KLX Energy Services Holdings, Inc. — Q1 2022 Form 10-Q
Business and reporting period: KLX provides oilfield services and products to onshore oil and gas producers across U.S. basins. The unaudited quarter ended March 31, 2022 is compared with the three months ended April 30, 2021, reflecting different period-end dates.
Financial performance and position
- Revenue: $152.3 million, up 67.7% from $90.8 million. Revenue rose across all regions; Northeast/Mid-Con more than doubled to $57.1 million. Completion services contributed $76.9 million, drilling $42.9 million, production $17.9 million and intervention $14.6 million.
- Profitability: Operating loss narrowed to $11.5 million from $28.9 million; net loss narrowed to $19.9 million from $36.8 million. Basic and diluted loss per share was $1.98 versus $4.41. Cost of sales was 88.6% of revenue versus 97.7%; calculated gross margin improved to 11.4% from 2.3%. SG&A was $15.0 million, or 9.8% of revenue, versus $14.9 million, or 16.4%.
- Cash flow: Operating cash outflow was $6.2 million, improved from $11.3 million. Investing cash outflow was $3.2 million, compared with $3.9 million provided in the prior period; capital expenditures were $5.8 million versus $2.2 million. Financing provided $0.8 million. Cash declined $8.6 million to $19.4 million.
- Debt and liquidity: Debt principal was $280.0 million ($275.1 million net of issuance costs), including $250.0 million of 11.5% senior secured notes due 2025 and $30.0 million outstanding on the ABL facility, which matures September 2023. The company reported $35.2 million of net ABL availability after a $12.4 million FCCR holdback, and total available liquidity of $54.6 million including cash. Working capital was $31.0 million, versus $42.0 million at December 31, 2021. Stockholders’ deficit widened to $67.2 million from $51.4 million.
Changes, outlook and risks
- Management attributed the revenue and operating-loss improvement to higher activity and pricing. It reported that pricing increases offset inflation in materials and labor, while noting increased competition for field employees and rising costs.
- Management expects 2022 capital expenditures of $25 million to $30 million, subject to industry conditions. It believes cash, ABL borrowing capacity and operating cash flows can fund operations and planned capital spending for at least the next 12 months, but cautioned that this is not assured. No formal revenue or earnings guidance is provided in the filing text.
- Refinancing the ABL facility is a significant risk: the company was in discussions with lenders and other capital sources. Management warned that inability to refinance and continuing uncertainty could lead to a going-concern qualification in the 2022 audit, which could trigger defaults and acceleration of debt. The company is also exploring recapitalization, refinancing or restructuring options, with no assurance of success; equity financing could dilute shareholders.
- The ABL springing fixed-charge coverage covenant was not triggered because availability remained above its threshold. Although the reported FCCR was below 1.0 to 1.0, the company stated it was in compliance with the facility.
- During the quarter, the company sold 695,377 shares through its ATM program for approximately $3.7 million gross proceeds. It also classified $1.9 million of facilities and equipment as held for sale.
- The company has $5.0 million of trade receivables reserved for customers in bankruptcy, including $4.6 million owed by Magellan. Recovery depends on ongoing bankruptcy and insurance litigation; the full $4.6 million invoice amount had previously been reserved. The company also deferred $2.0 million of employer FICA taxes, due by December 31, 2022.
- Other cited risks include oil-price and activity volatility, COVID-19 effects, customer payment and collection risks, labor and input-cost inflation, access to capital, and operational, regulatory and environmental exposures. Management reported disclosure controls were effective at March 31, 2022.
Most important facts for investors to verify
- Progress and terms of ABL refinancing before its September 2023 maturity, and any implications for going-concern or default risk.
- Whether rising activity and pricing translate into sustained operating profits and positive operating cash flow.
- Actual liquidity available under the borrowing base, including the FCCR holdback, and the company’s ability to meet debt service and the deferred FICA payment.
- 2022 capital spending relative to the $25–$30 million estimate and the resulting effect on cash.
- Potential recovery of the reserved Magellan receivable and any further ATM share issuance or other recapitalization-related dilution.