Earnings call transcript: STEP Energy Q2 2025 revenue beats forecast

STEP Energy Services Ltd., with a market capitalization of $6.77 billion, reported its second-quarter 2025 earnings, revealing revenues that exceeded expectations despite a slight miss on earnings per share (EPS). The company posted consolidated revenues of $228 million, surpassing the forecasted $198.18 million, marking a 15.05% revenue surprise. However, the EPS came in at $0.08, slightly below the forecast of $0.082. Following the earnings announcement, STEP Energy’s stock experienced a decline of 1.83% in after-hours trading, closing at $4.38.

InvestingPro analysis reveals that STEP’s net income is expected to grow this year, with analysts predicting profitability. Subscribers can access 8 additional exclusive ProTips and comprehensive financial metrics through the Pro Research Report.

Key Takeaways

• STEP Energy’s Q2 revenue exceeded forecasts by 15.05%.
• EPS slightly missed expectations, coming in at $0.08 versus the $0.082 forecast.
• The company reduced net debt significantly from $85 million to $44 million.
• New technology innovations, such as the NGX natural gas engine, were introduced.
• The stock fell by 1.83% in after-hours trading.

Company Performance

STEP Energy’s Q2 2025 performance showcased resilience in a challenging energy services market. While revenues were strong, reflecting a substantial beat over expectations, the company faced a decline from the previous quarter’s $308 million. The reduction in net debt to $44 million highlights the company’s focus on financial health, with InvestingPro data showing liquid assets exceeding short-term obligations. The company’s Financial Health Score stands at "FAIR," with particularly strong momentum and cash flow metrics. Additionally, STEP Energy continues to lead in coiled tubing services, maintaining a 30% market share in the Montney region.

Financial Highlights

• Revenue: $228 million, down from $308 million in the previous quarter.
• Earnings per share: $0.08, a slight miss from the forecast.
• Adjusted EBITDA: $35 million, with a 15% margin.
• Free Cash Flow: $17 million.
• Capital Expenditures: $14 million.

Earnings vs. Forecast

STEP Energy’s actual EPS of $0.08 fell short of the forecasted $0.082, representing a 2.44% negative surprise. However, the company delivered a robust revenue performance with a 15.05% positive surprise, exceeding the forecast of $198.18 million. This indicates strong operational execution despite the challenging market conditions.

Market Reaction

Following the earnings release, STEP Energy’s stock price declined by 1.83% in after-hours trading, closing at $4.38. This movement reflects investor concerns over the EPS miss, despite the positive revenue surprise. According to InvestingPro data, the stock generally trades with low price volatility and has shown strong returns over the past three months. The stock remains within its 52-week range, with a high of $5.26 and a low of $3.35, indicating room for recovery or further volatility. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its fair value.

Outlook & Guidance

Looking ahead, STEP Energy anticipates flat to down sequential revenues in the third quarter due to market constraints. However, the company remains optimistic about potential activity increases driven by new LNG export facilities. Future guidance suggests a focus on cost management and margin preservation. Analyst consensus from InvestingPro shows a moderately bullish outlook, with price targets ranging from $61 to $74, suggesting potential upside. For detailed analysis and comprehensive valuation metrics, investors can access the full Pro Research Report, available exclusively to subscribers.

Executive Commentary

CEO Steve Glanville expressed cautious optimism for the remainder of 2025, emphasizing the importance of fuel flexibility for operators. He highlighted the company’s efficiency and strong market positioning, particularly in Canadian energy services.

Risks and Challenges

• Commodity price fluctuations could impact revenue stability.
• Market saturation and competitive pressures in the energy services sector.
• Potential supply chain disruptions affecting operational efficiency.
• Economic uncertainties influencing client spending and project timelines.

Q&A

During the earnings call, analysts inquired about the shift in sand supply due to client mix changes, which is expected to impact Q3. The company also confirmed that the investment in NGX pumps would have minimal impact on 2025 capital expenditures. Additionally, assets held for sale, valued at $14.9 million, are likely to be sold by year-end, potentially bolstering financial flexibility.

Full transcript - STEP Energy Services Ltd (STEP) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the STEP Energy Services Q2 twenty twenty five Conference Call and Webcast. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 08/07/2025. I would now like to turn the conference over to Steve Glanville.

Please go ahead.

Steve Glanville, CEO, STEP Energy Services: Thank you, and good morning. We welcome you to our Q2 twenty twenty five conference call, where we will review our second quarter performance and discuss our perspectives for the remainder of the year. To begin, I’ll hand things over to our chief financial officer, Klaus Dienther, who will walk you through the financial highlights for q two. After that, I’ll share insights into our operational performance during the second quarter and touch on our expectations as we continue through 2025. Following these remarks, we’ll open the floor to your questions.

Over to you, Klas. Thanks, Steve, and good morning, everyone. My comments today will include forward looking statements regarding STEP’s future results and prospects. Please note that these forward looking statements are subject to a number of known and unknown risks and uncertainties that could cause our results to differ materially from our expectations. For more information on the forward looking statements and these risk factors, please refer to our SEDAR plus filings for this quarter as well as our 2024 AIF.

Finally, note that all numbers are in Canadian dollars and I will round where possible. STEPPS Q2 consolidated revenues decreased to $228,000,000 from the prior quarter’s revenue of $3.00 $8,000,000 This large quarter over quarter swing is typical for the second quarter as the industry deals with spring breakup. This transition from winter to spring results in soft ground conditions as it thaws, limiting the ability of heavy equipment to access sites. We’re seeing less impact than we have in the past due to large pads we work on, but there’s still nonetheless an impact. This quarter was in line with last year’s Q2 revenues of $231,000,000 Q2 consolidated revenue included no revenue from The US fracturing terminated operations compared to $14,000,000 included in the prior quarter and 23,000,000 included in q two of last year.

As a result of the decision to terminate our US fracturing operations, Steph expanded the definition of adjusted EBITDA in 2025 to exclude the results from these operations to provide clarity on the company’s normal course business activities. Therefore, please note that adjusted EBITDA from previous periods has also been updated to comply with this definition. Adjusted EBITDA for the quarter came in at $35,000,000 or 15% margin compared with $59,000,000 or 19% margin in the prior quarter and $42,000,000 or 18% margin in Q2 of the prior year. STEP had a net income of 6,000,000 or 8¢ per diluted share in q two of this year compared to 24,000,000 or 33¢ per diluted share in the prior quarter. Included in q two twenty twenty five net income was a net loss from terminated operations of $5,000,000 compared to a $4,000,000 net loss from terminated operations in the prior quarter.

Prior year Q2 earnings were $10,000,000 or $0.14 per diluted share, which also included 9,000,000 of loss from the terminated operations. During the quarter, we had free cash flow of 17,000,000 compared to 32,000,000 in the prior quarter and 20,000,000 in q two of last year. In the quarter, we spent about 14,000,000 on capital expenditures. This was made up of 6,000,000 for sustaining capital, 7 for optimization capital, and a million for right of use asset additions. In conjunction with the terminated operations of the US fracturing CGU, the company has a plan to sell some of those assets by the 2025.

The company has $15,000,000 of assets held for sale at the end of the quarter which includes inventory and equipment. We purchased 166,000 shares during the second quarter under our NCIB and no additional purchases have been made subsequent to the quarter end. We’ve slowed down on the NCIB a bit given some of the second half uncertainty focusing instead on reducing our balance sheet leverage. We’re extremely pleased that we ended the quarter with net debt of 44,000,000 which is down from approximately 85,000,000 in the prior quarter. I’ll now turn it back to Steve for his comments on the operations and outlook.

Yeah. Thanks, Klas. You have likely seen our latest results and operational highlights in the MD and A. I’ll briefly address key Q2 achievements and share our outlook for the rest of the year. This past quarter truly showcased STEP’s dedication to operational excellence, innovation, and adaptability.

As as Klas had mentioned, revenue for this quarter closely matched last year’s second quarter despite some significant shifts in our business and the broader energy services landscape. We maintained high utilization levels and strong client relationships, especially with large scale operators in both Canada and in The US. Our North American coiled tubing segment operated 21 units throughout the quarter. We have seen continued growth in the adoption of our new technology, which we call Coil Plus, for extended lateral mill outs. And in The US, we are nearing our hundredth well, and we are preparing to execute our first program for a Canadian client in the next several weeks.

This service line has become a key differentiator for STEP, giving clients the confidence to design and drill longer laterals, access more stimulated rock volume, and reach total depth during mill operations. No revenue was generated from US fracturing operations as we continue the process of winding down this CGU. As mentioned in our Q1 conference call, this was a tough but necessary decision to ensure STEPPS resources are focused where we can achieve the greatest returns for our company and ultimately our shareholders. The redeployment and sale of equipment are underway. This transition brought some short term challenges, but we’re moving forward with a renewed focus on our US business.

Turning now to our Canadian fracturing business. Investment in technology and fleet optimization continue to set us apart. Notably, our trial of the NGX, which is Canada’s first a 100% natural gas reciprocating engine designed for fully natural gas powered fracturing operations has been met with positive client response. STEP’s natural gas strategy is over a decade in the making. From the start, we built our fleet with fuel flexibility in mind, inter introducing the tier two dual fuel systems back in 2015 followed by tier four DGB technology.

Today, we are leading the industry again with the introduction of NGX, which is a 3,600 horsepower purpose built pump integrated with STEP’s proprietary control and automation platform. It delivers twice the pumping capacity of a conventional unit with a smaller footprint and operates seamlessly alongside our dual fuel fleet, achieving full fleet diesel displacement rates of up to 90% in early field trials. With lower capital requirements and reduced cost per horsepower, NGX is scalable and supports the level of fuel customization demanded by more of our large clients. We are confident in the performance of the NGX pump trial and have received board approval to move forward with the purchase of four additional NGX pumps. These are expected to be available for commercial deployment in 2026.

Fuel flexibility is becoming increasingly important for operators. When clients can use their own fuel gas, the savings are significant. But we also know that not every site is the same. That is why our approach is customizable. And when combined with our electric backside assets, a full natural gas powered frac fleet can displace upwards of 95% of our clients’ diesel consumption with natural gas.

Looking ahead, we believe the future of fracturing Canada will be defined by efficiency, reliability, and adaptability solutions tailored to each site’s infrastructure and fuel availability. STEP is well positioned to deliver high performing, cost effective completions now and into the future. Looking at the broad macro environment and outlook, the current landscape in energy services presents both challenges and opportunities. Fluctuating commodity prices continue to create uncertainty regarding our clients’ drilling activities in the later half of this year with some clients considering capital deferment into 2026. Additionally, advances in completions driven by performance enhancements have enabled producers to meet production objectives while reducing drilling programs and capital expenditures.

This has further constrained demand in an oversupplied market. In response, we are seeing service prices come down, which places additional pressure on already compressed margins. While inflation and tariffs continue to put pressure on our cost structure, one positive development worth highlighting is the recent announcement of tariff relief for proppant imports. This outcome was made possible through our collaboration with industry peers and the strong advocacy efforts led by our Energy Services Association, which is NCERVA and CAOEC. We approach the remainder of 2025 with a sense of cautious optimism.

While we are anticipating flat to down sequential revenues, this is largely due to the shift from more STEP supplied sand in Q2 to more client supplied sand in Q3. Nonetheless, we recognize that reduced pricing requires ongoing cost vigilance to preserve margins. Efforts are ongoing to fill remaining capacity in the later half of the year. And in Canada, are seeing several clients move projects from Q1 next year into Q4 of this year. Fourth quarter pricing is typically a bit lower, but it allows or it also allows clients to capitalize on efficiencies gained by level loading their schedules throughout the year.

We are we are excited by the recent commissioning of Canada’s first large scale l LNG export facility, which demonstrates promising long term growth potential for our industry. This is a step change in demand, and when we considered alongside the growing demand of power across multiple industries, many analysts are predicting the activity in the Montney and the Duvernay to increase from 2025 up to 02/1930. In a recent analyst report, it called for an additional 400 wells drilled annually over that period, which is nearly a 40% increase from today. STEP is exceptionally well positioned to capture this opportunity. We currently have an approximately 30% market share in the Montney, and we expect that our NGX pumps will drive that number higher.

We believe that a Canadian asset base or that the Canadian asset base in the basin today could capture this additional activity with only a marginal increase in incremental capacity. We have become incredibly efficient at what we do. Operational enhancements to our fracturing programs such as SimulFrac or even TrimulFrac have significantly improved the efficiencies and reduced cost of a fracturing project. Today, our team routinely achieves upwards of twenty or even twenty one hours of pumping per day, with the number of stages completed daily having increased significantly over the past decade. These gains reflect the discipline, innovation, and executional excellence that continue to differentiate STEP in the marketplace.

Before I turn the call back to the operator, I want to extend my thanks to our clients and shareholders for their trust. And most importantly, I would like to share how much I appreciate the tireless dedication of our professionals. The first half of the year has been busy and our professionals show up consistently exceeding clients’ expectations and delivering strong results for our shareholders. I am proud of our continued focus on safety, operating efficiencies, and excellence, which helped to make Q2 another successful quarter. Operator, we are now ready to take questions.

Conference Operator: Thank you. If you do wish to ask a question, please press star one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star two again to cancel. And your first question comes from the line of Waqir Saeed from ATB Capital Markets. Your line is now open.

Waqir Saeed, Analyst, ATB Capital Markets: Thank you for taking my question and good morning. Couple of questions. Number one, for your for q three, you mentioned that the client’s supply of sand is going to increase. Steve, is that because your customer base has changed or is is it that the same customer the mix is still the same, but the customer behavior is changing? And if that is the case, why do you think that is?

Steve Glanville, CEO, STEP Energy Services: Hey, Waqar. Thanks for the question. Yeah, what we’re seeing is just a shift in clients. So it has nothing to do with that approach whatsoever. But as you know, there are some clients that go direct to the sand suppliers, so we’re just seeing a bit of that in the back half of this year with some new clients that we’ve been able to achieve.

Waqir Saeed, Analyst, ATB Capital Markets: Okay. And you mentioned that you may be considering buying four pumps, NGX pumps. How does that impact the CapEx number for 2025?

Steve Glanville, CEO, STEP Energy Services: It’s a slight increase, Wakar, for 2025. I think it’s possible $2,000,000 increase roughly. Yeah. There’s some reallocation of capital. We had some capital set aside kinda in the event that we would do something like this.

We increase them marginally, and then the structure of the contract allows us to make a final payment in 2026. So there’s also an advance on our 2026 capital program. And I’ll just add on to that. Like, we’ve had tremendous success with the NGX pump so far. We showcased it here in Calgary in June.

And currently, we’ve received over kind of six hundred hours of pumping time with it. We’re extremely happy with the performance, and our clients are liking the savings.

Waqir Saeed, Analyst, ATB Capital Markets: Great. And just in terms of Q3 numbers, a lot of moving parts in your guidance. Do you think directionally EBITDA for Q3 could be up versus q two?

Steve Glanville, CEO, STEP Energy Services: Yep. Yeah. Like we said in the in our release, the margins are are higher on on jobs where we don’t supply sand. Sand is typically a low margin pass through, so it does affect the percentages. So we should see a sequential increase in our EBITDA.

Waqir Saeed, Analyst, ATB Capital Markets: Sounds good. Well, thank you very much. Appreciate the color.

Steve Glanville, CEO, STEP Energy Services: Thanks, Shukar.

Conference Operator: Thank you. Your next question comes from the line of Joseph Schachter from Schachter Energy Research. Your line is now open.

Joseph Schachter, Analyst, Schachter Energy Research: Good morning, Steve and Klas. First one for Klas. The debt load, of course, coming down to 43,900,000.0, and you have in here the 14,900,000.0 of assets held for resale. Do you expect the sale to go through in this year? And will you use that number to knock down your debt?

Or would you be looking at more NCIB or increasing CapEx? How do you see using the money and when do you expect that $14,900,000 to come in?

Steve Glanville, CEO, STEP Energy Services: So our ops teams are kind of the guys who are in charge of these assets. They’re kinda working through a process with a few different buyers. There’s some there’s been decent interest in those assets. We do expect that those assets will be sold before the end of the year. As far as the proceeds of that goes, like, immediately, we’ll just pay down debts and then we’ll evaluate what the best choice of options are.

Unlikely that we would see any significant increase to our capital program for this year. So it’ll just kinda put some money in the bank for next year. Then from an NCIB perspective, if we see an opportunity to participate there in a way that makes sense for the business, we’ll do that.

Joseph Schachter, Analyst, Schachter Energy Research: Okay. Next one for me. You go in here and talk about the increased market penetration with steps coil plus with string technology. Can you walk a layman through that?

Steve Glanville, CEO, STEP Energy Services: Yeah. I’ll maybe take that. We’ll let Klas deal with the finances. Kidding Klas. So, Joseph, it’s pretty simple.

As we’ve seen these extended reach wells get out to, like in Canada, we’re seeing depths of 9,600 meters. And the challenge of coil has been, it’s like pushing a rope. It only goes so far and then it bends. Our technology that we’ve developed is it adds basically a vibration technology mid string and allows you to get out to these extended reach wells. Like we said, we’ve done over 100 in The US and it’s really been a differentiator for us.

And as we see the Permian, drilling kind of tier two acreage, our operators are still getting amazing well production out of tier two acreage, and the reason for that is they’re drilling these long laterals, you know, up to four mile laterals. Wow. So this is a really, really huge advantage for us. We like this technology, and I think it really what it opens up to is the, you know, the drilling side of these long laterals has never been the issue. It’s been how do you complete these?

And so having this technology just opens up our clients to the ability to drill these longer wells. And just to be clear, it’s actually connecting two strings together. Yeah. With an agitator, and that’s what makes it possible to hit these extended laterals. You have

Joseph Schachter, Analyst, Schachter Energy Research: Canadian customers wanting to use this later this year or in 2026 so that you can see this being a higher margin product for Canada?

Steve Glanville, CEO, STEP Energy Services: Yeah. We’ll be doing our first job here in Canada in in less than two weeks. And I think, you know, the the early adopters to this are are even starting to think long term on on their well programs. So I I really believe that this will this will open up some additional work for us, and we’ve always been the technology leader in the quilt shipping space, and this just adds a bit more of a some tools to our toolkit.

Joseph Schachter, Analyst, Schachter Energy Research: Super. Thanks very much. That does my questions, and look forward to the results going forward.

Steve Glanville, CEO, STEP Energy Services: Thanks, Joseph.

Conference Operator: Thank you. And as there are no further questions, I will return the call to Steve Glendale. You may proceed.

Steve Glanville, CEO, STEP Energy Services: Yeah. Thank you very much, and appreciate everyone for joining us for our Q2 conference call. We will be having a conference call in November when we report our Q3 numbers. Wish everybody an enjoyable summer. Thank you very much.

Conference Operator: This now concludes today’s conference call. Thank you all for attending. You may now disconnect.

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