ADF Group Inc (DRX) Q4 2023 Earnings Call Transcript

ADF Group Inc (TSE: DRX) Q4 2023 earnings call dated Apr. 13, 2023

Corporate Participants:

Jean-Francois Boursier — Chief Financial Officer

Presentation:

Operator

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-Francois Boursier, Chief Financial Officer. Please go ahead.

Jean-Francois Boursier — Chief Financial Officer

Bona, thanks. 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 CAD250.9 million, CAD29.9 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 CAD26.1 million or 10.4% of revenues, compared with CAD17.8 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 the forgiveness of the COVID-related loan of CAD1.3 million or $1 million, issued to one of our U.S. subsidiaries. This forgiveness resulted in the recognition of a government grant, mostly against our expenses in the second quarter ended July 31, 2022. As for the period ended January 31, 2022, ADF received CAD1.9 million all from the Canadian Emergency Wage Subsidy Program. And now in the first quarter, CAD1.6 million of this amount being booked against gross margins, the balance being booked against SG&A.

Selling and administrative expenses amounted to CAD14.8 million or 5.9% of revenues, CAD2.8 million higher than last year. Most of this variance coming from a CAD2.1 million gain on fixed assets disposal recorded in the fiscal year ended January 31, 2022. Year-to-date, we posted net income of CAD14.9 million or CAD0.46 basic and diluted per share, compared with a net income of CAD9.6 million a year ago or CAD0.29 basic and diluted per share.

Cash flows from operating activities required CAD2.6 million, in-line with the financial requirements coming from the December 2022, CAD228 million contracts announcement. We also invested CAD12.2 million in capex, mostly for our two year CAD30 million investment program initiated in early 2021 to equip our fabrication plan 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 at January 31, 2023, working capital stood at CAD65.6 million, CAD26.9 million higher than last year. Our January 31, 2023 and 2022 liquidities were basically at the same level at CAD7.2 million and CAD7.1 million, respectively. On the subject on January 14 and January 18, 2022, we obtained two bank loans from Investissement Quebec totaling CAD20 million, which went toward financing the capital expenditure program previously mentioned. This amount being fully drawn in the fiscal year close 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 CAD30 million to CAD40 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 semi-annual dividend of CAD0.01 per share, which will be paid on May 17, 2023 to shareholders of record as of April 28, 2023. Our order backlog stood at CAD376.5 million as at January 31, 2023, just above last year and still at a very acceptable level with good prospect of signing new contracts in the coming months.

Quickly looking at the fourth quarter results, revenue stood at CAD51.5 million compared with CAD47 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of sale, stood at 17.5% compared with 10.8% during the same quarter of last year. Our January 31, 2023 fourth quarter benefited from contractual changes finalization which increased the margin.

Finally, the Corporation recorded net income of CAD2.3 million or CAD0.07 per share during the last quarter of the 2023 fiscal year, compared with a net income of CAD0.9 million or CAD0.03 per share for the same period in fiscal 2022. ADF [Technical Issues] 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 two fiscal years are now completed and now 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 we’ll 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.

Questions and Answers:

Operator

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

Jean-Francois Boursier — Chief Financial Officer

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. Webcasting 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 safety day.

Operator

[Operator Closing Remarks]