STEP’s Dual Fuel Horsepower Led The Show In 2023: In Q4 2023, STEP Energy Services (STEP) fracture operating days declined marginally in Canada but fell steeply in the USA. Its dual-fuel horsepower increased by 65% in FY2023, although the total HP deployed remained unchanged. Currently, 62% of its total HHP is dual-fuel capable, up from 37% a year ago. After upgrading, 72% of STEP’s total US and Canadian frac spreads will be natural gas capable. In Canada, the company expects its second Tier 4 dual fuel fleet to be complete by Q2. The recent E&P consolidation in the US is expected to benefit the company’s ultra-deep coiled tubing capacity. Read more about STEP in our recent article here.

Fundamental Weakened In Q4: Year-over-year, STEP’s revenues remained resilient (fell by 2%) in Canada but took a steep downturn (39% down) in the US in Q4 2023. Its adjusted EBITDA margin contracted by 1,000 basis points in the past year until Q4. E&P companies’ typical budget slowdown by the end of the year and lower-intensity well completions, which resulted in a reduction in proppant pumped and lower average revenue per day, caused the revenue and EBITDA to fall in Q4 2023. However, the company’s revenues from Coiled tubing services remained steady.

STEP’s Cash Flows Improved; Debt Lowered: STEP’s cash flow from operations increased by 40% in FY2023 compared to a year ago. As a result, its free cash flow increased by 68%. The FCF enabled STEP to reduce long-term debt by 39% in FY2023. Its debt-to-equity was 0.24x as of December 31, 2023.

Thanks for reading the STEP Take Three, designed to give you three critical takeaways from STEP’s earnings report.  Soon, we will present a second update on STEP earnings, highlighting its current strategy, news, and notes we extracted from our deeper dive.