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Good morning, ladies and gentlemen. Welcome to the Q4 2019 results conference call.I would now like to turn the meeting over to Denis Larocque, President and CEO. Please go ahead, Mr. Larocque.
Thank you, Elina. Good morning, everyone. Welcome to Major Drilling's Call for the Fourth Quarter Fiscal 2019. With me is Ian Ross, our Chief Financial Officer. You should have received the copy of our results or have seen them online yesterday evening. If not, check on our website at majordrilling.com.Before we get started, I'd like to caution you as usual that during this conference call, we'll make forward-looking statements about future events or future financial performance of the company. These statements are forward-looking in nature and actual events may -- and results may differ materially.Our fourth quarter started really slow with many of our rigs only restarting by mid-February and getting fully operational by the beginning of March. But as the quarter progressed, we added more rigs in the field both with new customers and also adding rigs on existing projects. We're seeing this trend continuing into our first quarter, mostly driven by seniors and intermediate customers. As far as our fiscal year that just ended, yearly revenue was up 12% compared to fiscal 2018, but our EBITDA increased by almost 60% year-over-year through increased productivity and prices combined with a decrease of admin expenses.The company's net cash position net of debt continues to be very healthy at $10 million. The decrease this quarter was due to a net working capital increase, mostly from higher receivables related to increased activity near the end of the quarter. As well we spent $6.3 million on capital expenditures this quarter, adding 4 new rigs to our fleet, while disposing 13 older, inefficient and more costly rigs, bringing the total fleet to 601 rigs.Ian will take you through a summary of our quarter results before I come back with the outlook.
Thanks, Denis. Total revenue for the quarter was $100.4 million, up 5% from revenue of $95.4 million recorded in the same quarter last year. The favorable foreign exchange translation impact for the quarter when comparing to the effective rates for the same period last year is estimated at $2 million on revenue and negligible impact on net earnings. The overall gross margin percentage for the quarter was 23% compared to 24.3% for the same period last year. Things started off slowly in February due to delayed startups and weather issues in our biggest markets. However, we finished the quarter very strongly with a number of countries contributing improved results.The quarter results were impacted by a onetime $2.7 million charge on a difficult project in Canada. G&A costs were down $1.1 million at $11.1 million, when compared to the same quarter last year. The decrease was driven by the shutdown of operations in Burkina Faso as well as other restructuring initiatives in various countries. We feel this level of G&A is appropriate for the time being, which creates considerable leverage in profitability as utilization rates increase.The company recorded a restructuring charge of $1 million in the quarter as operations were rationalized and staffing levels were adjusted to local market conditions in various countries. The provision for income tax for the quarter was an expense of $2.7 million compared an expense of $2.5 million in the same quarter last year. The tax expense for the quarter was impacted by nontax affected losses, nondeductible expenses as well as an increase in activity levels in taxable jurisdictions.This combined for a net loss of $3 million or $0.04 per share for the quarter compared to a net loss of $4.3 million or $0.05 per share for the prior year quarter.In terms of our financial position, we continue to have one of the most solid balance sheets in our industry. During the quarter, our net cash position net of debt decreased to $10 million. The bulk of this decrease related to a temporary working capital outflow from the quick ramp-up in revenue between Q3 and Q4. The company also spent $6.3 million on capital expenditures adding 4 new rigs and support equipment to our fleet.We disposed of 13 rigs with the majority relating to the closure of our Burkina Faso operations. Total rig count is now at 601. The new breakdown of our fleet utilization is as follows: 292 specialized drills at 40%; 141 conventional rigs at 23% utilization; 168 underground drills at 49% utilization for a total of 601 drills at 38% utilization. As we mentioned before, specialized work in our definition is not necessarily conducted with the specialized drill. Therefore, we should also give you the breakdown of our revenue by type of work for the quarter. Specialized work was 61%, conventional was 9% and underground at 30%. Also, seniors and intermediates represented 88% of our revenue in Q4, while juniors have decreased to 12%. The decrease in juniors is evidence of the current challenges they face in raising capital. However, our increase in seniors illustrates the growth in market share we are achieving with this customer base. In terms of commodities, gold projects represented 55% of our revenue, while copper was at 22% this quarter.With that overview on our financial situation, I'll now turn the presentation back to Denis to discuss the outlook.
Thanks, Ian. Looking back at our fiscal 2019, our annual revenue was the highest since 2013 at $385 million. I am particularly pleased with the progress we have made in innovation towards increased productivity, safety and meeting customers' demand. Productivity gains from the tools developed combined with the price increases in our highly-skilled labor force are responsible for the improvement in our EBITDA this year. Also we have recently developed new applications for our computerized consoles, which not only helps with recruitment, but also gathers useful data for our customers.As well, this year, we have strengthened our relationships with many senior customers, while junior funding has been difficult. We have built strong relationships with well-funded juniors looking for truly specialized drilling. With gold and copper reserves depleting at accelerated rates, with grades declining as well, combined with the lack of exploration work conducted to replace these reserves, demand for specialized drilling should increase going forward, which continues to be our main focus.We are very pleased where the company is positioned at this point in time, still being the leader in specialized drilling. Our strong financial position has allowed us to continue to improve our fleet to meet customers' demands in terms of rigs, rod handling, mobile equipment and technology, which is key to our success to remain the leader in specialized drilling. Also having the financial resources and the best equipment allows us to attract the best people at a time when we are going into a labor crunch in our industry.Going into fiscal 2020, the company expects to spend approximately $30 million in capital expenditures to meet customer demand, improve rig reliability, productivity and utilization as well as to invest in our continuous improvement initiatives. However, we will remain vigilant and flexible in order to react and adjust to unforeseen market conditions.Finally, I want to thank our 3,000 employees for their continued dedication to make our company one of the safest and most professional drilling companies in the industry. Thanks, guys. That concludes our formal remarks. And we'll now open the call to questions.
[Operator Instructions] The first question is from John Koller with Oppenheimer + Close.
How are you today?
Good.
My question relates primarily to the 2 expenses in the quarter that were called out, the $1 million and then the $2.7 million. I am just curious if you can give any additional information? I went through the SEDAR filings and I couldn't really find anything.
Yes. The $1 million, you're talking about the restructuring, basically this relates to a few of our branches where we've made adjustments to markets and basically, they relate to adjusting staffing levels at those areas. In terms of the $2.7 million, that is a onetime charge. We encountered some very difficult ground on a project where we ended up with significant cost overrun and this was very unusual circumstances, but -- and it was, like I said, onetime, and we felt that because it was a significant amount that we should probably mention it.
Okay. I'm assuming that the branch adjustments were in Central and South America, is that reasonable?
No. It's spread out pretty much. It's just an exercise that we conducted through the operation.
And then the difficult ground, I don't know if you can give any additional information, was this an area where the company hadn't operated before, was it a new terrain or...
Yes. No, it's a very technical project we were on and we -- basically we encountered difficult situation where our costs ended up being much, much higher than usual. But like I said, this is not like a regular. This is a very, very technical project.
The next question is from Daryl Young with TD Securities.
Just one quick question. It sounds like things are going quite well now in North America. And I was just wondering if you could maybe give a bit of context on what the outlook for the remainder of the year is in, I guess, Canada? Sounds like that's where most of the upside is coming from currently.
Yes. Basically with our focus on seniors, a lot of seniors are spending more money in North America. I mean, a classic example is the Barrick Newmont joint venture in Nevada, where they're putting -- they said they were going to put a lot more emphasis, so there is a big push in North America. I think what we're seeing is probably mining companies are still with commodity prices. Now I mean, we just had a jump in gold price, but I mean that is just a few days old, but in terms of I think what we are seeing is mining companies are still prudent and in that prudent state tend to invest more in secured jurisdictions, if I might use that term, like North America and that's why we're seeing a bigger push there. But also we've made -- because of our relationship with the seniors, that certainly helps.
Got it. Okay. Excellent. And then on the labor front, how many employees or maybe said differently, how tight are you guys currently? Could you ramp-up activity levels 15% from here with your existing labor or do you really need to get out there and recruit more people?
Yes, it depends on the market. In North America, we -- for every rig we put out, we have to go recruit. Now when I say recruit, it's not necessarily drillers, we're able to promote, then we're training and we've got people in the system and we can promote people from within that are already in the system. It's really what I'd call the entry level where we're competing with construction industries and all the industries. And talk to any businesses in North America, and there's not that many -- well, including the Tim Hortons, I mean it's everywhere, people are struggling to find people, so we're no different. But we do have some very good recruitment and training programs in there, and we've been able to keep up with the demand. Outside of North America, things are pretty good. We're able to find people, find good people because we tend -- our compensation tend to be higher than the industrial average. So it's, like I said, it's market-by-market, but we're still okay at this point.
And have you seen any competitors fall away recently? Or is the market still kind of holding in there with the competition still quite intense?
Yes. We haven't seen that many fall away. Now I hear and I get a phone call once in a while that somebody basically had enough or their bank had enough, and there is a lot of companies out there that are struggling financially. But we haven't seen and, I would say, it's been somewhat surprising because it's been a very long downturn and a lot of companies have been struggling for a while. But we haven't seen any -- a lot fall out. But I think the true difference we'll see is on a ramp up. When your cash strapped, you can't put a whole bunch of rigs in the field because the minute you have to put rigs out, you have to repair your rigs that have been sitting that you haven't put a dollar in; you have to buy rods because you basically have been working with the minimum for the rigs that are turning, so you need to order rods; you need to finance your receivable because you only get paid in 60-plus days and you need to finance the mobilization. So it's a big cash drain when things ramp up quickly and typically, you can't do it if you don't have the financial. You'll be able to put a couple of rigs out there, and then you'll have to wait maybe 3, 4, 5 months until the cash comes in to be able to put the next ones out. So I think that's where we're going to see the biggest difference is when if there is a -- not if, when there is that big ramp up, I think there's going to be a lot of companies that are going to struggle to keep up.
Got it. Okay. And then one final question, the project in Canada that was giving some issues, is that completely behind you now?
Yes.
The next question is from Ryan Hanley with Laurentian Bank.
Just a couple of quick questions for you. I guess first off just with all the M&A that's gone on over the last little while here, especially in the gold space, it sounds like things in North America are going well, but has any of that impacted, I guess, demand or budgets in other geographies or even in North America?
We haven't seen it -- seen anything yet. I mean, if there are some -- you read in the press that there might be some divestitures from those combination, we haven't seen anything yet. I guess, the good news is that -- the project that sometimes I read about that might be sold from these companies we're not working on, and the ones that we're working on are the ones they're putting their efforts in. So I think, for us, it's -- and they've added rigs on those projects. So for us, it's been good. So we don't anticipate any issues for us on that.
Okay, perfect. And then I guess just I think you commented a little bit on pricing starting to get a little bit better. Is that just kind of tied to few specialized contacts? Or are you kind of seeing that across the board? Or can you provide, I guess, a little bit more color on the pricing?
Yes. No, it's pretty much across the board. I think the market is picking up somewhat, and also I think there is a -- we've increased our market share, and I think there is, I would call, a return to quality versus trying to get the cheapest, cheapest price out there. So 3 years ago when you were bidding, basically, if you weren't the cheapest, you were not getting the job. It didn't matter if you were a $1 more, but you were bringing something better to the table, it didn't, whereas now that is coming into consideration because there's been stories of difficult drilling programs, that's all I'll say. But -- so there is that element where that's where price is. It's not -- you still need to be competitive. It's not like you can charge a huge premium and say, "Yes, we bring something different to the table, and we can charge." But at least there is a -- that is getting considered and if you're not necessarily the cheapest, you get considered, like I said, where 2, 3 years ago, it was all about price.
Okay, perfect. I guess, I'm talking to more geologists than procurement guys.
Well, that depends on that swinging. 3 years ago, it was all procurement, geologists had no say in it. And some geologists were frustrated sometimes because they didn't have a say in who they would be working with, whereas, like I said, there's been difficult campaigns and now geologists have a say in the discussion, although procurement is still involved, but now it's more of a team effort and so it's a better environment for us.
[Operator Instructions] The next question is from Christoph Matern with HPS.
Maybe you talked a bit about it already, but maybe more for a sense of the industry outlook where we stand with the current gold pricing to the year. What do you think the demand is going to go overall for kind of revenue growth for the industry this calendar year? Do you think we're going to trend like mid-single digit? Is that sort of the -- or where do you think we're going to go from here? And then I have one on margin also.
Okay. Give me your other question, I'll answer them -- what was it?
Okay. The other one was on the margin, like how should we -- you talked about, okay, there's some ability maybe there for price increases, on the other hand you also talked about and also in the press release about the labor market and the pressure there. So I was just thinking about net-net, how do we think -- should we think about future margin flow through? Do we think -- should we think about expansion into like 12 year out for the -- 12 months out for the industry? Or do we think it's more -- it's tougher because of the labor market?
Yes. Well on the growth related to gold price, I mean, the gold price jump that we saw over the last few days is very early. So I'm not sure how that's going to play out. But the one thing we're seeing is, and this is our case, is that what we read out there or what we read in February, March on budgets was that it looked like exploration budgets. When you gathered the information from the industry and S&P Global called for exploration budget to be up 5% to 10% and they said -- even I've read some that said flat to 5% and that looked like what the market was going to give us. It looks like, for us, it's going to be a bit stronger than that and really it relates to our relationships to seniors because the seniors are going to be the ones driving the exploration this year. And so we're heavily weighted and we've developed, we've strengthened our relationships with the seniors. Therefore, that's where I said we were -- that our market share had increased and it relates to that it's because the seniors are doing more -- are going to do more work and we're getting more than our share on that. So now what's going to happen to gold and what's going to -- this part is really tough to predict. And -- but there's no question that mining companies are all talking about having to do -- they're all sitting on the sideline waiting to go, whether it's copper or gold or base metal. They're all -- now copper price -- copper companies were talking about doing more this year, and we expected them to come through stronger this year with budgets and then copper prices have not picked up. And so they're still holding back, but there's no question they have to get out and do more exploration. So that could be second half of calendar year. If things turn around on gold and/or copper, we could see more demand -- increased demand come. On the margin, I think it's going to be a gradual climb on margins. There is price increases, but as you mentioned, yes, there is pressure on cost. I mean there is inflation in the industry, not just labor, consumables and everything. But I think, net-net, we should be seeing a gradual climb in our margins, but we're still far from on our peak margins. So it will be a gradual climb for now.
Got it. And it seems looking at the screen that not nonfirm payrolls helped you a bit on the gold price, so let's see.
The next question is from Ahmad Shaath with Beacon Securities.
Just a couple of questions, maybe back on the $2.7 million charge for the one contract. Maybe give us a little bit more color on maybe the fundamental driver behind it, is it rig related, the rig coming to the job? Or is it that you have to hire or promote relatively inexperienced people that they didn't know how to do the job, maybe a little bit more color on that. And then secondly, from your comments, it seems that North America is really going well for you, but margins will be pressured by labor. Do you see any margin improvement in other pockets in the world? Or is it like the trend in terms of labor, consumables and everything that you mentioned is just globally and we shouldn't expect much improvement in margins. And lastly, maybe on the health of the fleet, I know we're down to maybe 600 rigs now, just looking into the fleet number-wise and quality-wise, where do you see this is going? What is your guys plans going into this fiscal year and where do you want to end up with the fleet?
Okay. Sorry, can you just -- I just got the end of your first question and I took note of the 2 others, but can you just repeat the...
Maybe just a little bit more color on the difficult job you faced, the $2.7 million charge? Is it like the rig-related issue, the rig coming to the job? Or you needed a better rig, or is it more labor related or weather related? What was exactly the issue there or combination of issues that kind of made it difficult for you to get the job done at the appropriate cost?
Yes, okay. Well, first of all, on that, it basically -- again, it's unexpected ground condition. We went in, we did the job with what we thought was -- with what we were thinking we would be facing and basically, we took on the risk and probably a risk that we maybe shouldn't have taken. And -- but it was a technical, very technical program, and it went sideways on us. And as I mentioned because of the difficult ground condition that we encountered, we ended up with significant cost overrun. So that's basically what happened there. On margins, it's pretty much global what we're seeing. I think in -- it's both in Canada and globally. Lately, we've seen improvement in Canada and I would say that this is more related to productivity and also basically more specialized work. We've had a shift in contracts and we ended up with more specialized, therefore higher margin and higher risk, by the way, if you want to refer back to the $2.7 million, but it's higher margin because of the specialty and so -- but overall, in terms of price increases, it's pretty much global that we're seeing that. And finally on the fleet, the fleet is in very good shape. We've -- that's something that we've done through this downturn. We've invested in keeping our fleet in good shape. We like -- some of the margins from the past that we suffered is because we've been doing repairs. We don't capitalize -- unless it's a full rebuild, we don't capitalize those repairs. So they flow right through the P&L through the margins. And -- but we've done a significant amount of repairs to get our rigs ready, get our rigs in good shape. So our fleet is in very good shape now. I say that -- I wouldn't say that all 601 rigs are ready to go because, I mean, when you look at the utilization, there is only, what, I don't have number, but about 250 rigs that are turning at this point. But we do have a lot more rigs that are ready to go, but not all 601. We've done repair and have rigs ready to be able to take on a quick upswing that would come our way and the approach we have is, as we put a rig, an extra rig in the field, we bring one in the shop, and we place it on the shelf. So we make sure we have enough on the shelf to take on a big uptick. So we're ready to go if we get a phone call tomorrow morning, and somebody wants 8 rigs for a project, we can jump in right away. We've got the rods, we've made the investment on the inventory. So we're in very good shape. We've prepared the company for this eventuality.
Thank you. There are no further questions registered at this time. So I would like to turn the meeting back over to Mr. Larocque.
Well, thank you. This concludes our formal remarks, and we'll talk to you next quarter.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.