Major Drilling Group International Inc T.MDI

TD

[retiredcf]

Have a $14.50 target. GLTA

Major Drilling Group International Inc.

(MDI-T) C$8.72

Q1 Weaker on Permitting and Fire Delays; Outlook Still Strong Event

 MDI reported Q1/F24 (ending July 31) EBITDA of $40.3mm, 11.7% below TD's $45.6mm estimate, reflecting lower activity in North America. EPS of $0.26 was in line with our estimate and consensus of $0.25.

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Impact: SLIGHTLY NEGATIVE

Q1/F24 EBITDA missed our expectations (EPS was in-line); however, we believe the miss was mostly attributable to one-time issues (permitting and forest-fire delays in North America). Management commentary points to a continued strong outlook.

• Revenue decreased 0.5% y/y to $198.9mm, 2.8% below TD's $204.7mm estimate. North America results were affected by customer delays associated with permitting and forest fires (-9.9% y/y); however, activity had picked up to expected levels by quarter end. South/Central America increased 8.8% y/y, with growth in all regions excluding Mexico, which continues to lag due to uncertainty over new mining legislation. Australasia & Africa was a highlight (+15.1% y/y), driven by strong demand for specialized services in Australia and new energy work in Mongolia.

• Gross margins of 30.1%, although healthy, were slightly below our estimate of 31.0%, which we believe was largely attributable to the delayed ramp-up in North America.

• FCF strong: $19.2mm pre-w/c, in line with TD's $18.9mm estimate, reflecting weaker EBITDA, offset by lower-than-expected capex. In Q1/F24, MDI spent $16.3mm (TD: $20mm), with five new rigs acquired (four older rigs disposed). Total rig count: 601.

• Balance sheet stronger; share buybacks commenced: Net cash (excluding leases) increased $1.5mm q/q to $60.8mm, primarily reflecting W/C investments to support the seasonal increase in activity levels (cash: $75.9mm, McKay contingent consideration: $15.1mm). In Q1/F24, the company repaid the $20mm outstanding on its revolving-term facility. It also repurchased 145.3k shares for a total consideration of $1.3mm ($8.89/share).

• Outlook still strong: Management is expecting continued monthly growth, with Q2/F24 being the strongest quarter of the calendar year. It continues to see strong demand from senior customers, and believes that reserve replacement remains a priority, despite the recent decline in some commodity prices. This is consistent with our view, and we believe any significant improvements in the junior gold financing market would be a further upside.