KLX Energy Services Holdings, Inc. Q2 FY2024 earnings call

• Consolidated Q2 results: $180 million revenue, $27 million adjusted EBITDA, 15% margin, and positive levered free cash flow of $10 million.
• Q2 bounced back from Q1 issues, with revenue growth in Rockies, Tech Services, and Rentals. Tech Services and Rentals Q2 revenue increased sequentially by 20% and 17% respectively.
• Implemented $16 million of annualized cost savings, with recurring cost of sales and G&A down sequentially 5% and 8% respectively.
• KLX set all-time low HSE records while delivering market-leading services. Geographic and product service line diversification drives margin sustainability.

Geographically, the Southwest represented 39% of Q2 revenue, the Northeast/Mid-Con 27%, and the Rockies 34%. For the Rockies, Q2 revenue was $61.4 million, operating income $10.5 million, and adjusted EBITDA $17.2 million. The Southwest had Q2 revenue of $69.9 million, operating income $2.6 million, and adjusted EBITDA $10.4 million. The Northeast Mid-Con had Q2 revenue of $48.9 million, operating loss $2.5 million, and adjusted EBITDA $6.4 million. Total revenue for Q2 was $180.2 million, with a 3% sequential increase. Adjusted EBITDA was $27 million with a 15% margin.

• Q3 expected to be flat to slightly up relative to Q2 based on current schedules and customer conversations.
• 2025 expected to see increased activity driven by customer integration from M&A and gas demand from LNG export volumes and data centers.
• Focus remains on maximizing margin and free cash flow generation, ensuring financial strength and flexibility.

• Market softness and seasonality could impact results.
• Potential impact of natural gas price fluctuations on activity levels.
• ABL structural limitations with approximately $3 million of suppressed availability as of June 30 expected to reverse in Q3.

Q: Luke Lemoine asked about visibility in Q4 and seasonal slowdown.

A: Chris Baker said Q4 is premature to provide visibility, but mentioned potential completions activity ramp in late 2024 depending on gas prices.

Q: Steve Ferazani asked about margins improving in the Rockies and balance sheet management.

A: Chris Baker discussed mix shift, cost cuts, and strategic reallocation; Keefer Lehner mentioned net leverage around 2x and focus on margin and free cash flow maximization.

Q: John Daniel asked about facility rationalization and staff idling.

A: Chris Baker said KLX's footprint is rationalized, and they focus on asset repositioning and maintaining expertise; discussed spot market margin challenges and customer programs.

Q: David Marsh asked about nonrecurring costs, gross margin sustainability, SG&A, and refinancing.

A: Keefer Lehner confirmed nonrecurring costs were $1.4 million, discussed margin sustainability from cost cuts and reduced white space, and mentioned monitoring market conditions for refinancing