Earnings call transcript: Orbit Garant Drilling’s Q2 2024 results show profit growth

Orbit Garant Drilling Inc. reported a profitable second quarter for fiscal year 2024, with revenues and net earnings showing significant improvement compared to the same period last year. The company achieved a revenue of $43.5 million, a slight increase from $43.4 million in the previous year, while net earnings rose to $1.5 million, marking a turnaround from a net loss of $1.7 million. The stock price responded positively, increasing by 6.19% to $1.20, reflecting investor optimism about the company’s strategic initiatives and improved financial health. According to InvestingPro data, the stock has delivered an impressive 135% return over the past year, with a 36% gain year-to-date, suggesting strong momentum in the company’s performance.

Key Takeaways

• Revenue increased slightly to $43.5 million from $43.4 million last year.
• Net earnings improved to $1.5 million, a significant turnaround from a $1.7 million loss.
• Gross profit margin increased to 16.5% from 6.8% last year.
• The company exited unprofitable operations in West Africa, focusing on Canada and South America.
• Stock price rose by 6.19% following the earnings announcement.

Company Performance

Orbit Garant Drilling showcased a robust performance in the second quarter of 2024, driven by strategic shifts and market conditions. The company focused on enhancing its operations in Canada and South America, which contributed to improved financial metrics. The exit from West Africa’s less profitable ventures allowed the company to consolidate resources and focus on more lucrative markets. Industry trends, such as high gold prices and favorable copper pricing, further supported the company’s performance. InvestingPro analysis reveals a "GREAT" financial health score of 3.37, with particularly strong momentum metrics. Subscribers can access 12 additional ProTips and comprehensive financial analysis through the Pro Research Report.

Financial Highlights

• Revenue: $43.5 million, a slight increase from $43.4 million in Q2 last year.
• Net Earnings: $1.5 million, compared to a net loss of $1.7 million last year.
• Gross Profit: $7.2 million, up from $3 million last year.
• Adjusted Gross Margin: 21.5%, up from 12.5% last year.
• Adjusted EBITDA: $5.6 million, up from $1 million last year.

Executive Commentary

CEO Daniel Mayhew expressed optimism about the company’s direction, stating, "We are enjoying a substantial period of positive momentum." He emphasized the company’s focus on margin enhancement and sustained profitability, noting, "Our primary goals are to support and enhance our margin, drive overall profitability on a sustained basis." Mayhew also highlighted the company’s reliance on gold-related drilling, which constitutes approximately two-thirds of its revenue.

Risks and Challenges

• Supply Chain Disruptions: Potential disruptions could impact operational efficiency and cost structures.
• Market Saturation: Increased competition in key markets could pressure pricing and margins.
• Economic Uncertainty: Macro-economic factors, such as inflation and interest rates, could affect customer spending and investment.
• Commodity Price Volatility: Fluctuations in gold and copper prices could impact revenue and profitability.
• Regulatory Changes: Changes in mining regulations in operating regions could pose compliance challenges.

Orbit Garant Drilling’s strategic focus on profitable markets and operational efficiency appears to be yielding positive results, as reflected in its improved financial performance and stock market response. Trading near its 52-week high with an Altman Z-Score of 7.51, the company demonstrates strong financial stability. The company’s ability to navigate industry challenges and capitalize on favorable market conditions will be crucial for sustaining its growth trajectory. For comprehensive analysis and real-time updates, investors can access detailed metrics and expert insights through InvestingPro’s advanced platform.

Full transcript - Orbit Garant Drilling Inc. (OGD) Q2 2025:

Jenny, Conference Call Operator: Good morning, ladies and gentlemen, and welcome to Orbit Colon Drilling’s Fiscal twenty twenty five Second Quarter Results Conference Call. At this time, all lines are in a listen only mode. Following 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.

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 Thursday, 02/13/2025. I would now like to turn the conference call over to Mr. Daniel Mayhew, President and CEO of Orbit Gallant. Please go ahead, sir.

Daniel Mayhew, President and CEO, Orbit Gallant: Thank you, Jenny, and good morning, ladies and gentlemen. With me on the call today, Pierlu Coupland, Chief Financial Officer. Following my opening remarks, Pierre Luc will review our financial results in greater detail and I will conclude with comments on our outlook. We will then welcome questions. Our profitability improved significantly in the quarter compared to Q2 last year.

We generated strong over year growth in adjusted gross margin, adjusted EBITDA and net earnings reflecting stronger operating earnings in both our Canadian and international drilling segment. In Canada, our drilling activity increased compared to Q2 last year and we benefit from improved operational performance. We had increased drilling activity in South America and also benefit from the cessation of our operation in West Africa in Q2 last year, which were largely unprofitable for us. Oil prices have reached record level this month above US2900 dollars per ounces and copper pricing also remains favorable, which we expect will continue to support strong demand from our senior and intermediate mining company customers. I will now turn the call over to Pierluk to review our financial results for the quarter in greater detail.

Pierluk?

Pierlu Coupland, Chief Financial Officer, Orbit Gallant: Thank you, Daniel, and good morning, everyone. Our revenue totaled $43,500,000 in the quarter, a slight increase from $43,400,000 in Q2 last year. Canada revenue was $30,800,000 an increase of 4% from Q2 last year. As Daniel noted, drilling activity in Canada increased year over year and we benefited from improved operational performance. International revenue totaled $12,700,000 compared to $13,800,000 in Q2 a year ago.

The decline reflects our exit from West Africa, partially offset by increased drilling activity in South America. Gross profit increased to $7,200,000 for the quarter or 16.5% of revenue compared to $3,000,000 or 6.8% of revenue in Q2 last year. Our adjusted gross margin excluding depreciation expenses was 21.5% in the quarter compared to 12.5% in Q2 last year. Our increases in gross profit, gross margin and adjusted gross margin reflect our increased drilling activity during the quarter, improved operational performance and our exit from West Africa last year. Consolidated earnings from operations for the quarter were $3,800,000 compared to a loss of $500,000 in Q2 last year.

Drilling Canada’s operating earnings totaled $1,200,000 compared to an operating loss of $400,000 in Q2 a year ago and our international operating earnings totaled $2,600,000 compared to an operating loss of $100,000 a year ago. Adjusted EBITDA increased to $5,600,000 up from $1,000,000 in Q2 last year. Net earnings were 1,500,000 or $0.04 per share compared to a net loss of $1,700,000 or $0.05 per share last year. The increases in our adjusted EBITDA and net earnings were primarily attributable to stronger operating earnings in both our Canadian and international drilling operations. Turning to our balance sheet.

We repaid a net amount of $2,400,000 on our credit facility in the second quarter compared to a repayment of $300,000 in Q2 last year. Our long term debt under the credit facility including a non drawn $5,000,000 revolving credit facility and the current portion was $18,600,000 at quarter end compared to $21,500,000 as of 06/30/2024 at fiscal twenty twenty four year end. On 11/29/2024, we entered into a loan agreement with EDC, which provides for a term loan in the principal amount of US2.0 million dollars The loan was used to fund the manufacture of three new computerized drill rigs for our Chilean operations. Our working capital totaled $49,200,000 as at December 31, compared to $48,600,000 at the end of fiscal twenty twenty four. I’ll now turn the call back to Daniel for closing comments.

Daniel Mayhew, President and CEO, Orbit Gallant: Thank you, Pierlu. I have been appointed CEO of Aubergas at an opportune time. We are enjoying a substantial period of positive momentum. Part of this momentum is due to the strong industry fundamental, but a good part of it reflect change in our strategic direction. In May 2023, while Pierre Alexandre was CEO, he implement a five point plan to improve our operating performance and competitive position over a period of fifteen months.

We made strong progress with this plan and the result has been stronger financial performance. For four consecutive quarter now, our profitability has been significantly higher than the prior year and we are committed to maintain our momentum. We will do so in large part by continuing to focus on key parts of this five point plan, including primarily focus on our operation in Canada and South America, prioritizing long term specialized drilling contract with senior and intermediate customer, continuing to invest in our driller training and computer drilling technology and fostering a more team oriented leadership structure that encourage collaboration and personal accountability. On October 31, we filled a normal course issuer bid to enable us to repurchase and cancel nearly 1,900,000.0 share over a twelve month period. To date, we have purchased and canceled nearly 70,000 share.

We will continue to monitor our share price and take advantage of opportunity to repurchase share if and when we believe it is an appropriate use of our capital. Our business outlook continued to be positive, giving the current record high gold price and strong copper price. We expect customer demand for our senior and intermediate mining customer will be strong throughout 2025 calendar year. We generate approximately two thirds of our revenue from gold related drilling, so we are well positioned to benefit from current industry dynamics. And a healthy copper market is positive also for our Chilean operation.

Demand for junior mining company continue to be restricted to the challenge financing condition, but we have well established relationship with juniors and the available capacity to service them as demand recovers. 2025 mark the fortieth year of operation for Orpettia. We look forward to celebrate this important milestone throughout the year. As a long term established leading mineral drilling company, we have a strong foundation of core strength to build up including combined surface and underground drilling expertise and advanced specialized drilling capability. Our focus on continuous innovation, our vertically integrate manufacturing operation, strong health and safety and driver training program and long standing customer relationship with leading mining company operating in Canada and South America.

Looking ahead, we will maintain our strategy, focus and leverage our core strength to deliver exceptional value and performance to our customer. Our primary goals are to support and enhance our margin, drive overall profitability and a sustained basis and continue to build value for our shareholders. That concludes our formal remarks this morning. We will now welcome any questions. Jenny, please begin the question period.

Jenny, Conference Call Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. And your first question is from Gordon Lawson from Paradigm Capital. Your line is now open.

Gordon Lawson, Analyst, Paradigm Capital: Hey, good morning, everyone. Good morning. Can you please provide some color on the year over year slowdown in Chilean revenue and what these three new rigs mean for that segment?

Daniel Mayhew, President and CEO, Orbit Gallant: Good morning, Gordon. As you know, we renewed last year two important contracts in Chile, One for three years and the other one is the most important one for five years. So we have to purchase new drills. So we manufacture here in Canada Four surface drill and they bought one drill RC drill from a manufacturer in Chile. So these four drill are now in Chile.

One is operating right now. The three other will be put on this contract in the next two months. So the level of activity in Chile is stable. Last year, we have $39,000,000 of revenue from Chilean operation in Canadian dollars. And this year, this amount of revenue should increase a bit, not so much, because we renew all these contracts and the markets in Chile is very stable and we essentially work for the three biggest copper mine in Chile.

Gordon Lawson, Analyst, Paradigm Capital: Okay. That’s kind of leads into my second question here. Your fiscal Q3 in the past, it’s been a bit mixed in terms of seasonal lows to outperforming last year. And like you said, Chile was a big part of that. Can you provide some guidance on what you’re seeing so far?

And if it’s fair for us to use this new higher margin run rate?

Daniel Mayhew, President and CEO, Orbit Gallant: You’re right. Q2 and Q3 is the slowest quarter for us historically and Q1 and Q4 is a better quarter for us. What I could say, everything is relatively stable. The contracts are stable here in Canada and in Chile. So we don’t provide any guidance to for the result or the margin, but we as you know, as you can see, we reach adjusted gross margin of over 20% for the first six months of fiscal twenty twenty five.

So we try to keep that and continue our work with the good contract we have. As I said, it’s very stable here in Canada and in South America also.

Gordon Lawson, Analyst, Paradigm Capital: Okay. That’s great. Thank you very much.

Daniel Mayhew, President and CEO, Orbit Gallant: Thank you.

Jenny, Conference Call Operator: Thank you. And your next question is from Terry Viola, a private investor. Your line is now open.

Terry Viola, Private Investor: Yes. Hi. If I heard it correctly, the December and the March are the slowest quarters for the company?

Daniel Mayhew, President and CEO, Orbit Gallant: Yes. Historically, that’s the case. Yes.

Terry Viola, Private Investor: Okay. And so here in the December just released 6,000,000 of EBITDA of adjusted EBITDA. Is that correct? So you have $6,000,000 of adjusted EBITDA in your slow quarter?

Daniel Mayhew, President and CEO, Orbit Gallant: Yes. If we extract the yes, the adjusted EBITDA is 5.6 for the quarter. So it’s better than negative for sure, but you have to understand something very important there because in Q2 last year, we closed our operation, we stopped the operation in West Africa, which has a very negative effect on our results. So with this West Africa operation stop this year, so that’s why the because our operation in Canada and South America are positive for a while, but this West Africa operation affect us so much in 2022, ’20 ’20 ’3 fiscal. So this year it seemed very good, but at the end of the day, it’s essentially the effect the negative effect of West Africa ceased to affect us.

So now we can make good business with our business in Canada and South America.

Terry Viola, Private Investor: Okay. Super. Another question is on the some investors like to look at the earnings per share after tax instead of the adjusted EBITDA. What is the earnings per share after tax if the company earns about $24,000,000 between $20,000,000 and $24,000,000 of adjusted EBITDA? I came up with about $0.25 to $0.32 area for the after tax earnings per share run rate, so to speak, if the company gets 20 to 24 of adjusted EBITDA.

Is that in the ballpark for those investors that like to see earnings per share using they like to use earnings per share for their valuation?

Daniel Mayhew, President and CEO, Orbit Gallant: Yes, that’s a good question. We don’t provide any guidance for that, but we could say for the first six months of this year without the effect of negative effect of West Africa, we have $0.12 So technically, we have $91,000,000 of income in the first six months of the year and we have $0.12 earning per share after tax. So that’s what we have now. And we as I said before, we have a very stable contract everywhere right now in Canada and South America. So we should be able to continue in this way.

I don’t know if it will be more or less than that, but I could confirm the $0.12 for $91,000,000 of revenue.

Terry Viola, Private Investor: Yes. Okay. So the $0.12 is so far for the last six months. Okay. Those are my questions.

Thank you. Appreciate it.

Daniel Mayhew, President and CEO, Orbit Gallant: Thank you very much.

Jenny, Conference Call Operator: Thank you. There are no further questions at this time. Please proceed.

Daniel Mayhew, President and CEO, Orbit Gallant: Okay. Thank you, Jenny. And thank you everyone to participate today. We will be in Toronto in the March at the PDEC. If you participate at this event, don’t hesitate to come and meet us at Orbeau Number 112 and we look forward to speak with you again after we report our fiscal third quarter results in the spring.

Thank you.

Jenny, Conference Call Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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