Source Energy Services Ltd. press release
Source Energy Services Reports Q2 2025 Results
TSX - Toronto Stock Exchange · Silicon · Canada
CALGARY, AB / ACCESS Newswire/ July 30, 2025 / Source Energy Services Ltd. ("Source" or the "Company") is pleased to announce its financial results for the three and six months ended June 30, 2025.
Q2 2025 PERFORMANCE HIGHLIGHTS
Key achievements for the quarter ended June 30, 2025 include the following:
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realized record sand sales volumes of 1,094,355 metric tonnes ("MT") and sand revenue of $161.5 million, an increase of $21.4 million or 15% from the second quarter of 2024;
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generated total revenue of $201.9 million, a $25.5 million increase from the same period last year;
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realized gross margin of $36.7 million and Adjusted Gross Margin(1)of $48.6 million, increases of 13% and 15%, respectively, when compared to the three months ended June 30, 2024;
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reported net income of $13.6 million, an increase of $8.9 million from the second quarter of last year;
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realized Adjusted EBITDA(1)of $35.2 million, a $4.4 million improvement from the second quarter of 2024;
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delivered record sand volumes to our customer well sites through our "last mile" logistics and realized 83% utilization across the eleven-unit Sahara fleet;
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completed the next phase of the Peace River facility expansion, approaching nameplate capacity of 1,000,000 MT of domestic sand production;
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implemented a Normal Course Issuer Bid, resulting in the repurchase of 225,400 shares during the second quarter; and
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received a Remission Order from the Government of Canada which reverses and refunds surtaxes paid to date on reciprocal tariffs imposed by the Government of Canada on frac sand imported from the United States earlier this year.
Note:
1.
Adjusted Gross Margin (including on a per MT basis) and Adjusted EBITDA are not defined under IFRS (as defined herein) and might not be comparable to similar financial measures disclosed by other issuers, refer to ‘Non-IFRS Measures' below for reconciliations to measures recognized by IFRS. For additional information, please refer to Source's Management's Discussion and Analysis ("MD&A"), dated July 30, 2025, available online at www.sedarplus.ca.
RESULTS OVERVIEW
| | Three months ended June 30, | | Six months ended June 30, | | | | | | | | | | | | | | ($000's, except MT and per unit amounts) | 2025 | | | 2024 | | | 2025 | | | 2024 | | | | | | | Sand volumes (MT)(1) | | 1,094,355 | | | | 921,148 | | | | 2,135,578 | | | | 1,795,997 | | | | | | | | | | | | | | | | | | | | Sand revenue | | 161,472 | | | | 140,056 | | | | 324,375 | | | | 273,050 | | | Well site solutions | | 39,216 | | | | 35,360 | | | | 83,644 | | | | 71,080 | | | Terminal services | | 1,201 | | | | 940 | | | | 2,434 | | | | 1,794 | | | Sales | | 201,889 | | | | 176,356 | | | | 410,453 | | | | 345,924 | | | Cost of sales | | 153,280 | | | | 134,214 | | | | 315,649 | | | | 260,596 | | | Cost of sales - depreciation | | 11,873 | | | | 9,500 | | | | 21,275 | | | | 17,049 | | | Cost of sales | | 165,153 | | | | 143,714 | | | | 336,924 | | | | 277,645 | | | Gross margin | | 36,736 | | | | 32,642 | | | | 73,529 | | | | 68,279 | | | Operating expense | | 8,383 | | | | 6,327 | | | | 16,310 | | | | 12,369 | | | General & administrative expense | | 4,839 | | | | 5,851 | | | | 9,747 | | | | 11,201 | | | Depreciation | | 5,432 | | | | 4,289 | | | | 11,132 | | | | 8,499 | | | Income from operations | | 18,082 | | | | 16,175 | | | | 36,340 | | | | 36,210 | | | Total other expense (income) | | 1,452 | | | | 8,095 | | | | (10,415 | ) | | | 24,479 | | | Income before income taxes | | 16,630 | | | | 8,080 | | | | 46,755 | | | | 11,731 | | | Current tax expense | | 2,449 | | | | 1,828 | | | | 5,226 | | | | 3,738 | | | Deferred tax expense | | 613 | | | | 1,567 | | | | 4,362 | | | | 1,415 | | | Net income(2) | | 13,568 | | | | 4,685 | | | | 37,167 | | | | 6,578 | | | Net earnings per share ($/share) | | 1.01 | | | | 0.35 | | | | 2.75 | | | | 0.49 | | | Diluted net earnings per share ($/share) | | 1.01 | | | | 0.26 | | | | 2.75 | | | | 0.49 | | | Adjusted EBITDA(3) | | 35,208 | | | | 30,798 | | | | 68,969 | | | | 62,819 | | | Sand revenue sales/MT | | 147.55 | | | | 152.05 | | | | 151.89 | | | | 152.03 | | | Gross margin/MT | | 33.57 | | | | 35.44 | | | | 34.43 | | | | 38.02 | | | Adjusted Gross Margin(3) | | 48,609 | | | | 42,142 | | | | 94,804 | | | | 85,328 | | | Adjusted Gross Margin/MT(3) | | 44.42 | | | | 45.75 | | | | 44.39 | | | | 47.51 | |
Notes:
1.
One MT is approximately equal to 1.102 short tons.
2.
The average Canadian to United States ("US") dollar exchange rate for the three and six months ended June 30, 2025, was $0.7225 and $0.7095, respectively (2024 - $0.7308 and $0.7361, respectively).
3.
Adjusted EBITDA and Adjusted Gross Margin (including on a per MT basis) are not defined under IFRS, refer to ‘Non-IFRS Measures' below for reconciliations to measures recognized by IFRS. For additional information, please refer to Source's MD&A available online at www.sedarplus.ca.
SECOND QUARTER 2025 RESULTS
Source realized record sand sales volumes during the second quarter, reflecting continued strong demand as Source customers pushed through spring break-up. Total revenue was $201.9 million for the three months ended June 30, 2025, an increase of $25.5 million, or 14%, compared to the second quarter last year. The second quarter also saw record sand sales volumes delivered for "last mile" logistics, as Source's ability to reliably supply the large volumes of sand required per completion job resulted in a record for the largest daily sand volume fed into a blender in twenty-four hours in April. For the second quarter, average realized sand price per MT was impacted by a shift in product mix to more 100 mesh sand and the elimination of tariff charges, which were included in the average realized sand price during the first quarter of 2025 and reversed during the second quarter. Refer to ‘Remission Order' below.
Cost of sales, excluding depreciation, increased on a quarter-over-quarter basis, driven by higher sand sales volumes and increased transportation costs resulting from the record volumes hauled by "last mile" logistics. On a per MT basis, cost of sales, excluding depreciation, decreased for the second quarter, driven by a shift in terminal mix and the impact of the tariff reversal. A weakening of the Canadian dollar increased cost of sales denominated in US dollars by $1.49 per MT, compared to the second quarter of 2024, which was largely offset by the movement in exchange rates on revenue denominated in US dollars for the period.
For the three months ended June 30, 2025, gross margin increased by $4.1 million compared to the second quarter of 2024. Higher sand sales volumes and volumes trucked to the well site contributed to the increase, as well as incremental gross margin generated from the sand trucking assets acquired in 2024. Excluding gross margin from mine gate volumes, Adjusted Gross Margin was $44.49 per MT compared to $46.16 per MT for the second quarter of 2024. The change is attributed to a shift in product mix, driven by a 17% increase in the sales of 100 mesh sand compared to the second quarter of 2024, the impact of terminal mix and the weakening of the Canadian dollar which negatively impacted Adjusted Gross Margin by $0.31 per MT for the quarter. The tariff reversal had no impact on Adjusted Gross Margin as these surtaxes were borne by Source customers.
Operating expenses increased by $2.1 million on a quarter-over-quarter basis, largely driven by higher royalty-related costs, partly attributed to the increased sand sales volumes realized during the period. Higher activity levels impacted costs for rail car related expenses including repairs and maintenance costs, as well as increased compensation expense, including people costs for Source's trucking operations. General and administrative expense decreased by $1.0 million during the second quarter of 2025, largely the result of lower people costs due to lower variable incentive compensation expense, partially offset by an increase in IT costs, due to the cloud-computing system implemented last year, compared to the second quarter of 2024.
Adjusted EBITDA increased by 14%, or $4.4 million, to $35.2 million for the second quarter, attributed primarily to the record sand sales volumes and well site solutions performance, as well as the incremental benefit from trucking assets acquired in 2024. The weakening of the Canadian dollar negatively impacted Adjusted EBITDA by $0.8 million for the quarter, attributed to the movement in exchange rates on the settlement of working capital.
Normal Course Issuer Bid
On May 13, 2025, Source commenced a Normal Course Issuer Bid (the "NCIB"), under which Source is authorized to purchase up to a maximum of 750,000 common shares or $5.0 million. The NCIB will terminate on May 12, 2026, or such earlier date as the maximum number of common shares are purchased pursuant to the NCIB or the NCIB is completed or terminated at the election of Source. During the second quarter, Source repurchased 225,400 common shares for a weighted average price of $11.99 per share under the NCIB.
Remission Order
Since the enactment of the reciprocal tariff by the Canadian government on March 4, 2025, Source has been working diligently with the Canadian government for relief of all surtaxes imposed on frac sand imported from the US. On June 26, 2025, Source received a Remission Order from the Government of Canada which determined that Source is eligible for relief of the surtax on sand at time of import, and qualifies for refunds of all surtaxes paid to date since enactment of the reciprocal tariff. During the second quarter of 2025, Source reversed the impact of tariffs previously recognized in revenue and cost of sales.
Liquidity and Capital Resources
| Free Cash Flow | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000's) | 2025 | | | 2024 | | | 2025 | | | 2024 | | | | | | | Adjusted EBITDA(1) | | 35,208 | | | | 30,798 | | | | 68,969 | | | | 62,819 | | | Financing expense paid | | (6,710 | ) | | | (6,625 | ) | | | (13,516 | ) | | | (13,437 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) | | (7,623 | ) | | | (5,665 | ) | | | (14,693 | ) | | | (10,259 | ) | | Payment of lease obligations | | (6,321 | ) | | | (4,987 | ) | | | (12,595 | ) | | | (10,106 | ) | | Income taxes paid | | (2,912 | ) | | | (637 | ) | | | (4,604 | ) | | | (1,169 | ) | | Free Cash Flow(1) | | 11,642 | | | | 12,884 | | | | 23,561 | | | | 27,848 | |
Notes:
1.
Adjusted EBITDA and Free Cash Flow are not defined under IFRS and might not be comparable to similar financial measures disclosed by other issuers, refer to ‘Non-IFRS Measures' below. The reconciliation to the comparable IFRS measure can be found in the table below.
2.
Excludes capital expenditures for the Taylor facility.
During the second quarter of 2025, Free Cash Flow decreased by $1.2 million compared to the second quarter of 2024, primarily due to amounts paid for income taxes driven by Source's improved performance. An increase in growth and maintenance capital expenditures, as described below, and higher amounts paid for lease obligations also impacted Free Cash Flow for the quarter. The increase in lease obligations is a result of additional heavy equipment for the Peace River operations while the Wisconsin mining facilities replaced aging equipment which will drive lower costs for repairs and maintenance and reduce higher-cost short-term leases. Payments for lease obligations in Wisconsin, including rail car leases, were impacted by renewals at higher rates and the weakening of the Canadian dollar compared to the second quarter of 2024.
Capital expenditures, net of proceeds on disposals and reimbursements and excluding expenditures related to the Taylor facility, were $7.6 million for the three months ended June 30, 2025, an increase of $2.0 million compared to the second quarter last year. On a quarter-over-quarter basis and excluding construction for the Taylor facility, growth capital expenditures increased by $1.0 million, attributed to the expansion of the Peace River facility as well as the addition of trailers for Source's trucking operations. Maintenance and sustaining capital expenditures increased for the second quarter of 2025 , compared to the same period last year, largely attributed to improvements made for an aging Sahara unit and roadwork at the north mine processing facility in Wisconsin, higher amounts for overburden removal for mining operations, driven by increased volumes, and amounts related to Source's trucking operations, compared to the second quarter of 2024.
BUSINESS OUTLOOK
Source is anticipating a slowdown in customer activity levels for the second half of 2025, driven by weaker commodity prices and ongoing economic volatility stemming from trade policy uncertainty. Source continues to monitor the impact of ongoing shifts in tariff policy imposed by the US government and retaliatory measures enacted by the Canadian government, and the related impacts on Source customers.
Source believes in the longer-term additional natural gas export capability with LNG Canada now online and the expedited permitting of additional LNG capacity, including the recent approval for continued construction of an LNG pipeline project by the government of British Columbia, will help mitigate potential impacts related to uncertainty in the current economic environment. Source believes it is well-positioned to accommodate the expected longer-term increase in demand in northeastern British Columbia and take advantage of activity levels in the Western Canadian Sedimentary Basin ("WCSB") through its new Taylor facility, expected to be fully operational in the third quarter. The Peace River facility expansion will result in increased nameplate production capacity and provide Source's customers with an ability to blend their sand and lower their landed sand cost.
In the longer-term, Source believes the increased demand for natural gas, driven by liquefied natural gas exports, increased natural gas pipeline export capabilities and power generation facilities, will drive incremental demand for Source's services in the WCSB. Source continues to see increased demand from customers that are primarily focused on the development of natural gas properties in the Montney, Duvernay and Deep Basin. This trend is consistent with Source's view that natural gas will be an important transitional fuel that is critical for the successful movement to a less carbon-intensive world.
Source continues to focus on increasing its involvement in the provision of logistics services for other items needed at the well site in response to customer requests to expand its service offerings and to further utilize its existing Western Canadian terminals to provide additional services.
SECOND QUARTER CONFERENCE CALL
A conference call to discuss Source's second quarter financial results has been scheduled for 7:30 am MST (9:30 am ET) on Thursday, July 31, 2025.
Interested analysts, investors and media representatives are invited to register to participate in the call. Once you are registered, a dial-in number and passcode will be provided to you via email. The link to register for the call is on the _Upcoming Events_page of our website and as follows:
Source Energy Services Q2 2025 Results Call
The call will be recorded and available for playback approximately 2 hours after the meeting end time, until August 31, 2025, using the following dial-in:
Toll-Free Playback Number: 1-855-669-9658
Playback Passcode: 1323921
ABOUT SOURCE ENERGY SERVICES
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.
IMPORTANT INFORMATION
These results should be read in conjunction with Source's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2025 and 2024 and the audited consolidated financial statements for the years ended December 31, 2024 and 2023, together with the accompanying notes (the "Financial Statements") and its corresponding MD&A for such periods. The Financial Statements and MD&A and other information relating to Source, including the Annual Information Form, are available under the Company's SEDAR+ profile at www.sedarplus.ca. The Financial Statements and comparative statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Unless otherwise stated, all amounts are expressed in Canadian dollars.
NON-IFRS MEASURES
In this press release Source has used the terms Free Cash Flow, Adjusted Gross Margin and Adjusted EBITDA, including per MT, which do not have standardized meanings prescribed by IFRS and Source's method of calculating these measures may differ from the method used by other entities and, accordingly, they may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income and gross margin, respectively, which represent the most directly comparable measures of financial performance as determined in accordance with IFRS.
Reconciliation of Adjusted EBITDA and Free Cash Flow to Net Income
| | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000's) | 2025 | | | 2024 | | | 2025 | | | 2024 | | | | | | | Net income | | 13,568 | | | | 4,685 | | | | 37,167 | | | | 6,578 | | | Add: | | | | | | | | | | | | | | | | | Income taxes | | 3,062 | | | | 3,395 | | | | 9,588 | | | | 5,153 | | | Interest expense | | 6,308 | | | | 6,284 | | | | 12,143 | | | | 12,567 | | | Cost of sales - depreciation | | 11,873 | | | | 9,500 | | | | 21,275 | | | | 17,049 | | | Depreciation | | 5,432 | | | | 4,289 | | | | 11,132 | | | | 8,499 | | | Loss (gain) on debt modification and extinguishment | | 428 | | | | 49 | | | | (490 | ) | | | 164 | | | Finance expense (excluding interest expense) | | 869 | | | | 2,349 | | | | 1,898 | | | | 4,782 | | | Share-based compensation expense (recovery) | | 1,081 | | | | (1,032 | ) | | | (3,878 | ) | | | 8,309 | | | Loss (gain) on asset disposal | | 536 | | | | (47 | ) | | | 540 | | | | (1,978 | ) | | Loss on sublease | | - | | | | 635 | | | | 13 | | | | 638 | | | Unrealized foreign exchange gain | | (8,226 | ) | | | - | | | | (8,195 | ) | | | - | | | Other expense (recovery)(1) | | 277 | | | | 691 | | | | (12,224 | ) | | | 1,058 | | | Adjusted EBITDA | | 35,208 | | | | 30,798 | | | | 68,969 | | | | 62,819 | | | Financing expense paid | | (6,710 | ) | | | (6,625 | ) | | | (13,516 | ) | | | (13,437 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) | | (7,623 | ) | | | (5,665 | ) | | | (14,693 | ) | | | (10,259 | ) | | Payment of lease obligations | | (6,321 | ) | | | (4,987 | ) | | | (12,595 | ) | | | (10,106 | ) | | Income taxes paid | | (2,912 | ) | | | (637 | ) | | | (4,604 | ) | | | (1,169 | ) | | Free Cash Flow | | 11,642 | | | | 12,884 | | | | 23,561 | | | | 27,848 | |
Notes:
1.
Includes expenses and recoveries related to the incident at the Fox Creek terminal facility, costs and reimbursements under insurance claims and other one-time expenses.
2.
Excludes capital expenditures for the Taylor facility.