Forage Orbit Garant Inc

TSX:OGD

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2024 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 additional information on both risk factors and non-IFRS measures. This call is being recorded on Tuesday, November 14, 2023.

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, executive]

Thank you, Laura, 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 in greater detail. And I will conclude with comments on our outlook. We will then welcome questions.

The decline in revenue and profitability in the quarter reflect the temporary suspension of drilling projects in Québec during July due to the forest fires as well as customer decision to temporarily suspend and reduce drilling activity on certain other projects in Canada during the fourth quarter of last fiscal year. All the projects that were impacted by forest fire were back at full operation by July 26, and we are gradually resuming operations on projects that were suspended are reduced due to customers' decision. Two of these projects have already resumed: one that was restarted in mid-August and the other in early September. We expect to restart operation on the others by January 2024.

We are pleased to report that we recently renewed a large specialized drilling contract in Canada with a senior gold mining customer for a 3-years term. This will result in the continued operation of 15 to 20 of our surface and underground drill rigs on the customer's project site for the term of the contract. The contract renewal is in line with our strategy to focus on project with senior and well-financed intermediate gold mining customers in Canada.

Price for gold and copper remained favorable to support mineral exploration and development spending in our market. Customer demand remains strong in Canada, and we are seeing increase in demand in Chile.

I will now turn the call over to Daniel to review our results for the quarter. Daniel?

[Daniel Maheu, executive]

Thank you, Pierre, and good morning, everyone. Revenue for the quarter totaled $44.3 million, a decrease of 16.8% compared to Q1 a year ago. Canada revenue was $33 million, a decline of 23% compared to Q1 last year. Approximately $2 million of the decline is attributable to the suspension of our drilling project in Québec during the month of July due to forest fires. The remaining year-over-year decline was primarily attributable to customer decision to temporary suspend or reduce drilling activity on certain projects during the fourth quarter of fiscal 2023. International revenue increased by 8.7% to $11.3 million from $10.5 million in Q1 last year, reflecting increased drilling activity in Chile and Guinea, partially offset by a reduction of drilling activity in Guyana and Burkina Faso. The reduction in Burkina Faso is expect as we are now winding down operations there and expect to complete our final drilling contract there by the end of this fiscal quarter.

Gross profit for the quarter was $4.1 million or 9.4% of revenue, compared to $6.2 million or 11.7% of revenue in Q1 last year. Adjusted gross margin excluding depreciation expenses was 15.2%, compared to 16.3% last year. The decline in gross profit, gross margin and adjusted gross margin was primarily attributable to our revenue reduction in Canada due to the project suspension, as discussed previously, and the additional costs we incurred as we ramp project back up. The decline was partially offset by increased drilling revenue in Chile and Guinea.

General and administrative expenses were $4 million or 8.9% of revenue in the quarter, compared to $3.9 million or 7.3% of revenue in Q1 last year.

EBITDA was $3 million, compared to $5.8 million in Q1 a year ago. The decrease reflects the reduction of drilling activity in Canada due to forest fire and project suspension, as discussed above, and the additional costs incurred to ramp project back up and a reduction in foreign exchange gain, partially offset by increased drilling activity in Chile and Guinea.

Our net loss for the quarter was $0.4 million or $0.01 per share, compared to net earnings of $1.1 million or $0.03 per share in Q1 last year. Our net loss in Q1 this year reflect the reduction of drilling activity in Canada to the forest fire and project suspension and the related additional costs incurred to ramp up project back up and a reduction in foreign exchange gain, partially offset by $0.2 million income tax recovery in the quarter and increased drilling activity in Chile and Guinea.

Now turning to our balance sheet. Earlier this month, on November 2, we entered into a fifth amended and restated credit agreement with our senior lender, National Bank of Canada, in respect of our credit facility. The credit facility consists of a $30 million revolving facility and a USD 5 million revolving facility guaranteed by Export Development Canada. The credit facility expire now on November 2, 2026.

We borrow an additional amount of $2.7 million from the credit facility in Q1 this year, compared to a repayment of $7 million in Q1 a year ago. Our long-term debt under the credit facility, including the USD 2 million draw from the EDC facility and the current portion, was $24.9 million at quarter end, compared to $22.2 million as of June 30, 2023, our fiscal year-end.

At quarter end, our working capital totaled $51.8 million, compared to $50.4 million as at June 30, 2023.

I will now turn the call back to Pierre for closing comments. Pierre?

[Pierre Alexandre, executive]

Thanks, Daniel. Despite the temporary drilling project suspension and ensuing project ramp-ups that impact our results for the quarter, we remain positive on our longer-term outlook. As I noted earlier, customer demand particularly in Canada remains strong from both senior and intermediate customers, which is our primary focus right now. Demand from juniors remains soft, reflecting the current difficult environment for juniors accessing capital. We are experiencing growth in our drilling activities in Chile and Guinea. Our pending exit from Burkina Faso will allow us to focus more on these market and customers.

The underlying fundamentals driving our business are solid. Gold price remain at historically strong levels. Gold producers are generating strong margin at this price, while struggling to replace their reserves. We are confident that continued strong level of exploration and development spending will be maintained in this industry and the foreseeable future. We generate approximately 2/3 of our revenue from gold-related drilling, so we have high exposure to this sector.

Copper price also remained at elevated level over the past 12 months despite rising interest rate and economic uncertainty. Copper is needed for the ongoing electrification of the global economy, which is expect to drive strong demand for years to come. A healthy copper market is positive for our Chilean operation.

Looking ahead, we remain focused on our 5-point plan, which consists of primarily focusing on Canadian gold drilling operation, prioritizing longer-term specialized drilling contract with major and intermediate customers, pursuing international contracts that offer attractive return, continued investment in driller training and computerized drilling technology, and building a team-oriented leadership structure that fosters collaboration and personal accountability. By continuing to execute on this plan, we believe we can drive growth and build value for our shareholders.

That concludes our formal remarks this morning. We will now welcome any questions. Operator, please begin the question period.

[Operator]

[Operator Instructions] There seems to be no questions at this time. I'd now like to turn the call back over to Mr. Alexandre for final closing comments.

[Pierre Alexandre, executive]

Thank you, everyone, for participating today. We look forward to speaking with you again next quarter again. Have a good week.

[Daniel Maheu, executive]

Thank you.

[Operator]

Thank you, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.