KLX Energy Services(KLXE) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related management discussion Condensed Consolidated Financial Statements (Unaudited) For the six months ended June 30, 2022, KLX Energy Services reported a significant revenue increase to $336.7 million from $202.7 million year-over-year, driven by improved market conditions Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $31.5 | $28.0 | | Total current assets | $198.6 | $164.7 | | Total assets | $415.4 | $387.7 | | Total current liabilities | $143.9 | $122.7 | | Long-term debt | $295.4 | $274.8 | | Total liabilities | $484.7 | $444.1 | | Total stockholders' deficit | $(69.3) | $(51.4) | Condensed Consolidated Statements of Operations Statement of Operations Highlights (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 (ended Jul 31) | H1 2022 | H1 2021 (ended Jul 31) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $184.4 | $111.9 | $336.7 | $202.7 | | Operating income (loss) | $1.4 | $(16.9) | $(10.1) | $(45.8) | | Net loss | $(7.5) | $(25.0) | $(27.4) | $(61.8) | | Net loss per share-basic | $(0.67) | $(2.98) | $(2.58) | $(7.39) | Condensed Consolidated Statements of Stockholders' Deficit - The total stockholders' deficit increased from $(51.4) million at December 31, 2021, to $(69.3) million at June 30, 2022, primarily driven by a net loss of $27.4 million for the six-month period, partially offset by the issuance of common stock which added $8.3 million to equity[14] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended (in millions) | Cash Flow Activity | June 30, 2022 | July 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14.6) | $(37.4) | | Net cash (used in) provided by investing activities | $(7.1) | $2.9 | | Net cash provided by financing activities | $25.2 | $26.8 | | Net increase (decrease) in cash | $3.5 | $(7.7) | | Cash and cash equivalents, end of period | $31.5 | $39.4 | Notes to Condensed Consolidated Financial Statements - The company provides diversified oilfield services across major US basins, organized into three geographic segments: Rocky Mountains, Southwest, and Northeast/Mid-Con[19][58] - As of June 30, 2022, long-term debt totaled $295.4 million, consisting of $250.0 million in 11.5% Senior Secured Notes due 2025 and $50.0 million outstanding under the ABL Facility, which matures in September 2023[30][31] - The company has an "at the market" (ATM) equity offering program for up to $50.0 million, and during the six months ended June 30, 2022, it sold 1.6 million shares for gross proceeds of approximately $8.4 million[47][51] Segment Revenue for Six Months Ended (in millions) | Segment | H1 2022 (ended Jun 30) | H1 2021 (ended Jul 31) | % Change | | :--- | :--- | :--- | :--- | | Rocky Mountains | $96.4 | $57.9 | 66.5% | | Southwest | $111.9 | $81.0 | 38.1% | | Northeast/Mid-Con | $128.4 | $63.8 | 101.3% | | Total | $336.7 | $202.7 | 66.1% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 64.8% year-over-year revenue growth in Q2 2022 to a recovery in market demand, driven by higher commodity prices and increased drilling and completion activity Recent Trends and Outlook - Market demand is recovering from COVID-19 pandemic lows, buoyed by stimulus, pent-up demand, and a resurgence in crude oil prices partly due to the Russian invasion of Ukraine[84] - The U.S. rig count increased by 28.0% to 750 as of June 30, 2022, compared to December 31, 2021, reflecting increased drilling and completion activity in response to rising oil prices[85] - The company is experiencing inflationary pressures on costs for goods and labor but has been able to implement price increases with customers to partially offset these impacts[86] Results of Operations Q2 2022 vs. Q2 2021 (ended Jul 31) Performance (in millions) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $184.4 | $111.9 | 64.8% | | Operating Income (Loss) | $1.4 | $(16.9) | 108.3% | | Net Loss | $(7.5) | $(25.0) | 70.0% | - The significant improvement in Q2 2022 operating results was driven by increased activity and pricing across all segments, with the Northeast/Mid-Con region revenue more than doubling (+102.0%)[97][103] - For the first six months of 2022, revenue grew 66.1% to $336.7 million, and the operating loss narrowed to $10.1 million from $45.8 million in the prior-year period, driven by improved pricing and activity[106][111] Liquidity and Capital Resources - As of June 30, 2022, the company had a total available liquidity of $56.6 million, comprising $31.5 million in cash and $25.1 million available under its ABL Facility[116] - The company's $100.0 million ABL Facility matures in September 2023; management is in discussions to refinance it, but failure to do so could result in a 'going concern' qualification in the year-end audit opinion, which would trigger an event of default[121][124] - Capital expenditures for the first six months of 2022 were $13.6 million, and the company expects total capital expenditures for the full year 2022 to be between $25.0 million and $30.0 million[134] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, KLX Energy Services is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information required by Item 305 of Regulation S-K[151] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[153] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[154] PART II - OTHER INFORMATION This section covers other required disclosures including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company is involved in routine legal actions, including a notable claim to recover $4.6 million from Magellan E&P Holdings, which has been fully reserved due to bankruptcy - The company filed a claim to recover $4.6 million from Magellan E&P Holdings for services related to an offshore well blowout; Magellan subsequently filed for Chapter 7 bankruptcy[44][157] - The company has prudently reserved the full $4.6 million owed by Magellan in light of the bankruptcy proceedings[44][157] Risk Factors This section directs readers to the risk factors previously disclosed in the company's Transition Report on Form 10-K for the fiscal year ended December 31, 2021 - The report refers to the risk factors previously described in the company's Transition Report on Form 10-K for the fiscal year ended December 31, 2021[158] Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2022, the company repurchased 261 shares of its common stock from employees to settle tax withholding obligations - A total of 261 shares were repurchased during the three months ended June 30, 2022[159] - The repurchases were from employees to cover income tax withholding obligations from vested restricted stock grants and were not part of a publicly announced buyback program[159] Defaults Upon Senior Securities Not applicable - Not applicable[161] Mine Safety Disclosures Not applicable - Not applicable[163] Other Information Not applicable - Not applicable[164] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, executive compensation agreements, and certifications by the CEO and CFO - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by Sarbanes-Oxley Sections 302 and 906[165] - Interactive Data Files (XBRL) are also filed as part of the exhibits[165][166]