DRX: In Line Q1 Financials; Tariff Impact Less than Expected
What you need to know:• ADF reported Q1 financials that were in line with our expectations, reflecting a large decline due to the disruption caused by the tariffs.
• Revenue came in at $55.5M (-48% YoY) vs. our estimate of $58.5M and EBITDA came in at $10.4M (19% margin) vs. our estimate of $8.9M.
• Management highlighted that its products are exempt from tariffs as its steel is purchased from U.S. mills, and as such, financials will improve in H2.
• ADF ended the quarter with $75.3M in cash and $44.5M in debt.
ADF Group (DRX:TSX) reported Q1/26 financial results this morning, which were in line with our expectations, slightly missing on revenue and slightly beating on EBITDA. Due to new information and clarity on the tariff situation, management informed investors that ADF is exempt from the tariffs when steel is purchased from U.S. mills, and as such, expects improved performance in H2. Q1 was impacted by the disruption caused by the tariffs, rather than the tariffs themselves, thus, ADF will be in a much better position when negotiating and signing future contracts. We are maintaining our BUY rating and increasing our target price to $10.00/share (previously $9.00/share) on ADF Group.
Key Highlights
• Revenue for Q1 came in at $55.5M vs. our estimate of $58.5M and $107.4M last year (its best quarter ever), representing a 48% YoY decline. Management attributed the decline to uncertainty related to the U.S. tariffs.
• The order backlog came in at $340.4M (vs. $293.1M in Q4), extending through January 2027. 50% of the order backlog was fabrication hours.
• Gross margin for Q1 was 22% vs. our estimate of 21% and 29% in Q1 last year. This still remains above levels reported in FY21-FY24.
• Q1 EBITDA came in at $10.4M (19% EBITDA margin, -55% YoY) compared to our estimate of $8.9M (15% margin) and $23.1M in Q1/25.
• EPS in Q1 of $0.30/share (or $8.7M in net income) compared to our estimate of $0.17/share (or $5.4M in net income). This results in an annualized ROE of 21% and ROIC of 17%.
• ADF posted $1.0M in capex in Q1, translating to $24.3M in FCFF in the quarter.
• ADF purchased 699K shares during the quarter and 350K shares subsequent to the quarter, reaching its authorized limit on the NCIB. ADF has repurchased 1.8M shares on the NCIB, equating to 10% of its public float.
• The Company ended the quarter with $75.3M in cash and $44.5M in debt.
ADF Group is engaged in the design and engineering of connections, fabrication and installation of complex steel superstructures, heavy steel built-ups, as well as architectural and miscellaneous metalwork for the five principal segments of the non-residential construction market namely, office towers and high-rises, commercial and recreational buildings, airport facilities, industrial complexes and nuclear facilities, and transport infrastructures.
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