STEP Energy Services Ltd.

Good morning, ladies and gentlemen, and welcome to the STEP Energy Services Q3 2024 conference call. 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 Thursday, November 14, 2024. I would now like to turn the conference over to Steve Glanville, President and CEO. Please go ahead.

Thank you and good morning. Welcome to our Q3 2024 conference call. We're glad you could join us to hear about the quarter, our expectations for the future, and the latest developments at STEP. First, I'd like to invite Klaus Diemter, our CFO, to provide an overview of our financial results for Q3, and then I'll provide some comments on operating conditions in the quarter and what we're seeing for the remainder of 2024 and into 2025. Then we'll open it up for questions. Over to you, Klaas.

Thanks, Steve, and good morning, everyone. My comments today will include forward-looking statements regarding SEP'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 CDAR Plus filings for this quarter, as well as our 2023 AIF. Finally, please note that all numbers are in Canadian dollars unless noted otherwise, and I will round where possible. In Q3, STEP consolidated revenues rose to $256 million from the prior quarter revenue of $231 million and was in line with the Q3-23 revenue of $255 million. Adjusted EBITDA for the quarter came in at $44 million, or a 17% margin. compared with $42 million or an 18% margin in Q2 and $52 million or 21% margin in Q3 of the prior year. Steph had a net loss of $5.5 million or $0.08 per diluted share in Q3 compared to earnings of $10.5 or $0.14 per diluted share in the prior quarter and $21 million and $0.28 per diluted share in Q3 of the last year. Listeners should note that we recognize an impairment of $12.7 million in our US fracturing CGU as a result of the challenging conditions in that market. The impairment was taken on legacy Tier 1 and Tier 2 diesel-powered fracturing equipment and on a property in Oklahoma that is being conditionally sold. I'll now turn to the geographical regions to provide key highlights in the quarter. In the Canadian segment, Q3 revenue rose to $211 million from $158 million in Q3 of last year. and was comprised of $173 million in fracturing revenues and $38 million in coil tubing revenues. Adjusted EBITDA for the Canadian region rose to $49 million from $37 in Q2 and $41 million in Q3 of last year, marking an outstanding result for the Canadian business. Turning to the U.S. region, Q3 revenues of $45 million were comprised of about $3 million for fracturing and $42 for coil tubing. The quarterly revenue was down from $70 million in Q2 and $98 million in Q3 of last year. The adjusted EBITDA loss of $1 million compares with an adjusted EBITDA of $9 million in Q2 and $15 million a year ago. The negative 3% adjusted EBITDA margin was down from a 13% margin in Q2 and 16% in Q3 of the prior year. During the quarter, we had $38 million in funds flow from operations after deducting sustaining capital and lease payments. This resulted in a third quarter free cash flow of $28 million compared to 37 in Q3 of last year and 20 million in Q2 of this year. In the quarter, we spent 21 million on capital expenditures. This was made up of 7 million of sustaining capital, 10 million of optimization capital, and 4 million of right-of-use asset additions. In response to the slowing market conditions, the 2024 capital budget has been adjusted downward to 91 million. Finally, STEP ended the quarter with net debt of 61 million, down from approximately 76 million in Q2. Since 2018, we've paid down nearly $250 million of debt, an accomplishment that we're extremely proud of. Debt reduction was the first phase of our shareholder return strategy, with the second being a normal course issuer bid. We allocated approximately $8 million to the NCIB this year before pausing it when the ARCTIC private process was initiated. Despite the expected slowdown in Q4 earnings, we will manage our cash flow to hold our year-end debt balance at these levels. And I'll turn it back to Steve for his comments on operations and outlook.