Foraco International SA - Third Quarter 2026 Earnings Call - DEFI TECHNOLOGIES INC

Good morning, ladies and gentlemen, and welcome to the Ferroco International's 3rd Quarter 2026 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star-zero for the operator. I would now like to turn the conference call over to Tim Bremner, CEO. Please go ahead. Thank you, Jenny, and welcome, everyone, to Farrakhan International's third quarter 2026 earnings call. I'm Tim Bremner, Chief Executive Officer, and I'm joined by our Chief Financial Officer, Fabian Sevesk. Today, I'll start with the market environment and our operating highlights. Fabian will then take you through the revenue breakdown and our financial results, as well as the key financial takeaways. I'll return with our priorities and closing remarks before we turn the call open for questions. But before we begin, I'd like to remind listeners that some of the information discussed today may be forward-looking. Our expectations are subject to operational, commercial, financial, and market risks, as well as uncertainties, and actual outcomes could differ materially. Turning first to our markets, the underlying demand environment remains supportive, with gold continuing to be the strongest near-term driver of a drilling activity. Higher gold prices are supporting exploration, resource definition, and mine life extension. And we're seeing solid activity in North America, West Africa, and South America. Copper remains a significant structural opportunity. Electrification and the energy transition support long-term copper supply requirements. We're also seeing recurring demand for near-mine drilling. Mining companies continue to invest in reserve replacement and brownfield exploration, where technically advanced drilling services are particularly important. And Farako is well positioned for these types of longer-term programs. Regionally, the Americas remain active, and Australia presents further opportunities as customer programs move forward. At the same time, inflation in labor, maintenance, and consumables is putting pressure on contractors. Success in this market will depend not only on winning the work, but also on pricing it appropriately and delivering it with high productivity and reliability. So, while our industry fundamentals are favorable, our objective is disciplined, profitable growth rather than volume for its own sake. The market demand is reflected in our third quarter performance. revenue reached $86.2 million, up 21.4% from $71 million a year ago. This was our third consecutive quarter of year-on-year revenue growth exceeding 20%, demonstrating sustained momentum in the business. EBITDA increased 8.2% to $15.4 million, compared to $14.2 billion in Q3 2025. However, revenue grew faster than EBITDA, and our EBITda margin was 17.8% versus 20% in prior year quarter. Proving the conversion of higher activity into stronger margins remains an important priority. Another encouraging measure is fleet utilization, which reached 53%, up 35% in the quarter last year, and 51% in the second quarter of 2026. That 18 percentage point year-on-year increase reflects the higher level activity across our operations. In short, demand and utilization are strong. Our task now is to capture more of that momentum in project margins and cash generation. And with that, I'll hand the call over to Fabian for the revenue and financial review. Fabian? Thank you, Tim, and good morning, everyone. As a reminder, FORACO reports under IFRS and in U.S. dollars. Revenue increased to $86.2 million, up 21.4% from $71 million into $3.25. The Americas were the principal drivers of growth. In North America, revenue increased 39% to $35.6 million from $25.6 South America generated $21.2, up 29% from 16.5 million. In Asia-Pacific, revenue was $21.4 million, down 10% from $23.8 million. EMEA increased 51% to $8.1 million from $5.4 billion. By reporting segment, mining remained the main growth engine, with revenue of $76 million compared with $60.8 billion last year, an increase of 25%. Water revenue was essentially stable at 10.3 million versus 10.2 million in Q3-25. EBITDA was 15.4 million or 17.8% of revenue compared to 14.2 million or 20% of revenue. Gross margin was 16.7% compared with 19.7%. in Q3-25, and net profit was $4.4 million versus $5.5 million a year earlier. Higher activity continues to transition to higher levels of profitability we expect. For the first nine months of 2026, revenue reached $237 million compared with $195 million in the corresponding period last year. EBITDA rose to $37.8 million from $35.2 million. Year-to-date EBITD was 16% compared with 18% in 2025, while gross margin was 15% versus 18%. Net profit for the nine months was $8.5 million compared with $12.5 million last year. Our ongoing focus is stronger margin recovery and better cash conversion. Finally, on the balance sheet, net debt was 78.1 million at the end of September, an improvement of 8 million during the quarter. With our major investment programs sufficiently complete, the priorities are working capital discipline, cash conversion, and continued debt reduction. I've turned the call back to Tim for his closing remarks. Tim? Thank you, Fabian. Our markets remain supportive. We now have delivered three consecutive quarters of growth above 20%. The strength of our project backlog and the opportunities we see across our regions provide a good foundation for future activity, even as the timing of individual customer programs can vary. Our priority is the quality of our earnings. The gross margin has improved, but we have more work to do. We are focused on pricing that properly reflects today's cost environment. And our goal is to translate increased rig activity into stronger field performance and higher margins. North America continues to deliver strong growth. In South America, we are focused productivity and profitability as the business expands. In Australia, we're preparing for upcoming opportunities in water, gold, and copper. Finally, although we continue to have a very strong order book, cash generation remains central to our plan. And as Fabian stated, net debt improved by $7.6 million in the quarter to $78.1 million. As our recent investment cycle winds down, we're placing greater emphasis on working capital, cash conversion, and free cash flow. Growth must be accompanied by sound financial returns. And with that, Operator, Jenny, I'll 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 a touchstone phone. Should you wish to cancel your request, please press the start followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one, should you wish to ask a question. Your first question is from Don Angelo Volpe from Beacon Securities. Your line is now open. Hey, good morning, guys. Could you just provide some color on the current labor market and how successful you've been in recruiting and onboarding new drill crews to support this recent increase in activity? All right, Don Angulo, sure. No, the labor market remains competitive. especially for experienced drillers and supervisors. But, you know, we've successfully increased our capacity, you know as we've shown getting it up from 35% utilization to 53%. So that's a considerable number of people. You know, and we're continuing to recruit and train people across all operations. And we're actually beginning to get people that are new to the industry in for the first time in quite a few years. There is the opportunity to further increase capacity and utilization, and this varies significantly by region, equipment type, and the crew. For example, it's much more difficult to scale up a water well operation where the technical requirements are higher. But laborability is certainly something we monitor closely, but we don't consider it a uniform constraint across the group. So while it might be tighter in one region, it's not so bad in others, and we can manage it. Okay, thanks for that. And then just moving over to, I guess, operating profit by segment, we saw significant year-over-year improvement of about 16% in the water segment. Wondering if you can provide some additional color on some of the drivers there versus the mining segment, the 13% year-ever-year decline. if you could also let us know kind of what regions are attributable to this decline and some potential drivers of improvement we can look forward to. Sure. The water segment continues to benefit because it's such a technical business, and especially in the mind you're watering. Improvement of the operating profit reflects, you know, continued strong execution in that sector, predominantly in Canada and Australia. and the contribution from some of our proprietary equipment, which is more productive and, you know, smaller footprint and less capital intensive. If you look over the mining business, the profitability has been affected by a combination of things. We've had industry-specific, almost hyperinflation in some of OUR consumables, where we didn't see that in the water business. And in some areas, there have been some contract-specific and productivity challenges, which are being addressed. So those are the main differences between the two sectors. Okay, thank you. And then last one, and then I'll pass the line. Just looking at the CapEx, can you break down how much was allocated towards maintenance CapEx versus purchasing new drill rods or equipment to take on more work? Sure. So just quickly, and I'm going from memory here, the capital expenditures reached $21 million for the first nine months of this year. And that's up from $14.5 million last year. But what's different this year, we have invested in seven new rigs and the ancillary support equipment for those rigs to execute contracts, new contracts that we have this year. And that totaled $11 million of that $21 million. I'm sorry I can't give you an exact breakdown of the rods versus maintenance. I don't have that number right in front of me, but you can get the net difference from that. Okay, great. I appreciate answering my questions. Congratulations on the results. I'll hop back in the queue. Thanks. Thank you. Your next question is from Simon Wilesmith from Digital Non-Securities. My line is now open. Hey, Tim and team. Thanks for taking my questions, and congrats on some positive momentum here. so yeah a few questions for me so what what kind of confidence do you guys have in in continued margin expansion into into fourth quarter and into next year you guys still targeting you know like a sort of a 20 rate that you were getting previously and similarly really just on the utilization target like really liking the momentum there but are you guys seeing a path towards like closer to 60 percent uh hi simon nice to hear from you um so let's deal with the margin expansion first you know we're certainly encouraged by the sequential improvement in the gross margins but you know there's no there's no question there's further room for improvement and this will happen as pricing adjustments progressively take effect and operational performance improves especially on certain contracts where we're not able to provide specific guidance, I'm afraid, on margin target for Q4 2026 or into 2027, but it is an area of significant and main focus for us to improve the margin and the cash generation. With respect to utilization rate, it's improved a lot, you know, getting from up to 53% compared to 35 a year ago, and our existing backlog in the commercial pipeline is going certainly to provide us for opportunities to further increase that in 2027. What I can say is a 60% utilization rate is certainly achievable from an operating capacity standpoint, but I certainly wouldn't want to characterize that as formal guidance. I'm only referencing it because of the strength of the market and the fact that we have achieved that and actually exceeded it in prior years. But please don't take that as guidance. Great. I thought that's very helpful. Thanks. And then, sorry, just a few more if I can fit in. Maybe just quickly turn to the balance sheet. We're still sort of waiting for working capital to unwind a bit, do you expect that to sort of happen in the near term? Yeah, just sort of timing on that and sort of, yeah, where that's trending. So working capital has been impacted by the significant increase in the amount of activity, especially when mobilizing new contracts. And during the first nine months, the working capital absorbed about 15.7 of that compared to 6.8 million last year. We certainly recognize that cash conversion has not yet reflected the improvement in this opening activity, but we certainly expect some normalization of that as the contracts progress, the outstanding receivables are collected, and again, we can't commit to any specific target for Q4, but if you look at the pattern, you can see that Q4 generally is a better performer. And, you know, working capital management and cash conversion is, again, one of our top priorities. Thanks. And then just the last one, just last one on debt and leverage. You guys have previously talked about sort of a one times leverage ratio. You know, we're seeing progress on that this year. I think we're seen a quarter over quarter improvement this year so far. Do you guys still expect some deleveraging or, yeah, just wondering what you're comfortable with, if that's changed? So, as we stated, you know, the net debt's declined by $7.6 million, now down to $78.1. We've stated that our capital program is, you knows, all but complete for 2026. And then we just talked about the working capital conversion in the last question. So with the major investment program now complete, the cash conversion, reducing the leverage ratio further is certainly something that we are expecting and planning. And again, I can't give guidance on exactly where we're going to land, but we should achieve it. Cool. Great. Thanks, guys. That's it for me. Congrats again on some solid progress here. Cheers. Thanks, Simon. Thank you. Once again, that is part one. Did you wish to ask a question? And your next question is from Stephen Green from Ordnance Capital. Your line is now open. Hey, Sam. How are you? Stephen here. Hi, Stephen. How is it? I'm curious. It seems like that all the miners and the whole industry kind of goes with gold prices. Is there like a misconception that gold prices at $4,000 will result in a lot less tenders than at $5,000? I mean, are we just leveraging the gold price, or are we going to operate somewhat, not independently, but regardless of the gold price right now? You know, the production cost for gold miners is substantially below, you know, let me just state this. There's a lot of headroom in gold activity right now with $4,000. And I think that this momentum that we're seeing would be sustained for some time, even if the gold price softened. I don't think it's going to go bonkers if we hit a higher level because the whole industry is reaching capacity, albeit at utilization rates that we haven't. experienced in the past, but that's because of the rate of change in the level of activity of the industry, which really is less than 12 months now that we come from a relatively quiet 2025 to a much more robust market. So if gold prices continue to accelerate, there may be more activity, but it doesn't necessarily translate immediately into more activity for the services sector. I'm not sure if I answered your question because you cut out a bit there, but hopefully I did. So the gold price going down from $5,000 to $4,000 hasn't really cut into the downside either? No. We have not had any customer at all express reservations about the commitments that they have made. And on the projects that we're working on currently, they are being maintained. And in some cases, our customers are requesting even more at $4,000. So, no, there has not been a change. All right. Are we still working on getting more business in the United States? Yes. Okay. And are there any really large tenders in the pipeline that may be, that can come to fruition in the next few months? Yes, there are. There's, you know, because of the, there's two things, Stephen, that we're really focused on. We're focused on getting the right projects at the right price. And that means we're not going to bid everything just for the sake of bidding it. So we're being much more selective than we were in the past. And the type of projects that we are going after are the ones that are much more technical, require proprietary equipment, and I'm referring to some water work in Australia, or some pretty technical programs, which a lot are related to gold, which would be deep directional drilling. Those ones are the ones that we're targeting, and we can get appropriate pricing for the level of services that we provide versus chasing some of the more commodity-type drilling services that juniors generally require for first-pass greenfields exploration. We're not chasing that. So we're being very selective, but specific to your questions, yes, there are some very large tenders which we are negotiating now, working on, that we are hopefully will be able to bring home shortly, and these are priced appropriately. All right, and also, when you work on the watering segment, do you work on projects that aren't, that say major drilling is doing the drilling and you're doing the watering, or you only do watering in your projects? So the water projects are, you know, part of an operating environment. There may be different drilling applications going on at the same property or the same operating mine that we're providing a dewatering service at. So yeah, it's entirely possible that somebody is doing a grade control program and somebody else might be doing a geotech program. So we could be working alongside others. But the water well work, which is usually a capital project for a producing mine, we're working for a unique customer within that asset. And they're not sharing a service with another competitor. But, yeah, we frequently work alongside one another at various properties. So if you're the leader in water specialty, both dewatering and whatever, getting water for mine, wouldn't you be a valuable partner or acquisition for like a major drilling? Do they offer that same service? You know, I'm not that familiar with the level of water business that major drilling would provide so it wouldn't be appropriate for me to comment on that. But what I will say, we've had the experience where we have delivered a water service for a customer that has not used Ferracco before and it's certainly been an eye-opener for them and said, hmm, perhaps we should include you on the other drilling applications that we have. So one of the nice things about the water business is is when you can take on a highly technical project and deliver for a customer, it tends to make an impression. And that's one of the values of having the water business in our portfolio, to be able to demonstrate that. And, you know, especially as, you knows, drilling programs increase in intensity and schedules matter more, you know our customers are looking for a service provider that can deliver on time and on schedule. That's great. You're doing a great job, and I'm looking forward to continued growth. Obviously, I'd like to see somewhat shareholder valuation go up, but hopefully it'll flow from the great results you're producing. Thanks for your questions, as always, Stephen. It's great to talk to you. Thank you. thank you there are no further questions at this time please proceed with the closing remarks thanks jenny well appreciate your interest everyone and thank you for participating in our in our call um if anyone has any other follow-up questions you can contact us at the uh at the contact numbers in the presentation and we look forward to speaking you to speaking to you next next quarter Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.