Geodrill Limited (OTCQX:GEODF) Q3 2022 Earnings Conference Call November 11, 2022 10:00 AM ET
Company Participants
Dave Harper – President, Chief Executive Officer, and Director
Greg Borsk – Chief Financial Officer
Conference Call Participants
Daryl Young – TD Securities
Gordon Lawson – Paradigm Capital
Operator
Good morning, ladies and gentlemen. Thank you for standing by. For today’s call, phone participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 11 at 10:30 a.m. Eastern 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 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.
At this I’d like to turn the conference over to President and CEO of Geodrill Limited, Mr. Dave Harper. Please go ahead, sir.
Dave Harper
Thank you, operator. Good morning and welcome to Geodrill’s Q3 2022 financial results call. I will begin with an overview of our operations and performance for the quarter. Our CFO Greg Borsk will then give some detailed review of our third quarter financial results, after which I will discuss our lutlook for the remainder of 2022.
In the third quarter, we achieved a number of financial and operational milestones. High level, revenue increased 29% year-over-year to $35 million. EBITDA was $9.3 billion or 26% of revenue, and that’s up 96% year-over-year. And net income basically doubled to $3.6 million or $0.08 per share. We also continued to strengthen the balance sheet, increasing total equity to $103.6 million, up 22% year-over-year. We generated a return on capital employed of 26% and a return on equity of 18%, and we ended the quarter with net cash of $5.7 million, that’s up 100% on the previous quarter.
Now operationally and strategically, we expanded into a new geographical location by securing a contract in Chile. We’ve also awarded two additional surface drill contracts in Egypt. Any completed listing — our listing on the OTCQX with the goal of increasing shareholder visibility. Our strategic decision to diversify geographically has been critical to Geodrill’s growth trajectory.
New long-term contracts with major exploration partners not only provides future casf flow, recurring revenue and visibility, but it also solidifies our reputation as a drill services provider on to serve the borders of West Africa. Our focus on executing on our growth strategy has put us in a strong position to continue to benefit from the strong demand for our services as we remain focused on our operational excellence and driving profitability.
I’ll now pass over to Greg Borsk to discuss our financial performance. Thank you, Greg.
Greg Borsk
Thank you, Dave. As a reminder, all figures are reported in U.S. dollars. Geodrill reported our best third quarter ever. Record revenue, EBITDA, and net income all on the back of strong demand in all geographical locations for our drilling services. The company generated revenue of $35.2 million for Q3 2022, compared to $27.2 million for Q3 2021, representing an increase of 29%.
The increase in revenue is a result of the increase in demand for the company’s drilling services. In addition to West Africa, in Q3 2022, Geodrill also generated revenue from both Egypt and Peru. The company has invested significant amounts into capital into its drilled rig fleet and has advantages in the form of experience in the marketplace, accuracy, reliability and safety, which positions Geodrill to secure contracts.
The gross profit for the third quarter of 2022 was $10.9 million being 31% of revenue, compared to a gross profit of $5.6 million being 21% of revenue for the third quarter of 2021. EBITDA for Q3 2020 was $9.3 million, being 26% of revenue, compared to $4.7 million or 17% of revenue for Q3 2021.
Lastly, the net income for Q3 2022 was $3.6 million or $0.08 per share, compared to $1.7 million or $0.04 per share for Q3 2021.
At this point, I will turn the call back to Dave.
Dave Harper
Thank you, Greg. It is clear, our financial position is a testament to the strength of our business and the demand for our drilling services. Before we move to the Q&A portion of the call, I would like to provide a brief outlook for the remainder of 2022.
Today, Geodrill is better positioned than it has ever been both financially and operationally. Supply and demand for many commodities, particularly gold has started to reflect years of reduced capital expenditure and under investment. Demand for commodities on the other hand despite efficiency gains and substitution continues to grow, especially in the leading metal space.
[indiscernible] landscape reforms our view that we are in the early stages of a period that should see higher commodity prices and returns and several circumstances against the backdrop of global uncertainty, more specifically inflation creates a unique investment opportunity. Expansion into new geographical regions is part of our growth strategy is pivotal to both revenue and profit going forward.
With an established business and an impressive financial performance, we continue to believe Geodrill is strategically positioned to create higher returns for investors than other industry players.
This concludes our prepared remarks on our financial results. Thank you for participating in today’s call and we’ll now be pleased to answer any questions you may have. At this point, I will ask the operator — the directions for any one who does have a question. Thank you.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And your first question will be from Daryl Young at TD Securities. Please go ahead.
Daryl Young
Hey, good morning, everyone. Congrats on a great quarter.
Dave Harper
Good morning, Daryl.
Greg Borsk
Good morning. Thank you.
Daryl Young
Thanks, Dave. Just hoping to get a little bit more detail on the contract that you signed on for in Chile?
Dave Harper
It’s a specialized drilling contract and it is with a copper company. And it involves directional growth, so we’d like to be drilling multi-intersectional deep holes down to sort of 2,000 and then doing multiple toward branch type drilling. And we have a previous history that they would place in this particular company. We’ve had a private association with them back in [indiscernible] and, you know, with [indiscernible] that got good history. And we think that, that’s going to be a great contract.
The size and the scope of the program was enough to give us the encouragment to mobilize a couple of weeks down there. And it would seem that’s — it’s off to a pretty good start. Actually, a very good start and [indiscernible] it’s going to be great there. So a new country, new commodity, new customer, basically, we’re stepping up and stepping out.
Greg Borsk
Let me just add to that Daryl. It was like Dave said, this is now our second country in South America, so that’s exciting for us and it’s a large enough contract that allowed us to invest to actually set up in Chile here and take that contract on. So we’re very excited about that new contract.
Daryl Young
Okay, perfect. And it sounds like the bidding environment has still remained quite healthy. I would imagine maybe some fall off in some of the junior customers, but maybe you could just give us an overview of what you’re seeing right now in terms of the juniors and where the demand is?
Dave Harper
Yes, juniors are fallen off a little bit, Daryl, but it’s anything tankless, any slack is has been taken up by the mid-tiers and the producers and the Tier 1s. So you could imagine, it is a bit tough in that junior space, which is beholden to the capital markets, capital markets, you’re not performing a well on towards, maybe then anyone that’s producing gold at, call it, $1,600, $1,700, [$7,850] (ph) seems to be moving around a bit. It’s very pleasing to see it’s now moving in the right direction.
But the advantage you’re putting in a market like we’re in is that for the most part, now our customers role, you know, in the sort of $1,000 per ounce all in sustaining cost quartile. And so that’s where the gold goes to $1,600 they’re still profitable, just less profitable. That’s — so and they’re very busy replacing ounces that they’ve always taken off, they’ve been mining off their balance sheet. So as I say, junior’s, yes bit of pushback in the junior space, but it’s only being picked up again by the — any shortfall there is being taken up in the producing space and some.
Daryl Young
Got it. Okay. And then when I look at the results for Q3, the strength — was that — I’m assuming a lot of strength is from the new geographies you’ve added. But how was the rainy season in West Africa, compared to prior years? And I guess what I was just trying to get a sense at is this the type of quarter that you could post up in the future through the rainy season? Or was it an abnormally good rainy season?
Dave Harper
So good question, it was actually a very peculiar wet season and that it came very late, very, very late. In one stage we’re even wondering whether it was going to come at all. But it did eventually arrive in, call it, the last month of the quarter, the last third of the quarter. And so there will be some follow through where it basically chase us into Q4. But I mean, we’re seizing the site. If I was to just back out that it would have been a normal wet season, it was a great quarter.
Daryl Young
And then final question would just be on your thoughts on additional rigs just given how high the utilization has remained set in the pipeline for 2023?
Dave Harper
Well, we continue to grow the rig fleet and whenever you utilize ocean, we get to 17%, we start looking around it at what cash we’ve got to reinvest in expanding the fleet. I think what we do need to do though is start to focus on what we accomplished in the last few years and consolidate for a little while before we can sort of we need to build the next launch platform of growth. And if you look at what we’ve done years gone by, we’re sort of going from the 60s and then there’s been two or three years there. And then we were a few years in the 80s and now we’ve — since then, we’ve jumped from 87% to — I think last year was 115% this year, we’re going to end up, I don’t know, I think analyst has got us about 130-ish, we’re very comfortable with that. And I’m not sure we’re really ready to take on another 15% or 20% jump in the next year, not because the demand is not there, it’s just because it’s not how we operate.
We need to spend a bit time here solidifying and making sure that just having the bridges one thing that you’ve got to have the workers trained, technicians and vehicles and their support equipment. And the way we do things we’ve — whereever we operate and we roll out a network of facilities. And we’ve expanded into a couple of new regions recently. So we need to look at those regions and say, well, how moving those regions up to the Geodrill standard as it were. And so I wouldn’t be projecting at this point in time another year at the same trajectory.
I think what we need to do is just catch our breath that takes a little while. I’m not saying we’ll go sidewise, but I’m just not sure that we’d be growing at the same rate next year as we were in this year that we’re currently in, following on from the year before, because we really need to just solidify and consolidate our position before we can — whilst we build the — call it, the launch pad, if you like, for the next level.
Greg Borsk
Yes. And I think, Daryl, let me just add to that too. I think the important thing that we try to communicate to the investors and the analysts, it’s we’re all about reasonable growth and maintaining our margins. So it’s not growth at any cost. So if you look at where we — like Dave said from ‘20 to 2021 we went from the — in the 80s to 115, so we grew by 40% and we were able to have a healthy margin 27%. This year, if we grow at 15% to 20% year-to-date our margins is — we’re up to 31% gross margin. So growth is important, but it’s also maintaining that our high industry leading margin and expanding into some of these territories that we’ve committed capital and resources to.
So that’s why I was talking about Chile with the first job, it’s — if you look at the totality of things, but it’s not significant, but it is our first job in Chile and it allows us to bid the second and third job, et cetera. And same with some of the other recent countries we’ve been in, Peru and Egypt. So it’s more of a focused approach as to where do we want to grow strategically and making sure we’re maintaining our profitability as we do that.
Daryl Young
Okay, perfect. That’s great color guys. Thanks very much and I’ll get back in the queue.
Dave Harper
Thanks, Daryl.
Greg Borsk
Thanks, Daryl.
Operator
Thank you. [Operator Instructions] And your next question will be from Gordon Lawson at Paradigm Capital. Please go ahead.
Gordon Lawson
Hey, good morning, everyone. Could you please add some color on the location of remaining rigs in Burkina Faso with respect to the ongoing crew there? And if there’s plans on relocating these to safer or more profitable jurisdictions?
Dave Harper
So in the cleaner at the moment, just playing upon in several calls, we’ve only got a few rigs running up in Burkina Faso, we’re looking out for our key customers. It’s very important that we make sure that they’re well serviced and their operating areas that they’re comfortable with and we’re comfortable with. So the thing that’s with gold mining, Gordon is that it doesn’t stop because of some political situation that’s going on in any one of the 55 countries that make up the continent.
Leading one point in time, you can be sure one of them is going to be blocking their copy book. But they never stop the old money. They never stop mining. And so where [indiscernible] it is usually being that cut lots of my stores in the capital city. It’s never around the gold mine. The last thing I would do is shut down the gold mining, because it provides the country for much needed ForEx. And so our operations have been relatively ineffective, we are slightly reducing the amount of numbers that we have in Burkina Faso, but that is more because we had better opportunities elsewhere. And it’s just a competitive market place, that’s all.
So if we see a better opportunity in another jurisdiction, we’ll take that opportunity. At the moment we’re inundated with inquiries from some of the other regions and we have a competitive market space in Burkina Faso, so the best thing we can do is we work with some of our competitors, whilst we take our rigs and put them on two more profitable jobs to another jurisdictions. Does that make sense?
Gordon Lawson
Yeah. It’s fair enough. It’s just other some of your competitors have commented on moving away from Burkina Faso. Obviously, they’re also not growing at the capital, but there’s still an ongoing risk that something could happen. So and that’s the only reason why I asked.
But moving on — in terms of —
Dave Harper
We’re not expanding our operations there, but we’re also mindful that we have customers there and we need to keep those customers serviced. So I have no feelings either way for Burkina Faso positively or negatively for me, it’s just about opportunity and I have better opportunities, better commercial opportunities and other jurisdictions all take the big sale. For the meantime, the rigs that are there at work and there might be money, then I’m happy for that to remind.
Gordon Lawson
Okay, understood. And in terms of segment and revenue, are you able to give us an idea of how much revenue you’re currently generating in Latin America? And can you give some expectations from the New Chilean contract as you have with other new customers that you announced earlier this year?
Greg Borsk
It’s — that’s more of a financial disclosure and it’s not really significant yet, Gordon. Like I said, we’re still predominantly West African driller, where we’ve made significant strides are in North Africa and Egypt. But in terms of South America, it still is a stage for us. We’ve — and when I say early stage, if you look at the number of rigs over there, compared to the total rigs in the fleet, the Geodrill model, what we do is we start with one contract, usually three to six rigs in any location. And then as that becomes successful, we grow organically in that territory.
So what we’ll do we’ll reinvest our cash. So in Peru, we’ve added another rig. There’s another rig forecasted again for that. Chile, we just started in Chile really near the end of Q3, so we’ll probably be able to give you a little bit more color on that when we speak in early 2023. But it’s very early stage for us, but it’s starting off well with contracts in two countries now.
Gordon Lawson
Okay. Thank you very much. That’s it from me.
Operator
Thank you. And at this time, Mr. Harper, we have no other questions. Please proceed with any closing remarks.
Dave Harper
Well, that’s us. Thank you very much for everybody that made time to jump on the call today. And I’ll say farewell. Thank you very much, Chris.
Greg Borsk
Thank you.
Operator
Thank you, sir. Ladies and gentlemen [Multiple Speakers] You’re welcome, sir. This does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.
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