Source Energy Services Ltd. press release

Source Energy Services Reports Q2 2026 Results and Appointment to the Board of Directors

2026-07-29

TSX - Toronto Stock Exchange · Silicon · Canada · Corporate Finance

CALGARY, AB / ACCESS Newswire/ July 29, 2026 / Source Energy Services Ltd. (TSX:SHLE) ("Source" or the "Company") is pleased to announce its financial results for the three and six months ended June 30, 2026.

Q2 2026 HIGHLIGHTS

As expected, second quarter activity levels remained slower than the prior year, as Source customers planned for a greater portion of program activity in the latter part of the year. For the three months ended June 30, 2026, Source achieved the following results:

-

realized sand sales volumes of 831,234 metric tonnes ("MT"), a 24% decrease from the second quarter of 2025;

-

generated sand revenue of $107.8 million and total revenue of $137.1 million, decreases of 33% and 32%, respectively, compared to the second quarter of 2025;

-

realized gross margin of $17.4 million and Adjusted Gross Margin(1)of $29.8 million, representing decreases of 53% and 39%, respectively, when compared to the three months ended June 30, 2025;

-

reported net loss of $5.6 million, a reduction of $19.2 million from the second quarter of 2025;

-

realized Adjusted EBITDA(1)of $18.5 million, a $16.7 million decrease from the same period in 2025;

-

achieved 60% utilization across the eleven-unit Sahara fleet, with operating units in the United States achieving 100% utilization during the second quarter;

-

successfully completed Canada's largest wet sand trial, which pumped over 71,000 MT of proppant for the pad;

-

renewed the Normal Course Issuer Bid (the "NCIB") through May 28, 2027 and repurchased 57,800 common shares under the program during the second quarter; and

-

appointed Mr. Jeffrey Bowers to the Board of Directors.

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 29, 2026, available online at www.sedarplus.ca.

RESULTS OVERVIEW

| | | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000s, except MT and per unit amounts) | | 2026 | | | 2025 | | | 2026 | | | 2025 | | | | | | | Sand volumes (MT)(1) | | | 831,234 | | | | 1,094,355 | | | | 1,702,815 | | | | 2,135,578 | | | | | | | | | | | | | | | | | | | | | Sand revenue | | | 107,791 | | | | 161,472 | | | | 233,570 | | | | 324,375 | | | Well site solutions | | | 28,272 | | | | 39,216 | | | | 61,663 | | | | 83,644 | | | Terminal services | | | 1,054 | | | | 1,201 | | | | 2,107 | | | | 2,434 | | | Sales | | | 137,117 | | | | 201,889 | | | | 297,340 | | | | 410,453 | | | Cost of sales | | | 107,314 | | | | 153,280 | | | | 232,146 | | | | 315,649 | | | Cost of sales - depreciation | | | 12,444 | | | | 11,873 | | | | 25,810 | | | | 21,275 | | | Cost of sales | | | 119,758 | | | | 165,153 | | | | 257,956 | | | | 336,924 | | | Gross margin | | | 17,359 | | | | 36,736 | | | | 39,384 | | | | 73,529 | | | Operating expense | | | 8,019 | | | | 8,383 | | | | 14,271 | | | | 16,310 | | | General & administrative expense | | | 3,902 | | | | 4,839 | | | | 7,131 | | | | 9,747 | | | Depreciation | | | 6,091 | | | | 5,432 | | | | 12,844 | | | | 11,132 | | | (Loss) income from operations | | | (653 | ) | | | 18,082 | | | | 5,138 | | | | 36,340 | | | Total other expense (income) | | | 8,048 | | | | 1,452 | | | | 18,474 | | | | (10,415 | ) | | (Loss) income before income taxes | | | (8,701 | ) | | | 16,630 | | | | (13,336 | ) | | | 46,755 | | | Current tax expense | | | - | | | | 2,449 | | | | - | | | | 5,226 | | | Deferred tax (recovery) expense | | | (3,108 | ) | | | 613 | | | | (4,445 | ) | | | 4,362 | | | Net (loss) income(2) | | | (5,593 | ) | | | 13,568 | | | | (8,891 | ) | | | 37,167 | | | Net (loss) earnings per share ($/share) | | | (0.43 | ) | | | 1.01 | | | | (0.68 | ) | | | 2.75 | | | Diluted net (loss) earnings per share ($/share) | | | (0.43 | ) | | | 1.01 | | | | (0.68 | ) | | | 2.75 | | | Adjusted EBITDA(3) | | | 18,523 | | | | 35,208 | | | | 44,838 | | | | 68,969 | | | Sand revenue sales/MT | | | 129.68 | | | | 147.55 | | | | 137.17 | | | | 151.89 | | | Adjusted Gross Margin(3) | | | 29,803 | | | | 48,609 | | | | 65,194 | | | | 94,804 | | | Gross margin/MT | | | 20.88 | | | | 33.57 | | | | 23.13 | | | | 34.43 | | | Adjusted Gross Margin/MT(3) | | | 35.85 | | | | 44.42 | | | | 38.29 | | | | 44.39 | |

Notes:

1.

One MT is approximately equal to 1.102 short tons.

2.

The average Canadian to United States ("U.S.") dollar exchange rate for the three and six months ended June 30, 2026 was $0.7224 and $0.7256, respectively (2025 - $0.7225 and $0.7095).

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 2026 RESULTS

Revenue for the quarter was impacted by lower activity levels in the Western Canadian Sedimentary Basin ("WCSB"), as ongoing economic uncertainty and lower natural gas prices drove Source customers to moderate capital spending which impacted sand revenue for the period. The lower WCSB activity levels also impacted volumes delivered for "last mile" logistics, decreasing revenue by $10.9 million compared to the same period last year. Additionally, second quarter revenue was impacted by a change in product sales mix, which contributed to a $17.87 per MT reduction in the average sand price realized, as Source sold more than 100,000 MT of mine gate sand compared to 2,000 MT in the second quarter of 2025, attributed to growth in the U.S. mine gate market with the recent movement in oil prices. The reduction in average realized sand price also reflects a 107% increase in domestic dry and wet sand sales compared to the second quarter of 2025, a shift that reflects customer demand patterns and is expected to continue.

Cost of sales, excluding depreciation, decreased by $46.0 million compared to the second quarter of 2025, primarily due to lower sales volumes realized. The decrease was further driven by a shift in sales mix toward domestic sand sales, which has a lower landed cost. This benefit was partly offset by higher than expected production costs per MT at the Peace River facility due to a slower than expected production ramp-up, resulting in incremental northern white sand volumes required to satisfy domestic commitments. Cost of sales, excluding depreciation, also benefited from lower production costs achieved at the Wisconsin mining facilities, and lower third-party sand purchases compared to the same period last year.

For the three months ended June 30, 2026, gross margin decreased by $19.4 million compared to the prior year period, primarily due to lower sales volumes, as noted above. Excluding margin from mine gate sand volumes, Adjusted Gross Margin was $38.81 per MT for the quarter compared to $44.49 per MT for the second quarter of 2025. Adjusted Gross Margin per MT was impacted by lower than anticipated production volumes at the Peace River mining facility, resulting in incremental northern white sand volumes required to satisfy domestic commitments. The reduction in Adjusted Gross Margin per MT was also attributed to incremental operating costs associated with the Peace River and Taylor terminal facilities. These impacts were partly offset by incremental margin generated from sand trucking assets compared to the second quarter in 2025.

Operating expense decreased by $0.4 million on a quarter-over-quarter basis, primarily due to lower variable incentive compensation expense. General and administrative expense also decreased by $0.9 million compared to the second quarter of 2025, driven by lower personnel costs.

Adjusted EBITDA decreased by 47%, or $16.7 million, to $18.5 million for the three months ended June 30, 2026. The decrease was primarily attributable to lower customer activity levels experienced during the second quarter of 2026 and operational challenges at the Peace River mining facility, as noted above. The second quarter of 2025 benefited from strong Source customer activity levels which drove record sand sales volumes for the period.

LIQUIDITY AND CAPITAL RESOURCES

| Free Cash Flow | | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000s) | | 2026 | | | 2025 | | | 2026 | | | 2025 | | | | | | | Adjusted EBITDA(1) | | | 18,523 | | | | 35,208 | | | | 44,838 | | | | 68,969 | | | Financing expense paid | | | (6,766 | ) | | | (6,710 | ) | | | (13,576 | ) | | | (13,516 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) | | | (13,561 | ) | | | (7,623 | ) | | | (29,528 | ) | | | (14,693 | ) | | Payment of lease obligations | | | (7,533 | ) | | | (6,321 | ) | | | (14,966 | ) | | | (12,595 | ) | | Income taxes paid | | | - | | | | (2,912 | ) | | | - | | | | (4,604 | ) | | Free Cash Flow(1) | | | (9,337 | ) | | | 11,642 | | | | (13,232 | ) | | | 23,561 | |

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 related to the Taylor facility and customer-funded equipment purchases.

For the second quarter of 2026, Free Cash Flow decreased by $21.0 million compared to the second quarter of 2025, primarily due to lower activity levels realized and an increase in capital expenditures, as described below. Lease obligations increased slightly on a quarter-over-quarter basis, attributed to additional heavy equipment at the Peace River facility and the replacement of expiring yellow iron leases at the Wisconsin mining facilities completed last year.

Capital expenditures, net of proceeds on disposals and reimbursements and excluding expenditures related to the Taylor facility and customer-funded equipment purchases, were $13.6 million for the three months ended June 30, 2026, an increase of $5.9 million compared to the second quarter last year. Excluding construction for the Taylor facility and customer-funded equipment purchases, growth capital expenditures increased by $3.7 million, largely attributed to the ongoing enhancement of the Peace River facility, including debottlenecking activities and improvements to the wet processing plant and wash facilities. Maintenance and sustaining capital expenditures increased by $2.2 million for the second quarter of 2026, compared to the same period in 2025, primarily due to an increase in overburden removal activities.

BUSINESS OUTLOOK

Following a softer than expected first half, Source anticipates stronger customer activity levels for the remainder of the year, with full year 2026 customer activity levels slightly below those realized last year. While ongoing geopolitical uncertainty and commodity price volatility could create periodic fluctuations in customer activity and near-term demand levels, Source's long-term outlook remains unchanged. The recent movement in crude oil prices supported strong mine gate deliveries into the Lower 48 states during the second quarter, and Source expects this trend to continue in the near term. Despite recent challenges associated with scaling Source's domestic sand platform, impacting production costs and efficiencies to date, operational performance at the Peace River facility has continued to improve and will drive increased production volumes for the remainder of 2026.

Over the medium to longer term, Western Canadian liquefied natural gas ("LNG") projects currently being constructed, along with the expedited permitting of additional LNG capacity and the inclusion of LNG Canada (Phase 2) in the Government of Canada's major projects list, will drive incremental demand for proppant in the WCSB. Source believes it is well positioned to capitalize on the expected demand increase in northeastern British Columbia and to take advantage of growing proppant demand levels in the WCSB through its existing northern white sand franchise, expanded terminal network and growing domestic sand production at Peace River.

Source believes the increased demand for natural gas, driven by LNG 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.

Source remains focused on expanding its logistics and well site service offerings in response to customer requests by leveraging its existing Western Canadian terminal network and infrastructure to provide customers with integrated service solutions and additional supply chain support.

APPOINTMENT TO THE BOARD OF DIRECTORS

At its meeting on July 29, the Board of Directors appointed Mr. Jeffrey Bowers to the Board of Directors. Mr. Bowers is a seasoned energy executive with more than 25 years of leadership experience in the energy industry, spanning finance, capital markets and corporate governance. He co-founded Western Energy Services Corp., where he served as Chief Financial Officer for nearly 15 years, helping build the company from a start-up into a successful TSX-listed contract drilling and well servicing company through strategic acquisitions, organic growth and disciplined capital allocation. He also brings over a decade of finance leadership experience in the hydraulic fracturing services sector. Most recently, he served as Chief Financial Officer of Krux Analytics Inc., a SaaS technology company serving the global mining industry, where he helped lead the successful sale of the company. He is a Chartered Professional Accountant (CPA, CA) and holds the ICD.D designation from the Institute of Corporate Directors.

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 30, 2026.

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 2026 Results Call

The call will be recorded and available for playback approximately two hours after the meeting end time, until August 30, 2026, using the following dial-in:

Toll-Free Playback Number: 1-855-669-9658

Playback Passcode: 8756895

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, 2026 and 2025 and the audited consolidated financial statements for the years ended December 31, 2025 and 2024, 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 (Loss) Income

| | | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000s) | | 2026 | | | 2025 | | | 2026 | | | 2025 | | | | | | | Net (loss) income | | | (5,593 | ) | | | 13,568 | | | | (8,891 | ) | | | 37,167 | | | Add: | | | | | | | | | | | | | | | | | | Income taxes | | | (3,108 | ) | | | 3,062 | | | | (4,445 | ) | | | 9,588 | | | Interest expense | | | 6,409 | | | | 6,308 | | | | 12,208 | | | | 12,143 | | | Cost of sales - depreciation | | | 12,444 | | | | 11,873 | | | | 25,810 | | | | 21,275 | | | Depreciation | | | 6,091 | | | | 5,432 | | | | 12,844 | | | | 11,132 | | | (Gain) loss on debt modification | | | (173 | ) | | | 428 | | | | (15 | ) | | | (490 | ) | | Finance expense (excluding interest expense) | | | 1,209 | | | | 869 | | | | 2,734 | | | | 1,898 | | | Share-based compensation (recovery) expense | | | (94 | ) | | | 1,081 | | | | (53 | ) | | | (3,878 | ) | | Loss on asset disposal | | | 264 | | | | 536 | | | | 348 | | | | 540 | | | Loss on sublease | | | - | | | | - | | | | - | | | | 13 | | | Unrealized foreign exchange loss (gain) | | | 948 | | | | (8,226 | ) | | | 3,684 | | | | (8,195 | ) | | Other expense (recovery)(1) | | | 126 | | | | 277 | | | | 614 | | | | (12,224 | ) | | Adjusted EBITDA | | | 18,523 | | | | 35,208 | | | | 44,838 | | | | 68,969 | | | Financing expense paid | | | (6,766 | ) | | | (6,710 | ) | | | (13,576 | ) | | | (13,516 | ) | | Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) | | | (13,561 | ) | | | (7,623 | ) | | | (29,528 | ) | | | (14,693 | ) | | Payment of lease obligations | | | (7,533 | ) | | | (6,321 | ) | | | (14,966 | ) | | | (12,595 | ) | | Income taxes paid | | | - | | | | (2,912 | ) | | | - | | | | (4,604 | ) | | Free Cash Flow | | | (9,337 | ) | | | 11,642 | | | | (13,232 | ) | | | 23,561 | |

Notes:

1.

Includes expenses and recoveries related to the incident at the Fox Creek terminal facility and other one-time expenses.

2.

Excludes capital expenditures for the Taylor facility and customer-funded equipment purchases.

Reconciliation of Gross Margin to Adjusted Gross Margin

| | | Three months ended June 30, | | | Six months ended June 30, | | | | | | | | | | | | | ($000's) | | 2026 | | | 2025 | | | 2026 | | | 2025 | | | | | | | Gross margin | | | 17,359 | | | | 36,736 | | | | 39,384 | | | | 73,529 | | | Cost of sales - depreciation | | | 12,444 | | | | 11,873 | | | | 25,810 | | | | 21,275 | | | Adjusted Gross Margin | | | 29,803 | | | | 48,609 | | | | 65,194 | | | | 94,804 | |

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.caand through Source's website at www.sourceenergyservices.com.