Source Energy Services Q4 2025 Earnings Report

Source Energy Services EPS Results

• Actual EPS: C$0.17
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Source Energy Services Revenue Results

• Actual Revenue: $164.53 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Source Energy Services Announcement Details

• Quarter: Q4 2025
• Date: 2/26/2026
• Time: After Market Closes
• Conference Call Date: Friday, February 27, 2026
• Conference Call Time: 9:30AM ET

Source Energy Services (TSE:SHLE) Ltd is a Canada based company engaged in the production, supply, and distribution of Northern White frac sand, as well as the distribution of other bulk completion materials not produced by the company. It provides customers with an end-to-end solution for frac sand supported by its Wisconsin mines and processing facilities, its Western Canadian terminal network and its last mile logistics capabilities. The company also offers storage and logistics services for other bulk oil and gas well completion materials and has developed Sahara, a proprietary wellsite mobile sand storage and handling system. The geographical segments of the group are the US Operations and Canadian Operations.

Source Energy Services Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q4 rebound with 907,000 tons sold (up 18% YoY) and 2025 delivered record volumes and record revenue of CAD 700.3M, driven by completion of delayed work in Q4.
• Negative Sentiment: Margins compressed—gross margin and adjusted gross margin declined YoY and Adjusted EBITDA fell to CAD 112.3M (down CAD 11.6M) due to terminal/product mix, higher Peace River commissioning costs, and a shift to lower-priced finer mesh sand.
• Positive Sentiment: Operational capacity expanded with the Peace River mine to 1M tpa, Taylor Terminal completion, Chetwynd expansion and added trucking/last‑mile logistics, positioning Source for Montney and LNG-related demand.
• Positive Sentiment: Shareholder and balance‑sheet actions included a share repurchase cancelling 465,000 shares, CAD 23.7M term loan reduction, and year‑end available liquidity of CAD 59.9M.
• Neutral Sentiment: 2026 guidance anticipates roughly flat volumes year‑over‑year with steadier quarterly activity, capex of CAD 30–40M focused on Peace River and terminal optimization, and potential back‑half upside from LNG ramp‑up.

Presentation

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Source Energy Services fourth quarter 2025 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. You will hear a tone acknowledging your request. 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, welcome to Source Energy Services fourth quarter 2025 conference call. My name is Scott Melbourn. I'm the CEO of Source. I'm joined today by Derren Newell, our CFO. This morning, we will provide a brief overview of the quarter and the year, which will immediately be 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 on 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.

[Scott Melbourn, CEO at Source Energy Services]

Except the items just mentioned, our financial information is prepared in accordance with IFRS. As we expected, fourth quarter activity levels rebounded, we recorded sales volume of 907,000 tons for the quarter, an 18% increase over the fourth quarter of 2024. With this strong finish to the year, and despite the commodity price challenges earlier in the year, 2025 was another good year for Source. We delivered record volumes and record revenue. We enhanced our logistics capability with the Taylor Terminal, strengthened our last-mile logistics with additional trucking assets, and expanded our domestic sand capability to 1 million tons per year. We enhanced our shareholder return by initiating the share repurchase program, which repurchased and canceled 465,000 shares, we reduced our term loan by CAD 23.7 million.

[Scott Melbourn, CEO at Source Energy Services]

Noteworthy items for the year included sand sales volume of 3.7 million tons, a 5% increase over last year. Source also set a record for sand volumes delivered to customers' well sites through our last mile logistics team. Source generated total revenue of CAD 700.3 million, a CAD 26.4 million increase over 2024. We realized gross margin of CAD 116.6 million and adjusted gross margin of CAD 159.3 million, decreases of 8% and 2%, respectively, when compared to last year. Gross margins were impacted by a shift in terminal and product mix, as well as incremental Peace River commissioning costs.

[Scott Melbourn, CEO at Source Energy Services]

Net income for 2025 was CAD 33.1 million, an increase of CAD 23.6 million over 2024, as Source benefited from lower share-based compensation expense and a recovery from the settlement of the Fox Creek lawsuit. Adjusted EBITDA was CAD 112.3 million, a CAD 11.6 million decrease from 2024. I will now turn it over to Derren.

[Derren Newell, CFO at Source Energy Services]

Thanks, Scott. In the fourth quarter, Source sold 907,000 metric tons of sand, generated CAD 135.3 million in sand revenue. Sand volumes were 18% higher, and sand revenue increased by CAD 17.7 million, as most of the delayed work from the third quarter of 2025 was completed in the fourth. The average realized sand price per metric ton decreased by CAD 4.02 compared to the prior year, primarily due to a sales mix of higher sales of lower-priced, finer mesh sand. Well site solution revenue was CAD 28.3 million for the fourth quarter, an increase of CAD 1.6 million, or 6%, compared to the fourth quarter of 2024.

[Derren Newell, CFO at Source Energy Services]

This increase was driven by higher volumes delivered by the last-mile logistics, reflecting higher customer activity levels and longer trips to well sites compared to last year. Sahara units in Canada were 50% utilized during the fourth quarter, and Sahara units deployed in the U.S. remained fully contracted and 100% utilized. Terminal services revenue was CAD 0.9 million, an increase of CAD 0.3 million compared to the fourth quarter of 2024, due to higher chemical elevation volumes, as well as an increase in sand elevation storage rates. As Scott said, total revenue for the year was CAD 700.3 million, driven by increased sales volumes. Cost of sales, excluding depreciation, increased by CAD 19.4 million for the fourth quarter compared to last year, due to higher sand volumes and the incremental costs incurred at Peace River, as Scott previously mentioned.

[Derren Newell, CFO at Source Energy Services]

The increase in cost of sales also reflects higher people costs, higher repairs and maintenance expenses, mainly on the sand trucking assets we purchased last year, and incremental royalties for the Peace River facility due to increased production. Lower third-party trucking costs partially offset these increases. On a per-ton basis, cost of sales was impacted by a shift in terminal mix, which was partly offset by lower rail transportation costs in the quarter. The impact of foreign exchange on the US dollar components cost of sales drove a decrease of $0.25 to cost of sales compared to the fourth quarter of last year.

[Derren Newell, CFO at Source Energy Services]

Cost of sales, excluding depreciation, increased for the full year compared to 2024, due to record sand sales volumes, higher transportation costs to move the volumes to the terminals and the customer well sites, and the incremental cost of Peace River, as well as the full year of Source's trucking operations and the Taylor Terminal beginning its operations. Cost of sales did benefit from lower production costs achieved at the Wisconsin mining facilities. A weaker dollar increased cost of sales denominated in U.S. dollars by $2.54 per metric ton compared to 2024, which was largely offset by movement in exchange rates on revenues denominated in U.S. dollars. Excluding gross margin from mine gate, Adjusted Gross Margins for Q4 were $39.07 per metric ton, compared to $44.88 last year.

[Derren Newell, CFO at Source Energy Services]

Q4 was impacted by the incremental cost of Peace River, as well as extremely cold temperatures and heavy snowfall in certain Source customer operating areas, resulting in additional performance-related charges, which impacted gross margin by CAD 0.52 per metric ton. For the quarter, the strengthening of the Canadian dollar led to a decrease of Adjusted Gross Margin of CAD 0.02 per metric ton. For the year, gross margin decreased by CAD 10.8 billion compared to 2024. Excluding gross margin from mine gate, Adjusted Gross Margin was CAD 43.71 per metric ton, compared to CAD 46.99 per metric ton in 2024. A shift in terminal mix due to the location of customer well sites, a shift in product mix to lower priced, finer mesh sand sales, the incremental Peace River costs, and incremental costs from commencing operations at Taylor, all contributed to the decrease.

[Derren Newell, CFO at Source Energy Services]

These impacts were partly offset by CAD 3.6 million of incremental margin generated from Source's trucking operations and lower rail transportation costs realized in late 2025. The weakening of the Canadian dollar negatively impacted Adjusted Gross Margin by CAD 0.24 per metric ton compared to last year. For Q4 2025, total operating and G&A decreased by CAD 0.1 million. Operating expenses increased by CAD 0.2 million, mainly due to higher royalties included in selling and administrative costs. This was partly offset by lower incentive compensation expense. G&A decreased by CAD 0.3 million due to lower incentive compensation expenses and a reduction in related IT expenses. In Q4 2024, Source implemented a new cloud computing software system, which resulted in incremental expenses in that period. For the year totaling, operating and G&A expenses increased by CAD 2.8 million.

[Derren Newell, CFO at Source Energy Services]

Operating expenses increased by CAD 4.8 million due to increased royalty-related costs, higher people costs because of increased activity levels and incremental terminal and trucking operations, as well as higher workers' compensation insurance premiums. There were also additional repairs and maintenance costs on rail cars and facilities in 2025. G&A costs were down CAD 2 million due to lower incentive compensation costs, partly offset by the amortization of costs to implement the new cloud computing arrangement in 2024 and higher professional fees. Finance expense for Q4 2025 increased by CAD 0.7 million compared to Q4 2024. In the quarter, the decision was made to allow the delayed draw facility to expire, which resulted in previously deferred capitalized costs being recognized. Source also incurred higher interest expense on lease obligations.

[Derren Newell, CFO at Source Energy Services]

These impacts were partially offset by lower accretion expense and higher interest income compared to the fourth quarter of 2024. For the year, finance expense decreased by CAD 4.2 million compared to 2024. The decrease was attributable to lower interest expense incurred for Source's credit facilities and incremental interest income earned on cash balances, as well as lower accretion expense. These reductions were partly offset by higher interest expense for lease obligations. At year-end, Source had available liquidity of CAD 59.9 million. Capital expenditures, net of proceeds on disposals and reimbursements, and excluding expenditures on the Taylor facility, were CAD 7.1 million for the quarter, an increase of CAD 1.6 million compared to last year. Growth capital increased by CAD 2.1 million, mainly attributed to the expansion of the Peace River facility.

[Derren Newell, CFO at Source Energy Services]

Q4 2024, a customer reimbursement related to the Peace River facility expansion lowered our total expenditures in that quarter. Maintenance capital expenditures decreased by CAD 0.5 million for the fourth quarter of 2025 due to lower expenditures on the facilities. For the year, capital expenditures, net of proceeds on disposal and reimbursements and excluding Taylor, increased by CAD 21.3 million. Growth capital increased by CAD 15.7 million, primarily due to assets acquired in the third quarter for the future expansion of the Peace River facility, as well as expenditures made on the current expansion to expand to its 1 million ton capability. Maintenance expenditures increased by CAD 5.5 million, driven by higher amounts for overburden removal and increased expenditures for Sahara improvements and upgrades, as well as some equipment rebuilds for Source's trucking operations.

[Derren Newell, CFO at Source Energy Services]

Lease obligations increased from the prior year quarter, largely due to the timing of the addition of heavy equipment for Peace River and higher renewal rates on yellow iron leases for the Wisconsin mining operations. Source is now cash taxable in the US and expects that it will be cash taxable in Canada in the next year or so. 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 2026 and beyond, we believe the continued development in the Montney will be a key growth driver for the industry. In response to this, Source has focused its capital expenditures over the past few years on the development of its capabilities in the Montney. With the expansion of the Chetwynd terminal, the completion of the Taylor terminal, and the expansion of the Peace River mine to 1 million tons of production. These improvements have positioned Source to provide an unparalleled mine-to-wellsite services for both northern white sand and domestic sand. In addition to our offerings in frac sand and related logistics, we have expanded our chemical transloading capability, which we believe will be a growth area for Source in 2026.

[Scott Melbourn, CEO at Source Energy Services]

We anticipate our net capital expenditures for 2026 to be between CAD 30 million and CAD 40 million, with the majority focused on optimization and mine development activities in Peace River and the existing terminal network. We expect 2026 to be another strong year for Western Canadian sedimentary basin completion activity, driven by additional export capability via LNG Canada as it ramps up its production. Over the longer term, we continue to believe the increased demand for natural gas, driven by LNG exports, increased natural gas pipeline export capabilities and power generation, will drive incremental demand for Source's services. Source continues to focus on 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.

[Scott Melbourn, CEO at Source Energy Services]

In addition to growth in our core markets, we continue to explore opportunities to diversify and expand our service offerings and to further utilize our existing Western Canadian terminals. Thank you for your time this morning. This concludes the formal portion of our call. We'll now ask the operator to open the lines for questions.

[Operator]

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

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Morning, guys.

[Scott Melbourn, CEO at Source Energy Services]

Morning, Nick.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Just the first question for me, we're two months into 2026. Any indication how activity levels have trended relative to either the full year or the fourth quarter?

[Scott Melbourn, CEO at Source Energy Services]

Yeah, you know, I think, I think as we may have mentioned in our outlook before, you know, we see 2026 right now as being a fairly flat year, you know, in terms of volume year-over-year. I think what we'll see in 2026, and, in comparison to 2025, is we'll see a little more steady. You know, we expect, you know, kind of quarter-over-quarter to be much more steady than or much more flat compared to 2025, where we saw, you know, really heightened levels of activities in Q1 and Q2, then a significant drop-off in Q3 and then an increase in Q4. We expect much more steady activity across the quarters in 2026.

[Scott Melbourn, CEO at Source Energy Services]

I personally think that we'll have a little more activity in the back end of 26 as we start to see the impact of LNG Canada, and we start to see the impact of more export capability out of Western Canada. You know, as we're looking at it right now, we look like a fairly flat year-over-year in terms of overall volume.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

That's helpful. How much visibility do you have, or how far out do you have visibility for your sand orders?

[Scott Melbourn, CEO at Source Energy Services]

Yeah, for the most part, we've got, you know, from our E&P customers, we'll have, you know, a fairly good visibility for the entire year. Paths will move from quarter to quarter. There still will be some movement within that forecast, but we have a good, a fairly good handle on what the overall volume is going to look like for the full year.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Helpful. Like, there seems to be some good macro tailwinds for LNG and natural gas for power generation. Am I correct in interpreting that this will be more a back half?

[Scott Melbourn, CEO at Source Energy Services]

Yeah, you know, I think, you know, as we look at the year, I, you know, I think that, if we see some movement in commodity price, again, especially natural gas price, that we'll see a, you know, a much more activity sort of driven to the back half of this year. You know, I think you're right in saying that, you know, the back half of the year has more upside potential than what we're seeing in the, in the front half of this year.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

maybe one last question for Derren. I know margins were impacted in the 4th quarter by cold weather and Peace River startup costs. Did any of those carry over into the 1st quarter?

[Derren Newell, CFO at Source Energy Services]

No. We've seen much better performance, so far out of Peace. Cold weather, knock on wood, while it snowed, we haven't had quite the challenges that cold snap in December with the crazy amount of snow that fell up in northern Alberta at the same time, you know, hasn't impacted us the same way.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Thanks for all. Pass along.

[Scott Melbourn, CEO at Source Energy Services]

Thanks, Nick.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Scott Melbourn for any closing remarks.

[Scott Melbourn, CEO at Source Energy Services]

Thank you for everyone who joined this morning. If you have any follow-on questions, please feel free to reach out to myself or Derren.

[Operator]

This concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.

Participants

Executives

• Derren Newell, CFO
• Scott Melbourn, CEO

Analysts

• Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners