Geodrill Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 11, 2024

There are 7 speakers on the call.

Operator

Good morning, everyone, and welcome to GeoDrill's Q3 2024 Results Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded today, November 11, 2024.

Operator

Before we begin, certain statements made on today's call by management may be forward looking in nature and as such are subject to various risks and uncertainties. Please refer to the company's press release and MD and A for more details on these risks and uncertainties. I will now turn the call over to Mr. Dave Harper, President and CEO of GeoDrill. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss GeoDrill's 3rd quarter results. Joining me also on the call today is Greg Vorske, our Chief Financial Officer. In the Q3 of 2024, we delivered another solid financial performance. Some of the highlights were revenue increased 13% year over year, EBITDA also increased 22% year over year, net income of US0.06 dollars or 8% of revenue, which compares favorably to a US0.06 dollars loss for the same quarter in 2023.

Speaker 1

And we further strengthened our balance sheet, which is now underpinned by more cash than debt, all of which we believe validates the success of our financial planning. We also believe these results are a testament to our operational and strategic planning success. For context on this latter point, recall 2023, our strategic decision to transition our rig fleet from Burkina Faso to more attractive jurisdictions. This has proven to be the right move, evidently. And while this decision initially impacted our revenue in fiscal 2023, we've now bounced back and we're stronger than ever.

Speaker 1

This business is all about contracts. Our success in securing multiple REIT contracts in new jurisdictions has significantly boosted our revenue visibility and profitability, which demonstrates our commitment to financial stability. Also recall, earlier in the year, we secured contracts totaling USD 150,000,000 in our core jurisdictions. These works are now well underway and strongly contributing to revenue and profitability and will do so for the next 3 to 5 years. Meanwhile, additionally, subsequent to the quarter end, we have secured new contracts in Chile totaling circa $50,000,000 These include 2 very significant multi rig, multi year contracts with new Tier 1 customer and we also secured a multi rig contract extension with an existing customer.

Speaker 1

With our strong portfolio, long term contracts with Tier 1 customers, favorable pricing and a robust pipeline of opportunities, we are now confident in delivering exceptional value to our shareholders and establishing a strong platform for growth going forward. At this point, I'll turn the call over to Greg Borst for a detailed review of our financial performance. Thank you, Greg.

Speaker 2

Thank you, Dave. The company generated revenue of $34,100,000 for Q3

Speaker 3

2024, an increase of $3,800,000

Speaker 2

or 13% when compared to $30,300,000 for Q3 2023. The increase in revenue for Q3 is primarily due to the successful win of 2 significant multi rig, multi year contracts earlier in the year. These contracts have not only bolstered our revenue, but they have also reinforced our market presence and operational capabilities. The gross profit for Q3 2024 was

Speaker 3

8,400,000

Speaker 2

dollars being 24% of revenue compared to a gross profit of $5,800,000 being 19% of revenue for Q3 2023. EBITDA for Q3 2024 was $7,600,000 or 22 percent of revenue compared to only $600,000 or 2 percent of revenue for Q3 2023. Q3 2023 was impacted by a $3,600,000 non cash credit loss provision relating to the aging of the company's trade receivables. Excluding the provision, EBITDA would have been $4,200,000 or 14 percent of revenue for Q3 2023. The net income for Q3 2024 was $2,600,000 or $0.06 per share compared to a net loss for Q3 2023 of $3,000,000 or a loss of $0.06 per share.

Speaker 2

We ended the quarter with net cash, excluding right of use liabilities, of 3,500,000 dollars Building on Dave's comments, the record high gold prices are driving robust global exploration spending, which in turn solidifies the strong fundamentals for the mineral drilling industry moving forward. At this point, I will turn the call back to Dave.

Speaker 1

Thank you, Greg. So just to recap, our strategic focus on securing long term multi rig, multi year contracts with Tier 1 minuteers has provided us with a stable and predictable revenue stream, which is crucial in navigating the cyclical nature of the mineral drilling services business. This approach has optimized our resource allocation and operational efficiency in turn significantly boosting our profitability. The synergy between our strategic long term contracts and the robust gold and copper market positions us exceptionally well for continued growth and success. We are poised to deliver exceptional value to our shareholders and establish a formidable foundation for future growth.

Speaker 1

At this point, I'd like to thank extend our gratitude to our dedicated stakeholders, including our team, our shareholders and our loyal clients. Your unwavering support has been integral in our success. We remain committed to maintaining our high standard of service and furthering our position as an industry leader. This concludes our prepared remarks. I'll now turn the call back to the operator if anyone has a question.

Speaker 1

Thank you.

Operator

Thank you. Your first question comes from Gordon Lawson with Paradigm Capital. Your line is now open.

Speaker 4

Hey, good morning. Congratulations on another good quarter. Your year over year revenue growth was once again impressive. I'm just wondering if this is mostly growth in Chile or has there been some outperformance in the African segment? And any disclosures you can provide on drill types and margins would also help.

Speaker 2

The revenue, the year over year or the year to date, if you look at that, most of that growth is coming directly out of Africa. What we've disclosed, Gordon, in the Q2, the significant contracts in Chile, they're going to take effect starting in Q4 and they'll roll for 3 years through 2025, 2020 6 and 2017. So what we have year to date, mainly that's coming from Africa.

Speaker 4

Okay. That's fantastic.

Speaker 2

We had a customer on the margins too. I think the on the margins, if you look at where we are year to date, significant margins. If you look, we were able to increase revenue year to date by 9%. So from call it $101,000,000 to $110,000,000 And I think it's important to point out, just in today's inflationary environment, etcetera, key to that, not only were we able to increase revenue by 9%, we were able to maintain our gross margin. So if you look at the gross margin year to date 2023, the gross margin was 26%.

Speaker 2

We were able to match that in 2024. We were able to year to date, we also have a gross margin of 26%.

Speaker 4

Okay, that helps. Thanks very much. Just moving further down the financial statements here, your CapEx was a little higher this quarter than expected. Is that related to a higher volume of drill upgrades or is this more in line with expected run rate going forward?

Speaker 2

The higher CapEx is for the contracts that we signed in Chile, which will be starting to turn in Q4. So we're ahead of that. A lot of the CapEx was spent in Q3 and it'll be spent in Q4 also.

Speaker 4

Okay. Thank you very much. That's it for me.

Speaker 2

Thanks, Gordon. Thanks, Steve.

Operator

Your next question comes from John Sarz with Viking Capital. Your line is now open.

Speaker 3

Good morning.

Speaker 5

So Dave, I thought your opening remarks were very good. The only thing missing was you should have I think you should have said, The Board is there for reinstating the dividend.

Speaker 1

Yes, you took the words right out of my mouth actually and we just we had a lengthy discussion. We just finished up a Board meeting this week and perhaps Greg Borsch might prefer to comment on that.

Speaker 2

Yes. I think the, John, we do have a few levers to pull. As you're aware, we also have the NCIB. We haven't used that. Particularly, we use that when the share price is depressed.

Speaker 2

So I think the share approaching 3, that doesn't really make sense. We also have

Speaker 1

a lot

Speaker 2

of institutional funds that are buying and looking to get into the stock. In terms of the dividend, we discuss the dividend, we look at it. Even though we're net cash, we do have debt on the books. It's expensive debt, 9.35%. So there's a lot of opportunities for the cash we generate from operations.

Speaker 2

And as Gordon said also, we've signed some big contracts. Where we're operating the demand for drilling services is we're keeping up, but our clients are constantly looking for more. So it's a balance, if you will. It's a balance between growth, increasing the top line, continuing to add rigs and then key is keeping the customer happy. And then we will continue to look at any excess cash and what best to do with it.

Speaker 2

And dividends does come up, but as I mentioned earlier, we had significant CapEx to get ready for some of these ramp ups that we're going to have in 20252026.

Speaker 5

Okay. Thank you. I still think you should reintroduce the dividend, but it's up to you. Have a nice day. Thanks.

Speaker 1

No, no, no. I appreciate your comments, John, and it's a work in progress, believe me. But we've just gone through a really heavy period of CapEx to tool up. And what happens when you sign a contract is the first thing you get is the costs are all front loaded front end loaded. We've just got to get the rigs in the field, get them turning and earning and the free cash will follow.

Speaker 1

And you can be assured the dividend will imminently be reinstated, just not immediately. Just I'm on it. I think we're working on

Speaker 3

it.

Operator

Your next question comes from Jesus Sanchez with Caspar Investment. Your line is now open.

Speaker 6

Hi, and congrats for another great quarter. I have a question about the book order that we have. We mentioned or you mentioned that we achieved new contracts of $150,000,000 plus $49,000,000 in Chile after this recent quarter. So that will add year to date an addition of $200,000,000 in contracts. Can you disclose the total order book value?

Speaker 2

Jesus, sorry, maybe this is confusing. That $49,000,000 will be spread out the new contracts, the $49,000,000 that we signed subsequent to Q3, they will be spread out over 3 years. So they will not be year to date, if that was the question. And same with the $150,000,000 The $150,000,000 that we announced early in the year Q1, again, those are multi rig, multi year contracts.

Speaker 6

Yes. Thank you for the clarification. I understand that. But they were signed this year. So this year, we have signed $200,000,000 in contracts that will be recognized as revenue in the following 3 to 5 years.

Speaker 6

I got that. My question is how much do we have before the how much is what's our order book?

Speaker 2

Yes, we don't disclose that. So, and then maybe it's something we can look at disclosing going forward. We have long term contracts, 5 year contracts that were disclosed 3 years ago. So, the we don't disclose that in the MD and A, but it's something if analysts and investors would like to know the order book going out over time, we could definitely consider that going forward.

Speaker 6

That will be great because I mean personally that gives me some visibility about the revenue that is coming. My second question is a piggyback of the previous one that the other analysts made about the dividends and buyback. Why do you will be favoring dividends over buyback at this price of the share?

Speaker 2

The buyback we in the past, we've typically viewed it as like a floor, kind of if the stock gets too low, we will put in a bid so that we use the buyback years ago. And what we were finding years ago when there was not a lot of volume in the stock, a small amount of shares being sold could dramatically impact the price of the stock. So when we were using the NCIB years ago, it was kind of to put in a bit of a floor on the stock. You're not able to move your stock up by your NCIB. You're able to kind of match the current bid.

Speaker 2

And what we found in the last 3 years is that there's been enough demand from investors and institutional funds, etcetera, where they're looking for stock. So it really didn't make sense for us and the stock was increasing. We went from a low of less than 2 to up to I think 3.65 or close to getting close to 4. So putting in the buyback didn't make sense. It was what we decided was more prudent to actually implement dividends as a return of capital.

Speaker 2

And then this is all tempered by what Dave said earlier, taking care of your customer and continuing to have that growth CapEx, etcetera, is kind of it's definitely in our balance of where do we spend our operating cash flow.

Speaker 6

Perfect. Thank you very much, Greg and Dave or Jean Morris.

Speaker 1

Yes. Hi, Zvi. So if I can just jump in for a second just to add to Greg's comments. We get the whole thing about share buyback. We get the whole thing about dividends.

Speaker 1

But the best thing is we can do with our free cash at the moment is just keep adding rigs because we have an ever increasing demand for our services. As our rig fleet reaches 70% utilization, we automatically start looking at how much cash we've got and what we need to be buying to add into an ever increasing demand for our services now. And that's pretty much what we're doing at the moment. We've just had a bit of a purple patch in terms of signing contracts. Let's get these all into work, start generating some free cash.

Speaker 1

And then the decision between whether we go dividends, whether we do share buyback or a combination of those will simply be a great problem to have. And it's coming imminently, not immediately, but imminently.

Speaker 6

Yes. For what it worth, I totally agree with that strategy. We are in growth mode. We still invest in CapEx, new rigs, spending. And time will be where we can give dividends or think about buybacks.

Speaker 6

But right now, we are with our growth hat on. Thank you very much.

Speaker 1

Thanks. You're welcome, please.

Operator

Your next question comes from George Mela with MKH Management. Your line is now open.

Speaker 3

Thank you. Thanks for taking my question. I'm fairly new to the story. I have two questions. One relates to rig relocations.

Speaker 3

I understand that you moved some rigs from West Africa to South America last year, maybe earlier this year. So I'm trying to understand if that's largely done or if you have some rigs that you still need to relocate. And the second question relates to the seasonality of the business. Just trying to understand what is the seasonality and maybe if you could take that by geography? Thank you very much.

Speaker 1

Thanks. So yes, we took a strategic decision in quarter 2 last year to reposition our we had competing priorities, if I can put it that way. We had opportunities in other jurisdictions and we were operating in a jurisdiction where we just saw better opportunities far. And so we took the decision to relocate redeploy rigs from one region, some were absorbed into West Africa. In fact, most of them were absorbed into other countries in West Africa.

Speaker 1

I think maybe I'm not sure that any of them actually went to South America. South America has effectively been pretty much a standalone operation. Started and it started to generate its own free cash. And from its own free cash, it's been growing nicely on its own. We've grown that fleet from we started 5 years ago with 3 or 4 rigs.

Speaker 1

And today we're up to 13 rigs in that that we'll be operating in that region. So we should effectively being funded from cash generated from operations. So we're doing quite well. So the 2 businesses are going to continue to run independently and as and where we need to if we believe that there's spare capacity in West Africa, which there doesn't seem to be at this point in time. But there should it be the case that we have spare capacity in West Africa, then I'm sure it will be absorbed into either North Africa or South America.

Speaker 3

Okay, great. It was about the seasonality of the business.

Speaker 2

The seasonality, just if you look at the quarters, Q1 and Q2 are typically our strongest quarter. Q3 in certain regions in West Africa were impacted by wet season. So you typically Q3 is our slowest quarter. And then Q4, we pick up again and then we're only impacted in Q4 by the holidays. A lot of the larger Tier 1 clients, they will shut down in advance of Christmas and then they will not start up until maybe a week after the New Year.

Speaker 2

So, but that's we've been doing this for a long time. We know Q1, Q2, we start ramping up for Q1 and Q2 in like Q3 of this year. We're ready for it. We know those are the 2 busy quarters. Q3, typically, we have rigs come in.

Speaker 2

If they need an upgrade or a service, that's what we use Q3 for. And then Q4, again, we know we're going to slow down a bit in around the New Year, just before and just after. But that allows our staff to get rested, take their break and gear up for a very busy Q1 and Q2. And that's what you see. And that's what we communicate every quarter.

Speaker 2

So that's it. And we were very pleasantly surprised with Q3 2024 when we used to kind of budget almost a breakeven. But now that we've moved to Tier 1 minuteors and significant clients that are drill more consistently, Q3 is now a profitable quarter for us. And you can see that where we are able to not only reinvest into the fleet and the equipment, we were also able to generate profits here in Q3 of $0.06 a share. So it was a very, very good quarter, very strong Q3 for the group.

Speaker 3

Great. Thank you so much for your explanation.

Speaker 2

Thank you, George.

Speaker 1

Thank you.

Operator

No further questions at this time. I will now turn the call over to management for closing remarks.

Speaker 1

Okay. There's no other questions. Thank you everybody for being on today's call and have a great day.

Speaker 2

Thank you.

Operator

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

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Earnings Conference Call
Geodrill Q3 2024
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