Source Energy Services Ltd. reported higher sand volumes, revenue and Adjusted EBITDA for the three months ended September 30, 2026, as customer activity increased during the quarter. The Calgary-based company also recorded a net loss, incurred additional costs during the ramp-up of its Peace River operation and said full-year activity is expected to remain below 2025 levels.
#Third-quarter financial results
Source recorded sand sales volumes of 1,027,659 metric tonnes during the quarter, an increase of 55% from the third quarter of 2025. Sand revenue reached $143.8 million, while total revenue was $188.0 million. Those figures represented increases of 43% and 50%, respectively, compared with the same period a year earlier.
Gross margin was $22.3 million, up 14%, and Adjusted Gross Margin was $37.5 million, up 24%. Source reported a net loss of $3.8 million, compared with a net loss of $6.2 million in the third quarter of 2025.
Adjusted EBITDA was $26.9 million, an increase of $6.6 million from the same period in 2025. Source said the weakening Canadian dollar contributed $0.6 million to Adjusted EBITDA during the quarter, largely through the settlement of foreign exchange forward contracts and changes in exchange rates on long-term debt repayments.
Adjusted Gross Margin, Adjusted EBITDA and Free Cash Flow are non-IFRS measures. Source said these measures do not have standardized meanings under IFRS and may not be comparable with similar measures reported by other issuers.
#Sales mix and Peace River costs
Source said the average sand price realized fell by $10.80 per MT from the third quarter of 2025 because of a change in product mix. Domestic dry and wet sand sales increased by 90% from the same quarter last year, while lower-priced mine gate sales represented a larger share of the quarter's sales.
Cost of sales, excluding depreciation, increased by $55.5 million, primarily because of the higher sales volumes. Source also incurred additional one-time costs as it rapidly increased production at Peace River. The company said work is planned to remove production constraints and improve the facilities before next year's wash season.
Operational issues at Peace River required Source to use additional northern white sand volumes to meet commitments. Lower Adjusted Gross Margin per MT also reflected higher fuel costs affecting logistics and operations at certain mining and terminal facilities. These pressures were partly offset by higher margins from sand trucking assets and stronger last-mile logistics performance.
Operating expense increased by $0.2 million, mainly because of higher selling and administrative costs, including increased royalty expenses. General and administrative expense rose by $0.7 million because of higher people costs, IT equipment purchases, and additional IT storage and licensing costs.
#Sahara fleet and capital spending
The eleven-unit Sahara fleet operated at 67% utilization during the quarter. Source said its operating units in the United States reached 100% utilization.
The company executed a contract to build and operate a twelfth Sahara unit in Alaska. Construction costs for the unit are fully reimbursed by the customer.
Free Cash Flow increased by $22.3 million compared with the third quarter of 2025, which Source attributed primarily to higher activity and lower capital expenditures. Capital expenditures, net of proceeds on disposals and reimbursements and excluding spending related to the Taylor facility and customer-funded equipment purchases, were $5.0 million. That was a decrease of $13.5 million from the third quarter of 2025.
Growth capital expenditures, excluding Taylor facility construction and customer-funded equipment purchases, declined by $15.2 million. Source attributed the change to lower spending on Peace River enhancements and a customer reimbursement linked to construction of the new Sahara unit. Maintenance and sustaining capital expenditures increased by $1.7 million, mainly because of Peace River improvements and increased overburden removal.
Higher payments for lease obligations partly reduced the increase in Free Cash Flow. The payments reflected additional heavy equipment for the Peace River expansion and the replacement of expiring yellow iron leases at the Wisconsin mining facilities. Financing expense paid decreased because the timing of interest payments on the five-year term loan shifted from monthly installments in the third quarter of 2025 to a quarterly installment in the third quarter of 2026. Higher interest expense on the asset-backed credit facility partly offset that reduction.
#2026 activity outlook
Source expects customer activity to stabilize through the balance of 2026, with full-year activity levels below those achieved in 2025. The company said geopolitical uncertainty and weakening Canadian natural gas prices may continue to cause periodic fluctuations in customer activity and near-term demand.
Source said strong crude oil prices supported mine gate deliveries into the Lower 48 states during the third quarter and expects that trend to continue in the near term. The company also said operational performance has continued to improve despite challenges involved in scaling its domestic sand platform.
For the medium to longer term, Source said the outlook for natural gas development in the Western Canadian Sedimentary Basin is strengthening. The company pointed to the final investment decision for LNG Canada Phase 2, which it said is expected to double the project's capacity, as well as additional crude oil pipeline capacity and LNG projects under review or development.
Source believes that LNG exports, increased heavy oil production and pipeline throughput, expanded natural gas pipeline export capacity and demand from power generation facilities will drive additional demand for its services in the WCSB. The company said it continues to see demand from customers focused on natural gas properties in the Montney, Duvernay and Deep Basin.
Source provides frac sand and other bulk completion materials through its Wisconsin and Peace River mines and processing facilities, Western Canadian terminal network, trucking and last-mile logistics operations, and Sahara mobile sand storage and handling systems.
#Results conference call
Source scheduled a conference call to discuss the results for 7:30 am Alberta Time (8:30 am ET) on Friday, November 6, 2026. The recording is expected to be available for playback approximately two hours after the meeting ends until December 6, 2026.
Unless otherwise stated, all amounts are expressed in Canadian dollars.
#Key Takeaways
- Source reported 1,027,659 metric tonnes of sand sales, $143.8 million in sand revenue and $188.0 million in total revenue for the third quarter of 2026.
- Net loss was $3.8 million, while Adjusted EBITDA reached $26.9 million.
- The Sahara fleet recorded 67% utilization across eleven units, and Source executed a contract for a twelfth unit in Alaska with construction costs fully reimbursed by the customer.
- Peace River production ramp-up costs, additional northern white sand requirements and higher fuel costs affected quarterly performance.
- Source expects full-year 2026 activity to remain below 2025 levels and says customer activity may fluctuate because of geopolitical uncertainty and weakening Canadian natural gas prices.
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