ADF Group (TSX:DRX) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

ADF Group Inc. reported a significant revenue increase of 78.8% year-over-year for Q1 2026, reaching $99.3 million, driven by new contracts and the GOPLAU acquisition.

Gross margin improved to 24.2%, up from 22% the previous year, benefiting from higher revenues and better absorption of fixed costs.

Net income rose to $12 million or $0.42 per share, compared to $8.7 million or $0.30 per share a year ago, with a strong balance sheet and cash equivalents of $62.1 million.

The company has a record-breaking backlog of $645.8 million, with significant contributions from GOPLAU's contracts.

Strategic initiatives include a $35 million CAPEX plan, expansion projects at GOPLAU, and securing a $12.5 million federal loan, partially forgivable and interest-free.

Management expressed optimism about future growth, driven by strong market demand, despite challenges posed by US tariffs.

Full Transcript

OPERATOR

Good morning ladies and gentlemen and welcome to the ADF Group Inc. Results for the three month period ended April 30, 2026 conference call at this time, note that all participant lines are in listen-only mode. Following the presentation, we will conduct a question and answer session and if at any time during this call you require immediate assistance, please press STAR for the operator. I'm sorry, star zero for the operator. Also note that this call is being recorded on Tuesday, June 9, 2026.

I would now like to turn the conference over to Mr. Jean Francois Bourcy, Chief Financial Officer. Please go ahead, sir.

Jean Francois Bourcy (Chief Financial Officer)

Yes, Sid Good morning and welcome to ADF's conference call covering the first quarter ended April 30, 2026. I am with Pierre Pastini, Chief Operating Officer of ADF, who will be available to answer your questions and at the end of the call. We are currently an hour from hosting our 2026 annual shareholders meeting which will take place here at our corporate office in Tatban. I will now 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, 2026 which were filed with SEDAR this morning. Our fiscal 2027 is off to an excellent start. Even if we are dealing with the numerous and never ending tariff changes, we are still keeping our focus and managing these challenges proactively.

Revenues during the three month period ended April 30, 2026 Total $99.3 million, 78.8% higher than the $55.5 million for the same period ended a year ago. The increase comes from the recently signed contracts which are in our fabrication. It is also worth mentioning that our first quarter revenues a year ago were negatively impacted by the then recently announced tariffs. The gross margin at $24.0 million almost doubled when compared to the same period of the previous fiscal year.

Gross margin as a percentage of revenues went from 22% during three month period ended April 30, 2025 to 24.2% during the same period ended April 30, 2026. The increase in margin, both in dollars and as a percentage of revenues is explained by the higher revenues which improves the absorption of fixed costs despite higher input prices including the price of steel and the recent changes to tariffs. The revenues and margin for the quarter ending April 30, 2026 are now inclusive of the GOPLAU acquisition which was finalized in September 2025.

As such, our revenues and gross margin for the quarter ended April 30, 2026 included $18.1 million and $1.3 million result respectively coming from Goplau. For the three month period ended April 30, 2026, selling and administrative expenses amounted to $7.6 million, posting a $4.2 million increase compared with the same period a year ago. This variation is mainly explained by the adjustment in the market value of deferred shared units and in performance share units granted to external board of Directors members and certain members of senior management.

In line with the variation in the corporation share price during the periods analyzed, the acquisition of Goplau also had an upward impact on selling administrative expenses of $1.1 million during the three month period and the April 30, 2026. We therefore close our first quarter with net income of $12 million or $0.42 per share compared to $8.7 million or $0.30 per share for the same quarter a year ago. Our balance sheet remains very strong. We closed our first quarter and did last April 30th with with cash and cash equivalent of $62.1 million only $0.6 million lower than our January 31st, 2026 ending balance.

Working capital stood at $111.9 million for a 2.2 to 1 ratio. Acquisition of property, plant and equipment and intangible assets for the first quarter ended last April 30th total $9 million including the modification of an existing fabrication bay in Terrebonne, the start of the expansion CAPEX in Métabetchouan for Go Clar and the redesign of the corporation's integrated ERP software package. We actually had the first shovel ceremony last week for our LAR expansion project.

We expect full year CAPEX to be approximately $35 million. Finally, we closed the quarter with a record breaking backlog of $645.8 million. This backlog includes $266.5 million coming from Goplau which includes the multi year contract announced last April. Worth mentioning, the April 30, 2026 backlog includes 72% of Canadian projects. As previously mentioned, we are very satisfied with the results of our first quarter which is highlighted by the progress of our operating activities and the ongoing growth of our order backlog.

As announced this past April, we have finalized a long term contract in the hydroelectric sector in Quebec for Goplau, which confirms our optimism expressed in our year end reporting and communication and highlights the importance of the investments we will make in the coming quarters to not only increase the production capacity of Goplau's plant, but also outfit it with state of the art equipment. Our financial position remains strong and we are continuing our discussion with the goal of securing adequate financing for our capital investment in Lake St. Jean. As such, we were able to reach an agreement with the federal government for a $12.5 million loan which, subject to certain conditions, would be 50% forgivable and 50% interest free. We expect to have the full financing package confirmed before the end of the second quarter ending next July 31st. Though our market remains active, US tariffs policy remains a significant irritant and will continue to add pressure directly and indirectly to our cost structure.

This being said, and as shown by our results for the first quarter, our proactive approach allows us to continue our orderly growth and minimize the risks associated with existing uncertainties. Thank you for your interest and confidence in adf. Pierre and I will now answer your questions.

OPERATOR

Thank you sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised and should you wish to withdraw from the polling process, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions.

Thank you. And your first question will be from Nicholas Cottalucci at atrium. Please go ahead.

Nicholas Cottalucci (Equity Analyst)

Morning gentlemen. Thanks for answering my questions and congrats on the quarter here. Really strong results. So I was wondering about the time frame on the large CAPEX plan. Is it kind of a phased approach or how long do you think it'll take to, you know, get a meaningful revenue impact from that?

Jean Francois Bourcy (Chief Financial Officer)

Well, construction actually as I as I mentioned we had the first shovel ceremony last week. We actually started construction on the site yesterday. We plan to have the building closed out before the winter so around November, December finalize the setup during the winter. So technically April, May, the plan should be up and running. So starting with the second quarter of next fiscal year, we should see start to see some impact from the additional volume and the improved efficiency coming from the new equipment.

Nicholas Cottalucci (Equity Analyst)

Right. And would you be able to tell us what Lars capacity was prior to this? Maybe just in dollars versus after or maybe even just a percentage increase if that is easier.

Jean Francois Bourcy (Chief Financial Officer)

Well, they typically the volume wise with the mix of product the they have they were able to do about 100 million, maybe a bit more. The expansion will double the capacity. So again depending on mix, we should be able to double. On a revenue standpoint it always depends on margins and the pricing of the projects. But basically the expansion should double the capacity.

Nicholas Cottalucci (Equity Analyst)

Okay, that sounds good. And then for JF on the SGA levels going forward, is this kind of the baseline what we saw in Q4 and Q1? If we exclude the stock based compensation?

Jean Francois Bourcy (Chief Financial Officer)

Yes, yes, pretty much law is included. So as I mentioned, the impact of Goplau alone in Q1 is 1.1. We can grow the revenues without really having to grow much of the SG&A. At least not significantly. So besides inflation on salaries, SGNA should be pretty flat. There's always the PSUs and DSUs fluctuation based on market. So just based on this morning's stock reaction, my SGNA just went up significantly. So I guess that's, that's good. But besides that there's, it should be pretty, pretty stable.

Nicholas Cottalucci (Equity Analyst)

Okay, got it. Understood. And then last one for me. If you guys have an update on more of kind of like the growth, growth sectors or growth projects, whether that's nuclear data centers, are you seeing any more volume in areas like that?

Jean Francois Bourcy (Chief Financial Officer)

Yeah, we've got some volumes coming in the space. Also we're looking at some data centers and some other jobs, big jobs that we can do at Great Falls, among others. So I think there's a lot of jobs, bidding, there's competition, there's niche work that we can do over here in Canada. Well, there's a lot of work coming with, you know in Quebec and other places in Ontario. Also some nuclear stuff. So we'll be busy in estimating. I mean basically so we grew our gang to do more estimates so we can pick up more work but at decent prices.

So for us, I mean it's market is good. I mean the reason why we're able to do what we're doing is that we can do jobs in the States. Why American act is not an issue with the great Fall plan and some other stuff. I mean even with Darius with the new equipment we can be competitive here in Montreal. And Goplau I think is quite an acquisition and it's more it's getting. They're going to do their work. I mean there's enough points and I think the volume is going to be there for the next five years.

Nicholas Cottalucci (Equity Analyst)

Yeah, very good. Okay, thanks for answering my questions and congrats again.

OPERATOR

Thanks Nick. Thanks. Once again ladies and gentlemen, if you do have any questions, please Press star followed by one on your touchstone phone. Thank you. Next question will be from Sebastien Charlain at Agave Capital. Please go ahead.

Sebastien Charlain

My first question is regarding the gross margin. I think a very positive surprise this morning. Last quarter, I believe the guidance or perhaps what we discussed was more in the lower 20% range, 20 to 22. It seems we're recovering towards that 24 and up despite the lower margin contracts at Goplau. I'm just wondering what, what could explain this stronger performance in Q1? I think we were more expecting this in the second half of the year. Has there been any project pull forward, anything exceptional?

Do you expect a second quarter a bit weaker?

Jean Francois Bourcy (Chief Financial Officer)

Well, I'd love to be more precise on the guidance and that's why we don't provide specific guidance. But sometimes it's not a whole lot of things. It's just a project coming in sooner than expected or one not coming in with lower margin as soon as expected. So it's really more a matter of the product mix. So it's not a huge shift. But to your point, maybe a point or two higher than we might have expected. I expect margins in the second quarter to be pretty, pretty similar as expected.

Considering the volume that we should be able to tackle in that second quarter. As we also mentioned at the year end we're still working on the integration of Goplau. So in the second half of the year we should start seeing some of those. Some of the benefits from the synergies being driven by this. But the step change will really be. As I mentioned on the first question, the step change will really be next year when the new, the addition and the expansion and go plow kicks in with the new equipment.

But again, we were obviously happy with the numbers and I guess it just proved shows. It shows that we've been able to execute the project. But as I said, sometimes it's not a whole lot. It's just timing of maybe a couple of weeks that might have pushed some of these. Some of the margins are higher than expected.

Sebastien Charlain

Got it. That's helpful. And apologies, I shouldn't have said guidance. Perhaps I should say you manage your expectations right. So that was a positive surprise. On the. On the financing agreement news. That's great to see the feds federal coming in with this. I was wondering would it be crazy to expect the provincial level to maybe come in as well, especially in the Sagny Lac St. Jean region.

Jean Francois Bourcy (Chief Financial Officer)

Important but still having discussion. So hopefully we'll be able to finalize everything we're working on. But we're Looking at obviously both level of government and we've always had a good relationship at both levels. So we're pleased to be able to finalize on the federal side and working for the rest of the package. So we'll have more to say in the coming weeks, definitely. At least unless something drastic happens. But we should be able, as I said, we should be able to finalize everything by the end of the quarter.

Sebastien Charlain

Got it. And maybe the last one for me. I think we understand LA is pretty much buckled up for the foreseeable future. Plus the expansion plan. If we focus back on Terrebonne and even Great Falls, can you comment on perhaps the capacity that's left there maybe as a percentage or calendar wise for 26 and 27?

Jean Francois Bourcy (Chief Financial Officer)

Well, Great Falls, obviously with the issues with the tariffs, it's definitely much easier to sign us sign contract for US projects being fabricated in Great Falls because obviously you take the tariff discussion out of the equation. So as it stands now, our Great Falls plan is getting pretty full for the year and we already have volume for next year at this year. Obviously in normal circumstances we do have good volume coming from the us as surprising as it may seem.

And even with the difficulties, we're still having projects, US projects that are coming in turban, where we manage, we manage the tariffs impact along with our clients. And we're also, because of the success we have and the fact that the expansion in LA for Goplau is not in place, we're also doing volume that would have normally been done at the Goplau side. So we're helping out Laos, which fills some of the capacity here in Turbo for next year.

You saw the backlog. So we're starting also to have good volume. The long term contract gives us longer term visibility, which is something new for adf, which is also really nice to have the longer term visibility. And as Garrett mentioned, the markets are still, in spite of everything, the market are still strong. There's still a lot of projects out there. So the plan is to fill as much as possible the shops. The initial objective was really to put additional effort on law and I think we've been pretty successful of doing that.

So now it's just making sure that we fill the capacity here in Terrebonne for the remainder of the year and next year. But we still have room, there's still capacity available. So things are looking good. And there's always a possibility also in Great Falls, as we have mentioned in previous communication, to add capacity should we get to that point. There's nothing on the table now, but we're obviously monitoring the situation.

Sebastien Charlain

Got it. That's it for me. Congrats again.

OPERATOR

Thanks. Thank you. And at this time, Mr. Bourcier, we have no other questions registered. Please proceed.

Jean Francois Bourcy (Chief Financial Officer)

Again, we wish to thank you for your interest in ADF Group and you remind you that we will hold our fiscal 2026 shareholders meeting in just a few minutes at 11 here at our corporate office in Tabon, Quebec. Thank you.

OPERATOR

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Enjoy the rest of your day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.