Orbit Garant Drilling (TSX:OGD) held its third-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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The full earnings call is available at https://app.webinar.net/Vax7BzPREL5

Summary

OGD achieved a record third-quarter revenue of $51.4 million, marking a 2.7% increase year-over-year, despite challenges from severe winter weather and legacy contract pricing.

The company's drilling utilization rate reached 67%, the highest in over a decade, with a strategic focus on securing long-term contracts with senior and well-financed intermediate customers.

OGD anticipates improved financial performance in Q4 and beyond, supported by favorable market conditions, strong customer demand, and an improving pricing environment.

Profitability was negatively impacted by the mobilization of drill rigs under new contracts and pricing pressures from previous contracts, resulting in a net loss of $1.2 million for the quarter.

OGD is deploying significant capital, including $20 million for a new five-year contract in Northern Canada, expected to generate over $100 million in revenue, with half of the rigs refurbished and half newly built.

Full Transcript

OPERATOR

Good morning ladies and gentlemen and welcome to Orbit Garant Drilling's Fiscal 2026 third quarter results conference Call and Webcast at this time, all lines are in a listen only mode. Following Management's remarks, we will conduct a question and answer session. Please be aware that certain information discussed today may be forward looking in nature. Such forward looking information reflects the Company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward looking information. For more information on the risks, uncertainties and assumptions relating to forward looking information, please refer to the Company's latest MDA and Annual Information form which are available on SEDAR Plus. Management may also refer to certain non IFRS financial measures. Although Orbit Garant believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under ifrs. Please refer to the Company's latest MDA for additional information regarding non IFRS financial measures. This call is being recorded on Thursday, May 14, 2026. It is now my pleasure to turn the conference over to Mr. Daniel Maheu, President and CEO of Orbit Garant Drilling. Please go ahead sir.

Daniel Maheu (President and CEO)

Thank you Jim and good morning ladies and gentlemen. With me on the call today is Pierre Luc Lapin, Chief Financial Officer. Following my opening remark, Pierre Luc will review our financial result in greater detail and I will conclude with comment on our outlook. We will then welcome questions. Our overall level of drilling activity continued to increase in the quarter as we reach our highest drilling utilization rate in more than 10 years at 67% and record our highest third quarter revenue in the company history. Our fiscal third quarter is typically our weakest quarter due to the gradual ramp up of operations after the shutdown of mining and exploration activities over the holiday season and more difficult winter weather conditions in Canada. So our continued utilization gains are a positive sign. This quarter we experienced more severe winter weather in Canada than usual which had a negative impact on productivity on surface drilling operations. Our profitability for the quarter was also negatively impacted by the ramp up of drilling rig under new long term contract in Canada.

Daniel Maheu (President and CEO)

Related as we increase our drilling utilization rate, the legacy pricing on contract from previous quarter and continuous modification to a drilling program in South America. During the first half of our fiscal year we experienced pricing pressure that resulted in us losing or walking away from certain bids. So we added ease our pricing strategy, discipline on certain important new contracts and renewal during this period. Pricing pressure has now disappeared and we saw an improved pricing environment during our third quarter and into April and May due to the sustained high level of demand in our industry and conflicts in the Middle east and Ukraine, we are experiencing cost inflation with respect to supply, material and wages, so we will continue to work with customers to accommodate these. Expect increase to our input cost with future contract and renewal supported by an improving pricing environment. We also expect to continue to benefit from the continuous advancement of our ramp up activities on newer project in Canada. In summary, while continue to experience highly favorable industry fundamental and customer demand, we have had some challenge over our first three fiscal quarter this year, many of which were out of our control.

Daniel Maheu (President and CEO)

We believe our operational headwinds are behind us now and we are well positioned to achieve further increase in our drilling utilization rate, improved operating performance and more profitable financial result in our fourth quarter. I will now turn the call over to Pierre Luc to review our financial result in greater detail.

Pierre Luc Lapin (Chief Financial Officer)

Pierre Luc thank you Daniel and good morning everyone. Revenue for the quarter totaled $51.4 million, an increase of 2.7% compared to Q3 last year. Canada revenue was $36.3 million in the quarter, an increase of 0.5% compared to Q3 last year. The increase was attributable to increased overall drilling activity partially offset by lower average revenue per meter drilled resulting from a decline in meters drilled on certain specialized drilling projects due to more severe winter weather conditions compared to Q3 2025 and legacy pricing on contracts from previous quarters.

Pierre Luc Lapin (Chief Financial Officer)

International revenue totaled $15.1 million, an increase of 8.2% compared to Q3 a year ago. The increase reflects increased drilling activity in both Chile and Guyana, partially offset by continued modifications to an existing drilling program and lower average revenue per meter drilled due to a decline in certain specialized drilling activities. Gross profit was $2.9 million, or 5.7% of revenue compared to 5.9 million or 11.9% of revenue in Q3 2025. Adjusted gross margin excluding depreciation expenses and a gain on disposal of property, plant and equipment was 10.3% in the quarter compared to 16.5% in Q3 last year. The decrease in gross profit, gross margin and adjusted gross margin was attributable to the mobilization of drill rigs under new long term contracts in Canada and the associated ramp up periods, legacy pricing pressure on contracts from previous quarters and more severe winter weather conditions in Canada compared to Q3 last year, which negatively impacted productivity on all surface drilling projects including specialized surface drilling, the continued modifications to a drilling

Pierre Luc Lapin (Chief Financial Officer)

program and a decline in certain specialized drilling activities in South America also negatively impacted profitability. Adjusted EBITDA totaled $1.4 million compared to 5.4 million in Q3 last year. The decrease was primarily attributable to the that fact factors already discussed and also reflects a negligible foreign exchange gain in the quarter compared to $1.2 million gain in Q3 last year. Our net loss for the quarter was $1.2 million or $0.03 per share diluted compared to net earnings of 1.9 million or $0.05 per share diluted in Q3 last year, reflecting the same factor discussed previously.

Pierre Luc Lapin (Chief Financial Officer)

Turning to Our balance sheet withdrew a net amount of $4.8 million on our credit facility in the quarter compared to a drawdown of $0.8 million in Q3 a year ago. The increase was primarily due to $3.6 million in capital expenditures. Our long term debt under the credit facility, including the current portion was 20.8 million million at quarter end compared to 14.0 million as at our fiscal 2025 year end. During the quarter pursuant to our normal course issuer bid, we repurchased and cancelled 20,450 shares at an average weighted price of $1.83 per share. We continue to view the NCIB as a useful tool to enhance shareholders value when the underlying value of Orfret Guerin is not reflected in our share price. Our working capital was $52.7 million at quarter end compared to $50.4 million at the end of fiscal 2025. I will now turn the call back to Daniel for closing comments. Daniel thank you. Pierre Leu Demand for our drilling services in both Canada and South America remains strong, supported by historically high gold and copper price and a robust financing environment for mining company in 2025. Mining company listed on the TSX and the TSX venture complete aggregate equity financing totaling more than $16 billion, a 53% increase compared to 2024. Our bidding activity on new projects remain at a high level and today we are pleased to announce that subsequent to the end of the quarter we commenced mobilizing drill rigs for a new five year specialized drilling contract in Northern Canada with a senior mining company with a client extension option for two additional years. We estimate that this project will generate revenue exceeding $100 million over the initial five year term. Two drill rigs have already been deployed on this project and six additional rigs will be mobilized by September this year. We expect to finance the $20 million in required capital expenditure for modification or manufacturing of drill rigs and related inventory throughout internally generate cash flows, an increase in available borrowing on our credit facility and by securing a new long term loan. This new long term contract is an important success for our strategic plan which remains the same going forward. A strategic focus on senior and well financed intermediate customers in Canada and South America, our disciplined strategy and continuous operational improvement program. There are other contract of this kind on the market currently and we are making every effort to secure this type of long term contract with leading mining company for specialized drilling. By focusing on these priority, we intend to capitalize on opportunities in this period of elevated customer demand to deliver enhanced profitability and value for our shareholders. Our business outlook is positive and the next step we want to take it to reach a utilization rate of 70% of our drill rigs. Customer demand remain high and our pricing environment is improving. Barring any unforeseen events, we look forward to strong performance and improved profitability in our fourth quarter and into next fiscal year.

Jim (Operator)

that concludes our formal remarks this morning. We will now welcome everyone. Any question? Jim Please begin the question period.

OPERATOR

Gentlemen, thank you for your remarks and to our phone audience joining today, please press Star and one on your telephone keypad if you would like to ask a question. Pressing Star and one will place your line into a queue and I will open your lines one at a time. Once again ladies and gentlemen, that is Star and one to ask a question. We'll hear first from Karim Aksoy at Glacier Pass Management.

Karim Aksoy (Equity Analyst)

Hi Daniel, hi Taylor. Hi. Good morning. Good morning. Thanks for taking my questions. It's great to see the utilization rate kind of picking up this quarter to that 67% level. I mean you talked about a little bit in your opening remarks, but I was just kind of wondering just over the next quarter or kind of towards year end, where do you think that could go? Do you think it kind of that 70% you mentioned is kind of where it caps out or. Yeah, just a bit more detail as you see that over the next couple quarters would be helpful.

Daniel Maheu (President and CEO)

With the current demand we expect to select contracts in the next quarter and until the end of calendar 2026 up to 70%. Yes, because as you could see we start with in Q1 with a 56% of utilization rate. In Q2 we have 62%. So now we are at 67%. This means we have more than five rigs on new contract every quarter since Q1 and that momentum is still there. Our big focus is to select good contract in specialized drilling with major intermediate customer. And if we bid on smaller contract with juniors. We will do that with someone we know well and we know they are well financed. But this is not our priority. Priority is focusing on specialized long term contract as the one we just mentioned earlier. And that's where we want to go in our strategic plan. And that's exactly the kind of contract we want to to get to increase our utilization rate.

Karim Aksoy (Equity Analyst)

No, that makes a lot of sense. It'd be great to have some stability, like long term stability in the top line. I had a couple other questions. If it's okay with you, I'll kind of go through them. There's a little bit of a lag in the revenue line item versus that utilization rate and maybe that's because things weren't deployed for the full quarter or whatever. But I was wondering if you could provide some commentary on how we should think about the revenue line over the next couple quarters as that utilization rate picks up. For example, how are you thinking about revenues once you get to that 70% utilization for the overall business? Is there something you could help us there?

Daniel Maheu (President and CEO)

You are right. We have a lag in the revenue in Q3 because technically when you add rigs you experience a ramp-up. You have a learning curve. And especially in Q3, we are in a very bad situation of weather in Canada. In north of Canada, the weather was very bad. So we start, let's say in the quarter we add seven new rigs on new contracts and it's a very poor condition. So you're right, we have a lag. But technically we expect to have more increased revenue in Q4 and Q1 of next fiscal year.

Karim Aksoy (Equity Analyst)

And you see for the last 12 months we have a slight increase of revenue. We are at 193 million compared to last year. We have $189 million of revenue. So we have a slight increase, but progressively with the addition of new rigs. And that means we will have more than if we reach 70% utilization rate, that means it's more than 15 rigs added during the year. So that means the revenue should increase progressively. Not that much. But last year we reached $189 million of revenue. So we will have that probably around $200 million for fiscal 2026. That makes sense. If I were to look at the Q3 26 results, you know, there's about 51 million, a little bit over that of revenue, which annualizes to approximately 206 million of revenue. And it's kind of a seasonally weak quarter with rigs being added. So I mean if you were to move to 70% and kind of the business was operating kind of in a normalized rate, what do you think that revenue number could be?

Daniel Maheu (President and CEO)

We don't provide guidance but we could say if we have, if we go from 56% utilization rate to a 70% it will be over $200 million for 2027. That makes sense.

Karim Aksoy (Equity Analyst)

And then you know, you kind of talked about some legacy issues during the quarter and then you talked about Q4 kind of normalizing a bit. Do you think those issues will be behind you completely by Q4 or you just see a gradual improvement and takes a little more time?

Daniel Maheu (President and CEO)

Very good question. And that's the, that's exactly the situation we have. You know, we decide to sign long term contract with senior customer here in Canada, in Chile and we fix some price, let's say in between July and December 2025, which the market was under pressure, price are under pressure and now the market changed. So we still have these contract and we will respect the prices for these contracts. But now progressively we see better price. For example in the new contract we sign in Northern Canada for five years. So that will be progressively and that's exactly what we want to do. We want to build a strong long term base of contract and we have to respect, we know the market and now the market is good for all the industry and we are following that and focusing on long term contract and we build for a long term profitability. I would add to that that to answer your question also we expect this to be progressive as we have some contracts with legacy pricing that are stopping or being completed will be completed in April, some in May and some in June. So we expect that to be progressive while we mobilize those rigs on new contracts with better, more favorable price.

Karim Aksoy (Equity Analyst)

That makes sense. So it sounds like these legacy contracts, they're not multi year contracts, they'll kind of end over the next kind of three, six months and then kind of move to market is.

Daniel Maheu (President and CEO)

Yeah, that's correct. Yes, that's correct.

Karim Aksoy (Equity Analyst)

Okay, so then maybe if you look at fiscal year 27, do you think the 15% EBITDA target is a realistic target?

Daniel Maheu (President and CEO)

We don't provide guidance on that. But as we already said, we target a 12% EBITDA on revenue as a target. But as you could see right now our last 12 month percentage is 7%. I can't say it will be 15 for 2027.

Karim Aksoy (Equity Analyst)

But we are focused to increase our profitability and we expect that the 7% will increase progressively. Thanks. Maybe just I had one more question. So the new contract you announced, you mentioned there's two rigs deployed and six more coming. Are those all new rigs or are those existing rigs that you're kind of or some mix of that that you're putting to work?

Daniel Maheu (President and CEO)

We refurbish half of the rigs and that means on eight rigs, half of them will be refurbished rigs. The two fly rigs already on the site is refurbished and we will build four new rigs for this contract. And if in the future this contract needs extra more drill, we will build these drills here in Val d' or because we have the facility to build all the rigs we need. So let's say half of them will be built new rigs and half of them are existing rig we will refurbish.

Karim Aksoy (Equity Analyst)

Thanks a couple. And then maybe this is a little bit of a tricky question because it sounds like some of it's refurbishment and some new capex. But just on the 20 million you're going to be spending, do you have how are you thinking about the return on that investment as you model that out?

Daniel Maheu (President and CEO)

Just to be more clear, what do you mean by the return over investment? Are we talking about the time or

Karim Aksoy (Equity Analyst)

is it the IRR in terms of, you know, the, you know, you spend 20 million, how much do you expect to make? I mean, I guess maybe if you want to talk about that contract, just in general, as you think about investing going forward, is there a certain return that you target

Daniel Maheu (President and CEO)

well for that contract for the investment return on that 20 million? We're expecting somewhere in 10% range, but obviously this is not I don't want this to be confused with the margin of the project. This is a specialized drilling project so it will have good margins. Also, when we check that for that irr, it considers that the, the equipment will be there for a long time. So we believe that this will be a very good contract for the company and that it will help with our margins and our profitability.

Karim Aksoy (Equity Analyst)

Okay, thanks. Those are all my questions. I appreciate you guys taking the time today.

Daniel Maheu (President and CEO)

Thank you very much.

OPERATOR

And a reminder to our phone audience, we'll pause for another moment to allow star and one for any questions. We'll hear next from David Stalestra at bmo. Please go ahead. Your line is open.

David Stalestra

Yes, good morning and thank you for doing this call. I appreciate it. My question is we have a number of legacy contracts where obviously the inflation and price increases have sort of caught up to the contract and exceeded such that profitability was Hurt. Is there any escalation clauses in the new contracts which you're doing in the event that prices would go up dramatically? What I'm thinking about is on these long term contracts, they of course become legacy contracts over time. And is there pricing increases possible? Should, should there remain pressures on wages in particular? I noticed that precision, sorry, major drilling said that they're having trouble with price increases on labor and getting labor in fact and also with oil prices the way they are, is there a way of passing that back on to the customer in these new contracts? Thank you, thank you for the question.

Daniel Maheu (President and CEO)

And yes, we introduce adjustment, let's say every 12 months we have a standard cost of approximately something like at least 2% or price index. There's a yearly price index typically baked into most long term contracts. Some of them have indeed clauses about rises in costs of labor or fuel. Typically yes, yes.

David Stalestra

On the contract on surface contract where we have to provide fuels, we have a clause if the fuel exceeds 15% of the actual price when we made we start the contract, we have an adjustment if it exceeds 15% above that price. So essentially yes, we have adjustment clause. But we have to understand, for example in the fuel situation, all the underground drilling, it's almost by electricity, so we don't have fuel there. And on certain remote specialized drilling contract the fuel is provided by the client. So essentially the adjustment clause is to cover the supply and the wages increase. But it's always a discussion with the customer because in some specific situation, customer will be, will understand the situation and we will have an adjustment. But technically in most of the cases it's every year we have a clause of at least 2% or IPC. Thank you.

OPERATOR

And at this time we have no further questions from our audience. Mr. Maheu, I will turn it back to you sir for any additional or closing remarks.

Daniel Maheu (President and CEO)

Thank you, Jim. And thank you to everyone for participating today. We look forward to speaking with you again soon.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.