DRX: Soft Q2 Financials; Excellent Backlog Growth
What you need to know:• ADF reported Q2 financials that missed our expectations on the back of uncertainty from U.S. tariffs, similar to Q1.
• Revenue came in at $53.0M (-29% YoY) vs. our estimate of $58.2M and EBITDA came in at $3.7M vs. our estimate of $10.0M.
• ADF remains well-positioned for H2 given that its backlog was $468.0M, (+60% since Q4), all of its employees have returned on a full-time basis, and its acquisition of LAR Group will provide further growth.
This morning, ADF Group (DRX:TSX) reported Q2/26 financial results (ending July 31st), which missed our expectations due to continued uncertainty related to U.S. tariffs. However, there were various silver linings in the release, including the backlog reaching $468M (+60% since Q4), the end of its work-sharing program, and the acquisition of LAR. While H1 was disappointing for ADF, we remain bullish on H2 and beyond, given the growing trends in infrastructure spending and the opportunity for revenue diversification via LAR. We are maintaining our BUY rating and our $12.00/share target price on ADF Group.
Key Highlights
• Revenue for Q2 came in at $53.0M vs. our estimate of $58.2M, representing a 29% YoY decline. ADF attributed the decline to uncertainty led by U.S. tariffs, rather than the direct costs of the tariffs themselves, as ADF’s products are exempt. ADF’s workforce was operating at 30% through most of the quarter; however, the work-sharing program at the Terrebonne plant ended near quarter-end, with all employees returning to a full-time basis.
• The order backlog came in at $468.0M (+60% since Q4, +42% QoQ), extending through January 2027. This number does not include the extension option on the new five-year contract nor the LAR backlog. 56% of the backlog was fabrication hours compared to 30% at fiscal year-end.
• Gross margin for Q2 was 21% vs. our estimate of 22% and 37% in Q2 last year. The lower margins were due to the uncertainty from tariffs and higher steel prices.
• EBITDA came in at $3.7M (7% EBITDA margin) compared to our estimate of $10.0M (17% margin) and $10.4M in Q1/25.
• EPS in Q2 of $0.03/share (or $0.9M in net income) compared to our estimate of $0.21/share (or $6.2M in net income).
• ADF spent $0.5M on capex in Q2, compared to $1.0M in Q1 and $4.5M in Q2/25. This resulted in ($19M) in FCFF as A/R increased by $27.6M.
• ADF ended the quarter with 28.1M shares outstanding, declining 4% since Q4.
• The Company ended the quarter with $50.9M in cash and $43.5M 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.
Atrium Research provides institutional quality issuer paid research on North American public equities using deep fundamental analysis. Our research reports are disseminated through Bloomberg, FactSet, Capital IQ, Reuters and many more, as well as through our social media and email distribution lists.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.