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

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's First Quarter Fiscal Year 2025 Results 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 in both risk factors and non-IFRS measures. This call is being recorded today on Thursday, November 14, 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, Constantin, and good morning, ladies and gentlemen. With me on the call 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 questions. We generate our strongest quarterly net earnings in 4 years in the fiscal first quarter. And margin improved compared to Q1 last year as operating earnings increased in both our Canadian and international operations. In Canada, our drilling activity increased year-over-year and the proportion of higher margin specialized drilling activity was also higher. Our performance in Canada in Q1 last year was impacted by temporary project suspension due to the forest fire in Quebec as well as customer decisions to temporarily suspend or reduce activity on certain other projects. We have no comparable disruption in Q1 this year. In our international operations, we benefit from increased drilling activity in Chile and Guyana in Q1 this year, and the cessation of our operations in West Africa which were largely unprofitable for us. Our total revenue in the quarter was $48.4 million, an increase of 9.3% compared to Q1 last year. Adjusted gross margin increased to 19.7% from 15.2% last year. Net earnings were $3.2 million or $0.08 per share, the most we have generated in any quarter since Q1 of fiscal 2021 -- this compared to a net loss of $0.4 million or $0.01 per share in Q1 last year. Customer demand from our senior and well-financed intermediate mining customers remain strong supported by high gold and copper price, we continue to focus on service these customers. Demand from junior mining companies is still constrained due to low levels of financing. Our financial performance has been significantly stronger since we complete our exit from West Africa in Q2 of fiscal 2024. However, we do not believe our performance is fully reflected in our share price. Accordingly, we announced a normal course issuer bid last month. It enabled us to buy back and [ cancel ] approximately 5% of our outstanding common shares over a 12-month period. This is an additional tool we can use to build value for our shareholders. I will now turn the call over to Daniel to review our results for the first quarter. Daniel?

Thank you, Pierre, and good morning, everyone. Canada revenue was $35.4 million in the quarter, an increase of $7.4 million from Q1 last year. As Pierre noted, drilling activity in Canada increased year-over-year, including a higher proportion of specialized drilling activity. International revenue totaled $13 million in the quarter, an increase of 14.8% compared to Q1 a year ago reflecting increased drilling activity in Chile and Guyana, partially offset by the absence of activity in West Africa. Gross profit increased to $7.4 million for the quarter or 15.2% of revenue compared to $4.1 million or 9.4% of revenue in Q1 last year. As Pierre noted earlier, our adjusted gross margin, excluding depreciation expenses was 19.7% in the quarter compared to 15.2% in Q1 2024. The increase in gross profit, gross margin and adjusted gross margin reflects increased drilling activity in Canada, Chile and Guyana during the quarter, including a higher proportion of specialized drilling in Canada and the cessation of our drilling activities in West Africa. Consolidated earnings from operations for the quarter were $4.4 million compared to $1.2 million in Q1 last year. Drilling Canada's operation earnings totaled $2.3 million compared to $1.4 million in Q1 a year ago and our international operating earnings totaled $2.1 million compared to an operating loss of $0.2 million a year ago. Adjusted EBITDA increased to $6.5 million compared to $3 million in Q1 last year. The increase is in our adjusted EBITDA and net earnings were primarily attributable to the stronger operating earnings in both our Canadian and international drilling operations. Now turning to our balance sheet. We repaid a net amount of $0.5 million on our credit facility in the quarter compared to a withdrawal of $2.7 million in Q1 last year. Our long-term debt under the credit facility, including USD 3 million draw from our revolving facility and the current portion was $21 million at quarter end compared to $21.5 million as at June 30, 2024, our fiscal 2024 year-end. Our working capital totaled $50.4 million at September 30 compared to $48.6 million at the end of fiscal 2024. I will now turn the call back to Pierre for closing comments. Pierre?

Thanks, Daniel. When we complete our exit from West Africa in Q2 of fiscal 2024, we said that decision would have a positive impact on our future margins. I am pleased to note that we have reported significant year-over-year growth in profitability in each of the 3 quarters since then. This demonstrates that our operational performance is improving and that our decision to focus primarily on our operations in Canada and Chile is the correct one. That was a key element of the strategic Five-Point Plan for Orbit Garant that we first introduced in May 2023, it was designed to improve our operating performance over the following 15 months and consists of primarily focusing on our Canadian gold drilling operation prioritizing longer-term specialized drilling contract with major and intermediate customers. Opportunities call pursuing international contracts in stable markets that offer attractive returns while gradually reducing exposure to Burkina Faso. Continued investment in driller training and computerized drilling technology and building a team-oriented leadership structure that fosters collaboration and personal accountability. We made significant progress in each of these areas and the results are reflected in our strengthened financial performance. Our efforts are being supported by strong metal prices, gold price trade at record highs above USD 2,700 per ounce in recent weeks and copper price have also continued to trade well above USD 4 per pound. So we expect that customer demand from senior and well-financed intermediate mining companies will remain strong. Junior mining continued to face difficult financing condition, which has limited their exploration spending. We cannot predict when junior mining financing will recover. But once it does, demand for our services should further strengthen. That concludes our formal remarks this morning. We will now welcome any questions. Operator, please begin the question period.

[Operator Instructions] Your first question comes from the line of [ Terry Balama ] Private Investor.

Congratulations on the good quarter. I would like to know for the trailing 12 months, what was the adjusted EBITDA? And what was the adjusted net income. I have here, it's $18 million area for the trailing 12-month adjusted EBITDA and roughly $6 million net income for the trailing 12 months. Is that about correct?

The adjusted EBITDA for the last year, fiscal 12 months is $6.3 million. And this quarter, we do $6.4 million. So that means it will be $9.5 million on the last 4 quarters. So it should be around $9.5 million adjusted EBITDA. So we do adjusted of $6.4 million this quarter and for the last year, it's $6.3 million. So technically, I just have to reduce by $3 million for the EBITDA of Q1 2024. And I had $6.5 million for Q1 2025. So it should reach $9.3 million, $9.4 million for the 12 last months.

Okay. There are some special items in there, correct, that I think I added. So I came up with around $18 million. So I'll have to look at that later. The other question I had was on the seasonality. What is the highest and lowest seasonality for Canada and for South America?

The seasonality in Canada, for us, it's Q1. So July to September, it's a good quarter. And the last one, Q4, which is April, May and June, it's good because in Canada, we are in fact, as you know, in the winter. So in Q2 and Q3, in Canada is more difficult because we have winter and also we have the holiday season in Canada. Most of our revenue came from Canada, our operation in Chile, as you know, Chile have winter and summer. So for example, in August this year and in September this year, they have a lot of snow in the Mountain in Chile. So it's harder for the -- let's say, Q1 for the Chilean operation is lower than the other -- three other quarters.

Okay. Last question. In the last 6 months, the company has done around $12 million to $13 million adjusted EBITDA in the last 6 months. Is it realistic to do about $20 million to $25 million adjusted EBITDA for the 12 months that would be ending in June of 2025.

We don't provide the guidance on total EBITDA in the future. But you're right, when you said we have adjusted EBITDA in the last 6 -- you see in Q4 last year, we do $6.3 million adjusted EBITDA. And this quarter in Q1 2025, we have $6.5 million adjusted EBITDA. So in the last months, we do roughly $13 million of EBITDA, but we hope that will be stable.

Congratulations again on the turnaround.

[Operator Instructions] Your next question comes from the line of David Stelpstra from BMO.

Congratulations gentlemen. Great quarter. So my question is regarding the revenues and profitability on the international operations relative to Canada, you have significantly more revenue in Canada and yet the profitability between the 2, international versus Canada is almost equal. So I'm just wondering, is that a reflection on the type of drilling and the margins charged or is it old contracts that maybe are going to be renewed that the pricing gets better in Canada?

Thank you for the question. In Canada, we almost have 75%, 74% of revenue coming from Canadian operations. The Canadian operation is very segmented. That means there are a lot of small drilling companies with fuel drills. This creates a lot of competition and negative pressure on price in Canada on nonspecialized project. That's why we tend to be more focused on specialized contract. So the margins are better for these contracts. In Chile, let's say, international, it's principally Chile, actually. So there, we have a large contract with a large customer in the copper industry, which the pressure on price is less than we have here in Canada. And since January 2024, we see more drilling activity in Guyana, which is a small country and the north of South America, but we are there since more than 20 years. So we saw a bit of drilling contract and the margins are quite good on this contract in Guyana. So that's why actually the -- with only, let's say, 25% of our revenue, the international do quite well.

There are no further questions at this time. I would like to turn the call over to Pierre Alexandre for closing remarks. Sir, please go ahead.

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

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.