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ADF Group Inc. (DRX) reported its financial results for the first quarter of 2025, revealing a notable decline in revenue and earnings per share (EPS) compared to the same period last year. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculations, with a P/E ratio of 4.85x and EV/EBITDA of 2.93x. Despite these challenges, the company’s stock price surged by 19.44% in pre-market trading, reflecting investor optimism driven by strategic initiatives and a robust order backlog.
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Key Takeaways
- ADF Group’s Q1 revenue fell to $55.5 million, down from $107.4 million last year.
- EPS decreased to $0.30 from $0.47 in the previous year.
- The stock price increased by 19.44% despite declining financial metrics.
- A strong order backlog of $330.4 million suggests future growth potential.
- Market uncertainty persists due to US tariffs and steel price volatility.
Company Performance
ADF Group’s overall performance in Q1 2025 reflects significant challenges, with both revenue and EPS showing considerable declines year-over-year. The company continues to face headwinds from market uncertainties, particularly in the US, where tariffs and steel price increases have impacted margins. Despite these challenges, the company maintains a strong competitive position with a significant order backlog and ongoing marketing efforts to promote its capabilities.
Financial Highlights
- Revenue: $55.5 million, down from $107.4 million in the same quarter last year.
- Earnings per share: $0.30, a decrease from $0.47 last year.
- Gross Margin: $12.2 million, representing 22% of revenues, down from 29.2%.
- Cash and Cash Equivalents: Increased by $15.3 million to $75.3 million.
Market Reaction
Despite the decline in financial performance, ADF Group’s stock price rose by 19.44%, closing at $8.11. This increase suggests that investors are optimistic about the company’s future prospects, possibly driven by its strategic initiatives, such as the completion of a share repurchase program and a strong order backlog. InvestingPro analysis indicates that DRX’s stock price often moves in the opposite direction of the market, with a beta of 0.74, potentially offering portfolio diversification benefits.
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Outlook & Guidance
Looking ahead, ADF Group anticipates a return to revenue levels of $80-85 million, with improvements in revenue and profitability expected in the second half of the fiscal year. The company remains focused on growing its order backlog and maintaining operational excellence.
Executive Commentary
CEO Wudjon Peskini expressed confidence in the company’s ability to rebound, stating, "We expect our revenues to be back to levels that we had seen last year." Executive Jean Francois Boussier highlighted the challenges posed by changing trade policies, noting, "It’s tough with the clients right now because the president’s changing his mind almost every day."
Risks and Challenges
- Market uncertainty due to fluctuating US trade policies and tariffs.
- Steel price increases affecting cost structures and margins.
- Potential delays in new contract acquisitions due to market volatility.
- Dependence on a strong order backlog for future revenue growth.
Q&A
During the earnings call, analysts inquired about the impact of tariffs on the US and Canadian markets and the potential for new contracts. The management emphasized the uncertainty in the US market due to changing trade policies and discussed ongoing exploration of potential capital expenditure projects.
Full transcript - ADF Group Inc. (DRX) Q1 2026:
Conference Operator: Good morning ladies and gentlemen and welcome to the ADF Group Inc. Results for the Three Month Period Ended 04/30/2025 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 0 for the operator.
This call is being recorded on 06/10/2025. I would now like to turn the conference over to Mr. Jean Francois Boussier. Please go ahead.
Wudjon Peskini, Chairman of the Board and CEO, ADF Group Inc.: Thank you. Good morning and welcome to ADF’s conference call covering the first quarter ended 04/30/2025. I am Wudjon Peskini, Chairman of the Board and CEO of ADF, who will be available to answer your questions at the end of the call. We are currently an hour from hosting our twenty twenty five Annual Shareholders Meeting which will take place at the Imperial Hotel and Suites in Taubung. I will now update you on our quarterly results which were disclosed earlier this morning by press release.
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 04/30/2025 which were filed with SEDAR this morning. Given the circumstances and more particularly the uncertainty related to The US tariffs, we are pleased with the results
of our current fiscal year, ended 04/30/2025. It is important to remember that the same quarter that ended a year ago on 04/30/2024 was our best quarter of the previous fiscal year in terms of revenue and gross margins. Revenues during the three month period ended 04/30/2025 totaled $55,500,000 compared to $107,400,000 for the same period ended a year ago. The variation in revenues is mainly due to the uncertainty related to US tariffs. Although the corporation’s order backlog is more than adequate, exceeding $300,000,000 as of 04/30/2025, the uncertainty surrounding the implementation and functioning of these tariffs has caused a non recoverable delay in fabrication hours, mainly at the Ada Stepan plant in Quebec.
The gross margin at $12,200,000 decreased by $19,100,000 during the three month period ended 04/30/2025 compared with the same period of the previous fiscal year. Gross margin as a percentage of revenues went from 29.2% during the three month period ended 04/30/2024 to 22% during the same period ended 04/30/2025. The decrease in margins is in line with the revenue decrease and is also explained by the impact of US tariffs. The revenue decrease forced ADF to put contingency measures in place including implementing a work sharing program at its Stellbond plant. This program has allowed the corporation to mitigate the negative impacts of the decline in fabrication hours as previously explained, but not entirely.
Tariffs also had an indirect negative impact on the corporation margins caused by an increase in the price of steel set by US steel mills. For the three month period ended 04/30/2025, selling and administrative expenses amounted to $3,400,000 posting a $6,300,000 decrease compared with the same period ended 04/30/2024. This variation is mostly explained by the adjustment in the market value of deferred share units or DSU and in performance share units or PSU in line with the corporation share price during the analyzed period. We therefore closed our first quarter with net income of $8,700,000 or 30¢ per share compared to $15,300,000 or 47¢ per share for the same quarter a year ago. Besides the elements previously mentioned, the net income year over year variance was also impacted by lower net financial expenses which benefited from interest revenues coming from our outstanding cash balances and by a $2,900,000 foreign exchange gain mostly coming from the impact of the strengthening of the Canadian currency versus its US counterpart on our FX contract mark to market valuation.
Our balance sheet remains strong and actually even stronger. We closed our first quarter ended last April 30 with cash and cash equivalent of $75,300,000 $15,300,000 higher than our 01/31/2025 ending balance. Working capital stood at 108,600,000 for a 2.45 to one ratio. CapEx for the first quarter ended last April 30 totaled $1,600,000 including the redesign of our integrated ERP software package, which will take place over the next three fiscal years. We expect full year CapEx to be under $8,000,000 During the quarter ended 04/30/2025, we repurchased for cancellation an additional 699,000 subordinate voting shares for a total cash outflow of $5,100,000 including the associated fees.
Additionally, after the end of the quarter, we repurchased for cancellation the remaining 350,000 subordinate voting shares for $2,500,000 thus ending our NCIB program. In total, the 1,800,000.0 available shares from our NCIB program were repurchased at an average price of $7.97 per share, representing a total cash outflow of $14,100,000 Finally, we closed the quarter with a backlog of $330,400,000 The announcements of US tariffs and Canada’s counter tariff on steel among others kept the business community on the edge of their seat for several weeks before coming into effect in Canada during the corporation’s first quarter ended 04/30/2025. This new economic climate has created an immediate level of uncertainty for many of our US clients. Faced with the unknown impact of these tariffs on their projects, some clients have reacted either by delaying their decision to award contracts or by changing their choice of partners to turn to U. S.
Companies that are not subject to these tariffs. While the rules and exemption that govern these tariffs on both sides of the border have since been clarified, they however continue to raise concern for some US customers. The situation resulted in a loss of certain business opportunities for the corporation in the first quarter ended 04/30/2025 resulting from the imposition of such tariffs. This said, the markets and business sectors served by ADF remain buoyant and offer interesting business opportunities in the coming quarters. We continue to consolidate our presence with our current and potential customer across our market where ADF has built a strong reputation in highly complex projects, continue its marketing efforts, and is still very active in promoting the capabilities and quality of our two fabrication complexes that we operate in Canada and in The United States.
Notwithstanding, we were able to generate cash all the while continuing continuing and completing our NCIB program. As I said previously, we closed our first quarter with an order backlog exceeding $200,000,000 allowing us to expect an increase in revenues and profitability for half of our fiscal year ending 01/31/2026. Therefore, we will continue our proven approach of growing our order backlog, always ensuring that we limit the risks while maintaining the operational excellence that sets us apart from the competition and that allows us to generate long term growth for shareholders. Thank you for your interest and confidence in ADF. Jaia and I will now answer your questions.
Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2.
If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your question. Your question comes from Nicholas Cartulucci with Atrium Research. Your line is now open.
Jean Francois Boussier, Executive (likely), ADF Group Inc.: Hey, JF. Hey, John. How’s it going? Good, John.
Nicholas Cartulucci, Analyst, Atrium Research: Doing well. A couple of questions here. So firstly, I know you guys mentioned in the press release to expect growth in the second half of this year. I just wanted to clarify if that was meant to imply year over year growth, getting you guys back to that $80,000,000 plus level, or would that be growth over the quarter reported today?
Jean Francois Boussier, Executive (likely), ADF Group Inc.: Well,
Wudjon Peskini, Chairman of the Board and CEO, ADF Group Inc.: knowing what we know today, based on what we know today, we expect our revenues and well, definitely our revenues to be back to levels that we had seen last year. So, the $80.85 are definitely in the cards, but again, this is based on what we know today with the rules as they are laid out today.
Nicholas Cartulucci, Analyst, Atrium Research: Okay, got it. That makes sense. Things are changing pretty fast. So, okay. And then just with your guys’ contract discussions now that you’re going to clients with the exemptions, how are those conversations going?
Are you
Jean Francois Boussier, Executive (likely), ADF Group Inc.: seeing more
Nicholas Cartulucci, Analyst, Atrium Research: receptiveness? Generally, should we see new contracts over the next couple of months?
Jean Francois Boussier, Executive (likely), ADF Group Inc.: You’re gonna see new contracts in the next couple of months. Is it gonna be US contracts? We don’t know yet. So right now, we have good conversation with our clients, but today there’s tariff, tomorrow is there gonna be something else? So, it’s tough with the clients right now because the president’s changing his mind almost every day.
So, a client who’s gonna give us some work, well, he doesn’t wanna get stuck with the tariff or whatever it’s gonna be in three months. So it’s tougher to get work in our shop here in Terbonne, but to get work in our shop in Montana, then there’s no problem at all.
Nicholas Cartulucci, Analyst, Atrium Research: Yeah. Okay. Got it. And are you seeing any momentum with Canadian clients? I know this quarter was Yeah.
Was almost entirely US going forward.
Jean Francois Boussier, Executive (likely), ADF Group Inc.: No. I see a lot of momentum right now with Canadian clients. So and we have good things going going the right way. So I see I see a big potential.
Nicholas Cartulucci, Analyst, Atrium Research: Okay, got it.
Jean Francois Boussier, Executive (likely), ADF Group Inc.: Okay, and then
Nicholas Cartulucci, Analyst, Atrium Research: just on the NCIB with it completed now, you guys have a very large cash balance. What are you thinking in terms of capital allocation? Do you wanna pay down some debt or are there any CapEx projects that you have on your radar?
Jean Francois Boussier, Executive (likely), ADF Group Inc.: We’re looking at right now at some CapEx projects. We’re looking at different scenarios right now. But yes, we have a lot of cash, but we’re gonna use some cash to do some projects in our shop.
Nicholas Cartulucci, Analyst, Atrium Research: Perfect. Okay. Yeah. Those are the only questions I have. Looking forward to the next couple of quarters from you guys.
So, thanks for the time.
Jean Francois Boussier, Executive (likely), ADF Group Inc.: Thank you.
Conference Operator: I will now turn the call over to Jean Francois for closing remarks.
Wudjon Peskini, Chairman of the Board and CEO, ADF Group Inc.: Thank you. Again, we wish to thank you for your interest in ADI Group, and remind you that we will hold our fiscal twenty twenty five shareholders meeting in just a few minutes at eleven at the Imperial Hotel in Suites in Turbine, Quebec. Thank you.
Conference Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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