STEP Energy Services: Q1 TAKE THREE

In Q1 2025, STEP Energy Services’ (SNVVF) revenues and adjusted EBITDA decreased compared to the year earlier. Cash flow from operations turned negative. Canadian spring break, energy price volatility, and global uncertainty can adversely affect its performance in Q2.

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Uncertain Medium-Term Outlook: STEP Energy expects “a period of uncertainty”, which can adversely affect global economic growth. The company also expects natural gas and natural gas liquids, which primarily determine STEP’s performance, to see their performance weaken due to the commodity price volatility. Read more about STEP in our recent article here .

The company decided to exit the US fracturing market and has suspended all further work. It expects to transfer the recently refurbished Tier 4 dual-fuel equipment from the US to Canada. It will dispose of the remaining equipment over the next several quarters. On the other hand, multi-well pad completion programs utilized by the large clients will sustain STEP’s fracturing operations. A rise in oilfield service capacity and low demand growth can put pressure on margins.

Operating Metrics Weakened In Q1 : Year-over-year, STEP's consolidated revenues decreased by 4% in Q1 2025. Its adjusted EBITDA margin contracted by 300 basis points in the past year. In Q1 2025, the U.S. fracturing CGU was adversely impacted by the expected future economic performance.

In Q1 2025, STEP’s fracturing operating days decelerated compared to a year ago. Its dual-fuel horsepower, however, increased by 11%, although the total HP deployed decreased marginally. Nearly 78% of its total HHP is dual-fuel capable, up from 68% a year ago. The company deactivated one hydraulic fracturing spread in the past year until Q1 2025.

Free Cash Flow Fell : STEP's cash flow from operations turned negative compared to a positive cash flow a year ago, while its free cash flow steeped further into the negative territory during this period. Its debt-to-equity ratio deteriorated to 0.22x as of March 31, 2025, from 0.15x at the beginning of the year. As of March 31, 2025, it repurchased 0.62 million shares at a weighted average price of $4.43 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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