Forage Orbit Garant Inc

TSX:OGD

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Orbit Garant Drilling's Fiscal 2020 Fourth Quarter and Year-End 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, September 29, 2020.I would now like to turn the conference over to Mr. Eric Alexandre, President and CEO of Orbit Garant. Please go ahead.

[Eric Alexandre, President, CEO & Director]

Thank you, operator, and good morning, ladies and gentlemen. With me on the 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.We had strong momentum in our domestic drilling business in fiscal 2020, up until we were impacted by the COVID-19 pandemic beginning in mid-March. Provincial governments in Canada and the governments of the other jurisdictions where we operate responded by implementing emergency measures to minimize the spread of the virus, including the temporary shutdown of nonessential businesses.In Quebec, our operations were suspended from March 24 until April 20 as a result of provincial restrictions on nonessential business activities. Following April 20, our operations in the province were permitted to resume in a gradual manner. Drilling activities on certain customer projects in Nunavut territory and Ontario were also temporarily reduced or suspended due to the pandemic. Our international drilling operations were also affected either as a result of government restriction on certain business activities or customer decisions to reduce or delay certain projects due to the pandemic. In response, we implemented multiple initiatives to lower our cost and manage our liquidity position during this period of reduced drilling activities, including a reduction in capital expenditures and reduced investment in working capital.Importantly, we implemented these measures without impacting our ability to ramp up our business as market conditions improved. Further, effective April 1, our senior management team and directors have taken a temporary 15% reduction in their remuneration to support the company. We recorded $3.6 million in financial support from the Canada Emergency Wage Subsidy program in our fourth quarter that helped to mitigate the impact of the pandemic on our business.On this total amount, $3.2 million was recognized as a reduction of cost of contract revenue and $0.4 million was recognized as a reduction of general and administrative expenses. We also amended and modified our existing financing agreements with our lenders, and we secured financing in Chile through our Chilean subsidiary that have provided us with additional financial flexibility.As at our fiscal year-end, we comply with all covenants in our credit facility and our EDC loan agreement, and we expect to continue to remain in compliance, given the amendments with our lenders. As governments have now eased COVID-19-related business restrictions, we are gradually ramping our operations back up and look forward to resuming our momentum from prior to the pandemic. As we continue to ramp up our operation, we will maintain our focus on prioritizing the health and safety of our employees and the communities in which we operate. In addition to COVID-related challenges, we have managed through, in June, a claim by financial institution for damages against our Burkina Faso subsidiary of $1.97 million was confirmed by a court in Burkina Faso. This claim related to an amount of $20,000 owned by our subsidiary to a supplier, which was indebted to the aforementioned financial solution. We vigorously dispute this claim and have filed an appeal. Based on legal counsel, we believe that the claim is unfounded and the appeal would be successful.Nonetheless, given the original claim was confirmed by the court, we recorded a provision of approximately $2 million in our fourth quarter for this claim and additional legal fees. As the facts and circumstances evolve, including if we are successful in our appeal, the liability recognized will be revised in the period in which the change occurs.Now I'd like to turn the call over to Alain to review our financial redress. Alain?

[Alain Laplante, VP, CFO & Corporate Secretary]

Thank you, Eric, and good morning, everyone. Our fiscal 2020 fourth quarter revenue totaled $20.2 million, down from $44.4 million in Q4 a year ago, reflecting the negative impact of the COVID-19 pandemic on drilling activities.Canada revenue totaled $16.4 million, a decline of approximately 48% from Q4 last year and International revenue decreased to $3.8 million, a decline of approximately 70% from Q4 a year ago. The decline in international revenue also reflects the completion of a large multiyear drilling contract in Chile at the beginning of Q4 last year. Our drill utilization rate was 42% in the quarter compared to 57% in Q4 a year ago. We drilled approximately 186,000 meters in the quarter compared to 439,000 in Q4 last year, a decline of approximately 58%. Gross profit for the quarter was $2.3 million or 11.5% of revenue compared to $4.7 million or 10.6% of revenue in Q4 last year. Our decline in gross profit was primarily attributable to the impact of the COVID-19 pandemic and the resulting reduction of drilling activities. Adjusted gross margin, excluding depreciation expenses, was 23.3% compared to 15.8% in Q4 last year. Our cost of contract revenue was reduced by $3.2 million in Q4 this year as a result of financial support from the Canada Emergency Wage Subsidy, or CEWS, program, which positively impacted gross margin and adjusted gross margin.G&A expenses were $2.9 million in the quarter compared to $4.4 million in Q4 last year. G&A expenses in Q4 last year, included $0.2 million of acquisition and integration costs related to the acquisition of the Drilling business of Project Production International, or PPI, in Burkina Faso. There was no such cost in Q4 this year, and we implemented certain measures in the quarter that reduced G&A expenses. We expect that some of these measures will result in a year-over-year G&A expense reduction in future quarters. G&A expenses in Q4 this year also reflect a $0.4 million reduction resulting from the financial support we recorded from the CEWS program. EBITDA for the quarter was $0.3 million compared to $2.6 million in Q4 last year. Net loss for the quarter was $2.7 million or $0.08 per share compared to net loss of $0.8 million or $0.02 per share in Q4 last year. The impact of the pandemic and the $2 million provision for litigation, as Eric noted earlier, contributed to the decline in EBITDA and our increased net loss for the quarter. These factors were partially offset by the $3.6 million in financial support that we recorded from the CEWS program.For our fiscal year ended June 30, revenue totaled $137.8 million, a decline of approximately 10% compared to fiscal 2019. The decrease was primarily attributable to a significant decline in drilling activities in Canada and internationally due to the impact of the pandemic, starting in mid-March 2020. Prior to the pandemic, revenue was higher in fiscal 2020 compared to fiscal 2019 due to increased drilling activity in Canada, partially offset by a slight decline in international drilling activity. Canada revenue was $109 million compared -- Canada revenue was $109 million in fiscal 2020 compared to $109.5 million in fiscal 2019. International revenue totaled $28.8 million compared to $43.3 million in fiscal 2019. In addition to the impact of the pandemic, the decrease in International revenue also reflect the completion of a multiyear drilling contract in Chile at the beginning of Q4 last year.Adjusted gross margin, excluding depreciation expenses, was 16.3% in fiscal 2020 compared to 16.4% in fiscal 2019. The cost of contract revenue was reduced by $3.2 million in Q4 of this year as a result of the financial support recorded from the CEWS program, which had a positive impact on adjusted gross margin for fiscal 2020.G&A expenses in fiscal 2020 were $15.4 million, representing 11.2% of revenue compared to G&A expenses of $17.3 million, representing 11.3% of revenue in fiscal 2019. The decrease in G&A expenses reflect the $1.1 million of acquisition and integration costs related to the acquisition of the drilling business of PPI in fiscal 2019, a $0.4 million reduction in G&A expenses in Q4 fiscal 2020 resulting from financial support from the CEWS program and cost-saving measures implemented in the second half of 2020.EBITDA totaled $6.8 million in fiscal 2020 compared to $8.3 million last year. Net loss for fiscal 2020 was $7.4 million or $0.20 per share compared to a net loss of $3.5 million or $0.09 per share last year. The decline in EBITDA and our increased net loss in fiscal 2020 reflect the impact of the COVID-19 pandemic and a $2 million provision for litigation in Burkina Faso, partially offset by our year-over-year increase in revenue prior to the pandemic, cost-saving measures implemented in the second half of fiscal 2020 and the grant from the CEWS program in Q4 this year. Our EBITDA and net loss in fiscal 2019 also reflect $1.1 million of acquisition and integration costs related to the acquisition of the drilling business of PPI last year.Turning to our balance sheet. We withdrew a net amount of $3.2 million in fiscal 2020 from our credit facility compared to a withdrawal of $7.2 million in fiscal 2019. Our long-term debt under the credit facility, including USD 1 million drawn from our U.S. dollar revolving facility, and the current portion was $28.7 million as at fiscal year-end compared to $25.3 million as at June 30 a year ago. The increase was incurred to support working capital requirements and the acquisition of capital assets, property, plant and equipment.As Eric noted earlier, further amendments to credit agreements were executed in March and June 2020 to modify certain of the financial covenants applicable to Q4 fiscal 2020 and future quarters. As a result of these measures, we expect to continue to meet our obligation under our credit facilities.In May 2020, our wholly owned subsidiary, Orbit Garant Chile, obtained 2 loans totaling approximately $1.7 million from Banco Scotiabank. The loans bear interest at a rate of 3.5% annual -- per annum, have a term of 36 months and are 70% guaranteed by the Chilean government as part of the government program in response to COVID-19. The loans have no capital repayments for the first 6 months and the interest over such period will be payable on the first installment. As at June 30, 2020, our working capital position was $52.1 million compared to $55.1 million at the end of fiscal 2019.I'll now turn the call back to Eric for closing comments. Eric?

[Eric Alexandre, President, CEO & Director]

Thanks, Alain. As you know, the COVID-19 outbreak has caused massive disruption across the global economy and the impact on our company and our industry has been significant. We cannot predict how long the pandemic will last or when our drilling activity will reach prepandemic levels. However, we believe we have effectively managed through the initial stages of this crisis, and we are well positioned to continue ramping up our operations. Our operations in Canada continue to ramp up, and while our international operations continue to face certain restrictions, we expect to see increased project activity in the months ahead. We are seeing positive signs in our business with several new opportunities being presented to us for potential projects in both Canada and our international operations.With the price of gold currently at close to USD 1,900 per ounce, the economics of gold mining have improved significantly, and with approximately 66% of our revenue generated from gold-related operations, we expect demand for our services to strengthen as global economic conditions stabilize and our customers start to fully reengage and enhance their mineral exploration and development programs.Further, many industry experts expect that declining copper reserves may necessitate increased exploration activity for copper in the coming years. Our well-established operations in Chile are positioned to compete for any potential increase in customer demand for copper drilling services.Before opening up the line to questions, I want to thank our employees, management and Board for their exceptional efforts in supporting our operations during this difficult period. That concludes our formal remarks. Alain and I will now be pleased to answer any questions. Operator, please begin the question period.

[Operator]

[Operator Instructions] There appear to be no questions at this time.

[Eric Alexandre, President, CEO & Director]

So if there is no question, thank you for participating today, and we wish you all good health and be safe. Thank you very much.

[Alain Laplante, VP, CFO & Corporate Secretary]

Thank you, everyone. Have a nice day.

[Operator]

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