Total Energy Services (TSX:TOT) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Total Energy Services reported record quarterly results for Q2 2026, with a 31% increase in revenue year-over-year, driven by strong demand in North America and improvements in Australia and Canada.
The company's EBITDA increased by $15.5 million compared to 2025, supported by increased activity, improved margins in the Compression and Process Services (CPS) segment, and upgraded rigs with higher day rates.
Total Energy maintained a strong financial position with $81.9 million in positive working capital and $50.5 million in cash, exceeding bank debt by $25.5 million.
The company's CPS segment backlog increased significantly by 82% year-over-year, providing visibility into 2028, and expansion of U.S. fabrication capacity is on schedule for completion by Q1 2027.
The company increased its 2026 capital budget by $32.7 million, focusing on the recertification and upgrade of rigs and rental equipment, with plans to fund remaining commitments through cash on hand and operational cash flow.
Full Transcript
OPERATOR
Hello and thank you for standing by. My name is Lacey and I will be your conference operator today. At this time I would like to welcome everyone to the second quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad.
If you would 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. Please go ahead.
Daniel Halleck, President and CEO
Thank you and good morning, and welcome to Total Energy Services' second 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 June 30, 2026, and then provide an outlook for our business and open up the phone lines for any questions. Yulia, please go ahead.
Yulia Gorbach, VP Finance and CFO
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 industry in general.
These risks, uncertainties, and other factors are described under the heading Risk Factors and elsewhere in Total's 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 yesterday. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars.
Total Energy's results for the three months ended June 30, 2026 represent record quarterly results driven by continued strong North American demand for natural gas compression and process equipment and the deployment of upgraded drilling and service rigs in Australia and Canada. On a year-over-year basis, consolidated second quarter revenue increased by 31%. Contributing to this increase was $49.1 million of increased CPS segment revenue, $23.5 million from the CDS segment, and $3.4 million from Well Servicing, as well as $2.5 million from the RTS segment.
Second quarter EBITDA increased $15.5 million compared to 2025 driven by increased activity and improved fabrication margin in the CPS segment and the deployment of upgraded rigs at higher day rates in Australia and Canada. Positively impacting 2026 second quarter financial results was a $3 million year-over-year increase in gains on sale of property, plant, and equipment following completion of the disposition of the assets related to the Company's United States well servicing business that was discontinued in January 2026.
Partially offsetting this gain were equally $3 million of nonrecurring expenses in the U.S. contract drilling business related to rig reactivations and resolution of several legacy legal disputes. Geographically, 43% of second quarter revenue was generated in Canada, 34% in the United States, and 23% in Australia, as compared to the second quarter of 2025 when 38% of consolidated revenue was generated in Canada, 38% in the United States, and 24% in Australia.
By business segment, Compression and Process Services contributed 55% of second quarter consolidated revenue, followed by the CDS segment at 29%, Well Servicing at 10%, and the RTS segment at 6%. In comparison, for the second quarter of 2025, the Compression and Process Services segment generated 53% of second quarter consolidated revenue, followed by CDS at 28%, Well Servicing at 12%, and the RTS segment at 7%. Second quarter consolidated gross margin was 22% in 2026, which was 157 basis points lower than 2025.
Contributing to this decline was a 223 basis point increase in second quarter revenue contribution from the CPS segment, as this business segment historically generates lower margins than other segments. A year-over-year increase in CDS segment and Australian Well Servicing margins partially offset a decline in CDS and RTS segment margins. Second quarter CDS segment revenue increased 33% compared to 2025. A 24% year-over-year increase in operating days was further supported by a 7% increase in segment revenue per operating day.
Second quarter pricing increased compared to 2025 due primarily to increased pricing to upgraded rigs in Australia and Canada and stable pricing in the United States. Second quarter CDS segment EBITDA increased by 39% and segment EBITDA margin increased by 110 basis points compared to 2025 due to increased utilization and pricing. This was partially offset by $2.3 million of nonrecurring expenses in the United States. Excluding these nonrecurring expenses, second quarter segment EBITDA increased 54% and segment EBITDA margin by 353 basis points compared to 2025.
RTS segment revenue for the second quarter increased 16% compared to 2025. This was the result of a U.S. acquisition completed in June of 2025 and increased industry activity in Canada. Higher costs associated with the change in the mix of equipment, operating competitive market conditions, and this segment's relatively high fixed cost structure resulted in a 4% year-over-year decline in second quarter segment EBITDA and a 594 basis point decrease in segment EBITDA margin.
Second quarter CPS segment revenue increased by 37% compared to 2025 driven by increased fabrication sales and higher parts and service activity year over year. Second quarter CPS segment EBITDA increased by $4.7 million, or 21%, and segment margin during the second quarter of 2026 was 193 basis points lower compared to 2025, primarily due to the year-over-year decline in higher-margin rental revenues following the sale of several rental units in 2025.
The fabrication sales backlog at June 30, 2026 was $554.5 million, an 82% increase compared to the $303.9 million backlog at June 30, 2025, and 24% higher than the $446.9 million backlog at March 31, 2026. In Well Servicing, a 7% increase in revenue per service hour combined with a 4% increase in service hours resulted in an 11% year-over-year increase in second quarter segment revenue. Increased Australian and Canadian activity was partially offset by a substantial decline in U.S. activity following the discontinuation of U.S. well servicing operations in January 2026. Higher pricing, increased fleet utilization, and cost optimization following the upgrade of several rigs over the past year resulted in a substantial improvement in second quarter Australian operating income, which together with the cessation of operating losses in the United States drove a 194% year-over-year increase to segment EBITDA. Total Energy's consolidated financial position remains very strong.
At June 30, 2026, Total Energy had $81.9 million of positive working capital, including $50.5 million of cash on hand, and exceeded bank debt by $25.5 million. At June 30, 2026, Total Energy bank covenants consist of maximum senior debt to trailing twelve-month bank-defined EBITDA of three times and a minimum bank-defined EBITDA to interest expense of three times. At June 30, the company's senior bank debt to bank EBITDA ratio was negative 0.07, as Total was in a cash position, and the bank interest coverage ratio was 100.02 times.
Daniel Halleck, President and CEO
Thank you, Yulia. We are pleased with our second quarter results. Despite the usual slowdown in Canadian field activity during spring breakup, our substantial investment over the past two years to upgrade our drilling and service rig fleets in Australia and Canada, combined with strong North American demand for compression and process equipment, resulted in Total achieving record quarterly revenue, EBITDA, and net income. Our share repurchases over the past year amplified these results on a fully diluted per share basis.
Our Compression and Process Services segment continues to see strong demand for its products and services. The fabrication sales backlog, which grew by 24% during the second quarter to a record $554.5 million at June 30, provides visibility into 2028, and current 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.
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 second quarter, highlighted by significant improvement in the financial performance of our Australian well servicing business. Canadian drilling rig market share gains during the first half of 2026. We invested $65.8 million to maintain and grow our business. At the same time, we returned $22.5 million to our shareholders by way of dividends and share buybacks and reduced bank debt by $30 million.
Total exited the second quarter in a very strong financial position with $50.5 million of cash and $150 million of credit available under our revolving bank credit facilities. Our financial strength and flexibility ensures 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. In that regard, our Board of Directors approved a $32.7 million increase to our 2026 budget. $24.9 million of this increase represents growth capital, with $15.5 million budgeted for the recertification and upgrade of three service rigs and one drilling rig in Canada and one drilling rig in Australia. The remaining $9.4 million is directed towards the purchase and refurbishment of 44 pieces of major rental equipment in the RTS segment for deployment throughout North America. 2026 maintenance capital has been increased by $7.8 million and is being directed towards the replacement of five heavy trucks and 32 pieces of major rental equipment in the RTS segment, as well as additional equipment maintenance in Australia due to higher-than-budgeted activity levels. Including $24.5 million of capital commitments carried forward from 2025, projected 2026 capital commitments total $144.6 million, of which $102 million constitutes growth capital and $42.6 million maintenance capital. $65.8 million of capital commitments have been funded to June 30, 2026, and we intend to fund the remaining $78.8 million with cash on hand and cash flow from operations. I would now like to open up the phone lines for any questions.
OPERATOR
At this time, I would like to remind everyone, in order to ask a question, please press STAR one on your telephone keypad. Your first question comes from the line of Joseph Schechner with Total Energy. You may go ahead.
Joseph Schechner
Congratulations.
Daniel Halleck, President and CEO
We can't afford Joseph on our payroll.
Joseph Schechner
Well, first thing, Dan and Yulia, congratulations on a fabulous quarter and much better than your peers. So that's fabulous. Let me start with Australia. Is there new basins that are very prolific, like we have the Clearwater and the Montney that are really helping you grow, or is it just that your equipment is so much more modern and you prove to the clients that you can do a better job and a more efficient job, and that's why your business is picking up in Australia?
Daniel Halleck, President and CEO
So no to the first question, hopefully. Yes to the second question. I would say, you know, we've invested a significant amount of capital in our fleet in Australia, particularly the Saxon fleet that we acquired about two years ago. And so we've been pulling those rigs off the fence steadily. And I would say most of the growth has been gaining market share. There's been some market expansion. As you know, the natural gas prices in Southeast Asia are pretty strong.
Domestic prices are strong. There's some political activity going on in Australia where you have kind of the royal my fair share thing, similar to what happened in Alberta a few years ago. So that tempers things a bit. But overall, I would say, Joseph, it's just a stable, steady market. And, you know, we've worked hard to try and do a good job and deliver value to our customers. So nothing too magical there.
Joseph Schechner
Okay, next question. On compression, with the 554 million of backlog, how long of backlog do you really feel comfortable with? And if you start getting to the point where, you know, it gets too late, are you going to move to more higher margin products and remove some of the lower margin products from the lineup?
Daniel Halleck, President and CEO
You know, so first of all, we're seeing, you know, we commented the current backlog takes us into 2028. The lead times on major components, notably engines, is naturally going to push and stretch this further. But our reported backlog is signed contracts, which those are firm and so, you know, that is a firm outlook. Obviously in a stronger market you tend to gravitate towards, you know, how do you allocate scarce resources, you focus on the best margin work.
You know, the flip side is what we can do in the medium term is somewhat dictated by the availability of inputs, notably engines. And so, you know, we're managing that very tightly and trying to anticipate where the market's going to be over the next four years literally. So, you know, we're not perfect, but I think our group has done a pretty good job there. And, you know, with Weirton coming on stream in Q1, we'll be ramping up post that which honestly ties in reasonably well with kind of the lead times on engines.
And that's obviously a constraint on near-term activity. But, you know, we're managing it like the whole industry is.
Joseph Schechner
Can you talk about your thoughts of the outlook in both the US and Canada? You know, we've got these robust commodity prices. Most people's budgets were E&P budgets were much lower. Are you getting people wanting to extend their term of rigs? Are they looking to get you to upgrade? And they pay, you know, how do you see the comparison between Canada and the States and, you know, allocation of capital?
Daniel Halleck, President and CEO
I would say Canada was ahead of the States in terms of the ramp up. You saw that in Q2, driven largely by oil and liquids plays. I would say right now Canada is a pretty strong market. You know, we have the second double to triple upgrade underway and there is very, very strong demand for that rig. I expect we'll have that contracted perhaps sooner than we would have liked based on customer demand, but that's a good thing. The US is catching up. You're seeing that in the US rig count, particularly in Texas, New Mexico, it's definitely starting to pick up, but I would say it was behind Canada.
So overall, obviously if you have a crash in oil prices, all bets are off. But right now it looks like should have a pretty good back half, with the North American rig count steadily creeping up. Not going stupid, but good, steady improvement and our rig upgrades in Canada really played well into that market.
Joseph Schechner
Last one for me, M&A. We've seen, you know, Anton do a deal in Texas. We saw, you know, Akita do the Fox deal. Do you see much activity and are there other things that you're looking at that are possible in terms of M&A activity for you guys into, you know, late this year or next year?
Daniel Halleck, President and CEO
Yes. So we're looking at a lot of things. Honestly, we were disappointed that we weren't involved as much as we would like to have been on the Citadel deal. Little surprised by that given we had some previous involvement. But we're definitely active looking and, you know, it comes down to do these work relative to other options such as share buybacks and organic. You know, if our cost of equity gets more competitive, that certainly makes it easier for us to engage in M&A, which, you know, we've done in the past and certainly happy to do in the future.
But we're going to stay disciplined. But I would say there's still much more consolidation in North America to be had.
Joseph Schechner
Okay, well Dan and Julia, thanks very much answering my questions and congratulations on a new record high on the stock. It was quite impressive to see how quickly the quote changed.
Daniel Halleck, President and CEO
Thank you. Thanks, Joseph.
OPERATOR
Your next question comes from the line of Tim Monticello with ATB Cormark Capital Markets. You may go ahead.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Congrats everyone on a strong quarter and congrats Joseph on your new job. First question just on the CPS segment, great bookings in the quarter and backlogs at record levels. Here we saw that revenue level tick meaningfully higher quarter over quarter and record revenue for the company in the quarter as well. Do you think that that revenue level will continue to move higher through the back half of the year alongside higher backlog? Or is there anything sort of one-time in nature that allowed you to push more through your current capacity in Q2?
And then second part of that question would just be how much do you think that the Weirton expansion increases your revenue capacity in the CPS segment for '27.
Daniel Halleck, President and CEO
So I would say first of all in the US we've achieved some of the efficiencies of the expansion beginning in Q3. Obviously the full impact of that will be felt once we have the facility done and fully staffed and that'll play out over the course of 2027. You know, we've done some internal restructuring of our manufacturing processes in the US to mirror kind of what we do in Canada and some of the efficiencies. We're getting that now. Really for a material step up in throughput, we need the new facility and we need it fully staffed.
So you'll see that occur in 2027 over the course of, you know, several quarters. You know, the other thing that's going to limit us is major inventory, you know, arrivals. So when we planned the expansion, you know, two years ago, you know, lead times are probably a third of what they are today, so we're working around that. But like I said, our group there has done a pretty good job managing major component ordering. But that's certainly, combined with capacity limitations in the plant, going to limit things until we get that fully up and running late next year.
I wouldn't expect you're going to see major increases until we get that plant up and running.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Was the revenue throughput in Q2 anomalous in any way?
Daniel Halleck, President and CEO
No, I wouldn't say so. I think it was just natural working through our backlog and, like I said, a few efficiencies which you saw in improved margins despite a significant drop in the active rental fleet. Because we sold a bunch of units last year, you know, we also had a pretty sizable return. Again, we don't get to the rental fleet. Utilization at quarter end is one point in time. There's a lot of movement that occurs. And, you know, subsequent to quarter end, for example, we signed a new rental arrangement for a number of Eidl packages.
So, you know, that'll go up and down. But really we achieved some efficiencies which we're seeing in margins with our US operations. So we're continuing to manage this. You know, it's definitely challenging with the lead times on engines, but like I said, we're doing the best we can.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Got it. In terms of the marginal order flow, how does the margin profile within, I guess, the new bookings compare to the average within the backlog?
Daniel Halleck, President and CEO
Yeah, we're not going to comment specifically, but I would hope in a strong market that, you know, our margins aren't going down. Yeah, I don't think our sales team is that incompetent there. We've got a good, good team there. So, yeah, I think like anything, you have a scarce resource. The market, you know, will push margins. You know, that said, it's still a very competitive market and we compete in that. But again, I think as we build that business and grow our fabrication capacity, you naturally have, apart from, you know, market tailwinds, you also have efficiencies of scale and your overhead absorptions are better and all of that.
And we're also, you know, all the costs of ramping up. We're expensing, you know, and we're not breaking that out. That's just, to me, part of growing the business as opposed to the capital cost for the plant, you know, so we're absorbing that as we speak as well. But yeah, no, I would say in the current market, it's definitely a favorable environment to try and continue to grow your margins there.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Are you seeing any incremental demand in, I guess, smaller product lines like power gen?
Daniel Halleck, President and CEO
Yes. Again, this comes down to Joseph's question about where do you put your floor space. Now some of it's limited by inputs, but a lot of it is dictated by who's willing to pay the best price for the floor space. So, you know, it's full power gen, compression process equipment, you know, so it's a mixed bag. We don't break that down for many reasons, not the least of which is competitive reasons. But again, we trust our management in that segment to make the right decisions in terms of allocating resources.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay, I just want to dig into the Australia drilling segment. Q2 activity, like days, were down modestly quarter over quarter and typically Q1 would be the wet season of the year. So is there anything to think about in that segment? I know you had one, excuse me, one rig that was coming down for an upgrade and I'm not sure if that impacted the quarter or not, but anything you can offer there would be great.
Daniel Halleck, President and CEO
Yeah, I think the, you know, we had a rig come out, but it's kind of the day to day. Like, you have shifts in, you know, rigs moving from campaign to campaign, customer changes in programs, rigs moving from one customer to another, all the normal stuff. You know, nothing there that I would say. It was probably a bit wetter than normal at the front half of the quarter, but honestly, nothing noteworthy. It's just the ups and downs, ups and downs of your drilling business.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay, and then in Q3 or currently, how many rigs are you running in Australia?
Daniel Halleck, President and CEO
I think we've got 11, soon to be 12.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay. And you still have one rig that's being upgraded currently and is out of service. And then the capital program includes an additional rig in Australia being upgraded. When does that enter service? And is that an idle rig or is that something that's currently working?
Daniel Halleck, President and CEO
That's an idle one. The one that's going back to work now was an active one that was taken out of service for the upgrades. So we'll bounce in this kind of 12 range.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay. And the rig that's added to the capital program, when do you expect that to be activated?
Daniel Halleck, President and CEO
By the end of the year.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay. And in Canada, can you talk a little about the growth capital investments that you've added for the year?
Daniel Halleck, President and CEO
Sure. So three service rigs, three idle service rigs we're upgrading, these will be high spec, already spoken for, those will be done by end of the year. And also a drilling rig, it was idle. We pulled it off the fence, upgraded it. We had actually done a bit of the work previously, kind of finished it and it went straight to work. That's obviously why we pulled it off the fence. So it's working today. One of our super singles.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay. And you saw.
Daniel Halleck, President and CEO
And then RTS. Yeah, RTS. You know, a couple comments there. Starting to see a good pickup. You know, that's been a tough business for 10, 11, 12 years now. Been a lot of consolidation, the market bankruptcies, people just shutting down. You know, doing our first major heavy truck refurbishment replacement cycle in a long time. That should positively help operating margins. You know, we were running some older trucks and activity and pricing and margins didn't warrant replacement.
They're finally starting to do that. So we should see some margin improvement when those new trucks come in by end of year as well. Some very, I'd call it rifle-shot new equipment adds. These are equipment lines that were sold out and as you can see, they're fairly big-ticket items and they'll be deployed throughout North America. Again, we're very tight hold on what that is for competitive reasons, but that stuff will go straight to work when it is secured by year end.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay, that's helpful. The market share in Canada drilling was up meaningfully and strongest that I can see since like Q1 of last year. How are you winning in Canada or is it largely just where activity is growing relative to the basin?
Daniel Halleck, President and CEO
Well, I think two things. Number one, a couple quarters ago I let you know we weren't happy about our market share. So we had some pleasant conversations and brought Joseph Schechner on to crack the whip. No, but in all seriousness, I think we were probably focused on selling some of the new iron that was coming out, the triple, and we lost. Took our eye off the ball in our traditional markets. Combined with the upgrade capital we put in place and just renewed focus combined with, you know, addressing where the market's going.
You're seeing that and I hope that's going to continue. But you know, we've always taken a measured approach. We're not going to try and do too much at once. In part, you got to staff the stuff. So we're taking a methodical approach. But I would say our super single side is very good. Our AC double side is very good and this mechanical double-to-triple conversion has worked out very well and we're seeing very strong demand for that class of rig. So the one we're doing now, again we targeted having it done by end of Q4 into Q1.
That's on time, on budget, and wouldn't be surprised if we go back to our board for more of those.
Tim Monticello, Analyst at ATB Cormark Capital Markets
Okay, that's helpful. Sorry, I think that's the end of my question. So I appreciate all the commentary and looking forward to a strong outlook here, especially with Joseph on board. I feel like the sky's the limit.
Daniel Halleck, President and CEO
Thank you, Tim.
Joseph Schechner
Thanks, Tim.
OPERATOR
Again, if you would like to ask a question, please press star 1. There are no further questions at this time. I would like to turn it back over to Daniel Halleck for closing remarks.
Daniel Halleck, President and CEO
Thank you, everyone for joining us today. I understand our website was down, so my apologies to those who are trying to access the call through the website. But there will be a recording and our website will be back up soon, I hope, and you'll be able to access it there. So thanks for participating and look forward to speaking with you after our third quarter. Have a good day.
OPERATOR
Ladies and gentlemen, this concludes today's call. You may disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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