Morning, ladies and gentlemen, and welcome to Foraco International's third 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 Foraco International's third quarter 2026 earnings call. I am Tim Bremner, Chief Executive Officer, and I am joined by our Chief Financial Officer, Fabien Sevestre. Today I will start with the market environment and our operating highlights. Fabien will then take you through the revenue breakdown and our financial results, as well as the key financial takeaways. I will return with our priorities and closing remarks before we turn the call open for questions. Before we begin, I would 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 drilling activity.
Higher gold prices are supporting exploration, resource definition, and mine life extension, and we are 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 are 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. Foraco 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.
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 million 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 2025.
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. With that, I will hand the call over to Fabien for the revenue and financial review. Fabien.
Thank you, Tim, and good morning, everyone. As a reminder, Foraco reports under IFRS and in USD. Revenue increased to $86.2 million, up 21.4% from $71 million in Q3 2025. The Americas were the principal drivers of growth. In North America, revenue increased 39% to $35.6 million from $25.6 million. South America generated $21.2 million, 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 million. By reporting segment, mining remains the main growth engine with revenue of $76 million compared with $60.8 million last year, an increase of 25%.
Water revenue was essentially stable at $10.3 million versus $10.2 million in Q3 2025. 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 2025. Net profit was $4.4 million versus $5.5 million a year earlier. Higher activity continues to transition to higher level 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 EBITDA 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 program substantially complete, the priorities are working capital discipline, cash conversion, and continued debt reduction. I will turn the call back to Tim for his closing remark. Tim?
Thank you, Fabien. Our markets remain supportive, and 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. 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 on productivity and profitability as the business expands. In Australia, we are 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.
As Fabien stated, net debt improved by $7.6 million in the quarter to $78.1 million. As our recent investment cycle winds down, we are placing greater emphasis on working capital, cash conversion, and free cash flow. Growth must be accompanied by sound financial returns. With that, Operator Jenny, I will 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 touchtone phone. Should you wish to cancel your request, please press the star followed by the two. If you are 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 Donangelo 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 have been in recruiting and onboarding new drill crews to support this recent increase in activity?
Hi, Don Volpe. The labor market remains competitive, especially for experienced drillers and supervisors. But we've successfully increased our capacity as we've shown getting it up from 35% utilization to 53%. That's a considerable number of people. We're continuing to recruit and train people across all operations. We're actually beginning to get people that are new to the industry for the first time in quite a few years. There is the opportunity to further increase capacity and utilization. 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 labor availability is certainly something we monitor closely. We don't consider it a uniform constraint across the group.
While it might be tighter in one region, it's not so bad in others, and we can manage it.
Okay, thanks for that. 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-over-year decline. If you could also let us know what regions are attributable to this decline and some potential drivers of improvement we can look forward to.
The water segment continues to benefit because it's such a technical business, and especially in the mine dewatering. Improvement in the operating profit reflects 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 smaller footprint and less CapEx intensive. If you look over in 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. In some areas, there have been some contract specific and productivity challenges which are being addressed. Those are the main differences between the two sectors.
Okay, thank you. Last one, 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 rigs or equipment to take on more work?
Sure. Just quickly, 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. What's different this year, we have invested in seven new rigs and the ancillary support equipment for those rigs to execute new contracts that we have this year. 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 Wildsmith from Desjardins Securities. Your line is now open.
Hey, Tim and team. Thanks for taking my questions and congrats on some positive momentum here. Just a few questions from me. What kind of confidence do you guys have in continued margin expansion into the fourth quarter and into next year? Are you guys still targeting a sort of a 20% rate that you were getting previously? Similarly, just on the utilization target, really liking the momentum there, but are you guys still seeing a path towards closer to 60%?
Hi, Simon. Nice to hear from you. Let's deal with the margin expansion first. We're certainly encouraged by the sequential improvement in the gross margins, but there's no question there's further room for improvement. This will happen as pricing adjustments progressively take effect and operational performance improves, especially on certain contracts. 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, getting up to 53% compared to 35% a year ago. 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. That's very helpful. Thanks. Sorry, just a few more if I can fit in.
Yep.
Maybe just quickly turn to the balance sheet. We are still sort of waiting for working capital to unwind a bit. Do you expect that to happen in the near term? Just sort of timing on that and where that is trending.
Working capital has been impacted by the significant increase in the amount of activity, especially when mobilizing new contracts. During the first nine months, the working capital absorbed about $15.7 million of that compared to $6.8 million last year. We certainly recognize that cash conversion has not yet reflected the improvement in this operating activity. We certainly expect some normalization of that as the contracts progress, the outstanding receivables are collected. Again, we cannot commit to any specific target for Q4, but if you look at the pattern, you can see that Q4 generally is a better performer. Working capital management and cash conversion is, again, one of our top priorities.
Thanks. Just the last one on debt and leverage. You guys have previously talked about sort of a 1x leverage ratio. We are seeing progress on that this year. I think we are seeing quarter-over-quarter improvement this year so far. Do you guys still expect some deleveraging or, just wondering what you are comfortable with, if that has changed.
As we stated, the net debt declined by $7.6 million, now down to $78.1 million. We have stated that our capital program is all but complete for 2026. Then we just talked about the working capital conversion in the last question. With the major investment program now complete, the cash conversion, reducing the leverage ratio further is certainly something that we are expecting and planning. Again, I cannot give guidance on exactly where we are 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 star one, if you wish to ask a question. Your next question is from Steven Green from Ordinance Capital. Your line is now open.
Hey, Tim, how are you? Steven here.
Hi, Steven. How are you?
How are you? Good. I am curious, it seems like all the miners and the whole industry kind of goes with gold prices. Is it like a misconception that gold prices at $4,000 will result a lot less tenders than at $5,000? Are we just leveraged with gold price, or we are going to operate somewhat, not independently, but regardless of the gold price right now?
The production cost for gold miners is substantially below. Let me just state this. There is a lot of headroom in gold activity right now at $4,000. I think that this momentum that we are seeing would be sustained for some time, even if the gold price softened. I do not think it is going to go bonkers if we hit a higher level, because the whole industry is reaching capacity, albeit at utilization rates that we have not experienced in the past. That is 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. If gold prices continue to accelerate, there well may be more activity, but it does not necessarily translate immediately into more activity for the services sector.
I am not sure if I answered your question, because you cut out a bit there, but hopefully I did.
The gold price going down from $5,000 to $4,000 hasn't really made a
No
hasn't really made a downside either?
No. We have not had any customer at all express reservations about the commitments that they have made. 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. There has not been a change.
All right. Are we still working on getting more business in the U.S.?
Yes.
Okay. Are there any really large tenders in the pipeline that can come to fruition in the next few months?
Yes, there are. There are two things, Steven Green, that we are really focused on. We are focused on getting the right projects at the right price, and that means we are not going to bid everything just for the sake of bidding it. We are being much more selective than we were in the past. The type of projects that we are going after are the ones that are much more technical, require proprietary equipment, and I am 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 are 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 are not chasing that.
We are 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. Also, one last, when you work on the dewatering segment, do you work on projects that, say, Major Drilling is doing the drilling and you are doing the dewatering, or you only do dewatering in your projects?
The water projects are part of an operating environment. There may be different drilling applications going on at the same property or the same operating mine that we are providing a dewatering service at. Yeah, it is entirely possible that somebody is doing a grade control program and somebody else might be doing a geotech program. We could be working alongside others. But the water well work, which is usually a capital project for a producing mine, we are working for a unique customer within that asset, and they are not sharing a service with another competitor. But yeah, we frequently work alongside one another at various properties.
If you are the leader in water specialty, both dewatering and whatever, getting water for mine, would not you be a valuable partner or acquisition for, like, a Major Drilling? Do they offer that same service?
I am not that familiar with the level of water business that Major Drilling would provide, so it would not be appropriate for me to comment on that. But what I will say, we have had the experience where we have delivered a water service for a customer that has not used Foraco before, and it has certainly been an eye-opener for them and said, "Hmm, perhaps we should include you on the other drilling applications that we have." One of the nice things about the water business is when you can take on a highly technical project and deliver for a customer, it tends to make an impression, and that is one of the values of having the water business in our portfolio, to be able to demonstrate that.
Especially as drilling programs increase in intensity and schedules matter more, 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. I'd like to see somewhat shareholder value go up, but hopefully it'll flow from the great results you're producing.
Thanks for your questions as always, Steven. 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 call. If anyone has any other follow-up questions, you can contact us at the contact numbers in the presentation, and we look forward to speaking to you next quarter.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.