Devico AS (IMD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Imdex Limited call for the proposed acquisition of Devico and equity raising. [Operator Instructions] I would now like to hand the conference over to Paul House, CEO. Please go ahead.

Thank you, Harmony, and good afternoon, everyone, and welcome to the call. Imdex is delighted today to announce that we've signed a binding agreement to acquire 100% of Devico. Devico is a significant mining technology service provider that operates in our industry. It's a highly significant transaction for Imdex overall, and I'm very happy to spend some time today talking you through the detail around that strategic fit. I would ask everyone, I'll draw your attention to Slide 7 on the pack that has been provided. And I'll spend a little bit of time just walking through a couple of key messages around the proposed transaction summary. The acquisition overview is clear, and we are -- the enterprise value of the company -- of Devico, as a company, at $324 million is full and fair and stand alone, and we approached that valuation prior to the consideration of any synergies that accrue to Imdex or a combination of the businesses. At an EBITDA multiple, that represents a multiple very similar to Imdex at a slight premium to our EBITDA multiples which reflects the high-quality, high-growth and high-margin nature of the Devico business itself, and once again is prior to the consideration of any synergies. Completion is expected to occur on the 28th of February and is subject to a number of conditions that will -- we do not place significant risk on in any way. Devico itself was founded in 1988 by Victor Tokle and the Tokle family. It is headquartered in Trondheim in Norway. And the ownership structure of that business is predominantly with the Tokle family at just over 50%, together with a long-term funding partner or a strategic financial partner in Salvensen & Thams who had just over 20%. The balance of the equity has historically been held by a number of past and present employees, including a number of members of the current management, and I'll speak to that in a moment. Devico is a leading mining tech company, and it is a highly complementary global network. It has world-class R&D and manufacturing facilities in the European mining market. And it is an area -- it is located in an area and a major mining region in the world where Imdex has not had as strong a footprint as it has in the rest of the world. A key feature of this investment is the Devico management team will be joining Imdex. In addition to their small equity holding, they will reinvest approximately 30% of the proceeds back into the Imdex shares. That equity holding will be tied to the Imdex long-term incentive scheme. That is a combination of tenure -- circa 3-plus years and meeting some of the objectives that this combination seeks to put together. There are a number of synergies to this transaction. We will delve into them a little bit later in the transaction, but simply put, we have identified in this presentation cost efficiencies of circa $2 million per annum. In addition to that, there are a number of R&D synergies, CapEx synergies and revenue synergies through cross-selling through their customer network and through their technology stacks, and we will go into that in a little bit more detail. Funding for the transaction is in a way of a $224 million underwritten equity raising and a new $120 million bank facility. We have, for some time, advocated that the Imdex balance sheet was -- could be put to better work for investors given the high-quality nature of the core Imdex business today. And so we're pleased to use this opportunity to draw down on that bank facility, and the details of which, Paul Evans will go into a little bit later. Still leaves our balance sheet debt at a conservative position at approximately net-debt-to-EBITDA ratio of 0.7. The acquisition is expected to be cash EPS accretive from the first full year of ownership. And again, prior to consideration of any synergies which we will go through later on in the deck. And finally, we will provide a trading update -- or we have provided a trading update to the market. The unaudited first half financial year '23 revenue at $199 million is up 18% on PCP, and the normalized EBITDA of $63 million is up 22% on PCP, representing a strong beat to the current consensus forecast that is in the market and reflective of continued disciplined execution of our strategy throughout the first half of the year. And we continue to see strong positive signals as we enter the second half of the year. I'd ask everyone to turn to Slide 8, where we have outlined the reasons why this is a highly significant acquisition and how it complements Imdex's core business and its strategy. The essence of the strategic fit is captured in the first 4 tick marks on Slide 8. First and foremost, Devico owns the #1 market position in Europe, and it has a strong global operating footprint. The combination delivers Imdex the #1 market position in both Europe and consolidates our market position globally. Details of this can be expanded upon in Slide 12. Secondly, Devico is the clear #1 technology and market leadership provider in the directional drilling space. It operates that business in a number of regions around the world. It complements the Imdex drilling optimization portfolio, and it provides Imdex with a leading technology in this fast-growing technology segment, which speaks directly to some of the megatrends we are seeing in mining of orebodies becoming increasingly at depth, increasingly complex and requiring more accurate data than ever before. Thirdly, Devico has a portfolio of Rock Knowledge sensors that directly complements the Imdex Sensor Technology stack, and it has a pipeline of complementary technologies to our own portfolio, which is outlined on Slide 21. Importantly, Devico has a world-class R&D manufacturing facility in Norway, together with a team of engineers that complements the Imdex R&D capabilities across the U.S.A., Australia and New Zealand, which we've shared in Slides 17 and 18. This is a significant investment in a great group of people that continue to demonstrate the ability to design, build and deliver great technologies to the industry. If I ask everyone to turn to Slide 9. Imdex has long articulated its strategy in the form of the 4-part quadrant on the right-hand side of this slide. And to the left of that slide, you can tie back the Devico acquisition to the 4 key points that Imdex is focused on consistently for the last number of years. Firstly, the Devico's world-class R&D facilities in Trondheim and its ability to develop new products contribute to our technology leadership pillar. Secondly, the Devico's business has a high-quality revenue base. It strengthens our position in mining production. It exists further into resource delineation and production and 100% of its directional core drilling business is contracted directly with resource companies affording the opportunity to provide greater value to the ultimate resource owners. Thirdly, our integrated solution sales strategy is complemented in 2 ways. First, Devico has access to customer networks that Imdex does not, providing a channel for Imdex products through the Devico operations team and vice versa. And secondly, Devico has a number of technologies that expand and complement the Imdex technology portfolio, giving us greater -- a greater number of solutions that we can offer to any given customer, and increase in the potential revenue to drill sites around the world. And fourthly, we've long advocated that we would be disciplined around making on-strategy acquisitions, and there is no clearer participant in the marketplace than Devico for being well within Imdex's core strategy. I'll spend a little bit of time now just going into a little more detail around the Devico business, and I'd draw everyone to Slide 11. Devico essentially operates 2 business units that align very closely to the Imdex business units. On the right-hand side of Slide 11, the directional drilling technologies where they are the #1 supplier globally and have the fastest-growing market or the fastest-growing technology out of a myriad of technologies in our area. It has significant barriers to entry. Their #1 position is -- has been established for in excess of 20 years, and the #2 player is significantly smaller than Devico. On the left-hand side, their sensor technologies, the gyroscopes, directly complement the Imdex products. And if I draw your attention halfway down the key on the left-hand side, we've identified key products in the Devico portfolio and new products in the Devico portfolio. Devico's R&D process follows a very similar model to Imdex, a similar stage gate model. And like us, they have a number of new products that are yet to earn revenue for them but are coming through that R&D pipeline. Two of those, the DeviStar and the DeviDrill RSS, are products that have just attained commercial prototypes. And whilst there are no revenues included in the Devico financials for those products nor have we factored any revenues for those products in its forecast, they represent great upside potential, and once again, a key feature of our business in bringing new technologies through that R&D process and into the marketplace. The last thing I'll draw your attention to on this slide is the revenue model. And on the left-hand side, you can see that within their sensor technologies, their revenue model is 74% rental revenue, which is very similar to and behave in exactly the same way as the Imdex business model, which is a very attractive feature of our business model. And you can see 26% of their sensor technologies are sold. That is a key feature of the European market. And Devico and Imdex, together, have been leading a trend in moving the sale -- moving away from the sale of sensor technologies towards the rental. The advantage of this for our customers is that you get up -- you get access to the latest upgrades in technology, and your own technology does not become obsolete. And so really, there is further upside potential in the existing revenue profile as that 26% sales revenue continues to migrate towards rental revenue, which has significantly better unit economics for the combined Imdex-Devico business. Turning to Slide 12, and I'll draw your attention to 3 things. Firstly, the combination of facilities and locations around the world highlights 2 things. One is the extension of our reach into key mining regions around the world by combining Imdex and Devico. The second is there is a natural overlap in some areas, which speaks directly to some of the occupancy synergies that we've called out later in the presentation. Thirdly, the addition of the R&D facility in Europe, in Norway specifically, which we think is a jewel in the crown of the Devico business and perfectly complements our global footprint, the rest of our global footprint today. And finally, I draw your attention to the 2 quotes at the top of the slide. These are drawn directly from the Imdex website and the Devico website and speak directly to how each of us see the value that mining technology can bring to our industry and to our clients. And the similarities between those 2 statements, which have been in place for a long period of time, speaks directly to the significant synergy we've seen in this combination. Turning to Slide 13, and a little bit of a delve into the financials of the business. The key features here is a strong track record of revenue growth and EBITDA growth, respectively. If I move -- if I draw your attention to the center box and the margin profile, the left-hand side, the ST or Sensing Technologies business, with an 80% gross margin, there is a very similar resemblance to the Imdex business today. To the right-hand side, the 60% gross margin, which is a feature of their directional drilling technologies and fits within our drilling optimization portfolio, is obviously a superior financial business to our fluid engineering, which has about a 40% gross margin business. So overall, the financials, holistically, you can see a strong fast-growing revenue, good incremental margin drop-through and a strong overall EBITDA and EBITDA margin of this business and is highly complementary to the Imdex business today. I'll spend a little bit of time on strategic rationale. And on Slide 15, we've called out the 4 key buckets that -- under which we've evaluated this combination. Slide 16 principally speaks for itself, but the combination of Imdex and Devico gives us the #1 position in our Rock Knowledge Sensors which we always had, but it extends our stack through Devico's complementary products. It gives us the #1 drilling optimization position by complementing our fluid engineering and related technologies with their clear #1 position in directional drilling. This is an area that has been on our radar for an extremely long time. Is -- it has high barriers to entry and is an extremely complicated business. and it's one that obviously, Devico has mastery of. And so we're very pleased to add that to our portfolio and strengthen our drilling optimization business unit. And thirdly, to the right-hand side, we have -- our position in real-time data and analytics, we think is essential to take the data that is originated in the first 2 pillars and then provide ways to enrich that data on behalf of our customers in this third pillar. Imdex HUB-IQ is the #1 cloud-based platform in the mining space, capturing and providing value-add to drilling data and orebody data. The DeviCloud platform that Devico has developed would be #2 in that space. The combination of the network effect of additional customers, additional connected sensors, additional features and that aggregated data really strengthens that growth in our real-time and data analytics platform, and we look forward to bringing those 2 together. Slide 17. I've already spoken of the world-class leadership date that their European facility brings. It is a highly valuable research and development and manufacturing capability. It is a highly valued source of talent, the similarities between Trondheim and San Luis Obispo both as world-class engineering university locations that attract and retain great talent in the marketplace, is key to our position. Their supply chain that they have through that manufacturing facility achieves 2 objectives for Imdex. The first is it derisks our dependence on the U.S. and Australian facilities because Devico has developed their own supply chains. And secondly, it presents opportunities in other parts of our supply chain for consolidation which should unlock further synergies in time. On Slide 18, we simply shared a number of images that highlight just how much we value the world-class facilities that exist in Trondheim. We see them as a perfect complement to our facilities around the world. On Slide 19, I'd like to move towards how the combination of the 2 business extends our market reach into major mining regions. To talk you through this slide, I'll first direct your attention to the bottom left where we have identified, out of all of the drilling rigs in the world, approximately 3,500 of those drilling rigs are coring rigs. Of those 3,500 coring rigs, 1,000 rigs sit on sites where there are 5 or more rigs together, or what we have called super sites. I then draw your attention to the right-hand side, and I'll use North America as an example. What we are identifying here is that there are 43 sites in North America that have 5 or more rigs, so 5 for 43 super sites. Imdex has a presence on 17 of those sites. Devico has a presence on 5 of those sites, meaning we now have a combined presence on 22 of those sites. The growth opportunity for this is the solution selling that Devico's products and Imdex products can bring to each other on existing sites that we now share. And it's -- the second growth pillar is that the expanded portfolio of technologies gives us the opportunity to approach the other 21 sites in North America where we are not present today. So overall, the combination increases our presence on super sites by 30% around the world. The last thing I'd draw your attention to is that you can see within the African region and the Asia Pacific-Australian region that Imdex has a very, very strong footprint relative to Devico, and it creates an accelerated opportunity for us to bring Devico products into our network in those sites, which should support the continued growth rate of the Devico products around the world. Turning to Slide 20. The direction of core drilling business plays a direct role in the -- in some of the key industry megatrends that we have seen. Orebodies continue to be -- there is an increase in trend to search for orebodies at depth. Orebodies tend to be increasingly complex, particularly in the critical metals space. There is an increasing demand for more accurate understanding of those orebodies than the orebody knowledge. And cost pressures are driving revised decisions in the adoption of technology in the industry. What directional core drilling does is it allows you to reach orebodies at depth with greater speed, greater efficiency and to extract greater data from that orebody. To elaborate, conventional drilling would require you to drill, say, 5 holes at 800 meters to reach a target, where directional core drilling will enable you to do to drill 1 hole, another hole and then drill 5 or more daughter holes from that 1 hole. Obviously, saving the time of drilling down to 800 meters and allowing you to get greater orebody data with greater spatial density at speed. Critically, the directional core drilling element being that as you navigate the tool using directed around corners to accurately target parts of the orebody that you're interested in without sacrificing core. Turning to Slide 21. What we've attempted to show here is just how the Devico technologies complement the Imdex technology stacks. On the right-hand side, the drilling optimization portfolio, we've attempted to show that increasing complexity and drilling optimization solutions moves you from wedges and controlled drilling activity through to mud motors where Imdex had a presence today, which are relatively low-tech solutions that support conventional drilling. Directional drilling technology standard, which is Devico's #1 product in the market, allows you to bring technologies to, as we outlined earlier, brings much greater support to conventional drilling. There is still an opportunity to move further up that technology stack. And the new RSS tool that Devico is about to release is one of those opportunities. Moving to the left-hand side. I should add that the Devico team understands implicitly how valuable human engineering is in complementing directional drilling, which we see as a wonderful synergy. Moving to the left-hand side of Slide 21, Imdex -- and I draw your attention specifically to the survey tool technology stack. Imdex has a large portfolio of magnetic survey tools in the marketplace which operate at a significantly lower price point, and we have the #1 North Seeking Gyro in the marketplace, which operates at a significantly higher price point. We've been consistently driving a technology upgrade curve within the industry. However, the Reference Gyro that Devico developed to service its directional drilling technologies sits in a perfect midpoint to allow us to accelerate that upgrade cycle from Magnetic tools through to Reference tools and North Seeking tools, respectively. On Slide 22, the -- we're simply, once again, taking the view of our product portfolios across drilling optimization, Rock Knowledge sensors and real-time data analytics and using that to show, once again, how the Imdex and Devico portfolios complement each other. And then turning to Slide 23, speak for a moment on the synergies of the combination. Firstly, on the right-hand side of the slide, we've identified a number of cost efficiency opportunities and quantified those at circa $2 million per year. We have taken a conservative approach as is our custom, allowing time for the 2 businesses to come together naturally and work out how we wish to set the business up in the future. The strong cultural fit between the 2 companies means that this is going to be drawn or pulled through collectively by our teams in the field. In addition to those cost efficiency opportunities, we see significant R&D efficiencies. Both organizations spend approximately 8% of revenue in R&D. Both organizations expense that R&D in the P&L. Some of that R&D has historically been directed at each other. The opportunity for us is to redirect that duplicated R&D towards next-generation technologies, further accelerating the opportunities for growth in the business. The third area of synergy on this right-hand side that we have not called out specifically relates to capital investment. There are some sourcing opportunities where Imdex is a clear leader, and there are some sourcing opportunities where Devico is a clear leader. The combination of those working together means that we look to -- in 1 product alone, we've already identified through due diligence an approximately $2 million CapEx saving for 1 product over the next 2 years. And we expect further opportunities like that to come out as and when our R&D teams work together to select the best-in-class solution. Coming to the left-hand side and the cross-selling opportunities that exist. These are neatly described as each market-facing team now has access to each other's complementary technology stacks. And so whether it is the direction of the team drawing through access to our fluid engineering, whether it is our market footprint drawing through new opportunities in directional drilling, or whether it is the respective sensing technologies being able to complement each other in the market, there are strong opportunities to provide best-in-class solutions to our clients around the world. Slide 24 is simply reinserted to recap on how the different elements of the Devico business complement our core strategy. And with that, I will hand over to Paul Evans to give you a brief update on the first half trading update and outlook.

Thank you, Paul. On Slide 26, I just wanted to talk through and provide a brief update on Imdex's first half trading using the unaudited numbers for first half '23. In short, revenue is at $198.8 million, up 18.5% on the PCP, and up 14% on a constant currency basis. Normalized EBITDA was $62.8 million, up 21.9%, representing a 31.2% EBITDA margin compared to 30.7% in the PCP. Normalized EBITDA has been adjusted for the 9.4 million nonrecurring elements of the legal fees for the Boart Longyear/Global Tech litigation. Reported EBITDA was $53.4 million. The results reflect solid activity in the half with gross margins maintained and slightly improved. Similar to the prior periods, in the second quarter, we saw the traditional seasonal slowdown in [ around ] Christmas and some softening of the Juniors, particularly in Canada. We continue to invest in standing up the new IMD business units as we worked through the Blast Dog commercial trials [indiscernible] software development program. Net cash finished at $32.5 million at 31 December, up 8.3% from the PCP. Although we have continued to see supply chain pressures easening and the working capital investments return to historical levels in 1H '23, it is expected it will be 2H '23 and FY '24 before we see that working capital unwind of the buildup in FY '22. Although only very early today in the second half being only 2 to 3 weeks into the new year, even though we have seen sensors on hire returning at strong levels and at level is higher than at the same time last year. I also note to call out that in December 2022, Junior kept raising, were the strongest they have been in the last 12 months, supported by stronger gold and copper prices. We'll expand on other highlights in our first half '23 results call on the 13th of February. And I wanted to make -- lastly mention on this slide, the commission [indiscernible] continues to be on track. And although we have had those high legal costs in the period, pleasingly, we have had successful legal outcomes in the U.S. and Australian cases in protecting unique IP. Moving now to Slide 28, I wanted to just briefly touch on the equity raising itself and the funding in general. The equity raising, as Paul mentioned, is looking to raise $224 million. It's fully underwritten in a $75 million institutional placement, a $146 million -- 1 4 6 accelerated nonrenounceable entitlement offer and a non-underwritten conditional placement to certain directors and management to raise approximately $3 million, demonstrating their commitment to the transaction. In that same line, our key management personnel, as you'll see on the next page, have reinvested $9 million into the deal as well, which is a very positive sign. The pricing of the deal is at 10.9% discount on the last closing price of AUD 2.47 which equates to [indiscernible] [Technical Difficulty] We move to the following slide, Slide 29. We can see the funding sources that I've just called out and also the new debt facility that we have secured we should say a debt accommodation of a 3-year term facility for approximately $84 million of debt with the balance being paid at the end of Q4 [Technical Difficulty] what you see in similar transactions with similar covenants of a portfolio -- institute debt portfolio of that size. And on the right, we see the proceeds being used as mentioned previously. Moving to Slide 30. We see the pro forma balance sheet. I won't stay too long on this but it has [ pulled ] together both Imdex at June '22 and Devico which shows the combined group. And on the bottom right, showing the 0.7 leverage ratio at pro forma net cash/debt mentioned previously. On Slide 31, we see the timetable that is [indiscernible] in detail. I am happy to take questions from [ Ms. Janet ]

Right. Maybe just to recap where we've covered. So from the Imdex perspective, it's a very rare opportunity that the #1 and #2 participants in the marketplace get to put their combinations together in such a highly complementary way without significant overlap or redundancy, both being high-growth businesses that bring things together that complement the way we approach the market. Over and above, the strategic fit, the most pleasing thing for our Imdex team, and we've had about a dozen people on the ground over the last 2 weeks, and we've been on the ground periodically over the last 4 months, has been a strong cultural fit between the 2 teams. And in addition to conducting the due diligence, a lot of that time has been spent building integration plans together so that these 2 businesses put those plans together and it happens with them, not to them. And as such, today, we hit the ground running, and that is pretty exciting for their people and our people around the world. With that, I might pause. I think there are a number of questions [ prior ] and I might ask you to introduce them or invite them accordingly. With that, Harmony. Harmony, can I ask you to introduce or open up the floor for questioning.

[Operator Instructions] Your first question comes from Ben Brownette from Jarden.

Can you just give us a little background about how this came about? Was the business for sale? Where you out looking for it? And then just with respect to the multiple, it's obviously a little bit higher than your multiple notwithstanding, you'd expect the Fluids business to be on a lower multiple. But considering the higher multiple and how it was sold.

Yes. Certainly, Ben. So the first answer -- part of your answer to your question is that we went looking for Devico. We conducted a very in-depth assessment of all the players in what we would describe as our core business. There were some dozen targets that we have watched and continue to watch. Clearly, at the top of that list, Devico was #1. We've known Devico for 20 years or more, obviously, and I reached out to the Chairman and CEO in Norway. And requested a meeting. We flew over there. We were very clear that we thought that a combination of their business and our business would be extremely compelling. We outlined why, the jewel in the crown that was their Scandinavian facilities, the complementary nature -- the #1 leadership position of their directional drilling technologies and the complementary nature of their Rock Knowledge technologies and acquired [indiscernible] . And so that was pretty much it, and we spent -- it was an excellent meeting. We said to them, whether it's -- we know it's a family-owned business. And whether it's tomorrow, at 12 months, 3 years, we think this is something we're continuing to explore. We suggest having a meeting again when we met up in PDAC, which is about -- is going to be about 6 months later. The next day, we had a phone call with them where they thanked us for coming to visit them. And they said, unfortunately, we need to let you know that we've initiated a process. We had originally not invited Imdex into that process partly because of our competitive position, but also because back in 2005, '06, when Imdex acquired Reflex in Sweden, it did close the head office there. And they did not want that to happen to their team and their facilities in Norway. However, because of the way we had articulated the combination, and in particular, emphasizing their European headquarters, European footprint, being a jewel in the crown and how we valued it strategically, they said we were very pleased to hear that. We were convinced, and we'd like to invite you into that process, if you'd like. And so we were starting 2 weeks late from everyone else. However, we've already done all of our homework over a number of months waiting up, which is why we've reached out to them in the first place. So we're very quickly able to catch up. We ended up in a second round process. What we understand was 2 private equity and 2 trade players. And then when we're on the ground with their team, not only was the strategic fit compelling, but the cultural fit became very evident. And so we moved quickly at the request of management to exclusivity. I should point out that the founder was selling the business, although he founded it in 1988, he contracted silicosis in about 2013, '14. And they brought in a management team that was led by the guy who's currently the CEO, and he has progressively driven the strategy and the culture of that business since that time. He is directly responsible for its performance. And so with the founder out of the business for some period of time, age and health being factors, they had decided that it was time for the generational change. He has 2 children who did not wish to take over the business, and that's why they have engaged in that process. We are very fortunate that we've been active and that we took the approach we did. We had approached it on a full and fair valuation basis, as I said at the beginning. I think the -- once the EBITDA premium -- sorry, while the EBITDA multiple is very similar to Imdex, I think the premium that we attribute to it is very simply for its fast-growing nature, the premium that you get to the directional drilling business as opposed to, say, our fluids business, and the fact that, that directional drilling business has -- is probably, as you look forward, going to be one of the fastest-growing technologies for the next 10 or 15 years in our segment. And it's on that basis that we value them. We get the synergies for ourselves in that valuation. We've kept the new products coming through the pipeline for ourselves in that valuation. And so we see significant upside in there, obviously. I might just check that, that answers your question.

Yes, thoroughly. Just a quick -- 2 more quick ones. So the majority of this business is exploration. Obviously, can you give us a guesstimate of what you think would Devico's exploration be production as a group and then within the sensors and directional drilling segments?

So the revenue quality of the business is high, and I would say, higher than the Imdex business, and that it is not exposed to juniors greenfield exploration and the like. It is 100% exposed to resource delineation and production. The exact split between resource delineation and production, I can't give you. 100% of the directional drilling business is contracted direct to the resource companies, which is a strong relationship. It's cyclical at that level in the way that directional drilling business works, and present the high opportunity -- high-quality opportunity for value selling. The sensing tools part of our business, other than not being exposed to the greenfield space in the way we are, otherwise follows the same cyclical nature that ours does.

And just quickly, so can you just let us know what's the difference between a Devico Gyro and your gyro? And why do you have exposure to greenfield and any type of [indiscernible] using gyro?

Yes. So the Reference Gyro was built as a navigation tool to assist the DeviDrill directional drilling tool. But once you build the gyro, you then expand its application into other areas. The difference between -- well, very simply put, a magnetic gyro uses the earth's magnetic field to navigate. So if you're drilling an orebody that has any iron elements in it or any magnetic interference then the accuracy of that gyro is severely impacted. So those were the earlier generation survey tools. A Reference Gyro looks to navigate through an orebody in a nonmagnetic way, but we've referenced to some point on the surface that you first set and then you deploy the tool, whereas the North Seeking gyro, it doesn't matter where you are, you can -- on the earth, it allows you to navigate safely without needing a specific reference point. Each of those bring more detailed technical advantages and operational advantages in terms of precision and the like. But depending on what type of application you have, one is more suitable than another. So for example, Reference Gyros tend to be suitable enough for shorter holes or application supporting directional drilling, whereas as you get more complex, then North Seeking Gyro becomes necessary.

Your next question comes from Josh Kannourakis from Barrenjoey.

First one, just around the competitive environment. I think we're on the sensor side, most people are pretty good on that. But in the directional drilling technology side of the business, who are the key competitors to Devico in that area?

So there are a number of ways you can approach directional that don't use the same directional technologies, and part of that's in the technology stack that we would have shared. But really, in that directional space, the #2 player in the world is a group called Aziwell. And there is a third player whose name escapes me at this time, Josh. We don't know for sure, but our best estimate is that Aziwell is approximately 1/3 to 1/4 of the size of Devico, the recent new entrant, and they use slightly different technology.

Got it. Okay. No, that makes sense. And just in terms of obviously acquiring the #2 in the space and broadening that presence, I guess, as you said, point 1 is trying to expand into those. Longer term, though, what does it mean in terms of pricing power of the overall business in terms of your instruments?

Right. So first and foremost, our pricing needs to ensure that the customer is getting value, the right price giving the right value for the right tools in the space. The challenge we've had until this transaction is that often you'll try to match the wrong tools for the right job, if you like. And so try to sell a North Seeking Gyro into an application that only needs a Reference Gyro would otherwise mean that we had to lower the price, which would then compromise the pricing point of that North Seeking Gyro. So it's about having technology solutions that can set the right price points through that curve. Think of it as going from -- the [indiscernible] as a bicycle, the Reference Tool is a Camry and then you move up the curve to a Mercedes or a Ferrari in the North Seeking space.

Got it. Okay. That's helpful. And you talked about the overlap in terms of the sites. But if we specifically just look at, I guess, the months or the fluids penetration of Imdex in terms of the Devico sites, have you got an idea for what that opportunity may be, if you could penetrate it?

Yes. So the Devico team is pretty excited. That's a collection of both the drilling tool technology. And to emphasize, Imdex is not in the drilling business. It provides a drilling tool and then the planning and advisory work around our direction drilling program. Now those guys represent some of the best drilling thinkers, drilling planners, drilling knowledge in the industry. They absolutely understand the value of good fluid engineering in supporting any drilling program whatsoever. So they've been looking how they can bring fluid engineering into the areas where they currently operate. And in reverse, they've also been looking to access to our network so that they can get introductions to customers where they think directional drilling technology would be useful. But on that fluid conversation, historically, we have sold fluids as a more of a commodity sales or product sales direct to a driller. The Devico directional drilling business is a resource company sale. It's a premium offering. And so the opportunity here is twofold. One is, can they bring a volume of fluid sales through as part of a more complete offering to the resource company? And secondly, just as we've been trying to transition fluids from a product sales to a performance-based value sales, they are better positioned to do that with their relationships with the drilling company and their presence through directional drilling contracts than we are in our historical position. So there's a value -- there's a volume and a value benefit of the pull-through of fluids into that Devico network. Now I think, Josh, it will take a little time to work through. The most pleasing part is that it is Devico that sees that opportunity, it's their team that is saying, let us have at it. We're very keen to explore how this works.

Your next question comes from Gavin Allen from Euroz Hartleys.

Paul, a very comprehensive presentation. So just a really quick one for me. Just wondering if you could give us a quick sense of the commodity mix of Devico compared to Imdex, if there is [indiscernible] you wouldn't want.

Yes, absolutely. So once again, their revenue profile is slightly favorable to Imdex. Like us, they are not in oil and gas or in coal. Where Imdex historically, our revenue profile matches the overall exploration spend profile, and for everyone's benefit, that is circa 50% gold, 20% copper and then 15% cobalt, nickel and lithium. Because Devico's primary tool application is in more complex orebodies at depth that require greater precision and knowledge, typically, those orebodies exist in the critical metal space. And so their revenue profile is more skewed towards those commodities than the more average commodity-agnostic position that Imdex has. There's no reason why -- it is absolutely applied in gold, by the way. But the core driver for that, what it brings in directional drilling over conventional drilling, with deeper complex orebodies, seems to be accelerating in that critical metals area.

Your next question comes from Nicholas Rawlinson from Jefferies.

Just firstly, how is the directional drilling tool actually rolled out on site? Like does it require technicians? And if so, does that impact the scalability of the business at all?

Yes. So that's a good -- so in addition to the technology, they do have a pool of experts. Those pool of experts do cross borders. Despite the very strong revenue growth that Devico exhibited over the last 3 years, it was constrained by mobility through COVID like everyone else. Their expectation is that they will be able to -- with mobility being restored, number one, that they will be able to resume growth rates that they have aspiration for. They will also -- are looking to -- one of the challenges is in moving people around the world is that to support that, you need local networks. So Imdex's global reach very strongly supports them. And our ability to recruit and move people in and out of projects, so we see that as a strong complementary benefit that should ease their growth rate -- or sorry, improve their growth rate.

Great. And how do the unit economics of Devico's new tools stack up to, say, Imdex's reflex tools in terms of payback period, revenue and EBITDA margins? And then you could maybe split it into sensors and directional tools?