Q4 2023 KLX Energy Services Holdings Inc Earnings Call

Greetings welcome to Calix Energy services full year, 2023, and fourth quarter earnings Conference call. At this time, all participants are in a listen only mode.

Operator: Greetings, and welcome to KLX Energy Services' full year 2023 and fourth quarter earnings conference call. At this time, all participants are in a listen only mode.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please call 1-866-422-4222 or press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kip dark.

Ken Dennard: Thank you. You may begin. Thank you, Operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review fourth quarter and full year 2023 results. With me today are Chris Baker, KLX Energy's President and Chief Executive Officer, and Keefer Lehner, Executive Vice President and Chief Financial Officer. Following my remarks, management will provide a high-level commentary on the financial details of the full year and fourth quarter and discuss the outlook for 2024 before opening the call for your question. There will be a replay of today's call and will be available by webcast by going to the company's website at klx.com. There will also be a telephonic report recorded replay available until March 21, 2024. More information on how to access these replay features was included in yesterday's earnings release. Please note that information reported on this call speaks only as of today, March 7, 2024. And therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listing or transcript reading.

Thank you you may begin thank you operator, and good morning, everyone. We appreciate you joining us for the Calix Energy services conference call and webcast.

<unk> fourth quarter and full year 2023 results with me today are Chris Baker, <unk> Energy's, President and Chief Executive Officer, and Keefer, Lehner, Executive Vice President and Chief Financial Officer.

Following my remarks management will provide a high level commentary on the financial details of the full year and fourth quarter and discuss the outlook for 'twenty 'twenty four before opening the call for your questions. There will be a replay of today's call will be available by webcast by going to the company's website at <unk> Dot com.

Well also be a telephonic report recorded replay available until March 21 2024.

More information on how to access. These replay features were included in yesterday's earnings release.

Please note that information reported on this call speaks only as of today.

March 7th 2024, and therefore, you are advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Ken Dennard: Also, comments on this call will contain forward-looking statements within the meaning of United States federal securities laws. These forward-looking statements reflect the current views of KLX management. However, various risks and uncertainties and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management.

Also comments on this call will contain forward looking statements within the meaning of United States Federal Securities laws.

These forward looking statements reflect the current views of Calix management.

However, various risks uncertainties and contingencies.

Could cause actual results performance or achievements to differ materially from those expressed in the statements made by management.

Ken Dennard: The listener or reader is encouraged to read the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX Energy website. And with that behind me now, I'd like to turn the call over to KLX Energy Services President and CEO, Mr. Chris Baker. Thank you, Ken, and good morning, everyone.

The listener or reader is encouraged to read the annual report on Form 10-K quarterly reports on Form 10-Q, and current reports on form 8-K to understand certain of those risks uncertainties and contingencies.

The comments today will also include certain non-GAAP financial measures.

Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the calix energy website.

And with that behind me now I'd like to turn the call over to Alex Energy services, President and CEO, Mr. Chris Baker, Chris.

You, Ken and good morning, everyone I'll go through the highlights of our full year 2023, and fourth quarter before turning the call over to keefer to discuss our financials in more detail and we'll then rejoined the call for concluding remarks.

Christopher J. Baker: I'll go through the highlights of our full year 2023 and fourth quarter before turning the call over to Keefer to discuss our financials in more detail, and we'll then rejoin the call for concluding remarks. 2023 was a tremendous year for KLX on numerous fronts, marked by outstanding operational performance, financial successes, post-COVID record HSE performance and statistics, continued market share gains with investment grade and blue chip customers, and significant strategic advancements, including the commercialization of multiple proprietary offerings and the accretive acquisition of Green's Energy Group. We generated record revenue and adjusted EBITDA of $888 million and $138 million, respectively, representing year-over-year increases of 14% and 42%, respectively, despite facing a 20% decrease in rig count over the same time period. We generated $111 million of unlevered free cash flow, which was an annual record for KLX.

23 was a tremendous year for <unk> on numerous fronts marked by outstanding operational performance financial successes post Covid record HSE performance and statistics continued market share gains within investment grade and blue chip customers and significant strategic advancements including.

The commercialization of multiple proprietary offerings and the accretive acquisition of Green Energy group.

We generated record revenue and adjusted EBITDA of $888 million and $138 million, respectively, representing year over year increases of 14% and 42% respectively. Despite facing a 20% decrease in rig count over the same time period.

We generated $111 million of Unlevered free cash flow, which was an annual record for calix.

Christopher J. Baker: We ended the year with $113 million in cash and $154 million of liquidity, a 96% and 52% increase year over year, respectively. KLX exited 2023 with an LTM net leverage ratio of only 1.2 times, which is our lowest LTM net leverage ratio since the notes were put in place in 2018, and well ahead of our internal goals set at the outset of the merger with QES. We achieved this financial success despite a 20% decline in rig count and all while improving our TRIR, LTIR, and vehicle incident rates by 37%, 48%, and 32%, respectively, yielding post-COVID record safety performance. We have seen rapid customer adoption of our latest technologies, including our phantom dissolvable plug and our Oracle SmartReach ERT. We sold 56% of our total 2023 dissolvable plug sales in Q4 and experienced an 85% sequential increase in dissolvable plugs sold from Q3 to Q4. We now have surpassed 1.1 million running feet and drilled out almost 3,000 plugs with our new proprietary smart Oracle ERT.

We ended the year with $113 million in cash and $154 million of liquidity, a 96% and 52% increase year over year, respectively.

<unk> exited 2023 with an LTM net leverage ratio of only one two times, which is our lowest LTM net leverage ratio since the notes were put in place in 2018, and well ahead of our internal goals set at the outset of the merger with UBS.

We achieved this financial success, despite a 20% decline in rig count and all while improving our tier I or LTR and vehicle incident rates by 37%, 48% and 32%, respectively, yielding post COVID-19 record safety performance.

Have seen rapid customer adoption of our latest technologies, including our Phantom Dissolvable plug and our Oracle smart reach ERC.

We sold 56% of our total 2023, Dissolvable plug sales in Q4 and experienced an 85% sequential increase and Dissolvable plugs sold from Q3 to Q4.

We now have surpassed $1 1 million running feet and drilled out almost 3000 plugs with our new proprietary smart Oracle E. R. A T.

Christopher J. Baker: Customers are excited about Oracle's performance and inherent clean-out benefits, and we believe KLX is now uniquely positioned in the market as we are able to offer a leading fleet of large diameter coil tubing and cutting-edge proprietary ERT and BHA. And lastly, we have made a concerted effort over the last 24 months to upgrade our customer base. We worked for approximately 680 customers in 2023, which is down materially from greater than 1,200 customers in 2019. The company today is focused on providing products and services to the largest, most active, and best-capitalized E&P operators across our geographic areas of operation. Our 2023 top 10 customers accounted for approximately 41% of our revenue and included seven investment grade operators and nine of the top 20 operators by rig count. E&P customers continued their record pace of consolidation with over $100 billion of total mergers and acquisitions announced in 2023 in the Permian Basin alone. An added benefit of our customer high-grading strategy is that KLX has thus far had outsized relationships with the acquirers in the most recent wave of E&P consolidation.

Mers or excited about oracle's performance and inherent cleanup benefit and we believe calix is now uniquely positioned in the market as we are able to offer a leading fleet of large diameter coiled tubing and cutting edge proprietary ERP and BHA.

And lastly, we have made a concerted effort over the last 24 months to high grade our customer base. We worked for approximately 680 customers in 2023, which is down materially from greater than 200 customers in 2019, because the company today is focused on providing products and services to.

The largest most active and best capitalized E&P operators across our geographic areas of operations or.

Our 2023 top 10 customers accounted for approximately 41% of our revenue and includes seven investment grade operators and nine of the top 20 operators by rig count.

E&P customers continued their record pace of consolidation with over 100 billion of total mergers and acquisitions announced in 2023 in the Permian Basin alone.

The added benefit of our customer high grading strategy as <unk> has thus far had outsized relationships with the acquirers in the most recent wave of E&P consolidation.

Christopher J. Baker: So we believe the consolidation trend will be a net positive for KLX as it creates an opportunity to capture additional market share with these leading customers. With that said, I'll now jump into the Q4 results. Despite continued softness and underlying U.S. activity with the frack spread count down 6% sequentially and a rig count that is down 25% from 2023's peak, we are pleased with our quarterly results, particularly our ability to continue to generate free cash flow and improve our cash, liquidity, and leverage position. As we have guided, our fourth quarter performance was negatively affected by reduced seasonal activity during the holiday season and decreased spending due to budget exhaustion and We observed a significant increase in the number of customers taking nearly a full week off for the Christmas holiday, surpassing the previous year's trend.

So we believe the consolidation trend will be a net positive for <unk> as it creates an opportunity to capture additional market share with these leading customers.

With that I'll now jump into Q4 results.

Despite continued softness in underlying U S activity with Frac spread channels down 6% sequentially and a rig count that is down 25% from 2023 peak. We are pleased with our quarterly results, particularly our ability to continue to generate free cash flow and improved our cash liquidity and leverage position.

Yeah.

Consistent with our guide our fourth quarter performance was negatively affected by reduced seasonal activity during the holiday season and decreased spending due to budget exhaustion and capital discipline.

We observed a significant increase in the number of customers, taking nearly a full week off for the Christmas holiday, surpassing previous years' trends.

Christopher J. Baker: Q4 revenue was $194 million, and we reported a 12% adjusted EBITDA margin, with a net loss and adjusted EBITDA coming in at negative $9 million and $23 million, respectively. In the fourth quarter, our revenue mix was well balanced, both in terms of geographical distribution and product assortment. Geographically, the Southwest represented 35% of revenue, on par with Q3. The Northeast Midcon represented 34% of Q4 revenue, up from 30% in Q3. And the Rockies generated 31% of revenue, down sequentially from 35% in Q3. KLX has broad exposure to both oil and gas producing regions.

Q4 revenue was $194 million and we reported a 12% adjusted EBITDA margin with a net loss and adjusted EBITDA coming in at negative $9 million and $23 million respectively.

In the fourth quarter, our revenue mix was well balanced both in terms of geographical distribution and product assortment.

Geographically the southwest represented 35% of revenue on par with Q3, the northeast mid Con represented 34% of Q4 revenue up from 30% in Q3, and the Rockies generated 31% of revenue down sequentially from 35% in Q3 <unk>.

<unk> has broad exposure to both oil and gas producing regions. However, approximately 84% of 2023 revenue was driven by oil directed activity.

Christopher J. Baker: However, approximately 84% of 2023 revenue was driven by oil-directed activity. Our gas-driven activity represented approximately 16% of 2023 revenue, including the Haynesville, which accounted for approximately 9%, and the Northeast, which accounted for approximately 7%. I would note that we offer a more targeted product and service offering in these areas, whereby we have large market leading positions. We actually experienced a sequential increase in Hainesville revenue from Q3 to Q4, and Q4 represented the strongest Hainesville quarterly revenue since Q1 2023. From a product line perspective, completion-focused activity drove 51% of Q4 revenue, drilling was 25%, and production and intervention was 24%. We saw sequential activity declines primarily driven by seasonal slowdowns, budget exhaustion, capital discipline, and weather across all of our PSLs, other than pressure pumping and downhole production services, which were up sequentially on the previously disclosed FRAC contract and continued market adoption of our newly commercialized phantom KLX remains committed to optimizing utilization rates and safeguarding pricing strategies to maximize margin and generate free cash flow.

Our gas driven activity represented approximately 16% of 2023 revenue, including the Haynesville, which accounted for approximately 9% in the northeast which accounted for approximately 7%.

I would note that we offer a more targeted product service offering in these areas whereby we have large market leading positions, we actually experienced a sequential increase in the haynesville revenue from Q3 to Q4 and Q4 represented the strongest haynesville quarterly revenue since Q.

One 2023.

From a product line perspective completions focused activity drove 51% of Q4 revenue drilling was 25% and production and intervention was 24% we.

We saw sequential activity declines, primarily driven by seasonal slowdowns budget exhaustion capital discipline and weather across all of our PSL other than pressure pumping and downhole production services, which were up sequentially on the previously disclosed frac contract and continued market adoption of our newly commercialized.

<unk> Phantom Dissolvable plug.

<unk> remains committed to optimizing utilization rates and safeguarding pricing strategies to maximize margin and generate free cash flow.

<unk> 2023 performance showcases the resiliency of our diversification strategy by illustrating our capacity to generate substantial free cash flow even in a demanding market backdrop.

Christopher J. Baker: KLX's 2023 performance showcases the resiliency of our diversification strategy by illustrating our capacity to generate substantial free cash flow, even in a demanding market backdrop. Throughout 2023, our operations team demonstrated exceptional performance by effectively adapting our cost structures and upholding disciplined pricing strategies. By leveraging the advantages of geographic and PSL diversification, we have successfully driven strong results. Our dedicated team members are strategically positioned across all major U.S. onshore basins, enabling us to efficiently deliver our extensive range of differentiated services and proprietary products.

Throughout 2023, our operations team demonstrated exceptional performance by effectively adapting our cost structures and upholding disciplined pricing strategies.

By leveraging the advantages of geographic and PSL diversification, we have successfully driven strong results. Our dedicated team members are strategically positioned across all major U S onshore basins, enabling us to efficiently deliver our extensive range of differentiated services and proprietary.

Terry products, the exceptional caliber of our team and service offerings positions us to capture a greater portion of customer spending, particularly with a strong emphasis on the largest most active and well capitalized operators in the U S onshore market.

Christopher J. Baker: The exceptional caliber of our team and service offerings positions us to capture a greater portion of customer spending, particularly with a strong emphasis on the largest, most active, and well-capitalized operators in the US onshore market. With that, I'll now turn the call over to Keefer, who will review our financial results in more detail, and I'll return later in the call to discuss our outlook in greater detail.

With that I'll now turn the call over to Keefer, who will review our financial results in more detail and I'll return later in the call to discuss our outlook in greater detail Keefer.

Keefer M. Lehner: Thanks, Chris. Good morning, everyone. As Chris mentioned, we reported quarterly revenue of $194 million, representing a 12% sequential decrease, which is lower than the 21% sequential decline in crude price and a 25% decrease in rig count from 2023 highs. The Southwest and MidCon Northeast segments contributed 35% and 34% of Q4 revenue, respectively, led in the southwest by directional drilling, rentals, and coiled tubing product service lines, and in the mid-con by our pressure pumping The Rockies contributed 31%, led by Rentals, Coal Tubing, and Tech Services.

Thanks, Chris Good morning, everyone as Chris mentioned, we reported quarterly revenue of $194 million, representing a 12% sequential decrease which is lower than the 21% sequential decline in crude price and then 25% decrease in rig count from 2023 highs.

The southwest and mid Con northeast segments.

<unk> contributed 35% and 34% of Q4 revenue respectively led in the southwest bi directional drilling rentals and coiled tubing product service lines and in the mid con by our pressure pumping directional drilling and accommodation offerings.

The Rockies contributed 31% led by rentals coil tubing and Tech services.

Fourth quarter consolidated adjusted EBITDA was $23 million and adjusted operating income was approximately $3 million.

Keefer M. Lehner: Fourth quarter consolidated adjusted EBITDA was $23 million, and adjusted operating income was approximately $3 million. Full year consolidated adjusted EBITDA was $138 million, and adjusted operating income was $62 million. Total SG&A expense for Q4 was $20 million, and was $87 million for the full year.

Full year consolidated adjusted EBITDA was $138 million and adjusted operating income was $62 million.

Total SG&A expense for Q4 was $20 million and was $87 million for the full year.

Keefer M. Lehner: When you back out the non-recurring costs, adjusted SG&A expense for Q4 would have been only $19 million, or just 9.8% of quarterly revenue, and full year would have been $77 million, or just 8.7% of annual revenue. We take pride in maintaining one of the most streamlined overhead structures in the sector for diversified businesses. Our ongoing focus is on further scaling operations while concurrently reducing G&A expense as a percentage of revenue. We generated a net loss of $9 million in Q4.

When you back out the nonrecurring cost adjusted SG&A expense for Q4 would have been only $19 million or just nine 8% of quarterly revenue and full year would have been $77 million or just eight 7% of annual revenues.

We take pride in maintaining one of the most streamlined overhead structures in this sector for a diversified business.

Our ongoing focus is on further scaling operations, while concurrently reducing G&A expense as a percentage of revenue.

We generated a net loss of $9 million in Q4.

Keefer M. Lehner: On a full year basis, we generated $19 million in net income and $1.22 per diluted share. Fully Adjusted Net Income and Adjusted Diluted EPS were $24 million and $1.54, respectively. Turning now to a review of our segment results, I'll begin with the Southwest segment. The Southwest segment experienced a 13% sequential revenue decrease and a 10% year-over-year decrease in revenue to $67 million in the fourth quarter of 2023. The sequential decline in revenue was largely driven by lower utilization and pricing across most completion, production, and intervention product lines, including rentals, fishing, wireline, and flowback. Q4 adjusted operating income for the Southwest segment was approximately $2 million, and adjusted EBITDA was $9 million. The Rocky Mountain Segment's fourth quarter revenue was $60 million, representing a 22% sequential decrease and a 9% decrease over the prior year quarter. The sequential decrease in fourth quarter revenue was largely driven by reduced regional completions and production activity into year end. We experienced sequential revenue declines across all product and service lines.

On a full year basis, we generated $19 million and net income and $1 22 per diluted share.

Full year, adjusted net income and adjusted diluted EPS were $24 million and $1 54, respectively.

Turning now to a review of our segment results I'll begin with the southwest segment.

The southwest segment experienced a 13% sequential revenue decrease and a 10% year over year decrease in revenue to $67 million in the fourth quarter of 2023.

The sequential decline in revenue was largely driven by lower utilization and pricing across most completion production and intervention product lines.

Including rentals fishing wireline and flowback Q.

Q4, adjusted operating income for the southwest segment was approximately $2 million and adjusted EBITDA was $9 million.

Rocky Mountains segment fourth quarter revenue was $60 million.

Representing a 22% sequential decrease and a 9% decrease over the prior year quarter.

The sequential decrease in fourth quarter revenue was largely driven by reduced regional completions and production activity into year end.

We experienced sequential revenue declines across all product service lines.

Keefer M. Lehner: Adjusted operating income for the fourth quarter was $7 million, and adjusted EBITDA was $13 million. Northeast MidCon Q4 revenue was $67 million, a 2% increase relative to Q3, driven largely by higher activity in our frac business, where we continue to run two spreads, one of which is now operating under a contract with a top tier operator. We pumped twice as many stages in Q4 as compared to Q3 and experienced slightly improved pricing and utilization across a few of our broader completion and production intervention service lines. Segment adjusted operating income for the fourth quarter was just over $4 million, and adjusted EBITDA was $11 million for the quarter. Overall, the sequential decrease in profitability was driven by increased white space and a shift in mix with reduced contribution from some of our higher-margin product service lines At corporate, our adjusted operating loss and adjusted EBITDA loss for Q4 were $10.4 million and $9.2 million, respectively.

Adjusted operating income for the fourth quarter was $7 million and adjusted EBITDA was $13 million.

Northeast mid Con Q4 revenue was $67 million, a 2% increase relative to Q3, driven largely by higher activity in our Frac business, where we continue to run two spreads one of which is now operating under a contract with a top tier operator.

We pumped twice as many stages in Q4 as compared to Q3 and experienced slightly improved pricing and utilization across a few of our broader completion and production intervention service lines.

Segment adjusted operating income for the fourth quarter was just over $4 million and adjusted EBITDA was $11 million.

For the quarter.

Overall, the sequential decrease in profitability was driven by increased white space and a shift in mix with reduced contribution from some of our higher margin product service lines, including rentals in fishing.

At corporate our adjusted operating loss and adjusted EBITDA loss for Q4 were $10 4 million and $9 $2 million respectively.

Corporate adjusted EBITDA loss improved by 6% sequentially and 28% compared to Q4 2022.

Keefer M. Lehner: Corporate adjusted EBITDA loss improved by 6% sequentially and 28% compared to Q4 2022. On a full year basis, our corporate adjusted operating loss and adjusted EBITDA loss were $45 million and $40 million, respectively, both of which improved approximately 1% compared to 2022. These results highlight our capability to successfully integrate acquisitions and leverage economies of scale. I'll now turn to networking capital, cash flow, and capitalization. Networking capital was approximately $47 million as of Q4. We reduced net debt 11% sequentially, ending the quarter with a net debt balance of $172 million.

On a full year basis, our corporate adjusted operating loss and adjusted EBITDA loss were $45 million and $40 million, respectively, both of which improved approximately 1% compared to 2022.

These results highlight our capability to successfully integrate acquisitions and leverage economies of scale.

I'll now turn to networking capital cash flow and capitalization.

Net working capital was approximately $47 million as of Q4.

We reduced net debt, 11% sequentially ending the quarter with a net debt balance of $172 million and based on last 12 month's results. We have a net leverage ratio of just one two times.

Keefer M. Lehner: And based on the last 12 months' results, we have a net leverage ratio of just 1.2 times. Our year-end cash balance was $113 million. That was up 25% from $90 million in Q3 and up 96% from 2022. The sequential and year-over-year increases in cash were largely driven by our ability to efficiently convert adjusted EBITDA to free cash flow and proactive, efficient management of net working capital. We ended the fourth quarter with roughly $154 million in liquidity, consisting of $113 million in cash and availability of $42 million under our December 2023 ABL borrowing-based certificate. We did not issue shares under our ATM in 2023.

Our year end cash balance was $113 million that was up 25% from $90 million in Q3.

And up 96% from 2022.

The sequential and year over year increases in cash were largely driven by our ability to efficiently convert adjusted EBITDA to free cash flow and proactive efficient management of networking capital.

We ended the fourth quarter with roughly $154 million in liquidity, consisting of $113 million of cash and availability of $42 million.

Under our December 2023, ABL borrowing base certificate.

We did not issue shares under our ATM in 2023.

Our ABL and senior secured notes both mature in the fall of 2025.

Keefer M. Lehner: Are ABL and Senior Secured Notes both maturing in the fall of 2025? Given our performance in 2023, we believe the business is well positioned and conservatively capitalized. We'll continue to monitor market conditions and opportunities to refinance our senior secure notes and ABL as we progress through 2024. Now, turning to CAPEX. Fourth quarter capital expenditures were $13 million, which were primarily focused on maintenance spending across our various segments. Q4 Net CapEx, capital expenditures less asset sales, was approximately $9 million.

And given our performance in 2023, we believe the business is well positioned and conservatively capitalized we will continue to monitor market conditions and opportunities to refinance our senior secured notes and ABL as we progressed through 2024.

Now turning to Capex fourth quarter capital expenditures were $13 million, which were primarily focused on maintenance spending across our various segments.

Q4, net capex capex less asset asset sales was approximately $9 million.

Keefer M. Lehner: Going forward, we expect total CapEx for 2024 to be in the range of $50 to $60 million. The majority of the budgeted CapEx will be allocated to maintenance expenses, with around 75% dedicated to supporting ongoing operations. The remaining funds will be allocated to quick payback reactivation and growth initiatives across various areas such as rental, frack rental, and coil tubing. We continually assess capital expenditure levels and drivers to identify current trends and potential inefficiencies to ensure they are in line with prevailing market conditions. During Q4, we sold approximately $3 million in assets.

Going forward, we expect total capex for 2024 to be in the range of $50 million to $60 million. The majority of the budgeted capex will be allocated to maintenance expenses with around 75% dedicated to supporting ongoing operations.

The remaining funds will be allocated to quick payback reactivation and growth initiatives across various areas such as rentals, frac rentals and coiled tubing.

We continually assess capital expenditure levels and drivers to identify current trends and potential inefficiencies to ensure they are in line with prevailing market conditions.

During Q4, we sold approximately $3 million in assets at the end of the fourth quarter, we still had $2 $3 million of assets held for sale reflected on the balance sheet.

Keefer M. Lehner: And at the end of the fourth quarter, we still had $2.3 million of assets held for sale reflected in the balance. Moving forward, our focus remains on optimizing free cash flow, maintaining a strong balance sheet, and prudently managing capital as we actively pursue value-enhancing growth and M&A opportunities. I'll now turn the call back to Chris, who will provide some additional color on the current market and our outlook for Q1 and the remainder of 2024. Thanks, Keefer.

Moving forward, our focus remains on optimizing free cash flow, maintaining a strong balance sheet and prudently managing capital as we actively pursue value enhancing growth and M&A opportunities.

Now I'll turn the call back to Chris who will provide some additional color on the current market and our outlook for Q1 and the remainder of 2024.

Thanks Keefer before.

Christopher J. Baker: Before we wrap up, I'd like to share some additional details on our outlook. As we enter 2024, we are confident that our platform is exceptionally well positioned to capitalize on the growing customer consolidation trend. Customers continue to search for performance-driven, technologically differentiated services providers with exemplary safety records and job execution, and we check all of those boxes. Our confidence stems from various factors, including our efficient cost structure, expanded asset capacity, and utilization of cutting-edge technology. These elements contribute to the KLX platform's strong market position.

We wrap up I'd like to share some additional details on our outlook.

As we enter 2024, we are confident that our platform is exceptionally well positioned to capitalize on the growing customer consolidation trend customers continue to search for performance driven technologically differentiated services providers with exemplary safety records and job execution, and we check all of those boxes.

Our confidence stems from various factors, including our efficient cost structure expanded asset capacity and utilization of cutting edge technology. These elements contribute to the calix platforms strong market position.

Currently we anticipate that our business will be focused on prioritizing crude utilization and pricing strategies to drive margins and free cash flow we.

Christopher J. Baker: Currently, we anticipate that our business will be focused on prioritizing crew utilization and pricing strategies to drive margins and free cash flow. We believe KLX and the broader U.S. onshore oilfield services industry, in general, are positioned exceptionally well as we move into the second half of 2024. More specifically, the forward natural gas strip is highly constructive into 2025 and 2026 due to the much anticipated incremental LNG offtake demand.

We believe <unk> and the broader U S onshore oilfield services industry in general is positioned exceptionally well as we move into the second half of 2024.

More specifically the forward natural gas strip is highly constructive into 2025 and 2026 due to the much anticipated incremental LNG offtake demand.

Christopher J. Baker: Global LNG demand is expected to double over the next two years, and we believe this increase will drive incremental natural gas-directed activity that will ultimately lift and support service pricing and utilization across all bases. Based on what we know today, we expect our first quarter to be down sequentially, driven by normal seasonality and January's polar vortex weather system, which impacted the majority of our operations, particularly in the Rockies, Midcon, and Texas. We estimate that approximately four to six revenue days were lost in the first quarter due to this event.

Global LNG demand is expected to double over the next two years and we believe this increase will drive incremental natural gas directed activity that will ultimately lift and support service pricing and utilization across all basins.

Based on what we know today, we expect our first quarter to be down sequentially driven by normal seasonality January polar vortex weather system, which impacted the majority of our operations, particularly in the Rockies Midcon and Texas, We estimate approximately four to six revenue days were lost in the first quarter.

<unk> due to this event.

Additionally, Q1 activity in the Rockies has been negatively impacted by non <unk> generated safety stand down for two separate customers. While the revenue loss is expected to be made up over the course of 2024 as customers maintained their budget. It will not be recovered during Q1.

Christopher J. Baker: Additionally, Q1 activity in the Rockies has been negatively impacted by non-KLX-generated safety stand-downs for two separate customers. While the revenue loss is expected to be made up over the course of 2024, as customers maintain their budgets, it will not be recovered during Q1. With that said, based on our current schedules, we expect to exit the first quarter on a strong monthly run rate and to approach 2023 levels of revenue and adjusted EBITDA in the second quarter and beyond. For the full year of 2024, we expect full-year revenue to be in line with or slightly above second half 2023 annualized levels with material shape to the year, as the current calendar calls for a slower start in Q1 and increasingly stronger performance through Q2 and Q3, with only modest seasonality in Q4, which we expect will be less pronounced in 2023, as gas-directed activity should begin to improve late in the year.

With that said based on our current schedules, we expect to exit the first quarter on a strong monthly run rate and to approach 2023 levels of revenue and adjusted EBITDA in the second quarter and beyond.

For the full year of 2024, we expect full year revenue to be in line with or slightly above second half 2023 annualized levels with material shape to the year as the current calendar calls for a slower start in Q1 and increasingly stronger performance through Q2 and Q3 with only.

Modest seasonality in Q4, which we expect will be less pronounced in 2023 as gas directed activity should begin to improve late in the year.

Finally, our M&A strategy remains focused on identifying and pursuing accretive opportunities that add depth are complementary technology to our overall product service offerings and enhance our customer value proposition.

Christopher J. Baker: Transcribed by https://otter.ai, Finally, our M&A strategy remains focused on identifying and pursuing accretive opportunities that add depth or complementary technology to our overall product service offering and enhance our customer value proposition. If Exxon and Pioneer need to scale, then everyone needs to scale. The sell side is showing signs of life, but the bid-ask spread remains wide. The discrepancy in the rate of consolidation between our customers and the service providers may partly be attributed to the service sectors, depressed market multiples, and highly fragmented competitive landscapes.

Exxon and pioneer needs to scale, then everyone needs to scale. The sell side is showing signs of life, but the bid ask spread remains wide the discrepancy in the rate of consolidation between our customers and the service providers.

Partly be attributed to the service sector sectors depressed market multiples and highly fragmented competitive landscape.

Christopher J. Baker: However, we firmly believe that we offer M&A counterparties an appealing opportunity to engage in value-creating equity-linked transactions, whereby they can ultimately realize an exit via a well-capitalized liquid publicly traded stock. We have a proven track record of successfully identifying and realizing synergies and quickly integrating acquired and, With a strong foundation and capitalization, KLX's proactive strategy involves actively pursuing creative and synergistic M&A opportunities to further expand and scale our existing platform. In summary, I would like to express my gratitude to every member of the KLX team for their unwavering dedication to safety, customer service, and the successful execution of our strategic initiatives. The hard work and commitment of our team members have been instrumental in driving our success, and I extend my sincere appreciation for their contribution. With that said, we'll now take your questions. Operator?

However, we firmly believe that we offer M&A counterparties and appealing opportunity to engage in value, creating equity linked transactions whereby they can ultimately realize an exit via a well capitalized liquid publically traded stock.

We have a proven track record in successfully identifying and realizing synergies and quickly integrating acquired entities.

With a strong foundation and capitalization <unk> proactive strategy involves actively pursuing accretive and synergistic M&A opportunities to further expand and scale our existing platform.

In summary, I would like to express my gratitude to every member of the <unk> team for their unwavering dedication to safety customer service and the successful execution of our strategic initiatives. The hard work and commitment of our team members has been instrumental in driving our success and I extend my son.

Seer appreciation for their contributions.

With that said, we will now take your questions operator.

Thank you.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone. A confirmation tool will indicate your line is in the question queue.

Like to ask a question. Please press star one on your telephone keypad.

Tone will indicate your line is in the question queue.

Operator: You may press star 2 if you would like to remove your question from the queue for participation. Speaker Equipment, and it may be necessary to pick up your handset before pressing the start button. Please ask one question and one follow-up question and then re-queue for additional questions. Our first question is from Luke Lemoine with Paper Sandler, please. Chris, you talked about getting back to 23 quarterly rev and EBITDA levels in 2K. Talk about it. Unknown Speaker, the factors you see driving this uptake in various products Market Share gains, customer Mic, face, and make, just any commentary. Yeah, good morning, Luke.

Press Star two if he would like.

A question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow up question and then re queue for additional questions.

Our first question is from Luke Lemoine with Piper Sandler. Please proceed.

Okay.

Chris you talked about getting back to 'twenty, three quarterly RASM EBITDA levels in Q2 and beyond but could you talk about the.

Factors you see driving this isn't uptake in various products market share gains customer mix based on mix or just any commentary you can provide would be helpful.

Yes, good morning Luke.

Luke Michael Lemoine: That's a pretty broad question. I think it ties into our overall guidance and kind of how we're thinking about the macro as a whole. I think, you know, to your initial question around guidance, etc. Look, I think the general consensus is the first half of the year is going to be slower with more growth in the second half of the year and optimism going into 25 and 26. Looking at our calendars, as we sit here today, we see a pretty material leg up in Q2, just solely based on customer feedback and our current calendars and schedule. I think general market expectations are, you know, incremental expansion into Q3. Some of that for us, as you well know, is driven by our weather-sensitive regions and the Rockies, et cetera.

That's a pretty broad question I think it ties into our overall guidance and kind of how we're thinking about the macro as a whole I think.

Yes.

To your initial question around guidance et cetera look I think first it feels like general consensus is the first half of the year is going to be slower with more growth in the second half of the year and optimism going into 25% and 26 looking at our calendars as we sit here today, we see a pretty material leg up in Q2.

Just solely based off of customer feedback and our Kirk calendars and schedule I think general market expectations are.

Her mental expansion into Q3, some of that for US as you well know is driven by our weather sensitive regions in the Rockies et cetera in the production and intervention side of our business is typically much stronger in Q2, and Q3 and so look Q4 as everybody knows is a bit of a wildcard I think everybody's looking ahead at the wave.

Christopher J. Baker: And the production and intervention side of our business is typically much stronger in Q2 and Q3. And so look, Q4, as everybody knows, is a bit of a wild card. I think everybody's looking ahead at the wave of gas demand; the forward strip is clearly high, and highly constructive if it holds. I think two key points that a lot of people are overlooking. First, if WTI stays range bound in the 70 to $80 range and the gas strip holds, the reality is that Eagleford and the MidCon become much more economical when gas gets above $2.50, let alone $3. And so we're having customer conversations. And I think those basins, what's the incremental activity in the second half relative to the first? The other is if you roll the clock back to October 23, a number of industry veterans, and probably including a couple in this call, were calling for 40 plus rigs in the Haynesville being added in 2024. That hope was clearly thrown out with the bath water back in December. You know, that being said, look.

<unk> of gas demand the forward strip is clearly highly constructive if it holds.

Think two key points that a lot of people are overlooking.

First if <unk> stays range bound in the 70 to $80 range and the gas strip holds the reality is the Eagle Ford and the mid con become much more economic when gas gets above $2 50, let alone $3 and so.

We're having customer conversations and I think those basins.

Well see incremental activity in the second half relative to the first the other is if you roll the clock back to October 23, a number of industry veterans and probably including a couple of them. This call, we're calling for 40 plus rigs in the Haynesville being.

Being added in 2024 that hope was clearly thrown out with the bathwater back in December.

That being said look if.

We see any semblance of that kind of rig count in Q4, starting in Q4 into 2025. The reality is that is highly accretive to margins across all basins due to the service intensity. The haynesville, we've seen it before service companies will flock back to the Haynesville chasing.

Christopher J. Baker: We see any semblance of that kind of rig count in Q4, starting in Q4 into 2025; the reality is that it's highly accretive to margins across all basins due to the service intensity of the Hainesville. We've seen it before; service companies will flock back to the Hainesville chasing outsized returns in a basin that's very onerous on assets. And ultimately, I think the timing of the gas-directed activity rebound will lift every basin.

Outsized returns in a basin thats very onerous on assets and ultimately I think the timing of the gas directed activity rebound will lift every base and so I think we have a leg up the timing is what's in question and so.

I think the loaded question is if the strip holds do operator stand up rigs in the gas basins in Q4 or do they wait until Q1 of 'twenty five.

Christopher J. Baker: And so I think we have a leg up; the timing is what's in question. And so, you know, I think the loaded question is, if the strip holds, do operators stand up rigs in the gas basins in Q4, or do they wait until Q1 of 2025? The other last point I would make is, look, we're going to benefit from a full year of the Greens acquisition, as well as the recently commercialized downhole tools that we've been talking about on the dissolvable plug and ERT side. So I think we have a full year's benefit from all three of those.

The other last point I would make is look we're going to benefit from a full year of the Greens acquisition as well as the recently commercialized downhole tools that we've been talking about on the Dissolvable plug and ERP side. So I think we have a full year benefit of all three of those and so as we're sitting here today.

We think Q1 as well.

It will be a bit transitory in the back half of the euro finish materially stronger.

Okay.

And then just on <unk>, you've talked about a lot of issues at play and definitely understandable, but any kind of specificity you can kind of provide surrounding <unk>.

Christopher J. Baker: And so as we're sitting here today, we think Q1 will be a bit transitory, and the back half of the year will finish materially stronger, and then just a cue. We've talked about a lot of the issues at play, and you know, definitely understandable, but any kind, Specificity. No, I think you should look at it, we covered it, we said it was going to be down sequentially quarter over quarter, and we talked about some of the puts and takes. As you well know, when we're running two plus million dollars of revenue a day, a couple of days are lost due to polar vortexes. Otherwise, y'all can probably do the math, but we haven't provided any quantitative guidance on 1Q yet beyond what we said in the prepared remark. And then maybe sneak just one more in real quick.

No I think look we covered it we said it's going to be down sequentially quarter over quarter, we talked about some of the puts and takes.

As you well know when we're running two plus million dollars of revenue a day a couple of.

Days lost due to the polar vortex as otherwise youll can probably do the math, but we haven't provided any quantitative guidance on <unk> yet beyond what we said in the prepared remarks.

Okay, and then maybe Steve just one more real quick keefer on working capital.

Excellent job in 'twenty, three on that and had a nice tailwind any kind of thoughts on 'twenty four working capital kind of based on your.

Revenue and EBITDA outlook for the year.

Yes, good question.

Based on I think that the revenue guide for the year sure.

Shape of working capital, probably looks pretty similar for <unk> 24 versus 2023.

Keefer M. Lehner: Keefer on working capital. You did an excellent job and 23 on that and had a nice, Unknown Speaker Any kind of thoughts on, you know, the 24 working capital kind of revenue and EBITDA? Yeah, good question.

Typically Q1 is a working capital intensive quarter for us.

Particularly on the.

The payroll and AP side, I think you saw that in 2023 as well.

Look we're constantly monitoring working capital, we're very proactively manage we work really hard on customer collections and work hard with our vendors.

Keefer M. Lehner: You know, based on I think that the revenue guide for the year, the shape of working capital probably looks pretty similar for 24 versus 2023. You know, typically, Q1 is a working capital intensive quarter for us, particularly on the payroll and AP side. I think you saw that in 2023 as well.

We will be able to continue to efficiently.

Manage working capital on a go forward basis.

Okay. Thanks.

Thanks, Chris Thanks Keefer.

Thank you Luke.

Our next question is from Steve <unk> with Sidoti <unk> Company. Please proceed.

Keefer M. Lehner: But look, we're constantly monitoring working capital. We very proactively manage it. We work really hard on customer collections and work hard with our vendors. So I think we'll be able to continue to efficiently manage working capital. Okay, thanks Chris. Thank you, Luke. Our next question is from Steve Frisani with Sudotian Company. Morning, Chris. Morning, Keefer.

Good morning, Chris Good morning, Keefer I appreciate all the detail on the call.

Wanted to walk back to sort of your outlook for 'twenty four.

Guiding sequentially down in Q1, I'm trying to get a feel for how much of the Q1 sequential decline is polar vortex and weather related issues versus industry related issues, because I'm trying to figure out how you get to <unk>.

Our Q2 versus Q1.

Steve Frisani: Appreciate all the detail on the call. I just want to walk back to sort of your outlook for 24. Guiding sequentially down in Q1. I'm trying to get a feel for how much of the Q1 sequential decline is polar vortex and weather-related issues versus industry-related issues because I'm trying to figure out how you get better. Yeah, it's a great question.

Yes, it's a great question and I think.

Some of the transitory issues, we talked about so we referenced on the call prepared remarks, four to six days kind of accruals.

The Rockies, Texas and mid Con area clearly in January from a polar vortex standpoint, there is other puts and takes.

We'll talk about those because we don't need to have them fully quantified yet with the safety stand downs that have gone on in the Bakken and the Rockies specifically so we can address those in in our Q1 remarks next quarter I think the balance really comes down to just general seasonality in the Rockies, specifically, we've talked about it before.

Christopher J. Baker: And I think, you know, some of the transitory Issues we talked about. So we referenced on the call, in prepared remarks, four to six days kind of across the Rockies, Texas, and MidCon area clearly in January from a polar vortex standpoint. There are other puts and takes; we will talk about those, because we don't even have them fully quantified yet with the safety stand-downs that have gone on in the Bakken and the Rockies specifically. So we can address those in our Q1 remarks next quarter. I think the balance really comes down to just general seasonality in the Rockies specifically. We've talked about it before. You have regulatory issues with wildlife migrations, et cetera.

Regulatory issues with the with the wildlife migrations et cetera, you just have overall seasonality, especially when it comes to the production and intervention side, where a lot of times.

Those businesses in those segments really kicked off once they receive their full year budget et cetera.

Exiting January and into February so, we typically see a leg up in March.

That's kind of what our calendars are suggesting today as we're seeing an inflection specifically in those basins as well as candidly some of the production and intervention work in the northeast in March in the current calendar as we see it all the way out through May continues to see a step up there as well as across our frac rentals business, including our isolation tools et cetera.

Christopher J. Baker: You just have overall seasonality, especially when it comes to the production intervention side, where a lot of times those businesses and those segments really kick off once they receive their full year budget, et cetera, exiting January and into February. And so we typically see a leg up in March. That's kind of what our calendars are suggesting today as we're seeing an inflection specifically in those basins, as well as some of the production intervention work in the Northeast in March. And the current calendar, as we see it, all the way out through May, continues to see a step up there, as well as across our frac rental business, including our isolation tools, et cetera, in the DJ. So current calendars and outlook definitely suggest an improved Q2. And I would expect, just based on if history repeats itself, Q3 would continue that trend, especially in the Northern region. That's helpful.

In the D J so.

Current calendars and outlook definitely suggest an improved Q2 and I would expect just based off of if history repeats itself Q3, we continue that.

That guide, especially in the northern regions.

Great that's helpful.

Balance sheet significantly improved this year.

We've seen some smaller deals maybe not a ton.

How are you looking at the pipeline, what kind of things would fit.

And what are you willing to do with the balance sheet, knowing that the refinancing window probably opens later this year.

Yes, it's a great question I think.

Christopher J. Baker: Balance sheets significantly improved this year. We've seen some smaller deals, maybe not a ton. How are you looking at the pipeline? What kind of things would fit?

We referenced in our prepared remarks, we really exceeded our expectations, we kind of had an internal goal for some period of time of getting down to one five times or lower on a net leverage ratio basis, we exited the year at one two times I think Keith stated in his prepared remarks.

Christopher J. Baker: Unknown Speaker And what are you willing to do with the balance sheet, knowing that the refinancing window probably opens later this year? Yeah, it's a great question. I think, you know, we referenced in our prepared remarks that we really exceeded our expectations, we've kind of had an internal goal for some period of time of getting down to 1.5 times or lower on a net leverage ratio basis. We exited the year at 1.2 times, and I think Keefer stated in his prepared remarks that the balance sheet is as strong as it's been since the notes were put in place in 2018. So we're very proud of From a deal perspective, you know, the bid-ask spread is still there, especially with some of the private equity and kind of sponsored back deals. But, you know, it seems like volume is ramping, which I can only assume means bankers are having very honest discussions with their clients about their ability to pay unexpected multiples given where the overall sector is trading. We'll see if the bid-ask spread closes or not.

The balance sheet is as strong as it's been since the notes were put in place in 2018. So we're very proud of those results from a deal perspective, you know look the bid ask spread is still there.

Especially with some of the private equity and kind of sponsor backed deals but.

It seems like volume is ramping which I can only assume that means bankers are having very honest discussions with their clients about ability to pay and expected multiples given where the overall sector is trading we will see if the bid ask spread closers or not.

Likewise I have to assume that selling counter counterparties are irrational and realize the best approach to unlocking value is realizing synergies.

Bit of market softness in realizing the equity upside and timing their exit.

As the market ramps in the back half of the year, but I think the jury is out there and we will see but we definitely see ample deal flow today.

To your point on balance sheet use.

Christopher J. Baker: You know, likewise, I have to assume that selling counterparties are rational and realize the best approach to unlocking value is realizing synergies during a bit of market softness and realizing the equity upside, and timing their exit as the market ramps up in the back half of the year. But I think, you know, the jury is out there, and we'll see.

Look we've said it before and we're still sticking by it today I think the majority of deals that we would look to execute on will be majority equity linked is given our cash balance and our overall liquidity situation is there the ability to use some de minimis amount of cash and cash in a transaction to make it more accretive.

Sure and we will evaluate that on a deal by deal basis.

Christopher J. Baker: But we definitely see ample deal flow today. To your point on balance sheet use, look, we've said it before, and we're still sticking by it today. I think the majority of deals that we would look to execute on will be majority equity linked. Given our cash balance and our overall liquidity situation, is there the ability to use some of the minimum amount of cash in a transaction to make it more creative?

I, just just to add on the node side to follow up there.

The latter half of your question.

Chris mentioned that we talked about in the prepared remarks, but obviously our 2023 results.

In our mind, we're really strong we ended the year.

And a great financial position.

$30 million of cash $154 million and liquidity net leverage ratio is down to one two times.

Keefer M. Lehner: Sure, and we'll evaluate that on a deal-by-deal basis. I just want to add on the note side to follow up on the latter half of your question. Chris mentioned it, we talked about in the prepared March, but obviously, our 2023 results in our mind were really strong. We ended the year in a great financial position. $113 million in cash, $154 million in liquidity, and the net leverage ratio is down to 1.2 times.

So I think given our 2023 performance and we believe we're well positioned and the business is conservatively capitalized.

You noted obviously our notes mature in the fall of 2025, so we're going to work to continue to monitor capital market conditions and opportunities.

In order to refinance our notes and ABL as we worked through the 2024 years.

Okay.

Chris Thank you.

Thank you Steve Thank you.

Keefer M. Lehner: So I think given our 2023 performance, we believe we're well positioned and the business is conservatively capitalized. As you noted, obviously, our notes mature in the fall of 2025. So we're going to work to continue to monitor capital market conditions and opportunities in order to refinance our notes and ABL as we work through the 2024 year. Thanks, Chris. Thanks, Keefer.

Our next question is from John Daniel with Danielle Energy Partners. Please proceed.

Hey, good morning, hopefully you can hear me.

Yes, good morning, John.

Had a question on the safety.

<unk> down the stand down.

Are you seeing any of your customers.

And that you might be a tough one to answer but are they changing their behavior.

Eliminating are scrutinizing the vendors you're in some of your smaller service peers with respect to there.

Steve Frisani: Thank you, Steve. Thank you. Our next question is from John Daniel with Daniel Energy Partners, please. Hey, good morning. Hopefully, you can hear me. Yeah, good morning, John. I got a question on safety, shut down, stand down.

Safety maintenance programs and insurance.

Okay.

Okay.

Yes, I think I sure hope they are candidly I think that's one of the benefits we've seen from our customer base customer selection and diversification strategy. The reality is.

John Daniel: Unknown Speaker Are you seeing any of your customers, Are they changing their behavior where they're eliminating or scrutinizing the vendors you're in with some of your smaller service peers with respect, Safety Maintenance Programs, and Insurance? Yeah, I think, I sure hope they are.

You have to be as you well know well positioned from a safety perspective job execution perspective ability to bundle technologies and drive performance in the field to work for a lot of the the blue chip customers that we work for today.

If you think about our customer list back in 2018 2019, we would've worked for over 12 of our customers. This year. We work for just over 650 unique customers and so we're definitely seeing that we're seeing a high grading. If you will of customer opportunity set across the board as a business you have to be positioned.

Christopher J. Baker: I think that's one of the benefits we've seen from our customer-based customer selection and diversification strategy. The reality is you have to be, as you well know, well positioned from a safety perspective, job execution perspective, and ability to bundle technologies and drive performance in the field to work for a lot of the blue chip customers that we work for today. If you think about our customer list back in 2018, 2019, we would have worked for over 1,200 customers. This year, we work for just over 650 unique customers. And so we're definitely seeing that.

To work for our top 10 top 20 operators by rig count and so thus far in this kind of ties back a little remiss in part of Luke's question. The reality of it is thus far consolidation amongst our customers as we all know has been accelerating and we think thats a net positive for KLA by and large are larger customers have.

Then the consolidators and so you see some transitory impact where the.

Christopher J. Baker: We're seeing a high grading, if you will, of customer opportunity sets across the board. And so, as a business, you have to be positioned to work for top 10, top 20 operators by recount. And so thus far, and this kind of ties back to Luke's question, I'm a little remiss in part of Luke's question. The reality of it is, thus far, consolidation amongst our customers, as we all know, has been accelerating. And we think that's a net positive for KLX. By and large, our larger customers have been the consolidators. And so you see some transitory impacts where a given customer acquires a smaller customer that's running two rigs and lays down two of the three. But the reality is, in our mind, and what we're seeing through the integrations, is that it will open up an opportunity set for KLX to expand its share of the wall, a given customer's spend and wallet, and pull through some of our technology. So we actually think there's some upside.

But given customer requires a smaller customer that's running two rigs and lays down two of the three but the reality is in our mind and what we're seeing through the integrations is that it will open opportunity set for <unk> to expand our share of the wall, a given customer spend and wallet and pull through some of our technologies. So we.

Actually think theres some upside.

I guess over the last point is yes. We are we are very proud of the safety results that our team generated last year I do think that it comes back.

Safety issues come back and the insurance requirements come back to burden some of the smaller mom and pop type operators.

But of course that takes some time to work through the system right.

Right Fair enough you mentioned the ERP.

Does that is that just proprietary to you guys on your own equipment. Our GE can you sell that and is there an opportunity.

What's the strategy there.

Any color.

Yeah, No look we're pretty proud of the results that we've seen tremendous customer adoption, especially now in any.

Christopher J. Baker: And I guess on the last point is, yes, we are, we are very proud of the safety results that our team generated last year. I do think that it comes back, you know, the safety issues come back in the insurance requirements and come back to burden some of the smaller mom and pop type operators. But of course, that takes some time to work through the system, right?

One basin, specifically and we're seeing that expand to other basins to date, John we're holding that in house and we've only run that tool on the end of KLA coil. The reality is we.

I'm sure you'll ask we were staff for 13 to 14 units through Q4, we've now expanded four of our units to ultra deep capacity. So a 30000 foot of coil, we have the ability to expand seven to eight really short dollars.

John Daniel: Unknown Speaker Right. Fair enough. You mentioned the ERT. How does that work? Is that just proprietary to you guys on your own equipment? Or can you sell it?

Christopher J. Baker: Is there an opportunity to, Yeah, no, look, we're pretty proud of the results that we've seen tremendous customer adoption, especially now in any kind of one basin specifically, and we're seeing that expand to other basins. To date, John, we're holding that in-house, and we've only run that tool on the end of KLX Coil. The reality is we, you know, I'm sure you'll ask, we were staffed for 13 to 14 units. Through Q4, we've now expanded four of our units to ultra deep capacity, so 30 plus thousand feet of coil. We have the ability to expand seven to eight for really low dollars. And so we see a ton of market opportunity just at the end of KLX coil. And so for the time being, yes, we're running it as well as just our overall proprietary BHA on our KLX extended reach coil.

So we see a ton of market opportunity just on the end of <unk>. So for the time being yes, we're running it.

As well as just our overall proprietary BHA on our Kols TALF extended reach coil.

Okay, Great and then the last one for me.

Impressive numbers on the quarter over quarter adoption of the Dissolvable can you say is that one or two customers who's going big and concentrated in specific basin, just any additional color would be helpful.

Yes, I appreciate the question.

I guess the short answer is no it's not one significant customer.

John Daniel: Unknown Speaker Right. And then the last one for me, the impressive numbers on the sort of quarter over quarter adoption of the dissolvable. Can you say if one or two customers are just going big? Unknown Speaker 05. Thanks. Unknown Speaker 05. Unknown Speaker, Transcripts edited by Transcription Outsourcing, LLC. Yeah, I appreciate the question. I guess the short answer is no, it's not one significant customer. Every customer is significant, but it's been pretty widely dispersed across, I would say, three to four basins at this point in time across, you know, multiple customers.

While every customer significant but it's been pretty widely dispersed across I would say three to four basins at this point in time across multiple customers.

Okay.

Very much.

Yes, Sir.

This concludes our question and answer portion of today's call I would now like to hand, the call over to Chris Baker for any concluding remarks.

Thank you operator, and thank you once again for joining us on the call today and your interest in <unk> Energy services, we look forward to speaking with you again next quarter.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Christopher J. Baker: Okay, thank you very much. Yes, sir. This concludes our question and answer portion of today's call. I would now like to hand the call over to Chris Baker for any concluding remarks. Thank you, operator. And thank you once again for joining us on the call today and your interest in KLX Energy Services. We look forward to speaking with you again next quarter.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Christopher J. Baker: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Thank you for watching!

Okay.

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Okay.

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Operator: Unknown Attendee, Ken Dennard, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown, www. KLX.org Unknown Speaker 0, www. KLX.org Unknown Speaker 0, www. KLX.org

Okay.

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