KLX Energy Services Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended January 31, 2021, compared with fiscal year ended January 31, 2020. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not provided in the filing text summarized here. Unless noted, figures are in millions of U.S. dollars.
Business context
KLX provides oilfield services and equipment to onshore oil and gas producers across U.S. basins, including drilling, completion, production and intervention services. The July 28, 2020 all-stock merger with Quintana Energy Services (QES) expanded its service offerings and fleet. FY2021 results include QES only from July 29, 2020, so year-over-year comparisons are not on a full-year combined-company basis.
Key financial metrics
| Metric | FY ended Jan. 31, 2021 | FY ended Jan. 31, 2020 |
|---|---|---|
| Revenue | $276.8 | $544.0 |
| Operating loss | $301.1 | $75.7 |
| Net loss | $332.2 | $96.4 |
| Net loss per diluted share | $50.86 | $21.61 |
| Cash flow from operations | $(64.9) | $58.1 |
| Capital expenditures | $12.2 | $70.8 |
| Cash and cash equivalents at year-end | $47.1 | $123.5 |
Cost of sales was $314.8, or 113.7% of revenue, versus $470.0, or 86.4%, reflecting negative operating leverage as revenue contracted. The resulting gross loss was $38.0, approximately a 13.7% gross margin. Operating loss was approximately 108.8% of revenue and net loss approximately 120.0%; both include substantial impairment and merger-related items. The supplied filing text does not provide a clear actual Adjusted EBITDA figure.
Revenue fell 49.1%. By segment, Southwest revenue declined 53.0% to $83.6; Rocky Mountains fell 54.1% to $99.3; and Northeast/Mid-Con fell 37.3% to $93.9. Completion, production and intervention revenue declined; drilling revenue increased to $46.7 from $44.4, partly reflecting QES and late-year activity.
Year-end current assets were $150.7, including cash of $47.1; current liabilities were $77.7. Reported net working capital, excluding cash and specified current liabilities, was $35.0. Total liquidity was $82.0: cash plus $34.9 of ABL availability after a $10.0 fixed-charge coverage holdback.
Debt included $250.0 principal of 11.5% senior secured notes due 2025, carried net of issuance costs at $243.9, plus $6.3 of capital lease obligations. No ABL borrowings were outstanding; the $100.0 facility matures in September 2023. Notes interest expense was $30.7. The notes’ reported fair value was $132.5 at year-end. ABL availability exceeded its covenant trigger, and the company reported compliance, although its fixed-charge coverage ratio was below 1.0:1.0.
Material changes and unusual items
- Revenue dropped amid COVID-19, lower oil demand and prices, reduced customer spending and industry activity. WTI averaged $38.59 per barrel in FY2021 versus $57.50 in FY2020.
- The company recorded $180.4 of long-lived asset impairments and $28.3 of goodwill impairment; goodwill was zero at year-end. Impairments arose from deteriorating market conditions and lower expected activity.
- Merger and integration costs totaled $39.7. The QES acquisition produced a $40.3 bargain purchase gain; the transaction’s preliminary purchase-price allocation remained subject to finalization.
- Merger-related annualized cost savings of approximately $46.0 had been implemented by January 31, 2021. Management said integration was substantially complete and further savings may be possible.
- A material weakness concerning review of depreciation on impaired equipment was identified and management considered it remediated by year-end. Management’s control assessment excluded QES, representing approximately $108.9 of assets and $56.3 of revenue included in the consolidated statements.
- A $4.6 receivable for blowout-response services was fully reserved after customer Magellan filed for Chapter 7 bankruptcy; insurance coverage is disputed and recovery is uncertain. Separately, a $2.5 insurance reimbursement related to a prior-year credit-card theft was recorded in FY2021.
Outlook, risks and contingencies
Management expected FY2022 capital expenditures of $15–$20, subject to activity and business needs, and said it believed cash, ABL availability and expected cash flows would fund operations and planned spending for at least 12 months based on current forecasts. The outlook was conditional on easing pandemic effects, continued economic recovery and sustained commodity prices. Management expected completions spending to outpace drilling, while noting customer discipline around free cash flow. February 2021 Winter Storm Uri caused at least seven days of lost revenue, primarily in the Permian and Mid-Continent.
Key risks include volatile commodity prices and customer capital spending, prolonged pandemic effects, pricing and utilization pressure, customer credit losses, high-cost debt service, dependence on borrowing-base liquidity, merger integration, future impairments, operational and safety hazards, and evolving environmental, hydraulic-fracturing, climate and permitting requirements. The company also disclosed $72.1 of future minimum operating-lease payments and a $4.6 fully reserved disputed receivable. No dividend was planned.
Important facts for investors to verify
- Review subsequent operating results and cash flows to assess whether the severe FY2021 revenue decline and operating cash burn continued or improved.
- Confirm current ABL borrowing-base availability, covenant headroom, cash needs and ability to service the 11.5% notes.
- Track QES integration, realized savings, remaining integration costs and the final purchase-price allocation.
- Assess the assumptions behind asset valuations and whether further impairment charges or reduced equipment utilization may arise.
- Follow the Magellan bankruptcy and insurance dispute for potential recovery of the reserved $4.6 receivable.
- Check the latest filing for standalone quarterly performance and actual Adjusted EBITDA, neither of which is clearly provided in the supplied text.