Mr. Tim Bremner reports

FORACO INTERNATIONAL REPORTS A ROBUST PERFORMANCE FOR Q3 2023

Foraco International SA has released its results for the third quarter of 2023. All amounts are denominated in U.S. dollars unless otherwise stated.

• Q3 2023 financial metrics:
  • Revenue: $95.1-million (up 4 per cent year-over-year (YoY));
  • EBITDA (earnings before interest, taxes, depreciation and amortization): $25-million (up 9 per cent YoY);
  • EBITDA as percentage of revenue: 26.3 per cent (up from 25.2 per cent in Q3 2022).
• Trailing 12-month (TTM) indicators:
  • Revenue: $368-million (up 17 per cent YoY);
  • EBITDA: $85.1-million (up 45 per cent YoY);
  • Net profit: $38-million (10.3 per cent of revenue, up 79 per cent YoY).

The company continued to build on its momentum from the previous quarters, maintaining a trajectory of profitable growth driven by sustained demand in battery metals, gold and water. The rig utilization rate remained steady at 58 per cent.

Tim Bremner, chief executive officer of Foraco, commented: "We look forward to sustaining this positive momentum by continuing to provide advanced drilling services globally. We follow the various stages of our strategic plan, including taking advantage of the sustained interest in battery metals, gold and water management, focusing on profitable and geopolitically stable jurisdictions, and capitalizing on relationships with our long-standing customers."

Fabien Sevestre, chief financial officer of Foraco, added: "We are pleased to report a TTM EBITDA of $85.1-million and a net debt to EBITDA ratio of 0.9. This quarter, we repaid $10-million to bondholders. We are actively negotiating with our bankers to overhaul our debt profile, aiming for reduced interest expenses and better terms. Independently, our financial position enables us to optimally allocate capital to support our growth. The TTM net profit of $38-million, which translates to an EPS [earnings per share] of 44 Canadian cents -- double that of the previous year -- provides us with the opportunity to review our capital allocation."

Highlights -- Q3 2023

Revenue:

• In Q3 2023, Foraco's revenue was $95.1-million compared with $91.4-million generated in Q3 2022, a 4-per-cent increase.

Profitability:

• Q3 2023 gross margin, including depreciation within cost of sales, reached $26.9-million (representing 28.3 per cent of revenue), compared with $24.4-million (or 26.7 per cent of revenue) recorded in Q3 2022. The uplift was driven by the satisfactory performance of contracts and an increase contribution of value-added drilling services.
• For the quarter, EBITDA totalled $25-million (or 26.3 per cent of revenue), from the $23-million (or 25.2 per cent of revenue) for the corresponding quarter of the previous year.

Highlights -- year-to-date Q3 2023

Revenue:

• For the nine-month period ending Sept. 30, 2023 (YTD Q3 2023), the revenue amounted to $283.5-million, representing a 15-per-cent increase over the $245.7-million recorded in YTD Q3 2022. This surge in revenue is due to the solid performance of main contracts and the delivery of more value-added drilling services.

Profitability:

• In YTD 2023, the gross margin, inclusive of depreciation within cost of sales, was $73.9-million (or 26.1 per cent of revenue), a significant 40-per-cent increase from $52.8-million (or 21.5 per cent of revenue) in YTD Q3 2022. This increase resulted from good contract performance, improved selling prices and the delivery of more value-added drilling services.
• During YTD Q3 2023, EBITDA amounted to $67.9-million (or 24 per cent of revenue), a 37-per-cent increase from $49.4-million (or 20.1 per cent of revenue) for the same period last year.
• For the trailing 12 months (TTM) ending Sept. 30, 2023, the net profit was $38-million, resulting in an EPS of 44 Canadian cents, a 109-per-cent increase from the previous year.

Financial results

Revenue

Q3 2023

The increase in revenue was driven by the solid performance of main contracts and the provision of more value-added drilling services which more than compensated for the decline in activity in certain regions due to political and economic instability. The rig utilization rate for Q3 2023 held steady at 58 per cent, marginally up from 57 per cent in Q3 2022, with underlying disparities across regions, CIS (Commonwealth of Independent States) reporting lower rates and other regions witnessing higher utilization.

The uptick in the mining segment's revenue can be attributed to favourable market dynamics. Long-term rolling contracts, renegotiated and extended last year, coupled with the company's proven delivery capability, played a crucial role. In the water segment, revenue experienced a slight dip due to the phasing of contracts.

North American operations reported a 15-per-cent revenue increase (18 per cent without adverse foreign exchange variance), reaching $32.1-million in Q3 2023 from $27.9-million in Q3 2022. This improvement was driven by heightened activity on long-term contracts renewed last year with senior customers.

South American revenue remained stable at $29.9-million in Q3 2023 compared with $29.4-million in Q3 2022, a level expected in a period of low activity due to the austral winter season.

In the Asia Pacific region, revenue for Q3 2023 was $19.4-million, a 28-per-cent increase that reflects a quarter-over-quarter increase in demand and the acquisition and commissioning of new rigs.

Revenue for the EMEA (Europe, Middle East, Africa) region saw a 29-per-cent decrease, moving down to $13.5-million in Q3 2023 from $19-million in Q3 2022. Revenues in southern Europe and Africa remained stable compared with Q3 2022, while activity in the CIS decreased by 42 per cent due to political and economic uncertainties in the region.

YTD Q3 2023

The uptick in revenue for the mining and water segments can be attributed to favourable market dynamics, with the company having renegotiated and extended its long-term rolling contracts since the previous year. Coupled with the company's proven capacity to deliver, this has generated significant growth.

North American operations saw a 22-per-cent surge in activity, with revenues climbing to $93.1-million in YTD Q3 2023, up from $76.1-million in YTD Q3 2022. This increase primarily resulted from the early remobilization of long-term contracts with senior clients, renewed in the previous year.

In South America, revenues spiked by 33 per cent to reach $100.1-million in YTD Q3 2023, a notable increase from $75.1-million in YTD Q3 2022. This was driven by all countries ramping up their activity levels, supported by new long-term contracts with senior companies.

In the Asia Pacific region, YTD Q3 2023 revenues rose to $52.2-million, a 33-per-cent increase, reflecting the period-over-period market growth and the capacity of the company to meet demand.

In the EMEA region, revenue for YTD Q3 2023 was $38.2-million, showing a 31-per-cent decrease compared with the $55.1-million in YTD Q3 2022. While revenues in southern Europe and Africa experienced a slight increase compared with YTD Q3 2022, operations in the CIS countries saw a 48-per-cent decline, primarily due to political and economic uncertainties in the region.

Gross profit

Q3 2023

For Q3 2023, the gross margin, inclusive of depreciation within cost of sales, reached $26.9-million (or 28.3 per cent of the revenue) compared with Q3 2022's $24.4-million (or 26.7 per cent of the revenue). This reflects the solid operating performance of contracts.

YTD Q3 2023

In YTD Q3 2023, the gross margin, inclusive of depreciation within the cost of sales, rose to $73.9-million (or 26.1 per cent of the total revenue). This marked a significant surge compared with the $52.8-million (or 21.5 per cent of revenue) in YTD Q3 2022. The substantial increase underscores the robust performance and efficiency of contracts.

Selling, general and administrative expenses

Q3 2023

SG&A increased compared with the same quarter last year mainly due to the level of activity. As a percentage of revenue, SG&A remained stable at 7 per cent of the revenue.

YTD Q3 2023

SG&A increased compared with the same quarter last year mainly due to the level of activity. As a percentage of revenue, SG&A decreased from 7.5 per cent in YTD Q3 2022 to 7.3 per cent in YTD Q3 2023.

Operating result

Q3 2023

The operating profit reached $20.2-million, resulting in a $2-million increase driven by activity levels and enhanced profit margins.

YTD Q3 2023

The operating profit reached $53.2-million, resulting in a $18.9-million increase driven by heightened activity levels and enhanced operational margins.

In YTD Q3 2023, the cash generated from operations before working capital requirements amounted to $67.9-million compared with $49.4-million in YTD Q3 2022, a 37-per-cent increase.

During the same period, the working capital requirements reached $23-million, up from $18.5-million in the previous year. The additional working capital requirement is a result of the heightened activity levels.

During the period, capital expenditure (capex) totalled $20.7-million in cash compared with $14.1-million in YTD Q3 2022. Capex relates essentially to the acquisition of rigs, major rig overhauls, ancillary equipment and rods. Three large rigs were added to the fleet during the period.

As at Sept. 30, 2023, cash and cash equivalents totalled $25.6-million compared with $29.4-million as at Dec. 31, 2022. Cash and cash equivalents are mainly held at or invested within top-tier financial institutions.

As at Sept. 30, 2023, the net debt, including operational lease obligations (international financial reporting standards 16), amounted to $79.5-million ($76.2-million as at Dec. 31, 2022).

The net debt to EBITDA ratio as at Sept. 30, 2023, was 0.9 (1.1 at year-end 2022) reflecting enhanced financial position in a quarter generally affected by increased activity and associated working capital requirements.

Bank guarantees as at Sept. 30, 2023, totalled $7.2-million compared with $9.4-million as at Dec. 31, 2022.

Strategy

The company's strategy is to assist its customers in exploring or managing their deposits throughout the entire cycle, with a special focus on the life of mines extension activity. The company intends to continue developing and growing its services across the world with a focus on stable jurisdictions, high-tech drilling services, optimal commodities mix, including battery metals and gold -- with a significant presence in water-related drilling services -- and a gradual implementation of advanced digital applications. The company expects to execute its strategy primarily through organic growth and targeted acquisitions.

The company addressed the environmental, social and governance (ESG) requirements, and implements a pragmatic and measurable approach to ESG with quantitative key performance indicators to maximize improvement and efficiencies.

Conference call and webcast

On Oct. 30, 2023, company management will conduct a conference call at 11:30 a.m. ET to review the financial results. The call will be hosted by Mr. Bremner, CEO, and Mr. Sevestre, CFO.

You can join the call by dialling 1-888-664-6392 or 1-416-764-8659. You will be put on hold until the conference call begins. A live audio webcast of the conference call will also be available.

An archived replay of the webcast will be available for 90 days.

About Foraco International SA

Foraco International is a leading global mineral drilling services company that provides a comprehensive and reliable service offering in mining and water projects. Supported by its founding values of integrity, innovation and involvement, Foraco has grown into the third-largest global drilling enterprise with a presence in 22 countries across five continents.

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