Geodrill Limited (GEO) Earnings Call Transcript

Good morning, everyone, and welcome to Geodrill's Second Quarter 2026 Financial Results Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, August 10, 2026. Before we begin, certain statements made on today's call by management may be forward-looking in nature and, as such, are subject to various risks and uncertainties. Please refer to the company's press release and MD&A for more details on these risks and uncertainties. I will now turn the call over to Mr. Dave Harper, President and CEO of Geodrill. Please go ahead.

Good morning, everyone, and thank you for joining us today on the Q2 2026 results call. On the call with into is Brad Borst, our CFO, who will be discussing the financials sort as it started. The second quarter was a tale 2 outcomes. Elite record revenue and continued to see strong demand across our markets. Our list is not translate in the levels in profitability that we expect in the business. Starting with the positives. . Okay. So we delivered the highest quarterly revenue in the history exciting million. This result is 5billion programs. We expanded just a cost of process to see percentage during its core customer factor deflation across consumables and operating inputs and operation and challenges associated with our chilling operations laid heavily on margin. Contribution in that region. Activity numbers we expect from the business. Egress in the past what is seen across the industry, it looks so far everybody cost. .

Sorry. Dave, your line sounds really go. Maybe is it okay if I just continue this the -- for Dave because Jenny, Yes, our sorry, Greg. .

Okay. Let me. So over the past several years, drilling contractors have operated through rising labor costs, inflation and fuel consumables and spare parts, supply chain disruptions and increasing costs associated with mobilizing crews and equipment to support growth. . Across the industry, many long-term contracts that were negotiated several years ago have been running through a very different cost environment that than originally anticipated. As costs move higher, those contracts naturally became less profitable towards the back end of their term. We've seen similar dynamics across the sector as contractors work through legacy pricing structures while continuing to support customers and maintain service levels. The good news, however, is that those same long-term contracts that have served us extremely well. They provide revenue visibility utilization, strong customer relationships and stability through periods of market uncertainty. They help build the platform we have today. As many of these contracts renew or as we secure new work, we have opportunities to incorporate pricing and terms that better reflect today's cost structure and the value of the service we provide. That should help us better absorb inflationary pressures going forward while maintaining the high-quality service our customers expect. From an industry perspective, the longer-term outlook remains very constructive. Gold prices remained strong Copper continues to benefit from positive long-term fundamentals and mining companies remain focused on reserve replacement, resource expansion and advancing development projects. As a result, exploration budgets remain healthy and bidding activity continues to be active across West Africa and Egypt. We are actually seeing customers commit to multi-rig and multiyear programs, which gives us confidence that demand for drilling services will remain strong. What we are seeing today is an industry that is busy. Utilization levels remain healthy among quality operators, Tender activity is strong and customers continue to invest in exploration despite broader economic uncertainty. While inflation and contract start-up costs have pressured margins for many contractors, the underlying demand environment remains 1 of the strongest we've seen in recent years. For Geodrill, our focus is now execution. We are focused on improving performance in Chile, driving productivity gains across the organization, managing costs responsibly and ensuring that the substantial demand we are seeing translates into stronger profitability. We have a modern fleet a highly experienced workforce, industry-leading infrastructure across our operating regions and relationships with many of the world's leading mining companies. Those are significant competitive advantages that have been built over nearly 3 decades. We've been through several commodity cycles over the years. And 1 thing that we have learned is that when demand is strong and the fundamentals are healthy, operational discipline becomes the differentiator. The opportunity in front of us is not finding work. The opportunity is executing efficiently, improving margins and converting record activity levels into stronger returns for our shareholders. We believe Geodrill is well positioned to do exactly that. The foundation of the business is strong. The market backdrop remains favorable and we are focused on taking the actions necessary to ensure today's revenue growth translates into improved earnings and long-term value creation in the quarters ahead. Let me now turn to the financial results. For the second quarter ended June 30, 2026, revenue for the quarter was $55.1 million, representing an increase of 10% compared to Q2 2025. The record revenue is a testament to management's strategy of continuing to focus on its primary markets and adding capacity in conjunction with clients' needs. Gross profit was $8.8 million, generating a gross margin of 16% and compared to 24% in the prior year period. EBITDA for the quarter was $7.9 million with an EBITDA margin of 14% and compared to 28% in the same period last year. The margin compression was primarily driven by higher labor and operating costs, the appreciation of the CD and operating losses associated with our Chilean operations. Overall, the net loss for the quarter was approximately $200,000 and or effectively 0 on a per share basis compared to net income of $5.4 million in Q2 2025. In relation to the net loss, we are currently evaluating the group's operations in Chile with a view to streamlining operations to improve margins and enhance productivity. From a balance sheet perspective, we ended the quarter with shareholders' equity of approximately $118 million, maintaining financial flexibility while continuing to invest prudently in fleet upgrades and infrastructure to execute our drilling programs. Relating to the balance sheet, we have again reviewed our return on capital options to our shareholders. and we have determined at this time to maintain cash in the business to support operations. Future decisions regarding share buybacks and/or the payment of dividends will be reviewed again on a quarterly basis. We are also able to update the progress with the Cote d'Ivore tax authorities. Despite having the tax receipts for the missing payments, as we disclosed in Q1 2026 we entered into a memorandum of understanding to repay the amounts in order for us to continue to operate and support our clients in Cote d'Ivoire. In Q2 2026, we requested to reduce the monthly installments from approximately $900,000 in to $450,000 and made monthly 450,000 payments in May, June, July and August. Through June 2026, we have repaid approximately $4.5 million of the scheduled $8.4 million repayment. We also continue to pursue legal remedies available to us. However, it is inappropriate at this time to comment on that matter. Closing remarks. Let us close with this. The foundation of this business remains extremely strong. We have a modern fleet long-standing customer relationships, established infrastructure across key mining jurisdictions and a team that has successfully navigated multiple commodity cycles over the past several decades. We have built a strong platform, and we are seeing robust demand across our markets, but our profitability has not yet cut off with the level of activity that we are delivering. We believe GE Drill is well positioned to translate today's strong demand environment into improved profitability as we move through the balance of the year and beyond. So while Q2 demonstrated what Geodrill can achieve from a revenue and market position standpoint, the next chapter is about execution, efficiency and converting that demand into stronger earnings for our shareholders. That's where our focus is, and that's where we believe the opportunity lies. Thank you for joining us today. Operator, if you can please open the line for any questions.

[Operator Instructions] Your first question is from Don Angelo Gopi from Con Securities.

Just wanted to focus on Chile here. So I'm just wondering what some of the actions you guys are looking at taking in the region? Are we looking at potential reduced headcount, demobilization of some rigs -- just any color there would be helpful.

Yes. Don, what we're doing in Chile is we look at it on a client-by-client basis. We look at it in terms of profitability, are we getting the productivity. As Dave mentioned earlier in the call, some of these are long-term multi-rig contracts when we bid the contracts, we anticipate we forecast certain productivity. And for some of these clients for some of these contracts in Chile that hasn't come to fruition. So what we're doing in Chile is client by client we're assessing each client and where it makes sense to wind up the contract, finished drilling, et cetera. Maybe we don't retender, et cetera. So it's on a client-by-client basis. I don't want to give you any indication that we're looking at Chile as a whole. The way we're approaching Chile is look at the unprofitable clients, quickly try to wind up that drilling with the profitable clients? Is there an opportunity to continue to try to increase profits there, et cetera. But it's going to be a process over the next couple of quarters for sure.