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

Good morning, ladies and gentlemen, and welcome to this Orbit Garant Drilling Fiscal 2026 Fourth Quarter and Year-End Results Conference Call and Webcast. [Operator Instructions] Please be aware that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information. For more information on the risks, uncertainties and assumptions relating to forward-looking information, please refer to the company's latest MD&A and annual information form, which are available on Stater Plus. Management may also refer to non-IFRS financial measures. Although Orbit Garant delivers these measures believes -- pardon me, believes these measures provide useful settle information about financial performance, they are not recognized measures and do not have andordized meanings under IFRS. Please refer to the company's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded today, Friday, September 25, 2026. It is now my pleasure to turn the floor over to President and CEO of Orbit Garant Drilling, Mr. Daniel Maheu. Welcome, sir.

Thank you, Jim, and good morning, ladies and gentlemen. With me on the call today 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 -- we just report quarterly revenue in our fourth quarter this year and record annual revenue in fiscal 2026 reflecting the strong demand for our drilling services in both Canada and South America. We also reached 70% drill rig utilization in the quarter, which represents our highest level since fiscal 2012. Reaching the threshold was a key objective for us at the start of the year. Our profitability for the quarter was negatively impacted by lower drilling efficiency in Canada due to the drilling -- to the higher drilling rig utilization rate, which result in an increase of number of cranes drillers also lower revenue per meter on certain legacy drilling contract in Canada that were signed in the first half of the year and inflation in production costs and drilling consumable and investment in workforce training and development. We have recently been able to revise contract pricing to offset our cost inflation, and this includes the implementation of price increases on most of the lower price contract that we were awarded during the first half of the year. why there has been a temporary lag between this cost inflation and price adjustment. These pricing adjustments should progressively be reflected in our profitability during fiscal 2027. Our new large specialized welding contract in Northern Canada that we secured during the quarter. which we expect to generate in excess of $100 million over its initial -- that requires capital expenditures and require substantial inventory. VAST was partially funded to draw on our credit facilities and a new term loan. This resulted in increase of debt at fiscal year-end. Our focus on debt reduction over prior years provide us with the financial exit our focus on debt reduction when this project is running at full capacity. This new specialized drilling contract further strength our position as an industry leader in Northern Canada and is in line with our strategy of focusing on senior and well financed and [indiscernible] jet mining customers. I will now turn the call over to Pier-Luc -- like to review our financial results.

Thank you, Daniel, and good morning, everyone. Revenue for the quarter totaled $57.2 million, an increase of 21.3% compared to Q4 last year. Canada revenue was $39.4 million in the quarter, an increase of 16.8% compared to Q4 last year. The increase be offset by lower average revenue per meter drilled on certain legacy contracts that were signed during the first half of fiscal 2026. International revenue totaled $17.8 million an increase of 32.7% compared to Q4 a year ago, reflecting increased drilling activity in both Chile and Guyana. Gross profit was $4.6 million or 8.2% of revenue compared to $7.6 million or 16.4% of revenue in Q4 last year. Adjusted gross margin, excluding depreciation expenses and a gain on disposal of property, plant and equipment, was 13.6% in the quarter compared to 20.2% in Q4 last year. The decrease in gross profit, gross margin and adjusted gross margin was attributable to lower drilling efficiency in number of 30 drillers, lower revenue per meter on certain legacy drilling contracts in Canada. And inflation and production costs and drilling consumables and investments in workforce training and development. Our increased depreciation expenses of $0.7 million due to increased capital expenditures incurred in fiscal 2026 and fiscal 2025 in Canada and South America negatively impacted gross profit and margin. Adjusted EBITDA to $36 million comparing $5.5 million in Q4 last year. The decrease was primarily attributable to the factors already discussed, partially offset by a favorable foreign exchange variation of $0.7 million in the quarter. Our net loss for the quarter was $1.9 million or $0.05 per share diluted compared to net earnings of $2.2 million or $0.06 per share diluted in Q4 last year. Our net loss reflects the factors already discussed as well as a $1.4 million expected credit loss net of interest revenue on the long-term receivable related to the sale of our assets in West Africa, partially offset by the favorable variation in foreign exchange. For fiscal 2026, we generated record annual revenue of $203.2 million, an increase of 7.5% compared to fiscal 2025. Revenue totaled $143.2 million an increase of 5.3% compared to fiscal 2025, reflecting slightly higher revenue per meter drilled and increased drilling activity, partially offset by client initiated project delays and project completions during Q1. The ramp-up of new drilling projects in both Q1 and Q3 and a negative impact of more severe winter weather conditions in Q3 this year. International revenue for fiscal 2026 totaled to $60 million, an increase of 13.2% compared to fiscal reflecting increased drilling activity in both Chile and Guyana, partially offset by modifications to a certain drilling program in Chile, during the first 9 months of fiscal 2026 and customer decisions to temporarily delay certain drilling programs during the first half of fiscal 2026. Gross profit for fiscal 2026 was $19.7 million or 9.7% of revenue compared to $28.3 million or 15.0% of revenue in fiscal 2025. Adjusted gross margin, excluding depreciation expenses and a gain on disposal of property, plant and equipment was 14.7% in fiscal 2026 compared to 19.5% in fiscal 2025. The decline in gross profit, gross margin and adjusted gross margin reflects the mobilization of several major long-term drilling contracts during fiscal 2026. These contracts typically generate lower margins during their initial ramp-up phase before reaching normalized productivity levels. [indiscernible] investments in workforce training and development also impacted gross profit margins. The more severe winter weather conditions in Canada during Q3 this year also negatively impacted productivity on surface drilling projects continuing modifications to a drilling program and a decline in surgeons specialized drilling activities in South America also negatively impacted profitability. Additionally, increased depreciation expenses of $1.4 million due to increased capital expenditures incurred in fiscal 2026 and fiscal 2025, and [indiscernible] gross profit and margins. Adjusted EBITDA totaled $13.7 million in fiscal 2026 compared to $21.7 million in fiscal 2025. The decline was attributable to the factors already discussed, partially offset by a $0.5 million favorable foreign exchange gain. Net loss for fiscal 2026 was $1.5 million or $0.04 per share diluted compared to net earnings of $7.5 million or $0.20 per share diluted in fiscal 2025. Our net loss for the year was attributable to the factors already discussed and also reflects an expected credit loss of $1.2 million, net of interest revenue on the long-term receivable related to our sale of assets in West Africa, partially offset by an income tax recovery of $0.3 million and a favorable foreign exchange gain of $0.5 million in fiscal 2026. Turning to our balance sheet. We withdrew a net amount of $9.7 million on our credit facility in fiscal 2026 mostly related to net capital expenditures of $17.5 million compared to a repayment of $7.5 million in fiscal 2025. Our long-term debt under the credit facility, including the current portion, was $23.7 million at fiscal year-end compared to $14.0 million as at our fiscal 2025 year-end. During the year, pursuant to our normal course issue were bid. We repurchased and canceled approximately 162,000 shares at an average weighted price of $1.36 per share. Our working capital was $48.7 million at year-end compared to [indiscernible] million in fiscal I turn the call back to Daniel for closing comments. Daniel?

Thank you, Pier-Luc. The demand for our drilling services in both Canada and South America remains strong, supported by historically high gold and copper prices and a robust financing environment for mining company. In the first 8 months of 2026, mining company listed on the TSX and TSX venture complete aggregate equity financing totaling more than $11.4 billion, an increase of approximately 78% compared to the same period in 2025. Most of our customers are increasing their spending on mining, exploration and development, and this is an industry wild trend. While we are experiencing favorable industry fundamentals and strong customer [indiscernible] demand challenges this year, many of which were out of our control, including unusually high level of project delay due to the customer decision, particularly in the first half of our fiscal year. Teva winter weather in Q3 that impact productivity on surface drilling in Canada, followed customer modification to a drilling program in Chile. Raising pressure in the first half of our fiscal year-end cost inflation. We were also ramping up operations on several new projects during fiscal 2026 while we expect our profitability to improve more in our fourth quarter, this did not materialize to the extent we expected [indiscernible] of $1.4 million, net of interest revenue in the quarter. However, we believe we are positioned to return to profitability in fiscal '27 as a result of improving pricing on new and existing contracts, the continued advancement of several projects that were in their ramp phase during fiscal 2026, improvement productivity from our [indiscernible] that concludes our formal remarks this morning. We will now welcome any questions. gentlemen begin the question period.

[Operator Instructions] first from Kerem Aksoy at Glacier Pass.

So Daniel, in the release, you mentioned that you'd renegotiated your contracts during the first half of the calendar year. I was wondering what's the timing of that flowing through to the business? Do you expect to see benefits in the second half of calendar year '26 Or do you think it could maybe take a little longer?

Karen, yes, we regulate some of these contracts and that progressively came in the Q1 and Q2 of fiscal 2027, yes. By the end of December, almost half contract will be with the new price each of them. .

That's great. And then so sequentially in fiscal year '27, do you expect adjusted gross margins to increase in aggregate?

We don't provide guidance like that. But for sure, our target is to -- with the new contract renewal and the price adjustment we expect to have an increase of our margin. If we compare this year with 2025, which the margin are from 19% of growth -- adjusted gross margin, we think this year with 15%, we have place to increase for sure, but we can't provide any guidance about that.

Got you. But then I mean, do you think it's realistic to get back to fiscal year 25% to 20% gross margins -- or is there some reason you wouldn't be able to get back to those numbers. .

That's exactly where we want to go, and we focus on first on the price adjustment to cover the cost inflation, but also we will focus on control of our costs. And definitely, the target is to increase our margin and we expect the actual market with the demand we have. And also, don't forget, we renew -- we have a new contract in Northern Canada, which is progressively start. We have 2 rigs there right now working. And eventually until, let's say, June 2027. -- these 2 rigs will have 6 extra rig on this contract, and that should help us to increase our gross margin for sure. .

And maybe just a question on the contract. I think you mentioned that maybe there's a lot of ramp-up costs and start-up costs associated with it. In the next 12 months, do you think that will be loss making in the first year? I was wondering if you can kind of quantify like what that might -- the impact of that might be in the next fiscal year? Or how we should think about that contract and the profitability of it over time?

Hard to classify, but that's clear that in fiscal 2026, we have a lot of ramp up, maybe 5, 6 large contract and we still have 1 big contract in Northern Canada to ramp up progressively until Q3 of '27. But it's clear we have less cost of ramp up. And that's why we think the actual contract we get in 2026 would be more profitable in 2027 because all these costs are now dust. .

Got you. So in this year, there's some costs, the first half of next financial fiscal year, there will be some costs. And then maybe -- it sounds like those costs will be behind you, the ramp-up cost. .

Yes. Yes, exactly. .

And then is there any way you could maybe like help us think about that or quantify it at all, just so we can think about the impact on the business?

It's like Daniel said, it's difficult to evaluate the entirety of the impact. And because there's a lot to go on. There's a lot of going on with these contracts. -- specialize dueling contract in remote locations. So that means a lot of investment, and that means a lot of hiring as well because staffing drills is additional drills is a challenge in and of itself. So the timing of how everything is going to work out. It's difficult to figure out. But we know -- we expect typically that differs I don't know, 10 to 12 months of the contract is going to generate lower margins than anticipated order that is typical of a specialized drilling contract.

And then maybe just 1 last question. As you look at the next fiscal year, I know that in Q4, CapEx is elevated. What are you guys expecting for total CapEx in fiscal year '27, maybe total CapEx and then like working capital as well, source or a use?

The amount that was in our AIF was around $19.3 million CapEx with about -- with an expected $6.3 million dedicated to the new long-term contract.