Orbit Garant Drilling reports fiscal 2014 third quarter results

• Revenue was $16.0 million in the third quarter of fiscal 2014 ("Q3 FY2014"), compared to $23.7 million in the third quarter of fiscal 2013 ("Q3 FY2013")
• Gross margin of (6.7%) compared to 14.5% in Q3 FY2013
• Adjusted gross margin (excluding depreciation expense) was 7.9%, compared to 25.3% in Q3 FY2013
• EBITDA of $(1.1) million compared to $2.9 million in Q3 FY2013
• Net loss of $2.9 million, or $(0.09) per share (basic and diluted) in Q3 FY2014, compared to a net loss of $0.6 million, or $(0.02) per share (basic and diluted) in Q3 FY2013
• 205,441 metres drilled in Q3 FY2014, down from 239,960 metres in Q3 FY2013

VAL-D'OR, QC, May 13, 2014 /CNW/ - Orbit Garant Drilling Inc. (TSX: OGD) ("Orbit Garant" or the "Company") today announced its financial results for the three and nine month periods ended March 31, 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.

Q3 FY2014 Summary

¹ In 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

² EBITDA = Earnings before interest, taxes, depreciation and amortization

"The mineral drilling industry continues to be impacted by challenging market conditions globally, which is reflected in our financial results. Senior and intermediate mining companies that scaled back their drilling programs in 2013, have continued to exercise cost restraint in 2014, and in many instances have delayed or further reduced planned drilling programs. Many of our new or renewed contracts are for shorter durations and for reduced metres. At the same time, exploration activities by junior mining companies remain at historical low levels due to a lack of capital. Our contract revenue mix in the quarter reflects lower current demand for specialized drilling, which is typically at a higher rate," said Eric Alexandre, President and CEO of Orbit Garant. "In light of these ongoing challenging market conditions, we remain focused on disciplined expense management, while also retaining key operations personnel." 

"During this slow period of market activity, we are exploring opportunities to build our international market presence, particularly in Chile and West Africa. We are also focusing on building value for customers by delivering greater cost efficiencies and productivity through drill rig innovation. We have brought our total number of computerized drill rigs to 20," continued Mr. Alexandre. "With a strong balance sheet, exceptional personnel, and current low drill rig utilization rates, we are positioned to rapidly respond as market conditions improve."'

Third Quarter Results

For the three months ended March 31, 2013 ("Q3 FY2014") revenue totaled $16.0 million, a decrease of 32.7% from $23.7 million for the three-month period ended March 31, 2013 ("Q3 FY2013"). Drilling Canada revenue was $15.2 million in Q3 FY2014, down from $23.3 million in Q3 FY2013. International drilling revenue was $0.8 million in Q3 FY2014, up from $0.4 million in Q3 FY2013. The decrease in revenue resulted primarily from a decline in average revenue per metre drilled and lower metres drilled during the quarter, reflecting the industry-wide decline in demand for mineral drilling services, as many senior and intermediate mining companies have scaled back their drilling programs, and junior mining companies have significantly cut their exploration activities due to a lack of capital.

The Company's fleet drilled a total of 205,441 metres in Q3 FY2014, down from 239,960 metres in Q3 FY2013. The decline in metres drilled reflects decreased demand from customers. Further, a number of Orbit Garant's recent drilling contracts are for shorter durations and for a lower number of metres as compared to the Company's more typical historical contracts. Average revenue per metre drilled was $76.06 in Q3 FY2014, compared to $97.80 in Q3 FY2013. 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; a significant decline in the Company's specialized drilling during the quarter which is typically at a higher rate. Increased international drilling revenue in the quarter was attributable to a short term increase in drilling activity on a customer project.

Gross loss for Q3 FY2014 was $1.1 million, compared to gross profit of $3.4 million in Q3 FY2013. Gross margin for Q3 FY2014 was (6.7%) compared to 14.5% in the third quarter a year ago. In accordance with IFRS, depreciation expenses totalling $2.3 million are included in cost of contract revenue for Q3 FY2014, compared to $2.6 million in Q3 FY2013.  Adjusted gross margin, excluding depreciation expenses, was 7.9% in Q3 FY2014 down from 25.3% in Q3 FY2013. The decline in gross profit , gross margin and adjusted gross margin in the quarter is attributable to lower average revenue per metre drilled, reduced metres drilled,  employee-related fixed costs on a lower revenue base, severe weather conditions during the period, which resulted in higher fuel and maintenance costs, and a decline in driller productivity on certain project sites.

General and administrative ("G&A") expenses were $2.9 million in Q3 FY2014, compared to $3.8 million in Q3 FY2013.  Adjusted G&A expenses, excluding depreciation and amortization expenses of $0.4 million, were $2.5 million in Q3 FY2014, compared to adjusted G&A expenses, excluding depreciation and amortization expenses of $0.7 million from $3.1 million in Q3 FY2013. Decreased G&A expense and adjusted G&A expense resulted from the actions taken by the Company to reduce expenses due to current market conditions.

Earnings before interest, taxes, depreciation and amortization. ("EBITDA")² was $(1.1) million in Q3 FY2014, compared to $2.9 million in the third quarter a year ago. The decline is primarily attributable to decreased domestic drilling revenue and lower gross margins.

Net loss in Q3 FY2014 was $2.9 million, or $(0.09) per common share (basic and diluted), compared to a net loss of $0.6 million, or $(0.02) per share common (basic and diluted) in Q3 FY2013. Reduced domestic drilling revenue and lower gross margins contributed to the Company's increased net loss for the quarter.

The Company was in breach of certain financial covenants under its senior credit facility as at March 31, 2014. As a result, the non-current portion of the credit facility was required to be classified as a current liability as at March 31, 2014. Subsequent to quarter end, the Company entered into an amendment to the credit facility that waives these breaches and, going forward, reduces the size of the credit facility to $30 million and revises certain of the financial covenants.

As at March 31, 2014, the Company's long-term debt, including the current portion, was $10.7 million, compared to $14.8 million as at June 30, 2013. Orbit garant had working capital of $36.4 million and 33,276,519 common shares issued and outstanding.

Orbit Garant's interim unaudited financial statements and management's discussion and analysis for the third quarter and nine month period ended March 31, 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 Wednesday, May 14, 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: http://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: 36923459. The replay will be available until May 25, 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, depreciation and amortization.  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.

SOURCE Orbit Garant Drilling Inc.