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

Good morning, ladies and gentlemen. And welcome to Orbit Garant Drilling's Fiscal 2025 Second Quarter 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 on both risk factors and non-IFRS measures. This call is being recorded on Thursday, February 13, 2025. I would now like to turn the conference call over to Mr. Daniel Maheu, President and CEO of Orbit Garant. Please go ahead, sir.

Thank you, Jenny, and good morning, ladies and gentlemen. With me on the call today, Pier-Luc Laplante, Chief Financial Officer. Following my opening remarks, Pier-Luc will review our financial results in greater detail, and I will conclude with comments on our outlook. We will then welcome questions. Our profitability improved significantly in the quarter compared to Q2 last year. We generated strong year-over-year growth in adjusted gross margin, adjusted EBITDA and net earnings, reflecting stronger operating earnings in both our Canadian and International Drilling segments. In Canada, our drilling activity increased compared to Q2 last year, and we benefit from improved operational performance. We had increased drilling activity in South America and also benefit from the cessation of our operation in West Africa in Q2 last year, which were largely unprofitable for us. Gold prices have reached record level this month above USD 2,900 per ounce and copper pricing also remains favorable, which we expect will continue to support strong demand from our senior and intermediate mining company customers. I will now turn the call over to Pier-Luc to review our financial results for the quarter in greater detail. Pier-Luc?

Thank you, Daniel, and good morning, everyone. Our revenue totaled $43.5 million in the quarter, a slight increase from $43.4 million in Q2 last year. Canada revenue was $30.8 million, an increase of 4.0% from Q2 last year. As Daniel noted, drilling activity in Canada increased year-over-year, and we benefited from improved operational performance. International revenue totaled $12.7 million compared to $13.8 million in Q2 a year ago. The decline reflects our exit from West Africa, partially offset by increased drilling activity in South America. Gross profit increased to $7.2 million for the quarter or 16.5% of revenue compared to $3.0 million or 6.8% of revenue in Q2 last year. Our adjusted gross margin, excluding depreciation expenses, was 21.5% in the quarter compared to 12.5% in Q2 last year. Our increases in gross profit, gross margin and adjusted gross margin reflect our increased drilling activity during the quarter, improved operational performance and our exit from West Africa last year. Consolidated earnings from operations for the quarter were $3.8 million compared to a loss of $0.5 million in Q2 last year. Drilling Canada's operating earnings totaled $1.2 million compared to an operating loss of $0.4 million in Q2 a year ago, and our international operating earnings totaled $2.6 million compared to an operating loss of $0.1 million a year ago. Adjusted EBITDA increased to $5.6 million, up from $1.0 million in Q2 last year. Net earnings were $1.5 million or $0.04 per share compared to a net loss of $1.7 million or $0.05 per share last year. The increases in our adjusted EBITDA and net earnings were primarily attributable to stronger operating earnings in both our Canadian and International drilling operations. Turning to our balance sheet. We repaid a net amount of $2.4 million on our credit facility in the second quarter compared to a repayment of $0.3 million in Q2 last year. Our long-term debt under the credit facility, including an undrawn USD 5.0 million revolving credit facility and the current portion was $18.6 million at quarter end compared to $21.5 million as at June 30, 2024, at fiscal 2024 year-end. On November 29, 2024, we entered into a loan agreement with EDC, which provides for a term loan in the principal amount of USD 2.0 million. The loan was used to fund the manufacture of 3 new computerized drill rigs for our Chilean operations. Our working capital totaled $49.2 million as of December 31 compared to $48.6 million at the end of fiscal 2024. I'll now turn the call back to Daniel for closing comments.

Thank you, Pier-Luc. I have been appointed CEO of Orbit Garant at an opportune time. We are enjoying a substantial period of positive momentum. Part of this momentum is due to the strong industry fundamentals, but a good part of it reflects change in our strategic direction. In May 2023, while Pierre Alexandre was CEO, he implemented a 5-point plan to improve our operating performance and competitive position over a period of 15 months. We made strong progress with this plan, and the result has been stronger financial performance. For 4 consecutive quarters now, our profitability has been significantly higher than the prior year, and we are committed to maintain our momentum. We will do so in large part by continuing to focus on key part of this 5-point plan, including primarily focused on our operation in Canada and South America, prioritizing long-term specialized drilling contract with senior and intermediate customers, continuing to invest in our driller training and computer drilling technology and fostering a more team-oriented leadership structure that encourages collaboration and personal accountability. On October 31, we filed a normal course issuer bid to enable us to repurchase and cancel nearly 1.9 million shares over a 12-month period. To date, we have purchased and canceled nearly 70,000 shares. We will continue to monitor our share price and take advantage of opportunity to repurchase share if and when we believe it is an appropriate use of our capital. Our business outlook continues to be positive. Given the current record high gold price and strong copper price, we expect customer demand for our senior and intermediate mining customers will be strong throughout 2025 calendar year. We generate approximately 2/3 of our revenue from gold-related drilling, so we are well positioned to benefit from current industry dynamics. And a healthy copper market is positive also for our Chilean operation. Demand for junior mining company continues to be restricted due to the challenged financing condition, but we have well-established relationship with juniors and the available capacity to service them as demand recovers. 2025 marked the 40th year of operation for Orbit Garant. We look forward to celebrate this important milestone throughout the year. As a long-term established leading mineral drilling company, we have a strong foundation of core strength to build on, including combined surface and underground drilling expertise and advanced specialized drilling capability. Our focus on continuous innovation, our vertically integrated manufacturing operation, strong health and safety and driller training program and long-standing customer relationship with leading mining companies operating in Canada and South America. Looking ahead, we will maintain our strategy, focus and leverage our core strength to deliver exceptional value and performance to our customers. Our primary goals are to support and enhance our margin, drive overall profitability on a sustained basis and continue to build value for our shareholders. That concludes our formal remarks this morning. We will now welcome any questions. Jenny, please begin the question period.

[Operator Instructions] And your first question is from Gordon Lawson from Paradigm Capital.

Can you please provide some color on the year-over-year slowdown in Chilean revenue and what these 3 new rigs mean for that segment?

As you know, we renewed last year 2 important contracts in Chile, one for 3 years and the other one, it's the most important one, for 5 years. So we have to purchase new drills. So we manufacture here in Canada for surface drill, and we bought 1 drill -- RC drill from a manufacturer in Chile. So these 4 drills are now in Chile. The 1 is operating right now, the 3 others will be put on this contract in the next 2 months. So the level of activity in Chile is stable. Last year, we have $39 million of revenue from Chilean operation in Canadian dollars. And this year, this amount of revenue should increase a bit, not so much because we renew all these contracts and the market in Chile is very stable, and we essentially work for the 3 biggest copper mines in Chile.

Okay. That kind of leads into my second question here. Your fiscal Q3 in the past, it's been a bit mixed in terms of seasonal lows to outperforming last year. And like you said, Chile was a big part of that. Can you provide some guidance on what you're seeing so far? And if it's fair for us to use this new higher margin run rate?

You're right. Q2 and Q3 is the slowest quarter for us historically, and Q1 and Q4 is a better quarter for us. What I could say, everything is relatively stable. The contracts are stable here in Canada and in Chile. So we don't provide any guidance to -- for the result or the margin, but -- we -- as you know, as you can see, we reached adjusted gross margin of over 20% for the first 6 months of fiscal 2025. So we try to keep that and continue our work with the good contracts we have. As I said, it's very stable here in Canada and in South America also.

And your next question is from [ Terry Balama ], a private investor.

If I heard it correctly, the December quarter and the March quarter are the slowest quarters for the company.

Yes. Historically, that's the case, yes.

Okay. And so here in the December quarter, just released $6 million of EBITDA -- of adjusted EBITDA. Is that correct? So you have $6 million of adjusted EBITDA in your slow quarter?

Yes. If we extract the -- yes, the adjusted EBITDA is $5.6 million for the quarter. So it's better than last year for sure. But you have to understand something very important there because in Q2 last year, we closed our operation -- we stopped the operation in West Africa, which has a very negative effect on our results. So with this West Africa operation stopped, this year, so that's why the -- because our operation in Canada and South America are positive for a while, but this West Africa operation affect us so much in 2022, 2023 fiscal. So this year, it seems very good. But at the end of the day, it's essentially the effect -- the negative effect of West Africa ceased to affect us. So now we can make good business with our business in Canada and South America.

Okay. Super. Another question is on the -- some investors like to look at the earnings per share after tax instead of the adjusted EBITDA. What is the earnings per share after tax if the company earns about 24 -- between $20 million and $24 million of adjusted EBITDA. I came up with about $0.25 to $0.32 area for the after-tax earnings per share run rate, so to speak, if the company gets $20 million to $24 million of adjusted EBITDA. Is that in the ballpark for those investors that like to see earnings per share using -- they like to use earnings per share for their valuation?

Yes, that's a good question. We don't provide any guidance for that, but we could say for the first 6 months of this year without the effect of -- negative effect of West Africa, we have $0.12. So technically, we have $91 million of income in the first 6 months of the year, and we have $0.12 earnings per share after tax. So that's what we have now. And we -- as I said before, we have a very stable contract everywhere right now in Canada and South America. So we should be able to continue in this way. I don't know if it will be more or less than that, but I could confirm the $0.12 for $91 million of revenue.

Yes. Okay. So the $0.12 is so far for the last 6 months?

Yes.

Thank you. There are no further questions at this time. Please proceed.

Okay. Thank you, Jenny, and thank you, everyone, to participate today. We will be in Toronto in the first week of March at the PDAC. If you participate at this event, don't hesitate to come and meet us at our Booth #112. And we look forward to speak with you again after we report our fiscal third quarter results in the spring. Thank you.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.