Source Energy Services Ltd. press release
Source Energy Services Reports Q3 2024 Results
TSX - Toronto Stock Exchange · Silicon · Canada
CALGARY, Alberta, Nov. 06, 2024 (GLOBE NEWSWIRE) -- TSX: SHLE
Source Energy Services Ltd. (“Source” or the “Company”) is pleased to announce its financial results for the three and nine months ended September 30, 2024.
Q3 2024 PERFORMANCE HIGHLIGHTS
Key achievements for the quarter ended September 30, 2024 include the following:
recorded sand sales volumes of 963,539 metric tonnes (“MT”) and sand revenue of $142.2 million, an increase of $40.1 million from the third quarter of 2023, representing the highest quarterly sand volumes and revenue achieved to date; generated total revenue of $183.1 million, a $58.4 million increase from the third quarter last year; realized gross margin of $33.7 million and Adjusted Gross Margin (1) of $43.3 million, increases of 34% and 41%, respectively, when compared to the same period of 2023; reported net income of $10.2 million, an increase of $6.4 million compared to the third quarter last year; realized Adjusted EBITDA (1) of $35.3 million, a 55% increase from the same period of 2023; announced a partnership with Trican Well Service Ltd. (“Trican”) to construct a unit train capable terminal facility located in Taylor, British Columbia; closed an acquisition of additional sand trucking assets, enhancing the existing trucking fleet and further strengthening Source’s well site solutions platform; completed construction of Source’s tenth Sahara unit, now deployed and operating on the North Slope in Alaska; and delivered record sand volumes for the third consecutive quarter to our customer well sites through last mile logistics, and achieved utilization of 83% across the ten-unit Sahara fleet, compared to 79% utilization for the third quarter of 2023.
Note : (1) Adjusted Gross Margin (including on a per MT basis) and Adjusted EBITDA are not defined under IFRS 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 November 6, 2024, available online at www.sedarplus.ca.
RESULTS OVERVIEW
| | Three months ended September 30, | Nine months ended September 30, | | | | | ($000’s, except MT and per unit amounts) | 2024 | 2023 | 2024 | 2023 | | | Sand volumes (MT) (1) | 963,539 | 709,826 | 2,759,536 | 2,319,388 | | | | | | | | | | Sand revenue | 142,236 | 102,180 | 415,286 | 335,885 | | | Well site solutions | 39,908 | 21,725 | 110,988 | 76,332 | | | Terminal services | 906 | 759 | 2,700 | 3,099 | | | Sales | 183,050 | 124,664 | 528,974 | 415,316 | | | Cost of sales | 139,768 | 93,876 | 400,364 | 316,567 | | | Cost of sales – depreciation | 9,613 | 5,746 | 26,662 | 17,040 | | | Cost of sales | 149,381 | 99,622 | 427,026 | 333,607 | | | Gross margin | 33,669 | 25,042 | 101,948 | 81,709 | | | Operating expense | 6,493 | 5,306 | 18,862 | 17,206 | | | General & administrative expense | 3,518 | 3,119 | 14,719 | 11,252 | | | Depreciation | 4,753 | 2,174 | 13,252 | 7,998 | | | Income from operations | 18,905 | 14,443 | 55,115 | 45,253 | | | Total other expense | 6,522 | 10,711 | 31,001 | 30,908 | | | Income before income taxes | 12,383 | 3,732 | 24,114 | 14,345 | | | Current tax expense | 812 | — | 4,550 | — | | | Deferred tax expense | 1,416 | — | 2,831 | — | | | Net income (2) | 10,155 | 3,732 | 16,733 | 14,345 | | | Net earnings per share ($/share) | 0.75 | 0.28 | 1.24 | 1.06 | | | Diluted net earnings per share ($/share) | 0.74 | 0.28 | 1.24 | 1.06 | | | Adjusted EBITDA (3) | 35,341 | 22,735 | 98,160 | 70,793 | | | Sand revenue sales/MT | 147.62 | 143.95 | 150.49 | 144.82 | | | Gross margin/MT | 34.94 | 35.28 | 36.94 | 35.23 | | | Adjusted Gross Margin (3) | 43,282 | 30,788 | 128,610 | 98,749 | | | Adjusted Gross Margin/MT (3) | 44.92 | 43.37 | 46.61 | 42.58 | |
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 nine months ended September 30, 2024, was $0.7331 and $0.7351, respectively (2023 - $0.7457 and $0.7432, 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.
THIRD QUARTER 2024 RESULTS
Source achieved record total revenue for the three months ended September 30, 2024, a $58.4 million or 47% increase compared to the third quarter last year. Strong customer activity levels in the Western Canadian Sedimentary Basin (“WCSB”), including new customers, contributed to the increase in sand sales volumes. The customer additions and strong activity levels also led to a third consecutive quarter of record volumes delivered for “last mile” logistics during the period. Utilization for Sahara units in both Canada and the US was strong, and included the commencement of operations for the newly constructed unit delivered to Alaska during the third quarter.
Cost of sales, excluding depreciation, was $139.8 million compared to $93.9 million for the third quarter of 2023. The quarter-over-quarter increase of $45.9 million is primarily attributed to the higher sand sales volumes, as well as increased transportation costs resulting from the record volumes hauled by “last mile” logistics. Cost of sales, excluding depreciation, was negatively impacted by an increase in rail transportation costs, but this was largely offset by a favorable shift in terminal mix. A weakening of the Canadian dollar increased cost of sales denominated in US dollars by $2.08 per MT, compared to the third quarter of 2023, which was partially offset by the movement in exchange rates on revenue denominated in US dollars for the quarter.
For the three months ended September 30, 2024, gross margin increased by $8.6 million, or 34% compared to the same period in 2023. Excluding gross margin from mine gate volumes, Adjusted Gross Margin was $45.89 per MT compared to $46.60 per MT for the third quarter of last year. Adjusted Gross Margin benefited from increased sand volumes trucked and cost savings generated by trucking assets acquired this year, compared to the third quarter of 2023. These improvements were offset by the impact of product mix, as well as the prolonged heat experienced early in the third quarter which impacted rail transportation and resulted in increased trucking costs. The weakening of the Canadian dollar negatively impacted Adjusted Gross Margin by $0.92 per MT for the quarter, compared to the same period last year.
Operating expenses increased by $1.2 million for the third quarter of 2024, due primarily to increased compensation expenses and royalty costs attributed to the higher sand sales volumes realized. General and administrative expense increased by $0.4 million for the third quarter, largely the result of higher professional fees for legal expenses and IT costs compared to the same period last year.
Adjusted EBITDA increased by 55%, or $12.6 million, to $35.3 million for the three months ended September 30, 2024, attributed primarily to record sand sales volumes and well site solutions performance, and incremental benefit from trucking assets acquired during the year. Adjusted EBITDA also benefited from the commencement of the lease for Source’s tenth Sahara unit, operating on the North Slope in Alaska. The weakening of the Canadian dollar favorably impacted Adjusted EBITDA by $0.1 million for the third quarter, attributed to the movement in exchange rates on the settlement of working capital.
Taylor Facility
On July 25, 2024, Source announced the execution of a partnership arrangement with Trican to construct a new terminal facility located in Taylor, British Columbia. Construction of the facility has commenced, and will result in a unit train capable terminal which will accommodate approximately 55,000 MT of sand storage and more than 12,000 MT of daily sand throughput capacity (the “Taylor Facility”). The first phase of the project is expected to be operational late this year, with completion of the Taylor Facility expected in early 2025.
Under the terms of the arrangement, Trican will advance funding for construction on a cost-to-complete basis in exchange for transloading and sand supply services, as well as a fee payable to Trican on each advance drawn, repayable through transloading credits at the Taylor Facility and optional cash payments over a three-year term.
Acquisition of Sand Trucking Assets
On August 19, 2024, Source completed the acquisition of the sand trucking assets of PVT Group Ltd., PVT Energy Group Inc., and PVT Transport Group Inc., a transportation and logistics company located in northwestern Alberta, for an aggregate purchase price of $2.2 million. The purchase price was comprised of $0.4 million paid in cash upon closing and a promissory note payable over a nine-month term. The acquisition complements the sand trucking acquisition completed earlier this year and further enhances Source’s mine to well site offering in the WCSB.
Liquidity and Capital Resources
| Free Cash Flow | Three months ended September 30, | | Nine months ended September 30, | | | | | | | ($000’s) | 2024 | | 2023 | | 2024 | | 2023 | | | Adjusted EBITDA (1) | 35,341 | | 22,735 | | 98,160 | | 70,793 | | | Financing expense paid | (6,655 | ) | (7,001 | ) | (20,092 | ) | (21,845 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs (2) | (3,277 | ) | (3,585 | ) | (13,536 | ) | (6,373 | ) | | Payment of lease obligations | (5,328 | ) | (4,758 | ) | (15,434 | ) | (14,504 | ) | | Free Cash Flow (1) | 20,081 | | 7,391 | | 49,098 | | 28,071 | |
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.
Source realized an increase in Free Cash Flow of $12.7 million for the three months ended September 30, 2024 compared to the third quarter of 2023, primarily due to the increase in Adjusted EBITDA. Lower financing expense paid, including a $0.6 million reduction in interest for the senior secured notes, and lower net expenditures for capital assets, as outlined below, also contributed to the improvement in Free Cash Flow. Higher payments for lease obligations, attributed to additional equipment and leases for certain sand trucking assets acquired, partially offset the increase in Free Cash Flow for the third quarter. On a year-to-date basis, the $21.0 million increase in Free Cash Flow is attributed to higher Adjusted EBITDA and lower financing expense, as noted above, partly offset by increased net capital expenditures, as described below, and higher payments for lease obligations.
Source’s capital expenditures, net of proceeds on disposals and reimbursements, totaled $6.0 million for the third quarter of 2024, an increase of $2.4 million compared to the third quarter last year. The increase was primarily due to the commencement of construction for the Taylor Facility, as outlined above. Higher expenditures for the terminals, including costs incurred for the rail expansion project at the Chetwynd terminal facility and expenditures for heavy equipment, also contributed to the quarter-over-quarter increase. Lower capital expenditures for mining and production facilities offset the increase in costs associated with overburden removal for mining operations. During the third quarter, construction on Source’s tenth Sahara unit was completed, and the unit was shipped to Alaska for mobilization in the field. Construction costs associated with building Source’s eleventh Sahara unit continued, with all expenditures incurred recovered during the quarter.
For the nine months ended September 30, 2024, net capital expenditures increased by $9.9 million compared to the same period last year, primarily attributed to the rail project completed at the Chetwynd terminal facility, the commencement of construction at the Taylor Facility and the purchase of sand trucking assets and higher amounts incurred for the removal of overburden. In 2023, Source sold its previously closed Berthold terminal facility, as well as excess rail cars and production equipment, during the period.
The Company is currently working on financing alternatives to address the maturity and obligations under the Credit Facility and the Notes which are expected to be completed during the fourth quarter.
BUSINESS OUTLOOK
With construction of the Taylor Facility, expected to be completed early next year, and the completion of the rail project at the Chetwynd terminal facility, Source is strategically positioned in northeastern British Columbia to accommodate increased demand for mine to well site services as LNG Canada comes online. These Source projects, combined with the sand trucking asset acquisitions completed during the year, Source’s existing terminal network footprint and its Wisconsin and Peace River production facilities will create additional opportunities for Source to continue to grow its business and take advantage of activity levels in the WCSB, expected to remain strong to the end of the year and through 2025.
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.
THIRD QUARTER CONFERENCE CALL
A conference call to discuss Source’s third quarter financial results has been scheduled for 7:30 am MST (9:30 am ET) on Thursday, November 7, 2024.
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 Q3 2024 Results Call
The call will be recorded and available for playback approximately 2 hours after the meeting end time, until December 7, 2024, using the following dial-in:
Toll-Free Playback Number: 1-855-669-9658
Playback Passcode: 9685809
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 nine months ended September 30, 2024 and 2023 and the audited consolidated financial statements for the years ended December 31, 2023 and 2022, 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 (loss) 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 September 30, | | Nine months ended September 30, | | | | | | | ($000’s) | 2024 | | 2023 | | 2024 | | 2023 | | | Net income | 10,155 | | 3,732 | | 16,733 | | 14,345 | | | Add: | | | | | | | | | | Income taxes | 2,228 | | — | | 7,381 | | — | | | Interest expense | 6,281 | | 6,117 | | 18,848 | | 19,794 | | | Cost of sales – depreciation | 9,613 | | 5,746 | | 26,662 | | 17,040 | | | Depreciation | 4,753 | | 2,174 | | 13,252 | | 7,998 | | | (Gain) loss on debt extinguishment | — | | (280 | ) | 164 | | (280 | ) | | Finance expense (excluding interest expense) | 1,936 | | 2,660 | | 6,718 | | 7,473 | | | Share-based compensation expense | 1,016 | | 1,567 | | 9,325 | | 5,038 | | | (Gain) loss on asset disposal | (862 | ) | 356 | | (2,840 | ) | (1,776 | ) | | Loss on sublease | — | | — | | 638 | | 3 | | | Other expense (1) | 221 | | 663 | | 1,279 | | 1,158 | | | Adjusted EBITDA | 35,341 | | 22,735 | | 98,160 | | 70,793 | | | Financing expense paid | (6,655 | ) | (7,001 | ) | (20,092 | ) | (21,845 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs (2) | (3,277 | ) | (3,585 | ) | (13,536 | ) | (6,373 | ) | | Payment of lease obligations | (5,328 | ) | (4,758 | ) | (15,434 | ) | (14,504 | ) | | Free Cash Flow | 20,081 | | 7,391 | | 49,098 | | 28,071 | |
Notes : (1) Includes expenses 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.
Reconciliation of Gross Margin to Adjusted Gross Margin
| | Three months ended September 30, | Nine months ended September 30, | | | | | ($000’s) | 2024 | 2023 | 2024 | 2023 | | | Gross margin | 33,669 | 25,042 | 101,948 | 81,709 | | | Cost of sales – depreciation | 9,613 | 5,746 | 26,662 | 17,040 | | | Adjusted Gross Margin | 43,282 | 30,788 | 128,610 | 98,749 | |
For additional information regarding non-IFRS measures, including their use to management and investors, their composition and discussion of changes to either their composition or label, if any, please refer to the ‘Non-IFRS Measures’ section of the MD&A, which is incorporated herein by reference. Source’s MD&A is available online at www.sedarplus.ca and through Source’s website at www.sourceenergyservices.com .
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release constitute forward-looking statements relating to, without limitation, expectations, intentions, plans and beliefs, including information as to the future events, results of operations and Source’s future performance (both operational and financial) and business prospects. In certain cases, forward-looking statements can be identified by the use of words such as “expects”, “believes”, “continues”, “focus”, “trend”, or variations of such words and phrases, or state that certain actions, events or results “may” or “will” be taken, occur or be achieved. Such forward-looking statements reflect Source’s beliefs, estimates and opinions regarding its future growth, results of operations, future performance (both operational and financial), and business prospects and opportunities at the time such statements are made, and Source undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change unless required by applicable law. Forward-looking statements are necessarily based upon a number of estimates and assumptions made by Source that are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Forward-looking statements are not guarantees of future performance.