Good morning, ladies and gentlemen, welcome to ADF Group First Quarter Results ended April 30th, 2023 Conference Call. At this time, all 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. This call is being recorded on Wednesday, June 7th, 2023. I would now like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.
Thank you. Good morning. I am with Jean Paschini, Chairman of the Board and CEO of ADF, who will provide additional information about this morning's contract announcement, as well as an outlook. We are currently at our Terrebonne office, where we will hold our annual shareholders meeting after this call at 11:00 A.M. by way of live webcast. Connection details are available on our website as well as on the press release disclosed this morning. I will first update you on our quarterly results, which were disclosed earlier this morning by press release. 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 first quarter ended April 30, 2023, which were filed with SEDAR this morning.
We are off to a good start, with revenues of CAD 80.3 million, which is CAD 12.3 million or 18% more than the first quarter ended a year ago. Gross margin as a percentage of revenues at 16.8% is up from the 12.1% margin for the quarter ended April 30, 2022, while Adjusted EBITDA at CAD 10 million was CAD 4.4 million or 79% higher than the first quarter ended last year. These increases stem from the increased backlog, including the new projects worth CAD 260 million, announced in December 2022 and January 2023, and from the improved efficiencies coming from our new automated equipment at our Terrebonne fabrication facility.
It is also important to note that the quarter ended April 30th, 2022, had been temporarily impacted downward by work related to the just mentioned automation investments. We close our first quarter with net income of CAD 5.4 million or CAD 0.16 per share, compared to CAD 4.3 million or CAD 0.13 per share for the same quarter a year ago. As we had discussed on our call for the January 31st, 2023 results, receivables were higher than usual with the start of projects recently signed. The collection of those receivables during the quarter ended April 30th, 2023, explains most of the CAD 41.2 million of cash inflows from operating activities.
Now that our investment program for the automation of our fabrication facility in Terrebonne is behind us, we expect full-year CapEx to be under CAD 5 million, with CAD 0.7 million being spent in the quarter ended April 30, 2023. With this, we closed the quarter ended on April 30, 2023, with CAD 46.5 million in cash and cash equivalent, with no amount being drawn from our credit facilities, and thus in excellent position to pursue our backlog growth and execute our current backlog, which stood at CAD 312.4 million as of April 30, 2023, excluding the new contracts announced since the end of the quarter.
In addition, on April 28, 2023, we entered into a new agreement with our Canadian financial institution for our Canadian operating credit facility, which increased from CAD 30 million- CAD 40 million. This amount remains subject to margination calculation, but only when we need to draw over CAD 20 million. All other terms and conditions remain similar to the previous terms. I will now turn the call to Jean.
Thank you, Jean-François. We announced a week ago a series of new contracts totaling over $140 million, one of which is a major high-volume project in pharmaceutical industry in the U.S. Midwest region. These new contracts will be carried out at our Terrebonne plant, with most of the volume being fabricated with our new robotic fabrication line. Apart the efficiency gain from our new equipment and considering the level of our order backlog, our robotic line allows us to free up valuable production hours to work on higher complexity projects.
As Jean-François mentioned, our gross margins are already showing the positive effect of our last investment, and we are confident we will be able to fully benefit from our last investment and improving production-related costs, efficiency, and profitability with every new projects we sign. Looking forward, we are encouraged by the bidding opportunity and still see growth in our market, and we feel confident we will be able to announce new contracts soon. We will continue our effort to pursue our growth and achieve improved result, and we remain focused on continuing building ADF on the know-how of our personnel, our long-standing industry expertise, and our state-of-the-art facility. Thank you for your interest and confidence in ADF Group. We will now answer your questions.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. Again, to ask a question, press star one. Valerie from Palum[F.L.] Investment Partners, please go ahead.
Hey, guys, just a couple of questions. Obviously, just want to say up front, very happy with, you know, with the performance. You know, so thank you there. We've been a shareholder for a while.
Thank you.
I was wondering if you could provide a little bit of color on the split, you know, in the improvement of the operations that you're seeing between the strength in the market and the impact, you know, the, the immediate impact of the automation investments?
Well, I'm going to start with the automation, okay? We did one job on the automation right now, and we finished that project. The project that we did, only 38% of the steel passed into that new automation on that new robotic line. Because, you know, we were testing, and we wanted to make sure that everything was right. Right now, with the new projects that we signed and we're putting in the shop, we're going to gain, instead of having between 35% and 40% of pieces passing in there, we should be good between 70% and 80%. There's going to be a nice gain of productivity on the robotic side. I don't know if that answers your question.
Yes. No, that's very helpful. you know, my second question was about, I guess, just to confirm, you know, obviously, you had a very good quarter, and I guess I'm sort of wondering, is that a reflection principally of the, in, you know, the results from the automation investment? Or, you know, I know we're also in a pretty good market?
There's two things.
Just wondering.
Yeah, the market is good. There's a lot of work, okay, in the U.S. right now.
Mm-hmm.
There's a lot of work, plus the robotic, okay? You know, when you do pieces with the robotic, you save a lot of time. Those two, they go together. You know, if.
Okay
... there's no robotic, if there's no robotic in our shop, you know, we would add a quarter, like, Q1 last year.
Okay, got it. That's very helpful. Just in terms of the efficiencies and the learning curve with the new equipment, you know, I understand that, you know, what you said is very helpful about, you know, sort of doubling the percentage of pieces that go through. I'm wondering also, is there a learning curve in terms of, you know, efficiencies in your, in your bidding and planning and sort of structuring of the use of the robotic line? You know, beyond just the efficiency on any job, you know, are you guys going to be learning stuff about, you know, what sorts of projects you can bid on more aggressively and see benefits there, or do you sort of understand it well enough already?
Oh, we do understand it well enough already. You know, we, you know, that, that machine, we've been working on that robotic system for a year and a half. Yes, it was installed, it was finalized last year. Once it was up and running, you know, our people knew exactly what to do and how to do it. We did an, you know, we did an overall in the shop, in our shop, the ins and out, you know, it's another way to work. Right now, you know, we got that, we do have that efficiency.
Plus, the talent of our people and engineering, you know, we had to redo the connection on our drawings to make sure that everything would pass through the robot. All the efficiency, all the little things that could be neutral, it's passed, and right now we're looking, we're looking at the next two to three years, very productive and making money at the end of the day.
Great. I was also wondering if you could sort of comment on what you think the runway is for growth here. You know, obviously, you know, growth is great, you know, but it's going to be a drag on cash, in the meantime, you know, as receivables rise. Just sort of wondering what your thoughts are, you know, if we, you know, are we 12 months from a steady state sort of level of revenue and production or longer or less? You know, any color you could provide there would be helpful.
Obviously, growth depends really on what we can achieve from a backlog level. That's going well. Since December, it's around $400 million in new contracts that we've been able to announce between the December, the January, and the announcement from last week. As Jean mentioned, the market outlook is also good. Obviously for us, we're pushing for backlog. We still have availability, overall in our two facilities, both in Terrebonne and in Great Falls, Montana. We can grow. As we had mentioned in our January 31st reporting, we do expect and still are expecting our revenues to grow this year compared to last year. We still have efficiency, some efficiency gains to see.
We know the margins are improving and will keep on improving. The pricing also in the market seems to be heading the right way. Really, all the signs are pointing in the right direction for growth. Things are really looking up. We're always mindful of making sure that we sign contracts that are at acceptable risk level. We are not changing our approach, but the market is good, the growth is there, and we do expect to maintain good numbers in the coming quarters.
Okay, thanks. In terms of the, you know, available capacity, is there sort of a, you know, a level that you would say that your utilization is at present?
No. Level capacity, at the end of the day, what I tell my people at estimating: "Forget about the capacity of the shop. Go get work. We'll figure it out, and we'll do it." Okay? Because you cannot run a company saying, "Well, you know, I did a, I'm at my full capacity. I'm going to refuse contract." There's not one contract here that we're going to refuse.
Okay.
Like, the sky is the limit.
Okay. All right. The last thing is, you know, again, this is sort of part and parcel with the prior question. Just sort of wondering when you think the company might turn to, you know, free cash flow generation. Obviously, you know, the growth sort of is a drag on cash. You know, sort of what the thoughts are on capital allocation, you know, at that point?
Well, we, as we mentioned in our... Obviously, the last two years, the last two year investment are behind us. We're happy with what we've done. Now, it's really time to start reaping the benefits from those. You saw the cash inflow in the first quarter. Not saying that we'll generate the same type of inflows in every quarter, but we're definitely pushing to start generating free cash flow. Once we stabilize that, and once we get a good run from that standpoint, and that we're comfortable also with our backlog level, because as we have mentioned often, growing the backlog really puts pressure on working capital.
Before thinking too far ahead of ourselves with our available cash, well, first, we'll just confirm that we do have excess cash and that we're comfortable with our backlog level. Once we do that, then we'll start thinking longer term, what we want to do. As it stands now, it's still a bit premature to think too far away because we really want to focus on making sure that we keep pushing for backlog. As Jean just mentioned, that's really for us, that's really what's important, that's what we're driving. We know that that comes with additional pressure. We want to make sure that we've got the liquidities to be able, because it's nice to sign these CAD 140 whatever million contracts.
Yep.
These come with raw material purchases early on, so it does put pressure. The terms from the steel mills and others are pretty strict. Obviously, we want to make sure that we're able to get those projects going. And to have that, we need to have the capacity. Between the cash we've got on hand now, and the credit facilities we improve, we're comfortable with that. We'll keep concentrating on that aspect in the coming quarters. At one point, we will start thinking about, okay, what's the best use of the excess cash once we identify that excess cash?
A bit premature now, but, at one point, hopefully, that's going to be something we'll have to come back to you guys and the market.
Third quarter this year, we'll come back to you guys.
Okay. Terrific. Thank you, guys. That's it for me.
Thank you.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Murray Knight Dingle, Private investor. Please go ahead.
Yes, thank you for taking my call. Are there any plans for bringing the automation to your American plant?
We're looking at that right now, because, you know, it's nice to have robotic in our shop, but you need a staff, you need very experienced people to do it. We're looking at it right now. I cannot today, as of today, I cannot tell you we're gonna do it, but we are studying, all the avenues.
Okay. Because I know that you. It was a fairly lengthy project and cost, I think, well over $20 million, if not more. if you embark on a project like that now, I assume the costs have gone up. What do you expect the costs would be if you were to, you know, adopt that technology to your U.S. plant?
Uh-
How long would it take?
No, listen, if we draw that technology in our U.S. plant, the cost of the robotic are gonna be the same, okay? Because we did already talk to the robotic company. If we go ahead, it's gonna take, before it's up and running, it's gonna take about eight months.
Okay, great. Not as long as it took you the first time?
No. No, because the first time we put robotic, we finalize a new bay of fabrication. We change all the new, the equipment that we had. It was a lot bigger work that we did here than what we wanna do in Montana.
Okay. In Montana, obviously, your facility isn't as big as your facility as in Terrebonne. Would it be the same, right? It'll be not, the less equipment there or less, a smaller line, I take it.
Exactly. You know, if we go ahead, it's gonna be a smaller line.
I see. Okay, great. Okay, those are my questions. Thank you so much.
Thank you.
Presenters, there are no further questions at this time. Please proceed with your closing remarks.
Again, we wish to thank you for your interest in ADF Group and remind you that we will hold our fiscal 2023 shareholders meeting this morning at 11:00 A.M. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.