Total Energy Services Q3 2026 Earnings Call Transcript
Total Energy Services (TSX:TOT) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Total Energy Services reported a 32% year-over-year increase in consolidated third quarter revenue, driven by strong performance in its Compression and Process Services (CPS) and Canadian Drilling Services (CDS) segments.
The company’s EBITDA, excluding share-based compensation, rose by 50% compared to the previous year, highlighting improved activity and margins across various segments.
Total Energy’s financial position remains strong, with $93.4 million in cash and no bank debt following the quarter’s end.
The CPS segment’s backlog increased to $733.8 million, providing visibility well into 2028, and the expansion of U.S. fabrication capacity is on track for completion by Q1 2027.
Management remains optimistic about future growth opportunities and plans to announce a 2027 preliminary capital budget in January, starting at a zero baseline for growth opportunities.
The company celebrated its 30th anniversary, expressing confidence in its strategic positioning and future opportunities.
Full Transcript
OPERATOR
Thank you for standing by. My name is Jordan and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Total Energy Services third quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you’d like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
If you’d like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Daniel Halleck, President and CEO of Total Energy Services. Please go ahead.
Daniel Halleck (President and Chief Executive Officer)
Thank you and good morning, and welcome to Total Energy Services’ third quarter 2026 conference call. Present with me is Yulia Gorbach, Total’s VP Finance and CFO. We will review with you Total’s financial and operating highlights for the three months ended September 30, 2026. We will then provide an outlook for our business and open up the phone lines for any questions. Yulia, please go ahead.
Yulia Gorbach (Vice President, Finance and Chief Financial Officer)
Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning Total’s 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 Total’s businesses and the oil and gas service industry in general.
These risks, uncertainties, and other factors are described under the heading Risk Factors in the most recently filed Annual Information Form and other documents filed with Canadian provincial securities authorities that are available to the public at www.sedarplus.ca. Our discussions during this conference call are qualified with reference to the notes to the financial highlights contained in the news release issued on Tuesday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars.
Total Energy’s results for the three months ended September 30, 2026 reflect continued strength in the Compression and Process Services segment, stable Australian activity, and improving North American drilling and completion industry conditions, while $15.9 million of share-based compensation expense arising from a substantial increase in Total’s share price negatively impacted third quarter financial results. Cash provided by operations during the quarter was a record $112.6 million due in part to a $54.1 million quarterly increase in deferred revenue arising from deposits received on fabrication sales orders in the CPS segment.
On a year-over-year basis, consolidated third quarter revenue increased by 32%. Contributing to this increase was $44.7 million of increased CPS segment revenue, $29.8 million from the CDS segment, $5.9 million from Well Servicing, and $1.9 million from the RTS segment. Third quarter EBITDA, adjusted to exclude share-based compensation expense, increased by $22.4 million or 50% compared to 2025, driven by increased activity and improved fabrication margins in the CPS segment, the deployment of the upgraded drilling rigs and service rigs at higher day rates in Australia and Canada, and increased Canadian market share in the CDS segment. Even without adjusting for share-based compensation expense, third quarter EBITDA increased 20% and cash flow 63% compared to 2025, with share buybacks amplifying these increases on a per-share, fully diluted basis.
Geographically, 49% of third quarter revenue was generated in Canada, 29% in the United States, and 23% in Australia, as compared to the third quarter of 2025 when 48% of consolidated revenue was generated in Canada, 27% in the United States, and 25% in Australia. By business segment, Compression and Process Services contributed 50% of third quarter consolidated revenue, followed by the CDS segment at 33%, Well Servicing at 11%, and the RTS segment at 6%.
In comparison, for the third quarter of 2025, the Compression and Process Services segment generated 48% of third quarter consolidated revenue, followed by CDS at 32%, Well Servicing at 12%, and the RTS segment at 8%. Third quarter consolidated margin was 23% in 2026, which was 106 basis points higher than 2025. Contributing to this increase was a 111 basis point increase in CDS segment revenue contribution, as this business segment has a relatively high gross margin percentage, which was somewhat offset by a 147 basis point increase in third quarter revenue contribution from the CPS segment, which typically generates a lower gross margin percentage than other segments.
Third quarter CDS revenue increased 36% compared to 2025. A 35% year-over-year increase in operating days was further supported by a 1% increase in segment revenue per operating day. Third quarter pricing increased compared to 2025 due primarily to increased pricing for upgraded rigs in Australia and Canada and stable pricing in the United States that was somewhat offset by a change in the mix of equipment operating as lower-spec rigs went back to work in Canada.
Third quarter CDS segment EBITDA increased by 40% and segment EBITDA margin increased by 71 basis points compared to 2025 due to increased utilization and pricing. RTS segment revenue and EBITDA for the third quarter each increased by 9% compared to 2025. This was a result of increased utilization of rental equipment that was somewhat offset by lower revenue per utilized piece of equipment. Usual changes in the mix of equipment operating, higher costs associated with the change in the mix of equipment operating, significant cost inflation that was not fully offset by price increases, and this segment’s relatively high cost structure resulted in the RTS segment’s EBITDA margins remaining consistent with Q2 and Q3 of 2025 at 36%.
Third quarter CPS segment revenue increased 36% compared to 2025, driven by increased fabrication sales and higher parts and services activity year over year. Third quarter CPS segment EBITDA increased by $5.9 million or 39% despite a year-over-year decline in higher-margin compression rental revenue following the sale of several active units in 2025. Third quarter segment EBITDA margin was 33 basis points higher than 2025, primarily due to improved fabrication margins, a relative increase in higher-margin parts and services activity, and improved compression rental fleet utilization.
The quarter-end fabrication sales backlog increased to $733.8 million compared to the $308.8 million backlog at September 30, 2025. Sequentially, quarter-end fabrication sales backlog increased by $179.3 million compared to the $554.5 million backlog at June 30, 2026. In Well Servicing, an 11% increase in revenue per service hour combined with a 7% increase in service hours resulted in a 19% year-over-year increase in third quarter segment revenue. Increased Australian and Canadian activity was partially offset by a substantial decline in U.S. activity following the discontinuance of U.S. Well Servicing operations in January of 2026.
Higher pricing, increased fleet utilization, and the cost optimization following the upgrade of several rigs over the past year resulted in a substantial improvement in third quarter Australian operating income, which together with the cessation of operating losses in the United States drove a substantial year-over-year improvement in both segment EBITDA and EBITDA margin. Total Energy’s consolidated financial position remains very strong. At September 30, 2026, Total Energy had $48.6 million of positive working capital, including $93.4 million of cash. Cash on hand exceeded bank debt by $88.4 million at September 30, 2026. Total Energy’s bank covenants consist of maximum senior debt to trailing twelve months bank-defined EBITDA of 3.0 times and a minimum bank-defined EBITDA to interest expense of 3.0 times. At September 30, 2026, the company’s senior bank debt to bank EBITDA ratio was negative 0.36 times, as Total was in a net cash position, and the bank interest coverage ratio was 171.64 times.
Daniel Halleck (President and Chief Executive Officer)
Thank you, Yulia. We are pleased with our third quarter results. Our CPS segment continued to execute well. Our Canadian drilling business continued to gain market share as upgraded rigs were deployed and market conditions warranted reactivating lower-spec rigs. Our Australian business remained stable and economies of scale were realized with the reactivation of several upgraded rigs over the past year, and U.S. drilling and completion activity continued to modestly recover from multi-year lows.
Our Compression and Process Services segment continues to see strong demand for its products and services. The fabrication sales backlog grew another 32% during the third quarter to a record $733.8 million and provides us with visibility well into 2028. Despite recent market volatility, quoting activity remains vibrant. Expansion of our U.S. fabrication capacity in Weirton, West Virginia is on time and on budget, with facility construction scheduled to be completed by the first quarter of 2027.
Following the completion of construction, we expect U.S. production will ramp up over several quarters as additional personnel are hired and long-lead major components are received. The substantial investment made over the past two years to upgrade our Australian and Canadian drilling and service rig fleets continued to bear fruit during the third quarter, highlighted by significant improvement in the financial performance of our Australian well servicing business and Canadian drilling rig market share gains. The upgrade of a second idle Canadian mechanical double to a state-of-the-art AC triple drilling rig is on time and on budget.
This rig was recently contracted to a major Canadian producer and will begin drilling when completed, which is expected to occur in early January of 2027. The upgrade of three Canadian service rigs and one Australian drilling rig are also expected to be completed and the rigs deployed by January 2027. A new service rig being constructed for Australia is expected to commence operations during the second quarter of 2027. During the first nine months of 2026, we have invested $97.5 million to maintain and grow our business. At the same time, we have returned $41.3 million to shareholders by way of dividends and share buybacks and reduced bank debt by $50 million. Total exited the third quarter in a very strong financial position with $93.4 million of cash on hand and $170 million of credit available under its $175 million of revolving bank credit facilities. Subsequent to quarter-end, the remaining $5 million of bank debt was repaid such that we currently have no bank debt.
Our financial strength and flexibility ensure we are able to continue to fund attractive investments while at the same time providing our owners with industry-leading shareholder returns through dividends and share buybacks. That said, we will remain disciplined in the deployment of our owners’ capital, with current market volatility reminding us of the prudence in doing so. Finally, I’m pleased to advise that this month Total Energy celebrates the 30th anniversary of its incorporation. We are proud of our industry and the benefits it provides to the world and the many communities in which we operate, and our company has never been stronger and better positioned to seize the opportunities we will encounter. On behalf of the Board of Directors, I extend our sincere gratitude and appreciation to all of our past and present customers, directors, employees, shareholders, suppliers, and other stakeholders who have contributed to our growth and success over the past three decades.
We look forward to many more years of collaboration and mutual success. I would now like to open up the phone lines for any questions. Operator.
OPERATOR
As a reminder, if you’d like to ask a question, simply press star followed by the number one on your telephone keypad. We’ll take a brief moment to compile the Q&A roster. Your first question comes from the line of Keith Mackey from RBC Capital Markets. Your line is live.
Keith Mackey (Analyst)
Hey, thanks and good morning.
Daniel Halleck (President and Chief Executive Officer)
Morning, Keith.
Keith Mackey (Analyst)
Morning. I realize it might be a little bit early to start asking this question, but can you maybe just walk us through in general how you see 2027 unfolding from a market demand and therefore capital spend perspective? Are you seeing market acceleration in some of your core segments that would require you to spend more capital? Or are you going to continue to ramp down on spending as you finish some of the objectives that you’ve been working on this year?
Daniel Halleck (President and Chief Executive Officer)
So what I would say is, within our CPS segment, obviously we’ll be completing the capital expenditure portion of our U.S. expansion by Q1, so that part will ramp down. Then it becomes a working capital game. Obviously, future rental compression demand, that’s always a crapshoot, but we’ll see where that goes. I would say within Australia we’re probably pretty stable right now. We’ve spent a lot of money over the last two years upgrading. I think there’s still some, I call them rifle-shot upgrade opportunities, but likely not to the same extent as what we’ve invested over the past couple of years.
Within Canada, our second AC triple will be going straight to work as soon as it’s done. Demand for that style of rig is very strong. Again, I’m not going to usurp the role of the board, but I would expect that will be an area that will continue to see opportunities to deploy capital. You know, so we’ll be announcing our 2027 preliminary capital budget in January. We literally start at zero. We have our maintenance capital every year—this year roughly $40 million, Yulia, in maintenance. I’d have to go back and look, but you can pretty much assume that if things are flat, we’ll be at that level. That’s just to maintain our existing operations, and growth will depend on opportunities. Will it be zero? I doubt it. But we literally, we start at zero and go where circumstances take us.
So first cut will be out in kind of early January and then updates accordingly. But, you know, given current market activity, I’d be surprised if we didn’t have some growth opportunities next year, Keith.
Keith Mackey (Analyst)
Yeah, understood. Can you just take us through the situation in Australia with the potential legislation there? You called that out as an item in your risk disclosures there. Can you just sort of walk us through what’s happening? Have you seen any change in activity in Australia yet, and maybe just what some of the goalposts are for what might happen there as we go forward?
Daniel Halleck (President and Chief Executive Officer)
So, first of all, I’m very poor at politics. I’ve learned that trying to anticipate what politicians do is a mug’s game. But what’s happening there is you’ve got very high domestic and Asian LNG prices, so domestic gas prices are getting pulled up by a tight gas market. The federal government has tried over the past few years to deal with that, first by attempting to put a price cap in place, which was revoked. Now what they’re trying to do is force fixed allocation of production to the domestic market, and there’s a lot of domestic producer pushback on that.
I don’t know where that’s going to go. I don’t vote on it. I’m not really involved. I think if you want updates, Google it. You know, producers have put out some pretty strong statements and so, you know, we raise it as an issue because it could be an issue, and we’ll see where this goes. But certainly it’s being talked about over there. Whether producers react to it in terms of activity levels, we’ll see. I suspect you may see some of that for various reasons, perhaps political. You know, the reality is all of this is happening in a high gas price market, and you don’t fix high gas prices by reducing activity. So I’m hoping that logic and free market principles prevail because that’s ultimately what will fix the problem, not trying to regulate it.
So we’ll see. But again, your guess is as good as mine.
Keith Mackey (Analyst)
Okay, understood. I’ll leave it there. Thanks very much.
Daniel Halleck (President and Chief Executive Officer)
Thanks, Keith.
OPERATOR
Your next question comes from the line of Tim Monticello from ATB Capital Markets. Your line is live.
Tim Monticello (Analyst)
Hey, good morning.
Daniel Halleck (President and Chief Executive Officer)
Morning, Tim.
Tim Monticello (Analyst)
I just wanted to touch on the CPS segment. Really strong backlog again this quarter, and you talk about robust or vibrant outlook there for demand. But margins were a little bit lower quarter over quarter. I’m just curious if you can enlighten us as to what you’re seeing in terms of backlog margins and maybe if you could wager a guess on what the margin lift you might see in the U.S. operations once you get the Weirton facility up and running.
Daniel Halleck (President and Chief Executive Officer)
Sure. So first of all, in terms of our Q3 margins, there was nothing that stood out to me in terms of unusual positive or negative. I think kind of normal scale. You get a bit of seasonality, you know, what’s flowing through the shop. You know, Yulia, there’s probably some FX impacts.
Yulia Gorbach (Vice President, Finance and Chief Financial Officer)
Yeah, there’s FX impact. There is product mix impact, because it all depends on the project on the floor.
Daniel Halleck (President and Chief Executive Officer)
Yeah. So nothing unusual there. Obviously, as you increase production and your fixed costs stay the same, your overhead absorptions get better. So, you know, as we ramp up in the U.S., I would expect margins to improve, subject to—we’ve also been—there’s expenses both now and as we’ll ramp up that will be expensed, not capitalized, as part of the ramp-up of production. So there’ll be some shorter-term impacts there. But again, that’s just part of the business that’ll play out over the course of 2027.
And like I said, I think we’re quite confident that investment in expansion will be a very good one, and we’ll look to run it as efficiently as possible. And there’s nothing we’re seeing that causes us to be uncomfortable about making that expansion decision. So, yeah, nothing. Like I said, every quarter you get currency fluctuations. We protect against that through currency purchases, contractual protections, but it’s not perfect. And so, you know, one quarter you may have a slight positive, the next a slight negative. But we kind of look at it over the course of time, not just quarter to quarter, and it’s trending in the right direction.
Tim Monticello (Analyst)
And the backlog margin, is that expanding given the tightness in the market?
Daniel Halleck (President and Chief Executive Officer)
Yeah, I think, again, there’s a lot of different components to that backlog. Certainly where you have areas of tighter supply, how do you allocate scarce resources, versus areas that are more competitive. For example, electric drive—probably tighter margins on that. So really part of the quarter-to-quarter change can depend on what we’re actually building. But yeah, obviously with these kinds of activity levels, I would expect our sales group there to be, you know, getting the best price they can.
But it remains a very competitive market and, you know, I like to see our people losing some bids, which they do. And we’ve got to compete and give a quality product. If you don’t, your backlog goes down, not up.
Tim Monticello (Analyst)
Absolutely. And then just in terms of demand, have you seen any changes in customer inquiries since the midterms in the U.S., and where does the lead time stand now for somebody who books a compression package today? Is that a 2028 delivery? Is there still some room to deliver in 2027?
Daniel Halleck (President and Chief Executive Officer)
So first of all, we’ve seen no change in demand. I think we saw probably a few days of pause and things have resumed again. You know, I’m not going to speak to specifics, but when I look at our customer base there, it’s blue chip and it’s distribution of gas. It’s tied to the infrastructure build, not to specific end uses of gas. It’s getting gas, whether it’s to LNG plants, power plants, whatever. So we’re agnostic on where the gas is going. And so I look at that and I go, these are very large infrastructure players that are building a multi-year North American infrastructure, and I don’t think one midterm election is going to change that.
It may over time, but certainly there’s a lot going on for the foreseeable future. You know, in terms of lead times, they’re still long depending on the piece of equipment. Again, you know, if you wanted a CAT engine, we always keep a little bit of dry powder, but there’s not a lot there. I think you’re into 2028, but we’ve got a few things in reserve that we keep for special opportunities. But, you know, electric drive—bit shorter. Lots of retrofit activity. You know, so there’s holes to fill; they’ll get filled by different things.
But this is, you know, for the big horsepower reciprocating engine orders, you’re into 2028, and customers are booking for 2028.
Tim Monticello (Analyst)
Okay, got it. And then just in terms of, I guess, North American more traditional service lines, how are pricing dynamics shaping up into, specifically, the Canadian winter drilling season, and are you seeing any pricing lift in the U.S.?
Daniel Halleck (President and Chief Executive Officer)
So Canada, we’re in the middle of kind of firming all that up. A lot of it’s been contracted. I don’t want to jinx it other than to say I think day rates have room to go up. And, you know, some of the rates in particularly the lower-spec equipment are not—they’re starting to come up, which is why we’re starting to put some of that equipment to work. U.S. is lagging but going in probably the right direction. We’re such a small player there that I hate to give too much commentary.
We’re just not as wise to that market. I would say within our RTS segment, again, similar story. There’s been a lot of attrition there over the past while, and so we’re starting to see opportunities to move pricing both sides of the border, particularly with respect to tighter equipment lines. We don’t comment on that for obvious reasons, but we would see some pricing momentum there. But again, I look at the pricing on some of the equipment—it’s less than it was in 2014. I can tell you our costs are not less than 2014, so that stuff has to move.
But I would say generally there’s upward bias for pricing in our drilling, rentals, and well servicing businesses in North America. Australia is static—you know, it’s longer-term contracts.
Tim Monticello (Analyst)
Okay, I appreciate that. I know my line of questioning is going on. Joseph might be asking a question here soon, but I’m going to sneak one more in just in terms of the M&A ambitions. Has anything changed there relative to how you’re looking at potential acquisitions in the past few quarters?
Daniel Halleck (President and Chief Executive Officer)
Not at all. We’re looking at lots and open to doing deals that are mutually beneficial.
Tim Monticello (Analyst)
Okay, great. I’ll turn it back. Thanks.
Daniel Halleck (President and Chief Executive Officer)
Thanks, Tim.
OPERATOR
That concludes our question and answer session. I’ll now turn the call back over to Mr. Daniel Halleck for closing remarks.
Daniel Halleck (President and Chief Executive Officer)
Thank you everyone for joining our Q3 call and look forward to speaking with you with our year-end results. Have a good day.
OPERATOR
This concludes today’s meeting. You may now disconnect.
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