KLX Energy Services (NASDAQ:KLXE) reported higher third-quarter revenue and adjusted earnings as a full quarter of contributions from its Wolf Pack acquisition and increased activity across its three operating regions helped offset a wider net loss.
Revenue rose 11% from the second quarter to $186 million, exceeding the company’s guidance, while adjusted EBITDA increased 33% to $25 million. Adjusted EBITDA margin expanded to 13.4% from 11.2%.
President and CEO Chris Baker said the quarter demonstrated the company’s earnings potential when activity, service mix and execution align. KLX also substantially completed the integration of Wolf Pack and closed a backstopped rights offering that reduced debt and raised new equity.
Loss widens despite stronger operations
KLX reported a third-quarter net loss of $15 million, or 68 cents per share, compared with a loss of $8 million, or 41 cents per share, in the second quarter. Senior Vice President and Interim Chief Financial Officer Geoff Stanford said the comparison included a $4 million loss on debt extinguishment in the third quarter and a $6.5 million bargain purchase gain from Wolf Pack in the second quarter.
On an adjusted basis, the net loss narrowed to $10.1 million, or 44 cents per share, from $13.2 million, or 64 cents per share, in the prior quarter. Adjusted operating income was $4 million, compared with an adjusted operating loss of $3 million.
Revenue increased sequentially in all three operating segments. The Rocky Mountains region stood out, with revenue rising 15% to $59 million and adjusted EBITDA approximately doubling to $12.6 million, according to Baker. Stanford attributed the improvement to higher utilization.
Southwest revenue increased 10% to $71 million, while Northeast MidCon revenue rose 8% to $56 million. Accommodations and technology services drove growth in both regions, supported by a full quarter of Wolf Pack contributions. Northeast MidCon adjusted EBITDA declined to $12 million from $13 million as improved results in the Northeast were offset by slightly lower utilization in the MidCon, Stanford said.
Recapitalization cuts debt
The rights offering converted $88 million of debt to equity and raised $37 million in new equity, Baker said. Total debt fell to $188 million at September 30 from $289 million at the end of the second quarter, while liquidity rose to $78 million.
KLX’s trailing 12-month net leverage ratio declined to 2.5 times from 3.9 times at June 30. Baker also cited a roughly two-times ratio based on third-quarter run-rate adjusted EBITDA, excluding capital leases.
The company ended the quarter with 105.7 million shares outstanding. Stanford said the third-quarter weighted average share count of 22.7 million reflected the newly issued shares for only the final two days of the quarter; fourth-quarter per-share results will reflect them for the full period.
Cash flow from operating activities fell to $7 million from $11 million in the second quarter, primarily because of a working capital and accounts receivable build. KLX expects some working capital to be released as activity moderates in the fourth quarter, Stanford said.
Baker said the recapitalization reduced annual interest costs by approximately $12 million. The expiration of five large coiled tubing unit leases, with the final payment due in November, is expected to provide another $8.2 million in annualized cash savings.
Seasonal slowdown expected to ease
For the fourth quarter, KLX forecast revenue of $172 million to $184 million. Baker said the midpoint represents roughly 14% growth from the prior-year period and a smaller sequential seasonal decline than in recent years.
Baker described the broader market recovery as uneven. He said the average U.S. land rig count rose to 575 in the third quarter from 538 in the second, but operators remain selective with spending. Gas-directed activity remains uncertain, with a recent decline in the Haynesville rig count and deferred completion work, he said.
During the question-and-answer session, Baker said KLX had been able to raise prices selectively for differentiated technology and services, as well as in certain niche regional markets. Pricing remained more difficult in fragmented service lines with heavy competition and fewer technological differentiators, he said.
KLX’s year-end priorities include protecting margins, managing costs and completing the remaining Wolf Pack integration work. The company remains on track to achieve its previously targeted $2.5 million in annual fixed-cost synergies, Baker said.
Looking ahead, Baker said the improved balance sheet gives KLX more flexibility to pursue growth and evaluate acquisitions, while continuing to reduce leverage through free cash flow. He estimated that adjusted EBITDA needed to break even on free cash flow in 2027 would be in the upper $60 million to low $70 million range, depending on capital spending, working capital and seasonal factors.
About KLX Energy Services (NASDAQ:KLXE)
KLX Energy Services Holdings, Inc provides technical oilfield services and equipment to exploration and production companies operating primarily in the United States. The company supports onshore drilling, completion and production activities, helping customers construct, maintain and optimize oil and natural gas wells.
Its service portfolio includes well-intervention and completion services such as coiled tubing, wireline, pressure pumping, stimulation, snubbing, well testing and related technical services.
