ADF Group Inc (ADFJF) (Q2 2027) Earnings Call Highlights: Record $693. ...

Negative Points

• Gross margin for the quarter declined to 18.7% from 20.7% in the prior-year quarter due to higher input costs, including steel prices and tariffs.

• Net earnings were negatively impacted by $4.3 million ($0.15 per share) in the quarter and $5.6 million ($0.20 per share) year-to-date from deferred share units, performance share units, and restricted share units due to the rise in ADF Group Inc's stock price.

• Foreign exchange losses reduced net earnings by $1.8 million ($0.06 per share) in the quarter and $1.4 million ($0.05 per share) year-to-date.

• US tariffs, including a 10% tariff on Canadian fabrication for US projects, continue to increase costs and create uncertainty, negatively affecting margins.

• The integration of the Gopla backlog, which carries lower margins than ADF Group Inc's historical levels, will continue to pressure margins in the coming quarters.

Q & A Highlights

Q: Can you confirm the percentage of the order backlog that is Canadian-based, and how does it compare to prior periods? A: CFO Jean-Francois Boursier confirmed that 64% of the consolidated order backlog is for Canadian-based projects, down from 72% at the end of Q1 due to recent US project announcements. He noted that while a 50-50 split would be good, 64% Canadian content is a strong position compared to the 5% Canadian content back in April 2025, especially considering the current trade environment.

Q: With the moving pieces in Q2, what is the normalized gross margin going forward, and how might it change into next year? A: CFO Jean-Francois Boursier stated that Q2 should not be viewed as a good indication due to many moving pieces. The year-to-date gross margin of 21.5% is a pretty good indication of what's coming, though it includes the downward impact of the Gopla legacy backlog, which will persist through Q3 and Q4. He expects margins to creep up as the legacy backlog is worked through, factoring in the approximately 10% tariff paid on Canadian fabrication for US projects since April 2026. The latest tariff changes are not expected to alter that 10% impact based on current information.

Q: What is the update on CapEx plans, particularly the Gopla facility expansion and the Great Falls facility? A: CFO Jean-Francois Boursier reported that the Gopla facility expansion is on time and on budget, with the structure already going up and equipment ordered. The project is actually tracking slightly better than budget. Additionally, work has started on an expansion and equipment upgrade at the Great Falls, Montana facility, which will add capacity and improve efficiency. The company now expects full-year CapEx to total just over $40 million.

Q: What are you seeing in the SG&A line regarding inflationary increases, salaries, and labor, excluding the impact of DSUs and RSUs? A: CFO Jean-Francois Boursier explained that core SG&A, excluding share unit variations, should remain fairly stable. The year-over-year increase is partly due to the consolidation of Gopla, which was not in last year's results. He noted that the company does not need to drastically increase SG&A to support revenue growth and increased backlog. Salary increases are expected to be around 3% for the coming year, and beyond that, the SG&A base should be pretty stable.

Q: What was the impact of the claim settlement on Q2 revenues and gross margin? A: CFO Jean-Francois Boursier reported that the final settlement of a claim against a customer of Gopla had a cumulative positive impact of $20.2 million on revenues and $5.3 million on gross margin for the quarter and six-month periods ended July 31, 2026. The settlement also generated a $25 million cash inflow just before quarter end, positively impacting the ending cash balance.

Q: How did the DSUs, PSUs, and RSUs impact net earnings for the quarter and year-to-date? A: CFO Jean-Francois Boursier explained that the costs associated with deferred performance and restricted share units, mostly from the mark-to-market impact following the DRX stock price increase since January 31, 2026, had a negative impact on net earnings of $4.3 million ($0.15 per share) for the quarter and $5.6 million ($0.20 per share) for the six-month period. Additionally, foreign exchange loss had a negative impact of $1.8 million ($0.06 per share) for the quarter and $1.4 million ($0.05 per share) year-to-date.

Q: What is the current order backlog, and does it include the five-year extension option on the long-term contract announced in July 2025? A: CFO Jean-Francois Boursier reported a record high order backlog of $693.7 million as of July 31, 2026, which includes Gopla's order backlog of $243.3 million. He noted that this total does not include the five-year extension option on the long-term contract announced on July 23, 2025.

Q: What is the status of the CFO succession plan following your announced retirement? A: CFO Jean-Francois Boursier confirmed that the process to find a new CFO is going well and an announcement is expected soon. He will retire on December 31, 2026, after more than 16 years of service, but will remain as CFO until that date and then serve as a strategic advisor starting January 1, 2027, until a date to be confirmed, to ensure a smooth transition.

Q: What is the company's cash position and operating cash flow for the period? A: CFO Jean-Francois Boursier reported that the company closed the second quarter with $91.4 million in cash and cash equivalents, up $28.7 million compared with the January 31, 2026 closing balance. Working capital stood at $109.5 million as of July 31, 2026. Year-to-date operating cash flow reached $47.1 million for the six-month period ended July 31, 2026, while $15.5 million was used to acquire property, plant, and equipment and intangible assets.

Q: What is the outlook for the impact of US tariffs and Canadian counter-tariffs on ADF's operations? A: CFO Jean-Francois Boursier confirmed that the new 50% US tariff announced a few weeks ago is not impacting ADF's products, and the company will be getting relief from the impact of Canadian counter-tariffs that became effective earlier in the week. Additionally, based on information available, ADF will not be directly impacted by any of the proclamations signed by the US President on Tuesday night. However, he noted that the latest changes, while having limited direct impact, are definitely increasing uncertainty.

Q: What were the revenue and net income figures for the quarter and year-to-date? A: CFO Jean-Francois Boursier reported Q2 revenues of $95 million, up $42 million from last year, and year-to-date revenues of $194.3 million, up 79% from $108.5 million for the same period last

For the complete transcript of the earnings call, please refer to the full earnings call transcript .