UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 21, 2022
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Item 7.01 Regulation FD Disclosure.
Furnished as Exhibit 99.1 and incorporated by reference into this Item 7.01 in its entirety is a copy of a presentation to be presented by KLX Energy Services Holdings, Inc. (the “Company”) to analysts and investors. The Company also posted the presentation to its website at https://investor.klxenergy.com/events-and-presentations.
The information contained in, or incorporated into, this Item 7.01 is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference to such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit | ||||||||
| No. | Description | |||||||
| 99.1 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within Inline XBRL document). | |||||||
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*Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KLX Energy Services Holdings, Inc. | ||||||||
| By: | /s/ Christopher J. Baker | |||||||
| Name: | Christopher J. Baker | |||||||
| Title: | President and Chief Executive Officer | |||||||
| Date: | June 21, 2022 | |||||||
1 Investor Presentation June 2022
2 Disclaimer & Forward-looking Statements Cautionary Statement on Forward-looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such forward-looking statements involve risks and uncertainties. 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 ability to renew and refinance our debt; 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; 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. The Company’s actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include those discussed in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”), which include its Transition Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. For more information, see the section entitled “Forward-Looking Statements” contained in the Company’s Transition Report on Form 10-K and in other filings. Any forward- looking statements included in this presentation are made only as of the date of this presentation and, except as required by federal securities laws and rules and regulations of the SEC, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Financial Measures This presentation includes Adjusted EBITDA which is a "non-GAAP financial measure" as defined in Regulation G of the Securities Exchange Act of 1934. 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. Adjusted EBITDA is not a measure of net earnings or cash flows as determined by GAAP. We define Adjusted EBITDA as net earnings (loss) before interest, taxes, depreciation and amortization, further adjusted for (i) goodwill and/or long-lived asset impairment charges, (ii) stock-based compensation expense, (iii) restructuring charges, (iv) transaction and integration costs related to acquisitions, (v) costs incurred related to the COVID-19 pandemic and (vi) other expenses or charges to exclude certain items that we believe are not reflective of ongoing performance of our business. Adjusted EBITDA is used to calculate the Company's leverage ratio, consistent with the terms of the Company's ABL facility. 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. Additional information is available from KLXE at its website, www.klxenergy.com
3 Company Overview
4 Cycle-tested Executive Team with Deep Industry Experience Management team successfully led merger integration Chris Baker President & Chief Executive Officer Keefer Lehner EVP, Chief Financial Officer Max Bouthillette EVP, General Counsel and CCO ▪ Previously QES’s Executive VP, General Counsel and CCO ▪ 25+ years of legal experience in the oilfield services sector ▪ At Archer, served as Executive VP, GC and CCO and pre-QES IPO Director ▪ BJ Services (pre Baker Hughes), served as Deputy GC and CCO ▪ Schlumberger, served as Litigation Counsel, OFS Counsel Asia, and GC Products ▪ BBA in Accounting from Texas A&M and a JD from the University of Houston ▪ Helped found QES in 2014 as COO; CEO starting Q3 2019 ▪ 27 years of industry experience ▪ Previously Managing Director – Oilfield Services for Quintana Energy Partners ▪ Prior to joining Quintana in 2008, worked at Citigroup Global Markets Inc. and Theta II Enterprises, Inc. ▪ BS in Mechanical Engineering from Louisiana State University and MBA from Rice University ▪ Helped found QES in 2014 serving as VP of Finance & Corp Dev and later CFO starting in 2016 ▪ 16 years of industry experience ▪ Previously Vice President of Quintana Capital Group, focused on energy private equity investing ▪ Prior to joining Quintana, worked for Simmons & Company in the investment banking group ▪ BSBA from Villanova University Key operations leadership with deep industry experience from prior leadership roles at HAL, BHI, WFT, H&P and others
5 A Transformed KLXE Post-merger, KLXE transformed into industry leader People Performance Asset Integrity Safety Customer Focus Profitability ✓ Veteran operators throughout the organization ✓ Significant investment among executives and key managers ✓ Return on capital orientation ✓ Transparent alignment of incentives ✓ Performance culture ✓ Detailed KPI tracking and data-driven decision making ✓ Rigorous maintenance program to minimize downtime and ensure consistency in service quality ✓ Selective evaluation of opportunities to ensure equipment integrity ✓ Strong safety culture ✓ Employees value safe, professional field operations ✓ Long-term relationships with blue-chip customers ✓ Strong visibility into drilling and completion programs
6 Drilling 28% Completions 50% Production & Intervention 22% KLX Energy Services (KLXE) Overview Company Overview Areas of Operation Diversified Product Offering1 Diversified Business Model • Leading U.S. onshore provider of value-added, mission critical oilfield services • Focused on drilling, completion, production and intervention for the most technically demanding wells • Long-standing relationships with blue-chip customer base; 740+ unique customers • Platform created through combination of organic and inorganic growth Q1 ‘22 Revenue by Product Line Q1 ‘22 Revenue by RegionDrilling • 117 measurement-while-drilling (MWD Kits) • Over 950 mud motors (~60% are latest gen) • In-house machining capabilities Completion • 24 Modern, large-diameter Coiled Tubing Units + 14 2’’ or less Coiled Tubing Units • 90+ Wireline Units (split with Production) • 120+ Frac Trees • Over 490 accommodation trailers (split with Drilling) Production & Intervention • Leading fleet of fishing and rentals tools • 36 Rig-assisted Snubbing Units • Downhole production services Source: Company filings and disclosure 1 As of Q1 2022 35 Core Facilities Rockies 28% Southwest 34% Midcon/Northeast 38%
7 KLXE / QES Merger Integration Success Strategic Fit ✓ Premier provider of drilling, completion, production and intervention solutions with a returns driven strategy ✓ Minimal customer overlap with significant cross-sell potential ✓ Positioned to participate in further industry consolidation Efficiencies and Synergies ✓ Consolidated 24 facilities with overlapping regions and operations ✓ Eliminated duplicate management positions to reduce SG&A ✓ “Shared Services” consolidation and optimization ✓ Over $50MM of total cost synergies (reduced SG&A as a% of revenue from 21% in Q4 2019 to 11% in Q4 2021) ✓ Approximately $12MM in sale of obsolete assets since closing (thru Q1 2022) ✓ Aligned across common systems, processes and procedures Valuation and Structure ✓ 100% equity financed merger of equals ✓ Created platform that generated over $1.0B of revenue and $156MM of Adj. EBITDA on a pro forma 2019 basis, including $50MM of cost synergies ✓ Deleveraging to KLXE People ✓ Strong management team with proven operational track-record and deep M&A experience ✓ Retention of key employees (dollar amounts in millions) $50 $27 ($77) $54 ($100.0) ($50.0) $0.0 $50.0 PF Q2 2020 Annualized EBITDA Cost Synergies Revenue / Margin Improvement PF Q4 2021 Annualized EBITDA
8 Diversified and Complementary Product Service Offering PSL1 Q1 2022 Rev. Contribution Key Geography Select Products & Services Directional Drilling 22% Rockies, Southwest, Northeast / Mid-Con MWD, K-Series mud motor, directional electronics and other modules Accommodations 6% Southwest, Northeast / Mid-Con Living accommodations, water & sewage services, light plants, generators Coiled Tubing 17% Rockies, Southwest, Northeast / Mid-Con 1-1/4” to 2-5/8” coiled tubing strings Pressure Pumping 13% Rockies, Northeast / Mid-Con Acidizing, cement, frac Other Completion Products and Services 8% Rockies, Northeast / Mid-Con Flowback, frac valve rental and composite and dissolvable plugs Wireline 7% Rockies, Southwest Pump down, pipe recovery, logging Tech Services 15% Rockies, Southwest, Northeast / Mid-Con Fishing tools & services, thru tubing, reverse units, snubbing, air packages Rentals 12% Rockies, Southwest, Northeast / Mid-Con Pressure control equipment, tubulars, torque & testing, and pipe handlingP ro d u c ti o n & In te rv e n ti o n C o m p le ti o n D ri ll in g Source: Company information 1 Product Service Line Primary Product Line
9 KLXE Serves Top U.S. Operators in All Key Basins ▪ Served over 740 unique customers in 2021 with no customer accounting for more than 10% of 2021 revenue ▪ Diverse customer base – Top 10 customers accounted for only 29% of 2021 Revenue (down from 33% in 2020) ▪ Significant leverage to the most active operators in the United States – MSAs with 18 of top 20 operators by rig count 1 Source: Company disclosure 1 As of Q1 2022 Select Key Customer Relationships
10 Platform for Ongoing Consolidation ▪ The management team has extensive experience successfully integrating acquisitions and quickly extracting cost synergies ▪ History of retaining key employees through a merger and subsequent integration process ▪ Focus on well-capitalized businesses with strong strategic fit, differentiated technology, track records of impressive returns and achievable cost synergies +2 0 1 5 +2 0 2 0 +2 0 1 5 2 0 1 3 – 2 0 1 4 Roll-ups + 2 0 1 8 – 2 0 1 9 Consolidation History
11 Go-Forward KLXE Strategy Cost Control ▪ Continue to manage through supply chain constraints and pass costs onto customers ▪ Retain personnel and maintain equipment quality while continuing to proactively manage the cost structure to drive incremental margins ▪ Continue to proactively manage working capital Strategic ▪ Continue to pursue value-creating consolidation opportunities ▪ Continue to focus on maximizing liquidity while pursuing an amend/extend of our 2023 ABL Organic Growth ▪ Expand share of wallet with top customers ▪ Expand certain PSLs geographically ▪ Continue to expand our asset base in certain PSLs as returns warrant ▪ Re-allocate assets across geographies as demand and pricing warrant Pricing ▪ Focus on returning to positive free cash flow generation ▪ Return pricing to levels that drive acceptable margins and support reinvestment in our asset base and generate free cash flow ▪ Drive margin enhancing utilization
12 Industry Outlook
13 Supply / Demand Dynamics Favor U.S. OFS Market Geopolitics Upstream Investment Pricing and Margins ▪ Oilfield service companies expected to gain leverage in a more favorable commodity price environment ▪ Historical margin inequality between upstream and OFS companies; gap expected to narrow in favor of OFS ▪ U.S. E&P onshore spending expected to increase ~30% this year; international spending expected to increase ~15% ▪ Saudi Aramco rig count remains below pre-pandemic levels, but capex announcement suggests rig count could be back to former level by 2H22 ▪ Recovery from COVID and surge in global demand following 7 years of declining upstream spending ▪ War in Ukraine structurally altered flow of global hydrocarbons, with the United States poised to fill in some of the gap Source: Rystad Energy and Wall Street Research
14 $102 $125 $117 $141 $169 $103 $101 $126 $174 $154 $93 $244 $96 $121 $164 $171 $201 $137 $86 $119 $152 $140 $78 $84 $6 $4 ($46) ($30) ($32) ($35) $15 $6 $21 $13 $14 $159 ($100) ($50) $0 $50 $100 $150 $200 $250 $300 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $ i n b ill io n s U.S. E&P Cash Cycle Since 2010 Capital discipline has driven delay of OFS recovery Source: Rystad Energy Note: Includes CFFO, Capex, and FCF from public and private U.S. operators; CFFO is calculated as Capex plus FCF Cash From Operations Capital Expenditures Free Cash Flow (dollar amounts in billions)
15 Improving Macro Backdrop Rig counts historically tracked commodity prices, but the correlation has decoupled since April 2020 Source: Baker Hughes, FactSet, Wall Street Research Note: Market data as of 6/10/2022 Henry Hub is not to scale and is in $ / MMcf 1,761 1,862 978 509 876 1,032 943 433 478 733 $97.98 $92.95 $48.76 $43.28 $50.90 $64.93 $56.98 $39.41 $68.03 $120.67 $3.73 $4.32 $2.61 $2.50 $2.99 $3.16 $2.55 $2.02 $3.86 $8.85 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD A v e ra g e $ / B b l A v e ra g e A n n u a l R ig C o u n t Average Rig Count Average Oil Price (WTI) Average Gas Price (Henry Hub)
16 Financial Performance
17 Summary Income Statement Source: Company disclosure Note: Results in Q2 2021 and prior are reported using a January 31st fiscal year end; results in Q3 and Q4 2021 are reported using a December 31st fiscal year end Summary Segment Income Statement (dollar amounts in millions) Fiscal Quarter Pro Forma Calendar Quarter Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Revenue Rockies $18.2 $29.4 $24.3 $33.6 $37.4 $35.3 $43.3 Southwest 24.8 30.1 38.0 43.0 43.7 50.2 51.9 Mid-Con / Northeast 27.9 27.3 28.5 35.3 47.2 59.5 57.1 Total Revenue $70.9 $86.8 $90.8 $111.9 $128.3 $145.0 $152.3 Adjusted EBITDA Rockies $0.5 $6.5 ($1.6) $3.1 $4.8 $2.3 $4.7 Southwest (2.2) 1.1 (0.7) 1.8 0.6 4.2 4.2 Mid-Con / Northeast 1.5 (5.4) (2.1) 0.5 3.6 6.2 2.7 Corporate & Other (5.2) (4.8) (5.0) (4.8) (4.9) (6.0) (6.7) Total Adjusted EBITDA ($5.4) ($2.6) ($9.4) $0.6 $4.1 $6.7 $4.9 Adjusted EBITDA Margin Rockies 2.7% 22.1% (6.6%) 9.2% 12.8% 6.5% 10.9% Southwest (8.9%) 3.5% (1.8%) 4.2% 1.4% 8.4% 8.1% Mid-Con / Northeast 5.4% (19.9%) (7.4%) 1.4% 7.6% 10.4% 4.7% Total Adjusted EBITDA Margin (7.6%) (3.0%) (10.4%) 0.5% 3.2% 4.6% 3.2%
18 Balance Sheet Source: Company disclosure Summary Balance Sheet as of March 31, 2022 (dollar amounts in millions) Assets Liabilities & Shareholders' Equity Cash $19.4 Accounts Payable $71.9 Accounts Receivable, net 107.0 Accrued Liabilities 37.2 Inventories 24.3 Current Portion of Finance Lease 6.7 Other Current Assets 11.4 Current Portion of Operating Lease 15.3 Total Current Assets 162.1 Total Current Liabilities 131.1 Property, Plant & Equipment, net 168.4 Long-term Debt 275.1 Operating Lease Asset 44.6 LT Portion of Finance Lease 11.1 Intangible Assets 2.1 LT Portion of Operating Lease 29.0 Other Assets 2.3 Other LT Liabilities 0.4 Shareholders' Equity (67.2) Total Assets $379.5 Total Liabilities & Shareholders' Equity $379.5
19 Appendix
20 Reconciliation of Consolidated Net Loss to Adjusted EBITDA (loss) (dollar amounts in millions) Source: Company disclosure Adj EBITDA Reconciliation
21 Reconciliation of Segment Operating Income (loss) to Adjusted EBITDA (loss) (dollar amounts in millions) Rocky Mountains Segment Adj EBITDA Reconciliation Source: Company disclosure
22 Reconciliation of Segment Operating Income (loss) to Adjusted EBITDA (loss) Source: Company disclosure (dollar amounts in millions) Southwest Segment Adj EBITDA Reconciliation
23 Reconciliation of Segment Operating Income (loss) to Adjusted EBITDA (loss) Source: Company disclosure (dollar amounts in millions) Northeast / Mid-Con Segment Adj EBITDA Reconciliation
24 Segment Adjusted EBITDA Margin Reconciliation Source: Company disclosure Segment Adj EBITDA Margin Reconciliation (dollar amounts in millions)
25 SG&A Margin Reconciliation Source: Company disclosure SG&A Margin Reconciliation (dollar amounts in millions)
26 Annualized Adjusted EBITDA (loss) Reconciliation Source: Company disclosure Annualized Quarterly Adj EBITDA (loss) Reconciliation (dollar amounts in millions) PF Q2’20 Q3’20 Q4’20 Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Adjusted EBITDA (loss) ..... $ (19.3) $ (5.4) $ (2.6) $ (9.4) $ 0.6 $ 4.1 $ 6.7 $ 4.9 Multiplied by four quarters 4 4 4 4 4 4 4 4 Annualized Quarterly Adjusted EBITDA (loss) .... $ (77.2) $ (21.6) $ (10.4) $ (37.6) $ 2.4 $ 16.4 $ 26.8 $ 19.6