Major Drilling Balances Growth Plans With Margin Pressure

Major Drilling ((TSE:MDI)) has held its Q3 earnings call. Read on for the main highlights of the call.

Major Drilling’s latest earnings call struck a cautiously optimistic tone, blending solid top-line growth with clear acknowledgment of profit pressures. Management emphasized strong revenue momentum and a fortified balance sheet, but investors were reminded that strategic spending, softer regions, and tight labor markets are currently weighing on margins and earnings.

Revenue Expansion Led by the Americas

Q3 revenue climbed to $184.6 million, up 14.9% year over year, driven mainly by higher drilling activity in Canada, the U.S. and a solid contribution from Peru. Management framed this as early evidence of an industry upcycle, noting that customer exploration budgets are starting to translate into tangible volumes across key North and South American markets.

Cash Build Strengthens Financial Flexibility

Major Drilling exited the quarter with net cash of $39.6 million, an improvement of more than $25 million, and total available liquidity of $177.1 million. This stronger cash and liquidity profile gives the company room to absorb near-term preparation costs while still being ready to fund growth as demand improves.

Fleet Optimization and Modernization Strategy

The company fine-tuned its fleet to 697 rigs after disposing of 13 older units and adding three new rigs during the quarter. Alongside targeted upgrades, Major Drilling completed extra maintenance and proactively ordered critical supplies to ensure high rig readiness for an anticipated uptick in exploration work.

Rising Demand for Specialized Drilling

Specialized services made up 59% of quarterly revenue, with the specialized fleet of 306 rigs running at 49% utilization. Management highlighted that deposits are becoming more remote and technically complex, which is sustaining strong demand for the company’s higher-margin, specialized drilling capabilities.

More Junior Miners and Broader Commodity Mix

Juniors accounted for 10% of revenue, up from 6% a year earlier and 8% last quarter, pointing to improving equity financing and risk appetite among smaller miners. The commodity mix remained diversified, with gold at 39%, copper at 32%, iron ore at 8% and silver at 6%, spreading exposure across key metals cycles.

Preparing Early for a Sector Upswing

Management reported that many senior mining customers have set exploration budgets up more than 30%, with some close to doubling last year’s levels. To capture this potential wave, Major Drilling has retained and hired crews, expanded training, and lifted inventory levels, positioning the business for what it expects will be a busier calendar 2026.

CapEx Discipline Amid Fleet Renewal

Q3 capital expenditures came in at $10.3 million, down 18.3% from $12.6 million in the prior year as the company kept a tight rein on spending. While a modest CapEx uptick is expected in Q4, management signaled that full-year fiscal 2026 CapEx will still land below the previously indicated $70 million, underscoring a disciplined approach.

Margins Squeezed by Strategic Costs

Adjusted gross margin, excluding depreciation, fell to 14.3% from 19.5% a year earlier, a drop of 5.2 percentage points. The company pointed to deliberate preparation spending, start-up and mobilization expenses, and the financial hit from contract terminations in South America as the main drivers of this margin compression.

Weaker Profitability Despite Higher Sales

Despite strong revenue growth, EBITDA declined to $5.1 million from $7.8 million, while net loss widened to $10.8 million, or $0.13 per share, versus $9.1 million, or $0.11 per share. Management effectively asked investors to view the current drag on earnings as the cost of gearing up for higher activity and better pricing in future periods.

Regional Headwinds and Contract Resets

The Australasia and African segments underperformed, hampered by a slowdown with Major Drilling’s largest customer in Indonesia. In South America, including Peru, management chose to exit underperforming contracts, a move that hurt short-term margins but is intended to improve portfolio quality and pricing power over time.

Labor Tightness Emerging as a Bottleneck

Management flagged growing labor shortages, particularly in Canada and the U.S., as a key constraint that is already weighing on profitability. While rigs are available, qualified crews are becoming harder to source, which could slow the pace of any ramp-up and keep a lid on near-term margin recovery.

Building Inventory Against Supply-Chain Risks

The company warned that raw material and consumables supply could tighten as industry activity accelerates and multiple operators place orders simultaneously. In response, Major Drilling has increased inventory and pre-ordered supplies, accepting some interim cost to reduce the risk of future project delays.

Seasonal Utilization Lows and CapEx Timing

Overall fleet utilization was 52% in what is typically a seasonally weak quarter, with specialized rigs at 49%, conventional at 53% and underground at 55%. CapEx also trailed earlier run rates, and management reiterated that full-year fiscal 2026 capital spending will end up below the original $70 million guidance as it times investments to demand.

Guidance and Outlook: Growth First, Margins Later

Looking ahead, management expects activity to pick up in Q4 and into fiscal 2027 as more rigs are deployed at gradually improving pricing, supporting steady revenue growth from the current 52% utilization base. They see margins recovering over time but more slowly than revenue, given labor and supply-chain pressures, and plan to update investors with detailed fiscal 2027 guidance next quarter.

Major Drilling’s call outlined a classic early-cycle setup: sales and customer budgets are moving higher, balance sheet strength is improving, and the fleet is primed, even as margins and earnings lag. For investors, the story now hinges on whether the anticipated upturn in exploration can overcome labor and cost headwinds and translate this groundwork into sustainable, profitable growth.