Yahoo Finance KLX Energy Services Holdings Inc (KLXE) (Q1 2024) Earnings Call Transcript Highlights: ...
Revenue: $175 million in Q1, a 10% sequential decrease.
Adjusted EBITDA: $12 million in Q1.
Adjusted EBITDA Margin: 7% in Q1.
Liquidity: $128 million at the end of Q1, including $85 million in cash and $43 million available on ABL.
Net Debt: $200 million as of Q1.
Capital Expenditures: $13.5 million in Q1, primarily for maintenance.
Segment Revenue: Southwest 40%, Mid-Con Northeast 34%, Rockies 26% of Q1 revenue.
Product Line Revenue: Completions 51%, Drilling 24%, Production and Intervention 23% of Q1 revenue.
Q2 Revenue Forecast: Expected to be $180 million to $200 million.
Q2 Adjusted EBITDA Margin Forecast: Projected at 9% to 11%.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
KLX Energy Services Holdings Inc (NASDAQ:KLXE) reported a strong operational performance with record-setting achievements in coiled tubing and thru-tubing, reaching unprecedented depths and lateral lengths.
Despite a 10% sequential decline in total revenue, KLXE saw revenue increases in three product lines: coiled tubing, frac rental, and flowback.
KLXE ended Q1 with $128 million in liquidity, demonstrating a robust financial position.
The company has initiated several cost-cutting measures both on the fixed and variable sides of the cost structure, which are expected to improve margins in the second quarter and beyond.
KLXE is well-positioned to benefit from the growing industry consolidation and has exposure to the largest, most active customers across its geographic regions.
Negative Points
KLXE experienced a 10% sequential decrease in Q1 revenue, primarily due to increased white space and a shift in geographic and product service line mix.
The company faced challenges such as severe weather conditions and non-KLX safety incidents which led to operational disruptions and deferred revenue.
Natural gas price declines led to an 18% reduction in Haynesville rig count and activity declines in other gas-directed basins.
The Rockies segment saw a significant 24% sequential decrease in revenue due to various factors including weather and safety standdowns.
KLXE's first-quarter adjusted EBITDA was $12 million, reflecting challenges in maintaining profitability amid fluctuating market conditions.
Q & A Highlights
Q: In terms of how you think the year plays out, based on your guidance for 2Q, if we're assuming -- and in your closing comments noted, assuming was probably is going to be something close to flat US land activity for the remainder of the year, beyond the typical 3Q seasonal uptick that you usually see, what can you get to drive profitability? Or do you expect not to drive further profitability at this point in the second half of the year? Will we see the full cost cuts in 2Q, immobilizing assets? Anything you can tell us in terms of how you think right now based on what we know today, what you think about second half compared to how you're guiding for 2Q? A: That's a long question with a number of different topics, I guess I'll take 2Q and 3Q guidance first. Look, ultimately, Q1 was tough as we know with some of the seasonal impacts, transitory issues, et cetera. For 2Q specifically, we expect reduced white space, a material rebound in our Rockies activity, which is typically our highest margin segment, as well as a rebound in overall higher-margin PSLs, which would include rental concession.
Q: That's really helpful. Given the challenges of this year and hopefully, certainly reasons to believe '25 is better. Over the last two years, you did a lot to improve the balance sheet. Obviously, you're sitting on a much better cash position than you had been two years ago. It sounded like Keefer said, you expect some level of cash flow this year. Is that fair? And with the lower CapEx, do you expect that you can protect the balance sheet this year given sort of your outlook? A: I think what I said in the prepared remarks was Q1 is the low point. And in terms of operational performance, and as we progress through year end, we actually expect to generate positive free cash flow from this point forward. Spot on in terms of where a lot of our focus has been over the last few years is growing back into the operating platform that we have and growing back into our balance sheet. We think we've more than done that.
Q: If I can get one more in, in terms of refi conversations. It's May, have you started those conversations. From the last time you did this, your balance sheet is much stronger. You've shown the improvement, but you're probably entering those conversations at a tough time for OFS in general, how does that influence those conversations? And how are you thinking about them right now? A: Yeah, I think Q1 was certainly tough. I think as we think about the remainder of 2024 and then certainly, as you think about the improved demand for US onshore services as it relates to gas-directed activity and what that does to support a higher floor across the broader market including the liquids basins, I think we get pretty excited about 2025 and onward as you think about the short- to medium-term outlook for the services space. So I think there actually are some pretty strong tailwinds for the sector.
Q: Just curious if we can pretend for summer that we're going to stay sort of range bound at 600-ish rig count over the next -- plus or minus 5%, over the next 1.5 years or so. As you look across the various basins that you're in, are there -- do you feel a need to do any -- prosecute any very small tuck-in deals just to get scale in particular areas? Is that something that you would be evaluating? A: Look, we look at deals all the time, right? And we've talked about that, I think, on every earnings call we've had for the past couple of quarters. We're still seeing deal flow today. I won't say it's necessarily increased or decreased. What I will say is we've seen a couple of deals lately where the feedback from bankers has been that PE is the lead horse in essentially all cash deals and what we view as kind of outsized multiples, which candidly is a bit surprising. And so as we talked about before here at KLX, we're strong believers in aligning incentives and believe majority equity-linked deals are a keen alignment mechanism.
Q: Okay. Would you -- I mean it does feel like there could be pockets of weakness in Q2, I'm not saying you, but just broadly speaking. Do you think you're going to see more opportunities arise in the next three to four months? A: We're sure seeing that way. We talked about that last call where you think there'd be capitulation with some of the mom-and-pops, especially in the gassier basins. I think to your point, if you look at the peer group, there's pretty material dislocation between the shape of both Q1 quarterly results and outlook and trajectory. With what we're seeing with the Rockies rebounding our completion and production side of our business, in particular and the Rockies rebounding into 2Q and 3Q, we're pretty confident in our guidance.
Q: The last one for me is on the coiled tubing, the highlights you had earlier. To get to those steps, did you have to do anything differently? What got you to drive that -- to hit those records? A: So what I would say is, look, any time you're at the tip of the spear, it takes incredible field execution, backstopped by very precise engineering, friction modeling, stream design, fluid selection as well, as you well know, optimal BHA, whether the motor, the ERT, the bits, the mills, everything has to work in concert with each other. I mean, the reality is it's a true team effort. We're very, very proud of the strides that we've made in expanding the commercial opportunity for coil.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
