Q1 2024 KLX Energy Services Holdings Inc Earnings Call
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Operator: Good day, ladies and gentlemen, and welcome to the KLX Energy Services First Quarter Earnings Conference Call. All lines have been placed in a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Zach Vaughan.
Good day, ladies and gentlemen, and welcome to the <unk> Energy services first quarter earnings Conference call. All lines have been placed on a listen only mode and the floor will be opened for questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star.
Zach Vaughan: Zero to reach a live operator.
Operator: At this time it is my pleasure to turn the floor over to your host Zach Vaughan.
Zach Vaughan: Thank you, Operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services Conference call and webcast to review first quarter 2024 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.
Zach Vaughan: Thank you operator, and good morning, everyone. We appreciate you joining us for the <unk> Energy services Conference call and webcast to review first quarter 2024 results.
Keefer M. Lehner: With me today are Chris Baker, <unk>, President and Chief Executive Officer, and Keefer later.
Zach Vaughan: Executive Vice President and Chief Financial Officer. Following my remarks management will provide a high level commentary on the financial details of the first quarter and outlook before opening the call for your questions.
Zach Vaughan: Following my remarks, management will provide a high-level commentary on the financial details of the first quarter and outlook before opening the call for your questions. There will be a replay of today's call that will be available by webcast on the company's website at www.klx.com. And there will also be a telephonic recorded replay available until May 22nd, 2024. More information on how to access these replay features was included in yesterday's earnings release.
Zach Vaughan: There will be a replay of today's call that will be available by webcast on the company's website at www Dot <unk> Dot com and there will also be a telephonic recorded replay available until May 22024.
Zach Vaughan: More information on how to access. These replay features was included in yesterday's earnings release.
Zach Vaughan: Please note that information reported on this call speaks only as of today, May 8, 2024. Therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.
Zach Vaughan: Please note that information reported on this call speaks only as of today may eight 2024, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.
Zach Vaughan: Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These four forward-looking statements reflect the current views of KLX 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. The reader or listener 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.
Zach Vaughan: Also comments on this call will contain forward looking statements within the meaning of the United States Federal Securities laws.
Zach Vaughan: These forward looking statements reflect the current views of <unk> management.
Zach Vaughan: However.
Zach Vaughan: Risks and uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed in the statements made by management.
Zach Vaughan: 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.
Zach Vaughan: 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 that can be found on the KLX Energy website. Now, I'll turn the call over to KLX CEO Chris Baker.
Zach Vaughan: The comments today will also include certain non-GAAP financial measures.
Zach Vaughan: Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release that can be found on <unk> website.
Zach Vaughan: And now I'll turn the call over to <unk> CEO, Chris Baker, Chris.
Christopher J. Baker: Thank you, Zach, and good morning, everyone. I'll run through the first quarter highlights before turning the call over to Keefer to review our financials in more detail, and then I'll rejoin to add some commentary on our outlook and closing remarks before opening the call for Q&A. As we previously reported, we experienced softness at the start of the year but expect a sequential improvement as we progress through Q2 in 2024. The first quarter was in line with our prior guidance and commentary as we navigated both expected and unexpected challenges, and based on our current schedules and expectations, we believe this will mark the low point for 2024.
Christopher J. Baker: Thank you Zach and good morning, everyone I'll run through the first quarter highlights before turning the call over to Keefer to review our financials in more detail and then I'll rejoin to add some commentary on our outlook and concluding remarks before opening the call for Q&A.
Christopher J. Baker: As we previously reported we experienced softness at the start of the year, but expect a sequential improvement as we progress through Q2 and 2020 for the first quarter was in line with our prior guidance and commentary as we navigated both expected and unexpected challenges and based on our current schedules and expectation.
Keefer: We believe this will mark the low point for 2024.
Christopher J. Baker: First, the previously mentioned Rockies, Midcon, and Permian activity disruptions due to the severe weather conditions resulting from the polar vortex. Second, the previously mentioned operator-initiated safety standouts due to non-KLX safety incidents in the Rockies led to white space in our calendar and a slow start to certain of our product production-oriented PSLs, in particular. In total, these two events resulted in approximately $4 million in deferred revenue.
Keefer: First the previously mentioned Rockies, midcon, and Permian activity disruption due to the severe weather conditions, resulting from the polar vortex.
Christopher J. Baker: Second the previously mentioned operator initiated safety standout due to non KLA safety incidents in the Rockies led to white space on our calendar and a slow start to certain of our product production oriented sales in particular.
Christopher J. Baker: In total these two events resulted in approximately $4 million in deferred revenue.
Christopher J. Baker: Third, normal seasonality and Q1 plus incremental white space on the calendar as customers were slow to reset and finalize their budgets. However, our customer base continues to exhibit tremendous capital discipline toward crude directed activity in the face of highly constructive WTI pricing. Finally, the continued decline in natural gas prices drove an incremental 18% reduction in the Haynesville rig count on a year-to-date basis, along with activity declines in other gas-directed basins with several large operators curtailing activity and production.
Christopher J. Baker: Third normal seasonality in Q1, plus incremental white space on the calendar as customers were slow to reset and finalized budget our.
Christopher J. Baker: Our customer base continued to exhibit tremendous capital discipline port crude directed activity in the face of highly constructive Debbie Ti pricing.
Christopher J. Baker: Finally, the continued decline in natural gas prices drove an incremental 18% reduction in haynesville rig count on a year to date basis, along with activity declines and other gas directed basins with several large operators curtailing activity and production.
Christopher J. Baker: Consolidated first quarter results included $175 million in revenue, $12 million in adjusted EBITDA, and an adjusted EBITDA margin of 7%. We ended the quarter with $128 million in liquidity, including a cash balance of $85 million and $43 million of availability on our ABL. Moving to our segment results, geographically, the Southwest represented 40% of Q1 revenue compared to 35% in Q4. The Midcon Northeast represented 34% of revenue, flat to Q4, and the Rockies generated 26% of revenue compared to 31% in Q4, illustrating both the seasonal and transitory impacts on the Rockies and continued strong execution in the Southwest.
Christopher J. Baker: Consolidated first quarter results included a $175 million in revenue $12 million and adjusted EBITDA and adjusted EBITDA margin of 7%.
Christopher J. Baker: We ended the quarter with 128 million in liquidity, including a cash balance of $85 million and $43 million of availability on our ABL.
Christopher J. Baker: Moving to our segment results geographically the southwest represented 40% of Q1 revenue compared to 35% in Q4, the Midtown northeast represented 34% of revenue flat to Q4, and the Rockies generated 26% of revenue compared to 31%.
Christopher J. Baker: In Q4.
Christopher J. Baker: Illustrating both the seasonal and transitory impacts to the Rockies and continued strong execution in the southwest.
Christopher J. Baker: Our gas-directed activity represented approximately 17% of Q1 revenue, including Hainesville, which accounted for approximately 10%, and the Northeast, which accounted for approximately 7%. From a product line perspective, completion-focused activity drove 51% of Q1 revenue, drilling was 24%, and production and intervention was 22%. Despite the 10% sequential decline in total revenue, we had three product lines experience sequential revenue increases: Coil Tubing, Frack Bernal, and Flowback, the latter two of which are included in our other Completion Services product line.
Christopher J. Baker: Our gas directed activity represented approximately 17% of Q1 revenue, including the Haynesville, which accounted for approximately 10% in the northeast which accounted for approximately 7%.
Christopher J. Baker: From a product line perspective completions focused activity drove 51% of Q1 revenue drilling was 24% and production and intervention was 22%.
Christopher J. Baker: Despite the 10% sequential decline in total revenue, we had three product lines experienced sequential revenue increases coil tubing frac rental and flow back the latter two of which are included in our other completion services product lines.
Christopher J. Baker: Also contributing to the improved contribution from completions activity was the previously disclosed technology commercialization and leading operational performance. Operationally, KLX continues to lead the industry with record-setting performance, and our team set numerous notable milestones beginning in Q1. We are continuing to commercialize and roll out the Oracle SRT, which has now logged over 1.2 million running feet as of our call today. KLX Coil Tubing and KLX Thru Tubing are achieving record-setting depths. In the first quarter, we set the bar for U.S. onshore coil tubing drill-outs, setting what we believe to be our new records for both total depth and lateral length.
Christopher J. Baker: Also contributing to improved contribution from completions activity with the previously disclosed technology commercialization and leading operational performance.
Christopher J. Baker: Operationally <unk> continues to lead the industry with record setting performance in our team set numerous notable milestones beginning in Q1.
Christopher J. Baker: We are continuing to commercialize and rollout the Oracle SRT, which has now logged over $1 2 million running feet as of our call today.
Christopher J. Baker: Hey, Alex coiled tubing, and calix thru tubing or achieving record setting depths in the first quarter, we set the bar for U S onshore coil tubing drill outs setting what we believe to be our new records for both total depth and lateral length.
Christopher J. Baker: KLX repeatedly reached total depths of greater than 28,600 feet and post-curve lateral lengths in excess of 20,400 feet on a recent extended reach multi-well pass. On the deepest well, KLX achieved an unprecedented TD of 28,915 feet, resulting in a groundbreaking milestone lateral length of 3.9 miles.
Christopher J. Baker: <unk> repeatedly reached total depth of greater than 28600 feet and post curve lateral links in excess of 20400 feet on a recent extended reach multi well pad.
Christopher J. Baker: On the deepest well <unk> achieved an unprecedented TD of 28915 feet, resulting in a groundbreaking milestone lateral length of $3 nine miles.
Christopher J. Baker: In 2024, KLX successfully completed five four-mile laterals, proving to the market that its coil tubing, through tubing, and dissolvable frac plug offerings remain highly efficient solutions for our customers. We believe that KLX is a true leader in extended reach completions capabilities and expect more positives to come from our CT segment, the KLX phantom dissolvable frac plug, Spectre drilling motors, and We believe that with market-leading tubing capacity, best-in-class engineering and execution, KLX has decisively answered the question as to whether or not coil tubing can remain competitive on extended-reach laterals in excess of three miles.
Christopher J. Baker: In 2020 for Calix has successfully completed five four mile laterals proving to the market that it's coiled tubing thru tubing and Dissolvable frac plugs offerings remain highly efficient solutions for our customers.
Christopher J. Baker: We believe that <unk> is a true leader in extended reach completions capabilities and expect more positives to come from our <unk> segment, the Calix Phantom Dissolvable Frac plugs Spect, our drilling motors and Oracle SRT.
Christopher J. Baker: We believe that with market, leading tubing capacity best in class engineering execution Calix has decisively answered the question as to whether or not coiled tubing can remain competitive on extended reach laterals in excess of three miles.
Christopher J. Baker: Also consistent with our prior guidance, we exited Q1 with the month of March delivering the strongest adjusted EBITDA and adjusted EBITDA margin results for the quarter. Our calendar for Q2 shows a material reduction in white space and increased utilization across some of our higher-margin product service lines. Additionally, during the first quarter and through early Q2, we initiated several cost-cutting measures, both on the fixed and variable sides of our cost structure, which should improve margins in the second quarter and beyond.
Christopher J. Baker: Also consistent with our prior guidance, we exited Q1 with the month of March delivering the strongest adjusted EBITDA and adjusted EBITDA margin results for the quarter. Our calendar for Q2 shows a material reduction in white space and increased utilization across some of our higher margin product service lines.
Christopher J. Baker: Additionally, during the first quarter and through early Q2, we initiated several cost cutting measures both on the fixed and variable sides of our cost structure, which should improve margins in the second quarter and beyond.
Christopher J. Baker: We will continue to align our cost structure to maximize margins in the prevailing market environment. In summary, our diversification and strategic position across all major U.S. onshore basins has been critical to our success to date and positions us to capture a greater portion of customer spending. Most importantly, our network of dedicated team members makes KLX stand out from its competitors by efficiently delivering our market-leading services and proprietary products to the largest, most active, and well-capitalized operators in the U.S. 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. Keefer.
Christopher J. Baker: We will continue to align our cost structure to maximize margins in the prevailing market environment.
Keefer: In summary, our diversification and strategic position across all major U S. Onshore basins has been critical to our success to date and positions us to capture a greater portion of customer spending.
Keefer: Most importantly, our network of dedicated team members makes calix stand out from its competitors by efficiently delivering our market, leading services and proprietary products for the largest most active and well capitalized operators in the U S onshore market.
Christopher J. Baker: 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 Keefer.
Keefer M. Lehner: Thanks, Chris. Good morning, everyone. As Chris mentioned, we reported Q1 revenue of $175 million, representing a 10% sequential decrease, and consolidated Q1 adjusted EBITDA of $12 million. On a consolidated basis, the sequential decrease in revenue was driven by increased white space and a shift in geographic and product service line mix with reduced contribution from the Rockies and from some of our higher-margin product service lines, including rentals and tech services, which includes our fishing business, which, as Chris mentioned, we expect to see this trend reverse in the second quarter.
Keefer: Thanks, Chris Good morning, everyone.
Keefer M. Lehner: As Chris mentioned, we reported Q1 revenue of $175 million, representing a 10% sequential decrease and consolidated Q1, adjusted EBITDA of $12 million.
Keefer M. Lehner: On a consolidated basis the sequential decrease in revenue was driven by increased white space and a shift in geographic and product service line mix with reduced contribution from the Rockies and from some of our higher margin product service lines, including rentals and Tech services, which includes our fishing business.
Keefer M. Lehner: Which as Chris mentioned, we expect to see this trend reverse in the second quarter.
Keefer M. Lehner: The Southwest and Northeast MidCon segments contributed 40% and 34% of Q1 revenue, respectively, led in the Southwest by our directional drilling, coiled tubing, and frack rentals product service lines, and in the MidCon by our pressure pumping, accommodations, and directional drilling offerings. The Rockies contributed 26%, led by Coil Tubing, Rentals, and Tech Services.
Keefer M. Lehner: The southwest and northeast mid Con segment contributed 40% and 34% of Q1 revenue respectively led in the southwest by our directional drilling coiled tubing and Frac rentals product service lines and the mid con by our pressure pumping accommodations and directional drilling offerings there.
Keefer M. Lehner: Rockies contributed 26% led by coiled tubing rentals and Tech services.
Keefer M. Lehner: Total SG&A expense for Q1 was $21.6 million. However, when you back out non-recurring costs, adjusted SG&A expense for Q1 would have been only $18.7 million, or just 10.7% of our quarterly revenue. During late Q1, we implemented several changes to our fixed cost structure related to third-party costs and insurance to reduce our overhead going forward. This will begin to be reflected in our Q2 results and will benefit margins for the remainder of 2024. KLX continues to have one of the most streamlined overhead structures for a diversified business.
Keefer M. Lehner: Total SG&A expense for Q1 was $21 $6 million.
Keefer M. Lehner: When you back out nonrecurring cost adjusted SG&A expense for Q1 would have been only $18 $7 million.
Keefer M. Lehner: Or just 10, 7% of our quarterly revenue.
Keefer M. Lehner: During late Q1, we actions several changes to our fixed cost structure related to third party costs and insurance to reduce our overhead going forward. This.
Keefer M. Lehner: This will begin to be reflected in our Q2 results and will benefit margins for the remainder of 2024.
Keefer M. Lehner: <unk> continues to have one of the most streamlined overhead structures for a diversified business.
Keefer M. Lehner: Turning now to a review of our segment results, starting with the southwest. Southwest revenue, operating loss, and Adjusted EBITDA for Q1 were $69.4 million, negative $700,000, and $6.7 million, respectively. First quarter revenue represents a 3% sequential increase over the fourth quarter of 2023, largely due to operational and management improvements, aided by a 1% increase in average rig count, which positively affected our flowback, wireline, tech services, and coil tubing offerings, despite being negatively affected by the extreme weather of the polar vortex. Segment-adjusted EBITDA decreased 24% sequentially as a function of slightly reduced Moving to the Rockies.
Keefer M. Lehner: Turning now to a review of our segment results.
Keefer M. Lehner: Starting with the southwest.
Keefer M. Lehner: Southwest revenue operating loss and adjusted EBITDA for Q1.
Keefer M. Lehner: Were $69 $4 million negative $700000.
Keefer M. Lehner: $6 $7 million respectively.
Keefer M. Lehner: First quarter revenue represents a 3% sequential increase over the fourth quarter of 2023, largely due to operational and management improvements aided by a 1% increase in average rig count, which positively affected our flowback wireline tech services and coiled tubing offerings, despite being negatively affected by.
Keefer M. Lehner: The extreme weather of the polar vortex.
Keefer M. Lehner: Segment, adjusted EBITDA decreased 24% sequentially as a function of slightly reduced pricing and the maintenance of slightly elevated staffing levels to support an expected increase in Q2 activity.
Keefer M. Lehner: Moving to the Rockies.
Keefer M. Lehner: Rocky's revenue, operating loss, and adjusted EBITDA for Q1 were $45.6 million, negative $1.2 million, and $5.4 million, respectively. First quarter revenue represents a 24% sequential decrease over the fourth quarter of 2023, largely due to a 2% reduction in average rig count, annual seasonality, inclement weather, and non-KLX-related safety stand-downs, which negatively affected the vast majority of our regional drilling, completion, and production offerings, including rentals, tech services, track rentals, and wire lines, which were partially offset by an increase in coil tubing activity. Adjusted EBITDA decreased 58% sequentially as a function of the seasonal decrease in revenue, which is expected to materially correct as we progress through the second quarter of 2024. Lastly, for segment results, the Northeast MidCon.
Keefer M. Lehner: Rockies revenue operating loss and adjusted EBITDA for Q1 was $45 $6 million negative $1 $2 million and $5 $4 million respectively.
Keefer M. Lehner: First quarter revenue represents a 24% sequential decrease over the fourth quarter of 2023% largely due to a 2% reduction in average rig count annual seasonality inclement weather and non <unk> related safety stand downs, which negatively affected the vast majority of our regional drilling completion and production.
Keefer M. Lehner: Offerings, including rentals Tech services track rentals and wireline.
Keefer M. Lehner: And were partially offset by an increase in coiled tubing activity.
Keefer M. Lehner: Adjusted EBITDA decreased 58% sequentially as a function of the seasonal decrease in revenue, which is expected to materially correct as we progress through the second quarter of 2024.
Keefer M. Lehner: Lastly for segment results the northeast mid Con.
Keefer M. Lehner: Segment revenue, operating income, and Adjusted EBITDA for the segment were $59.7 million, $2.4 million, and $10.2 million, respectively, for the first quarter of 2024. First quarter revenue represents a 11% sequential decrease over the fourth quarter of 2023 due to reduced regional gas focus activity across the vast majority of our drilling completion and production offerings, including coil tubing, directional drilling, accommodations, and tech services. Segment operating income and adjusted EBITDA decreased 42% and 5%, respectively, largely due to lower prices. At corporate, our adjusted operating loss and adjusted EBITDA loss for Q1 were $11.6 million and $10.3 million, respectively.
Keefer M. Lehner: Segment revenue operating income and adjusted EBITDA for this segment were $59 $7 million to $4 million and $10 $2 million, respectively for the first quarter of 2024.
Keefer M. Lehner: First quarter revenue represents a 11% sequential decrease over the fourth quarter of 2023 due to reduced regional gas focused activity across the vast majority of our drilling completion and production of offerings, including coil tubing directional drilling accommodations and tech services.
Keefer M. Lehner: Segment operating income and adjusted EBITDA decreased 42% and 5%, respectively, largely due to lower pricing.
Keefer M. Lehner: At corporate our adjusted operating loss and adjusted EBITDA loss for Q1 were $11 $6 million and $10 $3 million respectively.
Keefer M. Lehner: The corporate adjusted EBITDA loss increased slightly on a sequential basis but improved by 8% when compared to Q1 of 2023 and is expected to improve in Q2 based on the previously actioned and discussed fixed cost reduction initiative. I'll now turn to our networking capital, cash flow, and capitalization. Networking capital was approximately $60 million as of Q1, and we ended the quarter with a net debt balance of $200 million. Our March 31st cash balance was $85 million, down sequentially, and up 113% from $40 million in Q1 of 2023.
Keefer M. Lehner: Corporate adjusted EBITDA loss increased slightly on a sequential basis, but improved 8% when compared to Q1 of 2023 and is expected to improve in Q2 based on the previously actions and discussed fixed cost reduction initiatives.
Keefer M. Lehner: I'll now turn to our net working capital cash flow and capitalization.
Keefer M. Lehner: Networking capital was approximately $60 million as of Q1.
Keefer M. Lehner: And we ended the quarter with a net debt balance of $200 million. Our March 31 cash balance was $85 million.
Keefer M. Lehner: Down sequentially and up 113% from $40 million in Q1 of 2023.
Keefer M. Lehner: Consistent with prior commentary, the first quarter is typically our most working capital-intensive quarter, driven by seasonally elevated payrolls, driven by the payment of the 2023 bonus payout, an extra payroll run in the first quarter, and elevated payroll taxes that typically burden the first quarter relative to the fourth quarter of 2023. We also experienced a slight sequential increase in DSO and a reduction in DPO, both of which had negative impacts on the sequential change in CAS. Now, turning to Kappa.
Keefer M. Lehner: Consistent with prior commentary the first quarter is typically our most working capital intensive quarter driven by seasonally elevated payroll.
Keefer M. Lehner: Driven by the payment of the 2023 bonus pay out an extra payroll run in the first quarter and elevated payroll taxes that typically burdened the first quarter relative to fourth quarter of 2023.
Keefer M. Lehner: We also experienced a slight sequential increase in DSO and a reduction in D. P O both of which had negative impacts on the sequential change in cash.
Keefer M. Lehner: Now turning to Capex.
Keefer M. Lehner: First quarter capital expenditures were $13.5 million, which were primarily focused on maintenance spending across our segment. Q1 Net CapEx, or CapEx less asset sales, was approximately $10 million. Going forward, we now expect total CapEx for 2024 to be in the range of $50 million to $55 million, down approximately 10% from our original forecasted range of $50 to $60 million. Most of the budget for the year is earmarked for maintenance expenses, with around 80% dedicated to supporting our ongoing operation.
Keefer M. Lehner: First quarter capital expenditures were $13 $5 million, which were primarily focused on maintenance spending across our segments.
Keefer M. Lehner: Q1, net capex or Capex less asset sales was approximately $10 million.
Keefer M. Lehner: Going forward, we now expect total capex for 2024 to be in the range of 50 million to $55 million.
Keefer M. Lehner: Down approximately 10% from our original forecasted range of $50 million to $60 million.
Keefer M. Lehner: Most of the budget for the year is earmarked for maintenance expenses with around 80% dedicated to supporting our ongoing operations.
Keefer M. Lehner: We ended the first quarter with roughly $128 million in liquidity, consisting of $85 million of cash and availability of $43 million under our March 2024 ABL borrowing-based certificate. Our ADL and senior secured notes both mature in the fall of 2025. Given our conservative capitalization and outlook for meaningfully improved results and positive free cash flow generation through year end, we are confident the business is well positioned. Throughout the remainder of 2024, we will continue to monitor market conditions and evaluate opportunities to refinance the outstanding notes and our ABL. Going forward, our focus remains on maximizing margins and free cash flow generation, ensuring robust financial strength, and KLX is well-positioned to pursue value-creating growth opportunities. With that, I'll now turn the call back to Chris.
Keefer M. Lehner: We ended the first quarter with roughly $128 million in liquidity.
Keefer M. Lehner: Insisting of $85 million of cash and availability of $43 million under our March 2020 for ABL borrowing base certificate.
Keefer M. Lehner: Our ABL and senior secured notes both mature in the fall of 2025.
Keefer M. Lehner: Given our conservative capitalization and outlook for meaningfully improved results and positive free cash flow generation through year end, we're confident the business is well positioned.
Keefer M. Lehner: Throughout the remainder of 2024, we will continue to monitor market conditions and evaluate opportunities to refinance the outstanding notes and our ABL.
Keefer M. Lehner: Going forward, our focus remains on maximizing margins and free cash flow generation, ensuring robust financial strength and that <unk> is well positioned to pursue value creating growth opportunities.
Keefer M. Lehner: With that I'll now turn the call back to Chris.
Christopher J. Baker: Thanks, Keefer. Before we wrap up, I'd like to share some additional color on the current market and our outlook for Q2 and the remainder of 2024. The E&P industry experienced over $200 billion in merger and acquisition activity in 2023, and operator consolidation is expected to continue in 2024. We are confident that our platform is exceptionally well positioned to capitalize on the growing industry consolidation, as we have outsized exposure to the largest, most active customers across our geographic region.
Chris: Thanks Keefer.
Chris: Before we wrap up I'd like to share some additional color on the current market and our outlook for Q2 and the remainder of 2024.
Christopher J. Baker: The E&P industry experienced over 200 billion in merger and acquisition activity in 2023, and operator consolidation continues in 2024.
Christopher J. Baker: We are confident that our platform is exceptionally well positioned to capitalize on the growing industry consolidation as we have outsized exposure to the largest most active customers across our geographic regions.
Christopher J. Baker: This customer consolidation is driving a greater need for certified equipment at higher specifications, including enhanced redundancy and safety features across many of our PSLs. These requirements are driving a portion of our 2024 Capital Expenditure Program as we lean into the demand and position KLX for the future. As customers continue to search for the safest and most efficient service providers available, KLX stands apart with its performance-driven, technologically differentiated offerings, exemplary safety record, and premier job execution.
Christopher J. Baker: This customer consolidation is driving a greater need for certified equipment at higher specifications.
Christopher J. Baker: <unk> enhanced redundancy and safety features across many of our P. S. L D.
Christopher J. Baker: These requirements are driving a portion of our 2024 capital expenditure program as we lean into the demand and position <unk> for the future.
Christopher J. Baker: Customers continue to search for the safest and most efficient service providers available Gaelic stands apart with its performance driven technologically differentiated offerings exemplary safety record and premier job execution and in certain instances <unk> has already been selected as vendor of choice by top.
Christopher J. Baker: And in certain instances, KLX has already been selected as the vendor of choice by top-tier operators due to our enhanced capability. These capabilities, combined with our broad geographic footprint, contribute to our strong competitive position. Our industry continues to expect investment in LNG to drive incremental gas demand, and key industry players believe it will be the fastest-growing energy source through 2050. KLX intends to benefit over the next two years from constructive commodity prices as U.S. LNG export demand rises, which is expected to drive incremental U.S. onshore natural gas directed activity, which should ultimately support elevated service pricing and utilization across all bases. As we exited Q1, the white space was much less pronounced.
Christopher J. Baker: Tier operators due to our enhanced capabilities.
Christopher J. Baker: These capabilities combined with our broad geographic footprint contribute to our strong competitive position.
Christopher J. Baker: Our industry continues to expect investment in LNG to drive incremental gas demand in key industry players believe it will be the fastest growing energy source through 2015.
Christopher J. Baker: Calix intends to benefit over the next two years from constructive commodity prices as U S. LNG export demand rises which is expected to drive incremental U S. Onshore natural gas directed activity, which should ultimately support elevated service pricing and utilization across all basins.
Christopher J. Baker: As we exited Q1 white space is much less pronounced based on our current schedules, we expect a sequential improvement in Q2.
Operator: Based on our current schedules, we expect a sequential improvement in Q2. For perspective, based on our current results, April was our best revenue month since November of 2023. Partly driven by the dissipating impact of seasonality in the Rockies, where segment revenue for April was the strongest it has been since October of 2023, and consolidated May and June are currently scheduled to be above April levels. We anticipate second-quarter revenue to be $180 million to $200 million, or roughly 5% to 15% higher than the first quarter, with adjusted EBITDA margins of 9% to 11%, and an increasingly stronger performance into Q3.
Operator: For perspective based on our current results April was our best revenue month since November of 2023.
Operator: Partly driven by the dissipating impact of seasonality in the Rockies where segment revenue for April was the strongest it has been since October of 2023 and.
Operator: Consolidated May and June are currently scheduled to be above April levels.
Operator: We anticipate second quarter revenue to be 180 million to $200 million are roughly 5% to 15% higher than the first quarter with adjusted EBITDA margins of 9% to 11% with an increasingly stronger performance into Q3.
Operator: In summary, I would like to thank our customers and shareholders for their support of KLX and, most importantly, our team members for propelling us to where we are today. By prioritizing safety, customer service, and the successful execution of our strategic initiatives, we will deliver continued profitability, even in a relatively flat market. With that, we will now take your questions. Operator.
Operator: In summary, I would like to thank our customers and shareholders for their support of Calix and most importantly, our team members for propelling us to where we are today.
Operator: By prioritizing safety customer service and the successful execution of our strategic initiatives, we will deliver continued profitability even in a relatively flat market.
Operator: With that we will now take your questions operator.
Operator: Thank you. Ladies and gentlemen, the floor is now open to questions. If you do have a question, please press star one on your telephone keypad at this time. Again, that's star one.
Speaker Change: Thank you ladies and gentlemen, the floor is now open for questions. Thank you have a question. Please press star one on your telephone keypad at this time again that star one if you do have a question or comment please hold as we poll for questions.
Operator: If you do have a question or comment, please hold as we poll for questions. And we'll take our first question from Steve Farazani from Sidoti. Please go ahead, Steve.
Stephen Michael Ferazani: And we'll take our first question from Steve <unk> from Sidoti. Please go ahead Steve.
Stephen Michael Ferazani: Morning, Chris. Morning, Keefer.
Stephen Michael Ferazani: Good morning, Chris Good morning, Keith I appreciate all the detail on the call.
Stephen Michael Ferazani: Appreciate all the detail on the call. In terms of how you think the year plays out, based on your guidance for 2Q, if we assume, and your closing comments noted, that there is probably going to be something close to flat U.S. land activity for the remainder of the year. What do you do beyond the typical three Q 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?
Stephen Michael Ferazani: Good morning, Thank you in terms of.
Stephen Michael Ferazani: In terms of how you think the year plays out.
Stephen Michael Ferazani: Based on your guidance for <unk> with we're assuming in your closing comments noted assuming with probably is going to be something close to flat U S land activity for the remainder of the year.
Stephen Michael Ferazani: What do you do beyond the typical <unk> seasonal uptick that you usually see.
Stephen Michael Ferazani: 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 into Q U mobilizing 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 youre guiding for <unk>.
Stephen Michael Ferazani: 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 the second half compared to how you're guiding for 2Q?
Christopher J. Baker: Yeah, good morning, Steve. This is Chris.
Stephen Michael Ferazani: Yeah.
Stephen Michael Ferazani: Yes, good morning, Steve This is Chris.
Christopher J. Baker: Yes.
Chris: A long question with a number of different topics I guess I'll take <unk> and three key guidance first.
Christopher J. Baker: That's a long question with a number of different topics, so 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. But 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 rentals and fishing. As we said in our prepared remarks, April was our best month since November, and April was the best month in the Rockies since October.
Christopher J. Baker: Look ultimately Q1 was tough as we know with some of the seasonal impact transitory issues et cetera, but <unk>, specifically, we expect reduced white space a material rebound in our Rockies activity, which is typically our highest margin segment as.
Christopher J. Baker: As well as a rebound in overall higher margin PSL, which will include rentals and fishing as we said in our prepared remarks April was our best month since November and April was the best month in the Rockies since October and so when we think about our <unk> guide of $180 million to $200 million and 9% to 11% of adjusted.
Christopher J. Baker: And so when we think about our 2Q guide of 180 to 200 million and 9 to 11% adjusted EBITDA margin, if we just look at our current calendars, as well as our initial look at our internal financials for April, we believe we're trending towards the mid to high end of the guidance range. And as we stated, we expect further improvement as we progress to 3Q. And so as we think about 3Q relative to 2Q, we talked on the call about how we saw an increase in revenue in April over our March exit rate, which was the highest exit rate in Q1.
Christopher J. Baker: EBITDA margin if we just look at our current calendars as well as our initial look at our internal financials for April April we believe we're trending towards the mid to high end of the guidance range is the reality of it and as we stated we expect further improvement as we progressed through Q.
Christopher J. Baker: And so as we think about <unk> relative to Q, we talked on the call about we saw an increase in revenue in April over our March exit rate, which was the highest exit rate in Q1, and so our current revenue forecast show a further increase in May June and July. So if <unk> holds and you have three months there.
Christopher J. Baker: And so our current revenue forecast shows a further increase in May, June, and July. So if 3Q holds, and you have three months that are on par with May and June, we'd expect continued improvement. And then to your point, and you astutely stated, 3Q historically is outside of cycles, is typically the best month in the services space, just simply due to longer daylight, fewer holidays, and near zero seasonal impacts in the northern regions as well. So we would expect just continued overall growth and margin enhancement in the face of the cost cuts that we're enacting today.
Christopher J. Baker: On par with May and June we would expect continued improvement and then to your point and you Astutely stated <unk>. Historically is always is outside of cycle is typically the best loved and services space, just simply due to longer daylight fewer holiday near zero sees.
Christopher J. Baker: It'll impact in the northern regions as well. So we would expect just continued overall growth in the face and margin enhancement in the face of the cost cuts that we're enacting today.
Christopher J. Baker: That's really helpful. Thanks, Chris. Given the challenges of this year, and hopefully, certainly reasons to believe 25 is better, you did a lot to improve the balance sheet. Obviously, you're sitting on a much better cash position than you were two years ago. It sounded like Keefer said you expected some level of cash flow this year. Is that fair?
Speaker Change: That's really helpful. Thanks, Chris.
Christopher J. Baker: 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.
Christopher J. Baker: It sounded like Kiefer said, you would 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.
Keefer M. Lehner: And with the lower cap backs, you expect that you can protect the balance sheet this year, given sort of your outlook. Yeah, good question. And good morning, Steve.
Chris: Yes, good question and good morning, Steve.
Speaker Change: I think what I said in the prepared remarks was.
Keefer M. Lehner: So I think what I said in the prepared remarks was, you know, Q1 is the low point in terms of operational performance, and as we progress through year end, we actually expect to generate, you know, positive free cash flow from this point forward. You know, 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.
Chris: 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.
Keefer M. Lehner: Spot on in terms of where a lot of our focus has been over the last few years is growing back end.
Keefer M. Lehner: And to the the operating platform that we have and bring back into our balance sheet and we think we've more than done that.
Keefer M. Lehner: We think we've more than done that. We're obviously coming off a pretty strong 2023. And we're exiting, you know, what is going to be the low point for 2024. So, expecting, as Chris mentioned, pretty strong sequential improvement into Q2 with further improvement thereafter. So, you know, we believe we continue to be conservatively capitalized from a leverage standpoint and, then obviously, from a cash and liquidity standpoint, have a very strong balance sheet.
Keefer M. Lehner: We're obviously coming off of a pretty strong 2023.
Keefer M. Lehner: We're exiting you know what is going to be the low point for 2024, so expecting as Chris mentioned pretty strong sequential improvement into Q2 with further improvement thereafter. So we believe we continue to be conservatively capitalized from a leverage standpoint, and then obviously from a cash and liquidity standpoint have a V.
Keefer M. Lehner: <unk> strong balance sheet.
Keefer M. Lehner: As you get one more in terms of refi conversations, it's May. Have you started those conversations? Since the last time you did this, your balance sheet is much stronger. You've shown improvement, but you're probably entering those conversations at a tough time. For FS in general. How does that influence those conversations and how are you thinking about them right now?
Keefer M. Lehner: Yes.
Keefer M. Lehner: So I get one more in in terms of refi conversations may have you started those conversations from the last time you did just your balance sheet is much stronger you've shown the improvement, but you're probably entering those conversations had a tough time.
Keefer M. Lehner: For our SaaS in general how does that influence those conversations and how you're thinking about them right now.
Keefer M. Lehner: Yeah, I think, you know, 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 U.S. 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.
Keefer M. Lehner: 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 U S. 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.
Keefer M. Lehner: 2025, and onward as you think about the short to medium term outlook for the services space. So.
Keefer M. Lehner: So, you know, I think there actually are some pretty strong tailwinds for the sector. With that said, you know, we just talked about it. I think we're still conservatively capitalized. I think we have a really strong cash and liquidity position. There's, you know, almost a 3% call premium on the notes today. So, we acknowledge that that exists. And then, as I said in the prepared remarks, you know, we're actively monitoring the market, and we'll continue to evaluate opportunities to refinance both the notes and the ABL as we progress through the remainder of 2024. All right, bye.
Keefer M. Lehner: I think there actually are some some pretty strong tailwind for the sector.
Keefer M. Lehner: With that said, we just talked about it I think we're still conservatively capitalized I think we have a really strong cash and liquidity position.
Keefer M. Lehner: There's a almost a 3% call premium on the notes today.
Keefer M. Lehner: We acknowledged that exists.
Keefer M. Lehner: And then as I said in the prepared remarks.
Keefer M. Lehner: Actively monitoring the market and we.
Keefer M. Lehner: We will continue to evaluate opportunities to refinance both the notes and the ABL as we progress through the remainder of 2024.
Stephen Michael Ferazani: Thanks, Chris. Thanks, Keefer.
Speaker Change: Alright, Thanks, Chris Thanks Keefer.
Speaker Change: Thank you Steve.
Operator: As a reminder, that's star number one if you do have a question or comment. And we'll take our next question from John Daniel from Daniel Energy Partners. Please go ahead, John.
Stephen Michael Ferazani: As a reminder that star one.
John Daniel: Have a question or comment.
Operator: And we will take our next question from John Daniel from Daniel Energy Partners. Please go ahead John.
John Daniel: Hey, good morning, Keefer, Chris. Good morning.
John Daniel: Hey, good morning Keefer, Chris.
John Daniel: Good morning.
Operator: If we can pretend for a moment that we're going to stay sort of range-bound and, you know, 600-ish rig count over the next, you know, plus or minus 5% over the next year and a half or so, as you look across the various basins that you're in, do you feel a need to do any, you know, prosecute any very small tuck-in deals just to get scale in particular areas Is that something that you would be evaluating?
John Daniel: Yes.
John Daniel: We can pretend for Cmos that we're going to stay sort of range bound, but you know 600 ish rig count over the next call.
Operator: So minus 9% over the next year and a half or so.
Operator: As you look across the various basins that you and are there do you feel a need to do any prosecuting. These very small tuck in deals just to get scale in particular areas is that something that you would be evaluating.
Christopher J. Baker: Look, we look at deals all the time, right? We've talked about that. Yeah.
Speaker Change: Look we look at deals all the time right. We've talked about 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 piece is the lead horse in essential.
Christopher J. Baker: I think on every audience 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 outside 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 key alignment mechanism. That's why we executed the Greens deal.
Christopher J. Baker: All cash deals.
Christopher J. Baker: What we view as kind of outsized multiples, which candidly is a bit surprising and so as we've talked about before here at <unk>. We're strong believers in aligning incentives and believes majority equity linked deals are a key alignment mechanism. That's how we executed the Greens deal we've been very pleased with retention of customers and employees, thus far and so we're continuing to.
Christopher J. Baker: To evaluate opportunities, but today, our primary focus is our internal initiatives and driving adjusted EBITDA and so to your point.
Christopher J. Baker: We've been very pleased with the retention of customers and employees thus far, and so we're continuing to evaluate opportunities. But today, our primary focus is on our internal initiatives and driving adjusted EBITDA. And so, to your point, our diversification is a key strength because it allows us to integrate tuck-in deals very quickly. And so we'll evaluate them. The counter is that all of our assets have wheels and can primarily travel. And we have redeployed some assets into the more active basins, as we've shied away from some of the gas basins where activity has declined. So I think we're going to take it on a case by case basis.
Christopher J. Baker: Our diversification is a key strength because it allows us to integrate tuck in deals very quickly and so we'll evaluate them.
Christopher J. Baker: The counter is all of our assets have wheels, primarily can travel and we have redeployed some assets into the more active basins as we've shied away from some of the gas basin and activity has declined so I think we're going to take it on a case by case basis.
Christopher J. Baker: Okay, would you, I mean, it does feel like there could be, you know, pockets of weakness in Q2, 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?
Christopher J. Baker: Okay would you.
Christopher J. Baker: I mean, it does feel like there could be.
Christopher J. Baker: Pockets of weakness in Q2.
Speaker Change: Thank you, but just broadly speaking.
Christopher J. Baker: Do you think youre going to see more opportunities arise in the next three to four months.
Christopher J. Baker: It would sure seem 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, the completion and production side of our business, in particular, and the Rockies rebounding into 2Q and 3Q, we're pretty confident in our guidance. I just think it comes back to how you are aligned with key customers.
Speaker Change: Yes, sure seem that way, we talked about that last call, where you would think there'd be capitulation with some of the mom and pops, especially in the gassy or basins I think to your point.
Christopher J. Baker: 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 in the Rockies rebounding into <unk> and <unk>, we're pretty confident in our guidance I just think he comes.
Christopher J. Baker: Do they have gaps in their upcoming schedule? Do they take breaks to review production or manage capital discipline, etc.? And earnings get whipsawed. And I think that's what you've seen through Q1, by and large. But I think some of that starts to abate as the weather improves, etc., in 2Q and 3Q. Whether or not some of the smaller mom and pops and tuck-in opportunities take that market and, to your point, kind of a flattish market as an opportunity to extract value, if you will, and take equity and ride the upside is TBD.
Christopher J. Baker: Back to how are you aligned with key customers.
Christopher J. Baker: Do they have gaps in their upcoming scheduled do they take breaks to review production or our manage our capital discipline et cetera.
Christopher J. Baker: Earnings get whipsawed, it I think thats, what <unk> seen through Q1 by and large but I think some of that starts to abate as the weather improves et cetera in <unk> and <unk>, whether or not some of the smaller mom and pops and tuck in opportunities take that market and to your point kind of a flattish market as an.
Christopher J. Baker: <unk> two <unk>.
Christopher J. Baker: To extract value, if you will and take equity and ride the upside is TBD.
Christopher J. Baker: Okay, the last one for me is on the coil tubing highlights you had earlier. To get to those depths, did you have to do anything differently? Look, what got you to drive to hit those records?
Speaker Change: Okay. The last one for me is on the coiled tubing.
Christopher J. Baker: The highlights you had earlier to get to those depths did you have to do anything differently.
Christopher J. Baker: Right.
Christopher J. Baker: What got you to drive that to hit those records.
Christopher J. Baker: So, what I would say is, look, anytime you're at the tip of the spear, it takes incredible field execution, backed by very precise engineering, friction modeling, string design, fluid selection, as well as, 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.
Christopher J. Baker: So what I would say is look anytime you are the tip of the spirit. It takes incredible field execution backstopped by a very precise engineering friction modeling string design fluid selection as well as you well know optimal DHA, whether the motor the E. R T. The bids the.
Christopher J. Baker: 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. If you roll the clock back in <unk> and acquire you know this all too well <unk>.
Christopher J. Baker: We're very, very proud of the strides that we've made in expanding the commercial opportunities for COIL. If you roll the clock back, and I'm preaching to the choir, you know this all too well. Pre-COVID, you would have a lot of people saying you'd never get beyond two mile laterals with CT. Yeah. And stick pipe was going to take over. And by the way, we have stickpipes, we have DOPs, we have snubbing units as well, right? So we can be a little agnostic.
Christopher J. Baker: Pre Covid you had added a lot of people, saying you'd never get two mile laterals with C T and stick pipe, what's going to take over and by the way we have stick pipe. We have <unk>, we have snubbing units as well right. So we can be a little agnostic. What we've seen is tremendous capacity expansion in the size and carrying capacity of coiled tubing over.
Christopher J. Baker: What we've seen is tremendous capacity expansion in the size and carrying capacity of coil tubing over the last couple of years. And regarding our specific achievements, look, I'm not going to disclose what we think are our competitive strengths, candidly. That being said, what I will tell you is we were still making headway and an acceptable ROP at mile 3.9 in the lateral and had not re-blocked up yet. So how much deeper does the rabbit hole go?
Christopher J. Baker: The last couple of years and regarding our specific achievements look I'm not going to disclose what we think are competitive strengths candidly that being said what I will tell you as we were still making headway and acceptable.
Christopher J. Baker: At mile three nine in the lateral and had not reached locked up yes, so how much deeper the rabbit hole go.
Christopher J. Baker: I'm not sure. We'll wait and see. But we're clearly ecstatic, I would say, with our results. And I think we're continuing to see operators' willingness to continue to experiment with extreme lateral lengths in coil tubing.
Christopher J. Baker: I'm not sure, we'll wait and see but we're clearly are ecstatic I would say with our result, and I think we're continuing to see operators.
Christopher J. Baker: Willingness to continue to experiment with extreme lateral links and coiled tubing.
John Daniel: That's all I had. Thank you all very much. Yes, sir. I appreciate it.
Speaker Change: Got it.
Speaker Change: All I had thank you very much.
Speaker Change: Yes, Sir I appreciate it.
David Marsh: Thank you. And we'll take our next question from David Marsh from Singular Research. Please go ahead, David.
John Daniel: And we will take our next question from David Marsh from singular Research. Please go ahead David.
David Marsh: Yes.
Operator: Hey, thanks for taking the questions guys. Good morning, Dave. Good morning.
David Marsh: Hey, thanks for taking the questions guys.
David Marsh: Good morning, guys.
Operator: Yeah.
David Marsh: Good morning.
David Marsh: I just wanted to start with your proposed cost cutting. Could you, Keefer, could you just 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? And can you give us any sense of the order of magnitude that you think that you could achieve here?
David Marsh: I just wanted to see.
David Marsh: Start with.
Speaker Change: You're right.
David Marsh: Proposed cost cutting.
David Marsh: Could you Keefer could you just give us.
David Marsh: A sense of.
David Marsh: How that's going to cut across the P&L in terms of that.
David Marsh: Whether it's going to be impacting mostly SG&A or or is it going to be on kind of your fixed cost side that will impact your cost of goods sold.
David Marsh: And can you give us any sense of order of magnitude that you think that you can't realize here.
Christopher J. Baker: Yeah, hey, David. Good morning. This is Chris.
David Marsh: Yes, Hey, David Good morning, This is Chris I'll jump in and they keep keefer can backfill short answer is yes.
Christopher J. Baker: I'll jump in, and then Keefer can backfill. The short answer is yes. Look, as recalc continues to decline in Q1, we initiated a number of actions, and those extend through to today is the reality of it. And the way I'd frame those actions is really numerous adjustments and modifications to fixed costs, corporate level vendors, and those costs would include insurance, accounting, IT, legal, you name it. And so we really try to attack the fixed cost side of the cost ledger.
Chris: Look as rig count continued to decline in Q1, we initiated a number of actions and those extend through to today is the reality of it and the way I would frame those actions.
Christopher J. Baker: Numerous adjustments and modifications to fixed calls corporate level vendors and those costs would include insurance accounting.
Speaker Change: Legal you name it and so we really try to attack the fixed cost side of the cost ledger at the same time, we've always monitored crew utilization head count with an eye on maintaining capacity for May June July levels are forecasted revenue. So we haven't disclosed the dollar figure to date.
Christopher J. Baker: At the same time, we've always monitored crew utilization headcount with an I.O. maintaining capacity for May, June, and July levels of forecasted revenue. So we haven't disclosed the dollar figure to date. However, what I would say is we're expecting a partial quarter realization from the two Q cuts that started in earnest in March through April, and we'll receive a full quarter benefit of those in Q3.
Christopher J. Baker: However, what I would say is we're expecting a partial quarter realization from the <unk> cuts kind of started in earnest in March through April and we will receive a full quarter benefit of those in Q3.
Keefer M. Lehner: I guess the only thing I'd add there is, you know, to your question about COGS and G&A split, it's going to be a mix of both of those cost buckets, probably, you know, frankly, evenly split. And to Chris's point, you'll start to see that roll through. But it's a mix of both fixed and variable costs, obviously more variable at the COGS line and more fixed at the G&
Unknown Speaker: Unknown Speaker: I guess the only thing
Speaker Change: I guess, the only thing I'd add there is as you know to your question between Cogs and G&A split.
Unknown Speaker: It's going to be a mix of both of those cost buckets.
Unknown Speaker: Probably frankly evenly split.
Unknown Speaker: To Chris's point, you'll start to see that roll through but it's a mix of both fixed and variable obviously more variable at the Cogs line and.
Unknown Speaker: And more fixed at the G&A line.
Keefer M. Lehner: Excellent, thank you. And this concludes our question and answer session. I'll turn the floor back to Chris Baker for closing remarks.
Unknown Speaker: Excellent. Thank you and this concludes our question and answer session I'll turn the floor back to Chris Baker for closing remarks.
Keefer M. Lehner: Okay.
Christopher J. Baker: Thank you once again for joining us on this call and for your interest in KLX. We look forward to speaking with you again next quarter.
Christopher J. Baker: Okay. Thank you once again for joining us on this call and for your interest in Calix, We look forward to speaking with you again next quarter.
Operator: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.
Christopher J. Baker: Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
Operator: [music].