Major Drilling Group Intl (TSX:MDI) held its fourth-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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The full earnings call is available at https://edge.media-server.com/mmc/p/qn6aya8o/

Summary

Major Drilling Group Intl reported a 25% year-over-year increase in fourth-quarter revenue, culminating in a record fiscal 2026 revenue of $889 million, a 22% increase.

The revenue growth was driven by increased activity, particularly in Canada and the US, which saw a 67% increase due to expanded senior exploration budgets and increased junior financing activity.

The company reported an EBITDA increase of 37% to $28 million for the quarter, with net earnings rising to $8.2 million or $0.10 per share.

Major Drilling ended the quarter with $20.6 million in net cash and plans to spend approximately $75 million on capital expenditures in fiscal 2027 to modernize its fleet.

The company highlighted labor shortages as a key challenge, with efforts underway to increase trainee drillers and improve retention.

Management remains optimistic about fiscal 2027, citing strong commodity prices and increased exploration budgets as drivers for continued demand growth.

Specialized services accounted for 59% of total revenue, with gold and copper being major contributing commodities at 44% and 28% of revenue, respectively.

Full Transcript

OPERATOR

Good day and welcome to the Major Drilling Group Intl fourth quarter results 2026. At this time all participants are in listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question you will need to press star11 on your touchtone phone. 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.

Ryan Hanley (Director of Capital Markets)

Thank you and good morning everyone. As mentioned, we would like to welcome you to Major Drillings Conference call for the fourth quarter of fiscal 2026. With me on the call today are Denis Larocque, President CEO and Ian Ross, CFO. Our results 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 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'll now turn the presentation over to Denis Larocque, President and CEO.

Denis Larocque (Chief Executive Officer)

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 TRIFR 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 US 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 US 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, while Australasian and African and Africa segment 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

Ian Ross (Chief Financial Officer)

the quarter's financial 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 the 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 and 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 EBITDA of 28 million in the quarter, an increase of 37% when compared to the 20.5 million recorded in the prior year period, While 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 one 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 which was 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 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 continued 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.

Denis Larocque (Chief Executive Officer)

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 and 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 Roki 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 2022, 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.

OPERATOR

With that, we can open the call to questions. Operator thank you. As a reminder to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11. Again, our first question comes from Gordon Lawson with Paradigm. Your line is open.

Gordon Lawson

Hey, good morning. Congratulations on the beat. Could you please talk more about the contracts in North America and your expectations of ramping up and timing costs?

Denis Larocque (Chief Executive Officer)

Could you clarify your question? You say want to know about contracts? In what sense?

Gordon Lawson

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?

Denis Larocque (Chief Executive Officer)

Yeah, well 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 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 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 the second quarter, we expect to have those pricing in place.

OPERATOR

Thank you again. To ask a question, please press star 11. Our next question comes from D' Angelo Volp with Beacon Securities. Your line is open.

D' Angelo Volp

Hey, good morning, guys. Congratulations on the results. 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 heavier weight in the first half of the year.

Denis Larocque (Chief Executive Officer)

Well, when you look at we're budgeting 75, last year we said 70 and as you saw, we came in quite under that. And really what happened there is everything. The year got up 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.

D' Angelo Volp

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 the current labor, how your current labor looks in terms of achieving a 60% utilization rate.

Denis Larocque (Chief Executive Officer)

Yeah, 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 on. 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, and we think we will see utilization rates moving up month by month with assuming the demand continues to be what we're seeing. We expect to see, we expect to be able to meet that demand as we go.

D' Angelo Volp

Okay, perfect. Thanks for all the color. I'll hop back in the queue.

OPERATOR

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

Gordon Lawson

Hey, sorry guys, I'm not sure how I got disconnected. I'll have to dial into the replay to hear your response. But looking at the Australasia segment, what are some of the primary commodities and regions that are driving the growth there beyond Pilfera? Obviously you've got some iron ore there at 9%. But what exactly are we looking for here?

Denis Larocque (Chief Executive Officer)

Yeah, gold and copper are what's driving, I mean that region, Australasia, I would call that region a lot more stable. We've got a less volatility in the region because we have some long standing contract with seniors and so as you said, there is iron ore contracts in place, but there's also we do have good contracts on the copper and the gold side.

Gordon Lawson

Okay, thank you very much.

OPERATOR

Thank you.

Denis Larocque (Chief Executive Officer)

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.

OPERATOR

Thank you. Thank you for your participation. This does conclude the program and you may now disconnect. Everyone. Have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.