Major Drilling Group International Inc. ($MDI)

Thank you. Good day and welcome to the Major Drilling Fourth Quarter Results 2026. [Operator Instructions] Please note this call is being recorded. I would like to turn the call over to Ryan Hanley, Director of Capital Markets. Please go ahead.

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 2026. With me on the call today are Denis Larocque, President and CEO, and Ian Ross, CFO. Results that were released last night 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'll be making forward-looking statements about future events for the future financial performance of the company. These statements are forward-looking in nature, and actual events or results may differ materially from most currently anticipated in such statements. I'll now turn the presentation over to Denis Larocque, President and CEO.

Thanks, Ryan, and good morning, everyone, and thank you for joining us today. As we close fiscal 2026, I'm very proud of our top-tier safety record as we achieved a Total Recordable Incident Frequency Rate of 0.85 in fiscal 2026. I'd like to once again thank our employees for their dedication in maintaining such a strong safety culture. That safety culture, along with our well-maintained fleet of rigs, optimal levels of inventory, and dedicated crews, continue to solidify our position as industry leaders. Turning to the fourth quarter, with continued improvements in activity levels, we ended the quarter on a strong note with each region recording year-over-year growth, and growing our fourth quarter revenue by 25% over last year. This boosted our total fiscal 2026 revenue by 22% to $889 million, setting a new record in the company's 46-year history. Similar to the beginning of prior cycles, revenue growth was driven primarily by stronger activity in Canada and the U.S., with both countries seeing a sharp ramp-up in activity following the previously announced expansion of senior exploration budgets, as well as a continued acceleration of junior financing activity. As a result, revenue in Canada and the U.S. increased by nearly 67% when compared to the prior year period. Activity levels in other regions also increased as South and Central America was driven largely by continued growth in Peru. The Australasian and Africa segments saw increased demand from seniors in Australia. Given this strong revenue increase, along with continued efforts to mitigate cost pressures, the company generated EBITDA of $28 million in the fourth quarter of fiscal 2026, a 37% increase from $20.5 million generated in the prior year period. I'll discuss more the outlook and the labor situation after Ian walks us through the quarter's financials.

Thanks, Denis. Revenue for the fourth quarter was $233.7 million, up 24.6% from the $187.5 million recorded over the same period last year, driven by strength in each region, led by Canada and the U.S. The favorable foreign exchange translation impact on revenue, when compared to the effective rates for the previous year, was approximately $1 million, while the impact on net earnings was minimal. The overall adjusted gross margin percentage excluding depreciation was 22% for the quarter compared to 22.8% for the same period last year. Margins were broadly in line with the prior year period, as the impact of higher labor, ramp-up, and consumable costs, particularly in North America, was offset by operational leverage and improved pricing. G&A costs were $21.2 million, an increase of $300,000 compared to the same quarter last year. A slight increase was attributable to annual wage adjustments. The income tax provision for the quarter was an expense of $2 million compared to an expense of $700,000 for the prior year period, with the increase driven by the overall improvement in profitability. The company generated an EBITDA of $28 million in the quarter, an increase of 37% when compared to the $20.5 million recorded in the prior year period. Net earnings of $8.2 million, or $0.10 per share, increased from $1 million, or $0.01 per share, in the prior year period. The company ended the quarter with $20.6 million in net cash, an increase from $3.9 million in net debt at the end of the prior year. With total available liquidity of approximately $155 million and cash flow projected to increase, the company remains very well positioned heading into the new fiscal year. In line with our preparations for growing levels of activity, the company spent $24.5 million on capital expenditures in the quarter, adding 1 new drill rig and substantial support equipment while disposing of 10 older, less efficient rigs as part of our ongoing fleet optimization program, bringing the total rig count at quarter end to 688. CAPEX for fiscal 2026 totaled $61 million, below initial guidance of $70 million, largely due to the timing of orders for rigs and support equipment. As a result, we expect to spend approximately $75 million on CAPEX in fiscal 2027, in line with the CAPEX guidance provided in prior years, as we continue to modernize our fleet. The breakdown of our fleet and utilization in the quarter is as follows: 305 specialized drills at 48% utilization, 156 conventional drills at 60% utilization, 227 underground drills at 57% utilization, for a total of 688 drills at 53% utilization. As we previously noted, we define specialized work not necessarily by the use of a specialized drill, but by work requiring a higher degree of technical expertise, access to remote locations, stringent safety standards, and other operational complexities. In the fourth quarter, specialized work accounted for 59% of our total revenue. We continue to see high levels of demand for our specialized services and expect this trend to continue as deposits become increasingly more challenging to find, with discoveries continuing to be made in remote locations. Conventional drilling, which is mostly driven by juniors, contributed 13% of revenue, while underground drilling accounted for 28% of total revenue, as the company continues to look for diversity in its revenue streams. While we continue to see the bulk of our revenue driven by seniors and intermediates, representing 87% of our activity in the quarter, as they continue their efforts to address depleting reserves, juniors are beginning to have a more meaningful impact. Following the prior acceleration of junior financing activity, this segment grew to represent 13% of revenue in the quarter compared to 10% in the prior quarter and 8% in the same period last year. In terms of commodities, gold represented 44% of revenue in the quarter, driven by continued strength in the gold price and the related increase in junior financing activity, while copper accounted for 28% of revenue, with activity levels at copper mines and projects expected to grow as we move through the year. Iron ore continues to make a meaningful contribution at 9%, driven by continued strength from our Australian operations and demonstrating the diversity in the commodities for which we drill for around the world. Also of note in the fourth quarter was silver, which grew to represent 8% of revenue following the sharp increase in silver price over the last year. With that overview of our financial results, I'll now turn the presentation back to Denis to discuss the outlook.

Thanks, Ian. With the activity ramping up in the fourth quarter, we expect this momentum to continue to build throughout fiscal 2027, with rigs expected to gradually be deployed in the field at incrementally higher prices following the release of expanded senior exploration budgets and the ramp-up of junior activities. Labor is expected to be the largest industry challenge as we continue to take proactive measures with respect to the hiring and retention of drill crews as we move through the new year. With the pool of experienced drillers drying up, we have increased the number of trainee drillers in the field, which has and will continue to temporarily affect productivity as they gain experience. Additionally, in key areas where the labor shortage is the most problematic, we have scaled up efforts at our training centers with a goal of improving retention while also accelerating the learning curve of rookie drillers without compromising safety. While we expect to pass on increased training, labor, and consumable costs as contracts are renewed throughout the year, the immediate impact is expected to result in margin improvement lagging revenue growth through the beginning of the fiscal year. As we close out fiscal 2026, we remain optimistic about the future as despite recording record annual revenue, global exploration spending is still below 60% of the peak levels we saw in 2012, without factoring inflation. With strong commodity prices continuing to support growing senior exploration budgets and the junior financing market remaining healthy, we expect to continue using our industry-leading balance sheet to ensure that we remain ready for increasing demand in the years ahead. I'd like to once again thank our nearly 6,000 employees around the world for their continued enthusiasm, dedication, loyalty, and most of all, great ideas, all of which are qualities that make us such a successful and productive company. With that, we can open the call to questions. Operator?

[Operator Instructions] Our first question comes from Gordon Lawson with Paradigm. Your line is open.

Could you please talk more about the contracts in North America and your expectations of ramping up and timing costs?

What's your question? You say you want to know about contracts in what sense?

Well, ramping up expenses are understandably higher, but the growth in that sector is well ahead of expectations. So what should we expect, particularly in the first half of fiscal 2027?

Yes, like you said, there's been a lot of money raised by juniors and a lot of that has been for North America. So we are definitely seeing a pickup in activity in Canada and things are going up month by month, and it's getting very tight in the market in terms of the availability of people and everything, and that's influencing pricing as well. So we are able to recuperate the cost increases, and also margin is improving in that region. And like we said, we expect to see growth over the next few quarters, and then the margin is going to basically follow. It's going to be lagging a bit because of the cost increases, but it's already starting to catch up, and so by the time we get to second quarter, we expect to have those pricing in place.

[Operator Instructions] Our next question comes from D'Angelo Volpe with Beacon Securities. Your line is open.

Just focusing on the CAPEX budget for this year of $75 million, just wondering if we should be expecting kind of a similar cadence to last year or if we should be looking at this more of kind of a heavier weight in the first half of the year.

Well, when you look at we're budgeting $75 million, last year, we said $70 million. And as you saw, we came in quite under that. And really what happened there is the year got off to a bit of a slower start last year and the same thing happened with CAPEX and ordering and delivery, and that's why we ended up at a lower level. So some of that has trickled in into this year. So yes, the cadence is probably going to be somewhat evenly distributed during the year as things are growing. But I wouldn't say it's going to replicate last year. It's going to be probably more evenly distributed this year than it was last year.

Okay, thank you for that. And then just pivoting over to labor, just kind of curious on what the typical timeline is on the learning curve for these new drillers. And I'm just curious on how your current labor looks in terms of achieving a 60% utilization rate.

Yes, on the labor front, it is definitely a challenge, but we are making some good progress on that front with all the training schools we have and everything, but there is definitely a limit to how many crews we can effectively put in the field and safely put in the field. But we are making good progress, and here I'm talking about North America where we are seeing the biggest part of growth. Other regions, they're all facing some labor challenges, but not as, I would say, not as significant as it is in North America. But we are making good progress. And we think we will see utilization rates moving up by month, assuming the demand continues to be what we're seeing, we expect to be able to meet that demand as we go.

Our next question is a follow-up from Gordon Lawson with Paradigm. Your line is open.

Hey, sorry, guys. I'm not sure how I got disconnected. I'll have to dial into the replay to hear your response. Looking at the Australasia segment, what are some of the primary commodities and regions that are driving the growth there beyond the Pilbara, obviously, that's an iron ore there?

At 9%, but what exactly are we looking for here? Yes, gold and copper are what's driving. I mean, that region, Australasia, I would call that region a lot more stable. We've got less volatility in the region because we have some long-standing contracts with seniors. And so, as you said, there are iron ore contracts in place, but we also do have good contracts on the copper and the gold side.

Okay, thank you very much.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Denis Larocque, CEO, for closing remarks.

Well, thanks, everyone, and again, thank you to our employees for a great year and looking forward to an even greater year coming up with everything that we're seeing in our industry.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.