Forage Orbit Garant Inc

TSX:OGD

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2021 Second 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, and 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, February 11, 2021. 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, President, CEO & Director]

[Foreign Language] Thank you, Colin, and good morning, ladies and gentlemen. With me on this call today is Alain Laplante, CFO. Following my opening remarks, Alain will review our financial results, and I will conclude with comments on our outlook. We will then welcome questions. While we continue to carefully monitor the spread of COVID-19 in the regions that we operate in, the current outlook for our business has improved significantly for fiscal 2021. Our drilling activity continue to ramp up in our second quarter, led by our Canadian operation as well as increased drilling activity in West Africa. We drilled approximately 376,000 meters in the quarter, about 11,000 meters more than Q2 a year ago. Our drilling activity in Canada is now back to prepandemic levels despite the heightened COVID-related restriction that came into effect in both Ontario and Québec in the second half of the quarter. Our operation in Canada continue without significant disruption as we approach the second half of Q3. In West Africa, we commenced work on new projects in Burkina Faso during Q2, and we are scheduled to start a new multiyear drilling project in Guinea with a major gold producer in the coming weeks. We are now adding drills and drillers to operations in West Africa to meet market demand. Our drilling activity in Chile remains below our prepandemic levels, but we are seeing increased opportunities in that market. We are scheduled to commence work, a new contract in Chile, with a major copper producer during the third quarter. We have closely maintained and monitor our COVID-related safety measures across our operations since the onset of the pandemic, adjusting where necessary to any changes in regulations or evolving protocol improvements. A big part of this process is also working closely with our customers, suppliers and other stakeholders to maintain consistent adherence and awareness. We have also worked on our operational efficiencies and cost reduction measures since the onset of the pandemic, which, in combination with increased drilling activity, has contributed to our improved profitability in Q2 as we generated adjusted gross margin of 21.3%, up from 12.5% in Q2 a year ago; EBITDA of $4.4 million, up from $1 million in Q1 last year; and a return to positive net earnings. We recognize that circumstances can change rapidly in this uncertain time, but we feel confident in our safety measures and our ability to continue to operate at this level of increased activity while maintaining improved profitability. The significant increase in gold and copper prices over the last 12 months should continue to provide positive support for drilling projects in our markets. I'd now like to turn the call over to Alain Laplante to review our financial results in more detail. Alain?

[Alain Laplante, VP, CFO & Corporate Secretary]

Thank you, Eric, and good morning, everyone. Our fiscal 2021 second quarter revenue totaled $36.1 million compared to $38.3 million in Q2 a year ago. Canada revenue totaled $29.4 million in the quarter, up from $28.6 million in Q2 last year. Our drilling activities in Canada have returned to prepandemic levels, following the gradual ramp-up that began in the latter half of our fiscal 2020 fourth quarter ended June 30. International revenue decreased to $6.6 million in the quarter, down from $9.7 million in Q2 last year. The decrease was primarily attributable to a decline in drilling activities in Chile, partially offset by increased drilling activity in West Africa. Our drill utilization rate was 55% in the quarter, compared to 59% in Q2 a year ago. However, this figure is higher than our 50% utilization rate in Q1 this year and 42% in Q4 2020, demonstrating the steady return of drilling activity following the initial impact of the pandemic. Gross profit for the quarter was $5.4 million in the quarter compared to $2.4 million in Q2 last year. Adjusted gross margin, excluding depreciation expenses, was 21.3% compared to 12.5% in Q2 last year. Improved gross profit and margin reflects improved operational efficiencies and cost reduction initiatives, which offset the initial logistical challenges and related costs due to COVID-19. G&A expenses were $3.7 million in the quarter or 10.1% of revenue compared to $4.2 million or 10.8% of revenue in Q1 last year. The decline in G&A expenses reflect the cost reduction measures we've implemented following the onset of the pandemic, as Eric noted earlier. EBITDA for the quarter was $4.4 million, up from $1 million in Q2 last year. Net earnings were $0.3 million or $0.01 per share compared to a net loss of $2.4 million or $0.06 per share in Q2 a year ago. The positive variances reflect improved gross margins, positively impacted by improved operational efficiencies and cost reduction initiatives. Turning to our balance sheet. During the quarter, our financing activities resulted in a $5.7 million reduction in debt and lease liabilities compared to an increase of $1.5 million in Q2 a year ago. We repaid a net amount of $5 million on our credit facility compared to a withdrawal of $2.3 million in Q2 last year. Our long-term debt under the credit facility, including USD 1 million drawn from our USD 5 million revolving facility, and the current portion was $21.6 million at quarter end. This compares to $28.7 million as of June 30, 2020, a decrease of $7.1 million, which has provided us with improved financial flexibility. Our working capital position at quarter end was $31.4 million compared to $52.1 million as at June 30, 2020, our fiscal 2020 year-end. The decline in working capital resulted from the reclassification of the amount outstanding under the credit facility from noncurrent to current liabilities due to the fact that the maturity date of the credit facility is currently November 2, 2021. We are currently in discussion with our lender to renew the credit facility. Just one final note before turning the call back to Eric for his closing comments. As previously disclosed, in June 2020, a claim by a financial institution for damages against a subsidiary of ours in the amount of approximately $2 million was confirmed by a court in Burkina Faso. We vigorously disputed this claim and filed an appeal. Nonetheless, given the original claim was confirmed by a court in Burkina Faso, we recorded a provision of approximately $2 million in our fiscal 2020 fourth quarter for this claim. On January 21 of this year, the appeal court ruled in our favor and overturned the original decision. This remains under subject to further appeal, and as such, we have determined not to reverse the provision liability until the appeal period has expired and we have received and considered the appeal court's written judgment. I'll now turn the call back to Eric for closing comments. Eric?

[Eric Alexandre, President, CEO & Director]

Thanks, Alain. I am proud of our team and their extraordinary efforts and cooperation in effectively managing this crisis so far, and I am confident that we will continue to do so. This team effort has played a huge part in positioning our business favorably to accommodate the increasing customer demand we are now experiencing in Canada and our international operations. Through all of these challenges, I believe we have become stronger as a company. We are generating improved margins. We have lower cost and reduced our debt and lease liabilities. We also welcome the news of our recent successful appeal to a legal claim against our subsidiary in Burkina Faso, as Alain just noted. With the price of gold currently above USD 1,800 an ounce, gold mining has become highly profitable even for higher cost producers. We expect this pricing to support demand for gold drilling in Canada and West Africa. We generated approximately 3/4 of our revenue from gold-related drilling in the first half of fiscal 2021, so we're well positioned to benefit from increased project opportunities. The price of copper is currently close to a 5-year high, and the underlying supply-demand fundamentals of the commodity remain solid. This should support customer demand in our Chilean operations going forward. The increase in drilling demand in Canada will require additional experienced drilling personnel. We are well positioned to face this challenge as we have our own drilling training program. Our computerized monitoring and control technology helps new drillers reach desired productivity rates in a shorter period of time, and we are continuously improving our drilling processes. We do not foresee similar manpower issue in our international operation. We will maintain our vigilance in monitoring COVID-19 in the days and months ahead as well as overall market conditions and the health and safety of our team members and the communities in which we operate. We look forward to reporting our continued progress in the second half of fiscal 2021. That concludes our formal remarks. Alain and I will now be pleased to answer any questions. Colin, please begin the question period.

[Operator]

[Operator Instructions] Okay. It appears there are no questions at this time. Please proceed.

[Eric Alexandre, President, CEO & Director]

So if there is no question, we'll terminate the call. Thank you, everyone, for participating today and wish you all good health. [Foreign Language]

[Alain Laplante, VP, CFO & Corporate Secretary]

[Foreign Language]

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.