ADF Group Q3 2024 Earnings Call Transcript

Quartr
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December 7, 2023

There are 3 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to ADF Group Third Quarter Results 2024 Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, December 7, 2023. I would now like to turn the conference over to Jean Francois Borsier, Chief Financial Officer.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to ADF's conference call covering the 3rd quarter 9 months ended October 31, 2023. I will first update you on our quarterly and year to date results, which were disclosed earlier this morning by press release and then proceed with a quick update about for our operation. First, a word of caution. Please note that some of the issues discussed today may include forward looking statements.

Speaker 1

These are documented in ADF Group's management report for the Q3 9 months ended October 31, 2023, which were filed with SEDAR this morning. After posting 2 consecutive quarters of $80,000,000 in revenues, We closed our Q3 ended October 31, 2023 with revenues of $82,100,000 $17,100,000 or 26.4 percent higher than last year. Year to date, Revenues stood at $242,600,000 compared to $199,400,000 for The 9 month period ended October 31, 2022. These increases are in line with the past quarter's trend and our increased backlog. Gross margin as a percentage of revenues at 24.4% is up from the 15% margin for the quarter ended October 31, 2022, while Adjusted EBITDA at $17,800,000 is $10,200,000 higher than the 3rd Quarter ended last year.

Speaker 1

Year to date, gross margin as a percentage of revenues at 21.1% is up from the 13.3% margin for the 9 month period ended October 31, 2022, While adjusted EBITDA at $40,400,000 was $20,200,000 higher than the 9 month period ended last year. Gross margins for the 3 month 9 month periods ended October 31, 2020 3 benefited primarily from the operational efficiencies generated by the commissioning of the new robotic Production line and new programmable and automated equipment at ADS Plant in Turbine. And also by the improvement in margins of recently signed projects that are now in fabrication. Year to date, these favorable gross margin variances did not entirely trickle down to adjusted EBITDA, considering the increase in selling and For the 3 9 month period ended October 31, 2023. For the 3 9 month Period ended October 31, 2023, SG and A expenses stood at $3,800,000 $15,200,000 respectively $119,000 $5,100,000 higher than for the corresponding periods a year earlier.

Speaker 1

The year to date increases comes from the higher salary levels in line with the recent inflation trends and Share based compensation fair market valuation in line with ADF stock price increase. In addition, Selling and administrative expenses for the 9 month period ended last year on October 31, 2022 benefited from an $800,000 gain on disposal of fixed assets. We therefore closed our 3rd quarter with net income of 11 point $2,000,000 or $0.34 per share compared to $2,900,000 or $0.09 per share for the corresponding quarter a year ago. Year to date, net income stood at $27,100,000 or $0.83 per share compared to $12,600,000 or $0.39 per share for the same period ended October 31, 2022. As at October 31, 2023, Cash and cash equivalents stood at $44,000,000 $36,800,000 higher than as of January 31, 2023, While working capital stood at $94,500,000 44.1 percent higher than the Now that our investment program for the automation of our fabrication facility in Terbonne is finalized, We expect full year CapEx to be under $6,000,000 with $5,200,000 being spent year to date.

Speaker 1

Finally, we closed the quarter with a backlog of $339,300,000 On the workforce front, we are happy to confirm that our 189 unionized tailbone facility employees ratified this December 3rd, a 5 year renewal of their labor agreement. We are now turning our attention to closing our fiscal 2024 year. We are still seeing a good bidding pipeline and are confident that we will be able to announce new contracts in the coming weeks. With a strong backlog, sound balance sheet and the recently Ratified union agreement for our Taubman facility employees, we are well positioned to maintain our past quarter's positive trend and pursue our growth. Thank you for your interest and confidence in ADF.

Speaker 1

We will now answer your questions.

Operator

Thank you. Ladies and gentlemen, we will now take questions from analysts only. Your first question comes from Nicholas Cartolucci from Atrium Research. Please go ahead. Nicholas, your line is open.

Speaker 2

Hi there. Can you hear me?

Speaker 1

Yes, Nick.

Speaker 2

Good morning, guys, and congrats on another great quarter here.

Speaker 1

Thank you.

Speaker 2

My first question was about capital allocation. With the cash balance at $44,000,000 How do you plan on thinking about capital allocation in 2024, whether it's increasing the dividend, buying back stock or reinvesting back into the business?

Speaker 1

Well, we're still in a growing mode from a backlog standpoint. So at least for the time being, Still at these levels still trying to keep our cash and working capital to support the backlog growth. Obviously, The trend in cash flow generation is positive. We do expect that to Keep going for the coming quarter. So obviously, as we look at FY 2025 and start looking at budget, we will, As a group, look at this and start having those discussion about When we really get into what we consider excess cash, so that we've got sufficient working capital to support the backlog growth, What will we do with IXA?

Speaker 1

So it's a bit early. Obviously, we will once we turn the New Year, we will be looking at Finalizing our FY 2025 budget and as a group with our Board, we will at that time look at capital allocation going forward.

Speaker 2

Understood. Thank you. And then my other question was, it's been about 2 years since the U. S. Infrastructure bill got passed.

Speaker 2

Are you guys starting to see those projects start to join the pipeline? Or is that still something for 2024?

Speaker 1

Yes, we do. But to tell you the truth, well, Yes, we do. I think there is still a lot that will come in the future. Obviously, A lot of these infrastructure packages are allocated to public projects, which are Subject to most often to the Buy American Act. So these would be projects that would be handled by our Great Falls plant.

Speaker 1

What we do see and because there are different packages out there, but what we do see is a lot of Overseas Manufacturing that is being brought back to the state. So these are not Well, they might be in some instances financed by some of those subsidies, but a lot Are coming just by the fact that there is a push from the U. S. Administration to bring back manufacturing. But so long story short, we still expect We see in the future some direct or indirect impact from these infrastructure packages.

Speaker 1

So It's good news for us and actually for the entire industry.

Speaker 2

Okay, great. Those were all my questions and

Operator

We have a question from Murray Knight Engel, Private Investor. Please go ahead.

Speaker 2

Thank you. Great numbers, guys. What are your plans, if any, for bringing automation to your U. S. Plant?

Speaker 1

We are looking into it. We've started doing some inquiries. Obviously, We want to finish because although the automation process is going well in Terbonne, we're Still learning and still improving on those processes. So it's something at one point that we will look, but The markets are different. As we've explained, the automation is really for the more standard work.

Speaker 1

Historically, our Great Falls shop has done more complex work. So the automation would not be as At least based on historical production trend, the automation would not be As significant in Great Falls, so we are looking into it. It's definitely not in the short term plan. And if and when, it wouldn't be the same size. The Great Falls facility is smaller than in Talbourn shop, But we've seen what automation brings in Telbaun.

Speaker 1

So we're not saying no. This it's Definitely something we'll look, but I think it's too early to predict if and when and definitely not in the cards for the next fiscal year.

Speaker 2

Okay. Thank you.

Operator

And there are no The questions at this time, I will turn the call back over to Mr. Baucette for closing remarks.

Speaker 1

Thank you. Again, we wish to thank you for your interest in In support of ADF Group, I would also like to take this opportunity in ADF's and my behalf to wish you all a safe and happy holiday season. Thank you.

Operator

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

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ADF Group Q3 2024
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