What you need to know: • ADF reported stellar Q3 financials that largely beat our estimates. Once again, the robotic fabrication line led the major improvements. • Revenue came in at $82.1M (+26% YoY) vs. our estimate of $73.0M and EBITDA came in at $17.8M (+146% YoY) vs. our estimate of $7.7M. • ADF continues to only trade at 3.6x FY24E EBITDA and 1.1x BV. This morning, ADF Group (DRX:TSX, ADFJF:OTC) reported Q3/24 financial results that largely beat our estimates across the board. The beat was driven by further margin improvements from its robotic fabrication line. We remain highly convicted in the investment thesis laid out in our initiation report from October (read here) as ADF progresses through this infrastructure spending cycle and takes advantage of its new automated fabrication line. We are maintaining our BUY rating and increasing our target to $9.00/share (previously $8.00/share) on ADF. Key Highlights • Revenue for Q3 came in at $82.1M compared to our estimate of $73.0M and $65.0M last year. This represents 26% YoY growth and 2% QoQ growth. The significant growth was driven by the execution of projects in the backlog. Fabrication hours represented 42% of revenue and 42% of the backlog, up from 21% of the backlog last year. • The order backlog came in at $339.3M (vs. $373.7M last quarter), extending until January 2025. • Gross margin for the quarter came in at 24% vs. our estimate of 19% and 15% in Q3 last year. Management attributed the improvement to its robotic production line as well as higher margins on new projects. • Adj. EBITDA came in at $17.8M (22% EBITDA margin, +146% YoY, +41% QoQ) compared to our estimate of $7.7M (11% margin). This compares to the low/mid-single-digit margins posted over the last few years. • EPS came in at $0.34 ($11.2M net income, +285% YoY) compared to our estimate of $0.13/share ($4.3M). This brought annualized ROE to 29% and annualized ROIC to 31%. • ADF posted $3.2M in capex, translating to ($7.4M) in FCF in Q3, which was negative largely due to an increase in A/R and contract assets. • The Company ended the quarter with $44.0M in cash and $49.6M in debt.