Q2 2024 KLX Energy Services Holdings Inc Earnings Call

August 8, 2024

Speaker Change: 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, Mr. Ken Dennard. Thank you, Mr. Dennard. You may begin.

Operator: and your telephone keypad.

Operator: As a reminder, this conference is being recorded.

Ken Dennard: It is now my pleasure to introduce your host, Mr. Ken Dennard.

Operator: Thank you, Mr. Dennard. You may begin.

Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review second 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. Following my remarks, management will provide a high-level commentary on the financial details of the second quarter and outlook before opening the call for your questions.

Christopher Baker: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review second quarter 2024 results. Following my remarks, management will provide a high-level commentary on the financial details of the second quarter and outlook before opening the call for your questions. Please note that information reported on this call speaks only as of today, August 8, 2024, and therefore, you advise that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review second quarter 2024 results.

Speaker Change: With me today are Chris Baker, KLX Energy's President and Chief Executive Officer, and Keefer Lehner, Executive Vice President and Chief Financial Officer.

Ken Dennard: Following my remarks, management will provide a high-level commentary on the financial details of the second 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, and that's KLX.com, and there will be a telephonic recorded replay available until August 22, 2024. More information on how to access these replay features was included in yesterday's earnings release.

Following my remarks, management will provide a high-level commentary on the financial details of the second 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 and that's klx.com

And there will be a telephonic recorded replay available until August 22, 2024. More information on how to access these replay features was included in yesterday's earnings release.

Ken Dennard: Please note that information reported on this call is only as of today, August 8, 2024, and therefore you advise that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX management. However, various risks, certainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management.

Speaker Change: Please note that information reported on this call speaks only as of today, August 8, 2024, and therefore you advise that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Christopher Baker: Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX management. However, various risks, uncertainties, and contingencies could cause actual results. 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.

Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws.

KLX management: These forward-looking statements reflect the current views of KLX management.

Christopher Baker: However, various risks, uncertainties, and contingencies could cause actual results.

Christopher Baker: performance or achievements to differ materially from those expressed in the statements made by management.

KLX management: 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.

Ken Dennard: The comments today will also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX Energy website.

Christopher Baker: 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.

Ken Dennard: And now I'd like to turn the call over to Chris Baker.

Ken Dennard: There will be a replay of today's call that will be available by webcast on the company's website, and that's klx.com. And there will be a telephonic recorded replay available until August 22nd, 2024; more information on how to access these replay features was included in yesterday's earnings report.

Christopher Baker: Chris.

Ken Dennard: Please note that information reported on this call speaks only as of today, August 8, 2024, and therefore, you advise that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These 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.

Christopher Baker: Thank you, Ken, and good morning, everyone. I'll start by apologizing for my voice this morning, but want to ensure you that my voice or proceed lack of oxygen has absolutely zero to do with how proud we are of our second quarter in returning KLX to more normalized levels of profitability and the execution by our team.

KLX management: And now I'd like to turn the call over to Chris Baker. Chris.

Christopher Baker: that

Chris Baker: Thank you, Ken, and good morning, everyone. I'll start by apologizing for my voice this morning, but want to ensure you that my voice or perceived lack of oxygen has absolutely zero to do with how proud we are of our second quarter in returning KOX to more normalized levels of profitability and the execution by our team.

Christopher Baker: Now, with that out of the way, I'll run through the second quarter highlights before turning the call over to Keeper to review our financials in more detail, and then I'll rejoin the call to add some commentary on our outlook and concluding remarks before opening the call for Q&A. In summary, our consolidated second quarter results included 180 million in revenue, 27 million in adjusted EBITDA, and adjusted EBITDA margin of 15%. And we returned to positive leverage free cash flow of $10 million. Our two two results returns to what we view as a more normalized level for the current market.

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.

Christopher Baker: Now that that is out of the way, in summary, our consolidated second quarter results included $180 million in revenue, $27 million in adjusted EBITDA, an adjusted EBITDA margin of 15%, and we returned to positive levered free cash flow of $10 million. We believe that our Q1 2024 results will ultimately be viewed as a small blip in what has been a consistent, strong performance over the last eight quarters, where we have generated aggregate revenue, adjusted EBITDA, and leveraged free cash flow of $1.7 billion, $251 million, and $83 million, respectively.

Christopher Baker: Now, with that out of the way...

Speaker Change: I'll run through the second quarter highlights before turning the call over to Keefer to review our financials in more detail, and then I'll rejoin the call to add some commentary on our outlook and concluding remarks before opening the call for Q&A.

Christopher Baker: In summary, our consolidated second-quarter results included $180 million in revenue, $27 million in adjusted EBITDA, an adjusted EBITDA margin of 15%, and we returned to positive levered free cash flow of $10 million.

Our two key results return to what we view as a more normalized level for the current market.

Christopher Baker: Q1 was burdened by several non-recurring items, and we are proud to report that our second quarter performance bounced back from both exacerbated seasonality and the previously discussed transitory impacts that afflicted Q1. Despite a 7% decline in rigout and a reduction of over 40 rigs from year-end 2023, continued drilling and completion volatility in persistent pockets of industry selfness, KLX achieved strong Q2 results and continued strength into Q3. We believe that our Q1-2024 results will also be viewed as a small blip in what has been consistent strong performance over the last eight quarters where we have generated aggregate revenue, adjusted EBITA, and levered free cash flow of 1.7 billion, 251 million, and 83 million respectively.

Chris Baker: despite a seven percent decline in riickoutt and a reduction of over forty rigs from year-end two andtwenty three

Christopher Baker: Continued drilling and completion volatility in persistent pockets of industry softness, KLX achieved strong Q2 results and sees continued strength into Q3.

Christopher Baker: We believe that our Q1 2024 results will ultimately be viewed as a small blip in what has been consistent, strong performance over the last 8 quarters where we have generated aggregate revenue, adjusted EBITDA, and leveraged free cash flow of $1.7 billion

Christopher Baker: $251 million and $83 million respectively.

Christopher Baker: The 3% sequential improvement in total revenue stems with increased sales in a rocky segment and in higher margin product and service lines such as rentals and tech services, which include fishing. Tech services and rentals Q2 revenues increase sequentially by 20% and 17% respectively. KLX's geographic and product service line diversification drove margin sustainability in the face of market selfness, highlighting the strengths of the KLX platform as seasonal impacts range and production and intervention activity return to more normalized levels. KLX's leading presence in extended reach ladle, completion technologies, and production and intervention services should continue to yield sustainable results and positive free cash flow even in a flat rig count environment.

Christopher Baker: The 3% sequential improvement in total revenues stem from increased sales in our rocky segment and in higher margin product and service lines such as rentals and tech services which includes fishing.

Christopher Baker: Debt Services and Rentals Q2 revenues increased sequentially by 20% and 17% respectively.

Christopher Baker: KLX's geographic and product service line diversification drove margin sustainability in the face of market softness.

Christopher Baker: Highlighting the strengths of the KLX platform as seasonal impacts wane and production and intervention activity return to more normalized levels.

Christopher Baker: KLX's leading presence in extended reach laterals, completion technologies, and production and intervention services should continue to yield sustainable results and positive free cash flow, even in a flat rate count environment. The sequential improvement in adjusted EBITDA on adjusted EBITDA margin was driven by a non-recurrence of the first quarter 2024 transitory Issue. Q2 benefited from almost a full quarterly impact of those savings. The cost reductions benefited both cost of sales and G&A. Recurring cost of sales and G&A were down sequentially by 5% and 8%, respectively.

Christopher Baker: Our revenue is highly coordinated to rig out, and KLX has steadily driven higher revenue per rig as we captured market share. Revenue per rig as of Q2 2024 was up approximately 10% sequentially and 27% compared to Q2 2022. This gaining revenue per rig reflects the market share we have captured over time due to our targeted strategy of customer alignment and driving multiple PSLs through all sales channels. The sequential improvement in adjusted even on adjusted even on margin was driven by a non-recurrence of first quarter 2024 transitory issues. Constructural optimization and mission is improved crude utilization, seasonally reduced payroll tax exposure, incremental activity, and a shift in revenue mix towards higher margin geographies and PSLs including the rentals and tech services product lines, particularly within the Rockies and Southwest segments.

Speaker Change: revenue is highly correlated to riick out a halex is steadily driven higher revenue per riade as we captured market share

Christopher Baker: Revenue per rig as of Q2 2024 was up approximately 10% sequentially and 27% compared to Q2 2022.

Speaker Change: this gain in revenue per rig reflects the market share we have captured over time due to our targeted strategy of customer alignment and driving multiple psales through all sales channels

Christopher Baker: The sequential improvement in adjusted EBITDA on adjusted EBITDA margin was driven by a non-recurrence of first quarter 2024 transitory issues.

Christopher Baker: Cost Structure Optimization Initiatives, Improved Crew Utilization, Seasonally Reduced Payroll Tax Exposure, Incremental Activity, and a Shift in Revenue Mix Towards Higher Margin Geographies and PSLs.

Speaker Change: including the Rockies and our rentals and tech services product line service lines, particularly within the Rockies and Southwest segments.

Christopher Baker: During late Q1 and early Q2, we implemented approximately 16 million of annualized cost savings. Q2 benefited from almost a full quarterly impact of those savings. The cost reduction benefited both cost of sales and GNA. Recurring cost of sales and GNA were down sequentially 5% and 8%, respectively.

Christopher Baker: During late Q1 and early Q2, we implemented approximately $16 million of annualized cost savings.

Christopher Baker: q two benefited from almost a full quarterly impact of those savings the cost reductions benefited both cost of sales and gna recurring cost to sales and gnaa were down sequentially five percent and eight percent perspectively

Christopher Baker: Moving to our segment results. Geographically, the Southwest represented 39% of Q2 revenue compared to 40% in Q1. The Northeast Midtown represented 27% of revenue compared to 34% in Q1, and the Rockies generated 34% of revenue compared to 26% in Q1. It was illustrating the normalization of the contribution of our Rockies. Dr. More importantly, adjusted EBITL margin expanded in two of our 3GO segments led by the previously mentioned PSL rotation and seasonal normalization. From a product line perspective, completions-focused activity drove 51% of Q2 revenue. Drilling was 21% and production and intervention was 28%. The sequential improvement in production and intervention revenue was driven by the culmination of our strategic capital spending and reposition efforts across our rental portfolio over the last few quarters and continued positive traction with the KLX downhold technology portfolio, plus a rebound in fishing activity coming off the doldrums of early 2024.

Christopher Baker: Geographically, the Southwest represented 39% of Q2 revenue compared to 40% in Q1. The Northeast Midtown represented 27% of revenue compared to 34% in Q1. And the Rockies generated 34% of revenue compared to 26% in Q1, illustrating the normalization of the contribution of our Rockies business. From a product line perspective, completion-focused activity drove 51% of Q2 revenue. Drilling was 21%, and production and intervention was 28%

Christopher Baker: she

Christopher Baker: moving to our segment results

Christopher Baker: geographically the southwest represented thirty-nine percent of q two revenue compared to forty percent in q one

Christopher Baker: The Northeast MidCon represented 27% of revenue compared to 34% in Q1, and the Rockies generated 34% of revenue compared to 26% in Q1, illustrating the normalization of the contribution of our Rockies business.

Christopher Baker: More importantly, adjusted EBITDA margin expanded in two of our three geo-segments led by the previously mentioned PSL rotation and seasonal normalization.

Christopher Baker: From a product line perspective, completion-focused activity drove 51% of Q2 revenue, drilling was 21%, and production and intervention was 28%.

Christopher Baker: The sequential improvement in production and intervention revenue was driven by the culmination of our strategic capital spending and repositioning efforts across our rentals portfolio over the last few quarters.

Christopher Baker: and continued positive traction with the KLX downhole technology portfolio, plus a rebound in fishing activity coming off the doldrums of early 2024.

Christopher Baker: Our geographic and product service line diversification continues to drive sustainability and earnings in cash flow, and our teams continue to demonstrate their agility in managing difficult markets, effectively and decisively repositioning assets and maintaining a lean cost structure.

Christopher Baker: Our geographic and product service line diversification continues to drive sustainability and earnings in cash flow.

Christopher Baker: and our team continues to p demonstrate their agility in managing difficult markets effectively and decisively repositioning assets and maintaining a callst structure

Christopher Baker: Lastly, I'd highlight that the KLX team has once again set all-time low HSE records across our 3G metrics, all while delivering our market-leading services and proprietary products for the largest of the active and well-capitalized operators in the U.S. on-shore market.

Christopher Baker: Lastly, I'd highlight that the KLX team has once again set all-time low HSE records across our three key metrics, all while delivering our market-leading services and proprietary products for the largest, most active, and well-capitalized operators in the U.S. onshore market.

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

Ken Dennard: And now I'd like to turn the call over to Chris Baker. Chris.

Christopher 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 Lehner: Kiefer?

Chris Baker: Thank you, Ken, and good morning everyone. I'll start by apologizing for my voice this morning, but I want to ensure you that my voice or perceived lack of oxygen has absolutely zero to do with how proud we are of our second quarter in returning KLX to more normalized levels of profitability and the execution by our team. Now, with that out of the way...

Keefer Lehner: Thanks, Chris.

Keefer Lehner: Good morning, everyone. As Chris mentioned, we reported Q2 revenue of $180.2 million, representing a 3% sequential increase in consolidating Q2 adjusted EBITDA of $27 million. Adjusted EBITDA margin was 15%. We returned the business to positive leverage free cash flow for the quarter. On a consolidated basis, the sequential increase in revenue was driven by improved creedalization and increased activity with higher contributions from the Lockies and from our rentals and tech service product service lines. The Southwest and Northeast MidCon segments contributed 39% and 27% of Q2 revenue, respectively, led in the Southwest by our directional drilling, rentals, and FRAC rentals product service lines, and in the MidCon by our pressure pumping, accommodation, and directional drilling offerings.

Christopher Baker: Thanks, Chris, and good morning, everyone. As Chris mentioned, we reported Q2 revenue of $180.2 million, representing a 3% sequential increase.

Christopher Baker: and consolidated Q2 adjusted EBITDA of $27 million. Adjusted EBITDA margin was 15%. We return the business to positive leverage-free cash flow for the quarter, led in the southwest by our directional drilling, rentals, and frac rentals product service lines, and in the mid-con by our pressure pumping, accommodation, and directional drilling. These cost reductions will continue through the remainder of 2024 and beyond.

Chris Baker: I'll run through the second quarter highlights before turning the call over to Keefer to review our financials in more detail, and then I'll rejoin the call to add some commentary on our outlook and closing remarks before opening the call for Q&A. In summary, our consolidated second quarter results included $180 million in revenue, $27 million in adjusted EBITDA, an adjusted EBITDA margin of 15%, and we returned to positive levered free cash flow of $10 million.

Christopher Baker: and Consolidated Q2 Adjusted EBITDA of $27 million.

Christopher Baker: Adjusted EBITDA margin was 15%. We return the business to positive leverage-free cash flow for the quarter.

Chris Baker: Our two key results return to what we view as a more normalized level for the current market. Q1 was burdened by several non-recurring items, and we are proud to report that our second quarter performance bounced back from both exacerbated seasonality and the previously discussed transitory impacts that afflicted Q1. Despite a 7% decline in the rig count and a reduction of over 40 rigs from year-end 2023, continued drilling and completion volatility, and persistent pockets of industry softness, KLX achieved strong Q2 results and sees continued strength into Q3.

Christopher Baker: On a consolidated basis, the sequential increase in revenue was driven by improved crew utilization and increased activity with higher contributions from the Lockheed and from our rentals and tech service product service lines.

Chris Baker: We believe that our Q1 2024 results will ultimately be viewed as a small blip in what has been a consistent, strong performance over the last eight quarters, where we have generated aggregate revenue, adjusted EBITDA, and leveraged free cash flow of $1.7 billion, $251 million, and $83 million, respectively. The 3% sequential improvement in total revenues stems from increased sales in a rocky segment and in higher-margin product and service lines, such as rentals and tech services, which include fishing.

Christopher Baker: The southwest and northeast MidCon segments contributed 39% and 27% of Q2 revenue, respectively.

Christopher Baker: Led in the southwest by our directional drilling, rentals, and frac rentals product service lines, and in the mid-con by our pressure pumping, accommodations, and directional drilling offerings.

Keefer Lehner: The Lockies contributed 34%, led by rentals, coil tubing, and tech services. Total SG&A expense for Q2 was $19.3 million. When you back out non-recurring costs, adjusted SG&A expense for Q2 would have been only $17.1 million or just 9% of quarterly revenue. During Q2, we actions several changes to our cost structure related to insurance, IT, and third-party professional fees to reduce our overhead going forward. Q2 benefited substantially from the reductions, but there will likely be some marginal amount of incremental savings into Q3. These cost reductions will continue through the remainder of 2024 and beyond.

Christopher Baker: The Rockies contributed 34%, led by Rentals, Coil Tubing, and Tech Services.

Christopher Baker: Total SG&A expense for Q2 was $19.3 million.

Christopher Baker: When you back out non-recurring costs, adjusted SG&A expense for Q2 would have been only $17.1 million, or just 9% of quarterly revenue.

Christopher Baker: During Q2, we actioned several changes to our cost structure related to insurance, IT, and third-party professional fees to reduce our overhead going forward.

Christopher Baker: Q2 benefited substantially from the reductions, but there will likely be some marginal amount of incremental savings into Q3. These cost reductions will continue through the remainder of 2024 and beyond.

Keefer Lehner: Turning now to a review of our segment result. with the Rockies. Rocky Mountain revenue, operating income, and adjusted EBITDA was $61.4 million, $10.5 million, and $17.2 million, respectively, for the second quarter of 2024. Second quarter revenue represents a 35% sequential increase over the first quarter of 2024, despite a 4% reduction in average active regional rig count. A normalization of Rockies activity driven by a non-recurrent of two-on-transitory issues, coupled with an outside rebound and rentals and tech services revenue led to sequential revenue expansion. We experienced sequential revenue growth across all PSLs that we operate in this segment.

Keefer Lehner: Turning now to a review of our segment results, starting with the Rockies, Rocky Mountain Revenue, Operating Income, and Adjusted EBITDA. Adjusted EBITDA increased approximately 220% sequentially as a function of the increase in revenue, the revenue mix shift, and the reduced cost structure. Moving to the southwest, revenue, operating income, and adjusted EBITDA for Q2 were $69.9 million. revenue, operating loss, and adjusted EBITDA for the Northeast MidCon segment were $48.9 million, negative $2.5 million, and $6.4 million, respectively, for the second quarter of 2024.

Chris Baker: Debt services and rentals Q2 revenues increased sequentially by 20% and 17%, respectively. KLX's geographic and product service line diversification drove margin sustainability in the face of Mark itself, highlighting the strengths of the KLX platform as seasonal impacts wane and production and intervention activity return to more normalized levels. KLX's leading presence in extended reach laterals, completion technologies, and production and intervention services should continue to yield sustainable results and positive free cash flow even in a flat rate count environment.

Chris Baker: Our revenue is highly correlated to rake out, and KLX has steadily driven higher revenue per rate as we capture market share. Revenue per rig as of Q2 2024 was up approximately 10% sequentially and 27% compared to Q2 2022. This gain in revenue per rig reflects the market share we have captured over time due to our targeted strategy of customer alignment and driving multiple PSLs through all sales channels. The sequential improvement in adjusted EBITDA on adjusted EBITDA margin was driven by a non-recurrence of first quarter 2024 transitory issues.

Keefer Lehner: Turning now to a review of our segment results.

Keefer Lehner: Starting with the Rockies. Rocky Mountain Revenue, Operating Income, and Adjusted EBITDA.

Chris Baker: Cost Structure Optimization Initiatives, Improved Crew Utilization, Seasonally Reduced Payroll Tax Exposure, Incremental Activity, and a Shift in Revenue Mix Towards Higher Margin Geographies and PSL, including the Rockies and our rentals and tech services product line, service lines, particularly within the Rockies and Southwest segment. During late Q1 and early Q2, we implemented approximately $16 million of annualized call savings. Q2 benefited from almost a full quarterly impact of those savings. The cost reductions benefited both cost of sales and G&A. Recurring cost of sales and G&A were down sequentially by 5% and 8%, respectively.

Keefer Lehner: was $61.4 million, $10.5 million, and $17.2 million, respectively, for the second quarter of 2024.

Keefer Lehner: Moving to our segment results, geographically, the Southwest represented 39% of Q2 revenue compared to 40% in Q1. The Northeast Midtown represented 27% of revenue compared to 34% in Q1. And the Rockies generated 34% of revenue compared to 26% in Q1, illustrating the normalization of the contribution of our Rockies business. More importantly, adjusted EBITDA margin expanded in two of our three geo segments, led by the previously mentioned PSL rotation and seasonal normalization. From a product line perspective, completion-focused activity drove 51% of Q2 revenue. Drilling was 21%, and production and intervention were 28%.

Keefer Lehner: Second quarter revenue represents a 35% sequential increase over the first quarter of 2024, despite a 4% reduction in average active regional rig count. A normalization of Rockies activity, driven by a non-recurrence of Q1 transitory issues.

Keefer Lehner: The sequential improvement in production and intervention revenue was driven by the culmination of our strategic capital spending and repositioning efforts across our rentals portfolio over the last few quarters and continued positive traction with the KLX down hold technology portfolio, plus a rebound in fishing activity coming off the doldrums of early 2024. Our geographic and product service line diversification continues to drive sustainability and earnings in cash flow. And our team continues to demonstrate agility in managing difficult markets, effectively and decisively repositioning assets, and maintaining a lean culture.

Keefer Lehner: Coupled with an outsized rebound and rentals and tech services revenue led to sequential revenue expansion.

Keefer Lehner: Lastly, I'd highlight that the KLX team has once again set all-time low HSE records across our three key metrics, all while delivering our market-leading services and proprietary products for 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 Keefer?

Keefer Lehner: we experienced sequential revenue growth across all psl that we operate in this segment adjusted ebitda increased approximately two hundred and twenty percent sequentially as a function of the increase in revenue a revenue mix shift and the reduced cost structure

Keefer Lehner: Adjusted EBITDA increased approximately 220% sequentially as a function of the increase in revenue, a revenue-mix shift, and the reduced cost structure.

Keefer Lehner: Moving to the Southwest, revenue, operating income, and adjusted EBITDA for Q2 were $69.9 million, $2.6 million, and $10.4 million, respectively. Second quarter revenue represents a 1% sequential increase over the first quarter of 2024, largely due to a shift towards higher margin product service lines, such as rentals and tech services, including your fishing business. Segment adjusted EBITDA increased 55% sequentially as a function of cost structure optimization initiatives, improved creedalization, and incremental activity, and higher margin service lines.

Keefer Lehner: Thanks, Chris, and good morning, everyone. As Chris mentioned, we reported Q2 revenue of $180.2 million, representing a 3% sequential increase, and Consolidated Q2 Adjusted EBITDA of $27 million. The Adjusted EBITDA margin was 15%. We return the business to positive leverage-free cash flow for the quarter. On a consolidated basis, the sequential increase in revenue was driven by improved utilization and increased activity with higher contributions from the Rockies and from our rental and tech service product service line.

Keefer Lehner: Moving to the southwest.

Keefer Lehner: Revenue, Operating Income, and Adjusted EBITDA for Q2 were $69.9 million.

Keefer Lehner: The southwest and northeast mid-con segments contributed 39% and 27% of Q2 revenue, respectively, led in the southwest by our directional drilling, rentals, and frac rentals product service lines, and in the mid-con by our pressure pumping, accommodations, and directional drilling office. The Rockies contributed 34%, led by Rentals, Coil Tubing, and Tech Services.

Keefer Lehner: $2.6 million and $10.4 million, respectively.

Keefer Lehner: Second quarter revenue represents a 1% sequential increase over the first quarter of 2024.

Keefer Lehner: largely due to a shift towards higher margin product service lines such as rentals and tech services including our fishing business.

Keefer Lehner: Total SG&A expense for Q2 was $19.3 million. However, when you back out non-recurring costs, adjusted SG&A expense for Q2 would have been only $17.1 million, or just 9% of quarterly revenue. During Q2, we implemented several changes to our cost structure related to insurance, IT, and third-party professional fees to reduce our overhead going forward. Q2 benefited substantially from the reductions, but there will likely be some marginal amount of incremental savings into Q3. These cost reductions will continue through the remainder of 2024 and beyond.

Keefer Lehner: Segment-adjusted EBITDA increased 55% sequentially as a function of cost structure optimization initiatives, improved crew utilization, and incremental activity and higher margin service lines.

Keefer Lehner: Moving to the Northeast Midcon, revenue, operating loss, and adjusted EBITDA for the Northeast Midcon segment was $48.9 million, negative $2.5 million, and $6.4 million, respectively, for the second quarter of 2024. Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024, due to reduced regional gas-focused 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 204% and 37%, respectively, largely due to lower activity and pricing.

Keefer Lehner: Turning now to a review of our segment results, starting with the Rockies. Rocky Mountain revenue, Operating Income, and Adjusted EBITDA were $61.4 million, $10.5 million, and $17.2 million, respectively, for the second quarter of 2024. Second quarter revenue represents a 35% sequential increase over the first quarter of 2024, despite a 4% reduction in average active regional rig count, a normalization of Rockies activity driven by a non recurrence of Q1 transitory issues.

Keefer Lehner: Moving to the northeast, MidCon.

Keefer Lehner: Revenue, Operating Loss, and Adjusted EBITDA for the Northeast Mid-Con segment was $48.9 million, negative $2.5 million, and $6.4 million, respectively, for the second quarter of 2024.

Keefer Lehner: Coupled with an outsized rebound and rental and tech services revenue led to sequential revenue expansion. We experienced sequential revenue growth across all PSLs that we operate in this segment. Adjusted EBITDA increased approximately 220% sequentially as a function of the increase in revenue, the revenue mix shift, and the reduced cost structure. Moving to the southwest.

Keefer Lehner: Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024 due to reduced regional gas-focused activity across the vast majority of our drilling completion and production offerings. Our corporate adjusted EBITDA loss decreased 32% sequentially and is expected to remain at similar levels in Q3. I'll now turn to our balance sheet, cash flow, and capitalization. Note: We did have approximately $3 million of suppressed availability as of June 30th due to structural limitations within the ADL that are expected to reverse in Q3.

Keefer Lehner: Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024 due to reduced regional gas focused activity across the vast majority of our drilling completion and production offerings.

Keefer Lehner: Revenue, operating income, and adjusted EBITDA for Q2 were $69.9 million, $2.6 million, and $10.4 million, respectively. Second quarter revenue represents a 1% sequential increase over the first quarter of 2024, largely due to a shift towards higher margin product service lines, such as rentals and tech services, including our fishing business. Segment-adjusted EBITDA increased 55% sequentially as a function of cost structure optimization initiatives, improved crew utilization, and incremental activity and higher margin service lines. Moving to the northeast, mid-con.

Keefer Lehner: including coil tubing, directional drilling, accommodations, and tech services.

Keefer Lehner: Revenue, operating loss, and adjusted EBITDA for the Northeast MidCon segment were $48.9 million, negative $2.5 million, and $6.4 million, respectively, for the second quarter of 2024. Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024 due to reduced regional gas-focused 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 204% and 37%, respectively, largely due to lower activity and price.

Keefer Lehner: Segment operating income and adjusted EBITDA decreased 204 percent and 37 percent respectively, largely due to lower activity and pricing.

Keefer Lehner: At corporate, our adjusted operating loss and adjusted EBITDA loss for Q2 were $9.2 million and $7 million, respectively. Our corporate adjusted EBITDA loss decreased 32% sequentially, and is expected to remain at similar levels in Q3.

Keefer Lehner: At corporate, our adjusted operating loss and adjusted EBITDA loss for Q2 were $9.2 million and $7 million, respectively. Our adjusted EBITDA loss decreased 32% sequentially and is expected to remain at similar levels in Q3. I'll now turn to our balance sheet, cash flow, and capitalization. We ended the quarter with a net debt balance of $198 million.

Keefer Lehner: At corporate, our adjusted operating loss and adjusted EBITDA loss for Q2 were $9.2 million and $7 million, respectively. Our corporate adjusted EBITDA loss decreased 32% sequentially and is expected to remain at similar levels in Q3.

Keefer Lehner: I'll now turn to our balance sheet, cash flow, and capitalization. We ended the quarter with a net debt balance of $198 million. June 30th cash balance was $87 million, up by $2 million sequentially and up 6% from $82 million in Q2 of 2023. We ended the second quarter with roughly $121 million in liquidity, consisting of $87 million in cash and availability of $34 million under our June 2024 ABL borrowing base certificate. Note we did have approximately $3 million in suppressed availability of a June 30th due to structural limitations within the ABL that are expected to reverse in Q3.

Keefer Lehner: I'll now turn to our balance sheet, cash flow, and capitalization.

Keefer Lehner: We ended the quarter with a net debt balance of $198 million.

Chris Baker: Our June 30th cash balance was $87 million, up by $2 million sequentially and up 6% from $82 million in Q2 of 2023. We ended the second quarter with roughly $121 million in liquidity, consisting of $87 million in cash and availability of $34 million under our June 2024 ABL Borrowing Day Certificate. Note: We did have approximately $3 million of suppressed availability as of June 30th due to structural limitations within the ADL that are expected to reverse in Q3.

Keefer Lehner: Our June 30th cash balance was $87 million, up by $2 million sequentially, and up 6% from $82 million in Q2 of 2023.

Keefer Lehner: we ended the second quarter with roughly one hundred twenty-one million dollars in liquidity consisting of eightyseven million dollars in cash and availability of thirty four million dollars under our june two thousand and twentyfour abl borrowwin bay certificate

Keefer Lehner: Note we did have approximately 3 million dollars of suppressed availability as of June 30th due to structural limitations within the ADL that are expected to reverse in Q3.

Keefer Lehner: Our ABL and senior secured notes both mature in the fall of 2025. Given our conservative capitalization, strong Q2 results returning to 2023 margins and positive recast flow, and generally strong consistent performance over the last two years, we believe the business is well-positioned. We will continue to monitor market conditions and evaluate opportunities to refy the outstanding notes and ABL in 2024.

Chris Baker: Our ABL and senior secured notes both mature in the fall of 2025. Given our conservative capitalization, strong Q2 results returning to 2023 margins and positive free cash flow, and generally strong, consistent performance over the last two years, we believe the business is well positioned. We will continue to monitor market conditions and evaluate opportunities to refinance the outstanding notes and ABL in 2024. Now, turning to CapEx. Second quarter capital expenditures were $15.3 million, which were primarily focused on maintenance spending across our segments.

Keefer Lehner: Our ABL and senior secured notes both mature in the fall of 2025. Now turning to Kappa, reassuring robust financial strength and flexibility and that KLX is well positioned to execute our strategy. With that, I'll now turn the call back to Chris.

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

Keefer Lehner: given our conservative capitalization

Speaker Change: Strong Q2 results returning to 2023 margins and positive free cash flow and generally strong, consistent performance over the last two years, we believe the business is well positioned.

Keefer Lehner: We will continue to monitor market conditions and evaluate opportunities to refi the outstanding notes and ABL in 2024.

Keefer Lehner: Now turning to CAPEX. Second quarter capital expenditures were $15.3 million, which were primarily focused on maintenance spending across our segments. Q2 net CAPEX, defined as CAPEX less asset sales, was approximately $12 million. Going forward, we continue to expect total CAPEX for 2024 to be in their range of $50 to $55 million, with approximately 80% plus earmarked for maintenance expenses. Going forward, our focus remains on maximizing margin and free cash flow generation, ensuring robust financial strength and flexibility, and that KLX is well-positioned to execute our strategy.

Chris Baker: Q2 net capex, defined as capex less asset sales, was approximately $12 million. Going forward, we continue to expect total CapEx for 2024 to be in the range of $50 to $55 million, with approximately 80% plus earmarked for maintenance expenses. Going forward, our focus remains on maximizing margin and free cash flow generation, ensuring robust financial strength and flexibility, and ensuring that KLX is well-positioned to execute our strategy. With that, I'll now turn the call back to Chris.

Chris: Now turning to CAPEX.

Operator: and your telephone keypad. As a reminder, this conference is being recorded.

Keefer Lehner: Second quarter capital expenditures were 15.3 million dollars which were primarily focused on maintenance spending across our segments.

Ken Dennard: It is now my pleasure to introduce your host, Mr. Ken Dennard. Thank you, Mr. Dennard. 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 second quarter 2024 results. With me today, our 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 second quarter and outlook before opening the call for your questions.

Keefer Lehner: Q2 net capex, defined as capex less asset sales, was approximately $12 million.

Chris: Going forward, we continue to expect total CapEx for 2024 to be in the range of $50 to $55 million, with approximately 80% plus earmarked for maintenance expenses.

Chris: Going forward, our focus remains on maximizing margin and free cash flow generation, ensuring robust financial strength and flexibility, and that KLX is well positioned to execute our strategy.

Christopher Baker: With that, I'll now turn the call back to Chris.

Christopher Baker: Thanks, Q4. When we wrap up, I'd like to share some additional color on our outlook. Our current calendar for Q3 calls for continued strengths in the Rockies and Southwest with an uptake in the Northeast Midcon. We expect the completions and production oriented activity will continue the way in the current market.

Keefer Lehner: with that i'll now turn the call back to chris

Operator: Before we wrap up, I'd like to share some additional details on our outlet. Our current calendar for Q3 calls for continued strength in the Rockies and Southwest, with an uptick in the Northeast Midcont. We expect that completions and production-oriented activity will continue to lead the way in the current market. Consistent with our pre-release and our prior guidance for Q3 issued 23 days ago, we continue to expect third quarter 2024 revenue to be flat to slightly up relative to the second quarter with adjusted EBITDA margins similar to the second quarter based on current schedules and latest customer conversations.

Ken Dennard: There will be a replay of today's call that will be available by webcast on the company's website, and that's KLX.com, and there will be a telephonic recorded replay available until August 22, 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 is only as of today, August 8, 2024, and therefore you advise that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Chris: Thanks, Keefer.

Speaker Change: before we wrap up i'd like to share some additional teor on our outlook

Chris: Our current calendar for Q3 calls for continued strength in the Rockies and Southwest with an uptick in the Northeast Midcont. We expect that completions and production-oriented activity will continue to lead the way in the current market.

Christopher Baker: Consistent with our pre-release and our prior guidance for Q3, issued 23 days ago, we continue to expect 3rd quarter 2024 revenue to be flat to slightly up relative to the 2nd quarter, with adjusted even on margins similar to the 2nd quarter based on current schedules and latest customer conversations. KLX is maintaining and improving our asset base to ensure we are well-positioned for the technology and equipment specifications standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well-positioned for the next market upcycle. As we begin to look at 2025, we expect an increase in activity over 2024 levels driven by our customers completing our going integration initiatives related to the massive wave of consolidation that has occurred over the last 18 months and an increase in gas-directed activity driven by robust future demand from LNG export volumes and data centers.

Christopher Baker: Consistent with our pre-release and our prior guidance for Q3 issued 23 days ago, we continue to expect third quarter 2024 revenue to be flat to slightly up relative to the second quarter with adjusted EBITDA margins similar to the second quarter based on current schedules and latest customer conversations. KLX is maintaining and improving its asset base to ensure we are well positioned from a technology and equipment specification standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well positioned for the next market upcycle.

Ken Dennard: Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX management. However, various risks and certainties and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the annual report on form 10K, quarterly reports on form 10Q, and current reports on form 8K to understand certain of those risks on certainties and contingencies.

Operator: KLX is maintaining and improving its asset base to ensure we are well-positioned from a technology and equipment specification standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well-positioned for the next market upcycle. As we begin to look at 2025, we expect an increase in activity over 2024 levels driven by our customers completing ongoing integration initiatives related to the massive wave of consolidation that has occurred over the last 18 months, and an increase in gas-directed activity driven by robust future demand from LNG export volumes and data centers.

Christopher Baker: KLX is maintaining and improving our asset base to ensure we are well-positioned from a technology and equipment specification standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well-positioned for the next market upcycle.

Christopher Baker: As we begin to look at 2025, we expect an increase in activity over 2024 levels driven by our customers completing ongoing integration initiatives related to the massive wave of consolidation

Ken Dennard: The comments today will also include certain non-gap financial measures, additional details and reconciliation to the most directly comparable gap financial measures are included in the quarterly press release, which can be found on the KLX Energy website.

Christopher Baker: that has occurred over the last 18 months and an increase in gas-directed activity driven by robust future demand from LNG export volumes and data centers.

Christopher Baker: And now I'd like to turn the call over to Chris Baker. Chris. Thank you, Ken, and good morning, everyone.

Christopher Baker: We believe KLX is more efficient today and in a rising rate count environment has substantial upside back to 2023 levels and beyond based on our improved call structure, differentiated technology portfolio, and well maintained and upgraded asset base. KLX stands apart with its performance-driven, technologically differentiated offerings, exemplary safety record, and premier job execution. These capabilities combined with a broad geographic footprint contribute to our strong competitive position.

Operator: We believe KLX is more efficient today in an arising recount environment, and has substantial upside back to 2023 levels and beyond based on our improved cost structure, differentiated technology portfolio, and well-maintained and upgraded asset base. KLX stands apart with its performance-driven, technologically-differentiated offerings, exemplary safety record, and premier job execution. These capabilities, combined with our broad geographic footprint, contribute to our strong competitive position. I would like to thank our customers and shareholders for their support of KLX, and, most importantly, our team members for their essential role in our collective success. With that, we'll now take your questions.

Christopher Baker: We believe KLX is more efficient today in an arising recount environment, has substantial upside back to 2023 levels and beyond based on our improved cost structure, differentiated technology portfolio, and well-maintained and upgraded asset base.

Christopher Baker: I'll start by apologizing for my voice this morning, but want to ensure you that my voice or proceed lack of oxygen has absolutely zero to do with how proud we are of our second quarter in returning KLX to more normalized levels of profitability and the execution by our team. Now, with that out of the way, I'll run through the second quarter highlights before turning the call over to keeper to review our financials in more detail, and then I'll rejoin the call to add some commentary on our outlook and concluding remarks before opening the call for Q&A.

Christopher Baker: KLX stands apart with its performance-driven, technologically-differentiated offerings, exemplary safety record, and premier job execution. These capabilities, combined with our broad geographic footprint, contribute to our strong competitive position. I would like to thank our customers and shareholders for their support of KLX, and, most importantly, our team members for their essential role in our collective success. With that, we'll now take your questions. Operator.

Christopher Baker: KLX stands apart with its performance-driven, technologically differentiated offerings, exemplary safety record, and premier job execution.

Christopher Baker: These capabilities, combined with our broad geographic footprint, contribute to our strong competitive position.

Christopher Baker: I would like to thank our customers and shareholders for their support of KLX and, most importantly, our team members for their essential role in our collective success.

Christopher Baker: I would like to thank our customers and shareholders for their support of KLX, and most importantly, our team members, for their essential role in our collective success. With that, we'll now take your questions. Operator?

Christopher Baker: In summary, our consolidated second quarter results included 180 million in revenue, 27 million in adjusted EBITDA and adjusted EBITDA margin of 15%. And we returned to positive leverage free cash flow of $10 million. Our two two results returns to what we view as a more normalized level for the current market. Q1 was burdened by several non-recurring items, and we are proud to report that our second quarter performance bounced back from both exacerbated seasonality and the previously discussed transitory impacts that afflicted Q1.

Operator: With that, we'll now take your questions.

Operator: Operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the start key.

Operator: thank you we will now be conducting a question and answer session

Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys. One moment, please, while we poll for questions.

Luke Lemoine: One moment, please, while we poll for questions. The first question comes from the line about Luke Lemoine with Piper Sandler. Please go ahead.

Operator: One moment, please, while we poll for questions. The first question comes from the line about Luke Lemoine with Piper Sandler. Please go ahead.

Operator: One moment, please, while we pull for questions.

Luke Lemoine: The first question comes from the line of Luke Lemoine with Piper Sandler. Please go ahead.

Christopher Baker: Despite a 7% decline in rigout and a reduction of over 40 rigs from year-end, 2023, continued drilling and completion volatility in persistent pockets of industry selfness, KLX achieved strong Q2 results and continued strength into Q3. We believe that our Q1-2024 results will also be viewed as a small blip in what has been consistent strong performance over the last eight quarters where we have generated aggregate revenue adjusted EBITA and levered free cash flow of 1.7 billion, 251 million, and 83 million respectively.

Speaker Change: the first question comes from the line of luke limooin with pyper centandler please go head

Christopher Baker: Yeah, hey, good morning, Chris, Keefer. Really good outlook for 3Q that you put out a couple weeks ago and reiterating today. Chris, just want to see if you had any kind of visibility in a 4Q yet and kind of what you're thinking about activity or how results could be. Just kind of a seasonal slowdown and what that could look like.

Luke Lemoine: Yeah, hey, Chris, Keefer. Um, really good outlook for 3Q that you put out a couple weeks ago. And reiterating today, Chris, just wanted to see if you had any kind of visibility into 4Q yet and kind of what you're thinking about activity, or, you know, how results could be just kind of a seasonal slowdown and what that could look like.

Chris Baker: Yeah, hey, Chris, Keefer. Um, really good outlook for 3Q that you put out a couple weeks ago. And reiterating today, Chris, just wanted to see if you had any kind of visibility into 4Q yet and kind of what you're thinking about activity, or, you know, how results could be just kind of a seasonal slowdown and what that could look like.

Luke Lemoine: Yeah, hey, good morning. Chris Keefer. Really good outlook for 3Q that you put out a couple weeks ago and reiterating today.

Luke Lemoine: Chris, just wanted to see if you had any kind of visibility in a 4Q yet, and kind of what you're thinking about activity, or, you know, how results could be, just kind of with seasonal slowdown, and what that could look like.

Christopher Baker: Good morning, Luke. Yes, a great question. We put out 3Q guidance, I guess 23 days ago; reiterated it yesterday. Look, I guess let's address 3 Qs. First, the reality of basin-by-basin schedules or episodic if we've ever seen. At least during COVID, it was a one way down then back up, but at this base level of the NC activity, as you well know, it's really difficult to backfill spot work or, more importantly, difficult to backfill spot work that actually has margin and it doesn't just cover crew costs. In Q2, we had a couple of dedicated customers that took some one-month completion breaks, etc.

Chris Baker: Good morning, Luke. Yeah, it's a great question. We put out 3Q guidance, I guess, 23 days ago, and reiterated it yesterday. You know, look, I guess we'll address 3Q first. The reality of basin-by-basin schedules is as episodic as we've ever seen. I mean, at least during COVID, it was a one-way down and back up.

Christopher Baker: Good morning, Luke. Yeah, it's a great question. We put out 3Q guidance, I guess, 23 days ago, and reiterated it yesterday. You know, look, I guess we'll address 3Q first. The reality of basin-by-basin schedules is as episodic as we've ever seen. I mean, at least during COVID, it was a one way down, then back up.

Christopher Baker: Good morning, Luke. Yeah, it's a great question. We put out 3Q guidance, I guess, 23 days ago. We reiterated it yesterday.

Speaker Change: You know, look, I guess let's address 3G first. The reality is...

Christopher Baker: The 3% sequential improvement in total revenue stems with increased sales in a rocky segment and in higher margin product and service lines such as rentals and tech services which include fishing. Tech services and rentals Q2 revenues increase sequentially by 20% and 17% respectively. KLX's geographic and product service line diversification drove margin sustainability in the face of market selfness, highlighting the strengths of the KLX platform as seasonal impacts range and production and intervention activity return to more normalized levels.

Christopher Baker: Basin by basin schedules are as episodic as we've ever seen. I mean, at least during COVID, it was a one way down and back up. But at this base level of BNC activity,

Chris Baker: But at this base level of D&C activity, as you well know, it's really difficult to backfill spot work, or, more importantly, to backfill spot work that actually has margin in it and doesn't just cover crew costs. And so, you know, in Q2, we had a couple of dedicated customers that took some one-month completion breaks, et cetera, reduced fleets as part of their integration efforts from the M&A wave And so, as we sit here today, what we see for 3Q is far fewer breaks.

Christopher Baker: But at this base level of BNC activity, as you well know, it's really difficult to backfill spot work, or, more importantly, to backfill spot work that actually has margin in it and doesn't just cover crew costs. And so, you know, in Q2, we had a couple of dedicated customers that took some one-month completion breaks, etc., reduced fleets as part of their integration efforts from the M&A wave, etc. And so, as we sit here today, what we see for 3Q is far fewer breaks.

Christopher Baker: As you well know, it's really difficult to backfill spot work, and more importantly, difficult to backfill spot work that actually has margin in it and doesn't just cover crew costs.

Christopher Baker: and so know in q two

Christopher Baker: We had a couple of dedicated customers.

Christopher Baker: Reduced fleets as part of their integration efforts from the M&A wave, etc. And so, as we sit here today, what we see for 3Q is far fewer breaks. We see some of the customers that are conducting those integration efforts, kind of fully rationalizing programs and putting some spreads and some rates kind of back to work. So I'm not saying it's a step change whatsoever. I think it's purely customer alignment and activity and timing as it pertains to KLX and our customer bases as you think through Q3 guidance.

Christopher Baker: that took some one-month completion breaks, etc., reduced fleets as part of their integration efforts from the M&A wave, etc. And so, as we sit here today, what we see for 3Q is far fewer breaks.

Christopher Baker: We see some of the customers that are conducting those integration efforts kind of fully rationalizing programs and putting some spreads and some rigs kind of back to work. So I don't, I'm not saying it's a step change whatsoever.

Chris Baker: We see some of the customers that are conducting those integration efforts kind of fully rationalizing programs and putting some spreads and some rigs kind of back to work. So I don't, I'm not saying it's a step change whatsoever.

Christopher Baker: KLX's leading presence in extended reach ladle, completion technologies, and production and intervention services should continue to yield sustainable results and positive free cash flow even in a flat rig count environment. Our revenue is highly coordinated to rig out, and KLX has steadily driven higher revenue per rig as we captured market share. Revenue per rig as of Q2 2024 was up approximately 10% sequentially and 27% compared to Q2 2022. This gaining revenue per rig reflects the market share we have captured over time due to our targeted strategy of customer alignment and driving multiple PSLs through all sales channels.

Christopher Baker: we see some of the customers that are conducting those integration efforts kind of

Christopher Baker: fully rationalizing programs and putting some spreads and some rigs kind of back to work. So I don't, I'm not saying it's a step change whatsoever. I think it's purely customer alignment and activity and timing as it pertains to KLX and our customer base as you think through Q3 guidance.

Luke Lemoine: I think it's purely customer alignment and activity and timing as it pertains to KLX and our customer base as you think through Q3 guidance. To your question on Q4, look, it's premature, and we haven't provided Q4 guidance at this point. We have talked historically about, There is the potential opportunity set for some of the Haynesville and Northeast operators to start to complete some ducts that looked maybe more viable a month ago as natural gas prices really started to rally.

Christopher Baker: I think it's purely customer alignment and activity and timing as it pertains to KLX and our customer base as you think through Q3 guidance. There's the potential opportunity set for some of the Haynesville and Northeast operators to start to complete some ducts that looked maybe more viable a month ago as natural gas prices really started to rally. They've since retrenched, but as you and I both know, they can turn on the spending tap really quick.

Christopher Baker: So your question on Q4, look, it's premature, and we haven't provided Q4 at this point. We have to historically about there's the potential opportunity set for some of the Hainesville and Northeast operators to start to complete some ducts. That looked maybe more viable a month ago as natural gas prices really started to rally. They since retrenched. But as you and I both know, they can turn on the spending tap really quick. And so I think the question is, do you see some completions activity ramp trying to get molecules into the pipeline late this year, and does that soften some of the typical seasonality in the Rockies and in other basins?

Speaker Change: To your question of Q4, look, it's premature and we haven't provided Q4 at this point. We have talked historically about

Christopher Baker: there's the potential opportunity set for some of the hangsville in northeast operators start to complete some ducts that looked maybe more viable a month ago and natural gas prices really started to rally since retrenched

Luke Lemoine: They've since retrenched, but as you and I both know, they can turn on the spending tap really quick. And so I think the question is, do you see some completions activity ramping up trying to get molecules into the pipeline late this year? And does that soften some of the typical seasonality in the Rockies and in other basins? And, you know, give us another two months, and I think we have a lot better line of sight on that reality.

Christopher Baker: The sequential improvement in adjusted even on adjusted even on margin was driven by a non-recurrence of first quarter 2024 transitory issues. Constructural optimization and mission is improved crude utilization, seasonally reduced payroll tax exposure, incremental activity, and a shift in revenue mix towards higher margin geographies and PSLs including the rentals and tech services product lines, particularly within the Rockies and Southwest segments. During late Q1 and early Q2, we implemented approximately 16 million of annualized cost savings. Q2 benefited from almost a full quarterly impact of those savings. The cost reduction benefited both cost of sales and GNA. Recurring cost of sales and GNA were down sequentially 5% and 8% respectively.

Christopher Baker: And so I think the question is, do you see some completions activity ramping up trying to get molecules into the pipeline late this year? And does that soften some of the typical seasonality in the Rockies and in other basins? And, you know, you give us another two months, and I think we have a lot better line of sight on that reality.

Speaker Change: But as you and I both know, they can turn on the spending tap really quick.

Christopher Baker: And so I think the question is...

Christopher Baker: Do you see some completions activity ramp trying to get molecules into the pipeline late this year, and does that soften some of the typical seasonality in the Rockies and in other basins? And, you know, you give us another.

Luke Lemoine: And you give us another two months, and I think we have a lot better line of sight on that's the reality of it. Got it. All right. Thanks, Chris. Yeah, sure, ma'am. Thank you, Luke.

Christopher Baker: Two months and I think we have a lot better line of sight on that's the reality of it

Chris Baker: Got it. All right. Thanks, Chris.

Chris Baker: Yeah, sure. Not a problem. Thank you, Luke.

Christopher Baker: Got it. All right. Thanks, Chris.

Steve Ferrazani: Thank you. The next question comes from the line of Steve Ferrazani with Sidoti and Company. Please go ahead.

Stephen Ferazani: Next question comes on the line of Steve Farazani with Storty and Company.

Steve Ferrazani: Yes, sure. Not a problem. Thank you, Luke.

Steve Ferrazani: Thank you. Next question comes from the line of Steve Ferrazani with Sidoti and Company. Please go ahead.

Stephen Ferazani: Please go ahead. Good morning, Chris Keefer. Appreciate the color on the call, obviously, very nice bounce back quarter. But beyond just the sequential in the Rockies, and we're looking at your margins there, even year over year, getting better. And obviously there's pricing pressure, and you talked about trying to fill back, fill work. How are you getting margins better in that market? Is that mixed? Are you proud in higher margin type assets? That's into that market, if you can explain a little bit, because that was the surprise to us. Yeah, it's a great question. Look, we talked in Q1, how Q1 was plagued by transport issues and Q2 definitely returned to operating levels, and we've alluded to this in the past, some of the KPIs we track, etc.

Steve Ferrazani: Morning, Chris Keefer, appreciate the color on the call, obviously, a very nice bounce-back quarter. But beyond just the sequential in the Rockies, and we're looking at your margins there, even year over year, getting better. And obviously, there's pricing pressure, and you talked about trying to fill backfill work. How are you getting margins better in that market? Is that mix you brought in higher, more higher?

Chris Baker: Morning, Chris Keefer, appreciate the color on the call, obviously a very nice bounce-back quarter. But beyond just the sequential in the Rockies, and we're looking at your margins there, even year over year, getting better. And obviously, there's pricing pressure, and you talked about trying to fill backfill work. How are you getting margins better in that market? Is that mix you brought in higher, more higher? margin type assets into that market? If you can explain a little bit, because that was a surprise to us.

Steve Ferrazani: Morning, Chris Keefer. Appreciate the color on the call. Obviously very nice bounce back quarter.

Steve Ferrazani: but beyond just the sequential in the rockies and we're looking at your margins there even year-over-year getting better

Steve Ferrazani: and obviously there's pricing pressure and you talked about trying to backfill work. How are you getting margins better in that market? Is that mix you brought in higher margin, higher?

Speaker Change: margin type assets into that market if can explain alittle bit becausethat's that was surprise to us

Chris Baker: Yeah, it's a great question. Look, we talked in Q1 about how Q1 was plagued by transitory issues, and Q2 definitely returned to operating levels, and we've alluded to this in the past, some of the KPIs we track, etc. But Q2 across the company returned to operating levels that, candidly, in many instances were better than Q4 of 2023. When you think about a recount that declined 7% on a quarterly basis, 7% on a year-to-date basis, we returned revenue across the company, revenue per headcount returned almost $100,000 per employee. That's up from kind of the high 80s in Q1.

Speaker Change: Yeah, it's a great question.

Speaker Change: we talking q one how q one was played by trtranstory issues in q two definitely return to operating levels and we've alledto this in the past some of the kp we track etce

Christopher Baker: But Q2 across the company returns operating levels; the candidly, in many instances, were better than Q4 of 2023. When you think about the recount to decline 7% on a quarterly basis, 7% a year-to-date basis, we return revenue across the company; revenue per headcount returns almost $100,000 per employee. That's up from kind of the high 80s in Q1. And if you think about revenue per active rig across North America, we average almost $315,000 per rig. That's up from low to 80s in Q1, and it's candidly higher than any revenue per rig out that you is back into in 2022 and compares very favorably to a $334,000 average in 2030.

Speaker Change: Unknown Attendee, Ken Dennard, Zach Vaughan, Unknown Attendee, Ken Dennard, Zach Vaughan,

Christopher Baker: From a product line perspective, completions focused activity drove 51% of Q2 revenue. Drilling was 21% and production and intervention was 28%. The sequential improvement in production and intervention revenue was driven by the culmination of our strategic capital spending and reposition efforts across our rental portfolio over the last few quarters and continued positive traction with the KLX downhold technology portfolio plus a rebound in fishing activity coming off the doldrums of early 2024.

Speaker Change: that candidly, in many instances, were better than Q4 of 2023.

Speaker Change: When you think about the recount that declined 7% on a quarterly basis, 7% on a year-to-date basis.

Speaker Change: We return revenue across the company.

Speaker Change: revenue per headcount returns almost $100,000 per employee. That's up from kind of the high 80s in Q1.

Chris Baker: If you think about revenue per active rig across North America, we averaged almost $315,000 per rig. That's up from the low 280s in Q1, and it's candidly higher than any revenue per rig count that you back into in 2022 and compares very favorably to a $334,000 average in 2023. And so, you know, there are probably four key factors that drove the improvement, not just in the Rockies but in the Rockies as well as the Southwest. Look, we had $6 million of incremental revenue, largely from higher-margin PSLs. We talked about the $16 million in cost cuts.

Speaker Change: If you think about revenue per active rig across North America, we averaged almost $315,000 per rig. That's up from

Speaker Change: Low 280s in Q1, and it's candidly higher than any revenue per rig calc that you is back into in 2022 and compares very favorably to a $334,000 average in 23 and so

Christopher Baker: Our geographic and product service line diversification continues to drive sustainability and earnings in cash flow and our teams continue to demonstrate their agility in managing difficult markets, effectively and decisively repositioning assets and maintaining a lean cost structure.

Christopher Baker: And so, you know, there's probably four key factors that drove the improvement, not just in the Rockies, but in the Rockies as well as the Southwest. Look, we had 6 million of incremental revenue, largely from higher margin PSL. We talked about the $16 million cost cuts; we realized approximately 80, 90% of that in Q2. That was across both the 6th and Variable Son of the business. To your point, the Rockies rebounded to $61 million. That's approaching our average level of revenue in 2023. And the Southwest was basically flat to slightly up revenue, despite a continuous slide in Permian and Eagle for Grick out, but yet margin expanded right from 10% to 50%.

Speaker Change: You know, there's probably four key factors.

Speaker Change: that drove the improvement, not just in the Rockies, but in the Rockies as well as the Southwest. Look, we had $6 million of incremental revenue, largely from higher margin PSLs.

Chris Baker: We realized approximately 80, 90% of that in Q2. That was across both the fixed and variable side of the business. To your point, the Rockies rebounded to $61 million.

Speaker Change: We talked about the $16 million of cost cuts, we realized approximately 80-90% of that in Q2. That was across both the fixed and variable side of the business.

Speaker Change: the yourpoint the rocky rebounded

Keefer Lehner: With that, I'll now turn the call over to Kiefer, who will review our financial results in more detail and I'll return later in the call to discuss our outlook. Kiefer? Thanks, Chris. Good morning, everyone. As Chris mentioned, we reported Q2 revenue of $180.2 million, representing a 3% sequential increase in consolidating Q2 adjusted EBITDA of $27 million. Adjusted EBITDA margin was 15%. We returned the business to positive leverage free cash flow for the quarter.

Chris Baker: That's approaching our average level of revenue in 2023, and the Southwest was basically flat to slightly up in revenue despite a continuous slide in Permian and Eagleford rig counts, but yet margin expanded, right, from 10% to 15%. So, and candidly, given the role in mid-time Northeast revenue, margin held in pretty well. And so, what drove all that? Look, to your point, a sizable mix shift. Because of that mix shift, we saw our tech services and our rental business up 20% to 17%, respectively. There are a couple of factors there.

Speaker Change: Unknown Attendee $61 million. That's that's

Speaker Change: Approaching our average level of revenue in 2023.

Speaker Change: And the Southwest was basically flat to slightly up revenue, despite a continuous slide in Permian and Eagleford recount, but yet margin expanded, right, from 10% to 15%.

Christopher Baker: So, and candidly, given the role in mid-time Northeast revenue, margin held in pretty well. And so, what drove all that? Look, to your point, a sizable makeshift. And that makeshift. We saw our tech services and our rentals business up 20% to 17% respectively. There's a couple of factors there. The first is that's being driven by some of our long-term capital spending and capital allocation. And we think about strategic initiatives to both reposition assets, augment technology, and improve our fleet. So, it's on cutting edge as you think about the majors and the tidal wave of M&A that's been driven largely by the majors.

Speaker Change: Unknown Speaker And candidly, given the role in MidCon Northeast revenue, margin held in pretty well. And so what drove all that?

Speaker Change: Look, to your point, a sizable makeshift, and that makeshift, we saw our tech services and our rentals business up 20% to 17% respectively.

Keefer Lehner: On a consolidated basis, the sequential increase in revenue was driven by improved creedalization and increased activity with higher contributions from the Lockies and from our rentals and tech service product service lines. The Southwest and Northeast MidCon segments contributed 39% and 27% of Q2 revenue respectively, led in the Southwest by our directional drilling, rentals, and FRAC rentals product service lines, and in the MidCon by our pressure pumping, accommodation, and directional drilling offerings.

Chris Baker: The first is that it's being driven by some of our long-term capital spending and capital allocation when we think about strategic initiatives to both reposition assets, augment technology, and improve our fleet so it's at the cutting edge. As you think about the majors and the tidal wave of M&A that's been driven largely by the majors, you have to have tier one equipment, redundant backup engines, enhanced pressure control, et cetera, as well as our Oracle SRT.

Speaker Change: There's a couple of factors there. The first is that's being driven by some of our long-term capital spending.

Speaker Change: and capital allocation when we think about strategic initiatives

Speaker Change: to both reposition assets

Speaker Change: Augment technology, improve our fleet so it's on cutting edge. As you think about the majors and the tidal wave of M&A that's been driven largely by the majors, you have to have Tier 1 equipment, redundant backup engines, enhanced pressure control, etc., as well as our Oracle SRT.

Christopher Baker: You have to have tier one equipment, redundant, backup engines, enhanced pressure control, etc., as well as our Oracle SRT. But that really culminated in an increase in underlying production intervention activity. And as you know, a lot of the production intervention activity starts in February, March typically kind of runs through early fourth quarter. And as we think about our PSL, I think this was our lowest quarterly impact from completions, but a lot of those assets, whether it be tech services, rentals, coil tubing assets, etc., are pretty fungible. And they can go and attack that production and intervention market.

Keefer Lehner: The Lockies contributed 34% led by rentals, coil tubing, and tech services. Total SG&A expense for Q2 was $19.3 million when you back out non-recurring costs adjusted SG&A expense for Q2 would have been only $17.1 million or just 9% of quarterly revenue. During Q2, we actions several changes to our cost structure related to insurance, IT, and third-party professional fees to reduce our overhead going forward. Q2 benefited substantially from the reductions, but there will likely be some marginal amount of incremental savings into Q3. These cost reductions will continue through the remainder of 2024 and beyond.

Chris Baker: But that really culminated in an increase in underlying production intervention activity. And as you know, a lot of production intervention activity starts in February and March and typically kind of runs through early the fourth quarter. And as we think about our PSLs, I think this was our lowest quarterly impact from completions, but a lot of those assets, whether it be tech services, rentals, coil tubing assets, et cetera, are pretty fungible. And they can go and attack that production and intervention market.

Speaker Change: but that really culminated in an increase in underlying production intervention activity and as you know a lot of our production intervention activity starts in february march typically going of runs through early fourth quarter and as we think about our pcells

Speaker Change: i think this was our lowest quarterly impact from completions

Speaker Change: But a lot of those assets, whether it be tech services, rentals.

Speaker Change: qual to the assets etca all pretty fungible and they can go attack that production in an intervention market i think our team did a great job of reallocating into the face of strength there i think it speaks to how well positioned we are

Christopher Baker: I think our team did a great job of reallocating into the face of strength there. And I think it speaks to how well positioned we are when completions activity ultimately recovers in 25 and 26.

Chris Baker: I think our team did a great job of reallocating into the face of strength there. And I think it speaks to how well positioned we are when completions activity ultimately recovers in 25 and 26. So, in a long-winded way of saying, being lean, being diverse, and agile is basically the name of the game.

Stephen Ferazani: So, long-winded way of saying, being lean, being diverse and agile is basically the name of the game. Excellent. It's helpful. Talk to me about the balance sheet because this has been a very difficult last few quarters, but when I look at your net debt, it's lower than it was five quarters ago. It's basically flat to the last four quarters, and it was down 20 million into Q2 in what is a challenging environment. How are you managing the balance sheet? Obviously, you've gone down to almost maintenance cap-backs, but talk to me about cash flow in the balance sheet in this environment.

Keefer Lehner: Turning now to a review of our segment result, with the Rockies. Rocky Mountain Revenue, Operating Income, and Adjust the EBITDA was $61.4 million, $10.5 million, and $17.2 million, respectively, for the second quarter of 2024. Second quarter revenue represents a 35% sequential increase over the first quarter of 2024, despite a 4% reduction in average active regional rig count. A normalization of Rockies activity driven by a non-recurrent of two-on-transitory issues, coupled with an outside rebound and rentals and tech services revenue led to sequential revenue expansion. We experienced sequential revenue growth across all PSLs that we operate in this segment. Adjusted EBITDA increased approximately 220% sequentially as a function of the increase in revenue, a revenue-mix shift, and the reduced cost structure.

Speaker Change: when completions activity ultimately recovers in 25 and 26. So, you know, long-winded way of saying being lean, being diverse and agile is basically the name of the game.

Steve Ferrazani: Excellent! That's very helpful.

Speaker Change: Excellent, that's helpful.

Keefer Lehner: Talk to me about the balance sheet because this has been a very difficult last few quarters. But when I look at your net debt, it's lower than it was five quarters ago. It's basically flat for the last four quarters, and it was down $20 million in Q2 in what is a challenging environment. How are you managing the balance sheet? Obviously, you've gone down to almost maintenance capex, but talk to me about cash flow on the balance sheet in this environment.

Keefer Lehner: Talk to me about the balance sheet because

Keefer Lehner: This has been a very difficult last few quarters, but when I look at your net debt,

Keefer Lehner: It's lower than it was five quarters ago. It's basically flat for the last four quarters, and it was down $20 million.

Speaker Change: into q two and what is a challenging environment how you're managing the balance sheet obviously we've one down to almost maintenance capex but talk to me about cash flow in the balance sheet in this environment

Keefer Lehner: Yeah, absolutely. So, we've obviously been focused on maximizing margins and turn driving free cash flow generation. Certainly, coming off of the blip that was Q1, we returned the business back to largely 2023 margin levels that, in turn, returned the business back to positive leverage free cash flows. You think about our second quarter, 2024 results. I think from a capitalization standpoint, the business is well positioned. On an LGM basis, we're roughly at two times leverage on a net basis. On a run rate basis, we're slightly below there at about a 1.8 times net leverage ratio. I think the business continues to be conservatively capitalized from a leverage standpoint.

Keefer Lehner: Yeah, absolutely. So we've obviously been focused on maximizing margins and, in turn, driving free cash flow generation. Certainly, coming off of the blip that was Q1, we returned the business back to largely 2023 margin levels. That, in turn, returned the business back to positive leveraged free cash flow as you think about our second quarter 2024 results. So I think from a capitalization standpoint, the business is well positioned. On an LTM basis, we're roughly at two times leverage on a net basis.

Keefer Lehner: Yeah, absolutely. So we've obviously been focused on maximizing margins and, in turn, driving free cash flow generation. Certainly, coming off of the blip that was Q1, we returned the business back to largely 2023 margin levels. That, in turn, returned the business back to positive leverage free cash flow as you think about our second quarter 2024 results. So I think from a capitalization standpoint, the business is well positioned. On an LTM basis, we're roughly at two times leverage on a net basis.

Keefer Lehner: Yeah, absolutely. So we've obviously been focused on maximizing margins and turn driving free cash flow generation.

Keefer Lehner: certainly coming off of the blip that was q one we return the business back to largely two thousand and twenty three margin levels that in turn return the business back to positive leveverage freec flows you think about our second quarter two thousand and twenty four results so i think from a capitalization standpoint

Keefer Lehner: On a run rate basis, we're slightly below that at about a 1.8 times net leverage ratio. So I think the business continues to be conservatively capitalized from a leverage standpoint. And we're coming off a year in 2023 where we generated almost $80 million of leveraged free cash flow in the year. So to Chris's point, we're continuing to focus on Go forward margin maximization, free cash flow maximization, reducing net debt, building cash, and driving continued strength in the balance sheet.

Keefer Lehner: On a run rate basis, we're slightly below that at about a 1.8 times net leverage ratio. So I think the business continues to be conservatively capitalized from a leverage standpoint. And we're coming off a year in 2023 where we generated almost $80 million of leveraged free cash flow in a year. So to Chris's point, we're continuing to focus on Go forward margin maximization, free cash flow maximization, reducing net debt, building cash, and driving continued strength in the balance sheet.

Keefer Lehner: The business is well positioned. On an LTM basis, we're roughly at two times leverage on a net basis. On a run rate basis, we're slightly below there at about a 1.8 times net leverage ratio. So I think the business continues to be conservatively capitalized from a leverage standpoint.

Keefer Lehner: We're coming off a year in 2023, where we generated almost 80 million dollars of leverage-free cash flow in the year. So, to Chris' point, we're continuing to focus on go forward margin maximization, free cash flow maximization, reducing net debt, building cash, and driving continued strength in the balance. We could get one more in that leverage around two times. How does that position you potentially in the M&A pipeline front? We've seen some smaller deals. We've seen some slightly larger deals. FAS, what are you seeing out there and what are you comfortable doing at a two-time leverage right now?

Keefer Lehner: And we're coming off a year in 2023 where we generated almost $80 million of leveraged free cash flow in a year. So to Chris's point, we're continuing to focus on...

Keefer Lehner: Go forward margin maximization, free cash flow maximization, reducing net debt, building cash, and driving continued strength in the balance sheet.

Keefer Lehner: Moving to the Northeast Midcon, revenue, operating loss, and adjusted EBITDA for the Northeast Midcon segment was $48.9 million, negative $2.5 million, and $6.4 million, respectively, for the second quarter of 2024. Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024, due to reduced regional gas-focused 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 204% and 37% respectively, largely due to lower activity and pricing.

Keefer Lehner: If we could get one more in that leverage around two times, how does that position you potentially in the M&A pipeline front? We've seen some smaller deals. We've seen some slightly larger deals in OFS. What are you seeing out there? And what are you comfortable doing at two times leverage right now?

Steve Ferrazani: If we could get one more in that leverage around two times, how does that position you potentially in the M&A pipeline front? We've seen some smaller deals. We've seen some slightly larger deals in OFS. What are you seeing out there, and what are you comfortable doing at a two times leverage right now? spot. Yeah, good.

Keefer Lehner: If we could get one more in, that leverage around two times, how does that position you potentially in the M&A pipeline front? We've seen some smaller deals, we've seen some slightly larger deals in OFS. What are you seeing out there and what are you comfortable doing at a two times leverage right now?

Keefer Lehner: Spot. Yeah, good.

Keefer Lehner: Spot? Yeah, good question. I think first and foremost, we're more focused today on strategically refinancing or existing notes in ABL. With that said, we're always evaluating M&A and strategic and organic opportunities. By and large, we've looked to use equity currency historically to effectuate M&A. We think that drives alignment, and we've been able to do deals that I think are largely highly accrued to a very synergistic and strong strategic fit. I think Green is a good blueprint by which we've looked at acute additional M&A. But today we are focused, both more internally, from a margin maximization, cash flow maximization standpoint, as well as a focus on refinancing.

Chris Baker: Yeah, good question. I think, first and foremost, we're more focused today on strategically refinancing our existing nodes and ABL. With that said, we're always evaluating M&A and strategic and organic opportunities. By and large, we've historically looked to use equity currency to effectuate M&A. We think that that drives alignment, and we've been able to do deals that are largely highly accretive, very synergistic, and a strong strategic fit.

Speaker Change: Good question. I think, you know, first and foremost, you know, we're more focused today on strategically refinancing our existing nodes and ABL. With that said, we're always evaluating M&A and strategic and organic opportunities.

Keefer Lehner: Good question. I think, first and foremost, we're more focused today on strategically refinancing our existing nodes and ABL. With that said, we're always evaluating M&A and strategic and organic opportunities. By and large, we've historically looked to use equity currency to effectuate M&A. We think that drives alignment, and we've been able to do deals that I think are largely highly accretive, very synergistic, and a strong strategic fit. I think Greens is a good blueprint by which we've looked to execute additional M&A. But today we are focused both more internally from a margin maximization and cash flow maximization standpoint, as well as a focus on refinancing. But we're always continuing to monitor the market as it relates to M&A.

Keefer Lehner: By and large, we've looked to use...

Keefer Lehner: equity currency historically to effectuate M&A.

Keefer Lehner: We think that drives alignment, and we've been able to do deals that I think are largely highly accretive, very synergistic, and strong strategic fit. I think Greens is a good blueprint by which

Chris Baker: I think Greens is a good blueprint by which we've looked to execute additional M&A. But today, we are focused both more internally from a margin maximization and cash flow maximization standpoint, as well as a focus on refinancing. But we're always continuing to monitor the market as it relates to M&A.

Keefer Lehner: We've looked to execute additional M&A, but today we are focused both more internally from a margin maximization, cash flow maximization standpoint, as well as a focus on refinancing. But we're always continuing to monitor the market as it relates to M&A.

Stephen Ferazani: But we're always continuing to monitor the market because it relates to M&A. Right. Thanks, Chris. Thanks, Kiefer.

Keefer Lehner: I'll now turn to our balance sheet, cash flow, and capitalization. We ended the quarter with a net debt balance of $198 million. June 30th cash balance was $87 million, up by $2 million sequentially, and up 6% from $82 million in Q2 of 2023. We ended the second quarter with roughly $121 million in liquidity, consisting of $87 million in cash and availability of $34 million under our June 2024 ABL borrowing base certificate.

Steve Ferrazani: Great. Thanks, Chris. Thanks, Keefer.

Keefer Lehner: Yeah, thanks, Steve.

Steve Ferrazani: Great. Thanks, Chris. Thanks, Keefer.

John Daniel: Thank you. The next question comes from the line of John Daniel, Daniel Energy. Please go ahead.

John Daniel: Thank you. The next question comes from the line of John Daniel, Daniel Energy; please go ahead.

John Daniel: Next question comes from the line of John Daniel, Daniel Energy, Peace Co-Baid. Hey, guys. Chris, you noted in one of the answers, or maybe it was prepared remarks, about reposition assets and things like that. I'm curious; some of your peer group has started talking about facility rationalization for potentially closures of stuff. Have you guys come to that point yet? And is that something that might be on the table? And then, if so, just your thoughts on and how the industry then reacts four to five quarters from now if the market does in fact turn with natural gas recovery.

John Daniel: Yeah, thanks, Steve.

Speaker Change: Thank you. Next question comes from the line of John Daniel, Daniel Energy, Prescobet.

Chris Baker: Hey, guys. Chris, you noted in one of the answers, or maybe it was prepared remarks about, you know, repositioning assets and things like that. I'm curious, some of your peer group has started talking about facility rationalizations for potentially closing facilities and stuff. Have you guys come to that point yet, and is that something that might be on the table? And then, if so, just your thoughts on how the industry will react four to five quarters from now if the market does, in fact, turn with natural gas recovery. Big picture.

John Daniel: and ice

John Daniel: repositioning assets and things like that. I'm curious, some of your peer group has started talking about facility rationalization for potentially closures and stuff. Have you guys come to that point yet? And is that something that might be on the table? And then, if so, just your thoughts on that

Chris: Chris, you noted in one of the answers, or maybe it was prepared remarks about, you know, repositioning assets and things like that. I'm curious, some of your peer group has started talking about facility rationalization for potentially closures and stuff.

Keefer Lehner: Note we did have approximately $3 million in suppressed availability of a June 30th due to structural limitations within the ABL that are expected to reverse in Q3. Our ABL and Senior Secured Notes both mature in the fall of 2025. Given our conservative capitalization, strong Q2 results returning to 2023 margins and positive recast flow, and generally strong consistent performance over the last two years, we believe the business is well-positioned. We will continue to monitor market conditions and evaluate opportunities to refy the outstanding notes and ABL in 2024.

John Daniel: Have you guys come to that point yet and is that something that might be on the table and then if so just your thoughts on

Speaker Change: How the industry then reacts four to five quarters from now if the market does in fact turn with natural gas recovery. Big picture question.

John Daniel: Big picture question. Right. Now, fair enough.

Chris Baker: No, fair enough. Look, I mean, it feels like we've gone through four years of facility rationalization and consolidation coming out of the heels of the KLX QES integration, right? So you think about that situation: we were north of 60 facilities; we're now operating approximately 35. There are a couple real-time lives that we've consolidated two into one, et cetera.

Christopher Baker: Look, I mean, it feels like we've gone through four years of facility rationalization and consolidation coming out off the heels of the KLX, QES integration, right? So you think about that situation when we were north of 60. Facilities were now operating approximately 35. There's a couple real-time lives that we've consolidated two into one, et cetera. I think our footprint is, by and large, rationalized. Do we look at opportunity sets, we drive efficiencies. We do so all at the time, but we don't have any big picture plans. We have talked about moving assets out of some of the gassy basins but maintaining capacity, maintaining expertise in personnel and then facing them, and we've done that, and we've done that while still driving profitable margin in the face of weakness.

Speaker Change: Right, no, fair enough. Look, I mean...

Speaker Change: It feels like we've gone through four years of facility rationalization and consolidation.

Speaker Change: coming out off the heels of the klx qs integration right so you think about that situation where we are north of sixty facilities we're now operating approximately thirty five

Chris Baker: I think our footprint is, by and large, rationalized. Do we look at opportunity sets? Do we drive efficiencies? We do so all of the time, but we don't have any big-picture plans.

Keefer Lehner: Now turning to CAPEX. Second quarter capital expenditures were $15.3 million, which were primarily focused on maintenance spending across our segments. Q2 net CAPEX defined as CAPEX less asset sales was approximately $12 million. Going forward, we continue to expect total CAPEX for 2024 to be in their range of $50 to $55 million, with approximately 80% plus earmarked for maintenance expenses. Going forward, our focus remains on maximizing margin and free cash flow generation, ensuring robust financial strength and flexibility, and that KLX is well-positioned to execute our strategy.

Speaker Change: There's a couple real time live that we've consolidated two into one, etc. I think our footprint is by and large rationalized. Do we look at opportunity sets?

Speaker Change: we' drive efficiencies we do so all at the time but we don't have any

Chris Baker: We have talked about moving assets out of some of the gassy basins, but maintaining capacity, maintaining expertise, and personnel in those basins, and we've done that, and we've done that while still driving profitable margins in the face of weakness. And so I feel like we're pretty well positioned, to your point. Look, everybody's well aware of the pending gas demand market inflection, and I'm not going to pontificate on whether that's the first half of 2025, the second half of 2025, or otherwise.

Speaker Change: Big Picture Plans.

Speaker Change: We have talked about moving assets out of some of the gassy basins but maintaining capacity, maintaining expertise and personnel in those basins and we've done that and we've done that while still driving

Christopher Baker: And so I feel like we're pretty well positioned to, your point. Look, everybody's well aware of the in the gas demand market inflection and not going to pontificate on whether that's a first half of 25, second half of 25, or otherwise situation. What we know is we're continuing to invest in our asset base, our customer base, latest generation tools and equipment. And I think KLX is exceptionally well positioned if and when gas directed activity ramps or if and when some of the oil directed activity is people rationalize some of their programs or sell off non-core assets to the private with some of the hanging chads coming out or they could all roll up. If the win activity rebounds, I think the LX is very well positioned to participate from both an asset and personnel standpoint.

Speaker Change: profitable margin in the face of weakness. And so I feel like we're pretty well positioned.

Speaker Change: To your point, look, everybody's well aware of the pending gas demand market inflection and I'm not going to pontificate on whether that's the first half of 2025, second half of 2025, or otherwise.

Christopher Baker: With that, I'll now turn the call back to Chris. Thanks, Q4.

Christopher Baker: When we wrap up, I'd like to share some additional color on our outlook. Our current calendar for Q3 calls for continued strengths in the Rockies and Southwest with an uptake in the Northeast Midcon. We expect the completions and production oriented activity will continue the way in the current market. Consistent with our pre-release and our prior guidance for Q3 issue 23 days ago, we continue to expect 3rd quarter 2024 revenue to be flat to slightly up relative to the 2nd quarter, with adjusted even on margins similar to the 2nd quarter based on current schedules and latest customer conversations.

Chris Baker: What we know is we're continuing to invest in our asset base, our customer base, latest generation tools and equipment, and I think KLX is exceptionally well positioned if and when gas-directed activity ramps up or if and when, you know, some of the oil-directed activity is people rationalize some of their programs or sell off non-core assets to the privates with some of the hanging chads coming out of acreage roll-up If and when activity rebounds, I think KLX is very well positioned to participate from both an asset and personnel standpoint.

John Daniel: situation. What we know is we're continuing to invest.

Speaker Change: and our asset base, our customer base.

Speaker Change: latest generation tools and equipment. And I think KLX is exceptionally well positioned, if and when gas directed activity ramps or if and when, you know, some of the oil directed activity is people rationalize some of their programs or sell off non core assets.

Speaker Change: to the privateates listsystemdom and the hanging chats coming out ofthe acage our rollup iflin activity rebounds up whole the alx is very well positioned to participate from both an asset and personnel standpoint

John Daniel: Okay, and then the follow-up for me, Chris, is slightly unrelated, it's just... [inaudible] Different anecdotes, if you will, that come out about spot activity in the frack market and the coil market. Could you just provide, you know, your views on the business? You know, at what point does it make sense to idle stuff versus, you know, are your customers working with you recognizing the and the attrition that's, you know, prevalent in that sector. Just, again, big picture thoughts.

John Daniel: Okay, and then the follow-up for me, Chris, is slightly unrelated, it's just... Unknown Attendee Um, you know, different anecdotes, if you will, that come out about spot activity in the frack market and coil market. Could you just provide your views on the business? Are they working with you to recognize the, if you will, the challenges?

John Daniel: Okay.

Christopher Baker: And then the follow up for me, Chris, is slightly unrelated, is just different anecdotes fuel that come out to about spot activity in the frack market, coil market. Could you just provide your views on the business? What point does it make sense to idle staff versus are your customers, are they working with you, recognizing that if you will the challenges and the attrition that's prevalent in that sector? Just again, big picture thoughts. Yeah, it's a great question. Look, we have stacked assets; we have stacked assets in both of the product lines you reference that we could redeploy into markets. There's some strategies that we've evaluated, especially on the cornal business of unstacking some of those assets to provide better optionality.

John Daniel: okay and then the follow for me chris is slightly unrelated is justyou know

Christopher Baker: KLX is maintaining and improving our asset base to ensure we are well-positioned for the technology and equipment specifications standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well-positioned for the next market upcycle.

Speaker Change: different anecdote fuel that come out to about spot activity in the frac market coyal market could you just provide your views on the business

Christopher Baker: As we begin to look at 2025, we expect an increase in activity over 2024 levels driven by our customers completing our going integration initiatives related to the massive wave of consolidation that has occurred over the last 18 months and an increase in gas-directed activity driven by robust future demand from LNG export volumes and data centers. We believe KLX is more efficient today and in a rising rate count environment has substantial upside back to 2023 levels and beyond based on our improved call structure differentiated technology portfolio and well maintained and upgraded asset base. KLX stands apart with its performance driven technologically differentiated offerings, exemplary safety record and premier job execution. These capabilities combined with a broad geographic footprint contribute to our strong competitive position.

Speaker Change: What point does it make sense to idle stuff versus are your customers...

John Daniel: You know, are they working with you, recognizing the, if you will, the challenges and the attrition that's, you know, prevalent in that sector? Just again, big picture thoughts.

Chris Baker: Yeah, it's a great question. Look, we have stacked assets. We have stacked assets in both of the product lines you referenced that we could redeploy into markets. There are some strategies that we've evaluated, especially in the coil business, of unstacking some of those assets to provide better optionality. But as, you know, tying back to Luke's question, the reality is when you're at 580-something land-based rigs and the level of activity we're at, the spot market margin, or the ability to drive margin in the spot market, is very low. There's no two ways about it.

Christopher Baker: Yeah, it's a great question. Look, we have stacked assets. We have stacked assets in both of the product lines you referenced that we could redeploy into markets. There are some strategies that we've evaluated, especially in the coil business, of unstacking some of those assets to provide better optionality. But as, you know, tying back to Luke's question, the reality is when you're at 580-something land-based rigs and the level of activity we're at, the spot market margin, or the ability to drive margin in the spot market, is very low. There's no two ways about it. And so...

Christopher Baker: Yeah, it's a great question.

Christopher Baker: Look, we have stacked assets. We have stacked assets in both of the product lines you referenced.

Christopher Baker: that we could redeploy into markets. There's some strategies.

Christopher Baker: that we've evaluated, especially in the coil business.

Christopher Baker: But, as you know, tying back to Luke's question, the reality is when you're 580 something land base rigs and the level of activity we're at, the spot market margin or the ability to drive margin in the spot market is very benign; there's no two ways about it. And so you would much prefer to position yourself with customers with dedicated programs, consistent well-to-well type packages, and I think we've done that quite well. And as we look back to my point earlier, as we look at our Q3 calendar, it looks like it has less white spaces we sit here today than, candidly, Q2 did for many of our completions service lines.

Christopher Baker: Unstacking some of those assets to provide better optionality, but

Christopher Baker: and

Speaker Change: Unknown Attendee, Ken Dennard, Zach Vaughan

Speaker Change: Unknown Attendee The spot market margin or the ability to drive margin of the spot market is very benign. There's no two ways about it.

Chris Baker: And so you would much prefer to position yourself with customers with dedicated programs, consistent well-to-well, pad-to-pad type packages. And I think we've done that quite well. And as we look back to my point earlier, as we look at our Q3 calendar, it looks like it has less white space, as we see here today, than, candidly, Q2 did for many of our completions service lines.

Speaker Change: Unknown Speaker You would, that you would much prefer.

Christopher Baker: I would like to thank our customers and shareholders for their support of KLX and most importantly our team members for their essential role in our collective success.

Speaker Change: Mission Yourself with customers with dedicated programs, consistent well-to-well, pad-to-pad type packages, and I think we've done that quite well.

Operator: With that, we'll now take your questions. Operator. Thank you.

Christopher Baker: And as we look back to my point earlier, as we look at our Q3 calendar.

Speaker Change: It looks like it has less white space as we sit here today than candidly Q2 did for many of our completions service lines.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Chris Baker: Candidly, specifically on COIL, it feels like that market has held up better this cycle from a pricing standpoint in general than it has in past cycles. And whether that's some, you know, there's been marginal consolidation there in that service line, not as much as in maybe well-servicing, et cetera, but pricing's definitely held up better than, say, Wireline, one of the product lines we talk about often Does that mean that it's held up well in the spot market? No, you still see a night fight occasionally, but I think, in general, it's held up better.

Christopher Baker: Candidly, specifically on coil, it feels like that market has held up better this cycle and pricing standpoint, in general, than it has in past cycles, and whether that's, you know, there's been marginal consolidation there in that service line, not as much as in maybe well servicing, but pricing definitely held up better than, say, wireline, one of the product lines we talk about often. Does that mean that it held up well in the spot market? No, you still see a knife fight occasionally, but I think in general it's held up. Okay.

Speaker Change: candidates to specifically coil it feels like that market is held up better this cycle gl pricing standpoint in general than it has in past cycle

Speaker Change: and whether that's, you know, there's been marginal consolidation there in that service line, not as much as in maybe well servicing, et cetera, but pricing's definitely held up better than, say, Wireline, one of the product lines we talk about often.

Luke Lemoine: The first question comes from the line of Luke Lemoine with Piper Sandler, please go ahead. Yeah, hey, good morning, Chris, Keefer. Really good outlook for 3Q that you put out a couple weeks ago and reiterating today. Chris, just want to see if you had any kind of visibility in a 4Q yet and kind of what you're thinking about activity or how results could be. Just kind of a seasonal slowdown and what that could look like.

Speaker Change: Unknown Speaker Does that mean that it's held up well in the spot market? No, you still see a night fight occasionally, but I think in general it's held up better.

John Daniel: I appreciate the color. Thank you, guys. Yes, I appreciate the question. Thank you.

John Daniel: I appreciate the color. Thank you, guys.

David Marsh: Yes, sir. I appreciate the question. Thank you. The next question comes from the line of David Marsh with Singular Research. Please go ahead.

Christopher Baker: thenpres okay

Speaker Change: I appreciate the color. Thank you guys.

David Marsh: Thank you. The next question comes from the line of David Marsh with Singular Research. Please go ahead.

David Marsh: Next question comes from the line of David Marsh that is singular to such a piece of it.

Speaker Change: Yes, I appreciate the question.

Speaker Change: Thank you. Next question comes from the line of David Marsh with Singular Research. Please go ahead.

David Marsh: Thank you, morning, guys. Thanks for taking the questions. Good morning.

David Marsh: Hey, good morning, guys. Thanks for taking the question. Good morning, everybody. Hello. If I could start, Keefer, I just have one question for you.

David Marsh: Hey, good morning, guys. Thanks for taking the time to answer the question.

David Marsh: Hey, good morning, guys. Thanks for taking the questions.

Keefer Lehner: Could you just tell me the total non-recurring for the quarter? I was trying to piece it together from the different segments, and I was coming up with about 1.4. Just was hoping you could confirm.

Keefer Lehner: Yeah, if I could start Keefer, just question for you. Could you just tell me the total non-recurring for the quarter. I was trying to piece it together from the different segments. I was coming up with about 1.4. Just hoping you could confirm that for me. Yeah, recurring GNA was 17.1 million dollars. Total non-recurring costs were 1.4 million dollars. It's included on I think page 11. Okay.

Keefer Lehner: Yeah, recurring GNA was $17.1 million, and total non-recurring costs were $1.4 million. It's included on, I think, page 11.

Luke Lemoine: Good morning, Luke. Yes, a great question. We put out 3Q guidance, I guess 23 days ago, reiterated it yesterday. Look, I guess let's address 3Qs. First, the reality of basin by basin schedules or episodic if we've ever seen. At least during COVID, it was a one way down then back up, but at this base level of the NC activity, as you well know, it's really difficult to backfill spot work or more importantly, difficult to backfill spot work that actually has margin and it doesn't just cover crew costs.

Speaker Change: good morning day

David Marsh: If I could start, Keefer, just a question for you. Could you just tell me the total non-recurring for the quarter? I was trying to piece it together from the different segments. I was coming up with about 1.4. Just was hoping you could confirm that for me.

Speaker Change: Yeah, recurring GNA was $17.1 million. Total non-recurring costs were $1.4 million. It's included on, I think, page 11 of the earnings release.

Luke Lemoine: In Q2, we had a couple of dedicated customers that took some one-month completion breaks, etc. Reduced fleets as part of their integration efforts from the M&A wave, etc. And so as we sit here today, what we see for 3Q is far fewer breaks. We see some of the customers that are conducting those integration efforts, kind of fully rationalizing programs and putting some spreads and some rates kind of back to work. So I'm not saying it's a step change whatsoever. I think it's purely customer alignment and activity and timing as it pertains to KLX and our customer bases as you think through Q3 guidance.

David Marsh: Got it. Got it. Perfect. Okay.

Keefer Lehner: And then congrats on the gross margin. I mean, this is a really good number in my revenue number. Can you just talk about, you know, your thoughts in terms of sustainability of that type of level of gross margin, possible expansion back to, you know, kind of closer to those peaks that your term peaks you had in middle of last year. Yeah, good question. And certainly, you know, we're proud to see where Martin's returned to back on a Q2 basis, which I think is, you're certainly more normalized as you think about our 2023 performance across our various segments as well as the eight age aggregate business.

David Marsh: yeah

David Marsh: Got it. Got it. Perfect. Okay. And then, congrats on the gross margin. I mean, this is a really good number in light of the revenue number. Can you just talk about, you know, your thoughts in terms of sustainability of that?

David Marsh: type of level of gross margin and possible expansion back to, you know, kind of closer to those peaks, near-term peaks you had in the middle of last year.

Keefer Lehner: And then, um, congrats on the gross margin. I mean, this is a really good number in light of the revenue number. Can you just talk about, you know, your thoughts in terms of sustainability of that type of level of gross margin and possible expansion back to, you know, kind of closer to those peaks, near-term peaks you had in the middle of last year.

Speaker Change: type of level of gross margin and possible expansion back to, you know, kind of closer to those those peaks that you, near-term peaks you had in the middle of last year.

David Marsh: Yeah, good question. And certainly, you know, we're proud to see margins return to back on a Q2 basis, which I think is certainly more normalized as you think about our 2023 performance across our various segments, as well as the 8.8 aggregate business. You know, I think that was partly driven, to Chris's point, by reduced white space in the calendar. He just said that, you know, we see a kind of further reduction in white space as we look to Q3 versus Q2.

Speaker Change: Good question. And certainly, you know, we're, we're proud to see where where margins return to back on a Q2 basis, which I think is

Speaker Change: They're certainly more normalized as you think about our 2023 performance across our various segments as well as the 8.8's aggregate business.

Christopher Baker: So your question on Q4, look, it's premature and we haven't provided Q4 at this point. We have to historically about there's the potential opportunity set for some of the Hainesville and Northeast operators to start to complete some ducts. That looked maybe more viable a month ago as natural gas prices really started to rally. They since retrenched. But as you and I both know, they can turn on the spending tap really quick.

Keefer Lehner: You know, I think that was partly driven to Chris's point by reduced white space in the calendar. He just said that, you know, we see kind of further reduction in white space as we look to Q3 versus Q2. But certainly another big driver of sequential margin from Q1 to Q2 or just that return to normalcy in general, with some of the costs that we were able to effectuate that impacted both the GNA level as well as the cost of the cost of goods sold level. And so I think going forward from a fixed cost standpoint, we really work to attack the cost structure.

Speaker Change: You know, I think

Speaker Change: That was partly driven, to Chris's point, by reduced white space in the calendar. He just said that, you know, we see kind of further reduction in white space as we look to Q3 versus Q2. But certainly another big driver of sequential margin from Q1 to Q2 or just that return to normalcy in general.

David Marsh: But certainly, another big driver of sequential margin from Q1 to Q2, or just that return to normalcy in general, was some of the cost cuts that we were able to effectuate that impacted both the G&A level as well as the cost of goods sold level. And so, I think going forward, from a fixed cost standpoint, we've really worked to attack the cost structure. And I think those savings that were realized and effectuated during the second quarter are going to continue as we work through, you know, Q3 and the remainder of the year. That's great.

Speaker Change: with some of the cost cuts that we were able to effectuate that impacted both the G&A level as well as the cost of sold level. And so I think going forward...

Christopher Baker: And so I think the question is, do you see some completion's activity ramp trying to get molecules into the pipeline late this year and does that soften some of the typical seasonality in the Rockies and in other basins? And you give us another two months and I think we have a lot better line of sight on that's the reality of it. Got it. All right. Thanks, Chris. Yeah, sure, Ma'am. Thank you, Luke. Thank you.

Speaker Change: from a fixed cost standpoint we really work to attack the cost structure and i think they're savings that were realized effectuated during the second quarter are going to continue as we work through q three the remainder of the year

David Marsh: And I think those savings that were realized and effectuated during the second quarter are going to continue as we work through, you know, Q3 and the remainder of the year. That's great. Thank you.

David Marsh: That's great. Thank you.

Keefer Lehner: That's great. Thank you.

David Marsh: And then just on this, so you said recurring is 17.9. So, you know, obviously, as revenue fluctuates up and down, there's going to be some natural movement there. But so the 19.3 number, it sounds like that number could actually come down a little bit sequentially, potentially, in 3Q. Am I reading that right?

Keefer Lehner: And then just on the, if I could just circle back on that. So you said recurring is 17.9. So, you know, obviously, as revenue fluctuates up and down, there's going to be some natural movement there, but. So the 19 points, three number, it sounds like that number could actually come down a little bit sequentially, potentially entry Q. Am I reading that right? So, right, so recurring cost quarter of a quarter, it should be relatively consistent. And the cost cuts that are were actuated in the second quarter would continue into Q3.

Speaker Change: That's great, thank you. And then just on the, if I could just circle back on that, so you said recurring is 17.9, so you know obviously as revenue fluctuates up and down there's going to be some natural movement there, but

Stephen Ferazani: Next question comes on the line of Steve Farazani with Storty and Company. Please go ahead. Good morning, Chris Keefer. Appreciate the color on the call, obviously, very nice bounce back quarter. But beyond just the sequential in the Rockies, and we're looking at your margins there, even year over year, getting better. And obviously there's pricing pressure and you talked about trying to fill back, fill work. How are you getting margins better in that market? Is that mixed? Are you proud in higher margin type assets? That's into that market, if you can explain a little bit, because that was the surprise to us.

Speaker Change: So, right, so recurring costs quarter over quarter should be relatively consistent, and the cost cuts that were actuated in the second quarter would continue into Q3.

Keefer Lehner: So, right, so recurring costs quarter over quarter should be relatively consistent, and the cost cuts that were actuated in the second quarter would continue.

Keefer Lehner: And then just lastly, from me, you know, in terms of the refinancing window, you know, it does look like there are starting to get some deals done in some spaces that have been, you know, perhaps a little bit out of favor. Do you give us a sense of, you know, what the market is telling you in terms of your opportunity and your window around refinancing the facility and the notes. Yeah, it's a good question, and we'll talk about this a little bit on a prior question. I think the business continues to be performing well. I think we're well positioned from a leverage, liquidity, and cash perspective, and what we've talked about is that we're going to continue to kind of analyze and monitor market conditions. We're working to evaluate opportunities during 2024, so further remainder of the year to advantageously refinance the nodes and the AVL.

David Marsh: got it ok and then just lastly from me you in terms of the refinancing window know it does look like there are starting to get some deals done and from spaces that have been you perhaps sort of bit out of savor i mean you

Christopher Baker: Yeah, it's a great question. Look, we talked in Q1, how Q1 was plagued by transport issues and Q2 definitely returned to operating levels, and we've alluded to this in the past, some of the KPIs we track, etc. But Q2 across the company returns operating levels, the candidly in many instances were better than Q4 of 2023. When you think about the recount to decline 7% on a quarterly basis, 7% a year-to-date basis, we return revenue across the company, revenue per headcount returns almost $100,000 per employee.

David Marsh: Got it. Okay. And then just lastly, for me, in terms of the refinancing window, it does look like there are starting to get some deals done in some spaces that have been, you know, perhaps a little bit out of favor. I mean, can you give us a sense of what the market is telling you in terms of your opportunity and your window around refinancing the facility and the notes?

David Marsh: Can you give us a sense of what the market is telling you in terms of your opportunity and your window around refinancing the facility and the notes?

Keefer Lehner: Yeah, good question. And, you know, we've talked about this a little bit in a prior question. I think, you know, the business continues to be performing well. I think we're well-positioned from a leverage, liquidity, and cash perspective. And, you know, what we've talked about is that we're going to continue to kind of analyze and monitor market conditions, and we're working to evaluate opportunities during 2024, so for the remainder of the year, to advantageously refinance the nodes and the ABL.

David Marsh: Yeah, good question. And, you know, we talked about this a little bit on a prior question. I think, you know, the business continues to be performing well. I think we're well positioned from a

David Marsh: a leverage liquidity and cash perspective

Christopher Baker: That's up from kind of the high 80s in Q1. And if you think about revenue per active rig across North America, we average almost $315,000 per rig that's up from low to 80s in Q1 and it's candidly higher than any revenue per rigout that you is back into in 2022 and compares very favorably to a $334,000 average in 2030. And so, you know, there's probably four key factors that drove the improvement, not just in the Rockies, but in the Rockies as well as the Southwest.

Speaker Change: And what we've talked about is that we're going to continue to kind of analyze and monitor market conditions, and we're working to evaluate opportunities during 2024, so for the remainder of the year, to advantageously refinance the nodes and the ABL.

David Marsh: Great, thank you so much, guys. Good luck in the rest of the year. Thank you.

David Marsh: Great. Thank you so much, guys. Good luck with the rest of the year.

David Marsh: great thank you so much guys you could look at the rest of the year

Operator: Ladies and gentlemen, we have reached the end of the question and answer session.

David Marsh: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Chris Baker for closing comments.

Christopher Baker: I would now like to turn the floor over to Chris Baker for closing comments. 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. Thank you.

Christopher Baker: Look, we had 6 million of incremental revenue largely from higher margin PSL. We talked about the $16 million cost cuts, we realized approximately 80, 90% of that in Q2. That was across both the 6th and variable son of the business. To your point, the Rockies rebounded to $61 million. That's approaching our average level of revenue in 2023. And the Southwest was basically flat to slightly up revenue, despite a continuous slide in Permian and Eagle for Grick out, but yet margin expanded right from 10% to 50%.

Speaker Change: 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.

Operator: This concludes our today's telecomments. You may disconnect your lines at this time. Thank you for your participation. Thank you.

Speaker Change: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Unknown Attendee, Ken Dennard, Zach Vaughan, Unknown Attendee, Ken Dennard, Zach Vaughan,

Christopher Baker: So, it's on cutting edge as you think about the majors and the tidal wave of M&A that's been driven largely by the majors. You have to have tier one equipment, redundant, backup engines, enhanced pressure control, etc, as well as our Oracle SRT. But that really culminated in an increase in underlying production intervention activity. And as you know, a lot of the production intervention activity starts in February, March typically kind of runs through early fourth quarter.

Christopher Baker: And as we think about our PSL, I think this was our lowest quarterly impact from completions, but a lot of those assets, whether it be tech services, rentals, coil tubing assets, etc., are pretty fungible. And they can go and attack that production and intervention market. I think our team did a great job of reallocating into the face of strength there. And I think it speaks to how well positioned we are when completions activity ultimately recovers in 25 and 26.

Stephen Ferazani: So, long winded way of saying, being lean, being diverse and agile is basically the name of the game.

Stephen Ferazani: Excellent. It's helpful.

Stephen Ferazani: Talk to me about the balance sheet because this has been a very difficult last few quarters, but when I look at your net debt, it's lower than it was five quarters ago. It's basically flat to the last four quarters, and it was down 20 million into Q2 and what is a challenging environment.

Keefer Lehner: How are you managing the balance sheet? Obviously, you've gone down to almost maintenance cap-backs, but talk to me about cash flow in the balance sheet in this environment. Yeah, absolutely. So, we've obviously been focused on maximizing margins and turn driving free cash flow generation. Certainly coming off of the blip that was Q1, we returned the business back to largely 2023 margin levels that in turn returned the business back to positive leverage free cash flows.

Keefer Lehner: You think about our second quarter, 2024 results. I think from a capitalization standpoint, the business is well positioned. On an LGM basis, we're roughly at two times leverage on a net basis. On a run rate basis, we're slightly below there at about a 1.8 times net leverage ratio. I think the business continues to be conservatively capitalized from a leverage standpoint. We're coming off a year in 2023, where we generated almost 80 million dollars of leverage free cash flow in the year.

Keefer Lehner: So, to Chris' point, we're continuing to focus on, go forward margin maximization, free cash flow maximization, reducing net debt, building cash, and driving continued strength in the balance. We could get one more in that leverage around two times.

Keefer Lehner: How does that position you potentially in the M&A pipeline front? We've seen some smaller deals. We've seen some slightly larger deals. FAS, what are you seeing out there and what are you comfortable doing at a two-time leverage right now? Spot? Yeah, good question. I think first and foremost, we're more focused today on strategically refinancing or existing notes in ABL. With that said, we're always evaluating M&A and strategic and organic opportunities. By and large, we've looked to use equity currency historically to effectuate M&A.

Keefer Lehner: We think that drives alignment and we've been able to do deals that I think are largely highly accrued to a very synergistic and strong strategic fit. I think Green is a good blueprint by which we've looked at acute additional M&A. But today we are focused, both more internally, from a margin maximization, cash flow maximization standpoint, as well as a focus on refinancing. But we're always continuing to monitor the market because it relates to M&A. Right. Thanks, Chris. Thanks, Kiefer. Yeah, thanks, Steve.

John Daniel: Thank you. Next question comes from the line of John Daniel, Daniel Energy, Peace Co-Baid. Hey, guys. Chris, you noted in one of the answers or maybe it was prepared remarks about reposition assets and things like that. I'm curious, some of your peer group has started talking about facility rationalization for potentially closures of stuff. Have you guys come to that point yet? And is that something that might be on the table? And then if so, just your thoughts on and how the industry then reacts four to five quarters from now if the market does in fact turn with natural gas recovery.

John Daniel: Big picture question. Right. Now, fair enough. Look, I mean, it feels like we've gone through four years of facility rationalization and consolidation coming out off the heels of the KLX, QES integration, right? So you think about that situation when we were north of 60 facilities were now operating approximately 35. There's a couple real-time lives that we've consolidated two into one, et cetera. I think our footprint is by and large rationalized. Do we look at opportunity sets, we drive efficiencies.

Christopher Baker: We do so all at the time, but we don't have any big picture plans. We have talked about moving assets out of some of the gassy basins but maintaining capacity, maintaining expertise in personnel and then facing them and we've done that and we've done that while still driving profitable margin in the face of weakness. And so I feel like we're pretty well positioned to your point. Look, everybody's well aware of the in the gas demand market inflection and not going to pontificate on whether that's a first half of 25, second half of 25 or otherwise situation.

Christopher Baker: What we know is we're continuing to invest in our asset base, our customer base, latest generation tools and equipment. And I think KLX is exceptionally well positioned if and when gas directed activity ramps or if and when some of the oil directed activity is people rationalize some of their programs or sell off non-core assets to the private with some of the hanging chads coming out or they could all roll up, if the win activity rebounds, I think the LX is very well positioned to participate from both an asset and personnel standpoint.

Christopher Baker: Okay. And then the follow up for me, Chris, is slightly unrelated is just different anecdotes fuel that come out to about spot activity in the frack market, coil market, could you just provide your views on the business, what point does it make sense to idle staff versus are your customers, are they working with you, recognizing that if you will the challenges and the attrition that's prevalent in that sector, just again, big picture thoughts.

Christopher Baker: Yeah, it's a great question. Look, we have stacked assets, we have stacked assets in both of the product lines you reference that we could redeploy into markets, there's some strategies that we've evaluated especially on the cornal business of unstacking some of those assets to provide better optionality. But as you know, tying back to Luke's question, the reality is when you're 580 something land base rigs and the level of activity we're at, the spot market margin or the ability to drive margin in the spot market is very benign, there's no two ways about it.

Christopher Baker: And so you would much prefer to position yourself with customers with dedicated programs, consistent well-to-well, type packages, and I think we've done that quite well. And as we look back to my point earlier, as we look at our Q3 calendar, it looks like it has less white spaces we sit here today than candidly Q2 did for many of our completions service lines. Candidly specifically on coil, it feels like that market has held up better this cycle, and pricing standpoint, in general, than it has in past cycles, and whether that's, you know, there's been marginal consolidation there in that service line, not as much as in maybe well servicing, but pricing definitely held up better than, say, wireline, one of the product lines we talk about often. Does that mean that it held up well in the spot market? No, you still see a knife fight occasionally, but I think in general it's held up.

Christopher Baker: Okay. I appreciate the color.

Christopher Baker: Thank you guys. Yes, I appreciate the question.

David Marsh: Thank you.

David Marsh: Next question comes from the line of David Marsh that singular to such a piece of it. Thank you morning, guys. Thanks for taking the questions. Good morning.

Keefer Lehner: Yeah, if I could start Keefer, just question for you. Could you just tell me the total non-recurring for the quarter. I was trying to piece it together from the different segments. I was coming up with about 1.4. Just hoping you could confirm that for me. Yeah, recurring GNA was was 17.1 million dollars total non-recurring costs were 1.4 million dollars. It's it's included on I think page 11. Okay.

Keefer Lehner: And then congrats on the gross margin. I mean, this is a really good number in my revenue number. Can you just talk about, you know, your thoughts in terms of sustainability of that type of level of gross margin, possible expansion back to, you know, kind of closer to those peaks that your term peaks you had in middle of last year. Yeah, good question. And certainly, you know, we're proud to see where where Martin's returned to back on a Q2 basis, which I think is, you're certainly more normalized as you think about our 2023 performance across our various segments as well as the eight age aggregate business.

Keefer Lehner: And so I think going forward from a fixed cost standpoint, we really work to attack the cost structure. And I think those savings that were realized and effectuated during the second quarter are going to continue as we work through, you know, Q3 and the remainder of the year. That's great. Thank you.

Keefer Lehner: And then just on the, if I could just circle back on that. So you said recurring is 17.9. So, you know, obviously as revenue fluctuates up and down, there's going to be some natural movement there, but. So the 19 points, three number, it sounds like that number could actually come down a little bit sequentially, potentially entry Q. Am I reading that right? So, right, so recurring cost quarter of a quarter, it should be relatively consistent. And the cost cuts that are were actuated in the second quarter would continue into Q3.

Keefer Lehner: I think the business continues to be performing well, I think we're well positioned from a leverage, liquidity and cash perspective and what we've talked about is that we're going to continue to kind of analyze and monitor market conditions and we're working to evaluate opportunities during 2024, so further remainder of the year to advantageously refinance the nodes and the AVL.

David Marsh: Great, thank you so much guys, good luck in the rest of the year. Thank you.

Christopher Baker: Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Chris Baker for closing comments. 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. Thank you.

Operator: This concludes our today's telecomments. You may disconnect your lines at this time. Thank you for your participation. Thank you.

Q2 2024 KLX Energy Services Holdings Inc Earnings Call

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