STEP Energy Services: Q2 TAKE THREE

STEP (SNVVF) expects modest Q3 activity gains, but revenue may remain flat or decline due to pricing pressure and customer-supplied inputs. Q4 outlook is cautious, with budget exhaustion and delayed LNG ramp-ups limiting upside. In Q2, frac revenues rose despite lower operating days, but coiled tubing sales and margins weakened. Cash flow fell sharply in 1H 2025, though the balance sheet improved slightly and share repurchases continued.

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STEP’s End-Year Outlook Is Shaky: STEP Energy's management expects the commodity markets to remain directionless amid easing geopolitical tensions and shifting U.S. trade policies. Natural gas demand is supported by seasonal power needs and upcoming LNG offtake, but high storage levels and weak catalysts continue to cap upside.

STEP expects modest activity gains in Q3, but revenue could be flat to lower due primarily to competitive pressures. Margins may benefit from high diesel displacement, but inflation and tariffs on inputs remain a drag. Coiled tubing activity is expected to stay steady. The company’s Q4 outlook is subdued due to year-end budget exhaustion and limited capital spend incentives from LNG ramp delays. STEP can adjust its operations if volatility persists.

Operating Metrics Were Mixed In Q2 : In Q2 2025, STEP’s year-over-year revenues from Fracturing services increased by 4% despite 17% lower operating days. Its frac spreads also decreased by two in Canada (it no longer operates in the US) to six. Its dual-fuel horsepower, however, improved by 6% during this period, although the total HP deployed fell marginally. Nearly 77% of its total HHP is dual-fuel capable, up from 71% a year ago.

The company’s revenues from Coiled Tubing services decreased by 11% in Q2 2025 compared to a year ago, due primarily to lower operating days and coiled tubing units. The company’s adjusted EBITDA margin contracted by nearly 300 basis points over the past year.

Free Cash Flow Fell : STEP's cash flow declined (43% down) in 6M 2025 compared to a year ago, while its free cash flow decreased by 29% during this period. Its debt-to-equity improved to 0.12x as of June 30, 2025, from 0.15x at the beginning of the year. During Q2, it repurchased 0.17 million shares at a weighted average price of $3.90 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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