Total Energy Services (TOTZF) Q1 2025: Australian Growth Masks U.S. Stumbles in Mixed Performance

Total Energy Services Inc. (TOTZF) delivered a Q1 2025 earnings report that highlighted both strategic wins and lingering challenges. While the company’s Australian operations and its Compression and Process Services (CPS) segment drove robust revenue growth, weak U.S. drilling activity and declining utilization rates in key divisions underscored the uneven landscape of global energy markets. Let’s dissect the numbers to assess whether this performance justifies a long-term investment.

A Divergent Regional Story

The most striking takeaway from TOTZF’s results is the stark contrast between its Australian and North American operations. Revenue surged 23% year-over-year to $251.9 million, fueled by the acquisition of Saxon Energy (completed in March 2024) and strong demand in Australia. The CPS segment, which includes infrastructure fabrication and parts/service work, saw revenue jump 37% to $106.2 million, with EBITDA rising 44% to $15.7 million. Its sales backlog swelled 43% to $265.4 million—a clear sign of pent-up demand for energy infrastructure.

However, the U.S. market remained a drag. Contract Drilling Services (CDS) utilization plummeted to 13% in the U.S. (down from 33% in 2024), with operating days dropping 6% overall. This weakness offset gains in Canada and Australia, where Saxon’s upgraded rig fleet contributed to a 70% spike in Australian drilling activity. The company’s reliance on U.S. shale activity—historically volatile—remains a risk, as political and economic headwinds (e.g., trade tariffs) continue to disrupt regional demand.

Financials: Cash Flow Strength Amid Costs

Despite the uneven regional performance, Total Energy’s financial position remains resilient. Cash flow rose 37% to $44.9 million, and net income hit $18.95 million (+23%), with diluted EPS up 29% to $0.49. The company’s working capital grew to $83.6 million, and long-term debt stayed steady at $78.9 million—a positive sign of manageable leverage.

Yet capital expenditures (CapEx) are rising sharply. TOTZF increased its 2025 budget by $12 million to $73.9 million, with $16.6 million allocated to upgrading Australian rigs. While this investment aligns with long-term contracts, it could strain margins in the near term, especially if U.S. activity doesn’t rebound.

Risks and Opportunities

The earnings call highlighted three key risks:
1. U.S. Market Vulnerability: Weak utilization and political uncertainty in the U.S. could persist if trade policies or oil prices (currently hovering around $70/barrel) remain unstable.
2. Equipment Costs: The RTS segment’s 13% EBITDA decline reflects the burden of deploying new, higher-cost equipment, which may take time to offset with higher utilization.
3. Geographic Diversification: Over-reliance on Australia’s booming energy sector (due to Saxon’s integration) leaves the company exposed to regional regulatory shifts or demand shocks.

On the upside, CPS’s backlog and Well Servicing’s 34% revenue growth in Australia suggest strong momentum in high-margin segments. The reactivation of an idle rig for a Q4 2025 contract also signals strategic patience in capital allocation.

Conclusion: A Buy for the Long Run?

Total Energy’s Q1 results are a mixed bag, but the data leans toward cautious optimism. The company’s Australian expansion and CPS segment strength suggest it’s executing its growth strategy effectively. However, investors must weigh the risks: U.S. underperformance and elevated CapEx could pressure near-term profitability.

Key metrics to watch:
- CPS Backlog: A 43% increase is a bullish indicator, but execution matters—will those contracts translate to revenue in 2025–2026?
- U.S. Utilization: A return to pre-2024 levels (30%+) would significantly boost CDS margins.
- Debt Management: Maintaining low leverage while investing in growth is critical; total debt-to-equity remains manageable at ~0.5x.

For now, TOTZF appears positioned to capitalize on global energy infrastructure demand, especially in Australia. But investors should demand clearer signs of U.S. stabilization before committing to a long-term position. The company’s stock, which has risen 15% YTD, may have room to grow if CPS and Well Servicing trends continue—provided the U.S. doesn’t drag them down further.

In conclusion, TOTZF’s Q1 results are a testament to strategic bets paying off in select markets, but its success hinges on navigating regional volatility. For risk-tolerant investors with a 3–5 year horizon, this could be a compelling story—if the U.S. market recovers or the company diversifies further.