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spk09: Good morning, ladies and gentlemen, and welcome to the first quarter 2022 results conference call. I would now like to turn the meeting over to Chantal Melanson. Please go ahead, Ms. Melanson.
spk07: Thank you, and good morning, everyone. As mentioned, we would like to welcome you to Major Drilling's conference call for the first quarter of fiscal 2022. On the call, we will have Denis Larocque, President and CEO, and Ian Ross, our Chief Financial Officer. Our results were released yesterday evening and can be found on our website at www.majordrilling.com. We also invite you to visit our website for further information. Before we get started, we'd like to caution you that during this conference call, we will be making forward-looking statements about future events or the future financial performance of the company. These statements are forward-looking in nature and actual events or results may differ materially from those currently anticipated in such statements. I will now turn the presentation over to Denis Larocque. Please go ahead.
spk05: Thank you Chantal and good morning everyone and thank you for joining us today. I must start by saying that the team and I are very pleased with the progress we've made this quarter. Our proactive strategy and efforts across the last few quarters focused around having rigs and inventory ready for immediate deployment to customers have delivered results that have seen major drilling grow its revenue by close to 70%. This represents our highest quarterly revenue since our second quarter of 2013. I'm confident that the cyclical recovery is well underway and we will continue to see increased activity in the industry, and I will explain the basis for management's view on this later during the call. During the quarter, we saw strong regional growth in North America where gold projects are still the main driver of activity. We also added two months of revenue from McKay acquisition, which closed June 1st. While still in the early stages, the integration is going very well and operations are performing at high level in a very busy market as anticipated. In South America and Asia, our operations continued to be impacted by the effects of the pandemic, which delayed several projects and continued to disrupt some of our operational activities. The increase in demand for major drilling services this quarter allowed us to generate net earnings of $11.1 million compared to $2.1 million in the same period last year. despite headwinds brought on by cost inflation, labor challenges, and the pandemic. Our operational leverage, combined with more favorable terms in pricing on some of our contracts, are starting to bear fruit, and we expect this to improve margins going forward, although it will be somewhat offset by cost inflation for supplies and labor. With that, Ian will now walk us through the quarter's financial, then I'd like to further discuss our market outlook before opening up the call for questions.
spk02: Ian? Thanks, Denis. Revenue for the quarter was $151 million, up 69% from revenue of $89.4 million recorded in the same quarter last year, as demand for drilling services remained robust in our biggest markets. We reported two months' worth of activity from our McKay acquisition, which contributed approximately $12 million of revenue, as operations are extremely busy in Australia. The unfavorable foreign exchange translation impact on revenue for the quarter, when comparing to the effective rates from the same period last year, was approximately $9 million, with a minimal impact on net earnings. Despite the fourth wave of the pandemic causing continued challenges in certain regions, we are pleased to report our highest quarterly revenue in nine years. The overall gross margin percentage for the quarter, excluding depreciation, was 26.3% compared to 27.8% for the same period last year. Margins are trending in the right direction, as anticipated, with the ramp-up costs of the previous quarter behind us. We continue to see short-term pressure on wage costs in our busiest markets, but the availability of skilled drillers remains a key industry challenge. Suppliers have been raising prices on some consumables, which also impacted margins in the quarter. However, we've been working with our customers on pricing to ensure current market conditions are being reflected. G&A costs were up $2.4 million at $13.6 million when compared to the same quarter last year. The increase was primarily driven by the addition of the Australian operations and inflationary wage adjustments at the start of the new fiscal year. Also, certain cost-cutting measures and government assistance programs used to navigate the pandemic in the prior year are no longer in place as the companies shift towards the growth phase. The income tax provision for the quarter was an expense of $2.7 million compared to an expense of $1.2 million for the prior year period. The income tax expense, although up from the previous year due to increased profitability, was aided by the utilization of the previously unrecognized tax losses in certain regions. Net earnings were $11.1 million, or 14 cents per share, 13 cents per share diluted for the quarter compared to 2.1 million or 3 cents per share for the prior year quarter, the company's most profitable quarter in nine years. EBITDA was 24.2 million compared to 13.9 million in the prior year quarter. This quarter highlights the operational leverage inherent in the business strategy as top-line growth coupled with disciplined pricing provides strong EBITDA growth and bottom-line results. Our balance sheet remains in great shape with total liquidity of 82.4 million After spending $11.7 million on capital expenditures and closing the McKay acquisition, we have net debt of $44.5 million, which includes contingent aspects of the McKay transaction. We added 20 specialized drills from the McKay acquisition, as well as an additional 10 drills and support equipment for existing rigs going out in the field. We also disposed of 13 older, less efficient rigs, bringing the total rig count to 605. Most of the rigs purchased this quarter will be immediately deployed in the field this upcoming quarter to meet continued market demand. The new breakdown of our fleet and utilization is as follows. 305 specialized drills at 49% utilization, 119 conventional drills at 45% utilization, 181 underground drills at 54% utilization, or a total of 605 drills at 50% utilization. As we've mentioned before, specialized work, in our definition, is not necessarily conducted with a specialized drill. Rather, it is work that requires that we meet the rigorous standards of our customers in terms of technical capabilities, operational and safety standards, and other related factors. Over time, we expect these standards to be increasingly important to our customers. In the first quarter, revenue from specialized work accounted for 64% of our total revenue, up from 60% in the previous quarter. The addition of our highly specialized work in Australia helped push this number up from the previous quarter. We expect the trend to continue as long as the demand is supported by elevated commodity prices. Conventional drilling made up 10% of our revenue for the quarter, mainly driven by the increased demand for work from junior mining companies. Finally, underground drilling revenue was down slightly compared to last quarter at 26% of total revenue. We continue to see juniors contribute to our revenue stream as they accounted for 21% of our revenue, with senior intermediates making up the remaining 79%. Junior activity is mainly being driven by our North American operations, as we've yet to see an influx of junior tenders in our other regions. In terms of commodities, gold projects represented 58% of our revenue, while copper was at 16% this quarter. Gold continues to dominate our revenue mix, while copper remains below historic norms. The addition of McKays has allowed us to diversify our commodity exposure, with 9% of this quarter's revenue related to iron ore projects. With that overview on our financial results, I'll now turn the presentation back to Denis to discuss the outlook.
spk05: Thanks, Ian. Demand for major drilling services continues to be strong and we have secured more work for the upcoming quarter. We do expect the wider industry rig and labour shortages and higher utilization rates to continue to drive a more positive price environment. As pandemic restrictions ease in South America, we expect to see increased activity as drilling programs resume in Chile and Argentina. During the quarter, we renegotiated several of our contracts in North America with more favorable terms and prices, which should improve margins going forward, although we do expect this to be somewhat offset by cost, inflation of supplies and labor. Availability of skilled labor continues to be extremely challenging for everyone in the most operationally intense markets and is putting pressure on labor costs and productivity. Despite this, I am pleased with the training and retention efforts of our teams, which have allowed us to support our rapid growth and deliver value to our customers, despite the fierce competition for drillers, illustrating that we are the employer of choice in the industry. As a management team, we are confident in our belief that the industry is still very early in a long cyclical upturn. Today, I thought I would share with you why we feel this way. Now, this is not a forecast by any means, but the facts are certainly interesting. Our team is very experienced, with our top managers holding more than 25 years on average of experience. Myself, I've been in the industry for 27 years, and I've seen my share of mining cycles, and the similarities of this upcycle to the one we saw between 2004 and 2012 are glaring. If you go back to 1998, we hit a peak in resources and went in a downturn that lasted six years, where very little exploration was conducted. So when we reached 2004, both precious and base metal companies were facing serious reserve issues brought on by that lack of exploration over the prior six years. That created an upcycle that lasted eight years between 2004 and 2012, of course temporarily interrupted by the financial crisis. During those years, mining companies had to play catch up to replace depleted reserves. Now if we break down the start of that upcycle, We saw senior gold companies first out of the blocks in 2004, increasing their exploration budgets to address their reserve issues. Then in 2005, we saw the financing window open for junior gold companies, which brought an extra layer of exploration and the start of increasing drilling prices and labor shortages. In 2006, copper reached $4 and base metal companies joined the fray. which created extreme shortages of drills in the industry and very good market conditions for drilling companies. As mining companies ramped up their definition efforts over the next few years, we saw an increase in exploration. This was, of course, temporarily held back by the financial crisis, but it picked back up in late 2010, right up to early 2013, where once again we entered a six-year downturn. During those years, exploration budgets were cut to a minimum and junior financing and drilling practically disappeared. Now roll the clock forward to 2020, and this is where the similarities to that previous cycle appear. After six years of lack of exploration, mining companies faced depleted reserves. So in 2020, despite COVID restrictions, we saw senior gold companies increase their exploration efforts, particularly in North America and Australia, in the second half of 2020. Then late in that same year, we saw the window open for junior financing, and in the first six months of this calendar year, we have seen a resurgence of junior drilling programs, which has brought some of our markets to near full utilizations. Looking forward, we still have not seen copper or base metal companies come to the market with substantial increases in their exploration efforts, although the increase in copper prices over the last six months combined with declining reserves have sparked more discussions from base metal companies for future drilling programs. As a reminder, it takes 10 to 15 years to bring a mine into production, which includes several years of definition drilling before making the decision to build that mine. Therefore, for those reasons, we feel we are still very early in this upcycle, which will require a lot of drilling to replenish depleted mineral reserves. Over the last few years, we've been strategically preparing the company for this upturn. Importantly, we entered the downturn with the strongest balance sheet in the industry, which allowed us to execute this plan. In preparation, we have been investing in our fleet to get rigs prepared, increased our recruiting and training efforts, and stocked up ourselves to avoid a shortage of supplies as the industry grapples with this rapid growth. All of these efforts have allowed us to face the strong growth experience over the last three months and will allow us to add more rigs in the field in the coming quarters. So to summarize, Demand for our services continues to be strong, and as mentioned, we have secured more work for the upcoming quarter. We expect higher utilization rates to continue to drive a more positive pricing environment and expedite margin recovery as the cycle progresses, although the shortage of experienced drill crews will continue to put pressure on labor costs and productivity. Finally, I want to welcome all the new recruits and thank you for choosing to join our team. As well, I want to welcome the McKay employees to the major drilling team. Major drillings, more than 3,700 employees continue to be the integral part of our strength. And I know everybody has been working hard over the last few months and are extremely busy. And I would like to express our ongoing appreciation to all. Your company continues to be a leader in safety, quality of equipment, and working conditions because our culture puts employees at the heart of our business. With that, we can open the call to questions. Operator?
spk09: Thank you, Mr. LaRock. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Maggie McDougall with Stiefel. Please go ahead.
spk08: Good morning. Good morning. Thanks for taking my question. I was wondering, Denise or Ian, if you could give us an update just on where your utilization sits and perhaps some commentary around the trends in pricing that you're experiencing, given that it does appear as though certain markets are busier than others and there's still some some challenges in certain regions related to the pandemic. So any more information you could provide would be appreciated. Thanks.
spk02: Yeah, on the utilization, I'll answer that one first. We're at 50% utilization right now, total. Okay.
spk05: And on that utilization, a couple of comments here. We always say that maximum utilization for us is at about 75% to 80%. And as well, that 50% is not evenly distributed, as you can appreciate. In North America, we're seeing much higher utilization. And in South America, it's because of the pandemic, we're facing much – slower utilization, but things are picking up. On the pricing, it's the same thing. I mean, it's really driven by utilization and market, how hot the market is. And North America and Australia are very hot markets right now in terms of drilling. Lots of demand. And, I mean, you heard us talk about labor shortages. It is an industry challenge in those markets, and it's driving price increases. I mean, costs are going up for supplies and labor, and price are following, and it is basically providing better jobs a better pricing environment at the moment, which allows us to generate adequate return on capital. But again, it's not equal everywhere. There are certain markets where things are slower to pick up, but they are certainly picking up, and we're seeing some positives going forward.
spk08: Okay, thanks. Another question, we're seeing in the news all kinds of various positions being taken by companies on requiring employees to be vaccinated and considering that it is a business continuity issue for many companies, including major drilling and mining companies. I'm wondering, first, what you're seeing within the industry generally, both mining and perhaps drilling in particular, and then whether you've considered that issue with regard to your own policies.
spk05: Yeah. I mean, vaccination, in fact, between countries, we're seeing very different results. You have, for example, in Asia, certain countries that still have very low vaccination rates, and really it's more driven by access to vaccination. And what we've been doing is helping our employees get access to vaccination. So we're working with our employees to improve that. In other markets, vaccination as you know is going well as a country as a company we haven't put a policy at this point in terms of requiring vaccination we're having discussions in terms of what we where we want to go with this I mean there's In terms of field employees, they're working outside. They're working in very small groups. So it's all about risk management, but those discussions are certainly going on in the industry with everybody.
spk08: Okay. One final question. I've been watching iron ore prices retrace quite a bit. And I'm wondering if there are any considerations for McKay's business in the coming quarters, should we see that price slide continue?
spk05: No, I mean, the programs that are ongoing are at existing mines, and those mines, they have plans, firm plans of development. So it's not exposed to... It's not like junior funding or juniors that are a lot more exposed to the... the variation of commodity prices. Here we're talking about very senior companies and establish programs that need to go ahead and will go ahead. So no concerns at all there.
spk08: Okay. Thanks very much, gentlemen.
spk05: Thank you.
spk09: Thank you. The next question is from Daryl Young with TD Securities. Please go ahead.
spk03: Good morning, gentlemen.
spk05: Good morning.
spk03: Just a couple of quick ones from me. First, on the new contracts secured for Q2, could you just provide a little bit more detail on what geography those are in, and then potentially even the magnitude of the increase you're expecting for Q2 over Q1?
spk05: As you know, we never provide guidance, so But it's certainly the fact that we're pointing to having additional work certainly points in a positive direction. And a lot of that work is still North American based, although we're seeing some pick up in Latin America as well. But I mean, North America is still driving a lot of that.
spk03: Okay, great. And then just thinking about South America and maybe the pipeline of work that's there, would you characterize it as a strong backlog of projects that's ready to go and everyone's just sitting on the sidelines waiting to start the work once the COVID challenges subside? Or... maybe just a little bit of color on what the upside expectation is for those markets.
spk05: Yeah. We do have customers that are in that case that basically are just waiting for conditions because there's been some very heavy restrictions on travel within states in Chile and in Argentina that has caused mining companies to basically say, well, it's It's not worth it to get these drilling programs going at this point, although we're having lots of conversations to talk about when are we going to get going. There are some out there, but then there are some that the other piece of work, I think, is going to be driven by copper. There's two factors at play. There's COVID and there's copper. And the copper one is the one that we say is a latent, is yet to come. And it's going to be interesting to see what the budgets for 2022 bring, because we're certainly having discussions about bigger programs for next year, but nothing concrete at this point.
spk03: Okay, great. And then just the last question. Utilization is obviously going higher and just wondering if there's an increased look at M&A in the current environment. I know there's lots of controllers out there with challenges, but you've been very successful with both Nortec and McKay. Just wondering what you're seeing out there today and whether there's any opportunities there.
spk05: Yeah, there's always opportunities. It's just these things are always timing, and that was the case with Norex and McKay. Basically, we've had discussions for a while, and then the owners came to a point where they were ready to sell. So we're having lots of discussions with different companies that are, for the most part, specialized, It's always been our driver. But again, it all depends on their timing and their timeline. They know that we're interested. But there are lots of other companies out there up for sale, and lots of times it's a short conversation because there's lots of companies out there that have not been able to maintain their equipment And then when you look at the fleet, sometimes the reinvestment needed to bring the fleet back is too much. So it's a bit of a balancing act, but there are certainly some out there that could come up in the future.
spk03: Okay, great. Congrats on the good quarter, guys. I'll get back in the queue. Thank you.
spk09: Thank you. The next question is from Gordon Lawson with Paradigm Capital. Please go ahead.
spk04: Hey, good morning, and thank you for taking my question. So after seeing the integration of McKay into the company, are you still guiding towards $60 million in revenue and $17 in EBITDA, or are there any adjustments to that?
spk05: Well, we're certainly looking to grow those numbers. So that's when... When we closed the acquisition, that's the run rate they were on. But with the Australian market being hot, we're certainly looking at growing those numbers going forward.
spk04: Okay, thank you. And with the new debt, I'm just curious, what are your priorities in terms of paying down debt versus paying for growth?
spk02: Yeah, from a capital allocation strategy standpoint, the key for us is to maintain flexibility. So I think the current plan would be to look at growth for now. And, you know, we're well positioned and we want to remain flexible. But we've always said to look at growth for the time being.
spk04: Okay, thank you very much. That's it for me.
spk09: Thank you. The next question is from James Sale with Arcadia Advisors. Please go ahead. Good morning.
spk01: Just a quick question. Several of the juniors I follow were impacted by forest fires in, I guess, July and early August, which seems to have been taken care of. Did that impact your business in any way? And I guess another way, could the quarter have been better without that impact? Yes.
spk05: Well, thanks for the question. You're right. It wasn't substantial. That's why we didn't mention it. But there was certainly a few of our programs that were impacted by forest fires in Canada. We saw that. You're talking sometimes a couple of weeks. So it's, again, nothing significant. but it certainly had impacts in a few of the programs where we were.
spk01: Okay. Great stuff, guys. I remember the last cycle. I hope you're right. That's it for me.
spk05: Thanks, Jim.
spk09: Thank you. Once again, please press star 1 at this time if you have a question. The next question is from Ahmed Shah with Beacon Securities. Please go ahead.
spk00: Hey, guys. Congrats on the solved quarter. I guess just one follow-up question for me on geographic maybe revenue breakdowns. How are the discussions and the operations going in the other regions in Africa and Asia? And how would you quantify or characterize the impact in this quarter and then going forward with the COVID restrictions? Do you expect the recovery there or some of the environment in general there?
spk05: Yeah. Yeah. I mean, we in Asia, it's certainly been impacted and, and, somewhat in South Africa, although we saw things recover in South Africa this quarter. But in Asia, it was still held back because of COVID restrictions in a few of our countries. And we expect going forward that as these restrictions are lifted, that things are going to improve in that region.
spk00: That's great. That's it for me. Congrats again, guys. Thank you.
spk09: Thank you. The next question is from Sarah Heberle with Mill Road Capital. Please go ahead.
spk06: Hi. Thanks so much for taking my questions, and congratulations on a great quarter, guys. Thank you. As you know, Mill Road has been a long-term shareholder, and we really appreciate all of the team's hard work to navigate through this cyclical downturn and remain really excited about the company's future. So I first just wanted to thank you, Denis, Ian, and the rest of the team for putting the company in what we believe is a very strong position to succeed going forward.
spk05: Thank you.
spk06: And so there are a couple of different topics that I'd like to cover today just to help us update our internal model and confirm our belief in what we see as a very significant cyclical upturn and opportunity for the company, as you've discussed. The first topic is the macro environment, and you already provided a lot of really helpful color on this in your prepared remarks, so I just have a couple confirmatory questions here. The first is, our understanding is your EBITDA is highly correlated to global exploration spend. Is that correct?
spk05: Yeah, I mean, although we've... Over the last five years, we've been... Our strategy has been... We've added diversification, so getting into percussive and more underground work, which is more tied to the mine production, which helps bring more stability to our revenue. But yes, you're right, we still... have a high level of, when you look at the underground, at the last peak underground made 8% of our revenue, and right now we're in the 30s. So that part of the strategy has worked in terms of bringing more, but you're right, 70% is still tied to the exploration.
spk06: Great, great. So with exploration spend still in what appears to be, you know, the early innings of a recovery, that should mean there's meaningfully more upside yet to come, I would think. And with gold and copper prices both up significantly from their lows, I imagine they're now both well above the threshold levels that have historically been necessary to really kickstart and sustain exploration spend.
spk05: is that fair based on your experience with past cycles yeah absolutely uh i mean gold uh gold in the 1800 level and copper being above four bucks those are very healthy mining companies are generating a lot of cash flows and therefore they're incentive to build their reserves uh because the The price is driven, yes, by demand, but there's also the price of the commodities, people tend to focus on demand. For example, copper, there's lots of talks about electric vehicles and all of that and the demand coming, which is what's driving copper. But there's also the supply side, which has been depleted both on base metal and gold. that is driving those high commodity prices. And that supply side can only be fixed by more exploration and heavy exploration campaigns. And again, it takes 10 to 15 years to bring mines into production. So there will be drilling needed to fix that. And as you said, the commodity prices are there to finance those investments.
spk06: Great, great. And I mean, despite the prices being where they are, it looks like gold reserves and copper reserves, you know, both remain really low. Based on our research, gold reserves are down to levels we haven't seen since around 2005. Does that sound directionally correct to you based on the data that you guys see?
spk05: Yes. I mean, there's a few gold companies, senior gold companies, that are talking about gold reserves being less than 10 years left in the tank. And again, to my point about it takes 10 to 15 years to bring a mine into production, some are at a critical stage where they really, if they want to have products on the shelf in 10 years from now, they need to start now to fix that. So yes, you're right.
spk06: Okay, great. So that sounds like a really strong macro backdrop. And the second topic I had for you is we're trying to do some basic math that really looks at your performance during the last cyclical peak to get a sense for the EBITDA potential of the company during this next cyclical peak. And I'd just like to sense check some of my assumptions. And I will caveat this by saying that I appreciate that A, the calculation is an oversimplification, and B, I'm not asking you to provide any sort of forecast or guidance or confirm any of my numbers. I'm just trying to get a rough sense of the potential for the business going forward. So maybe if we were to start off with revenue, is there any reason to believe that the the pricing levels shouldn't recover to similar levels that you saw during the last cycle?
spk05: No, I mean, the pricing is really a factor of utilization rates in the industry and activity levels. And right now, when you look at, I mean, we had a graph with the S&P global market intelligence numbers in terms of exploration budgets, we're still a long way from 2000. In 2012, the numbers were around in the $20 billion, and I think we're not even at $10 billion yet in exploration. So still a long way from there, but as those numbers, there's exploration budgets pick up, then activity levels pick up and that's where pricing really picks up because you have more demand than you can supply and that's where, in really good times, that's where you have mining companies that are coming to you desperate for rigs and sometimes they are dictating the prices in a sense that they are coming to us offering prices for to get to get our rigs so yeah now to answer your question I think if if we get back to those those levels of activity I think yes we could see we could see those prices coming back to the previous levels okay so then would it be would it be reasonable to assume that your revenue per
spk06: utilized rig out in the field should be or could be similar to what you achieved during the last cyclical peak?
spk05: Yeah, you could say that. Yeah.
spk06: Okay. Okay, great. So I guess for my simple calculation here, I'm just going to use your fiscal year 2012 as a rough proxy for the last peak. And by our calculations, your revenue per utilized rig in that year was was around $1.7 million. And with respect to utilized rigs, I believe you mentioned earlier on the call that peak utilization is, you know, around 75% to 80%. Did I hear that correctly?
spk05: Yep. Yep. When basically... there's always rigs that are in transit there are rigs that are parked that only get to be used for example in the Arctic rigs that are parked for five six months of the year just because of the season we don't bring them back they're small rigs but they do make really good money in times where when they work so it's worth having them they're just working six months of the year so because of that that basically means that we can only reach that 75% to 80% utilization.
spk06: Got it. Got it. So I'll just then conservatively pick 75%, the low end of the range. And with your current rig count at about 605 rigs, that gets me to about 454 rigs out in the field if you didn't add anything else to the fleet. And if I assume that your revenue per utilized rig is in line with 2012, which may even be conservative because I know you guys have made a lot of operational improvements and you've continued to innovate to make your rigs more productive, that gets me to a revenue number of about $770 million. Turning to your adjusted gross margins, which exclude depreciation, would it be reasonable to assume that you can ultimately achieve adjusted gross margins in line with the levels you achieved during the last peak?
spk05: Certainly possible. The last peak, well, if we look at 2012, our margins were, I think they were 30, I don't have numbers in front of me, but 31.5, I think. 1.5%. But that was for the full year, but we did have a slowdown near the end of the year because we were starting to go in the downturn. So therefore, those numbers can certainly be achievable, yes.
spk06: Okay, great. And and I, you know, as I look back, before you got interrupted by the Great Recession, you know, it looks like in 2008, you have 33.1% 2009 33.6. So, you know, I'll just take something in the in the middle and, and go with 32 and a half percent for a for a kind of peak gross margin level, and that implies a peak gross profit based on my revenue number of about $250 million. Now, I believe your G&A expenses are largely fixed, and I think you've also been able to take a reasonable amount of fixed costs out of the business permanently since the last peak. Is that correct?
spk05: Yeah, well, I mean, we've streamlined the way we do business. We've closed some of our smaller branches and moved some of the rigs to bigger operations. So we have an infrastructure in place on which we can grow. It will require a little bit as we grow because we don't want to stretch our business operations beyond the breaking point. But it's certainly not going to grow at the same rate as the top line. The GNA, you can sort of say that it's going to be fixed with inflation and some additional some additional cost to just take on the growth. But again, nothing substantial, barring an acquisition or anything like that.
spk06: Got it. That makes sense. So for G&A, what I'll do is I'll take this past quarter, which includes at least two months of McKay, You know, that annualizes about $52 million, understanding there's some inflationary growth. Let's say, you know, G&A is about $55 million. The only other line item I think I need to get to EBITDA would be your other expenses, and I believe those are primarily variable costs. Is that right?
spk05: Yes.
spk06: Okay, great. So... What I think I'll do there is assume that they run about the same percentage of revenue that they did back in 2012 as an approximation of a peak year, which was about 2%. So that gets me to about $15 million in other expenses. And ultimately, all of that math gets me to a next peak EBITDA roughly of around $180 million, which is right about where you were back in fiscal 12. And that's not a number I expect you to comment on. I just wanted to make sure that, you know, none of my assumptions in that calculation were crazy. So, I guess I'll move on to the third topic, which is CapEx. On your last earnings release, you disclosed your CapEx budget for fiscal year 2022 to be $50 million. And that is the highest CapEx you've had since 2013. And if I look back, I think you started spending around that much at the turn of the last cycle back in fiscal 2007. Is that directionally correct?
spk05: Yeah, what happens, especially at the beginning of an upcycle like this, is as you put rigs, it's not necessarily driven all by rigs. It's driven by all the support equipment. Because what happens is we did conserve rigs, but for example, pickup trucks, when you go in a downturn and everything comes to a stop, you end up with a surplus of pickup trucks. So you either park them and use them, and as you discard one, you just keep using until you get to the optimum level of pure activity level, or we sold the excess as well. And it's not like we have kept up that same level of pickup trucks throughout the downturn. So when things pick up, you need to equip the rigs that are going back in the field with the support equipment, support trucks and everything. That's a lot of that 50 million, although there are some rigs in there for growth this year for specific types of drilling, specialized drilling and underground. That's where most of our rigs are going to come. And those rigs, by the way, when they are ordered for the most part, they have a place to go before they even arrive. So that CapEx on the rig side, again, has contracts attached to it for the most part.
spk06: Okay, great. And my calculation, you know, I was just using your rigs that you disclosed today, the 605, to get to, you know, my number in line with 2012. So it sounds like there may be even more upside there. I think that type of a CapEx budget really speaks to the positive trends that you're seeing. So that's great. And the last topic I have for you is I just wanted to touch upon the competitive landscape, which I know you mentioned a little bit as well. Since the last peak in 2012, I believe your two largest competitors have faced some significant balance sheet challenges. While, you know, over that same period, you've been able to use your strong balance sheet to invest in maintaining your fleet, as you mentioned, and and making a number of acquisitions, does that imply that you're in a stronger competitive position today than you were during and going into the last peak?
spk05: Yeah, definitely. When you compare, again, when we go through the quite long diatribe on the previous cycle, we entered that up cycle with... While we were in the down cycle, we had a lot of debt. That held back our ability to get rigs prepared. On the people side, we kept minimum levels just to survive. When things picked up, we were playing catch-up mode. Whereas And in fact, at that time, a few of our competitors were in much better shape than we were financially. This time around, the roles are reversed. And we entered this up cycle while we went in a down cycle with net cash on hand, a very strong balance sheet. And we've been able to execute a plan without having to necessarily worry about making the The payment at the end of the month, so we were able to keep our key people able to prepare rigs, keep a very good fleet, and also have inventory on hand. Again, it showed in these numbers of this quarter, we were able to get out of the block real quick because of that position.
spk06: Great. That's really good news. It sounds like you're in a very strong position to capitalize on this next cyclical upswing. So thanks again for bearing with me through all these questions, and congratulations again on a fantastic quarter.
spk05: Thank you. Thank you.
spk09: Thank you. There are no further questions registered at this time, so I would now like to turn the meeting over to Mr. LaRock.
spk05: Well, thank you, and thank you again. I want to repeat thanks to our employees for all the hard work, and things are getting a lot more positive after and we really appreciate you sticking with us, and we look forward to a much brighter future. Thank you, Operator.
spk09: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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