Good morning, ladies and gentlemen, and welcome to the Foraco International SA second quarter 2025 earnings 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 require immediate assistance, please press *0 for the operator. This call is being recorded on Thursday, July 31st, 2025. I would now like to turn the conference over to Tim Bremner, CEO. Please go ahead.
Good morning, everyone, and welcome to Foraco International SA's Q2 2025 earnings call. I am Tim Bremner, CEO of Foraco, and joining me today is Fabien Sevestre, our CFO. Earlier today, we released our second quarter 2025 financial results via CNW Newswire prior to the opening of the TSX. If you did not receive a copy, you can find one on our website at www.foraco.com. Following our comments, we'll open the call for questions, which will be monitored by our operator. I'll provide some opening and closing remarks, and Fabien will provide a detailed financial overview of the quarter, which incidentally was up 26% in terms of revenue, and we managed to double EBITDA compared to Q1.
More specifically, on the quarter, Foraco reported revenue of $69 million in Q2 2025, or $72 million excluding forex variance, compared to $77 million for the same period last year, illustrating a more stable underlying trend in our activity levels. EBITDA for the quarter came in at $15 million, excluding one-off costs, representing 22% of revenue, compared to $17 million, or 23% in Q2 2024. While top-line revenue softened last year, our ability to maintain strong margins highlights the success of our ongoing efforts in cost control and operational efficiency. These results validate our outlook from last quarter and position us well for an improved second half. I'll now turn the call over to Fabien, who will provide a detailed financial analysis on the quarter. Fabien?
Thank you, Tim, and good morning, everyone. First of all, and as a reminder, Foraco International SA reports in full IFRS and in U.S. dollars. Revenue for Q2 2025 amounted to $69 million, or $72 million at Q2 2024 exchange rates, compared to $77 million for the same period last year. By reported segment, mining represented 83% and water represented 17%. Revenue in Asia-Pacific increased 11% at $25 million, reflecting the ongoing success of operation and the continued commissioning of new proprietary rigs. In North America, revenue amounted to $25 million in Q2 2025, a 21% decrease driven by the discontinuation of certain client programs and delays in starting new contracts. Revenue in South America decreased from $18 million to $12 million. The start of new contracts during this quarter, including mobilization and ramp-up, impacted revenue and margins.
In EMEA, revenue was $8 million in Q2 2025, compared to $5 million in Q2 2024. Revenue in Africa and Europe grew by 47%, supported by the start of contracts that are significant for the region. In Q2 2025, the geographical activity split was North America 37%, Asia-Pacific 36%, South America 16%, and EMEA 11%. During the quarter, gross margin, including depreciation, was $14 million, 21% of revenue, or $15 million, 22% of revenue when excluding one-off costs, compared to $18 million, 23% of revenue in Q2 2024. The decrease in the mining segment gross per hour margin was primarily due to the phasing and ramp-up of new contracts. In contrast, gross profit in the water segment was supported by the deployment of new proprietary rigs on long-term contracts. SG&A decreased by 19% to $4.7 million, compared to $5.8 million for the same period last year.
As a percentage of revenue, SG&A was stable at 7%. As a result, EBITDA was $10 million versus $12 million in Q2 2024. EBITDA amounted to $14 million, compared to $16 million in Q2 2024. On a six-month basis, revenue amounted to $124 million, compared to $155 million in H1 2024. The year-to-date 2025 gross profit was 18% in H1 2025 versus 22% in H1 2024. The year-to-date 2025 EBITDA was a positive $13 million, or 10% revenue, compared to 16%, or $25 million in the same period last year. As a percentage of revenue, the EBITDA for the six-month period was 17%, compared to 22% in the same period last year. As of June 2025, the working capital needs was $8 million, compared to $23 million for the same period last year. CapEx amounted to $10 million in cash, same as H1 2024.
This CapEx is mainly related to the construction of new proprietary rigs, the acquisition of new rigs, and the acquisition of ancillary equipment and roads to support new contracts. At June 30, 2025, our net debt, including this obligation, was $76.5 million versus $61 million at December 31, 2024. I will now hand the call back to Tim for his closing remarks. Tim?
Thank you, Fabien. As many of you know, last week we announced the commencement and immediate mobilization of four drills for a new three-year, $34 million contract with Glencore at their Lomas Bayas copper mine in Chile. This is certainly good news. The tender pipeline continues to strengthen with high demand for water, gold, and copper. To address this demand, we're moving rigs around the world, in fact, more than 10 drills between regions this quarter. More broadly, we're observing a gradual easing of the cautious sentiment that characterized much of the past year. While many exploration projects were delayed due to geopolitical and economic uncertainty, we're now seeing a return of urgency and commitment from clients. Our customers continue to approach exploration spending responsibly, but the underlying fundamentals of the mining sector remain intact, and we believe the industry is beginning to emerge from its recent trough.
The company's strategy to remain focused on gold, copper, and water is bearing fruit. Referring to our commodity exposure over the quarter, our exposure to gold increased from 11% to 16%, water increased from 11% to 18%, and copper increased from 22% to 23%. We're preparing to deploy our third NGBF rotary drill, this time to South America, and in the coming weeks, following the strong performance of the first two units currently operating in Australia, an additional rig is destined for Australia before year-end. The design of the NGBF continues to evolve as we incorporate new technology and innovative upgrades for future drills expected in 2026. In Q2, we demonstrated resilience in a transitional market environment, and we remain confident in our positioning for the second half of 2025.
We continue to expand our high-quality customer base in prime mining jurisdictions globally, with an emphasis on copper, gold, and water. Coupled with long-term industry tailwinds, we are well positioned for continued success in 2025 and beyond. With that, I'll now turn the call over to the operator for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press * followed by the 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press * followed by the 2. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Dona ngelo Volpe with Beacon Securities. Your line is now open.
Hey, guys. Good morning.
Hey, Donangelo.
Hey, how's it going? Yeah, looking at the 10 rigs that were relocated or that are being relocated, can you provide some color on the movement between regions, where they're being moved from? Are there any regions that are showing more promise than others as we're entering the second half of the year?
Thank you for your question, Don angelo. The rigs that we're moving are generally going north to south. That includes rigs from Canada into the U.S. as we pick up work and rigs into Latin America. Parts of our business in Latin America are ramping up quite nicely, and there are some opportunities for some deeper holes in some of those regions. We have some excess capacity in some of our deeper rigs that are current with all of the requirements that our customers in Latin America need. It makes sense for us to move those rigs. They're relatively easy to move, we can do it quickly, and that's where most of the transactions have happened. This includes both surface and underground rigs.
Okay. Were there any proprietary rigs from the Asia-Pacific that are relocated, or did they all stay put there?
Nope. We've not had to move them because they all continue to work. Like I mentioned in my remarks, we're moving one of those proprietary rigs from France in the coming weeks into Latin America. The third rig for Australia, which will be the fourth proprietary rig, will be sent to Australia for year-end. All of the rigs that we have deployed have worked and have not stopped since we've deployed them.
Okay. Perfect. Thank you. Just moving over to CapEx, it was a little bit higher than I was anticipating, which kind of impacted free cash flow for the quarter. Can you provide some color on the drivers behind CapEx? Have costs of ancillary equipment and rods been increasing a little bit more than anticipated, or is it kind of a function of the regions that the fleet are being mobilized to at the moment, or more of the underutilized fleet requiring some modernization?
Part of it, Donangelo, is the acceleration of our NGBF program. We had originally planned for NGBF number three to go to Australia, but there were opportunities in Latin America, so we brought that forward. That is part of it. The other reason is the relatively quiet Q1 that we had pushed some of our CapEx into Q2. There's the ongoing expansion into the U.S., which is now well underway and required some specific CapEx for that region. Yes, it is a little bit higher, but it's partially a timing issue and reflects the increased demand.
Okay. Perfect. Last one for me. I was just wondering on the revenue split this quarter between majors and juniors.
Yep. Let me get that for you. We're about 10% juniors for the quarter, and we're anticipating that to increase. In fact, it is going to increase. A lot of the work that we picked up in the U.S., in fact, is for junior customers. That really underpins what we're all reading in the news and seeing in the markets, that the juniors are finally getting some relief on the equity markets and being able to finance on the backs of stronger gold prices. That's pretty good news for the industry, and we're able to pick up the junior exposure as a result.
Okay. Perfect. Thanks for answering my questions, and congratulations on the quarter. I'll hop back in the queue.
Thanks, Donangelo.
Your next question comes from Steven Green with Ordinance Capital. Your line is now open.
Hey, Tim. How are you?
Hey, Steven.
I'm well, thanks. How's it going? You know, I know you guys are doing the right things, but it's been a really hard time to be a shareholder. You guys see what's going on. I always say our only touch point is the share price. Of course, we're down like 30% in six months, and all I see is selling, big selling all the time. I want to hear from you guys that this is the bottom, that we're going to see. I mean, I know the recount is only 30-some % of the utilization rate, but I know it used to be up in the 60%. I know that has to do with the rig mix and all that kind of stuff, but it just feels like, is this the, I want to feel like this is the bottom.
I just want you to touch on valuation of the company because I don't know, you're in the same EBITDA as Major Drilling. Meanwhile, they're valued at three times higher than you. Another company got taken out by private equity at a valuation of six times EBITDA, and you're like at two or three times EBITDA. You guys sell at half, one half, 50% of revenue. I just don't get it. You guys are making a, you have a premium strategy. Your margins have stayed super strong, even though revenue has been down, but you don't get any kind of premium in the market. I just don't get the disconnect. As a shareholder, I'm just telling you, it's really hard because I hear the right things. I see the gold prices. I see copper prices. I see the demand for electric metals, and it seems like we're missing out.
Steven, it's a good question. It's a question that's on our mind too as shareholders as well. What I can say is, for the first time in many, many years, the liquidity for Foraco has improved significantly. That is the first step. That means the shareholders, there's a lot of turnover of shareholders, and we know that the profile of the shareholders is turning from maybe shorter-term different shareholders to more longer-term. We're going to churn through that, so that negative overhang. I agree with you. We are undervalued compared to our peers, and I need to continue to get out and sell the story, which I have been doing and will continue to do. With patience, of which you have been exceedingly patient, and we really appreciate that, as have other shareholders, there will be improvement. This can only go one way.
As to the bottom, I can't comment because the markets do what the markets do. Logically thinking, it should be.
All right. I didn't mean to comment on the stock price, I meant the market's bottom. Can you just comment too on the U.S., on your forays into the U.S.? How are they going? I know you have three or four contracts you're tendering, and I'd like to know, are the contracts you're tendering for very large in size, or are they introductory contracts?
No, we're doing both. I think it's important for us to be able to secure longer-term work with Tier 1 customers that we demonstrate that we're active in the U.S. market. As I've said before, people don't, people are people, and no one wants to go first. We're past that. We have a number of projects that are operational for specific projects. Some are operating now. We're in the midst of mobilizing them. In addition to that, we have a significant tender pipeline in the U.S. for Tier 1 customers, both in copper and gold. These are significant multi-year projects that are technically challenging, which are right in our sweet spot where we can differentiate. We've approached the U.S.
market by gaining access to work that we can do to get exposure and visibility, begin establishing a workforce and the key elements of the management team, all of which has been done. Base has been in place. People can come and visit us. We are operational. We are now gaining momentum and look forward to our first significant win with a Tier 1 customer, hopefully very soon.
All right. Good. My last quick question on the U.S. is, when they invest in the U.S., does the new depreciation rule mean 100% depreciation of capital expense, or is it only for equipment? When they invest, do they get 100% depreciation on what they invest?
I'm going to defer that question to Fabien. I'm not 100% sure I understand your question. Are you talking about the new tax laws that say that you get the new tax bill that said you get full depreciation in the first year of investment?
Yeah, this is even just for the first year. You will not deduct twice the volume of your CapEx. It's just an anticipation of tax deductible, it's a good incentive, it's a one-shot.
All right. Thank you. Hopefully, we can get going the right way. Hopefully, revenues grow because I know you keep the margins up. Revenue is the key. Thanks a lot.
Thanks, Steven. Always a pleasure to chat.
Ladies and gentlemen, as a reminder, should you have a question, please press *1. Your next question comes from Frederic Tremblay with Desjardins Capital Markets. Your line is now open.
Thank you. I just wanted to ask, first on South America, there's been some modest quarter-over-quarter improvements in revenue generation there in Q1 and Q2. I just wanted to pick your brains on Q3 and Q4. Should we expect some acceleration there? Obviously, there's the Glencore contract that's coming into play, but I just wanted to get your thoughts on the sort of the near-term revenue profile in South America.
Yeah, it's nice to hear from you, Fred. The outlook for Latin America for the second half is definitely improved, notwithstanding some of the projects that we have at a high altitude, which virtually none of the services companies can operate during the winter months in the Andes region. That will come on stream in the fourth quarter, especially in Argentina. We are seeing improvement, generally speaking, in Chile and Brazil. The order book is improving in both of those regions, and the tender pipeline continues to be very robust. We have a lot of work out for tender. You know, the market is busy. The services industry is busy. All things are in place for us to be able to grow the business in Latin America.
Okay, great. I noticed a $1 million reorganization cost in Q2. Should we expect other sort of one-off costs in Q3 or Q4, or is that pretty much done?
No, that's done. You know, we've reduced cost, and as you know, we're very disciplined on that. It was work that needed to be done further to Q1, and we threw that.
Okay. Maybe last question for me, just to follow up on CapEx, but more on the outlook side. Just given the contract wins in Chile and the U.S., should we expect CapEx investments on new rigs to accelerate in the second half of the year?
We're going to continue with our plan on the NGBF, the rotary rig, which is our proprietary rig because there is a constant demand. This is an investment plan that is in place for the long term, so that is intact. It's also, we intend to invest on specific projects where our customers demand a certain style of rig for the region. This investment we've done on a project-by-project basis, providing it meets our internal rate of return, and it is a long-term contract. That means that the investment is paid in a timeline that meets our requirements during that project. I remind everybody that we do not make speculative CapEx. We're not going to invest in rigs that are going to be sitting and waiting. We do not need to because the supply side from our suppliers, the delivery time is acceptable.
The lead time from our customers is reasonable, so there is no need for us to make speculative investment.
Got it. Thank you, Tim.
Thanks, Fred.
There are no further questions at this time. I will now turn the call over to Tim Bremner, CEO, for closing remarks.
Thanks, Joelle. We appreciate your interest, and we look forward to speaking to you in October after Q3. Thank you very much, everyone. Please have a safe and enjoyable summer. Speak to you in October. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.