KLX Energy Services(KLXE) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2018, the company reported revenues of $495 million, an increase of approximately $175 million or about 55% compared to the prior year [22] - Adjusted net earnings improved by $65 million, from a loss of about $9 million in 2017 to a profit of $57 million in 2018 [12] - Fourth quarter revenues increased approximately 53% to approximately $144 million, including the acquisition of Motley, with adjusted EBITDA up almost 200% to approximately $32 million compared to the same period in the prior year [13][28] Business Line Data and Key Metrics Changes - Organic downhole production solutions revenues increased about 43% year-over-year and approximately 16% compared to the third quarter [9] - Rocky Mountains segment revenues for 2018 were $179.7 million, representing approximately 42% growth [24] - Northeast/Mid-Con segment revenues for 2018 were $129 million, representing approximately 54% growth [25] - Southwest segment revenues increased 70% to $186 million, benefiting from the addition of Motley's large diameter coiled tubing business [26] Market Data and Key Metrics Changes - Oil prices declined by over 40% from $76 a barrel in early October to $42 a barrel by December 24, impacting completion activity [15] - The overall drilled but uncompleted (DUC) count increased approximately 30% since the beginning of 2018, with the Permian accounting for about 50% of the total DUC count [16] - The U.S. shale sector is projected to drill and complete more than 20,000 wells in 2019, an 8% increase over 2018, if WTI oil prices stabilize around $55 to $60 per barrel [17] Company Strategy and Development Direction - The company aims to broaden its product service line (PSL) footprint in each geographic region, focusing on higher-margin proprietary PSLs [37] - The rollout of new services will impact operating costs and capital expenditures, with approximately $100 million expected in CapEx for 2019 [40] - The company is confident that its expanding portfolio of products and services will drive growth in its customer base and share of customers' expenditures [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the fourth quarter results fell short of expectations due to declining commodity prices, emphasizing the importance of stable oil and gas prices for future guidance [45] - The company reported a solid performance in 2018, with a significant earnings turnaround and a return on invested capital of 16% [12][45] - Management expressed optimism about the future, citing the potential for increased completion activity as pipeline capacity comes online in the second half of 2019 [16] Other Important Information - The company incurred approximately $30 million in one-time costs associated with various activities, including the merger and acquisition processes [4][35] - As of January 31, 2019, the company had $164 million in cash and no borrowings under its $100 million credit facility [33] Q&A Session Summary Question: How should the company think about the importance of getting back to normal in guidance? - Management acknowledged that the fourth quarter results fell short due to commodity prices being below guidance, emphasizing that guidance is dependent on stable oil prices [45] Question: Can you confirm the growth plans for coiled tubing? - Management indicated plans to double the number of coiled tubing spreads to four in the Rockies and four in the Mid-Con during 2019, with significant CapEx allocated for this purpose [46] Question: Can you walk through the quarterly progression to reach the implied adjusted EBITDA? - Management explained that the first half of the year would be slower due to mobilization costs, with a stronger second half expected as new assets come online [52] Question: Do you expect pricing concessions or margin pressures in Q1? - Management noted that while wireline pricing is somewhat challenged, their pricing remains above market, and they do not expect a decline in margins due to pricing concessions [53] Question: Can you provide more details on the rollout of dissolvable plugs? - Management reported successful deployment of dissolvable plugs in approximately 90 wells, with positive customer reception and a revenue growth rate of about 16% from the third to fourth quarter [54]