Release Date: November 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KLX Energy Services Holdings Inc (KLXE, Financial) reported strong Q3 results with $189 million in revenue and $28 million in adjusted EBITDA, achieving a 15% adjusted EBITDA margin.
- The company outperformed broader market trends despite a decline in average quarterly operated US land rigs and active US frac spreads.
- KLX Energy Services Holdings Inc (KLXE) demonstrated strong geographic diversification, with significant revenue contributions from the Southwest, Northeast/Mid-Con, and Rockies regions.
- The company experienced continued positive momentum with its downhole technology offerings and maintained an industry-leading safety record.
- KLX Energy Services Holdings Inc (KLXE) ended the quarter with a strong cash balance of $83 million and liquidity of $126 million, positioning it well for future opportunities.
Negative Points
- KLX Energy Services Holdings Inc (KLXE) anticipates a sequential decline in Q4 revenue of approximately 10% to 14% due to seasonal factors and customer budget exhaustion.
- The Southwest region experienced a slight 2% sequential decrease in revenue, with significant declines in segment operating income and adjusted EBITDA.
- The company faced elevated costs related to asset relocation and redeployment in the Rockies, impacting operating income and adjusted EBITDA.
- KLX Energy Services Holdings Inc (KLXE) reported a corporate operating loss and adjusted EBITDA loss for Q3, with expectations for similar levels going forward.
- The company is actively considering options to refinance its capital structure, as its ABL and senior secured notes mature in the fall of 2025.
Q & A Highlights
Q: Can you provide insights into the strong performance in the Northeast/Mid-Con region this quarter? Was it a one-off, or is it sustainable?
A: Christopher Baker, President and CEO: The 7% revenue increase was driven by pressure pumping, flowback, and frac rentals. The Northeast saw less white space in Q3 compared to Q2, indicating more normalized operations. The Mid-Con region also performed well, particularly in accommodations and pressure pumping.
Q: What caused the shift in the Rockies' performance this quarter?
A: Christopher Baker, President and CEO: The Rockies had pent-up demand from Q1 issues, and Q3 was relatively flat. The revenue increase was driven by directional drilling, coiled tubing, and wireline, which are lower-margin services. However, tech services and rentals remained strong.
Q: How do you view cash flow for the year-end, considering the elevated CapEx in Q3?
A: Keefer Lehner, CFO: Q3 CapEx was outsized and not reflective of normalized spending. We expect Q4 CapEx to normalize to $5 million to $10 million. A coupon payment in Q4 will impact cash flow, but we anticipate constructive growth in 2025.
Q: How are you planning for 2025, given the expectation of improvement but uncertain timing?
A: Christopher Baker, President and CEO: We expect 2025 revenue to increase by 5% to 10%. The team has performed well, and we anticipate starting Q1 on a high note. We are prepared for incremental activity with minimal additional CapEx needed.
Q: Can you elaborate on the plateauing of D&C efficiency gains and how it affects KLX?
A: Christopher Baker, President and CEO: Efficiency gains are stabilizing, and we are well-positioned with our coiled tubing platform. We aim to partner with customers to drive pricing based on performance and efficiency gains.
Q: How is KLX positioned with larger consolidated upstream entities, and what gives you an edge?
A: Christopher Baker, President and CEO: We are recognized for high-spec equipment and safety, which are crucial for larger consolidators. Our ability to deliver technology and eliminate non-productive time positions us well to gain market share.
Q: What are your thoughts on consolidation opportunities in the market?
A: Christopher Baker, President and CEO: We look for strategic fit and synergy value. We prefer equity-aligned deals rather than leveraging up for all-cash acquisitions. This approach aligns counterparties with the deal's outcome over the long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
