Q1 Misses, but Acquisition and Debt Reduction Alleviate Impact

• Q1-2025 revenue and EPS were down 16% YoY, and 50% YoY respectively, due to  an unusually inflated Q1-2024 driven by a one time major gas project from a client. Additionally, the delay of the Kitimat, B.C. LNG plant, a critical coastal project for shipping Canadian natural gas globally, from mid-2024 to mid-2025, has led several gas producers to postpone their drilling plans. Revenue and EPS missed our estimates by 11% and 32%, respectively. 
• On a positive note, E used proceeds from a $29M bought deal financing in Q4 to pay down most of its debt in Q1, significantly strengthening its balance sheet. In contrast, many peers remain highly leveraged, leaving them exposed to unfavorable market conditions. 
• Last week, E acquired the Canadian operations of FlexEnergy Solutions for $20M. FlexEnergy, based in Colorado, is a manufacturer of turbine and microturbine power generation systems. The acquisition includes 17 turbines, and expands E’s role from the exclusive Western Canada supplier, to the exclusive nationwide supplier of FlexEnergy products. Revenue details for FlexEnergy’s Canadian operations were not disclosed. Based on an average sector EV/revenue of 2.3x, we estimate the acquisition would need to generate at least $8M in annual revenue to justify the valuation. We believe this incremental revenue will partially offset the negative impact of lower Q1 revenue.

• E is up 44% YoY, outperforming the S&P Oil & Gas Equipment & Services Index, which is down 36% due to lower oil prices, a broader market pullback, and concerns over a potential recession sparked by trade tensions.
• Although E has no direct U.S. exposure, its clients exporting energy products to the U.S. could be affected by Trump’s tariffs. However, the energy sector faces a lower 10% tariff versus  25% on most other goods. We expect Trump may reverse or soften these tariff measures due to their potential negative effect on U.S. consumers and businesses. If that happens, we would adopt a bullish stance on the energy sector, given Trump’s focus on boosting energy production, which we anticipate will improve investor sentiment across North American energy services.

Price and Volume (1-year)

Enterprise vs Larger Players 

E is up 44% YoY, making it the second-best performing stock on our list of oilfield services companies. Ranked third in 2024 revenue growth, with the same position projected for 2025

Gross margins in line; debt-to-capital notably below the sector average

Financials 

Q1-2025 revenue and EPS were down YoY due to a large one-time client gas project that boosted Q1-2024.

Q1 revenue declined 16% YoY, missing our estimate by 11%. Gross margins decreased 6 pp YoY to 50%, in line with our estimate, and above the historical average of 47%, and sector average of 46%

G&A expenses rose 36% YoY, and were 4% higher than our estimate. With expenses outpacing revenue, EPS fell 50% YoY to $0.04 vs our forecast of $0.06

CAPEX increased 25% YoY to $6M, driven by heightened client demand necessitating new equipment purchases. Debt/capital declined QoQ (from 28% to 7%), reflecting the repayment of significant debt with

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