Star Metro - Source Energy Services Reports Q3 2025 Results

Q3 2025 PERFORMANCE HIGHLIGHTS

Source experienced lower activity levels during the third quarter, as lower commodity prices and continued economic uncertainty led to customers deferring completion jobs to the fourth quarter or into 2026. Highlights for the quarter include:

• realized sand sales volumes of 665,006 metric tonnes ("MT") and sand revenue of $100.3 million, a decrease of 30% from the third quarter of 2024;

• generated total revenue of $125.3 million, a $57.7 million decrease from the same period last year;

• realized gross margin of $19.6 million and Adjusted Gross Margin⁽¹⁾ of $30.3 million, decreases of 42% and 30%, respectively, when compared to the three months ended September 30, 2024;

• reported net loss of $6.2 million, a decrease of $16.4 million from the same period last year;

• realized Adjusted EBITDA⁽¹⁾ of $20.3 million, a $15.1 million decrease from the third quarter of 2024;

• achieved 62% utilization across the eleven-unit Sahara fleet;

• secured sand processing assets to support the future expansion of Source's domestic sand platform as market demand increases;

• reduced the outstanding balance for the Term Loan by $11.7 million, bringing total repayments for the year to $19.9 million; and

• repurchased 167,500 shares under Source's Normal Course Issuer Bid program, for total repurchases of 392,900 shares to date 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 November 6, 2025, available online at www.sedarplus.ca.

RESULTS OVERVIEW

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, 2025, was $0.7261 and $0.7149, respectively (2024 - $0.7331 and $0.7351, 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 2025 RESULTS

Results for the third quarter were significantly impacted by lower customer activity levels across the Western Canadian Sedimentary Basin ("WCSB"), driven by weak commodity pricing, particularly for natural gas, which led to a deferral of capital spending resulting in reduced sand sales volumes realized for the quarter. Total revenue was $125.3 million for the three months ended September 30, 2025, a decrease of $57.7 million, or 32%, compared to the third quarter last year. Average realized sand price per MT increased by $3.15 compared to the third quarter last year, primarily due to a shift in terminal mix, partly offset by an increase in lower priced, finer sand sales. Weakened customer activity levels also impacted sand volumes delivered for "last mile" logistics during the period, as well as Sahara utilization for units operating in Canada, while units operating in the US were 100% utilized during the quarter.

Cost of sales, excluding depreciation, decreased on a quarter-over-quarter basis, driven by lower sand sales volumes and lower transportation costs resulting from a reduction in volumes hauled by "last mile" logistics. On a per MT basis, cost of sales, excluding depreciation, was relatively flat for the third quarter, as lower costs incurred for third party sand purchases were offset by a shift in terminal mix. A weakening of the Canadian dollar increased cost of sales denominated in US dollars by $0.72 per MT, compared to the third quarter of 2024, which was offset by the movement in exchange rates on revenue denominated in US dollars for the quarter.

For the three months ended September 30, 2025, gross margin decreased by $14.0 million compared to the third quarter of 2024, driven by lower sand sales volumes and volumes trucked to the well site, as noted above. Excluding gross margin from mine gate volumes, Adjusted Gross Margin was $46.56 per MT compared to $45.89 per MT for the third quarter of 2024. Adjusted Gross Margin per MT benefited from a customer performance bonus achieved, partly offset by incremental production costs incurred with the Peace River facility expansion. The weakening of the Canadian dollar favorably impacted Adjusted Gross Margin by $0.52 per MT for the quarter.

Operating expense increased by $0.7 million on a quarter-over-quarter basis, largely driven by higher royalty-related costs and rail car-related expenses, slightly offset by lower variable incentive compensation expense for the quarter. General and administrative expense decreased by $0.3 million during the third quarter of 2025 due to lower people costs, attributed to lower variable incentive compensation expense, partially offset by an increase in IT costs, driven by the cloud-computing system implemented last year, compared to the third quarter of 2024.

Adjusted EBITDA decreased by 43%, or $15.1 million, to $20.3 million for the third quarter, attributed primarily to the reduction in sand sales volumes and lower revenue from well site solutions, as noted above, compared to the third quarter last year. The weakening of the Canadian dollar favorably impacted Adjusted EBITDA by $0.3 million for the quarter, largely attributed to the movement in exchange rates on the repayment of long-term debt.

Liquidity and Capital Resources

(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 third quarter of 2025, Source capitalized on an opportunity to acquire sand processing assets to support future expansion at the Peace River production facility. The assets comprise key infrastructure for Source's domestic sand platform and advances its expansion strategy which, once fully executed, would provide nameplate capacity of 3,000,000 MT of domestic sand production. The installation timeline for these assets will be dependent on the overall growth of the proppant market in the WCSB.

Source generated negative Free Cash Flow of $12.7 million for the third quarter of 2025, compared to $20.1 million of Free Cash Flow for the third quarter of 2024. The reduction was due to the impact of lower customer activity levels, as well as an increase in capital expenditures of $15.3 million, primarily due to the acquisition of sand processing assets, as noted above. Free Cash Flow was also impacted by higher amounts paid for lease obligations, due to additional heavy equipment for the Peace River operations, and higher amounts paid for US income taxes, as Source utilizes its loss carry-forward pools.

Capital expenditures, net of proceeds on disposals and reimbursements and excluding expenditures related to the Taylor facility, were $18.5 million for the three months ended September 30, 2025, an increase of $15.3 million compared to the third quarter last year. On a quarter-over-quarter basis and excluding construction for the Taylor facility, growth capital expenditures increased by $12.5 million, mainly attributed to the assets acquired for future expansion at the Peace River facility, as noted above, as well as the addition of trailers for Source's trucking operations. Maintenance and sustaining capital expenditures increased by $2.8 million for the third quarter of 2025, compared to the same period last year, largely attributed to higher amounts for overburden removal for mining operations.

BUSINESS OUTLOOK

As a result of the lower completion activity levels experienced across the WCSB during the third quarter, Source anticipates increased activity levels for the remainder of the year which will result in a solid rebound for the fourth quarter and a full year 2025 proppant demand similar to or slightly ahead of 2024. With the additional natural gas export capability via LNG Canada, Source expects robust proppant demand in 2026.

Over the medium to longer term, the Western Canadian LNG projects currently being constructed, along with the expedited permitting of additional LNG capacity, including the recent approval of the KSI Lisims project by the government of British Columbia 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 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.

Source also 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 Friday, November 7, 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 Q3 2025 Results Call

The call will be recorded and available for playback approximately 2 hours after the meeting end time, until December 7, 2025, using the following dial-in:

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

Playback Passcode: 9011466

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, 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 (Loss)

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.

Reconciliation of Gross Margin to Adjusted Gross Margin

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 "anticipates", "expects", "believes", "continues", "focus", or variations of such words and phrases, or statements 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.

In particular, this press release contains forward-looking statements pertaining, but not limited to: belief that activity levels will rebound for the fourth quarter with results similar to or slightly ahead of 2024; robust proppant demand in 2026; the expectation that Western Canadian LNG projects will drive incremental demand for proppant in the WCSB; the belief that Source is well-positioned to capitalize on the increase in demand in northeastern British Columbia and take advantage of growing activity levels in the WCSB; expectations that the acquisition of sand processing assets would increase Source's nameplate capacity to three million tons of domestic sand production; the volatility in commodity prices on long-term capital plans for the industry; expectations with respect to sand revenue and mine gate sand sales and associated costs; expectations that increased demand for natural gas, increased natural gas pipeline export capabilities and liquefied natural gas exports will drive incremental demand for Source's services in the WCSB; continued increase in demand from customers primarily focused on the development of natural gas properties in Montney, Duvernay and Deep Basin; Source's focus on and expectations regarding increasing its involvement in the provision of logistics services for other well site items; the benefits of Source's existing Western Canadian terminals to provide additional services to customers; the benefits that Source's "last mile" services provide to customers; expectations respecting future conditions; and profitability.

By their nature, forward-looking statements involve numerous current assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Source to differ materially from those anticipated by Source and described in the forward-looking statements.

With respect to the forward-looking statements contained in this press release, assumptions have been made regarding, among other things: proppant market prices; future oil, natural gas and liquefied natural gas prices; future global economic and financial conditions, including the results of ongoing tariff and trade negotiations in North America, as well as globally; predictable inflationary pressures; future commodity prices, demand for oil and gas and the product mix of such demand; levels of activity in the oil and gas industry in the areas in which Source operates; the continued availability of timely and safe transportation for Source's products, including without limitation, Source's rail car fleet and the accessibility of additional transportation by rail and truck; the maintenance of Source's key customers and the financial strength of its key customers; the maintenance of Source's significant contracts or their replacement with new contracts on substantially similar terms and that contractual counterparties will comply with current contractual terms; operating costs; that the regulatory environment in which Source operates will be maintained in the manner currently anticipated by Source; future exchange and interest rates; geological and engineering estimates in respect of Source's resources; the recoverability of Source's resources; the accuracy and veracity of information and projections sourced from third parties respecting, among other things, future industry conditions and product demand; demand for horizontal drilling and hydraulic fracturing and the maintenance of current techniques and procedures, particularly with respect to the use of proppants; Source's ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which Source conducts its business and any other jurisdictions in which Source may conduct its business in the future; future capital expenditures to be made by Source; future sources of funding for Source's capital program; Source's future debt levels; the impact of competition on Source; and Source's ability to obtain financing on acceptable terms.

A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein including, among others: the effects of competition and pricing pressures; risks inherent in key customer dependence; effects of fluctuations in the price of proppants; risks related to indebtedness and liquidity, including Source's leverage, restrictive covenants in Source's debt instruments and Source's capital requirements; risks related to interest rate fluctuations and foreign exchange rate fluctuations; changes in general economic, financial, market and business conditions in the markets in which Source operates, including with respect to tariff and trade policy in North America, as well as globally; changes in the technologies used to drill for and produce oil and natural gas; Source's ability to obtain, maintain and renew required permits, licenses and approvals from regulatory authorities; the stringent requirements of and potential changes to applicable legislation, regulations and standards; the ability of Source to comply with unexpected costs of government regulations; liabilities resulting from Source's operations; the results of litigation or regulatory proceedings that may be brought by or against Source; the ability of Source to successfully bid on new contracts and the loss of significant contracts; uninsured and underinsured losses; risks related to the transportation of Source's products, including potential rail line interruptions or a reduction in rail car availability; the geographic and customer concentration of Source; the impact of extreme weather patterns and natural disasters; the impact of climate change risk; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labor disputes and work stoppages and risks related to employee health and safety; general risks associated with the oil and natural gas industry, loss of markets, consumer and business spending and borrowing trends; limited, unfavorable, or a lack of access to capital markets; uncertainties inherent in estimating quantities of mineral resources; sand processing problems; implementation of recently issued accounting standards; the use and suitability of Source's accounting estimates and judgments; the impact of information systems and cyber security breaches; the impact of inflation on capital expenditures; and risks and uncertainties related to pandemics, including changes in energy demand.

Although Source has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will materialize or prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Readers should not place undue reliance on forward-looking statements. These statements speak only as of the date of this press release. Except as may be required by law, Source expressly disclaims any intention or obligation to revise or update any forward-looking statements or information whether as a result of new information, future events or otherwise.

Any financial outlook and future-oriented financial information contained in this press release regarding prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action based on management's assessment of the relevant information that is currently available. Projected operational information contains forward-looking information and is based on a number of material assumptions and factors, as are set out above. These projections may also be considered to contain future oriented financial information or a financial outlook. The actual results of Source's operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. Actual results will vary from projected results. Readers are cautioned that any such financial outlook and future-oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The forward-looking information and statements contained in this document speak only as of the date hereof and have been approved by the Company's management as at the date hereof. The Company does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

FOR FURTHER INFORMATION PLEASE CONTACT:

Scott Melbourn
Chief Executive Officer
(403) 262-1312
[email protected]

Derren Newell
Chief Financial Officer
(403) 262-1312
[email protected]

SOURCE: Source Energy Services Ltd.

View the original press release on ACCESS Newswire

S.Morin--SMC