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2022 PERFORMANCE HIGHLIGHTS
Key highlights for theyear ended
realized Adjusted EBITDA(1)of
$61.5 million , a59%increase from 2021;reported a net loss of
$8.8 million , a$15.6 million improvement from 2021;realized sand sales volumes of2,845,600MT and total revenue of
$415.9 million , a15%and30%increase, respectively, from 2021;recorded utilization of 75% for the Canadian Sahara fleet and 74% for the US Sahara fleet for the year;
closed a transaction with
Canadian Silica Industries (“CSI”) to assume operation of CSI’sPeace River frac sand facility, complementing Source’s Northern White proppant resources;closed a transaction for a new
$75.4 million (US$55.0 million ) credit facility;lowered borrowing costs by 200 basis points by commencing cash interest payments for the senior secured notes and further improved borrowing costs due to lower effective interest rates on the new credit facility;
reduced amounts outstanding for the credit facilities by
$9.8 million atDecember 31, 2022 compared to prior year;renewed one major customer contract at the end of the year and a second major contract in early 2023; and
realized gross margin of
$58.1 million and Adjusted Gross Margin(1)of$79.0 million , increases of48%and31%, respectively, when compared to 2021.
Note:
Adjusted Gross Margin (including on a per MT basis) and Adjusted EBITDA 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 MDA available online at www.sedar.com.
RESULTS OVERVIEW
Three months ended | Year ended | |||
($000’s, except MT and per unit amounts) | 2022 | 2021 | 2022 | 2021 |
Sand volumes (MT)(1) | 566,130 | 528,977 | 2,845,600 | 2,483,362 |
Sand revenue | 70,291 | 54,989 | 341,671 | 258,545 |
Wellsite solutions | 16,170 | 11,913 | 69,790 | 57,621 |
Terminal services | 990 | 648 | 4,451 | 3,695 |
Sales | 87,451 | 67,550 | 415,912 | 319,861 |
Cost of sales | 71,696 | 59,290 | 336,940 | 259,429 |
Cost of sales – depreciation | 5,125 | 4,071 | 20,827 | 21,102 |
Cost of sales | 76,821 | 63,361 | 357,767 | 280,531 |
Gross margin | 10,630 | 4,189 | 58,145 | 39,330 |
Operating expense | 6,374 | 4,142 | 20,075 | 16,514 |
General & administrative expense | 2,642 | 1,990 | 10,034 | 9,283 |
Depreciation | 2,361 | 2,426 | 10,555 | 9,873 |
Income (loss) from operations | (747) | (4,369) | 17,481 | 3,660 |
Total other expense | 11,462 | 10,197 | 26,251 | 28,063 |
Net loss(2) | (12,209) | (14,566) | (8,770) | (24,403) |
Net loss per share ($/share) | (0.90) | (1.08) | (0.65) | (1.80) |
Diluted net loss per share ($/share) | (0.90) | (1.08) | (0.65) | (1.80) |
Adjusted EBITDA(3) | 6,454 | 1,656 | 61,501 | 38,587 |
Sand revenue sales/MT | 124.16 | 103.95 | 120.07 | 104.11 |
Gross margin/MT | 18.78 | 7.92 | 20.43 | 15.84 |
Adjusted Gross Margin(3) | 15,755 | 8,260 | 78,972 | 60,432 |
Adjusted Gross Margin/MT(3) | 27.83 | 15.62 | 27.75 | 24.33 |
Notes:
One MT is approximately equal to 1.102 short tons.
The average Canadian to
United States (“US”) dollar exchange rate for the three and twelve months endedDecember 31, 2022 , was$0.7365 and 0.7686, respectively (2021 -$0.7935 and 0.7978, respectively).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 MDA available online at www.sedar.com.
2022 RESULTS
Cost of sales, excluding depreciation, increased for the year due to higher sand sales volumes and higher costs for transportation and freight, due to increased prices for fuel, compared to last year. Source incurred additional costs for third party sand purchases, procured to ensure no customer supply interruptions resulting from increased customer demand, relative to 2021. These cost increases were partly mitigated by improved sales distribution across mesh sizes resulting in improved yields. Cost of sales was also impacted by a weakening Canadian dollar on US denominated costs relative to last year; however, this was offset by gains realized on foreign currency forward contracts settled during the year.
For theyear ended
Operating expenses increased on a year-over-year basis, primarily attributed to increased repairs and maintenance costs, including expenditures required to bring the new
New Senior Credit Facility
On
Upon closing of the ABL, Source repaid all outstanding draws on the former ABL facility and senior secured term loan (collectively, the “Credit Facility”). The Company also entered into a supplemental indenture that governs the Notes which permitted Source to execute the ABL facility in exchange for a one percent consent fee to the noteholders which was paid in kind on closing. For additional information, including the financial covenants of the ABL facility, refer to ‘Long-term Debt’ within Source’s MD&A, available online atwww.sedar.com.
Liquidity and Capital Resources
Free Cash Flow | Three months ended | Year ended | ||
($000’s) | 2022 | 2021 | 2022 | 2021 |
Adjusted EBITDA(1) | 6,454 | 1,656 | 61,501 | 38,587 |
Financing expense paid | (16,311) | (1,888) | (28,599) | (7,897) |
Capital expenditures, net of proceeds on disposal of property, plant and equipment | (3,940) | (2,000) | (13,288) | (6,442) |
Payment of lease obligations | (4,746) | (3,586) | (15,751) | (13,224) |
Free Cash Flow(1) | (18,543) | (5,818) | 3,863 | 11,024 |
Note:
(1) Adjusted EBITDA and Free Cash Flow are not defined under IFRS, 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
During the fourth quarter of 2022, Free Cash Flow was impacted by an increase in financing expense paid, attributed to the payment of two quarterly interest payments during the period, for a total of
Source’s capital expenditures for thefourth quarterof 2022 were
For the year ended
Q4 2022 RESULTS
Source sold sand volumes of566,130MT for thethree months ended
For thethree months ended
For the fourth quarter of 2022, terminal services revenue was
Cost of sales, excluding depreciation,increasedby
Gross margin increased by
For thefourth quarterof2022, total operating and general and administrative expense increased
ESG UPDATE
Source is committed to operating in a sustainable manner and works closely with its stakeholders to go above and beyond current regulatory requirements through initiatives such as voluntary greenhouse gas emissions reduction programs, as well as Source’s production water recycling program. During 2022, Source reduced its greenhouse gas emissions rate by 2.4% compared to the previous year, and 23.4% compared to the base year. Source’s water recycling program reduces the reliance on local well water and in 2022 Source recycled over four hundred million litres of water, ensuring Source remained far below its permitted well water allowance. Source has reclaimed just under fourteen acres of land adjacent to its
As an active member of its community, Source supports initiatives that align with its corporate values, support the charitable efforts of our employees and are located close to its operations. Source supports community needs in the areas of Arts and Culture, Education, Environment, Health and Wellness and Sports and Recreation through financial donations and employee volunteer hours.
For more information, Source’s most recent ESG report is available atwww.sourceenergyservices.com.
BUSINESS OUTLOOK
Strong industry activity continues to favorably impact frac sand supply and demand fundamentals which are expected to remain strong through 2023. Previous well permitting issues in the 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 WCSB. Source continues to see increased demand from customers that are primarily focused on the development of natural gas properties in the
UPDATED NI 43-101 TECHNICAL REPORTS FOR THE MINERAL PROJECTS IN
Source is pleased to announce that it has filed with the applicable Canadian securities regulatory authorities updated National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) technical reports for each of its three mineral projects in
The Technical Reports have each been prepared with an effective date of
Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the mineral resource will be converted into a mineral reserve. Source has not based its production decisions and ongoing mine production on mineral reserve estimates, preliminary economic assessments, prefeasibility studies or feasibility studies. As a result, there may be an increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery and historically projects without any mineral reserves have increased uncertainty and risk of failure.
Further details with respect to the scientific and technical information contained in this press release are available in the Technical Reports, which are available under the Company’s SEDAR profile atwww.sedar.com.
FOURTH QUARTER CONFERENCE CALL
A conference call to discuss Source’sfourthquarter 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 theUpcoming Eventspage of our website and as follows:
Source Energy Services Q42022 Results Call
The call will be recorded and available for playback approximately 2 hours after the meeting end time, until
Playback Number Playback Passcode
Toll-Free: 1-800-319-6413 9671
ABOUT
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 audited consolidated financial statements for theyears 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 Loss
Three months ended | Year ended | |||
($000’s) | 2022 | 2021 | 2022 | 2021 |
Net loss | (12,209) | (14,566) | (8,770) | (24,403) |
Add: | ||||
Interest expense | 6,812 | 6,594 | 27,102 | 25,677 |
Cost of sales – depreciation | 5,125 | 4,071 | 20,827 | 21,102 |
Depreciation | 2,361 | 2,426 | 10,555 | 9,873 |
Loss on debt extinguishment | 862 | — | 862 | — |
Finance expense (excluding interest expense) | 2,000 | 1,215 | 6,045 | 4,643 |
Share-based compensation expense | 645 | 476 | 947 | 643 |
Gain on asset disposal | (11) | — | (1,192) | (63) |
Unrealized loss (gain) on derivative assets | — | 173 | 1,718 | (247) |
Other expense(1) | 869 | 108 | 3,407 | 203 |
Adjusted EBITDA | 6,454 | 1,656 | 61,501 | 38,587 |
Financing expense paid | (16,311) | (1,888) | (28,599) | (7,897) |
Capital expenditures, net of proceeds on disposal of property, plant and equipment | (3,940) | (2,000) | (13,288) | (6,442) |
Payment of lease obligations | (4,746) | (3,586) | (15,751) | (13,224) |
Free Cash Flow | (18,543) | (5,818) | 3,863 | 11,024 |
Note:
Includes expenses related to the incident at the
Fox Creek terminal facility and one-time retirement payments.
Reconciliation of Gross Margin to Adjusted Gross Margin
Three months ended | Year ended | |||
($000’s) | 2022 | 2021 | 2022 | 2021 |
Gross margin | 10,630 | 4,189 | 58,145 | 39,330 |
Cost of sales – depreciation | 5,125 | 4,071 | 20,827 | 21,102 |
Adjusted Gross Margin | 15,755 | 8,260 | 78,972 | 60,432 |
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 available online atwww.sedar.comand through Source’s website atwww.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”, “trends”, “anticipates” 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: our expectation that strong sand sales volumes will continue; our continued assessment of equipment and other assets required to service our operations; anticipated high activity levels in the first quarter of 2023; Source’s efforts to return the land of a thriving vegetative state; our expectation that frac sand supply and demand fundamentals will remain strong through 2023; our expectation that the resolution of permitting issues 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 timelyand 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 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 climate change risk; the ability of Source to retain and attract qualified management and staff in the markets in which Source operates; labor 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; and risks and uncertainties related to COVID-19 or its variants, 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 thispress releaseare 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 thispress 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 thispress releaseregarding 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 | Chief Financial Officer |
(403) 262-1312 (ext. 222) | (403) 262-1312 (ext. 233) |
investorrelations@sourceenergyservices.com | investorrelations@sourceenergyservices.com |
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Copyright (c) 2023 TheNewswire - All rights reserved., source