Release Date: March 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Can you explain the significant margin improvement across all three regions year over year despite the decline in drilling and completions activity? A: Christopher Baker, CEO, explained that KLX performed exceptionally well in Q4, improving EBITDA margin year over year despite declines in rig count. The improvement was due to a mix shift in product lines, with 50% of revenue occurring post-frac job, sustaining activity later into Q4. Cost controls implemented in early 2024 also played a key role, along with a higher contribution from high-margin product lines like rentals and coiled tubing.
Q: Your guidance implies further margin improvement in 2025 despite flat revenue. What can drive this improvement? A: Christopher Baker, CEO, noted that the full-year benefit of cost controls implemented in 2024 will contribute to margin improvement. Additionally, known customer wins in higher-margin product lines and a renewed frac contract at elevated pricing will help. The company expects stronger performance in the second half of 2025, especially in gas-directed basins, due to increased rig activity.
Q: How does the lower CapEx and higher margins convert to cash flow in 2025, and what are the uses of cash? A: Keefer Lehner, CFO, stated that despite slightly elevated interest expenses due to refinancing, the company is focused on generating free cash flow and deleveraging. The new bond includes an excess free cash flow sweep, directing $0.75 of every dollar towards debt reduction at par.
Q: How does Q1 2025 set up compared to Q1 2024, considering last year's challenges? A: Christopher Baker, CEO, indicated that Q1 2025 is expected to be soft relative to Q4 2024 due to slow completions activity and weather impacts. However, it should be better than Q1 2024, which faced customer safety stand-downs and severe weather. The company is addressing unexpected white space in the completions calendar.
Q: How is KLX positioned for the expected increase in LNG export capacity and higher gas prices? A: Christopher Baker, CEO, mentioned that the forward gas curve is constructive, and KLX is well-positioned in gas basins like Haynesville and the Northeast. The company expects incremental gas-directed activity to support service pricing and utilization, setting up for potential growth in 2026.
Q: What is KLX's M&A strategy, and how is it influenced by E&P consolidation? A: Christopher Baker, CEO, stated that KLX focuses on accretive deleveraging transactions that provide scale in existing product lines. The company is not looking to step outside its current offerings unless highly synergistic opportunities arise. Recent refinancing provides flexibility for strategic acquisitions.
Q: With strong demand in the Haynesville, how does KLX plan to address potential labor and pricing challenges? A: Christopher Baker, CEO, noted that labor challenges are less severe than in previous years, with many workers willing to return to the Haynesville. KLX's product lines in the region are less people-intensive, allowing easier scaling. The company expects rising demand to support pricing improvements.
Q: What is the pro forma cash and debt balance after the refinancing deal? A: Keefer Lehner, CFO, explained that the new notes total $232 million, with an ABL of $55 million. Approximately $28 million was used to close the refinancing, leaving a cash balance of around $65 million, plus or minus $5 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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