KLX Energy Services Holdings, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Refinancing Success: Completed refinancing of 2025 notes and ABL, extending maturities to 2030 (notes) and 2028 (ABL), reducing debt, and providing additional liquidity.
• Q4 Results: Q4 2024 revenue was $166 million (midpoint of guidance), with margins above prior guidance. Cost controls and mix shift to higher-margin product lines contributed to improved adjusted EBITDA margin.
• Full Year 2024: Full year revenue was $709 million, adjusted EBITDA $90 million, and adjusted EBITDA margin ~13%. Strong safety performance with TRIR 0.63 and LTIR 0.22. Launched Gen 2 of OraclE-SRT, targeting gas-directed basins.

Segment Performance

• Rocky Mountains segment: Q4 2024 revenue was $54 million, operating income $4.7 million, and adjusted EBITDA $11.8 million. Sequentially, revenue decreased by approximately 20% due to winter holiday seasonality and budget exhaustion.
• Southwest segment: Q4 2024 revenue was $61.4 million, operating income $1.1 million, and adjusted EBITDA $9.6 million. Sequential revenue decline was 11% due to seasonality, but operating income and adjusted EBITDA improved due to a favorable revenue mix shift to higher-margin offerings.
• Northeast/Mid-Con segment: Q4 2024 revenue was $50.1 million, operating income $300,000, and adjusted EBITDA $9.8 million. Sequential revenue decreased by 4.4% primarily due to reduced completion activity.
• End-market basis: For 2024 Q4 and full year, drilling, completion, production, and intervention services contributed approximately 22%, 52%, and 26% respectively to revenues.

Guidance

• 2025 Outlook: Revenue expected to be flat to slightly up, with adjusted EBITDA margin targeted between 13%-15%.
• Quarterly Cadence: Q1 2025 expected soft relative to Q4 due to weather and completion calendar shifts, but strength anticipated in late Q1 and into 2025.
• Market Focus: Monitoring gas-directed completion activity driven by LNG export demand, particularly in the Haynesville and other gas-prone regions.
• CapEx: 2025 CapEx expected $45 million to $55 million, with net CapEx $35 million to $45 million.

Risks

• Weather Impact: Potential for weather-related disruptions affecting Q1 performance.
• Market Dynamics: Uncertainty in completions calendar and evolving market conditions.
• Commodity Volatility: Fluctuations in commodity prices could impact revenue and margins.

Question and Answer

• Q: Walk through margin improvement across regions despite lower revenue A: Margin improvement was due to mix shift to higher-margin product lines (rentals, tech services), cost controls, and 50% of revenue occurring post-frac job, sustaining activity later into Q4 despite operator holidays.
• Q: Thoughts on cash flow and uses of cash in 2025 A: Lower CapEx, focus on deleveraging with excess free cash flow sweep; interest expense slightly up but prewired amortization supports deleveraging.
• Q: Q1 2025 vs Q1 2024 A: Q1 2025 expected soft but better than Q1 2024 barring recurrence of issues like severe weather or unexpected completions calendar gaps.
• Q: M&A focus and E&P consolidation impact A: Focus on accretive deleveraging M&A, targeting synergistic deals in existing product lines; E&P consolidation influences strategy by seeking scale in existing service offerings.
• Q: Haynesville market and pricing A: Positive outlook on Haynesville due to LNG export demand, potential for pricing improvement as assets and personnel return to gas-prone regions.