Orbit Garant Drilling Q4 2023 Earnings Call Transcript

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Provided by Quartr
September 20, 2023

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Orbit Garonne's Drilling Fiscal 2023 4th Quarter and Year End Results Conference Call and Webcast. At this time, all lines are in listen only mode. Following management's remarks, we will conduct a question and answer session. 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.

Operator

Please refer to the company's SEDAR filings for additional information on both risks and non IFRS measures. This call is being recorded on Wednesday, September 20, 2023. I would now like to the conference over to Mr. Pierre Alexandre, President and CEO of Orbit Garand. Please go ahead, sir.

Speaker 1

Thank you, Joel, 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, Christian.

Speaker 1

We generated improved financial performance during the fiscal 2023, Our strong customer demand in Canada drove increased specialized running activity and improved pricing on contract related to the prior year. Revenue for fiscal 2023 was a record of $201,000,000 an increase of 2.8% compared to fiscal 2022. Adjusted gross margin increased to 16.2%, up from 12.2% last year. And adjusted EBITDA nearly doubled to $19,100,000 compared to EBITDA of $10,000,000 last year. However, the positive momentum that we carried through most of the year was impacted in our 4th quarter by a temporary reduction of drilling activity in Canada.

Speaker 1

The decline is partly attributable to forest fire in Quebec. We had to suspend drilling activities on all of our surface and underground drilling projects in Quebec as well as 1 surface projects in Ontario for various periods beginning on May 29 continuing into July. This result in a revenue reduction in Q4 of approximately $3,000,000 In addition, certain customers decide to temporarily suspend or reduce running activity on other projects. These decisions were company specific and had nothing to do with our performance. However, the impact revenue in Q4.

Speaker 1

Fortunately, we began ramping up the project that were suspended due to forest fires In early July, by July 26, all of these projects were fully resumed. We expect to resume operation on all our projects in which drilling activity was temporarily suspended and reduced due to customer decision by January 2024. 1 of these projects which is a major customer already resumed in the middle of last month of the last month. Our 4th quarter results were also impacted by a one time non cash restructuring charge of 4,200,000 dollars relate to our decision to wind down drilling activities in Burkina Faso and exit the country. We expect to complete our drilling program in Burkina Faso during the Q2 of fiscal 2024.

Speaker 1

This decision to exit Berken FSO is based on our assessment of the Significant additional investment required to generate an acceptable return on our investment in this market as well as the increased and ongoing security concerns within the country. I will now turn the call over Daniel to review our fiscal Q4 and full year's results in more detail. Daniel?

Speaker 2

Thank you, Pierre, and good morning, everyone. Our fiscal 2023 Q4 revenue totaled $46,800,000 compared to $53,800,000 in Q4 last year. Canada revenue totaled 32.6 $1,000,000 a decline of 22.6 percent from Q4 last year. As Pierre noted, the decline reflects the reduction of drilling activity in Canada due to forest fire in Quebec and customer decision to temporarily suspend or reduce activity Uncertain other projects. International review increased to $14,200,000 compared to $11,800,000 in Q4 last year, primarily reflecting increased drilling activities in Chile.

Speaker 2

Our drilling utilization rate in Q4 was approximately 54%. That was lower compared to the recent quarter due to the impact of forest fire and customer decision to temporarily suspend or reduce activity on certain other projects. The $4,200,000 onetime Non cash restructuring charge relating to our decision to accept Brukin FSO reflect a write down of inventory to the net reusable value. Gross profit for the quarter was $700,000 compared to $6,900,000 in Q4 last year. The decrease was primarily due to the restructuring charge and the reduced activity in Canada.

Speaker 2

Adjusted gross margin, depreciation expense and the write down of inventory from restructuring was 15.9% compared to 17.2% a year ago, reflecting lower revenue due to reduced drilling activity in Canada. G and A expenses were 10.9% of revenue in the quarter compared to 7% of revenue in Q4 last year. Adjusted EBITDA for the quarter was $1,800,000 compared to EBITDA of $5,700,000 in Q4 last year, reflecting the reduced drilling activity in Canada. Net loss was 4 point of $500,000 or $0.01 per share in Q4 a year ago. The net loss in Q4 this year was primarily attributable to the restructuring charge and reduced running activity in Canada.

Speaker 2

Now turning to the results for the fiscal year end June 30. Revenue for fiscal 2023 was a record $201,000,000 an increase of 2.8% compared to fiscal 2022. Canada revenue totaled $152,100,000 an increase of 4.8% compared to last year, Reflecting increased specialized drilling activities and improved pricing, partially offset by the reduction of drilling activity In Canada, during the Q4, international revenue was $48,900,000 A slight reduction from $50,300,000 last year, reflecting a reduced drilling activity in Burkina Faso, partially offset by increased activity in Chile and Guyanese. Gross profit for fiscal 2023 increased to $18,300,000 from $13,700,000 in fiscal 2020 The increase was primarily attributable to increased specialized running activity, improved pricing and cost control in Canada, partially offset by the $4,200,000 restructuring charge and the reduction of drilling activity in Canada during Q4. Prior year margin were also impacted by higher project ramp up costs in Canada, mobilization costs for new long term projects in Guinea And Chile and Omnicom related work interruption that began in November 2021.

Speaker 2

Adjusted gross margin excluding depreciation expense and write down of inventories from restructuring was 16.2% in fiscal 2023 compared to 12.2% a year ago. The increase was primarily attributable to increased specialized drilling activity, improved pricing and cost control in Canada, partially offset by the reduction of drilling activity during Q4. G and A expense were 8.2% of revenue in fiscal 2023 compared to 7.4% of revenue in the prior year. Adjusted EBITDA for fiscal 2023 increased to $19,100,000 compared to EBITDA of $10,000,000 last year. Net loss for fiscal 2023 was $700,000 or $0.02 per share compared to a net loss of $6,600,000 or $0.18 per share in fiscal 2022.

Speaker 2

Our growth in adjusted EBITDA and our reduced net loss for fiscal 2023 was primarily Due to a higher proportion of specialized drilling activity, improved pricing and cost controls in Canada and a Foreign exchange gain of $1,900,000 partially offset by write down of inventory from restructuring And the reduction of the drilling activity in Canada during Q4. Our net loss for fiscal 2023 also reflect $1,100,000 increase of interest expense. EBITDA and our net loss in fiscal 2022 also reflect higher ramp up costs and mobilization costs and Ami Cron related work interruption. Now turning to our balance sheet. During fiscal 2023, we repaid a net amount of $4,400,000 of long term debt and lease liabilities.

Speaker 2

In fiscal 2022, we generated a cash flow of $2,700,000 from financing activity. We repaid a net amount of $9,300,000 on our credit facility during Fiscal 2023 compared to a withdrawal of $7,300,000 last year. Our long term debt under the credit facility, including US2 $1,000,000 draw from our US5 $1,000,000 revolving facility and the current portion was 22 $200,000 as at fiscal year end compared to $31,500,000 as at June a year ago. The reduction primarily reflects the utilization of a substantial portion of the $8,500,000 loan from the Business Development Bank of Canada that was secured in the Q1 of fiscal 2023. As at June 30, 2023, our working capital position was $50,400,000 compared to $53,400,000 at our fiscal 2022 year end.

Speaker 2

I will now turn the call back to Pierre for closing comments. Pierre?

Speaker 1

Thanks, Daniel. We are pleased with our over our performance for fiscal 2023. Unfortunately, our results for the year were negatively impact by the suspension of drilling activities in Canada late in Q4 as discussed previously. These projects suspension will negatively impact our fiscal 2024 Q1 results and to a lesser extent our Q2 results. Despite this temporary challenge, we remain positive on our longer term Look, customer demand, particularly in Canada remains strong, although we have experienced The softening in demand from our junior customers.

Speaker 1

We are experiencing in our drilling activities in Chile We are experiencing growth, sorry, in our drilling activity in Chile and Guinea. Our pending exit from Burkina Faso will allow us to focus more on these markets and customers. The underlying fundamentals driving our business are solid. Gold price remained at historically strong level above $1900 an ounce. Gold producers are generating Very strong margin at this price, while struggling to replace our reserves.

Speaker 1

We are confident that continued high level of exploration and development spending will be maintained in this industry for the foreseeable future. Sure. We continue to generate approximately 2 third of our revenue from gold drilling, so we have high exposure to this sector. Copper price have also remained at elevated level over the past 12 months despite rising interest rate and economic uncertainty. Copper is needed for the ongoing electrification of the global economy, which is expected to drive strong demand for the red metal for many years to come.

Speaker 1

A healthy copper market is positive for our Chilean operations. Looking ahead, we remain focused on our 5 point plan, which consists of primarily focusing on Canadian gold drilling operation, prioritizing long term Specialized winning contract with major and intermediate customer, pursuing international contract that offer Attractive return and high degree of cost and margin certainty, continued investment in driller training and computerized technology and building a team oriented leadership structure that fosters collaboration and personal accountability. By continuing to execute on this plan, we believe we can drive growth and build value for our shareholders. That concludes our formal remarks this morning. We will now welcome any questions.

Speaker 1

Operator, Please begin the question period.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Gordon Lawson with Paradigm. Please go ahead.

Speaker 3

Hello, good morning and thanks for taking my question. Your international segment had an excellent year over year gain. Can you provide more insight into the Chilean contribution? And if you can further break that down, how much of that comes from senior and intermediate copper companies?

Speaker 2

Yes. In Chile, most of our $30,000,000 revenue came from major company in Chile Anglo American and also This kind of company. So the level of $30,000,000 increased from the $27,000,000 last year. So From $27,000,000 we came to $30,000,000 this year. And we expect to increase this level of income because we are Actually in the process of being with major customer for new contract in Chile, at least 1 or 2 major contracts Are in discussion actually in Chile.

Speaker 3

Okay, great. Thank you. Also your margins had Excellent improvement from last year. And aside from the ramp up costs you mentioned earlier, can you help us get a better understanding of that increase in terms of which segments and commodities are providing the boost?

Speaker 2

Essentially, the ramp up Cost is related to copper contract with essentially major customer in Chile and We actually, these contracts are going well and they are extend for 2024 as well. So these costs are non recurring and we expect margin in Chile to Stable or increase in the next fiscal year and we see very good opportunity actually in Chile.

Speaker 3

How much of that would you say is specialized versus simply having An excellent relationship with the majors.

Speaker 1

Well, I would say that The type of service that we offer over there. So we do Dewatering and other service that we offer, that's one of the reasons why our margin are better With these customer, these client.

Speaker 3

Okay, great. Thank you very much.

Speaker 2

Thank you.

Operator

Next question comes from Terry Palima with he's a private investor.

Speaker 4

In the 4th quarter, the adjusted EBITDA Had a $1,800,000 income tax hit. I'm sorry, a $2,100,000 income tax hit. Did I see the table correctly there? So the actual You had a net loss in the quarter, yet the company paid $2,100,000 in taxes. And so The adjusted EBITDA adjusted for the income tax expense would actually be the 1,800,000 Plus the $2,100,000 added back that you paid in taxes, it would be $3,900,000

Speaker 2

You're right. In the Q4, we made an adjustment for income tax because essentially in Chile, In the last 2, 3 years, we are negative. So we don't record any income tax And so let's say, tax loss was not accounted as An asset, so future asset in context. So with the result we have in Chile In the last year, so we are, let's say, more that's reduced a lot our Income tax expense for the year and we take this provision in Q4. So essentially as we So it's a kind of adjustment for the Chilean tax, which affect our global tax And we'll do the adjustment in Q4.

Speaker 4

Also the 3,000,000 Revenue loss to fires reduced your adjusted EBITDA roughly how much in the Q4. I'm assuming you had to pay crews despite no revenues. So maybe a $2,000,000 $2,500,000 EBITDA was affected there?

Speaker 2

You see, we have an adjusted percentage As a percentage of roughly 10%. So I don't think it's $2,000,000 but It's probably more around $1,000,000 EBITDA adjustment negatively for the quarter in Q4, yes.

Speaker 4

Okay. And when I see your adjusted Gross profit margin in the high teens and I compare it to your market peers, The adjusted gross profit percent is below your market below the market peers, Who are in the low to mid-twenty percent. What is the reason for that? Is that from Burkina Faso losses possibly or is it something else?

Speaker 2

No, you're right. This is related to our International operation, we are experiencing very hard Results in Burkina Faso, and that's why we want to exit this country. And also, Chilean operation is going well Now, but in the last few, let's say, in calendar year 2022, our Chilean operation was not so good. So we are not we are now, since January 2023, in a better position in Chilean operation. But if we look only our Canadian operation, the margins are near the 20%.

Speaker 2

But you're right, the international operation Fiscal 2023 affect us a lot. And we expect to have a better contribution with The international operation in the 2024 2025 fiscal year, essentially Based on the exit of Burkina Faso and the growth of the gross margin in Chilean operation. And as I mentioned before, We are looking for major contract in Chile for 2024, 2025. And if that's it's conclude that will be a good contribution to our gross margin in the next fiscal year.

Speaker 4

Okay. In the last 12 months, what was the amount of losses For Burkina Faso?

Speaker 2

It's too much. First, I would like to say that. It's too much, and that's why we go through. You see, we take a 4,200,000 Write down essentially based on the inventory. The loss, Let's say EBITDA is if we look only Burkina Faso, the EBITDA was negative for roughly $2,000,000

Speaker 4

That was for the last 12 months, yes?

Speaker 2

Yes.

Speaker 4

Okay. Okay. Last question, in the court and the Q4, with the $3,000,000 sales from the Revenue from fires loss and the $6,000,000 temporarily suspended being pushed out into future quarters. So without those two things happening, your sales would have been about 56,000,000 In the Q4 versus $53,000,000 year over year, is that about right?

Speaker 2

It would be the sales in the Q4 4 should be around $8,000,000 to $10,000,000 better if we don't have this suspension in fiber. Let's say between $8,000,000 to 10.

Speaker 4

Okay. Those $8,000,000 to $10,000,000 okay. The $8,000,000 to $10,000,000 sales have not been lost. They've been pushed out to future quarters. Is that correct?

Speaker 2

We are affect with the fire till the end of July. So in Q1, it will be, Let's say around $1,000,000 less revenue between $1,000,000 $2,000,000 less revenue in Q1. And the suspension will be less than 6. It will be around 4, let's say. But we saw Some customer start operation, but We saw in the market actually with large major and intermediate customer, A reduction of budget for exploration, we they want to restart Later in the year, in the calendar year of 2023.

Speaker 2

So Q1 will be effect for sure with Fire for a month and for the suspension of operation or reduction because On track, we have 4 drill, and now we run only 1 or 2 drills. So this is We saw this trend with a lot of let's say 5, 6 large customer in Canada.

Speaker 4

Okay. Thank you for taking my questions. Those were all of my questions. Thank you.

Speaker 2

Thank you very much. Thank you.

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Key Takeaways

  • Record FY2023 Results: Revenue reached $201 M (+2.8% YoY), adjusted gross margin rose to 16.2%, and adjusted EBITDA nearly doubled to $19.1 M.
  • Q4 Drilling Disruptions: Forest fires in Quebec and customer suspensions cut Q4 revenue by ~ $3 M and lowered utilization to ~ 54%, delaying operations into FY2024 Q1.
  • Burkina Faso Exit Charge: A one-time non-cash restructuring charge of $4.2 M was recorded to wind down activities, with completion expected in Q2 FY2024.
  • Debt Reduction & Liquidity: Long-term debt fell to $22.2 M from $31.5 M year-over-year, and working capital remained strong at $50.4 M.
  • Positive Outlook & Strategy: Management cites strong gold (> $1,900/oz) and copper fundamentals plus a focused 5-point plan targeting specialized contracts and international growth.
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Orbit Garant Drilling Q4 2023
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