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

Good morning, ladies and gentlemen, and welcome to ADF Group Results for the financial year ending January 31, 2024 conference call. [Operator Instructions] This call is being recorded on Thursday, April 11, 2024. I would now like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.

Thank you. Good morning. Welcome to ADF's conference call covering the 12-month period ended January 31, 2024. With me today is Jean Paschini, ADF's CEO, who will be available to answer your questions after my comments. We are very pleased with the improvements in our results over the recent years and more particularly during the fiscal -- during fiscal 2024. We are seeing the positive results that are coming from the sustainable and profitable investment programs we completed over the course of the past 15 years, which all put together total over $110 million. Amongst the strategic investment we decided on always with the future in mind, we can include a new fabrication complex in Great Falls, Montana, a major plant for engineering, aiming at improving overall productivity and efficiency and more recently, significant investments to add new generation robotics and increase automation here at our complex in Terrebonne. Tremendous work is made continually by all ADF -- by all at ADF and each achievement ensures we remain in the top tier experts of our industry. This said, and before I update you on ADF's annual results and changes in financial position, which were disclosed earlier this morning by press release, 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 2024 fiscal year, which will be filed with SEDAR before the end of the month. Revenues for the fiscal year ended January 31, 2024, reached $331 million, $80.1 million or 32% higher than last fiscal year. The increase in revenues is in line with our order backlogs growth. As a percentage of revenues, the gross margin went from 14.2% in fiscal 2023 to 22% during the fiscal year ended January 31, 2024. This significant increase is explained by the level of fabrication activity compared with the previous fiscal year, thus generating a better absorption of fixed costs as well as by the improvement in internal efficiency from the investments made in recent years in automation at the ADF's plant in Terrebonne, Quebec. Adjusted EBITDA totaled $55.9 million or 16.9% of revenues compared with $26.1 million or 10.4% of revenues a year ago. It is worth mentioning that for the period ended a year ago on January 31, 2023, the corporation obtained a forgiveness of the COVID-related loan of $1.3 million or USD 1 million issued to one of ADF's U.S. subsidiaries. This forgiveness resulted in the recognition of a government grant mostly against salary expense in last year's second quarter ended on July 31, 2022. Selling and administrative expenses amounted to $22.8 million or 6.9% of revenues, $8 million higher than last year. Most of this variance is coming from increase in wages in line with the cost of living as well as the market value adjustment of deferred share units and performance share units in line with the increase in the corporation share price that went from $2.12 per share as of January 31, 2023 to $8 per share a year later as of January 31, 2024. Year-to-date, ADF posted net income of $37.6 million or $1.15 basic and diluted per share compared with a net income of $14.9 million a year ago or $0.46 basic and diluted per share. Cash flows from operating activities generated $77.9 million, while we invested $6.5 million in CapEx mostly for the maintenance of fabrication equipment at ADF's plants in Terrebonne, Quebec and in Great Falls, Montana. As of January 31, 2024, working capital stood at $110.1 million, $44.5 million higher than last year. Our January 31, 2024, cash and cash equivalents stood at $72.4 million, which is $65.2 million higher than a year ago. Yesterday, the Board of Directors approved the payment of a semiannual dividend of $0.01 per share, which will be paid on May 15, 2024, to shareholders of record as of April 26, 2024. Our order backlog reached $510.9 million as of January 31, 2024, that is $134.4 million or 35.7% higher than the closing balance a year ago. Quickly looking at the fourth quarter results. Revenue stood at $88.4 million compared with $51.5 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of revenues stood at 24.5% compared with 17.5% during the same quarter last year. Finally, the corporation recorded a net income of $10.5 million or $0.32 per share during the last quarter of the 2024 fiscal year compared with a net income of $2.3 million or $0.07 per share for the same period in fiscal 2023. As I just mentioned, our fiscal 2024 results are encouraging and attest to our steadfast approach of the past few years. The current fiscal year is off to a good start with strong liquidities and an order backlog exceeding the $50 million mark. Given the current level of our order backlog -- $500 million, sorry. Given the current level of our order backlog to begin this new fiscal year and the award of upcoming new contracts, we expect revenues for the fiscal year ending January -- we expect revenues for the fiscal year ending January 31, 2025, to increase. In light of this, we expect our liquidities to maintain their upward movement. We have initiated a discussion internally with our Board of Directors and we will confirm in future communications how we plan to invest these excess funds. Obviously, these improved results could not have been achieved without the hard work of our 500-plus talented employees across our various offices, fabrication plants and paint shops and on job sites across Canada and the U.S. They are the driving force behind ADF's success, and we are truly grateful for their great work. In these lines, in November 2023, we have signed a 5-year collective agreement with our Terrebonne union employees. Considering all of this, we are confident that we continue ADF's profitable growth. We will remain cautious in our approach, and we'll closely monitor economic developments in order to adjust our strategies accordingly as we've always done. Thank you all for your interest and confidence in ADF. Jean and I will now answer your questions.

[Operator Instructions] First question comes from Nicholas Cortellucci with Atrium Research.

Congrats on another excellent quarter here. I'm also wanting to ask about the longevity of the cycle we're currently in. So I know you guys have contracted out for this year for growth, but how do you think about how the cycle progresses into fiscal '26 and if you're starting to contract for that period yet?

What we see right now, we see a lot of work for the next 3 to 5 years. okay? A lot of work, a lot of battery plants, a lot of airports, a lot of bridge. So I would say for the next 3 to 5 years, market is going to be very, very good.

Understood. All right. And then the other question I had was more about what particular sectors or project types you're seeing most of the growth from. I know there was a big pharmaceutical project you guys took on. But is there any other key trends or drivers that we can think about?

Pharmaceutical, industrial, airports, commercials. So no, we see all of our, I would say all where we work, commercial, industrial, infrastructures. I would say there's quite a bit of -- there's a lot of work for the next 3 to 5 years. So I cannot tell you it's going to be more industrial, more pharmaceutical right now, it's -- it is very, very busy.

Next question comes from Jesus Sanchez with [ Castañar ].

Congrats again for a great quarter. I want to ask you about -- do you have any plans to perform any kind of update into our Montana facility in terms of automization like we have done in [indiscernible]?

Well, right now, the Montana facility doesn't do the exact same work that we do here in Quebec, okay? If I would have bought a robot 3 years ago in Montana, we would never use it because it's a different kind of work. There's a lot of trusses, there's a lot of buildups. And so right now, as we talk today, there's no use for a robot down in Montana. And if you look at all the automation that we have, the drills, the -- all the equipment that we have -- it's the last -- it's state-of-the-art. It's very good equipment. So by doing different kind of work right now, there's no use to it, but you never know if we sign another kind of contract in the next future, then yes, a robot would be suitable. But right now -- as we speak right now, it's not.

[Operator Instructions] There are no questions at this time. One moment, please. One next question comes from Brent Todd with Canaccord Genuity.

Yes, fantastic year. Great quarter. Yes, just I think John, you alluded that you expect this to be a year of growth. It had a great fourth quarter in terms of margin. Given your fixed cost and stuff, do you expect those margins to increase then through the year?

No, I would say the margins are good, okay. Maybe they could increase, but right now, I'm not promising anything. Right now, what we're seeing for this year is growth, bottom line and top line. So we see a very good year. But I'm not going to promise you today that our gross margins are going to grow. I'm going to keep it like it is. And if they grow, it's going to be beneficial for everybody.

Okay. Very good. Well, I'll settle for a year of growth, both top and bottom line, that would be awesome. Great job.

There are no further questions at this time. Please proceed.

Thank you. Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders' meeting on June 11 at 11 a.m. which will be held at the Sheraton Hotel in Laval. Financial results for the first quarter ending April 30, 2024, will also be disclosed during our shareholders' meeting. Additional meeting information will be made available in the coming weeks. Thank you again for your interest towards ADF.

Thank you.

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