Release Date: August 02, 2024
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 sand volumes and total revenues for the second consecutive quarter.
- The company successfully reduced its outstanding senior secured notes and ABL balance, lowering net debt to $111.4 million.
- A new partnership with Trican to develop a terminal in Taylor, British Columbia, is expected to support LNG-driven growth without impacting balance sheet goals.
- The last mile logistics group delivered record sand volumes, contributing positively to overall margins.
- Free cash flow for the second quarter increased to $13.5 million, a significant improvement from the previous year.
Negative Points
- The company faces current liabilities due to the maturity of ABL facility and senior secured notes within a year.
- Higher capital expenditures were noted due to lower sales proceeds from excess equipment and terminal expansions.
- Operating general expenses increased by $2.3 million, driven by higher royalty costs and insurance expenses.
- The weaker Canadian dollar increased costs by $1.97 compared to the same period last year.
- There is potential for increased competition in Northeast BC, with other companies rumored to be opening terminals in the area.
Q & A Highlights
Q: Can you explain how the last mile logistics part of your business impacts overall margins?
A: The last mile logistics encompasses the journey from our terminals to the wellsite, including wellsite services. It positively impacts margins based on activity levels and distance from terminals to wellsites. In Q1, longer distances and higher Sahara fleet utilization increased margins by $1-$2. This quarter saw a slightly lower impact, but it remains a crucial part of our business, providing a competitive advantage and positively affecting overall gross margins. - Scott Melbourn, CEO
Q: With LNG Canada nearing first shipments, have you noticed any changes in frac sand pricing?
A: Pricing has been stable over the past 12 months. As LNG Canada approaches, we expect continued stability, though there may be periods of excess demand or logistical shortages leading to higher spot prices. Overall, we anticipate stable pricing with potential upticks during high demand periods. - Scott Melbourn, CEO
Q: What are you seeing in terms of the competitive landscape in Northeast BC, and how do you plan to react?
A: Northeast BC is recognized as a growth area, and we expect competitors to emerge. However, Source's comprehensive logistics chain, from sand production to wellsite, provides a distinct advantage. Our robust LNG infrastructure, including multiple unit train capabilities and the Peace River asset, positions us strongly against competitors. Competing against Source's footprint and offerings in the region will be challenging. - Scott Melbourn, CEO
Q: How did the performance of the Peace River facility impact sand revenues?
A: The Peace River facility's improved performance positively impacted sand revenues. While mine gate sales lowered the average realized sand price by $7.14 per metric tonne, they favorably affected cost of sales and gross margins by enhancing production efficiencies and yields. - Derren Newell, CFO
Q: What is the outlook for industry activity levels and their impact on Source's business?
A: We anticipate favorable industry activity levels, particularly in Northeast BC, which will support market share gains and strong financial results. The completion of LNG Canada and other LNG projects will drive incremental demand for our services. We continue to focus on enhancing our frac sand logistics chain and exploring opportunities to grow and diversify our service offerings. - Scott Melbourn, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
