KLX Energy Services(KLXE) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - KLX Energy Services reported Q2 2022 revenue of $184.4 million, a 21% increase from $152.3 million in Q1 2022, exceeding prior guidance [8][15] - Adjusted EBITDA for Q2 was $17.4 million, up $12.5 million sequentially or 255%, with an adjusted EBITDA margin of 9.4%, significantly higher than 3.2% in Q1 [8][16] - The company experienced a strong operating leverage, with a 39% incremental margin from Q1 to Q2 [16] Business Line Data and Key Metrics Changes - Revenue contributions from various product lines remained stable, with drilling at 28%, completion at 50%, production at 12%, and intervention at 10% [15] - Significant increases in activity were noted across all service lines, including directional drilling charge days up 15%, fishing activity up 15%, and wireline revenue days up 25% [10][15] - Pricing improved across all product service lines, with increases ranging from high single to low double-digit percentages sequentially [12] Market Data and Key Metrics Changes - The average U.S. rig count increased by approximately 13% during the quarter, with crude prices averaging over $108 per barrel and natural gas averaging $7.50 per MMBtu [7] - The company noted a favorable macro backdrop with strong demand for its services, indicating the beginning of a multi-year up-cycle in the oilfield services (OFS) industry [7][11] Company Strategy and Development Direction - KLX Energy Services aims to leverage its brand value and operational expertise to maximize free cash flow generation and improve pricing strategies [34] - The company is focused on cross-selling opportunities and deploying assets to maximize profitability in response to market dynamics [34] - Management expressed optimism about Q3 and the second half of 2022, expecting sequential revenue growth of 9% to 13% and adjusted EBITDA margins of 10% to 12% [35] Management's Comments on Operating Environment and Future Outlook - Management highlighted the tight labor market as a benefit, driving improved pricing and operational efficiencies [33] - The company anticipates continued growth in top-line revenue and margin expansion, with an increased full-year revenue guidance of $730 million to $750 million [35][36] - Management emphasized the importance of maintaining liquidity and generating positive levered free cash flow as a priority [31] Other Important Information - KLX Energy Services reported a cash balance increase to $31.5 million, driven by additional borrowings and asset monetization [25] - The company is in advanced discussions with lenders regarding refinancing options for its ABL facility, which matures in the fall of 2023 [30][53] Q&A Session Summary Question: Discussion on idle capacity and deployment - Management noted that there is idle capacity in coiled tubing, wireline, and frac valve rental businesses, with plans to deploy assets as market demand warrants [41] Question: Revenue guidance and seasonality - Management did not provide Q4 guidance but indicated that they are seeing increased RFQs for fourth-quarter activity, suggesting a positive outlook [43] Question: Customer inquiries for 2023 - Management reported ongoing discussions with customers regarding programs for 2023, indicating a strong interest in future service contracts [45] Question: M&A landscape in OFS - Management acknowledged recent non-distressed M&A activity in the OFS sector and expressed confidence in KLX's position to participate in future consolidation [50] Question: ESG initiatives - Management highlighted ongoing efforts in electrifying equipment and developing sustainable practices, including hybrid units and carbon containment initiatives [51] Question: Balance sheet and credit options - Management discussed the improvement in the balance sheet and the strategy to address upcoming maturities, including options for refinancing [52][53] Question: Operating leverage and margins - Management emphasized the significant operating leverage in the business and the focus on crew utilization to drive margins [54]