Source Energy Services (TSE:SHLE) executives said fourth-quarter activity rebounded as delayed work from the prior quarter was completed, helping the company close 2025 with record annual volumes and revenue despite commodity price challenges earlier in the year.
On the company’s fourth-quarter 2025 earnings call, CEO Scott Melbourn and CFO Derren Newell reviewed quarterly and full-year results, discussed key cost and margin drivers, and outlined capital spending expectations and market conditions heading into 2026.
Fourth-quarter rebound lifted volumes and revenue
Newell reported fourth-quarter sand revenue of CAD 135.3 million, up CAD 17.7 million year over year, attributing the increase largely to the completion of work that had been delayed from the third quarter of 2025.
However, Newell said the average realized sand price per metric ton declined by CAD 4.02 compared to the prior year’s quarter, primarily due to a product mix shift toward higher volumes of lower-priced, finer mesh sand.
Additional revenue lines also increased modestly in the quarter:
- Well site solutions revenue was CAD 28.3 million, up CAD 1.6 million, driven by higher last-mile logistics volumes and longer trips to well sites versus last year.
- Terminal services revenue was CAD 0.9 million, up CAD 0.3 million, due to higher chemical elevation volumes and increased sand elevation storage rates.
Operationally, Newell said Sahara units in Canada were 50% utilized during the fourth quarter, while Sahara units deployed in the U.S. remained fully contracted and 100% utilized.
Record year for volumes and revenue, but margins pressured
Management characterized 2025 as “another good year” with record volumes and record revenue. For the full year, the company reported sand sales volume of 3.7 million tons, up 5% from 2024, and total revenue of CAD 700.3 million, an increase of CAD 26.4 million.
Melbourn said the company expanded capabilities during the year, including enhancing logistics via the Taylor Terminal, strengthening last-mile logistics with additional trucking assets, and expanding domestic sand capability to 1 million tons per year. He also highlighted shareholder actions, including the initiation of a share repurchase program that repurchased and canceled 465,000 shares, and a CAD 23.7 million reduction in the term loan.
Profitability metrics were mixed. The company realized gross margin of CAD 116.6 million and adjusted gross margin of CAD 159.3 million, down 8% and 2%, respectively, compared to 2024. Melbourn said margins were affected by a shift in terminal and product mix as well as incremental Peace River commissioning costs.
Net income for 2025 was CAD 33.1 million, up CAD 23.6 million year over year. Melbourn attributed the increase to lower share-based compensation expense and a recovery tied to the settlement of the Fox Creek lawsuit. Adjusted EBITDA was CAD 112.3 million, down CAD 11.6 million from 2024.
Costs rose with activity and Peace River, while FX and weather also played roles
Newell said fourth-quarter cost of sales (excluding depreciation) increased by CAD 19.4 million versus the prior-year quarter, reflecting higher sand volumes and incremental costs at Peace River. He also cited higher people costs and repairs and maintenance expenses—mainly on sand trucking assets purchased last year—along with incremental royalties due to increased production at Peace River. Lower third-party trucking costs partially offset these increases.
Adjusted gross margin per metric ton also declined. Excluding gross margin from mine gate, adjusted gross margins in the fourth quarter were CAD 39.07 per metric ton, compared with CAD 44.88 a year earlier. Newell said the quarter was impacted by incremental Peace River costs and “extremely cold temperatures and heavy snowfall” in certain customer operating areas, which led to additional performance-related charges and reduced gross margin by CAD 0.52 per metric ton.
For the full year, Newell said that excluding gross margin from mine gate, adjusted gross margin was CAD 43.71 per metric ton, down from CAD 46.99 in 2024. He attributed the decline to:
- Shifts in terminal mix driven by customer well site locations
- Product mix shifting toward lower-priced, finer mesh sand
- Incremental Peace River costs
- Incremental costs associated with commencing operations at Taylor
These were partially offset by CAD 3.6 million of incremental margin from trucking operations and lower rail transportation costs realized late in 2025, Newell said.
On foreign exchange, Newell noted that U.S. dollar components and revenue created mixed impacts. For the full year, a weaker Canadian dollar increased U.S. dollar-denominated cost of sales by CAD 2.54 per metric ton compared to 2024, which he said was “largely offset” by exchange-rate movements on revenues denominated in U.S. dollars.
Liquidity, capital spending, and 2026 outlook
At year-end, Source had available liquidity of CAD 59.9 million. Newell said fourth-quarter capital expenditures (net of proceeds and reimbursements, excluding Taylor) were CAD 7.1 million, up CAD 1.6 million from the prior year, with growth capital mainly tied to Peace River expansion. For the full year, net capital expenditures (excluding Taylor) increased by CAD 21.3 million, driven by growth spending and higher maintenance expenditures including overburden removal, Sahara upgrades, and trucking equipment rebuilds.
Newell added that Source is now cash taxable in the U.S. and expects it will be cash taxable in Canada in the next year or so.
Looking ahead, Melbourn said the company expects 2026 volumes to be “fairly flat” year over year, but with steadier quarter-to-quarter activity than in 2025, when activity was elevated in the first half, dropped in the third quarter, and increased again in the fourth. He said he expects potential for more activity in the back half of 2026 as LNG Canada ramps production and export capability increases.
Melbourn also guided to net capital expenditures of CAD 30 million to CAD 40 million in 2026, with most spending aimed at optimization and mine development activities at Peace River and across the terminal network. He also said the company has expanded chemical transloading capability, which management believes will be a growth area for 2026.
During the Q&A, Newell said Peace River performance has improved and that weather-related impacts seen in December did not carry over in the same way into the first quarter, noting that while it has snowed, conditions have not matched the prior quarter’s cold snap and heavy snowfall challenges.
About Source Energy Services (TSE:SHLE)
Source Energy Services Ltd is a Canada based company engaged in the production, supply, and distribution of Northern White frac sand, as well as the distribution of other bulk completion materials not produced by the company. It provides customers with an end-to-end solution for frac sand supported by its Wisconsin mines and processing facilities, its Western Canadian terminal network and its last mile logistics capabilities. The company also offers storage and logistics services for other bulk oil and gas well completion materials and has developed Sahara, a proprietary wellsite mobile sand storage and handling system.
