KLX Energy Services Holdings, Inc. (Nasdaq: KLXE)
(“KLXE” or the “Company”) today reported financial results for its
fiscal second quarter ended July 31, 2020. On July 28, 2020, KLXE
completed its previously announced merger with Quintana Energy
Services Inc. (“QES”) and effected a one-for-five reverse stock
split concurrently with closing the transaction. Given that the
merger was completed at the end of the KLXE fiscal quarter ended
July 31, 2020, results for KLXE largely reflect the performance of
KLXE, and include three days of QES results.
Fiscal Second Quarter
Highlights
- Completed merger with QES on July
28, 2020, becoming the foremost provider of large diameter coiled
tubing services and one of the largest independent providers of
wireline services.
- Effected a one-for-five reverse
stock split concurrently with the merger completion.
- Ended the quarter with $98.5
million in cash and $113.4 million in total liquidity (excluding
the benefit of QES current assets not yet included in borrowing
base due to merger timing).
- Expects cost synergies of at least
$40.0 million to be fully implemented as of the end of the first
quarter of fiscal 2021 on a run rate basis, several months ahead of
the timing at the announcement of the Merger.
- Captured approximately $18.0
million of annualized run-rate cost synergies to date.
See “Non-GAAP Financial Measures” at the end of
this release for a discussion of Adjusted EBITDA and its
reconciliation to the most directly comparable financial measure
calculated and presented in accordance with U.S. generally accepted
accounting principles (“GAAP”).
Chris Baker, President and Chief Executive
Officer of KLXE, stated, “We are excited to complete our merger
ahead of schedule, creating an industry-leading diversified
oilfield service provider. I appreciate the tremendous efforts made
by our collective team to achieve this milestone and look forward
to the continued success of KLXE. Our leadership team is focused on
executing on our robust integration plan and best positioning KLXE
to continue to deliver industry-leading products and services to
our customers and partners.
“Our fiscal second quarter results were affected
by the COVID-19 pandemic, the Saudi Arabia and Russia market share
dispute and the resulting supply-demand imbalance, which led to a
deterioration in industry conditions and decreased demand for our
services. Our geographic segments, the Southwest, Rocky Mountains
and the Northeast/Mid-Con, posted fiscal second quarter revenue of
$4.2 million, $18.0 million and $14.0 million, respectively.
"KLXE will continue to streamline its asset base
and operational footprint as we integrate the QES merger in order
to realize synergies and to align with current market conditions,
thereby delivering enhanced efficiency and improving returns. KLXE
is uniquely positioned to operate with comparatively lower capital
expenditures given the asset-light nature of its product and
service offerings. In the early days post-merger, we have seen
material benefits from the combined operational reach and customer
relationships along with the deep product expertise brought
together by each of the legacy companies. We are confident that
this coordination will allow us to pull through tools and
technologies across our coiled tubing footprint as well as drive
additional utilization in other product lines.
“As we look ahead, market conditions for U.S.
drilling and completions will be challenging during the second half
of 2020, driven by low commodity prices and significantly lower
E&P capital spending. Despite the industry backdrop, KLXE
is now well equipped to deliver value to all stakeholders,
supported by industry-leading safety and service quality, a strong
balance sheet, a broad mix of product service lines and further
investments in innovative solutions,” concluded Baker.
Keefer Lehner, Executive Vice President and
Chief Financial Officer of KLXE, added, “We have accelerated the
timing of our $40.0 million run-rate cost synergy commitment, which
we now expect to fully capture by the end of the first fiscal
quarter of 2021.
"Our management team has deep experience in
integration planning, analysis and execution in a similar market
environment having successfully integrated Archer's U.S. operations
into QES in 2016. The $40.0 million in synergies are predominantly
corporate and administrative in nature and, thus, more readily
achievable. Additionally, we are optimistic we will find additional
cost saving opportunities as we work through the integration
process and believe the current market environment, albeit
challenging, should help facilitate an expedited integration
process. We remain highly confident in our ability to achieve our
targets and believe KLXE’s liquidity profile, along with its
reduced cost structure, will allow the Company to navigate the
current market uncertainty and ultimately position the Company for
long-term success.”
Merger Related Highlights
- KLXE and QES merger closed on July
28, 2020, creating an industry-leading diversified provider of
asset-light drilling, completion, production and intervention
products and services.
- The Company operates from over 60
service facilities throughout all major basins and provides
services to a combined group of blue-chip independent and major
E&P companies.
- KLXE will operate under the
executive leadership of QES’s legacy management team, including
Christopher J. Baker, President and Chief Executive Officer, and
Keefer M. Lehner, EVP and Chief Financial Officer.
- The Board of Directors is comprised
of nine directors, with five legacy KLXE directors and four legacy
QES directors.
- KLXE’s corporate headquarters are
now located in Houston, Texas, and the Company plans to close the
legacy Wellington, Florida headquarters by October 31, 2020.
The combined organization has a highly talented
workforce with a commitment to safety, performance, customer
satisfaction and profitability. As the foremost U.S. provider of
large diameter coiled tubing services, KLXE also offers its
blue-chip customer base a complementary portfolio of products and
services, including thru-tubing services, throughout all major
onshore oil and gas basins in the U.S. The Company is now able to
streamline operational support and technology advancements across a
broader suite of service offerings. Finally, through its increased
scale and product and service offerings designed to meet the needs
of customers throughout the well lifecycle, KLXE is expected to
generate cross-selling opportunities that allow for an increased
share of customer spend.
Excluding the impact of the estimated $40.0
million of annualized run-rate cost synergies that will result from
the merger, the combined companies’ fiscal year 2019 pro forma
revenues were more than $1.0 billion, and adjusted EBITDA was
$106.0 million. As of July 31, 2020, KLXE had approximately
$98.5 million of cash and an undrawn $100.0 million revolving
credit facility, of which approximately $14.9 million was available
(excluding the benefit of QES current assets). Importantly, the
combined company has a strong balance sheet to support critical
ongoing business initiatives as well as the pursuit of additional
value-creating consolidation opportunities within the oilfield
service industry.
Asset and Product Portfolio
Update
On a combined basis following the closing of the
merger, KLXE has a substantial asset base comprised of high-quality
young assets and has conducted a thorough review of its joint
coiled tubing and wireline asset base as part of the Company’s
integration plan.
KLXE now has a fleet of 39 coiled tubing units
(24 of which are large diameter), making KLXE the largest provider
of large diameter coiled tubing in the United States. In addition
to the market leading coiled tubing offering, KLXE is a premier
provider of wireline, fishing, thru-tubing and well control
services.
The KLXE portfolio now includes QES’ Directional
Drilling platform and expects to capture synergies on downhole
tools and motors with the products and services provided through
the completion and production offerings.
Reverse Stock Split
On July 24, 2020, KLXE stockholders approved a
proposal to amend KLXE's certificate of incorporation to effect a
one-for-five reverse stock split.
Fiscal Second Quarter 2020 Financial
Results
Revenue for the fiscal second quarter of 2020
totaled $36.2 million, a decrease of 56.4%, compared to $83.0
million for the first quarter of 2020. Net loss for the fiscal
second quarter of 2020 was $20.4 million, compared to net loss of
$243.1 million, inclusive of $208.7 million non-cash asset
impairment charge, for the first quarter of 2020. Adjusted EBITDA
loss for the fiscal second quarter of 2020 was $10.6 million,
compared to Adjusted EBITDA income of $2.6 million for the first
quarter of 2020. Selling, general and administrative expenses,
inclusive of $5.5 million of deal costs, $7.5 million of severance
and $15.1 million of non-cash equity compensation tied to
accelerated vesting for the fiscal second quarter of 2020 totaled
$41.8 million, as compared to $17.4 million for the first quarter
of 2020. The decrease in revenues reflects the impact of the
COVID-19 pandemic and the impact of the Saudi Arabia and Russia
market share dispute and resulting supply-demand imbalance, which
led to a deterioration in industry conditions and a decrease in
demand for our services. On a product line basis, completion,
production and intervention services contributed approximately
60.5%, 18.8% and 20.7%, respectively, to fiscal second quarter
revenues.
Fiscal Second Quarter 2020 Segment
Results
The Company reports through three geographic
business segments, the Rocky Mountains, Southwest and
Northeast/Mid-Con. Revenue decreases across all three geographic
segments were driven by the combination of the lingering impacts of
the Saudi Arabia and Russia oil market share dispute and the
prolonged demand destruction caused by the COVID-19 pandemic, which
have jointly driven the demand for oil to depressed levels
resulting in decreases in demand for services such as those
provided by the Company.
Rocky Mountains: Revenue and adjusted
EBITDA loss for the Rocky Mountains segment was $18.0 million and
$3.7 million, respectively for the fiscal second quarter of 2020.
Revenue represents a 46.7% decrease over first quarter 2020.
Southwest: Revenue and adjusted EBITDA
loss for the Southwest segment, which includes the Permian and
South Texas, was $4.2 million and $1.9 million, respectively, for
the fiscal second quarter of 2020. Revenue represents an 82.8%
decrease over first quarter 2020.
Northeast/Mid-Con: Revenue and adjusted
EBITDA loss for the Northeast/Mid-Con segment was $14.0 million and
$5.0 million, respectively, for the fiscal second quarter of 2020.
Revenues decreased 43.5% over first quarter 2020.
For the quarter ended July 31, 2020, the Rocky
Mountains segment operating loss was $25.6 million,
Northeast/Mid-Con segment operating loss was $17.2 million and
Southwest segment operating loss was $11.1 million.
The following is a tabular summary of revenue
and Adjusted EBITDA for the three-month periods ended July 31, 2020
and April 30, 2020 ($ in millions):
|
|
Three Months Ended |
|
|
July 31, 2020 |
|
April 30, 2020 |
Revenue: |
|
|
|
|
Southwest |
|
$ |
4.2 |
|
|
$ |
24.4 |
|
Rocky Mountains |
|
18.0 |
|
|
33.8 |
|
Northeast/Mid-Con |
|
14.0 |
|
|
24.8 |
|
Total revenue |
|
$ |
36.2 |
|
|
$ |
83.0 |
|
|
|
Three Months Ended |
|
|
July 31, 2020 |
|
April 30, 2020 |
Adjusted
EBITDA |
|
|
|
|
Southwest |
|
$ |
(1.9 |
) |
|
$ |
0.5 |
|
Rocky Mountains |
|
(3.7 |
) |
|
1.7 |
|
Northeast/Mid-Con |
|
(5.0 |
) |
|
0.4 |
|
Total Adjusted EBITDA (loss)
income1 |
|
$ |
(10.6 |
) |
|
$ |
2.6 |
|
1 Excludes Costs as Defined, as defined in the
Reconciliation of Consolidated Net Loss to Adjusted EBITDA (loss)
income table below, non-cash compensation expense and non-cash
asset impairment expense.
Fiscal Second Quarter 2020 EBITDA Addbacks
Adjusted EBITDA loss for the fiscal second
quarter of 2020 includes net adjustments of $10.3 million, driven
by the $41.1 million bargain purchase gain, offset by $13.0 million
of transaction related costs, $15.1 million of non-cash stock
compensation expense and $2.7 million in other costs.
Balance Sheet and Liquidity
Total debt outstanding as of July 31, 2020 was
$243.4 million, compared to $243.0 million as of January 31,
2020. As of July 31, 2020, cash and equivalents totaled $98.5
million.
Total available liquidity as of July 31, 2020
was approximately $113.4 million, including availability under our
undrawn ABL Facility. As of July 31, 2020, approximately $26.2
million of accounts receivable and inventories had not yet been
included in our borrowing base.
Bargain Purchase Gain
On July 28, 2020, the Company completed the
merger with QES for an aggregate acquisition price of approximately
$44.4 million, comprised of 3.4 million shares of the Company’s
common stock. Total consideration includes the $34.7 million
purchase price and repayment of $9.7 million in outstanding
borrowings and associated fees and expenses of QES's five-year
asset-based revolving credit agreement (the “QES ABL
Facility”).
Based on the Company’s preliminary purchase
price allocation, the purchase price was less than the fair value
of the identifiable assets acquired, which resulted in a $41.1
million bargain purchase gain being recorded on the condensed
consolidated statements of operations for the three and six months
ended July 31, 2020.
Acceleration of Intangible Amortization
During the fiscal quarter ended July 31, 2020,
management evaluated the intangible assets primarily related to
customer relationships. Considering current customer activity and
market conditions, the Company elected to accelerate intangible
amortization costs that resulted in an amortization charge of $2.7
million.
Other Financial Information
Capital expenditures were $3.7 million during
the fiscal second quarter of 2020, decreased of $1.1 million, or
22.9%, compared to capital expenditures of $4.8 million in the
first quarter of 2020. Capital spending during the fiscal first and
second quarters of 2020 was driven primarily by maintenance capital
expenditures across our segments.
Conference Call Information
KLXE has scheduled a conference call for 9:00
a.m. Central Time (10:00 a.m. Eastern Time) on Thursday, September
3, 2020, to review reported results. You may access the call
by telephone at 1-201-389-0867 and ask for the KLXE 2020 Fiscal
Second Quarter Conference Call. The webcast of the call may
also be accessed through the Investor Relations section of the
Company’s website at
https://investor.klxenergy.com/events-and-presentations/events. A
replay of the call can be accessed on the Company’s website for 90
days and will be available by telephone through September 10, 2020,
at (201) 612-7415, access code 13708491#.
About KLX Energy Services
KLX Energy Services is a provider of diversified
oilfield services to leading onshore oil and natural gas
exploration and production companies operating in both conventional
and unconventional plays in all of the active major basins
throughout the United States. The Company delivers mission
critical oilfield services focused on drilling, completion,
intervention and production activities for the most technically
demanding wells from over 60 service facilities located in the
United States. KLXE’s complementary suite of proprietary products
and specialized services is supported by technically skilled
personnel and a broad portfolio of innovative in-house research and
development, manufacturing, repair and maintenance
capabilities. More information is available at
www.klxenergy.com.
Forward-Looking Statements and Cautionary
Statements
The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information to
investors. This news release (and any oral statements made
regarding the subjects of this release, including on the conference
call announced herein) includes forward-looking statements that
reflect our current expectations and projections about our future
results, performance and prospects. Forward-looking statements
include all statements that are not historical in nature and are
not current facts. When used in this news release (and any oral
statements made regarding the subjects of this release, including
on the conference call announced herein), the words “believe,”
“expect,” “plan,” “intend,” "anticipate," "estimate," "predict,"
"potential," "continue," "may," "might," "should," “could,” “will,”
or the negative of these terms or similar expressions are intended
to identify forward-looking statements, although not all
forward-looking statements contain such identifying words. These
forward-looking statements are based on our current expectations
and assumptions about future events and are based on currently
available information as to the outcome and timing of future events
with respect to, among other things: our operating cash flows; the
availability of capital and our liquidity; our future revenue,
income and operating performance; our ability to sustain and
improve our utilization, revenue and margins; our ability to
maintain acceptable pricing for our services; future capital
expenditures; our ability to finance equipment, working capital and
capital expenditures; our ability to execute our long-term growth
strategy and to integrate our acquisitions, including QES; our
ability to successfully develop our research and technology
capabilities and implement technological developments and
enhancements; and the timing and success of strategic initiatives
and special projects.
Forward-looking statements are not assurances of
future performance and actual results could differ materially from
our historical experience and our present expectations or
projections. These forward-looking statements are based on
management’s current expectations and beliefs, forecasts for our
existing operations, experience, expectations and perception of
historical trends, current conditions, anticipated future
developments and their effect on us, and other factors believed to
be appropriate. Although management believes the expectations and
assumptions reflected in these forward-looking statements are
reasonable as and when made, no assurance can be given that these
assumptions are accurate or that any of these expectations will be
achieved (in full or at all). Our forward-looking statements
involve significant risks, contingencies and uncertainties, most of
which are difficult to predict and many of which are beyond our
control. Known material factors that could cause actual results to
differ materially from those in the forward-looking statements
include, but are not limited to, risks associated with the
following: a decline in demand for our services, including due to
the ongoing COVID-19 pandemic, declining commodity prices,
overcapacity and other competitive factors affecting our industry;
the cyclical nature and volatility of the oil and gas industry,
which impacts the level of exploration, production and development
activity and spending patterns by E&P companies; a decline in,
or substantial volatility of, crude oil and gas commodity prices,
which generally leads to decreased spending by our customers and
negatively impacts drilling, completion and production activity;
and other risks and uncertainties listed in our filings with the
U.S. Securities and Exchange Commission, including our Current
Reports on Form 8-K that we file from time to time, Quarterly
Reports on Form 10-Q and Annual Report on Form 10-K. Readers are
cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. We undertake no
obligation to publicly update or revise any forward-looking
statements after the date they are made, whether as a result of new
information, future events or otherwise, except as required by
law.
KLX Energy Services Holdings,
Inc.Condensed Consolidated Statements of
Operations(In millions of U.S. dollars and shares,
except per share
amounts) (Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Revenues |
$ |
36.2 |
|
|
$ |
83.0 |
|
Costs and
expenses: |
|
|
|
Cost of sales |
48.1 |
|
|
92.2 |
|
Selling, general and administrative |
41.8 |
|
|
17.4 |
|
Research and development costs |
0.2 |
|
|
0.3 |
|
Goodwill and long-lived asset impairment charge |
— |
|
|
208.7 |
|
Bargain purchase gain |
41.1 |
|
|
— |
|
Operating loss |
(12.8 |
) |
|
(235.6 |
) |
Non-operating expense: |
|
|
|
Interest expense, net |
7.6 |
|
|
7.4 |
|
Loss before income tax |
(20.4 |
) |
|
(243.0 |
) |
Income tax expense |
— |
|
|
0.1 |
|
Net loss |
$ |
(20.4 |
) |
|
$ |
(243.1 |
) |
|
|
|
|
Net loss per common
share(1): |
|
|
|
Basic |
$ |
(4.12 |
) |
|
$ |
(52.41 |
) |
Diluted |
$ |
(4.12 |
) |
|
$ |
(52.41 |
) |
|
|
|
|
Weighted average common
shares: |
|
|
|
Basic |
5.0 |
|
|
4.6 |
|
Diluted |
5.0 |
|
|
4.6 |
|
(1) Basic and diluted net (loss) earnings per share were
retroactively adjusted for the Company’s 1-for-5 reverse stock
split effective July 28, 2020.
KLX Energy Services Holdings,
Inc.Condensed Consolidated Balance
Sheets(In millions of U.S. dollars and
shares)(Unaudited)
|
July 31, 2020 |
|
January 31, 2020 |
ASSETS |
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
98.5 |
|
|
$ |
123.5 |
|
Accounts receivable–trade, net of allowance of $5.1 and $12.9 |
40.5 |
|
|
79.2 |
|
Inventories, net |
26.7 |
|
|
12.0 |
|
Other current assets |
13.8 |
|
|
13.8 |
|
Total current assets |
179.5 |
|
|
228.5 |
|
Property and equipment,
net |
234.1 |
|
|
306.8 |
|
Goodwill |
— |
|
|
28.3 |
|
Intangible assets, net |
2.6 |
|
|
45.8 |
|
Other assets |
8.9 |
|
|
14.0 |
|
Total assets |
$ |
425.1 |
|
|
$ |
623.4 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |
|
|
|
Accounts payable |
$ |
33.1 |
|
|
$ |
31.4 |
|
Accrued interest |
7.2 |
|
|
7.2 |
|
Accrued liabilities |
33.8 |
|
|
26.2 |
|
Total current liabilities |
74.1 |
|
|
64.8 |
|
Long-term debt |
243.4 |
|
|
243.0 |
|
Deferred income taxes |
0.1 |
|
|
0.0 |
|
Other non-current
liabilities |
7.8 |
|
|
3.4 |
|
Commitments, contingencies and
off-balance sheet arrangements |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock, $0.01 par value; 110.0 authorized; 8.5 and 5.0
issued; 8.5 and 4.7 outstanding (1) |
0.1 |
|
|
0.0 |
|
Additional paid-in capital |
468.0 |
|
|
416.7 |
|
Treasury stock, at cost, 0.1 shares and 0.1 shares (1) |
(4.0 |
) |
|
(3.6 |
) |
Accumulated deficit |
(364.4 |
) |
|
(100.9 |
) |
Total stockholders’ equity |
99.7 |
|
|
312.2 |
|
Total liabilities and stockholders' equity |
$ |
425.1 |
|
|
$ |
623.4 |
|
(1) Common stock and treasury stock was
retroactively adjusted for the Company's 1-for-5 reverse stock
split effective July 28, 2020.
KLX Energy Services Holdings,
Inc.Condensed Consolidated Statements of Cash
Flows(In millions of U.S.
dollars)(Unaudited)
|
Six Months Ended |
|
July 31, 2020 |
|
July 31, 2019 |
Cash flows from
operating activities: |
|
|
|
Net loss |
$ |
(263.5 |
) |
|
$ |
(1.5 |
) |
Adjustments to reconcile net
loss to net cash flows (used in) provided by operating
activities |
|
|
|
Depreciation and amortization |
29.1 |
|
|
31.3 |
|
Goodwill and long-lived asset impairment charge |
208.7 |
|
|
— |
|
Non-cash compensation |
16.7 |
|
|
9.1 |
|
Amortization of deferred financing fees |
0.6 |
|
|
0.5 |
|
Provision for inventory reserve |
1.4 |
|
|
0.7 |
|
Change in allowance for doubtful accounts |
(7.8 |
) |
|
1.8 |
|
Loss on disposal of property, equipment and other |
0.7 |
|
|
1.4 |
|
Bargain purchase gain |
(41.1 |
) |
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
58.8 |
|
|
(26.5 |
) |
Inventories |
(2.2 |
) |
|
1.4 |
|
Other current and non-current assets |
6.0 |
|
|
0.6 |
|
Accounts payable |
(22.2 |
) |
|
(0.2 |
) |
Other current and non-current liabilities |
(0.7 |
) |
|
(6.7 |
) |
Net cash flows (used in) provided by operating activities |
(15.5 |
) |
|
11.9 |
|
Cash flows from
investing activities: |
|
|
|
Purchases of property and
equipment |
(8.5 |
) |
|
(56.8 |
) |
Proceeds from sale of property
and equipment |
0.4 |
|
|
0.3 |
|
Acquisitions, net of cash
acquired |
(1.0 |
) |
|
(27.6 |
) |
Net cash flows used in investing activities |
(9.1 |
) |
|
(84.1 |
) |
Cash flows from
financing activities: |
|
|
|
Purchase of treasury stock |
(0.4 |
) |
|
— |
|
Cash proceeds from stock issuance |
— |
|
|
0.8 |
|
Net cash flows (used in) provided by financing activities |
(0.4 |
) |
|
0.8 |
|
Net decrease in cash and cash equivalents |
(25.0 |
) |
|
(71.4 |
) |
Cash and cash equivalents,
beginning of period |
123.5 |
|
|
163.8 |
|
Cash and cash
equivalents, end of period |
$ |
98.5 |
|
|
$ |
92.4 |
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
Cash paid during period
for: |
|
|
|
Income taxes paid, net of refunds |
$ |
0.3 |
|
|
$ |
1.0 |
|
Interest |
14.6 |
|
|
14.7 |
|
Supplemental schedule
of non-cash activities: |
|
|
|
Issuance of common stock and stock based payments for QES
acquisition |
34.7 |
|
|
— |
|
Change in deposits on capital expenditures |
(5.4 |
) |
|
(4.5 |
) |
Accrued capital expenditures |
1.2 |
|
|
8.4 |
|
KLX Energy Services Holdings,
Inc.Additional Selected Operating
Data(Unaudited)
Non-GAAP Financial Measures
This release includes Adjusted EBITDA (loss) and
free cash flow to reflect net loss before amortization, Costs as
Defined and non-cash compensation expense. This release also
includes “Adjusted EBITDA (loss),” which excludes Costs as Defined
and non-cash compensation expense. Adjusted EBITDA (loss) is used
to calculate the Company’s leverage ratio, consistent with the
terms of the Company's ABL facility. Each of the metrics are
“non-GAAP financial measures” as defined in Regulation G of the
Securities Exchange Act of 1934. See “Reconciliation of Non-GAAP
Financial Measures.”
Adjusted EBITDA is a
supplemental non-GAAP financial measure that is used by
management and external users of our financial statements, such as
industry analysts, investors, lenders and rating agencies.
We believe Adjusted EBITDA is useful because it
allows us to more effectively evaluate our operating performance
and compare the results of our operations from period to period
without regard to our financing methods or capital structure. We
exclude the items listed above in arriving at Adjusted EBITDA
because these amounts can vary substantially from company to
company within our industry depending upon accounting methods and
book values of assets, capital structures and the method by which
the assets were acquired. Adjusted EBITDA should not be considered
as an alternative to, or more meaningful than, net income as
determined in accordance with GAAP, or as an indicator of our
operating performance or liquidity. Certain items excluded from
Adjusted EBITDA are significant components in understanding and
assessing a company’s financial performance, such as a company’s
cost of capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of Adjusted
EBITDA. Our computations of Adjusted EBITDA may not be comparable
to other similarly titled measures of other companies.We define
free cash flow as net cash provided by operating activities less
capital expenditures.
Our management uses free cash flow to assess the
Company's liquidity and ability to repay maturing debt, fund
operations and make additional investments. We believe that free
cash flow provides useful information to investors because it is an
important indicator of the Company's liquidity, including its
ability to reduce net debt, make strategic investments and
repurchase stock.
The following tables present a reconciliation of
the non-GAAP financial measures of Adjusted EBITDA and free cash
flow to the most directly comparable GAAP financial measure for the
periods indicated:
KLX Energy Services Holdings,
Inc.Reconciliation of Consolidated Net Loss To
Adjusted EBITDA (Loss) Income(in
millions)(Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Consolidated net loss |
$ |
(20.4 |
) |
|
$ |
(243.1 |
) |
Income tax expense (benefit) |
— |
|
|
0.1 |
|
Interest expense, net |
7.6 |
|
|
7.4 |
|
Operating loss |
(12.8 |
) |
|
(235.6 |
) |
Bargain purchase gain |
(41.1 |
) |
|
— |
|
Costs as defined 1 |
30.8 |
|
|
222.7 |
|
Adjusted operating loss |
(23.1 |
) |
|
(12.9 |
) |
Depreciation and amortization |
12.9 |
|
|
16.2 |
|
Non-cash compensation |
17.4 |
|
|
(0.7 |
) |
Less: Costs as defined - restricted stock acceleration |
(15.1 |
) |
|
— |
|
Less: Costs as defined - amortization |
(2.7 |
) |
|
— |
|
Adjusted EBITDA (loss)
income |
$ |
(10.6 |
) |
|
$ |
2.6 |
|
Reconciliation of Rocky Mountains
Operating Loss To Adjusted EBITDA(in
millions)(Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Rocky Mountains operating loss |
$ |
(25.6 |
) |
|
$ |
(37.8 |
) |
Costs as Defined (1) |
17.3 |
|
|
34.2 |
|
Adjusted Rocky Mountains operating loss |
(8.3 |
) |
|
(3.6 |
) |
Depreciation and amortization expense |
7.9 |
|
|
5.6 |
|
Non-cash compensation |
7.6 |
|
|
(0.3 |
) |
Less: Costs as defined - restricted stock acceleration |
(8.2 |
) |
|
— |
|
Less: Costs as defined - amortization |
(2.7 |
) |
|
— |
|
Rocky Mountains Adjusted
EBITDA (loss) income |
$ |
(3.7 |
) |
|
$ |
1.7 |
|
Reconciliation of Northeast/Mid-Con
Operating Loss To Adjusted EBITDA(in
millions)(Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Northeast/Mid-Con operating loss |
$ |
(17.2 |
) |
|
$ |
(97.4 |
) |
Costs as Defined (1) |
8.8 |
|
|
92.4 |
|
Adjusted Northeast/Mid-Con operating loss |
(8.4 |
) |
|
(5.0 |
) |
Depreciation and amortization expense |
2.7 |
|
|
5.6 |
|
Non-cash compensation |
5.6 |
|
|
(0.2 |
) |
Less: Costs as defined - restricted stock acceleration |
(4.9 |
) |
|
— |
|
Less: Costs as defined - amortization |
— |
|
|
— |
|
Northeast/Mid-Con Adjusted
EBITDA (loss) income |
$ |
(5.0 |
) |
|
$ |
0.4 |
|
Reconciliation of Southwest Operating
Loss Income To Adjusted EBITDA(in
millions)(Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Southwest operating loss |
$ |
(11.1 |
) |
|
$ |
(100.4 |
) |
Costs as Defined (1) |
4.7 |
|
|
96.1 |
|
Adjusted Southwest operating loss |
(6.4 |
) |
|
(4.3 |
) |
Depreciation and amortization expense |
2.3 |
|
|
5.0 |
|
Non-cash compensation |
4.2 |
|
|
(0.2 |
) |
Less: Costs as defined - restricted stock acceleration |
(2.0 |
) |
|
— |
|
Less: Costs as defined - amortization |
— |
|
|
— |
|
Southwest Adjusted EBITDA
(loss) income |
$ |
(1.9 |
) |
|
$ |
0.5 |
|
(1) Costs as Defined in the fiscal second
quarter relates to accelerated stock based compensation costs,
severance costs, customer relationship intangible amortization
costs and Merger costs of $15.1 million, $7.5 million, $2.7 million
and $5.5 million, respectively. The first quarter relates to
a goodwill and long-lived asset impairment charges, business
rationalization and other costs related to the merger with QES and
new product and service line start-up costs of $208.7, $11.9, $1.1
and $1.0, respectively.
KLX Energy Services Holdings,
Inc.Segment Adjusted EBITDA
Margin(in
millions)(Unaudited)
|
|
Three Months Ended |
|
|
July 31, 2020 |
|
April 30, 2020 |
Segment Adjusted
EBITDA Margin(1) |
|
|
|
|
Southwest |
|
|
|
|
Adjusted EBITDA (loss) income |
|
$ |
(1.9 |
) |
|
$ |
0.5 |
|
Revenue |
|
4.2 |
|
|
24.4 |
|
Adjusted EBITDA Margin
Percentage |
|
(45.2 |
)% |
|
2.0 |
% |
Rocky
Mountains |
|
|
|
|
Adjusted EBITDA (loss)
income |
|
(3.7 |
) |
|
1.7 |
|
Revenue |
|
18.0 |
|
|
33.8 |
|
Adjusted EBITDA Margin
Percentage |
|
(20.6 |
)% |
|
5.0 |
% |
Northeast/Mid-Con |
|
|
|
|
Adjusted EBITDA (loss)
income |
|
(5.0 |
) |
|
0.4 |
|
Revenue |
|
14.0 |
|
|
24.8 |
|
Adjusted EBITDA Margin
Percentage |
|
(35.7 |
)% |
|
1.6 |
% |
(1) Segment Adjusted EBITDA Margin is
defined as the quotient of Segment Adjusted EBITDA (loss) income
and total segment revenue. Segment Adjusted EBITDA is net income
(loss) excluding Costs as Defined, non-cash compensation expense
and non-cash asset impairment expense.
The following table presents a reconciliation of
the non-GAAP financial measure of free cash flow to the most
directly comparable GAAP financial measure for the periods
indicated:
KLX Energy Services Holdings,
Inc.Reconciliation of Net Cash Flow Provided by
Operating Activities to Free Cash Flow(in
millions)(Unaudited)
|
Three Months Ended |
|
July 31, 2020 |
|
April 30, 2020 |
Net cash flow (used in) provided by operating activities |
$ |
(22.5 |
) |
|
$ |
7.0 |
|
Capital expenditures |
(3.7 |
) |
|
(4.8 |
) |
Free cash flow |
$ |
(26.2 |
) |
|
$ |
2.2 |
|
Contacts:KLX Energy Services Holdings, Inc.Keefer M. Lehner, EVP
& CFO832-930-8066IR@klxenergy.com
Dennard Lascar Investor RelationsKen Dennard / Natalie
Hairston713-529-6600KLXE@dennardlascar.com
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