STEP Energy Services Ltd.

Good morning, ladies and gentlemen, and welcome to the Step Energy Services Second Quarter 2024 Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 7, 2024. I would now like to turn the conference over to Mr. Steve Glanville, President and CEO. Please go ahead.

Thank you, operator, and good morning. Welcome to our Q2 2024 conference call. My name is Steve Glanville, and I'm the President and CEO of STEP Energy Services. I'd like to invite class Dean to our CFO to provide an overview of our financial results for Q2. And then I'll provide some comments on operating conditions in the quarter and what we're seeing for the remainder of 2024. Then we'll open the call up for questions over to you class.

Thanks Steve and good morning everyone. My comments today will include forward looking statements regarding steps, 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 CDAR Plus filings for this quarter, as well as our 2023 AIF. Finally, please note that all numbers are Canadian dollars and less noted otherwise than all round where possible. During Q2, STEP generated consolidated revenues of $231 million. down from the prior quarter revenue of $320 million, but in line with the prior year Q2 revenue of $232 million. Adjusted EBITDA for the quarter came in at $42 million, which is an 80% margin, as compared to $80 million, or a 25% margin in Q1, and $47 million, or a 20% margin in Q2 of the prior year. Lower sequential and year-over-year results are largely attributable to the spring breakup conditions in Canada and the northern U.S. and the challenging conditions in the U.S. frack market. Stepper in net income of $11 million, or $0.14 per diluted share, in Q2 of this year, as compared to $41 million, or $0.55 per diluted share in the prior quarter, at $15 million, or $0.21 per diluted share in Q2 of the last year. We'll now turn to the geographical regions to provide key highlights on the quarter. In the Canadian segment, Q2 revenue was $161 million, comprised of $125 million in fracturing revenue and $36 million in coil tubing revenue. We always see a sequential drop in Canadian revenue due to spring breakup, but the quarter compares very favorably to the $136 million we earned in Canada in Q2 of last year. Adjusted EBITDA for the Canadian region was $37 million versus $72 million in Q1 and $33 million in the second quarter of 2023. We're very pleased with the year-over-year increase in EBITDA contribution and see this as further validation of our strategy to pursue higher utilization clients that see the value of load leveling their CapEx programs. Turning to the U.S. region, Q2 revenues of $70 million were comprised of about $23 million for fracturing and $47 million for coiled tubing. The quarterly revenue was down from $79 million in Q1 and $96 million in Q2 of 2023. Our U.S. fracturing service line is contributing less than it has in previous years, given the very competitive market dynamics. In contrast to the unsettled fracturing market, our coiled tubing service line has continued to maintain a strong market position with higher revenue year over year. Adjusted EBITDA of $9 million was down from $13 million in Q1 and $18 million a year ago. The adjusted EBITDA margin was 13% down from 16% in Q1 and 19% in Q2 of last year. Turning now to the allocation of our cash flow on our balance sheet. In addition to adjusted EBITDA, one of Steph's other key non-GAAP measures is free cash flow. During the quarter, we had $33 million in funds flowed from operations, and after deducting sustaining capital and lease payments, this resulted in the second quarter free cash flow of $20 million, compared to $35 million in Q2, 23, and $54 million in Q1 of this year. This translates to free cash flow of $0.28 per diluted share. Using our quarter-end share price of $4.08, this reflects a 7% quarterly yield. A rolling four-quarter free cash flow per diluted share is $1.44, which translates to a 36% yield. In a quarter, we spent 29 million on capital expenditures. This was made up of 9 million of sustaining capital, 17 million of optimization capital, and 3 million of right-of-use assets. Our 2024 capital budget has been adjusted downwards to 100 million, of which about 60% has been spent or committed thus far in 2024. STEP has purchased approximately 1.9 million shares to the NCIB at an average price of 416 per share, of which about 900,000 were purchased in second quarter. For reference, our June 30th book value per share was 570, demonstrating the excellent value in STEP shares. Finally, STEP ended the quarter with net debt of 76 million, down from approximately 108 at the end of Q1. Debt reduction remains a core focus We're our management team, and we expect this debt balance to continue reducing through the remainder of this year. I'll now turn it back to Steve for his comments on operations and outlook.