STEP Energy Services Ltd.

Good morning, ladies and gentlemen, and welcome to the STEP Energy Services fourth quarter and year-end 2024 conference call and webcast. If at any time during this call you require immediate assistance, please press star zero for the operator. Also know that this call is being recorded on Wednesday, March 12, 2025. I would now like to turn the conference over to Mr. Steve Glanville, President and CEO. Please go ahead, sir.

Thank you, and good morning. Welcome to our Q4 and year-end 2024 conference call. We're glad you could join us to hear about the fourth quarter, the 2024 full year results, our outlook for 2025, and the latest developments at STEP Energy Services. First, I'd like to invite Class Dean to our CFO to provide an overview of our financial results for Q4 and the full year, and then I'll provide some comments on operating conditions in 2024, and what we're seeing for 2025. Then we'll open up to calls or the call for questions after that. Klaus, why don't you take it over?

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 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 year-end 2024 CR plus filings as well as our 2024 AIF. Finally, please note that all numbers are Canadian dollars unless noted otherwise, and I will round where possible. During Q4, STEP had consolidated revenue of $147 million, down sequentially from $256 million in Q3. Adjusted EBITDA for the quarter came in at $4 million, or a 3% margin, compared to a 44 million or 17% margin in Q3. Q4 is typically a bit slower sequentially, given that most clients complete their programs by mid to late October. But the depressed commodity prices, sorry, November, but the depressed commodity prices during 2024 led to a number of clients curtailing their capital spend early, which exacerbated the slowdown this year. For the 2024 year, STEP had consolidated a revenue of $955 million. up from the prior year revenue of $946 million. Adjusted EBITDA for the year came in at $169 million, or an 18% margin, up from the $164 million, or 17% margin, in the prior year. For Q4 of this year, Steph had a net loss of $45 million, or $0.23 per share, compared to a net loss of $5.5 million, or $0.08 per share, in the prior quarter. Included in this loss was $2.5 million of stock-based comps and $2.2 million in expense associated with a terminated transaction with ARC Financial. We also incurred a non-cash impairment of $23.9 million as a result of our decision to wind down the U.S. fracturing service line. This was in addition to the impairment that we took in Q3. That impairment was taken on legacy diesel equipment and a property about to be sold, while the Q4 impairment was taken on the Tier 2 dual-fuel equipment along with some ancillary equipment. The decision to wind down our U.S. operations was made after we were advised in late February by our client that despite executing at a high level in Q1, they were awarding the work scope beyond Q1 to a larger competitor. This has happened repeatedly this step since the wave of consolidation washed over the U.S. NP space. As clients become larger, they want their service companies to match their scale. which is making it increasingly difficult for smaller scale operators like STEP to find the niche. For the 2024 year, STEP had a net income of $2 million or $0.02 per diluted share compared to net income of $50 million or $0.67 per diluted share in 2023. Again, including a net income for 2024 was $6.3 million for share-based compensation, a non-cash impairment expense of $36.7 million and $2.2 million of transaction costs. Without these last two unusual items, our net income would have been $41 million or about $0.56 per share. I will now turn to the geographical regions to provide key highlights on the quarter. Q4 revenue for the Canadian segment was $110 million compared to $211 million in Q3 and was comprised of $79 million in fracturing revenues and $31 million in coil tubing revenues. Adjusted EBITDA for the Canadian region of 11 million or 10% was down from 49 million or 23% generated in Q3. Despite the slower fourth quarter, 2024 was a record year for the Canadian geographic region. Full year revenue was 723 million, up significantly from the 580 million generated in 2023. Adjusted EBITDA on the year was $169 million, also up significantly from the $134 million or 23% generated in the prior year. We are extremely proud of the team that accomplished this. Turning to the US region, Q4 revenues of $37 million were comprised of about $3 million for fracturing and $34 million for coiled tubing. The quarterly revenue was down from the $45 million generated in Q3 of 2024. The adjusted EBITDA loss of $3 million compares with a $1.4 million loss in Q3. The negative 8% adjusted EBITDA margin in Q4 was down from a 3% negative margin in the prior quarter. U.S. revenue for the full year came in at $232 million compared to the $366 million earned in 2023. Adjusted EBITDA for the year was $18 million or 8% compared to $46 million or 13% in the prior year. In addition to adjusted EBITDA, one of our other key non-IFRS measures is free cash flow, which is calculated by taking the cash flow from operations, less changes in non-cash working capital, sustaining capital, and lease payments. In the fourth quarter, we had free cash flow of negative 17 million compared to 28 million positive cash flow in Q3. For the full year, we had free cash flow of 86 million up from 83 million in 2023. Looking just at capital expenditures, we spent 19 million in the fourth quarters, but 8 million for sustaining and 11 million for optimization capital. For the full year, we spent 94 million, close to our full year depreciation of 83 million on our property and equipment. This was down from 105 million spent in 2023. This year, or in 2024, we allocated 36 million for sustaining capital and 57 million for optimization capital, along with 1 million on intangible assets, related to our acquisition of the proprietary technology behind our CephConnect coil tubing offering. Our full-year capital expenditures were offset by proceeds of disposal of $9 million compared to proceeds of $3 million in 2023. We also had an active NCIV program through the first half of the year, buying nearly 1.9 million shares at an average price of $4.17. We see tremendous value in buying our shares, given our book value per share of just over $5, and our low multiple, and we'll continue to remain active on our NCIB in 2025. Finally, Steph ended the quarter with net debt of $53 million, down from $88 million at the end of 2023, and down from $142 million at the end of 2022. Since 2018, we've paid down over $250 million of debt, an accomplishment that we're extremely proud of. I'll now turn it back to Steve for his comments on operations and outlook.