Forage Orbit Garant Inc

TSX:OGD

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2023 First Quarter Results Conference Call and Webcast. [Operator Instructions] 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 SEDAR filings for the additional information on both risk factors and non-IFRS measures. The call is being recorded on Thursday, November 10, 2022. I would now like to turn the conference over to Mr. Eric Alexandre, President and CEO of Orbit Garant. Please go ahead, sir.

[Eric Alexandre, executive]

Thank you, Michele, 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, and I will conclude with comments on our outlook. We will then welcome questions. Our profitability continued to improve in the first quarter due primarily to increased revenue per meter drilled, reflecting improved driller productivity, more favorable contract pricing and increased specialized drilling activity in Canada. Our average revenue per meter drilled was approximately $130 in the quarter, an increase of 19.5% compared to $108 in Q1 last year. Our margins in the quarter also benefited from decreased project ramp-up costs in Canada and reduced mobilization costs for projects in Chile and Guinea compared to Q1 last year. Revenue for the quarter was $53.2 million, up 5.3% compared to Q1 last year. And we generated adjusted gross margin of 16.3% compared to 12.3% in Q1 a year ago. Our drill utilization rate in the quarter was approximately 63%, similar to 64% in Q1 last year. Our utilization rate has now exceeded 60% in 5 of the last 6 quarters, demonstrating the sustained strong customer demand we are experiencing. I will now turn the call over to Daniel to review our first quarter results in more detail. Daniel?

[Daniel Maheu, executive]

Thank you, Eric, and good morning, everyone. As Eric noted, our fiscal 2023 first quarter revenue totaled $53.2 million, an increase of 5.3% from Q1 last year. Canada revenue totaled $42.8 million, up 12.9% from Q1 last year, reflecting improved driller productivity, a more favorable pricing environment and increased specialized drilling activity. International revenue was $10.4 million compared to $12.7 million in Q1 last year. The decline was due to the lower drilling activity in Burkina Faso and Chile, partially offset by increased drilling activity in Guinea and Guyana. Gross profit for the quarter increased to $6.2 million from $3.8 million in Q1 last year. Adjusted gross margin, excluding depreciation expenses, was 16.3%, up from 12.3% a year ago. As Eric noted, higher margin in Q1 this year were attributable to higher average revenue per metre drilled, reflecting improved driller productivity, a more favorable pricing environment and increased specialized drilling activity in Canada. Prior year margins were impacted by project ramp-up costs due to the rapid growth in Canada and mobilization costs for new long-term projects in Chile and Guinea. G&A expenses were $3.9 million in the quarter or 7.3% of revenue compared to $3.8 million or 7.4% of revenue in Q1 last year. EBITDA for the quarter increased to $5.8 million from $2.7 million in Q1 last year. Net earnings were $1.1 million or $0.03 per share compared to a net loss of $1.3 million or $0.04 per share in Q1 a year ago. The positive variances in EBITDA and net earnings were attributable to factors already discussed. Now turning to our balance sheet. During the quarter, we generated a cash flow of $0.1 million from financing activities. In Q1 last year, we repaid a net amount of $1.2 million of long-term debt and lease liabilities. On September 9, we entered into an additional loan agreement with the Business Development Bank of Canada, which provides for a term loan of $8.47 million. The loan bears interest at a fixed rate of 6.7% per year, has a 20-year term and is repayable in 240 consecutive monthly payments from November 2022 until October 2042. The fixed interest rate may be reduced by 0.2% from October 2023 if we meet certain financial covenants. As a result of this loan agreement and in order to extract our head office building from the borrowing base under credit agreement, we concurrently entered in a third amending agreement to our credit agreement with National Bank. Under this amended agreement, the amount available for borrowing under the revolving facility was reduced from $35 million to $30 million and modifications were made to certain financial covenants applicable to Q1 2023 and further quarters. We repaid a net amount of $7 million on our credit facility in Q1 2023 following this loan agreement compared to a withdrawal of $1.4 million in Q1 last year. Our long-term debt under the credit facility, including USD 1 million draw from our USD 5 million revolving facility, and the current portion was $24.6 million as at September 30, 2022, compared to $31.5 million as of June 30, 2022, which was our fiscal 2022 year-end. At quarter end, our working capital position was $53.7 million compared to $53.4 million as June 30, 2022. I will now turn the call back to Eric for closing comments. Eric?

[Eric Alexandre, executive]

Thanks, Daniel. We are pleased with our performance for the quarter, and we expect to generate further margin expansion over the course of fiscal 2023, supported by continued strong customer demand, a more favorable contract processing environment, which we expect will continue to help offset inflationary pressures on our business, the investment we made last year to ramp up our operation and a continued improvement in driller productivity. We are pleased with the gains in driller productivity that we have achieved over the last 2 quarters in Canada. We expect further improvement ahead as our newer drillers gain more field experience and continue to benefit from the support of our training program. While gold and copper prices have declined from their high early this year, they remain at historically elevated levels that provide the mining industry with a strong incentive to maintain exploration and development spending. According to S&P Global Market Intelligence, global nonferrous exploration budgets increased an estimated 16% in the 2022 calendar year to $13 billion, the most in a single year since 2013. S&P anticipates a decline of 10% to 20% in 2023 budgets from 2022 levels, but even a 20% decline would result in higher budgets than the industry had in any year between 2015 and 2020. The feedback we are getting from our customers operating in Canada indicate that they plan to maintain their exploration and development spending throughout 2023. Internationally, in Chile and Guinea, we have made the necessary investment to mobilize our equipment and personnel there to support our long-term drilling contracts. So we expect improved contributions from these international operations going forward. In Guyana, we expect to maintain similar level of drilling activity that we performed in Q1 throughout 2023. In Burkina Faso, our drilling projects are in areas of that country that have historically experienced through our security challenges. However, we have recently been experiencing increased delay and interruptions in our drilling operation there. We continue to monitor this situation. Looking ahead, supported by strong customer demand, improved driller productivity and a more favorable pricing environment, we will continue to focus on expanding margins over the course of fiscal 2023 to drive value to shareholders. That concludes our formal remarks this morning. We will now welcome any questions. Michele, please begin the question period.

[Operator]

[Operator Instructions] Your first question comes from Gordon Lawson of Paradigm Capital.

[Gordon Lawson, analyst]

Can you please elaborate on the evolving labor market in terms of hiring and training, and how you expect that to assist with contract expansion this fiscal year?

[Eric Alexandre, executive]

Well, this is 1 of the challenge that all the industry has now, especially in Canada, where it's more challenging to find people to perform some work. But with our training school we have put in place many years ago, we are well positioned to improve our position out there. Actually, we keep on going and training people. We don't have any big difficulty to attract people to get trained. So it goes the way we would like to, except that it's hard now to have more experienced drillers in place as it was in the past, because some of them are getting retired now. So moving forward, we will continue to train people. And as we go, we don't see any big challenge to attract people, because we are able to find some to be trained. And there is something else that helps us, Gordon, is that we have this computerized rig in place that helps us to accelerate the training of our new employees. So I think we are well positioned to -- for that, but it's still a challenge for all the industry for sure.

[Gordon Lawson, analyst]

So would you say it's still an impediment to expanding or landing new contracts as it has been before?

[Eric Alexandre, executive]

Yes. It will be slowing down the industry capacity to take more for sure.

[Gordon Lawson, analyst]

Okay. And is there any more color you can provide with respect to canceling Russian contracts and mobilization of units to more profitable jurisdictions?

[Eric Alexandre, executive]

I don't get what you said, Gordon. Could you repeat, please?

[Gordon Lawson, analyst]

Yes. Well, in the past, you've talked about canceling contracts with Russian companies and mobilization of units. And you're talking now about more profitable areas such as Guinea and so on. Can you just elaborate on how the mobilization of these units is going?

[Eric Alexandre, executive]

While the Burkina Faso is a challenging country right now, and we have some capacity that has been freed up in the last 2 quarters, our plan would be to revise our strategic position out there. And Guinea is 1 of the strategies we have put in place. So we might move some rigs out of Burkina, because they are not working right now, and we're not taking more contract as the security is a challenge out there. So probably those capacities will be transferred in other sectors where we have activity and where we have some demand. As an example, Guinea is one. Chile could be one. So that's going to be our strategy out there in terms to address the challenge we have to face in Burkina Faso. But no decisions have been taken yet, but we clearly see that Burkina Faso would be difficult to grow moving forward based on the political situation and the security into the country.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll turn the conference back to you.

[Eric Alexandre, executive]

Okay. Thank you, everyone, for participating. So we will now end up the call. Thank you.

[Operator]

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.