Q2 2025 KLX Energy Services Holdings Inc Earnings Call
Greetings, welcome to the KLX Energy Services second quarter earnings conference call.
This time, all participants are in listen-only mode.
Your question and answer session will follow the formal presentation.
If anyone today should require operator assistance, please press star Zero from your telephone keypad.
As a reminder, today's conference is being recorded.
At this time, I'll turn the conference over to Ken Dennard, investor relations for KLX energy.
Ken, you may now begin.
Thank you, operator. And good morning everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast.
To review its second quarter, 2025 results with me today are Chris Baker, president and chief executive officer and kefir laner Executive Vice President and Chief Financial Officer.
Following my remarks management will provide a commentary on its quarterly, Financial results and outlook before opening the call for your questions.
There will be a replay of today's call that'll be available by webcast on the company's website at www.kx.com.
And I'll also be a telephonic recorded replay available available until August 21st 2025.
More information on how to access these replay features were included in yesterday's earnings release.
Please note that information reported on this call speaks only as of today. August 7th 2025.
And therefore a year, advised that time-sensitive information May no longer be accurate as of at any time of the replay, listening or transcript reading.
Also comments made on this call will contain forward-looking statements within the meeting 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 by made by 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 risks, uncertainties, and contingencies.
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 website.
And now with that behind me, I'd like to turn the call over to Chris Baker. Chris
Thank you Ken and good morning everyone. Thank you for joining us today. I'm pleased to report that consistent with what we outlined on our last call KLX had a relatively strong second quarter outperforming the market backdrop.
Our results demonstrate that we are executing in line with our game plan, driving efficient operations, and controlling calls even as the sector wrestles with persistent commodity price, volatility, and softness in oil rig and Frac spread counts.
For the second quarter, we reported revenue of 159 million up, 3% from q1 and adjusted ibida of 19 million up 34% from q1.
Revenue, increased meaningfully and Iraqis, and our Northeast Midtown segments which more than offset, the sequential decline in the southwest adjusted ebit on margin improved materially up, 260 basis points, sequentially to 12%, despite the US land rate, count being down 7% and Frac spread counts being down 14% over the same period.
We experienced meaningful large and fall through on this Revenue increase as a direct result of our focus on maximizing utilization. Driving a very efficient cost structure and leveraging. Kale, Lexus. Strong reputation for differentiated completion and Production Services across all key us onshore basins.
Our performance was driven by the execution of our operational initiatives, including cost, Focus asset rotation holding the line on pricing, where possible, taking market share, where profitable and leaning into higher margin psls.
As we alluded to on our q1 call, the second quarter saw significant strength and sequential Improvement across our completion and production portfolio, including Technical Services, Coil Tubing and accommodations among others.
Personnel across districts in response to the inevitable white space, that is pervasive in this market where our customers completion plans are constantly changing
Recall that, in general, more than 50% of our revenue occurs post the frac job. Therefore, white space due to customers taking completion holidays, especially in the Permian, makes staffing extremely difficult.
Incredible, teamwork and Alignment across our organization allowed KX to maximize labor, utilization and drive improved adjusted. Evida margins.
The macro environment remains challenging, given OPEC plus production increases tariff policy, overhangs recession risk and rig count volatility yet. As we've shown our Diversified portfolio, strong customer alignment and diverse Geographic footprint, continue to drive relative outperformance, where and when it counts
Q2 revenue and adjusted ebit off per rig were 286,000 and 333,000 respectively, which were 8% and 172% ahead of our results. In Q4 of 2021, the last quarter with a similar rig count to today.
This demonstrates our material improved market share and positioning with the within the industry since 2021.
Now, let's look at our Geographic results.
the Rockies was 34% up from 31% in q1, the southwest represented 37% of Q2 Revenue down from 42% in q1 and the Northeast midcon was 29% up from 27%
Rocky's completion psl's made significant contributions to the quarter over quarter Improvement in Topline and margin led by Coil, Tubing tech services and other completion services.
The Rockies benefited from a return to normalized, seasonal operating levels and a favorable shift in revenue mix, which we expect to largely continue into the third quarter.
The Southwest Battle through, customer initiated break with completion, holidays driving, white space, in Q2, due to commodity price, volatility, within our Frac Reynolds W, line and flow back psls.
margin, sell some compression versus q1 mainly due to cost absorption associated with the previously mentioned white space and stand-up costs associated with our through tubing business, but remained in line with 2024 averages which we expect to continue into Q3
Northeast Midcon benefited largely from improved completion activity over the first quarter. The segment experienced a 12% revenue increase sequentially and more than doubled its adjusted EBITDA and adjusted EBITDA margin over the same period.
Your recall, this segment was impacted by unforeseen white space, in q1. We expect further Improvement in both revenue and margin in Q3.
By in Market drilling completions for and production and intervention services. Contributed approximately 16% 56% and 28% of Q2 Revenue respectively.
Finally, as a follow-up to the evolving tariff landscape, our strategy Remains the Same pass along, increased costs were possible and adjust sourcing to mitigate short and medium-term risks.
With that. I'll now turn the call over to Keffer to review our financial results in Greater detail. And I'll return later in the call to discuss our Outlook kefir.
Thanks Chris. Good morning everyone. As Chris mentioned Q2, 2025 Revenue was 159 million, a 3%, sequential increase,
Consolidated adjusted evida was 18.5 million.
With a 12% margin up from 9% in q1, 2025 demonstrating, strong, cost, discipline and improved utilization and was in line with last quarter's guidance.
Total sgna expense for Q2 was 18 million backing out non-recurring items, adjusted sgna expense would have been 15.1 million, a 12% reduction versus prior year, Q2 and an 8% reduction versus q1, 2025 reflecting the full benefit of the cost structure changes. We executed in early 2024 plus some additional savings in the first half of 2025.
We have remained lean from an overhead perspective and expect adjusted sgna expense to hover in the 9 to 10% of Revenue range for 2025.
Moving to our segment results.
54.1 million operating income of 3.3 million and adjusted ibida of 10.4 million.
Sequential revenue and adjusted, Eva increased 13% and 55% respectively, driven by a return to normalize seasonal. Operating levels in a favorable Revenue, mix that combined to drive a 500 basis. Point increase and segment margins sequentially.
In the southwest Revenue operating loss and adjusted Eva were 58.8 million - 1.7 million and 7.2 million respectively.
On a quarterly basis, Q2 Revenue, decreased, 10%, sequentially with Eva down 38%.
Permanent rig count decline led the US onshore market lower, declining, 9% sequentially.
Permanent customers reduced activity and took extended completion holidays, which drove lower utilization and increased white Space versus the first quarter.
Additionally startup costs and some transitional friction weighed on the quarter as we work to expand activity within certain completion psls.
For the Northeast mid-con segment. Revenue was 46.1 Million, operating loss was 1.3 million and adjusted evida was 7.2 million.
Sequential increase in revenue of 12% and adjusted. Ibido of 167% were largely driven by higher utilization across the vast majority of our completion psls.
Corresponding reduced wide space and targeted expense management across the GS segment.
All of this combined to drive a 900 basis, point increase in segments, adjusted, ibido margin and we expect further margin Improvement into the third quarter.
At corporate our operating loss and adjusted evid all loss. For the quarter were 9 million and 6.3 million respectively, which improved 27% and 14% respectively, from last quarter, as we continue to reduce overhead and fixed costs.
Now, turning to our balance sheet, cash flow and capitalization.
We ended Q2 with $16.7 million of cash on hand and reduced restricted cash from $8.1 million in Q1 to only $600,000 as of June 30th.
restricted cash is currently being reduced further to 55,000 in Q3
We ended Q2 with approximately 65 million in liquidity and increase of 13% from q1 including 16.7 million dollars of cash and cash equivalents and 49 million of availability on our revolving. Credit facility, including 5 million on an undrawn Philo facility.
Total debt. As of June 30th, was 259 million including 213.7 million in notes and 45 million in abl and represents a 1% decrease compared to q1 levels.
We are in compliance with both our net leverage ratio and capex Covenants as of Q2.
Our bonds require a 2% annual mandatory Redemption, paid quarterly and we've continued to make these payments but we did pick 7.1 million of interest in Q2 and we will evaluate future pick versus cash. Pay decisions based on market conditions and Company, leverage, and liquidity. And just last week, we elected to pay a portion of Q3 interest in cash.
Even with the pick interest in Q2, we were able to reduce total debt by 2.3 million versus the prior quarter.
Moving to working capital as of June 30th.
We had $46 million in networking capital, which decreased by almost $14 million sequentially. Our Days Sales Outstanding (DSO) and Days Payable Outstanding (DPO) normalized to 61 days and 51 days, respectively, both in line with longer-term historical averages.
We will continue to proactively and prudently, manage working capital as we navigate the current market.
Capex for Q2 was 12.7 Million, gross and 11.1 million net of asset sales.
Spending was focused on maintenance of our pressure pumping, coiled, tubing, and accommodation fleets.
As of June 30th, we had a crude capex of approximately 12 million and 2.2 million dollars of assets held for sale, including a property sale for 1.8 million that closed in early August.
Looking ahead, we have taken measures to curtail second half spending and we expect gross capex for 2025 and the range of 40 to 50 million and net capex between 30 to 40 million dollars.
To re reiterate our financial objectives.
Supported by our ongoing focus on efficient Capital, allocation.
Strategic asset deployment and proactively managing our debt levels to minimize cash interest costs.
Our team's deep experience. Navigating sector cyclicality enables us to proactively identify and Implement additional measures aimed at continuous cost structure refinement. Optimizing our asset footprint generating sustainable free, cash flow and maximizing Financial flexibility
I'll now hand the call back to Chris for his concluding remarks and more color on our Outlook.
Thanks kefir.
The broader Market environment remains volatile invisibility continues to be opaque, but we are confident that our focus on operational, discipline, balance sheet, flexibility, and proactive risk. Mitigation will allow us to successfully navigate the remainder of 2025.
Looking forward to Q3 is expected to be the strongest quarter of the Year. Maintaining a consistent pattern seen in Prior years and showcasing our strong positioning with leading customers across the entirety of the US. Onshore, Geographic markets,
We are again targeting. A sequential quarterly Revenue, increase of low to mid single digits on a percentage basis with continued margin expansion.
Despite the noisy macro. This Outlook reflects strength in kale X's underlying business recent awards. From Key customers across our core psl's, certain customers completions programs. Restarting from Q2, brakes and continued, strong operational execution, leading to enhanced profitability alongside measured Topline growth
As we look ahead to the second half of 2025, we remain optimistic about the long-term, fundamentals for us, natural gas, as well as the positive implications for KLX.
Our significant presence in gas focused basins positions as well to capture incremental activity. As new LNG, export capacity ramps over the next 12 to 24 months.
On a quarter over quarter basis. We saw a 25% increase in our dry gas Revenue, the hanesville plus Northeast. But we are still 40% off of the gas-driven quarterly Revenue highs we saw in q1 of 2023 illustrating that there's ample room to run.
We remain committed to de-levering our balance sheet by appropriately allocating capital on a disciplined and prioritized basis. Driving free cash flow and pursuing strategic value of creative m&a, opportunities, that support our growth,
Plus our proved debt. Structure provides the ability to act quickly when compelling opportunities arise.
Although the current market backdrop and our share price, create added complexity to potential transactions, we continue to view our business as fundamentally undervalued.
Notably, since our March refinancing, a number of potential M&A targets, including some previously reviewed in 2024, are re-engaging.
The current recount environment raises urgency, amongst many ofs providers on the need for consolidation, where the market is challenging, both operationally and financially. We continue to believe that meaningful consolidation is necessary for the sector and are ready to capitalize on opportunities that Advance our position.
In summary as we enter the second half of 2025, we are confident in our ability, to execute our strategy and navigate, what is a dynamic and volatile Market. Our scale Diversified offering broad, Geographic footprint and strong customer relationships position KLX to capture share and continue to drive results.
We appreciate the dedication and contributions of our employees. The partnership of our customers and the ongoing trust and support of our shareholders with that, we will now take your questions, operator.
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1 moment, please. Will you pull for questions?
Thank you. The first question is from the line of Steve Forzani with Sidonian Company.
Please receive your questions.
Good morning. This is Alex, on for Steves, thanks for taking questions.
Hey Alex. Good morning, Alex.
Sequential Revenue growth in 3Q, which would be typical seasonality.
Any concerns about hitting that number, given the continued decline in recount?
No, look, it's a great question. I think we talked about what underpins our guidance last quarter. I think, you know, if you step back and look at 2 Q specifically
I think we had a relatively strong quarter relative to the macro background but if you really dig in and look at Q2 on a monthly basis, we really had 2 out of 3 solid months, April, was weaker than May and June and that strength exiting Q2 and what we saw in June is a big part of what, underpins our, our Q3 forecast. But as you look at the Q3 guidance specifically, um, I think recount is factored in what's potentially not factored. In is unexpected white space from customers. That being said, we saw a number of operators, restart completion. Programs post some 2 Q holidays that they took and our current schedule and our current 90-day Outlook suggests. All 3 months of the quarter should be base loaded. We've also had some near-term wins, uh, with multiple clients and multiple basins that went through off-season or off cycle. Rfqs uh, post completing their integration programs associated with recent m&a, and we should benefit
Incremental work as well.
Great context. Thank you.
And I know you just, you know, touched on this a little bit, but maybe we could expand on opportunities and gas basins. And, you know, specifically any increase inquiry activity and, and the Haynesville or the marcelis. And, you know, just geographically, where do you see the best opportunities over the next 6 to 12 months?
Yeah. It's a it's a great question. Look, we talked about it in the prepared remarks. We've seen Ray count ramp about 12 rigs from the bottom in the hanesville, our hanesville Revenue, increased about 25, or hanesville plus Northeast Revenue, increased about 25% quarter over quarter. And so the way I would think about those 2 basins, uh, the Northeast has been fairly stable for us. And and I would say that in a, in a positive light q1 was fairly strong Q2 continues to, to hold their, uh, the hanesville activity continues to ramp, and my prior comments around winning rfqs. We've definitely seen some opportunities where we've won, uh, some incremental work going into the second half of the year. Um, we're still off the highs of q1 of 23, when we think about the overall gas, exposure and and revenue coming out of those 2 basins. So I really think it speaks to the opportunity, we have uh on the revenue level.
To continue to run as, as gas recount continues to expand along with completions activity.
Thank you for the additional contacts.
And then just 1 more from us, um, you know, lower capex and reduce working. Capital, certainly seems to be supporting the balance sheet. So, just question, you know, given the ongoing weakness, how are you thinking about cash flow in the second half and any potential, you know, further assets, sales or Cost Cuts, any kind of alluded to, um, some opportunities in the prepared remarks
Yeah. Hey Alex, this is keeper. I'll I'll jump in on on cash flow, um, to your point. We didn't, you know, give an explicit guide on on free cash flow for the second half of the year. But with that said, uh, we did generate, you know, almost million dollars of of unlevered free cash flow in the second quarter. And we saw that include liquidity increased almost 10 million dollars sequentially. Um, so we have guided, you know, clearly for Q3 to be up from a top line perspective, as well as from a margin perspective. So I think clearly that's driving higher quarter of a quarter, Eevee off for the business. Um, from a working capital perspective, Q3 is is going to be slightly more intensive than the second quarter was. There's a couple things driving that 1, obviously an incremental, increase in in revenue and and 2. Um there are 3 payrolls in the month of July.
And there are no 3, pay months in the second quarter. So those 2 things combined to to drive, you know, marginally higher working capital intensity at least in the third quarter. Uh but some of that will likely unwind uh in the fourth quarter um thinking through the other building blocks of free cash flow. If you just use kind of the midpoint of our full year, net capex guide.
It would imply about 15 million dollars of second half net capex.
Capital spending being higher than than Capital spending in the fourth quarter. So, you know, put all that together, I think you to reiterate what we said in the prepared remarks, you know, we do expect liquidity cash to to continue to improve, um, as we navigate the the second half of 2025,
very helpful context. Thank you. That's all from us.
Thank you, Alex.
Next question, from the line of John, Daniel, Daniel energy. Please receive your question.
Good morning, Chris Keefer. Thanks for having me. Uh, Chris, in your prepared comment, you touched on.
What I took as a elevated m&a discussions, what would you say is, you know, the driver of that? And do you think that the people that you might be speaking with have more realistic, valuation expectations?
Um I think the driver of it is somewhat capitulation, look. The reality is some of the smaller service companies are really struggling in this environment where they
perhaps don't have the, you know, Sops the safety initiatives, Etc HSE programs to to work for some of the Blue Chip majors. And so um, for maybe the first time in a long time, we're seeing a bifurcation of performance and I think some of the smaller guys are really struggling in certain basins, um, whether there's capitulation or price.
And value is uh, very much TBD but we're we are definitely seeing um deal flow in a bit of capitulation where you know people are coming back asking to come to the table and see if the art of the possible is there.
Okay, and then you just touched on the SOPs. That was something that some field guys shared with me a couple of weeks ago on a trip. I'm just curious, does that apply to all of the various...
Office service lines or are there certain ones that are? Maybe immune from that? Can you just elaborate on the significance?
Of that.
What I think is highly significant when you think about, um, the Blue Chip Majors, that have been the primary drivers of the wave of consolidation we've seen over the last couple of years. So, when you think about those names, their hsse requirements, their Sops consistency of performance. In the field is very, very important. Are their operators and are there certain service lines. When you talk about
Non-pressure control, surface rental equipment or otherwise that don't have those requirements you know, light plants other things. Sure. There's there's lenies there especially when you get to some of the smaller private operators but when you're talking about
Pressure related equipment, Coil Tubing rack Etc. Uh yes. I think you have to have all the appropriate levels of procedures in place to work, consistently for the larger operators.
Okay, uh, and you've been doing this a long time, is it, did you get the impression Chris? That their the enforcement of these things is had a step change if you will. Um,
Versus maybe what those Majors would have done 5 to 7 years ago.
Well, I think look, if you look hearken back to our q1 call of last year, we talked about a couple of operators, completely shutting down certain basins and districts for a month. I think that speaks to the level of sincerity, they have around doing things the right way. So I think there has been a step change. Are there anomalies, there's always anomalies. There's exceptions in the field Etc and won't belabor go into some of those specifics here. Call anybody out, but I think by and large the 80/20 approach. Yes, I think there's been a step change.
Got out. Okay. The last 1 for me, just on the gas markets uh and I know visibility sometimes is limited in this space. But would you expect a
You know, a less severe seasonal. Uh,
Impact in Q4 this year, in the gas markets than maybe prior years. Or would you just say normal at this stage?
Cue 1 of this year and has continued to be. You know, if you look at rate count, right? It's it's very stable in those 2 plays and has been not a lot of growth but a lot of stability. And the question becomes, is it that stability and and quick start to the year in q1. Do they have some budget exhaustion in Q4? We're not hearing about that yet but it's clearly a concern that we'll try to stay a breast of
fair enough. Okay, that's all I have. Thank you for including me.
Appreciate it, John. Thank you.
Thank you. This now, concludes our question and answer session. I'd like to turn the floor back over to management for closing comments.
Thank you. Once again for joining us on this call and your continued interest in. KLX, we look forward to speaking with you again, next quarter.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.