Le Lézard
Classified in: Mining industry, Business, Covid-19 virus
Subject: EARNINGS

Major Drilling Reports Strong Second Quarter, Net Earnings up 65% as Industry Upcycle Continues


MONCTON, New Brunswick, Dec. 08, 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 second quarter of fiscal 2023, ended October 31, 2022. 

Quarterly Highlights

"Continued strength of demand for Major Drilling's services, especially our complex specialized drilling services, once again drove solid quarterly results," said Denis Larocque, President and CEO of Major Drilling.  "During the quarter, we began to see the growing importance of the electric vehicle and electrification market, with increased demand from copper and battery metals customers. Combined with increased activity from all three of our geographic segments, this more than offset the slight softening in activity from the junior miners."

Ian Ross, CFO of Major Drilling, commented, "Our operational leverage continued to generate excellent financial results as activity levels remained robust with EBITDA up 40% to $43 million compared to the same period last year. Major Drilling generated net earnings of $23.6 million, or $0.29 per share, which is an increase of 65% compared to the prior year. With continued growth and strong operational performance, the Company has been able to increase its net cash position by $42.8 million in the quarter, to finish with net cash of $51.3 million. The Company is also pleased to announce the renewal of our existing credit facility, under the same terms and conditions, for another 5-year term. Coupled with our net cash position, this provides tremendous liquidity and flexibility moving forward. With the significant cash growth in the quarter, the Company remained committed to investing in the business by spending $13.3 million on capital expenditures, buying 14 new drills while disposing of 11 older, less efficient drills, bringing the total fleet count to 603." 

"As we enter our seasonally slower third quarter, customer demand for calendar 2023 looks to remain strong, and we are already in discussions with several senior customers. Despite economic headwinds experienced since the beginning of 2022, metal prices have remained at levels well above what is needed to support exploration," said Denis Larocque. "This, combined with the growing supply shortfall in most mineral commodities, continues to drive demand for our services. As the global demand for electrification continues to grow, the world will require an enormous volume of copper and battery metals, which is significant for our outlook and the future of our business. We believe that this will increase pressure on the existing supply/demand dynamic, and lead to substantial additional investments in copper and other base metal exploration projects. This increase in both activity levels and diversification of commodities continues to drive demand for our services. Our growing fleet ensures we retain utilization capacity to meet this growing demand, and our capital availability ensures we have the flexibility to increase our fleet count when and where needed to consistently meet the needs of our customers across the globe."

"As we continue to move through the current cycle, Major Drilling's core strategy is to remain the leader in specialized drilling as new mineral deposits will increasingly be located in areas more challenging to access or requiring complex drilling solutions.  We are committed to providing top-quality service to our valued customers through safe and productive drill programs, as evidenced by our industry-recognized hole completion rates.  We leverage our worldwide expertise and utilize our strong financial position to ensure we have the equipment and inventory required to be a best-in-class service provider. With the purchase of 14 new drills in the quarter, including 7 underground drills in line with our diversification strategy, we are able to offer a modern and productive fleet to meet the growing demand in this industry," continued Mr. Larocque.

"With our continued focus to be an industry leader with respect to ESG, we are proud to have issued our inaugural Sustainability Report during the quarter, highlighting the tremendous efforts of our organization across the globe. The collaborative efforts from our board, through to our drillers in the field, ensure we are aligned as a company to progress our ESG initiatives and it remains a priority moving forward," concluded Mr. Larocque.

In millions of Canadian dollars (except earnings per share) Q2 2023
  Q2 2022  YTD 2023  YTD 2022 
Revenue $201.7  $170.7  $401.6  $321.7 
Gross margin  26.3%  22.0%  25.9%  21.1%
Adjusted gross margin(1)  31.8%  28.3%  31.3%  27.3%
EBITDA(1)  43.0   30.7   86.5   55.0 
As percentage of revenue  21.3%  18.0%  21.5%  17.1%
Net earnings  23.6   14.3   47.9   25.4 
Earnings per share  0.29   0.17   0.58   0.31 

(1) See "Non-IFRS Financial Measures"

Second Quarter Ended October 31, 2022

With all geographic regions contributing to the growth, total revenue for the quarter was $201.7 million, up 18.2% from revenue of $170.7 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 $6 million and $1 million, respectively.

Revenue for the quarter from Canada - U.S. drilling operations increased by 19.8% to $113.1 million, compared to the same period last year.  Senior and intermediate activity levels more than offset a slowdown in junior activity in this region.

South and Central American revenue increased by 13.3% to $41.7 million for the quarter, compared to the same quarter last year. The growth from the prior year is mainly attributable to a resumption of activity levels in jurisdictions that were previously impacted by COVID-19 shutdowns. 

Australasian and African revenue increased by 18.7% to $46.9 million, compared to the same period last year. The Asian region was responsible for most of the growth in the quarter, with new projects and contract renewals with improved pricing.

Gross margin percentage for the quarter was 26.3%, compared to 22.0% for the same period last year.  Depreciation expense totaling $11.2 million is included in direct costs for the current quarter, versus $10.7 million in the same quarter last year. Adjusted gross margin, which excludes depreciation expense, was 31.8% for the quarter, compared to 28.3% for the same period last year.  Margins improved from the prior year, mainly from enhanced productivity and price adjustments, which more than offset inflation pressures.

General and administrative costs were $16.1 million, an increase of $2.0 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 $4.7 million, up from $3.4 million in the prior year quarter, due primarily to higher incentive compensation expenses throughout the Company given the increased profitability.

Foreign exchange loss was $1.1 million compared to $0.9 million for the same quarter last year. While the Company's reporting currency is the Canadian dollar, various jurisdictions have net monetary assets or liabilities exposed to other currencies, including the U.S. dollar, which strengthened with the foreign exchange volatility experienced during the quarter.

The income tax provision for the quarter was an expense of $7.5 million, compared to an expense of $4.5 million for the prior year period.  The increase from the prior year was due to an overall increase in profitability.

Net earnings were $23.6 million or $0.29 per share ($0.28 per share diluted) for the quarter, compared to net earnings of $14.3 million or $0.17 per share ($0.17 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) Q2 2023  Q2 2022  YTD 2023  YTD 2022 
             
Total revenue $201,716  $170,693  $401,551  $321,688 
Less: direct costs  148,713   133,155   297,374   253,790 
Gross profit  53,003   37,538   104,177   67,898 
Add: depreciation  11,177   10,709   21,591   20,018 
Adjusted gross profit  64,180   48,247   125,768   87,916 
Adjusted gross margin  31.8%  28.3%  31.3%  27.3%

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

(in $000s CAD) Q2 2023
  Q2 2022  YTD 2023  YTD 2022 
             
Net earnings $23,611  $14,290  $47,859  $25,350 
Finance costs  26   399   456   871 
Income tax provision  7,541   4,501   14,826   7,216 
Depreciation and amortization  11,829   11,539   23,370   21,528 
EBITDA $43,007  $30,729  $86,511  $54,965 

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

(in $000s CAD) October 31, 2022
 April 30, 2022
       
Cash $97,698  $71,260 
Contingent consideration  (16,746)  (22,907)
Long-term debt  (29,666)  (50,000)
Net cash (debt) $51,286  $(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); currency restrictions; implications of the COVID-19 pandemic; 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 Friday, December 9, 2022 at 9:00 AM (EST).  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 9856483# and ask for Major Drilling's Second 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 Monday, January 9, 2023.  To access the rebroadcast, dial 905-694-9451 and enter the passcode 8500719#.  The webcast will also be archived for one year and can be accessed on the Major Drilling website at www.majordrilling.com.

For further information:
Ian Ross, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
[email protected]

  
Major Drilling Group International Inc. 
Interim Condensed Consolidated Statements of Operations 
(in thousands of Canadian dollars, except per share information) 
(unaudited) 
             
  Three months ended  Six months ended 
  October 31  October 31 
             
  2022
  2021
  2022
  2021
 
             
TOTAL REVENUE $201,716  $170,693  $401,551  $321,688 
             
DIRECT COSTS (note 7)  148,713   133,155   297,374   253,790 
             
GROSS PROFIT  53,003   37,538   104,177   67,898 
             
OPERATING EXPENSES            
General and administrative (note 7)  16,068   14,130   32,242   27,738 
Other expenses  4,723   3,415   7,743   6,022 
(Gain) loss on disposal of property, plant and equipment  (22)  (85)  (720)  (409)
Foreign exchange (gain) loss  1,056   888   1,771   1,110 
Finance costs  26   399   456   871 
   21,851   18,747   41,492   35,332 
             
EARNINGS BEFORE INCOME TAX  31,152   18,791   62,685   32,566 
             
INCOME TAX EXPENSE (note 8)            
Current  6,564   2,912   14,265   5,344 
Deferred  977   1,589   561   1,872 
   7,541   4,501   14,826   7,216 
             
NET EARNINGS $23,611  $14,290  $47,859  $25,350 
             
             
EARNINGS PER SHARE (note 9)            
Basic $0.29  $0.17  $0.58  $0.31 
Diluted $0.28  $0.17  $0.58  $0.31 
             


Major Drilling Group International Inc. 
Interim Condensed Consolidated Statements of Comprehensive Earnings 
(in thousands of Canadian dollars) 
(unaudited) 
             
  Three months ended  Six months ended 
  October 31  October 31 
             
  2022
  2021
  2022
  2021
 
             
NET EARNINGS $23,611  $14,290  $47,859  $25,350 
             
OTHER COMPREHENSIVE EARNINGS            
             
Items that may be reclassified subsequently to profit or loss            
Unrealized gain (loss) on foreign currency translations  15,079   (2,518)  11,987   (513)
Unrealized gain (loss) on derivatives (net of tax)  54   5   (1,578)  182 
             
COMPREHENSIVE EARNINGS $38,744  $11,777  $58,268  $25,019 
                 


Major Drilling Group International Inc. 
Interim Condensed Consolidated Statements of Changes in Equity 
For the six months ended October 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  3,957   -   -   (1,090)  -   2,867 
Share-based compensation  -   -   -   175   -   175 
Stock options expired/forfeited  -   23   -   (23)  -   - 
   260,247   (22,433)  1,067   4,621   52,614   296,116 
Comprehensive earnings:                  
Net earnings  -   25,350   -   -   -   25,350 
Unrealized gain (loss) on foreign                  
currency translations  -   -   -   -   (513)  (513)
Unrealized gain (loss) on derivatives  -   -   182   -   -   182 
Total comprehensive earnings (loss)  -   25,350   182   -   (513)  25,019 
                   
BALANCE AS AT OCTOBER 31, 2021 $260,247  $2,917  $1,249  $4,621  $52,101  $321,135 
                   
                   
BALANCE AS AT MAY 1, 2022 $263,183  $31,022  $1,536  $3,996  $60,021  $359,758 
                   
Exercise of stock options  1,467      -   (403)  -   1,064 
Share-based compensation  -   -   -   243   -   243 
   264,650   31,022   1,536   3,836   60,021   361,065 
Comprehensive earnings:                  
Net earnings  -   47,859   -   -   -   47,859 
Unrealized gain (loss) on foreign                  
currency translations  -   -   -   -   11,987   11,987 
Unrealized gain (loss) on derivatives  -   -   (1,578)  -   -   (1,578)
Total comprehensive earnings (loss)  -   47,859   (1,578)  -   11,987   58,268 
                   
BALANCE AS AT OCTOBER 31, 2022 $264,650  $78,881  $(42) $3,836  $72,008  $419,333 


Major Drilling Group International Inc. 
Interim Condensed Consolidated Statements of Cash Flows 
(in thousands of Canadian dollars) 
(unaudited) 
             
  Three months ended  Six months ended 
  October 31  October 31 
             
  2022  2021  2022  2021 
             
OPERATING ACTIVITIES            
Earnings before income tax $31,152  $18,791  $62,685  $32,566 
Operating items not involving cash            
Depreciation and amortization (note 7)  11,829   11,539   23,370   21,528 
(Gain) loss on disposal of property, plant and equipment  (22)  (85)  (720)  (409)
Share-based compensation  131   97   243   175 
Finance costs recognized in earnings before income tax  26   399   456   871 
   43,116   30,741   86,034   54,731 
Changes in non-cash operating working capital items  13,316   (4,035)  (3,152)  (9,421)
Finance costs paid  (26)  (399)  (456)  (871)
Income taxes paid  (4,321)  (1,139)  (9,671)  (2,439)
Cash flow from (used in) operating activities  52,085   25,168   72,755   42,000 
             
FINANCING ACTIVITIES            
Repayment of lease liabilities  (392)  (228)  (836)  (670)
Repayment of long-term debt (note 6)  -   (83)  (20,000)  (355)
Issuance of common shares due to exercise of stock options  570   507   1,064   2,867 
Proceeds from draw on long-term debt  -   -   -   35,000 
Cash flow from (used in) financing activities  178   196   (19,772)  36,842 
             
INVESTING ACTIVITIES            
Business acquisitions (net of cash acquired) (note 11)  (6,289)  (181)  (6,289)  (38,050)
Acquisition of property, plant and equipment (note 5)  (13,334)  (11,125)  (26,488)  (22,778)
Proceeds from disposal of property, plant and equipment  548   418   2,839   1,781 
Cash flow from (used in) investing activities  (19,075)  (10,888)  (29,938)  (59,047)
             
Effect of exchange rate changes  3,392   727   3,393   519 
             
INCREASE IN CASH  36,580   15,203   26,438   20,314 
             
CASH, BEGINNING OF THE PERIOD  61,118   27,470   71,260   22,359 
             
CASH, END OF THE PERIOD $97,698  $42,673  $97,698  $42,673 


Major Drilling Group International Inc. 
Interim Condensed Consolidated Balance Sheets 
As at October 31, 2022 and April 30, 2022 
(in thousands of Canadian dollars) 
(unaudited) 
       
  October 31, 2022  April 30, 2022 
       
ASSETS      
       
CURRENT ASSETS      
Cash $97,698  $71,260 
Trade and other receivables (note 12)  139,886   142,621 
Income tax receivable  2,270   2,037 
Inventories  106,990   96,782 
Prepaid expenses  12,769   8,960 
   359,613   321,660 
       
PROPERTY, PLANT AND EQUIPMENT (note 5 and note 11)  203,766   198,196 
       
RIGHT-OF-USE ASSETS  4,746   5,479 
       
DEFERRED INCOME TAX ASSETS  3,565   4,351 
       
GOODWILL (note 11)  22,248   22,798 
       
INTANGIBLE ASSETS (note 11)  3,726   4,596 
       
  $597,664  $557,080 
       
       
LIABILITIES      
       
CURRENT LIABILITIES      
Trade and other payables $104,229  $102,596 
Income tax payable  10,032   5,022 
Current portion of lease liabilities  1,564   1,502 
Current portion of contingent consideration  9,137   8,619 
   124,962   117,739 
       
LEASE LIABILITIES  3,111   3,885 
       
CONTINGENT CONSIDERATION (note 11)  7,609   14,288 
       
LONG-TERM DEBT (note 6)  29,666   50,000 
       
DEFERRED INCOME TAX LIABILITIES  12,983   11,410 
   178,331   197,322 
       
SHAREHOLDERS' EQUITY      
Share capital  264,650   263,183 
Retained earnings  78,881   31,022 
Other reserves  (42)  1,536 
Share-based payments reserve  3,836   3,996 
Foreign currency translation reserve  72,008   60,021 
   419,333   359,758 
       
  $597,664  $557,080 
         

MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 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 December 8, 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 and six months ended October 31, 2022 were $13,334 (2021 - $11,125) and $26,488  (2021 - $22,778), respectively.  The Company did not obtain direct financing for the three and six months ended October 31, 2022 or 2021.

6.  LONG-TERM DEBT

During the first quarter of fiscal 2023, the Company made a discretionary payment of $20,000 on its revolving term facility.

During the current quarter, the Company renewed its existing credit facility agreement for a five-year term, with the same terms and conditions as the previous agreement.

7.  EXPENSES BY NATURE

Direct costs by nature are as follows:

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
             
Depreciation $11,177  $10,709  $21,591  $20,018 
Employee salaries and benefit expenses  68,086   61,465   134,078   117,655 
Cost of material  27,795   23,871   58,449   46,624 
Other  41,655   37,110   83,256   69,493 
  $148,713  $133,155  $297,374  $253,790 

General and administrative expenses by nature are as follows:

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
             
Amortization of intangible assets $358  $369  $720  $648 
Depreciation  294   461   1,059   862 
Employee salaries and benefit expenses  8,165   7,605   16,830   15,468 
Other general and administrative expenses  7,251   5,695   13,633   10,760 
  $16,068  $14,130  $32,242  $27,738 

8.  INCOME TAXES

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

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
             
Earnings before income tax $31,152  $18,791  $62,685  $32,566 
             
Statutory Canadian corporate income tax rate  27%  27%  27%  27%
             
Expected income tax provision based on statutory rate  8,411   5,074   16,925   8,793 
Non-recognition of tax benefits related to losses  491   158   647   647 
Utilization of previously unrecognized losses  (2,903)  (1,909)  (4,848)  (4,243)
Other foreign taxes paid  949   308   1,955   524 
Rate variances in foreign jurisdictions  (64)  164   38   251 
Derecognition of previously recognized losses  -   -   -   861 
Permanent differences and other  657   706   109   383 
Income tax provision recognized in net earnings $7,541  $4,501  $14,826  $7,216 

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.

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
             
Net earnings $23,611  $14,290  $47,859  $25,350 
             
Weighted average number of shares:            
Basic (000s)  82,847   82,349   82,793   82,040 
Diluted (000s)  83,149   82,753   83,150   82,485 
             
Earnings per share            
Basic $0.29  $0.17  $0.58  $0.31 
Diluted $0.28  $0.17  $0.58  $0.31 

The calculation of diluted earnings per share for the three and six months ended October 31, 2022 excludes the effect of 210,000 and 180,897 options, respectively (2021 - 105,000 and 75,897, respectively) as they were not in-the-money.

The total number of shares outstanding on October 31, 2022 was 82,865,254 (2021 - 82,382,554).

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:

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
Revenue            
Canada - U.S.* $113,066  $94,390  $225,666  $179,249 
South and Central America  41,725   36,784   89,178   71,974 
Australasia and Africa  46,925   39,519   86,707   70,465 
  $201,716  $170,693  $401,551  $321,688 

*Canada - U.S. includes revenue of $42,389 and $51,538 for Canadian operations for the three months ended October 31, 2022 and 2021, respectively and $88,412 and $98,537 for the six months ended October 31, 2022 and 2021, respectively.

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
Earnings from operations            
Canada - U.S. $22,024  $13,546  $45,776  $25,738 
South and Central America  5,235   476   14,288   580 
Australasia and Africa  7,847   8,212   11,011   13,853 
   35,106   22,234   71,075   40,171 
             
Finance costs  26   399   456   871 
General corporate expenses**  3,928   3,044   7,934   6,734 
Income tax  7,541   4,501   14,826   7,216 
   11,495   7,944   23,216   14,821 
             
Net earnings $23,611  $14,290  $47,859  $25,350 

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

  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
Capital expenditures            
Canada - U.S. $9,440  $5,952  $17,846  $14,367 
South and Central America  2,062   1,562   5,393   4,010 
Australasia and Africa  1,832   3,611   2,984   4,401 
Unallocated and corporate assets  -   -   265   - 
Total capital expenditures $13,334  $11,125  $26,488  $22,778 


  Q2 2023  Q2 2022  YTD 2023  YTD 2022 
Depreciation and amortization            
Canada - U.S. $6,126  $5,510  $11,521  $10,021 
South and Central America  2,650   2,487   5,163   5,024 
Australasia and Africa  2,989   3,423   6,402   6,307 
Unallocated and corporate assets  64   119   284   176 
Total depreciation and amortization $11,829  $11,539  $23,370  $21,528 


  October 31, 2022  April 30, 2022 
Identifiable assets      
Canada - U.S.* $270,842  $236,669 
South and Central America  141,103   128,791 
Australasia and Africa  202,462   203,370 
Unallocated and corporate liabilities  (16,743)  (11,750)
Total identifiable assets $597,664  $557,080 

*Canada - U.S. includes property, plant and equipment as at October 31, 2022 of $63,292 (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. During the current quarter, the Company made the first payment on the contingent consideration arising out of the McKay Drilling PTY Limited acquisition for $6,289 ($7,000 AUD).

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:

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 October 31, 2022. 

  October 31, 2022  April 30, 2022 
       
Interest rate swap $334  $- 
Share-price forward contracts $614  $5,468 
         

Credit risk
As at October 31, 2022, 93.5% (April 30, 2022 - 94.0%) of the Company's trade receivables were aged as current and 1.4% (April 30, 2022 - 1.2%) of the trade receivables were impaired.

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

  October 31, 2022  April 30, 2022 
       
Opening balance $1,517  $1,638 
Increase in impairment allowance  1,148   744 
Recovery of amounts previously impaired  (25)  (303)
Write-off charged against allowance  (729)  (549)
Foreign exchange translation differences  23   (13)
Ending balance $1,934  $1,517 
         

Foreign currency risk
As at October 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 MXN/USD IDR/USD USD/AUD ARS/USD USD/CLP  Other
Net exposure on monetary assets (liabilities)   22,990 10,463 4,832 4,095 2,961 2,762 (3,739) 1,132
EBIT impact +/-10% 2,554 1,163 537 455 329 307 415  126
                   

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 $104,229  $-  $-  $-  $104,229 
Lease liabilities (interest included)  1,676   2,026   808   352   4,862 
Contingent consideration (undiscounted)  8,617   9,613   -   -   18,230 
Long-term debt (interest included)  662   1,992   31,992   -   34,646 
  $115,184  $13,631  $32,800  $352  $161,967 


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News published on 8 december 2022 at 17:00 and distributed by: