Q3 2023 PERFORMANCE HIGHLIGHTS
Source achieved the following key highlights during the third quarter of 2023:
- realized sand sales volumes of 709,826 per metric tonne (“MT”) and sand revenue of
$102.2 million , a$5.0 million increase from the third quarter of 2022;
- generated total revenue of
$124.7 million , a$4.8 million increase from the third quarter of 2022; - realized gross margin of
$25.0 million and Adjusted Gross Margin(1) of$30.8 million , increases of 53% and 46%, respectively, when compared to the same period in 2022; - reduced the principal value of total debt outstanding by
$17.1 million from the end of 2022, and repurchased an additional$7.1M aggregate principal value of senior secured notes after the end of the quarter; - achieved new records for the highest monthly revenue realized in the history of Source from the Sahara fleets in both
Canada andthe United States (“US”); - reported net income of
$3.7 million , a$7.6 million improvement from the third quarter of 2022 when excluding the foreign exchange gain on the settlement of forward contracts recognized last year; and - realized Adjusted EBITDA(1) of
$22.7 million , a$6.4 million improvement from the third quarter of 2022 when excluding the foreign exchange gain on the settlement of forward contracts recognized last year.
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
RESULTS OVERVIEW
Three months ended September 30, | Nine months ended September 30, | |||
($000’s, except MT and per unit amounts) | 2023 | 2022 | 2023 | 2022 |
Sand volumes (MT)(1) | 709,826 | 753,233 | 2,319,388 | 2,279,470 |
Sand revenue | 102,180 | 97,173 | 335,885 | 271,380 |
Wellsite solutions | 21,725 | 21,748 | 76,332 | 53,620 |
Terminal services | 759 | 985 | 3,099 | 3,461 |
Sales | 124,664 | 119,906 | 415,316 | 328,461 |
Cost of sales | 93,876 | 98,772 | 316,567 | 265,244 |
Cost of sales – depreciation | 5,746 | 4,732 | 17,040 | 15,702 |
Cost of sales | 99,622 | 103,504 | 333,607 | 280,946 |
Gross margin | 25,042 | 16,402 | 81,709 | 47,515 |
Operating expense | 5,306 | 4,564 | 17,206 | 13,701 |
General & administrative expense | 3,119 | 2,205 | 11,252 | 7,392 |
Depreciation | 2,174 | 2,833 | 7,998 | 8,194 |
Income from operations | 14,443 | 6,800 | 45,253 | 18,228 |
Total other expense | 10,711 | 929 | 30,908 | 14,789 |
Net income(2) | 3,732 | 5,871 | 14,345 | 3,439 |
Net earnings per share ($/share) | 0.28 | 0.43 | 1.06 | 0.25 |
Diluted net earnings per share ($/share) | 0.28 | 0.38 | 1.06 | 0.19 |
Adjusted EBITDA(3) | 22,735 | 25,994 | 70,793 | 55,047 |
Sand revenue sales/MT | 143.95 | 129.01 | 144.82 | 119.05 |
Gross margin/MT | 35.28 | 21.78 | 35.23 | 20.84 |
Adjusted Gross Margin(3) | 30,788 | 21,134 | 98,749 | 63,217 |
Adjusted Gross Margin/MT(3) | 43.37 | 28.06 | 42.58 | 27.73 |
Notes: | ||||
(1) One MT is approximately equal to 1.102 short tons. | ||||
(2) The average Canadian to US dollar exchange rate for the three and nine months ended | ||||
(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 2023 Performance
Source realized continued gross margin improvement for the third quarter, driven by strong average realized sand pricing. This resulted in Adjusted EBITDA of
Source recorded total revenue of
Cost of sales, excluding depreciation, decreased for the third quarter of 2023, compared to the same period last year, primarily due to the lower sand sales volumes realized during the period as well as a reduction in cost for transportation fuel surcharges. These reductions were partially offset by a shift in terminal sales mix for the quarter. Cost of sales was impacted by a weakening Canadian dollar on US denominated costs relative to the third quarter last year; however, this impact was completely offset by an increase in US dollar denominated revenue realized during the quarter.
For the three months ended
Operating expenses increased by
As discussed above, Adjusted EBITDA was
Adjusted EBITDA was favorably impacted by
Liquidity and Capital Resources
FreeCash Flow | Three months ended September 30, | Nine months ended September 30, | ||||||
($000’s) | 2023 | 2022 | 2023 | 2022 | ||||
Adjusted EBITDA(1) | 22,735 | 25,994 | 70,793 | 55,047 | ||||
Financing expense paid | (7,001 | ) | (3,147 | ) | (21,845 | ) | (12,288 | ) |
Capital expenditures, net of proceeds on disposal of | ||||||||
property, plant and equipment and reimbursement of capital costs | (3,585 | ) | (4,454 | ) | (6,373 | ) | (9,348 | ) |
Payment of lease obligations | (4,758 | ) | (3,849 | ) | (14,504 | ) | (11,003 | ) |
Free Cash Flow(1) | 7,391 | 14,544 | 28,071 | 22,408 | ||||
Note: | ||||||||
(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. | ||||||||
Source generated Free Cash Flow of
Source’s capital expenditures for the third quarter of 2023 were
BUSINESS OUTLOOK
Third quarter volumes were impacted by operational delays experienced by a number of Source customers. These delays pushed activity into the fourth quarter, a historically slower quarter where exploration and production (“E&P”) companies exhaust budgets as they approach the end of the year. Activity levels into the fourth quarter were strong in October and are expected to remain that way until the industry’s holiday slowdown, which begins in mid-December. Source renewed customer contracts with terms and conditions reflective of the current operating environment earlier in the year, and continues to improve production efficiencies through an expansion of mesh sizes and ongoing operating cost management. Source’s leading service offerings and logistics capabilities required for larger volumes of sand per well, as well as Source’s terminal network footprint, will continue to support strong gross margins for 2024. Source anticipates increases in activity levels in 2024, particularly in northeastern
In the longer-term, Source believes the increased demand for natural gas, driven by power generation facilities, increased natural gas pipeline export capabilities and liquefied natural gas exports will drive incremental demand for Source’s services in the
Source continues to focus on increasing its involvement in the provision of logistics services for other items needed at the wellsite 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
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 2023 Results Call
The call will be recorded and available for playback approximately 2 hours after the meeting end time, until
Toll-Free Playback Number: 1-800-319-6413
Playback Passcode: 9674
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
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 wellsite.
IMPORTANT INFORMATION
These results should be read in conjunction with each of Source’s interim condensed consolidated financial statements for the three and nine months ended
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) | 2023 | 2022 | 2023 | 2022 | ||||
Net income | 3,732 | 5,871 | 14,345 | 3,439 | ||||
Add: | ||||||||
Interest expense | 6,117 | 7,003 | 19,794 | 20,289 | ||||
Cost of sales – depreciation | 5,746 | 4,732 | 17,040 | 15,702 | ||||
Depreciation | 2,174 | 2,833 | 7,998 | 8,194 | ||||
Gain on debt extinguishment | (280 | ) | — | (280 | ) | — | ||
Finance expense (excluding interest expense) | 2,660 | 1,520 | 7,473 | 4,046 | ||||
Share-based compensation expense (recovery) | 1,567 | (271 | ) | 5,038 | 302 | |||
Gain (loss) on asset disposal | 356 | 2 | (1,776 | ) | (1,181 | ) | ||
Unrealized loss on derivative assets | — | 4,157 | — | 1,718 | ||||
Loss on sublease | — | — | 3 | — | ||||
Other expense(1) | 663 | 147 | 1,158 | 2,538 | ||||
Adjusted EBITDA | 22,735 | 25,994 | 70,793 | 55,047 | ||||
Financing expense paid | (7,001 | ) | (3,147 | ) | (21,845 | ) | (12,288 | ) |
Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital | (3,585 | ) | (4,454 | ) | (6,373 | ) | (9,348 | ) |
costs | ||||||||
Payment of lease obligations | (4,758 | ) | (3,849 | ) | (14,504 | ) | (11,003 | ) |
Free Cash Flow | 7,391 | 14,544 | 28,071 | 22,408 | ||||
Note: | ||||||||
(1) Includes expenses related to the incident at the | ||||||||
Reconciliation of Gross Margin to Adjusted Gross Margin
Three months ended September 30, | Nine months ended September 30, | |||
($000’s) | 2023 | 2022 | 2023 | 2022 |
Gross margin | 25,042 | 16,402 | 81,709 | 47,515 |
Cost of sales – depreciation | 5,746 | 4,732 | 17,040 | 15,702 |
Adjusted Gross Margin | 30,788 | 21,134 | 98,749 | 63,217 |
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. In particular, this press release contains forward-looking statements pertaining, but not limited, to: costs incurred by the rebuilding of a piece of equipment at a terminal facility which malfunctioned and will be recovered by insurance proceeds received in the fourth quarter; expectations that activity levels will remain strong until the industry’s holiday slowdown; predictions for strong gross margins in 2024; anticipated increased activity levels in 2024, particularly in northeastern
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; 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; 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; labour 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 such as COVID-19, 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:
Chief Executive Officer
(403) 262-1312
investorrelations@sourceenergyservices.com
Chief Financial Officer
(403) 262-1312
investorrelations@sourceenergyservices.com
Source:
2023 GlobeNewswire, Inc., source