STEP Energy Services: Q3 TAKE THREE

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Stable Long-Term Outlook But A Gloomy Q4: STEP Energy's management maintained the long-term outlook for oilfield services as "constructive" driven by LNG export capacity expansion. However, it expects commodity prices to decrease in Q4, leading to a slowdown or wind down of operators' capital programs. This can lead to lower revenues, adjusted EBITDA, and net profit in Q4. In Q1 2025, asset utilization can improve. Read more about STEP in our recent article here .

On November 4, STEP entered into a definitive arrangement agreement with ARC Energy Fund to take the company private in an all-cash transaction. ARC will acquire the share of STEP that it does not currently own for cash consideration of $5.00 per share. The transaction is expected to close in December 2024.

Operating Metrics Were Mixed In Q3 : Year-over-year, STEP's revenues increased by 34% in Canada but took a steep downturn (54% down) in the US in Q3 2024. The fall in the US was for two consecutive quarters and steeper than in Q2. However, its adjusted EBITDA margin contracted in both regions. In the US, the adjusted EBITDA turned to a loss. Increased fracturing operations in Canada due to increased operating days and proppant volumes benefited its results in Q3. At the same time, challenging market conditions, client consolidation, and pricing pressure kept the US market performance under check during the quarter.

In Q2 2024, STEP Energy Services (STEP) fracturing operating days accelerated in Canada, but it nearly crashed in the USA compared to a year ago. Its dual-fuel horsepower increased by 79% in Q3 2024, although the total HP deployed remained unchanged. Nearly 75% of its total HHP is dual-fuel capable, up from 43% a year ago. The company deactivated two hydraulic fracturing spreads in the US in Q3.

Free Cash Flow Fell : STEP's cash flow declined (13% down) in 9M 2024 compared to a year ago, while its free cash flow decreased by 40% during this period. Its debt-to-equity improved to 0.15x as of September 30, 2024, from 0.24x at the beginning of the year. As of September 30, 2024, it repurchased 1.9 million shares at a weighted average price of $4.16 per share.

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.

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