Total Energy Services Inc. (TOT) reported a notable financial performance in the first quarter of 2025, with revenue climbing 23% year-over-year to $251.9 million, surpassing the forecast of $249.78 million. However, the company’s earnings per share (EPS) fell short of expectations at $0.49, compared to a forecast of $0.5634. Despite the EPS miss, the company’s stock price rose by 3.45% to $9.60 from the previous close of $9.28, reflecting positive investor sentiment. According to InvestingPro analysis, the company currently appears undervalued based on its Fair Value assessment, with a strong financial health score of 1.81 out of 3.
Key Takeaways
- Revenue increased by 23% year-over-year, reaching $251.9 million.
- EPS was below expectations at $0.49, missing the forecast of $0.5634.
- Stock price rose 3.45% in response to strong revenue and positive market conditions.
- The company increased its capital budget by $12 million for growth opportunities.
- Total Energy Services maintains a strong balance sheet with low debt levels.
Company Performance
Total Energy Services demonstrated robust revenue growth in Q1 2025, driven by strong performances across its segments. The company reported a 17% increase in consolidated EBITDA to $7.2 million. However, the gross margin decreased from 28% to 25%, indicating rising costs or competitive pressures. Geographically, Canada contributed 47% of the revenue, followed by the United States at 31% and Australia at 21%.
Financial Highlights
- Revenue: $251.9 million, up 23% year-over-year
- Earnings per share: $0.49, below forecast
- Consolidated EBITDA: $7.2 million, up 17%
- Gross margin: Decreased from 28% to 25%
- Geographic revenue: 47% Canada, 31% United States, 21% Australia
Earnings vs. Forecast
Total Energy Services reported an EPS of $0.49, missing the forecasted $0.5634, representing a negative surprise of approximately 13%. Despite this, revenue surpassed expectations, which may have mitigated some investor concerns regarding earnings.
Market Reaction
Following the earnings release, Total Energy Services’ stock price increased by 3.45%, closing at $9.60. This rise indicates investor confidence in the company’s revenue growth and strategic initiatives, despite the EPS miss. The stock remains within its 52-week range, with a high of $12.44 and a low of $8.40.
Outlook & Guidance
The company has revised its capital expenditure plans, increasing the budget by $12 million to pursue growth opportunities. Key projects include upgrading drilling rigs in Australia and Canada and investing $3.9 million in new rental equipment for the RTS segment. The company remains focused on generating sustainable shareholder value and exploring potential M&A opportunities in the energy services sector.
Executive Commentary
CEO Daniel Halleck emphasized the company’s commitment to shareholder value, stating, "While sensitive to the current macro industry environment, Total Energy remains focused on generating sustainable shareholder value." He also highlighted the company’s strategy during uncertain times: "Historically, some of the best opportunities to deploy capital have arisen during periods of uncertainty and stress."
Risks and Challenges
- Decreased gross margin, indicating potential cost pressures.
- Continued softness in U.S. drilling and completion activity could impact future revenue.
- Market volatility and macroeconomic pressures may affect investment opportunities.
- Potential challenges in executing planned capital projects on time and within budget.
Q&A
During the earnings call, analysts inquired about the CPS backlog, which is primarily driven by North American infrastructure and E&P markets. The company confirmed operations of 12 drilling rigs and 7 service rigs in Australia, with plans for further rig upgrades. Additionally, the company’s strong cash position enabled the payoff of mortgage debt, reflecting its solid financial health.
Full transcript - Total Energy Services Inc. (TOT) Q1 2025:
Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Total Energy’s First Quarter twenty twenty five Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
I would now like to turn the conference over to Daniel Halleck, President and CEO of Total Energy Services Inc. Please go ahead.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Thank you. Good morning, and welcome to Total’s first quarter twenty twenty five conference call. Present with me is Julia Gorbache, Total’s VP Finance and CFO. We will review with you Total’s financial and operating highlights for the three months ended 03/31/2025, and then provide an outlook for our business and open up the phone lines for questions. Yuliya, please go ahead.
Julia Gorbache, VP Finance and CFO, Total Energy Services Inc.: Thank you, Dan. During the course of this conference call, information may be provided containing forward looking information concerning total projected operating results, anticipated capital expenditure trends and projected activity in the oil and gas industry. Actual events or results may differ materially from those reflected in Total’s forward looking statements due to a number of risks, uncertainties and other factors affecting businesses and the oil and gas service industry in general. These risks, uncertainties and other factors described under the heading Risk Factors and elsewhere in Total most recently filed annual information form and other documents filed with Canadian provincial securities authorities that are available to the public at www.ziraplas. Our discussions during this conference call are qualified with reference to the notes to the financial highlights contained in the news release issued yesterday.
Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars. Total Energy’s financial results for three months ended 03/31/2025, reflect relatively stable industry conditions in Canada and Australia and continued softness in U. S. Drilling and completion activity. Consolidated first quarter revenue was 23% higher compared to Q1 of twenty twenty four.
The acquisition of Subson and the upgrade and reactivation of several drilling rigs and service rigs in Australia combined with increased activity in the CPS segment more than offset lower U. S. Drilling and completion activity and weaker North American CDS and Well Servicing operating margin. As a result, first quarter consolidated EBITDA was $7,200,000 or 17% higher than in 2024. Geographically, 47% of the first quarter revenue was generated in Canada, Thirty One Percent in The United States and 21% in Australia as compared to the first quarter of twenty twenty four when 50% of the consolidated revenue was generated in Canada, Thirty Nine Percent in The United States and 11% in Australia.
By business segment, the Compression and Process Services segment contributed 42% over the first quarter consolidated revenue followed by the CDS segment at 36%, well servicing at 13 and RTS segment at 9%. In comparison with the first quarter of twenty twenty four, the Contract Drilling Services segment generated 40% of the first quarter consolidated revenue followed by CPS at 38%, while servicing at 11% and RTS contributing 11%. First quarter of twenty twenty five consolidated gross margin was 25% as compared to 28% for the prior year quarter. The primary reasons for this decrease were the year over year increase in CPS segment revenue contribution to consolidated revenue, a change in revenue mix in the RTS segment and lower North American contract drilling and well servicing operating margins. As compared to 2024, CDS segment saw first quarter revenue increase by 12%, A 14% increase in revenue per operating day more than offset 2% decrease in operating days.
Canadian CDS revenue was 6% lower in Q1 twenty twenty five as compared to Q1 twenty twenty four due primarily to a 3% year over year decrease in utilization resulting from lower utilization of the mechanical double rig fleet due to competitive market conditions for that class of the rig. Lower rig utilization and inability to increase rates to offset the premium cost inflation resulted in a 32% year over year decrease in the first quarter Canadian TDS segment operating income. In The United States, Six Percent increase in revenue per operating day was offset by 60% decrease in operating days resulting in a 58% decrease in revenue and realization of an operating loss. Australian first quarter operating days increased by 70% following the acquisition of Saxon in March of twenty twenty four. Higher day rates on Saxon deeper drilling rig, a few a new drilling rig and several upgraded rigs that were deployed in the second half of twenty twenty four contributed to a 124% year over year increase in first quarter Australian revenue and a 15 fold increase in operating income.
RTS segment revenue for the first quarter increased modestly compared to 2024. A change in the mix of equipment, operating and expenses incurred by deploying new and upgraded equipment contributed to our year over year decrease in the first quarter segment operating income and operating income margin. First quarter revenue in total CPS segment was 37 percent higher compared to 2024. Increased fabrication sales and efficiencies arising from higher production levels resulted in a 51% year over year increase in first quarter CPS segment operating income and a 9% increase in segment operating income margin. The fabrication sales backlog at 03/31/2025 increased by $76,400,000 or 40% to $265,000,000 compared to $189,000,000 backlog at 12/31/2024.
In Well Servicing, a 13% increase in revenue per operating hours combined with an 18% increase in operating hours resulted in 34% year over year increase in the first quarter Well Servicing segment revenue. Stable industry activity in Canada and increased Australian service rig utilization following the deployment of several upgraded rigs was partially offset by substantial decline in unit activity. Higher pricing received for upgraded rigs and increased utilization in Australia more than offset weaker North American margins and drove a 34% year over year increase in segment’s first quarter operating income. Competitive industry conditions in Canada contributed to a modest decrease in both hours and revenue per service hour. These decreases combined with general cost inflation and labor retention costs contributed to a 32% year over year decrease in the first quarter Canadian well servicing operating income.
Increased revenue per service hour in The U. S. Was more than offset by a substantial decrease in fleet utilization resulting in the first quarter operating loss. The upgrade in reactivation of several rigs in Australia resulted in 109% year over year increase in first quarter service hours. The increase in service hours combined with increased pricing for upgraded equipment resulted in a realization of the first quarter Australian operating income as compared to operating loss in 2024.
From a consolidated perspective, Total Energy’s financial position remains very strong. At 03/31/2025, Energy had $78,900,000 of positive working capital, including $65,100,000 of cash. On 04/29/2025, Total Energy repaid $41,400,000 of maturing mortgage debt using cash on hand in its existing credit facility. Total Energy Bank covenants consist of a maximum senior debt to trailing twelve month bank defined EBITDA of three times and the minimum bank defined EBITDA to interest expense of three times. At 03/31/2025, the company’s senior debt bank debt to bank defined ratio was 0.09 times and the bank interest coverage ratio was 26.82 times.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Thank you, Yuliya. We are generally pleased with Total’s first quarter results. While certain geographies and business segments faced challenges, strong North American demand for compression and process equipment and improved Australian results drove a significant year over year improvement in our first quarter financial results. Amplifying this improvement was the continued repurchase and cancellation of shares under the company’s normal course issuer bid. Despite such improved results, we are cognizant of increasing global economic uncertainty and commodity price volatility.
Trade and tariff disputes and recently announced oil production increases by OPEC have put pressure on oil prices. Notwithstanding these headwinds, industry conditions in all geographies in which total operates have remained relatively stable at least thus far. In North America, capital discipline by oil and gas oil and natural gas producers over the past several years has mitigated the volatility of the industry cycle. Producers have moved towards more stable capital programs that focus on maintaining production and generating free cash flow that has been returned to shareholders through dividends and share buybacks. While this discipline has limited activity during periods of high commodity prices, it has also mitigated activity declines during periods of price weakness.
An area of strength in North America has investment in energy infrastructure, including the expansion of LNG export capacity. Total’s exposure to this investment is evidenced by the substantial growth in the CPS segment sales backlog during the first quarter. The CPS sales backlog at March 31 was the highest in Total’s history and provides good visibility as to fabrication activity for the remainder of the year. In Australia, a relatively strong natural gas market underpinned by domestic demand and LNG export commitments continues to drive stable industry conditions and steady demand for quality equipment and service providers. Significant consolidation and rationalization in the energy services industry over the past several years has rebalanced the supply demand equation in a positive way for many areas of the energy services market.
While oversupply continues to exist in certain geographies and business lines, uncertain industry conditions will ensure the rebalancing process continues. While sensitive to the current macro industry environment, Total Energy remains focused on generating sustainable shareholder value as measured on a fully diluted per share basis. This includes using our balance sheet to pursue investment opportunities that will generate acceptable full cycle returns. Historically, some of the best opportunities to deploy capital have arisen during periods of uncertainty and stress. As disclosed in our Q1 news release, we have increased our 2025 capital budget by $12,000,000 to pursue several growth opportunities.
These include the upgrade and reactivation of an idle Australian drilling rig, which will commence operations in the fourth quarter under a long term contract. The upgrade of a Canadian drilling rig that recently commenced operations and the purchase of $3,900,000 of new rental equipment for the RTS segment for deployment by the fourth quarter. Total intends to fund its remaining CAD56 million of capital commitments with cash on hand and cash flow. Finally, I would like to thank Greg Melchin for his service as a Director of Total since 02/2009. Greg will be following retiring following our AGM next week and has been a steady hand in the boardroom table over the past sixteen years.
And his guidance and sage advice has helped navigate total through some exciting and challenging times. I would invite our shareholders and other interested persons to attend our AGM next Tuesday, May 13 at the Calgary Petroleum Club to meet with Greg as well as Tim MacBillan, who has been nominated to replace Greg. Following the formal business of the meeting, management will be providing a corporate update. I would now like to open up the phone lines for any questions.
Conference Operator: We will now begin the question and answer session. Our first question will come from Tim Monachello with ATB Capital Markets. You may now go ahead.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Hey, good morning. Good morning, Tim.
Tim Monachello, Analyst, ATB Capital Markets: First question, pretty impressive build in the CPS backlog. Can you provide any details around sort of what geographies those opportunities are in? Are you seeing is that midstream or E and Ps compression processing? How should we thinking about that?
Daniel Halleck, President and CEO, Total Energy Services Inc.: So North America, both Canada, The U. S, a good mix of E and P and infrastructure. I would say primarily infrastructure, but some good E and P in there as well.
Tim Monachello, Analyst, ATB Capital Markets: Is it the infrastructure build, is that related to sort of LNG end markets?
Daniel Halleck, President and CEO, Total Energy Services Inc.: Yes, I would say a lot of it is the gathering systems, bringing gas from the wellhead to ultimately the final destination. So certainly in The U. S. A lot of it is LNG export related. Canada tends to be more producer focused, tying into gathering systems from wellhead.
Tim Monachello, Analyst, ATB Capital Markets: Are you seeing opportunities improve in U. S. Dry gas basins at all?
Daniel Halleck, President and CEO, Total Energy Services Inc.: What I would say is coating activity remains very strong. I think what we saw in Q1 with the liberation day was definitely a pause in pulling the trigger that seems to have subsided. And certainly, as the market becomes more comfortable with how the whole tariff things playing out, it seems to as that concern abates, you definitely see a resumption of order execution. So I would say bidding activity and demand remains relatively strong.
Tim Monachello, Analyst, ATB Capital Markets: Okay. That’s helpful. And then in Australia, it was encouraging to see, well, the results, first of all, rates were very strong, especially in the drilling segment. I don’t know if you can speak at all to the stability of those rates going forward or if that was a mix thing just given the seasonality. Maybe we’ll start there.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Well, I think we expressed in our Q4 call that we had some startup costs and issues, but we expected that to begin normalizing in Q1, which it did. Australia is a very high cost basin. And so your nominal rates there reflect a higher cost place to operate. And so those rates are required to generate margins that you need to generate to run a sustainable operation. Those are all long term contracted rates.
And so we expect those to hold, unlike North America, particularly Canada, where you tend to have shorter term contracts and more of a volatile pricing environment.
Tim Monachello, Analyst, ATB Capital Markets: Do you see any like in Canada during Q2, for instance, you would see a high grading in the fleet just in terms of mix, like the larger rigs tend to operate through Q2. Do you see any similar dynamics in Q1 in Australia?
Daniel Halleck, President and CEO, Total Energy Services Inc.: Q1 in Australia, there was definitely a lot of wet weather. That’s the rainy season in Australia. I think you can throw in a cyclone or something came through. So definitely you see the operating days hit by that, but you’re also once the rigs have been accepted and commence operations, you receive standby with crew as opposed to nothing. And so what hurt us in Q4 was getting nothing while we’re paying crews waiting to deploy rigs.
In Q1, the rigs had been accepted and deployed. And so you get some revenue coming in, which definitely helped the margin. So as we go get out of the rainy season and you have more steady drilling operations, you’re going to get more full rate days.
Tim Monachello, Analyst, ATB Capital Markets: And how many rigs are running in Australia today?
Daniel Halleck, President and CEO, Total Energy Services Inc.: 12. 12 drilling rigs, yes.
Tim Monachello, Analyst, ATB Capital Markets: 12 drilling rigs and how many wells servicing?
Daniel Halleck, President and CEO, Total Energy Services Inc.: Pardon me, seven, which we expect that to go up to eight here in the next while.
Tim Monachello, Analyst, ATB Capital Markets: Okay. And the rig that is coming and being upgraded for Q4 commencement, is that a similar stack to the heavier side of the fleet or the lighter side of the fleet?
Daniel Halleck, President and CEO, Total Energy Services Inc.: I’d say it’s in the middle of the range. It was idle Saxon rig that we’re investing a fair amount of capital into upgrade, recertify. It’d be kind of middle of the range.
Tim Monachello, Analyst, ATB Capital Markets: Okay. And how many more rigs like that do you think you have opportunities to upgrade?
Daniel Halleck, President and CEO, Total Energy Services Inc.: What do we have in total there? Yes. There would be we have there was how many, 11? Yes. 11 total we acquired.
Yes. So there’d be two probably two more realistically.
Tim Monachello, Analyst, ATB Capital Markets: Okay.
Daniel Halleck, President and CEO, Total Energy Services Inc.: You updating those currently? We update those as we contract them. Well, I’d hope our sales guys are out
Tim Monachello, Analyst, ATB Capital Markets: selling. I hope so too. Okay. That’s really helpful. And then last one, I’m just curious of the rationale for paying back the mortgage.
I would imagine that’s probably the one of the cheapest piece of capital that you have in the STACK.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Yes. So that had a five year term fixed rate of 3.1%. The reality was it was done with HSBC. And so if we were to renew it, we’d have to redo all the paperwork. And at this point, frankly, Tim, we don’t need the money.
So, we paid it off, we’ll discharge the security. And, it’s certainly we’re sitting on a lot of real estate that’s now free and clear. And that’s certainly an asset we can utilize to bring on some permanent debt in the future if and when we need it. But at this point, we’re not going just borrow money to borrow money. We don’t need the capital.
Tim Monachello, Analyst, ATB Capital Markets: Okay. I was just thinking in terms of like offsets to tax, you becoming more tax cashable or cash taxable, I should say, the next couple of years. So you Yes. Again, think
Daniel Halleck, President and CEO, Total Energy Services Inc.: that’s a good problem. I’d rather buy someone that’s struggled and has lots of pools.
Julia Gorbache, VP Finance and CFO, Total Energy Services Inc.: Tim, it has quite a bit of flexibility for our debt management and potential opportunities coming our way that we look at every day. So it was first of all, we had to pay it because it was up. Renewing it, it wouldn’t guarantee us the same rate in our in current conditions. And we have our options quite a bit old and then
Daniel Halleck, President and CEO, Total Energy Services Inc.: It’s cheap debt, but again, we don’t borrow just to borrow. And I hear what you’re saying, but certainly I think the way we think about it, it’s significant asset that’s free and clear and we can utilize it if and when we need capital. And that would be obviously one of our first go tos because on a relative basis, it would be very cheap, both on a pre tax and after tax basis. Here what you’re saying just it’s timing issue and a need issue. We’re generating a lot of free cash flow.
We’re going to continue to shrink our share count and we’re also our preference is to grow. So we’re definitely working hard to identify opportunities to grow the company. If we go into a tougher period, that’s generally when we do our better work. And now we’ve got a nice free and clear real estate asset base that we can utilize to provide some quite inexpensive financing.
Tim Monachello, Analyst, ATB Capital Markets: Fair enough. I was just kind of thinking
Daniel Halleck, President and CEO, Total Energy Services Inc.: I
Tim Monachello, Analyst, ATB Capital Markets: guess maybe go down that path a little bit. What kind of things are most attractive to you in terms of M and A?
Daniel Halleck, President and CEO, Total Energy Services Inc.: I think obviously our cost to equity continues to be extremely high. So we’ve been steady buyers under our normal course. We’ve been blacked out, but we are seeing some deal flow and we’re going to stay focused, disciplined and it’s got to work for us full cycle. Obviously, announced some upgrade new build opportunities. I would describe those as rifle shots, particularly within the rental business.
We’re not going to comment on specifics for competitive reasons, but we’re definitely seeing a severe lack of reinvestment within the North American energy services area. And there are certain lines of equipment that again, we believe that it’s better to buy new than used in large part due to condition of equipment. And there’s been some technical improvements over the years in some of the equipment we’re looking at. But we also continue to evaluate acquisition opportunities and there’s definitely those out there and we start with value and then asset quality. And if the two work for us, we’ll pull the trigger.
Tim Monachello, Analyst, ATB Capital Markets: Okay. That’s great. I appreciate you taking my questions. I’ll turn it back. Thanks,
Conference Operator: It appears there are no further questions. This concludes the question and answer session. I’d like to turn the conference back over to Mr. Halleck for any closing remarks.
Daniel Halleck, President and CEO, Total Energy Services Inc.: Thank you, everyone, for joining us, and hopefully, we’ll see a few of you at our AGM next Tuesday. Have a pleasant weekend.
Conference Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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