Adf Group Inc
TSX:DRX
Earnings Call Analysis
Q3-2024 Analysis
Adf Group Inc
ADF Group is looking robust with revenues closing the latest quarter at $82.1 million, marking a substantial increase of 26.4% from the previous year. This surge brings year-to-date revenue to $242.6 million, comfortably up from $199.4 million compared to the same period last year. This growth trajectory is attributed to the company's rising backlog, evident in the consecutive quarterly revenue figures.
ADF has successfully increased its gross margin to 24.4%, a significant jump from the 15% margin of the previous year. This improvement, alongside an adjusted EBITDA leap to $17.8 million from last year's quarter, is largely due to the commissioning of a new robotic production line and automated equipment. The story is similar for a nine-month vista, with gross margins reaching 21.1% compared to 13.3% of the prior year's period. However, these gains are slightly offset by an uptick in selling and administrative expenses, which climbed due to salary increases reflective of recent inflation trends.
With cash and equivalents now standing at $44 million, ADF has fortified its financial position, which is a marked $36.8 million increment since January. This robustness is also reflected in the company's working capital, which at $94.5 million, is up by 44.1%. Further, ADF has solidified its workforce by ratifying a five-year labor agreement with its unionized employees. With solid financials and keen focus on closing out fiscal 2024, ADF remains confident about its ability to sustain success and growth, a confidence buoyed by a ripe bidding pipeline and the likelihood of announcing new contracts in the near future.
Hidden.
Hidden.
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to ADF Group Third Quarter Results 2024 Conference Call. [Operator Instructions] This call is being recorded on Thursday, December 7, 2023.
I would now like to turn the conference over to Jean-François Boursier, Chief Financial Officer. Please go ahead.
Thank you. Good morning, and welcome to ADF's conference call covering the third quarter and 9-month 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 our operation. 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 third quarter and 9-month ended October 31, 2023, which were filed with SEDAR this morning.
After posting 2 consecutive quarters of $80 million in revenues, we closed our third quarter ended October 31, 2023, with revenues of $82.1 million, $17.1 million or 26.4% higher than last year. Year-to-date, revenue stood at $242.6 million compared to $199.4 million 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 $17.8 million is $10.2 million -- $10.2 million higher than the third quarter ended last year.
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 $40.4 million was $20.2 million higher than the 9-month period ended last year.
Gross margins for the 3-month and 9-month periods ended October 31, 2023, benefited primarily from the operational efficiencies generated by the commissioning of the new robotic production line and new programmable and automated equipment at ADF plant in Terrebonne, 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 administrative expenses for the 9-month period ended October 31, 2023. For the 3- and 9-month period ended October 31, 2023, SG&A expenses stood at $3.8 million and $15.2 million respectively, $119,000 and $5.1 million higher than for the corresponding periods a year earlier.
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 third quarter with net income of $11.2 million or $0.34 per share compared to $2.9 million or $0.09 per share for the corresponding quarter a year ago. Year-to-date, net income stood at $27.1 million or $0.83 per share compared to $12.6 million 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 million, $36.8 million higher than as of January 31, 2023, while working capital stood at $94.5 million, 44.1% higher than the January 31, 2023 level.
Now that our investment program for the automation of our fabrication facility in Terrebonne is finalized, we expect full year CapEx to be under $6 million with $5.2 million being spent year-to-date. Finally, we closed the quarter with a backlog of $339.3 million.
On the workforce front, we are happy to confirm that our 189 unionized Terrebonne facility employees ratified this December 3, 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, a sound balance sheet and the recently ratified union agreement for our Terrebonne facility employees, we are well positioned to maintain our past quarters positive trend and pursue our growth.
Thank you for your interest and confidence in ADF. We will now answer your questions.
[Operator Instructions] Your first question comes from Nicholas Cortellucci from Atrium Research.
Can you hear me?
Yes, Nick.
And congrats on another great quarter here. My first question was about capital allocation. With the cash balance at $44 million, 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?
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 quarters. So obviously, as we look at FY '25 and start looking at budget, we will, as a group, look at this and start having those discussions 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 the excess. So it's a bit early. Obviously, we will -- once we turn the new year, we will be looking at finalizing our FY '25 budget and as a group with our Board, we will, at that time, look at capital allocation going forward.
Understood. And then my other question was it's been about 2 years since the U.S. infrastructure bill got passed. Are you guys starting to see those projects start to join the pipeline? Or is that still something for 2024?
Yes, we do. But to tell you the truth, well, yes, we do. I think there's 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. 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 to see in the future some direct or indirect impact from these infrastructure packages. So it's good news for us and actually for the entire industry.
Okay. Great. Those were all my questions. And congrats on another great quarter. I'll jump back in the queue here.
[Operator Instructions] Mr. Boursier, there are no further questions at this time -- one moment, please. We have a question from [ Murray Knight Angel ], Private Investor.
Great numbers guys. What are your plans, if any, for bringing automation to your U.S. plant?
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 Terrebonne, we're still learning and still improving on those processes. So 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.
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 Terrebonne shop. But we've seen what automation brings in Terrebonne. So we're not saying no. 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.
And there are no further questions at this time. I will turn the call back over to Mr. Boursier for closing remarks.
Thank you. Again, we wish to thank you for your interest in and support of ADF Group. I would also like to take this opportunity in ADF and my behalf to wish you all a safe and happy holiday season. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.