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. If anyone has any difficulties hearing the call, please press star followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Tuesday, August 8th, at 10:00 A.M. Eastern Standard 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. I will now turn the call over to President and CEO of Geodrill Limited, Mr. Dave Harper.
Thank you, operator. Good morning, and welcome to Geodrill's Q2 2023 quarterly financial results conference call. I will begin with an overview of our operations and performance for the quarter. Our CFO, Greg Borsk, will then give a more detailed review of our second quarter financial results. After which, I will discuss our outlook for the remainder of 2023. In Q2, we took a step back to reposition the company for future growth by sharpening our focus on favorable geographies. This decision consequently impacted our utilization and ultimately our financial results for the quarter. It is noteworthy that whilst our financial results were negatively impacted, we remained profitable, delivering positive EBITDA and net income, while also maintaining our sharpened focus, underpinned by our strong reputation, which continues to drive revenue and earnings growth, while building long-term value for shareholders via the continued strengthening of our balance sheet.
As the global market, mineral drilling market remains robust, we are better positioned today than ever before, with a focus on new geographies to capture market share and expand our footprint and to diversify our commodity exposure. Our strategy since inception has been to provide diverse mineral drilling services, backed by unparalleled access to technical and maintenance support via our full service workshops, which derives high utilization and performance to best service our customers' needs. Our objective remains steadfastly to keep our customers satisfied while continuing to improve our efficiencies and ultimately margins, while also expanding our geographical footprint to capture market share in favorable jurisdictions, which will ultimately drive value for shareholders in the long term. I'll now turn the call over to Greg, our CFO, to review our financial results in detail.
Thank you, Dave. As a reminder, all figures are in U.S. dollars. We generated revenue of $32.6 million, representing a decrease of $6.5 million or 17% when compared to $39.2 million for Q2 2022. While Geodrill continues to experience strong demand for its drilling services, the comparative quarter of Q2 2022 was a record quarter in terms of revenue and EBITDA, setting very high comparables to match or beat. Of the $6.5 million decline in revenue, Burkina Faso represented $3.2 million on a quarter-to-quarter basis, which is representative of winding up drilling programs in that region and redeploying the rigs to more favorable regions. Gross profit for Q2 2023 was $7.8 million, being 24% of revenue, compared to a gross profit of $12.4 million, being 32% of revenue for Q2 2022.
On a year-to-date basis, gross profit is 28%, compared to 31% for 2022. We recorded EBITDA of $6.2 million, or 19% of revenue, compared to $11.2 million, or 29% of revenue for Q2 2022. Overall, we generated net income of $2 million for Q2, or $0.04 per share, compared to $5.9 million for Q2 2022, or $0.13 per share. We ended the quarter with net cash of $6.4 million. With the gold price averaging $1,965 during Q2, global exploration spending continues to be strong and provides strong fundamentals for the drilling industry going forward. At this point, I will turn the call back to Dave.
Thank you, Greg. Before going to the Q&A portion of the call, I would like to provide a brief outlook and key growth opportunities for the remainder of 2023. For those investors on the call that know me, they would know that I like strategies, especially strategies that involve winning. I'm a huge fan of Formula One motor car racing. Winning an F1 Grand Prix is no easy task. Apart from a great driver and a fast car, different F1 tracks need different race strategies. So I can see many parallels between Formula One racing and our drilling. Formula One teams must strategize during a, a race, continually changing to meet evolving circumstances. Example, weather, in which case a team's pit stop strategy can change midway through a race.
To date, our strategy has delivered steady growth over multiple consecutive reporting periods and even years. Our strategy is simply to operate in geographies that provide the best growth opportunities. Therefore, simply put, the decision to divest out of Burkina Faso was strategically necessary in order to capture an increased market position in other regions that offer better opportunities. In the end, it's really all just about winning. This concludes our prepared remarks and our financial results. I will now turn the call back to the operator. Thank you.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. Again, that's star followed by one. If you would like to withdraw your request, please press star followed by two. Your first question comes from the line of Gordon Lawson from Paradigm Capital. Please go ahead.
Hey, good morning, everyone.
Good morning.
Beyond the loss of drilling in Burkina Faso and Peru, can you elaborate on some of the other factors behind the year-over-year decline, particularly as it relates to Ghana?
Well, I think what, what we're, we were softer in, in, in Ghana in Q2 versus Q2. Q2 2023 versus Q2 2022. I think if you look at how strong we were, Gordon, in Q1, we were actually ahead of our budget. We were stronger in Q1. When you look at where we are through the first six months, we always have choppy quarters. Through the first six months, we're only off, I think, 3% in terms of revenue. That's really a strategic decision that we made in 2022, to exit Burkina Faso, in conjunction with the drill programs that we have there winding up.
What, what we tried to highlight in the MD&A, quarter-to-quarter, Q2 - Q2, out of the $6.5 million decrease in revenue, some of it was in our primary markets like Ghana, et cetera. However, those markets were extremely strong in Q1. I think it's important to highlight approximately half of that loss in revenue on a quarter-to-quarter basis, was from a country that we're exiting, and we, we've been able to redeploy those rigs and get them working in other countries. It, it, it takes a quarter. It takes a bit of time to pull them out and get them back working. Hello?
Thank you. Your next question comes from the line of Ahmad Shaath from Beacon. Please go ahead.
Ahmad, good morning.
Good morning.
Hi, Ahmad.
Greg. I guess just to maybe a follow-up on that. Looking ahead, what's the plan in terms of geographies or other markets that you wanna take the Burkina and maybe the Peru rigs into? How is that looking?
Some recent news that came out of Peru post-quarter end is that we've secured a contract with First Quantum, that's pretty much gonna take us. It'll take the two rigs that are sitting in that country, and possibly require more. We're also very busy down in Chile at the moment, although as I speak, rigs are actually shut down due to the winter. It gets too cold up in the Andes to drill at 5,000 meters. They take like a three month break, and we're on that break at the moment. We're due to resume in September, and we'll resume with three rigs spinning, and then they want to ramp that up to five rigs.
Essentially in South America, we're gonna be at 100% utilization. We're looking to send more rigs. Exiting Burkina Faso, the decision was taken. You know, this is not something we arrived at overnight. We actually began a slow-motion breakup actually a year ago, and it's, it's really just evolved. In this last quarter, at this point in time now, with the wet season coming upon us, we thought it was time to just, just accelerate the process and just, just, just nip it in the bud, you know, because we really only had two rigs spinning there. To have two rigs spinning in one place, it, it, you know, essentially just turning money over and not making any. We thought it better, you know, to accelerate that process.
We exited Burkina Faso. Of course, in doing so, we needed to find viable markets for these rigs to go into so that we had soft exit for our client, but also soft entry points, you know, and, and, and revenues that could replace those that were coming to an end. That work has been secured in other markets. For instance, we're expanding into Senegal, which is a new country for us, which we're quite excited about. Signed a contract with one of our existing clients. They, you know, they have a mining operation there. They need to get drilling. It's a congenial move, it's, you know, we know each other pretty well. We've got that going on.
Ivory Coast continues to just keep chugging along. It's just a great market for us. Ghana is suddenly getting very, very busy. The other market that we're really excited about is Egypt, so we're expanding our operations over there as our business and our customer base continues to increase. We're sending additional equipment to Egypt. Basically, two new markets, one being Senegal, the other being, well, an expansion, if you will, into Egypt. Busy things starting to happen over in South America. Very busy. Ghana and Ivory Coast are absolutely going gangbusters for us at the moment. That all sounds really silly, looking at the numbers that you're looking at. I get that.
You've got to understand, you've got to appreciate that, you know, a decision to shut down a country and redeploy rigs and the decision to start up in another country is not something that happens overnight. You know, there's mobilization, there's customs clearance, there's all sorts of things. Essentially, you know, it's, it's just a, it's just a fact of life that, you know, things, you know, have to fall apart in one place in order for them to, to regroup and come back bigger and, and stronger in, in other markets. Does, does that answer your question, Ahmad?
No, that's, yeah, that's a great call, Dave. I appreciate it. It sounds like if, if we could just take Burkina Faso out and, and with the new contract in Senegal and, and Peru resuming, I understand Q2 last year was, was a record quarter, but it sounds like we're back to the $35 million-$36 million run rate pretty comfortably on adjusting for if you ignore seasonality for a second. Is that fair assessment, or is the market in general just slowing down?
Yeah, no, the, the, the market's not actually slowing down. It's, it's just that we're, we're, we're repositioning things, to capture better opportunities elsewhere. We certainly aren't gonna get a chance to do it later. As we, as we speak and as I, as I look at what we're looking at going forward, our quarter three, will, at this point in time, come in as a stronger performance than our quarter two, which, you know, you've been doing our numbers for quite a few years now, and you, you'll know that that's, that's, you know, that's, that's an anomaly in itself. Our quarter four, oddly, could actually turn out to be our strongest quarter four for the year as we, we will close the year with a very strong run rate and utilization, touching 80%. Probably breaching it, actually.
All of this, of course, is not gonna come back in time to rescue our financial year. At this point in time, I would have to say that I think we are looking at a flat, year-over-year, fiscal year. Yeah, that's about the best we can hope for at this point in time. Next year will be... You know, if you look at Geodrill's history, we tend to go up in benches. You know, we, we, we spent three or four years in the 80s, and then we jumped to 100, and we, you know, we've been in the ranging between 150 - 115-140 for the last three years.
I think what you're about to see is a step change in the right direction, and it'll be the result of repositioning rigs into, as I say, favorable geographies. That comes with some pain, and we thought, well, better we do it now during quarter three, which is traditionally a wet season quarter for us. It's easier on our clients, and it was gonna be easier just generally.
That's the history, Ahmad. Let me just reiterate that. We, we grow in steps, Dave's absolutely right. If you look at the growth in 2020, 2020 - 2021, we grew the top line by 40%. In 2021 - 2022, it was 20%. If we're able to... 2022 was, was a record year for us. We, you know, we never had a year like 2022. If we're able to repeat the year we had last year, and invest in the company by, by moving out of, you know, unfavorable jurisdictions and getting those rigs in, in, in better countries, better areas, you know, we're pretty excited. We're also extremely excited about what 2024 is gonna look like.
To answer your question, yeah, I think, I think we'll, we'll be tracking more, as, as, as we were anticipating in Q3 and Q4. than, than Q1.
That's, that's great. I appreciate all the color, guys. One last one for me on, I guess on the rig fleet plan, we're still not growing materially on the rig count, maybe help me understand, about $5 million of, of, of CapEx. Is it all on rigs, or what was the, maybe the pockets of spend in the quarter of about $4.9 million? That's it for me.
Yeah, the, the rigs, right now, what we do, you know, we have a, the, a standardized fleet. We'll typically, we're gonna add one or two more client demand. You know, the plan is to add a few more rigs here by the end of the year. We do have some rigs going through our workshop, which may be ready by the end of the year and in 2024. It's, it's, it's more of a slow and steady growth, client-driven, adding more standardized rigs to the fleet. The reason... That's the Geodrill history, right? We, we grow organically from cash flow that we generate from operations, and that's kind of what we're comfortable with, and that's kind of been the reason we've been successful.
In terms of CapEx, yeah, like I said, you'll see, you'll see a few more rigs. We're completing, we're, we're in new countries, so when we're in a new country, we, we, we invest in a base there. We invest in bases at some of our clients, so we'll, we'll, we'll put some CapEx into that. There's, there's always new trucks and light vehicles and rod carriers, et cetera. Part of it is, is CapEx growth, and part of it is just CapEx maintenance, and we kind of balance both of those. It's, it's a mix of, of, of everything to keep the fleet and all the ancillary equipment kind of modern and up-to-date.
That's, that's great. Just to follow up on that, what should we expect of a maintenance CapEx number based on the current rig count and new contractual exposure?
Which is the same as what we did in the first half of the year, we're anticipating to do in the back half. Just like I said, kinda consistent, through cash flow from operations.
Got it. Thank you. Thanks, guys, and I'll jump back in the queue.
Thanks.
Thank you. We have a follow-up question coming from the line of Gordon Lawson from Paradigm Capital. Please go ahead.
Hey, thank you for taking my follow-up. The point, is that also related to fixed costs divided by less activity, or was there something more fundamental, such as the types of remaining contracts executed in the quarter?
I didn't actually catch that, Gordon. Could you just repeat that again? Your, your line seemed a bit muffled.
Oh, I'm sorry. Last quarter, we talked about fixed costs versus drilling activity. I'm just curious if the profit decline, on a percentage basis, is that more related to fixed costs and less drilling activity? Or is there something more fundamental, such as the types of the contracts executed in the quarter and such?
No, you're bang on. It's, it's the fixed cost in, in our cost to goods sold. In the, the salaries and benefit line, we have certain fixed costs, and when you're, when you're mobilizing or, or, moving rigs, et cetera, you have to keep those costs on because you know, you're, you're having... Usually, the staff are able to take their leave or their breaks or their holidays, et cetera. We're still, we're still paying our drillers and our staff. However, we're, we could be in between contracts, moving rigs, et cetera. That, I think, that gets a little bit exasperated when, when the revenue declines. You'll see, through, again, through the 6 months, year to date, revenue declined by 3%, but the, the COGS was basically flat.
It's there is a fixed cost component in there. It doesn't alarm us. It's part of the business. Where it would alarm us if we didn't have things ramping up in Q3 and Q4. It's just something we need to, to keep our people and keep them employed during, you know, a bit of a slower month or two.
Okay. Thank you very much.
You're welcome.
Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touch-tone phone. We have your next question coming from the line of Ray Gibbons. Please go ahead.
Hi, guys. All right. unlike Mark, thumbs up and move somewhere else. My question is about the base.
Sorry, Ray, could you just
Yeah.
I think your line's muffled.
I'll try to speak a little louder. Sorry about this.
That's better. That's good. That's fine.
If we speak about mines, and mines don't get to pick themselves up and go anywhere, they don't get to respond to really anything. They do get a valuation well beyond what anyone will give you, but they just don't get to be nimble. My question is about the Burkina Faso base. When we get to the end of this, and I suppose you're just gonna give up the land, what have you managed to get to other jurisdictions to help other jurisdictions? What is left of the Burkina Faso base that hasn't been retrieved or made useful elsewhere? Just so we can understand how this works.
Everything's basically been packed up and returned to the main base, and all the inventory's been returned, all of the rigs, the light vehicles. As we speak, we have one rig finishing its last hole, so it's gonna mobilize out of Burkina Faso in the next week. When we do that, we'll be basically handing the keys back to the landlord. That was a leased property, and it will be given back as, as a shell. Everything that we needed that was there, we basically put there, aside the fact that we probably had a concrete pad that we needed to put the workshop on. The workshop itself was a portable, like a big dome workshop. That was all packed up, put into a container and returned.
Essentially, and all the stuff will be redeployed to other projects elsewhere. zero loss, really.
That's a pretty incredible answer. I mean, incredible entry for this kind of EBITDA, you know, incredible.
The...
Well, I think I can hear me.
That was the impact on Burkina Faso, Ray? Was the question.
Well, I'm just saying that to, to be able to do what you just described is incredible. It's amazing.
Mm-hmm.
To be able to leave a jurisdiction.
Yeah. It's the, it's the, it's the geography, too, where, you know, we're fortunate to have operations in Cote d'Ivoire. We're fortunate to have operations in Ghana and Mali. These neighboring countries, you know, they, they can use the rigs. They want the rigs that we're working in Burkina. We can now, you know, accommodate some of these other neighboring countries. With the, with the standardized rig fleet, it's, it's not a big ask for us to, to move these rigs. Same with the inventory. The inventory that was at that base in Burkina, we can pack it up, and we... As Dave said, we've already sent some of it to, to each of those three neighboring countries, based on, you know, what they needed.
It's, it's just part of the Geodrill model of being, of operating for over 25 year, for 25 years in West Africa, in these different countries. We can navigate between them.
The big, the big thing really, Ray, is it's just gonna hit our revenues for the quarter. During that time, our fixed costs don't take a holiday, so, you know, it affects our margin even more so. You know, in sitting back and looking at these things, you've got to say, well, when is it gonna be... If we, we've taken the decision to do it, and we just need to figure out the best timing so that, you know, it has the least impact on our clients and the least impact on our shareholders. So we felt the time was right, heading into wet season, and we've done it. You know, it's a, it's a, you know, gonna have to take it on the chin for this quarter.
We'll pick that up pretty quickly. You know, the rigs have already been contracted elsewhere. We really just need to get them back to the shop in Ghana and give them a going over and pump the tires up, you know, and, you know, clean the windscreen and send them out to jobs. No shortage of work. You know, the opening line in the MD&A is, "Demand remains robust.
Burkina Faso guys that you have that have become so skilled, can you keep them?
Yes. Yes. No, absolutely. We've, we've taken Burkinabe employees, and we've repositioned them into other West African markets, other French-speaking West African markets, and that's worked very well for us. No one's really lost their job. We've just, you know, the rigs are gonna be actively employed elsewhere. Down in the lower skills, you know, in the heavy, heavy lifting sort of department, you know, the laboring type type people, well, of course, we can't keep everyone employed. The technicians that we've spent a lot of time developing, they'll be, they'll be, you know, transferred to work into our West African operations elsewhere.
Great job, guys.
Thank you.
Sorry, my call is so low quality. Thanks.
Thanks, Ray.
Thanks, too.
Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Harper for any closing remarks.
We have nothing else to say, and thank you very much for everybody on the call today. Have a great day. Thanks.
Thank you.
Thank you, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Have a lovely day.