Orbit Garant Drilling Inc. (OGD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2024 Fourth Quarter and Year-End Conference Call. [Operator Instructions] Please be aware that certain information discussed today may be forward-looking and that actual results could differ materially. Certain non-IFRS financial measures will also be discussed. Please refer to the company's SEDAR filings for additional information on both risk factors and non-IFRS measures. This call is being recorded on Friday, September 20, 2024. I would now like to turn the conference over to Mr. Pierre Alexandre, President and CEO of Orbit Garant. Please go ahead, sir.

Thank you, Ludy, and good morning, ladies and gentlemen. With me on the call today is Daniel Maheu, CFO. Following my opening remarks, Daniel will review our financial results in greater detail, and I will conclude with comments on our outlook. We will then welcome the questions. Our profitability in the fourth quarter improved compared to Q4 last year, with our adjusted gross margin exceeding 20% for the first time since the second quarter of 2021 fiscal year. Our improved profitability in Q4 this year reflects a number of factors. In Q4 last year, we experienced decline in drilling activity in Canada due to forest fire as we had to suspend our drilling activities on all our surface and underground drilling projects in Quebec as well as one surface project in Ontario for various periods beginning on May 29 and continuing into July. This resulted in a revenue reduction of approximately $3 million in the quarter. In addition, certain customers decided to temporarily suspend or reduce drilling activity on other projects in that quarter. These decisions were company-specific and had nothing to do with our performance. However, they impact our performance for the quarter and into the first half of fiscal 2024. Our fourth quarter results last year were also impacted by a onetime noncash restructuring charge of $4.2 million related to our decision to wind down our drilling activity in Burkina Faso and exit the country. In Q4 this year, we experienced a decline in demand for junior exploration companies compared to Q4 last year, but demand for our senior and well-financed intermediate mining companies remain strong. Our stronger operating performance primarily reflect increased drilling activity in Chile and our cessation of drilling operations in West Africa. During Q4 of this year, we entered into an agreement to sell our inventory in West Africa for an amount of $1.2 million and our property, plant and equipment in West Africa for an amount of $6.3 million, and record a short-term receivable as compensation for an amount of $7.5 million. At year end, we record a derecognition of short-term receivables and a recognition of a new long-term receivable of $3.9 million, following a significant change in contractual payment terms of the receivable. The effect of the substantial modification of the receivable is a loss of $3.5 million included in the expenses of the Consolidated Statements of Loss. We also recognized an expected credit loss of this receivable for an amount of $1.7 million in the Consolidated Statement of Loss. Excluding this onetime event, our net income would have been $4 million or $0.11 per share for the quarter. We are quite pleased to have now fully completed our exit from West Africa, which was largely unprofitable for us. We are now able to heighten our focus on drilling contracts with senior and well-financed intermediate mining companies in Canada and Chile, 2 markets that have been more stable and predictable for us. We recently secured 2 large renewal in copper drilling project in Chile with senior mining companies. One of the contract renewal is for a term of 3 years, with a customer option to extend for 2 years. And then the other, which represents our largest contract in Chile by revenue is for a term of 5 years. Senior and intermediate producers are currently benefiting from record high gold prices and strong copper pricing, which provides a strong incentive to continue investing in mine development activity in both Canada and Chile. I will now turn the call over to Daniel to review our results for the third (sic) [ fourth ] quarter. Daniel?

Thank you, Pierre, and good morning, everyone. Revenue for our fiscal fourth quarter totaled $45.3 million, a small reduction of 3% compared to Q4 a year ago. Canada revenue was $32.8 million in the quarter, a slight increase from $32.6 million in Q4 last year. As Pierre previously note, Canada revenue was negatively affected by financing difficulties for junior and intermediate company during Q4 this year, resulting in a lower drilling activity than previous year, whereas revenue in Q4 last year was negatively impacted by project suspension due to forest fire. International revenue totaled $12.5 million in the quarter compared to $14.2 million in Q4 a year ago. The year-over-year decline reflects our decisions to cease drilling activity in West Africa, partially offset by increased drilling activity in Chile. Gross profit was $7.3 million for the quarter or 16.1% of revenue compared to $0.7 million or 1.4% in revenue in Q4 last year. The increase in gross profit and gross margin reflect the write-down of inventory from restructuring in Q4 last year, as Pierre discussed earlier, and improved profitability of our international operations, resulting from our increased drilling activity in Chile and cessation of drilling activity in West Africa. Depreciation expenses totaling $2.5 million are included in the cost of the contract of revenue for Q4 2024 compared to depreciation expenses of $2.6 million and $4.2 million write-down in Q4 a year ago. Adjusted gross margin, excluding depreciation expense, was 21.7% this past quarter compared to an adjusted gross margin, excluding depreciation expense and the write-down of inventory, of 15.9% in Q4 2023. The increase in adjusted gross margin primarily reflects the increased profitability of our international operations. General and administrative expenses in the quarter were $4 million or 8.9% of revenue compared to $5.1 million or 10.9% of revenue in Q4 last year. Adjusted EBITDA totaled $6.4 million compared to $1.8 million in Q4 last year. The increase primarily reflects growth in operating earnings from our international operations. Net loss for the quarter was $1.2 million or $0.04 per share compared to a net loss of $4.1 million or $0.11 per share in Q4 last year. Our net loss this past quarter was attributable to $5.2 million effect of the substantial modification of a receivable and expected credit loss, as discussed earlier. Turning now to our full year-end results for fiscal 2024. Revenue totaled $181.2 million, a decrease of 9.8% compared to fiscal 2023. The decline was primarily attributable to customer decision to temporarily suspend or reduce drilling activity on certain projects in Canada throughout the fiscal -- the first half of fiscal 2024. Our international drilling revenue was essentially in line with fiscal 2023. Our adjusted gross margin, excluding depreciation expenses, was 16.7% in fiscal 2024 compared to an adjusted gross margin, excluding depreciation expense and the write-down of inventory, of 16.2% in fiscal 2023. The increase primarily reflects the increased profitability of our international operations, partially offset by the decline in drilling activity on certain projects in Canada during the first half of the year. Adjusted EBITDA was $14.4 million for fiscal 2024, a decrease of $4.7 million compared to fiscal 2023. The decrease reflects the reduction of drilling activity in Canada due to project suspensions or reduction during the first half of fiscal 2024, and the cost related to retain key personnel on these projects and then ramping them back up. We also had a $3 million negative variation in foreign exchange. These negative factors were partially offset by the improved profitability of our international operations. Net loss for fiscal 2024 was $1.3 million or $0.04 per share compared to a net loss of $0.7 million or $0.02 per share last year. Again, our net loss reflects the $5.2 million negative effect of the substantial modification of a receivable and expected credit loss. Now turning to our balance sheet. We repaid a net amount of $0.7 million on our credit facility this fiscal year compared to a year ago. Our long-term debt under the credit facility, including USD 3 million drawn from our revolving facility, and the current portion was $21.5 million at fiscal year-end compared to $22.2 million as of June 30 a year ago. At year-end, our working capital totaled $48.9 million compared to $50.4 million at fiscal 2023 year. Now I turn the call back to Pierre for closing comments. Pierre?

Thanks, Daniel. In May of 2023, I outlined a strategic Five-Point Plan to improve our operating performance over the following 15 months, which consists of primarily focusing on our Canadian gold drilling operation; prioritizing longer-term specialized drilling contract with major and intermediate customers; opportunistically pursuing international contracts that present a high degree of cost and margin certainty while gradually reducing exposure to Burkina Faso; continued investment in drilling training and computerized drilling technology; and building a team-oriented leadership structure that fosters collaboration and personal accountability. Our goal was increase our gross margin. We are now coming up on the end of the 15-month period, and we have made a strong project -- progress, sorry, in executing the plan despite the current low level of gold drilling activity. For junior exploration companies in Canada, we have maintained strong contracts with senior and intermediate customer. Our drilling contracts with senior and intermediate mining companies represent 87% of our revenue in fiscal 2024. We have significantly grown our business activity in Chile, including 2 long-term drilling contracts this past quarter. We have exited the West African drilling market, which was unprofitable for us, and are now focused on operation in Canada and Chile. We continue to focus on our computerized monitoring and control technology and drilling innovation. We are starting to roll out computerized surface rigs, and recently launched a new hands-free rod handler, which enhance efficiency and safety. We have made solid progress on shifting our business culture towards a more team-oriented leadership structure that fosters collaboration and personal accountability. Our business is currently supported by a very strong metal price. Gold price reached record highs above $2,500 per ounce last month. Copper price have also increased significantly during this calendar year. Accordingly, we expect to see continued strong customer demand from senior mining company and well financed intermediate. If the juniors are able to accessing capital again, demand for our service will be extremely strong. That concludes our formal remarks this morning. We will now welcome any questions. Go ahead.

[Operator Instructions] And your first question comes from the line of Gordon Lawson with Paradigm Capital.

Congratulations on a great quarter. On the Chilean front, your growth there has significantly outperformed your peers. Is there anything specific you can attribute this to?

Would you please repeat the question, Gordon?

Your performance in Chile is significantly outperforming your peers. So I'm just wondering if there's any specific aspect you can attribute this to?

Let's say, Gordon, since January 2023. So in the last 6 quarters, Chilean operation made a recovery from the years before because we focused on large copper producer in Chile, which are the main producer in Chile. So we put 100% of our effort to serve these major client in Chile. And now since, January '23, we keep very good margin in Chile since. And as you know, we renew these -- most of our contract this year for the next 5 years. So we are very pleased with our operation in Chile.

Yes. Yes, sounds great. And on the liquidity front. Can you talk about your current total liquidity position and what your plans are in terms of loan repayments for fiscal '25?

Yes. In fiscal 2024, we focused on profitability and use the profitability to reduce our debt. Globally in 2024, if we compare at fiscal 2023, we reduced debt by more than $4 million. So we will still focus on profitable increased margin. As you see in Q4, margins are over 20%. This margin helped us to reduce our debt. And as you know, we have expense of capital to -- made for the new contract in Chile, which is important for us. We still invest in these computer drill because we have to build 3 new drill rigs for this contract. So that's our focus, increase the quality of our drill and reduce debt. And actually, the liquidity is going slowly but surely better.

[Operator Instructions] And we do have a question from [ Tim Chiang. ]

Congratulations for the great quarter. I have a question about the adjusted gross margin. This is the highest margin for a long time. I want to know that, should we expect this margin to stabilize at this level going forward? And then does the management have any target for the adjusted gross margin? And what will be the steps or plan to achieve that target?

Thank you for this question. As you know, the big thing, we made a great -- an important decision 15 months ago to evaluate the situation in West Africa, and we decided to sell equipment because we don't make good margin there. So since that, or as I just mentioned to Gordon a few minutes ago, in Chile, the business is better than ever. So the stabilization of the margin in Chile, and since January of 2024, we don't have any, let's say, negative cash flow coming from West Africa. So the contracts are really, actually since January, stable. In Chile, we have 3 and 5 years perspective with almost more than 50% of our contracts are renewed in Chile with this level of margin they have since January 2023. And here in Canada, our contracts are also with large and intermediate companies and they renew for a few years and it's stable. The only thing that could help us to increase significantly our margin could be a junior come back in the market maybe in calendar 2025, but we don't see anything actually of that because no new bids are on the table. A small bid are on the table, but we still have, unfortunately, a lot of drill available. So I will say, yes, our margin should stay like they are, actually. And the only thing it could increase is if we have in Canada more junior business, let's say, hopefully in 2024. And we think with the value of the gold actually over USD 2,600, that could be something happening, but we don't see anything right now.

And there are no further questions at this time. I would like to turn it back to Mr. Pierre Alexandre for closing remarks.

Thank you, everyone, for participating today. We look forward to speaking with you again after we report our fiscal fourth quarter results.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.