Foraco International SA

Good morning, ladies and gentlemen, and welcome to the FHIRACO fourth quarter 2025 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Monday, March 2nd, 2026. I would now like to turn the conference over to Tim Bremner. Please go ahead.

Thanks, Joanna, and good morning, everyone. Thank you for joining us today to discuss Farraqua's results for the fourth quarter and full year ending December 31st, 2025. Joining me on the call is Fabian Silvestre, our Chief Financial Officer, who will walk you through the financial results and key drivers. Before we begin, please note that our comments today may include forward-looking statements, which are subject to risk and uncertainties. Now, turning to the highlights. Q4 2025 revenue was $66 million, excluding adverse foreign exchange, compared to $61 million in Q4 2024, an 8% increase. EBITDA was essentially flat year-over-year at $10 million and was impacted by the commencement of new contracts in the quarter and the usual seasonal effects, which impaired the performance by about $3 million. On a full-year basis, revenue was $258 million compared to $250 93 million in 2024, with EBITDA margin of 18% in 2025, compared to 21% in 2024. While full year results reflect the market transition we experienced across parts of 2025, Q4 was most certainly the inflection point. We saw significant growth in virtually all regions as market demand surged, and that demand is now clearly visible in our commercial pipeline. As a result, Morocco is reporting a record order book of $404 million as of December 31, 2025, of which $228 million is expected to be completed in 2026. I'd also like to point out that Tier 1 customers represent 90% of our order book. Importantly, With our current utilization rate, we have the capacity and flexibility to meet this demand while maintaining operational discipline. A key theme for 2025 was positioning the business for where the market was going and not where it has been. Over the year, Baraco significantly increased its exposure to gold while maintaining a disciplined approach during the market transition. Today, Road represents over 35% of our order book for 2026, and we have the capacity to put more rigs to work under increasingly favorable commercial terms. With that, I'll now turn the call over to Fabian for the financial review. Fabian?

Thank you, Tim, and good morning, everyone. First of all, and as a reminder, Foraco reports in full AFRS and in US dollars. Revenue for Q4-25 amounted to 63 million compared to 61 million for the same quarter last year. By reporting segment, mining represented 82% of revenue and water represented 18%. By geography, North America revenue amounted to 20 million in Q4-25, a 13% decrease, driven by the completion and deferral of certain Canadian contracts. Asia Pacific revenue decreased to 18 million due to the early seasonal break in drilling operation compared to last year. South America revenue increased 95%, reflecting strong momentum. Operations in all three countries are still not reaching targeted performance level, but continue to improve and are supported by growing customer demand. In EMEA, Revenue grew 15% to 6 million, supported by the continued ramp-up of contracts initiated during previous periods. In Q4-25, the geographical activity split was North America, 32%, Asia-Pacific, 28%, South America, 31%, EMEA, 9%. During the quarter, gross margin, including depreciation, was 10 million, or 16% of revenue, compared to 11 million, or 18% of revenue in Q4-24. This decrease was mainly driven by an increase in depreciation costs linked to the significant capex to execute long-term contracts awarded during the period. SG&A was stable at 5 million, and as a percentage of revenue, SG&A was 8%. As a result, EBIT was 5 million versus 6 million in Q4-24. EBITDA amounted to 10 million, the same as Q4-24. On a full-year basis, revenue amounted to 258 million compared to 293 million last year. The full-year gross profit was 18% compared to 21% last year. The full year EBIT was 27 million or 10% of revenue compared to 43 million or 15% of revenue in full year 24. As a percentage of revenue, EBITDA from the full year was 18% compared to 21% in 2024. As of December 31, 2025, working capital requirements were 0.6 million compared to 10 million in 2024. CAPEX amounted to $23 million in cash compared to $18 to $19 million last year. This CAPEX was mainly related to the construction of new proprietary rigs, the acquisition of new rigs, and ancillary equipment and loads to support new contracts. At December 31, 2025, our net debts, including lease obligation, was $71 million or $65 million at cost at December 31, 2024. I will now hand the call back to Tim for his closing remarks. Tim?

Thank you, Fabian. Stepping back, what we're seeing today is a much stronger market demand across our core regions. This demand is being driven primarily by record gold prices and continued structural demand for copper, which remains central to electrification and grid investment globally. In addition, water remains a key market that we continue to develop. We're also seeing growing customer interest and increasingly funded programs in commodities such as tungsten, antimony, and rare earth metals. These metals have rarely been in such high demand, and the driver is clear, geopolitical tension and supply chain uncertainty, with global supply often highly concentrated and in many cases dominated by China. This demand is being strongly supported by the capital markets, with record levels of investment flowing into exploration and development across multiple commodity groups. Against this backdrop, we have deliberately focused on significantly increasing our exposure to gold and other commodities in high demand, particularly in the United States. We continue to ramp up and deploy rigs there, and we expect to be fully deployed on three significant long-term projects by mid-year. In South America, our business has recovered well, demonstrated by 95% year-over-year growth in Q4 2025 and supported by a robust order book. Our focus now is to keep improving operational performance and execution as our activity scales. As always, a brisk market comes with challenges, and FRAC was prepared We are seeing price increases in rock-cutting tools, driven mainly by higher input costs for silver and tungsten, which are widely used in drill bits. Labor markets are tightening across all regions, and we expect this to translate into somewhat higher labor costs over time. Finally, rig demand has increased meaningfully, pushing delivery timelines out compared to what we saw in 2025. Baraco anticipated these dynamics early. In 2025, we moved more than 20 drills around the world to align our capacity with opportunity. We also placed orders for new drills, and we're taking delivery of that equipment now and in the coming months. We also remained disciplined with our crews, despite a very competitive labor market, which helped us to retain and attract experienced crews as we return to higher activity levels. And finally, Our disciplined approach to the market, while it impacted our top line in 2025, was definitely the correct strategy. As we tender new projects today, we're doing so at rates that incorporate the increased costs we are expecting as activity continues to ramp up. In closing, we believe Q4 marked the turning point in demand. Our order book is at a record level. Our utilization rates give us room to go. And our mix, particularly our increased exposure to gold, positions us very well for 2026. Joanna, we can now turn the call over to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Don Angelo Volpe at Beacon Securities. Please go ahead.

Hey, good morning, guys. Congratulations on the record backlog. Just wondering how much of the backlog is tied to multiyear contracts versus shorter duration programs. and kind of what the expected margin is of the executable backlog compared to 2025 margins.

So, you know, as we indicated, Don Angelo, 228 million of that is going to be executed in 2026. So, you can do the math and see what the remainder is in spilling out beyond that. The majority of that is for Tier 1 customers, you know, which by nature indicates that, you know, there's going to be continuity and increased work following on the work that we're doing, as opposed to being in the spot market for the juniors, which represents only about 10% of the current order book. And as I said, we've still got capacity. We've got rigs available. The tender pipeline is still very brisk, and we're being quite selective about the new opportunities we take on. When it comes to the margins, as I mentioned, we are anticipating that some costs may increase, and we are in a position now where we can tender work at improved commercial terms. And this would indicate that margins may improve. We're also working on execution and performance in areas where the margins have been not as good as we would like. And we're seeing that trend improve. So that would indicate that, you know, margin profile would be reasonable or sustained or possibly improve a little bit going forward.

Okay. I appreciate all the color there. And then final question for me, just would it be possible to provide any CapEx expectations for fiscal 26?

Sure. I'll let Fabien address that. The CapEx will be in correspondence with our order book and very in line with what we already expense in the end of 2025.

It should be a little bit higher compared to 2025. Okay. Thank you. Congratulations on the quarter, guys. We'll hop back in the queue.

Thank you. The next question comes from Frederick Tremblay with Desjardins.

Please go ahead.

Thank you. Tim, you mentioned some ramp-up costs. I believe you said $3 million in Q4. As you look at your backlog and project startup schedule for 26, can you give us maybe a bit more visibility on ramp-up costs in the next couple quarters and when you expect sort of that dynamic to maybe normalize on an EBITDA level? Thanks.

Sure. Good morning, Fred. So, yes, there was some ramp-up costs that we experienced in Q4 as we started new projects in Latin America. You can appreciate that when you equip a drill rig or a number of rigs to go out for a long-term project, there's the need to scale up at the beginning and your expenses are higher at the beginning rather than, you know, when you're maintaining. So this is happening in Latin America. It's also happening in the U.S. And as I indicated, we are continuing to scale up in the U.S., so there will continue to be those startup costs there, and that would have some impact on margins. But, you know, once our utilization rate increases and we get to kind of the cruise level that we're expecting for 2026, those ramp-up costs will mitigate. unless we continue to find new opportunities, we don't expect those ramp-up costs to mitigate much beyond the end of Q2.

Okay. That's helpful. Thank you. And then just on the position rate, I think it was 40% in Q4. Sounds like you're getting busier, which is great. Any color on near expectations for utilization in the near term where you're at now or where you see the company going near this year?

Sure. So, yes, we were at 40%. We're currently just over 50%, and we're still mobilizing rigs. So, you know, that figure will increase. I don't want to speculate on where it's going to go for the full year, but it's certainly a much improved utilization rate from prior year. And we do have, and as it's indicated, we have a lot of capacity that we can deploy, and we put the rigs in the right place to take advantage of the improvement in the market.

Yeah, that's great to hear. Yeah, speaking of putting rigs in the right place, I was wondering if you could comment on a bit on the geographic nature of the backlog. You know, South America seems to be doing quite well. Is that also reflected in your backlog, or do you see other geographies kind of picking up steam?

So the backlog is healthy in all of the main jurisdictions, including South America. You know, it's a significant improvement. And we still have other projects that – that are up for renewal and that we're very optimistic about. But, you know, you can't announce that backlog until those outcomes are known. So the backlog is quite healthy, especially in North and South America.

Great. That's all I had. Thanks for taking the questions.

Thank you. The next question comes from Stephen Green with Ordnance Capital.

Please go ahead.

Good morning. Good morning, Tim. How are you? Hey, Steven. I'm well, thanks. I think just on the topic, I want to give you personally a lot of credit for sticking to your strategy of Tier 1 profitable business. I know we had a couple of tough quarters for more than a year, and you stuck to your guns, and I guess the price of metals helped, but you really started to pay off. And I also want to say that you're turning Latin America around, South America around. from a real negative to a positive, which seems to be really going to be growing quickly here, profitably, is really a credit to your fortitude and to changing the management and so forth. So I'm thankful as a shareholder. Also, just one question. As you guys start getting more profitable and generating more cash, do you see your net debt levels increasing? You want to decrease them? What's your optimal capital structure? I know you want to keep maintaining some debt.

Well, first of all, thanks for the comments. We've got a great team here at Ferracco, so it was a group effort on improving the performance in South America. You know, the net debt has increased slightly, but this you know, is not to be unexpected when you see the return to growth and, you know, the investment that we made in the last quarter. But our strategy and our intention is absolutely to reduce the net debt. That is the number one priority of capital allocation and will continue to be so. And I think I've indicated in the past that, you know, we want to deleverage the balance sheet to somewhere under half a turn. Maintaining some debt is fine. But we want to have the debt at a level where the business is sustainable despite of potentially unexpected changes in the market. So we are disciplined on reducing debt.

Well, that's great. And I think I'm not sure what your high watermark was for revenue, but do you see us surpassing setting records for revenue in the near future?

Well, I think our high watermark, I'm just going from memory, but I think it was 377 million in 2023. And remember, that included jurisdictions where we no longer operate. Right. That represented, you know, a significant portion of our top line. But, you know, as we invest in new rigs and grow the business back up, You know, we've been there before, so all we just need is sustainability in the market for a long enough time, and, yeah, it's entirely possible to get there.

That's great. I think – I mean, you've commented on this, but, I mean, this is really an inflection point for the model, because I think that the leverage of the model, really, for now, as we get these higher revenue rates, is really going to start to show, because – It seems like your margins are expanding even as you get more revenue, which is great.

I'm excited about the model.

And I guess the last thing I'll say before I go is besides thank you is it's nice to see other people on the call and interested in the company again. For a long time, I asked the only question, so I'm glad to see we had more people on the call than just me.

Well, we thank you for your unwavering support, Stephen. It's been very important to us, and it's nice to have a call under a much better environment.

Yeah. Well, good. Congratulations, and thanks again.

Thank you, Stephen.

Thank you, ladies and gentlemen.

As a reminder, if you have any questions, please press star 1 now. The next question comes from John Ellsworth with World Micro. Please go ahead.

Yeah, congratulations on a great quarter, and it does appear to be that inflection point that we're seeing. But given the backlog and that you mentioned a current 50% utilization rate, how should we be looking at the, you know, an impact or, you know, are you comfortable giving some guidance around, you know, year-end like cash flow or EBITDA, you know, a year from now? And then the second part of the question was, on the utilization rate since we've been so selective in terms of not taking bad deals and just really being strategic about being patient and That's great. We're at all-time highs in the metals, so that strategy's worked. But what is a good utilization rate to kind of bake in come year-end? Is it something like – I assume you can sign deals all the time, but the question is, are they good ones? And so does year-end look like a 75% utilization rate or 85% or 60% or just maybe a little color around that, you know, what we may be talking about, you know, a year from now?

Sure, sure. So to the first part of your question, Farrako does not provide guidance, so I won't be able to respond to that part of the question. The utilization rate that the company has, the maximum utilization rate the company has had was in 2012 when we peaked at 74%. And, you know, really that is, maximum utilization. You know, to go any higher than that is virtually impossible. And I state that because there's, you know, there are interruptions in the business at year end. There's mobilization periods where rigs are being moved. And there's also maintenance. So in order to get much higher than 74% is truly unrealistic. This year, I can tell you that 67% of the fleet is going to be used at any given time. And that's a significant figure for us. And again, when I say, you know, 67%, that's across all types of rigs. And, you know, certain rigs are site-specific. For example, you can't put a rotary rig on an underground project and vice versa. So, you know, we see the utilization rate continuing to improve and getting to very healthy levels.

That's good. And then I think the last part of the question is, I'm not sure if anyone's done this analysis, but any guess on what the barriers to entry would be for a new player to walk into this industry and have the number of rigs that you do and the location set up, the infrastructure baked out? It seems like we're at the right place at the right time, of course. But any thoughts around what it would take to start something like this?

Sure, we can respond to that. So there's, you know, there's really two dynamics to our business. There's the junior market. And then there's the work that the tier one and the mid tier companies do that are generally much more involved and much more technical. If you want to go and buy a couple of core drills to service a local area that might be pretty active with junior activity, Realistically, the barriers to entry are low. But that's why we focus our business to be diversified, including our water business, which is strategic. It's very technical. It's very capital intense. You cannot find a crew that can do that type of work easily. It takes years and years to train them. In that regard, that's why our rotary business to us is strategically important and we're continuing to focus on growing it. The demand is constant over the commodity cycle for water well work and the barriers to entry are significant. When it comes to new competitors in the tier one space for exploration and development, that too, there are some natural barriers. There's the scale of the size of the competitor because these projects generally require, you know, a number of rigs, and the requirements of the customers are quite steep, either in terms of health and safety or technical in that the holes must be drilled exactly to where they want them, or the ground conditions are challenging and core recovery is the most imperative aspect of the program. And you can't start a drilling company and just go hire people off the street and off in all of those elements to satisfy a Tier 1 customer. So there's natural barriers to entry there. And that's the space that we've positioned ourselves in to be able to supply the Tier 1s with our service.

Very good. Appreciate you guys. Congrats.

Thank you. We have no further questions at this time. I will turn the call back over to Tim Bremner for closing remarks.

Thanks very much, Joanna. And thank

Yes, please continue. It seems like your line did cut out there for one second.

The line cut. Hold on.

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and we ask that you please disconnect your line.