KLX Energy Services Holdings, Inc. Stock price
Is KLX Energy Services Holdings, Inc. a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $155.97m | Revenue (TTM) = $635.60m
Market Cap = $155.97m | Estimated Revenue = $679.12m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $468.27m | Revenue (TTM) = $635.60m
Enterprise Value = $468.27m | Forward Revenue = $679.12m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
KLX Energy Services Holdings, Inc. Stock Analysis
Analyst Opinions
7 Analysts have issued a KLX Energy Services Holdings, Inc. forecast:
Analyst Opinions
7 Analysts have issued a KLX Energy Services Holdings, Inc. forecast:
KLX Energy Services Holdings, Inc. Events
Past Events
|
AUG
11
Q2 2026 Earnings Call
about one month ago
|
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MAY
13
Q1 2026 Earnings Call
4 months ago
|
|
MAR
12
Q4 2025 Earnings Call
6 months ago
|
|
NOV
6
Q3 2025 Earnings Call
11 months ago
|
StocksGuide Free
KLX Energy Services Holdings, Inc. — Q2 2026 Earnings Call
1. Management Discussion
Greetings. Welcome to the KLX Energy Services Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the conference over to Ken Dennard with Investor Relations. Thank you. 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 second quarter 2026 results. With me today are Chris Baker, President and Chief Executive Officer; Jeff Stanford, Senior Vice President, Interim Chief Financial Officer and Chief Accounting Officer; and Max Bouthillette, General Counsel. Following my remarks, management will provide commentary on its quarterly financial results and outlook before opening your call for questions.
There'll be a replay of today's call that will be available via webcast on the company's website at klx.com and also be a telephonic recorded replay available until August 25. 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, August 11, 2026, 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 U.S. 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 those certain risks, uncertainties and contingencies. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX website.
And now with that behind me, I'd like to turn the call over to Chris Baker. Chris?
Thank you, Ken, and good morning, everyone. I'd like to begin today's call by highlighting 3 key accomplishments that defined what was a very busy second half of the second quarter and early third quarter for KLX. First, we delivered continued revenue growth and EBITDA expansion with second quarter results in line with our guidance. Revenue was approximately $167 million, and adjusted EBITDA increased 68% sequentially to approximately $19 million, demonstrating the operating leverage in our business as activity improved.
Second, we successfully completed and began integrating the WolfPack acquisition. And finally, yesterday, post-market close, we announced our $125 million backstopped equity rights offering that will support our broader balance sheet improvement strategy. This transaction is designed to reduce debt, improve liquidity and strengthen our capital structure, positioning KLX for greater financial flexibility and long-term growth. Importantly, these initiatives should be viewed as proactive measures to strengthen the balance sheet and add flexibility. They are not being undertaken due to operational challenges. Rather, they reflect the confidence we have in our business and our commitment to creating a stronger foundation for the future. Collectively, these accomplishments reinforce our focus on profitable growth, disciplined execution and creating long-term value for our shareholders.
Turning to the second quarter details. Our second quarter results were in line with expectations despite a bit of late June white space. Revenue was $167.3 million, essentially at the midpoint of our guidance and up $22.6 million, or 15.6%, from the first quarter. Adjusted EBITDA was $18.7 million, up 68% sequentially, and adjusted EBITDA margin improved to 11.2%. The improvement from the first quarter was driven by normalization of our typical Q1 seasonal impacts, higher activity levels yielding improved utilization and better absorption of our cost structure, along with 1 month of contribution from WolfPack.
A key milestone in the quarter was the closing of our acquisition of WolfPack Rentals on June 2, 2026. WolfPack expands our capabilities and customer reach in key markets, along with adding needed scale in certain areas. WolfPack contributed $3.4 million of revenue in June, implying a current annual revenue run rate of approximately $41 million, which compares favorably to WolfPack's previously disclosed full-year 2025 revenue of $38 million. Integration has progressed smoothly. Cross-selling opportunities are already being realized, and we have increased our expected annual synergy target to approximately $2.5 million.
Excluding WolfPack, the KLX base business grew more than 13% sequentially, outpacing the 5.8% increase in U.S. land rig count. This reflects steady demand and solid execution across the portfolio, led by sequential revenue growth in coiled tubing, directional drilling, technical services and accommodations. From an end-market perspective, drilling-focused revenue represented approximately 23% of total revenue in Q2, up from 20% in the first quarter. It's worth noting that WolfPack and our legacy accommodations PSL revenue is currently classified within drilling, which contributed to that shift.
Completion, production and intervention services saw revenue increases as well. However, the mix still leaned more towards drilling on a historical basis, which limited the incremental margins on the additional revenue. At our scale and with the macro backdrop of a mid-500 rig count operating environment, the timing of individual large jobs and associated revenue can move meaningfully between quarters based on customer scheduling. We saw that in both the first and second quarters of 2026. This is emblematic of a business our size rather than a change in underlying demand, and it's worth keeping in mind as you think about quarter-to-quarter comparisons.
Revenue per average operated rig came in at approximately $311,000 in Q2, up from $273,000 in Q1. On the same basis, revenue per rig was stronger than last year's second quarter, while EBITDA per rig was effectively flat, highlighting the impact of PSL mix and the competitive pricing environment. From a segment perspective, the Rockies and Southwest showed strong sequential improvement in both revenue and incremental adjusted EBITDA driven by improvements in the majority of PSLs, while the Mid-Con revenue was essentially flat, yet still realized improved margins due to a mix shift in PSLs and cost controls.
Overall, the second quarter demonstrated the earnings leverage in our business as activity improves. We continue to focus on utilization, cost discipline, cash generation and integrating WolfPack to strengthen our position across key markets.
With that, I'll hand the call over to Jeff to review our financial results in greater detail, and I will return later in the call to discuss our outlook. Jeff?
Thanks, Chris. Good morning, everybody. Activity improved markedly from Q1. Our Q2 earnings profile still reflects a business mix tilted more towards drilling and away from some of our higher-margin service lines. That dynamic is important to keep in mind as you work through both the consolidated numbers and the segment detail.
Revenue for the second quarter was up 15.6% sequentially to $167.3 million from $144.7 million in the first quarter and up approximately 5% compared to the second quarter of 2025. Excluding the WolfPack acquisition, the base business grew nicely, up more than 13% sequentially. Adjusted EBITDA was also up to $18.7 million versus $11.1 million in Q1. Adjusted EBITDA margin was 11.2% compared to 7.7% in the first quarter. This 68% sequential increase in adjusted EBITDA was roughly 350 basis points of margin expansion on incremental margins of approximately 34%, also absorbing about $600,000 of bad debt write-offs.
Net loss for the quarter was $8 million, or $0.41 per share, compared to a net loss of $24 million, or $1.23 per share, in the first quarter. Results include a $6.5 million bargain purchase gain recognized in conjunction with the WolfPack acquisition, reflecting the fair value of the net assets acquired relative to the purchase price. Because that gain is nonrecurring, we excluded it from both adjusted EBITDA and adjusted net loss. Excluding the gain, we generated an operating loss of approximately $4.4 million in the quarter versus an operating loss of $12.1 million in the first quarter.
Corporate costs moved up both sequentially and against the prior year period, primarily because of seasonality and bonus accrual timing. We are targeting full year SG&A similar to fiscal 2025, including additional costs from the WolfPack acquisition.
A few comments on the segments. In the Rockies segment, second quarter revenue was $50.8 million, operating income was essentially breakeven at $0.3 million and adjusted EBITDA was $6.3 million. Revenues rose nearly 31.6% sequentially, and adjusted EBITDA margin recovered to 12.4% from 5.4% in the first quarter. The business improved, but profitability still sits below historical norms because of activity mix and continued softness in areas such as North Dakota completions.
In the Southwest segment, second quarter revenue was $64.5 million, operating income was essentially breakeven at $0.1 million and adjusted EBITDA was $7.6 million. Revenue increased by nearly $11 million sequentially or about 20%, and the segment also posted continued margin improvement. Southwest remains one of the structurally low-margin businesses in the portfolio, but it performed very well during the quarter with margin improving from 8.6% to 11.8%.
In the Northeast/Mid-Con segment, second quarter revenue was $52 million, operating income was $5.1 million and adjusted EBITDA was $12.5 million. Revenue was essentially flat, sequentially down 1%, reflecting a decrease in flowback, partially offset by increases in directional drilling and accommodations. Adjusted EBITDA margins improved to 24% from 20.8%, and adjusted EBITDA was up 74% against the second quarter of last year. In Corporate and Other, adjusted EBITDA loss was $7.7 million. The first half of 2026 run rate was up slightly as compared to the first half of 2025 due primarily to an increase in consulting fees.
Turning to capital and cash flow. Capital expenditures in the second quarter were $8.6 million with net CapEx of $6.4 million after $2.2 million in asset sale proceeds. Spending in the quarter is primarily maintenance related. We also ended the quarter with approximately $1 million of assets classified as held for sale, one facility and other equipment. We continue to evaluate our capital requirements against incremental activity levels and customer-backed growth activities.
Net cash flow -- net cash provided by operating activities in the quarter was $10.5 million. Unlevered free cash flow was a positive $6.6 million, and levered free cash flow was a positive $4.1 million, both of which excluded the sources and uses related to the WolfPack acquisition. On the balance sheet, quarter end total debt was $288.9 million and total liquidity was $53.3 million, including $7.9 million of cash and cash equivalents and $45.4 million of availability under the ABL, inclusive of the undrawn FILO capacity. Net working capital at the end of the quarter was $46.0 million.
As we think about liquidity through the rest of the year, we now expect Q3 rather than Q2 to mark the low point. That change is mostly a function of growth. With revenue expected to increase meaningfully sequentially, we expect an additional working capital build to support that activity, which may pressure liquidity modestly in the near term before collections catch up. On our senior secured notes, we elected PIK 100% of interest in Q2 and currently expect to do the same in Q3, which remains consistent with the framework we outlined previously. We anticipate a 50-50 cash and PIK mix in Q4, subject to continued review based on market conditions, leverage and liquidity.
In summary, of the $12.4 million of interest expense recognized in the second quarter, approximately $2.5 million was paid in cash and approximately $8.2 million was added to principal, with the balance representing noncash amortization of debt issuance costs and issue discount. Overall, we are in full compliance with our financial covenants under both the notes indenture and the ABL at quarter end, and we remain focused on managing working capital and capital spending in line with activity levels.
With that, I'll hand it back over to Chris to discuss our outlook.
Thanks, Jeff. From a broader market perspective, the environment remains active, but difficult to project from the usual top-down indicators. U.S. land rig count has improved slightly off the bottom. However, highly volatile commodity prices, particularly WTI, have muted our customers' response, and the normal signals have not lined up cleanly with what we are seeing in our day-to-day activity and schedules.
Looking ahead to the third quarter, we expect revenue in the range of $176 million to $188 million with a midpoint of $182 million, which is $15 million higher than the second quarter. Excluding WolfPack from both periods, the midpoint implies mid-single-digit sequential growth in the base business at a time when the broader market expectations are for flat activity. We expect margins to continue to increase as activity builds due to better fixed cost absorption. Our focus remains on disciplined execution, improving utilization, capturing WolfPack integration benefits and converting higher activity into stronger cash generation.
Before we move to questions, I'd like to briefly address the balance sheet initiatives announced yesterday. As you know, we have been focused on strengthening KLX's financial position for some time. The backstopped equity rights offering is designed to reduce debt, improve liquidity and create greater financial flexibility for the future. It is important to understand what these actions are and what they are not. This transaction represents a proactive amendment and potential equitization of existing debt and deliberate effort to improve our capital structure from a strengthened operational position.
This transaction is not a Chapter 11 filing or a bankruptcy process. We believe the backstopped equity rights offering is equitably structured to benefit all shareholders, allowing equity holders the right to purchase shares at the same price as the backstop parties or sell their transferable right to realize value. Pro forma for the equity rights offering, KLX will reduce our net leverage ratio to approximately 2.7x, materially enhancing financial and operational flexibility. These actions are intended to support our objectives by creating a stronger, more resilient financial foundation for KLX. Reducing leverage and improving liquidity will enhance our ability to invest in the business, support our customers and create long-term value for all stakeholders.
We continue to execute our business plan, serve our customers, integrate WolfPack and pursue growth opportunities while navigating a dynamic market environment with discipline. I remain highly confident in our team, our strategy and the opportunities ahead of us. We have momentum across the business, and these initiatives position KLX to capitalize on that momentum while continuing to strengthen the company for the future.
In closing, I would like to thank our team of hard-working employees for their continued commitment, resilience and dedication to safety. I'd also like to thank our customers and shareholders for their ongoing support of KLX.
With that, we will now take your questions. Operator?
[Operator Instructions] And our first question is from the line of Steve Ferazani with Sidoti.
2. Question Answer
Appreciate all the detail. I know you guys have been really busy. Chris, I think the obvious question shareholders will want a response to is really, I mean, good quarter, you're guiding to better activity in Q3, the timing of the rights offering, why did you feel like this was the time to do it?
Steve, I appreciate the question. Look, it's pretty simple. You can't PIK your way to prosperity, and you can't wait until the last minute when it's required to happen to make some of these decisions. The PIK is -- was implemented into the new notes. It's a very useful tool to manage seasonal volatility. We didn't intend on using the PIK at the level we have post the refi. And so we've continued to see debt build. And so as you roll forward through next year, to your point, current market activity, our third quarter would project that results are improving. The question is, is it sufficient? And so our view, our Board's view is that deleveraging and creating additional cash liquidity provides us with materially greater financial resilience and financial flexibility to navigate market cycles. Clearly, we're in a cycle in a market that has been highly volatile. It positions us to pursue value-creating acquisition opportunities when they arise, and it ultimately supports long-term value creation for shareholders.
So if you look at the status quo, there's material risk as you roll forward to next year, whether you could breach a financial covenant, whether there could be sensitivity testing by auditors or other parties that could create an event of default. And the reality is any waiver or other consequences could be much more severe. Perhaps more importantly, as we stated on the prepared remarks, the backstopped equity rights offering is equitable to all parties. And so we appreciate the fact that we have highly supportive creditors. The creditors are coming in pro rata at 100% of all the institutions participating, and they're highly supportive of our strategy and our business. At the same time, the offering is highly equitable, and the shareholders are allowed to participate at the same buy-in price, and they're allowed to sell their transferable right if they elect to choose so.
And so we view this as very opportunistic, to delever the balance sheet, raise incremental liquidity, which is candidly important to recapitalize the business to thrive in the future.
Appreciate the response, Chris. In terms of what we know is, obviously, market dynamics are far more volatile than we've seen. The short-cycle nature of your larger consolidation by the producers all make decision-making trickier. How does this help you maneuver the current state of market dynamics? And then probably even more importantly, how does this position you long term better than you were before?
Yes, great question. Look, the way the structure works is we're sort of guaranteed to have $94 million of deleveraging or equitization. If you just look at the base case and not the headline number of $125 million, that reduces interest cost, and it's a bit iterative based off where SOFR lands. And so I don't want to predict interest rates. But you're reducing interest cost by over $11 million a year, potentially higher than that if the full uptake of the ERO is elected, right, at $125 million. If that happens and we put cash on the balance sheet, that affords a lot of financial flexibility. It affords us the opportunity to pay down the ABL, which is -- and reload the ABL, whether that is to use for growth initiatives, other M&A, et cetera.
But to your specific question, that's kind of a banded range dependent on interest rate assumptions of $11 million to kind of $14 million of interest reduction on a year-over-year basis. We've talked about before the fact that our coiled tubing leases roll off at the end of this year. That's about an $8.2 million burden on an annual basis. So as you roll forward to 2027, all else equal, we've improved our free cash flow profile by about $20 million.
Not unimportant. If we could turn now to some of the 2Q results and how you're thinking about 3Q, Chris. Numbers came in pretty much in line with what we're expecting. We were a little bit surprised by some of the regional differences. Southwest seemed to come back even faster than what the underlying activity would have indicated. Northeast, I mean, you're down revenue-wise first half compared to second half of last year. If you could just talk about those 2 differences, which caught us a little bit by surprise, one positive, one maybe a little bit negative.
Sure. So I'll kind of do that in reverse order. Natural gas as a percentage of our revenue rolled slightly kind of for the first time. We had a great run last year. And for Q2 of '26, we're at about 15% when you think about our dry gas revenue. We expect natural gas revenue as a percentage of total revenue to be fairly consistent. Admittedly, our Haynesville revenue was the driver of that roll. We lost one specific customer in one product line, and the team is working to backfill that work on a daily basis. Candidly, we've also seen the Haynesville rig count plateau, and it seems like we'll -- from just internal sources, I would say we would expect Haynesville rig count to fluctuate up and down in the near term as operators continue to monitor gas prices. But year-end rig count kind of feels like it would be around 58 to 60 in the Haynesville.
That being said, to your point, revenue rolled just a bit, but I think the team did a great job from a cost control standpoint and margins actually expanded slightly. From a Southwest perspective, the teams really executed on all cylinders. It's always been a highly competitive environment. We've seen expansion opportunities in the Eagle Ford, and the Permian business performed pretty well. We talked about last quarter the fact that some of the private operators as WTI ramped as the war kicked off that people were pulling forward DUC activity, et cetera. And so I think we were the beneficiary of that in the Permian as operators kind of pulled forward some of that activity.
Got it. Helpful. When we think about the guide for 3Q, even as you noted, a little bit more of a flattening. Average rig count in 3Q is going to be much better than 2Q simply because the rig count really ramped late in the quarter. That would indicate that the benefit to 3Q growth is on the drilling side, which is lower margin for you. That being said, with the higher revenue, would you still expect knowing the mix maybe is a little bit softer that you still get the margin expansion on higher revenue?
Yes, it's a great question, and I agree with you. And Jeff mentioned in his statements that we would expect that incremental component of the drilling revenue plus with a full quarter of WolfPack for drilling as an overall percentage to continue to run higher than our historical basis. If you think about the overall guidance of $176 million to $188 million for 3Q, look, the business continues to improve around the margin. What I would say is, to your question on the individual segments, we're forecasting revenue growth in every single segment. So we would expect revenue growth in the Rockies and Southwest as well as the Northeast/Mid-Con. And we expect our base business, even if you exclude the impact of a full quarter of WolfPack, still to grow in kind of the mid-single digits on a percentage basis.
Completion services were 52% of our revenue with drilling coming in at about 23% in Q2. I would think that Q3 is similar to that mix on a go-forward basis. But to your point on margin, if you recall, 3Q of '25 margin last year was about 12.7%. Based on what we know today and July's preliminary numbers, the short answer is yes, we would expect 3Q of '26 to see continued margin growth, partially just due to operating leverage, as you ramp revenue and control overall fixed cost.
Got it. That's very helpful. Given the activity rise so far, although we know, obviously, WTI price outlook is significantly clouded by activity in the Middle East. Are you -- given the activity you've gotten in certain product lines, are you starting to see any pricing power?
It's a great question. Look, the reality is, and I think we've heard this throughout this earnings season across a lot of service lines, pricing is not sufficient across most of the industry to justify reactivation of equipment or truly deploy material growth CapEx. That being said, look, we talked late last year that in certain business lines, we have been able to move price on select PSLs in certain basins. The irony is it seems like the PSLs where we've moved price the most are kind of the more asset-intensive, people-light businesses and the PSLs that are really personnel-dependent and the margin is most sensitive to white space are the areas where we could see continued pricing pressure. And so we're focused on moving price everywhere we can. We haven't seen pricing inflect at a very steep level like you've seen rig count in certain basins.
And last one for me, just on the WolfPack acquisition. How do you see that fitting? I guess probably a lot of folks, including myself, spent a little bit less time really looking into your accommodations business. You significantly increased it here. Why did you think this was the right fit versus expanding maybe some of your better margin business lines?
So great question. What I would say is, as we think about drilling, our directional drilling platform and accommodations are in kind of that drilling services profile, if you will. And accommodations inherently has better margins than the overall drilling mix is what I'd say. Thus far, look, integration has gone exceptionally well to date. We're glad to welcome the WolfPack team into the KLX family. Great company, great employee team members, and we're fully integrated at this point from a system standpoint. I think Jeff and team did -- along with the legacy WolfPack people, did a great job. The systems were integrated as of July 1, and synergies are starting to roll through.
And so to your question, WolfPack added candidly needed assets that were able to offset some of our CapEx for the year because we were basically tapped out from a utilization standpoint with our legacy business. And to your point, that's a product line that kind of flies under the radar for KLX, but it's a product line that works exceptionally well for us, and we have sizable market share in certain basins. It also brought on new technologies from a water filtration standpoint. It opened doors to other industrial end users, including data centers, lithium mining, other things that candidly, legacy KLX was not doing. And so WolfPack affords us other opportunity sets from different revenue streams.
Thank you. At this time, I'll now turn the conference back to Chris for closing comments.
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 will conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.
KLX Energy Services Holdings, Inc. — Q1 2026 Earnings Call
1. Management Discussion
Greetings, and welcome to the KLX Energy Services First Quarter 2026 Conference Call. [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 first quarter 2026 results. With me today are Chris Baker, President and Chief Executive Officer; and Jeff Stanford, Interim Chief Financial Officer. Following my remarks, management will provide commentary on its 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 www.klx.com, and there will also be a telephonic recorded replay available until May 27, 2026. 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 13, 2026, 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 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 those certain 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 financial measures are included in the quarterly press release, which can be found on the KLX website. And now with that behind me, I'd like to turn the call over to Chris Baker. Chris?
Thank you, Ken, and good morning, everyone. I'll start with a brief overview of our first quarter results and recent trends across the portfolio. Then later in the call, I'll discuss the current market backdrop and how we're thinking about the rest of 2026.
Before getting into the numbers, I want to again recognize the men and women of the U.S. military who remain deployed in the Middle East. While the situation has evolved since our last call, it is far from resolved and many service members and their families are still living with significant uncertainty. Nearly 100 KLX employees are veterans and many more across our industry share that connection. On behalf of all of us at KLX, thank you for your service and sacrifice, and we continue to pray for your safe return home.
Turning to the quarter. We expect Q1 to be the low point for the 2026 fiscal year as it has been in prior fiscal years. The Q1 softness reflects the yearly pattern of customer budget resets and post-holiday restarts of completion programs, combined with specific schedule disruptions caused by customer drilling issues, delaying completion jobs and disruptions of approximately 4 to 5 days for winter storm Fern.
Revenue was down sequentially in every product service line, or PSL, except for our tech services and accommodations businesses, which led to a negative shift in service offering on a relative basis with higher revenue contribution from drilling services relative to completion services. First quarter revenue was $145 million within our estimated revenue range, albeit at the lower end, primarily due to the previously mentioned winter storm Fern and customer delays in the last 2 weeks of March that pushed over $5 million of revenue into Q2 across multiple districts.
Adjusted EBITDA for the quarter was $11.1 million with an adjusted EBITDA margin of about 8%, in line with the mid- to high single-digit range historically delivered in Q1 and consistent with the context provided on our Q4 call. As in past years, margin reflected typical Q1 headwinds, seasonality, weather-related white space and the payroll cost reset.
Segment performance continued to reflect the shift in our portfolio towards gas-directed activity. The Northeast/Mid-Con segment again led the way with revenue up 28% year-over-year and adjusted EBITDA of $10.9 million, almost 4x the first quarter of 2025 adjusted EBITDA. Our dry gas revenue was up approximately 45% year-over-year, even though we did see a modest sequential decline of about 4%, the first sequential decline in 5 quarters, primarily tied to weather delays in the Haynesville.
The Rockies and Southwest segments reflected a softer activity environment. The Rockies were pressured by typical winter seasonality and lower activity levels across several PSLs. We expect a meaningful sequential improvement in Q2 as we exit the worst of the winter impacts and currently forecast sequential improvements in all PSLs in the Rockies.
In the Southwest, activity levels remained soft as the Permian rig count continued its decline in Q1 and operators slowed start-up of some completion programs. Permian activity has shifted heading into Q2 with a sentiment shift around completions and DUCs in particular.
Additionally, we see positive indicators for South Texas, which along with expected activity rebounds in the Permian should drive the Southwest. We continue to gain traction with larger blue-chip operators and are well positioned as these operators increasingly demand certified higher-spec equipment and stringent safety requirements. At the same time, we expect the second half of 2026 activity to benefit from smaller independent and private operators driving incremental activity.
Revenue per average operating rig was favorable year-over-year, landing at $273,000 in Q1 2026 compared to $269,000 in Q1 of 2025. The previously mentioned shift in revenues, however, contributed to a reduction in EBITDA per average operated rig of approximately 13%. Looking forward and based on our current Q2 revenue forecast, this metric will increase to above $310,000 in Q2, depending on Q2 average rig count, which is a level that has historically driven strong margins.
With that, I'll hand the call over to Jeff to review our financial results in greater detail, and I will return later in the call to discuss our outlook. Jeff?
Thanks, Chris. Good morning, everybody. Consistent with Chris' remarks, given the seasonality in our first quarter, particularly within the Rockies, the most useful analysis is a year-over-year comparison rather than a sequential comparison, so I'll discuss that accordingly.
First quarter revenue was $145 million, down about 6% versus Q1 of 2025 compared with an estimated 12% decline in the average U.S. rig count. Adjusted EBITDA was $11.1 million or approximately an 8% adjusted EBITDA margin, broadly consistent with the mid- to high single-digit margin range we have delivered on prior first quarters. Net loss for the quarter was approximately $24 million or a loss of $1.23 per share. SG&A for the quarter was $15.4 million, down about 29% versus the prior year, reflecting the structural cost actions over the past several quarters.
Turning to segment results. In the Rocky Mountains segment, first quarter revenue was $38.6 million with an operating loss of about $3.8 million and an adjusted EBITDA of roughly $2.1 million. Revenue declined approximately 19% year-over-year, reflecting lower activity across our product lines and typical winter impacts. As Chris previously mentioned, we expect Rockies revenue and profitability to improve sequentially in Q2 as seasonal conditions normalize.
In the Southwest region, first quarter revenue was $53.6 million, operating loss was $3.4 million and adjusted EBITDA was $4.6 million. Revenue declined roughly 18% versus the prior year quarter, driven by reduced oil-directed activity in the Permian that began at the beginning of Q2 of 2025.
Northeast/Mid-Con segment, first quarter revenue was $52.5 million, operating income was about $3 million and adjusted EBITDA was $10.9 million. Revenue increased 28% year-over-year and adjusted EBITDA quadrupled compared to Q1 of 2025 with segment adjusted EBITDA margin expanding to approximately 21% from roughly 7% in the prior year period. This performance was driven by sustained gas-focused activity, particularly in our Haynesville and other Northeast/Mid-Con operations as well as strong execution and limited white space.
At Corporate and Other, adjusted EBITDA loss was approximately $6.5 million in Q1, an improvement of about 11% year-over-year, reflecting ongoing G&A rightsizing and our focus on returning corporate costs towards 2021 and 2022 levels.
Turning to capital allocation and cash flow. Capital expenditures in Q1 2026 were approximately $8.7 million with net CapEx of roughly $5.3 million after about $3.4 million of asset sale proceeds. Spending was predominantly maintenance oriented, focused on sustaining rentals, coil tubing, thru-tubing, pressure pumping assets. For the full year, we previously guided to approximately $40 million of gross CapEx and $30 million to $35 million of net CapEx. Based on the current purchase order logs and deployment schedules, our full year CapEx is tracking below that original framework. However, given the market backdrop and potential incremental activity, we expect to refine this range at midyear.
Net cash provided by operating activities was approximately $300,000 in the quarter. Unlevered free cash flow was negative $1.4 million and levered free cash flow was a negative $5 million. As is typical for us, working capital was a use of cash in the first quarter, reflecting 2 additional payroll cycles in the period, an increase in days sales outstanding and lower accrued liabilities. We expect cash generation and liquidity to improve throughout the year, consistent with our historical seasonal pattern.
Turning to the balance sheet. At quarter end, total debt was approximately $275.8 million and total liquidity was $48 million, consisting of roughly $6 million of cash and cash equivalents and about $42 million of availability under our March 2026 ABL facility, including undrawn FILO capacity.
Net working capital at quarter end was approximately $54 million. Given the significant revenue increase forecasted in the second quarter, we expect a slight reduction in liquidity at Q2 close as working capital increases to support higher activity with working capital levels expected to normalize over the second half of the year as receivables convert to cash and operations are funded from ongoing cash flow.
With respect to our notes, consistent with the commentary we provided in our Q4 call, we paid 25% of interest in cash and 75% PIK for the first 2 months of the quarter, and we elected to PIK 100% in March. Looking forward, we expect to PIK interest 100% for Q2 and Q3 of 2026 and then go to a 50-50 ratio for Q4. We will continue to evaluate this mix based on market conditions, leverage and liquidity. We remain well within our leverage covenants, providing us with incremental flexibility to fund CapEx, potential M&A and other capital needs. With that, I'll hand it back over to Chris to discuss our outlook.
Thanks, Jeff. From a macro standpoint, we continue to operate in a highly volatile but constructive environment. By all accounts, this is the largest energy shock in history. Commodity prices continue to be volatile and trade in a wide yet constructive band for activity due to the ongoing Middle East conflict and macroeconomic news. We are discussing customer reactions and expected incremental activity in real time, particularly in the Permian and other oil-weighted basins. I'd note, despite the recent declines in [indiscernible] WTI pricing, the forward curve for the balance of 2026 is still constructive and operator sentiment seems to be shifting quickly. We have already seen larger operators accelerating DUCs and independent operators pulling forward activity in the face of elevated spot prices.
On the gas side, the forward strip remains supportive, though as natural gas prices flirt with the mid-$2 range, we have seen some operators feather the clutch a bit on activity, specifically in the Haynesville with some considering pushing incremental programs to the second half of the year. We continue to believe that KLX's gas-weighted basins have longer-term strength and KLX has meaningful exposure, particularly in the Northeast/Mid-Con and Haynesville to drive incremental revenue as activity increases.
Looking forward, we are forecasting Q2 revenue of $162 million to $172 million with a midpoint of $167 million, 5% higher than Q2 of 2025 and $22 million higher than Q1 of '26. We expect solid contributions from the Northeast/Mid-Con and a seasonal rebound in the Rockies with the Southwest gradually improving off of current levels as Permian activity stabilizes.
In short, we forecast revenue to increase in all 3 segments in Q2, along with nearly every single PSL. The mix of drilling versus completion versus production and intervention services will still lean unfavorable on a historical basis, but is definitely trending back to normal. We expect adjusted EBITDA margin to expand sequentially, driven by higher activity and better overhead absorption.
Looking beyond Q2, our historic pattern has been for Q3 to be our strongest quarter of the year and current operator commentary suggests a robust second half, particularly as smaller independents and private operators increase activity. Those customers have historically been a core customer base for KLX, and we look forward to seeing them increase their activity in the second half of '26. That said, we want to see how margins translate at higher revenue levels, including any impact from pricing and mix before providing additional color on the second half of '26 and updating our full year 2026 framework.
In closing, I would like to thank our team of hard-working employees for their continued commitment and resilience, particularly given the challenges that always come with the first quarter in our business. I'd also like to thank our customers and shareholders for their ongoing support of KLX. We remain confident in our ability to execute our strategy and navigate what continues to be a dynamic and fast-moving market. With that, we'll now take your questions. Operator?
[Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti.
2. Question Answer
Chris, when I think about the pretty significant sequential improvement guide you have in Q2, certainly, it's much higher than we've seen in the previous 2 years. I'm just trying to get a better sense of how severe the weather impact was to you on Q1 and how much that's leading towards the much stronger guide to Q2?
Yes, it's a great question. I think it very much depends on the region. Look, the Rockies saw typical seasonal winter weather as we always do, and we had a lot of nonoperational days due to high wind, especially in North Dakota. We candidly don't and didn't quantify those days just due to the fact that this is a very typical seasonal pattern up there. I would say our gut feel is North Dakota and Wyoming this year were probably more impacted than last year.
When you shift to the Mid-Con and Haynesville, we definitely, as we said in the prepared remarks, saw anywhere from 2 to 5 days of revenue loss across various PSLs. And so when you think about the combination collectively between Fern plus the drilling delays that we mentioned that pushed some completion programs out, we estimate approximately $5 million of total revenue loss, and as you well know, unfortunately, we still incur all the fixed costs and candidly, on short-term notice, a lot of the variable cost in those instances, right?
Okay. That's helpful. I was actually surprised at the sequential revenue improvement in the Southwest, given what activity has looked like there in Q1, but it was at a much lower margin. Can you sort of explain that?
Yes, sure. And it's a great question. I think it was largely due to what we talked about on the -- in the prepared remarks where we had a PSL mix shift that we referenced in the call with some completion activity slowing down, drilling activity holding in pretty well. And so that -- it's puts and takes kind of across the board. I think we were also staffed up for some completions work that slipped later into the quarter. So that compressed margins as well. What I would say is we expect margins to expand in Q2. And we -- I think we'll continue, and we've already seen this in April, we'll continue to see the mix shift improve as we'll see a reversal of what we saw in Q1. And so on that point, just solely based off of internal April numbers, we've already seen a material -- it's a 1-month proxy, but we've seen a material improvement in segment-level margin in the Southwest relative to Q1.
Got it. Excellent. You mentioned -- both of you mentioned in your remarks, typically, it's the extra 1 or 2 payroll cycles in Q1. Usually, that's been your highest SG&A quarter. I was surprised how low SG&A was this quarter. Does it -- what are you thinking about trends this year on SG&A after a very strong performance in Q1 in terms of how low it was?
Yes. Steve, this is Jeff. I'll take that one. It was a good quarter for SG&A, and we are looking, obviously, at every single dollar. We have a great team. We're looking at every single dollar. So we're trying to keep those costs as low as possible without loss of quality. But we're looking -- if you look at the full year, if you look at 2025, we did $68.5 million, 2024, $79.6 million. So our goal is to kind of get it into kind of the -- if we can get lower than 2025 for the full year is where we're heading. So we're looking at it hard. It is a process going through it all, but we're definitely reviewing everything and going through that process. But if you want to think about SG&A for the full year, kind of think about it kind of the 2025, maybe less than 2025 rate.
Excellent. That's helpful. You touched on this a little bit in your closing remarks, Chris. Obviously, when we look at rig count, the one place we've continued to see growth was in the Haynesville, but obviously, we know lower natural gas prices could pressure there. And obviously, just even with the weather impact, still incredibly strong margin in that geographical region. Sounds like you're a little bit more cautious about growth moving forward where you think the pickup maybe is in the oil basins for obvious reasons in the second half. Can you just walk through the different pieces there?
Yes. So it's definitely a multifaceted question. I think if you think about the pure Mid-Con, it's holding steady. The Haynesville has been the story of the year. It's up, what, 8 rigs year-to-date and 25 rigs year-over-year. As we stated in our prepared remarks, we've seen a number of operators kind of feather the clutch talk about holding back or delaying programs. Natural gas prices are still pretty robust if you look at the forward strip this morning. And so it's not but a couple of months out where you start to see a 3 handle and then $4 later this year. And so I would say the second half of the year in the Haynesville kind of gets back on track from what I think is going to be a little bit of a slow spell, if you will, in kind of the shoulder month of Q2, then Q3, Q4 step up.
Same thing for the Marcellus, Utica. They're up 2 rigs year-to-date, kind of the same year-over-year. Q1 was seasonally very strong for us. So when you think about all the components of the Northeast/Mid-Con, the Northeast, in that segment was very strong year-over-year. And I think the business there and the team continue to perform at an elevated and kind of steady pace is the way I'd frame it. And so from a macro standpoint, there's no doubt D&C activity in that segment seems steady with some people talking about picking up rigs.
The second portion of your question is what happens to oil demand and oil rig count in the second half of the year. Look, it's a great question. This is the longest we've seen prices this elevated without a material inflection in rig count. Typically, 60 to 90 days after major moves in WTI, you'll see the market respond. That really hasn't been the case. And depending on if you're looking at Baker or Enverus rig counts, one kind of shows rig count year-to-date in the Permian almost flat, the other showing it slightly up.
I think there's very nuanced reasons for -- and part of that is the constant overhang of the Middle East deal and thoughts that prices would crash back to the $60 range on WTI. I think everybody is finally coming to terms that even with some conclusion to the Middle East situation, WTI is not heading back below $70 anytime soon. And in fact, the forward strip still has prices in the 80s in Q1 of next year as of this morning. So in short, it looks like based off of all indicators, operator discussions, public commentary by operators, the second half should tend to be stronger than the first half based off a number of macro tailwinds.
It sounded in your prepared remarks, you were talking about the smaller independents and private operators potentially being the driver. Are you seeing any of that right now?
Well, unfortunately, there are not as many of them around as there used to be, right, from a sponsor-backed entity standpoint just due to the wave of consolidation. But we have seen some of those former teams pick up some acreage around the margin, and we've seen some operators on the independent side do some pretty interesting acreage deals. So we've definitely seen in the Permian and other basins, some of the smaller operators kind of pull forward activity, especially completion activity and accelerate the pace of drillouts, putting 2 coil units per pad, multiple -- and a lot of the smaller operators don't do that in the same way the larger operators typically do.
So we've seen more and more of that as we enter Q2 that basically is just pulling forward our existing baseload of revenue anyway. So the question becomes how much incremental capital do they allocate on the year to increase drilling and completion expenditures. And you have to think they're salivating at molecules at $90 a barrel, right?
Our next question comes from the line of Josh Jayne with Daniel Energy Partners.
First one, you talked through the different geographies, but in light of the commodity price moves year-to-date, maybe you could just talk about different sense of urgencies around different product lines and how you see demand in the back half of the year across your different business lines, first?
Yes, it's a great question. And of course, we're geographically and product line diverse when you think about the business of KLX. And I think your question, kind of, Josh, first of all, that ties into what Steve was just asking. If you think about our guide for Q2, we typically don't provide granular detail around the market movement. But from a segment perspective, I think we're going to see the highest rebound in Q2 in the Rockies, but that's really due to the performance in Q1, right? And I would estimate of the incremental upside revenue, probably 50% of that is coming from the Rockies, ballpark, followed by the Southwest, which is probably 30% and then the Mid-Con is the balance. And so I think those numbers are skewed due to KLX's diversity.
Second half of the year, I think those -- the rate of change of those probably shifts back to the oiler basins, specifically in the Permian, we've seen South Texas ramp a lot of activity of late. We're also having a lot of conversations with operators and seeing incremental opportunity sets in the Bakken, the Uinta, et cetera. And so I think all of those basins in the second half of the year probably drive -- on a relative basis, drive any outside kind of market performance relative to the gas basins because the gas basins are already seeing a lot of the leg up. And while I think there's tailwinds there, I don't think you see the order of magnitude and the growth in those basins.
Okay. And then thoughts on pricing, how you see it evolving over the balance of this year? Do you think it will be more region driven? Or will it be more product line driven? And maybe just any anecdotes you could give would be helpful.
Yes, great question. I'll start with saying what we said most of the second half of 2025 and pricing in most PSLs across the industry, I think, is pretty anemic. And you saw a lot of the frac guys, rig guys, et cetera, all said that pricing didn't justify reactivations, right? So I think that sentiment is pretty consistent. So I think as we entered 2026, the floor was basically established and there was kind of only one direction to go. We candidly had selectively started to push price on certain PSLs, specifically in the basins that we've talked about that ramped earlier, late Q4 and into Q1 of 2026. And I think that was a very specific and targeted set of PSLs, when we drove and we drove and we were able to drive some incremental pricing there.
From a go-forward perspective, look, we've pushed through, I think, just like most people have the standard fuel surcharges of late, but we have definitely started having conversations that in order to add capacity on PSLs, especially the people-intensive PSLs, i.e., not rentals and things of that nature, but the more people-intensive PSLs like coil tubing, wireline, et cetera, we need to see price move. And so we'll see how the market develops, but I think that's kind of the macro theme as we think about our portfolio.
And then last one for me. Just still a lot going on with tariffs, global logistics being disrupted. Maybe you could just talk through anything you're seeing today and how that may impact an activity ramp coming in the Lower 48 and steps you're taking to help mitigate supply chain risk moving forward?
Yes, that's a great question. I think if you go back to the 2016 or 2020 COVID cycle, what we saw coming out of both of those cycles was the biggest issue were people. And I think we see what John has forecasted for the second half of the year on rig count. There are not a lot of hot-stacked rigs available in the market. And if you think about pulling DUCs forward and adding completion activity or adding refrac activity at the same time as trying to ramp rig count, I think people could be the biggest stumbling block.
We haven't -- from a tariff perspective, it feels like most of those issues have been alleviated over the last couple of years. There are some sensors and boards on the directional and downhole module side, et cetera, that still have issues at times. And I think everybody is watching the OCTG goods market just to see if things start to get tighter there again. Pricing on tubulars had come down over the last, call it, 18 months, and I think they've kind of found the floor, but we're definitely watching that market real time.
Mr. Baker, I'd like to turn the floor back over to you 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.
KLX Energy Services Holdings, Inc. — Q4 2025 Earnings Call
1. Management Discussion
Greetings, and welcome to the KLX Energy Services Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. 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 fourth quarter and full year 2025 results.
With me today are Chris Baker, President and Chief Executive Officer; and Geoff Stanford, Interim Chief Financial Officer. Following my remarks, management will provide a commentary on its 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. There will also be a telephonic recorded replay available until March 26, 2026. And of course, there's more information on how to access these replay features that was in yesterday's earnings release.
Please note that information reported on this call speaks only as of today, March 12, 2026, 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 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 financial measures are included in the quarterly press release, which can also be found on the KLX website.
And now with that behind me, I'd like to turn the call over to Chris Baker. Chris?
Thank you, Ken, and good morning, everyone. Before we discuss our results, I would like to take a moment to say our thoughts and prayers are with all of the military personnel serving in the Middle East in the midst of this significant conflict. KLX has very close ties to our military. There are almost 100 veterans that work for KLX and so many other veterans and their family members in the broader oilfield services space that we are all connected in some way. So again, our thoughts and prayers to all of our men and women in the military for a safe return. We sincerely thank you for your service.
Now for our 2025 performance. 2025 was another solid year for KLX despite a choppy market, and we finished the year on a high note. The fourth quarter delivered our strongest profitability of the year with adjusted EBITDA and adjusted EBITDA margin both at 2025 highs. Throughout 2025, we continued to optimize our corporate cost structure and thoughtfully invested in our product lines while leaning into gas-weighted asset allocation as we realigned certain product service lines and benefited from capacity rationalization in the industry.
KLX continues to execute against the playbook that we've outlined on prior calls. We focus on higher-margin, technically differentiated work, lean into cost discipline and are very intentional and diligent about where we strategically deploy capital and people.
Operationally, the Northeast Mid-Con segment was the standout in the quarter. Despite typical winter weather and year-end budget dynamics, that segment held revenue essentially flat sequentially and again expanded margins, driven by robust demand in our gas-directed work. Our dry gas exposure continued to grow as a share of the portfolio and gas levered revenue has steadily been marching back toward prior cycle peaks. In fact, dry gas revenue in this segment increased 5.3% quarter-over-quarter and 44% when you compare Q4 of 2025 versus Q4 of 2024, with broad-based gains across most of the product service lines we operate in this segment.
On the other side of the ledger, the Rockies and Southwest reflected the realities of the macro environment. The Rockies were impacted by severe weather and customer budget exhaustion late in the year, and the Southwest experienced lower activity on reduced oil-directed rigs in the Permian. Even in that backdrop, Southwest margins expanded as we optimized our product and service mix, which is exactly the kind of blocking and tackling that is firmly within our control.
Across the business, we continue to cut the suit to fit demand by aligning our footprint and cost structure with activity levels. We reduced headcount while protecting service quality. We maintained healthy metrics for revenue per rig and revenue per headcount, and we drove a meaningful reduction in our corporate cost year-over-year.
Our efficiency metrics remain solid. In Q4, revenue per rig was approximately $297,000, the second highest quarter of the year, and we delivered more than $40,000 of EBITDA per rig for the second time in 2025. Revenue per headcount also held up well, consistent with our focus on aligning staffing with activity.
I would like to take this time to personally thank everyone at KLX for their hard work, dedication and persistence, which allowed us to achieve the above results in an admittedly challenging macro environment. Our employees' commitment to safe, efficient and quality work performance is what drives KLX and is the basis of the strong customer relationships that help us stand out from competitors.
With that overview, I'll now turn the call over to Geoff to review our financial results in greater detail, and I will return later in the call to discuss our outlook. Geoff?
Thanks, Chris. Good morning, everybody.
Starting with the fourth quarter, we generated revenues of approximately $157 million, which was in line with our Q4 guidance. As expected, revenues decreased due to seasonality and budget exhaustion. We generated approximately $23 million of adjusted EBITDA, our highest quarterly adjusted EBITDA of the year and an adjusted EBITDA margin of about 14%, also the high for 2025.
The margin performance reflected favorable product line mix, ongoing cost reductions and normal fourth quarter accrual unwind as well as impacts from our fleet refresh, asset rationalization and other year-end items.
By segment, Northeast Mid-Con revenue was essentially flat sequentially at $69.6 million, up about 0.5%, while delivering another quarter of adjusted EBITDA margin expansion to 25.3% and $15.1 million of total adjusted EBITDA, driven by gas-directed activity. Within that segment, dry gas revenue increased 5.3% quarter-over-quarter, continuing the trend of our gas levered revenue base growing as a share of the portfolio.
In the Rockies, revenues declined to $46.3 million, roughly 9% sequentially, primarily due to weather, seasonality and customer budget exhaustion. Adjusted EBITDA declined to $6.9 million or 15%. In the Southwest, revenue declined about 10% to $50.9 million from the third quarter, mostly tied to budget exhaustion and softer oil-directed activity in the Permian. Adjusted EBITDA increased to $6.8 million or 33%.
On corporate costs, we made measurable progress. Corporate adjusted EBITDA loss improved to approximately $6.3 million in Q4, down from $6.6 million in Q3. For the full year, corporate adjusted EBITDA loss was around $26 million, bringing us back towards the 2021, 2022 levels. This reflects structural G&A rightsizing, including approximately 12% decline in total headcount when comparing average Q4 2025 headcount versus Q4 2024.
Turning to capital allocation. Net CapEx for 2025 was approximately $33 million. For 2026, we expect gross capital expenditures of approximately $40 million, down from $49 million in 2025 and net CapEx in the range of $30 million to $35 million, with the vast majority of that devoted to maintenance CapEx.
Cash flow generation was strong in Q4, with cash provided by operating activities at $13 million, slightly lower than the $14 million in Q3 due to the aforementioned seasonality and budget exhaustion affecting the bottom line. Unlevered free cash flow was $15 million, a 43% increase over Q3.
Total debt at year-end was $258.3 million, including $222.3 million in senior notes and $36 million in ABL borrowings, down from Q3 total of $259.2 million. We ended the year with available liquidity of approximately $56 million, including availability of approximately $50 million on the December 2025 asset-based revolving credit facility borrowing base certificate and approximately $6 million in cash and cash equivalents.
Of note, due to the New Year's Eve holiday timing, December 31, 2025, we drew approximately $8 million in cash to fund the first payroll of 2026.
From a balance sheet perspective, our capital lease obligations grew from their low point in Q2 of 2025 due to our previously discussed fleet refresh initiative, but will amortize down quickly through 2026, and we expect a meaningful lower capital lease balance at year-end. In addition, our coil leases roll off at the end of 2026, which will eliminate approximately $8.2 million of annual lease payments from our cash outflows beginning in 2027 and create incremental cash flow.
During the fourth quarter, the company paid senior note interest expense 2/3 in cash and 1/3 in PIK. We will evaluate future cash versus PIK decisions based on market conditions and company leverage and liquidity. As of the first 2 months of 2026, the company paid 25% in cash and 75% in PIK. We were in compliance with all covenants under our senior notes. At year-end, our net leverage ratio was 4.07x versus a covenant of 4.5x, and the covenant was scheduled to step down to 4.0x at March 31, 2026.
As we work through the 10-K filing, stress testing for market risk indicated a potential need for covenant relief in future periods. We took the proactive step to amend the indenture and provide adequate cushion for the next 5 quarters. The amendment provides that the covenant will remain 4.5x through March 31, 2027, resuming to the original step-downs as of June 30, 2027. The amendment also excludes capital lease balances from the leverage ratio calculation during the same period, affording us incremental flexibility to fund CapEx, M&A and other capital needs.
With that, I'll hand it back over to Chris for his concluding remarks.
Thanks, Geoff. Let me start with the market backdrop and how we're thinking about 2026. We are approaching the year with a constructive but measured outlook. We expect the first quarter to be the low point for the year, reflecting the familiar seasonal combination of customer budget resets, slower restarts of completion programs and weather-related disruptions.
Beyond Q1, we see a path to a gradually improving market led by gas-directed basins where we believe incremental rigs are more likely to show up before we see a more meaningful recovery in certain oil-directed markets. This, of course, is tenuous given the Middle East situation, and we will continue to monitor for oil-directed activity inflections.
Our portfolio is increasingly aligned with that opportunity set. The Northeast Mid-Con and other gas-focused basins have been areas of momentum for us, and we expect them to remain important contributors as potential areas of growth on a relative basis. In oil-directed basins, particularly the Permian, we are managing through what has been a slow extended downturn by rightsizing our footprint and cost structure to current demand while maintaining the flexibility to respond when conditions improve.
Finally, in terms of how we're framing 2026 revenue, our internal budget contemplates a year that is broadly flat to slightly up versus 2025, with the majority of improvement weighted towards the second half of the year, yielding results that trend towards the stronger run rate we delivered in the second half of 2025. That framework will be updated as the year progresses and we gain more visibility into customer plans and basin level activity.
From a Q1 perspective, we're forecasting revenue of $145 million to $150 million, down approximately 3% from Q1 of 2025 despite rig count being down 8% over the same period. This forecast does include the impact of winter storm firm where we've lost approximately 4 to 5 revenue days in many product service lines and certain districts. Looking forward to Q2 of 2026 we expect revenue to rebound to the $160 million to $170 million range, which is higher than Q2 of 2025.
Industry consolidation and capacity rationalization remain important themes across the oilfield services landscape, and we believe KLX is well positioned to be a net beneficiary. We've seen a number of smaller competitors exit the market in the last several months, which helped to remove inefficient capacity and support a more rational competitive environment.
On capital and fleet readiness our philosophy has not changed. We continue to invest at a level that maintains our asset base and keeps us ready for a market inflection. At the same time, our capital program is disciplined and predominantly maintenance oriented, which we believe strikes the right balance between prudence and preparedness in the current environment.
With that, we will now take your questions. Operator?
[Operator Instructions] Our first question comes from Steve Ferazani with Sidoti & Company.
2. Question Answer
Appreciate all the detail and color on the call. Two positive surprises, very similar to what you reported in 3Q in that at least compared to our estimates, Northeast Mid-Con was stronger and your margins were much stronger than we were we were modeling. Can you provide -- and you covered this in the call, I was hoping for a little bit more color, particularly on the strength in Northeast Mid-Con, which normally would expect to see some hit late in the year because of weather?
Yes. First of all, Steve, I appreciate the question. I think if you look at -- and it's the segment as a whole, when you think about Mid-Con through ArkoTex to the Northeast is a pretty geographically diverse segment but if you look at segment level rig count aggregated, rig count increased about 6% across that entire segment quarter-over-quarter. Just our dry gas exposures, we referenced in the call, increased 5.3% and furthermore, to your question, I think all of the service lines held up exceptionally well. It's a continuation of the theme, and I think you asked a similar question last quarter, we saw an early start in the Northeast last year that's sustained through Q4, and we weren't sure how well it would sustain through November and December post Thanksgiving because that is a very seasonally impacted business.
But we saw the Mid-Con continue with completion programs through the year-end. We continue to see wins in our accommodations business, our flowback business in East Texas. And so yes, it held up exceptionally well. Margin, of course, held up well. And look, we would forecast a slight decrease in revenue in that segment. in Q1, predominantly tied to the previously discussed winter storm firm, which really hit the Mid-Con pretty hard. But overall, we expect continued improvements throughout 2026.
And then the overall margin improvement, how much of that you owe to product line mix versus efficiencies versus what clearly has been some cost reductions? Is it very much a mix? Or would you weigh it more towards 1 or the other?
Yes. I think it's a great question. In the Northeast Midtown specifically, I think it's a -- yes, it's really lack of white space, really absorption of fixed costs. sustainably busy and product line mix.
Helpful. Switching to the Southwest, when I look at that revenue line, was that primarily the impact on your completion product lines? And I'm assuming that continues at least through the first part of Q1?
Yes, it's a combination. So we actually saw some reductions on the drilling side of the business. Rig count stayed pretty flat. I think it was up from a segment level when you combine all of the Southwest basins by about 2%, but yes, we did see some budget exhaustion and completion programs tailing off going into the fourth quarter. Some of our PSL and asset realignment rotations that we referenced on the call, we're really pulling certain assets out of the Southwest segment, pushing them into the Haynesville. So that attributes to some of the revenue decline.
That makes sense. Okay. That's helpful. In terms of how you're thinking about CapEx and cash flow as we go into 2026 and knowing that we have markets that can move in different directions given the uncertainty that's out there. How are you thinking about CapEx and cash flow as we enter the year, knowing it can clearly change?
Yes. Look, the world is in turmoil, and we're not budgeting for increases. Clearly, our budget was set before the events of 11 days ago, 12 days ago, really kicked off. And so we're targeting gross capital spending of $40 million. That's down from $49 million on a year-over-year basis in a year where we think revenue is flat to up. And so I think that speaks to, a, we don't have a lot of pent-up need for incremental CapEx in our business. We continue to spend to support the business. And we think that we'll continue to see some asset rationalization, DBR tools, lost on hole, et cetera, that will drive net CapEx down into the $30 million to $35 million range.
That is all subject to change based off of market inflections, but I think we're doing the appropriate level of spending being prudent. So we're staged and ready to go for any market inflection.
Got it. And if I could talk just about the PIK option, how you're thinking about that and then the covenant relief. It looks typically, you have very significant working capital seasonality. And typically, 1Q is your significant cash outflow. The covenant relief, is that primarily related to what we see as typically the working capital build in Q1, which would potentially put you at a closer point to where it was going to step down to? And how do you think about the relief now in your comfort level over the next few quarters?
Steve, this is Geoff Stanford. Great question on that. The waiver -- we -- closing our books out, doing our year-end budget, going through the year-end audit, we going through all these things at year-end. We do look at stress testing of that. So you look at certain ramifications if this happens or that happens. So going through that stress testing, we entered into it more as a proactive measure, give us some cushion for the future periods. It goes out 5 quarters or 15 months, so we feel really good about that. It gives us a lot of cushion there.
But a lot of things happen as you move forward. Working capital is 1 piece of that, but also as you stress test the model, what does it look like? So that provides us a good proactive measure to make sure we had cushion for future periods. That's the main reason that we entered into the waiver. So -- as far as the PIK option, I think your first question on that. We did pick 33% of it in Q4. We picked 75% in January and February of this year. And the PIK option on the node is designed for flexibility. We utilize that flexibility as we see fit.
So in this case, we pick some, we pay some in cash, and we look at it kind of throttle up and down as we need to. Market dynamics, liquidity, leverage considerations, all taken into account, kind of our algorithms as to how we want to do it. But that's kind of what we did in the past, what we're doing in the first 2 months of this year. So that's -- that's kind of how we look at the PIK option. We do like that flexibility and we use it is that as needed to.
Got it. That's helpful. And Chris, and I know it's way too early to really have an outlook on this. But what is your take on the potential impact from the Middle East conflict if it's extended? If it's not, what do you think -- and I know there's a lot of different outcomes, but just how you're looking at it on your business and what the potential outcomes could be?
Yes, it's a great question. Just one thing I want to clarify on the PIK to Geoff's point. Recall, our leverage ratio includes capital lease balances as debt. That capital lease balance at year-end is going to amortize off pretty significantly this year. And so there's an amount that you can pick where you can stay all else equal, basically net debt neutral, right? And so that's another consideration that we factor in when we think about overall leverage profile.
Turning to your question, look, it's a great question regarding the Middle East conflict. And as we said at the outset, thoughts and prayers to the servicemen and women that are over there. If you think on a historical basis, Steve, we've typically seen a 60- to 90-day lag in activity increases or decreases post commodity prices moving. What we saw in April of last year was almost an immediate reaction but we definitely saw kind of 45 to 60 days, a material reduction in rig count post Liberation Day with the tariffs and when commodity prices change.
Look, we have not seen -- so I think what that speaks to is the cycles have gotten shorter and that's for a couple of reasons. Operators don't have a lot of duration and tenure in their rig contracts today. They're going pad to pad, well to well, et cetera. And so they react much -- in much shorter timeframes than they have historically. We haven't really seen any reaction to $100 crude yet. And we think most operators are taking a wait-and-see approach they just set their 2026 budgets, and so it's hard to say.
What I will say is, as of this morning, the forward strip, you can do forward swaps at $72-plus in December of '26. So the strip and the tail of the strip is clearly much more conducive to lower $48 activity. And the other point would be, from a KLX perspective, we don't actually have to see incremental rig count to see increases in our own activity. If you think about our completion production intervention business line, we benefit from increases in refrac activity, workovers, well intervention, stimulation of existing wells.
And we've talked a lot over the last year about how the refrac market, specifically in the Bakken to a lesser extent, in the Eagle Ford slowed down through 2025. So we're keeping our ear to the ground, trying to stay close to customers. We'll see how protracted the situation becomes. How much energy infrastructure in the Middle East is damaged and what happens to commodity prices. And I think specifically the tail over the next month but as you know, KLX has -- we've got the right asset base. We've got the right technology and people. If customers elect to ramp activity, we will absolutely be there and be prepared to participate.
This is Ken. John Daniel, Chris, he had to drop, but he e-mailed me some questions. And so I'm going to read them to you. So that way, he'll hear him on the replay. There continues to be a push by simul fracs, what is it?
Simul frac.
Simul frac operations. Can you speak to your frac business and customer base and let us know what trends you are seeing?
Yes. I think, look, from a high-level perspective, specifically in the Mid-Con is we haven't seen the huge adoption of simul frac relative on the same pace that we've seen in other basins. We clearly are participating in simul frac in the Permian and other basins in a very material way with our frac rolls business, wellhead isolation business, et cetera. And that's not to say that the MidCon hasn't adopted simul frac.
But I think there's numerous reasons for the slower adoption rate, one being the acreage profile, operator size in some instances, pad sizes, lack of electrical infrastructure when you think about comparing to the large electric spreads in the Permian. So we have seen some adoption. If you -- I would say, on a stage count basis, if you think about our forecast for this year, we're probably somewhere between 25% and 30% simul-frac, and that's up year-over-year. But it's clearly not -- doesn't have the propensity that you would see in the Permian.
So -- and this are John's words. If not mistaken, that's not a basin to seed a lot of new capacities in some years. So would it seem that attrition would be a little more pronounced? Or is that too optimistic on his part?
John is always optimistic. But I think, look, tying back to the first part of the question, simul frac definitely adds a layer of complexity and incremental horsepower needs that some providers just aren't adept at managing either from a rate or a pressure perspective. A lot of providers are limited to 100 barrels a minute, under 10K. And so as you think about attrition within the basin, and I'm sure John is not on the call, I'm sure he's aware, the general industry said there was about 10 spreads sold last year to international locations.
Most of those spreads were Tier 2 equipment, there was some horsepower that left the basin. But I think as you think about the basin today, it's amply supplied. I don't think we're short horsepower by any stretch. And barring any material pickup in activity back to Steve's prior question around the Middle East situation, commodity prices, bar any material pickup in activity I think John is probably optimistic that attrition is going to drive overall results. So I think it's a pretty balanced basin today.
Okay. You've got a second topic of coiled tubing. He says, we've heard at least 1 coiled tubing company, suspending operations in recent months, and we believe some of those assets may be reconstituted by some other folks. At the same time, there are very small number of units being built, thus on 1 hand. There are those who have struggled and those who are doing well. Can you give us your thoughts on the U.S. coiled tubing market? Do you see the sector beginning to rationalize itself? Or is that something you expect will occur in the next year or 2, if at all?
So that's a broad question. I'll jump in on the first point. We've definitely seen some attrition of units. We've seen over the last couple of years 1 player exited the market about 2 years ago and that equipment candidly vanished. We -- I'm aware of the player that John is talking about. The majority of the optimal assets were reconstituted into and absorbed by a pretty sizable player in the business today. There were some assets that landed in a start-up. We're aware of another situation that is currently active with another smaller player exiting the market altogether.
So I think the business is shaking out for different market dynamics. If you think about the Bakken that has shrunk as the coil market. We've seen players move equipment out of the Bakken, in either back to Canada or down to the Permian and other basins, Wico. And so there's been a lot of coil decline in certain regions due to the length of the wellbores surpassing capacity of the units in those regions and the growth of snubbing and stick pipe.
From pivoting to the second part of his question, from a newbuild perspective, look, John is correct. There's kind of very few new build units that are under construction and the ones that are solely focused on ultra-deep extended reach laterals. That's where the market is heading. The routine frac screen-outs, wellbore cleanouts have become fewer and fewer. And so the provider has to have the expertise, the scale to manage all of the technologies required to complete 4-mile laterals with coiled tubing. That's multiple ERTs, coil connectors, string and fluid design.
They all have to be optimized. The risk are increased, pipe costs are increased and operators are monitoring ROP, KPIs and real time and switching costs are candidly minimal as they're trying to think about the risk reward and efficiency gains of coil versus alternatives. Candidly, I think that's where KLX has an advantage with our in-house proprietary mud motors, our extended reach tools as well as additional technologies that we're bringing to bear to extend the commercial viable life of coiled tubing and expand the addressable wellbores.
Good. So operator?
Okay. This concludes our Q&A session. I'd now like to turn the call back over to Chris Baker for final comments.
Thank you once again for joining us on this call today and your continued interest in KLX. We look forward to speaking with you 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.
KLX Energy Services Holdings, Inc. — Q3 2025 Earnings Call
1. Management Discussion
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the KLX Energy Services Third Quarter Earnings Conference Call.
[Operator Instructions]
Please note this conference is being recorded. I will now turn the conference over to your host, Ken Dennard. Thank you. You may begin.
Good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review third 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 commentary on its quarterly financial results and outlook before opening the call for your questions. There will be a replay of today's call and it will be available by webcast by going to the company's website at klx.com. There'll also be a telephonic recorded replay available until November 20, 2025.
For more information on how to access these replay features go to yesterday's earnings release. Please note that information reported on this call speaks only as of today, November 6, 2025. And therefore, you're advised that time-sensitive information may no longer be accurate at 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's 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 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 financial measures are included in the quarterly press release, which can be found on the KLX website. And now with that behind me, I'd like to turn the call over to Chris Baker. Chris?
Thank you, Ken, and good morning, everyone. Thank you for joining us today. The third quarter represents the strongest quarter of the year, overcoming continued market headwinds, including commodity price volatility and a softer OFS activity environment. Tax generated revenue of $167 million, up 5% from Q2 and adjusted EBITDA of $21 million, up 14% from Q2, ahead of our prior guidance. Adjusted EBITDA margin improved materially by 100 basis points sequentially to 13% despite the average U.S. land rig count declining 6% average frac spread count being down 12% over the same time period. Our results were driven by a 29% revenue increase in our Northeast Mid-Con segment which more than offset softer activity in the Rockies and Southwest segment.
KLX outperformed the industry trend once again by strategically allocating its assets across our broad footprint focusing on field execution and efficiencies and tight cost controls. Operationally, our completion-oriented product lines in the Mid-Con Northeast, along with a rebound in our accommodations and flowback businesses contributed meaningfully to this quarter's top line strength. KLX's third quarter results are a testament to our team's agility, dedication and collaboration effectively managing white space in a difficult market, all while controlling costs. The operating environment remains challenging, shaped by OPEC+ supply growth and depressed rig counts across all major basins. We believe that our diversified asset base premium customer alignment and diverse geographic footprint will continue to support consistent performance. Third quarter revenue and adjusted EBITDA per rig were $318,000 and $40,000, respectively, 20% and 227% above the levels from the fourth quarter of 2021, the last time industry activity was at similar levels. This underscores the progress we've made in strengthening our competitive standing and driving operational and organizational cost efficiencies over the past several years. Simply put, KLX is significantly more efficient today than we've been in prior cycles.
Now let's look at our segment results. The Southwest represented 34% of Q3 revenue, down from 37% in Q2. Northeast Mid-Con was 36%, up from 29% in the prior quarter, and the Rockies was 30%, down from 34% in Q2. The Rockies experienced reduced completion activity in our tech services, frac rentals and coiled tubing product service lines. In the Southwest, weaker demand in directional drilling, flowback and rentals driven by the overall reduction in Permian activity and white space associated with customer M&A integration initiatives resulted in a softer top line with revenue declining 4%, albeit still outperforming the segment's average rig count decline of 9%. The Northeast Mid-Con segment was a standout in Q3 with our completions-oriented product lines delivering sequential growth for both revenues and margins, demonstrating our ability to capture incremental activity by basin, focusing on crew and equipment allocation throughout the KLX footprint and we expect continued momentum into Q4.
By end market, drilling, completion and production intervention services contributed approximately 15%, 60% 25% of Q3 revenue, respectively. Based on current customer calendars, we expect a healthy Q4 despite typical seasonality and budget exhaustion. This reflects recent market share gains, the solid execution of our strategy and a steady focus on long-term value creation, all of which positions KLX for increased activity anticipated in 2026. I'll now turn the call over to Keefer to review our financial results in greater detail, and I will return later to discuss our outlook. Keefer?
Thanks, Chris. Good morning, everyone. As Chris mentioned, Q3 2025 revenue was $167 million, a 5% sequential increase but 12% lower than Q3 2024. Average rig count was down 6% over this period and frac spread count was down 12% over the same period. Our Q3 sequential results were driven largely by strong growth in the MidCon, Northeast segment, which saw a 20% -- 29% quarter-over-quarter top line increase. The outperformance was complemented by disciplined management of fixed costs, resulting in consolidated adjusted EBITDA margin expansion to 12.7% from 11.6% in Q2 and was in line with last quarter's guidance and approaching Q3 2024 margin levels of 15% despite a market environment measured by rig count that is down 7% over the same period.
Total SG&A expense for the quarter was $15.6 million. Excluding nonrecurring items, adjusted SG&A expense came to $14.8 million representing a 30% reduction from the same period last year and an 18% improvement sequentially. These reductions reflect the full impact of the cost structure initiatives implemented in 2024 supported by incremental efficiency gains realized throughout 2025, reduced third-party spend and settlement of a legal claim. Looking ahead, adjusted SG&A is expected to remain in the 9% to 10% of revenue range for the year. Moving to our segment results. The Rockies segment had Q3 revenue of $50.8 million and adjusted EBITDA of $8.1 million. Sequential revenue and adjusted EBITDA decreased 6% and 22%, respectively, mainly due to a slowdown in completions activity due to discrete customer scheduling, particularly in tech services, frac rental and coiled tubing.
As we move into Q4, we've seen some choppiness to customer schedules and expect typical holiday slowdowns. In the Southwest segment, revenue and adjusted EBITDA were $56.6 million and $5.1 million, respectively. On a quarterly basis, Q3 revenue decreased 4% sequentially, with EBITDA down 29%. As expected, given the 9% decline in Southwest rig count, an 18% decline in permanent frac spread count, the Southwest experienced lower activity across directional drilling, flowback and rentals which drove a corresponding downward pressure on margins during the period. For the Northeast Mid-Con segment, revenue was $59.3 million and adjusted EBITDA was $14.5 million. The sequential increases in revenue of 29% and adjusted EBITDA of 101% were largely driven by higher utilization across our completions portfolio, reduced white space in our calendar and targeted expense management across our various PSLs operating within this segment. At corporate, our operating loss and adjusted EBITDA loss for Q3 were $8 million and $6.6 million, respectively, with our operating loss improving 11% from last quarter, and our adjusted EBITDA loss was within $300,000 of Q2 2025.
Turning to our balance sheet, cash flow and capitalization. We ended the third quarter with approximately $65 million in liquidity, in line with Q2, including $8.3 million of cash and cash equivalents, and $56.9 million of availability on our revolving credit facility which includes $5.3 million on an undrawn FILO facility. Total debt as of September 30 was $259.2 million, including $219.2 million in notes and $40 million in ABL borrowings and is also largely in line with Q2 levels. We remain in compliance with our debt covenants. Our bonds require a 2% annual mandatory redemption paid quarterly. We've continued to make these payments, but we did PIK $6 million of interest in Q3, and we will evaluate future PIK versus cash decisions based on market conditions and company leverage and liquidity. It's worth noting that our most recent PIK election was 100% cash paid interest.
Moving to working capital. As of September 30, we had $50.1 million of net working capital and our DSO held steady at a normalized level of 61 days and our DPO increased slightly to approximately 50 days, both roughly in line with long-term historical averages.
We remain focused on disciplined and proactive management of working capital to ensure flexibility and resilience in the current market environment. Our capital expenditures for the quarter were $12 million, and $7.8 million net of asset sales, down 6% from Q2, and we expect a further decline in Q4, in line with our focus on further capital efficiency. Year-to-date, capital spending trends suggest a full year gross CapEx of $43 million to $48 million with net CapEx of $30 million to $35 million when you include asset sales. As activity declined, head count was reduced approximately 2% sequentially, supporting overhead control and increased operating leverage. Also, we completed the sale of facility in Q3 expect additional asset sales to close in Q4. We continue to monitor and respond to asset performance, and our finance leases are beginning to transition as older vehicles roll off in Q4. We contributing to increased operational agility into 2026, and our portfolio of finance leased coiled tubing units will be owned outright in late 2026, which will drive a meaningful improvement and free cash flow profile going forward. I'll now hand the call back to Chris for his concluding remarks and more color on our outlook.
Thanks, Keefer. While the broader market conditions remain mixed and near-term visibility is limited, we are encouraged by recent signs of stabilization and rig activity and the emergence of sustained and incremental activity in the natural gas basins. We continue to emphasize operational discipline, margin optimization and proactive capital stewardship sustained by close coordination across our operating regions to weather current market volatility. With improved overhead efficiency, a disciplined cost structure and a flexible balance sheet, we are confident in our ability to navigate the remainder of 2025 successfully and capture upside as the market strengthens. As we look ahead, we anticipate typical seasonality and budget exhaustion to moderate activity through the fourth quarter, yielding a mid-single-digit revenue decline from Q3 to Q4.
This signals a less pronounced Q4 reduction than in years past. Importantly, we expect continued stable adjusted EBITDA margins, aided by ongoing cost discipline, year-end accrual dynamics vehicle turnover and regional activity mix. Our fourth quarter guidance reflects steady demand across our core product service lines, supported by new project awards from key accounts. Operationally, our diversified portfolio, prudent capital discipline and proven operating leverage continue to drive strong execution, helping to offset macro volatility in commodity noise. In addition, KLX stands to benefit as natural gas demand accelerates, underpinned by new LNG export capacity and increased data center activity. On a quarter-over-quarter basis, dry gas revenue rose 15%, building on the 25% increase we saw in Q2.
Haynesville activity rebounded by 6 rigs in Q3, and we continue to monitor demand drivers on the board. with close to 11 Bcf per day of new LNG export projects scheduled to come online over the next 5 years, including key capacity additions along the Gulf Coast. The U.S. is well positioned to strengthen its role as a global energy supplier. Our internal planning highlights continued relative stability in completion-focused service lines along with a modest Q4 bounce back in drilling activity. Combined with incremental benefits from strategic cost controls already underway, these strengths reinforce our confidence in delivering profitable growth in 2026.
Our strategic capital stewardship ensures we remain ready for both measured top line expansion and sustained margin strength. In summary, unused fleet capacity and minimal white space have allowed us to adapt operations efficiently and support margin expansion even in periods of softer activity. KLX is now better situated from an overhead efficiency standpoint than at any time in our post-COVID history, empowering us to strategically capitalize on future opportunities. KLX has significant operating leverage to a rebound in market activity. And similar to prior cycles, we will ensure we are best positioned from a personnel asset and technology standpoint to maximize our upside in future periods. We appreciate the ongoing dedication and commitment of our team members, the partnership of our customers and the support of our stakeholders, empowering us to deliver value and drive KLX forward. With that, we will now take your questions. Operator?
[Operator Instructions]
Our first question is from Steve Ferazani with Sidoti & Company.
2. Question Answer
I got to start with the Northeast MidCon, which we expected it to trend higher for you. But those numbers were way past our expectations. That your Northeast Mid-Con margin was the highest it's been in 3 years and 3 years ago, natural gas prices were over $8. Can you indicate the performance because it's impressive?
No. Look, I appreciate that. Our Northeast -- if you really dig into it, our Northeast business within the Northeast Mid-Con remained relatively stable, predominantly driven by rentals and fishing. You dig into the Haynesville, we were able to capture revenue increases and accommodations and flowback specifically. And I think perhaps most importantly, we saw less white space overall in our Mid-Con PSL.
And so when you think about the positive operating leverage and just being base loaded, you see a lot of margin expansion. And so I wish we were back in a market where we were at $8 gas price, we're not. I don't expect to go there anytime soon. I do think a macro theme though is KLX as a whole is just more efficient today than we were in the period you referenced. And I think that shined through in our Northeast Mid-Con performance.
Is it also fair to say you're gaining market share?
Well, look, I think rig count was up, what, 6 rigs quarter-over-quarter on average in the Haynesville. So you can think about that on a percentage basis where once again, we drove quarter-over-quarter revenue just from a dry gas perspective of 15%, 25% in the prior quarter, if you recall, our Q2 discussion. And so I think within certain product lines, yes, we've gained market share.
And then flipping to the other side, which was the Rockies, we know that drilling and completions are trending down, but you did outperform our estimates. Was there anything specific going on in that market in 3Q beyond the general macro?
I think specific in nature, look, rig count to your point, was really flat in the Rockies quarter-over-quarter. There were puts and takes in the various basins within the Rockies, but overall Rockies was generally flat. However, what we did see was some very episodic completion programs with an overall decline in kind of refrac activity. And we saw a lot of refrac activity in '23 and continuing into parts of '24. And so I think the episodic nature of those completion programs is back to the point with the Mid-Con, it really highlights the negative operating leverage when your cost structure is relatively fixed in the short term and at current market pricing levels.
And so when you get a last-minute delay in a completion program that pushes revenue out of the schedule or maybe out for a month, it's really hard to adjust your cost structure in the short term. And so the negative operating leverage really impacts margin.
That's helpful. When you're indicating the slower year-end slowdown, you're certainly not the first company to say that during earnings season. What is it you're hearing from operators? And how does that make us think about next year when, obviously, a lot of folks are concerned about oil oversupply and pressure on WTI?
Yes. I think there's really 2 questions there. First, Q4, we stated a mid-single-digit revenue decline on a percentage basis. That's materially below the 13% quarter-over-quarter decline we saw last year. The decline is largely going to be driven by holiday slowdowns. I think, less pronounced budget exhaustion versus prior periods. I would note that on a monthly basis, our October revenue was flat to September whereas if you look at 2024, we saw a 7% decline October versus September in the same period. And so we're already off to kind of, on a relative basis, a better start.
On the margin side, we expect margins to hold up despite declining revenue really just due to cost controls. We've got our typical Q4 accrual unwinds relative to PTO and other accruals. And we also talked about the fleet turnover in our prepared remarks that typically occurs in Q4. And so that's how we're set up on Q4 as we sit here today.
And then...go ahead.
Yes, I was going to say on next year, look, it's still too early to give firm guidance from a 2026 perspective. we've seen puts and takes with operators saying their CapEx budget for next year is going to be to slightly down. I think we're set up where the gas market is going to be very consistent, and everybody is projecting a full year-over-year increase in activity, and we would expect that to hold true for us. We continue to see consolidation. We saw a major consolidation transaction earlier this week.
We know these transactions can lead to episodic white space and growing pains as they integrate their portfolios. Net-net, we are typically the beneficiaries as we talked about before of consolidation, but it still can create some puts and takes. I will say we've received some recent wins from an RFQ perspective on the award front, which we think are supportive of both Q1 and 2026 overall. And then lastly, I think the last part of your question, the EIA just posted a report earlier this week saying, and I think it was on Tuesday, saying we're going to have to ramp up U.S. activity to sustain U.S. crude production. And so it's very circular. I think it's if and when production declines take over, that is supportive of commodity prices and higher commodity prices is supportive of activity. And so it feels like it's a question of when, not if activity rebounds in the oil basins. I think there's some optimism building around the second half of '26 into '27. We'll just have to see how it plays out.
Fair enough. That's very helpful. I do want to touch on the balance sheet. $65 million in available liquidity. 4Q tends to be a strong cash flow quarter, but then Q1 is the working capital builds again more dramatically. I'm just trying to think about your flexibility. You haven't used the PIK option yet, you have that at your disposal, which can help depending on how the first part of next year plays out. Generally speaking, and you've been selling some equipment, I think you talked about some facility sales. Can you just give us a general overview about -- and you've done a great job trying to protect the balance sheet during this downturn. Just generally, how you're thinking about that without knowing exactly how activity plays out first part of next year?
Yes. Good question and lots of moving pieces, obviously, in there from a free cash flow perspective. First, on the PIK, so we did PIK a portion of our Q3 interest. We picked about $6 million of interest in the third quarter. But in the prepared remarks, we did say that our most recent cash PIK election that we submitted last week, we did do 100% cash pay there, but we will continue to evaluate PIK versus cash decisions through the wins of managing the balance sheet from a leverage and liquidity standpoint. So nothing is going to change there. As it relates to free cash flow, you're spot on that Q4 is typically a strong free cash flow quarter for us.
We had $11 million or so of unlevered free cash flow in Q3. We did guide Q4 down on a mid-single-digit percentage basis. With that said, working capital should unwind. Given that decline, Q4 does not also have the extra payroll that we have in the third quarter. So those 2 things combined should lead to improved kind of free cash flow generation in the quarter largely due to working capital trends. DSO has been holding in pretty consistently around 60, 61 days. I would expect that to hold going forward. On the DPO side, we've been kind of trending in the low 50s. Again, I would expect that to hold going forward.
As you think about CapEx and its impact on free cash flow, we're guiding to a much lower kind of minimal net CapEx spend in Q4. Obviously, kind of gross spending will be down, but that will be offset by some of the asset sales that we mentioned and you alluded to in your question. So I think all those things combined to Q4 being a strong quarter, and that's why we continue to reiterate that we expect liquidity to continue to improve as we navigate the remainder of this year. As you turn into 2026, I think the quarterly trends there, as you point out, will continue to play out to some extent. I will say that I expect Q1 2026 to be less burdensome from a working capital investment standpoint compared to the '24 to '25 transition just given what we know today.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Chris Baker for closing remarks.
Thank you, operator. Thank you once again for joining us on the call today and your continued interest in KLX. We look forward to speaking with you again next quarter.
Thank you. This concludes today's conference. You may disconnect your lines at this time.
Financial data from KLX Energy Services Holdings, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 636 636 |
5%
5%
100%
|
|
| - Direct Costs | 502 502 |
3%
3%
79%
|
|
| Gross Profit | 134 134 |
10%
10%
21%
|
|
| - Selling and Administrative Expenses | 63 63 |
19%
19%
10%
|
|
| - Research and Development Expense | 1.80 1.80 |
13%
13%
0%
|
|
| EBITDA | 68 68 |
0%
0%
11%
|
|
| - Depreciation and Amortization | 90 90 |
8%
8%
14%
|
|
| EBIT (Operating Income) EBIT | -21 -21 |
27%
27%
-3%
|
|
| Net Profit | -62 -62 |
13%
13%
-10%
|
|
In millions USD.
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KLX Energy Services Holdings, Inc. Stock News
Company Profile
KLX Energy Services Holdings, Inc. engages in the provision of completion, intervention and production services and products to onshore oil and gas producing regions. It operates through the following geographical segments: Southwest, Rocky Mountains and Northeast. The company was founded in 2018 and is headquartered in Wellington, FL.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Baker |
| Employees | 1,548 |
| Founded | 2018 |
| Website | www.klxenergy.com |


