Greetings, and welcome to the KLX Energy Services 2025 First Quarter 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 of Investor Relations. Thank you. Ken, 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 first quarter 2025 results. With me today are Chris Baker, President and Chief Executive Officer; and Keefer Lehner, Executive Vice President and Chief Financial Officer. Following my remarks, management will provide a commentary on quarterly financial results and outlook before opening the call for your questions. There will be a replay of today's call that will be available by webcast on the company's website at klx.com, and there will also be a telephonic recorded replay available until May 23, 2025. More information on how to access these replay features was included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 9, 2025, and therefore, you're 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 results, 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. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures were included in the quarterly press release can be found on the KLX website. And now, I'd like to turn the call over to Chris Baker. Chris?

Thank you, Ken, and good morning, everyone. I'll start with commentary on our Q1 results, recent operational performance and strategic initiatives, then provide some perspective on the current market environment and our outlook. As discussed last quarter, Q1 is seasonally our toughest quarter, but I'm pleased to report that KLX delivered improved adjusted EBITDA and adjusted EBITDA margin in Q1 2025 versus Q1 2024, despite a meaningfully lower rig count environment. March was our best month of the quarter for both revenue and adjusted EBITDA, and our Southwest segment posted its strongest quarterly results since Q3 of 2023. Importantly, Q1 results were in line with guidance. Revenue and adjusted EBITDA were down sequentially, but ahead of Q1 last year. Our company-wide focus on cost controls enabled us to increase our first quarter 2025 adjusted EBITDA margin by 208 basis points over last year's first quarter despite revenue and rig count being down 12% and 5%, respectively, over the same period. The macro environment remains volatile, driven by OPEC+ increasing production and dynamic U.S. tariff policy driving recessionary risk and commodity price volatility. We are closely monitoring customer activity plans and our cost structure in real time. With that said, we continue to see green shoots in certain PSLs and areas as we expand our market leadership position across our rentals and tech services PSLs. In our tech services PSL, we're in the process of developing a Gen 2 version of our Oracle SRT, which is rapidly gaining market acceptance. We now have over 0.5 million running feet downhole, and this tool should position us exceptionally well in the gas basins in the years to come. We have a cycle-tested team and remain ready to respond quickly to evolving market conditions. Our diversified service offering and strong customer relationships continue to…

Thanks, Chris. Good morning, everyone. As Chris mentioned, Q1 2025 revenue was $154 million, a 7% sequential decline and 12% lower than Q1 2024. Consolidated adjusted EBITDA was $13.8 million with a 9% margin, down from 13.7% in Q4 2024, but more importantly, up from 7% in Q1 of 2024. As Chris noted, given the Q1 seasonality within our Rockies business, it is more helpful to compare year-over-year versus sequential when reviewing the first quarter. Also, as Chris mentioned, we exited Q1 on a high note as March 2025 was the quarter's high point for both revenue and margin. Total SG&A for Q1 was $21.6 million, but backing out non-recurring items, adjusted SG&A would have been $16.5 million, a 12% reduction versus Q1 2024 and flat compared to Q4 2024 despite a 3% higher benefit burden in Q1 versus Q4 and Q1 average G&A headcount was down 3% versus the Q4 average. Total SG&A for Q1 was $21.6 million, but backing out non-recurring items, adjusted SG&A would have been $16.5 million, a 12% reduction versus Q1 2024 and flat versus Q4 2024 despite a 3% higher benefits burden in Q1 versus Q4 and Q1 average G&A headcount was down 3% versus the fourth quarter average. The cost structure changes we implemented in 2024 continue to benefit us, and we expect this lower SG&A level to continue and to actually improve further as we navigate 2025. Moving to our segment results. For the Rockies segment, revenue was $47.8 million, operating loss was $200,000 and adjusted EBITDA was $6.7 million. Sequential revenue and adjusted EBITDA declined 11% and 43%, respectively, primarily due to seasonality. But when compared to Q1 2024, revenue and adjusted EBITDA were higher by 5% and 24%, respectively, despite Rockies' rig count being down 13% year-over-year. Given Q1 is…

Thanks, Keefer. As we look ahead to the remainder of 2025, we expect revenue and adjusted EBITDA growth in Q2, building on March's momentum. While the macro environment is volatile and uncertain, we are confident that our operational discipline, improved balance sheet flexibility and proactive risk management positions us to navigate 2025. We are taking a more cautious approach to the remainder of 2025, as we work to maximize financial flexibility. For Q2, we anticipate continued strength in our Southwest segment, along with modestly improving revenue as Rocky seasonality normalizes and the Mid-Con bounces back from the unforeseen Q1 white space. Based on our current schedules, we are targeting a modest sequential revenue increase with revenue expected to be up low to mid-single digits on a percentage basis and margin expansion. We continue to be bullish on the U.S. natural gas macro story and its implications for service providers and KLX in particular. We are closely watching developments in natural gas and LNG exports, commodity price volatility and global economic trends. Our exposure to gas focused basins positions us well for any uptick in activity, especially as new LNG capacity comes online over the next 12 to 24 months. This could drive improved pricing and utilization across our core markets. An increase in gas-directed activity could serve to cushion softness in crude-directed activity given reduced WTI pricing and the oil focused CapEx cuts we've seen from public E&P operators recently. We remain focused on strategic accretive M&A that aligns with our growth and deleveraging goals. Clearly, M&A is complicated given the current market backdrop and our share price, but we believe we are fundamentally undervalued today and our enhanced debt structure gives us the flexibility to act quickly on attractive opportunities. Post refi, we have seen a handful of opportunities that we reviewed in early to mid-2024 approach us as they were unable to consummate deals in '24 and now recognize the need for OFS consolidation. The market backdrop makes financing transactions incredibly difficult and consummating transactions in this environment will require creativity, but we fervently believe the OFS market needs meaningful consolidation. In summary, we are confident in our ability to execute our strategy and navigate what is a dynamic and volatile market. Our scale, diversified offering and strong customer relationships positions KLX to capture share as the industry consolidates. Thank you to our employees, customers and shareholders for your ongoing support. With that, we'll now take your questions. Operator?

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

Good morning. Chris. Good morning, Keefer. Appreciate all the detail on the this morning. I just wanted to start by asking about the 2Q guide. Given what 2Q and the Rockies has been in past years, the recovery and the fact that if that $6 million to $7 million hit on the frac spread was completely resolved in Q1, it seems like low to mid could be conservative for growth.

Look, first of all, good morning, Steve. The reality is, I think it's difficult, if not impossible, at this point, to provide a full year guide. And so, we elected to provide a 2Q guide. As we look at the second quarter, we think revenue will increase low to mid-single digits. I mean, there's puts and takes. It sounds like you understand the $6 million kind of top line hit that Keefer referenced. The reality of the situation is every basin and every product line kind of rebounds differently. And as we've looked at the impacts over the -- since April 2, as soon as crude hit $56, we saw several operators elect to delay projects. And in certain instances, we had multiple completions PSLs scheduled to work on a given pad or a given set of pads. And so then you turn around a week later and WTI rallies back to $62 and the same operators begin to reevaluate schedules, so it's highly episodic. I'm not going to say the guide is conservative, but it's based off of our 90 day revenue forecast. And just this week, we've seen WTI go to $59, and we start hearing the tea leaves shake that maybe there's delays and then it rallies back to -- it was $62 when we woke up this morning. So it's just really hard to provide projections when you start to get out into the later months of that 90 day roll, and we're just trying to forecast what we have right in front of us at this point in time.

I appreciate that, Chris. I can imagine the uncertainty that's out there right now. But -- so I guess my question was going to be if you had seen the impact from lower oil price, and it sounds like, because we think that's going to be more of a second half impact on rig count, but it sounds like you already are seeing some.

Yeah. I think, look, the smaller operators are more exposed and candidly more exposed to the tariff impact of line pipe, casing, etc., and they're more exposed to commodity prices. Some of the smaller operators we work for don't have the hedging programs of the larger operators. And so, as you look across the news of the last week, where we've seen a lot of the blue chip operators talk about reductions on the order of everything from zero to maybe a banded range as high as 5% or 10% to their capital programs for 2025, I would agree, most of that seems to be second half weighted. But some of the smaller operators will react when crude hits -- has a five handle on it, and they'll at least elect to delay. It doesn't mean they cancel that project in totality, but delays can hit us when they hit us across multiple product lines, they have a disproportionate impact, right?

That's really helpful. Thanks, Chris. Turning now to the new capital structure and how you're thinking about and I know, again, with all the uncertainty, it's hard to think about cash flow. I was a little surprised you already exercised the PIK option. How are you -- and I know Q1 is the biggest, the most working capital intensive and typically the lowest cash flow. But how are you thinking about the flexibility of the PIK option? And I know you also talked about share repurchases, but then you use the ATM. So a little bit of confusion there on my part in terms of how you're thinking about capital allocation and using the capital structure as we get into even more uncertainty.

Good question, Steve. This is Keefer. Good morning. Clearly, timing plays an impact into some of those actions as you think about the last 45 days or so. Clearly, the ATM sales were executed on prior to the tremendous economic shift and shift in outlook that occurred post April 2. With that said, there is additional flexibility that we're able to put in place with the new credit docks, both on the indenture and ABL side. You mentioned the PIK side. So the refinance notes do afford us the flexibility to PIK interest. The first month, we clearly paid cash. The PIK election for the second month was due the week of the tariff announcement. And given that market uncertainty and the news from OPEC that week, we did elect to PIK interest. There's certainly a corresponding cash related -- excuse me, cost related to us PIK-ing (ph) interest. So there's an incremental kind of 100 bps of interest rate spread that is tied to a PIK. With that said, PIK-ing interest does defer about $2.4 million, $2.5 million of monthly cash cost. So we do have tremendous flexibility there, and it is a tool with which we will continue to evaluate and on a go-forward basis, make sure that we're maximizing and optimizing the company's flexibility, both to be defensive as well as offensive as we navigate through the market. So that's the main puts and takes. On the buyback side, as you mentioned, clearly, we've had a $49 million or so authorized buyback in place. Since 2019, that is subject to availability under the new debt covenants. Practically speaking, the availability is much smaller than the $49 million, and our share price has moved tremendously, particularly post the announcements from DC as well as OPEC in early April. And so post refinancing, this is flexibility that is now built back into the new debt documents that we didn't have historically. So there is an additional opportunity here when warranted and we believe prudent to buy back a small amount of shares. So on a go-forward basis, in terms of cash flow management, we're obviously laser focused on maximizing margins and driving as much free cash flow as possible, recognizing to Chris' point that there is a tremendous amount of market uncertainty today. But hopefully, some of this starts to come to resolution, and we'll have a better line of sight on what's going to happen for the remainder of the year.

Great. I really appreciate all that detail. If I could get one more in. There is some optimism around the gas plays. Maybe that can partially offset some of the rig count decline in the Permian and Rockies. You typically have had flexibility in terms of being able to move your assets around. How are you positioning for that potential? Do you have to position ahead of time? And how are you thinking about what could be sort of the reverse of what we saw two, three years ago where gas plays are a little bit better while oil plays maybe get weaker?

Yes. It's a great question. I think we talked about this a little bit on our Q4 call. But look, we're continuing to monitor the market. The reality is, to your point, we are seeing some traction in the gas plays. Our dry gas exposure as a percentage of revenue in Q1 was very similar to what it has been for the last kind of four quarters, I guess. So kind of holding in there at about 12.5%. Our Northeast segment or our Northeast area within the Northeast/Mid-Con performed exceptionally well from a seasonally adjusted perspective in Q1, and we continue to see that opportunity kind of expand throughout the year. We're aware of a number of operators that are adding rigs, both in the Haynesville, frac spreads in the Haynesville as well as now in the Northeast as we've continued to see -- that's the one place we have seen stability is in natural gas prices, and they kind of continue to strengthen. So we haven't relocated any assets. To your specific question, I think we're already pretty well positioned. But if we need to relocate additional assets, we clearly can.

Thanks, Chris. Thanks, Keefer.

Yeah. Appreciate it, Steve. Thank you.

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

Hey, guys. Thanks for having me. All right. A couple of quick ones here. On M&A, because you touched on the opportunities that might potentially be unfolding. I'm just curious, as you look at the opportunity set and not wanting to go into like specifics on valuation or service line, but really speak to geography. When you look at places like the Permian, they tend to be more fragmented and then compare that to, say, the gassy markets, which are being better behaved. Like how are you -- as you think about strategy from a geographic perspective, can you walk us through just how you think about it? That's it.

Yeah. Look, it's a great question. I think the current market is candidly driving some deal capitulation. And I think counterparties are at least now saying they're willing to be creative and they understand relative valuations have come off as multiples have declined. So as I mentioned in the prepared remarks on the call, we have seen a couple of counterparties that are quality companies that were kind of hung or dead deals last year kind of pop up over the last couple of months. So we'll see how that plays out. I wouldn't say that they are necessarily geographically focused by any stretch. We're trying to be much more opportunistic. As we look at our new debt facility post refi, I want to be clear, the debt facility does have limitations. The first most important limitation is the deal has to be deleveraging for us to add pari passu debt to the facility. And we realize certain counterparties are going to require some component of cash. The second is that the reality is we need the lenders or new lenders to step up if there's a cash component required to consummate the deal. But the reality is, ultimately, deleveraging transactions benefit both all of our stakeholders, equity and debt. And I think it's finally time in the market where some of the, to your point, fragmented smaller operators, in particular, as well as some of the larger ones are realizing scale matters and scale matters to manage cycles, and that's what we're doing right now is managing the cycle, right? And so, we're going to continue to be opportunistic and they go from there. But we're not necessarily geographically focused, I would say.

Fair enough. And then just a quick follow-up, if I may, on the activity. Just looking at a lot of the announcements from your E&P customers, a lot of the reductions are coming in the Permian. And to your point, the gassy markets are improving. Can you just give us your thoughts on the other oily areas away from the Permian in terms of what you're hearing from your customers?

Yeah. It's a great question. Look, what I would say is, similar to what I referenced with Steve, with some of the smaller operators, and this is refrac opportunities, etc. I think they are more opportunistic and sensitive to the whipsaw of commodity prices. So we've definitely seen in the Bakken, in the Rockies and other areas, people delay projects kind of sit on the sidelines for some period of time. But we're also having conversations about when they're going to bring those back. So it's lost revenue for the time being, but we expect that some of that may come back to us in kind of short order. And then the question is, to your point, the larger reductions in CapEx, how quick do the decline curve start to support crude prices and potentially in the second half of the year. I think the smaller operators, they clearly are quick on the trigger to revamp projects. And so we're trying to stay as close to them as we can.

Okay. Thank you for having me. Good luck, guys.

All right. Thank you, John. Appreciate it.

Thank you. This now concludes our question-and-answer session. I would like to turn the floor back over to President and CEO, Christopher Baker for closing remarks.

Thank you once again for joining us on this call and 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.