Foraco International SA

Good morning, ladies and gentlemen, and welcome to the FORACO third quarter 2025 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, October 30th, 2025. I will now like to turn the conference over to Tim Rebner. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Farako International's Q3 2025 earnings call. I am Tim Bremner, CEO of Farako, and joining me today is Fabian Sevest, our CFO. Earlier today, we released our third quarter 2025 financial results via CNW Newswire prior to the opening of the TSX. If you do not yet receive a copy, you can find it at our website at www.farako.com. Following our comments, we will open the call for questions, which will be moderated by our operator. This quarter continued to show operational progress and disciplined cost management across our business. Morocco reported Q3 2025 revenue of $71 million or $72 million when excluding foreign exchange effects, compared to $79 million in the same period last year. EBITDA was $14 million, representing 20% of revenue, compared to 21% in Q3 2024. Earlier this week, we announced the award and renewal of three significant long term contracts in Chile and Canada, with a combined expected value of 150 million. These wins demonstrate for Aqua's ability to consistently deliver a diversified services offering and the strong value our customers recognize beyond simply price competitiveness. I'll now turn the call over to Fabian for a detailed review of the quarter's financial performance.

Fabian? Thank you, Tim, and good morning, everyone. First of all, and as a reminder, Foraco reports in full AFRS and in U.S. dollars. Revenue for Q3 2025 amounted to $71 million compared to $78 million for the same period last year. By reporting segment, Mining represented 86% and water represented 14%. In North America, revenue amounted to $26 million in Q3 2025, 29% decrease driven by the completion and deferral of certain Canadian contracts, while new programs in the United States are ramping up and showing encouraging performance. Revenue in Asia-Pacific remained stable at constant exchange rates at 24 million, reflecting a high and sustained level of activity after several quarters of growth driven by consistent customer demand. Revenue in South America increased 25%, reflecting momentum as operations in all three countries are progressively reaching their targeted performance levels, supported by growing customer demand. In EMEA, revenue grew 32% to 5.4 million, supported by the continued ramp-up of contracts initiated during previous periods. In Q3-25, the geographical activity split was North America, 36%, Asia-Pacific, 33%, South America, 23%, EMEA, 8%. During the quarter, gross margin, including depreciation, was 14 million, 20% of revenue, compared to 17 million, 22% of revenue in Q3-24. This decrease was mainly driven by the phasing and ramp-up of new contracts, which are typically associated with lower initial margins. SG&A decreased by 11% to $4.8 million compared to $5.4 million for the same period last year. As a percentage of revenue, SG&A was stable at 7%. As a result, EBIT was $9 million versus $12 million, including $3.24. EBITDA amounted to $14 million compared to $16 million, including $3.24. On a nine-month basis, Revenue amounted to 195 million compared to 233 million last year. The year-to-date 25 gross profit was 18% versus 22% last year. The year-to-date 25 EBIT was 22 million or 11% of revenue compared to 16% or 36 million in the same period last year. As a percentage of revenue, the EBITDA for the 9-month period was 18% compared to 21% for the same period last year. As at September 30, 2025, the working capital requirements was 7 million compared to 23 million for the same period last year. CAPEX amounted to 15 million in cash compared to 14 million last year. This capex is mainly related to the construction of new proprietary rigs, new rigs, and the acquisition of ancillary equipment and roads to support new contracts. At September 30, 2025, our net debt, including lease obligation, was $72 million, or $66 million at constant exchange rates, versus $61 million at December 31, 2024. I will now hand the call back to Tim for his closing remarks. Tim? Thank you, Fabian.

We're encouraged by the strengthening market conditions across our key geographies, particularly in Latin America, and by the continued rebound in metal prices and exploration financing. In October, S&P Global reported that total financings for the metal and mining sector increased 93% year over year to $12.83 billion. Gold financings rose 136% to $6.71 billion, while base metals, led by copper, were up 31% to $3.18 billion. This momentum extends to early-stage exploration, which increased 27% quarter over quarter and 5% year over year. The S&P Exploration Index, which tracks changes in metal prices weighted by exploration spending, reached 255, up from 228 in June and 200 a year ago. These are powerful indicators of renewed sector confidence, and they directly translate into increased demand for Faraco's drilling services. Our tender pipeline remains robust and supports our focused growth strategy. We see clear signs of sustained improvement in the mining and exploration environment, and Faraco is well positioned to benefit. We continue to invest in new rigs and technology to support this growth. and have redeployed more than 20 rigs internationally, including across Latin America. Our strategy remains focusing on delivering superior margins and strong free cash flow to fund future growth while maintaining disciplined capital allocation and shareholder returns. With that, operator, we'll now open the call for questions.

Thank you. Lisa Yellman will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchdown phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Frederick Tremblay from Desjardins. Please go ahead.

Thank you. Good morning.

Morning, Fred.

Morning. Tim, I was wondering if you could maybe characterize your tender pipeline now versus, say, six, 12 months ago, maybe in terms of the number and size of opportunities that you're seeing? Sure. I don't expect precise numbers there, but just general comments on the evolution of the pipeline lately would be helpful.

Right. So the tender pipeline in North America – as it relates to gold, especially, and copper, is very full. And in some sectors, it might be even a little bit overflowing. There's more work than we could respond to. Latin America is one region where we've seen a tremendous improvement. You know, as we know, we work in Brazil, Chile, and Argentina. And all three of those countries are seeing a robust tender pipeline. Argentina, of the three, is the smallest drilling services market. Chile is obviously the biggest. And, you know, the industry in Chile, the services industry, drilling services industry, is working at near full capacity, and there are still some significant tenders that are being launched. So it is quite robust in all the geographies concentrated on copper and gold.

Great. Maybe just to follow up on your comments on North America, maybe just looking at the conversion of that strong pipeline into revenue, you know, we're noticing that American revenue, which is currently mainly Canada, has been down year over year for the past four quarters. Do you have any sort of visibility on timing in terms of getting that region back to your growth and positive territory?

So, the Canadian market is a very competitive one at the moment. And I think everybody knows that there's a very high concentration of drilling services companies in Canada. And a lot of that activity is in relatively straightforward drilling areas that are super competitive. And it's not a market that we want to enter into because it's strictly a price-driven market. We are focusing on the deeper, more technical, directional work, and that work exists. And as we pivot away from our other customers, largely the nickel, and redeploy those rigs in the gold space, which takes time, we will see that business rebuild in Canada. You've heard me speak about pivoting to gold customers in Canada. When we were busy with a deep nickel, we didn't have a lot of capacity. Now that has shifted, we're training our sites on those customers and we see the opportunities there. And I believe that it's only a matter of time before we are able to secure the work that kind of is in the sweet spot for Farako and it will rebuild that revenue. You know, I announced two projects in Canada that were significant. And, you know, it's the first time that we've been able to announce that for the Canadian market in a number of quarters. So, you know, I see some improvement there. The... The same thing in the U.S. We've got some traction in the U.S. I've been talking about it for quite some time. We are quite busy in the U.S. The tender pipeline in the U.S. is robust. It is a technical market, the U.S., where core recovery and completing the holes to depth is the objective. So it's not as much as a price-driven market. We are proficient at delivering a high-quality technical service and meeting those customer objectives. So, again, that is a market well-suited for the type of services that we provide and allows us to secure the price levels that deliver the margins that we would like. So I am optimistic about the U.S. market.

That's great, Calder. I'll get back at you. Thanks.

Thanks, Fred. Thank you. Your next question comes from Donangelo Volpe from Deakin Securities. Please go ahead.

Hey, good morning, guys. Just looking for some additional commentary on the dynamics of the recent contract wins. Should we be looking for immediate contribution to the Q4 numbers? And should we anticipate some compression on margins as these projects go through the ramp-up phase?

Hi, Donangelo. The work in Canada is renewals. So we're already in the field. We're not going to, we're not having to remobilize. With respect to Q4, Christmas is coming like it is every year. So we're going to expect and endure the seasonality of Q4 as we always do. And that will, you know, that includes these projects. The So you're not going to see any effects from mobilization and ramp-up from those projects in Canada.

Okay. And then the project outside of Canada, obviously we'll see like a little bit of a ramp-up phase there?

A little bit. It's a repeat customer. It's in an area where we are currently working. We have the rigs available. And It's more straightforward than some of the other ones, but there will be a slight ramp up on this one as well. You know, the frustrating thing for us is we're at the mercy of the customer's schedule. And, you know, you've heard me say before that the average award time from a tender to award seems to be increasing. And also, once these projects are award, our customers are – you know, giving us a start date. We anticipate that only to experience a delay. And that's been a common theme lately. But we may have some delay in Chile, but not in Canada.

Okay, great. I appreciate the color there. And then just quickly moving over to the commodity mix for the quarter and also junior and senior exposure for the quarter. Those numbers would be appreciated.

Sir, I have those here. So if we look at – I thought I had them right here. Give me one second. I apologize. So gold, we're – for the quarter, we've increased our commodity mix in gold up from 13% to 16%. And, you know, I expect that to increase significantly. We're getting some decent traction there.

I don't know. We traded somewhere yesterday.

We're getting some feedback here on the call. Sorry. Nickel is off. We're, you know, we were 21%. We're down to 16%. That's not a surprise for anybody. Copper, we're flat at 24%. Iron, we're even at 15%. Water, we are up to 17% from 13%. And lithium is, you know, not even on the radar. So we're seeing the main traction in copper and maintaining our weighting in, sorry, the main traction in gold and maintaining our weighting in copper. And our strategy is, again, to increase the gold contribution. As for the mix with juniors, it's relatively flat, maybe a slight uptick. But again, our strategy is to focus on the tier one customers that can offer us the long-term opportunities.

Okay, thanks for that. I'll hop back in the queue.

Thank you. Ladies and gentlemen, as a reminder, if you want to ask a question, please first start one. Your next question comes from Stephen Green from Gordon's Capital. Please go ahead.

Good morning. Good morning. I wonder if you could talk about your utilization rate and how, as you increase your revenues, your gross margins will go up as your utilization rate goes up as well.

Sure. So with the unutilized capacity that we have, there's a cost associated with that. And as we put these rigs to work, you know, we're not incurring new investment for the rigs that we're putting to work or a modest investment in some cases. And even at constant rates, that will turn into a direct improvement in the EBITDA margin as that utilization rate goes up. We are investing more than we have. in rebuilds and reconfiguration of some rigs, especially those that we transfer internationally. But generally speaking, with the increase in utilization rate, we'll drop right to the bottom line as we offset that unabsorbed cost.

Great. Thank you.

There are no further questions at this time. I will now turn the call over to Dave for AccuTeam for closing remarks. Please go ahead.

Thanks, Sergio. Well, we appreciate your interest, everyone, and we look forward to speaking to you again in the new year when we present Q4. And if you have any follow-up questions, a lot of you know me. I'm happy to take calls or respond to emails as you wish. And again, thank you very much for your interest. Have a good day.

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