Val-d’Or, Quebec, September 23, 2014 – Orbit Garant Drilling Inc. (TSX: OGD) (“Orbit Garant” or the “Company”) today announced its financial results for the fourth quarter and fiscal year ended ended June 30, 2014. All dollar amounts are in Canadian currency unless otherwise stated. Percentage calculations are based on numbers in the financial statements and may not correspond to rounded figures presented in this news release.
Summary
| ($ amounts in millions, except earnings per share) | Three months ended June 30, 2014 | Three months ended June 30, 2013 | 12 months ended June 30, 2014 | 12 months ended June 30, 2013 |
| Revenue | $20.2 | $21.4 | $71.5 | $104.2 |
| Gross Profit | $1.8 | $2.3 | $3.8 | $15.5 |
| Gross Margin (%) | 8.4 | 10.6 | 5.2 | 14.9 |
| Adjusted Gross Margin (%)1 | 20.5 | 21.9 | 18.5 | 24.4 |
| EBITDA2 | $1.9 | $3.1 | $3.4 | $15.4 |
| Net loss | $0.8 | $27.6 | $6.3 | $26.5 |
| Net loss per share | ||||
| – Basic and diluted | $0.02 | $0.83 | $0.19 | $0.80 |
| Total metres drilled | 234,287 | 211,457 | 825.271 | 996.803 |
1In accordance with IFRS, reported gross profit and margin include certain depreciation expenses. For comparative purposes, adjusted gross margin is also shown excluding these depreciation expenses.
2EBITDA = Earnings before interest, taxes, restructuring charges, depreciation, amortization, impairment of goodwill and intangible assets.
“The mineral drilling industry continues to be impacted by highly challenging market conditions. Many senior and intermediate mining companies that scaled back their drilling programs in 2013 have exercised further restraint in 2014, as new or renewed contracts are often for shorter durations, reduced metres and involve less specialized drilling, which is typically charged at a higher rate. At the same time, exploration activities by junior mining companies remain at historically low levels due to a lack of capital. This reduced demand has created overcapacity in our industry, which has led to increased pricing pressure and lower revenue per metre drilled, resulting in margin erosion,” said Eric Alexandre, President and CEO of Orbit Garant. “In response to these adverse market conditions, we continue to manage our staff and inventory levels, capital expenditures and balance sheet accordingly. Over the past two fiscal years, we have reduced our debt level by more than $17 million.”
“As we look ahead to the eventual improvement in industry conditions, we remain focused on continued financial discipline, while also retaining our key personnel and supporting our core strengths. This will ensure that we are well positioned to continue providing best-in-class drilling services and innovative solutions for our customers, and that we will be able to respond quickly when market conditions improve,”added Mr. Alexandre. “Our 20 computerized drill rigs are all currently deployed on customer projects and continue to perform well, delivering improved driller productivity and cost savings on consumables for both surface and underground deployments. Our customers appreciate the improved performance and potential of our new drill rigs, which has enabled us to renew underground drilling contracts for longer terms. We have also recently expanded our international business development activities with a new office in Chile and new personnel in West Africa, so that we are better positioned to seize market opportunities as they arise and further strengthen customer relationships. We recently secured our first drilling contract in Chile, which is scheduled to commence in our fiscal second quarter.”
Fourth Quarter Results
For the three months ended June 30, 2014 (“Q4 FY2014”) revenue totaled $20.2 million, a decrease of 5.1% from $21.4 million for the three-month period ended June 30, 2013 (“Q4 FY2013”). Drilling Canada revenue was $20.0 million, down from $20.4 million in Q4 FY2013. International drilling revenue was $0.2 million, down from $1.0 million in Q4 FY2013. Decreased revenue resulted primarily from a decline in revenue per metre drilled and reduced international drilling activity, reflecting the current industry-wide decline in demand. The decline in revenue per metre drilled was partially offset by an increase in metres drilled in Canada during the quarter. Orbit Garant’s fleet drilled a total of 234,287 metres in Q4 FY2014, up from 211,457 metres in Q4 FY2013. Average revenue per metre drilled was $85.33 in Q4 FY2014, compared to $99.22 in Q4 FY2013. The decline in average revenue per metre drilled is primarily attributable to pricing pressure and a significant decline in the Company’s specialized drilling activity, which is typically charged at a higher rate.
Gross profit for Q4 FY2014 decreased to $1.8 million from $2.3 million in Q4 FY2013. Gross margin decreased to 8.4% from 10.6% in Q4 FY2013. In accordance with IFRS, depreciation expenses totalling $2.4 million are included in cost of contract revenue for Q4 FY2014, in line with Q4 FY2013. Adjusted gross margin, excluding depreciation expenses, was 20.5% in Q4 FY2014, compared to 21.9% in Q4 FY2013. The decline in gross profit, gross margin and adjusted gross margin is primarily attributable to lower average revenue per metre drilled and employee-related fixed costs on a lower revenue base.
General and administrative (G&A) expenses totalled $2.4 million (11.7% of revenue) in Q4 FY2014, compared to $2.3 million (10.9% of revenue) in Q4 FY2013. G&A expenses in Q4 FY2014 included a reversal of a contingent consideration of $1.0 million associated with the Company’s acquisition of Advantage Control Technologies (1085820 Ontario Limited) in November 2010 and the acquisition of Lantech Drilling Services Inc. in December 2011, compared to $2.4 million in Q4 FY2013. In accordance with IFRS, depreciation and amortization expenses of $0.3 million are included in G&A expenses for Q4 FY2014, compared to $0.7 million in Q4 FY2013. Adjusted G&A expenses, excluding the reversal of the contingent consideration, and depreciation and amortization expenses, were $3.1 million (15.2% of revenue) in Q4 FY2014, compared to $4.0 million (18.7% of revenue) in Q4 FY2013. The decrease in adjusted G&A expenses resulted from proactive measures taken by the Company to reduce expenses in recognition of current market conditions. The Company recorded restructuring charges of $0.3 million consisting primarily of severance payments in Q4 FY2014.
Earnings before interest, taxes, restructuring charges, depreciation, amortization, impairment of goodwill and intangible assets (“EBITDA”)² was $1.9 million in Q4 FY2014, compared to $3.1 million in the fourth quarter a year ago. The decline is primarily attributable to lower average revenue per metre drilled and lower gross margins.
The Company’s net loss for Q4 FY2014 was $0.8 million ($0.02 per share) compared to $27.6 million ($0.83 per share) in Q4 FY2013. Orbit Garant recorded an impairment charge of $28.2 million related to a write-down of goodwill and intangible assets in Q4 FY2013. Reduced domestic and international revenue, and lower gross margins, as discussed above, contributed to the Company’s net loss in Q4 FY2014.
Fiscal 2014 Results
For the fiscal year ended June 30, 2014, Orbit Garant generated revenue of $71.5 million, a decrease of 31.3% from $104.2 million in fiscal 2013. Decreased revenue was primarily attributable to a decline in metres drilled and lower average revenue per metre drilled, reflecting weakened industry-wide demand for mineral drilling services.
During fiscal 2014, Orbit Garant drilled 825,271 metres, a 17.2% decrease from 996,803 metres drilled in fiscal 2013. The decline in metres drilled reflects decreased market demand. Further, a number of Orbit Garant’s recent drilling contracts are for shorter durations and for a lower number of metres than its typical historical contracts. The Company’s average revenue per metre drilled in fiscal 2014 was $85.17 compared to $102.89 in fiscal 2013. The decline in average revenue per metre drilled is attributable to a number of factors, including current conditions in the minerals industry, which has resulted in pricing pressure from customers, and a decline in the Company’s specialized drilling which is typically charged at a higher rate.
Gross profit for fiscal 2014 decreased to $3.8 million from $15.5 million in fiscal 2013. Gross margin for fiscal 2014 decreased to 5.2% from 14.9% in fiscal 2013. In accordance with IFRS, depreciation expenses totalling $9.5 million are included in the cost of contract revenue for fiscal 2014, compared to $9.9 million for fiscal 2013. Adjusted gross margin, excluding depreciation expenses, decreased to 18.5% in fiscal 2014, compared to 24.4% in fiscal 2013. The decrease in gross profit, gross margin and adjusted gross margin is primarily attributable to lower average revenue per metre drilled, decreased metres drilled, a decline in specialized drilling, which is typically higher margin and severe weather conditions in Canada in the third quarter of fiscal 2014, which resulted in higher fuel and maintenance costs and a decline in driller productivity on certain project sites.
G&A expenses were $11.4 million in fiscal 2014, compared to $12.9 million in fiscal 2013. G&A expenses in fiscal 2014 include a reversal of a contingent consideration of $1.0 million associated with the Company’s acquisition of Advantage Control Technologies (1085820 Ontario Limited) in November 2010, and the acquisition of Lantech Drilling Services Inc. in December 2011, compared to a reversal of a contingent consideration (associated with the same transactions) of $3.2 million that was included in G&A expenses in fiscal 2013. In accordance with IFRS, depreciation and amortization expenses of $1.6 million are included in G&A expenses for fiscal 2014, compared to $2.9 million in fiscal 2013. Adjusted G&A expenses, excluding the reversal of the contingent consideration, and depreciation and amortization expenses, totalled $10.9 million for fiscal 2014, compared to $13.2 million in fiscal 2013. The decrease in G&A expenses and adjusted G&A expenses resulted from proactive measures taken by the Company to reduce expenses in recognition of current market conditions.
The net loss in fiscal 2014 totalled $6.3 million ($0.19 per share) compared to $26.5 million ($0.80 per share) in fiscal 2013. The Company’s net loss in fiscal 2013 included a non-cash impairment charge of $28.2 million related to a write-down of goodwill and intangible assets. Reduced domestic and international revenue, and lower gross margins, as discussed above, contributed to the Company’s net loss in fiscal 2014.
As at June 30, 2014, the Company’s long-term debt, including the current portion, was $8.5 million, compared to $14.4 million as at June 30, 2013. Orbit Garant had working capital of $37.1 million at June 30, 2014 ($51.2 million as at June 30, 2013), and 33,276,519 common shares issued and outstanding.
The Company was in breach of certain financial covenants under its senior credit facility (the “Credit Facility”) as at June 30, 2014. On August 28, 2014, the Company entered into an amendment to the Credit Facility that effectively waives this breach. Notwithstanding this amendment, there is a risk that the Company will again be in breach of certain financial covenants under the Credit Facility as at September 30, 2014. The Company is currently discussing this issue with the lender under the Credit Facility with a view to further amending the Credit Agreement in order to adjust a number of other covenants to take into account the Company’s current and expected financial position and the current market environment. The Company is also in discussions with alternate lenders with a view to replacing the Credit Facility on terms that would take into account such matters.
Orbit Garant’s audited consolidated financial statements and management’s discussion and analysis for the the fiscal year ended June 30, 2014 are available via the Company’s website at www.orbitgarant.com or SEDAR at www.sedar.com.
Conference call
Eric Alexandre, President and CEO, and Alain Laplante, Vice President and CFO, will host a conference call for analysts and investors on Tuesday, September 23, 2014 at 10:00 a.m. (ET). The dial-in numbers for the conference call are 647-427-7450 or 1-888-231-8191. A webcast of the call will be accessible via Orbit Garant’s website at: https://www.orbitgarant.com/en/sites/fog/investors.aspx
To access a replay of the conference call dial 416-849-0833 or 1-855-859-2056, passcode: 2193794. The replay will be available until September 30, 2014. A webcast archive of the call will also be available via Orbit Garant’s website.
About Orbit Garant
Headquartered in Val-d’Or, Quebec, Orbit Garant is one of the largest Canadian-based mineral drilling companies, providing both underground and surface drilling services in Canada and internationally through its 214 drill rigs and approximately 600 employees. Orbit Garant provides services to major, intermediate and junior mining companies, through each stage of mining exploration, development and production. The Company also provides geotechnical drilling services to mining or mineral exploration companies, engineering and environmental consultant firms, and government agencies. For more information please visit the Company’s website at www.orbitgarant.com
(2) Management believes that EBITDA is a useful supplemental measure of operating performance before interest, taxes, restructuring charges, depreciation, amortization, impairment of goodwill and intangible assets. However, EBITDA is not a recognized earnings measure under IFRS and does not have a standardized meaning prescribed by IFRS. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss (which is determined in accordance with IFRS) as an indicator of the performance of the Company or as a measure of liquidity and cash flows. The Company’s method of calculating EBITDA may differ materially from the methods used by other public companies and, accordingly, may not be comparable to similarly named measures used by other public companies.
Forward-looking information
This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to business of Orbit Garant Drilling Inc. (the “Company”) and the environment in which it operates. Forward-looking statements are identified by words such as “believe”, “anticipate”, “expect”, “intend”, “plan”, “will”, “may” and other similar expressions. These statements are based on the Company’s expectations, estimates, forecasts and projections. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. These risks and uncertainties are discussed in the Company’s regulatory filings available at www.sedar.com. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. The Company undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances.
For further information:
Renseignements :
Alain Laplante
Vice-President and Chief Financial Officer
(819) 824-2707 ext. 122
Bruce Wigle
Investor Relations
(647) 496-7856