Orbit Garant Drilling Q4 2024 Earnings Call Transcript

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Provided by Quartr
September 20, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Orbit Garnt Drilling's Fiscal 2024 Quarter and Year End Conference Call. At this time, all lines are in a listen only mode. Following the 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 risk factors and non IFRS measures. This call is being recorded on Friday, September 20, 2024. I would now like to turn the conference over to Mr. Pierre Alexander, President and CEO of Orbit Garand. Please go ahead, sir.

Speaker 1

Thank you, Lody, and good morning, ladies and gentlemen. With me on the call today is Daniel Marous, 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 the questions. Our profitability in the 4th quarter improved compared to Q4 last year, with our adjusted gross margin exceeding 20% for the first time since the Q2 of 2021 fiscal year.

Speaker 1

Our improved profitability in Q4 this year reflects a number of factors. In Q4 last year, we experienced a decline in drilling activity in Canada due to forest fire as we had to suspend our drilling activities on all our surface and underground drilling projects in Quebec as well as one surface project in Ontario for various periods beginning on mid-twenty 9 and continuing into July. This resulted in a revenue reduction of approximately $3,000,000 in the quarter. In addition, certain customers decided to temporarily suspend or reduce drilling activity on other projects in that quarter. These decisions were company specific and had nothing to do with our performance.

Speaker 1

However, the impact of our performance for the quarter and into the first half of fiscal twenty twenty four. Our 4th quarter results last year were also impacted by a one time non cash restructuring charge of $4,200,000 related to our decision to wind down our drilling activity at Burkina Faso and exit the country. In Q4 this year, we experienced a decline in demand for junior exploration companies compared to Q4 last year, but demand from our senior and well financed intermediate mining companies remains strong. Our stronger operating performance primarily reflects increased drilling activity in Chile and our succession of drilling operation in West Africa. During Q4 this year, we entered into an agreement to sell our inventory in West Africa for an amount of $1,200,000 and our property, plant and equipment in West Africa for an amount of $6,300,000 and record the short term receivable of as compensation for an amount of $7,500,000 At year end, we record a recognition of short term receivables and a recognition of a new long term receivable of $3,900,000 following a significant change in contractual payment terms of the receivable.

Speaker 1

The effect of this substantial modification of the receivable is a loss of $3,500,000 included in the expenses of the consolidated statements of loss. We also recognized an expected credit loss of this receivable for an amount of $1,700,000 in the consolidated statement of loss. Excluding this one time event, our net income would have been $4,000,000 or $0.11 per share for the quarter. We are quite pleased to have now fully complete our exit from West Africa, which was largely unprofitable for us. We are now able to heighten our focus on drilling contracts with senior and well financed intermediate mining companies in Canada and Chile, 2 markets that have been more stable and predictable for us.

Speaker 1

We recently secured 2 large renewal and copper drilling projects in Chile with senior mining companies. One of the contract renewals is for a term of 3 years, with a customer option to extend for 2 years and then the other, which represents our largest contract in Chile by revenue, is for a term of 5 years. Senior and intermediate producers are currently benefiting from record high gold prices and strong copper pricing, which provide a strong incentive to continue investing in mine development activity in both Canada and Chile. I will now turn the call over to Daniel to review our results for the Q3. Daniel?

Speaker 1

Thank you, Pierre, and good morning, everyone. Revenue for our fiscal Q4 totaled $45,300,000

Speaker 2

a small reduction of 3% compared to Q4 a year ago. Canada revenue was $32,800,000 in the quarter, a slight increase from $32,600,000 in Q4 last year. As Pierre previously noted, Canada revenue was negatively affected by financing the difficulties for junior and terminated mining company during Q4 this year, resulting in a lower drilling activity than previous year, where our revenue in Q4 last year was negatively impacted by project suspension due to forest fire. International revenue totaled $12,500,000 in the quarter compared to $14,200,000 in Q4 a year ago. The year over year decline reflects our decisions to cease drilling activity in West Africa, partially offset by increased drilling activity in Chile.

Speaker 2

Gross profit was $7,300,000 for the quarter or 16.1 percent of revenue compared to $700,000 or 1.4 percent in revenue in Q4 last year. The increase in gross profit and gross margin reflect the write down of inventory from restructuring in Q4 last year, as Pierre discussed earlier, and improved profitability of our international operations resulting from our increased drilling activity in Chile and cessation of drilling activity in West Africa. Depreciation expense totaling $2,500,000 are included in the cost of the contract of revenue for Q4 2024 compared to a depreciation expenses of $2,600,000 and a $4,200,000 write down in Q4 a year ago. Adjusted gross margin, excluding depreciation expense, was 21.7% this past quarter compared to an adjusted gross margin, excluding depreciation expense and the write down of inventory of 15.9% in Q4 2023. The increase in adjusted gross margin primarily reflects the increased profitability of our international operations.

Speaker 2

General and administrative expenses in the quarter were $4,000,000 or 8.9 percent of revenue compared to $5,100,000 or 10.9 percent of revenue in Q4 last year. Adjusted EBITDA totaled $6,400,000 compared to $1,800,000 in Q4 last year. The increase primarily reflects growth in operational earnings from our international operations. Net loss for the quarter was $1,200,000 or $0.04 per share compared to a net loss of $4,100,000 or $0.11 per share in Q4 last year. Our net loss this past quarter was attributable to $5,200,000 effect of the substantial modification of a receivable and expected a plus as discussed earlier.

Speaker 2

Turning now to our full year end results for fiscal 2024. Revenue totaled $181,200,000 a decrease of 9.8% compared to to fiscal 2023. The decline was primarily attributable to customer decision to temporarily suspend or reduce drilling activity on certain projects in Canada throughout the first half of fiscal twenty twenty four. Our international revenue was essentially in line with fiscal 2023. Our adjusted gross margin, excluding depreciation expenses, was 16.7% in fiscal 2024 compared to an adjusted gross margin, excluding depreciation expense and the write down of inventory of 16.2% in fiscal 2023.

Speaker 2

The increase primarily reflects the increased profitability of our international operations, partially offset by the decline in drilling activity on certain projects in Canada during the first half of the year. Adjusted EBITDA was $14,400,000 for fiscal 2024, a decrease of $4,700,000 compared to fiscal 2023. The decrease reflects the reduction of drilling activity in Canada to the project suspension or reduction during the first half of fiscal twenty twenty four and the cost related to retain key personnel on these projects and then ramping them back up. We also had a $3,000,000 negative variation in foreign exchange. These negative factors were partially offset by the improved profitability of our international operations.

Speaker 2

Net loss for fiscal 2024 was $1,300,000 or $0.04 per share compared to a net loss of $700,000 or $0.02 per share last year. Again, our net loss reflects the $5,200,000 negative effect on of the substantial modification of a receivable and expected credit loss. Now turning to our balance sheet. We repaid a net amount of $700,000 on our credit facility this past year compared to a year ago. Our long term debt under the credit facility, including US3 $1,000,000 growth from our revolving facility and the current portion, was US21 $500,000 at fiscal year end compared to $22,200,000 as at June 30 a year ago.

Speaker 2

At year end, our working capital totaled $48,900,000 compared to $50,400,000 at fiscal 2023 year end. Now I turn the call back to Pierre for closing comments. Pierre?

Speaker 1

Thanks, Daniel. In May of 2023, I outlined a strategic 5 point plan to improve our operating performance over the following 15 months, which consists of primarily focusing on our Canadian gold drilling operation, prioritizing longer term specialized drilling contract with major and intermediate customer, opportunistically pursuing international contract that present a high degree of cost and margin certainty, while gradually reducing exposure to Berken FSO. Continued investment in drilling training and computerized drilling technology and building a team oriented leadership structure that fosters collaboration and personal accountability. Our goal was increase our gross margin. We are now coming up on the end of the 15 month period, and we have made a strong project progress, sorry, in executing the plan.

Speaker 1

Despite the current low level of gold drilling activity for junior exploration companies in Canada, we have maintained strong contracts with senior and intermediate customer. Our drilling contracts with senior and intermediate mining company represent 87% of our revenue in fiscal 2024. We have significantly grown our business activity in Chile, including 2 long term drilling contract this past quarter. We have exited the West African drilling market, which was unprofitable for us and are now focused on operation in Canada and Chile. We continue to focus on our computerized monitoring and control technology and drilling innovation.

Speaker 1

We are starting to roll out computerized surface rigs and recently launched a new hands free rod handler, which enhance efficiency and safety. We have made solid progress on shifting our business culture towards a more team orientated leadership structure that fosters collaboration and personal accountability. Our business is currently supported by a very strong metal price. Gold price reached record highs above $2,500 per ounce last month. Copper price have also increased significantly during this calendar year.

Speaker 1

Accordingly, we expect to see continued strong customer demand from senior mining company and well financed intermediate. If the junior are able to accessing capital again, demand for our service will be extremely strong. That concludes our formal remarks this morning. We will now welcome any questions. Thank you.

Speaker 1

Go ahead.

Operator

Thank you. And ladies and gentlemen, we will now begin the question and answer session. And your first question comes from the line of Gordon Lawson with Paradigm Capital. Please go ahead.

Speaker 3

Hello, good morning and congratulations on the great quarter. On the Chilean front, your growth there has significantly outperformed your peers. Is there anything specific you can attribute this to?

Speaker 1

Would you please repeat the question, Gordon?

Speaker 3

Your performance in Chile is significantly outperforming your peers. So I'm just wondering if there's any specific aspect you can attribute this to?

Speaker 2

Let's see, Gordon, since January 2023, so in the last 6 quarter, Chilean operations made a recovery from the years before because we focus on large copper producer in Chile, which are the main producer in Chile. So we put 100% of our effort to serve these major clients in Chile. And now since January 'twenty three, we keep very good margin in Chile since. And as you know, we renew these 2 most of the our contracts this year for the next 5 years. So we are very pleased with our operation in Chile.

Speaker 2

Yes.

Speaker 3

Yes, sounds great. And on the liquidity front, can you talk about your current total liquidity position and what your plans are in terms of loan repayments for fiscal 2025?

Speaker 2

Yes. In fiscal 2024, we are we focus on profitability and use the profitability to reduce our debt. Globally, in 2024, if we compare at fiscal 2023, we reduced debt by more than $4,000,000 So we will still focus on profitable increased margin. As you see in Q4 margin are over 20%. This margin help us to reduce our debt.

Speaker 2

And as you know, we have kept expense of capital to make for the new contract in Chile, which is important for us. We still invest in these computer drill because we have to build 3 new drill rigs for this contract. So that's our focus, increase the quality of our drill and reduce that. And actually, our liquidity is growing slowly, but surely better.

Speaker 3

Okay. That's great. Thank you very much.

Speaker 2

Thank you, Gordon. Thank you.

Operator

Thank you. And we do have a question from Tim Tang. Please go ahead.

Speaker 4

Hi, congratulations for the great quarter. I have a question about the adjusted gross margin. This is the highest margin for a long time. I want to know that should we expect this margin to stabilize at this level going forward? And then does the management has any target for the adjusted gross margin?

Speaker 4

And what would be the steps or plan to achieve that target? Thank you.

Speaker 2

Thank you for this question. As you know, the big thing we made a great an important decision 15 months ago to evaluate the situation in West Africa, and we decide to sell equipment because we don't make good margins there. So since that or as I just mentioned to Gordon a few minutes ago, we in Chile, the business is better than ever. So the stabilization of the margin in Chile and since January of 2024, we don't have any, let's say, negative cash flow coming from West Africa. So the contracts are really actually since January stable.

Speaker 2

In Chile, we have 3 5 years perspective with almost more than 50% of our contracts are renewed in Chile with this level of margin they have since January 2023. And here in Canada, our contract are also which large and intermediate company and they are renewed for a few years and it's stable. The only thing that could help us to increase significantly our margin could be a junior come back in the market maybe in calendar 2025, but we don't see anything actually of that because no new bids are on the table small bids are on the table, but we still have unfortunately a lot of drill available. So I will say, yes, our margin should stay like they are actually. And the only thing, it could increase if we have in Canada more junior business, let's say, hopefully in 2024.

Speaker 2

And we think with the value of the gold actually over $200,600 that could be something happening, but we don't see anything right now.

Speaker 4

Thank you.

Speaker 2

Thank you.

Operator

And there are no further questions at this time. I would like to turn it back to Mr. Pierre Alexander for closing remarks.

Speaker 1

Thank you everyone for participating today. We look forward to speaking with you again after we report our fiscal 4th quarter results.

Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.

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Key Takeaways

  • Adjusted gross margin rose to 21.7% in Q4, the highest since Q2 2021, driven by increased drilling activity in Chile and improved international operations after exiting West Africa.
  • The company completed its full exit from the unprofitable West Africa market, selling $7.5 million of inventory and equipment and recording one‐time charges related to receivable modifications.
  • Orbit secured two new long‐term drilling contracts in Chile—one three‐year renewal (with a two‐year option) and a five‐year copper project—cementing relationships with major producers amid record gold and copper prices.
  • In Q4, revenue was C$45.3 million (down 3% YoY), adjusted EBITDA was C$6.4 million (versus C$1.8 million last year), and net loss was C$1.2 million, reflecting the receivable modification charge.
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Earnings Conference Call
Orbit Garant Drilling Q4 2024
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