Energold Drilling's (EGDFF) CEO Frederick Davidson on Q3 2016 Results - Earnings Call Transcript

| About: Energold Drilling (EGDFF)

Energold Drilling Corp. (OTCPK:EGDFF) Q3 2016 Results Earnings Conference Call November 21, 2016 4:30 PM ET

Executives

Jerry Huang - Investor Relations

Steven Gold - Chief Financial Officer

Frederick Davidson - Chief Executive Officer

Analysts

Steve Kammermayer - Clarus Securities

Mary Fleckenstein - Fleckenstein Capital

Michael Murphy - New World Investor

Operator

Good day, ladies and gentlemen. Welcome to the Energold Drilling Corp's Third Quarter 2016 Conference Call. At this time all participants are in listen-only mode. Following the presentation we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded; it is Monday, November 21, 2016.

It is now my pleasure to introduce Mr. Jerry Huang, who will then pass the call to Mr. Steven Gold. Please go ahead, Mr. Huang.

Jerry Huang

Thank you, operator, and thank you everyone for joining us today. My name is Jerry Huang, Investor Relations Manager for Energold Drilling Corp.

Before we review our 2016 Q3financial results, we would like to go over our disclosure policy. Certain statements in the following conference call regarding Energold Drilling Corp's business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about the future, which inherently involves risks and uncertainties. These risks and uncertainties could then cause our actual results to differ materially, and from those contained in the forward-looking statements.

I would like to now turn it over to the CFO, Mr. Steven Gold.

Steven Gold

Thank you, Jerry, and good afternoon everyone. Company revenue in the third quarter was $18.8 million across all business divisions, which compares to $22.8 million in the third quarter of 2015. Gross profit margin as a percentage of revenue was 16.5% compared to 16.8% in same period of 2015. The net loss per share in the period was $0.06 compared to a loss of $0.08 per share in the same period of 2015. The drop in revenue in the period compared with same period in 2015 is entirely due to downturn in energy and fewer deliveries in manufacturing division.

But the company has been successful in leveraging the early stages of the recovery in the minerals drilling market. There's activity in Central America and parts of South America that have ramped up significantly; as a result in improved metal prices as well as financings in the sector over the last nine months. During the period mineral drilling revenue was $10.7 million to $10.3 million in the same period of last year; our gross margin improved almost 17% from 11.5% in the same period in 2015.

On the nine months basis, the average revenue per meter of $163 compares favorably to $165 in the same period of 2015. Meanwhile meters drilled since nine months of the year was up just over 173,000 compared to 145,000 in the same period of last year. The company's energy business continued to be impacted by weak hydrocarbon pricing, while some recovery in oil prices improved sentiment over the last few months, the third quarter reflected ongoing lower levels of activity and a little patch and it’s what is typically a seasonally slow period to begin with.

Revenue for the period fell to $4.3 million from $6.5 million in the same period of last year. There are some sentiment improving activity in the oil sands coring market, we’re expecting a better Q1 of 2017 than the previous quarters. Meanwhile pricing is likely bottomed and our key clients have asked us to prepare for larger work programs compared to previous years.

The infrastructure business has reported modest revenue in the period, although was operating at full capacity towards the end of the third quarter. The division had someone in bad exposure in the past, although all of the current work is now focused on less seasonal telecom and transportation sectors. Over the coming year management expects the segment to start to make more material contribution, to overall revenue and profitability as the sector continues to benefit from infrastructure spending, while having little to no exposure to volatile commodity prices.

The manufacturing segment, revenue for the third quarter of 2016 was $3.8 million compared to $5.9 million in the same period of 2015. While the second half of the year is typically strong in terms of the deliveries and revenue recording, the period it was disappointing with financial prospective as the results fell short of expectations.

Energold ended the quarter with a balance sheet allowing it to leverage your recovery in the mineral drilling sector, with little new investment required going forward. Cash on hand at the end of the period was $12.3 million and working capital was $53.1 million which now includes the effect of reclassifying the company’s convertible debenture as a short term liability. Management is currently considering several options to replace the convertible debenture which is due in July 2017, and that may include paying down the significant portion of the debt or refinancing debt in its entirely.

With that brief financial review complete, I’ll now pass the call over to my colleague, President and CEO, Fred Davidson.

Frederick Davidson

Thank you, Steven. I think one of things we have to look at apart from comparing quarter to quarter is the comparison of quarter to the prior quarter not the prior year’s quarter. And what we have seen is a fairly positive trend this year. Certainly, the beginning of the year was very disappointing, primarily because the oil patch did what everybody knows it was going to do, it did nothing. We did see growing strength throughout the year though from the mineral side, the mineral drilling side. We’ve seen to be a better day to at least mitigate to a degree some of the losses sustained in the oil patch from that decline. And we’ve some positive signs from the manufacturing as we were able to significantly reduce the operating losses there in response to the fairly slow market through manufacturing this year.

The more positive aspect there -- one of the more positive aspect to this is, that we’ve seen, if you will, some distinctive light and do think it’s a train at this point from the time, at the end of the tunnel, when it comes to the geotechnical, geothermal drilling that we’re doing. We would like think of that, including the water is the sustainable part of our industry, it was slower this year but we’ve seen certainly strong indications that, in that sector at least we’re expecting a fairly responsive market next year. We’ve in fact been advised that couple of contracts are getting very close to the point where we will be signing them, and adding significant dollars, both top and bottom line.

On the mineral side, as I say we continue to see strength there, the weakest market is South America where we're building there, because of political implications in places like Brazil and then Peru, two of our larger markets, we’ve seen a deferral of the work there and in Brazil we’ve actually part -- a lot of our equipment and we incurred certain cost of reducing staff and infrastructure in that country until things sort of shake loose and get back on track again.

We still believe South America is a viable market, but we’re going to do our best to keep our cost down as much as possible but be still ready to respond to recovery in any individual market there. The European market is going stronger for us and we’re seeing additional work in Europe. However Africa, especially West Africa has not recovered to the degree we hoped it would after the Ebola; there are some lights there, there're some indications there; there's more work coming but people have been slow to reinitiate work in West Africa for a variety of reasons, perhaps financial, perhaps political.

Overall the trend this year is certainly on the upward trend; surprisingly which we really didn't expect the first quarter to be as quite as loose it was; and as Steven mentioned lot of the work that was deferred in the oil patch this year; it's required to keep the operations going there; can't be deferred indefinitely and we're expecting to see an uptick in the first quarter of 2017 on the oil side.

Overall bit of the clouds are clearing now; I think our diversification has helped us because where one market has been down another market has sustained us. As we go forward we're hoping to have more of those cylinders working and [indiscernible] of this in 2017, it's certainly starting to look like that's feasible.

Our working capital remains strong and the renegotiation or the placement of the convertible debenture, if not happens, that will automatically reduce outstanding liabilities, move it back into long term and put our working capital back into one of the most sustainable and most substantial in the industry.

Over to you Jerry.

Jerry Huang

Great, operator could we open the lines now, for question-and-answer?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question will come from the line of Steve Kammermayer with Clarus Securities. Please go ahead.

Stephen Kammermayer

You mentioned some significant contracts here in your prepared comments, and we did talk on the last call about some of these larger Hail Mary type projects, is that what you were referencing there when you mentioned the significant contracts?

Frederick Davidson

Actually, we've seen -- I guess one would be sort of almost -- I don't want to call it a huge Hail Mary, but it certainly represents somewhere between 7% and 10% of growth revenues. We've already had verbal confirmation for it; and we're waiting for the legal documents to arrive on the desk and of course it's going to take a bit of negotiation. We're actually hoping to see that a little earlier in the quarter; it appears it'll be for the first quarter in the New Year. Interestingly enough we've tendered on a couple of contracts about new share and it seems like we've got a second one that'll probably be following about two or three months later. Each of these contracts would be for one year; the first contract would actually be for two years; so it could be very substantial for where we're going.

Stephen Kammermayer

So, I imagine you essentially had a verbal confirmation, you're getting the legal's; would we expect to see a press release, when do you have that nailed down for sure; and I guess the exact timing of the start date?

Frederick Davidson

We'll have to be a little cautious on the press release; some of these people don't like their names advertised but we'll certainly get the word out believe me, that, these are significant, they’ve proven in the past to be the type of contract to be material to us; and we've also proven in the past that they had very good margins; so yes, we'll certainly talk about it.

Stephen Kammermayer

And can you give some idea of where the contracts might be; will it be North America or Africa?

Frederick Davidson

North America.

Stephen Kammermayer

North America, okay. That's great. That’s all I had, thanks.

Operator

We'll now take the next question from the line of Mary Fleckenstein with Fleckenstein Capital. Please go ahead.

Mary Fleckenstein

Hey Fred, I was having basically the same questions that the gentlemen before me. So, I don’t need to ask anything. Thank you.

Frederick Davidson

Not a problem.

Operator

[Operator Instructions] We'll now take our next question from the line of Michael Murphy with New World Investor. Please go ahead.

Michael Murphy

Hi, I was just wondering about the decision on the convertible bonds. You won’t be making that decision I would assume until the June quarter next year?

Frederick Davidson

No I think we’ll be making that decision pretty quickly, we’ve had some strong interest expressed in it. And in a variety of approaches, it’s one of those things you don’t want to leave to the last minute anyhow and we would like to get it wrapped up probably before Christmas.

Michael Murphy

Okay, and when you make a choice between repaying or refinancing, what does the market look like for the probabilities of refinancing now? Is it open?

Frederick Davidson

Yes, interestingly enough, we’ve had some considerable mode of interest, some of them fairly inventive, and it’s strange if we'd said that a year ago. There probably would have been sort of the silence on the other end of the phone if people sort of waiting for the commodities market to change. We’ve seen some strong indications, it is changing, the service industry is related to it, seem to getting more attention. And all of a suddenly we've got more than one expression of interest.

Operator

[Operator Instructions] There are no further questions at this time. Please continue.

Frederick Davidson

Thank you everyone and joining us for our third quarter 2016 financial and production results. We look forward to our next quarters call. If you have any questions or would like to submit questions for the call, please visit our website at www.energold.com or call us 604-681-9501. Thank you everyone for your continued support of Energold Drilling Group. Have a great day.

Operator

Ladies and gentleman this does conclude today’s conference. We thank you for your participation. You may now disconnect you lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!