Foraco Q2: Growth Meets Margin Squeeze, and a Shareholder Speaks

Revenue jumps 22% but margins compress as ramp-up costs and inflation bite; management promises recovery via pricing.

FAR.TO · Earnings Call · 2026-07-31

A Quarter of Growth and Margin Squeeze

Foraco International reported second-quarter revenue of $84.5 million, up 22% year-over-year, its strongest quarter since Q2 2023. But the headline growth masked a troubling margin story: gross margin fell to 15.5% from 20.5%, and EBITDA margin dropped to 17.8% from 20.3%. Management blamed the compression on labor and consumable cost inflation, mobilization expense, and the “ramp-up of new projects in all regions” — Timothy Bremner, Chief Executive Officer · 2026-07-31. The growth itself was broad-based—mining revenue rose 23% and water revenue 21%—and the Rig utilization rate jumped to 51% from 35% a year ago, evidence that the recovery is real but the operating leverage is taking longer to translate into profit. The margin issue is temporary, management insists. "Pricing adjustments are progressively catching up with higher labor, consumable, fuel and transportation costs," said CEO Tim Bremner in prepared remarks (component 4600023522316605125). The real question is how quickly the catch-up happens. In the Q&A, Bremner noted that many cost increases have not yet been recognized in the first half and that “those discussions with our customers ... are ongoing and with some earnest” — Timothy Bremner, Chief Executive Officer · 2026-07-31. He expects double-digit price increases to cover inflation, but the timing remains uncertain.

The Tender Pipeline and the Pricing Catch-Up

The demand backdrop is undeniably strong. The tender pipeline is "overflowing in some areas," Bremner said, and the order book remains at record levels. At the start of 2026, Foraco announced a $404 million backlog, and despite executing $151 million in the first half, the backlog is still at record levels. "We have a significant amount of new business that we've put into the order book," Bremner said (component 6078221977369076181). But that order book is not translating into margins yet, partly because new projects are in their start-up phase and partly because pricing hasn't caught up with costs. Interestingly, the company is being selective about which tenders it pursues. "A lot of work that is being tendered that we're not able to respond to" because of equipment or scheduling constraints (component 6078221977369076181). This selectivity is a consistent theme from prior quarters: in March, Bremner said “we've got capacity, we've got rigs available, the tender pipeline is still very brisk, and we're being quite selective about the new opportunities we take on” — Timothy Bremner, Chief Executive Officer · 2026-03-02. That discipline is intended to protect margins, but it also means revenue growth may be slower than the market would like.

The Persistent Valuation Gap

Perhaps the most striking part of the call was the emotional shareholder question from Steven Green. He pointed out that

the stock price is lower now than it was in October of '21 – 2021, 5 years ago
Steven Green, Analyst · 2026-07-31

, despite all the operational progress. Bremner acknowledged the frustration but argued that the recent pullback is part of a broader market decline and that the company is in the best position it's ever been. "Today would be the absolute wrong time to jump ship," he said (component 3689122724065761560). The disconnect between operational performance and share price is also reflected in the stock price being a top keyword in the company's trajectory for the quarter, which is unusual. It's not just one shareholder: the conversation suggests the market is skeptical of margin recovery and cash flow generation. Cash flow was negative in the first half, with free cash flow of minus $13 million, driven by working capital build-up and $16 million in CapEx. CFO Fabien Sevestre said the seasonal working capital will reverse in the second half, and the company expects to recover the investments by year-end. “So the free cash flow for the second quarter was $7 million.” — Fabien Sevestre, Chief Financial Officer · 2026-07-31 "There is a lot of room to decrease our debt," he added (component 5888768743255994788). Debt reduction remains the #1 capital allocation priority, but the leverage ratio is not where management wants it.

Outlook: A Test of Execution

Foraco's second half will be a test of whether it can convert its record backlog and higher utilization into margin recovery. The company has guided that margin improvement is underway, and the pricing adjustments are expected to hit in the coming quarters. "We're focusing on margin improvement, and we expect that to improve for the second half," Bremner said (component 8382141236783004927). The macro tailwinds remain supportive: gold near record levels, copper supply deficits, and rising exploration budgets. Foraco is well-positioned in the drilling services niche, with a diversified customer base of Tier 1 miners. But the key measure will be whether the margin recovery materializes as promised. If it does, the stock could re-rate; if not, the shareholder frustration will likely grow. The market will be watching closely. For a small-cap with a $312 million market cap, Foraco is trading at a discount to its peers despite the growth. The call revealed a management team that is confident but facing near-term margin headwinds. The question is whether the market will reward them for execution or continue to penalize the lag.