KLX Energy Services Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 30, 2021. KLX provides oilfield services to U.S. onshore oil and gas operators. The quarter includes a full quarter of acquired QES operations; the comparable 2020 quarter does not, so year-over-year comparisons are not fully like-for-like.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $90.8 million | $83.0 million |
| Operating loss | $28.9 million | $235.6 million |
| Net loss | $36.8 million | $243.1 million |
| Net loss per share | $4.41 | $52.60 |
| Cash flow from operations | $(11.3) million | $7.0 million |
| Capital expenditures | $2.2 million | $4.8 million |
Revenue increased 9.4%, but the prior-year comparison excludes QES. The much smaller operating and net losses mainly reflect the $208.1 million reduction in impairment and other charges; Q1 2020 included $180.4 million of long-lived asset impairment and $28.3 million of goodwill impairment. Q1 2021 included $0.6 million of impairment and other charges.
Cost of sales was $88.7 million, or 97.7% of revenue, versus 92.9% in the prior-year quarter; management attributed the increase in the ratio primarily to facility-consolidation integration costs. SG&A was $14.9 million, or 16.4% of revenue, down from $16.3 million and 19.6%. Calculated operating margin was approximately negative 31.8%; net margin was approximately negative 40.5%.
Revenue mix and changes
- By region: Southwest revenue rose 55.7% to $38.0 million; Northeast/Mid-Con rose 14.9% to $28.5 million; Rocky Mountains fell 28.1% to $24.3 million, largely due to customer schedule and well issues.
- By service line, drilling revenue increased to $24.8 million from $6.8 million, largely reflecting QES. Completion revenue was $44.7 million, production $12.0 million and intervention $9.3 million.
- Management reported approximately $46.0 million of annualized merger cost savings implemented by quarter-end and identified a further $4.4 million of annualized fixed-cost savings, expected to be fully implemented by the end of Q2 and to provide a full benefit beginning in Q3.
Cash, debt and liquidity
- Cash was $37.9 million at April 30, down from $47.1 million at January 31. Operating cash use of $11.3 million was partly offset by $3.9 million of investing cash inflow, mainly proceeds from asset sales.
- Long-term debt, net of issuance costs, was $244.1 million, representing $250 million principal of 11.5% senior secured notes due 2025. Accrued interest was $14.4 million. The notes’ disclosed fair value was $155.0 million.
- No borrowings were outstanding under the $100 million ABL facility. Availability, net of the $10 million fixed-charge-coverage holdback, was $41.4 million; reported total liquidity was $79.3 million. The company said it was in compliance with the facility, although its fixed charge coverage ratio was below 1.0; the springing covenant was not triggered because availability remained above the threshold.
- Total assets were $337.0 million and stockholders’ deficit was $4.2 million, compared with equity of $32.1 million at January 31. Current liabilities of $88.9 million exceeded current assets of $140.7 million only in the sense that current assets were higher; reported working capital was $51.8 million.
- Management expected capital expenditures of $14–$16 million for the fiscal year ending January 31, 2022, and said current cash, ABL availability and forecast cash flows were expected to fund operations and planned capital spending for at least 12 months. It also noted ongoing evaluation of public and private financing options.
Outlook, risks and unusual items
- Management reported moderate activity improvement in Q1 excluding Winter Storm Uri, which caused at least seven days of lost revenue and customer delays, especially in the Permian and Mid-Continent. It expected activity to increase through the remainder of fiscal 2021 if pandemic effects lessen, economic activity improves and commodity prices remain strong; this is conditional, not firm guidance.
- Demand remains exposed to oilfield cyclicality, crude prices, customer activity and financial health, COVID-19 effects, competition, labor and equipment costs, weather, operational hazards, and access to capital. Management cautioned that sustained positive operating cash flow is not assured.
- The company fully reserved $4.6 million of invoices due from Magellan after its Chapter 7 filing. Recovery depends on disputed insurance coverage and bankruptcy proceedings; the timing and amount of any recovery are uncertain.
- Q1 merger and integration costs were $1.8 million. Management anticipated further integration charges related to facilities, workforce reductions, fixed assets and other assets. Three facilities and select equipment, valued at $2.7 million, were classified as held for sale.
- On May 14, 2021, the company filed a shelf registration statement that, if declared effective, would permit up to $75 million of common-stock offerings and register certain stockholder resales, creating potential dilution and selling pressure.
Important facts for investors to verify
- How much of reported revenue growth and future activity improvement reflects acquired QES operations versus organic demand, and whether the Rocky Mountains decline persists.
- Whether cost savings are fully realized on the stated schedule and translate into improved margins and operating cash flow.
- Cash burn, borrowing-base availability and covenant headroom, particularly given the below-1.0 fixed charge coverage ratio and high-coupon notes.
- Progress and recoverability of the fully reserved Magellan receivable, as well as remaining integration and facility-sale costs.
- Whether the $14–$16 million capital-spending outlook and stated 12-month liquidity expectation remain achievable under changing oilfield conditions; also monitor the effectiveness and use of the proposed equity shelf.