Foraco International Signals Turnaround With Record Backlog

Foraco International ((TSE:FAR)) has held its Q4 earnings call. Read on for the main highlights of the call.

Foraco International’s latest earnings call struck a cautiously optimistic tone, framing Q4 2025 as a genuine operational turning point despite a tough full year. Management highlighted record backlog, improving utilization and a pivot toward higher-quality Tier 1 customers and gold exposure, while openly acknowledging revenue contraction, margin compression and rising cost headwinds that weighed on 2025 results.

Q4 Revenue Acceleration Marks an Inflection Point

Foraco reported Q4 2025 revenue of $66 million excluding adverse FX, or $63 million as stated by the CFO, representing roughly 8% growth versus Q4 2024. Management described the quarter as a clear inflection point, with broad-based growth across most regions signaling that the business is emerging from a transitional year.

Record Order Book Underpins Visibility

The company ended 2025 with a record $404 million order book, providing a strong foundation for future revenue. Roughly $228 million, or about 56% of that backlog, is slated for execution in 2026, and notably 90% is with Tier 1 customers, pointing to repeat, higher-quality contracts and reduced counterparty risk.

South America Leads Regional Recovery

South America was a standout, with Q4 2025 revenue surging 95% year over year as projects ramped and demand rebounded. Management pointed to the region’s robust contribution within the order book as evidence that this strength is not a one-off, but part of a broader recovery in activity levels.

Utilization Rising with Room to Grow

Fleet utilization improved from around 40% in Q4 to just over 50% at the time of the call, highlighting a healthier operational footprint. Foraco believes it can sustainably run at about 67% utilization “at any given time” this year, providing ample headroom to capture incremental demand without an immediate surge in hiring.

Strategic Shift Toward Gold and Key Commodities

The company is reshaping its portfolio toward gold and other high-demand metals, positioning itself for better pricing and more resilient activity. Gold now accounts for more than 35% of the 2026 order book, aligning Foraco with well-funded exploration and development budgets as metal prices remain supportive.

EBITDA Holds Steady in Q4 Despite Start-Up Drag

Q4 EBITDA was stable year over year at $10 million, even as start-up and seasonal factors weighed on profitability. Management estimates that ramp-up effects reduced the quarter’s performance by roughly $3 million, suggesting underlying earnings power is stronger than the headline figure implies.

Working Capital Efficiency Strengthens Balance Sheet

Working capital requirements improved sharply, dropping to about $0.6 million at year-end 2025 from $10 million a year earlier. This tighter working capital management signals better cash discipline and supports the company’s goal of funding growth and deleveraging without undue strain.

CapEx Rises to Support Long-Term Growth

Capital expenditures increased to $23 million in 2025 from roughly $18–19 million previously, reflecting investment in proprietary rigs and related infrastructure. These outlays are geared toward supporting long-term contracts and future deployment, effectively trading near-term margin pressure for expanded capacity and revenue potential.

Full-Year Revenue Declines Amid Market Transition

Despite a strong Q4, full-year 2025 revenue fell to $258 million from $293 million in 2024, a drop of about 12%. Management framed this as a transition year, with slower periods and contract roll-offs earlier in 2025 before the late-year rebound began to take hold.

Margin Compression Hits EBITDA and EBIT

Profitability came under pressure in 2025, with the EBITDA margin slipping to 18% from 21% a year earlier. EBIT fell to $27 million, or 10% of revenue, compared with $43 million and a 15% margin in 2024, a roughly 37% decline that underscores the impact of higher costs and softer volumes.

Q4 Gross Margin Feels CapEx and Cost Headwinds

Fourth-quarter gross margin, including depreciation, was $10 million or 16% of revenue, down from $11 million or 18% in Q4 2024. The decline was partly driven by higher depreciation arising from elevated CapEx for long-term contracts, adding to the cost pressures already facing the business.

Regional Weakness in North America and Asia Pacific

Not all geographies shared in the Q4 upswing, with North America revenue down 13% to $20 million as certain Canadian contracts ended or were deferred. Asia Pacific revenue also retreated, reflecting an early seasonal break in drilling operations, which temporarily curtailed activity in that region.

Ramp-Up Costs Weigh on Near-Term EBITDA

Foraco incurred around $3 million of ramp-up and start-up costs in Q4 related to new projects in Latin America and the United States. Management expects these additional expenses to continue into early to mid-2026, but to normalize after the second quarter assuming no further major mobilizations.

Input Inflation and Labor Tightness Add Pressure

The company flagged rising prices for rock-cutting tools, driven by higher silver and tungsten costs, as a growing concern. Tight labor markets in several regions are also pushing wages higher, and together these trends could lift operating costs and tender rates, challenging margins if not passed on to clients.

Rig Supply Constraints and Longer Delivery Times

Strong demand for rigs is stretching delivery timelines compared with 2025, creating a potential bottleneck for new deployments. Foraco has already relocated more than 20 drills during 2025 to better align capacity, but acknowledged that supply timing remains a near-term risk for project ramp-ups.

Net Debt Ticks Up but Deleveraging Is Priority

Net debt, including lease obligations, rose to $71 million at year-end 2025, or $65 million at constant exchange rates, up from $61 million a year earlier. Management emphasized that reducing leverage toward about 0.5 times remains the top capital allocation priority, balancing growth investment with balance sheet resilience.

Forward-Looking Outlook and Operational Priorities

While Foraco stopped short of issuing formal numerical guidance, management’s comments sketched a clearer trajectory for 2026. With a $404 million backlog, rising utilization toward roughly 67%, a gold-heavy and Tier 1–dominated order book, slightly higher expected CapEx and ramp-up costs set to fade after Q2, the company expects stronger operational execution as three major long-term projects reach full deployment by midyear and deleveraging efforts accelerate.

Foraco’s earnings call painted a picture of a company exiting a difficult year with improved momentum and enviable contract visibility. Investors will need to weigh near-term margin pressure, cost inflation and higher debt against record backlog, a healthier customer mix and rising utilization, but management’s tone suggested confidence that 2026 will convert these operational gains into better financial performance.