Geodrill Q3 2024 Earnings Report

Geodrill EPS Results

• Actual EPS: C$0.08
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: -C$0.08

Geodrill Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Geodrill Announcement Details

• Quarter: Q3 2024
• Date: 11/11/2024
• Time: Before Market Opens
• Conference Call Date: Monday, November 11, 2024
• Conference Call Time: 10:00AM ET

Geodrill (TSE:GEO) Ltd is an exploration drilling company. It mainly operates a fleet of multi-purpose, core, air-core, and grade control drill rigs. The company provides reverse circulation, diamond core, air-core, grade control, geo-tech, and water bore drilling services to major, intermediate, and junior mining companies.

Geodrill Q3 2024 Earnings Call Transcript

Key Takeaways

• In Q3 2024 GeoDrill delivered revenue of $34.1 million (+13% yoy), EBITDA of $7.6 million (+22% yoy) and net income of $0.06 per share versus a loss last year, with net cash now exceeding debt.
• The strategic relocation of its rig fleet from Burkina Faso to higher-margin jurisdictions has improved operational efficiency and driven stronger profitability.
• GeoDrill secured over $150 million in multi-rig, multi-year contracts earlier in the year and an additional $50 million in Chile post-quarter, ensuring revenue visibility for the next 3–5 years.
• Record-high gold prices are fueling global exploration spending, underpinning robust demand and high fleet utilization (≈70%), which supports further growth.
• Management is front-loading CapEx to outfit rigs for upcoming contract ramp-ups and will consider dividends or share buybacks once free cash generation strengthens further.

Presentation

[Operator]

Good morning, everyone, and welcome to Geodrill's Q3 2024 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star zero for the operator. I would like to remind everyone that this conference call is being recorded today, November 11th, 2024. Before we begin, certain statements made on today's call by management may be forward-looking in nature and, as such, are subject to various risks and uncertainties. Please refer to the company's press release and MD&A for more details on these risks and uncertainties. I will now turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

[Dave Harper, President and CEO at Geodrill]

Thank you, Operator, and good morning, everyone. Thank you for joining us today to discuss Geodrill's third-quarter results. Joining me also on the call today is Greg Borsk, our Chief Financial Officer. In the third quarter of 2024, we delivered another solid financial performance. Some of the highlights were revenue increased 13% year over year. EBITDA also increased 22% year over year. Net income of $0.06 for 8% of revenue. It compares favorably to a $0.06 US loss for the same quarter in 2023. We further strengthened our balance sheet, which is now underpinned by more cash than debt, all of which we believe elevates the success of our financial planning. We also believe these results are a testament to our operational and strategic planning success.

[Dave Harper, President and CEO at Geodrill]

For context on this latter point, recall 2023, our strategic decision to transition our rig fleet from Burkina Faso to more attractive jurisdictions. This has proven to be the right move, evidently. And while this decision initially impacted our revenue in fiscal 2023, we've now bounced back and we're stronger than ever. This business is all about contracts. Our success in securing multiple rig contracts in new jurisdictions has significantly boosted our revenue visibility and profitability, which demonstrates our commitment to financial stability. Also recall, earlier in the year, we secured contracts totaling $150 million in our core jurisdictions. These works are now well underway and strongly contributing to revenue and profitability and will do so for the next three to five years. Meanwhile, additionally, subsequent to the quarter end, we have secured new contracts in Chile totaling circa $50 million.

[Dave Harper, President and CEO at Geodrill]

These include two very significant multi-rig, multi-year contracts, the new Tier one customer, and we also secured a multi-rig contract extension with an existing customer. With our strong portfolio of long-term contracts with Tier one customers, favorable pricing, and a robust pipeline of opportunities, we are now confident in delivering exceptional value to our shareholders and establishing a strong platform for growth going forward. At this point, I'll turn the call over to Greg Borsk for a detailed review of our financial performance. Thank you, Greg.

[Greg Borsk, CFO at Geodrill]

Thank you, Dave. The company generated revenue of $34.1 million for Q3 2024, an increase of $3.8 million or 13% when compared to $30.3 million for Q3 2023. The increase in revenue for Q3 is primarily due to the successful win of two significant multi-rig, multi-year contracts earlier in the year. These contracts have not only bolstered our revenue, but they have also reinforced our market presence and operational capabilities. The gross profit for Q3 2024 was $8.4 million, being 24% of revenue, compared to a gross profit of $5.8 million, being 19% of revenue for Q3 2023. EBITDA for Q3 2024 was $7.6 million, or 22% of revenue, compared to only $600,000, or 2% of revenue for Q3 2023. Q3 2023 was impacted by a $3.6 million non-cash credit loss provision relating to the aging of the company's trade receivables.

[Greg Borsk, CFO at Geodrill]

Excluding the provision, EBITDA would have been $4.2 million, or 14% of revenue for Q3 2023. The net income for Q3 2024 was $2.6 million, or $0.06 per share, compared to a net loss for Q3 2023 of $3 million, or a loss of $0.06 per share. We ended the quarter with net cash, excluding right-of-use liabilities, of $3.5 million. Building on Dave's comments, the record-high gold prices are driving robust global exploration spending, which in turn solidifies the strong fundamentals for the mineral drilling industry moving forward. At this point, I will turn the call back to Dave.

[Dave Harper, President and CEO at Geodrill]

Thank you, Greg. So just to recap, our strategic focus on securing long-term multi-rig, multi-year contracts with Tier one miners has provided us with a stable and predictable revenue stream, which is crucial in navigating the cyclical nature of the mineral drilling services business. This approach has optimized our resource allocation and operational efficiency, in turn significantly boosting our profitability. The synergy between our strategic long-term contracts and the robust gold and copper market positions us exceptionally well for continued growth and success. We are poised to deliver exceptional value to our shareholders and establish a formidable foundation for future growth. At this point, I'd like to extend our gratitude to our dedicated stakeholders, including our team, our shareholders, and our loyal clients. Your unwavering support has been integral in our success. We remain committed to maintaining our high standard of service and furthering our position as an industry leader.

[Dave Harper, President and CEO at Geodrill]

This concludes our prepared remarks. I'll now turn the call back to the Operator if anyone has a question. Thank you.

[Operator]

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gordon Lawson with Paradigm Capital. Your line is now open.

[Operator]

Hey, good morning. Congratulations on another good quarter. Your year-over-year revenue growth was once again impressive. I'm just wondering if this is mostly growth in Chile, or has there been some outperformance in the African segment? Any disclosures you can provide on drill types and margins would also help.

[Greg Borsk, CFO at Geodrill]

The revenue, the year-over-year or the year-to-date, if you look at that, most of that growth is coming directly out of Africa. What we've disclosed, Gordon, in the Q2, the significant contracts in Chile, they're going to take effect starting in Q4, and they'll roll for three years through 2025, 2026, and 2027, so what we have year-to-date, mainly that's coming from Africa.

[Greg Borsk, CFO at Geodrill]

Okay. That's fantastic.

[Greg Borsk, CFO at Geodrill]

We had a question on the margins too. I think on the margins, if you look at where we are year-to-date, significant margins, if you look, we were able to increase revenue year-to-date by 9%. So from, call it $101 million-$110 million. And I think it's important to point out, just in today's inflationary environment, etc., key to that, not only were we able to increase revenue by 9%, we were able to maintain our gross margin. So if you look at the gross margin year-to-date 2023, the gross margin was 26%. We were able to match that in 2024. We were able to, year-to-date, we also have a gross margin of 26%.

[Greg Borsk, CFO at Geodrill]

Okay. That helps. Thanks very much. Just moving further down the financial statements here. Your CapEx was a little higher this quarter than expected. Is that related to a higher volume of drill upgrades, or is this more in line with expected run rate going forward?

[Greg Borsk, CFO at Geodrill]

The higher CapEx is for the contracts that we signed in Chile, which will be starting to turn in Q4. So we're ahead of that. A lot of the CapEx was spent in Q3, and it'll be spent in Q4 also.

[Greg Borsk, CFO at Geodrill]

Okay. Okay. Thank you very much. That's it for me.

[Greg Borsk, CFO at Geodrill]

Thanks, Gordon.

[Dave Harper, President and CEO at Geodrill]

Thanks. Cheers.

[Operator]

Ladies and gentlemen, as a reminder, should you have a question, please press star, followed by the one. Your next question comes from John Sartz with Viking Capital. Your line is now open.

[John Sartz, President and Chief Investment Officer at Viking Capital]

Good morning. So Dave, I thought your opening remarks were very good. The only thing missing was, I think you should have said, "The board is there for reinstating the dividend.

[Dave Harper, President and CEO at Geodrill]

Yeah.

[Dave Harper, President and CEO at Geodrill]

Took the words right out of my mouth, actually, and we had a lengthy discussion. We just finished up a board meeting this week, and perhaps Greg Borsk might prefer to comment on that.

[Greg Borsk, CFO at Geodrill]

Yeah. I think, John, we do have a few levers to pull. As you're aware, we also have the NCIB. We haven't used that. Typically, we use that when the share price is depressed. So I think the share approaching three, that doesn't really make sense. We also have a lot of institutional funds that are buying and looking to get into the stock. In terms of the dividend, yeah, we discuss the dividend. We look at it. Even though we're net cash, we do have debt on the books. It's expensive debt, 9.35%. So there's a lot of opportunities for the cash we generate from operations. And as Gordon said also, we've signed some big contracts. Where we're operating, the demand for drilling services is we're keeping up, but our clients are constantly looking for more. So it's a balance, if you will.

[Greg Borsk, CFO at Geodrill]

It's a balance between growth, increasing the top line, continuing to add rigs, and the key is keeping the customer happy. We will continue to look at any excess cash and what best to do with it. Dividends do come up, but as I mentioned earlier, we had significant CapEx to get ready for some of these ramp-ups that we're going to have in 2025 and 2026.

[John Sartz, President and Chief Investment Officer at Viking Capital]

Okay. Thank you. I still think you should reintroduce the dividend, but it's up to you. I mean, have a nice day. Thanks.

[Dave Harper, President and CEO at Geodrill]

No, no, no, no. I appreciate your comments, John, and it's a work in progress, believe me. But we've just gone through a really heavy period of CapEx to tool up. And what happens when you sign a contract is the first thing you get is the costs are all front-end loaded. We've just got to get the rigs in the field, get them turning and earning, and the free cash will follow. And you can be assured the dividend will imminently be reinstated, just not immediately. Just I'm on it. We're working on it.

[Operator]

Your next question comes from Jesus Sanchez with Kaspinar Investment. Your line is now open.

[Operator]

Hi, and congrats for another great quarter. I have a question about the order book that we have. We mentioned, or you mentioned, that we achieved new contracts of $150 million plus $49 million in Chile after this recent quarter. So that will add, year-to-date, an addition of $200 million in contracts. Can you disclose the total order book value?

[Greg Borsk, CFO at Geodrill]

Hey, Jesus, sorry, maybe this is confusing. That $49 million will be spread out over the new contracts, the $49 million that we signed subsequent to Q3, they will be spread out over three years. So they will not be year-to-date, if that was the question. And same with the $150 million. The $150 million that we announced early in the year, Q1, again, those are multi-rig, multi-year contracts.

[Greg Borsk, CFO at Geodrill]

Yeah. Thank you for the clarification. I understand that, but they were signed this year. So this year, we have signed $200 million in contracts that will be recognized as revenue in the following three to five years. I got that. My question is, how much do we have before Q4? How much was our order book?

[Greg Borsk, CFO at Geodrill]

Yeah. We don't disclose that. And then maybe it's something we can look at disclosing going forward. We have long-term contracts, five-year contracts that were disclosed three years ago. So we don't disclose that in the MD&A, but it's something if analysts and investors would like to know the order book going out over time, we could definitely consider that going forward.

[Greg Borsk, CFO at Geodrill]

That would be great because, I mean, personally, that gives me some visibility about the revenue that is coming. My second question is a piggyback of the previous one that the other analyst made about dividends and buyback. Why do you will be favoring dividends over buyback at this price of the share?

[Greg Borsk, CFO at Geodrill]

The buyback, in the past, we've typically viewed it as like a floor. Kind of if the stock gets too low, we will put in a bid so that we used the buyback years ago. And what we were finding years ago when there was not a lot of volume in the stock, a small amount of shares being sold could dramatically impact the price of the stock. So when we were using the NCIB years ago, it was kind of to put in a bit of a floor on the stock. You're not able to move your stock up by your NCIB. You're able to kind of match the current bid. And what we found in the last three years is that there's been enough demand from investors and institutional funds, etc., where they're looking for stock. So it really didn't make sense for us.

[Greg Borsk, CFO at Geodrill]

The stock was increasing. We went from a low of less than $2 to up to, I think, $3.65 or getting close to $4. Putting in the buyback didn't make sense. It was what we decided was more prudent to actually implement dividends as a return of capital. This is all tempered by what Dave said earlier. Taking care of your customer and continuing to have that growth CapEx, etc., is kind of, it's definitely in our balance of where do we spend our operating cash flow.

[Greg Borsk, CFO at Geodrill]

Perfect. Thank you very much, Greg and Dave, for your work.

[Dave Harper, President and CEO at Geodrill]

Yes.

[Dave Harper, President and CEO at Geodrill]

Hey, Jesus, if I can just jump in for a second, just to add to Greg's comments. We get the whole thing about share buyback. We get the whole thing about dividends. But the best thing is we can do with our free cash at the moment is just keep adding rigs because we have an ever-increasing demand for our services. As our rig fleet reaches 70% utilization, we automatically start looking at how much cash we've got and what we need to be buying to add into an ever-increasing demand for our services. Now, and that's pretty much what we're doing at the moment. We've just had a bit of a purple patch in terms of signing contracts. Let's get these all into work, start generating some free cash.

[Dave Harper, President and CEO at Geodrill]

And then the decision between whether we go dividends, whether we do share buyback, or a combination of those will simply be a great problem to have. And it's coming. It's coming imminently. Not immediately, but imminently.

[Dave Harper, President and CEO at Geodrill]

Yeah. For what it's worth, I totally agree with that strategy. We are in growth mode. We still invest in CapEx, new rigs, spending. And time will be where we can give dividends or think about buybacks. But right now, we are with our growth hat on. Thank you very much.

[Dave Harper, President and CEO at Geodrill]

Thanks. You're welcome, Jesus.

[Operator]

Your next question comes from George Mela with MKH Management. Your line is now open.

[George Mela, President at MKH Management]

Thank you. Thanks for taking my question. I'm fairly new to this story. I have two questions. One relates to rig relocations. I understand that you moved some rigs from West Africa to South America last year, maybe earlier this year, so I try to understand if that's largely done or if you have some rigs that you still need to relocate, and the second question relates to the seasonality of the business. I'm just trying to understand what is the seasonality and maybe if you could take that by geography? Thank you very much.

[Dave Harper, President and CEO at Geodrill]

Thanks. So yeah, we took a strategic decision in quarter two last year to reposition ourselves. We had competing priorities, if I can put it that way. We had opportunities in other jurisdictions, and we were operating in a jurisdiction where we just saw better opportunities afar. And so we took the decision to relocate, redeploy rigs from one region. Some were absorbed into West Africa. In fact, most of them were absorbed into other countries in West Africa. I think maybe I'm not sure that any of them actually went to South America. South America has effectively been pretty much a standalone operation. It started, and it started to generate its own free cash. And from its own free cash, it's been growing nicely on its own.

[Dave Harper, President and CEO at Geodrill]

We've grown that fleet from we started five years ago with three or four rigs, and today we're up to 13 rigs that will be operating in that region, so we should effectively have been funded from cash generated from operations, so we're doing quite well, so the two businesses are going to continue to run, but run independently and as and where we need to if we believe that there's spare capacity in West Africa, which there doesn't seem to be at this point in time, but if there should be the case that we have spare capacity in West Africa, then I'm sure it'll be absorbed into either North Africa or South America.

[George Mela, President at MKH Management]

Talking to you, Greg. It was about the seasonality of the business.

[Greg Borsk, CFO at Geodrill]

The seasonality, just if you look at the quarters, Q1 and Q2 are typically our strongest quarter. Q3, in certain regions in West Africa, were impacted by wet season, so typically, Q3 is our slowest quarter, and then Q4, we pick up again, and then we're only impacted in Q4 by the holidays. A lot of the larger tier one clients, they will shut down in advance of Christmas, and then they will not start up until maybe a week after the New Year, but we've been doing this for a long time. We know Q1, Q2, we start ramping up for Q1 and Q2 and Q3 of this year. We're ready for it. We know those are the two busy quarters. Q3, typically, we have rigs come in. If they need an upgrade or a service, that's what we use Q3 for.

[Greg Borsk, CFO at Geodrill]

And then Q4, again, we know we're going to slow down a bit in and around the New Year, just before it and just after. But that allows our staff to get rested, take their break, and gear up for a very busy Q1 and Q2. And that's what you see. And that's what we communicate every quarter. So that's it. And we were very pleasantly surprised with Q3 2024 when we used to kind of budget almost a break-even. But now that we've moved to Tier one miners and significant clients that drill more consistently, Q3 is now a profitable quarter for us. And you can see that where we were able to not only reinvest into the fleet and the equipment, we were also able to generate profits here in Q3 of $0.06 a share. So it was a very good quarter, very strong Q3 for the group.

[George Mela, President at MKH Management]

Great. Thank you so much for these explanations.

[Greg Borsk, CFO at Geodrill]

Thank you, George.

[George Mela, President at MKH Management]

Thank you.

[Dave Harper, President and CEO at Geodrill]

Cheers.

[George Mela, President at MKH Management]

Thanks.

[Operator]

No further questions at this time. I will now turn the call over to management for closing remarks.

[Dave Harper, President and CEO at Geodrill]

Okay. There's no other questions. Thank you, everybody, for being on today's call, and have a great day.

[Greg Borsk, CFO at Geodrill]

Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in ASAE. Please disconnect your lines.

Participants

Executives

• Dave Harper, President and CEO
• Greg Borsk, CFO

Analysts

• John Sartz, President and Chief Investment Officer at Viking Capital
• Analyst at Kaspinar Investment
• George Mela, President at MKH Management
• Analyst at Paradigm Capital