Earnings release
Page 1
www.sourceenergyservices.com 1 news release Source Energy Services Reports Q2 2026 Results and Appointment to the Board of Directors Calgary, Alberta (July 29, 2026) TSX: SHLE Source Energy Services Ltd. (“Source” or the “Company”) is pleased to announce its financial results for the three and six months ended June 30, 2026. Q2 2026 HIGHLIGHTS As expected, second quarter activity levels remained slower than the prior year, as Source customers planned for a greater portion of program activity in the latter part of the year. For the three months ended June 30, 2026 , Source achieved the following results: • realized sand sales volumes of 831,234 metric tonnes (“MT”), a 24% decrease from the second quarter of 2025; • generated sand revenue of $107.8 million and total revenue of $137.1 million, decreases of 33% and 32%, respectively, compared to the second quarter of 2025; • realized gross margin of $17.4 million and Adjusted Gross Margin(1) of $29.8 million, representing decreases of 53% and 39%, respectively, when compared to the three months ended June 30, 2025; • reported net loss of $5.6 million, a reduction of $19.2 million from the second quarter of 2025; • realized Adjusted EBITDA(1) of $18.5 million, a $16.7 million decrease from the same period in 2025; • achieved 60% utilization across the eleven -unit Sahara fleet, with operating units in the United States achieving 100% utilization during the second quarter; • successfully completed Canada’s largest wet sand trial, which pumped over 71,000 MT of proppant for the pad; • renewed the Normal Course Issuer Bid (the “NCIB”) through May 28, 2027 and repurchased 57,800 common shares under the program during the second quarter; and • appointed Mr. Jeffrey Bowers to the Board of Directors. Note: (1) Adjusted Gross Margin (including on a per MT basis) and Adjusted EBITDA are not defined under IFRS (as defined herein) and mi ght 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 July 29, 2026, available online at www.sedarplus.ca. RESULTS OVERVIEW Three months ended June 30, Six months ended June 30, ($000s, except MT and per unit amounts) 2026 2025 2026 2025 Sand volumes (MT)(1) 831,234 1,094,355 1,702,815 2,135,578 Sand revenue 107,791 161,472 233,570 324,375 Well site solutions 28,272 39,216 61,663 83,644 Terminal services 1,054 1,201 2,107 2,434 Sales 137,117 201,889 297,340 410,453 Cost of sales 107,314 153,280 232,146 315,649 Cost of sales – depreciation 12,444 11,873 25,810 21,275 Cost of sales 119,758 165,153 257,956 336,924 Gross margin 17,359 36,736 39,384 73,529 Operating expense 8,019 8,383 14,271 16,310 General & administrative expense 3,902 4,839 7,131 9,747 Depreciation 6,091 5,432 12,844 11,132 (Loss) income from operations (653) 18,082 5,138 36,340 Total other expense (income) 8,048 1,452 18,474 (10,415) (Loss) income before income taxes (8,701) 16,630 (13,336) 46,755
Page 2
www.sourceenergyservices.com 2 Three months ended June 30, Six months ended June 30, ($000s, except MT and per unit amounts) 2026 2025 2026 2025 Current tax expense — 2,449 — 5,226 Deferred tax (recovery) expense (3,108) 613 (4,445) 4,362 Net (loss) income(2) (5,593) 13,568 (8,891) 37,167 Net (loss) earnings per share ($/share) (0.43) 1.01 (0.68) 2.75 Diluted net (loss) earnings per share ($/share) (0.43) 1.01 (0.68) 2.75 Adjusted EBITDA(3) 18,523 35,208 44,838 68,969 Sand revenue sales/MT 129.68 147.55 137.17 151.89 Adjusted Gross Margin(3) 29,803 48,609 65,194 94,804 Gross margin/MT 20.88 33.57 23.13 34.43 Adjusted Gross Margin/MT(3) 35.85 44.42 38.29 44.39 Notes: (1) One MT is approximately equal to 1.102 short tons. (2) The average Canadian to United States (“U.S.”) dollar exchange rate for the three and six months ended June 30, 2026 was $0.7224 and $0.7256, respectively (2025 - $0.7225 and $0.7095). (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. SECOND QUARTER 2026 RESULTS Revenue for the quarter was impacted by lower activity levels in the Western Canadian Sedimentary Basin (“WCSB”), as ongoing economic uncertainty and lower natural gas prices drove Source customers to moderate capital spending which impacted sand revenue for the period. The lower WCSB activity levels also impacted volumes delivered for “last mile” logistics, decreasing revenue by $10.9 million compared to the same period last year. Additionally, second quarter revenue was impacted by a change in product sales mix, which contributed to a $17.87 per MT reduction in the average sand price realized, as Source sold more than 100,000 MT of mine gate sand compared to 2,000 MT in the second quarter of 2025, attributed to growth in the U.S. mine gate market with the recent movement in oil prices. The reduction in average realized sand price also reflects a 107% increase in domestic dry and wet sand sales compared to the second quarter of 2025, a shift that reflects customer demand patterns and is expected to continue. Cost of sales, excluding depreciation, decreased by $46.0 million compared to the second quarter of 2025, primarily due to lower sales volumes realized. The decrease was further driven by a shift in sales mix toward domestic sand sales, which has a lower landed cost. This benefit was partly offset by higher than expected production costs per MT at the Peace River facility due to a slower than expected production ramp -up, resulting in incremental northern white sand volumes required to satisfy domestic commitments. Cost of sales, excluding depreciation, also benefited from lower production costs achieved at the Wisconsin mining facilities, and lower third-party sand purchases compared to the same period last year. For the three months ended June 30, 2026 , gross margin decreased by $19.4 million compared to the prior year period, primarily due to lower sales volumes, as noted above. Excluding margin from mine gate sand volumes, Adjusted Gross Margin was $38.81 per MT for the quarter compared to $44.49 per MT for the second quarter of 2025. Adjusted Gross Margin per MT was impacted by lower than anticipated production volumes at the Peace River mining facility, resulting in incremental northern white sand volumes required to satisfy domestic commitments. The reduction in Adjusted Gross Margin per MT was also attributed to incremental operating costs associated with the Peace River and Taylor terminal facilities. These impacts were partly offset by incremental margin generated from sand trucking assets compared to the second quarter in 2025. Operating expense decreased by $0.4 million on a quarter -over-quarter basis, primarily due to lower variable incentive compensation expense. General and administrative expense also decreased by $0.9 million compared to the second quarter of 2025, driven by lower personnel costs. Adjusted EBITDA decreased by 47%, or $16.7 million, to $18.5 million for the three months ended June 30, 2026 . The decrease was primarily attributable to lower customer activity levels experienced during the second quarter of 2026 and operational challenges at the Peace River mining facility, as noted above. The second quarter of 2025 benefited from strong Source customer activity levels which drove record sand sales volumes for the period.
Page 3
www.sourceenergyservices.com 3 LIQUIDITY AND CAPITAL RESOURCES Free Cash Flow Three months ended June 30, Six months ended June 30, ($000s) 2026 2025 2026 2025 Adjusted EBITDA(1) 18,523 35,208 44,838 68,969 Financing expense paid (6,766) (6,710) (13,576) (13,516) Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) (13,561) (7,623) (29,528) (14,693) Payment of lease obligations (7,533) (6,321) (14,966) (12,595) Income taxes paid — (2,912) — (4,604) Free Cash Flow(1) (9,337) 11,642 (13,232) 23,561 Notes: (1) Adjusted EBITDA and Free Cash Flow are not defined under IFRS and might not be comparable to similar financial measures discl osed by other issuers, refer to ‘Non-IFRS Measures’ below. The reconciliation to the comparable IFRS measure can be found in the table below. (2) Excludes capital expenditures related to the Taylor facility and customer -funded equipment purchases. For the second quarter of 2026, Free Cash Flow decreased by $21.0 million compared to the second quarter of 2025, primarily due to lower activity levels realized and an increase in capital expenditures, as described below. Lease obligations increased slightly on a quarter -over-quarter basis, attributed to additional heavy equipment at the Peace River facility and the replacement of expiring yellow iron leases at the Wisconsin mining facilities completed last year. Capital expenditures, net of proceeds on disposals and reimbursements and excluding expenditures related to the Taylor facility and customer -funded equipment purchases, were $13.6 million for the three months ended June 30, 2026, an increase of $5.9 million compared to the second quarter last year. Excluding construction for the Taylor facility and customer -funded equipment purchases, growth capital expenditures increased by $3.7 million , largely attributed to the ongoing enhancement of the Peace River facility, including debottlenecking activities and improvements to the wet processing plant and wash facilities. Maintenance and sustaining capital expenditures increased by $2.2 million for the second quarter of 2026, compared to the same period in 2025, primarily due to an increase in overburden removal activities. BUSINESS OUTLOOK Following a softer than expected first half, Source anticipates stronger customer activity levels for the remainder of the year, with full year 2026 customer activity levels slightly below those realized last year. While ongoing geopolitical uncertainty and commodity price volatility could create periodic fluctuations in customer activity and near -term demand levels, Source's long -term outlook remains unchanged. The recent movement in crude oil prices supported strong mine gate deliveries into the Lower 48 states during the second quarter, and Source expects this trend to continue in the near term. Despite recent challenges associated with scaling Source’s domestic sand platform, impacting production costs and efficiencies to date, operational performance at the Peace River facility has continued to improve and will drive increased production volumes for the remainder of 2026. Over the medium to longer term, Western Canadian liquefied natural gas (“LNG”) projects currently being constructed, along with the expedited permitting of additional LNG capacity and the inclusion of LNG Canada (Phase 2) in the Government of Canada’s major projects list, will drive incremental demand for proppant in the WCSB. Source believes it is well positioned to capitalize on the expected demand increase in northeastern British Columbia and to take advantage of growing proppant demand levels in the WCSB through its existing northern white sand franchise, expanded terminal network and growing domestic sand production at Peace River. Source believes the increased demand for natural gas, driven by LNG exports, increased natural gas pipeline export capabilities and power generation facilities 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 Montney, Duvernay and Deep Basin. Source remains focused on expanding its logistics and well site service offerings in response to customer requests by leveraging its existing Western Canadian terminal network and infrastructure to provide customers with integrated service solutions and additional supply chain support. APPOINTMENT TO THE BOARD OF DIRECTORS At its meeting on July 29, the Board of Directors appointed Mr. Jeffrey Bowers to the Board of Directors. Mr. Bowers is a seasoned energy executive with more than 25 years of leadership experience in the energy industry, spanning finance, capital markets and corporate governance. He co-founded Western Energy Services Corp., where he served as Chief Financial Officer for nearly 15 years, helping build the company from a start -up into a successful TSX -listed
Page 4
www.sourceenergyservices.com 4 contract drilling and well servicing company through strategic acquisitions, organic growth and disciplined capital allocation. He also brings over a decade of finance leadership experience in the hydraulic fracturing services sector. Most recently, he served as Chief Financial Officer of Krux Analytics Inc., a SaaS technology company serving the global mining industry, where he helped lead the successful sale of the company. He is a Chartered Professional Accountant (CPA, CA) and holds the ICD.D designation from the Institute of Corporate Directors. SECOND QUARTER CONFERENCE CALL A conference call to discuss Source’s second quarter financial results has been scheduled for 7:30 am MST (9:30 am ET) on Thursday, July 30, 2026. 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 Q2 2026 Results Call The call will be recorded and available for playback approximately two hours after the meeting end time, until August 30, 2026, using the following dial-in: Toll-Free Playback Number: 1-855-669-9658 Playback Passcode: 8756895 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 Wisconsin and Peace River mines and processing facilities, its Western Canadian terminal network and its “last mile” logistics capabilities, including its trucking operations, and Sahara, a proprietary well site mobile sand storage and handling system. 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 well site. IMPORTANT INFORMATION These results should be read in conjunction with Source’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2026 and 2025 and the audited consolidated financial statements for the years ended December 31, 2025 and 2024, together with the accompanying notes (the “Financial Statements”) and its corresponding MD&A for such periods. The Financial Statements and MD&A and other information relating to Source, including the Annual Information Form, are available under the Company’s SEDAR+ profile at www.sedarplus.ca. The Financial Statements and comparative statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Unless otherwise stated, all amounts are expressed in Canadian dollars. 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 and gross margin, respectively, which represent the most directly comparable measures of financial performance as determined in accordance with IFRS.
Page 5
www.sourceenergyservices.com 5 Reconciliation of Adjusted EBITDA and Free Cash Flow to Net (Loss) Income Three months ended June 30, Six months ended June 30, ($000s) 2026 2025 2026 2025 Net (loss) income (5,593) 13,568 (8,891) 37,167 Add: Income taxes (3,108) 3,062 (4,445) 9,588 Interest expense 6,409 6,308 12,208 12,143 Cost of sales – depreciation 12,444 11,873 25,810 21,275 Depreciation 6,091 5,432 12,844 11,132 (Gain) loss on debt modification (173) 428 (15) (490) Finance expense (excluding interest expense) 1,209 869 2,734 1,898 Share-based compensation (recovery) expense (94) 1,081 (53) (3,878) Loss on asset disposal 264 536 348 540 Loss on sublease — — — 13 Unrealized foreign exchange loss (gain) 948 (8,226) 3,684 (8,195) Other expense (recovery)(1) 126 277 614 (12,224) Adjusted EBITDA 18,523 35,208 44,838 68,969 Financing expense paid (6,766) (6,710) (13,576) (13,516) Capital expenditures, net of proceeds on disposal of property, plant and equipment and reimbursement of capital costs(2) (13,561) (7,623) (29,528) (14,693) Payment of lease obligations (7,533) (6,321) (14,966) (12,595) Income taxes paid — (2,912) — (4,604) Free Cash Flow (9,337) 11,642 (13,232) 23,561 Notes: (1) Includes expenses and recoveries related to the incident at the Fox Creek terminal facility and other one -time expenses. (2) Excludes capital expenditures for the Taylor facility and customer -funded equipment purchases. Reconciliation of Gross Margin to Adjusted Gross Margin Three months ended June 30, Six months ended June 30, ($000’s) 2026 2025 2026 2025 Gross margin 17,359 36,736 39,384 73,529 Cost of sales – depreciation 12,444 11,873 25,810 21,275 Adjusted Gross Margin 29,803 48,609 65,194 94,804 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 “approach”, “anticipates”, “expects”, “believes”, “continues”, “focus”, “could”, “grow”, “may”, “should”, “position” or variations of such words and phrases, or statements 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: Source’s continued focus on the integrated production and distribution of frac sand and the distribution of other bulk completion materials not produced by Source; Source’s full -service approach which 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
Page 6
www.sourceenergyservices.com 6 well site; expectation that customers will maintain a flexible approach to their capital budget and balanced activity levels in 2026; the expectation that Western Canadian LNG projects will drive incremental demand for proppant in the WCSB; the belief that Source is well -positioned to capitalize on the increase in demand in northeastern British Columbia and take advantage of growing proppant demand and activity levels in the WCSB; the belief that 2026 customer activity levels will be stronger for the remainder of the year, with full year customer activity levels slightly below those realized last year; expectations with respect to the mine gate deliveries into the Lower 48 states; expectations with respect to sand revenue and mine gate sand sales and associated costs; expectations that increased demand for natural gas, increased natural gas pipeline export capabilities and liquefied natural gas exports will drive incremental demand for Source’s services in the WCSB; expectations regarding the growing domestic sand production at the Peace River facility; continued increase in demand from customers primarily focused on the development of natural gas properties in Montney, Duvernay and Deep Basin; Source’s focus on and expectations regarding increasing its involvement in the provision of logistics services for other well site items; the benefits of Source’s existing Western Canadian terminals to provide additional services to customers; the benefits that Source’s “last mile” services provide to customers; expectations respecting future conditions; and profitability. 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, including the results of ongoing tariff and trade negotiations in North America, as well as globally; predictable inflationary pressures; 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; Source’s ability to maintain their information assets and critical infrastructure and cyber security; impacts of U.S. legislation and regulatory policies; 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; the risk of ongoing geopolitical instability, including the Russia -Ukraine conflict and the U.S. -Iran conflict and consequences resulting from the same; volatility in crude oil; 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, including with respect to tariff and trade policy in North Ame rica, as well as globally; 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 th at 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 qu alified 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
Page 7
www.sourceenergyservices.com 7 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, 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: Scott Melbourn Chief Executive Officer (403) 262-1312 investorrelations@sourceenergyservices.com Derren Newell Chief Financial Officer (403) 262-1312 investorrelations@sourceenergyservices.com