KLXE - Earnings call transcript Q3 2020 | KLX Energy Services Holdings, Inc.

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Operator

Greetings, and welcome to the KLX Energy Services Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today's call, Ken Dennard. begin. may you you, Thank

Ken Dennard

With Thank Lehner, you, joining call We you Vice Executive XXXX morning webcast KLX’s Chris President President. and Financial and for the Officer good Chief results. quarter us third conference and review everyone. today KLX are to Baker, Keefer appreciate Officer; fiscal operator, me Chief Energy and Executive Services and

integration market opening of as XXXX. and no the be market efforts. call be are that website remarks, as telephonically will at There outlook I third of a today on X, only were Company’s that Please the provide information environment this before will reported XX, any the reading. replay listening on be speaks will as management today’s klxenergy.com. on of update call the well the a There replay you Q&A. XXXX. or my also the of webcast in Following by may their on to December be available accurate replay transcript note yesterday’s More until to feature time-sensitive longer discuss access earnings time overview release. that post-merger And advised will information Then will of financial an as included an of recorded details how information therefore, the available that December quarter replay call

of within forward-looking meaning of statements In management. statements views forward-looking current the States addition, the KLX’s Federal management’s may comments Laws. reflect the United Securities These contain

is and financial and on The to X-K comments in management. differ Report Annual also may on could achievements Form the on read materially expressed the cause those uncertainties of However, actual encouraged various non-GAAP report, certain listener today results, measures. to contingencies current by Form risks, statements The Form made or uncertainties XX-K, include contingencies. those risks and from quarterly and performance reports reports understand certain to XX-Q,

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Chris Baker

for morning Ken, Services quarter you, and Thank good conference for you Energy everyone. call. us XXXX fiscal KLX today joining third Thank

Let strategy to made quarter, financial the me on you well begin by on performance call and market will outlook. broader comments the review for during updating final third I fiscal then integration. progress our the our quarter some to environment before on turn Keefer we've the over the as as returning

bottom. these challenges, revenue fiscal being also quarter persistent October our market to challenging, the impacts lowest overhanging activity time economic to I'm third far the fiscal overall reaching its commodity our quarter, which Turning increased ending of picked the environment the then, prices, XX% considerably level up we in June the that report to pleased due saw with volatility from market despite the which revenue COVID-XX, but than has activity. had June. of Since up very not impacts third in on issue month, more remained worldwide the during revenue from every has QX, hit only

actually a percentage increase off to in terms. important large low absolute revenue a be market, coming in is that, nominal even we very that, of midst the are relatively means historically note bottoms it which of in However, may depressed

vaccine. from in fiscal climbed third positive rather in exited also been and the have Commodity the steep end unlevered finally topping few flow. a realization breakeven not quarter, strong with contrast the meaningful coupled of as the prices last a spreads of frack that cash August. a revenue spread EBITDA KLX yet unpredictable adjusted QX EBITDA, drove of up prices in the third in count fiscal half potential third production active the declines free price we market out, our in news stood in well prices and a rally of down drilling our the in XX% positioned capitalize running of with XX to since COVID and the back last second quarters, loss, synergy declining during the in which Likewise, rebounding the across QX, reduction working to up September XX% intervention Since bottom. we exposure are adjusted out today, the gains and U.S. all began the up been XXX steadily prices bottom trending markets rebound of commodity with XXX but Retail quarter, XX.X% count roughly from a QX market, Basin. spread approaching for the COVID-related quarter then, As on initial the roughly seen completion, on and up are spring being result, halted Despite the followed to end roughly currently with Permian October. reduction stark and ending cost quarter over about XX% fizzled decline the favorably, the was to rig to from efforts WTI fiscal quarter, August geographic to significant and we've that as month has during March strong has April remains in

from completion than activity As in the our greater relates was of largest specifically, second market. revenue geographic combined Permian Permian XX% the to pro forma combined completions generated activity XXXX it company

group as in We the year-to-date accelerate U.S. with by from operators of rig and XXXX XX most have in revenue the when amongst relationships of this provide a top and KLX of the XX% to on specifically. whole operators believe customers, year-to-date deep and has our seen largest products the forma XX% this positive a our generated basis. consolidation KLX pro is combined industry counts for approximately we services we trend a

to utilization intervention market, completions, our providers the competition sequentially. has said, be and as providers, most areas in seem been fierce That the most pricing and challenging making in pricing drilling remains higher we decisions. think irrational with staffing production overall, among financially service So seeing all steady improvement desperate services,

million On for Looking in EBITDA. a at I since combined million basis, have sequential loss as quarter-over-quarter EBITDA adjusted a month market in by And improved to we our a we in million the ago, June. our in our increased improvement stated of every significant a bottomed quarter, EBITDA third the from revenues XX.X loss forma almost QX. saw we went moment adjusted revenues adjusted XX.X as $X.X results loss QX pro and

our during update me let efforts integration you Now, on third the quarter.

our proceed in and cultures. evaluating were continues KLXE/QES, complimentary excellent was realizing When to that and coordination and merger we believe And call respective their there progress synergies teams efforts. a exceptionally gains XXX-days, our well. made first operations our integrating fit progress have the well Our the between in and we knew efficiency collaborated natural between we

You may headquarters, recall one key in relocating functions major our to Houston. reining all the that Florida with objectives legacy of in corporate cost of and our Wellington, closure

We during third completed initiative have this successfully our quarter.

On we within operational we and personnel firmly tremendous are efforts functions our systems across market ongoing, during aligning and our on remain These Another objective field focused rationalizing rationalization operations. current made in functional platform and front, at Houston and conditions. facilities across XX our our the processes areas consolidated quarter. structure, in is efforts optimizing the also further having eliminating cost duplicative offices this strides directed all

before, run expected of by stated end XX we fiscal of synergies of rate to at As originally million first we capture quarter the least the annualized XXXX.

of now months schedule, initial So, relatives ahead we expectations. our several are

this goal, exceeded already have we annual release, rate run of implementing yesterday's of savings. As XX million approximately cost

integration process, can this details be has efficiencies insight to gained have realized. into As cost we've clarity some us additional identify and and this through that we of the our progressed finer cost greater structure, enabled

effectively towards lines effort Alongside which cost our we above As costs. to we customers also service and to our cross-selling proprietary we the achieve least at at a is more help cost to customers, coordination ways now expanded believe a leverage result, greater technologies million initial incremental of more will our operate realization of these pull-through value deliver product added more to continue our opportunities. and approach $X unified and there efficiencies, can seek and over lower and that, This savings projections. encompasses drive to

work, as sacrifice smooth employees before, to of helping the dedication hard on possible. in Without in and driving possible. Throughout synergies I as many be the our will make competitiveness marketplace. this relied our strategy in factor would have long-term this the efficiency be quick stated not as and heavily efforts, discussed a we simply I've critical this their transition As integration process,

now I'll QX thank a Keefer the more stronger, Keefer? like their would to KLX who and challenging financial more to I helping for results. future review and So, in prepare our tireless in efforts over call competitive for With will make marketplace. our that, company the prepared to everyone turn

Keefer Lehner

and Thank you, good Chris, morning everyone.

quarter a like XXXX I'd Before to your to we review results, fiscal our bring few attention. items third

First, QES of legacy are pre-merger quarter mind completed business July largely the and three from combined the include since keep KLX's in second on results that, our of XXth, days merger results therefore representative only structure.

results forma appropriate, are quarter sequential QES However, will rather in highlight than ad I reflect QX results. results a of to the KLX when full filed adjusted pro comparisons QX which

our our will allocation allocated XXX% this changing corporate three the presentation. we of our which impact are costs Second, our segments. were segment directly corporate geographic quarter, for across methodology of Previously costs

segments. and geographic those in allocation costs remaining with used information sit corporate with including However, directly own also is separate compatibility others and audits, we the and HSC AR, the presentation accordance improves appear assessment This and to at whereas now balance the to and that operations, Only insurance, line their chain, a in decisions supply will will item, now allocate tied segment peers. AP, as our method our reconciliation. resource unallocated performance

the of had our a handful in results extraordinary we quarter. impacting costs Third,

and relocate were facilities. we integration XXXX and million I'll third headcount quarter business, that the During integrate corporate professional discuss had said, With reduce the costs costs our consolidated expenses of consolidate incurred million and headquarters, primarily now $X.X fees. service to quarter, $X.X Merger support for legal results. QES for in

quarter full compared third the fiscal operating with XX%. as $XX.X quarter of side, increase $XX.X segment million and benefit earlier our EBITDA quarter driven second loss the impact improving the adjusted synergies discussed loss flow the on The Adjusted for $XX.X activity loss of business. was by pro XXXX. of the I'll loss $X.X segment. negative was Adjusted cost the EBITDA revenues QES as the quarter all revenues a For call. million, combination completion revenue increase increased operating million, Northeast was million. EBITDA begin EBITDA fiscal October activity and fiscal margin driven ended Adjusted increase or the legacy decreased were to operating P&L. quarter decrease review in $X.X $X.X our were The the as the X.X% loss loss to compared XXXX. by The loss the of and of on $X.X impact $XX.X was quarter million our XXXX, loss beginning million or the adjusted Fiscal $XX.X of an of of third but second for quarter EBIT pro increase of market million million. revenue second in with in an fiscal the revenue Chris million reflects on compared markets, million across significant third adjusted as adjusted fiscal in to Adjusted the quarter. XX% from was second respectively. EBITDA Mid-Con to the forma adjusted and million for The $XX.X through revenues XX% a end XX, $X.X of of particularly and forma were compared quarter

X%, $X.X only million. second an Rocky second segment million million, revenue $X.X Now, segments to quarter operating of adjusted million, QX driven $XX.X impact by with Mid-Con/Northeast, the generated adjusted revenues Southwest the XXX%, fiscal a of was $X.X a loss fiscal quarter quarter as touch loss our the new million, compared compared and of operating the to demonstrates second to adjusted Mountain compared was XXXX. moving EBITDA quarter quarter was EBITDA compared quarter Rounding segments, was as EBITDA and $X Rockies, increase $XX.X XXXX. of Similar third adjusted quarter $X.X we for to our third full revenue $X.X segment million loss, compared fiscal and were Adjusted to like in was increase legacy methodology. the the adjusted out quarter the other a loss significant operating a our fiscal $XXX,XXX as adjusted Adjusted loss our from third the to million XXXX. the million. $X.X the $X also loss quarter which by or We increased of shift speed Southwest second million given fiscal residual $X.X million able other or business. X% of to of in allocation fiscal quarter to for $XX.X loss of for corporate with fiscal the corporate with QES fiscal the to in as increase EBITDA EBITDA loss second fiscal million, second experienced costs was I the Adjusted compared $XXX,XXX of to fiscal million, second corporate compared quarter. the synergies. implement sequential adjusted which on EBITDA of with would

liquidity position. strongest KLX from positions gears the results afforded and shift moment small review take of midcap financial and our in one to a segment to the consolidated space. is like would I Now,

XX, liquidity as was current the one and priority are possible. and $XX.X million. cash to and business market cash cash the our QES merger, of uncertainties integrating as returning liquidity October flow was hand total Preserving focused realizing is As free associated million soon on positive the synergies given on cost we $XXX.X and XXXX, approximately number the laser

Our or debt QES under increased outstanding base, we levels. into wrap $X.X XXst which of base million a QX availability, asset $XXX.X XX% from levels, of AR from long-term facility, borrowing as resulting collateral Company's expanded net borrowing the by credit less XX% million million July the $XXX cash million were and there the current approximately million, $XXX.X debt in $XX.X with no of

with $X.X Additionally, by November we've that in ABL maturing in by November, borrowings maturities million reduced until our continue our availability amount. There fall letters of which be to credit our near-term not XXXX, maturing improves the and same XXXX. no of our debt

including was free October flow and $XX driven loss from XX, was negative months operations, cash was flow spending. $X investment cash For a which million cash was $X.X million. approximately decline cash with costs the to merger, associated were largely using primarily most for the ended and in The million by expenditures quarter, flow integration tied and sequential the $XX.X $XX.X operations three of XXXX, cash, Capital and merger maintenance QES the million working in capital. $X.X of million million

With $XX over to expect continue for total to turn $XX to that, call We to I'll about CapEx million this the year fiscal back million. Chris? be Chris.

Chris Baker

clear There Commodity gradual are the macroeconomic it's in still the us fighting a wild improve particularly will market. Well, but market vaccine the recovery some a on the COVID-XX prospect and that viable in Keefer. that will in a of tough point begin the we Thanks, have through all are signs environment. completion in service is in still been hope that give prices at energy a supportive remains although tenuous of situation the and demand. market, space activity gains And earnest demand improvement XXXX. card,

the concentrating but we efforts differentiated greater gives gives us So, our can position this we surrounds to are remain which the our that peers. control, near-term those said, optimism, recovery. cautious that we factors believe a That picture us we truly certainly uncertainty relative overall on due to

this been positive flow completing more to to the our providing have peers. proactive few relative We return one OFS pull consolidating very cash to us through downturn to with of free transactions, levers

cut can't way our acknowledge we that with said, we However, that to prosperity.

shown But deliver customer expanded a an benefits the that would service in our has us drive improved and an efficient our enhanced it added synergies importantly, and value transaction the to Wealth as alike. consolidation serve Back more efficiencies, in result and space better and enabled operation meaningful acquired that yielded Archer offering we sheet. to KLX/QES of the experience both cost solid Our as and shareholders perhaps merger for XXXX, like to the customers at that and us more them scale, base balance well lower operation. Services under

of financials synergies now our are efforts the in, as seeing through advance. our Just felt as we benefits integration we flowing

occurred and July through late and we in until vast the our first QX begin adjusted as profitability meaningfully were August of implemented impact October. and September our month, think to synergies As in EBITDA our majority not results, did the loss

additional across pressure the This been continue and upside selling completion organization, to are pumping to achieved, coiled the of more house in business, there items tubing Although, cross that sizable already includes sources the will the the operations. our reallocation such repurposing as legacy, have pursue. wireline synergies to of we equipment of opportunities from the continued manufacturing, expertise and

have whole and items excited our shop further costs, our have light our We of the major returns time real and implementing solutions from and production a to financially with our U.S. development across strategies customer reduce well, monitoring will down better relatively become broad standing premier customers groups help completion, customer base upside and bases, already a cross drilling the chip products on sound many significant built of span and and begun and In base. advanced to serve machine line short strong, with of all further suite period provider asset is bottom relationships full engineering U.S. and and these that much of broad very these the blue are best-in-class of pollinating lifecycle tool a Optimizing across time, us intervention tools, and services of stronger a automation. enable our benefit about long we

the to we've lows experienced the mentioned utilization in As bounce side I the but pricing seen year, from equation yet of respond. activity earlier earlier, the back has

to market, unsustainable in needs as to industry equipment raise such warrant see coil long-term. of additional our into support of service and below service pricing current believe deployment the the regime many lines is at Ultimately, to levels. service the our some lines, order prices in pricing breakeven continue tubing industry We wireline to the as we in

strategic industry health consolidating the we the as market past, the the believe we service is continue bring the long-term front, consolidation many and necessary size in the equilibrium. to On did into to times of for needs sector the

and cash We enhance explore opportunities flow long-term continue platform, reserves to free strategic accelerate to drive strategy. further will our and our growth

and businesses technology, synergies. be of record fit, track strong will on differentiated well focus cost strong returns strategic Our a capitalized with achievable

And such acquisitions, seeking will benefit market, Given major be that our while to to record integrating in prepared challenges is arise. be commodity believe realize supply macroeconomic successfully concerns deal track issues certainly to continue future will able demand in better great a and out we transactions. well drivers team's of we as KLX handle any COVID-XX from may the

are business We the our our continuing basis. will to which to rationalize on maximize forward merger, operations from a go benefit certainly synergies

our Although, economy pullback express ultimately bottom we seasonal challenges to rationalization that, equal, thanks premier questions. current like prosper closing, is our and leading outstanding with have ever our truly in in changes both may see we as now in provider an improvement market quarter, as members to momentous revenue most a and shareholders market of market North companies being industry bringing Operator? landscape. in your through and field integration steadfast execution cultures, gratitude our of vital have who to recovers. such the as performance service safety both who The dedicated team oil let our have line navigate upheaval In history. thank equipped blending well us else remained that fourth and With profitability some the efforts. will global of gas take also fulfilled a and positioned the see the a the American all role has in of in history the about will shifting me KLXs played all the to we an in and navigated we our I'd

Operator

you. Thank

now [Operator Alright, Please proceed question-and-answer from first your Ian will question. be session We conducting with Instructions]. question comes Macpherson a Energy. with Simmons

Ian Macpherson

Good Keefer, morning, Chris. how you? are

Chris Baker

Hey, good morning, Ian.

Keefer Lehner

Ian. Morning,

Ian Macpherson

very activity activity. really had but run I completions pullback. quarter for greater in your fourth obviously from have is than in rather revenue rate, third a total your quarter bit nuanced, it you would still and more, was spring strong on world holiday might market you would And the simply current ops say the was we to wise, in quarter-on-quarter see in and drilling still probably we quarter, that went this But, percentage it our drilling more your reserve Chris, completions outlook risk fourth everything of -- very recovery pullback to complex commentary fourth acknowledging of the if some you quarter. world,

bounce what You in drag Thanks. flush product an considerations any share of for quarter? So, the talked the more, maybe you market out sequential price if on issue little about the lines, are in a a average vigorous revenue can? fourth that is a still just less bit

Chris Baker

Look, is quarter would Yes, quarter. to not well services, know, going balance well-controlled the appreciate we as right, some fishing it revenue the but fourth Ian. I question, see a and somewhat our did pertains problem. et episodic, expect that that third the of in as you're you into see cetera, to

the business holiday of production side that sensitive. the think and I is episodic revenue of some more

the structure and in synergies. cost and so integration we as coming preservation on the We've focusing and strong combined cycle. looks be reduce we target we about market been that quick as in the much that we're calendar at can, of identified basically in we the end as this is on that's capturing January. current pricing. efforts To day, well you when beginning that talked month alluded the now to so our to point the all really, working as incremental ends Since is the at New focused operations have exit initial achieved we've as Year synergies we're as in of But the quarter fourth cash one environment look, will as quarter, as the January, key Christmas. fourth We really know should see off near Our helpful and we to EBITDA. into to side production the some about breakeven on a is With market, that pushing pricing, said, are the in question, of seeing expect us think tremendously, pick do January, deployed the up drive but the and improvement base pricing February, now, the exited then cetera, unsustainable on And your same your Thanksgiving and that's backside, on it our But drilling we pretty going slowdown did we're we drill thing going and frack we spreads on your are out think that there, the QX to further the point, profitability point, price right both business, completion in et the et impact side. business. in and completion, to being we've January talked the cetera. all through will is flow we in

So, there is a bit of a lag.

what with some positive into expect And said, the all hesitations. that et prices, then good like we XX%, still exit along the flowing think of do play. cetera come lastly, Clearly EBITDA. you're year. would but adjusted will some to holiday the revenue expect to we're of a us through get somewhat, the slowdown, we the at revenue with lockdowns increased despite slightly. enter I hearing how feel We potential we see really into QX do P&L. synergies X% But like going behind and position I the come But to tailwind point I play mean, commodity we about COVID-XX our to feel increase this mix

Ian Macpherson

in some don't coiled, also your of details. lines, us if and perfectly a summarize directional the intensity. your that's capital maybe maybe keep just with headroom large your Thanks. levels utilization redeploy But I utilization other you across diameter words, taking give with to the you activity a without and a wireline next away you and ramp helpful. big CapEx having In activity? for capital more all wanted the of then and speak those core to lot general state the service up Right, to that for of lot And without to to market could level of current want can of ask, year

Chris Baker

sure. Yes,

for disclose first tracking the mean, all, also And here. utilization don't driven and you utilization the We're stats over an of those. think basically I for but we I meager. unfortunately, very we're product day KPI employees. month the tracking we're across transaction industry well KPIs tubing, has lines, utilization know, as three is utilization of rebound from the a all month. We have in month perspective asset over almost base closed since But seen their we coil improved, So, pretty

the from And utilization say coiled one than area of and motors two type so, kind especially the of that's has full where greater would one plus I generated group legacy phases. one is, of tools KLX with cetera in along is the opportunities, et side, certain

So, been that. we've proud very very, of

claw back, On rig down, count some timeframe side, tight We've rig year. just pace right. May and candidly, share, the we drilling this did falls is like the of seen felt market down, everybody lose as gets June in crashed that ourselves that when count just at shut

that providers get And or preferred sometimes that. there's up contracts caught to in

of And so, acceleration last we've seen our pace continued market share call back in the few see months. We there.

is, to assets across opportunity. We look, round sufficient out. that about excited what But product line. single say it every would just clearly I we're have incremental So,

on de year's been a keep But work kind kind CapEx a shift. starting our You guy substantial our We're level it's amount next plenty the base it don't of a et I those those, this drive do cetera capital. control fishing without as to budgets, tools, deploy they're of VOPs, mentioned whether we assets are want towards obviously, a to CapEx to two minimis fiscal to just incremental address where fractals, we've year. revenue incremental but consistent to rental of given specifically there can year. equipment, everything wireline, yes, with incremental going to we're and

Operator

Jaime proceed Our next comes Perez Please from Lafferty instructions] with question with & RF [Operator Co. your question.

Jaime Perez

time of the coming merger. Good I and in this morning off It's question. everyone. especially have quarter challenging great a

any like fourth some quarter? -- Thanks. related, what it to have seems environment. is, Also COVID-related slowdown? Maybe impact our right? more there, the COVID did right and the you have you in on question And color -- see of current you size could believe it you have impact provide the second you third my assets do manage As any COVID on this far what as quarter? You you have staffing have do seen

Chris Baker

Yes. Good morning.

Jamie, the First question. appreciate of all, I

COVID done board. our operating crews So, HSC in I'd a I pandemic our a staff, the I address Look, across guess, company, our phenomenal have continue to job think first. global

continue and have had share families, have than events every guys very there fair at putting more out had their ended our risk themselves clearly But, of are of that. workers, the quarantine support to events, of do as our support jobs, drive the other like and the day quarantine Company we appreciate many essential number companies, revenue local as their We have week to services, companies much a many and majority and we have which those states, third-party And with Because down up this clients. been a structure XX that up been we and the of associated are which for to non-work-related we our right? utilization and have incidents. of cost crews you're have cost, all drive that to your of and the vast to couple quarantines continue related, days pandemic quarantining whole wearing you drive somewhat, candidly, service road have

X.X I how which time, this wave that point or slice the depending and we so, And we're state in, you're you at guess, in COVID on know X in data.

it's premature. So, I think

At about appropriately, political to don't the safety like bright have think our the of guess. of is the site. deploy I products want doctor business with and of sort of I and spots lot we then there our to timing. question risk manage broad a think services day, personnel or I to Ian. on to regards the into that and very statements talk to your vaccines. around I'm plenty going end can market. of But the entire of as assets, opportunity throughout have manage ensure to get not the it's to we a Look, a And this we I to other pandemic suite set, a I we're told continue the

some have that for clearly We but have very pro QES transaction. asset-based are a forma the assets large specialized specific, we jobs

absolutely without consolidating a at consolidation. in I adding would to going so, I we to incremental significant necessarily believe amount base. say think, And continue can of we What experience opportunities. look to the We're asset growth is,

space tip the really specifically services our closed It's believe about of transactions see we're think industry in one than The in customers. after greater space. at the has consolidating we consolidating the becomes starting been I spaces we've different a issue office mentioned our what right services now I oilfield just We prior in consolidating that iceberg. there. seen call pace four E&C since closed to occurs those our consolidate of the The transaction. is much we've just closed.

fit so, operators with whether for regions, going certain a be Company. synergistic, in or cost have strategic and are the share certain it'd outside to And opportunities synergies continue look we saving operational things we're where with to well synergies that market are and

and think a track to of that. we're got do for integrating to look I record we've going and managing to transactions, great continue opportunities

Operator

like management of it to call. concludes This question-and-answer comments. turn I'd the any to now back portion the for final

Chris Baker

in call on quarter. for We again for Thank again next and forward look to us joining Thank to once KLX this your you Services. you. interest Energy you talking

Operator

thank Ladies and you conclude today's This teleconference. gentlemen, participation. for your does

wonderful a may day. your and lines You disconnect have

KLX Energy Services (KLXE) 8 Dec 202020 Q3 Earnings call transcript