KLX Energy Services Holdings Inc. (KLXE) Misses Q3 EPS by 28c, Revenues Miss

KLX Energy Services Holdings Inc. (NASDAQ: KLXE) reported Q3 EPS of ($0.22), $0.28 worse than the analyst estimate of $0.06. Revenue for the quarter came in at $134.5 million versus the consensus estimate of $161.2 million.

THIRD QUARTER HIGHLIGHTS

• Revenues were $134.5 million, a decrease of 18.4 percent as compared to the second quarter of 2019
• Adjusted operating loss was $(4.0) million, as compared to second quarter Adjusted operating earnings of $11.9 million1
• Adjusted EBITDA was $17.4 million, or 12.9 percent of revenues, as compared to second quarter Adjusted EBITDA and Adjusted EBITDA margin of $33.0 million and 20.0 percent, respectively2
• Adjusted Net Loss and Adjusted Net Loss per diluted share were $(5.0) million and $(0.22) per diluted share, respectively, as compared to second quarter Adjusted Net Earnings and Adjusted Net Earnings per diluted share of $10.1 million and $0.45 per diluted share, respectively3

Amin J. Khoury, Chairman and Chief Executive Officer of KLX Energy Services commented, “The abrupt deterioration in industry conditions, which accelerated through the end of our third quarter ended October 31, 2019, reflects an intense focus on capital discipline and free cash flow generation by the Exploration and Production (“E&P”) companies, which led to a sharp sequential quarterly decline in U.S. rig count and an unprecedented decline in operating frac spreads from the second quarter to the third quarter. Specifically, the aggregate number of active frac spreads in the DJ, Niobrara and Williston basins declined approximately 20 percent, while our Rocky Mountains segment revenues declined approximately 9 percent. In the gassier basins, including the Marcellus, Utica, Woodford and Haynesville, the number of active frac spreads declined approximately 50 percent, while our Northeast/Mid-Con segment revenues declined approximately 20 percent. In the Permian and Eagle Ford shale basins, the active frac spread count declined approximately 22 percent, while our Southwest segment revenues were down approximately 28 percent as we elected to warm stack the vast majority of our wireline assets due to the weak pricing environment.

“Contemporaneously with the precipitous decline in activity, we initiated a comprehensive business review and cost rationalization program to improve profitability and to align our cost structure with current customer demand. Specifically, we implemented an approximate 17 percent reduction in force, we warm stacked our Permian based wireline assets and we aggressively cut costs in every area of our business. We will continue to carefully monitor our cost structure to ensure it is aligned with demand.

“We expect to begin to realize the benefit of our business realignment actions in the fourth quarter of this year. While we have reduced our personnel levels substantially, we are also recruiting experienced coiled tubing personnel to join the Company in the fourth quarter as we have begun to receive and deploy five new large diameter coiled tubing spreads. A continuation and expansion of the Company’s coiled tubing strategy to gain greater share of customer spend by pulling through our broad range of asset light services will be a major strategic priority in 2020, along with continued tight cost control, free cash flow generation and further strengthening of the Company’s balance sheet.”

OUTLOOK

Commenting on the Company’s outlook, Mr. Khoury stated, “We expect customer activity to decline further in the fourth quarter due to continued intense focus by our E&P customers on free cash flow, as well as budget exhaustion and seasonal issues. While we expect to begin to realize the benefit of our third quarter cost reduction actions early in the fourth quarter, we are also recruiting additional experienced coiled tubing personnel to join the Company in the fourth quarter as we have begun to receive and deploy our five new large diameter coiled tubing spreads. The coiled tubing start-up costs related to the deployment of these five new spreads are expected to be a drag on our fourth quarter earnings. We expect to have all 13 of our large diameter coiled tubing spreads in operation by the end of the first quarter of 2019.”

Mr. Khoury concluded, “We remain focused on serving the needs of our customers by providing a broad portfolio of product service lines across all major basins, while preserving a solid balance sheet, maintaining sufficient operating liquidity and prudently managing our capital expenditures. In an operating environment where our financial strength is a key differentiator, we believe that our ongoing cost reduction efforts along with the anticipated positive impact from the roll-out of five new large diameter coiled tubing units and the resulting pull through of our broad range of asset light services, will allow us to continue to generate free cash flow through 2020 despite the anemic demand levels the industry is experiencing.”

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve risks and uncertainties. The Company’s actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include those discussed in the Company’s filings with the SEC, which include its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. For more information, see the section entitled “Cautionary Statement Regarding Forward-Looking Statements” contained in the Company’s Annual Report on Form 10-K and in other filings. The forward-looking statements included in this news release are made only as of the date of this news release and, except as required by federal securities laws and rules and regulations of the SEC, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For earnings history and earnings-related data on KLX Energy Services Holdings Inc. (KLXE) click here.

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