Source Energy Services Ltd. (SHLE) reported a robust performance for the first quarter of 2025, significantly surpassing analysts’ expectations. The company posted an earnings per share (EPS) of $1.74, far exceeding the forecasted $0.94. Revenue also topped predictions, coming in at $208.6 million against a forecast of $174.75 million. Following these results, Source Energy’s stock surged 16.44%, closing at $12.11 after the market reacted positively to the earnings surprise. According to InvestingPro analysis, the company maintains a "GREAT" overall financial health score of 3.23 out of 5, with particularly strong momentum and growth metrics. InvestingPro’s Fair Value analysis suggests the stock is currently trading near its fair value.
Key Takeaways
- EPS of $1.74 significantly beat the forecast of $0.94.
- Revenue reached $208.6 million, surpassing expectations by nearly $34 million.
- Stock price increased by 16.44% in after-hours trading.
- Record sand sales volumes contributed to the strong performance.
- The company maintained a positive outlook for market growth in 2025.
Company Performance
Source Energy Services delivered a strong performance in Q1 2025, driven by record sand sales volumes and strategic operational enhancements. The company reported a total revenue of $208.6 million, marking a $39 million increase year-over-year. The net income also saw a significant rise, reaching $23.6 million, up by $21.7 million compared to the same quarter last year. InvestingPro data reveals the company’s impressive 18.29% revenue growth over the last twelve months, with a notable free cash flow yield of 35%. For investors seeking deeper insights, InvestingPro offers 10+ additional expert tips and comprehensive financial metrics for SHLE. The company’s ability to capture key customers in Northeast BC and its strategic projects, such as the new dryer installation and expanded logistics capabilities, have played a crucial role in its success.
Financial Highlights
- Revenue: $208.6 million (+$39 million YoY)
- Earnings per share: $1.74 (forecast was $0.94)
- Net income: $23.6 million (+$21.7 million YoY)
- Adjusted EBITDA: $33.8 million (+$1.7 million YoY)
- Free cash flow: $11.9 million (-$3.6 million YoY)
Earnings vs. Forecast
Source Energy’s EPS of $1.74 beat the forecast of $0.94 by 85.1%, highlighting a significant earnings surprise. The revenue of $208.6 million exceeded expectations by nearly 19.3%, indicating strong operational performance and effective cost management.
Market Reaction
Following the earnings announcement, Source Energy’s stock price rose by 16.44%, reflecting investor confidence in the company’s performance and future prospects. The stock closed at $12.11, moving closer to its 52-week high of $18.1. InvestingPro analysis shows the stock has demonstrated significant volatility with a beta of 3.25, while maintaining strong returns of over 10% in the past week. The company’s current ratio of 1.51 indicates healthy liquidity, with liquid assets exceeding short-term obligations. This surge underscores the positive market sentiment and the company’s strong position in the industry.
Outlook & Guidance
Looking ahead, Source Energy maintains its outlook for a 5-10% volume growth for the year. The company expects a busy Q2 and Q3, with market stability anticipated from the completion of LNG Canada. InvestingPro analysts project continued profitability for the company this year, with an EPS forecast of $2.49 for FY2025. Get access to detailed growth projections and comprehensive analysis through InvestingPro’s exclusive Research Reports, available for over 1,400 stocks including SHLE. Adjusted gross margins are projected to remain between $45-46 per metric ton, as the company continues to build flexibility into its business model to adapt to changing market conditions.
Executive Commentary
Scott Melbourn, CEO of Source Energy, expressed optimism about the company’s future, stating, "We continue to expect somewhere in the range of between 5% to 10% growth in the overall market and our overall volumes for the year." He also highlighted the resilience of the Canadian industry, despite macroeconomic uncertainties, and emphasized the company’s strategic focus on building flexibility across all business areas.
Risks and Challenges
- Macroeconomic uncertainties could impact commodity prices and demand.
- Potential supply chain disruptions affecting production and logistics.
- Competitive pressures in the sand and logistics markets.
- Dependence on customer capital programs and commodity price fluctuations.
Q&A
During the earnings call, analysts raised questions about volume expectations and tariff discussions with the federal government. CEO Scott Melbourn addressed these concerns, reiterating the company’s growth outlook and strategic initiatives to mitigate potential impacts from tariffs and other external factors.
Full transcript - Source Energy Services Ltd (SHLE) Q1 2025:
Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Source Energy Services First Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
I would now like to turn the conference over to Scott Melbourn, CEO. Mr. Melbourn, please proceed.
Scott Melbourn, CEO, Source Energy Services: Thank you, operator. Good morning, and welcome to Storce Energy Services first quarter twenty twenty five conference call. My name is Scott Melbourne. I’m the CEO of Storce. I’m joined today by Darren Newell, our CFO.
This morning, we will provide a brief overview of the quarter, which will be immediately followed by a question and answer period. Before I get started, I’d like to refer everyone to the financial statements and the MD and A that were posted to SEDAR and the company’s website last night and remind you of the advisory on forward looking information found in our MD and A and press release. On this call, those numbers are in Canadian dollars and metric tons, and we will refer to adjusted gross margin, adjusted EBITDA and free cash flow, which are non IFRS measures as described in our MD and A. Except for the items just mentioned, our financial information is prepared in accordance with IFRS. During the quarter, we completed the initial phases of two strategic important projects.
The first is the installation of the new dryer at our Peace River facility. The second phase of the Peace River expansion will be adding new washing capacity that is expected to be completed in early q three. This expansion, which is partially funded by our customers, will see our production capability increase to over 1,000,000 tons. Secondly, and of equal strategic importance, the first operations commenced at our new Taylor BC terminal. We expect the full facility will be operational in early q three.
Underpinning these strategic initiatives is our belief that the continued development in the marketing will be a key driver for activity in the industry. In response to this growth, Source focused on enhancing its logistics capabilities in Northeast BC with the expansion of the Ketland Terminal, the development of the Taylor Terminal, and the acquisition of the trucking assets. When these logistics capabilities are combined with the Peace River facility, source can provide an unparalleled client to well site offering for both Northern White sand and domestic. Ultimately, by using our Northern White and domestic sand offerings, we are able to offer the lowest landed cost in the region. For the first quarter of twenty twenty five, completion activity levels in the Western Canadian Desertmentary Basin were very strong, which led to record sand sales volumes of just over 1,000,000 tons in the quarter.
Record last mile volumes to our customers’ well sites and the 11 unit Sahara fleet was 88% utilized in the quarter. Record stand revenue, which increased by 29,900,000.0 or 22% for the first quarter of twenty twenty four to reach 162,900,000.0. We generated total revenue of 208,600,000.0, a $39,000,000 increase from the first quarter of last year. We realized gross margin for the quarter was $36,800,000 while adjusted gross margin was 46,200,000.0 Excluding gross margin from mine gate volumes, adjusted gross margin per ton was $45 which was impacted by record 100 net sales in the quarter. Net income for the quarter was 23,600,000.0, an increase of 21,700,000.0 over the first quarter of twenty twenty four.
Adjusted EBITDA for the quarter was $33,800,000 a $1,700,000 improvement from the first quarter of twenty twenty four. We generated $11,900,000 of free cash flow in the quarter, a decrease of $3,600,000 compared to the prior year due to the impact of cash taxes, higher capital expenditures and higher lease payments. We settled outstanding litigation in the quarter and we recognize a recovery of 12,500,000.0. The board of directors has approved the initiation of a of a normal course issuer bid, which we released the details on earlier this morning. We continue to monitor the impact of the trade war on the global economy, specifically on commodity prices and the potential impact that it may have on our customers’ capital programs.
While we believe in the short term, it will not likely have a material impact on activity levels in the basin, in the longer term, a prolonged lower commodity price may impact activity levels. The additional export capability via LNG Canada will help provide some stability in a lower commodity price environment. To date, we have seen resiliency in our customer capital programs, and we have not changed our outlook for the year. With that, I will turn it over to Darren to provide a brief overview of our financial results for the quarter. Thanks, Scott.
As Scott mentioned, SOAR sold 1,041,000 metric tons of sand in Q1 twenty five, from which we generated 162,900,000.0 in sand revenue. Sand volumes were 19% higher than 2024, while sand revenue increased by 29,900,000.0. Source’s ability to service the large completion jobs has allowed us to continue to capture key customers, particularly in Northeast DC. A shift in product mix to more undermesh sales lowered our average stand sales price during the quarter. Mine gate sales also impacted the average realized sand price by 69¢ per metric ton in the quarter.
The broad spectrum of mine production sold to more hundred mesh and mine gate sales has a favorable impact on production costs by creating sand processing efficiencies throughout the year. Well site solutions revenue for Q1 twenty five was 44,400,000.0, an increase of 8,700,000 or 24% compared to Q1 twenty four. Higher sand sales volumes impacted volumes hauled to the ball size, resulting in higher trucking revenue for the quarter. The US Zakara fleet was a % utilized, while the Canadian fleet was 84% utilized for the quarter. Terminal services revenue was 1,200,000.0, an increase of 400,000.0 compared to the first quarter twenty four due to higher revenue from chemical elevation volumes.
Cost of sales, excluding depreciation, increased by 36,000,000 for the quarter compared to the same period in ’24 due to the increased sand volumes sold, higher truck volumes, increased rail transportation rates were partly offset by a shift in terminal mix compared to q one twenty four. People costs and repairs and maintenance expenses were higher due to the impact of the sand trucking assets purchased last year, while a weaker Canadian dollar contributed to an increase of $6.78 per metric ton on U. S. Dollar denominated components cost of sales compared to the same period last year. This currency impact was largely offset by U.
S. Dollar denominated revenue for the quarter. Adjusted gross margin benefited from the higher sales volumes, volumes trucked to the well freight and incremental gross margin generated from the same trucking assets acquired last year. Excluding gross margin from mine deep volumes, adjusted gross margins were $45 per metric ton compared to $50.93 per metric ton last year. Adjusted gross margin was impacted by the change in product mix, which resulted in a reduction of approximately $3.20 per metric ton due to the 23% increase in sales of Hamid Lush.
Compared to the first quarter of twenty four, challenging road conditions impacted access to well sites resulted in additional costs incurred in the quarter. And finally, the weakening Canadian dollar impacted adjusted gross margin by 70¢ per metric tons per quarter. Total operating and general admin expenses increased by 1,400,000.0 compared to q one of twenty four. Operating expenses in q one of twenty five increased by 1,900,000.0 due to higher people costs attributed to higher activity levels, higher selling and costs related to increased royalties on shipments from mines with royalties and increased professional fees. Prepared and maintenance costs were also higher for services railcar fleet, and there were incremental costs related to trucking and the ramp up of the trailer facility.
General and administrative expenses decreased by 400,000.0 during the quarter for primarily due to lower variable incentive compensation costs, partly offset by increased IT expenses related to the amortization of our implementation costs for the new CL system put in last year. Finance expense was 6,900,000.0 for q one twenty five, a decrease of 1,900,000.0 compared to last year. The reduction was driven by lower expense due to no draws outstanding on the ABL facility during the quarter as well as lower accretion expense. Source did recognize interest income on the commencement of the subleases for the Sahara units deployed to Alaska and cash balances on hand. These reductions were partly offset by higher interest incurred for outstanding lease obligations driven by the timing of replacement of heavy equipment leases in the latter half of twenty four.
At quarter end, SOAR set available liquidity of 72,300,000.0. Capital expenditures for Q1 net of proceeds on disposals and excluding expenditures related to the Taylor facility were 7,100,000.0, an increase of 2,500,000.0 compared to the first quarter of last year. Gross capital expenditures were relatively flat compared to last year, excluding the construction of the Taylor facility. Payment capital expenditures increased largely due to the improvements at Peace River and higher amounts for overburden removal driven by increased volumes and amounts related to services trucking operations. These obligations increased from the prior year quarter largely due to the timing of addition of heavy equipment for Peace River, which is done in the latter half of twenty four, as well as the replacement of Yellow leases for the Wisconsin mine operations that were also done late in ’24 at higher rates.
These payments for railcars and Yellow Iron in Wisconsin have also been impacted by the weakening of the Canadian dollar compared to the first quarter of twenty four. I would point out, so this is now cash taxable in The US and expects to be cash tax full in its Canadian operations next year. I will also mention from a net income perspective that we settled the outstanding Fox Creek litigation in the quarter. And because of that, we recognized a recovery of 12,500,000.0 of other expenses, where we have been reporting all of the costs related to this event. With that, I’ll turn it back to you, Scott.
Thanks, Darren. As we look ahead, we recognize that uncertainty and volatility continues to dominate the macro macroeconomic picture. With this uncertain outlook, we have and will continue to build flexibility into all areas of the business in order to react to rapidly changing environments. Despite the lack of visibility, we continue to believe that the Canadian industry activity levels will remain resilient and will favorably impact sand supply and demand fundamentals. Over the long term, we continue to believe the increased demand for natural gas driven by LNG exports, increased natural gas pipeline export capability and power generation will drive incremental demand for source of services.
See the completion of LNG Canada later this year and the accelerated permitting on additional LNG export capability as positive developments for the basin and for our business. SOARS continues to focus on enhancing our industry leading frac sand logistics chain, and we have and will continue to execute on a number of opportunities to grow the company and further our competitive advantage. In addition to growth in our core markets, we continue to explore opportunities to diversify and expand our service offering and further utilize our Western Canadian terminals. Thank you for your time this morning. That concludes the formal portion of the call.
We’ll now ask the operator to open the lines for questions.
Conference Operator: We will now begin the question and answer session. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press then 2. The first question comes from Nick Corcoran with Acumen Capital.
Go ahead.
Scott Melbourn, CEO, Source Energy Services: Morning, guys. Thanks for asking the record set volumes in the quarter. Good morning, Nick. Just a question for me. Obviously, sand volumes in the quarter, just looking at the order book going out.
Maybe can we get some commentary on what we should expect for the balance of the year in terms of overall volumes and potentially volume growth year over year? Yeah. You know, Nick, I think, you know, as I mentioned in our our our prepared remarks, you know, our outlook hasn’t changed on the year. And so, we continue to expect somewhere in the range of between 5% to 10% growth in the overall market and our overall volumes for the year. So nothing changed on that aspect.
You know, we’re in the the throes of a of a very busy q two, and we expect q two q three to be be just as busy. And so I think maybe a little bit of a wildcard will be the will be q four, which it always is for us. And and it just depends on where we’re at in in commodity prices and where where our customers are at in their capital program. So all in all, outlook hasn’t changed, and we do still expect some fairly robust growth this year. That’s helpful.
And then with tariffs being put on flux then, how are your discussions with the the federal government being to potentially have these removed? Yeah. You know, I I don’t know if this discussion is the right term for it. You know, we have followed the the process, and we have been engaged with the with the with the federal government to to get the the tariffs removed. And I I I don’t wanna just say it’s us.
I would say most industry participants in in frac sand or consumers of frac sand have been engaged with the with the federal government on on this topic. And so, you know, I do we we are well aware that that they understand our concerns and they’re working on the file, but I don’t have any update beyond that. That’s helpful. And maybe one last question for me. Just adjusted gross profit per metric ton was around $45 in the quarter.
Is that a level we should expect for the balance of the year? Yeah. I I think, you know, what what we’ve seen over the last several quarters as we sort of been in in that 45 range, it’s gonna move up a little bit related to, you know, well, say, servicing and or the types of mesh sizes that we’re selling in sand. But we’re gonna probably hover in that 45, 40 6 range this year. Thanks so much for that.
Thanks.
Conference Operator: Once again, if you have a question, please press then 1. This concludes the question and answer session. I would like to turn the conference back over to Scott Malborne for any closing remarks.
Scott Melbourn, CEO, Source Energy Services: Thank you, everyone, for your time today, and thank you, everyone, for your interest in the business. If you have any follow on questions, please feel free to reach out to myself or Darren.
Conference Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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