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Major Drilling Announces First Quarter EBITDA up 80%

·29 min read
Major Drilling Group International Inc.
Major Drilling Group International Inc.

MONCTON, New Brunswick, Sept. 06, 2022 (GLOBE NEWSWIRE) -- Major Drilling Group International Inc. (“Major Drilling” or the “Company”) (TSX: MDI), a leading provider of specialized drilling services to the mining sector, today reported results for the first quarter of fiscal 2023, ended July 31, 2022.

Highlights

  • Highest quarterly revenue and net earnings in 10 years.

  • Revenue of $199.8 million, an increase of 32% over the same period last year.

  • EBITDA(1) for the quarter was $43.5 million (or $0.53 per share), an increase of 80% compared to the same period last year.

  • Net earnings of $24.2 million, or $0.29 per share for the quarter, more than double the net earnings of $11.1 million, or $0.14 per share for the same period last year.

  • Net cash at $8.5 million compared to net debt of $1.6 million in April 2022.

  • Good progress in labour recruiting, training, and retention.

“During the quarter, we saw a continued increase in the demand for our complex specialized drilling services, despite the economic uncertainties experienced over the last three months,” said Denis Larocque, President and CEO of Major Drilling. “With the strong operational leverage in our business model, we were again able to produce robust results.”

“Our training efforts around the world are going very well, helping our growth and productivity, which has contributed to the recent growth in gross margins. Developing our crews is crucial in order to maintain our position of dominance in the specialized drilling market. Demand for our specialized drilling services continues to grow, as senior customers rely on Major Drilling to execute their increasingly challenging drill programs,” continued Mr. Larocque.

“Fiscal 2023 is off to a great start with EBITDA of $43.5 million, an 80% increase from the same quarter last year. Elevated activity levels in most operating jurisdictions showcased the operational leverage in the business as the Company produced a very profitable quarter generating net earnings of $24.2 million or $0.29 a share, more than 100% growth from the same quarter last year,” commented Ian Ross, CFO of Major Drilling. “With the balance sheet in great shape and strong cash generation in the quarter, the Company repaid $20 million of long-term debt, ending the quarter in a net cash position of $8.5 million. The Company spent $13.2 million on capital expenditures including the purchase of 7 new drills while disposing of 10 older, less efficient rigs, bringing the total fleet count to 600 drills”.

“Despite a decline in commodity prices since the beginning of 2022, activity levels currently remain stable. A slowdown in junior mining financing is being offset by a desire from senior customers to continue to grow their reserves, both in precious and base metals. With metal prices remaining at levels well above what is needed to support exploration, we are already in discussions with several senior customers for their calendar 2023 programs, with many looking to book their rigs early,” said Denis Larocque.

“With the growing supply shortfall in both gold and copper, several of our senior customers have committed to prioritizing value-adding grassroots exploration and development programs. The global demand for electrification continues to grow and will require an enormous volume of copper, battery metals and uranium, which will increase 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 toward a green economy. Many of the new mineral deposits in question are located in areas challenging to access, requiring complex drilling solutions, continuing the demand for Major Drilling’s specialized services.”

“Major Drilling remains in a unique position to react to, and benefit from these market dynamics. Backed by our strong financial position, our success in recruiting, training and inventory management has allowed us to maintain our position as both the operator and employer of choice in our industry,” concluded Mr. Larocque.

In millions of Canadian dollars (except earnings per share)

 

Q1 2023

 

 

Q1 2022

 

Revenue

 

$

199.8

 

 

$

151.0

 

Gross margin

 

 

25.6

%

 

 

20.1

%

Adjusted gross margin (1)

 

 

30.8

%

 

 

26.3

%

EBITDA (1)

 

 

43.5

 

 

 

24.2

 

As percentage of revenue

 

 

21.8

%

 

 

16.1

%

Net earnings

 

 

24.2

 

 

 

11.1

 

Earnings per share

 

 

0.29

 

 

 

0.14

 

(1) See “Non-IFRS Financial Measures”

First Quarter Ended July 31, 2022

Total revenue for the quarter was $199.8 million, up 32.3% from revenue of $151.0 million recorded in the same quarter last year. The favourable foreign exchange translation impact on revenue and net earnings for the quarter, when comparing to the effective rates for the same period last year, was approximately $4 million and $1 million, respectively.

Revenue for the quarter from Canada - U.S. drilling operations increased by 32.6% to $112.6 million, compared to the same period last year. Demand for specialized drilling services remained elevated during the quarter while operations ran smoothly due to sound inventory management and successful labour recruitment and training.

South and Central American revenue increased by 34.9% to $47.5 million for the quarter, compared to the same quarter last year.  The increase from the prior year was driven by improved pricing environments, as well as improved performance in Chile and Argentina as they recovered from pandemic-related shutdowns, despite the usual seasonal slowdown.

Australasian and African revenue increased by 28.8% to $39.8 million, compared to the same period last year. The regional growth is mainly attributed to having three months of the McKay acquisition revenue included in the quarterly results compared to only two months in the prior year.

Gross margin percentage for the quarter was 25.6%, compared to 20.1% for the same period last year.  Depreciation expense totaling $10.4 million is included in direct costs for the current quarter, versus $9.3 million in the same quarter last year. Adjusted gross margin, which excludes depreciation expense, was 30.8% for the quarter, compared to 26.3% for the same period last year. Despite the negative impact of COVID-19 in the Company’s Australasian region, and global inflationary headwinds, margins improved from the prior year quarter due to overall pricing improvements and enhanced productivity.

General and administrative costs were $16.2 million, an increase of $2.6 million compared to the same quarter last year, primarily due to increased employee compensation and increased travel costs with the ease of COVID-19 restrictions.

Other expenses were $3.0 million, up from $2.6 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 an expense of $7.3 million, compared to an expense of $2.7 million for the prior year period.  The increase from the prior year was due to an overall increase in profitability.

Net earnings were $24.2 million or $0.29 per share ($0.29 per share diluted) for the quarter, compared to net earnings of $11.1 million or $0.14 per share ($0.13 per share diluted) for the prior year quarter.

Non-IFRS Financial Measures

The Company’s financial data has been prepared in accordance with IFRS, with the exception of certain financial measures detailed below. The measures below have been used consistently by the Company’s management team in assessing operational performance on both segmented and consolidated levels, and in assessing the Company’s financial strength. The Company believes these non-IFRS financial measures are key, for both management and investors, in evaluating performance at a consolidated level and are commonly reported and widely used by investors and lending institutions as indicators of a company’s operating performance and ability to incur and service debt, and as a valuation metric. These measures do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted gross profit/margin - excludes depreciation expense:

(in $000s CAD)

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

199,835

 

 

$

150,995

 

Less: direct costs

 

 

148,661

 

 

 

120,635

 

Gross profit

 

 

51,174

 

 

 

30,360

 

Add: depreciation

 

 

10,414

 

 

 

9,309

 

Adjusted gross profit

 

 

61,588

 

 

 

39,669

 

Adjusted gross margin

 

 

30.8

%

 

 

26.3

%

EBITDA - earnings before interest, taxes, depreciation, and amortization:

(in $000s CAD)

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

24,248

 

 

$

11,060

 

Finance costs

 

 

430

 

 

 

472

 

Income tax provision

 

 

7,285

 

 

 

2,715

 

Depreciation and amortization

 

 

11,541

 

 

 

9,989

 

EBITDA

 

$

43,504

 

 

$

24,236

 

 

 

 

 

 

 

 

 

 

Net cash (debt) – cash net of debt, excluding lease liabilities reported under IFRS 16 Leases:

(in $000s CAD)

 

July 31, 2022

 

 

April 30, 2022

 

 

 

 

 

 

 

 

 

 

Cash

 

$

61,118

 

 

$

71,260

 

Contingent consideration

 

 

(23,000

)

 

 

(22,907

)

Long-term debt

 

 

(29,655

)

 

 

(50,000

)

Net cash (debt)

 

$

8,463

 

 

$

(1,647

)

 

 

 

 

 

 

 

 

 

Forward-Looking Statements

This new release includes certain information that may constitute “forward-looking information” under applicable Canadian securities legislation. All statements, other than statements of historical facts, included in this news release that address future events, developments, or performance that the Company expects to occur (including management’s expectations regarding the Company’s objectives, strategies, financial condition, results of operations, cash flows and businesses) are forward-looking statements. Forward-looking statements are typically identified by future or conditional verbs such as “outlook”, “believe”, “anticipate”, “estimate”, “project”, “expect”, “intend”, “plan”, and terms and expressions of similar import. All forward-looking information in this news release is qualified by this cautionary note.

Forward-looking information is necessarily based upon various estimates and assumptions including, without limitation, the expectations and beliefs of management related to the factors set forth below. While these factors and assumptions are considered reasonable by the Company as at the date of this document in light of management’s experience and perception of current conditions and expected developments, these statements are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements and undue reliance should not be placed on such statements and information.

Such forward-looking statements are subject to a number of risks and uncertainties that include, but are not limited to: the level of activity in the mining industry and the demand for the Company’s services; the level of funding for the Company’s clients (particularly for junior mining companies); competitive pressures; global political and economic environments; the integration of business acquisitions and the realization of the intended benefits of such acquisitions; the Company’s dependence on key customers; exposure to currency movements (which can affect the Company’s revenue in Canadian dollars); implications of the COVID-19 pandemic; currency restrictions; the geographic distribution of the Company’s operations; the impact of operational changes; changes in jurisdictions in which the Company operates (including changes in regulation); failure by counterparties to fulfill contractual obligations; as well as other risk factors described under “General Risks and Uncertainties” in the Company’s Annual Information Form for the year ended April 30, 2022, available on the SEDAR website at www.sedar.com. Should one or more risk, uncertainty, contingency, or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information.

Forward-looking statements made in this document are made as of the date of this document and the Company disclaims any intention and assumes no obligation to update any forward-looking statement, even if new information becomes available, as a result of future events, or for any other reasons, except as required by applicable securities laws.

About Major Drilling

Major Drilling Group International Inc. is one of the world’s largest drilling services companies primarily serving the mining industry. Established in 1980, Major Drilling has over 1,000 years of combined experience and expertise within its management team alone. The Company maintains field operations and offices in Canada, the United States, Mexico, South America, Asia, Africa, and Australia. Major Drilling provides a complete suite of drilling services including surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coal-bed methane, shallow gas, underground percussive/longhole drilling, surface drill and blast, and a variety of mine services.

Webcast/Conference Call Information

Major Drilling Group International Inc. will provide a simultaneous webcast and conference call to discuss its quarterly results on Wednesday, September 7, 2022 at 9:00 AM (EDT). To access the webcast, which includes a slide presentation, please go to the investors/webcast section of Major Drilling’s website at www.majordrilling.com and click on the link. Please note that this is listen-only mode.

To participate in the conference call, please dial 416-340-2217, participant passcode 3755631# and ask for Major Drilling’s First Quarter Results Conference Call. To ensure your participation, please call in approximately five minutes prior to the scheduled start of the call.

For those unable to participate, a taped rebroadcast will be available approximately one hour after the completion of the call until Saturday, October 8, 2022. To access the rebroadcast, dial 905-694-9451 and enter the passcode 4424825#. The webcast will also be archived for one year and can be accessed on the Major Drilling website at www.majordrilling.com.

Major Drilling’s Annual General Meeting will be held virtually on Thursday, September 8, 2022 at 3:00pm Eastern and can be accessed at www.virtualshareholdermeeting.com/MDI2022.

For further information:
Ian Ross, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
ir@majordrilling.com

Major Drilling Group International Inc.

 

Interim Condensed Consolidated Statements of Operations

 

(in thousands of Canadian dollars, except per share information)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

July 31

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

$

199,835

 

 

$

150,995

 

 

 

 

 

 

 

 

 

 

DIRECT COSTS (note 7)

 

 

148,661

 

 

 

120,635

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

51,174

 

 

 

30,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

General and administrative (note 7)

 

 

16,174

 

 

 

13,608

 

Other expenses

 

 

3,020

 

 

 

2,607

 

(Gain) loss on disposal of property, plant and equipment

 

 

(698

)

 

 

(324

)

Foreign exchange (gain) loss

 

 

715

 

 

 

222

 

Finance costs

 

 

430

 

 

 

472

 

 

 

 

19,641

 

 

 

16,585

 

 

 

 

 

 

 

 

 

 

EARNINGS BEFORE INCOME TAX

 

 

31,533

 

 

 

13,775

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE (RECOVERY) (note 8)

 

 

 

 

 

 

 

 

Current

 

 

7,701

 

 

 

2,432

 

Deferred

 

 

(416

)

 

 

283

 

 

 

 

7,285

 

 

 

2,715

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

24,248

 

 

$

11,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE (note 9)

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.14

 

Diluted

 

$

0.29

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 


Major Drilling Group International Inc.

 

Interim Condensed Consolidated Statements of Comprehensive Earnings

 

(in thousands of Canadian dollars)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

July 31

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

24,248

 

 

$

11,060

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE EARNINGS (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

 

 

 

 

Unrealized gain (loss) on foreign currency translations

 

 

(3,092

)

 

 

2,005

 

Unrealized gain (loss) on derivatives (net of tax)

 

 

(1,632

)

 

 

177

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE EARNINGS

 

$

19,524

 

 

$

13,242

 

 

 

 

 

 

 

 

 

 


Major Drilling Group International Inc.

 

Interim Condensed Consolidated Statements of Changes in Equity

 

For the three months ended July 31, 2022 and 2021

 

(in thousands of Canadian dollars)

 

(unaudited)

 

 

 

 

 

 

 

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

earnings

 

 

Other

 

 

Share-based

 

 

Foreign currency

 

 

 

 

 

 

 

Share capital

 

 

(deficit)

 

 

reserves

 

 

payments reserve

 

 

translation reserve

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS AT MAY 1, 2021

 

$

243,379

 

 

$

(22,456

)

 

$

1,067

 

 

$

5,559

 

 

$

52,614

 

 

$

280,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share issue (note 11)

 

 

12,911

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,911

 

Exercise of stock options

 

 

3,280

 

 

 

-

 

 

 

-

 

 

 

(920

)

 

 

-

 

 

 

2,360

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

78

 

 

 

-

 

 

 

78

 

Stock options expired/forfeited

 

 

-

 

 

 

20

 

 

 

-

 

 

 

(20

)

 

 

-

 

 

 

-

 

 

 

 

259,570

 

 

 

(22,436

)

 

 

1,067

 

 

 

4,697

 

 

 

52,614

 

 

 

295,512

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

-

 

 

 

11,060

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,060

 

Unrealized gain (loss) on foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

currency translations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,005

 

 

 

2,005

 

Unrealized gain (loss) on derivatives

 

 

-

 

 

 

-

 

 

 

177

 

 

 

-

 

 

 

-

 

 

 

177

 

Total comprehensive earnings (loss)

 

 

-

 

 

 

11,060

 

 

 

177

 

 

 

-

 

 

 

2,005

 

 

 

13,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS AT JULY 31, 2021

 

$

259,570

 

 

$

(11,376

)

 

$

1,244

 

 

$

4,697

 

 

$

54,619

 

 

$

308,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS AT MAY 1, 2022

 

$

263,183

 

 

$

31,022

 

 

$

1,536

 

 

$

3,996

 

 

$

60,021

 

 

$

359,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

761

 

 

 

-

 

 

 

-

 

 

 

(267

)

 

 

-

 

 

 

494

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

112

 

 

 

-

 

 

 

112

 

 

 

 

263,944

 

 

 

31,022

 

 

 

1,536

 

 

 

3,841

 

 

 

60,021

 

 

 

360,364

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

-

 

 

 

24,248

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,248

 

Unrealized gain (loss) on foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

currency translations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,092

)

 

 

(3,092

)

Unrealized gain (loss) on derivatives

 

 

-

 

 

 

-

 

 

 

(1,632

)

 

 

-

 

 

 

-

 

 

 

(1,632

)

Total comprehensive earnings (loss)

 

 

-

 

 

 

24,248

 

 

 

(1,632

)

 

 

-

 

 

 

(3,092

)

 

 

19,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS AT JULY 31, 2022

 

$

263,944

 

 

$

55,270

 

 

$

(96

)

 

$

3,841

 

 

$

56,929

 

 

$

379,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Major Drilling Group International Inc.

 

Interim Condensed Consolidated Statements of Cash Flows

 

(in thousands of Canadian dollars)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

July 31

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Earnings before income tax

 

$

31,533

 

 

$

13,775

 

Operating items not involving cash

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,541

 

 

 

9,989

 

(Gain) loss on disposal of property, plant and equipment

 

 

(698

)

 

 

(324

)

Share-based compensation

 

 

112

 

 

 

78

 

Finance costs recognized in earnings before income tax

 

 

430

 

 

 

472

 

 

 

 

42,918

 

 

 

23,990

 

Changes in non-cash operating working capital items

 

 

(16,468

)

 

 

(5,386

)

Finance costs paid

 

 

(430

)

 

 

(472

)

Income taxes paid

 

 

(5,350

)

 

 

(1,300

)

Cash flow from (used in) operating activities

 

 

20,670

 

 

 

16,832

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of lease liabilities

 

 

(444

)

 

 

(442

)

Repayment of long-term debt (note 6)

 

 

(20,000

)

 

 

(272

)

Issuance of common shares due to exercise of stock options

 

 

494

 

 

 

2,360

 

Proceeds from draw on long-term debt

 

 

-

 

 

 

35,000

 

Cash flow from (used in) financing activities

 

 

(19,950

)

 

 

36,646

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Business acquisitions (net of cash acquired) (note 11)

 

 

-

 

 

 

(37,869

)

Acquisition of property, plant and equipment

 

 

(13,154

)

 

 

(11,653

)

Proceeds from disposal of property, plant and equipment

 

 

2,291

 

 

 

1,363

 

Cash flow from (used in) investing activities

 

 

(10,863

)

 

 

(48,159

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes

 

 

1

 

 

 

(208

)

 

 

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH

 

 

(10,142

)

 

 

5,111

 

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF THE PERIOD

 

 

71,260

 

 

 

22,359

 

 

 

 

 

 

 

 

 

 

CASH, END OF THE PERIOD

 

$

61,118

 

 

$

27,470

 

 

 

 

 

 

 

 

 

 


Major Drilling Group International Inc.

 

Interim Condensed Consolidated Balance Sheets

 

As at July 31, 2022 and April 30, 2022

 

(in thousands of Canadian dollars)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2022

 

 

April 30, 2022

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

61,118

 

 

$

71,260

 

Trade and other receivables (note 12)

 

 

142,574

 

 

 

142,621

 

Income tax receivable

 

 

2,176

 

 

 

2,037

 

Inventories

 

 

97,874

 

 

 

96,782

 

Prepaid expenses

 

 

13,148

 

 

 

8,960

 

 

 

 

316,890

 

 

 

321,660

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT (note 5 and note 11)

 

 

197,668

 

 

 

198,196

 

 

 

 

 

 

 

 

 

 

RIGHT-OF-USE ASSETS

 

 

5,083

 

 

 

5,479

 

 

 

 

 

 

 

 

 

 

DEFERRED INCOME TAX ASSETS

 

 

3,990

 

 

 

4,351

 

 

 

 

 

 

 

 

 

 

GOODWILL (note 11)

 

 

22,598

 

 

 

22,798

 

 

 

 

 

 

 

 

 

 

INTANGIBLE ASSETS (note 11)

 

 

4,177

 

 

 

4,596

 

 

 

 

 

 

 

 

 

 

 

 

$

550,406

 

 

$

557,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Trade and other payables

 

$

93,826

 

 

$

102,596

 

Income tax payable

 

 

7,453

 

 

 

5,022

 

Current portion of lease liabilities

 

 

1,606

 

 

 

1,502

 

Current portion of contingent consideration

 

 

8,668

 

 

 

8,619

 

 

 

 

111,553

 

 

 

117,739

 

 

 

 

 

 

 

 

 

 

LEASE LIABILITIES

 

 

3,369

 

 

 

3,885

 

 

 

 

 

 

 

 

 

 

CONTINGENT CONSIDERATION (note 11)

 

 

14,332

 

 

 

14,288

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

 

29,655

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

DEFERRED INCOME TAX LIABILITIES

 

 

11,609

 

 

 

11,410

 

 

 

 

170,518

 

 

 

197,322

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Share capital

 

 

263,944

 

 

 

263,183

 

Retained earnings

 

 

55,270

 

 

 

31,022

 

Other reserves

 

 

(96

)

 

 

1,536

 

Share-based payments reserve

 

 

3,841

 

 

 

3,996

 

Foreign currency translation reserve

 

 

56,929

 

 

 

60,021

 

 

 

 

379,888

 

 

 

359,758

 

 

 

 

 

 

 

 

 

 

 

 

$

550,406

 

 

$

557,080

 

 

 

 

 

 

 

 

 

 


MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2022 AND 2021 (UNAUDITED)
(in thousands of Canadian dollars, except per share information)

1. NATURE OF ACTIVITIES

Major Drilling Group International Inc. (the “Company”) is incorporated under the Canada Business Corporations Act and has its head office at 111 St. George Street, Moncton, NB, Canada. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”). The principal source of revenue consists of contract drilling for companies primarily involved in mining and mineral exploration. The Company has operations in Canada, the United States, Mexico, South America, Asia, Africa, and Australia.

2. BASIS OF PRESENTATION

Statement of compliance 

These Interim Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies as outlined in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2022.

On September 6, 2022, the Board of Directors authorized the financial statements for issue.

Basis of consolidation

These Interim Condensed Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statements of Operations from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Intra-group transactions, balances, income and expenses are eliminated on consolidation, where appropriate.

Basis of preparation

These Interim Condensed Consolidated Financial Statements have been prepared based on the historical cost basis, except for certain financial instruments that are measured at fair value, using the same accounting policies and methods of computation as presented in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2022.

3. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS

The preparation of financial statements, in conformity with International Financial Reporting Standards (“IFRS”), requires management to make judgments, estimates and assumptions that are not readily apparent from other sources, which affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Depending on the severity and duration of disruptions caused by the COVID-19 pandemic, results could be impacted in future periods. It is not possible at this time to estimate the magnitude of such potential future impacts.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for depreciation purposes, property, plant and equipment and inventory valuation, determination of income and other taxes, assumptions used in the compilation of fair value of assets acquired and liabilities assumed in business acquisitions, amounts recorded as accrued liabilities, contingent consideration, allowance for impairment of trade receivables, and impairment testing of goodwill and intangible assets.

The Company applied judgment in determining the functional currency of the Company and its subsidiaries, the determination of cash-generating units (“CGUs”), the degree of componentization of property, plant and equipment, the recognition of provisions and accrued liabilities, and the determination of the probability that deferred income tax assets will be realized from future taxable earnings.

4. SEASONALITY OF OPERATIONS

The third quarter (November to January) is normally the Company’s weakest quarter due to the shutdown of mining and exploration activities, often for extended periods over the holiday season.

5. PROPERTY, PLANT AND EQUIPMENT

Capital expenditures for the three months ended July 31, 2022 were $13,154 (2021 - $11,653). The Company did not obtain direct financing for the three months ended July 31, 2022 or 2021.

6. LONG-TERM DEBT

During the quarter, the Company made a discretionary payment of $20,000 on its revolving term facility.

7. EXPENSES BY NATURE

Direct costs by nature are as follows:

 

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

10,414

 

 

$

9,309

 

Employee salaries and benefit expenses

 

 

65,992

 

 

 

56,190

 

Cost of material

 

 

30,654

 

 

 

22,753

 

Other

 

 

41,601

 

 

 

32,383

 

 

 

$

148,661

 

 

$

120,635

 

General and administrative expenses by nature are as follows:

 

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

$

362

 

 

$

279

 

Depreciation

 

 

765

 

 

 

401

 

Employee salaries and benefit expenses

 

 

8,665

 

 

 

7,863

 

Other general and administrative expenses

 

 

6,382

 

 

 

5,065

 

 

 

$

16,174

 

 

$

13,608

 

8. INCOME TAXES

The income tax provision for the period can be reconciled to accounting earnings before income tax as follows:

 

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Earnings before income tax

 

$

31,533

 

 

$

13,775

 

 

 

 

 

 

 

 

 

 

Statutory Canadian corporate income tax rate

 

 

27

%

 

 

27

%

 

 

 

 

 

 

 

 

 

Expected income tax provision based on statutory rate

 

 

8,514

 

 

 

3,719

 

Non-recognition of tax benefits related to losses

 

 

156

 

 

 

489

 

Utilization of previously unrecognized losses

 

 

(1,945

)

 

 

(2,334

)

Other foreign taxes paid

 

 

1,006

 

 

 

216

 

Rate variances in foreign jurisdictions

 

 

102

 

 

 

87

 

Derecognition of previously recognized losses

 

 

-

 

 

 

861

 

Permanent differences and other

 

 

(548

)

 

 

(323

)

Income tax provision recognized in net earnings

 

$

7,285

 

 

$

2,715

 

The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company records its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. While management believes they have adequately provided for the probable outcome of these matters, future results may include favourable or unfavourable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the statutes of limitations lapse.

9. EARNINGS PER SHARE

All of the Company’s earnings are attributable to common shares, therefore, net earnings are used in determining earnings per share.

 

 

Q1 2023

 

 

Q1 2022

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

24,248

 

 

$

11,060

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

Basic (000s)

 

 

82,739

 

 

 

81,731

 

Diluted (000s)

 

 

83,151

 

 

 

82,221

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.14

 

Diluted

 

$

0.29

 

 

$

0.13

 

The calculation of diluted earnings per share for the three months ended July 31, 2022 excludes the effect of 128,396 options, (2021 - 46,793) as they were not in-the-money.

The total number of shares outstanding on July 31, 2022 was 82,846,004 (2021 - 82,310,554).

10. SEGMENTED INFORMATION

The Company’s operations are divided into the following three geographic segments, corresponding to its management structure: Canada - U.S.; South and Central America; and Australasia and Africa. The services provided in each of the reportable segments are essentially the same. The accounting policies of the segments are the same as those described in the Company’s annual Consolidated Financial Statements for the year ended April 30, 2022. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs, general corporate expenses and income taxes. Data relating to each of the Company’s reportable segments is presented as follows:

 

 

Q1 2023

 

 

Q1 2022

 

Revenue

 

 

 

 

 

 

 

 

Canada - U.S.*

 

$

112,600

 

 

$

84,859

 

South and Central America

 

 

47,453

 

 

 

35,190

 

Australasia and Africa

 

 

39,782

 

 

 

30,946

 

 

 

$

199,835

 

 

$

150,995

 

*Canada - U.S. includes revenue of $46,024 (2021- $46,999) for Canadian operations.

 

 

Q1 2023

 

 

Q1 2022

 

Earnings from operations

 

 

 

 

 

 

 

 

Canada - U.S.

 

$

23,752

 

 

$

12,192

 

South and Central America

 

 

9,053

 

 

 

104

 

Australasia and Africa

 

 

3,164

 

 

 

5,641

 

 

 

 

35,969

 

 

 

17,937

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

430

 

 

 

472

 

General corporate expenses**

 

 

4,006

 

 

 

3,690

 

Income tax

 

 

7,285

 

 

 

2,715

 

 

 

 

11,721

 

 

 

6,877

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

24,248

 

 

$

11,060

 

**General corporate expenses include expenses for corporate offices and stock options.

Capital expenditures

 

 

 

 

 

 

 

 

Canada - U.S.

 

$

8,406

 

 

$

8,415

 

South and Central America

 

 

3,331

 

 

 

2,448

 

Australasia and Africa

 

 

1,152

 

 

 

790

 

Unallocated and corporate assets

 

 

265

 

 

 

-

 

Total capital expenditures

 

$

13,154

 

 

$

11,653

 


 

 

Q1 2023

 

 

Q1 2022

 

Depreciation and amortization

 

 

 

 

 

 

 

 

Canada - U.S.

 

$

5,395

 

 

$

4,235

 

South and Central America

 

 

2,513

 

 

 

2,537

 

Australasia and Africa

 

 

3,413

 

 

 

2,884

 

Unallocated and corporate assets

 

 

220

 

 

 

333

 

Total depreciation and amortization

 

$

11,541

 

 

$

9,989

 


 

 

July 31, 2022

 

 

April 30, 2022

 

Identifiable assets

 

 

 

 

 

 

 

 

Canada - U.S.*

 

$

255,379

 

 

$

236,669

 

South and Central America

 

 

138,181

 

 

 

128,791

 

Australasia and Africa

 

 

200,285

 

 

 

203,370

 

Unallocated and corporate liabilities

 

 

(43,439

)

 

 

(11,750

)

Total identifiable assets

 

$

550,406

 

 

$

557,080

 

*Canada - U.S. includes property, plant and equipment as at July 31, 2022 of $59,576 (April 30, 2022 - $56,469) for Canadian operations.

11. BUSINESS ACQUISITION

McKay Drilling PTY Limited

Effective June 1, 2021, the Company acquired all of the issued and outstanding shares of McKay Drilling PTY Limited (“McKay”), a leading specialty drilling contractor based in Western Australia.

The acquisition was accounted for using the acquisition method. The Company acquired 20 drill rigs, support equipment and inventory, existing contracts and receivables, as well as retaining the operation’s management team, and other employees, including experienced drillers.

The purchase price for the transaction was $71,073, consisting of $38,050 in cash (net of cash acquired), $12,911 in Major Drilling shares and an additional payout of $20,112 (discounted) tied to performance. The maximum amount of the contingent consideration is $25,000 AUD, with a payout period extending over three years from the effective date of June 1, 2021, contingent upon achievement of certain EBITDA (earnings before interest, taxes, depreciation and amortization) milestones.

Goodwill arising from this acquisition was equal to the excess of the total consideration paid over the fair value of the net assets acquired and represents the benefit of expected synergies, revenue growth, an experienced labour force and future market development.

The valuation of assets and purchase price allocation have been finalized. The net assets acquired at fair value at acquisition were as follows:

Net assets acquired

 

 

 

Trade and other receivables

$

10,475

 

Inventories

 

1,595

 

Prepaid expenses

 

1,773

 

Property, plant and equipment

 

44,466

 

Goodwill (not tax deductible)

 

15,543

 

Intangible assets

 

5,558

 

Trade and other payables

 

(7,379

)

Deferred income tax liabilities

 

(958

)

Total assets

$

71,073

 

 

 

 

 

Consideration

 

 

 

Cash

$

39,031

 

Less: cash acquired

 

(981

)

Contingent consideration

 

20,112

 

Shares of Major Drilling

 

12,911

 

Total consideration

$

71,073

 

Subsequent to the date of acquisition, the trade and other receivables included in the above net assets acquired have been fully collected. Intangible assets acquired are amortized over five years.

The above consideration includes non-cash investing activities, which are not reflected in the Interim Condensed Consolidated Statements of Cash Flows, including the issuance of 1,318,101 shares of Major Drilling for a total of $12,911, and contingent consideration of $20,112 (discounted).

In the previous year, the Company incurred acquisition-related costs of $454 relating to external legal fees and due diligence costs. These acquisition costs have been included in the other expenses line of the Interim Condensed Consolidated Statements of Operations.

The results of the McKay operations are included in the Interim Condensed Consolidated Statements of Operations from June 1, 2021.

12. FINANCIAL INSTRUMENTS

Fair value

The carrying values of cash, trade and other receivables, demand credit facilities and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments. The carrying value of contingent consideration and long-term debt approximates their fair value as the interest applicable is reflective of fair market rates.

Financial assets and liabilities measured at fair value are classified and disclosed in one of the following categories:

  • Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

  • Level 2 - inputs other than quoted prices included in level 1 that are observable for the assets or liabilities, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

  • Level 3 - inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The Company has entered into certain derivative financial instruments to manage its exposure to interest rate and market risks, including an interest rate swap, with a notional value of $20,000 maturing in May of 2023, and share-price forward contracts with a combined notional amount of $5,983, maturing at varying dates through June 2025.

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

The Company’s derivatives, with fair values as follows, are classified as level 2 financial instruments. There were no transfers of amounts between level 1, level 2 and level 3 financial instruments for the quarter ended July 31, 2022.

 

 

July 31, 2022

 

 

April 30, 2022

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

345

 

 

$

-

 

Share-price forward contracts

 

$

1,617

 

 

$

5,468

 

Credit risk

As at July 31, 2022, 94.1% (April 30, 2022 - 94.0%) of the Company’s trade receivables were aged as current and 0.7% (April 30, 2022 - 1.2%) of the trade receivables were impaired.

The movements in the allowance for impairment of trade receivables during the three and twelve-month periods were as follows:

 

 

July 31, 2022

 

 

April 30, 2022

 

 

 

 

 

 

 

 

 

 

Opening balance

 

$

1,517

 

 

$

1,638

 

Increase in impairment allowance

 

 

185

 

 

 

744

 

Recovery of amounts previously impaired

 

 

(25

)

 

 

(303

)

Write-off charged against allowance

 

 

(729

)

 

 

(549

)

Foreign exchange translation differences

 

 

(14

)

 

 

(13

)

Ending balance

 

$

934

 

 

$

1,517

 

Foreign currency risk

As at July 31, 2022, the most significant carrying amounts of net monetary assets and/or liabilities (which may include intercompany balances with other subsidiaries) that: (i) are denominated in currencies other than the functional currency of the respective Company subsidiary; and (ii) cause foreign exchange rate exposure, including the impact on earnings before income taxes (“EBIT”), if the corresponding rate changes by 10%, are as follows (in 000s CAD):

 

 

Rate variance

 

USD/CAD

 

 

MNT/USD

 

 

USD/AUD

 

 

MXN/USD

 

 

IDR/USD

 

 

USD/CLP

 

 

Other

 

Net exposure on monetary assets (liabilities)

 

 

 

 

13,062

 

 

 

7,245

 

 

 

3,745

 

 

 

2,739

 

 

 

2,499

 

 

 

(4,819

)

 

 

2,978

 

EBIT impact

 

+/-10%

 

 

1,451

 

 

 

805

 

 

 

416

 

 

 

304

 

 

 

278

 

 

 

535

 

 

 

331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidity risk 
The following table details contractual maturities for the Company’s financial liabilities:

 

 

1 year

 

 

2-3 years

 

 

4-5 years

 

 

Thereafter

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

$

93,826

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

93,826

 

Lease liabilities (interest included)

 

 

1,788

 

 

 

2,151

 

 

 

970

 

 

 

331

 

 

 

5,240

 

Contingent consideration (undiscounted)

 

 

8,765

 

 

 

16,109

 

 

 

-

 

 

 

-

 

 

 

24,874

 

Long-term debt (interest included)

 

 

651

 

 

 

30,249

 

 

 

-

 

 

 

-

 

 

 

30,900

 

 

 

$

105,030

 

 

$

48,509

 

 

$

970

 

 

$

331

 

 

$

154,840