Earnings Call: Q4 2021

Apr 8, 2021

Good morning, ladies and gentlemen, and welcome to the ADF Group Results for the Fiscal Year Ended 01/31/2021 Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 04/08/2021. I would now like to turn the conference over to Jean Francois Bourcier, Chief Financial Officer. Please go ahead. Thank you. Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the twelve month period ended 01/31/2021. 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, a quick update about the COVID-nineteen impact on our operation and financial results. For the fiscal year ended 01/31/2021, and as of today, the COVID-nineteen pandemic had limited overall impact on our operations. We have taken all the required and recommended actions and have followed local guidelines and ordinances. The security and well-being of our employees and business partners remains our first priority. On the one hand, these measures have created some operating inefficiencies and consequently have reduced our profitability. On the other hand, we have been able to offset most of these negative impacts through Canadian and U. S. Governmental COVID relief programs. I will get back to this later on this call. Lastly, 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 2021 fiscal year, which will be filed with SEDAR later this month. Revenues for the fiscal year ended 01/31/2021 reached $172,600,000 7 point 1 million dollars lower than last fiscal year. The decrease in revenues is mostly explained by the timing of recently awarded contracts, which have not hit our fabrication lines as of fiscal year end. Also, as a reminder, our fiscal twenty twenty revenues were impacted by a onetime $7,700,000 write off resulting from an out of court settlement booked in the third quarter ended October 3139. Gross margin in dollar value increased by $9,700,000 during the 2021 fiscal year compared with fiscal twenty twenty. As a percentage of revenues, the gross margin went from 9.2% in fiscal twenty twenty to 15.2% during the fiscal year ended 01/31/2021. The increase as a percentage of revenues being driven by the improvement in margins on projects included in the order backlog. The fiscal twenty twenty one gross margin was also favorably impacted by the recognition of COVID-nineteen pandemic related grants and subsidies during the fourth quarter ended 01/31/2021. The corporation booked $1,900,000 from the Canadian Emergency Wage Subsidy Program. The corporation also received US4 million dollars in loans during the year ended 01/31/2021 from The U. S. Payroll Protection Program. These loans subject to certain terms and conditions could be forgiven in all or in part. As such, and in the fourth quarter ended 01/31/2021, the corporation estimated that it met these terms and therefore recognized the forgiveness of a portion of the total debt or US2.8 million dollars thus improving the gross margin by CAD3.6 million. As mentioned before, these subsidies booked in the fourth quarter ended 01/31/2021, helped offset the cumulative additional costs and operational inefficiencies triggered by the COVID-nineteen measures required at our two fabrication facilities and numerous construction sites. EBITDA stood at $16,300,000 or 9.5% of revenues compared with $5,200,000 or 2.9% of revenues a year ago. The COVID related subsidies, as already mentioned, mostly impacted gross margin, but also had a lesser impact on selling and administrative expenses. The total favorable impact of these subsidies on EBITDA totaled $6,300,000 Again, this amount does not include the direct costs incurred by ADF nor does it include the impact of efficiency losses related to these measures. Selling and administrative expenses amounted to $14,800,000 or 8.6% of revenues, 1,200,000 lower than last year. Most of this variance coming from lower legal fees associated with last fiscal year aforementioned out of court settlement. Year to date, we posted net income of $6,900,000 or $0.25.00 $21 basic and diluted per share compared with a net loss of $2,100,000 a year ago or negative $0.07 basic and diluted per share. Cash flows from operating activities generated $28,800,000 and we only invested $1,800,000 in CapEx, taking a careful approach to liquidities in light of the uncertainty surrounding the pandemic. These inflows translated into improved working capital. As of 01/31/2021, working capital stood at $38,500,000 9 point 2 million dollars higher than a year before. Net liquidities also improved significantly. A year ago, as at 01/31/2020, we had a negative net cash position of $9,100,000 including $13,100,000 drawn from our credit facilities. A year later, as at 01/31/2021, our net cash position stood at $17,800,000 20 6 point 9 million dollars higher than last year without any amount drawn from our credit facilities. Yesterday, our Board of Directors approved the payment of a semiannual dividend of $1 per share, which will be paid on 05/17/2021, to shareholders of record as at 04/30/2021. Our order backlog stood at 4 and $36,200,000 as of 01/31/2021, dollars '1 hundred and '7 point '5 million higher than at the same date a year ago. Quickly looking at the fourth quarter results, Revenue stood at CAD37.1 million compared with CAD46.3 million for the corresponding quarter a year ago. Fourth quarter gross margin as a percentage of sales stood at 17.4% compared with 8.6 during the same quarter last year. As confirmed before, the timing of the fabrication schedule triggered the revenue shortfall, whereas the COVID related subsidies booked in the quarter ended 01/31/2021 favorably impacted gross margin. Finally, the corporation recorded net income of CAD2.1 million during the last quarter of twenty twenty one fiscal year compared with a net loss of million for the same period in fiscal twenty twenty. Through the years, ADF added shares of ups and downs and market fluctuations. We can clearly say that fiscal twenty twenty one also had its share of challenges. The COVID-nineteen pandemic required unprecedented governmental measures worldwide. For us, it meant keeping our operations going with, first and foremost, the well-being of our employees in mind. As the rest of the world hopes, we think that the worst is behind us and are looking forward to the coming quarters. With our increased backlog and improved liquidity, we start fiscal twenty twenty two on strong footings. The backlog pipeline is still active, and we are confident we can not only maintain our backlog level, but even increase it. We are also optimistic when looking at upcoming infrastructure programs on both sides of the border. These public investments should also, as they normally do, drive private investment and further increase contract opportunities. The additional volume should also improve overall project pricing, which is for the time being still very low. As such, and in light of the contracts in our backlog, we expect some pressure of these recently signed projects. Nevertheless, we will continue our efforts to further increase our backlog and further improve our internal efficiencies. We will also maintain our COVID-nineteen related measures, making sure to provide all our employees with a safe working environment. Most of our administrative employees are still working from home, and we have taken comprehensive measures to allow for safe working conditions for all ADF employees who need to be at our facilities or construction sites. Thank you for your time and interest in ADF Group. Ladies and gentlemen, I will now answer your questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you wish to decline for the polling pass process, please press star followed by 2. If you are using a speakerphone, please leave your handset before pressing any keys. One moment for your first question. There are no questions at this time. Mr. Bourcier, please proceed. Before we conclude today's conference call, I would like to remind you that ADF will hold its shareholders meeting on June 9 at eleven a. M. Again this year, in light of the circumstances, ADF Group will hold its Annual Meeting of Shareholders via webcasting. Financial results for the first quarter ending 04/30/2021, 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 safe day. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.