Foraco International SA (3F3.F) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Foraco Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. I would now like to turn the conference over to Tim Bremner. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Foraco International's Q3 2025 Earnings Call. I am Tim Bremner, CEO of Foraco, and joining me today is Fabien Sevestre, our CFO. Earlier today, we released our third quarter 2025 financial results via CNW Newswire prior to the opening of the TSX. If you did not yet receive a copy, you can find it on our website at www.foraco.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. Foraco 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 3 significant long-term contracts in Chile and Canada with a combined expected value of $150 million. These wins demonstrate Foraco'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 Fabien for a detailed review of the quarter's financial performance. Fabien?

Thank you, Tim, and good morning, everyone. First of all, and as a reminder, Foraco reports in full IFRS and in U.S. dollars. Revenue for Q3 '25 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 '25, 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 3 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 in Q3 '24. EBITDA amounted to $14 million compared to $16 million in Q3 '24. On a 9-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, '25, 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 growth to support new contracts. At September 30, '25, our net debt, including lease obligation was $72 million or $66 million at constant exchange rates versus $61 million at December 31, '24. I would now hand the call back to Tim for his closing remarks. Tim?

Thank you, Fabien. 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 Foraco'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 Foraco 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.

[Operator Instructions] Your first question comes from Frederic Tremblay from Desjardins.

Tim, I was wondering if you could maybe characterize your tender pipeline now versus, say, 6, 12 months ago, maybe in terms of the number and size of opportunities that you're seeing? Broadly speaking -- I don't expect precise numbers there, but just general comments on the evolution of the pipeline maybe would be helpful.

Right. So the tender pipeline in North America as it relates to gold, especially in copper is very full. And in some sectors, I would say it might be even a little bit overflowing. There's more work that we could respond to. Latin America is one region where we've seen a tremendous improvement. As you know, we work in Brazil, Chile and Argentina. And all 3 of those countries are seeing a robust tender pipeline. Argentina of the 3 is the smallest drilling services market. Chile is obviously the biggest. And 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.

Okay. Great. Maybe just to follow up on your comments on North America. Maybe just looking at the conversion of that strong pipeline into revenue. We're noticing that North American revenue, which is currently mainly Canada has been down year-over-year for the past 4 quarters. Do you have any sort of visibility on timing in terms of getting that region back to year-over-year growth in 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, the 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 the deep nickel. We didn't have a lot of capacity. Now that has shifted. We're training our sights 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 Foraco, and it will rebuild that revenue. I announced 2 projects in Canada that were significant. And it's the first time that we've been able to announce that for the Canadian market in a number of quarters. So I see some improvement there. 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 in 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.

Your next question comes from Donangelo Volpe from Beacon Securities.

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?

So 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 -- 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. The frustrating thing for us is we're at the mercy of the customer schedule. And 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 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.

Sure. I have those here. So if we look at -- I thought I had right here. Give me 1 second. Apologies. So gold, we're -- for the quarter, we've increased our commodity mix in gold, up from 13% to 16%. And I expect that to increase significantly. We're getting some decent traction there. We're getting some feedback here on the call, sorry. Nickel is off. 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 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 1 customers that can offer us the long-term opportunities.

[Operator Instructions] Your next question comes from Steven Green from Ordinance Capital.

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, 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 will drop right to the bottom line as we offset that unabsorbed cost.

There are no further questions at this time. I will now turn the call over to the Foraco team 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 e-mails as you wish. And again, thank you very much for your interest. Have a good day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.