Foraco International SA (FAR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Foraco International SA Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Tim Bremner. Please go ahead, sir.

Thank you, Lara. Good morning, everyone. Thank you for taking the time to join us on our 2023 results conference. I am Tim Bremner, CEO of Foraco, and with me today is Fabien Sevestre, CFO. This is our first results call, and we're very pleased to be with you today. As most of you know, Foraco announced this leadership transition in March 2023, which has come into effect this July 1. Daniel Simoncini and Jean-Pierre Charmensat will remain on the Board. Both Fabien and I want to take this opportunity to say thanks to Daniel and Jean-Pierre, who've been at the helm of Foraco for 26 years, providing the team with solid and guidance. Fortunately, they'll not be too far away and will continue to guide the new leadership team at the Board level. The news release of these results was issued this morning prior to the opening of TSX through CNW Newswire. If you did not receive a copy of the release, it is available at the Foraco website, www.foraco.com. After the outline of financial results, we will open the call for your questions moderated by Lara. We're pleased to report yet another good quarter with revenues of just over USD 100 million, up 16% from the same quarter last year. These results lifted our 12 months performance to USD 364 million revenue and USD 83 million EBITDA compared to USD 294 million revenue and $50 million EBITDA 1 year ago. We continue to experience excellent global performance of our operations. Our utilization rate in the quarter remained consistent at 59% compared to 1 year [ ago ]. Net profit for the quarter stands at USD 11 million, up 54% year-on-year. This performance is a direct result of the confidence of our team, whom we wish to thank for their ongoing commitment and contribution. During the quarter, the outlook for our business remain largely unchanged despite a quarter-over-quarter reduction in the IMF price index by 8%. We continued to experience a strong demand for our growing services especially related to EV metals in most of our regions. Demand from our customers remains strong as we continue to work through our long-term contracts. My pleasure to now turn the call over to Fabien, who will walk us through the financials in more detail. Fabien?

Thank you, Tim, and good morning, everyone. First of all, and as a reminder, we will report in IFRS and in U.S. dollars. Revenue for Q2 '23 amounted to $100 million compared to $86 million for the same quarter last year, 16% increase driven by sustained demand in battery metals, gold and water, which represents a total of 80% of our activity. By reporting segment, Mining segment represented 88% of Q2 '23 [ revenue ] and Water represented 12%. During this quarter, South and North America were the most active regions. Revenue in South America increased by 56% to $39 million. All countries reported an increase in activity powered by new long-term contracts with senior companies. North America revenue amounted to [ $31 million ] in Q2 '23, 17% increase driven by long-term contracts renewed last year with senior customers. Revenue in Asia Pacific increased 20% at $17 million, reflecting [ quarter-over-quarter ] increase in the demand and gain of market share. Revenue [ in EMEA ] for the quarter was $13 million compared to $21 million in Q2 2022. Activity was stable in Europe and Africa, but the increased activity decreased in [indiscernible] due to the political and economic uncertainties in the region. In Q2 '23, the geographical activity split was: North America, 31%; South America, 39%; EMEA, 13%; Asia Pacific, 17%. During this quarter, the gross margin, including depreciation within cost of sales as per IFRS, was $26 million versus $19 million for the same quarter last year, a 39% increase. Ongoing contracts reported solid performances. SG&A increased by 15% to $7 million compared to $6 million for the same period last year that was stable as a percentage of revenue at 7%. EBIT was $19 million profit versus $13 million in Q2 '22. This represents a 50% increase. The EBITDA amounted to $24 million or 24% of revenue, a 33% increase, compared to $18 million in Q2 2022 or 21% of revenue. On [indiscernible], revenue amounted to $188 million compared to $154 million in H1 2022, a 22% increase. This increase in revenue is due to favorable market dynamics with the company having renegotiated and extended its long-term rolling contracts since the previous year. Coupled with the company's capacity to deliver, this has generated significant growth. Revenue [ increased ] 26% in North America, 54% in South America and 35% in Asia Pacific compared to H1 '22. Revenue decreased 32% in EMEA due to the political and economic uncertainties in [indiscernible]. The year-to-date '23 gross profit was $47 million versus $28 million for the same period last year, [ 66% ] improvement, mainly due to increased activity and the capacity of the company to deliver good performances on contract. Year-to-date '23 EBIT was a positive $33 million compared to $16 million in the same period last year, [ 104% ] [indiscernible]. And the year-to-date '23 EBITDA for the 6-month period was positive $43 million compared to [indiscernible] in the same period last year, a [indiscernible] increase. H1 '23 working capital requirement was $14 million compared to $12 million for the year last year. This increase is the result of the ramp-up of activity. CapEx amounted to $14 million in cash compared to $9 million in cash in H1 '22. CapEx is related to the acquisition of rigs, major rig overhauls, ancillary equipment and rods. At June 30, 2023, our net debt, including lease obligations, amounted to $80 million versus $91 million at June 30, 2022, and $76 million at December 31, 2022. [indiscernible] ratio improved to 0.97. We are taking advantage of our robust financial position to engage in proactive negotiations to improve the company debt and significantly reduce interest costs. I would now hand the call back to Tim for his closing remarks. Tim?

Thank you, Fabien. It was an excellent quarter indeed. We're getting a lot of positive feedback from our customers regarding their future drilling requirements for the near and medium term. [ Even ] our long-term contracts have already been confirmed for next year. Nationally, it seems that inflation fears are diminished as is the potential for a regional or global recession, which bodes well for our business. More than ever, the demand for the main EV mills remains strong as [indiscernible] to responsibly address climate change. Foraco is well positioned for the future. We have a balanced business, which is the result of our strategy that is generating profitable growth. We are working to restructure our debt that, when completed, will result in substantial [indiscernible] interest costs. Lastly, our culture of innovation, integrity and involvement across key markets is to provide extra value for our customers that make us their contractor of choice. Thank you, everyone, for your time and interest in Foraco. I'll now turn the call back to Lara, who will take the first question. Lara?

[Operator Instructions] Your first question comes from the line of Steven Green from Ordinance Capital.

Tim, welcome as the CEO.

Thank you very much.

Well, Daniel gave you a great foundation to build from. So hopefully, we can take it from here. The company is doing amazing, I mean, doing better than it was back in 2012, the last time it was a cyclical high, and I think this is going to keep on going. But it's very frustrating, it's sounds like -- it's like we're talking to the wind. You're going to do $100 million in EBITDA the next 12 months. And the stock -- and the valuation, the equity is only USD 122 million today. I mean I know you have debt and stuff, and I guess you're going to address the debt. But what -- I mean, I know Daniel never wanted to do a U.S. listing. We need some liquidity here. We need to be able to take advantage of the fact that we are the player for water for -- we're a way to play the growth in all the electric metals. We know it's crazy, you doubled the EBITDA in the last year and the stock price is down. I just don't know -- how do you plan on getting this message out? And I guess the key is getting rid of the debt.

Steven, we share the same concern you do, and it's a discussion that we have on our own side, I assure you. And your question is a tough one, and it's also very complex to answer. But first and foremost, as you know, we don't control the market. And the micro cap market has had a fairly tough time, and that's significant. We combine that with the volatility that we've seen in the metals market as well. And it creates even a tougher situation. We need buyers. There's too many sellers at the moment. That's obvious. But honestly feel that once we get the debt restructuring done, this will help norm the stock, if you know what I mean, and put us in a better position. We have our job to do as well as getting -- in getting the word out, and Daniel and I are going to be doing that. And I think we're doing all of the right things. So I know you and others have been exceptionally patient. And for that, we're very, very grateful. But we're entirely aware of the question that you've posed and working on it diligently.

Is there any chance for a U.S. listing or that's still out of the question?

I think -- so the question -- well, it is out of the question at the moment because of other priorities that we've got to deal with. It is a question that we get asked frequently. It is -- we're aware of that. But truthfully, we need to get through this financial restructuring, focus on the ongoing profitability of the business and maintain that course for now.

So in your debt covenants, you can prepay the debt at your will?

Yes, we can.