KLX Energy Services Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. KLX provides oilfield services, equipment rentals, and products to U.S. onshore oil and gas operators across the Rocky Mountains, Southwest, and Northeast/Mid-Con regions.
Financial performance and liquidity
- Revenue: $174.7 million, down $64.9 million (27.1%). Management attributed the decline to lower activity and demand; approximately 37% of the decrease reflected lower weighted-average pricing and 63% lower volume.
- Profitability: Cost of sales was $144.0 million, or 82.4% of revenue, versus $180.9 million, or 75.5%, a year earlier. Operating results shifted to a $13.1 million loss from $18.9 million income; net results shifted to a $22.2 million loss from $9.4 million income. Diluted loss per share was $1.38, versus diluted earnings per share of $0.65.
- Expenses: SG&A declined to $21.6 million from $26.2 million, but increased as a share of revenue to 12.4% from 10.9%. Interest expense was $9.6 million versus $9.3 million. Income tax expense was $0.2 million; a valuation allowance prevented recognition of a federal tax benefit on losses.
- Cash flow: Operating cash use was $10.8 million versus $8.6 million; investing cash use was $10.2 million versus $3.6 million; financing cash use was $6.6 million versus $5.6 million. Cash declined $27.6 million during the quarter to $84.9 million.
- Debt and liquidity: Debt carrying value was $284.6 million, comprising $237.3 million principal of 11.5% senior secured notes and $50.0 million drawn on the ABL facility. Cash plus reported ABL availability of $42.7 million totaled $127.6 million of available liquidity. The company reported ABL compliance; availability remained above the threshold that triggers its springing fixed-charge coverage covenant.
- Balance sheet: Total assets were $497.5 million and stockholders’ equity was $16.9 million at March 31, compared with $539.8 million and $38.8 million, respectively, at year-end 2023. Finance lease obligations totaled $53.5 million, in addition to debt.
Changes by business line and region
- Revenue declined across all regions: Rocky Mountains $45.6 million (down 32.8%), Southwest $69.4 million (down 5.4%), and Northeast/Mid-Con $59.7 million (down 39.3%). Operating results were losses of $1.2 million and $0.7 million in Rocky Mountains and Southwest, respectively; Northeast/Mid-Con earned $2.4 million.
- Revenue by service line fell in drilling to $42.0 million (down 31.0%), completion to $93.4 million (down 28.2%), production to $23.2 million (down 16.5%), and intervention to $16.1 million (down 23.0%).
- The reported comparison is affected by Greene’s, acquired March 8, 2023, so Q1 2023 includes Greene’s only from its acquisition date. Pro forma Q1 2023 revenue, assuming acquisition on January 1, was $251.9 million; Q1 2024 revenue was $174.7 million. The prior-year quarter also included a $3.2 million bargain purchase gain; there was no such gain in Q1 2024.
Outlook, risks, and other notable items
- Management expects customers to remain cautious with capital and operating spending in 2024, citing volatile commodity prices, weather challenges, and limited rig-count growth. It is selectively hiring and increasing investment while emphasizing returns and liquidity. The filing provides no numerical revenue or earnings guidance.
- Management expects 2024 capital expenditures of $50 million to $55 million, approximately 75% for maintenance. Q1 capital expenditures were $13.5 million.
- Both the senior secured notes and ABL facility mature in 2025. The ABL maturity is September 15, 2025, or August 1, 2025 if the notes remain outstanding on that date. Management says current forecasts support funding operations and planned capital expenditures for at least 12 months, while warning that improved liquidity beyond that period is uncertain. Refinancing or restructuring may be needed and is not assured on acceptable terms.
- Key exposures include oilfield activity and pricing cycles, inflation, customer spending and collections, interest rates and access to financing, competition, weather, labor, regulation, operational hazards, and geopolitical events. Environmental matters and ordinary-course litigation were not expected by management to have a material adverse effect; future environmental compliance costs are uncertain.
- A $2.3 million facility and equipment balance was classified as held for sale. Disclosure controls were reported effective as of March 31, 2024, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Refinancing, repayment, or other resolution of the 2025 notes and ABL maturities, including costs, covenants, and potential dilution.
- Whether operating performance and cash generation improve enough to support debt service, liquidity, and the planned $50–$55 million capital program.
- Subsequent trends in service activity, pricing, utilization, and customer collections, particularly in the Rocky Mountains and Northeast/Mid-Con regions.
- ABL borrowing-base availability and compliance as liquidity changes, including the springing covenant threshold.
- Progress and proceeds from the assets held for sale, and any material developments in contingencies or environmental obligations.