Earnings Call: Q2 2022

Sep 9, 2021

Good morning, and gentlemen, and welcome to the ADF Group's Second Quarter and Six Month Period Ended 07/31/2021 Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct your question and answer session. This call is being recorded on Thursday, 09/09/2021. I would now like to turn the conference over to Mr. Jean Francois Broussier, Chief Financial Officer. Please go ahead, sir. Thank you. Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the second quarter and six months ended 07/31/2021. I will first update you on our year to date results, which were disclosed earlier this morning by press release and then update you on our operations and new contract announcement. But 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 months ended 07/31/2021, which were filed with SEDAR this morning. Please also consider that although for the moment the impact of COVID-nineteen on ADS operation is limited, the extent to which the virus and its variants could have an impact on our results will depend on future developments, including new information that may emerge regarding the COVID-nineteen and the measures taken to contain it or address its impact, among others. This said, revenues for the second quarter ended 07/31/2021, stood at $73,200,000 compared with $42,500,000 for the same period last year. Year to date, revenues at $123,600,000 were $35,300,000 higher than for the same period last year. These increases in revenues are in line with the increase of our backlog. Gross margins for the three months ended 07/31/2021, at 7.7% was lower than the 17.4% reported for the same period a year ago. Year to date, gross margin went from 13.9% recorded last year to 10.9% for the six month period ended 07/31/2021. As mentioned in our 01/31/2021 MD and A report, a certain pressure on margins was expected at the beginning fiscal year due to the start up of certain projects signed with lower prices. Although this pressure was less felt in the quarter ended 04/30/2021, because of timing, the product mix during the second quarter had the previously anticipated negative impact. In addition, during the second quarter ended 07/31/2021, we adopted a cautious approach and adjusted downwards the anticipated profitability on one of our ongoing projects. This said, we anticipate that this adjustment will be more than sufficient to absorb the anticipated increase in cost. Lastly, and as a reminder, gross margin for the six months ended 07/31/2021, includes a $1,600,000 subsidy from the Canadian Emergency Wage Subsidy Program recorded during the first quarter ended 04/30/2021. At the close of the three months ended 07/31/2021, EBITDA stood at $3,100,000 1 point 5 million dollars lower than for the same period a year ago. This unfavorable variance coming from the lower gross margin, as just explained, partially offset by the lower SG and A expenses. Year to date, EBITDA stood at $9,200,000 1 point 6 million dollars higher than for the same period a year ago. Year to date, the improved gross margins and lower selling and administrative expenses explain this favorable variance. Still year to date, selling and administrative expenses benefited from the Canadian COVID subsidy booked in the first quarter, but also from lower travel expenses following COVID related travel guidance. For the quarter ended last July 31, net earnings stood at $1,500,000 or $05 per share compared with net earnings of $2,100,000 or $06 per share a year ago. Year to date, net earnings for the six months ended 07/31/2021, stood at $5,900,000 or $0.18 per share compared to net earnings of $2,200,000 or $07 per share for the same period a year ago. Besides the elements mentioned before, the net earnings for the six month period ended 07/31/2021, was favorably impacted by lower effective tax rates considering that in light of our unrecorded U. S. Tax loss, U. Affiliates pretax income is not tax effective. Considering our remaining unrecorded U. S. Tax losses, we do expect to have similar low tax rates in the coming quarters. Working capital as of 07/31/2021, at $33,600,000 was somewhat lower than the levels recorded as of April 30 and as of 01/31/2021. This situation is temporary and as of today has already improved with significant receivable collections since the quarter end. Considering the 07/31/2021 receivable levels, cash flow from operations for the quarter ended at the same date required $1,900,000 in cash. Year to date, cash flow from operations generated in excess of $10,000,000 In light of the market outlook, and as previously mentioned during our June 2021 Annual General Meeting of Shareholders, we are moving forward with a capital investment program to automate our Telbon fabrication operations. These acquisitions are currently funded from the corporation's cash flow. However, we are currently exploring various options to diversify financing sources. Including these investments, we are now expecting our full year CapEx to reach $20,000,000 With this, and as at 07/31/2021, we posted $14,300,000 in cash and cash equivalents with no amount being drawn from our credit facilities and thus in excellent position to pursue our backlog growth and execute our existing backlog, which stood at $374,000,000 as at 07/31/2021. Lastly, our Board of Directors approved yesterday the payment of a semiannual dividend of $01 per subordinate voting shares and per multiple voting shares, which will be paid on 10/15/2021, to shareholders of record as at 09/30/2021. In addition to this backlog total, we announced this morning the signing of new contracts totaling $50,000,000 The largest of these new contracts was won in the transportation infrastructure sector in the Western USA. Fabrication work is scheduled to begin in early twenty twenty two at both our plants located in Terrebonne and in Great Falls and run until the fall of twenty twenty two, followed by the steel erection work. Although these new projects announcements are taking a bit longer than anticipated, we are still optimistic that we will be able to continue to grow our quarter backlog. The recent COVID variant surge is obviously being monitored, and we are keeping all required measures to not only protect our employees, but to also maintain our operational requirements. Ladies and gentlemen, thank you for your interest and confidence in ADF. I will now answer your questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session for analysts. You will hear a three tone from acknowledging your request, and your question will be pulled in order to be received. Should you wish to decline from the polling process, please press star followed by 2. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. With that, there are no questions at this time. Mr. Broussier, you may proceed. Again, I wish to thank you for your interest in ADF Group. Have a nice day and be safe. 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.