Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Source Energy Services Ltd (SCEYF, Financial) achieved record sales volumes, adjusted EBITDA, and free cash flow in 2024.
- The company successfully refinanced its senior secured notes and ABL facility, improving liquidity and reducing borrowing costs.
- Source Energy Services Ltd (SCEYF) completed two acquisitions for sand trucking assets, enhancing last-mile logistics capabilities.
- The company announced a partnership with Trican to construct a unit train facility in Taylor, British Columbia, with the first phase operational.
- Source Energy Services Ltd (SCEYF) generated $55.2 million of free cash flow in 2024, a significant increase from the previous year.
Negative Points
- There was a seasonal slowdown in the fourth quarter, with sand volumes and revenue decreasing compared to the previous year.
- The Canadian government's retaliatory tariffs on frac sand could potentially impact the industry and Source Energy Services Ltd (SCEYF).
- Adjusted gross margin per metric tonne decreased in Q4 2024 due to lower activity levels and higher trucking expenses.
- Operating and G&A expenses increased in Q4 2024 due to higher compensation, royalty costs, and IT expenses.
- The weaker Canadian dollar increased costs, impacting adjusted gross margin negatively.
Q & A Highlights
Q: We're about 2 months into the quarter. Any indication how activity levels have been to start the year?
A: Scott Melbourn, CEO: The early indications are that this is a very strong start to the year. Q1 is always a strong quarter for us, and Q1 2025 is shaping up similarly. Despite some macro noise around tariffs, we expect a very strong year for 2025 with growth in volumes over 2024.
Q: With all the talk of the tariffs, are you positioning for the tariffs with any additional inventory in the basin?
A: Derren Newell, CFO: We preposition inventory in Q1 to deal with weather-related impacts. We'll consider prepositioning inventory in response to tariffs, but it's difficult due to the lack of clarity around timing and specifics. The plan is to run the business as normal and pre-position inventory if possible, but we don't have enough inventory in the basin for significant positioning.
Q: The refinance was completed late last year. Any indication where your capital allocation priorities are going forward?
A: Scott Melbourn, CEO: We see an amazing opportunity at Peace River, so we'll expand that facility. Apart from Peace River, we will continue to pay down debt. We have had discussions at the Board level and expect to announce something like an NCIB or another method to return cash flow to shareholders soon.
Q: Can you provide more details on what drove the increase in CapEx?
A: Scott Melbourn, CEO: The increase in CapEx is primarily due to the expansion at the Peace River facility, which will cost approximately $7 million for us and $6 million in customer funding. As we get busier, more mine development activities will be needed, driving the balance of the increase in capital year-over-year.
Q: For 2025, do you expect CapEx to decrease to more like 2023 levels, excluding the $7 million investment in Peace River?
A: Derren Newell, CFO: No, we expect our 2025 CapEx to be in the $28 million to $33 million range.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
