KLXE - Earnings call transcript Q3 2018 | KLX Energy Services Holdings, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to KLX Energy Services Third Quarter 2018 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. And as a reminder, today’s conference is being recorded for replay purposes. turn Director over KLX. of to Treasurer Michael like Senior and Investor now the to conference Perlman, I’d Relations at

Michael Perlman

you, The to this third and Today, morning, third issued quarter financial James. earlier for October the news Thank us. XX, quarter release, ended joining was XXXX. results thank for our we earnings KLX XXXX morning discuss you here presents period results. Energy company’s Services are Good which

our you’ll it, find received website. haven’t in copy you If a

amendment acquisition we to For public secured which million financial approximately on business one-time Motley $XXX the purposes, as with the of $XXX our comparison independent have as of the referred Boeing business collectively results Solutions with the million of senior The a of was presented cost facility; of on KLX an X, well company; merger as to Company; as and asset-based of Energy issuance an defined. costs Aerospace XXXX; the XXXX, lending spin-off into all of November which the $XX associated Services GAAP are exclude basis, million completed adjusted Services, the basis notes due the the the

Khoury, Chairman KLX We will with call and Financial Officer. Chief Tom President Chief remarks from Services. McCaffrey, Executive Officer is begin of Also morning and Amin Energy this the on Senior Vice

prepared have few to follow slides we call, a today’s discussion. For help you our

page Investor on presentation Relations You KLX the our klxenergy.com. the website can Energy find of Services at

website you of In to slides our refer the to. addition, for are on posted copies

acts statements will Safe are Commission. to company’s our and to Safe the statements a that filings the some your as prepared responses securities with have additional remarks and Harbor and make the Harbor risks we questions, always, to subject And Securities information Any begin, we various under Exchange on we forward-looking in cover. from exemptions rely Before and our uncertainties. we

Q&A provide operator At prepared instructions. that time, address will questions remarks. our following will We the

Now, I’ll Khoury. turn over to Amin the call

Amin Khoury

you, morning, and Michael, good Thank everyone.

we review third speaking very pleased be are productive been We has to what this as an morning, extraordinarily with you quarter.

the our issuance quarter, Boeing During successful tubing product through our the the business completed publicly-traded the tubing senior Company; the thru-tubing DHPS the tool a secured large service $XXX company; of of coiled our due of proprietary product of Aerospace into million management line, XXXX; coiled Energy launch Solutions of HydroPull the complements with in of of the Services; Services merger service the The line. the including launch notes business diameter line Motley spin-off service plugs; addition diameter dissolvable used acquisition large the line and our of that operations the of

During to completed public to tax, the standalone controls from this accounting, able our independent and former period, with risk company human also audit, be legal, of internal a our KLX management, resources treasury, establishment functions Inc. financial as operate robust we IT, operating parent and

service lines. Additionally, style product efforts in and our several trend extended to perf laterals continue introduced plug & customer towards important new base to address the completions, to reach we our proprietary

solid tool our lines service was engineering agreement. a operations thru-tubing our revenues. already of quarter product on large which and plugs, second, tubing The flotation used a are PSL. an HydroPull patented coiled HydroPull impact These marketing line proprietary First, co-developed in which diameter magnesium-based finally, with and a new dissolvable introduced complements we our cooperative fourth collar; to debris-less tool making a firm;

platform licensing leverage public internal to and our new capitalize reputation we has our to KLXE sheet cyclicality products, liquidity strong our and navigate to broad diversified portfolio services acquisition. call, maintain intend of substantial customer a move through and development, on the markets. strong balance we in product unique value build We very each while effectively to to of continuing integrated and a company, our relationships, to and through the forward services financial our performance long-term to On as of and will served with market, opportunity energy As review today’s differentiated for expect our through geographical markets, premier for XXXX an service agreements third continue XXXX. launch preliminary believe guidance, independent We lines coverage, our quarter our oilfield current the discuss full-year financial our outlook we and shareholders. along provide partnerships

oilfield the review market. Let’s now services

of growing DUC takeaway year, the floods. XX% as On approximately For count to uncompleted pipeline many a prior extent, the industry stable XX%, with the pipeline onshore has Permian majority The inability the the of and compared the now be but takeaway issues to primarily up drilled increase U.S. essentially compared to the to in attributed as DUCs, operators stand Growth Permian can lesser of move to or for Texas approximately and prior pipeline in to quarter-over-quarter. resulted capacity average, We XXXX, XX% believe wells, and more due the XX%, the has quarter issue online overall efficient The accounted capacity equipment as DUCs, Permian reverse, in will reported become capacity trend X,XXX period, X,XXX or approximately with drilling to operators multi-well market, a alone. a as DUCs, additional dramatic comes Permian flat of drilled a in the have compared in at as activity increase those, Basin but increased significant activity about uncompleted with slowdown in relatively most the and pads. quarter. but recent the in this recount number prior almost completion the in wells.

capacity industry support believe in not activity to services expected increase completion the we in XXXX. fact, the have the does oilfield In

increase E&P lock expected We CapEx are service further, in very budgets. to RFP try is a substantial XXXX as providers. E&P experiencing finalize already to increase quality their as activity, customers This activity operators up

one fact, personnel. increases up price customers our equipment In of of availability ensure and offered has to

let X,XXX in in issued in quarter, the the up half month-over-month third month-over-month substantially issued oil permits flat XX% of year-over-year. specifically the issued was and with Wyoming drilling increase. number XX% with permits for XX% permits accounted count U.S. approximate and That drilling Rockies, rig was all October or drilling quarter-over-quarter of and approximately Although over an nearly regions X,XXX, alone. more The Colorado, increased

Saudi million unconventional XXXX. to members, resources. day know, shale in XXXX, well our oil output, exceeded additional domestic day of time EIA factors will you This production global which crude members, of production rivaling Sanctions XX expects conventional of growth about barrels for declining in the is from U.S. Russia As August production rate being and per XX barrels growth production the million and U.S. first crude are in potential non-OPEC influence XXXX, driven from surging and Petroleum The by Reserve Arabia. Iran per demand oil of is which Strategic releases by OPEC price in international replacing all the output average

demand. excess can international is those and bodes supply time face the growing global The producers in curves of wells, meet decline and rapid to combination sustainable there create continuous offshore production the very reduced However, for companies, which well little long-term investment, growth, by the pullback model. of of shale demand

to our turn X results. third XXXX consolidated Let’s discuss now quarter and Slide

prior as growth, in consolidated revenues organic $XXX year. the million, to revenue of XXXX quarter same the compared XX% represented Third period

breadth a a the provide. are growth which XX% and lines. completion, of intervention segment we revenues segment strong our and approximately equipment, our in results to XX% revenues. share in XX%, becoming customer XX% in including customer base; services own speak to our Clearly, and our the On line which and Rocky product services, of important to XX%, overall reflect spend revenues production has are Southwest product the customers broad organic portfolio in are a our we increase by Our a offer proprietary increasing increase the customer a supplying XX% Mountains more respectively. we realizing. individual which revenues, consolidated in spend, an revenue customers; basis, resulted and The increased being increase increase to in growth Northeast/Mid-Con numbers specialized This service able we of for services,

increased in the the in in our XXX% year. prior quarterly in revenues doubled, the as our million $X and $X period number than In over quarter, fact, million to generated more third that the that of generated quarterly customers of customers the same number by compared over revenues

of basis, region, of million, offset floods, revenues third quarterly region and In almost during quarter, revenues the XX or in Texas XX to highway and road driven the segment top sequential about by and days X.X%, about negatively rain impacted customers Southwest which the generated attendant customers XX% consecutive a approximately strong fact, closures revenues by those XXX mud Northeast/Mid-Con we quarter the impassable lower Southwest floods. due $X XX%. and our increased partially growth served geo On sales. our by QX of in was

Southwest we issues market we continue E&P Motley in strong is with While growth operators expected region, are expect recent customer which and the takeaway negatively impact, PSLs introductions the Permian. new Permian drive even proprietary quarter for KLX base, of to our experiencing the in to fourth to impact positive our

the prior adjusted about and in earnings same EBITDA basis adjusted increases million $XX.X the respectively, operating improved $XX of margin in point XX.X%, Adjusted X,XXX over XX.X% and prior respectively, million the EBITDA XXX% Third $XX the margin and period operating to year. as and same quarter points, representing million adjusted basis by and X,XXX year. and period compared were

diluted share, net to respectively, net Adjusted to increased revenues higher EBITDA per year and negative was period. related second on operations. earnings to introduction per prior the $X.XX several of $X.XX revenues the Southwest as increases slightly in to and were compared earnings X.X%, impact of expenses million and and As share $XX.X diluted compared new down due consolidated per initial adjusted $XX.X the weather-related the tools adjusted million quarter, shares,

review and Let’s now our Slide third to Mountains results. turn XXXX Rocky X quarter

revenue EBITDA $X.X Mountains PSLs. completion revenues Rocky compared or and year. the were $X.X on higher XX% period $XX.X increased million same prior earnings represented increased on reflecting to Mountains increases in segment or Rocky adjusted of $X.X segment activity million production XX% the segment XX.X%, revenues. million organic approximately increase third operating On increased Mountains Rocky XX% to revenues flat. $XX operating and $X.X revenues to of quarterly driven by essentially to and revenues. The a demand gross and million, in almost million, quarter the XX% in was as sequential growth, increase XX.X% increase margin leverage for million, by in XX% quarter, a profit adjusted EBITDA respectively. million basis, in $XX the Third solid in increased Adjusted

the Here growth again, products we quarter. third for expect to due our service the in fourth customer proprietary reception in new lines segment introduced excellent solid quarter Rocky Mountains

segment review turn performance. Let’s X and Slide our to Northeast/Mid-Con

while XX% million XX%, by revenue for on Northeast/Mid-Con year. activity, reflecting segment by increased organic while adjusted driven quarter than the operating representing earnings same gross $XX.X The increased increase million, PSLs. $X adjusted increased as margin margin. represented on in compared a increase to and Northeast a the On Third or to increase to adjusted increased activity operating in XX% solid EBITDA million, leverage profit XX% in intervention sequential in in increase and our the demand XX% growth, revenues. to million, XXX% in basis, increased EBITDA higher prior once revenues $XX production million activity. XX% XXXX about Adjusted XX.X% increase $XX.X again million, a $X EBITDA revenues, in $X the increased revenues more XXX% segment XX% increase revenues of period was completion

company, Slide Let’s X and Southwest quarter turn for the the segment. to third results review

by Southwest XXXX million. million basically all As floods, days negatively the revenues the by attendant mentioned the impacted XX impassable quarter consecutive the mud, rain, third floods, of about and third closures, the highway impact of earlier, segment Texas were revenues $X $XX quarter road

increase activity, spite the was in the completion were XX%, a activity. as period a almost increase XX% to by prior of compared year. production increase increase the same in driven in XX% in issues, However, in activity weather-related and The up revenues intervention the revenues X% an in

increased solid segment profit earnings $X in million demand operating the product million reflecting leverage increased on higher-margin third in our operating The to lines. Southwest gross increased service revenues. $X segment’s increase and adjusted $X.X million XX% the XX% to for quarter,

the revenues. by the million, $X in or to compared increase EBITDA As in same prior year, about period XXX% adjusted on increased XX% the

as our proprietary introduction However, and to as weather-related to revenues strong additions, our quarter basis, adjusted on expecting validation declined PSL tools. revenue and new due collars, due issues, organic in fourth thru-tubing region growth including flotation $X.X new dissolvable plugs sequential and we PSL fishing $X.X are well Nevertheless, and proprietary Southwest respectively, as as and EBITDA a our our million, the costs. quarterly well the million

financial our former received from review and our capital parent. moment the on a million position Slide we to take spin-off, now Let’s X. contribution Prior $XX

which senior notes Motley fund the was $XXX X. which completed net the due the the of $XXX net was of Services completed million used million In proceeds. addition, proceeds approximately cash company XXXX, of November of secured million $XXX sale of to portion the acquisition, generated on

XX, cash cash October hand under the approximately on borrowings hand. no credit on million, or million of XXXX, were $XXX million of $XXX if we of outstanding about acquisition the for adjust As $XXX was Motley, facility. company’s There

Now, let’s briefly our full-year guidance. review XXXX

solid as updating increasing large as in of of addition growth the in XXXX of fishing arising from Southwest well three expect third including line Exclusive our our organic new organic customer service in segments, the We’re growth and revenues diameter the dissolvable Motley base. full-year by quarter, product November, acquisition. proprietary thru-tubing access Motley’s and a the and our introduced coiled PSLs to the geographical as reflect tubing the all of solid to in guidance tools, we result of segment acquisition, completion plugs driven proprietary

with $XXX representing $XXX XX% in to be So fourth as approximately the single-digit reflect incur of to is Motley have to integration quarter million, to percentage increase cost adjusted on growth prior margin. invested approximately organic as approximately year to about expect quarter; third expected approximately revenues fourth expected as guidance million; which the estimate of costs, And to EBITDA and that XX%. all compared high are acquisition increases, Return that is expected – don’t quarter we adjusted increase to a to is today. and expected of the XXX% our and happen by to we associated XX% revenue excludes will EBITDA an capital the compared

prices outlook stable our Let’s year the less now oil more XXXX levels. more obviously, or current turn X gas or preliminary and to outlook. at less Slide And fiscal review assumes and

revenues of Adjusted $XX will be and than is net approximately increase. to expected a little million. and turn approximately million XX% back or $XXX million, to cash is is diluted expected margin. about share, are million, diluted XX% be With call. about So approximate about net per EBITDA share $XXX flow adjusted on are XX% capital of $XXX approximately less is approximately to million. earnings be return a about XX% Michael be and to CapEx approximately this the to increase over Free increase expected to Adjusted an $X.XX to respectively, XX%. X% for by representing approximately EBITDA earnings portion expected I per $XX expected to adjusted call approximately revenues invested that, expected to the Q&A morning’s that’s

Michael Perlman

a on portion the Q&A to ask call Amin. will you, turn I’ll how to of over for call. today’s Thank now the provide instructions James question. James James?

Operator

Instructions] [Operator the Jefferies. Brad you. will question from Thank Our with Handler come first line of

now open. is Your line

Brad Handler

Thanks. all. Good morning,

Amin Khoury

Good morning, Brad.

Brad Handler

I actually, to your appreciate sort great Thank love comments, marketplace, so a just you fourth dynamic, Amin, thorough into it’s notwithstanding, I’d all in a because us you dig quarter, I such as that. clear of the not space. time – a way our to guess, if in – in I for of the introduce the walkthrough guess,

maybe we and out. little a review parse you’re of So of can bit seeing what kind

are just of sort fall in is fourth talking your fracking off were that declines some fall words, see product the but I activity a in activity literally drivers very that November? December it’s issues some are even new guess, Do of fracking, peers and So market right, is well? now There a double-digit. that October, about just quarter But that obviously quiet significant introductions offset pretty in expect really it’s you will you is speaking it’s to other very helping December. what pricing the lot and in a to problem. that. And as other hard you’re off in relative not to month

Amin Khoury

have In words, now. such I other the think model. to speaks your we geographical coverage broad that question

We’re Texas, Ohio, et et North Wyoming, cetera. Dakota, Louisiana, in New Pennsylvania, cetera, Mexico, Oklahoma, West Virginia, Colorado,

size mentioned quarter. the to as more we coverage, year. was compared revenues, last that period to We the year. the same that service the earlier the our us million to – combination are doubled less product quarter XXX the customers in really enabled those covered, last And importantly, the basically in broad of product this delivered compared or And we number XX% was than geographical increase a year. And quarterly that was a XXX% customers And more the everywhere. breadth I last $X have, of during of or past of $X like our of number line that like million, customers more the that that customers line quarterly that than delivered but up $X million same that revenues,

of is combination And the customers the our the very that to the which product line, introduced already serving large of which is we’re single-digit it providing, large us QX in service with we’re high the geographical So number base. that generate product revenues substantial outlook a lines in the about new together in breath gives we third quarter, of confidence beginning growth. which revenue that are QX, customer some

and number So to customers wallet fourth in PSLs. base, the we’re new customers, share very spend there or substantially revenue for of of customer number to customers. very rapidly customer then which Motley get less we will the Southwest quarter, of will increasing customer access we increasing growth And activity help a during the this further addition are our but that maybe on we’re the serving

get some and that So the line, outlook to for of introduction access quarter due optimistic base to QX. for the customer we of product of about we have the new the us, Motley customers breadth giving us products breadth – is this it’s that new and

Brad Handler

How it’s obviously you a bit to that about of great. pieces helpful, they’re as could That’s sort so as taking follow-up I on I lay key albeit express this of story, do aspirations there you potential get but us $X expressed for running next terms you quarter wallet, where or quarter the run to take number And run of kind rate, that much a the if million out in – at see to continue to million what a Understood. XX you will. or of number point could are the to Can more of something like say, in of $X of that? are opportunity guess, understand. of sort you of months obviously the customers of a a over see rate near-term either it more wallet?

Amin Khoury

way. our Well, this trying the generated revenues of this top In quarter, quarter. revenues customers million much XX pretty of to two-thirds express our it or $XX in

than share balance of the there that, and we more have but XX customers, in customers also at of end of and same. revenues those the large the million They’re probably all the XX the size XX probably quarter, the of spend But our – off sort it generated number all cut So did of are in per a $X which now – that than growing we we top below are more are the list. top our of XX, top is with then customers. the a

assets, base the particularly our is as share to to certainly expect quarterly do continue we as and to move that service thru-tubing dissolvable – generate But that customer we’ve Oklahoma, and grow next and Dakota large million, So expect our fourth to the acquisition, first revenues. CT to year, assets third we the you hazard diameter don’t North revenues. million, in of quarter It $X gain wallet. – natural customers continue announced new which to we are the those going have introduced in between today. not many to of to be for important – when offerings $X what CT deliver customers we at how have or of million base. guess are the quarter generate in those to per there to the we business million, Colorado, CT $X we up, customer customers amount in same us of Motley and the to What size Wyoming I’m customers And expect the the a $X assets put to because begging time the our interestingly, plugs acquired relationship going

we some the CT, or So with services of XXXX confidence us the our breadth base customer again the have and synergy together that outlook. in gives our

Brad Handler

others away, success And That’s helpful see mix fare, to I’m heard Understood. we’ve or very interested certainly I’m throw how around color. your given about yours dissolvable a as almost plugs it enthusiasm turn in to around the back and I’ll it, I very what in turn. pleased get and will customer sure. hear but let queue, maybe back for interest a it Thanks. have

Amin Khoury

you. Thank Okay.

Operator

it At time, executive I’d the Mr. Perlman to you. closing Thank this team remarks. for over and like back to turn

Michael Perlman

Right.

– think, – his note questions. of think Have wore I the with with we’ll Bush With questions And a I #XX. that, call, the the we and asked will everybody day. great for Brad end passing our day. customers and good everybody out a we’ll wish respect his George most of

Operator

and does conclude conference. very much Ladies for that participation. thank your you today’s gentlemen,

a You wonderful may Have disconnect. day. all

KLX Energy Services (KLXE) 5 Dec 182018 Q3 Earnings call transcript