ADF Group (TSX:DRX) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
ADF Group Inc. reported a significant increase in revenues for Q2 2026 at $95 million, a rise of $42 million from the previous year, with year-to-date revenue up by 79% compared to the same period in 2025.
Gross margin for the quarter was 18.7%, slightly down from 20.7% in the previous year, but consistent year-to-date at 21.5% compared to 21.3% in 2025, with higher revenues improving fixed cost absorption despite higher input costs.
Net income for Q2 2026 was $3 million, or $0.10 per share, up from $0.9 million, or $0.03 per share, the previous year, affected negatively by non-cash impacts from the DRX stock increase and foreign exchange losses.
Cash and cash equivalents increased to $91.4 million, aided by a $25 million cash inflow from a claim settlement, with a record-high order backlog of $693.7 million, 64% of which is Canadian-based.
Capital expenditures are expected to total over $40 million for the year, with ongoing investments in facility expansions and equipment upgrades in Terrebonne and Great Falls.
Management confirmed resilience against recent U.S. tariffs and Canadian counter-tariffs, with no direct impact from recent U.S. proclamations, and anticipates potential margin improvement as legacy backlog diminishes.
The search for a new CFO is underway with an announcement expected soon, as the current CFO plans to retire at the end of the year but will remain a strategic advisor thereafter.
Full Transcript
OPERATOR
Good morning, ladies and gentlemen, and welcome to the ADF Group Inc. results for the three-month and six-month period ended July 31, 2026 conference call. At this time, all lines are in 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 Thursday, September 10, 2026. I would like to turn the conference over to Mr. Jean-Francois Boursier, Chief Financial Officer. Please go ahead, sir.
Jean-Francois Boursier, CFO
Thank you. Good morning and welcome to ADF’s conference call covering the second quarter and six months ended July 31, 2026. 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 operations, including the impact of the latest U.S. Administration proclamations. 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 July 31, 2026, which were filed with SEDAR this morning. I’ll start by saying that we are the victim of our own success. I’ll provide more details later, but the DRX stock increase since the beginning of the year had a significant negative non-cash impact on our financial results. Revenues for the quarter ended July 31, 2026 at $95 million were $42 million higher than last year.
Year-to-date revenue stood at $194.3 million compared with $108.5 million, or 79% higher than the six-month period ended July 31, 2025. It is important to recall that following the then-new tariff uncertainty impacts, a work-sharing program was implemented at ADF’s plant in Terrebonne, Quebec and remained in place for virtually the entire quarter ended July 31, 2025, thus reducing fabrication hours and consequently revenues for the same quarter and year-to-date.
We closed the second quarter ended July 31, 2026 with gross margin of 18.7% as a percentage of revenues, slightly down from the 20.7% margin of the quarter ended July 31, 2025, while the year-to-date gross margin as a percentage of revenues at 21.5% was basically at the same level as last year, which then stood at 21.3% for the six-month period ended July 31, 2025. The variation in margins, both in dollar terms and as a percentage of revenues, is explained by the higher revenues contributing to a better absorption of fixed costs.
The positive effect thereof was, however, mitigated by higher input costs, including the price of steel and the recent changes in tariffs. ADF revenues and gross margin for the quarter ended July 31, 2026 were both positively impacted by the final settlement of a claim against a customer of Groupe LAR. The corporation had taken a cautionary approach to this settlement and the cumulative impact is reflected in the second quarter’s results. This adjustment had a cumulative positive impact of $20.2 million and $5.3 million on Groupe LAR’s and ADF Group’s revenues and gross margin respectively for the quarter and six-month periods ended July 31, 2026.
Adjusted EBITDA for the quarter ended July 31, 2026 at $8.4 million compared with $3.7 million for the same quarter a year ago, while year-to-date adjusted EBITDA stood at $26.9 million compared with $14.1 million for the six months ended a year ago. We therefore closed our second quarter with net income of $3 million, or $0.10 per share, compared with $0.9 million, or $0.03 per share, for the corresponding quarter a year ago. Year-to-date net income stood at $15 million, or $0.52 per share, compared to $9.6 million, or $0.34 per share, for the same period ended July 31, 2025.
As previously mentioned, our results for the quarter and six-month periods closed on July 31, 2026 were severely and negatively impacted by the cost associated with our deferred performance and restricted share units, mostly coming from the mark-to-market impact following DRX stock price increase since January 31, 2026, and also by our foreign exchange loss. DSUs, PSUs, and RSUs had a negative impact on net earnings of $4.3 million and $5.6 million for the three- and six-month periods ended July 31, 2026, respectively, and therefore $0.15 per share and $0.20 per share for the same periods, while the foreign exchange loss had a negative impact of $1.8 million, or $0.06 per share, and $1.4 million, or $0.05 per share, for the same periods respectively. We closed the second quarter with $91.4 million in cash and cash equivalents, up by $28.7 million compared with January 31, 2026. Working capital stood at $109.5 million as of July 31, 2026. As noted earlier, the claim settlement generated a $25 million cash inflow just before quarter-end, which positively impacted our ending cash balance.
Year-to-date operating cash flow reached $47.1 million for the six-month period ended July 31, while $15.5 million were used to acquire property, plant and equipment, and intangible assets, including the modification of a fabrication bay at ADF’s Terrebonne complex, Groupe LAR’s plant extension, and our ERP upgrade. In light of the continuing trade uncertainty, we will also invest just over $10 million U.S. to increase our Great Falls facility output and add new equipment to further improve efficiency.
We now expect our full-year capex to total just over $40 million. Yesterday, our Board of Directors approved the payment of the second semiannual dividend of $0.02 per share. This dividend will be paid on October 15 to shareholders of record as of September 25, 2026. Finally, we closed the quarter and six months ended July 31, 2026 with yet another record-high order backlog, reaching $693.7 million. This total also includes Groupe LAR’s order backlog, which stood at $243.3 million at the same date.
It should be noted that the corporation’s order backlog as of July 31, 2026 does not include the five-year extension option on the long-term contract announced on July 23, 2025. It is also worth mentioning that 64% of our consolidated order backlog is for Canadian-based projects. We cannot escape from the adverse impact of the U.S. tariffs on our year-to-date results. As of now, we can confirm that the new 50% U.S. tariffs announced a few weeks ago are not impacting ADF’s products, and we can also confirm that we will be getting relief from the impact of the Canadian counter-tariffs that became effective earlier this week.
Additionally, and based on the information available as of now, ADF will not be directly impacted by any of the proclamations signed by the U.S. President Tuesday night. Although the latest changes have limited direct impact on ADF, they are definitely increasing the uncertainty. This said, and as ADF has proven over its 70 years of existence, we are resilient. As previously mentioned, our Q2 results were negatively impacted by the strong performance of our stock following the accounting of our share units and by an FX loss.
Once we understand this, it is important to look at the fundamentals, which for ADF are the backlog growth, the backlog geographic diversification, and the strength of our balance sheet. We can say that these are strong and are the foundation to our continued growth. Our capital investment in the Lac St-Jean region for Groupe LAR’s facility expansion is on time and on budget, and we will soon start a plant expansion and equipment upgrade at our Great Falls, Montana facility.
Our balance sheet strength, along with the soon-to-be-finalized additional financing, is enabling ADF to maintain and even improve its fabrication capacity and efficiency. Finally, and on a personal note, the process to find a new CFO following the announcement of my end-of-year retirement, as announced in May, is going well, and we are confident that an announcement will be coming soon. As a reminder, I will retire on December 31, 2026 after more than 16 years of service with ADF, but will remain as CFO until that day, and then, starting January 1, 2027, will serve as a strategic advisor until the date to be confirmed to ensure a smooth transition.
Thank you for your interest and confidence in ADF. I will now answer your questions.
OPERATOR
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. If you’d like to ask a question, please press star, then the number one on your telephone keypad. If you’d like to withdraw from the queue, please press star, then the number two. If you’re using a speakerphone, please pick up your handset before pressing any keys. One moment, please, while we compile the roster. The first question is from Nicholas Scoti Lucci with Ekram.
Please go ahead.
Nicholas Scoti Lucci, Analyst at Ekram
Morning, JF. Thanks for taking my questions, and congrats on another strong quarter here. I just wanted to make sure I heard something correctly. What was the percent of the backlog that was from Canada? Was that 45%?
Jean-Francois Boursier, CFO
Sixty-four. Sixty-four percent.
Nicholas Scoti Lucci, Analyst at Ekram
Okay, got it. Yeah. Okay, so a slight step down from Q1, it seems like.
Jean-Francois Boursier, CFO
From Q1, yes. And you might recall we had some announcements at the end of June, mostly for U.S.-based projects. So obviously adding those reduced, I think we were at 72% at the end of Q1. So that’s why we’re slightly lower. For us, anything that looks like 50/50 or close to 50 is really good. But still, at 64% of Canadian-based content, definitely, considering the environment we’re in, it’s better than the 5% of Canadian content we were at back in April 2025—so just over a year and a quarter ago.
Nicholas Scoti Lucci, Analyst at Ekram
Yeah, understood. Okay. And then with gross margin, we had some moving pieces in the quarter with the work Terrebonne did for LAR, but what do you see as the normalized gross margin for you guys going forward, and then maybe how does that change going into next year?
Jean-Francois Boursier, CFO
Yeah, well, as you know, we don’t necessarily provide guidelines going forward, but to your point, I think on its own we shouldn’t look at Q2 as a good indication because there were a lot of moving pieces. Year-to-date we’re at 21.5%. That does include the downward impact, as we already explained in previous calls, of the Groupe LAR backlog, which we still need to sort of go through, which definitely was not at ADF’s historical level, if you want, from a margin standpoint.
So that will still happen in Q3 and Q4, as long as we still have to get through the Groupe LAR legacy backlog. This said, our regular jobs and on an ongoing basis—the year-to-date margin of 21.5% is a pretty good indication of what’s coming. Obviously, we are impacted by the tariffs indirectly, as we already explained, by the higher cost of steel. So it does increase our cost base; it has an impact. The tariffs, although limited, do have an impact.
We are paying, since the beginning of April 2026 proclamation, approximately 10% of the commercial invoice on the Canadian fabrication for U.S. projects. So that obviously also has an impact on a portion of the projects fabricated in Canada going to the U.S. That lowers the margin. But these are already factored into the margins as they stand. So, as I said—without going into too much detail—the year-to-date margins are a pretty good indication of what’s coming, and we do expect also improvement as we’re getting rid of the legacy backlog.
So maybe you can expect to see margins creep up in Q3 and Q4, barring any other announcement on the tariffs front. As I confirmed at the end of my text, the latest changes, either the counter-tariffs or the proclamation from Tuesday night, as we understand them now, won’t change that 10%. So no impact—but God knows what will happen in the next days, weeks, and months. We’re obviously in a situation where the relationship is different. But based on what we know now, that’s what we see for the coming quarters from a gross margin standpoint.
Nicholas Scoti Lucci, Analyst at Ekram
Yeah, okay, yeah, understood. And what about just an update on the capex plans? How are things progressing? Are you guys on time with the LAR expansion?
Jean-Francois Boursier, CFO
Yeah, things are going really well from that standpoint. We’re on time, on budget for LAR. As I also mentioned, we’ve actually even started, since the end of second quarter, to work on an expansion in Great Falls also. It’s not a huge investment, but it will add capacity and bring in additional newer equipment and additional equipment. The plant has been up and running for 12–13 years now, so the equipment was still good, but obviously a lot of hours on those.
So it’s going to be good to bring new equipment and further improve efficiency, but also add some operating changes that will facilitate the work in Great Falls and also add capacity in light of everything that’s happening now. So things are progressing well. No issues—definitely no issues at Groupe LAR. The structure has started to go up. So we’re on time, we’re on budget, the equipment has been all ordered, the schedule is still good, and actually not only tracking to budget, but even slightly better than budget, which is great news.
Nicholas Scoti Lucci, Analyst at Ekram
That’s it. Okay, very good. And then just last one, if I could squeeze it in, would be on the SG&A increase—whether the impact of the DSUs and the RSUs—but what are you just generally seeing with the SG&A line in terms of inflationary increases, salaries, labor, that kind of stuff?
Jean-Francois Boursier, CFO
Yeah, well, our SG&A—excluding the DSUs or the share units variation—but the core, the SG&A per se, besides just inflation or salary increases, the base of the SG&A should not change drastically, obviously, year over year. And again, for Q2 last year, we didn’t have LAR consolidated into our results, so obviously there’s an impact on our SG&A just from the consolidation of LAR. When we publish Q3—actually, September 18 is going to be the one-year anniversary of the acquisition—so Q3, the comparable quarter, will include a portion of SG&A. But the base of the SG&A, for us, even if volume is increasing and our revenues are increasing, we don’t need to drastically increase the SG&A to meet these additional volumes or the increased backlog. So from the core of the SG&A—again excluding share units variation—the SG&A should be pretty stable, besides the usual: obviously, a lot of salaries included in SG&A, so the yearly salary increases, which are around the 3% level or should be around the 3% level for the coming year also.
So besides that, there’s no real need to increase SG&A to meet the expected revenue growth in line with the backlog.
Nicholas Scoti Lucci, Analyst at Ekram
Fantastic. Okay, that’s all from me. Thanks for answering my questions.
Jean-Francois Boursier, CFO
Thanks, Nick.
OPERATOR
Thank you. There are no further questions on the phone line. Mr. Boursier, you may proceed.
Jean-Francois Boursier, CFO
Again, we wish to thank you for your interest in and support of ADF Group. Have a nice day.
OPERATOR
Ladies and gentlemen, this concludes your conference call for today. Thank you for participating, and we ask that you please disconnect your lines. Have a great 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.
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