Source Energy Services Q3 2026 Earnings Results & Report

Source Energy Services EPS Results

• Actual EPS: -C$0.29
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Source Energy Services Revenue Results

• Actual Revenue: C$188.03 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Source is a company that focuses on the integrated production and distribution of frac sand, as well as the distribution of other bulk completion materials not produced by Source. Source provides its customers with an end-to-end solution for frac sand supported by its Wisconsin and Peace River mines and processing facilities, its Western Canadian terminal network and its 'last mile' logistics capabilities, including its trucking operations, and Sahara, a proprietary well site mobile sand storage and handling system. Source's full-service approach allows customers to rely on its logistics platform to increase reliability of supply and to ensure the timely delivery of frac sand and other bulk completion materials at the well site.

Source Energy Services Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q3 sales volumes rose 55% year over year to 1 million tons, while revenue increased 50% to CAD 188 million and Adjusted EBITDA rose CAD 6.6 million to CAD 26.9 million.
• Negative Sentiment: Adjusted Gross Margin excluding mine-gate sales fell to CAD 38.18 per ton from CAD 46.56 a year earlier, reflecting Peace River ramp-up challenges, higher diesel costs, and changes in customer and product mix. Management expects Peace River’s one-time ramp costs to be limited to 2026, but diesel costs remain outside its control.
• Negative Sentiment: Management expects 2026 completion activity to be lower than in 2025, citing slower activity late in Q4 and pads deferred to 2027; it also expects no further wet-sand jobs in the remainder of 2026.
• Positive Sentiment: Management anticipates stronger 2027 activity and sand demand in the Montney and Western Canadian Sedimentary Basin, citing customer feedback, LNG-related growth prospects, and momentum for wet sand. It also reported a long-term contract for a third Sahara unit in Alaska and expects domestic sand demand to keep growing, while noting Northern White sand will retain a place in the market.

Presentation

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Source Energy Services third quarter 2026 results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Scott Melbourn, CEO. Mr. Melbourn, please proceed.

[Scott Melbourn, CEO at Source Energy Services]

Thank you, operator. Good morning, and welcome to Source Energy Services third quarter 2026 conference call. My name is Scott Melbourn. I am the CEO of Source. I am joined today by Derren Newell, CFO. This morning, we will provide a brief overview of the quarter, which will be immediately followed by a question-and-answer period. Before I get started, I would like to refer everyone to the financial statements and the MD&A that were posted to SEDAR and the company's website last night, and remind you of the advisory on forward-looking information found in our MD&A and press release. On this call, Source's numbers are in Canadian dollars and metric tons, and we will refer to Adjusted Gross Margin, Adjusted EBITDA, and Free Cash Flow, which are non-IFRS measures as described in our MD&A. Except for these items just mentioned, our financial information is prepared in accordance with IFRS.

[Scott Melbourn, CEO at Source Energy Services]

During the third quarter, as expected, completion activity increased, resulting in sales volumes reaching 1 million tons, an increase of 55% over Q3 of last year. We recorded strong performance in our last-mile logistics, with total truck volumes of over 774,000 tons, and strong well site performance for the Canadian and U.S. Sahara fleets. We have entered into an agreement to deliver our third Sahara unit to Alaska and the 12th unit in the Source fleet under long-term contract. And our well site teams completed four wet sand pads during the quarter as momentum continues to build around Source's wet sand offerings. One-time costs at Peace impacted gross margin as we continue to ramp production and build out our wet sand offerings.

[Scott Melbourn, CEO at Source Energy Services]

These costs will be isolated to 2026 as it is a transitional year for the facility. For the full year of 2026, we expect completion activity levels to be lower than 2025, as we are seeing a slowing in completion activity for the back half of the fourth quarter, and we have had some pads deferred into 2027. Based on initial feedback from our customers, we expect there will be an increased activity level and overall sand volumes in the Montney and the Western Canadian Sedimentary Basin for 2027. While the conflict in the Middle East has impacted near-term oil prices, the Canadian market has remained disciplined with their capital spending plans.

[Scott Melbourn, CEO at Source Energy Services]

We have continued to see significant increase in mine gate sales as the increased oil prices have led to more completion activity in the Lower 48 and an increased call for Northern White sand. Noteworthy performance for the quarter includes total revenue of CAD 188 million, a 50% increase compared to Q3 of 2025. Adjusted EBITDA was CAD 26.9 million, a CAD 6.6 million increase from the same period of 2025. The Sahara fleet achieved 67% utilization across the 11-unit fleet. With that, I'll turn it over to Derren.

[Derren Newell, CFO at Source Energy Services]

Thanks, Scott. In the third quarter, Source generated CAD 143.8 million in sand revenue. The average realized sand price per metric ton decreased by CAD 10.80 compared to the prior year due to increased domestic and mine gate sales. Domestic sales volumes were 90% higher than the prior year, while higher mine gate sales volumes contributed to a CAD 4.60 decrease in the average realized sand price. Well site solutions revenue was CAD 43 million for the third quarter, an increase of CAD 19 million compared to Q3 2025. The increase was driven by a 52% increase in volumes delivered by last-mile and longer hauls to the well sites. The Canadian Sahara units were 55% utilized during the third quarter, a 7% increase over last year. During the quarter, Source also provided on-site logistics for a large wet sand job for a new customer.

[Derren Newell, CFO at Source Energy Services]

Terminal services revenue increased CAD 0.1 million compared to Q3 2025 due to higher chemical elevation volumes. Cost of sales, excluding depreciation, increased by CAD 55 million for Q3 compared to last year due to higher sand sales volumes realized and higher truck volumes. The increase also reflects higher production costs of Peace River facility, which continues to be impacted by the operational challenges associated with rapid growth required to accommodate the increased customer demand. We saw higher diesel costs in all areas of the operations. The factors were partly offset by a favorable shift in product mix due to increased domestic sand sales, which does have a lower total landed cost.

[Derren Newell, CFO at Source Energy Services]

Excluding gross margin from mine gate sales, Adjusted Gross Margin for Q3 was CAD 38.18 per metric ton compared to CAD 46.56 per metric ton last year. Adjusted Gross Margin per metric ton was impacted by the performance of the Peace River facility and was also impacted by a change in customer mix and product mix, reflecting incremental mine gate sales volumes compared to the third quarter last year. For Q3, total operating and G&A expenses increased by CAD 0.9 million compared to Q3 2025. Operating expenses increased by CAD 0.2 million, primarily due to increased royalty expenses for higher activity levels. G&A expenses increased by CAD 0.7 million, largely due to higher people costs and higher IT-related equipment purchases, storage, and licensing costs. Finance expense increased by CAD 1.1 million compared to last year.

[Derren Newell, CFO at Source Energy Services]

The increase was primarily driven by higher interest expense on the ABL facility and lower interest income as a result of lower cash balances, as well as higher accretion expense. Interest expense for the Term Loan decreased due to lower average principal outstanding. However, this was offset by the capitalization of costs associated with the delayed draw facility in Q3 of 2025. At quarter end, Source had available liquidity of CAD 27.6 million. Capital expenditures net of proceeds on disposals, reimbursements, excluding expenditures for Taylor and customer-funded equipment purchases, were CAD 5 million for Q3 2026, a decrease of CAD 13.5 million compared to last year.

[Derren Newell, CFO at Source Energy Services]

Gross capital expenditures, excluding Taylor and customer-funded equipment purchases, decreased by CAD 15.2 million, largely attributed to lower expenditures at Peace River, wherein the prior year acquired assets to support the further expansion of Peace were completed. Maintenance capital expenditures increased by CAD 1.7 million, primarily due to an increase in overburden removal. Lease obligations increased from the prior year, largely due to the timing of additions of heavy equipment for Peace River and higher renewal rates on Yellow Iron for the Wisconsin mining operations. With that, I'll turn it back to you, Scott.

[Scott Melbourn, CEO at Source Energy Services]

Thanks, Derren. As we look at industry activity in 2027 and beyond, the continued development in the Montney will be a key growth driver for the industry. The recent announcements regarding the LNG projects on the West Coast are extremely positive for the overall sand demand in the Western Canadian Sedimentary Basin. Source has an unparalleled mine-to-well site offering for both Northern White and domestic sand, which will continue to support market share gains in the Montney, and specifically in Northeast B.C. In addition to our offerings in sand and related out logistics, we've expanded our chemical transloading capability, which we believe will be a growth area for Source. Over the long term, the macro picture has strengthened considerably, and the increased demand for Western Canadian natural gas from LNG exports, power generation for data centers, and increased pipeline capacity will drive incremental demand for Source's services.

[Scott Melbourn, CEO at Source Energy Services]

We continue to focus on enhancing our industry-leading frac sand logistics chain, and we have and will continue to execute on a number of opportunities to grow the company and further our competitive advantage. In addition to growth in our core markets, we continue to explore opportunities to diversify and expand our service offering and to further utilize our Western Canadian channels. Thank you for your time this morning. That concludes the formal portion of the call. We'll now ask the operator to open the lines for questions.

[Operator]

Yes, sir. Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Today's first question comes from Nick Corcoran at Acumen Capital. Please go ahead.

[Nick Corcoran, Equity Research Analyst at Acumen Capital]

Morning, guys. Thanks for taking my questions.

[Scott Melbourn, CEO at Source Energy Services]

Morning, Nick. Morning.

[Nick Corcoran, Equity Research Analyst at Acumen Capital]

Just the first question for me. Adjusted Gross Margins were down year-over-year. I think you highlighted Peace River ramp-up costs and higher fuel costs. How much of those do you expect to be transitory, and what do you see, you know, long-term margins in terms of returning to historical levels?

[Scott Melbourn, CEO at Source Energy Services]

Yeah. Nick, I think as we mentioned on the prepared remarks, we see the one-time items and the ramp-up costs in Peace River as isolated to 2026. We don't believe that any of those will continue to persist in 2027, and we think that our operational performance at Peace River will be much improved in 2027. In terms of the diesel expense, obviously, the market has seen a dramatic shift in diesel prices. That impacts us at really all of our operations. I don't expect diesel prices to remain at the elevated level that they were, especially in the latter half of Q3. That's dependent on a number of factors that are out of our control. All we can do is focus on what we can control right now, and that's reducing our fuel consumption.

[Nick Corcoran, Equity Research Analyst at Acumen Capital]

Good. What do you expect CapEx to be for the remainder of 2026 and 2027?

[Scott Melbourn, CEO at Source Energy Services]

Yeah. In both the remainder of 2026 and into 2027, I expect our capital to be quite a bit lower than it has been running over the last few quarters. In the remainder of 2026, we'll just be focused on overburden and maybe some minor maintenance capital items. As we cycle into 2027, although we haven't released exactly what our capital budget is, our expectation is we will really be focused on the operations and optimizing the operations. We really have completed our capital expenditure programs for Peace, other than ongoing maintenance capital and for the other areas. I expect our capital will be down considerably year-over-year, 2026 to 2027.

[Nick Corcoran, Equity Research Analyst at Acumen Capital]

Okay. Maybe one last question from me. It seems like wet sand is becoming increasingly used. What are you hearing from customers in terms of what they're expecting into the remainder of the year and into 2027 for how much that'll be used?

[Scott Melbourn, CEO at Source Energy Services]

Yeah, I think just the nature of wet sand and obviously the weather in Western Canada, we are effectively done wet sand for the balance of the year. We do not expect anything, any additional wet sand jobs for the last half of 2026. We will fire it back up, weather dependent, in early 2027. So, in terms of overall demand for wet sand, I think our customer group and the customers who have been using wet sand have been pleased with the results. Therefore, we are expecting that 2027 will be another year of robust demand on the wet sand front.

[Scott Melbourn, CEO at Source Energy Services]

I also do believe that as we cycle into 2027 and the market has completed a number of wet sand jobs with various customers, that it will continue to grow momentum, and I expect that we will add a couple of additional customers to our wet sand portfolio in 2027. So, it will continue to grow, and I think there is some significant momentum behind it. But it cannot service the market for the entire year, so dry sand, either domestic or Northern White, will continue to be in the portfolio and will continue to be in demand.

[Nick Corcoran, Equity Research Analyst at Acumen Capital]

Thanks a lot. Thanks, and pass the mic.

[Operator]

Thank you, Nick. As a reminder to ask a question, please press star then one. Our next question today comes from John Gibson at BMO Capital Markets. Please go ahead.

[John Gibson, Director of Equity Research at BMO Capital Markets]

Morning. Thanks for taking my questions. I wanted to expand on Nick Corcoran's last one there, just asking about trends in domestic dry and wet sand. Is this here to stay, and how are you positioning the business long term for these trends, particularly as we think about expansions domestically versus your Wisconsin facilities?

[Scott Melbourn, CEO at Source Energy Services]

Yeah. And excellent question, John Gibson. The trend towards domestic has gained significant traction, especially this year as we've seen a significant fuel surcharge from rail in sand. I think that just given the cost dynamics between imported sand and domestic sand, and as the spread grows with fuel surcharge or with FX or with other items, the demand for domestic is only going to continue to grow in the market. We continue to position ourselves with our Peace River mine, and we think we're excellently located to service the Montney and to grow that facility to service any growth in the domestic market in the region. The other dynamic with it is whether it's wet sand or other, the location of it is very important and becomes even more important with wet sand because you are hauling a portion of water.

[Scott Melbourn, CEO at Source Energy Services]

Your location of your domestic mine becomes very important for the cost dynamics of landing wet sand. We believe we're well-positioned with our Peace River facility to grow our domestic. In terms of Northern White, Northern White is still going to have its spot in the market. As diesel prices start to normalize and as that fuel surcharge starts to come down, I think we'll start to see a more normalization of Northern White in the market. By no means is this a death spiral for Northern White. I think it will continue to have its place in the market. It will continue to have its place with customers. We're just near-term dynamics are favoring domestic, and I think those near-term dynamics will continue to favor the domestic wedge of growth.

[John Gibson, Director of Equity Research at BMO Capital Markets]

Thanks a lot. Appreciate that. Just last one for me. We've seen or heard from some of your peers that customers are self-sourcing sand more. Can you maybe quantify how this has changed versus a year ago?

[Scott Melbourn, CEO at Source Energy Services]

Yeah. I think this has been a trend that's been happening in the market for probably five or six years or longer now, where some of the larger consumers of sand in the market have brought it in-house and are sourcing it directly rather than through a pressure pumper. I think as we look at the Canadian market, and certainly our portfolio of business, we're probably at 75% or 80% is now directly sourced from E&Ps. I do expect that trend to continue.

[Scott Melbourn, CEO at Source Energy Services]

I think what we're seeing is now some of the trends started with the larger users of frac sand, and now we're starting to see some of the maybe smaller consumers of sand on an annual basis are also starting to self-source. I do see the trend continuing. I think as we talk next year, we'll probably uptick to 85% is direct E&Ps, and the remainder is through the pressure pumpers.

[John Gibson, Director of Equity Research at BMO Capital Markets]

Thanks a lot for the color. I'll turn it back to you.

[Operator]

Thank you.

[Scott Melbourn, CEO at Source Energy Services]

Thanks, John.

[Operator]

That does conclude our question and answer session. I'd like to turn the conference back over to Mr. Melbourn for any closing remarks.

[Scott Melbourn, CEO at Source Energy Services]

Thank you, everyone, for your interest in Source. If there's any follow-on questions, please feel free to reach out to myself or Derren, and have a great day.

[Operator]

Thank you. That does conclude our conference for today. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful.

Participants

Executives

• Scott Melbourn, CEO
• Derren Newell, CFO

Analysts

• Nick Corcoran, Equity Research Analyst at Acumen Capital
• John Gibson, Director of Equity Research at BMO Capital Markets