Release Date: March 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- STEP Energy Services Ltd (SNVVF, Financial) achieved a record year for its Canadian geographic region with full-year revenue of $723 million, significantly up from $580 million in 2023.
- The company successfully reduced its net debt to $53 million by the end of 2024, down from $88 million at the end of 2023 and $142 million at the end of 2022.
- STEP's North American pressure pumping business pumped a record 2.3 million tonnes of proppant in 2024, marking an 8% increase from 2023.
- The company has invested $162 million in optimization capital since 2022, resulting in a state-of-the-art fleet with 88% dual fuel capability, reducing costs and emissions.
- STEP Energy Services Ltd (SNVVF) ended the year with a positive free cash flow of $86 million, up from $83 million in 2023.
Negative Points
- STEP Energy Services Ltd (SNVVF) reported a net loss of $45 million in Q4 2024, significantly higher than the $5.5 million loss in the prior quarter.
- The company decided to wind down its US fracturing service line due to repeated loss of contracts to larger competitors, resulting in a noncash impairment of $23.9 million.
- Q4 2024 revenue was $147 million, down from $256 million in Q3, with adjusted EBITDA dropping to $4 million from $44 million in the previous quarter.
- The weakening Canadian dollar against the US dollar led to margin compression, particularly affecting proppant costs purchased from the US.
- STEP Energy Services Ltd (SNVVF) faced challenges in the US market due to significant consolidation in the E&P space, which intensified price competition and led to the suspension of its US-based fracturing operations.
Q & A Highlights
Q: Can you discuss the decision to wind down the US business and the plans for the remaining equipment?
A: The decision to wind down the US fracturing service was difficult but necessary due to repeated losses of contracts to larger competitors. We plan to sell some assets through auction and potentially repatriate others to Canada to replace older equipment. This decision will influence our capital allocation for 2025, focusing on optimizing our Canadian operations. - Steve Glanville, President and CEO
Q: How do you expect the various factors affecting the Canadian market to impact your adjusted EBITDA from 2024 to 2025?
A: We anticipate solid utilization in Q1 2025, similar to Q1 2024, with some margin degradation due to increased proppant supply. Q2 looks promising with increased Duvernay activity. The back half of the year depends on gas prices, but we are optimistic if prices stabilize around $3.50 to $4. - Steve Glanville, President and CEO
Q: Is there potential for a price increase to cover the cost of more intensive operations, especially in the Duvernay?
A: Yes, the increased operational demands and equipment wear require price adjustments. The industry has overbuilt, and current pricing does not reflect the cost of replacing assets. Long-term sustainability will necessitate price increases. - Steve Glanville, President and CEO
Q: What is your target debt level, and how does it relate to shareholder returns like NCIB or dividends?
A: We aim to reduce debt to around $40 million. We have an active NCIB and are considering consolidating market-leading positions, particularly in coiled tubing. Once debt is at a comfortable level, we will evaluate further shareholder returns. - Klaas Deemter, CFO
Q: How might tariffs and exchange rates impact your operational costs and capital expenditures?
A: Tariffs on proppant could increase costs, but we are seeking exemptions. The weakening Canadian dollar acts as a tax on imports, affecting margins. We are discussing pricing adjustments with clients to offset these impacts. - Steve Glanville, President and CEO and Klaas Deemter, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
