KLX Energy Services Holdings, Inc. Q1 FY2024 earnings call

• First quarter was in line with prior guidance, with softness at the start of the year but expecting sequential improvement in Q2.
• Disruptions included Polar vortex weather, operator safety standards issues, seasonality, and natural gas price declines leading to rig count reductions.
• Consolidated Q1 results: $175M revenue, $12M adjusted EBITDA, 7% margin. Ended Q1 with $128M liquidity.
• Operational milestones: OraclE-SRT logged over 1.2 million running feet, coiled tubing and thru-tubing achieved record depths, including a 28,915 feet TD and 3.9-mile lateral length.
• Q2 calendar shows reduced white space and increased utilization of higher-margin product service lines. Cost-cutting measures initiated to improve margins.

Geographically, the Southwest represented 40% of Q1 revenue ($69.4M), Mid-Con Northeast 34% ($59.7M), and Rockies 26% ($45.6M). Gas directed activity was ~17% of Q1 revenue, with Haynesville accounting for ~10% and Northeast ~7%. From a product line perspective, completions-focused activity drove 51% of Q1 revenue, drilling 24%, and production and intervention 23%. Coiled tubing, frac rental, and flowback (part of other completion services) experienced sequential revenue increases. Southwest Q1 revenue was $69.4M with an operating loss of $700k and adjusted EBITDA of $6.7M. Rockies Q1 revenue was $45.6M with an operating loss of $1.2M and adjusted EBITDA of $5.4M. Northeast Mid-Con Q1 revenue was $59.7M with operating income of $2.4M and adjusted EBITDA of $10.2M.

• Q2 revenue expected $180M to $200M, adjusted EBITDA margin 9% to 11%, with sequential improvement into Q3.
• 2024 CapEx revised to $50M to $55M, down from original $50M to $60M, with most budget for maintenance.
• Expect positive free cash flow generation through year-end.

• Weather disruptions impacting activity.
• Operator safety standards issues leading to white space.
• Natural gas price declines driving rig count reductions.
• Market uncertainties and consolidation impacts.

Q: In terms of how you think the year plays out, based on your guidance for 2Q, if we're assuming flat U.S. land activity for the remainder of the year. What do you think about 2Q and 3Q guidance?

A: 2Q expects reduced white space, rebound in Rockies activity (highest margin segment) and higher-margin PSLs. 3Q expected to continue improvement with historical seasonal strengths.

Q: Given the challenges of this year and outlook for '25, over the last 2 years you did a lot to improve the balance sheet. Is that fair? And with lower CapEx, do you expect to protect the balance sheet this year?

A: Q1 is the low point, expecting positive free cash flow from year-end. Conservatively capitalized with strong balance sheet.

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 1.5 years or so. As you look across the various basins that you're in, are there any tuck-in deals you would evaluate?

A: We evaluate deals on a case-by-case basis, focus on internal initiatives now. Diversification allows quick integration of tuck-in deals.

Q: I just wanted to start with your proposed cost cutting. Could you give us a sense of how that's going to cut across the P&L in terms of whether it's going to be impacting mostly SG&A? Or is it going to be on kind of your fixed cost side that would impact your cost to get sold?

A: Cost cuts include adjustments to fixed cost corporate level vendors, mix of COGS and G&A, partial quarter realization in 2Q with full benefit in Q3.