2022 liquidities were basically at the same level at $7.2 million and $7.1 million, respectively. On this subject, on January 14 and January 18, 2022, we obtained 2 bank loans from Investissement Quebec totaling $20 million, which went towards financing the capital expenditure program previously mentioned. This amount being fully drawn in the fiscal year closed January 31, 2023. After the close of our January 31, 2023 fiscal year on February 10, 2023, we reached an agreement with our financial institution to increase our short-term credit facility from $30 million to $40 million. This increase will enable ADF to pursue its backlog growth, providing us with additional financing leeway. Yesterday, our Board of Directors approved the payment of a semiannual dividend of $0.01 per share which will be paid on May 17, 2023, to shareholders of record as of April 28, 2023. Our order backlog stood at $376.5 million as of January 31, 2023, just above last year and still at a very acceptable level with good prospects of signing new contracts in the coming months. Quickly looking at the fourth quarter results, revenue stood at $51.5 million compared with $47 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of sales stood at 17.5% compared with 10.8% during the same quarter last year. Our January 31, 2023 fourth quarter benefited from contractual changes finalization which increased the margin. Finally, the corporation recorded net income of $2.3 million or $0.07 per share during the last quarter of the 2023 fiscal year compared with a net income of $0.9 million or $0.03 per share for the same period in fiscal 2022. ADF closed its fiscal year ended January 31, 2023, with encouraging results. Despite the variables of the economy in general, including not only rising interest rates but also the impact of inflation, ADF closed its fiscal year with an increase in the order backlog, better margin and a net income 56% higher than a year ago. Given the order backlog [ in end ] to begin this new fiscal year, ADF's management expects its revenues for the fiscal year ending January 31, 2024, to increase. Although our cost structure is under pressure, given the impact of inflation on our inputs, including the cost of labor, the corporation is confident it will remain competitive and will generate higher margins given all the operational improvements implemented, including the automation of the fabrication processes at its plants in Terrebonne, Quebec. The major investment in automation over the last 2 fiscal years are now completed and allow us to face economic challenges with confidence. We are now well positioned to continue to grow, generate cash and improve profitability. However, we remain cautious in our approach and will closely monitor economic developments in order to adjust our strategies accordingly. Thank you for your time and interest in ADF Group. Ladies and gentlemen, I will now answer your questions.

[Operator Instructions] There are no questions at this time.

Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders' meeting on June 7 at 11 a.m. Again, this year, ADF Group will hold its Annual Meeting of Shareholders via webcasting. Financial results for the first quarter ending April 30, 2023, will also be disclosed during our shareholders' meeting. Webcast and connection instruction will be made available in the coming weeks. . Thank you for your interest toward ADF, and we wish you all a nice and safe day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.