Geodrill Ltd

TSX:GEO

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and welcome to the Geodrill's Q2 2024 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, August 12, 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 would now like to turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

[David Harper, executive]

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss Geodrill's financial and operational results for the second quarter of 2024, joining me on the call today is Greg Borsk, our CFO.

Now let's dive into the financial highlights for the reporting period. In the second quarter, we achieved 2 consecutive months of record-breaking revenue. Building on the momentum witnessed in the first quarter, we realized unprecedented revenue peaks. Firstly, in May, then immediately followed by a further increase in June, both of which surpassing all previous historical benchmarks.

Overall, quarter 2 revenue was a significant 26% year-over-year increase as well a robust 19% quarter-over-quarter improvement.

Net income was an impressive year-over-year surge of 147% as well a remarkable quarter-over-quarter increase of 130%. And for EBITDA, we recorded a substantial year-over-year increase of 72% as well a 60% quarter-over-quarter improvement. Additionally noteworthy, we increased our cash position by 27% during the quarter and also reduced the company's debt by 9%, achieving an overall debt-to-equity ratio of 8%, which underscores our dedication to maintain a solid balance sheet position. Also importantly, in the quarter, we made significant investments amounting to USD 2.8 million in the upgrade and maintenance of our modern fleet of drill rigs and equipment. This investment ensures that we will continue to lead the industry with state-of-the-art equipment, ensuring us to deliver exceptional service to our clients and maintain our competitive edge. These financial decisions are a testament to our disciplined approach to managing resources and our continued -- our continuous effort to enhance shareholder value and we are confident these actions will contribute to our sustained growth and the success of the business.

Now looking at the operational highlights. We ended the quarter -- we ended quarter 2 with a total of 91 rigs in our operational fleet to meet ongoing demand. We also reached a new safety milestone, achieving 17.5 million hours without lost time injury. Recall in the first half of 2024, we secured contracts totaling more than USD 150 million, which will significantly contribute to our revenues and profitability over the next 3 to 5 years.

These contracts include 2 substantial long-term agreements with top-tier mining companies or multiple rigs. Our operations in Egypt, Chile and Peru continued to excel, supported by long-standing contracts with Tier 1 mining companies and multiyear agreements. Our strategic focus with senior miners through long-term contracts is directly contributing to our goal of delivering sustainable results to our shareholders. These contracts are not only a reflection of our commitment to stability and growth, but also an affirmation of the trust placed in us by industry leaders.

Moreover, growing mineral drilling market, largely fueled by a strong gold price has created favorable conditions for our operations, allowing us to capitalize on the opportunities presented by the buoyant mineral drilling market. The synergies of these 2 factors, our strategic long-term contracts and the robust gold price market positions us exceptionally well to continue our trajectory of growth and success.

I will now turn the call over to our CFO, Greg Borsk, who will review our financial performance in detail. Thank you guys.

[Gregory Borsk, executive]

Thank you, Dave. I am pleased to report that our financial performance for the second quarter of 2024 has been exceptional. We achieved record-breaking quarterly revenue, the highest in the company's history which is a testament to our strategic planning and execution.

The company generated revenue of $41.2 million for Q2 2024, an increase of $8.5 million or 26% when compared to $32.6 million for Q2 2023. The gross profit for Q2 2024 was $12.7 million, being 31% of revenue compared to a gross profit of $7.8 million, being 24% of revenue for Q2 2023. EBITDA for Q2 2024 was $10.7 million or 26% of revenue, compared to only $6.2 million or 19% of revenue for Q2 2023. The net income for Q2 2024 was $4.8 million or $0.10 per share, compared to $2 million or $0.04 per share for Q2 2023.

I would also like to highlight other key financial accomplishments in the second quarter. We generated net cash from operating activities of $5.9 million, which reflects our strong operational performance and efficient cash flow management. We also increased the company's cash by 27% over Q1 2024, while reducing total debt by 9%, ending the quarter with net cash, excluding right-of-use liabilities of $300,000. Echoing Dave's comments with the gold price well above $2,400 global exploration spending continues to be strong and provides strong fundamentals for the company going forward.

At this point, I will turn the call back to Dave.

[David Harper, executive]

Thank you, Greg. Our focus on securing long-term contracts has provided us with a stable and predictable revenue stream, which is crucial in the cyclical business of mineral drilling services. This approach has allowed us to optimize our resource allocation and operational efficiency, resulting in improved profitability as evidenced by our results today.

Looking ahead, we remain optimistic about the future. The demand for our services continues to grow. And with a strong foundation late in the first half of 2024, we are confident in our ability to maintain success and deliver increased shareholder value. To this end, I would like to extend our gratitude to all our stakeholders, including our dedicated employees, our shareholders and our loyal customers for their continued support, which has been integral to our success. We are committed to maintaining our high standard of service and to furthering our position as a leader in the mineral drilling industry. This concludes our prepared remarks on our financial and operational results.

I'll now hand over to the operator, who will pass it back to listeners on the call for Q&A session. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Dave Kegler from Private Investor.

[Unknown Analyst]

Congratulations on the great results on. Just a quick question. With long-term profitability looking forward, are you planning on reinstating your dividend?

[David Harper, executive]

Yes we will at a point in time. We do have competing priorities at this point in time, which Greg will probably be the better person to speak to. But perhaps I'll just -- the short answer is yes. Not today.

[Gregory Borsk, executive]

Just if you look at the -- I think 1 of the things we highlighted was if you look at Q1, the company actually we invested quite significantly in the first quarter for the large contracts. And doing that, we ended Q1 with actually, we were in a net debt position. We hadn't been in a net debt position for quite a while.

So 1 of the things we're trying to highlight this quarter just through efficient cash management, et cetera, we've changed that. We ended Q2 with cash of $9.7 million and debt of $9.4 million. So we actually ended Q2 with net cash. So the -- what we're going to do throughout the rest of the years, continue to execute, add rigs where it makes sense, et cetera, where we have client demand. So I think the -- just to echo what Dave said, I think right now the objective is to continue to build up cash and pay down debt, and then we will revisit the dividend at a later date.

[Operator]

Your next question comes from Jerry Yanowitz from Private Investor.

[Unknown Analyst]

Is your rig utilization still 75%? And do you think this can be maintained or even modestly approved upon?

[David Harper, executive]

So through quarter 2 utilization of the fleet reached 75%. It actually reached slightly higher than that, but it actually averaged 72% for the quarter. Historically, I'm not sure how long you've been an investor if you are, in fact, indeed an invested today in Judo. But historically, if you know anything about Judo, we traditionally have our strongest quarter in quarter 2. What happens then as we experienced the seasonality in some of the markets that we operate in. So we take that opportunity to bring the rigs and do some maintenance. And it tends to be a slower quarter through quarters 3 and 4.

So to put a comparable in there at the moment, Utilization, as I sit here and speak before you today, it's currently just hovering marginally above 60%. So we've gone from 75% to 61%, which is expected -- it's normal. And we may -- it tends to increase as we exit quarter 3, and it tends to improve a bit through quarter 4. But then what happens as we slow down for the Christmas holiday season, and then it picks up again in quarter 1.

So I think today's results were evidenced -- were evidence of -- it's our strongest ever quarter in the history of this company. And it is a clear signal that after a couple underwhelming quarters that we had through 2023 for, again, competing priorities. We basically decided that we were going to exit a couple of jurisdictions and we did. And in doing that, well, of course, it had an effect on the business.

Today's results are, I think, clear evidence that we're back. We're going to be doing our best work from here going forward. But I wouldn't, at this point in time, expect a sequential improvement over the quarter that we've just delivered. But you will see a solid quarters going forward and. Yes.

[Unknown Analyst]

Right. In May, you stated that your immediate short-term goal was to get back to the best of time of 2022. In that year, you earned $0.41. Is it reasonable given the backlog and visibility you have going forward at this goal could be achieved $0.41 this fiscal year?

[David Harper, executive]

In -- sorry, is that in net earnings?

[Unknown Analyst]

Yes. I believe in 2022 you're at $0.41.

[Gregory Borsk, executive]

Dave, let me just -- I think the other thing we've mentioned is that we've morphed away from the -- we've morphed the business to be more predictable drilling more for the majors. We announced the 2 significant contracts in Q1, $150 million. So when the drilling that we're doing now is I don't -- you're not going to see as high margins, et cetera. You're going to see still industry-leading margins. But to go back and compare to 2022, 2022 we were doing a lot of exploration drilling. And if I remember, we had 1 exceptional quarter that kind of skewed things. So I think where we are now, if you look at halfway through this quarter, we're at $0.15 and we're very comfortable with that. Q1 was weak and Q2 -- sorry, Q1 was extremely weak, and we put in a $0.10 quarter. But to try to get back to $0.41 what we did in '22, we're sitting here halfway through the year at $0.15. I don't see it happening. But again, this is a strategic decision and it flows through not only in the earnings, it flows through and getting paid.

When you're drilling for the Tier 1 customers, the Tier 1 clients, we're getting paid on time. That's very important in our industry. If you look at the -- 1 of the things we disclosed is the aging of our receivables. And you can see significant improvement just over December of last year in our over 90 days, et cetera. So it's more of a stronger company, a more balanced company drilling for Tier 1 -- drilling for Tier 1 companies, et cetera. And we're still expecting exceptional earnings and exceptional earnings per share, but I don't think we'll get back to $0.41.

[Unknown Analyst]

All right. And my final question is just to follow up on that. So you did $0.10 this quarter, the third and fourth quarters are traditionally as you said, a little slower. Is it reasonable given your visibility to expect we get at least earn the $0.10 for the next 2 quarters per share.

[Gregory Borsk, executive]

Is that $0.10 between the 2 quarters? Is that your question like...

[Unknown Analyst]

My question is, could you -- you are $0.10 this quarter could your intent in the third and $0.10 in the fourth?

[Gregory Borsk, executive]

No, no. The Q2 is an exceptional quarter for us. This was a record-breaking quarter. Q3, rigs come in for maintenance, et cetera. So just to be clear, the -- this is in the 25 years of Geodrill, Q2 has always been our strongest quarter.

So we were able to earn $0.10 this quarter. We will not be able to earn $0.10 in Q3.

[Unknown Analyst]

Alright and congratulations on the incredible quarter.

[David Harper, executive]

If I can just add to what you began by saying that I had said that we're going to get back to the best times and we will surpass our best years, I believe I may have been -- in fact, I'm sure I was referring to revenue topline. So with that comment, I would stand by that comment. I believe that this year, we will surpass all previous years. As for -- I think what Greg was alluding to there was margin compression.

So the big thing that's happened is that we've taken a strategic decision to move away from juniors and companies that are beholden to the capital markets, which were causing us a bit of angst in terms of getting paid and so on and so forth. And we've moved our business model to Tier 1 cash-producing gold and base middle miners. Now the -- that has the advantages of one, we don't struggle to get paid. Two, we're not looking for work all the time for customers that are not sure whether they're going to raise money or they're not. And so we benefit. But with that, there has to be a trade-off drilling for the Tier 1 miners, there is margin compression, absolutely margin compression. But we've just delivered a 25% -- a 26% EBITDA result. I would say that's outstanding, probably industry-leading at this point in time. I don't know any driller that's out there doing 26% EBITDA at the moment.

[Operator]

Your next question comes from Don Angelo from Beacon.

[Unknown Analyst]

Congratulations on the excellent results. First question for me is just going to be focused on Egypt and South America. So I guess you can see the top line revenue increases from the contract wins announced last quarter. That was in West Africa, but can you guys talk about the pipeline for Egypt and South America? Can we -- just any color there?

[David Harper, executive]

Yes. So we basically -- as I said, we are coming off the back of a very successful contract win that actually began in quarter 3, quarter 4 last year and by quarter 1, we secured some contracts -- put some contracts to bid. We've since added some contracts across a number of regions. And if -- well, when you say add some color, I guess, signing new contracts for us is a normal a normal day in the office. We're a contracting firm.

So by definition, we worked contracts. But it is -- if we look at historically, the last time we had a contract all similar to this 1 that we've just come through, we'd have to go back 3 or 4 years. And that took us that cadence, if you will, on the beginning of that new wave of successful hall of contracts, which took us from $80 million [ Zico ] revenues into the 100s with the $115 million, and we did a $138 million. And last year, because of this strategic decision to move away from one of the rescue jurisdictions that we operate in, our revenues fell away. And so we came over the top -- we summed it in 2022, and then we came up in 2023. What's happened now is that gave us the rigs and the ability to go out the marketing department and find new work for those rigs.

Evidently, we were successful in doing that. And so what we're witnessing now, although our quarter 1 was a bit slow, you've seen a very solid quarter 2 and you'll see robust numbers from here going forward. Now where will it take us to, that's really the big question. At this point, I rather than make any wild predictions, I'll just say that investors can expect to see solid growth for the next 3 to 5 years?

[Unknown Analyst]

Okay. And then just moving over to the adjusted EBITDA margin. Yes, this quarter was very strong at 26.7%. It's just a slight drop compared to 2022 levels. I know you said that's a bit because of the shifts going towards more majors than juniors. But can we kind of expect close to these numbers moving forward? Or were there some one-off items that kind of impacted this quarter more than other quarters moving forward?

[Gregory Borsk, executive]

No, there is not no one-off items. It was just -- and you see it everywhere. You see we had a very healthy gross margin. We target between 25% to 30%. We actually exceeded that. The gross margin in the quarter was 31%, our SG&A was -- we kind of budget that at about 11%. So that came in as expected. In the past, Dave referred to last year, we had some provisions we had to take, which skewed that number. So there's nothing exceptional in this quarter other than like the topline, and then everything followed that $41.2 million in revenue, we were able to see the margin we wanted the gross margin, we were able to keep the spending in line, et cetera.

So it all fell down to the bottom line and the EBITDA where we came in at 26% EBITDA. So nothing really to report on any exceptionalities in the quarter, just a really strong quarter.

[Operator]

Your next question comes from George Melas from MKH Management.

[Ahmad Shaath, analyst]

Quick question on the contract that you have secured in the first half of '24, can you tell us about where they are from a geography perspective? And have you started to recognize revenue on these contracts? Or have you not really started them yet?

[David Harper, executive]

No, we certainly have started them, and they are well and truly underway. And we've signed contracts in Ghana, Ivory Coast, Senegal, Egypt and Peru and Chile, and basically all about jurisdiction -- all of our jurisdictions. What we're currently operating at.

[Operator]

[Operator Instructions] your next question comes from Mark Gomes from Pipeline.

[Ahmad Shaath, analyst]

Dave, congratulations. Great work on the shift. Just to clarify from the questions that were asked 5 minutes ago. If we take into account your seasonality and when you have to take rigs up and down, taking that into account, would we expect going forward, as you say, the next 1, 3, 5 years, we should see continued positive comps to the year ago quarters. So taking those -- that seasonality into account.

[David Harper, executive]

That is certainly the hope yes.

I mean no guarantees. I mean notwithstanding, any exogenous sort of out of the left field events. Certainly, the intention would be with this large amount of multi-rig, multiyear contracts. That would certainly be the intention, yes. But...

[Ahmad Shaath, analyst]

Yes, intention was what I was looking...

[David Harper, executive]

Any wallet predictions, but in principle, yes.

[Ahmad Shaath, analyst]

Right. I mean there's nothing happening right now that would stop this current quarter that's extraordinary in this quarter relative to what you did in this quarter last year in terms of operations, right?

[David Harper, executive]

Correct. Yes. I mean I think you could -- I think we could safely at this point in time, we're halfway through quarter 3. Are we looking at a year-over-year improve certainly trending that way at this point in time. And -- and if you remember, quarter 3 last year wasn't a bad quarter. It was okay. But it's not going to be a sequential -- it's not going to be quarter-over-quarter improve, but because we've just done a record, and we're entering into traditionally quieter quarter.

Will we -- sorry.

[Ahmad Shaath, analyst]

I mean, that's typical, though, right? That's the...

[David Harper, executive]

Is totally normal. But the first thing that would normally happen is when you put out a bang it out of the park are everybody says you're going to do that next quarter. And you got to think of it like what is topical at the moment is the 400 relay. It's made up of some fast sectors and some fastest sectors. No 4 sectors of the same. Historically, we know that our quarter 2 is our strongest quarter and we've just gone through our quarter 2. So looking -- comparing it to last quarter 2. And perhaps what's more importantly is quarter 2 our strongest ever quarter that we recorded previous to this, we've also exceeded by a significant margin. So -- we -- it was a great result, and it's been a few quarters in coming. You've got to remember that we've repositioned our rig fleet out of a rest of region and these things -- these decisions are not taken lightly, and they take quite a while to put into play for them to play out from the decision to exit, which was taken basically for the reasons of safety of our workers.

We took a decision that affected us through 2023. And so that gave us the opportunity to go out find new work, which we've done. And I think it demonstrates just how agile and fleet of foot, we are when you consider that the region that we moved out of Burkina Faso was once our largest market, we've managed to actually replace that and come back with record-breaking revenues. So I think it's a good demonstration of our fleet -- how agile we can be in ever in changing environment. We're the only thing that we can truly certain this change itself. Now where will we go to from here from this new found or this recently signed a bunch of this contract all with a neighbouring -- you got to remember that the cash that we generate from operations always goes into increasing the fleet size. We're now at 91 rigs. And so what will happen is we will continue to operate at 70% utilization through the strong quarters, probably 60% through the slower quarters as we are at the moment. But that's on an ever-increasing rig fleet.

So I think that it would be safe to say that from here going, notwithstanding any exogenous left field type events, you can expect to see year-over-year improvements, yes.

[Ahmad Shaath, analyst]

Yes, that's what I was getting at. I mean, that question put a little cold water on the call when in actuality, you have not since 2016 put up a stronger third quarter over second quarter. So it's not something I thought anybody should expect. But year-over-year, I mean, that's why we have those year-over-year comparisons. That's where as long as all else is equal, you continue to expect year-over-year comparison strength, yes.

[David Harper, executive]

Correct. Yes. Certainly, the topline. Yes. And as we've been open and transparent about our business model shifting from junior exploration companies beholden to the capital markets who are giving us problems getting paid to your more top-tier Tier 1 gas cash producing gold mines and base metals mines gives us the added advantage of not chasing money all the time. The cost of financing outstanding debtors for long periods of time. But that comes with margin compression, and that's normal. You would expect that on the economies of scales. But to put out the results that we just have it exceeded my expectations.

[Operator]

And there are no further questions at this time. I will turn the call back over to Dave Harper for closing remarks.

[David Harper, executive]

I have no other remarks other than wherever you are I hope your team managed to win some nice gold medals during the recent Olympics, and thank you all for participating on today's call. So good news goal. Thanks very much. Cheers.

[Operator]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.