Greetings and welcome to the KLX Energy Services 2024 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, Investor Relations. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review fourth quarter and full year 2024 results. With me today are Chris Baker, KLX Energy's President and Chief Executive Officer; and Keefer Lehner, Executive Vice President and Chief Financial Officer. Following my remarks, management will provide a high-level commentary on 2024 results and its 2025 outlook before opening the call for your questions. There will be a replay of today's call. It will be available by webcast on the company's website at klx.com and there will also be a telephonic recorded replay available until March 27th, 2025. More information on how to access these replay features was included in yesterday's earnings release. Please note that information reported on this call speaks only as of today, March 13th, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX management. However, various risks and uncertainties and contingencies could cause actual performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies. Comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX Energy website. And with that behind me now, I'll turn the call over to Chris Baker. Chris?

Thank you, Ken, and good morning, everyone. Thanks for joining our fourth quarter and full year 2024 conference call. I will start with commentary on the successful refinancing of our 2025 notes and ABL, our Q4 results and then touch on our full year 2024 achievements and finally provide color on market trends and our outlook for 2025. First, I'm very pleased to announce that we have finalized our refinancing efforts. This was a significant undertaking and I want to thank our finance team for their dedication in bringing this to a successful close in a difficult market following persistent rig count declines, a great team effort that positions us to continue to execute on our strategy going forward. We finished the year strong despite typical seasonal headwinds and fourth quarter budget exhaustion. We reported Q4 revenue of $166 million, the midpoint of our guidance, and margins that were above our prior guidance. Our continued focus on cost controls, combined with mix shift in PSL contributions and our weighting to completion, production and intervention business lines, enabled us to significantly increase our 2024 fourth quarter adjusted EBITDA margin compared to last year's fourth quarter. Despite revenue and rig count being down 15% and 5%, respectively, over the same period. These results highlight the strength of our franchise and the fact that 50% of our revenue occurs post the frac job, thereby sustaining activity later into the fourth quarter. We achieved this significant margin improvement due to the cost-cutting efforts in early 2024 to further streamline our overhead cost structure. Our Q4 results underscore the strategic advantage of our diversified model in a volatile industry landscape. Unlike less diversified peers, we have demonstrated resilience and consistent outperformance, validating the effectiveness of our strategic choices and operational execution across varied market conditions.…

Thanks, Chris. Good morning, everyone. As Chris mentioned, we reported Q4 revenue of $166 million, representing a 12% sequential decrease and a 15% decrease over the prior year fourth quarter. Our consolidated Q4 adjusted EBITDA was $22.7 million, down 18% sequentially but on par with Q4 in 2023 with an adjusted EBITDA margin of 13.7%, which compared to 14.7% in Q3 and 11.8% in the fourth quarter last year. Total SG&A expense for Q4 2024 was $17.6 million, down 17% sequentially from $21.2 million in Q3 2024 and down 11% from $19.8 million in Q4 2023. For the full year 2024, SG&A expense totaled $79.6 million, a decrease of 8% from $86.7 million in 2023. Adjusted SG&A expense excluding nonrecurring items was $70.2 million in 2024, a 10% decline versus the comparable metric for 2023. The cost structure changes we implemented in early 2024 related to insurance, IT and third-party professional fees continue to benefit us, driving these year-over-year savings, and we expect this lower SG&A level to continue into 2025. Moving to our segment results. For the Rocky Mountains segment, revenue, operating income and adjusted EBITDA were $54 million, $4.7 million and $11.8 million, respectively, for the fourth quarter of 2024. This represents an approximate 20% sequential decrease in revenue from the third quarter of 2024, largely due to winter holiday seasonality and budget exhaustion, which affected all of our regional completion and intervention offerings, including coiled tubing, frac rentals and wireline services. Our Rockies business is the most seasonally sensitive, typically in Q4 and Q1, when compared to our other geographic areas of operation. Operating income and adjusted EBITDA decreased sequentially by approximately 52% and 29%, respectively, as a function of the seasonal decrease in activity which, similar to '23, '24, is expected to correct as we exit…

Thanks, Keefer. As we look ahead to 2025, I want to provide some color on what we're seeing in the market and our expectations for the year. For full year 2025, we expect revenue to be flat to slightly up but, more importantly, we anticipate that we will expand adjusted EBITDA and adjusted EBITDA margin. And based on known customer wins, mix shift and cost structure controls, we expect our 2025 adjusted EBITDA margin to range between 13% to 15%. Looking at the 2025 quarterly cadence. Similar to 2024, we expect some softness in Q1 relative to Q4 due to a few transitory issues, including significant weather impacts across our areas of operation and unexpected white space in our completions calendar that we are striving to backfill and the fact that we expect a shift in revenue mix from Q4 to Q1 due to our core completion offerings largely following the completion of the frac job. With that said, we continue to expect a strong 2025 and expect results to strengthen in late Q1 and into Q2 and that strength to continue into the back half of 2025. From a macro perspective, we are closely monitoring the potential for increased gas-directed completion activity driven by LNG export demand. Our exposure in the Haynesville, approximately 7% of 2024 revenue and 9% of 2023 revenue, and other gas-prone regions such as the Northeast and South Texas, positions us well to benefit from this trend. We believe that the amount of incremental completion capacity needed just in the Haynesville to meet demand for LNG export capacity will drive a significant shift in market dynamics. US LNG export capacity is expected to approximately double by 2030, with significant capacity coming online in the next 12 to 24 months. We believe this increase will drive…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Steve Ferazani with Sidoti. Please proceed with your question.

Morning, Chris. Morning, Keith. I appreciate all the detail on the call. I know you guys have been very, very busy, so appreciate the time this morning. Can you walk through a little bit, and you did cover this, but the significant margin improvement across all three regions year-over-year despite the decline in drilling and completions activity. And it looks like in each region, the driver was maybe a little bit different. Can you walk through how you got -- beyond the cost cuts, how you got that margin improvement through the three regions on lower revenue?

Steve, and appreciate the question. Busy may be a bit of an understatement of late, but I appreciate the thought. Yes, I think, look, to your point, KLX performed exceptionally well in Q4, improving fourth quarter EBITDA margin year-over-year despite continuing declines kind of a grind lower throughout the year in rig count. We had guided to 12% at the midpoint of the range revenue roll. To your point, that's different across the different basins. That happens to be almost exactly the same as the 2023 revenue roll. I think we spoke about it last quarter. That was despite Christmas and other New Year's holidays, et cetera, being in the middle of the week which, as we know, drives operators to be more prone to extend the days off. Look, at the end of the day, I think there's mix shift between the segments, without a doubt. But what we saw this year was really and I talked about it in our prepared remarks, but 50% of our revenue really occurs post the frac job. So we always talk about our blend of drilling, completion, production and intervention revenue. But when you think about most of our high-margin product lines like thru-tubing, rentals, flowback, coiled tubing, most of that occurs post the frac job. And we were able to sustain activity later into the fourth quarter despite numerous operators taking frac holidays in December. And so it really comes down to that product line mix and completion, production and intervention services. And I think to your point on the cost controls, I don't -- you said except for the cost controls. But revenue per operated rig, which is a stat we've talked about before, fell to approximately $290,000 per rig, almost exactly the same level as Q1 of last year. Yet EBITDA per average operated rig was approximately $40,000 per rig compared to Q1 being approximately $20,000 per rig. And so there's numerous reasons for that, but the cost controls that we implemented in Q1 are clearly a key component, year-end accrual unwind as well in the fourth quarter. But the PSL mix shifts that we talked about are definitely a large component. In Q4, we saw a higher relative contribution from the higher-margin product lines, including rentals, frac rentals, tech services and coiled tubing which, candidly, have all been areas of focus from a capital deployment standpoint.

Okay. That's helpful. And also your guidance implies, I mean, your guidance was for even further margin improvement in 2025, even though you're guiding for relatively flat revenue. Given that the cost controls were put in place Q1 of 2024, what can drive further margin improvement on flattish to slightly up revenue in 2025?

Yes, it's a great question. I think sort of what we talked about, right, margin increased in Q4 of '24 compared to Q4 of '23. So you're getting kind of the full year benefit of those cost controls. But look, from a guidance standpoint, markets are very dynamic right now. Commodity prices are highly volatile as we know. As I stated in the prior question, part of our '24 capital deployment strategy was really setting us up for 2025 with known customer wins in some of our higher-margin PSLs as well as we also renewed at a slightly elevated pricing structure, our one dedicated frac contract. And so what we've seen, and we've talked about it before, post the wave of customer consolidation, those larger customers require higher-spec equipment, which has garnered, we've garnered more of their wallet share is the reality post that capital deployment. We've also seen lower revenue contribution from some of our lower-margin product lines. And we've shifted our focus, as have many of our competitors, for instance, in wireline to more of the conventional space rather than the pump down space where it's really a knife fight, right? And so all of that is a bit of a mix. And then as we look at the forward strip, the reality is we expect the second half of 2025, assuming commodity prices hold in, to be stronger especially in the gas-directed basins. As we sit here today, we know numerous customers bringing rigs into the Haynesville, talked about it in the prepared remarks. But if you just think about Q1 of '24 in the same Marcellus, Utica, Haynesville basins, we generated approximately $108 million of revenue on 83 operated rigs. That number was only $81 million in Q4 of '24 on 65 rigs. So the leverage there is meaningful to us. And I'd remind you that we have a very focused effort in those gas basins. We don't run every PSL there, and the PSLs we do run are pretty attractive margins. So it's a macro theme around mix shift.

Okay. That's helpful. The guide for net CapEx meaningfully lower. You generated a little bit of cash flow this year. I mean, that was including what was a very challenged, as you noted, Q1 of 2024. Based on your guidance and that lower CapEx, how are you thinking about cash flow for '25 and uses of cash?

Yes. So I'll hit CapEx. Keefer can kind of talk through the puts and takes of working capital if needed. But from a CapEx standpoint, last year Q3 was very robust. Some of that was catch-up from the prior years we've talked about. Some of it was pulling some CapEx forward. And then in Q4, there was -- Keefer alluded to it on the call, there was kind of an opportunistic acquisition of some assets for about $3 million that really helped us kind of forward stage some of our CapEx for this year. We've consistently been able to -- so let me back up. So that brings us to maintenance capital being in the $45 million to $55 million range, which is the number Keefer referenced on the call. We've consistently been able to monetize, as you know, whether it's through idle, antiquated assets, real property, or just lost in hole and DBR tools that we charge back to the clients somewhere in the order of $10 million to $12 million of assets over the last couple of years. We think that's sustainable this year with what we know about a couple of properties and other things that we think will monetize as well as kind of the customer build back.

Does that complete your question?

No, I was asking about how that -- how the lower CapEx and higher margins converts to cash flow or thoughts on cash flow in '25 and uses of cash.

Yes. Good question, Steve. This is Keefer. Good morning.

Good morning.

As you think about other kind of puts and takes, certainly we're happy to announce the refinancing and have that closed earlier this week. From just a straight coupon perspective, interest expense is probably slightly up year-over-year from '24 to '25 based on the new refinancing. With that said, we do have some prewired amortization into the note, and so there's probably some puts and takes there. But as you think through the bridge, with reduced CapEx, there's likely slightly elevated interest expense versus prior year. Additionally, as you think about uses of free cash flow, the new bond does have the concept of an excess free cash flow sweep. And so as the company generates free cash flow, by and large, based on current leverage profile, $0.75 of every dollar would actually go towards deleveraging. And we would be able to do that at par. So as you think about uses of free cash going forward, we are laser-focused on, one, free cash flow generation; and two, largely focusing on continuing to delever.

Fantastic. Thanks for that. Last one for me, just how Q1 sets up this year versus last year? We know completion activity had a slow start again this year, but you ran into some non -- some outside-driven factors that impacted you in Q1 last year. You had the customer safety stand-down and you had some severe weather. So give and take on this Q1 versus last Q1, this Q1 should be better if we don't have a recurrence of some of those issues, correct? Because we're -- when only a couple of weeks left to Q1.

Yes. I think, look, we guided to Q1 basically being soft to Q4 in the prepared remarks. And I think to your point, some of the completions activity started off a little slow this year with certain customers standing back up frac spreads. And back to my earlier point, coiled tubing, drill outs, flowback, et cetera, all happen on the backside of the frac, right? So definitely seeing some softness there along with -- we did have probably eight weather days this year, which is part of the seasonality impact. So we would expect it to be soft. But to your question specifically, yes, we would also expect it to be -- we'd expect it to be soft relative to Q4, but we would expect it to be above Q1 of last year. We have had some white space that was unexpected in our completions calendar that we're dealing with and trying to backfill real time. But we'll see how all the puts and takes shake out.

Just last one for me on just how you're set up for -- and you covered it with the significant increase in LNG export capacity that's coming. Obviously, expectations for higher power consumption. We know EIA again raised their '25, '26 nat gas price forecast this week. You're not putting a lot of guide, you're right, your guidance doesn't imply a ton of uptick in the gas basins. But it potentially sets you up for a much stronger 2026, depending how at least some people think this plays out with higher gas prices. Fair?

Well, we haven't given '26 guidance yet.

Right. I'm just trying to set the stage, right? Because what I'm saying is your 2025 implies some improvement but not a lot. Given a lot of what we think is coming, how you think that sets you up for two to three years without specific guides.

Yes. And so what I would say is the forward gas curve is highly constructive. And as we've talked about before, that forward gas curve, everybody has the laser focus on the Haynesville and rightly so and in the Northeast. The reality is we would expect the incremental gas price to also assist with South Texas and Mid-Con operations, right? As you know, all of our assets have wheels, can travel if the Haynesville goes back to its heyday. We're not predicting that by any stretch. And I think there's a lot of debate in the market as to the incremental rigs required in the Haynesville to keep those LNG facilities full. And I've heard some numbers that get us pretty excited, and we've seen some of those published. And we've heard some numbers that I think are overly conservative. As I look at our internal customer conversations today, what we know about incremental rig count through June is kind of in the high teens. And I'm not going to speak to specific customer plans and activity, but that's kind of what we see forthcoming for the first half of this year. And to your point, the commodity slate is only more robust when it comes to gas for the second half of next year and going into '26.

Thank you. Our next question comes from the line of John Daniel with Daniel Energy Partners. Please proceed with your question.

Hi, guys. Thanks for having me. Chris, a two-part question. As you pursue M&A, are you focused more on consolidating deals or just potentially adding new services? So that's part one. And then the second part is, how is the E&P consolidation, I mean, I know it's influencing your M&A strategy, but just to elaborate on how that might be influencing your strategy and what deals you would pursue.

Yes. No, great question. I think we've touched on the M&A strategy before as far as stepping out. That's really not our focus. I think our focus is to execute on accretive deleveraging transactions that provide scale in our existing product lines. As you know, we're a pretty diverse service provider as we sit today. For us to step outside of a product line that we don't have today, it would have to be highly synergistic and provide pull-through to one of our existing PSLs, right? And so candidly, John, we looked at a couple of opportunities last year that, I guess, I'm willing to discuss in hindsight. We walked away from one due to perceived integration risk. On another, the counterparty continued to push value in the face of a declining market. We didn't think that made sense. And then we rolled into December of last year, and we saw a number of what I would deem very strategic opportunities that have high degrees of industrial logic that are kind of market-leading companies. But we candidly need to execute on our refi first. I think those opportunities still exist today. And I think our refi and our debt documents provide ample flexibility to consummate those types of transactions.

Okay. Got it. And you talked a little bit about the Haynesville on your call. I just got back from Haynesville yesterday. And I met with a number of businesses up there where they claim to be essentially sold out or see strong calendars as you go into the summer, which is great. And a bunch of them are now adding people because they need more people to meet the demand. So like you hear all that and it gets you excited. The next logical step would be you need to start raising your prices. I'm just curious if you could sort of pontificate on the sequence of that, if you will, because all the things are aligning, right? And just your thoughts on how that might play out.

Yes. Look, the callous answer is the people side of the equation has not been as onerous as it was, say, in '21, as you well know, right, or '22 more specifically. And the reality is a lot of assets and a lot of people migrated to the Mid-Con, South Texas and the Permian when the Haynesville rolled. COVID level, rig count lows were 29 rigs. That's where we've been the last couple of months in the Haynesville, I would imagine, and I think I'm pretty confident here, there's a lot of people working in the Permian that would love to get back to East Texas and Shreveport and Bossier and work from home is the reality of it. For us, our business lines that are in the Haynesville, probably over half of our revenue is not that people intensive. So it's probably -- it is easier for us to leg in. And to your point, when people talk about being sold out, well, is that asset utilization or is it people utilization? My sense is, by and large, it's people utilization are -- that's right are the remnants of the asset base that they have left because a lot of our competitors pulled assets to go compete in other basins. So that's where the rising tide will lift all boats from a pricing perspective. If the Haynesville really rallies hard and people start to chase returns in the Haynesville, it should, at some level, buoy pricing as well or at least sustain it in some of the other adjacent basins.

Fair enough. Last one is, and Keefer, if you said this in your prepared remarks, I missed it and I apologize. But can you tell us what the pro forma cash and debt balance is after the deal?

So pro forma debt is -- the new notes are $232 million. The ABL is $55 million. The new ABL size is a $125 million deal with a $25 million accordion and a $10 million FILO. Both are executable at the company's discretion within 12 and 18 months, respectively, post-closing. And in terms of uses of cash to close the refinancing, roughly $28 million was used to close the refi. That's inclusive of the debt paydown, i.e., a smaller issuance size, all fees, advisers, legal issuance, otherwise, the OIB on the new notes as well as the accrued interest that was due on the prior notes.

So ballpark, doing the math in my head, which is dangerous for an old person, $65-ish million, plus or minus $5 million of cash?

Yes. We haven't updated interim cash numbers since we're intra-month.

Okay. Fair enough. All right. Thanks, guys.

Appreciate it, John. Thank you.

This now concludes our question-and-answer session. I would like to turn the floor back over to Mr. Baker for closing comments.

Thank you once again for joining us on this call and for your continued interest in KLX. We look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.