Q1 2025 KLX Energy Services Holdings Inc Earnings Call

May 9, 2025

Greetings and welcome to <unk> Energy services 2025 first quarter earnings Conference call. At this time, all participants are in a listen only mode.

And answer session will follow the formal presentation if.

Greetings and welcome to the <unk> Energy services 2025 first quarter earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ken Dennard Investor Relations. Thank.

Ken Dennard: Thank you you may begin.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: Thank you operator, and good morning, everyone. We appreciate you joining us for the Kale ex energy services conference call and webcast to reviews first quarter 2025 results.

Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ken Dennard Investor Relations. Thank you Ken you may begin.

Speaker Change: With me today are Chris Baker, President and Chief Executive Officer, and Keefer, Lehner Executive Vice President and Chief Financial Officer. Following my remarks management will provide a commentary on quarterly financial results and outlook before opening the call for your questions.

Ken Dennard: Thank you operator, and good morning, everyone. We appreciate you joining us for the KL ex energy services conference call and webcast to reviews first quarter 2025 results.

Ken Dennard: With me today are Chris Baker, President and Chief Executive Officer, and Keefer, Lehner Executive Vice President and Chief Financial Officer. Following my remarks management will provide a commentary on quarterly financial results and outlook before opening the call for your questions.

Speaker Change: There will be a replay of today's call it'll be available by webcast on the company's website at <unk> com.

Speaker Change: I'll also be a telephonic report recorded replay available until May 23 2025.

Ken Dennard: Will be a replay of today's call there'll be available by webcast on the company's website at <unk> Dot com.

Speaker Change: More information on how to access. These replay features was included in yesterday's earnings release.

Ken Dennard: Also be a telephonic report recorded replay available until May 23, 2025 more.

Speaker Change: Please note that information reported on this call speaks only as of today may nine 2025, and therefore, you're advised that time sensitive information.

Ken Dennard: More information on how to access. These replay features was included in yesterday's earnings release.

Speaker Change: May no longer be accurate as of the time of any replay listening or transcript reading.

Ken Dennard: Please note that information reported on this call speaks only as of today may nine 2025, and therefore, you're advised that time sensitive information.

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

Ken Dennard: And no longer be accurate as of the time of any replay listening or transcript reading.

Speaker Change: These forward looking statements reflect the current views of Calix management, however, various risks uncertainties and contingencies.

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

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

Ken Dennard: These forward looking statements reflect the current views of Calix management. However.

Speaker Change: 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.

Risks and uncertainties and contingencies.

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

Speaker Change: To understand certain of those risks uncertainties and contingencies.

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.

Speaker Change: Comments today will also include certain non-GAAP financial measures additional details and reconciliations to the most directly comparable GAAP measures are included in the quarterly press release can be found on the <unk> website and now I'd like to turn the call over to Chris Baker Chris.

Ken Dennard: 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 reconciliations to the most directly comparable GAAP measures.

Chris Baker: Thank you Ken and good morning, everyone I'll start with commentary on our Q1 results recent operational performance and strategic initiatives, then provide some perspective on the current market environment and our outlook.

Ken Dennard: Were included in the quarterly press release can be found on the <unk> website.

Chris Baker: Now I'd like to turn the call over to Chris Baker, Chris.

Chris Baker: As discussed last quarter Q1 is seasonally our toughest quarter, but I'm pleased to report that calix delivered improved adjusted EBITDA and adjusted EBITDA margin in Q1, 2025 versus Q1, 'twenty 'twenty four despite a meaningfully lower rig count environment.

As discussed last quarter Q1 is seasonally our toughest quarter, but I'm pleased to report that <unk> delivered improved adjusted EBITDA and adjusted EBITDA margin in Q1, 2025 versus Q1 2024, despite a meaningfully lower rig count environment.

Chris Baker: March was our best month of the quarter for both revenue and adjusted EBITDA in our southwest segment posted its strongest quarterly results since Q3 of 2023.

Speaker Change: March was our best month of the quarter for both revenue and adjusted EBITDA in our southwest segment posted its strongest quarterly results since Q3 of 2023.

Chris Baker: Importantly, Q1 results were in line with guidance revenue and adjusted EBITDA were down sequentially, but ahead of Q1 last year, our company wide focus on cost control enabled us to increase our first quarter 2025, adjusted EBITDA margin by 208 basis points over last year.

Speaker Change: Importantly, Q1 results were in line with guidance revenue and adjusted EBITDA were down sequentially, but ahead of Q1 last year, our company wide focus on cost control enabled us to increase our first quarter 2025, adjusted EBITDA margin by 208 basis points over last.

Chris Baker: <unk> first quarter, despite revenue and rig count being down, 12% and 5% respectively over the same period.

Chris Baker: The macro environment remains volatile driven by OPEC, plus increasing production and dynamic U S tariff policy driving recessionary risk and commodity price volatility we are closely monitoring customer activity plans and our cost structure in real time.

Speaker Change: <unk> first quarter, despite revenue and rig count being down, 12% and 5% respectively over the same period.

Speaker Change: The macro environment remains volatile driven by OPEC, plus increasing production and dynamic U S tariff policy, driving recessionary risk and commodity price volatility.

Chris Baker: With that said, we continue to see green shoots in certain P ourselves and areas as we expand our market leadership position across our rental and tech services PSL in our Tech services P. S. L. We're in the process of developing a gen. Two version of our Oracle <unk> T, which is rapidly gain.

Speaker Change: We are closely monitoring customer activity plans and our cost structure in real time with that said, we continue to see green shoots in certain PSL and areas as we expand our market leadership position across our rentals and Tech services PSL in our Tech services PSL, we're in the process.

Chris Baker: Any market acceptance.

Chris Baker: We now have over a half a million running feet downhole and this tool should position us exceptionally well in the gas basins in the years to come.

Speaker Change: So developing a gen. Two version of our Oracle <unk>, which is rapidly gaining market acceptance.

Chris Baker: We have a cycle tested team and remain ready to respond quickly to evolving market conditions are.

Speaker Change: We now have over a half a million dollars running feet downhole and this tool should position us exceptionally well in the gas basins in the years to come.

Chris Baker: Our diversified service offering and strong customer relationships continue to differentiate <unk> and support our performance through market cycles, we saw particular strength in the southwest or the Rockies and northeast regions experienced sequential declines due to seasonality and a slowdown in Midtown.

Speaker Change: We have a cycle tested team and remain ready to respond quickly to evolving market conditions are.

Speaker Change: Our diversified service offering and strong customer relationships continue to differentiate <unk> and support our performance through market cycles, we saw particular strength in the southwest or the Rockies and northeast regions experienced sequential declines due to seasonality and a slowdown in mid con.

Chris Baker: Completions due to an unforeseen operational issue driving material downtime for one of our two frac fleets. So we expect these trends to reverse in Q2.

Chris Baker: Geographically the southwest represented 42% of Q1 revenue up from 37% in Q4, the northeast mid Con was 27% down from 30% in Q4, and the Rockies was 31% down from 33% in Q4.

Chris Baker: On completions due to an unforeseen operational issue driving material downtime for one of our two frac fleets. So we expect these trends to reverse in Q2.

Chris Baker: Geographically the southwest represented 42% of Q1 revenue up from 37% in Q4, the northeast mid Con was 27% down from 30% in Q4, and the Rockies was 31% down from 33% in Q4.

Chris Baker: Southwest benefited from robust completion and production activity, especially in rentals and tech services, while the Rockies completion P. S. L made significant contributions.

Chris Baker: Southwest benefited from robust completion and production activity, especially in rentals and tech services, while the Rockies completion PSL made significant contributions.

Chris Baker: Going forward, we expect continued strength in the southwest compared to prior years as we have continued to strengthen market share and we expect the Rockies to bounce back in Q2 as is customary coming out of the winter season.

Chris Baker: Going forward, we expect continued strength in the southwest compared to prior years as we have continued to strengthen market share and we expect the Rockies to bounce back in Q2.

Chris Baker: By end market drilling completion, and production and intervention services contributed approximately 20%, 51% and 29% of Q1 revenue respectively.

Chris Baker: As is customary coming out of the winter season.

Chris Baker: By end market drilling completion, and production and intervention services contributed approximately 20%, 51% and 29% of Q1 revenue respectively.

Chris Baker: In response to the evolving tariff landscape, we continue to assess the impacts on our supply chain and cost structure.

Chris Baker: With that said, we're proud that many of our P. S O components and products such as our plugs E. R. T and thru tubing motors have always been 100% manufactured in the USA, which positions calix uniquely in the market.

In response to the evolving tariff landscape, we continue to assess impacts on our supply chain and cost structure.

Chris Baker: With that said, we are proud that many of our PSL components and products such as our plugs E. R. T and thru tubing motors have always been a 100% manufactured in the USA, which positions <unk> uniquely in the market.

Chris Baker: Well, we generally anticipate some short term disruption and pressure on our cost structure for certain equipment. Our strategy is to pass along increased costs, where possible and adjust sourcing to mitigate medium to longer term risk.

Chris Baker: We also strengthened our balance sheet, reducing notes outstanding as part of our March refinancing that also increased our flexibility versus the prior capital structure.

Chris Baker: The new structure also allows us to pay interest on our notes in college.

Chris Baker: We also strengthened our balance sheet, reducing notes outstanding as part of our March refinancing that also increased our flexibility versus the prior capital structure.

Chris Baker: This flexibility positions us well to navigate the ongoing market volatility and maintain financial flexibility.

Chris Baker: The new structure also allows us to pay interest on our notes in college.

Chris Baker: The ability to elect pick interest proved almost immediately valuable as we utilize this option in early April during a period of heightened market uncertainty and sharp declines in oil prices following new tariff announcements on April 2nd.

Chris Baker: This flexibility positions us well to navigate the ongoing market volatility and maintain financial flexibility.

Chris Baker: The ability to adjust our cash outflows and real time enhances our liquidity and preserve capital for operations and strategic opportunities even in the face of unpredictable macroeconomic swings.

Chris Baker: The ability to adjust our cash outflows and real time enhances our liquidity and preserves capital for operations and strategic opportunities even in the face of unpredictable macroeconomic swings.

Chris Baker: As a result, we remain well capitalized and able to respond decisively to both risks and opportunities as they arise throughout the year.

Chris Baker: I'll now turn the call over to Keefer to review our financial results in greater detail and I'll return later in the call to discuss our outlook for 'twenty 'twenty thought Keith.

Chris Baker: As a result, we remain well capitalized and able to respond decisively to both risks and opportunities as they arise throughout the year.

Chris Baker: Keefer.

Keefer Lehner: Thanks, Chris Good morning, everyone as Chris mentioned Q1, 2025 revenue was $154 million, a 7% sequential decline and 12% lower than Q1 2024.

I'll now turn the call over to Keefer.

Chris Baker: Our financial results in greater detail and I'll return later in the call to discuss our outlook for 2025.

Chris Baker: Sure.

Speaker Change: Thanks, Chris Good morning, everyone as Chris mentioned Q1, 2025 revenue was $154 million, a 7% sequential decline and 12% lower than Q1 2024.

Keefer Lehner: Consolidated adjusted EBITDA was $13 $8 million with a 9% margin down from 13, 7% in Q4 2024.

Keefer Lehner: More importantly up from 7% in Q1 of 2024 as Chris noted given the Q1 seasonality within our Rockies business. It is more helpful to compare year over year versus sequential when reviewing the first quarter also as Chris mentioned, we exited Q1 on a high note as March 2020.

Chris Baker: Consolidated adjusted EBITDA was $13 $8 million with a 9% margin down from 13, 7% in Q4 2024, but more importantly up from 7% in Q1 of 2024.

Chris Baker: As Chris noted given the Q1 seasonality within our Rockies business. It is more helpful to compare year over year versus sequential when reviewing the first quarter.

Keefer Lehner: Five whats the quarter's high point for both revenue and margin.

Keefer Lehner: Total SG&A for Q1 was $21 $6 million, but backing out nonrecurring items adjusted SG&A would have been $16 $5 million, a 12% reduction versus Q1, 2024 and flat compared to Q4 2024, despite a three person.

Chris Baker: So as Chris mentioned, we exited Q1 on a high note as March 2025, with the quarter's high point for both revenue and margin.

Total SG&A for Q1 was $21 $6 million, but backing out nonrecurring items adjusted SG&A would have been $16 5 million.

Keefer Lehner: Sent higher benefit burden in Q1 versus Q4, and Q1 average G&A head count was down 3% versus the Q4 average.

Chris Baker: A 12% reduction versus Q1, 2024, and flat compared to Q4 2024, despite a 3% higher benefit burden in Q1 versus Q4.

Keefer Lehner: Total SG&A for Q1 was $21 $6 million, but backing out nonrecurring items adjusted SG&A would have been $16 $5 million, a 12% reduction versus Q1, 2024 and flat versus Q4 and 2024, despite a 3% higher benefits burden in Q1 versus.

Chris Baker: In Q1 average G&A head count was down 3% versus the Q4 average.

Chris Baker: Total SG&A for Q1 was $21 6 million backing out nonrecurring items adjusted SG&A would have been $16 5, million% to 12% reduction versus Q1, 2024, and flat versus Q4 and 2024, despite a 3% higher benefits burden in Q1 versus.

Keefer Lehner: Q4, and Q1 average G&A head count was down 3% versus the fourth quarter average.

Keefer Lehner: Cost structure changes, we implemented in 2024 continue to benefit us and we expect this lower SG&A level to continue and to actually improve further as we navigate 2025.

Chris Baker: Q4, and Q1 average G&A head count was down 3% versus the fourth quarter average.

Keefer Lehner: Moving to our segment results.

Cost structure changes, we implemented in 2024 continue to benefit us and we expect this lower SG&A levels to continue and to actually improve further as we navigate 2025.

Keefer Lehner: For the Rockies segment revenue was $47 $8 million operating loss was $200000 in adjusted EBITDA was $6 $7 million.

Chris Baker: Moving to our segment results.

Keefer Lehner: Sequential revenue and adjusted EBITDA declined, 11% and 43%, respectively, primarily due to seasonality.

Chris Baker: For the Rockies segment revenue was $47 8 million operating loss was $200000 in adjusted EBITDA was $6 $7 million.

Keefer Lehner: When compared to Q1 2020 for revenue and adjusted EBITDA were higher by 5% and 24%, respectively. Despite Rockies rig count being down 13% year over year.

Speaker Change: Sequential revenue and adjusted EBITDA declined 11% and.

Chris Baker: 43%, respectively, primarily due to seasonality, but when compared to Q1 2020 for revenue and adjusted EBITDA were higher by 5% and 24%, respectively. Despite Rockies rig count being down 13% year over year.

Keefer Lehner: Given Q1 is our most seasonally impacted quarter, we expect Rockies activity and revenue to improve meaningfully on a sequential basis.

Keefer Lehner: In the southwest segment revenue operating income and adjusted EBITDA were $65 $2 million $3 million and $11 $7 million respectively.

Keefer Lehner: Given Q1 is our most seasonally impacted quarter, we expect Rockies activity and revenue to improve meaningfully on a sequential basis.

Keefer Lehner: On a quarterly basis Q1 revenue increased 6% sequentially with operating income and adjusted EBITDA up, 173% and 22% respectively. Due to a shift towards higher contribution of higher margin product service lines and increased revenue across a static fixed cost structure.

Keefer Lehner: In the southwest segment revenue operating income and adjusted EBITDA were $65 2 million $3 million and $11 $7 million respectively on.

Keefer Lehner: Q1 was a standout for the southwest segment with adjusted EBITDA at its highest level since Q3 2023 and.

Keefer Lehner: And we expect continued strength relative to historical results as we have expanded the customer base by deploying latest generation assets across our rentals fishing and thru tubing businesses.

Keefer Lehner: One was a standout for the southwest segment with adjusted EBITDA at its highest level since Q3 2023 and.

And we expect continued strength relative to historical results as we have expanded the customer base by deploying latest generation assets across our rentals fishing and thru tubing businesses.

Keefer Lehner: For the northeast mid Con segment revenue was $41 million operating loss was $8 $1 million and adjusted EBITDA was $2 $7 million.

Keefer Lehner: The sequential decrease in revenue of 18% was primarily driven by the previously mentioned white space in our Q1 calendar.

Keefer Lehner: For the northeast mid Con segment revenue was $41 million operating loss was $8 $1 million and adjusted EBITDA was $2 7 million.

Keefer Lehner: Adjusted EBITDA declined 72% sequentially.

Keefer Lehner: Largely driven by the completions white space, Chris mentioned in his opening remarks to put it in perspective, we missed out on approximately $6 million to $7 million of scheduled Q1 mid con revenue due to the aforementioned nonrecurring operational issue.

Keefer Lehner: The sequential decrease in revenue of 18% was primarily driven by the previously mentioned white space in our Q1 calendar.

Speaker Change: Adjusted EBITDA declined 72% sequentially, largely driven by the completions White space, Chris mentioned in his opening remarks to put it in perspective, we missed out on approximately $6 million to $7 million of scheduled Q1 mid con revenue due to the aforementioned nonrecurring operational issue.

Keefer Lehner: At corporate our operating loss and adjusted EBITDA loss for Q1 were $12 4 million and $7 $3 million, respectively. Both of which were in line with recent quarters.

Keefer Lehner: Turning to our balance sheet cash flow and capitalization.

We ended Q1 with $58 $1 million in liquidity, consisting of $14 $6 million of cash and cash equivalents and $43 $5 million of availability on our revolving credit facility, including $4 $9 million on an undrawn <unk> facility.

Keefer Lehner: Turning to our balance sheet cash flow and capitalization.

Keefer Lehner: We ended Q1 with $58 1 million in liquidity, consisting of $14 $6 million of cash and cash equivalents and $43 $5 million of availability on our revolving credit facility, including $4 $9 million on an undrawn <unk> facility.

Keefer Lehner: Cash declined over $60 million from year end, mainly due to approximately $33 million in refinancing costs working capital normalization in seasonality and net capex spending.

Keefer Lehner: Refinancing costs included fees OID reduction in notes outstanding and accrued interest.

Keefer Lehner: Consistent with our commentary on the Q4 call our DSO normalize from Q4 levels to about 60 days and GPO decreased to approximately 43 days as we've discussed in the past Q1 is our most working capital intensive quarter of the year, partly because there are always two extra payroll in the quarter.

Keefer Lehner: Refinancing costs included fees OID reduction of notes outstanding and accrued interest.

Keefer Lehner: Our Q1 balance sheet includes a restricted cash balance of approximately $8 million, primarily tied to the transition from our prior ABL agreement and as of today $6 million of this restricted cash that's been freed up and we expect the remainder to be freed up during Q2.

Keefer Lehner: The new indenture includes a 2% quarterly mandatory redemption and we made our first amortization payment on the new notes at the end of Q1.

Keefer Lehner: In Q1, 2025, <unk> sold 143000 shares of common stock under the ATM program for gross gross proceeds of approximately $500000.

Keefer Lehner: The new indenture includes a 2% quarterly mandatory redemption and we made our first amortization payment on the new notes at the end of Q1.

Keefer Lehner: For the turn to the new indenture. These funds are now available for share buybacks for the company's 2019 share buyback program.

Keefer Lehner: In Q1, 2025, <unk> sold 143000 shares of common stock under the ATM program for gross gross proceeds of approximately $500000.

Keefer Lehner: Capex for Q1 was $15 million gross and $10 $2 million net of asset sales.

Keefer Lehner: For the terms of the new indenture. These funds are now available for share buybacks for the company's 2019 share buyback program.

Keefer Lehner: Focused primarily on maintenance spending within our rentals and coiled tubing fleets.

Keefer Lehner: Capex for Q1 was $15 million gross and $10 $2 million net of asset sales.

Keefer Lehner: We expect to reduce 2025 full year Capex from our original estimates and now expect gross capital spending for 2025, a $40 million to $50 million and net capex of $30 million to $40 million, we have flexibility to further curtail second half capex if needed as we are.

Keefer Lehner: Focused primarily on maintenance spending within our rentals and coiled tubing fleets.

Keefer Lehner: We expect to reduce 2025 full year Capex from original estimates and now expect gross capital spending for 2025, a $40 million to $50 million and net capex of $30 million to $40 million.

Keefer Lehner: In Q1, with only $11 million of Capex accrued as of $3 31.

Keefer Lehner: Our capex allocation strategy remains focused on balancing reinvestment in our core product service lines with disciplined spending that supports long term liquidity and value creation, including prioritizing investments in higher margin service lines with quick cash on cash paybacks, including rentals fishing and <unk>.

Keefer Lehner: Have flexibility to further curtail second half capex if needed as we exited Q1 with only $11 million of Capex accrued as of $3 31.

Keefer Lehner: Thing, where we hold market leading positions.

Keefer Lehner: And our expanding share with major customers.

Keefer Lehner: We expect cash and liquidity to improve as we navigate the remainder of 2025 and our team is experienced at weathering, the cyclicality and volatility of the oilfield.

Keefer Lehner: <unk>, where we hold market leading positions and our.

Keefer Lehner: Banding share with major customers.

Keefer Lehner: We expect cash and liquidity to improve as we navigate the remainder of 2025 and <unk>.

Keefer Lehner: And real time, we are evaluating and enacting further measures to augment the cost structure improved free cash flow and maximize financial flexibility.

Keefer Lehner: Our team is experienced at weathering, the cyclicality and volatility of the oilfield.

Chris Baker: I'll now hand, it back to Chris for his concluding remarks and more color on our outlook.

Keefer Lehner: And real time, we are evaluating and enacting further measures to augment the cost structure improved free cash flow and maximize financial flexibility.

Keefer Lehner: Yeah.

Keefer Lehner: Deeper as we look ahead to the remainder of 2025, we expect revenue and adjusted EBITDA growth in Q2 building on march's momentum.

Keefer Lehner: I will now now hand, it back to Chris for his concluding remarks and more color on our outlook.

Keefer Lehner: Well the macro environment is volatile and uncertain. We are confident that our operational discipline improved balance sheet flexibility and proactive risk management positions us to navigate 2025.

Keefer Lehner: Deeper as we look ahead to the remainder of 2025, we expect revenue and adjusted EBITDA growth in Q2 building on march's momentum.

Keefer Lehner: Well the macro environment is volatile and uncertain, we are confident that our operational discipline improve balance sheet flexibility and proactive risk management positions us to navigate 2025.

Keefer Lehner: We are taking a more cautious approach to the remainder of 2025 as we work to maximize financial flexibility.

Keefer Lehner: For Q2, we anticipate continued strength in our southwest segment, along with modestly improving revenue is rocky seasonality normalizes and the mid con bounces back from the unforeseen Q1 white space.

Keefer Lehner: We are taking a more cautious approach to the remainder of 2025 as we work to maximize financial flexibility.

Keefer Lehner: Based on our current schedules, we are targeting a modest sequential revenue increase with revenue expected to be up low to mid single digits on a percentage basis and margin expansion.

Keefer Lehner: Based on our current schedule, we are targeting a modest sequential revenue increase with revenue expected to be up low to mid single digits on a percentage basis and margin expansion.

Keefer Lehner: We continue to be bullish on the U S natural gas macro story and its implications for service providers and calix in particular.

Keefer Lehner: We are closely watching developments in natural gas and LNG exports commodity price volatility and global economic trends our.

Keefer Lehner: We continue to be bullish on the U S natural gas macro story and its implications for service providers and <unk> in particular.

Keefer Lehner: Our exposure to gas focused basins positions us well for any uptick in activity, especially as new LNG capacity comes online over the next 12 to 24 months.

Keefer Lehner: We are closely watching developments in natural gas and LNG exports commodity price volatility and global economic trends our.

Keefer Lehner: This could drive improved pricing and utilization across our core markets.

Keefer Lehner: Our exposure to gas focused basins positions us well for any uptick in activity, especially as new LNG capacity comes online over the next 12 to 24 months.

Keefer Lehner: The increase in gas directed activity could serve to Cushing softest in crude directed activity given reduced W. T I pricing and the oil focused capex cuts, we've seen from public E&P operators recently.

Keefer Lehner: This could drive improved pricing and utilization across our core markets.

Keefer Lehner: Increase in gas directed activity could serve to Cushing solstice in crude directed activity given reduced <unk> pricing and the oil focused capex cuts, we've seen from public E&P operators recently.

Keefer Lehner: We remain focused on strategic accretive M&A that aligns with our growth and deleveraging goals clearly M&A is complicated given the current market backdrop and our share price, but we believe we are fundamentally undervalued today and our enhanced debt structure gives us the flexibility to act quickly Oh no.

Keefer Lehner: Attractive opportunities.

Post refi, we've seen a handful of opportunities that we reviewed in early to mid 2024 approach us as they were unable to consummate deals in 'twenty four and now recognize the need for Oss consolidation the.

Keefer Lehner: Attractive opportunities.

Chris Baker: Post <unk>, we have seen a handful of opportunities that we reviewed in early to mid 2024 approach just as they were unable to consummate deals in 'twenty four and now recognize the need for Oss consolidation the.

Keefer Lehner: The market backdrop makes financing transactions incredibly difficult and consummating transactions in this environment will require creativity, but we fervently believe the office market needs meaningful consolidation.

Keefer Lehner: The market backdrop makes financing transactions incredibly difficult and consummating transactions in this environment will require creativity, but we firmly believe the oss market needs meaningful consolidation.

Keefer Lehner: In summary, we are confident that our in our ability to execute our strategy and navigate what is a dynamic and volatile market our scale diversified offering and strong customer relationships position <unk> to capture share as the industry consolidates.

Keefer Lehner: In summary, we are confident that our in our ability to execute our strategy and navigate what is a dynamic and volatile market our scale diversified offering and strong customer relationships positions <unk> to capture share as the industry consolidates.

Keefer Lehner: Thank you to our employees customers and shareholders for your ongoing support.

Keefer Lehner: With that we'll now take your questions operator.

Keefer Lehner: Yeah.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Keefer Lehner: Thank you to our employees customers and shareholders for your ongoing support.

Keefer Lehner: With that we'll now take your questions operator.

Keefer Lehner: Confirmation tone will indicate your line is in the question queue you.

Speaker Change: You mean price starting to if you would like to remove your question from the queue.

Keefer Lehner: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Keefer Lehner: Confirmation tone will indicate your line is in the question queue maybe.

Keefer Lehner: You May press Star two if you would like to remove your question from the queue for.

Speaker Change: Our first question.

Speaker Change: It comes from the line of Steve Brian <unk> with Sidoti <unk> Company. Please proceed with your question.

Keefer Lehner: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Steve Brian: Good morning, Chris Moore, and Keith I appreciate all the detail on the call. This morning, I just wanted to start by asking about the <unk> guide.

Keefer Lehner: Our first question.

Speaker Change: It comes from the line of Steve Brian <unk> with Sidoti <unk> Company. Please proceed with your question.

Speaker Change: Given what <unk> in the Rockies has been in past years, the recovery and the fact that if that six to 7 million dollar hit on the Frac spread was completely resolved in Q1, it seems like low to mid could be conservative for growth.

Speaker Change: Good morning, Chris morning, Keith I appreciate all the detail on the call. This morning, I just wanted to start by asking you about it.

Keefer Lehner: <unk> guide.

Keefer Lehner: Given what <unk> in the Rockies has been in past years, the recovery and the fact that if that six to 7 million dollar hit on the Frac spread was completely resolved in Q1, it seems like low to mid could be conservative for growth.

Speaker Change: Oh look we first of all good morning, Steve.

Speaker Change: The reality is I think it is difficult if not impossible at this point to provide a full year guide and so we elected to provide.

Speaker Change: Look first.

Speaker Change: A <unk> guide as we look at the second quarter.

Steve: First of all good morning, Steve.

Steve: The reality is I think it's it's difficult if not impossible at this point to provide a full year guide and so we elected.

Speaker Change: We think revenue will increase low to mid single digits I mean, there's puts and takes.

Speaker Change: It sounds like you understand the $6 million top line hit to keep a reference the reality of the situation is every basin and every product line you kind of rebounds differently and you know as we've looked at the impact over the since April 2nd as soon as crude hit $56. We saw it.

Steve: Provide.

Steve: <unk> guide as we look at the second quarter.

Keefer Lehner: We think revenue will increase low to mid single digits I mean, there's puts and takes.

Keefer Lehner: Sounds like you understand the $6 million top line hit to keep a reference.

Keefer Lehner: The reality of the situation is every basin and every product line kind of rebounds differently.

Speaker Change: Several operators elect to delay projects and in certain instances, we had multiple completions PSL scheduled to work on a given pad or a given set of pads and so then you turn around a week later and that'd be Ti rallies back to 62 in the same operators begin to reevaluate schedule. So it's highly episodic.

Keefer Lehner: As we look at the impacts over the since April 2nd.

Keefer Lehner: As soon as crude hit $56, we saw several operators elect to delay projects and in certain instances, we had multiple completions PSL scheduled to work on a given pad or a given set of pads and so.

Speaker Change: I'm not going to say the guide derivative.

Speaker Change: You know, it's based off of our 90 day revenue forecast and just this week, we've seen W. T. I go to 59 and we start here.

Keefer Lehner: And then you turn around a week later than <unk> rallied back to 62 in the same operators begin to reevaluate schedule. So it's highly episodic.

Speaker Change: Tea leaves shake that maybe there's delays I mean, it rallied back to it was 62 when we woke up. This morning. So it's just really hard to provide projections you know when you start to get out into the later months of that 90 day roll.

Keefer Lehner: Let's say the guide derivative, but it's based off of our 90 day revenue forecast and just this week, we've seen <unk> go to 59 and we start here.

Keefer Lehner: He leaves shake that maybe there's delays I mean, it rallied back to it was 62 when we woke up. This morning. So it's just really hard to provide projections when you start to get out into the later months of that 90 day roll in.

Speaker Change: And we're just trying to forecast what we have right in front of us at this point in time.

Chris: I appreciate that Chris I know I can imagine.

Speaker Change: Uncertainty that's out there right now, but so I guess my question was going to be if you had seen the impacts of lower oil price. So it sounds like because we think that's going to be more of a second half impact on rig count because it sounds like you already are seeing some.

Speaker Change: We're just trying to forecast what we have right in front of us at this point in time.

Speaker Change: I appreciate that Chris I know I can imagine.

Speaker Change: Uncertainty that's out there right now, but I guess my question was going to be if you had seen the impact from lower oil prices and it sounds like because we think that's going to be more of a second half impact on rig count, but it sounds like you already are seeing some.

Chris: Yeah I think.

Speaker Change: Look the smaller operators.

Speaker Change: Or more exposed and candidly more exposed to the tariff impact.

Speaker Change: Line pipe casing et cetera, and they're more exposed to commodity prices. Some of the smaller operators, we work or don't have the hedging programs are the larger operators and so you know as you look across the news of the last week, where we've seen a lot of the blue chip operators talk about reductions on the order.

Speaker Change: Yes, I think.

Steve Brian: Look the smaller operators.

Steve Brian: Or more exposed and candidly more exposed to the tariff impact.

Line pipe casing et cetera, and they are more exposed to commodity prices. Some of the smaller operators, we work or don't have the hedging programs are the larger operators.

Speaker Change: Everything from zero to maybe a banded range as high as five.

Speaker Change: So.

2025, I would agree most of that seems to be second half weighted.

Some of the smaller operators will react when crude yet has a five handle on it and they will at least elect to delay it doesn't mean, they cancel their projects in totality, but delays can hit us when they hit us across multiple product lines. They have a disproportionate impact right.

That's really helpful. Thanks, Chris.

Turning now to <unk>.

The new capital structure, and how youre thinking about and I know again with all the uncertainty it's hard to think about cash flow.

There was a little surprised you already you already exercised the pick option.

And I know Q1 is the biggest the most working capital intensive and typically the lowest cash flow, but how are you thinking about the flexibility of the pick option and I know you also talked about share repurchases, but then you use the ATM so a little bit of confusion there on my part in terms of how you're thinking about capital allocation.

Acacia and using the capital structure.

As we get into even more uncertainty.

Good question, Steve This is Keith good morning.

Clearly timing plays an impact in some of those actions as you think about the last 45 days or so.

And clearly the ATM sales were executed on prior too.

The tremendous economic shift and shift in outlook that occurred post April 2nd.

With that said there is additional flexibility that we were able to put in place.

With the new.

Credit docs, both on the indenture and ABL side.

You mentioned, the Pik side, the refinance notes to afford us the flexibility.

The Pik interest.

The first month, we clearly paid cash.

<unk> election for the second month was due.

The week of the tariff announcement and given that market uncertainty and the news from OPEC that week, we did elect to.

Just.

There is certainly a corresponding cash related cash excuse me cost related to us picking interest. So there is an incremental 100 bps.

Of interest rate spread that is tied to it.

With that said Pik interest does.

Those deferred out to $4 million to $5 million of monthly cash cost that we do.

Do have tremendous flexibility there.

And it is a tool with which we will continue to evaluate.

And.

On a go forward basis to make sure that we're maximizing and optimizing.

The company's flexibility.

Both.

The defensive as well as offensive as we navigate through the market.

So that's the main puts and takes on the buybacks as.

As you mentioned.

Clearly, we had a $49 million or so authorized buyback in place.

Since 2019 that is subject to availability under the new debt covenants practically speaking the availability is much smaller.

$49 million in our share price has moved tremendously, particularly post the announcements from.

D C as well as OPEC in early April.

So post refinancing.

This is flexibility that is now built back into the new debt documents that we didnt pass historically.

So there is an additional opportunity here.

When warranted and we believe prudent.

Do you buy back a small amount of share. So on a go forward basis in terms of cash flow management, we're obviously laser focused on maximizing margin.

And driving as much free cash flow as possible recognizing the person's point that there is a tremendous amount of market uncertainty today.

But hopefully some of this starts to come to resolution will have a better line of sight on what's going to happen.

For the remainder of the year.

Great I really appreciate all that detail.

If I could get one more in there is some optimism around the gas plays.

Maybe that could partially offset some of the rig count decline in the Permian and Rockies you typically have had flexibility in terms of being able to move your assets around.

How are you positioning for that potential do you have to position ahead of time and how are you thinking about what could be sort of the reverse of what we saw two or three years ago, where gas place.

Or a little bit better while oil place maybe get weaker.

Yes, it's a great question I think we've talked about this a little bit on our Q4 call, but look we're continuing to market monitor the market.

The reality is to your point, we are seeing some traction in the gas plays are dry gas exposure as a percentage of revenue in Q1 was very similar to what it has been for the last four quarters I guess.

Holding in there at about 12, 5%.

North East segment, our northeast area within the North East Midtown performed exceptionally well seasonally adjusted perspective in Q1, and we continue to see that opportunity kind of expand throughout the year. We're aware of a number of operators that are adding rigs both in the haynesville, but spreads in haynesville as well as now in the <unk>.

Northeast as we continue to see.

That's the one place we have seen stability is a natural gas prices and they kind of continue to strengthen.

No we haven't relocated any asset your specific question I think we're already pretty well positioned.

But if we need to relocate additional assets, we clearly team.

Okay. Thanks, Chris Thanks, Peter.

Yeah.

Yes, I appreciate it thank you.

Thank you.

Our next question comes from the line of John Daniel Daniel Energy. Please proceed with your question.

Hey, guys.

Thanks for having me a couple of quick ones here on M&A and you touched on the opportunities that might potentially be unfolding I'm just curious as you look at the.

The opportunity set and not wanting to go into like specific on valuation or service line, but really speak to geography.

When you look at places like the Permian they tend to be tends to be more fragmented.

And then compare that to say the gassy markets, which are being better behaved like how are you.

Think about the strategy from a geographic perspective.

Walk us through.

How do you think about it.

Yeah look it's a great question I think.

The current marketed candidly driving some deal capitulation in ethane counterparties or at least <unk>.

Now they are willing to be creative and they understand relative valuations have come off as multiples of decline.

As I mentioned in the prepared remarks on the call. We have seen a couple counterparties that are quality companies that were kind of hunger dead deals last year.

Kind of pop up over the last couple of months. So we'll see how that plays out I wouldn't say that they are necessarily geographically focused by any stretch.

Speaker Change: We're starting to be much more opportunistic if we look at our new debt facility post refi.

Ken Dennard: I want to be clear the debt facility does have a limitation. The first most important limitation is the deal has to be deleveraging for us at Kerry pursue that to the facility.

Ken Dennard: And we realized certain counterparties are require some component of cash the second is the.

Ken Dennard: The reality is we need the lenders or new lenders to step up if there's a cash component required to consummate the deal.

Ken Dennard: But the reality is ultimately deleveraging transactions benefit both all of our stakeholders equity and debt.

Ken Dennard: And I think it's.

Ken Dennard: Finally time in the market, where some of the to your point fragmented smaller operators in particular as well as some of the larger ones are realizing scale matters.

Ken Dennard: Scale matters to manage cycle and that's what we're doing right now is managing the cycle right and so we're going to continue to be opportunistic.

Ken Dennard: To go from there, but were not necessarily geographically focused.

Ken Dennard: Fair enough and then just a quick follow up if demand on the activity.

Ken Dennard: And then just looking at a lot of the announcements from your E&P customers a lot of the reductions are coming in and the Permian and to your point the gassy markets are improving.

Ken Dennard: Just give us your thoughts on the other oily areas away from the Permian in terms of what Youre hearing from your customers.

Speaker Change: Yes, it's a great question look what I would say is similar to what I referenced with the with some of the smaller operators and this is re frac opportunities et cetera, I think they are more opportunistic insensitive to the whipsaw if commodity prices. So we've definitely seen.

Ken Dennard: In the Bakken and the Rockies and other areas people delay projects kind of sit on the sidelines for some period of time.

Chris Baker: We're also having conversations about when theyre going to bring those back so it's.

Chris Baker: <unk> revenue for the time being.

Chris Baker: But we expect that some of that may come back to us and they've done a short order and then the question is to your point, though.

Speaker Change: The larger reductions in Capex.

Ken Dennard: Quick to the declines are start to support crude prices essentially in the second half of the year.

Speaker Change: I think the smaller operators clearly are quick on the trigger to revamp project and so we're trying to stay close to them as we can.

Speaker Change: Okay.

Speaker Change: For having good luck guys.

John: Thank you John I appreciate it.

John: Thank you.

Speaker Change: This now concludes our question and answer session I would like to turn the floor back over to President and CEO Christopher Baker for closing remarks.

Speaker Change: Thank you once again for joining us on this call and your continued interest in <unk>. We look forward to speaking with you again next quarter.

Speaker Change: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Q1 2025 KLX Energy Services Holdings Inc Earnings Call

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