Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- STEP Energy Services Ltd (SNVVF, Financial) reported consolidated revenues of $231 million for Q2 2024, which is consistent with the prior year's Q2 revenue.
- The Canadian segment showed a year-over-year increase in adjusted EBITDA, reaching $37 million compared to $33 million in Q2 2023.
- The company successfully reduced its net debt from $108 million at the end of Q1 to $76 million by the end of Q2.
- STEP Energy Services Ltd (SNVVF) has a strong market position in the US coiled tubing service line, with increasing activity levels both sequentially and year over year.
- The company has invested in upgrading its asset base to Tier 4 dual fuel capable systems, demonstrating a commitment to leading-edge technology.
Negative Points
- Q2 2024 revenues were down from the previous quarter's $320 million, reflecting challenging market conditions.
- Adjusted EBITDA margin decreased to 18% in Q2 2024 from 25% in Q1 2024 and 20% in Q2 2023.
- The US fracturing service line faced significant challenges due to competitive market dynamics, contributing less to revenue compared to previous years.
- Free cash flow for Q2 2024 was $20 million, down from $35 million in Q2 2023 and $54 million in Q1 2024.
- The company anticipates a slowdown in activity in both Canada and the US as clients reach the end of their capital budgets by the fourth quarter.
Q & A Highlights
Q: Can you provide an update on your logistics business and how you are managing the large volumes of sand being pumped in Canada?
A: Steve Glanville, President and CEO, explained that STEP Energy Services has been focused on strengthening its last-mile logistics business. The company has surpassed last year's total sand volumes in the first seven months of this year. They have a robust supply chain and logistics division in Canada, which is crucial for handling large sand volumes efficiently. Klaas Deemter, CFO, added that they invested in additional sand handling capacity as part of their 2024 capital program.
Q: What are your plans for the two frac crews in the US, given the challenging market conditions?
A: Steve Glanville stated that they are being selective about where their asset base goes to work and are not operating at a loss. They are participating in RFPs and considering moving assets to different regions if necessary. Klaas Deemter added that they have options to support their coiled tubing operations with some of the assets.
Q: Does current Canadian completion activity reflect the amount of crews needed for phase one of LNG Canada, or is more equipment demand expected?
A: Steve Glanville believes the supply dynamics in Canada are balanced, considering phase one of LNG Canada. However, additional horsepower may be required if full-scale production in regions like the Duvernay increases.
Q: Can you discuss the impact of the new transload facility for sand in Northeast BC on your business?
A: Steve Glanville noted that while the facility won't directly affect their business, it's an important infrastructure development for the Montney region. It provides necessary storage and transload capabilities, especially as regional mines are uneconomical for long-distance trucking.
Q: What are your free cash flow priorities for this year, considering the constraints on buybacks?
A: Klaas Deemter mentioned that their focus is on reducing debt to around $60 million. Once this target is achieved, they will have more cash flow to distribute to shareholders, and this is under active consideration for their 2025 strategic planning.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
