Energold Drilling Corporation (OTCPK:EGDFF) Q4 2015 Earnings Conference Call April 14, 2016 4:30 PM ET
Jerry Huang - IR, Manager
Fred Davidson - President and CEO
Steven Gold - CFO
Daryl Young - TD Securities
Bill Fleck - Fleck Capital
Good day, ladies and gentlemen and welcome to the Energold Drilling Corp. Fourth Quarter and Fiscal Year 2015 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. It is Thursday, April 14, 2016.
It is now my pleasure to introduce Mr. Jerry Huang, who will then pass the call over to Mr. Fred Davidson, please go ahead sir.
Thank you, Adam, and thank you everyone for joining us today. My name is Jerry Huang, Investor Relations Manager for Energold Drilling Group.
Before we review our 2015 year-end Q4 financial results we will like to go over our disclosure policy. Certain statements in the following conference call regarding Energold Drilling Group's business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions of the future, which inherently involves risks and uncertainties. These risks and uncertainties could then cause our actual results to differ materially from those contained in the forward-looking statement.
I would like to now turn it over to President and CEO Mr. Fred Davidson.
Thank you, Jerry. And I appreciate what time it is in China right now and you are up pretty early. Energold recorded sales for the year of $82 million across all business divisions compared to 101 million in sales in 2014. The impact of the decline in oil and gas was almost entirely responsible for the decline. On a year-over-year basis, as revenue in that segment fell by 47.8%, while mineral and drilling revenues fell only 5.7% and manufacturing increased substantially by 73.1%.
In 2015, the company's overall gross margin declined to 16.4% from 19.1%. Efforts to reduce those costs were ongoing throughout the year, while lower pricing in the energy segment in particular led to reduced margins on a year-over-year basis. The adjusted net loss for the year was 18.9 million compared to 10.9 million in 2014. The accounting loss was 23.7 million compared to 14.0 million. Company's balance sheet remained well capitalized with almost $14 million in cash and $73 million in working capital.
In Q4, Energold's mineral division drilled about 57,000 meters compared to 73,000 into '14 it represented about 22% decrease. However, overall the average rate in per meter went from 134 in 2014 to 174. And the revenue for the year as a result was up to $32 million compared to $34 million, so the average we have seen for the year -- over average rather per meter was 160 compared to 146. What it really means as we ended up towards the end of the year, which is always a solid period for us in any event. We saw a continuous increase in the average drilling price per meter. It's small but it's certainly positive and we are looking forward to further increases in 2016.
The energy division obviously took a substantial hit, it decreased to 28.5 million gross revenues from 54.7 million in the prior year, due to the market conditions, due to the oil and gas prices resulted in a decline in revenue on a year-over-year basis primarily in the area of the Tar sands. Mineral revenue or revenue from drilling went from 36.5 million to 10.6 million. It was a volatile quarter for revenue due to seasonal and temperature factors. And revenue in the last quarter of the 2015 was latterly only $200,000 compared to 7 million in 2014, the majority of the decrease due to the major operators who have delayed decisions going forward until they see more definitive pricing on oil and gas in general.
On the other hand, geothermal water and geotechnical drilling accounted for 16.6 million in 2015 compared to 15.7 million in 2014. In fact in the last quarter it was 4.2 million compared to 4.1 million. What is interesting it represented almost 20% of gross revenue for the year and we are seeing this as a substantial increase year-over-year going forward as a comparison and the change in mix if you will in 2015 between manufacturing and non-resource related drilling it represented almost 45% of all our revenues compared to 28% in 2015.
Manufacturing revenues improved fairly dramatically as mentioned earlier. Revenues were almost 20.9 million with a gross margin of 16.8% compared to 10 million a little over 10 million, 10.8 million was gross margin of 20% 2014. The fourth quarter was especially good with 4.7 million in revenue compared to 1.8 million in the comparative period a year before. We've obviously done certain things to try and allow for and adjust for what's happening in the market place today.
In markets where we've seen a substantial decline in activity geographical markets primarily we've taken a policy of hibernation if you will, where we reduce our exposure in country, we reduce staff and we put in many cases equipment into storage waiting for better markets. This is sort of allows us to tick over, continue our existence in that entity, but recognizing that there is inadequate revenue available in that marketplace to continue an active program. We did incur substantial layoff costs etcetera with some of the crews, but we are positioned however to regain that market share as soon as the market opens up again in that geographical market.
The other thing that we have done is we've recognized as we said in 2014, that there are other things we can do with our drills besides drilling minerals and oil and gas. And that deployment into areas such as geothermal, geotechnical and water continues to grow and we expect it to grow much stronger in the ensuing year. The other one that we announced earlier this year was the acquisition of Cros-Man underground drilling. It is primarily designed to service the infrastructure part of the marketplace where we do horizontal drilling under obstacles such as rivers, roads, etcetera. There's an increasing demand for this market place. We see can expand it fairly dramatically, the team we brought on with it is exceptionally good and we see that as we go forward with the infrastructure demands of the federal and provincial governments in Canada, a continuing interest in the United States and growth potential in Europe it can be really expanded using our market facilities in those countries.
Overall not a happy year, we know that. We think we've done a major effort to correct it where we can. We are subject to macroeconomic events. We see however that minerals are slowly picking up this year. We have no idea to be honest where we are with the oil and gas but we have reduced ourselves to a defensive position there. We are engaging to some work and we are seeing growth in the areas where we have diversified in the past into areas such as infrastructure, manufacturing, and water.
Jerry I think that pretty well summarizes what we've done this year. Maybe we should move over to some questions.
Yes operator Ron, could you go over the Q&A?
Thank you. [Operator Instructions] Your first question comes from the line of Daryl Young with TD Securities. Please go ahead.
Q - Daryl Young
Just wondering if you could provide a little bit more background on the strategy for the Cros-Man acquisition and where you see it going and how many rigs you plan to add in this area or what the opportunities for adding more rigs are in the next year or so. And then also some outlook on what kind of margins are generated in that business?
Okay. And I’d be delighted to actually. Right now there's six rigs actively involved. They're fully contracted out. We see it as a distinct growth area. Right now it would probably for 2016 represent without significant growth, without adding additional rigs probably 10% of our gross revenues. The strategy we see going forward however is we're logistically well set up in United States and places like the UK. We can introduce the team and the equipment into those locations and between us I’m hoping in our forecast is that we would be up 50% on that number by the end of the year. As for margins it varies where you are drilling and what you’re doing, but we expect those margins to be in the 30% to 40% certainly historically that’s what it’s been and we think we can meet those and probably even exceed them in certain marketplaces.
And then also on the energy division what -- we are effectively through the drilling season now so just curious what if you can give any color on how the season went and if there was any early break up any or that kind of information would be great?
Glad to. I would say the season was not a very exciting season at all we had a nominal number of rigs working and the season was very short you are right to break up also picked up the --. Most of our clients were doing the bare minimum necessary and as you know we offer diversity of work in that area such as deepwater in-wells, coring ahead of the programs etcetera and what we found I think was virtually all the majors they weren’t expected a severe cut on our margins and I think we’re able to achieve that and still maintain and in fact I think the fourth quarter we actually added last year rather we had a better margin than we had the previous year, but we’re dealing with a lot lower number there is no question.
And what we have been doing is we are redeploying some of those rigs into markets that we’ve traditionally only done in the states for instance geothermal drilling, water well drilling and the rigs are more than suitable for that. So we’re finding some infrastructure work, some geothermal work and some water drilling. Now the downside is it is not sort of one big quarter, but we’re looking forward to perhaps a more active throughout the year type program than the traditional pattern of a lot of work in the first quarter than nothing for the balance of the year. So we’re going to find work for those rigs, we’ve already found a couple of them that have been already been deployed in totally non-oil and gas related activities and I expect by midsummer, late summer we will have a number of them working in other areas.
I don’t see 2016 being any more active in the oil and gas sector, it’s just not there and I think anybody who is sort of hopping for a resurrection is, is going to be sadly disillusioned but we have built that in, we’ve done wage cuts, we have done crew cuts and as I say we’re reallocating both equipment and people to other sectors.
And then as well on the mineral side you guys have referenced improvement in the environment obviously the metal prices have improved as of late, but I’m just curious even with the increase in pricing margins are still taking a bit of a hit and if you guys expect to have to carry it through the balance of the year and kind of what your pipeline looks like at this point from the minerals side?
We are seeing a gradual improvement it’s certainly not a hockey stick type recovery, but we were seeing a gradual improvement in the demand and I think it’s kind of apparent in terms of there have been financings going on through the mid-size and smaller cap companies and we expect that to continue throughout the year. Again not exciting but probably more of an industrial type of market which we like quite frankly because it allows us to do more balanced programs, more sort of even two rigs on a site as opposed to five big rigs for a month. Now the -- obviously people are bidding that the pricing down quite a bit, there is still a long pause out there. And we think we can improve our margins for two reasons, one we have taken this hibernation policy, and that is where we’re working in markets where the margins are just paper thin. We are simply not going to drill some of those programs. We’re going to hibernate, we’ve not going to have carry overheads in those markets and we’ll wait.
There are people out there who are bidding below cost and they can do it for a year, six months or a year but they can’t survive very long so. I think our strategy will be there will be gradual growth in our sector and we are going to gradually see our margins improve specially towards the end of the summer. We are anticipating that getting a little better as people get out and start drilling. First quarter is always dead in the minerals side, the last quarter tends to be slowed the two summer quarters tend to be busiest.
We are however, in terms of what we see ahead of ourselves we have got a couple of programs that we are bidding on right now that are very substantial. They are sort of unique sectors in the market, minerals like lithium and what have you where the programs we’re looking at our sort of large within viable multiple rigs. And I think we are going to see at least a couple of those enter into the sort of revenue stream. So overall I would say it's positive, not exciting but it's positive and we will see gradual increases over the year as we go forward.
Okay, that would be excellent, if you get those contracts lined up.
Well believe me, I feel the same way.
Your next question will come from the line of Bill Fleck with Fleck Capital. Please go ahead.
I was wondering if you could elaborate on what was the driving force behind the loss at corporate in the fourth quarter, was that some sort of a write down or did you actually lose the [indiscernible] million?
No, you hit it right on the head. There is all those adjustments below the line. Most of those are related to IFRS.
We wrote off minimal properties, deferred income taxes, things like that, that we basically have to live with under IFRS and that’s annually you will always we incur some corporate cost, but yes that was the majority of it. And the two degree I am not that upset basically it has helped the balance sheet a bit.
Yes, IFRS is a make work project for the accountant, I mean I think make things more complicated and more confusing that it needed to be in the first place.
You are going to get me on a rant on that one, and I am going to [Multiple Speakers] but…
I think a follow-up question to that point you were just making these contracts, you are talking about that you might be bidding for that are like [indiscernible]. What sort of size do they tend to be are they? And what sort of durations they tend to be?
Well, the big ones and that is, we still got a sort of a third full to a quarter to a half full sort of if you will picture of work ahead of us that is sort of the 5,000 meter type jobs. These ones are what we know in our group as Hail Mary’s. They are ones that would add sort of area of 5% to 10% on the top-line at least. And a couple of them even more than that and they are multiple years. So they are big contracts they are, I think they are quite exciting and obviously as we have assessed, when we sign one of these up, we are certainly going to make a news release of it. But they are the ones that we are not trying to get distracting from day-to-day things but we have got teams working on them very specifically. And we are bidding them and there is -- there are political, they are not easy to get. But if you get one and lock it in it makes a very significant difference both top and bottom-line.
Last question, so are the competitors you have in those sorts of things the same ones you generate into another places? Or were this [Multiple Speakers] type competitor?
This is different these are technically very complex jobs. So we don’t have them on pause bidding these, these are the ones that the big guys are bidding and there are very few of us who have the technical skill to build to bid these ones. So instead of having a lineup of 20 drilling companies wanting to do it, there is probably two or three. And we have the technical skills to take on some of these we have the equipment in most cases to take on some of these. And we have the logistical ability to service the markets that they are in. So we are pretty comfortable that we at least stand equal to anybody else in the bidding process and I think a little better than most.
[Operator Instruction] There are no further questions at this time. Please continue.
Thank you, Ron. And thank you everyone for joining us in reviewing our fourth quarter and year-end 2015 financial discussions and results for Energold Drilling Corp. We look forward to our next quarter's call. If you have any questions or would like to submit questions for next quarter's conference call, please visit our Web site at www.energold.com or call us at 604-681-9501. Thank you for your continued support of Energold. Have a great day.
This concludes today's call. Thanks for your participation and you may now disconnect your 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: email@example.com. Thank you!