KLX Energy Services Holdings, Inc.

Q1 2021 Earnings Conference Call

6/10/2021

spk_0: greetings welcome to the calix energy services fiscal first quarter twenty twenty one earnings conference call at this time of dispenser north and only mode every question answer session will fall the formal presentation if anyone should require operators distance during the conference please first started zero from your telephone he bad as a reminder this conference is being recorded it is now my pleasure to introduce your host can dennard think you can hear me now begin
spk_1: thank you operator and good morning everyone we appreciate you joining us for the korea likes energy services conference call and webcast to review for school first quarter twenty twenty one results with me today or chris baker galaxies president and chief executive officer a keeper later executive vice president and chief financial officer following my remarks management or provide a high level commentary on the financial details of the first quarter and the outlook before opening the call for questions and answers will be a replay of today's call the be available by webcast on the company's website it felix energy that on the also be a recorded replay telepathically until june seventeenth phony twenty one and more information on our our how to accept these replay features will it work there were included in yesterday's or angel these please note that information reported on this calls victoria us today ten twenty twenty one and therefore you're advised time sensitive information the no longer be accurate as of the time of any replay listening or transcript it in addition management's comments may contain certain forward looking statements within the meaning of the united states federal securities laws be forward looking statements reflect the current views of galaxies management however various risks uncertainties i can introduce football's actual results are formats or achievements to differ materially from those expressed in the statements made by management listener or reader is encouraged to read the annual report on form think a quarterly reports on form and you or current reports on form ak the understand certain of those risks uncertainties and contingency the comments today may also include certain on gap financial measures additional details and reconciliation to the most directly comparable get financial measures are included in the quarterly presley's with can be found on the galaxy energy website and now like from the fall or two galaxies president and chief executive officer mister chris baker press thank you good a good morning everyone thank you for joining us today for calix energy services go first quarter forty forty one topic skull i'll begin by providing an update on the broader market environment as well as some of the significant themed impact in our results during the quarter o been turned to call over to keep her the review our financial performance before returning for some final comment on our outlook and strategy as the global economy reopens postcode co the the market continues to improve from both a macro supplied demand perspective as well as from a us onshore activity perspective the fiscal first quarter ended april thirtieth of wt i prices and recounts were up roughly forty one percent and the recount currently sit at approximately ten percent above it's you on average additionally the us black spread cal increased approximately forty four percent during our fiscal first quarter ending with roughly two hundred twelve brac spread running in the u else with that that our customer base continues to focus on capital discipline and returning capital to shareholders
spk_2: oh we're seem very evident sign of meaningful market improvement we also found herself in a difficult transitory period in which some of the crosscurrents we mentioned yard are prior call weighed on are you on results revenue and margins where impact of materially a seasonal weather issues winter storm uri as well as material customer scheduling and well issues particularly in the rockies we lost approximately seven plus revenue days due to winter storm the alone which coincided with a
spk_1: stop enough to service the increased activity level expected in march and april so there was significant negative operating leverage associated with the for gallon revenue it's the aforementioned headwinds experience in you was our revenue improved five percent sequentially to approximately ninety one million dollars model a result improved throughout the quarter and we exited you one on a high note generating our highest revenue level since clothing the qf merger last quarter we spoke at length about pricing power for all the services companies and how it remains challenging despite clear improvements a commodity fundamentals on the positive side and since we spoke last quarter our ability to improve price has improved around the margin that the broader macro things remain the same
spk_2: our customers are focusing heavily on retards a capital discipline rather than production growth leading to activity gain in significantly lower the would have occurred and prior cycles
spk_1: when combined with a large quantity of stacked equipment in the market blade and the lack of meaningful consolidation much as company it is easy to see why make a proportional headway and pricing is considerably more difficult now than in previous cycles our team has done an excellent job executing on or merger integration a cost reduction initiative
spk_3: since completing the implementation of the forty six million in annual eyes merger synergy in april twenty forty one we have action and additional four point four million in annual i've excl saving during late you one and into que to the will begin to benefit or qt result the should be fully reflected in our
spk_1: review result
spk_2: the savings or inclusive of the actions taken during the june a and annual meeting to reduce the size of the board from nine directors decide our efforts to seek out greater savings and operational efficiency have been very successful we will continue to monitor the need for future actions alongside our jumps to move price
spk_1: in a that bible to do so other's guts or outlook to queue to a more detail later in the call but we are optimistic around the trajectory of the industry and are competitive position he that galaxy we expect our result improve materially it you to as we expect revenue will increase fifteen to twenty percent sequentially and the business should return to break even adjusted ebola in the quarter for the first time since early phony phony with that are now turn the call over to keeper who are you
spk_4: you are you on financial result deeper
spk_1: and you chris let me begin by disgusting our first quarter twenty twenty one consolidated results the first quarter and in april thirtieth twenty twenty one revenues were ninety point eight million dollars an increase of four million dollars or five percent of compared to the revenue for the fiscal fourth quarter twenty twenty once again the revenue increased reflected the impact of improving market activity across to of our gm markets and multiple product line particularly the southwest segment of twenty six percent driven irrational drilling for oil to me and rentals product lines now to detail our revenue contribution by and market to one point twenty one revenue was twenty seven percent drilling forty nine percent completion thirteen percent production and ten percent intervention services which compares to twenty four percent forty nine percent thirteen percent and thirteen percent respectively and the fourth quarter of twenty twenty has become a much larger contributor to kalecki revenue into on twenty twenty one or directional drilling business experience material increase in activity from que for to on a recount continue to rebound of twenty twenty load know the end of two wine we believe we have approximately eight percent market share directional drilling is now one of our largest product line the care less the turning to the completion thought of our business the biggest drivers of our completion business remains are called to win and rentals product line they made great strides pointer are plugged sales and brute human services to are integrated coil you been offering throughout each of our geo market the for consolidated profitability i wouldn't out that we change our presentation as quarter and now break out depreciation expense and cost the sales on the face of the income statement jumping into our results
spk_2: adjusted operating loss was twenty five point six million dollars for the quarter adjusted even our last and adjusted even a loss margin were negative nine point four million dollars and negative ten percent respectively as chris eluded the increase in are adjusted even our law was the result of seasonal weather issues winter storm uri and customer scheduling and well issues particularly in the rockies i'd also know that are costs to sales is burdened by two point one million dollars per quarter related five legacy call to be operating leases which and
spk_1: pact or compare ability to peers
spk_2: i'll begin the segment review with the rockies the rocky mountain segment fiscal first quarter revenue a twenty four point three million dollars decreased by five point one million dollars or seventeen percent as compared with the fiscal fourth quarter twenty twenty what you get decrease in revenue was primarily driven i reduced activity levels as a result of certain customer scheduling and well issues adjusted operating loss for the fiscal first quarter was six point eight million dollars as compared with adjusted operating income of one million dollars and the fiscal fourth quarter of point
spk_1: twenty the yes it even our loss was one point six million dollars as compared to the fiscal fourth quarter adjusted he did not have six point five million dollars
spk_5: the erosion and profitability as related to unforeseen customer scheduling and well issues
spk_2: now moving to our southwest segment or southwest segment increase it's revenue substantially i twenty six percent as compared to the fiscal fourth quarter of twenty twenty carrying revenues of thirty eight million dollars a significant increase in revenue was driven by meaningful increases and directional drilling and complete
spk_1: rental activity
spk_2: q on adjusted operating loss was six point six million dollars imperative fiscal fourth quarter adjusted operating loss and six point four million dollars adjusted even all off with seven hundred thousand dollars compared to fiscal fourth quarter adjusted ebitda of one point one million dollars not to finish out the segment discussion with the northeast and bit on the school fourth quarter revenues were twenty eight point five million dollars a four percent as compared to fiscal fourth quarter of twenty twenty
spk_1: adjusted operating loss for the fiscal first quarter six point one million dollars improved four point three million dollars as compared with adjusted operating loss of ten point four million dollars and the fiscal fourth quarter of twenty twenty yesterday but our loss was two point one million dollars as compared to the fifty fourth quarter adjusted he did our loss of five point four million dollars
spk_2: the improvement and adjusted eat at a loss was primarily driven a four point six million dollar accounts receivable reserve recognize and fiscal fourth quarter twenty twenty and response to a customer bankruptcy which is detailed and our ten k file and performer for this reserve the adjusted even our laws actually increased by eight hundred thousand
spk_1: dollars primarily due to impacts from one storm yuri which impact of the east texas and architecture region which are included in on the on segment
spk_2: or just a corporate and other he did a loss for the fiscal first quarter remain largely unchanged sequentially at approximately five million dollars with that said the cost synergies from a merger now materially benefiting the results of galaxy when comparing first quarter as teenage spence to stand alone legacy care lexi twenty twenty as dna and the first quarter twenty twenty one as genetics than is one point four million dollars lower than that of standalone tail the in the first quarter twenty twenty on a pro forma basis for the qbs merger first quarter twenty twenty one adjusted a expense was thirty eight percent or eight million dollars below pro forma first quarter twenty twenty adjusted as a expect analyze this would represent thirty two million dollars is saving and recall that one hundred percent of the merger sent are you were not yet benefiting care lives for the entirety of you on twenty twenty one
spk_1: i'll let me review are consolidated balance sheet and cash for a lot our long term that two hundred forty four million dollars less cash resulted in a net that position as of the end of the first quarter approximately two hundred and six million dollars as of april thirtieth twenty twenty one cash on hand was a pro
spk_2: my thirty eight million dollars the total equality was seventy nine million dollars preservation of our cash and liquidity continues to be a top priority and as cursed mention expect materially higher activity through the remainder of the year will continue to proactively manager costs rupture and working capital has been business continues to ramp and cute
spk_1: you an order maximize margin and cash casual would also expected are borrowing base would increase in conjunction with the fifteen to twenty percent increase in revenue chris mentioned earlier on the call in addition to the four point four million dollars of incremental analyzed cost savings chris mentioned previously there's another item that will benefit cash flow going forward back into three twenty twenty he took a non cash charge are grounded corporate aircraft least there were still quarterly cash lease payments of roughly seven hundred thousand dollars which burdened are you one quarterly casual not lease officially ended on april thirtieth and a plane was returned to the less or following end of lease inspection to marry in early june and has now fully all five books the three months and april thirtieth twenty twenty one castle use their operations with eleven point three million dollars and free cash flow loss was seven point four million dollars there was no cash interest paid and que on twenty twenty one and our next summer annual interest payment is due in future casual use an operations was partially offset i a four point eight million dollar on one and on determine a networking capital during the fiscal first quarter
spk_2: capital expenditures for the corner were approximately two point two million dollars most of which was tied a maintenance oriented ending we continue to screw all capital spending and reduce our full year context and out that total callbacks for fiscal twenty twenty one to be in the range of fourteen to sixteen million dollars not iti six million dollars of assets during few on an early comprise a real property as part of our ongoing efforts to finalize or facility footprint integration going forward good expected vishal modernization of obsolete facilities and assets including three facilities that are currently held for sale with that are now turn the call back to chris thanks keeper looking out over the oil and gas horizon we see widespread evidence both domestically and overseas that the macro economic fundamentals are becoming increasingly favorable which is then and should continue to drive a supported commodity price environment for the auto industry
spk_1: the vaccine rollout additional governments and yours the stronger economic activity as well as declining crude stockpile and opec fluff reduction discipline of late a solid foundation for growth in the us onshore states with this encouraging backdrop why as profitability and all the services industry leg and we said before fragmented nature of the industry as well the oversupply of idol equipment available severely constrained potential pricing power this means that we seek to protect your profit i merely you than the other labour available to us that is continued productivity improvement the a consistent utilization an expense reductions on that front we have been extremely successful a jaded additional four point four million it fixed cost savings over and above the forty six million we achieve last year so given our history of aggressively pursuing greater efficiency and lower golf i'm confident that we have a good handle on how to leverage our resources and operate with a lean a call structure as possible in the interim we are focused on pushing the other labour pricing where it is economically feasible to do so our efforts to affect pricey changes in the last few months equates to an approximate nine million dollars and you'll like uptick in revenue while we're making progress the majority of the benefit of higher commodity prices as a crude gree mp customers in their shareholders this leads me to reiterate the margins for the service companies remains unsustainably low in the industry remains out about from a competitive standpoint it is logically lead you back to consolidation reduce the corrective measure needed to bring things back into balance and validation remained a critical strategy component of okay like and the industry as a whole hey legs a successfully completed a merger and remains well positioned to continue to leave and are participate in the effort to consolidate the up as industry we belong emphasize the consolidation in the realization of synergies are key components and remain competitive competitive in the new normal environment i also want to charge of due to and our outlook for forty forty one we do expect stronger result is due to an additional approved improvement throughout most of the ballot that the year this is supported by material near term uptick in activity across many of our product lines altogether we expect the uptick in activity to drive a sequential revenue increased on the order of fifteen to twenty percent above you on levels combined with the financial call savings we have a day over the last year and a modest pricing when mentioned earlier we believe we should be able to return to break even adjusted eat it all into you looking out to the remainder of forty forty one we also expected generally see steady improvement an activity revenue in march and route the remainder of the fiscal year in closing let me think our employees customers and shareholders for their support we're confident that the improvement we're seen in the economy will fuel better times ahead or industry and the calix will continue to serve an important role in delivery it's many mission critical resources
spk_0: the and expertise to mp p operators throughout the us with that will now take your questions operator thank you well navigon nothing a question and answer session if you might ask a question please first star one on your telephone keypad and a confirmation tone indicate your line is in the question que you mean for start to feel like to move your question from the que
spk_6: publicity the seeker equipment it will be necessary advocate for handset before pressing the star keys
spk_0: opossum moment is symbolic you thank you
spk_1: thank you
spk_0: there in there are no questions in the queue own answer the call back to chris baker for any final comments
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