Step Energy Services (STEP) Q2 2024 earnings summary

Executive summary

• Q2 2024 consolidated revenue was CAD 231.4 million, flat year-over-year but down 28% sequentially from Q1 due to seasonal spring breakup and challenging U.S. frac market conditions.

• Adjusted EBITDA was CAD 41.7 million (18% margin), down from CAD 80 million in Q1 and CAD 47.4 million (20%) in Q2 2023.

• Net income for Q2 was CAD 10.5 million or CAD 0.14 per diluted share, compared to CAD 41 million in Q1 and CAD 15.3 million in Q2 2023.

• Free cash flow for Q2 was CAD 20.5 million (CAD 0.28 per diluted share), down from CAD 34.8 million in Q2 2023 and CAD 53.5 million in Q1 2024.

• Continued focus on debt reduction and shareholder returns, including share repurchases under the NCIB.

Financial highlights

• Canadian segment Q2 revenue was CAD 161 million, up from CAD 135.9 million in Q2 2023; adjusted EBITDA was CAD 36.7 million (23% margin), up year-over-year.

• U.S. segment Q2 revenue was CAD 70.4 million, down from CAD 96.2 million in Q2 2023; adjusted EBITDA was CAD 9.4 million (13% margin).

• Six-month revenue rose to CAD 551.5 million from CAD 495.4 million year-over-year.

• Net debt at quarter-end was CAD 75.8 million, down from CAD 108 million at Q1 end and CAD 87.8 million at year-end 2023.

• Working capital at June 30, 2024 was CAD 64.6 million, up from CAD 42.1 million at December 31, 2023.

Outlook and guidance

• Canadian fracturing and coiled tubing divisions expected to see steady work through Q3 and into Q4, with activity surpassing last year's Q3.

• Anticipated slowdown in Q4 as clients exhaust capital budgets; Q1 2025 expected to be strong due to TMX and LNG Canada.

• U.S. fracturing line faces ongoing challenges and is not expected to contribute meaningfully for the rest of 2024; coiled tubing expected to grow.

• Focus remains on free cash flow generation, asset upgrades, and targeting 90% dual fuel fracturing horsepower by end of 2025.

• Commodity price volatility expected to persist through 2024, but a constructive setup is seen for 2025.