ADF Group (TSE:DRX) reported a sharp increase in first-quarter revenue and profit, with management citing newly signed contracts moving into fabrication, the contribution from Groupe LAR Inc. and improved fixed-cost absorption despite continued pressure from tariffs and steel costs.
Speaking on the company’s conference call for the three-month period ended April 30, 2026, Chief Financial Officer Jean-François Boursier said ADF’s fiscal year was “off to an excellent start,” even as the company continues to manage “numerous and never-ending tariff changes.”
Revenue rises nearly 79%
Gross margin nearly doubled to CAD 24.0 million, while gross margin as a percentage of revenue improved to 24.2% from 22.0% a year earlier. Boursier attributed the margin improvement to higher revenue, which helped absorb fixed costs, even though input prices, including steel and tariff-related costs, remained elevated.
The quarter included the results of Groupe LAR, which ADF acquired in September 2025. Boursier said Groupe LAR contributed CAD 18.1 million in revenue and CAD 1.3 million in gross margin during the quarter.
Net income rose to CAD 12.0 million, or CAD 0.42 per share, compared with CAD 8.7 million, or CAD 0.30 per share, in the prior-year period.
SG&A increases on share-based compensation and acquisition impact
Selling and administrative expenses were CAD 7.6 million, up CAD 4.2 million from the same period last year. Boursier said the increase was mainly tied to changes in the market value of Deferred Share Units and Performance Share Units granted to external board members and certain senior managers, reflecting movements in ADF’s share price.
The Groupe LAR acquisition also added CAD 1.1 million to selling and administrative expenses in the quarter.
During the question-and-answer session, Boursier said the company expects selling and administrative expenses to remain relatively stable, excluding fluctuations tied to share-based compensation. He said ADF can grow revenue without significantly increasing SG&A, aside from salary inflation and market-driven movements in share-based awards.
Record backlog and capital investment plans
ADF ended the quarter with cash and cash equivalents of CAD 62.1 million, down CAD 0.6 million from Jan. 31, 2026. Working capital stood at CAD 111.9 million, representing a 2.2-to-1 ratio.
The company also reported a record backlog of CAD 645.8 million. Boursier said CAD 266.5 million of the backlog was tied to the Groupe LAR operations and included a multi-year hydroelectric contract in Quebec announced in April. He added that 72% of the April 30 backlog consisted of Canadian projects.
Capital spending in the first quarter totaled CAD 9.0 million. Projects included modifications to an existing fabrication bay in Terrebonne, the start of expansion capital expenditures in Métabetchouan for Groupe LAR, and the redesign of ADF’s integrated ERP software package. Boursier said the company expects full-year capital expenditures of about CAD 35 million.
On financing, Boursier said ADF reached an agreement with the federal government for a CAD 12.5 million loan. Subject to certain conditions, the loan would be 50% forgivable and 50% interest-free. He said the company expects to confirm its full financing package before the end of the second quarter, which ends July 31.
Groupe LAR expansion expected to double capacity
In response to an analyst question, Boursier said construction on the Groupe LAR expansion had begun and that the company expects the building to be closed before winter, around November or December. The setup is expected to be completed during the winter, with the plant up and running around April or May.
Management said ADF expects to begin seeing benefits from additional volume and improved efficiency starting in the second quarter of the next fiscal year. Boursier said Groupe LAR had previously been able to generate about CAD 100 million in volume, depending on product mix, and that the expansion is expected to double capacity.
Boursier also said ADF is still working on Groupe LAR integration, with some synergy benefits expected in the second half of the year. He said the larger “step change” is expected next year, when the expansion and new equipment begin contributing.
Tariffs remain a concern, but demand is strong
Boursier said U.S. tariff policy remains “a significant irritant” and will continue to put direct and indirect pressure on ADF’s cost structure. However, he said the company’s proactive approach has allowed it to continue growing while managing risks tied to uncertainty.
During the question-and-answer session, Boursier and Chief Operating Officer Pierre Paschini discussed opportunities in data centers, nuclear-related work and larger U.S. projects. Management said the company has added estimating capacity in order to pursue more work at acceptable pricing.
The executives said ADF’s Great Falls plant helps the company compete for U.S. projects because Buy American requirements and tariff issues are less problematic there. They also said there are opportunities in Quebec and Ontario, including nuclear-related work, and that overall market demand remains strong.
On capacity, Boursier said Great Falls is becoming “pretty full” for the current year and already has volume for next year. Terrebonne also has work coming from U.S. projects and is helping support volume that would otherwise have gone through Groupe LAR before its expansion is completed. He said ADF still has available capacity and continues to monitor whether additional capacity may eventually be needed at Great Falls.
About ADF Group (TSE:DRX)
ADF Group Inc is a North American leader in the design and engineering of connections, fabrication, including the application of industrial coatings, and installation of complex steel structures, heavy steel built-ups, as well as in miscellaneous and architectural metals for the non-residential infrastructure sector. ADF Group Inc is one of the few players in the industry capable of handling highly technically complex mega projects on fast-track schedules in the commercial, institutional, industrial and public sectors.
