Earnings call transcript: Foraco International Q4 2024 revenue declines

Foraco International reported a decrease in its Q4 2024 revenue, down to $61 million from $86.6 million in the same quarter the previous year. Despite the decline in quarterly revenue, the company’s full-year revenue for 2024 remained stable at $293 million compared to 2023. According to InvestingPro data, the company has demonstrated strong revenue growth of 52.11% over the last twelve months. The earnings call highlighted the company’s strategic focus on critical minerals and operational adjustments aimed at maintaining financial stability, supported by a robust Financial Health Score of 3.26, rated as "GREAT" by InvestingPro’s comprehensive analysis system.

Key Takeaways

• Q4 2024 revenue decreased by 30% year-over-year.
• Full-year 2024 revenue remained steady at $293 million.
• Debt reduced from $65.2 million to $60.9 million.
• Strategic focus on critical minerals and EV transition metals.
• Anticipated growth in Latin America and Australia for 2025.

Company Performance

Foraco International’s performance in Q4 2024 showed a significant decline in revenue compared to the previous year, reflecting challenges in the market. However, the company maintained its full-year revenue at the same level as 2023, indicating resilience in its operations. The strategic focus on critical minerals and EV transition metals positions the company well for future growth, particularly in the gold, copper, and battery metals sectors.

Financial Highlights

• Q4 2024 Revenue: $61 million, down from $86.6 million in Q4 2023.
• Full Year 2024 Revenue: $293 million, stable compared to 2023.
• Q4 2024 EBITDA: $13.9 million, representing 23% of revenue.
• Debt reduced from $65.2 million to $60.9 million.
• Gross Margin: 19% in Q4 2024, compared to 30% in the prior year.

Outlook & Guidance

Foraco International expects a slower start in the first half of 2025 but remains optimistic about growth prospects in Latin America and Australia. With a beta of 1.97, the stock shows higher volatility than the market, potentially offering opportunities for investors seeking growth. The company anticipates potential increases in its representation in the gold sector and is poised for contract wins in the U.S. market, which could drive growth in the coming quarters. Access detailed market analysis and growth projections through InvestingPro’s exclusive research reports, which provide comprehensive insights into market opportunities and risk factors.

Executive Commentary

"Our strategy is not to gain market share at the expense of margin," stated CEO Tim Bremner, emphasizing the company’s focus on maintaining profitability. Bremner also highlighted the potential for growth in the U.S. market, saying, "We are expecting a win on a number of [U.S.] tenders shortly." Additionally, he noted the strong position of gold prices, driven by Central Bank buying and declining reserves.

Risks and Challenges

• Market volatility in junior financing.
• Geopolitical uncertainties affecting project timelines.
• Fluctuations in commodity prices impacting revenue.
• Tariff uncertainties in the U.S. market.
• Potential delays in major customer projects.

Foraco International’s strategic focus and operational adjustments aim to navigate these challenges while positioning the company for future growth opportunities.

Full transcript - Farstad Shipping ASA (FAR) Q4 2024:

Joanna, Conference Call Operator: Good morning, ladies and gentlemen, and welcome to the FORACO International SAi Fourth Quarter twenty twenty four 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. This call is being recorded on 02/18/2025. I would now like to turn the conference over to Tim Bremner, CEO.

Please go ahead.

Tim Bremner, CEO, Foraco International: Thank you, Joanna. Good morning, everyone, and welcome to Foraco International’s Q4 twenty twenty four earnings call. I am Tim Bremner, CEO of Foraco, and joining me today is Fabian Sevest, our CFO. Earlier this morning, we released our fourth quarter and full year twenty twenty four financial results via CNW Newswire prior to the opening of the TSX. If for some reason you did not receive a copy, you can find it on our website at www.veraco.com.

Following our prepared remarks, we will open the call for questions, which will be monitored by the operator. In Q4 twenty twenty four, Baraka reported revenue of $61,000,000 compared to a record $86,600,000 in Q4 twenty twenty three. EBITDA for the quarter came in at $13,900,000 representing 23% of revenue before one off costs compared to $18,700,000 in the prior year period or 22% of revenue. Further, our debt has been reduced from $65,200,000 to $60,900,000 at 2024 year end. 2024 was a year of resilience and strategic execution.

We’ve achieved record performance in our core markets, North America and Australia, despite headwinds in other regions, primarily due to a decline in the junior segment activity, our strategic exit from unstable jurisdictions and adverse foreign exchange fluctuations. Nevertheless, we’re very pleased to report that net income attributed to shareholders remained stable year over year. I’ll now turn the call over to Fabian, who provide more detail and in-depth overview of our main figures. Fabian?

Fabian Sevest, CFO, Foraco International: 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 Q4 twenty twenty four amounted to CHF61 million compared to CHF87 million for the same quarter last year.

This decrease is mainly due to continued absence of junior activity due to lack of financing for CHF7 million, dollars Brexit from unstable jurisdiction for $5,000,000 project delay with majors for $11,000,000 and negative foreign exchange for $3,000,000 which only impacts the top line. Conversely, Asia Pacific delivered its third consecutive record performance. By reporting segment, the Mining segment represented 83% of Q4 twenty twenty four revenue and Water represented 17%. Revenue in Asia Pacific increased 38% at CHF22 million reflecting increases in demand and the deployment of new rigs. In North America, revenue amounted to CHF23 million in Q4 twenty twenty four, ’7 percent decrease mainly attributed to project delays with majors and 3% for foreign exchange.

Revenue in South America decreased from CHF 32,000,000 to CHF 10,000,000 mainly due to an absence of junior activity and unforeseen delays on confirmed projects. Revenue in EMEA for the quarter was CHF5 million compared to CHF12 million in Q4 twenty twenty three. The company exited from unstable countries. In Q4 twenty twenty four, the geographical activity split was North America 30 9 Percent Asia Pacific 30 7 Percent South America 16 Percent EMEA 8 Percent During this quarter, the gross margin, including depreciation within cost of sales, was $11,000,000 or 19% of revenue versus 2630% of revenue for the same quarter last year. The company proactively adjusted its cost structure to align with market condition representing a one off cost of CHF3.5 million.

SG and A decreased by 20% to CHF5.1 million compared to CHF6.4 million for the same period last year. As a percentage of revenue, SG and A was stable at 8%. As a result, EBIT was CHF6 million versus CHF13 million in Q4 twenty twenty three. EBITDA amounted to CHF14 million excluding one off costs or 23 of revenue compared to CHF19 million or 22% of revenue in Q4 twenty twenty three. On a full year basis, revenue amounted to $293,000,000 compared to $293,000,000 compared to $270,000,000 in full year 2023.

This change is primarily driven by the continued absence of junior activity due to lack of financing for CHF $40,000,000 the impact of exit from non stable jurisdiction CHF 23,000,000 and adverse foreign exchange rates for EUR 9,000,000. Conversely, our two main regions, North America and Australia, deliver excellent performances, up 23% in Asia Pacific and stable in North America, offsetting performances in South America and EMEA, which decreased by 4952% respectively. Full year 2024 gross profit was CHF 63,000,000 or twenty two percent of revenue versus EUR 94,000,000 for 23 or 25% of revenue. As a reminder, our gross profit includes depreciation as a cost of sales. Full year 2024 EBIT was EUR 43,000,000 or 15% of revenue compared to EUR 67,000,000 in 2023, ’18 percent of revenue.

Full year 2024 EBITDA was EUR 60,000,000 or EUR 66,000,000, 20 3 percent of revenue excluding one off costs compared to CHF 87,000,000 in twenty twenty three percent of revenue. As at 12/31/2024, the working capital requirement was CHF 10,000,000 compared to CHF 5,000,000 last year. Teles in collection of receivable at closing date represented $10,000,000 U. S. Dollars CapEx amounted to $19,000,000 in cash compared to $26,000,000 in cash in full year 2023.

This CapEx is mainly related to acquisition of three large rotary rigs for Australia and Rhodes. At December 24, our net debt including lease obligation amounted to 60,900,000.0 versus CHF 65,200,000.0 at 12/31/2023. I will now hand the call back to Tim for his closing remarks. Tim?

Tim Bremner, CEO, Foraco International: Thank you, Fabian. While the industry faces ongoing market pressures, which for Aqua are not immune to, we’ve successfully preserved earnings and maintained strong operational performance. Our commitment to fostering enduring relationships with top tier clients in stable regions remains unwavering. This strategy has been instrumental in maintaining our financial health and will continue to be the cornerstone of our operations. Looking ahead, we remain optimistic about the long term fundamentals of our industry.

Gold prices are testing record levels, driven by Central Bank buying and declining reserves. These reserves can only be replaced through increased drilling activity. Critical minerals and EV transition metals remain a strategic priority. Although recent geopolitical events have temporarily shifted market attention, the long term need for secure mineral supply has never been stronger. And finally, copper demand continues to strengthen fueled by the growth in AI, clean energy technologies and ongoing infrastructure development.

Some of our key customers have opted to extend our contracts for only one year, allowing them time for longer renewal periods to prepare for longer renewal periods of up to five years. And correspondingly, our order book remains robust, reflecting the confidence in our services and industry positioning. Paraco remains committed to delivering value to our shareholders and stakeholders by executing our strategy, maintaining operational excellence and navigating market fluctuations with discipline. With a strong foundation, a high quality customer base and long term industrial tailwinds, we’re well positioned for continued success in 2025 and well beyond. With that, I’ll now turn the call back over to Joanna and she’ll take your first questions.

Joanna?

Joanna, Conference Call Operator: Thank And the first question comes from Gordon Lawson at Paradigm Capital. Please go ahead.

Gordon Lawson, Analyst, Paradigm Capital: Hey, good morning, everyone. You mentioned around $200,000,000 of backlog and longer term contract expected to ramp up in 2025. So looking at South America, past three quarters have averaged around a 60% year over year decline. So I’m tempted to model the remaining losses in Q1 of twenty twenty five, but a gradual turnaround to positive gains in the second half of the year. Would that be a fair assumption?

Tim Bremner, CEO, Foraco International: Good morning, Gordon. It’s nice to hear from you. The challenges that we faced and that we’ve experienced in Q4 are going to spill over in Q1. And I think we’ve given some direction on that. The challenges that are in Latin America are mainly result of the annihilation of the junior market.

And as we past reported the challenges of the winter season for all high altitude projects. But one thing that we have not highlighted and is impacted Q4 is the postponement of confirmed projects that Faraco has been awarded that for a variety of reasons, our customers have not started to execute on yet. This could be permitting delays and a variety of things. So we feel very strongly and believe very much in the market in Latin America and we expect that to improve as the year progresses.

Gordon Lawson, Analyst, Paradigm Capital: Okay, fair enough. And just a quick one here. The debt reduction program seemed to be on hold through 2024, but if things do turn around and I get some cash flows similar to what we saw in 2022 and 2023, should I model around a $10,000,000 to $20,000,000 reduction in debt this year?

Tim Bremner, CEO, Foraco International: So according to the terms of our loan agreements, we are limited to repatriating or sorry, repaying 14,000,000 in debt per year, and that’s as per our capital allocation policy. If there is any excess funds available that will be discussed at the board level to determine whether there’s further debt reduction or not.

Gordon Lawson, Analyst, Paradigm Capital: Okay. Okay. I believe you said that before. Okay. Thank you very much.

Tim Bremner, CEO, Foraco International: Thanks, Gordon.

Joanna, Conference Call Operator: Thank you. The next question comes from Steven Green at Ordinance Capital. Please go ahead.

Steven Green, Analyst, Ordinance Capital: Hey, Steven. How are you doing?

Tim Bremner, CEO, Foraco International: I’m fine. Thanks.

Steven Green, Analyst, Ordinance Capital: So the results are, of course, disappointing. But I guess you’re comping against really strong 2023. But I’m glad you guys did a great job of getting the money back down to the bottom line, which you guys are really good at. But two things, where is the growth going to come from? The gold prices are almost $3,000 and are we going to get any new gold contracts coming this quarter?

Tim Bremner, CEO, Foraco International: Well, certainly that’s as we’ve reported in the past, Stephen, increasing the representation of gold in our portfolio is very much part of our strategy. And we have seen an increase in gold tenders in our tender pipeline. That has definitely increased and we’re responding to those. Some of those are in our sweet spot of deep directional projects, which allows us to differentiate service quality versus price. So the answer to your question is yes, I’m optimistic that we are going to see an increased weighting in gold from mid tiers and senior customers very soon.

Steven Green, Analyst, Ordinance Capital: Is that including The U. S. Market or just outside The U. S. Market?

Tim Bremner, CEO, Foraco International: That includes The U. S. Market.

Steven Green, Analyst, Ordinance Capital: And with the receivables you guys didn’t get in the fourth quarter, you reported two months ago, has that money come in now? Is there a problem with it?

Tim Bremner, CEO, Foraco International: No, that money has come in now. That was just a hangover from year end.

Steven Green, Analyst, Ordinance Capital: All right. So, I just think you guys are doing a really great job and we need growth, we need some growth and it seems like I know their comps are going to be better this year because they’re comp against 2024 with a down year. But where do you see the growth coming from?

Tim Bremner, CEO, Foraco International: So the growth is going to come from new markets that we are entering in. I can see growth coming from Latin America, where we have restructured the business, reorganized and we’ve seen improvement in performance already in Latin America. So those are two areas that we’re expecting growth to come from. We have got a great business in Australia and we can see some planned growth in that jurisdiction as well.

Steven Green, Analyst, Ordinance Capital: All right. But The U. S. Market, maybe The U. S.

Market

Tim Bremner, CEO, Foraco International: The U. S. Market is quite good. I mean, we’ve got a robust tender pipeline in The U. S.

We are a new startup operation, But because of our pretty significant positioning in the adjacent market in Canada and the fact that we’re a leading provider, it only stands to reason, Stephen, that it’s only a matter of time that we’re going to get some serious traction in The U. S.

Steven Green, Analyst, Ordinance Capital: All right. And last question I have is, you guys are now selling it basically two times EBITDA, your stock is 1.5 and you’re so you’re selling basically two times EBITDA. What about have you ever talked about consolidation with another major drilling who sells at least three times your multiple?

Tim Bremner, CEO, Foraco International: We have not had that conversation, no.

Steven Green, Analyst, Ordinance Capital: All right. Because we need some growth and you guys are so I mean, it’s only two times EBITDA. Seems like it would be a no brainer for them to want to take your fundamentals and put them on their multiple. But anyway, well, thanks for all you do and we really do need some growth. I mean, it just seems like you’re doing a great job getting everything to the bottom line, but we just seem to be going in the wrong direction and getting success and getting new contracts.

So thanks again and hopefully turnaround quarter. Thanks.

Tim Bremner, CEO, Foraco International: Thanks, Steven.

Joanna, Conference Call Operator: Thank you. The next question comes from Frederic Tremblay at Desjardins. Please go ahead.

Frederic Tremblay, Analyst, Desjardins: Thank you. Good morning.

Fabian Sevest, CFO, Foraco International: Just

Frederic Tremblay, Analyst, Desjardins: a couple of follow ups maybe on The U. S. You did touch on it a little bit there. Just wondering if based on your pipeline, do you have any visibility on the timing of securing some potential first meaningful wins there? And then maybe the follow-up would be, are you expecting any impact at all from the tariff uncertainty that we’re seeing right now for potential U.

S. Business?

Tim Bremner, CEO, Foraco International: So on The U. S, we are expecting I mean, we’ve got a number of outstanding tenders at the moment, which we have been shortlisted on. And I am expecting a win on a number of those shortly. They’re not material enough that they’re worthy of a news release, but there’s significant enough wins that it’s going to give us some tractions and they’re in the most important jurisdictions in The U. S.

With respect to the tariffs, this is a complex situation. And yes, of course, we do analyze it. And the impact that we’re going to experience is unclear, because we don’t really know what the U. S. Administration is going to do.

But what I can tell you is most of the drilling products that we source for our operations are sourced everywhere but The U. S. So majority of drilling consumables for operations in North America, incidentally, which also support Africa and other parts of the world are sourced in Canada, which is good news for us. But certainly there will be in some impact to costs with tariffs. Fuel, for example, will no doubt increase.

But we’re very careful to mitigate against those cost increases by having our customers supply the energy for us because there’s no real value added in us doing that. And also by making certain that our contracts are equipped with annual rate increases that reflect the cost of inflation and as our costs index up from things such as tariffs. So I think we’ve mitigated against those things should they happen.

Frederic Tremblay, Analyst, Desjardins: Okay. That’s great color. And is it fair to say that your competitors would also be impacted by the same types of cost increases over there?

Tim Bremner, CEO, Foraco International: I would say they’re in the same boat.

Frederic Tremblay, Analyst, Desjardins: Okay. My My next question was more on the pricing side, that’s generally in the industry. What are you seeing out there? I’m assuming some of your competitors are maybe a bit more aggressive given the current market conditions. Maybe just an overview of what you’re seeing on that front industry wide and sort of a reminder as well on what Foraco’s pricing approach is and just based on pricing and margin protection because it did look like the margin in Q4 was quite strong.

So just maybe a reminder on how you’re thinking internally about pricing and margin.

Tim Bremner, CEO, Foraco International: Sure. So this is not the first time we have been in a market that is changing and becoming more competitive. And certainly in some parts of the world, Canada in particular has become far more competitive in the last quarters or so. And I remind everybody that Baraco’s strategy is not to gain market share at the expense of margin. It makes no sense for us to load up an order book at work that is underpriced should the market change and we anticipate it to, especially over a long term contract.

So it is it and on a lot of those projects that are particularly competitive, there is it’s relatively straightforward drilling and we don’t have the opportunity to particularly add value. So again, we’re not going to chase an underpriced work simply to gain market share.

Frederic Tremblay, Analyst, Desjardins: Okay, great. And then last question for me, just on the major side, you did mention some project delays there. Wondering if you could maybe expand a bit on that and what’s sort of driving those delays and how long should we expect that situation to last?

Tim Bremner, CEO, Foraco International: So the answer to that question depends on the customer and they have their own unique situation and it also depends on the jurisdiction. So it’s kind of an all of the above, whether it’s a permitting issue or a shift in priorities for funding exploration versus other needs. We’ve had some of our long term contracts where the scope has changed mid tier and a lot of our customers have just said, pause and just have a little bit of a wait and see. There’s an awful lot of uncertainty out there. So that is contributing to some of the reductions that we’re experiencing.

But it’s important to note that these are driven by customers and market forces outside of Foraco and absolutely not related to our service delivery, which we are protecting and maintaining at all levels despite of market conditions.

Frederic Tremblay, Analyst, Desjardins: Okay. Thanks very much for taking the question.

Tim Bremner, CEO, Foraco International: Thanks, Fred.

Joanna, Conference Call Operator: Thank you. The next question comes from Donangelo Volpe at Beacon Securities. Please go ahead.

Donangelo Volpe, Analyst, Beacon Securities: Hey, good morning guys and thanks for taking my question. Just looking at the first half of twenty twenty five, I think in the commentary I saw that we’re expecting somewhat slower start to the first half of the year. I guess primarily, first, can you talk on, we’re still expecting strong performance out of Asia Pacific. It’s mostly out of Latin America and North America that a bit of this drag comes from. And B, I was kind of hoping to quantify the first half outlook.

Are we looking at numbers relatively in line with what was presented in the first half of twenty twenty four? Are we expecting weaker conditions than we saw last year?

Tim Bremner, CEO, Foraco International: So we’re going to hi, Don Angelo. So we’re going to be a little bit slower out of the gate this year. And I think we have indicated that. Then if you have a look at the order book, which we’ve reported, and you discount the first quarter, I think you can have a little bit of insight as to where we see the balance of the year going. So it’s yes, I think that suffices.

Steven Green, Analyst, Ordinance Capital: Okay.

Donangelo Volpe, Analyst, Beacon Securities: Thank you. I’ll hop back in the queue.

Joanna, Conference Call Operator: Thank you. Next (LON:NXT) question is a follow-up from Gordon Lawson at Paradigm Capital. Please go ahead.

Gordon Lawson, Analyst, Paradigm Capital: Hey, thanks for coming back to me. The

Steven Green, Analyst, Ordinance Capital: last time

Gordon Lawson, Analyst, Paradigm Capital: I saw this updated was in your March presentation. So just following up on your drilling in

Steven Green, Analyst, Ordinance Capital: the gold

Gordon Lawson, Analyst, Paradigm Capital: sector, you last reported to be 16% of total revenue. How should we expect that to grow or change throughout the next year? I mean, we’re still getting 51% from battery metals. Is that accurate?

Tim Bremner, CEO, Foraco International: So the combination of copper, nickel and lithium is about 48% with gold at 13%. And we are at a low point with gold and I’m optimistic that we’ll see that commodity increase in weighting significantly in 2025.

Gordon Lawson, Analyst, Paradigm Capital: Okay, fair enough. That’s it for me. Thank you.

Joanna, Conference Call Operator: Thank you. That concludes the Q and A session. I will turn the call back over to Tim Bremner for closing comments.

Tim Bremner, CEO, Foraco International: Thanks, Joanna. Well, we appreciate your interest in Foraco and your attention to this call today and look forward to speaking to you again after our Q1 twenty twenty five results are released. Thank you very much everybody and have a good day.

Joanna, Conference Call Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

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