Low Utilization Can Spell Trouble In Q2: In Q1 2024, STEP Energy Services (STEP) fracturing operating days improved steeply in Canada but fell in the USA compared to a year ago. Its dual-fuel horsepower increased by 21% in Q1 2024, although the total HP deployed remained unchanged. Nearly 68% of its total HHP is dual-fuel capable, up from 62% a quarter ago. The company reactivated one coiled tubing spread and deployed the sixth fracturing fleet in Canada in Q1. It now has one of North America’s largest fracturing and coiled tubing fleets. In Q2, the company expects seasonal softness in utilization in Canada. At the same time, the frac equipment oversupply and pricing pressures in the US can result in a drop in utilization and reduced margins. Read more about STEP in our recent article here.
Operating Metrics Improved In Q1: Year-over-year, STEP’s revenues increased impressively (up by 38%) in Canada but took a downturn (11% down) in the US in Q1 2024. However, its adjusted EBITDA margin in the US expanded by 1,100 basis points. Beneficial change in client mix resulted in consistent fracturing and coiled tubing operations in this region. This, plus strong cost management, caused the EBITDA margin to rise in Q1 2024. In Canada, the company achieved remarkably higher fracturing operating days and proppant pumped due to a rise in fracturing intensity.
STEP’s Cash Flows Fell; Debt Went Up: STEP’s cash flow from operations decreased by 78% in Q1 2024 compared to a year ago. As a result, its free cash flow turned negative in Q1 2024. It also incurred more long-term debt (up by 33%) in Q1 from a quarter ago. Its debt-to-equity deteriorated to 0.29x as of March 31, 2024, from 0.24x a quarter earlier.
Thanks for reading the STEP Take Three, designed to give you three critical takeaways from STEP’s earnings report. Â 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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