KLX Energy Services Holdings, Inc. Q2 FY2025 earnings call

• KLX had a strong second quarter, outperforming the market backdrop with revenue of $159 million, up 3% from Q1, and adjusted EBITDA of $19 million, up 34% from Q1.
• Revenue increased in Rockies and Northeast/Mid-Con segments, offsetting Southwest's sequential decline. Adjusted EBITDA margin improved to 12%.
• Execution of operational initiatives like cost focus, asset rotation, and leaning into higher-margin PSLs contributed to performance.
• Significant strength in completion and production portfolio, with teamwork enabling max labor utilization and improved margins.
• Diversified portfolio, strong customer alignment, and diverse geographic footprint driving relative outperformance.

Rockies: Second quarter revenue of $54.1 million, operating income of $3.3 million and adjusted EBITDA of $10.4 million. Sequential revenue and adjusted EBITDA increased 13% and 55%, respectively, contributing 34% of Q2 revenue. Southwest: Revenue of $58.8 million, operating loss of $1.7 million and adjusted EBITDA of $7.2 million. Q2 revenue decreased 10% sequentially with EBITDA down 38%, contributing 37% of Q2 revenue. Northeast/Mid-Con: Revenue of $46.1 million, operating loss of $1.3 million and adjusted EBITDA of $7.2 million. Sequential revenue increased 12% and adjusted EBITDA 167%, contributing 29% of Q2 revenue.

• Q3 is expected to be the strongest quarter of the year, targeting low to mid-single-digit sequential revenue growth and continued margin expansion.
• Optimistic about long-term fundamentals for U.S. natural gas and KLX's position in gas-focused basins.
• Committed to delevering balance sheet, allocating capital disciplined, and pursuing strategic M&A opportunities.

• Macro environment challenges including OPEC+ production increases, tariff policy overhangs, recession risk, and rig count volatility.
• White space due to customers taking completion holidays impacting staffing and margins.

Q: Unidentified Analyst asked about concerns hitting low to mid-single-digit sequential revenue growth in 3Q given rig count decline.

A: Chris Baker stated Q2 had strong months, June's strength underpins Q3 forecast, and operators restarting completion programs post holidays and near-term wins with clients support the guidance.

Q: John Matthew Daniel asked about driver of elevated M&A discussions and valuation expectations.

A: Chris Baker said driver is capitulation of smaller service companies struggling, with value TBD but deal flow and capitulation seen.

Q: John Matthew Daniel inquired about SOPs significance and enforcement step change.

A: Chris Baker said SOPs are significant for working with blue-chip majors, there's been a step change in enforcement as seen by operators shutting down basins, though anomalies exist.

Q: John Matthew Daniel asked about less severe seasonal impact in Q4 gas markets.

A: Chris Baker said Haynesville has incremental rigs and crews, no significant Q4 budget exhaustion expected yet, while Marcellus/Utica stability raises concern about potential Q4 budget exhaustion.