Geodrill Limited

Good morning everyone and welcome to the Jill Drills Q2 2024 results conference call. At this time all participants are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded Today, August 12, 2024. 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&A for more details on these risks and uncertainties. I would now like to turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us today to discuss General's financial and operational results for the second quarter of 2024. Joining me on the call today is Greg Borsk, our CFO. Now, let's dive into the financial highlights for the reporting period. In the second quarter, we achieved two consecutive months of record-breaking revenue. Building on the momentum witnessed in the first quarter, we realised that unprecedented revenue peaks, firstly in May, then immediately followed by a further increase in June, both of which surpassing all previous historical benchmarks. Overall, quarter two revenue was a significant 26% year-over-year increase, as well a robust 19% quarter-over-quarter improver. Net income was an impressive year-over-year surge of 147%, as well a remarkable quarter-over-quarter increase of 130%. And for EBITDA, we recorded a substantial year-over-year increase of 72%, as well a 60% quarter-over-quarter improver. Additionally, noteworthy, we increased our cash position by 27% year-over-quarter and also reduced the company's debt by 9%, achieving an overall debt-to-equity ratio of 8%, which underscores our dedication to maintaining a solid balance sheet position. Also importantly in the quarter, we made significant investments amounting to $2.8 million in the upgrade and maintenance of our modern fleet of draw rigs and equipment, This investment ensures that we will continue to lead the industry with state-of-the-art equipment, ensuring us to deliver exceptional service to our clients and maintain our competitive edge. These financial decisions are a testament to our disciplined approach to managing resources and our continuous effort to enhance shareholder value. And we are confident these actions will contribute contribute to our sustained growth and the success of the business. Now looking at the operational highlights, we ended quarter two with a total of 91 rigs in our operational fleet to meet ongoing demand. We also reached a new safety milestone, achieving 17.5 million hours without lost time injury. Recall in the first half of 2024, we secured contracts totaling more than $150 million USD, which will significantly contribute to our revenues and profitability over the next three to five years. These contracts include two substantial long-term agreements with top-tier mining companies for multiple REITs. Our operations in Egypt, Chile and Peru continue to excel, supported by long-standing contracts with Tier 1 mining companies and multi-year agreements. Our strategic focus with senior miners through long-term contracts is directly contributing to our goal of delivering sustainable results to our shareholders. These contracts are not only a reflection of our commitment to stability and growth, but also an affirmation of the trust placed in us by industry leaders. Moreover, the growing mineral drilling market, largely fuelled by a strong gold price, has created favourable conditions for our operations, allowing us to capitalise on the opportunities presented by the buoyant mineral drilling market. The synergies of these two factors Our strategic long-term contracts and the robust gold price market positions us exceptionally well to continue our trajectory of growth and success. I will now turn the call over to our CFO, Greg Bors, who will review our financial performance in detail. Thank you, Greg.

Thank you, Dave. I am pleased to report that our financial performance for the second quarter of 2024 has been exceptional. We achieved record-breaking quarterly revenue, the highest in the company's history, which is a testament to our strategic planning and execution. The company generated revenue of $41.2 million for Q2 2024. an increase of $8.5 million or 26% when compared to $32.6 million for Q2 2023. The gross profit for Q2 2024 was $12.7 million, being 31% of revenue compared to a gross profit of $7.8 million being 24% of revenue for Q2 2023. EBITDA for Q2 2024 was $10.7 million or 26% of revenue compared to only $6.2 million or 19% of revenue for Q2 2023. The net income for Q2 2024 was $4.8 million or $0.10 per share compared to $2 million or $0.04 per share for Q2 2023. I would also like to highlight other key financial accomplishments in the second quarter. We generated net cash from operating activities of $5.9 million, which reflects our strong operational performance and efficient cash flow management. We also increased the company's cash by 27% over Q1 2024, while reducing total debt by 9%. ending the quarter with net cash, excluding right of use liabilities, of $300,000. Echoing Dave's comments, with the gold price well above $2,400, global exploration spending continues to be strong and provides strong fundamentals for the company going forward. At this point, I will turn the call back to Dave.

Thank you, Greg. Our focus on securing long-term contracts has provided us with a stable and predictable revenue stream, which is crucial in the cyclical business of mineral drilling services. This approach has allowed us to optimize our resource allocation and operational efficiency, resulting in improved profitability as evidenced by our results today. Looking ahead, we remain optimistic about the future. The demand for our services continues to grow and with a strong foundation laid in the first half of 2024, we are confident in our ability to maintain success and deliver increased shareholder value. To this end, I would like to extend our gratitudes to all our stakeholders including our dedicated employees, our shareholders and our loyal customers for the continued support which has been integral to our success. We are committed to maintaining our high standard of service and to furthering our position as a leader in the mineral drilling industry. This concludes our prepared remarks on our financial and operational results. I'll now hand over to the operator We will pass it back to our listeners on the call for Q&A session. Thank you.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1. To retry a question, press star 2. Again, to ask a question, press star 1. One moment, please, for your first question. Your first question comes from Dave Kegler from Private Investor. Please go ahead.

Good morning, Dave. Congratulations on the great results. Thank you. Just a quick question. With long-term profitability looking forward, are you planning on reinstating your dividend?

Yes, we will at a point in time. We do have competing priorities at this point in time, which Greg will probably be the better person. to speak to, but perhaps I'll just – the short answer is yes, not today. Thank you. Yeah.

Just if you look at the – I think one of the things we highlighted was if you look at Q1, the company actually – we invested quite significantly in the first quarter for the large contracts. And doing that, we ended Q1 with actually we were in a net debt position. We hadn't been in a net debt position for quite a while. So one of the things we're trying to highlight this quarter just through efficient cash management, et cetera, we've changed that. We ended Q2 with cash of 9.7 and debt of 9.4. So we actually ended Q2 with net cash. what we're going to do throughout the rest of the year is continue to execute, add rigs where it makes sense, et cetera, where we have client demand. So I think the, just to echo what Dave said, I think right now the objective is to continue to build up cash and pay down debt, and then we will revisit the dividend at a later date.

Your next question comes from Jerry Yanowitz from Private Investor. Please go ahead.

Thank you. Is your rig utilization still 75% and do you think this can be maintained or even modestly improved upon?

So through quarter two, utilization of the fleet reached the 75%. It actually reached slightly higher than that, but it actually averaged 72 for the quarter. Now, historically, I'm not sure how long you've been an investor, or if you are, in fact, indeed an investor today in Geodal. But historically, if you know anything about Geodal, we traditionally have our strongest quarter in quarter two. What happens then is we experience a bit of seasonality in some of the markets that we operate in. So we take that opportunity to bring the rigs in, do some maintenance, and it tends to be a slower quarter through quarters three and four. So to put a comparable in there at the moment, utilisation, as I sit here and speak before you today, is currently just hovering marginally above 60%. So we've gone from 75 to 61, which is expected. You know, it's normal. And it tends to increase as we exit quarter three, and it tends to improve a bit through quarter four. But then what happens is we slow down for the Christmas holiday season, and then it picks up again in quarter one. So I think today's results were evidence of... It's our strongest ever quarter in the history of this company and it is a clear signal that after a couple of underwhelming quarters that we had through 2023 for, again, competing priorities, we basically decided that we were going to exit a couple of jurisdictions and we did. And in doing that, well, of course, it had an effect on the business. Today's results are, I think, clear evidence that we're back. We're going to be doing our best work from here going forward. But I wouldn't, at this point in time, expect a sequential improvement over the quarter that we've just delivered. But you will see solid quarters going forward.

Right. In May, you stated that your immediate short-term goal was to get back to the best of time of 2022. And that year, you earned 41 cents. Is it reasonable, given the backlog and visibility you have going forward, that this goal could be achieved of 41 cents this fiscal year?

Sorry, is that in net earnings?

Yeah. I believe in 2022, you earned 41 cents.

Yeah. Dave, let me just... I think... The other thing we've mentioned is that we've morphed away from, you know, we've morphed the business to be more predictable, drilling more for the majors. We announced the two significant contracts in Q1, the $150 million. So when the drilling that we're doing now is – you're not going to see as high – margins etc you're going to see still industry leading margins but to go back and compare to 2022 2022 we were doing a lot of exploration drilling uh and and if i remember we had one exceptional quarter that kind of skewed things so i think where we are now if you look at halfway through this quarter we're at um 15 cents and and we're very comfortable with that the q1 was weak And Q2, sorry, Q1 was extremely weak and we put in a 10 cent quarter. But to try to get back to 41 cents, what we did in 22, we're sitting here halfway through the year at 15 cents. I don't see it happening. But again, this is a strategic decision and it flows through not only in the earnings, it flows through in getting paid. You know, when you're drilling for the Tier 1 customers, the Tier 1 clients, we're getting paid on time. You know, that's very important in our industry. If you look at the – one of the things we disclose is the aging of our receivables, and you can see significant improvement just over December of last year in our over 90 days, et cetera. So it's more of a – a stronger company, a more balanced company, drilling for Tier 1 companies, et cetera. And we're still expecting exceptional earnings and exceptional earnings per share, but I don't think we'll get back to $0.41.

All right. And my final question is just to follow up on that. So you did $0.10 this quarter. The third and fourth quarters are traditionally, as you said, a little slower. Is it reasonable, given your visibility, to expect we could at least earn the 10 cents for the next two quarters per share?

Is that the 10 cents between the two quarters? Is that your question?

My question is, could you earn 10 cents this quarter? Could you earn 10 in the third and 10 in the fourth?

No, no. Q2 is an exceptional quarter for us. This was a record-breaking quarter. Q3, rigs come in for maintenance, etc. So just to be clear, in the 25 years of Geodrill, Q2 has always been our strongest quarter. So we were able to earn $0.10 this quarter. we will not be able to earn 10 cents in Q3.

All right. Thank you, and congratulations on the incredible quarter.

Thanks, Senator. If I could just add to what you began by saying that I had said, that we're going to get back to the best times and we will surpass our best years. I believe I may have been – in fact, I'm sure I was referring to revenue top line. So with that comment, I would stand by that comment. I believe that this year we will surpass all previous years. As for, I think what Greg was alluding to there was margin compression. So the big thing that's happened is that we've taken a strategic decision to move away from juniors and companies that are beholden to the capital which were causing us a bit of angst in terms of getting paid and so on and so forth. And we've moved our business model to tier one cash producing gold and, you know, base metal miners. Now, the, you know, that has the advantages of one, we don't struggle to get paid. Two, we're not looking for work all the time for customers that are, you know, not sure whether they're going to, you know, they're going to raise money or they're not. And... And so we benefit. But with that, you know, there has to be a trade-off. Drilling for the Tier 1 miners, there is margin compression. Absolutely, margin compression. We've just delivered a 26% EBITDA result. I would say that's outstanding. Probably industry-leading at this point in time. I don't know any driller that's out there doing 26% EBITDA at the moment.

Thank you. Thank you. You're welcome.

Your next question comes from Don Angelo Roop from Beacon. Please go ahead.

Hey, guys. Good morning. Thank you for taking my question, and congratulations on the excellent results. Um, first question for me is just going to be focused on, uh, Egypt and South America. So I guess, uh, like you, you, you can, you can, you can see the top line revenue increases from the contract wins, uh, announced last quarter that was in West Africa. But, uh, can you guys talk about the pipeline for Egypt and South America? Uh, can we, yeah, just any color there.

Yeah. So we, we basically, as I said, we, uh,

coming off the back of a very successful contract win that actually began in quarter three, quarter four last year. And by quarter one, we'd secured some contracts, put some contracts to bed. We've since added some contracts across a number of regions. And if, well, when you say add some colour, I guess, you know, signing new contracts for us is a normal day, a normal day in the office. You know, we're at Trump. a contracting firm. So by definition, we worked contracts. But it is, if we look at historically, the last time we had a contract or similar to this one that we've just come through, we'd have to go back three or four years. And that took us, that cadence, if you will, on the beginning of that new wave of successful haul of contracts, took us from, you know, 83, million zip code revenues into the 100s. We ended the 100s with a 115, then we did a 138. Last year, because of this strategic decision to move away from one of the rest of the jurisdictions that we operated in, our revenues fell away and so we came over the top. We summoned it in 2022 and then we came up in 2023. What's happened now is that gave us the rigs and the ability to go out with the marketing department and find new work for those rigs. Evidently, we were successful in doing that. And so what we're witnessing now, although our quarter one was a bit slow, it's in a very solid quarter two, and you'll see robust numbers from here going forward. Now, where will it take us to? That's really the big question. At this point, I've, you know... rather than make any wild predictions, I'll just say that investors can expect to see solid growth for the next three to five years.

Okay, thank you. And then just moving over to the adjusted EBITDA margin. Yeah, this quarter was very strong at 26.7%. It's just a slight drop compared to 2022 levels. I know you said that's a bit because of the shifts going towards more majors than juniors. But can we kind of expect close to these numbers moving forward? Or were there some one-off items that kind of impacted this quarter more than other quarters moving forward?

No, there's no one-off items. It was just, and you see it everywhere. You see, we had a very healthy gross margin. You know, we target between 25% to 30%. We actually exceeded that. The gross margin in the quarter was 31%. Our SG&A, SG&A was, we kind of budget that at about 11%, so that came in as expected. You know, in the past, Dave referred to last year, you know, we had some provisions we had to take which skewed that number. So there's nothing exceptional in this quarter other than like the top line. And then everything followed that $41.2 million in revenue. We were able to, you know, see the margin we wanted, the gross margin. We were able to keep the spending in line, etc., So it all fell down to the bottom line in the EBITDA where we came in at 26% EBITDA. So nothing really to report on any exceptionalities in the quarter, just a really strong quarter.

Okay. Thank you for taking my questions, guys. I'll hop back in the queue. Thanks. Thank you.

Your next question comes from George Millas from MKH Management. Please go ahead.

Great, thank you. Thank you for taking my question. Quick question on the contract that you have secured in the first half of 24. Can you tell us about where they are from the geography perspective, and have you started to recognize revenue on these contracts, or have you not really started them yet?

No, we certainly have started them, and they are well and truly underway. And we've signed contracts in Ghana, Ivory Coast, Senegal, Egypt, and Peru, and Chile. Basically all of our jurisdictions. All of our jurisdictions where we're currently operating at.

Great. Thank you very much. Thank you, sir.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1. Your next question comes from Mark Gomez from Pipeline. Please go ahead.

Hey, Dave, congratulations. Great work on the shift. You know, just to clarify from the questions that were asked five minutes ago, if we take into account your seasonality and when you have to take rigs up and down, taking that into account, would we expect going forward, you know, as you say, the next one, three, five years, we should see continued positive comps to the year-ago quarters, you know, so taking that seasonality into account?

That is certainly the hope, yeah.

That is certainly the hope. I mean, no guarantees. I mean, you know, notwithstanding an exogenous sort of out-of-the-left-field event, certainly the intention would be with this large amount of multi-week, multi-year contracts, that would certainly be the intention, yes. Yeah, intention was what I was looking for. Any wild predictions, but in principle, yes.

Right. I mean, there's nothing happening right now that would stop this current quarter, you know, that's extraordinary in this quarter relative to what you did in this quarter last year in terms of operations, right?

Correct, yeah. I mean, I think we could say safely at this point in time, we're halfway through quarter three, are we looking at a year-over-year improver? Certainly trending that way at this point in time. And... And if you remember quarter three last year, it wasn't a bad quarter. It was okay. But it's not going to be a sequential, it's not going to be a quarter over quarter improvement because we've just done a record and we're entering into traditionally a quieter quarter. Will we continue to improve?

Sorry?

Yeah. I mean, that's typical, though, right?

It is. It is. It's totally normal. But the first thing that would normally happen is when you put out a, you know, a bang it out of the park quarter, everybody says you're going to do that next quarter. And, you know, you've got to think of it like what is topical at the moment is the 400 relay. You know, it's made up of some fast sectors and some fastest sectors particularly. You know, no four sectors are the same. Historically, we know that our quarter two is our strongest quarter and we've just come through our quarter two. So comparing it to last quarter two and perhaps what's more importantly is quarter two, our strongest ever quarter that we'd recorded previous to this, we've also exceeded by a significant margin. We, you know, it was a great result and it's been a few quarters in coming. You know, you've got to remember that we, you know, we've repositioned our rig fleet out of a restive region and these things, these decisions are not taken lightly and they take quite a while to put into play, you know, for them to play out from the decision point. To exit, which was taken basically for the reasons of safety of our workers, we took a decision that affected us through 2023. And so that gave us the opportunity to go out and find new work, which we've done. And I think it demonstrates just how agile and fleet of foot we are when you consider that the region that we moved out of, It was once our largest market. We've managed to actually replace that and come back with record breaking revenues. So I think it's a good demonstration of how fleet of foot or how agile we can be in an ever changing environment where the only thing that we can truly be certain of is change itself. Where will we go to from here, from this new found or this recently signed bunch of, you know, this contract hall? You've got to remember that the cash that we generate from operations always goes into increasing the fleet size. We're now at 91 weeks. And so what will happen is we will continue to operate at 70% utilisation through the strong quarters, probably 60% through the slower quarters as we are at the moment. but that's on an ever-increasing rig fleet. So I think that it would be safe to say that from here going, notwithstanding any exogenous left-field type events, you can expect to see year-over-year improvements, yeah.

Yeah, that's what I was getting at. I mean, you know, that question put a little cold water on the call when, in actuality, you have not since 2016 put up a stronger... you know, third quarter over a second quarter. So it's not something I thought anybody should expect. But, you know, year over year, and that's why we have those year over year comparisons. That's where as long as all else is equal, you continue to expect year over year comparison strength. Yes. Correct. Yeah.

Certainly to help on. Yeah. And as we've been open and transparent about, Our business model shifting from junior exploration companies beholden to the capital markets who are giving us problems getting paid to your more top tier 3-1 cash producing gold mines and base metals mines gives us the added advantage of not chasing money all the time. The cost of financing outstanding debtors for long periods of time. But that comes with margin compression, and that's normal. You know, you would expect that on the economies of scales. But to put out the result that we just have, I'll tell you, it exceeded my expectations.

Might as well. Thank you.

Thanks very much, Mark.

Thank you.

And there are no further questions at this time. I will turn the call back over to Dave Harper for closing remarks.

And I have no other remarks other than wherever you are, I hope your team managed to win some nice gold medals during the recent Olympics. And thank you all for participating on today's call. So good as gold. Thanks very much.

Cheers. Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.