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spk02: Star 1. A system tone will be heard when your request has been accepted. To cancel your question, press Star 2. This conference is being recorded. This conference is recorded.
spk03: All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen, and welcome to the fourth quarter 2022 results conference call. I would now like to turn the meeting over to Chantal Melanson. Please go ahead, Ms. Melanson.
spk01: Thank you, and good morning, everyone. As mentioned, we would like to welcome you to Major Drilling's conference call for the fourth 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 Laroque. Please go ahead.
spk04: Thank you, Chantal. Good morning, everyone, and thank you for joining us today. We're quite happy with the progress we are making as the upcycle in our industry continues to improve. Demand for specialized drilling services continues to grow with customers turning to us to execute their increasingly challenging drill programs. Despite the COVID-19 Omicron variant that caused some minor delays to operations, the momentum we saw in January continued throughout the quarter. I'm particularly pleased to see the efforts deployed by our teams over the last few years, both in terms of recruiting and preparation, finally bearing fruit. Through this, we've been able to minimize downtime due to lack of labor or supplies, which is giving us a leading edge at a time when the drilling industry as a whole is struggling to keep up with demand. Furthermore, at a time when the industry faces a shortage of qualified crews, We saw greater recognition from our customers for our superior value-added services, which has allowed us to gain new contracts and renew contracts at improved terms and pricing. Finally, our strategy of holding rigs and inventory ready for immediate deployment to customers also continues to deliver results, mitigating any potential supply chain disruptions experienced in the industry. With all of this in place, we were able to grow our fourth quarter EBITDA by 240% and turn a profit of $22.4 million. With that, Ian will walk us through the quarter's financials. Then I'd like to discuss our market outlook further before opening the call for questions. Ian?
spk08: Thanks, Dean. Revenue for the quarter was $190 million. about 48% from revenue of $128.1 million recorded in the same quarter last year, as demand for our drilling services remained robust. The foreign exchange translation impact on revenue for the quarter, when comparing to the effective rates for the same period last year, was negligible. We are pleased to see continued year-over-year top-line growth in all regions, as the company has demonstrated the ability to respond to customer demands in a busy industry. The overall gross margin percentage, excluding depreciation, was 31% for the quarter compared to 18.4% for the same period last year. Margins improved drastically over the prior year due to having ramp-up costs behind us, improved productivity from training programs, as well as new pricing and effect that reflected the state of the industry. Despite the inflationary headwinds, we were pleased the contract renewals were able to offset the increased costs we are seeing. G&A costs were $15.2 million, an increase of $2.7 million compared to the same quarter last year. The increase was driven by the addition of the Australian operations, inflationary wage adjustments, and the resumption of some travel as COVID-19 restrictions loosened in most jurisdictions. Other expenses were $3.4 million, up from $0.8 million in the prior year quarter, due primarily to higher incentive compensation expenses throughout the company given the increased profitability. The income tax provision for the quarter was $6.5 million compared to $300,000 for the prior year period. The increase in the income tax expense was related to an overall growth in profitability. Net earnings were $22.4 million or $0.27 per share for the quarter compared to net earnings of $2.3 million or $0.03 per share for the prior year quarter. EBITDA was $40.7 million compared to $12 million in the prior year quarter. Strong EBITDA growth versus the same quarter last year is a direct result of the increased activity level and illustrates the operational leverage potential as revenue levels continue to grow. The balance sheet remains a competitive advantage for us despite the normal fourth quarter decrease in cash as receivables ramp up coming out of the seasonally impacted third quarter. We finished the quarter with net debt of $1.6 million after investing $14.9 million in capital expenditures as we added seven new drill rigs and support equipment for existing rigs going out in the field. As we continue to keep our fleet modern, we dispose of four older, less efficient rigs, bringing the total rig count to 603. The ability to have drills in good working order and the necessary support equipment to keep operations producing meters has been well received by our customers. In order to continue our growth trend and keep delivering value-added services to our customers, the company will look to invest $65 million in capital expenditures next fiscal year after spending $49.9 million this year in line with forecasted amounts. The new breakdown of our fleet and utilization is as follows. 299 specialized drills at 50% utilization, 117 conventional drills at 48% utilization, 187 underground drills at 58% utilization, for a total of 603 drills at 52% utilization. As utilization rates remain relatively low, we have been able to increase the number of shifts and improve productivity through our enhanced training programs, allowing us to generate more revenue per utilized drill. As we've mentioned before, specialized work in our definition is not necessarily conducted with a specialized drill. Rather, it is work that requires we meet the rigorous standards of our customers in terms of technical capabilities, operational and safety standards, and other related factors. These standards are becoming increasingly important to our customers. In the fourth quarter, revenue from specialized work accounted for 63% of our total revenue, up slightly from the previous quarter as we continue to see increased demand for our specialized services. Conventional drilling made up 12% of our revenue for the quarter as demand from juniors remained strong. Finally, underground drilling revenue was down slightly compared to last quarter at 25% of total revenue. Underground projects held steady while the growth in the quarter was driven by specialized and conventional programs. We continue to see junior active in the marketplace as they continued their spending during the quarter. Our revenue from juniors now stands at 31%, up from 28% last quarter. This level of revenue from junior activity has not been seen since the prior up cycle. Senior and intermediates make up the remaining 69%. In terms of commodities, gold projects represent 49% of our revenue, which represents a drop from previous quarters as a lot of our growth came from the base metals. Copper was at 19% this quarter, up from 16% in the prior quarter as we had some new projects start up while also seeing Chile resume operations after a lengthy COVID-19 slowdown. The battery metals continue to get mainstream attention as we saw a substantial increase in lithium revenue during the quarter as well. With that overview on our financial results, I'll now turn the presentation back to Denis to discuss the outlook.
spk04: Thanks, Ian. Looking ahead to fiscal 2023, we continue to see an increase in inquiries from all categories of customers. Most senior companies expect to at least replicate the drilling efforts deployed in fiscal 2022, with many increasing their efforts, some significantly. As well, we continue to see spending for junior mining projects in both the Canadian and Australian markets. Additionally, Last month's announcement by the Canadian government doubling the mineral exploration tax credit for critical minerals should help spark funding of exploration efforts going forward, driving more discoveries towards development in the future. On the commodity side, gold projects accounted for 52% of our total drilling revenue this year. This is key for major drilling success as gold has led the mineral exploration recovery with the average gold mine life falling to a low of nearly 10 years due to lack of exploration over the last six years. Because of this growing supply shortfall, several of our senior gold customers have committed to prioritizing value-adding grassroots exploration and development. Many of the new mineral deposits in question are located in areas challenging to access, requiring complex drilling solutions, and increasing demand for major drilling specialized services. Turning to the base metals, we saw an increase in copper exploration in fiscal 2022, representing 19% of our revenue. Most industry experts believe that there is an urgent need to replenish copper reserves given the anticipated supply deficit. The global demand for electric vehicles continues to grow, which will only increase the need for metals like copper, nickel and lithium. Against this backdrop, we have also seen governments across the world unleashing significant stimulus programs, targeting renewable energy and upgrading their electric grids. This will require an enormous volume of copper and uranium, increasing pressure on the existing supply-demand dynamic. We expect all of this to lead to substantial additional investments in copper and other base metal exploration projects as we help our customers discover the metals that will allow the world to accelerate its efforts towards decarbonization. With these fundamentals still firmly in place, the outlook for our company remains extremely positive. With the need to add more specialized and underground drills in some of our busy markets, as Ian said, the company expects to spend approximately $65 million in capital expenditures in fiscal 2023 to continue to meet and exceed the rigorous standards of our customers. I think it's important to note that despite the fact we are approaching numbers we produced at the last peak, we're still very early in the cycle and have only seen a big push from Canada, US, and Australia at this point, and a lot of it is driven by gold. Because of our efforts over the last few years, we are in a much better position at this point in the cycle than in any previous cycle. And with the exploration and development drilling needed to resolve future supply deficits, we expect this cycle could be here to stay for several years. Finally, I want to thank our 4,000 employees for your high energies, great ideas, amazing dedication, and unquestionable loyalty that have been truly impressive. As I travel to our different sites across the company, I'm always amazed by the passion and commitment of our crews and staff to safety and getting the job done. This is what makes a great company. Thank you for a great year and continue to stay safe. With that, we can open the call to questions. Operator?
spk03: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Gordon Lawson from Pirating Capital. Please go ahead.
spk06: Good morning, everyone, and congratulations on another outstanding quarter. Could you please talk about your new contracts and how they break down in terms of specialized services and cost sharing to help us get a sense for margin expectations this year?
spk04: Yeah, well, I mean, a lot of it, I mean, 63% of our revenue this quarter is came from specialized drilling, and I think you can expect probably to see kind of a similar breakdown. Really, what you saw in Q4 in a lot of cases is illustrative of what's to come for the calendar year because many of those contracts will continue throughout the year. So the mix that you see in Q4 and the pricing and everything, a lot of it gets set in that December, January time and gets set for the year. And then there's some that come and go in terms of short-term contracts. But for the most part, I think what you see there is what you can expect for the upcoming year.
spk06: Okay, thank you. And in terms of your ability to quickly deploy rigs and inventory, are you able to provide a regional breakdown on that front and how it relates to employee availability?
spk04: Yeah, well, in North America and Australia, that's where we are facing the biggest pressure on labor. We've been able to, as I mentioned, our Our teams have done a great job in terms of recruiting, but it's not easy. It is in the market and not just in our industry, in all industries. You hear it, you talk to entrepreneurs in all kinds of industries and labor availability in those markets is really tough. In other markets, for example, in Latin America, And in Asia, we are having a bit of better success just because it's been a slower recovery and there are still people available in the industry, whereas in North America and Australia, we are training, we are bringing new people to the industry and having to train. So I don't know if that gives you a, good idea in terms of that breakdown?
spk06: No, it does. Thank you very much, and that's it for me. Thank you.
spk03: Thank you. Our following question is from James Vail from Arcadia Advisors. Please go ahead.
spk05: Good morning, guys. Good morning, Jim. I've got a question for you. I don't understand. I think I do. This contingent consideration, which was 22.9% I guess it's a million dollars at the end of the fiscal year. Can you explain what that is?
spk08: Yes, that's tied to our McKay acquisition we did in Australia this year. And it's based on certain EBITDA milestones that need to be achieved over the next three years.
spk05: Okay, so that leads to the second part. The current portion of that account is $8.6 million. So, Does that mean you have to pay it in two more years it'll be gone? Is that correct?
spk08: Yes, off the balance sheet. Well, assuming they meet their targets, yes. And year one, the amount we have on the balance sheet is what we're expecting to pay based on their first-year performance.
spk05: Okay, great. Now, finally, again, it's the Australasia-Africa breakdowns. where it looks like the margins in the fourth quarter were below what it was for the year. Did something happen there, or is this contingent liability affecting the margins in the fourth quarter?
spk04: No. Basically, it's more seasonality. For example, in Australia, they have a longer break over Christmas. Really, things only came back. in uh in february well end of february really where we really started to see a pickup and that's that's normal but that was the first year that we had uh australia uh with us and uh so going forward that's kind of what you can expect in terms of seasonality coming out of that region okay great thanks so much and as you would say bon chance thank you
spk03: Thank you. Our following question is from Hamid Shah from Deakin Securities. Please go ahead.
spk00: Yeah, good morning, guys. Congrats on the solid quarter. I guess my question was around maybe a breakdown of utilization and the other regions, but I think you guys touched on it with the answer around the labor. So I'll jump back in the queue. Thanks, guys. Thank you.
spk03: Thank you. Our following question is from Daryl Young from TD Securities. Please go ahead.
spk07: Hey, good morning, guys. Just looking at the CapEx number for the quarter, the $65 million, sorry, for the full-year guidance, I think previous peak you guys were around $80 million. And is this just all drill rigs or is there support equipment and then maybe how much of that might be inflation? versus previous peaks, just because I think you still have quite a bit of excess drill rigs that could be deployed.
spk04: Yeah, part of it is rigs, and really it's rigs. There's two main categories that we're going to be looking at adding this year. First of all, we're running out of deep hole rigs, particularly in Canada, U.S., and in a few other countries. It's more a type of rig here. Although overall utilization might be a bit low in Canada and the U.S., the utilization is quite high. If we want to continue growing in those markets, we need to add rigs. As well, we're looking at, in our busy markets, we're looking to add underground rigs because in order to grow our underground services, which is key to our diversification strategy. So those are the two main areas where we're looking to add rigs. But to your point as well, as we put more rigs in the field, rigs that are already on our shelves, we need to – With each rig going out, there needs to be additional trucks and support equipment and everything, and we're running out of some of that in terms of what's around because the downturn or the last peak was 10 years ago, and so those pickup trucks are long gone, so we need to We need, as we put more rigs in the field, we need to equip each rig going out with trucks and everything. So that's what makes up that 65 million of CapEx. There is growth in there, but there's also replacement.
spk07: Got it. Okay. And then the next question is maybe a little more theoretical, but the fundamentals of the industry, which you guys called out for both base and precious metals, seem to be very, very sound. Large cap gold producers have really not done anything more than just replace reserves for the past few years. Seems like there's a long runway still to go in the cycle. But when I look at the numbers, we're actually very quickly approaching the 2012 peak of $178 million. So I guess I'm just wondering, how many drill contracts are you doing today versus then? Is it mostly pricing that's gotten you so much faster on the revenue and EBITDA side. Any sort of color, I guess, you can give us on what a peak cycle could look like this time around or how long you think this can continue to run?
spk04: Yeah, okay. Well, there's a few parts to that question. So, first of all, you talked about margin or pricing or, you know, versus peak. We're still a long way from margins we had. The margins we had at the peak were around 37% in a quarter. So we're still, we're not there. But even then, the improvement we saw in margins this year was not only, pricing is only part of it. We also had a higher volume of The higher volume allows to absorb more of our fixed costs, which basically helps margin just the fact that we add the higher volume. And also with better recruiting, we've been able to increase the number of shifts drilled per rig, which again is helping margins. Plus we've seen an improvement in productivity as we get stability in our crews at each site. So all those factors help margins. And like I said, pricing is just a part. In terms of when you say approaching peak, I think we're not the same company as we were at the last peak. So you could look at that and say, oh, well, you're approaching your numbers of the last peak. And so we must be getting to peak. But the global exploration is still far behind. The global exploration in 2012 was $21 billion. And last year, I think, last year was only $11 billion. And they're forecasting something like 15% growth this year, although they're always... On the way up and on the way down, they always miss it. They're always conservative. So... So we're still a long way from where we were, and we're a long way from what is needed to replace those reserves. So I don't think looking at our numbers and thinking, oh, well, you're heading, you're almost there, or almost where you were at the peak. I'm not sure it's the right way to look at it. And we're a bigger company in a much better position We got out of the starting blocks much earlier, much stronger. So I think it's more that in this cycle, we're much further ahead in the cycle than we were at the last time. So I think that's probably a better way to look at it.
spk07: Got it. Okay. And then just maybe following on that, is there any metrics that you would track in terms of success rate per meter? And I guess what I'm trying to just vet out is, you know, intuitively it makes sense that a lot of the easy deposits have been drilled up, but is there sort of hard data to say, you know, we're drilling way more meters than we ever have with way lower success rates as an industry? And therefore, you know, that structural change could come through in terms of way more drilling in this next cycle than we've ever seen before.
spk04: We don't track it because we don't have that data. You're probably in a better position because you track all the mining companies yourself and to have that. But from our perspective, the one thing we're seeing is this time around, the holes are going deeper, much deeper than like the average hole is going much deeper than the previous cycle, which is in line with the theory that everything going forward is going to be deeper and more challenging to access, and therefore you're going to need more meters to find the same amount of ore, of gold or copper. So that would be the data, and I don't have numbers in terms of average depth. I wouldn't be able to give you that, but one thing I know is that is that every time we get asked, the programs are deeper than what we used to hear. And that, again, that's the reason why we're chasing more depots and depot rates in Canada and U.S. and other countries.
spk07: Got it. Okay. Perfect. That's it for now. I'll jump back in the queue. Thanks, gentlemen. Thank you.
spk03: Thank you. Once again, please press star 1 at this time for any questions or comments. Our following question is from Ryan Henley from Laurentian Bank. Please go ahead.
spk09: Perfect. Thanks, Janine, for taking my questions. Janine, I think you touched on this a little bit before. I'm just wondering, on the labor side of things, how much, obviously, you're able to pass, I guess, a lot of the training and retention costs forward given the improved margins there. Just wondering how you see the labor market going forward. And I assume that's probably the biggest hurdle or I guess challenge with increasing utilization rates as well.
spk04: Yeah. And again, it's not global. It's more in our main markets, Canada, U.S. and Australia, where we're facing the bulk of that challenge. It's not going to be easy. And it is. getting tougher and tougher as we go forward because as I mentioned, the utilization rates of experienced drillers is at 100%. So any additional drills going out in the field, you de facto are going to have newer drillers. In our case, as I mentioned, we've We've been doing a lot of work over the last few years, and we're in the NHL playoffs, so I can use the analogy. We have a bench and a farm team where we're able to graduate helpers that have been with us for a few years that are ready to take on drilling shifts. So on that front, we've been successful, and that's been the key to our success. The hard part is to replace that helper that gets promoted with new helpers because you need to replace that helper plus you need to find that new driller a helper. It's a double whammy when you put a rig in the field and it's finding and training those helpers and that's where we're competing with all other industries from that perspective. And that's where all industries are facing those shortages. But our teams are doing a great job of just finding those pockets of people where we're able to recruit and attract people to our industry.
spk09: I think Ian had mentioned the overall utilization rate was somewhere around 52%. I'm just wondering, Is that, in terms of, I think, peak utilization is probably around 75% to 80%. I'm just wondering, in terms of getting to that sort of a number, is that limited by labor, or is it certain geographic regions which still haven't fully picked up yet, or is there another factor in there that is kind of keeping you around that 50-ish percent number?
spk04: It's totally location. It's in U.S. Canada, Australia, and maybe I would say Brazil, we're at full utilization pretty much, or close to. Not quite full, but pretty much getting there. Whereas other countries, it's still very early. So overall, on balance, that's where you're you get to that 52 when you average it all out. So it's more, yeah, it's more regional than just a lack of labor.
spk09: Okay. And is that still COVID restriction type things or is there other limiting factors in specific regions? I guess I'm just trying to figure out how to kind of unlock the rest of that utilization right there.
spk04: Yeah, it's more related to, well, a couple of factors. First of all, for example, Chile, Argentina, there's a lot more copper projects down there, and we're just starting to see copper activity picking up. And both Chile and Argentina had their political issues, and those seem to be getting... better from an investment perspective. We're expecting to see a pickup in activity in those regions, but that's been holding back those regions and other regions as well in terms of copper. Also, in terms of financing, it's much easier to get financing for a Canadian, US, or Australian project than it is to get financing for, for example, an Argentinian project the threshold or the bar is higher for an Argentinian project. So therefore, we've seen juniors getting funded a lot more in Canada than they are in other parts of the world. Okay, makes sense.
spk09: And then I guess just maybe one last one from me. As we're all kind of talking about inflationary pressures, I'm just wondering in terms of going forward, Aside from labor, are you feeling anything that's kind of hitting the margins a little bit, whether it be on things like drill rods or bits or anything like that, just from just overall inflation or anything that might hit the margins going forward?
spk04: Well, we got hit pretty hard in 2022 with inflation in terms of, I mean, steel and all those things. And I mean, just like, again, just like any other industry, In our case, it just happened that we were on an upswing in terms of demand and everything, and we were able to pass these cost inflation in our prices. Going forward, who knows? It's just like any industry. We don't know what's going to happen in the food or in the with the cars or anything, so we're in the same boat. I can't tell you what's going to happen, but at this point, I think we've covered off the inflation that we're thrown at us up to this point.
spk09: Okay, fair. That's it for me. Congrats on some very strong numbers. Send off fiscal 2022 there. Thanks for taking my questions. Thank you. Thanks.
spk03: Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Larocque.
spk04: Thank you, and thanks to our investors for the confidence this year, and we hope to continue to see your commitment to our company. Thank you.
spk03: 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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