Total Energy Services Inc. (TOT:CA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows strong year-over-year revenue growth in multiple segments and a substantial increase in the fabrication sales backlog. The company's strategic decision to exit the U.S. Well Servicing business aligns with its capital return philosophy, and its financial health is solid with cash exceeding debt. The Q&A section reflects confidence in market demand and potential M&A activity, despite some competitive pricing pressures. Overall, the company's positive outlook, strong backlog, and strategic decisions suggest a positive stock price reaction.
Key Financial Performance
Consolidated Fourth Quarter Revenue Increased by 22% year-over-year. This increase was driven by $45.3 million of increased CPS segment revenue, $4.9 million from Well Servicing, and $4.1 million from CDS segment.
Fourth Quarter EBITDA Increased by $15.7 million compared to 2024. This was driven by increased activity, improved fabrication margins in the CPS segment, and the deployment of upgraded rigs at higher day rates in Australia.
Geographical Revenue Distribution 41% of fourth quarter revenue was generated in Canada, 36% in the United States, and 23% in Australia. Compared to 2024, Canada’s share decreased from 48%, the U.S. increased from 33%, and Australia increased from 19%.
Consolidated Gross Margin 22% in 2025, which was 130 basis points lower than 2024. The decline was due to an 800 basis point increase in revenue contribution from CPS and Well Servicing segments, which historically generate lower margins.
CDS Segment Revenue Increased by 5% year-over-year. A 22% decline in North American operating days was offset by a 24% increase in Australian operating days. Revenue per operating day increased by 15% due to higher pricing on upgraded rigs in Australia.
RTS Segment Revenue Increased by 3% year-over-year. This was due to stable utilization, an increased U.S. rental fleet, and higher per utilized rental fees. However, EBITDA decreased by 27% due to higher costs and competitive market conditions.
CPS Segment Revenue Increased by 39% year-over-year. This was driven by increased fabrication sales, higher parts and service activity, and stable rental fleet utilization. EBITDA increased by $10.6 million or 61% due to the completion of low-margin fabrication projects.
Well Servicing Revenue Increased by 18% year-over-year. This was due to a 2% increase in revenue per service hour and a 15% increase in operating hours. Australian operating income increased by 722%, while North American income declined due to competitive pricing and lower U.S. activity.
Fabrication Sales Backlog $446.7 million at December 31, 2025, which is 136% higher than the $189 million backlog at December 31, 2024.
Working Capital $108 million at December 31, 2025, including $59.6 million of cash. Cash on hand exceeded bank debt by $4.6 million, marking the first time this occurred since 2017.
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Operating Highlights
Upgraded rigs in Australia: Increased pricing and operational days for upgraded rigs in Australia contributed to a 24% increase in operating days and higher revenue per operating day.
Fabrication sales backlog: Record backlog of $446.7 million as of December 31, 2025, reflecting a 136% year-over-year increase.
Geographic revenue distribution: Revenue distribution shifted with 41% from Canada, 36% from the U.S., and 23% from Australia, compared to 48%, 33%, and 19% respectively in 2024.
Australian market expansion: Substantial investment in Australia over the past two years is yielding results, with significant growth in operating income and activity levels.
Financial position: Positive working capital of $108 million, including $59.6 million in cash, with cash exceeding bank debt by $4.6 million.
Segment performance: CPS segment revenue increased by 39%, Well Servicing revenue grew by 18%, and RTS segment revenue rose by 3% year-over-year.
Capital investment: Announced a $31.6 million increase in the 2026 capital budget for upgrading two drilling rigs, one in Australia and one in Canada.
Shareholder returns: Returned $38.8 million to shareholders through dividends and share buybacks in 2025.
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Risk or Challenges
North American drilling and completion activity: Lower North American drilling and completion activity has been noted, which could impact revenue and operational performance in this region.
Gross margin decline: A 130 basis points decline in consolidated gross margin year-over-year was reported, driven by increased revenue contribution from lower-margin segments like CPS and Well Servicing.
Competitive pricing in North America: Competitive pricing in certain North American markets has negatively impacted revenue and margins, particularly in the CDS and Well Servicing segments.
RTS segment EBITDA and margin decline: The RTS segment experienced a 27% year-over-year decrease in EBITDA and a 12 percentage point decrease in EBITDA margin due to higher costs, competitive market conditions, and a high fixed cost structure.
Substantial decline in U.S. Well Servicing activity: A significant decline in U.S. Well Servicing activity has been reported, which has negatively impacted segment revenue and operating income.
Economic and political uncertainty: Persistent global political and economic uncertainty, along with commodity price volatility, poses risks to the company's operations and financial performance.
Industry overcapacity: Overcapacity in several markets where the company operates continues to weigh on performance and limits pricing power.
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Guidance & Outlook
Capital Expenditures: Total announced a $31.6 million increase to its 2026 capital budget. This capital will be directed towards upgrading two drilling rigs, one active in Australia and one idle in Canada.
Fabrication Sales Backlog: The fabrication sales backlog at December 31, 2025, was $446.7 million, representing a 136% increase compared to December 31, 2024, and a 17% increase compared to September 30, 2025. This reflects a growing position in the North American natural gas compression market.
Market Trends and Demand: Total's exposure to the growing global demand for energy is broad, with a focus on the North American natural gas compression market and Australian operations. The company anticipates continued demand driven by global energy needs and customer requirements.
Financial Position and Growth: Total entered 2026 in a strong financial position, effectively debt-free, with substantial free cash flow enabling growth without shareholder dilution. The company plans to continue targeted investments and maintain industry-leading shareholder returns through dividends and share buybacks.
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Shareholder Return Plan
Dividends and Share Buybacks: Total Energy returned $38.8 million to shareholders through dividends and share buybacks during 2025.
Free Cash Flow: The company generated substantial free cash flow, enabling shareholder returns through dividends and share buybacks.
Share Buyback Program: Part of the $38.8 million returned to shareholders in 2025 was through share buybacks.
Financial Position: The company ended 2025 effectively debt-free, with cash on hand exceeding bank debt by $4.6 million, supporting its ability to fund shareholder returns.
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Key Q&A
Q:Are there any changes in order patterns for drilling activity in Northwest Alberta and Northeast BC due to LNG Canada nearing 2 Bcf capacity?
A:The tone has shifted positively in recent weeks, with immediate opportunities seen in Well Servicing due to strong spot prices. LNG Canada reaching capacity is expected to help maintain Canadian drilling activity, though it's tough to gauge drilling rig activity during the breakup period.
Q:Are there pricing improvements for super triples, singles, and high-capacity rigs due to equipment shortages?
A:The Board approved upgrading an idle mechanical double to an AC triple, indicating confidence in the market. A similar project last year exceeded expectations, and the new upgrade is being done on spec, reflecting optimism about market demand.
Q:What is the outlook for M&A activity, and are deals being considered with cash or stock?
A:The M&A pipeline is vibrant, but the company remains disciplined, ensuring acquisitions are accretive to shareholders. With the elimination of bank debt, the company has substantial capacity to fund acquisitions with cash but is also open to using shares if it benefits existing shareholders.
Q:Why did the company decide to exit the U.S. Well Servicing business, and how does this align with their strategy?
A:The decision aligns with the company's philosophy of evaluating returns on capital. The U.S. Well Servicing market was deemed less compelling for time and capital investment compared to other opportunities. The company sold equipment and real estate, recording gains, and will redeploy capital elsewhere.
Q:What was the asset portfolio of the U.S. Well Servicing business?
A:The portfolio included 12 service rigs and real estate. The assets were not material on a $1 billion balance sheet, but gains were recorded on the sale due to low carrying values. The company plans to redeploy the capital.
Q:Are there any other businesses being considered for divestment due to low returns?
A:The company is comfortable with its existing businesses and continues to cull old equipment. It is focused on growing its current business lines and has no immediate plans for further divestments.
Q:How is the first AC triple rig conversion performing in the market, and are there plans for more upgrades?
A:The rig has performed exceptionally well operationally and has strong demand. The Board approved a second upgrade, confirming the design's success. The company sees potential for more upgrades in Canada but is cautious about expanding this to the U.S. market.
Q:What is the company's backlog duration, and how is it managing production capacity?
A:The backlog provides visibility into 2027. The company is managing production capacity carefully, considering input delivery times and maintaining efficiency. Investments have been made to ensure a pipeline of major components, including Caterpillar engines.
Q:Is the company involved in power generation for data centers?
A:The company is active in industrial power generation, particularly for oil and gas locations, but is not focused on large data centers or turbines. It builds reciprocating engine power generators and sees this as part of its backlog.
Q:What is the status of the Australian drilling rig upgrade and its impact on operations?
A:The upgrade involves swapping out the centerpiece of a rig midyear, with minimal operational disruption. The rainy season in Q1 is normal and has not caused abnormal activity or revenue impacts.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on pricing for AC triple rigs, citing competitive reasons. They also did not comment on specific RFPs for data centers, maintaining confidentiality. Additionally, while discussing the Australian rig upgrade, they did not disclose the exact number of rigs that could be upgraded in Canada or the U.S.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CDS Servicing
CDS segment
CPS segment
Canada United
Compression Process
Energy Services
Finance CFO
Process Services
RTS segment
Segment
Services segment
Servicing RTS
Servicing segment
States Australia
United States
VP Finance
Yuliya
activity
basis point
change mix
debt
decline
decrease
fabrication
gas
increase
information
mix equipment
pricing
rig
segment margin
utilization
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Total Energy Services Inc. (TOT:CA) Q4 2025 Earnings Call Transcript
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The earnings call shows strong year-over-year revenue growth in multiple segments and a substantial increase in the fabrication sales backlog. The company's strategic decision to exit the U.S. Well Servicing business aligns with its capital return philosophy, and its financial health is solid with cash exceeding debt. The Q&A section reflects confidence in market demand and potential M&A activity, despite some competitive pricing pressures. Overall, the company's positive outlook, strong backlog, and strategic decisions suggest a positive stock price reaction.
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Frequently Asked Questions
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