Our view: We expect a positive reaction to FQ1 financial results that were above our estimates on stronger revenue and margins. Drilling activity remains steady despite the pullback in metals prices and slowdown in junior financings. MDI management noted they are seeing support for sustained elevated activity with senior customers looking to book their rigs early for calendar 2023 as they continue to look to grow reserves (both precious and base metals customers).
Financial results above expectations: MDI reported EPS of $0.29, above our estimate of $0.20 and consensus of $0.25. EBITDA came in at $44M, also above our estimate of $37M and consensus of $41M. The better than expected financial results were driven by higher top line revenues and margins, with pricing offsetting inflationary pressures. MDI generated $8M of FCF (inclusive of a negative-$22M change in non-cash WC), vs our estimate of $13M.
Outlook remains positive: Management commented that despite the decrease in commodity prices this year, metals prices are at levels supporting exploration and MDI is in discussions with several senior customers for their calendar 2023 programs with many looking to book their rigs early. Typically exploration budgets are approved in Q4 which drives bookings.
Operating review: Revenues were up 32% y/y to $200M on the back of strong activity in North and South America. In the Canada - US region, revenue was up 33% y/y with specialized drilling services remaining elevated. Revenue in South and Central America increased by 35% y/y, due in part to the recovery in activity coming out of pandemic related shut-downs in Chile and Argentina, and revenue in Asia, Australia, & Africa increased by 29%, mainly due to having three months of contribution from McKay, compared to two months in the prior year quarter.
Capex and balance sheet update: Capital expenditures were $13M in FQ1. MDI added 7 rigs and disposed of 10 rigs, bringing the total rig count to 600, down from 603 at FQ4-end. The company ended FQ1 with $61M in cash, down from $71M as of FQ4 as the company paid down $20M on its RCF. MDI now has $75M available on its RCFs, for total liquidity of $136M. LT-debt at the end of the quarter was $30M.