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

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2025 Third 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, May 8, 2025. I would now like to turn the conference over to Mr. Daniel Maheu, President and CEO of Orbit Garant. Please go ahead, sir.

Thank you, operator, and good morning, ladies and gentlemen. With me on the call is 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. We generated revenue growth of 3.9% in the quarter compared to Q3 last year. This increase was driven by increased drilling activity in South America, which more than offset our slower activity in Canada. Our adjusted EBITDA and net earnings also increased compared to Q3 a year ago, reflecting improved profitability in our South American operation as well as a foreign exchange gain. Our fiscal third quarter is typically the slowest period of the year for our Canadian operation. January is a relatively slow month, and there is a gradual ramp-up of drilling activities each year after a shutdown during the holiday season. Challenging winter weather also affect our operation during Q3. This year, we also experienced lower demand for surface drilling projects in the quarter compared to Q3 last year, which impact our margins. However, customer demand for underground drilling services remained strong. And we expect demand for surface drilling from senior and well-financed intermediate companies to pick up throughout this calendar year. On a year-to-date basis, our revenue and profitability have both improved in fiscal 2025. Our revenue is up 4.5% compared to the first 9 months of fiscal 2024, and our adjusted gross margin for the period is at 19.3%, up from 15.3% last year. This performance reflects strong operating results in both Canada and South America. We continue to benefit from our strategic focus on senior and well-financed intermediate customer and our exit from West Africa in Q2 last year. Gold prices have increased dramatically this calendar year, reaching a record high of approximately USD 3,500 an ounce in April. Copper prices also up on the year. These prices are highly supportive for our operations in both Canada and South America. I will now turn the call back 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 $50.0 million in the quarter, an increase of 3.9% from $48.2 million in Q3 last year. Canada revenue was $36.1 million compared to $37.2 million in Q3 last year, reflecting slower drilling activity. International revenue increased 26.3% year-over-year to $13.9 million from $11.0 million in Q3 a year ago due to increased drilling activity in South America. Gross profit was $5.9 million for the quarter or 11.9% of revenue compared to $6.4 million or 13.2% of revenue in Q3 last year. Our adjusted gross margin, excluding depreciation expenses, was 16.5% in the quarter compared to 17.6% in Q3 last year. The decreases in gross profit, gross margin and adjusted gross margin were primarily attributable to slower drilling activity in Canada during the quarter, partially offset by increased drilling activity in South America. Consolidated earnings from operations for the quarter were $2.4 million compared to $3.3 million in Q3 last year. Drilling Canada's operating earnings totaled $1.1 million compared to $3.1 million in Q3 last year, and our international operating earnings increased to $1.3 million from $0.2 million a year ago. Adjusted EBITDA increased to $6.2 million, up from $3.9 million in Q3 last year. Net earnings were $2.7 million or $0.08 per share compared to $2.0 million or $0.05 per share last year. The increases in our adjusted EBITDA and net earnings were primarily attributable to the improved operating earnings in South America and a favorable foreign exchange gain of $2.0 million, partially offset by the reduced operating earnings in Canada. In addition, net earnings in Q3 this year were impacted by income tax expense of $0.6 million compared to a recovery of $1.3 million last year. Turning to our balance sheet. We withdrew a net amount of $0.8 million on our Credit Facility in the third quarter compared to a repayment of $1.3 million in Q3 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 $19.4 million at quarter end compared to $21.5 million at June 30, 2024, our fiscal '24 year-end. Our working capital totaled $52.9 million as at March 31 compared to $48.6 million at the end of fiscal 2024. I'll provide a quick update on our normal course issuer bid. During the third quarter, we repurchased and canceled 24,628 common shares at a weighted average price of $0.83 per share. That is significantly below the current share price. To date, we have purchased and canceled nearly 70,000 shares under the NCIB. We will continue to monitor our share price for potential opportunities to repurchase shares if and when we believe it is an appropriate use of our capital, but debt reduction is a higher priority. I'll now turn the call back to Daniel for closing comments. Daniel?

Thank you, Pier-Luc. We have now generated year-over-year increase in net earnings in 5 consecutive quarters. While a slower demand for surface drilling in Canada impact our margin in Q3, we believe that our overall performance to date in fiscal 2025 demonstrates that we have the right strategic plan in place to build value for shareholders. This strategic took shape 2 years ago when we implement a 5-point plan to improve our operating performance over a 15-month period. While that period has passed, we continue to focus on key elements of the plan, including primarily focusing on our operation in Canada and South America and prioritizing long-term specialized drilling contract with senior and intermediate customers. Our 2 capital allocation priorities are maintenance capital expenditure and debt reduction. Our strategic plan is working, and we are going to stick on it as we work hard to strengthen our profitability. Metal prices are also trending positively for us with gold prices spiking to record levels this year, gold miners are highly motivated to increase their mineable reserve and resource but they need to spend money on drilling to prove them up. We generate more than 60% of our revenue from gold drilling operation in the first 9 months of fiscal 2025 and are, therefore, well positioned to benefit from gold exploration and development spending. Copper price have also increased this year even with the heightened economic concern related to tariff. We believe this reflects the strong demand outlook for copper, a mineral that is necessary for the ongoing electrification of the global economy. We anticipate continued solid demand for senior and well-financed intermediate company in this environment. Demand from junior company remain constrained due to the financial condition but we believe investor appetite for junior company will eventually recover. We have strong relationship in the junior mining sector and are well positioned to selectively pursue business with junior if and when activity pick up again. We have available drill capacity in Canada and can easily mobilize drilled rigs with minimal CapEx as opportunity present themselves. With the right strategic focus and supportive industry fundamentals, we believe that we are well positioned to drive enhanced profitability on a substantive basis and build value for our shareholders. That concludes our formal remarks this morning. We will now welcome any questions. Operator, please begin the question period.

[Operator Instructions] We don't have any questions. That concludes our question and answer session. I would like...

Thank you to everyone -- okay. So thank you to everyone for participating today. We look forward to speak with you again after we report our fiscal fourth quarter and year-end result in September. Thank you.

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