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Good morning, ladies and gentlemen. Thank you for standing by. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Monday, March 8, at 10:00 a.m. Eastern Standard Time and is being broadcast live via the Internet. During today's call, management will make statements regarding management's expectations for the company's future financial and operational performance. These statements are considered forward-looking statements. Each forward-looking statement speaks only as of the date of this call and actual results may differ materially from management's expectations for a variety of reasons, including market and general economic conditions, and the risks and uncertainties detailed from time to time in the company's SEDAR filings. I'll now turn the call over to the President and CEO of Geodrill Limited, Mr. Dave Harper.
Thank you, operator. Good morning, and welcome to Geodrill's 2020 Fiscal and Q4 Results Conference Call. I'll begin with an overview of our operations and performance for the quarter. Our CFO, Greg Borsk, will then give us a more detailed review of our fourth quarter financial results. After which, I will discuss the outlook for the remainder of 2021. We ended the year on a high, notching up our best fourth quarter ever by growing revenues 44% and increasing net income 322 -- sorry, 325% compared to quarter 4 2019. Despite the challenging backdrop of 2020, our business model and the strength of our balance sheet shone through. We closed the second half of the year with outstanding momentum and utilization rebounded, and we established a footprint in a new geographical region. With rig utilization reaching 70% in the fourth quarter of 2020, we had a number of key accomplishments. We achieved quarterly sequential revenue improvement of USD 5.8 million or 31% compared to Q3 2020. We increased our EBITDA margin to 23% or USD 5.7 million, representing a 216% increase compared to quarter 4 2019. And we maintained a rock-solid balance sheet with total assets up significantly quarter-over-quarter by USD 10.3 million to USD 98.3 million. While many things have profoundly changed over the past year, our balance sheet has not. We have grown our business model through many challenging periods, while always maintaining a strong balance sheet. The strength with which we have built our balance sheet has always given us flexibility regardless of the economic climate. Geodrill's balance sheet strength is a decided advantage. And thanks to the disciplined business strategy, we continue to deliver strong and consistent financial performance. In fiscal 2020, we increased our net income by 94% year-over-year. We generated positive earnings per share growth, and we achieved a return on equities, ROE, 10% and return on capital employed of 14%. We also increased total assets year-over-year by USD 11.6 million. And importantly, we continued to outperform our competitors in terms of revenue per operating rig and rig utilization. Our 5-year snapshot tells it compelling story. Since its inception, Geodrill has grown organically, and over 5 years -- over the past 5 years, we have increased our rig fleet by 48%. Also, since 2016, every year has been positive net earnings, resulting in accumulated net earnings of USD 24 million, while, at the same time, our competitors have cumulated negative earnings, for most of our competitors that is. Also, for the period 2016 to 2020, our total shareholder equity has grown 32%. And for the same period, our debt-to-equity ratio has decreased from 15% to 4%, which, for the record, is the lowest debt-to-equity ratio in our peer group. Our focus on delivering steady revenue growth, strong net earnings and a strong balance sheet enables Geodrill to invest in key growth opportunities. Operationally, during 2020, we expanded our geographical footprint into South America. South America is a highly attractive and growing global market with the fifth largest exploration budget worldwide. We have a small fleet in country. One rig is currently drilling and the others have tooled up and are ready. So we look forward to our LATAM operations taking off in 2020. Meanwhile, back in West Africa, we have also expanded our production -- sorry, our production and full-service offering to vertically integrate drill and blast services, which we see as a natural extension of our platform of capabilities. With this in mind, we have recently appointed Mr. John Cavanaugh. Mr. Cavanaugh was formerly the Managing Director at Ausdrill, AMS, and he has extensive experience with drill and blast in West Africa. In November, at the Africa Down Under mining conference in Perth, Geodrill received the coveted award for Best Workforce and Industry Development. And finally, we capped off the year by delivering on our promise to return free cash flow to our shareholders by initiating a dividend plan. This decision reflects management and Board's confidence in our future. I'll now turn the call over to Greg to discuss our financial performance in detail. Thank you.
Thank you, Dave. As a reminder, all figures are reported in U.S. dollars. We entered 2020 on a slow start. One of our larger clients continued to curtail their drilling activities during the first quarter of 2020. And by the end of Q1 2020, Geodrill's business was impacted by COVID-19. The impact of COVID-19 extended into Q2 2020, in which we witnessed a 25% decline in revenue. We focused on strengthening the company's net cash position despite the operating challenges. The headwinds of the first half of the year turned into tailwinds by Q3 of 2020 as gold prices surged, bolstering the demand for our services. In Q4 2020, as Dave mentioned, the company was extremely busy as revenue increased by 44%. For 2020, the company recorded revenue of $82.4 million compared to $87.4 million for 2019, representing a decrease of 6%. The gross profit for 2020 was $20.9 million, being 25% of revenue compared to a gross profit of $22.2 million, also 25% of revenue for 2019. EBITDA 2020 was $19 million, being 23% of revenue compared to $20 million, also 23% of revenue for 2019. The net income for 2020 was $7.5 million or $0.17 per share compared to only $3.9 million for 2019 or $0.09 a share. So despite a 6% decline in revenue, we were able to maintain our margins, improve our tax expense and approximately double our earnings per share in 2020 versus 2019. We ended the year with $3.5 million in net cash. We have built a strong balance sheet, allowing the company to reinvest in our business and our industry's future growth. We also prudently manage our debt levels and have just started to return capital to our shareholders. At this point, I will turn the call back to Dave.
Thank you, Greg. It is clear our financial model is a testament to the strength of our business and the demand for our services. Before we move to the Q&A portion of the call, I'd like to provide a brief outlook for the remainder of 2021. We entered 2021 with strong market fundamentals, robust demand for our drilling services, underpinned by long-term multi-rig contracts. With a clear business vision and a solid financial foundation, Geodrill is committed to delivering strong profitability while establishing a platform for the next level of growth for our company. [Technical Difficulty] the current momentum in drilling and exploration [Technical Difficulty] offering to include drill and blast services; and thirdly, by growing our presence in South America. This concludes our prepared remarks on the financial results call. One last item. Today, being 8th of March, it is International Women's Day, and I would like to applaud all the strong women in our lives. Thank you very much for participating in today's call. We will now be pleased to answer any questions you may have. At this point, I'll ask the operator to provide directions for anyone who wishes to ask a question. Thank you.
[Operator Instructions] And our first question will come from Daryl Young from TD Securities.
I'm just having a little bit of trouble hearing you. Sorry, who was it?
David, it's Daryl Young.
Yes. Greg, I'm not sure if you can hear better than I can. But if I struggle to answer the question, please, Greg, do jump in.
Yes. No problem.
Just first question would be around the labor environment and maybe some of the cost structure. Obviously, you guys have put up some good margins and good numbers this year, but just curious what you're seeing in terms of the labor tightness and expectations for cost profile this year.
The labor -- we adjust labor every year, Daryl. So it's not going to be a significant impact for us. We look at labor annually. So even though revenue goes up, we're still able to maintain that same gross margin that you see. So not an issue.
Okay. Great. And then just maybe the outlook for what's happening in Peru and maybe how that operation is ramping up so far.
I'll get that Dale, and I hope you can hear me. South America is off to a great start. We started our first oil in December, and it's going very well. We've got a small fleet of rigs there, and -- we had 3 rigs. And yes, it's kind of working out the way we would want it at the moment. So 1 of 3 rigs is working, it's fully engaged. It's filling on the Deep Directional program, which is the market that we were targeting. Customers are quite pleased, as I understand. Their average cost per meter and our productivity is great. That's basically off to a great start. And essentially, what we're -- very much what we're doing is rolling out the model exactly as we have in West Africa and to do it all that means building a customer-centric model found by high-performance rigs operated by employees trained to the highest standards and maintained locally with wholesale service workshop. So you can appreciate that's not going to happen overnight, but it is certainly off to a great start. And getting a lot of inquiries, a lot of interest in the nearest driller in down and [indiscernible], and we look forward to doing great things in South America.
Excellent.
Just to add on that, Daryl. The South American expansion will be more 2021. I think what you saw in 2020 in the second half of the year, just how busy Geodrill. Like in Q4, revenue increased 44%. There was -- the demand for our rigs and the services in West Africa was -- we were able to keep up with it, but we were extremely busy. So the -- it really doesn't matter where the revenue comes from. And I think what you'll see is as we get into 2021, we'll be able to expand more and do more into South Africa, which was kind of the intention in 2020. But as Dave said, we're off to a very good start there and just being extremely busy. It's -- it will happen in 2021 for everyone.
Okay. Excellent. And the mix of junior versus senior miners. I mean it seems like the juniors are coming back in a fairly substantial way. Do you sort of have an outlook for this year on what percentage of the business the juniors could make up?
Juniors are doing well. Juniors is currently about 30% of our business and increasing. Miners are busy, everyone's busy at the moment. And -- but a noticeable presence of increasing juniors, and I guess it's the result of strong commodity prices, been a lot of market equity raises during COVID. And I guess, what we've also got is with Q4, we're all coming out of the wet season. We had that, and we had the sugar rush effect as well as the money is the return from a wet season. So we had sort of 2 or 3 things sort of coming together at once, which resulted in the strong Q4. And we think to ourselves, well, is that it? Is that the end? Is that an aberration? Not actually the case. As we exited Q4, for the record, Daryl, Q4 consisted of 3 record months for the company. October, November and December, we -- were all individual highest ever records. And I can tell you at this point in time that as we roll out through Q1, and we're starting to look at what Q2 is looking like, I can tell you that Q1 is the same. It's going to be our greatest year if the momentum continues at the current rate. Of course, [indiscernible] under the crystal ball. And if we watch very closely what's going on in the macro side and we take greater confidence from the fact that there's going to be some sort of stimulus. There's going to be -- money is going to get printed, and it's going to ultimately be good for gold. It might be today for whatever reasons, but we take great confidence for that. But also part of the whole South American thing -- I'm sorry, I skipped on it, but I didn't -- not sure that I got the entire question. But very much, it's part of an overall strategy of rolling out -- we're diversifying our geographical footprint, but also our commodity footprint. We're very focused on gold out here in West Africa. If you're in West Africa, you will be just to call it the Gold Coast for a reason. The thing in South America, what attracts us to South Africa is copper and copper is $9,000 a tonne. So yes, as Captain talk more so tomorrow is going to be a great day.
And just on the juniors, I think the big difference, Daryl, probably what you're seeing, too, is they're all capitalized up now. So the price of gold, how it's surged over the last year. Remember when we were at peak last year, a lot of the juniors were raising money, and that continued through 2020. So we're in a very fortunate position and I think the industry is in that now when you have -- we always try to have a good mix of juniors, intermediates and seniors and now with the juniors being cashed up, that some of the junior -- their drill programs are quite significant. And so we've -- we're well positioned. We also implemented the drill equity program to attract some of them, and that's worked out extremely well for Geodrill. So not only are we able to get the drilling programs, we're also investors in a couple of them. So very excited to be drilling for juniors.
Okay. That's great. Congrats on a strong result.
Your next question comes from Ahmad Shaath from Beacon International.
Congrats on a great quarter. Dave, if I heard that correctly, Q1 is shaping up to be a strong or a continuation of the trends we've seen in Q4 in terms of monthly revenues and overall trends in revenues.
Sorry, I didn't quite get that. I think you were asking about our Q1. I think you said, did I mention that our Q1 was looking strong. Is that correct? Is that what you asked?
Yes. Yes. Yes. I'm just wondering about the trends of revenue. You alluded to the fact that we should expect to continued strength into Q1 and Q2 on the back of Q4. So just confirming the -- that's the case.
Yes. So if I understood your question, let me just try and deduce what half of it was. Let's just talk about this from a utilization point of view. Looking, first of all, 2020. 2020, the first 3 quarters, we were based on -- the revenues were basically driven by an average of 50% to 55% utilization. As we entered Q4, things suddenly picked up. We had the return of -- we had the rush that we get after wet season, but then we had the money that had been generated in the market. So on a strong gold price, we were basically -- we averaged through quarter 4, 70% utilization. As we enter 2021, utilization has increased, I'm pleased to tell you it. It is getting to a stage where we're part of almost totally maxed out. We're actually -- we're buying rigs, okay? We're back in the market. We're looking at where our next acquisitions are, what they're going to be and what buckets we need to fill to keep our customers satisfied. And so that's positive. That's totally great. Where will it end up? I can't tell you at this point in time. I don't have a crystal ball, but I can tell you that January was a record January and February was actually a record, record. It wasn't just a record for February, it was a record, record. We just had our biggest month in the history of the company. And that's -- February's one of our -- normally one of our quietest months. So it gives you any indication of where we're going to end up this year. Well, I guess the big question is, will the momentum continue through Q2 and beyond? Well, at this point in time, I have total visibility up to June, and we're taking bookings for Q3 now. And some of our longer-term contracts are actually booked out to the end of next year. What we're seeing, if I may summarize, I would say, is reminiscent of what we see on the beginning of the up cycle. It's extremely busy. No spare rigs. And it's not just Geodrill. This is an industry thing. All of our competitors are talking about shortages of rigs. And our competitors, we note with interest that they're starting to report stronger pricing, and I would concur with those comments, we're starting to see the same thing. And it's a natural function of a rising market, rising cost. It's all looking very good. It's going to be a great year.
Yes. And Ahmad, what I tried to touch on, just -- it's basically a reversal of last year. If you look at the Q1 of 2020, Q1 of 2020 was extremely slow, and that was because of the militant attack in Burkina in late 2019 and also COVID really kind of starting to come into effect near the end of Q1 2020. So like Dave said, not only are we extremely busy this year. But when you look at the comparables, the quarter-over-quarter, Q1 2020, we basically did $18 million in revenue. So exiting Q4 2020, we were at 24 -- over $24 million in revenue. So it's -- not only is it going to be significant, it's also going to be -- on a comparable basis, it's going to be quite an improvement.
For sure. No, that's more than I can hope for in terms of clarity. I appreciate that. And then secondly, you touched on it a little bit. So how should we think about margin expansion going into this cycle? I mean, everybody is talking about elevated cost, but it seems that you guys are successful in passing through price increases and utilization is going up. How should we think about your ability to capture or increase margins as we go through the cycle?
Well, we try to maintain -- but I'll just quickly start and then let Dave add on. We try to maintain our margins here. So as revenue increases, you can see year-over-year, we had 25% gross margin, and that's the industry leading. We have the highest gross margins in the industry at 25%. And as revenue increases, we hope the gross margin will go up, but most of that is variable in cost of goods sold. There is a bit of fixed costs in there. But -- so we try to maintain our margin. Our SG&A, we manage the business towards about 10% in SG&A of revenue. But again, as revenue goes up, we should be able to do better. So I think the margins you've seen Geodrill put up, EBITDA margin is 23%. So even though costs go up a bit, we're able to maintain our margins, and that's what we're targeting, that and a little bit better for 2021 and beyond.
As a general rule, Ahmad, we don't tend to use the up cycle to -- as an opportunity to -- as a price increasing mechanism, if I can put it that way. We don't gouge our customers. How it kind of works is as we get increased -- as our revenues increase, we defray our SG&A over a larger base. And I expect there'll be incremental improvement in the margins. But generally speaking, as operations get busier, they become somewhat less efficient as well. So for our model, we're modeling higher revenues based on higher utilization, but in terms of the EBITDA margins, the price increasing that we introduced is really only to cover increased costs. What happens is in a rising market, we have to pay more for our employees. Our suppliers, they get busier. And so higher demand drives their pricing. So the cost of drilling consumables and things that we buy costs more, so we need to pass that on. But we don't look at it and say, "Well, gee wiz, our utilization just suddenly got strong. Now we can increase our drill prices by 15% or 20%." We don't do that. As a matter of fact, our utilization is generally pretty strong, and our customers have been extremely loyal throughout the cycles. And so it wouldn't be fair on them to turn around and see this as an opportunity to gouge them just because the opportunity is there and there's no rigs around. We want to make sure that we've got these customers -- keep the customer satisfied through the cycle so that, at all times, they can always look at us as their drilling partner.
Well, perfect. That makes sense. And maybe -- I mean, I'm not sure if you have -- you've been operating probably in South America for a few months now. Any takeaways on how you see margin profile for you guys there compared to West Africa? It sounds like you guys can maintain margins there, but maybe any color or any takeaways from the first few months of operations there?
Sorry, I didn't get the question. But Greg, could you grab that one? Sorry.
No. It's -- yes, they're what we've modeled off, Ahmad, and they're as expected. There -- the buckets are a little different in terms of salaries versus the buckets within the cost of goods sold, but we model the same margin and the same EBITDA, net income. It's just a bit of a different top line and a bit of a different COGS lines. But -- and again, it's very early stage. And what we're seeing in South America is very positive. It's -- we're extremely happy with the start we've had in Peru.
That's great. And last one for me, Dave, you touched on it a little bit in your commentary. But from a longer-term perspective, where do you see drill and blast and South America as a percentage of your total revenue? Like what is your 3- or 5-year plan when you look at that? And what investments do you think you'll need to do to get there?
Well, our overall plan is to grow. We recognize the need to address the size of our company, and this is part of our overall strategy to growth. And I guess we could have done these things earlier. But really, we've been laser-focused on our exploration business in West Africa. We've got that box fairly well tipped at this point in time. You can never drop you guard or become complacent. We need to continue to manage that well. The whole thing in South America is that it's part of an overall strategy of diversifying commodity and diversifying country risk. We hear the saying all the time, when you build your models together, I'm sure you you'll come up with some sort of a multiple that might include the narrative African discount. I think the time will come. Actually, what attracted me to West Africa was the fact that there are numerous [indiscernible] places being under-drilled for [ 50 years ] -- it's 50 years of modern exploration. And I believe there will come a time where people will pay an African discount -- I'm sorry, an African premium. But until that time, [Technical Difficulty] the markets are telling us, and the markets are something us that we need to diversify. We need to diversify our commodities because we're too focused on gold. We happen to be in gold because we're in West Africa. So let's look at that. Okay, so where's the best next place to do that? So South America has the sixth largest exploration budget in the world. And we happen to provide a service which has been extremely successful, what we call, Deep Directional drilling, and it's about 20% of our business in our view. And it's one of our more challenging but one of our most profitable services. And so we are not interested in going to South America to compete with the moms and pops. We're only interested in working for Tier 1 customers that we probably worked for in West Africa somewhere and so that there's a little marketing involved. And where will that South American market go? Well, that's a great question because look at Geodrill, all of its growth has been organic from the get-go, one rig, one contract, 20 years ago to $100 million of revenue today or trending that way. Then you'd have to say, well, that's phenomenal. But remember, the first 5 years, we were paying -- we started the company with 100% geared, negative equity. So the difference today is that we're a Full Monty Toronto listed drilling company with access to capital markets should we should we need to accelerate [Technical Difficulty] that's going to stand in our way of doing that is going to be the ability service capital. Where could we end up? Well, I believe, ultimately, we need to get this company to some sort of sale, probably price it [ 3x ] what it is today [Technical Difficulty] crystal ball, and I would tell you that if all things working and with the right conditions, it could be done in 5 years. The solution, I think we're looking forward to how to do we garner the same attention as the major drillers and the same multiples of the bigger, more diversified, but somewhat less profitable drillers. That's not to take anything away from our competitors. What they do is good. It's just that we're, for now, an African-focused business, albeit we are a profitable driller. The real challenge, the next question in any company that looks at that, at how do we make the next step is not to do it in a way that affects margin. I think it's never been done before, but I think the real challenge that I believe we're up for is getting the company to essentially a reasonable scale such that we continue to deliver those margins and a company that generates sort of $200 million to $250 million, $300 million in revenue and can still deliver 23% to 25% EBITDA margins. There's very, very few examples of companies around that do that. There is one actually. It's very topical, but there is one actually occurring in the next 24 hours. It's the company in Australia by the name of DDH1, and they will list on the ASX at midnight tonight, Toronto time. And that's coming straight out the gate with an EBITDA valuation of 6x. And that is a company that turns over $250 million a year, has modern equipment, has the highest revenue per rig in the industry alongside of us. And they command a 20 -- they command a 6x multiple. So I think what we need to do really is become them, not become major. I think the answer for Geodrill is to become the DDH1 of the Toronto. That's what we need to do. Keep an eye out for those guys. They'll be a great proxy for us.
Sounds great. Sounds like a great plan and opportune time for you guys to make the cash flows and execute on that. So congrats again on good quarters, and we're looking forward to a great year for you guys.
Thanks, Ahmad.
Thanks, Ahmad.
Your next question comes from Anthony Prost from Stifel.
Good results. I just wanted to ask you a couple of questions because most of them have already been answered. So first off, what do you view as the bottleneck this year? Is it going to be equipment or labor? And is there an ability for you to really accelerate that if demand remains strong?
The rigs are already -- it's a great question. The -- one of the greatest challenges that drilling companies come up against when there's a sudden uptick is people. And one thing that we've managed to do through COVID was we managed to -- we spent the time preparing for what we believe was going to be the up cycle the other side of COVID. And the other thing we spent an enormous amount of time was focus on training. And here we are with the -- as things are now starting to normalize, and we're just seeing 70% utilization. I can tell you that through COVID, we didn't lose a minute of downtime because of our machines and the [indiscernible] inventory and the business model with Geodrill, which enables us to make a lot of drills rods and drill consumables and things [indiscernible]. And the other thing that it enabled us to do is to come out of COVID -- so 70 -- the step range to 70% from 50% didn't occur overnight. It was -- [ went to ] 55%, 60%, 65%. It occurred over kind of 3 or 4 weeks. It was -- but we were ready. And the thing is that what we're doing now as we exit Q4, we're now in mid Q, coming towards the end of Q1 and we soon will be in Q2 is we're already at 75% utilization. And we're not having any trouble at all with the shortage of people. So I think we've handled it probably better than most. I wouldn't want to be on the beginning of the up cycle and suddenly trying to jump from 40% to 70% because what's going to -- your impediments to adaption are -- certainly one of the big ones is personnel.
Yes. And just to answer, where we're fortunate is we saw the upswing coming. And in -- we -- when we added significantly to our rig fleet and our PPE, even our SG&A in 2017, 2018, 2019, Geodrill made significant investments in our IT, in our -- the way we operate and in PPE. Actually, there were years where we were spending more on PPE than we were generating cash flow from operations, but it was -- that was the opportunity. So as we head into this up cycle with 68 rigs, we're well positioned, and this is why we're so busy. Revenue increasing 44% because we have the rigs ready. We also have the infrastructure like the -- where we operate, we have fully stocked bases with inventory. So this is inventory, it's in country, it's cleared custom, it's ready to go. So when a large opportunity comes for -- to bid on something, why we're successful is because our clients are -- potential clients know that we're actually able to deliver on the program. Not only do we have the rigs that are ready to go, the inventory is there ready to go. And as Dave mentioned, we've made significant investments in human resources and people. So it's really -- you're seeing kind of the fruits of a few years back coming through where we're able to deliver. And just quickly on the opportunities, there's no shortage of opportunities. The -- if it's not Africa, there's other countries in Africa that are becoming opportunistic, like Egypt. It's -- as Dave said, at South America, we follow our clients. So when we're getting asked to bid on drill and blast jobs, that's a whole new vertical for us. So it's more managing growth and do we accelerate that through the capital markets or do we just continue to do it organically? So hopefully, that answers your question.
That's some great color. One other sort of housekeeping question for me. So you recently launched a dividend. I just wanted to know whether this will have any impact whatsoever on the NCIB? Or will it be complementary to it?
They're going to be complementary. So we -- the ways to return capital, we entered the NCIB a few years ago. We were kind of quiet on that the first year. We were more active last year. But for Geodrill, it's balance. It's all about balance. And you have to balance growth and the cash you're going to need for operations, invest in the business, and that's a significant amount of cash. And then you also have to invest -- we do look for stock pricing, we feel we're undervalued. So the NCIB is in place, and it's been in place for a few years. But we also wanted the dividend available to shareholders to be able to return cash flow that way.
We have no further questions in queue. I'd like to turn the call back over to Mr. Dave Harper for closing remarks.
I think you said there's no other questions, and if that's the case, I am going to sign off, and thank everyone for being on the call today. Thank you very much. Happy International Women's Day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you.