Orbit Garant Drilling Q4 2024 Earnings Report

Orbit Garant Drilling EPS Results

• Actual EPS: -C$0.04
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Orbit Garant Drilling Revenue Results

• Actual Revenue: $45.30 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Orbit Garant Drilling Announcement Details

• Quarter: Q4 2024
• Date: 9/19/2024
• Time: N/A
• Conference Call Date: Friday, September 20, 2024
• Conference Call Time: 10:00AM ET

Orbit Garant Drilling (TSE:OGD) Inc is a Canadian based drilling company providing services to mining companies through all stages of exploration, development, and production. The company operates a surface and underground diamond drilling business. The firm also manufactures conventional drill rigs while also manufacturing and providing other support equipment such as water recirculation systems, heat recovery systems, and fuel-efficient systems. The company operates in Canada, the United States, Central and South America, and West Africa. The majority of the company's revenue is derived from operations in Canada.

Orbit Garant Drilling Q4 2024 Earnings Call Transcript

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.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's fiscal 2024 fourth 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. If at any time during this call you require immediate assistance, please press star zero for the operator. 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 SEC 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 Alexandre, President and CEO of Orbit Garant. Please go ahead, sir.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Thank you, Ludy, and good morning, ladies and gentlemen. With me on the call today 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 the question. Our profitability in the fourth quarter improved compared to Q4 last year, with our adjusted gross margin exceeding 20% for the first time since the second quarter of 2021 fiscal year. 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 the forest fires, as we had to suspend our drilling activities on all our surface and underground drilling projects in Québec, as well as one surface project in Ontario for various periods, beginning on May 29 and continuing into July.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

This resulted in a revenue reduction of approximately CAD 3 million 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. However, they impacted our performance for the quarter and into the first half of fiscal 2024. Our fourth quarter results last year were also impacted by a one-time non-cash restructuring charge of CAD 4.2 million related to our decision to wind down our drilling activity in 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 remained strong. Our stronger operating performance primarily reflected increased drilling activity in Chile and our cessation of drilling operations in West Africa.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

During Q4 this year, we entered into an agreement to sell our inventory in West Africa for an amount of CAD 1.2 million and our property, plant, and equipment in West Africa for an amount of CAD 6.3 million, and record a short-term receivable of, as compensation for an amount of CAD 7.5 million. At year-end, we record a derecognition of short-term receivable and a recognition of a new long-term receivable of CAD 3.9 million, following a significant change in contractual payment terms of the receivable. The effect of this substantial modification of the receivable is a loss of CAD 3.5 million included in the expenses of the consolidated statements of loss. We also recognize an expected credit loss of this receivable for an amount of CAD 1.7 million in the consolidated statement of loss.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Excluding this one-time event, our net income would have been CAD 4 million, or CAD 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, two markets that have been more stable and predictable for us. We recently secured two large renewal on copper drilling project in Chile with senior mining companies.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

One of the contract renewal is for a term of three years, with a customer option to extend for two years, and then the other, which represent our largest contract in Chile by revenue, is for a term of five years. Senior and intermediate producer 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 third quarter. Daniel?

[Daniel Maheu, CFO at Orbit Garant Drilling]

Thank you, Pierre, and good morning, everyone. Revenue for our fiscal fourth quarter totaled CAD 45.3 million, a small reduction of 3% compared to Q4 a year ago. Canada revenue was CAD 32.8 million in the quarter, a slight increase from CAD 32.6 million in Q4 last year. As Pierre previously noted, Canada revenue was negatively affected by financing difficulties for junior and intermediate mining companies during Q4 this year, resulting in a lower drilling activity than previous year, whereas revenue in Q4 last year was negatively impacted by project suspension due to forest fire. International revenue totaled CAD 12.5 million in the quarter, compared to CAD 14.2 million 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.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Gross profit was CAD 7.3 million for the quarter, or 16.1% of revenue, compared to CAD 0.7 million, or 1.4% 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 operation, resulting from our increased drilling activity in Chile and cessation of drilling activity in West Africa. Depreciation expense totaling CAD 2.5 million are included in the cost of the contract of revenue for Q4 2024, compared to a depreciation expenses of CAD 2.6 million and a CAD 4.2 million write-down in Q4 a year ago.

[Daniel Maheu, CFO at Orbit Garant Drilling]

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 reflect the increased profitability of our international operations. General and administrative expenses in the quarter were CAD 4 million, or 8.9% of revenue, compared to CAD 5.1 million, or 10.9% of revenue, in Q4 last year. Adjusted EBITDA totaled CAD 6.4 million, compared to CAD 1.8 million in Q4 last year. The increase primarily reflect growth in operation earnings from our international operation.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Net loss for the quarter was CAD 1.2 million, or CAD 0.04 per share, compared to a net loss of CAD 4.1 million, or CAD 0.11 per share, in Q4 last year. Our net loss this past quarter was attributable to CAD 5.2 million effect of the substantial modification of a receivable and expected credit loss, as discussed earlier. Turning now to our full year-end results for fiscal 2024. Revenue totaled CAD 181.2 million, a decrease of 9.8% compared 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 2024. Our international drilling revenue was essentially in line with fiscal 2023.

[Daniel Maheu, CFO at Orbit Garant Drilling]

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. The increase primarily reflect 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 CAD 14.4 million for fiscal 2024, a decrease of CAD 4.7 million compared to fiscal 2023. The decrease reflects the reduction of drilling activity in Canada to the project suspensions or reductions during the first half of fiscal 2024, and the costs related to retain key personnel on these projects and then ramping them back up. We also add a CAD 3 million negative variation in foreign exchange.

[Daniel Maheu, CFO at Orbit Garant Drilling]

These negative factors were partially offset by the improved profitability of our international operations. Net loss for fiscal 2024 was CAD 1.3 million, or CAD 0.04 per share, compared to a net loss of CAD 0.7 million, or CAD 0.02 per share, last year. Again, our net loss reflect the CAD 5.2 million negative effect on of the substantial modification of a receivable and expected credit loss. Now turning to our balance sheet. We repay a net amount of CAD 0.7 million on our credit facility this past year compared a year ago.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Our long-term debt under the credit facility, including $3 million draw from our revolving facility and the current portion, was CAD 21.5 million at fiscal year-end, compared to CAD 22.2 million as at June 30th a year ago. At year-end, our working capital totaled CAD 48.9 million, compared to CAD 50.4 million at fiscal 2023 year-end. Now, I turn the call back to Pierre for closing comments. Pierre?

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Thanks, Daniel. In May of 2023, I outlined a strategic 5-point plan to improve our operating performance over the following 15 months, which consist 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 Burkina Faso. 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 progress in executing the plan. 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.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Our drilling contracts with senior and intermediate mining companies represent 87% of our revenue in fiscal 2024. We have significantly grown our business activity in Chile, including two long-term drilling contracts this past quarter. We have exited the West African drilling market, which was unprofitable for us, and are now focused on operations in Canada and Chile. We continue to focus on our computerized monitoring and control technology and drilling innovation. 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 toward a more team-oriented leadership structure that fosters collaboration and personal accountability.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Our business is currently supported by a very strong metal price. Gold price reached record highs above CAD 2,500 per ounce last month. Copper prices have also increased significantly during this calendar year. Accordingly, we expect to see continued strong customer demand from senior mining companies and well-financed intermediates. If the juniors are able to access capital again, demand for our services will be extremely strong. That concludes our formal remarks this morning. We will now welcome any questions.

[Operator]

Thank you, and Lady.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Go ahead.

[Operator]

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. And, to withdraw your question, you may press star followed by the number two. Once again, if you would like to ask a question, please press star one. And your first question comes from the line of Gordon Lawson with Paradigm Capital. Please go ahead.

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

Hello, good morning, and congratulations on the great quarter.

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Thank you.

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

On the Chilean front, your growth there has significantly outperformed your peers. Is there anything specific you can attribute this to?

[Daniel Maheu, CFO at Orbit Garant Drilling]

Would you please repeat the question, Gordon?

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

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.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Let's see, Gordon, since January 2023, so in the last six quarters, Chilean operations made a recovery from the years before, because we focus on large copper producers in Chile, which are the main producers in Chile. So we put 100% of our effort to serve these major clients in Chile. And now, since January 2023, we keep very good margins in Chile since. And as you know, we renewed most of our contracts last year for the next five years. So we are very pleased with our operations in Chile.

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

Yeah. Yeah, 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?

[Daniel Maheu, CFO at Orbit Garant Drilling]

Yes. In fiscal 2024, we focused on profitability and use the profitability to reduce our debt. Globally, in 2024, if we compare to fiscal 2023, we reduced debt by more than CAD 4 million. So we will still focus on profitable increase margin, as you see in Q4 margin are over 20%. This margin help us to reduce our debt. And as you know, we have CapEx to make for the new contract in Chile, which is important for us. We still invest in these computerized drill, because we have to build three new drill rigs for this contract. So that's our focus, increase the quality of our drill and reduce debt.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Actually, our liquidity is going slowly but surely better.

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

Okay, that's great. Thank you very much.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Thank you, Gordon.

[Gordon Lawson, Senior Research Associate at Paradigm Capital]

Thank you.

[Operator]

Thank you. And once again, if you would like to ask a question, please press star one. And we do have a question from Tim Tang. Please go ahead.

[Operator]

Hi, congratulations on 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, and what will be the steps or plan to achieve that target? Thank you.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Thank you for this question. As you know, the big thing, and 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 margin 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 contract are really, actually, since January, stable.

[Daniel Maheu, CFO at Orbit Garant Drilling]

In Chile, we have three and five years perspective with almost more than 50% of our contract are renew in Chile with this level of margin they have since January 2023. And here in Canada, our contract are also which are large and intermediate company and they are renew 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.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Small bids are on the table but we still have unfortunately a lot of drill available. 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, and we think with the value of the gold actually over $2,600, that could be something happening, but we don't see anything right now.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Thank you.

[Daniel Maheu, CFO at Orbit Garant Drilling]

Thank you.

[Operator]

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

[Pierre Alexandre, President and CEO at Orbit Garant Drilling]

Thank you, everyone, for participating today. We look forward to speaking with you again after we report our fiscal fourth 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.

Participants

Executives

• Daniel Maheu, CFO
• Pierre Alexandre, President and CEO

Analysts

• Gordon Lawson, Senior Research Associate at Paradigm Capital
• Analyst