Service & Supply | Oilfield Services

KLX Energy Services First Quarter 2019 Results

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KLX Energy Services Holdings, Inc. reported its first fiscal quarter ended April 30, 2019 financial results.

During the first quarter, KLX Energy Services completed the acquisitions of Tecton Energy Services and Red Bone Services, two acquisitions which significantly advance the Company’s strategic priority to grow its customer base and broaden out its portfolio of services. The Company has also hired and trained approximately 70 personnel in advance of specific regional launches of its coiled tubing product service line and its filtration, testing and flow back product service line. Transaction and integration related expenses associated with recent acquisitions, including the onboarding and training of approximately 70 operating personnel prior to rolling out the new services in additional geographic regions, were approximately $5.0 million. The Company will therefore report both GAAP and adjusted financial results, as compared to the fourth quarter 2018. The costs associated with the aforementioned activities are collectively defined as “Q1 2019 Activities Costs.”

Amin J. Khoury, Chairman and Chief Executive Officer of KLX Energy Services commented, “First quarter 2019 revenues were up 1.3 percent as compared to the immediately preceding quarter. Rocky Mountains and Northeast/Mid-Con segments delivered organic revenue growth of approximately 4.4 percent and 2.4 percent respectively, offset by a 14.2 percent revenue decline in the Southwest segment. Revenue growth in the Rocky Mountains and Northeast/Mid-Con segments was driven by market share gains in both of these geo segments, while the revenue decline in the Southwest geo region reflected very slow activity levels by certain of our Southwest customers, particularly during the first two months of the quarter, and lower utilization of certain assets we chose not to deploy at prices being offered in the low demand environment. Importantly, all geo segments experienced strong revenue growth in April, the third month of our first quarter ended April 30, 2019, with consolidated revenues up approximately 24 percent as compared to February, the first month of the quarter. Moreover, April Adjusted EBITDA was more than double February Adjusted EBITDA, and April Adjusted EBITDA margin was approximately 24 percent.

 “As we begin the second quarter, revenues and profitability have continued to improve during the month of May, such that the Company is expecting an approximate 25 percent increase in its second quarter 2019 revenues as compared to the first quarter, accompanied by an approximate 55 percent increase in Adjusted EBITDA to approximately $41 million in the second quarter. As we look to the second half of the year, our planned roll-out of large diameter coiled tubing spreads in the Mid-Con and Rockies, along with our planned expansion of flow back services in several of our geo markets, form the basis of our confidence in our strong full year 2019 financial guidance.”

On a GAAP basis, for the three month period ended April 30, 2019, revenues of $145.8 million increased 1.3 percent as compared with the fourth quarter 2018; operating earnings, net loss and net loss per diluted share, all of which were negatively impacted by the $5.0 million of Q1 2019 Activities Costs, were $2.4 million, $5.0 million and $0.24 per diluted share, respectively.

Q1 Highlights:

• Revenues were $145.8 million, up 1.3 percent as compared to the fourth quarter 2018
• Adjusted operating earnings, exclusive of Q1 2019 Activities Costs, were $7.4 million¹
• Adjusted EBITDA, exclusive of Q1 2019 Activities Costs and non-cash compensation expense, was $26.7 million, or 18.3 percent of revenues²  
• Adjusted Net Earnings and Adjusted Net Earnings per diluted share, exclusive of Q1 2019 Activities Costs, were $5.3 million and $0.25 per diluted share³
  

Q1 Results

For the first quarter ended April 30, 2019, revenues were $145.8 million, an increase of $1.9 million, or 1.3 percent, as compared to the fourth quarter 2018. Revenue growth reflected an increase in both the number of new customers, the breadth of services provided to existing customers and contributions from the recent acquisitions in the Northeast/Mid-Con and Rocky Mountains segments, which was mostly offset by lower revenues in the Southwest segment.  Rocky Mountains segment revenues increased by 11.5 percent, Northeast/Mid-Con segment revenues increased by 19.9 percent and Southwest segment revenues decreased by 14.2 percent. On a product line basis, completion, production and intervention services contributed approximately 59 percent, 21 percent and 20 percent, respectively, to first quarter revenues.

Adjusted operating earnings and Adjusted operating margin were $7.4 million and 5.1 percent. Adjusted EBITDA and Adjusted EBITDA margin were $26.7 million and 18.3 percent. Adjusted Net Earnings and Adjusted Net Earnings per diluted share were $5.3 million and $0.25 per diluted share.

Q1 Segment Results

On a GAAP basis, for the quarter ended April 30, 2019, including approximately $5.0 million of Q1 2019 Activities Costs, Rocky Mountains segment operating earnings were $2.9 million. Northeast/Mid-Con segment operating earnings were $3.5 million. Southwest segment operating loss was $4.0 million.

The following is a tabular summary and commentary of revenues, Adjusted operating earnings and Adjusted EBITDA for the three month periods ended April 30, 2019 and January 31, 2019  

Rocky Mountains

For the quarter ended April 30, 2019, Rocky Mountains segment revenues of $48.6 million increased by approximately 11.5 percent driven by market share gains, including increases in both the number of active customers and the breadth of services provided to existing customers and initial contributions from recent acquisitions.  Adjusted operating earnings and adjusted operating margin were approximately $4.0 million and 8.2 percent, respectively. Adjusted EBITDA and Adjusted EBITDA margin were $10.0 million and 20.6 percent, increases of 28.2 percent and 270 basis points, respectively.

NE / MidCon

First quarter ended April 30, 2019 Northeast/Mid-Con segment revenues of $39.2 million increased by approximately 19.9 percent driven by initial contributions from recent acquisitions and market share gains, including increases in both the number of active customers and the breadth of services provided to existing customers.  Adjusted operating earnings and adjusted operating margin were $5.0 million and 12.8 percent, an increase of approximately 92.3 percent and approximately 480 basis points, respectively.  Adjusted EBITDA and Adjusted EBITDA margin were $11.1 million and 28.3 percent, an increase of approximately 50.0 percent and approximately 570 basis points, respectively. 

Southwest

For the quarter ended April 30, 2019, Southwest segment revenues were $58.0 million and decreased 14.2 percent driven primarily by the slow ramp-up of completion activities in February and early March, and low utilization as a result of a weak pricing environment at the beginning of the quarter. Essentially all of the hiring and training of 70 personnel for the mobilization and start-up of new services for both the Northeast/Mid-Con and Rocky Mountains segments launches were borne by the Southwest segment. Adjusted operating loss was approximately $1.6 million and reflects the 14.2 percent decline in revenues and poor absorption of operating costs.  Adjusted EBITDA and Adjusted EBITDA margin were $5.6 million and 9.7 percent, respectively.

Liquidity

As of April 30, 2019, cash on hand was approximately $111 million reflecting the acquisitions of Tecton and Red Bone and capital expenditures to support the roll out of new product service lines. Total long-term debt of $250 million less cash resulted in net debt of approximately $139 million, and the Company’s net debt to net capital ratio was approximately 26 percent. There were no borrowings outstanding under the Company’s $100 million credit facility. For the three months ended April 30, 2019, net cash flow provided by operations was $4.2 million. Capital expenditures in the current period were approximately $30 million reflecting investments related to the Company’s strategy to expand recently acquired product service lines in additional geographic segments. The Company expects to complete the investment phase of its long-term strategy by the end of the third quarter of 2019 and expects substantially reduced capital expenditures and strong free cash flow beginning in the fourth quarter of 2019 and throughout fiscal year 2020.

Guidance

The Company’s guidance assumes an average WTI oil price of $55 per barrel, and a range of $50 per barrel to $60 per barrel for the full year 2019.

The Company’s Second Quarter 2019 outlook, as compared to the immediately preceding quarter, is as follows:

• Revenues are expected to be approximately $180 million, an increase of approximately 25 percent as compared to the first quarter of 2019
• EBITDA, adjusted to exclude non-cash compensation expense, is expected to be approximately $41 million, or approximately 23 percent, an increase of approximately 55 percent and 500 basis points as compared to the first quarter of 2019
• Net Earnings and Net Earnings per diluted share, adjusted to exclude non-cash compensation and amortization expense, are expected to be approximately $18 million and approximately $0.80 per diluted share
• Return on invested capital is expected to be approximately 19 percent

The Company’s Fiscal Year 2019 outlook, as compared to the same period of the prior year, is as follows:

• Revenues are expected to increase by approximately 60 percent to approximately $800 million
• EBITDA, adjusted to exclude non-cash compensation expense, is expected to increase approximately 85 percent to approximately $200 million, representing an approximate 25 percent EBITDA margin
• Net Earnings and Net Earnings per diluted share, adjusted to exclude non-cash compensation and amortization expense, are expected to increase approximately 75 percent and approximately 60 percent to approximately $101 million and approximately $4.50 per diluted share, respectively
• Capital expenditures are expected to be approximately $100 million, reflecting investments to broaden the Company’s footprint in each geographic region, including the roll out of its large diameter coiled tubing and related services to the Mid-Con and Rockies geographic regions, thereby enabling each geographic segment to offer the broader range of services required by our customers. The Company expects to complete the investment phase of its long-term strategy by end of the third quarter and expects substantially reduced capital expenditures accompanied by strong free cash flow beginning in the fourth quarter and for all of fiscal year 2020
• Return on Invested Capital is expected to be approximately 20 percent