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 MD&A and Annual Information Form, which are available on SEDAR+. 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 MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Thursday, May 14th, 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.
Thank you, Jim. Good morning, ladies and gentlemen. With me on the call today is Pier-Luc Laplante, Chief Financial Officer. Following my opening remark, Pier-Luc will review our financial result in greater detail. I will conclude with comment on our outlook. We will then welcome question. 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 operation after the shutdown of mining and exploration activities over the holiday season and more difficult winter weather condition in Canada. Our continued utilization gain 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 operation.
Our profitability for the quarter was also negatively impacted by the ramp-up of drilling rig under new long-term contract in Canada, related as we increase our drilling utilization rate, the legacy pricing on contract from previous quarters, and continuous modification to a drilling program in South America. During the first half of our fiscal year, we experienced pricing pressure that result in us losing or walking away from certain bid. We had to 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. We will continue to work with customers to accommodate these expected increase to our input cost with future contract and renewal, supported by an important 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 we 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.
We believe our operational headwinds are behind us now, and we are well-positioned to achieve further increase in our drilling utilization rate, improve operating performance, and more profitable financial result in our fourth quarter. I will now turn the call over to Pier-Luc to review our financial result in greater detail. Pier-Luc?
Thank you, Daniel, and good morning, everyone. Revenue for the quarter totaled CAD 51.4 million, an increase of 2.7% compared to Q3 last year. Canada revenue was CAD 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. International revenue totaled CAD 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 CAD 2.9 million, or 5.7% of revenue, compared to CAD 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 program and a decline in certain specialized drilling activities in South America also negatively impacted profitability. Adjusted EBITDA totaled CAD 1.4 million compared to CAD 5.4 million in Q3 last year. The decrease was primarily attributable to the factors already discussed and also reflects a negligible foreign exchange gain in the quarter compared to CAD 1.2 million gain in Q3 last year.
Our net loss for the quarter was CAD 1.2 million, or CAD 0.03 per share diluted, compared to net earnings of CAD 1.9 million, or CAD 0.05 per share diluted in Q3 last year, reflecting the same factors discussed previously. Turning to our balance sheet. We withdrew a net amount of CAD 4.8 million on our credit facility in the quarter, compared to a drawdown of CAD 0.8 million in Q3 a year ago. The increase was primarily due to CAD 3.6 million in capital expenditures.
Our long-term debt under the credit facility, including the current portion, was CAD 20.8 million at quarter end, compared to CAD 14.0 million at our fiscal 2025 year end. During the quarter, pursuant to our normal course issuer bid, we repurchased and canceled 20,450 shares at an average weighted price of CAD 1.83 per share.
We continue to view the NCIB as a useful tool to enhance shareholder value when the underlying value of Orbit Garant is not reflected in our share price. Our working capital was CAD 52.7 million at quarter end, compared to CAD 50.4 million at the end of fiscal 2025. I will now turn the call back to Daniel for closing comments. Daniel?
Thank you, Pier-Luc. 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 CAD 16 billion, a 53% increase compared to 2024. Our bidding activity on new projects remain at a high level.
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 year. We estimate that this project will generate revenue exceeding CAD 100 million over the initial five-year term.
Two drill rigs have already been deployed on this project. Six additional rigs will be mobilized by September this year. We expect to finance the CAD 20 million in required capital expenditure for modification or manufacturing of drill rigs and related inventory through 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 remain the same going forward.
A strategic focus on senior and well-financed intermediate customer 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 priorities, 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. The next step we want to take to reach a utilization rate of 70% of our drill rigs. Customer demand remains high.
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-end. That concludes our formal remarks this morning. We will now welcome any question. Jim, please begin the question period.
Gentlemen, thank you for your remarks. 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 Kerem Aksoy at Glacier Pass Management.
Hi, Daniel. Hi, Pier-Luc.
Hi. Good morning.
Good morning. Thanks for the call and 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 it 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 little more color and context of, you know, as you see that over the next couple quarters would be helpful.
With the current demand, we expect to select contract in the next quarter and till, let's say, the end of calendar 2026, up to 70%, yes. Because as you could see, we start with the, in Q1 with 56% of utilization rate. In Q2, we have 62%. Now we are at 67%. That mean we had 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 and intermediate customer.
And if we bid on a smaller contract with juniors, we will do that with someone we know well and we know they are well-financed. 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 on in our strategic plan, and that's exactly the kind of contract we want to get to increase our utilization rate.
No, that makes a lot of sense. It'd be great to have some stability, like long-term stability in the top line.
Right.
Can I maybe I had a couple other questions. Maybe if it's okay with you, I'll kind of go through them. There was 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.
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 can help us there?
You are right. We have a lag in the revenue in Q3 because technically, when you add rigs, you have a kind of ramp-up time. You have a learning curve, let's say. Especially in Q3, we are in a very bad situation of weather in Canada. In north of Canada, the weather was very bad. We start, let's say, in the quarter, we add seven new rigs on new contract, and it's a very poor condition. You're right, we have a lag. Technically, we expect to have more increased revenue in Q4 and Q1 of next fiscal year.
You see for the last 12 months, we have a slight increase of revenue. We are at CAD 193 million compared to last year, we have CAD 189 million of revenue. We have a slight increase, but progressively with the addition of new rigs. That mean we will have more than If we reach a 70% utilization rate, that mean it's more than 15 rigs added during the year. That mean the revenue should increase progressively. Not that much, but last year we reached CAD 189 million of income, so we will have that probably around CAD 200 million for fiscal 2026.
That makes sense. If I were to look at the Q3 2026 results, you know, there's about CAD 51 million, a little bit over that, of revenue, which annualizes to kind of CAD 206 million of revenue. It's kind of a seasonally weak quarter with rigs being added. 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?
We don't provide guidance, we could say if we came from 56% utilization rate to a 70%, it will be over CAD 200 million for 2027. That makes sense.
Okay. 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?
A very good question, that's the situation. We have You know, we decide to sign long-term contract with senior customer here in Canada and Chile, we fix some price, let's say in between July and December 2025, which the market was under pressure. The price are under pressure.
Now the market changed. We still have these contract, we will be respect price for these contract. Now, progressively, we see better price. For example, in the new contract we sign in Northern Canada for five years. That will be progressively, that's exactly what we want to do. We want to build a strong, long-term base of contract, and we have to respect You know, the market. Now market is good for all the industry, and we are following that and focusing on long-term contract. We build for a long-term profitability.
I would add to 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. They were being completed in April, some in May, and some in June. We expect that to be progressive while we mobilize those rigs on new contracts with better, more favorable pricing.
That makes sense. It sounds like these legacy contracts, they're not multi-year contracts. They'll kind of end, you know, over the next kind of three, six months and then kind of move to market. Is that what I'm hearing?
Yes, that's correct.
Okay. Maybe as you look at fiscal year 2027, do you think the 15% EBITDA target is a realistic target?
We don't provide guidance on that, as we already said, we target a 12% EBITDA on revenue as a target. As you could see right now, our last 12-month percentage is 7%. I can't say it will be 15% for 2027. We are focused to increase our profitability and we expect that the 7% will increase progressively.
Okay, thanks. maybe just I had one more question. The, 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 some mix of that you're putting to work?
We refurbish half of the rigs, that mean on eight rigs, half of them will be refurbished rigs. The two fly rigs already on the site is refurbished, we will build four new rigs for this contract. If in the future this contract needs extra more drill, we will build this these drill here in Val-d'Or because we have the facility to build all the rig we need. Let's say half of them will be built new rigs and half of them are existing rig we will refurbish.
Thanks. That's helpful. Maybe this is a little bit of a tricky question because it sounds like some of it's refurbishment and some new CapEx. Just on the CAD 20 million you're gonna be spending, how are you thinking about the return on that investment as you model that out?
Just to be more clear, what do you mean by the return on investment? Are we talking about the time or?
Maybe just the IRR in terms of, you know, the, you know, you spend CAD 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?
For that contract, for the investment return on that CAD 20 million, we're expecting somewhere in 10% range. Obviously, 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 equipment will be there for a long time. We believe that this will be a very good contract for the company, and that it will help with our margins and our profitability.
Okay, thanks. Those were all my questions. I appreciate you guys taking the time today.
Thank you very much.
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 Stelpstra rather, at BMO. Please go ahead. Your line is open.
Yes, good morning, 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. Is there pricing increases possible should there remain pressures on wages in particular? I noticed that precision or, I'm sorry, Major Drilling said that they're having trouble with price increases on labor and getting labor, in fact. 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. Yes, we introduce adjustment, let's say every 12 month. We have a standard clause about, let's say 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. On the contract, on surface contract where we have to provide the fuels, we have a clause. If the fuel exceed 15% of the actual price when we start the contract, we have an adjustment when it's over 15% of that price. 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, we don't have fuel there. On certain remote specialized drilling contract, the fuel is provided by the client.
Essentially, the adjustment clause is to cover the supply and the wages increase. 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. Technically, in most of the case, it's every year we have a clause of at least 2% or CPI.
Thank you.
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.
Thank you, Jim. Thank you to everyone for participating today. We look forward to speak with you again soon.
Ladies and gentlemen, this does conclude today's conference. We thank you all for your participation. You may now disconnect your lines.