Good morning, ladies and gentlemen, and welcome to ADF Group's second quarter of fiscal 2023 results conference call. At this time, all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, September 8, 2022. I would like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.
Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the second quarter and six-month period ended July 31st, 2022. I will first update you on our quarterly and year-to-date results, which were disclosed earlier this morning by press release, and then update you on our operations. First, a word of caution. 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 second quarter and six-month ended July 31st, 2022, which were filed with SEDAR this morning.
Revenues for the quarter ended July 31st, 2022 stood at CAD 66.4 million compared to CAD 73.2 million a year earlier, while year to date, revenues for the period ended July 31st, 2022 at CAD 134.4 million were CAD 10.8 million higher than for the same period a year ago. The second quarter ended a year ago on July 31st, 2021 was favorably impacted by the start of projects with high output but low margins. As we can see when looking at the gross margin as a percentage of revenues, which went from 7.7% for the quarter ended July 31st, 2021 to 12.9% for the quarter ended this July 31st, 2022.
Year to date, margins as a percentage of revenues also increased, standing at 12.5% for the six months ended July 31st, 2022, compared to 10.9% for the same period a year before. Besides the fast-track projects with lower margins that I just mentioned, margins for the quarter and six months period ended July 31st, 2022 were favorably impacted by the forgiveness of a $1.3 million loan granted to one of the Corporation's U.S. affiliate. This loan forgiveness resulted in the recognition of a $1.2 million government grant, which will mainly go toward salary expense for the second quarter ended July 31st, 2022, with a balance of $0.1 million reducing the net financial expenses.
This loan was granted and forgiven under the U.S. Small Business Administrative Program in response to COVID-19. This said, it is important to note that the year-to-date period ended a year ago on July 31st, 2021 benefited from a Canadian government COVID-related subsidy, which improved gross margin during the quarter ended April 30th, 2021 by CAD 1.6 million and adjusted EBITDA by CAD 1.9 million. Finally, the temporary loss of operational efficiency caused by the installation of the brand-new robotic production line as well as new programmable and automated equipment at our Terrebonne plant, which negatively impacted our gross margins during the first quarter ended April 30th, 2022, did not impact as significantly our quarter ended July 31st, 2022, and will not impact our upcoming quarters.
Considering the improved gross margins, adjusted EBITDA for the three-month and six-month periods ended July 31st, 2022 stood at CAD 7.1 million and CAD 12.7 million respectively, compared to adjusted EBITDA of CAD 3.1 million and CAD 9.2 million for the same periods, respectively a year ago. Besides the elements mentioned before, adjusted EBITDA for the three-month and six-month period ended July 31st, 2022 benefited from a CAD 0.8 million gain on disposal of fixed assets, which reduced selling and administrative expenses by this amount. We therefore close our second quarter with net income of CAD 5.4 million or CAD 0.17 per share, compared to CAD 1.5 million or CAD 0.05 per share for the corresponding quarter a year ago.
Year-to-date, net income stood at CAD 9.7 million or CAD 0.30 per share, compared to CAD 5.9 million or CAD 0.18 per share for the same period ended July 31st, 2021. Taking into account the ramp-up, including the purchase of steel for projects announced at the very end of our last fiscal year and last June, year-to-date cash flows from operations required funds of CAD 6.8 million. We also, as previously mentioned, continued our CapEx investment program at our Terrebonne facility, which year-to-date required investments of CAD 7.2 million during the six months period ended July 31st, 2022. We expect full-year CapEx to reach CAD 8 million with minimal CapEx over the next two quarters.
As previously confirmed, we received the first amounts of our new financing with Investissement Québec in the amount of CAD 15 million in the quarter ended April 30th, 2022. Considering that the total available financing stands at CAD 20 million, we still have CAD 5 million from which we could draw in the coming quarters. Our balance sheet remains strong, with working capital of CAD 56.2 million as of July 31st, 2022, compared to CAD 38.7 million as of January 31st, 2022. With this, we close our second quarter ended on July 31st, 2022, with CAD 5.5 million in cash and cash equivalents, net of CAD 1.8 million being drawn from our credit facilities.
As of today, considering significant cash inflows since July 31st, cash and cash equivalent have gone up while we are no longer drawing from our credit facilities, thus in an excellent position to pursue our backlog growth and execute our current backlog, which stood at CAD 348.3 million as of July 31st, 2022. For a second consecutive quarter, ADF results were adequate despite the uncertainties related to inflationary pressures. The quarter ended July 31st, 2022, benefited from the forgiveness of the loan, as already mentioned, and also benefited from the completion of the investments and the commissioning of new automated equipment, which negatively impacted our normal operating efficiency in the first quarter ended April 30th, 2022. We continue to see opportunities in our markets and are confident that our order backlog will continue to grow.
In addition, although the impact of inflation is felt on some of our inputs, mainly in terms of labor costs and some supplies, the cost of steel remained relatively stable and even declined recently. This said, we will begin to see the positive impacts of our new investments, mainly our new Turbofab automated fabrication line, in the second half of the current fiscal year, which will allow us to maintain attractive operating margins. Finally, we have several projects in negotiation, and we will be able to confirm new contract signing in the coming weeks. This additional volume, coupled with the efficiency improvement, bodes very well for the coming quarters and will translate into improved return for our shareholders. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by two. Finally, if you're using a speakerphone, you will need to lift the handset before pressing any keys. Your first question will be from Edward Corry at Talon Investment. Please go ahead.
Hi, Jean-François. Can you hear me?
Good morning.
Hi. I've got two questions for you. The first one is, you know, obviously, things are good now, and it sounds like things are gonna get better. I was wondering if you could talk a bit about capital allocation looking out over the next 12 or 24 months. You know, I understand there's a need for some more investment in the immediate period, but I was hoping you could talk a little longer term about what the company's plans are for earnings and cash flow after that.
Yeah. Well, as I mentioned, after six months, we have CAD 7.2 million and only expect to spend approximately not even CAD 1 million. Our total CapEx for the year should stand around CAD 8 million. With this, including the next 12 months and actually including next fiscal year, we will go back to our regular CapEx spend, which is pretty limited. We are really happy with the fixed assets that we have. We're happy with the new investments we've done. We'll make sure that these work before these ramp up effectively before we start looking at something else. CapEx for the next quarter, probably for the next 18 months, should be pretty limited, basically maintenance CapEx.
Right. I guess I'm wondering, does the company have a plan currently for what it plans to do with the earnings and cash flow?
Well, for now, for the time being, as long as we're in backlog growth mode, and as we've explained, either in MD&As or on these calls, backlog growth really puts pressure on working capital. For at least for the time being, again, for the next probably two years, to keep that backlog growth and make sure that we've got the working capital availabilities to start these projects, free cash flow will probably go toward maintaining a solid working capital. Once we get going and get to a certain backlog level and maintain it, then we will start looking at what can be done with the excess cash, be it share buyback, increasing the dividends or whatever else.
at least for the time being, as I said, because of our goal where we still wanna not only maintain but grow the actual level of backlog, and as I just mentioned.
Mm-hmm.
It is putting pressure. We wanna be prudent and just make sure that we've got the availability short-term financing to support that growth.
Okay. On that topic, you know, I think we've spoken about you and I just a little bit in the past, but I was hoping maybe you could elaborate, given your comments just there. What gives you confidence that the backlog will be growing for the next couple of years?
Well, everything we're thinking.
Yeah.
Well, the markets are really active. We see a lot of projects out there. We're starting to see some of the impact from all the infrastructure package, mainly in the U.S. There's still a lot of volume out west in the U.S., California with the 2028 Olympics coming. A lot of investments still coming, as you know, we're active at the airport and around the airport. Pretty much everywhere. What we're seeing now, and in spite of the rise in interest rates and the inflationary pressure, we still see the bidding pipeline really positive, active.
Barring something unknown as we stand, and we know that things could change, but what we see now, we definitely see growth for the coming three, four, five years.
Okay. It's principally that. It's not so much the investment.
Sorry, you're cutting out.
It's principally the environment that you're seeing, not the investments in automation and the change in strategy in terms of bidding on low margin business?
Well-
That gives you confidence.
Some of it is there, but we remain. As we've also mentioned, the new equipment will obviously improve our efficiency. Just with the actual volume we will generate better margins let alone. Yes, it opens up new markets on a more standard volume, but we remain, and this is really what differentiates ADF from the others. Our niche market is really the complex projects, and we're staying with that. The new equipment will give us flexibility to target other markets should there be opportunities, but will definitely help us from an efficiency standpoint on any project.
Yes, it does, but really the bulk as it stands now based on the market, what we see and all the outside elements, the bulk of the future, at least the upcoming increase, is really coming from the market. But as I mentioned in the text, coupled with our efficiency gains, it will not only generate increased top line, increased backlog, increased top line, but also at better margins.
Okay, great. Just one last one for me, if I can. You know, you'd spoken about the need for working capital, and obviously the company runs with a big working capital surplus. You know, and it's particularly large in light of the company's market cap. I'm just wondering if there's any way to get that down. You know, you could factor it or get some sort of a credit line against your receivables, or if you think that would introduce liquidity risk. I'm interested in your thoughts there.
Well, we've got a CAD 30 million credit line, which is based on margining, in part against our receivables, so we already have that.
Okay. There's no opportunity to bring the, you know, net working capital further down, you don't think?
The July 31st, also as I mentioned, the receivables were really high at July 31st, and it was really timing. We did collect a lot of cash since then. We're bidding in a lot of projects. Obviously, a lot of receivables, but also lots of payables. When we're looking at the working capital, we're looking at it on a longer basis because quarter to quarter it could change significantly just because of the cut-off lines and where we are.
In general, and looking at it from a consolidated or an overall perspective, we try to have the available liquidity available, but obviously we don't wanna overly freeze dollars in our working capital just for the sake of having it there. We really wanna have the best use of our available cash. It's just that in a, as I mentioned, as a, in a growing backlog environment, we may. We just wanna be prudent from that approach. As we get to a certain level of backlog that we have in reach and maintain it, then it's gonna be easier to stabilize the policy and see what we do, as I mentioned, with the free cash flow.
Great. Thank you very much. Appreciate it. Thank you.
Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. At this time, I would like to turn the call back over to Monsieur Boursier for closing remarks.
Again, I wish to thank you for your interest in ADF Group. Have a nice day.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.