KLX Energy Services Hldgs (NASDAQ:KLXE) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Summary
KLX Energy Services Holdings Inc reported Q1 2026 revenue of $145 million, at the lower end of the estimated range due to Winter Storm Fern and customer delays.
Adjusted EBITDA was $11.1 million with an 8% margin, reflecting typical Q1 headwinds and seasonality.
The Northeast Midcon segment showed strong performance, with a revenue increase of 28% year over year and adjusted EBITDA quadrupling from Q1 2025.
The company forecasts Q2 2026 revenue between $162 to $172 million, expecting a rebound in the Rockies and Southwest regions.
Management is cautious about potential impacts from commodity price fluctuations and expects a robust second half of 2026 driven by smaller independents and private operators.
SG&A expenses were notably lower, reflecting ongoing cost optimization efforts.
The company maintains $275.8 million in total debt and $48 million in total liquidity, with expectations for liquidity improvements throughout the year.
Full Transcript
OPERATOR
Greetings and welcome to the KKLX Energy Services first quarter 2026 conference call. this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Denard, Investor Relations. Thank you sir. You may begin.
Ken Denard (Investor Relations)
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 10K, quarterly reports on Form 10Q and current reports on Form 8K 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 Baker (President and Chief Executive Officer)
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 four to five days from 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 two 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 continues to reflect the shift in our portfolio towards gas directed activity.
Chris Baker (President and Chief Executive Officer)
The Northeast Mid con segment again led the way with revenue up 28% year over year and adjusted EBITDA of $10.9 million almost four times 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 five quarters primarily tied to weather delays in the Haynesville, the Rockies and Southwest segments reflected a softer activity environment.
Chris Baker (President and Chief Executive Officer)
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 startup of some completion programs. Permian activity has shifted heading into Q2 with a sentiment shift around completions and DUCs in particular.
Chris Baker (President and Chief Executive Officer)
Additionally, we see positive indicators for South Texas, which, along with expected activity rebounds in the Permian show 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.
Chris Baker (President and Chief Executive Officer)
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 Stanford (Interim Chief Financial Officer)
Jeff thanks Chris Good morning everybody. Consistent with Chris's 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.
Jeff Stanford (Interim Chief Financial Officer)
Net loss for the quarter was approximately 24 million, or a loss of $1.23 per share. SGA 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 Mountain 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.
Jeff Stanford (Interim Chief Financial Officer)
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. In the Northeast Midcon segment, first quarter revenue was $52.5 million, operating income was about $3 million and adjusted EBITDA was $10.9 million.
Jeff Stanford (Interim Chief Financial Officer)
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 and A right sizing and our focus on returning corporate costs towards 2021 and 2022 levels.
Jeff Stanford (Interim Chief Financial Officer)
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 through tubing, pressure pumping assets for the full year. We previously guided to approximately 40 million of gross capex and 30 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 mid year. Net cash provided by operating activities was approximately 300,000 in the quarter. Unlevered free cash flow was negative 1.4 million and leveraged 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 two 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 available availability under our March 2026 ABL facility. Including undrawn phylo 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 QTIP to 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 two months of the quarter and we elected to pick 100% in March. Looking forward, we expect to pick 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 MA and other capital needs. With that, I'll hand it back over to Chris to discuss our outlook.
Chris Baker (President and Chief Executive Officer)
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're 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 prompt month 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 exposure, particularly in the Northeast, Midcon and Haynesville to drive incremental revenue as activity increases. Looking forward, we are forecasting Q2 revenue of 162 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 three 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 suggest 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 2H26. 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 2H26 and updating our full year 2026 framework. In closing, I would like to thank our team of hardworking 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 thank you.
OPERATOR
We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of Steve Varizzani with Sidoti. Please proceed with your question.
Steve Varizzani (Equity Analyst)
Morning Chris. Morning Jeff. Appreciate the detail on the call Chris. When I think about the pretty significant sequential improvement guide you have in Q2, certainly it's much higher than we've seen the previous two 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.
Chris Baker (President and Chief Executive Officer)
Yeah, it's a great question. I think it very much depends on the region. Look, the rocky felt typical seasonal winter weather as we always do and we had a lot of non operational 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 midcon and Haynesville. We definitely, as we said in the prepared remarks, so anywhere from two to five days of revenue loss across various PSLs. And so when you think about, you know, 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.
Steve Varizzani (Equity Analyst)
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?
Chris Baker (President and Chief Executive Officer)
Yeah, sure. And it's a great question. I think it was largely due to what we talked about 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 puts and takes kind of 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 you know, on that point, just solely based off of internal April numbers, we've already seen, you know, material one, it's a one month proxy, but we've seen a material improvement in segment level margin in the southwest relative to Q1.
Steve Varizzani (Equity Analyst)
Got it. Excellent. You mentioned, both of you mentioned in your remarks, typically it's the extra one or two payroll cycles in Q1. Usually that's been your highest SGA quarter. I was surprised how low SGNA was this quarter. Does it. What are you thinking about trends this year on SGNA after a very strong performance in Q1 in terms of how low it was.
Jeff Stanford (Interim Chief Financial Officer)
Yeah. Good morning Steve, this is Jeff. I'll take that one. It was a good quarter for SGA 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, you know, for if you look at the full year, if you look at, you know, 2025, we did 68.5 million, 2024, 79.6 so, you know, our goal is to kind of get it in the kind of if we can get lower than 2025 for the full year we're heading. So we're looking at it hard. It is, it is a process going through it all. But we're definitely, you know, 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.
Steve Varizzani (Equity Analyst)
Excellent. That's helpful. Thanks, Jeff. 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?
Chris Baker (President and Chief Executive Officer)
Yes, 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 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 months out where you start to see a three 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 two 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 midconnection, 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 frame it. And so from a macro standpoint, there's no doubt DNC activity in that segment seems steady with, you know, some people talking about picking up rigs. The second portion of your question is, you know, what Happens to oil demand and oil rig count 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 Inverness rig counts, one kind of shows rig count year to date, the Permian almost flat, the other showing it slightly up. I think there's very nuanced reasons for, you know, and part of that is the constant overhang of a Middle east deal and thoughts that prices would crash back to the $60 range on WTI. I think everybody's 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 Ford 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.
Steve Varizzani (Equity Analyst)
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?
Chris Baker (President and Chief Executive Officer)
Well, unfortunately, there are not as many of them around as there used to be right from a sponsor back 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 drill outs, putting two coil units per pad multiple. 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 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?
Steve Varizzani (Equity Analyst)
Thanks, Chris. Thanks, Jeff. Yeah, appreciate it, Steve.
OPERATOR
Our next question comes from the line of Josh Jain with Daniel Energy Partners. Please proceed with your question.
Josh Jain (Equity Analyst)
Thanks. Good morning. 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.
Chris Baker (President and Chief Executive Officer)
First yeah, it's a great question. 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, good morning. 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 you know, 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's coming from the Rockies ballpark, followed by the Southwest which is probably 30% and then the midcons, the balance. And so I think those numbers are skewed due to KLX's diversity second half of the year, I think 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.
Josh Jain (Equity Analyst)
Okay, thanks. And then thoughts on pricing, how you see it evolving over the balance of this year, do you think it'll be more region driven or will it be more product line driven? And maybe just any anecdotes you could
Chris Baker (President and Chief Executive Officer)
give would be helpful. Yeah, 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, etc. All said that pricing didn't justify reactivations. Right. So I think that that sentiment's 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 it selectively started to push price on certain PSLs, specifically in the basins that we 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, we drove and we were able to drive some incremental pricing there from a go forward perspective. You know, 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, that is not rentals and things of that nature, but more people intensive PSLs like coil, tubing, wireline, etc. We need to see price move and so we'll see how the market develops. But I think that's, that's kind of the macro theme as we think about our portfolio.
Josh Jain (Equity Analyst)
Thanks for that. 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, you know, an activity ramp coming in the lower 48 and steps you're taking to help mitigate supply chain risk moving forward.
Chris Baker (President and Chief Executive Officer)
Yeah, that's a great question. I think, you know, 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, you know, seeing 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 ducks 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, you know, 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's watching the OTC G good 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.
Josh Jain (Equity Analyst)
Understood. Thanks for taking my questions.
Chris Baker (President and Chief Executive Officer)
Appreciate it. Yeah, appreciate it Josh.
OPERATOR
Thank you. Mr. Baker, I'd like to turn the floor back over to you for closing comments.
Chris Baker (President and Chief Executive Officer)
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.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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