KLX Energy Services: Strong Q3 Performance Amid Challenges

Klx Energy Services Holdings ((KLXE)) has held its Q3 earnings call. Read on for the main highlights of the call.

The latest earnings call from KLX Energy Services Holdings paints a picture of cautious optimism. The company reported strong revenue and EBITDA growth, particularly in the Northeast Mid-Con segment, which helped offset challenges in other areas. Despite facing market headwinds and segment-specific hurdles, KLX Energy remains focused on operational efficiency and cost management, which have contributed to its positive outlook.

Strong Revenue and EBITDA Growth

KLX Energy Services reported a 5% increase in revenue, reaching $167 million, and a 14% rise in adjusted EBITDA to $21 million from the previous quarter. These figures surpassed prior guidance, showcasing the company’s ability to navigate a challenging market environment effectively.

Northeast Mid-Con Segment Success

The Northeast Mid-Con segment emerged as a standout performer, with a remarkable 29% increase in revenue quarter-over-quarter. This segment’s adjusted EBITDA surged by 101%, significantly contributing to the company’s overall performance and highlighting its strategic importance.

Operational Efficiency

KLX Energy’s focus on operational efficiency was evident as the adjusted EBITDA margin improved by 100 basis points sequentially to 13%. This improvement underscores the company’s commitment to field execution, efficiency, and cost control.

Improved Cost Structure

The company successfully reduced SG&A expenses by 30% from the same period last year and improved them by 18% sequentially. These reductions reflect KLX Energy’s ongoing initiatives to enhance its cost structure and drive profitability.

Positive Free Cash Flow

KLX Energy reported $11 million in unlevered free cash flow for Q3 and anticipates strong free cash flow in Q4. This positive cash flow outlook is driven by favorable working capital trends and asset sales.

Revenue Declines in Rockies and Southwest Segments

Despite overall growth, the Rockies segment experienced a 6% decline in revenue and a 22% decrease in adjusted EBITDA due to reduced completion activity. Similarly, the Southwest segment saw a 4% revenue decline and a 29% decrease in EBITDA, highlighting region-specific challenges.

Market Headwinds and Declining Rig Counts

KLX Energy faced market headwinds, including a 6% decline in the average U.S. land rig count and a 12% decrease in the frac spread count. These factors reflect the challenging operating environment the company is navigating.

Debt and Interest Payments

The company’s total debt stood at $259.2 million, with a decision to PIK $6 million of interest in Q3. This highlights ongoing leverage management challenges that KLX Energy is addressing.

Forward-Looking Guidance

Looking ahead, KLX Energy expects a mid-single-digit revenue decline in Q4 due to typical seasonality and budget exhaustion. However, the company anticipates stable EBITDA margins and plans to maintain a strong balance sheet with $65 million in liquidity. KLX Energy also forecasts a gross CapEx of $43-$48 million for the year, emphasizing disciplined capital management.

In summary, KLX Energy Services Holdings’ earnings call reflects a positive sentiment driven by strong performance in key segments and improved operational efficiency. While challenges persist in certain regions, the company’s strategic focus on cost management and operational excellence positions it well for future growth.