Source Energy Services (SHLE) Q3 2024 earnings summary

Executive summary

• Achieved record sand sales volumes of 964,000 MT and sand revenue of CAD 142.2 million in Q3 2024, the highest quarterly figures to date, with total revenue of CAD 183.1 million, up CAD 58.4 million year-over-year, and 83% utilization on the Sahara fleet.

• Net income rose to CAD 10.2 million, a CAD 6.4 million increase from Q3 2023, and Adjusted EBITDA reached CAD 35.3 million, up 55% year-over-year.

• Closed acquisition of sand trucking assets from PVT Group, expanding the last-mile logistics fleet and enhancing logistics capabilities in Northeast BC.

• Announced a partnership with Trican Well Service to build a new terminal in Taylor, BC, with phase one expected operational late 2024 and full completion in 2025.

• Completed construction and deployment of the tenth Sahara unit, now operating in Alaska.

Financial highlights

• Sand volumes reached 964,000 MT and sand revenue was CAD 142.2 million, a CAD 40 million increase from Q3 2023.

• Total revenue was CAD 183.1 million, up CAD 54.8 million year-over-year; gross margin was CAD 33.7 million, and adjusted gross margin was CAD 43.3 million, up 34% and 41% respectively.

• Free cash flow for Q3 was CAD 20.1 million, up from CAD 7.4 million in Q3 2023; year-to-date free cash flow reached CAD 49.1 million, CAD 21 million ahead of the first nine months of 2023.

• Adjusted EBITDA was CAD 35.3 million, a 55% increase from Q3 2023; YTD 2024 Adjusted EBITDA was CAD 98.2 million.

• Net income margin for Q3 2024 was approximately 5.5%; Adjusted EBITDA margin was 19.3%.

Outlook and guidance

• Cautiously optimistic for a favorable Q4 due to some customers pulling capital from 2025 into Q4, despite typical seasonality.

• Industry activity and frac sand demand fundamentals expected to remain strong through 2024, driven by LNG export growth and infrastructure projects.

• Anticipates continued strong activity in the WCSB through year-end and into 2025, with incremental demand from LNG exports and natural gas pipeline expansions.

• Anticipate 5%-10% volume growth in 2025 from customer additions, even if overall activity levels remain flat.

• Contract structures and pricing expected to remain consistent year-over-year.