KLX Energy Services Holdings, Inc. Q3 FY2025 earnings call

• Third quarter tax generated revenue was $167 million, up 5% from Q2, and adjusted EBITDA was $21 million, up 14% from Q2, ahead of prior guidance.
• Adjusted EBITDA margin improved to 13% sequentially despite rig count and frac spread declines.
• Northeast Mid-Con segment had a 29% revenue increase, offsetting softer activity in other segments.
• Disciplined cost management led to adjusted SG&A expected to remain 9%-10% of revenue.
• Balance sheet had $65 million liquidity, total debt $259.2 million, in line with Q2 levels.

The Southwest segment represented 34% of Q3 revenue, with revenue of $56.6 million and adjusted EBITDA of $5.1 million. Sequentially, revenue decreased 4% and EBITDA was down 29% due to a 9% decline in Southwest rig count and an 18% drop in permanent frac spread count. The Northeast Mid-Con segment accounted for 36% of Q3 revenue, with revenue at $59.3 million and adjusted EBITDA at $14.5 million. Sequential revenue increased 29% and adjusted EBITDA jumped 101% driven by higher utilization in the completions portfolio, reduced white space, and targeted expense management. The Rockies segment made up 30% of Q3 revenue, with revenue of $50.8 million and adjusted EBITDA of $8.1 million. Sequentially, revenue decreased 6% and adjusted EBITDA fell 22% due to a slowdown in completions activity from discrete customer scheduling.

• Anticipate mid-single-digit revenue decline Q4 from Q3, less pronounced than past years.
• Expect stable adjusted EBITDA margins aided by cost discipline, year-end accrual dynamics, vehicle turnover, and regional activity mix.
• 2026 outlook: Confidence in profitable growth due to diversified asset base, premium customer alignment, and natural gas demand acceleration from new LNG export capacity.

• Market volatility including commodity price fluctuations and OPEC+ supply growth.
• Impact of customer M&A integration on white space and activity.
• Episodic nature of completion programs affecting margins in segments like Rockies.

Q: How did the Northeast MidCon perform and is market share being gained?

A: Chris Baker notes Northeast MidCon saw revenue increases in Haynesville, with dry gas revenue up 15% quarter-over-quarter, and gained market share as rig count increased in the Haynesville.

Q: What was specific to the Rockies segment's performance beyond macro?

A: Chris Baker mentions episodic completion programs and a decline in refrac activity, with negative operating leverage impacting margins due to fixed cost structure in the short term.

Q: Discuss Q4 slowdown and 2026 outlook?

A: Chris Baker states Q4 expected mid-single-digit revenue decline, with margins holding due to cost controls. On 2026, gas market expected consistent activity, with some optimism for oil basins rebounding second half of '26 into '27; Keefer Lehner adds Q4 is typically strong for free cash flow, with working capital expected to unwind and liquidity improving.