KLX Energy Services Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Thank you operator, and good morning everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review second quarter 2026 results. With me today are Chris Baker, President and Chief Executive Officer, Jeff Stanford, Senior Vice President, Interim Chief Financial Officer, and Chief Accounting Officer, and Max Bouthillette, General Counsel. Following my remarks, management will provide commentary on its quarterly financial results and outlook before opening your call for questions. There will be a replay of today's call that will be available via webcast on the company's website at klx.com, and there will also be a telephonic recorded replay available until August 25th. 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, August 11th, 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 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K 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 comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX website. Now with that behind me, I would like to turn the call over to Chris Baker.

Chris? Thank you Ken, and good morning everyone.

I'd like to begin today's call by highlighting three key accomplishments that defined what was a very busy second half of the second quarter and early third quarter for KLX. First, we delivered continued revenue growth and EBITDA expansion with second quarter results in line with our guidance. Revenue was approximately $167 million, and adjusted EBITDA increased 68% sequentially to approximately $19 million, demonstrating the operating leverage in our business as activity improved. Second, we successfully completed and began integrating the Wolfpack acquisition. Finally, yesterday post market close, we announced our $125 million backstop equity rights offering that will support our broader balance sheet improvement strategy. This transaction is designed to reduce debt, improve liquidity, and strengthen our capital structure, positioning KLX for greater financial flexibility and long-term growth.

Importantly, these initiatives should be viewed as proactive measures to strengthen the balance sheet and add flexibility. They are not being undertaken due to operational challenges. Rather, they reflect the confidence we have in our business and our commitment to creating a stronger foundation for the future. Collectively, these accomplishments reinforce our focus on profitable growth, disciplined execution, and creating long-term value for our shareholders. Turning to the second quarter details, our second quarter results were in line with expectations despite a bit of late June white space. Revenue was $167.3 million, essentially at the midpoint of our guidance and up $22.6 million, or 15.6% from the first quarter. Adjusted EBITDA was $18.7 million, up 68% sequentially, and adjusted EBITDA margin improved to 11.2%.

The improvement from the first quarter was driven by normalization of our typical Q1 seasonal impacts, higher activity levels yielding improved utilization, and better absorption of our cost structure, along with one month of contribution from Wolfpack. A key milestone in the quarter was the closing of our acquisition of Wolfpack Rentals on June 2, 2026. Wolfpack expands our capabilities and customer reach in key markets, along with adding needed scale in certain areas. Wolfpack contributed $3.4 million of revenue in June, implying a current annual revenue run rate of approximately $41 million, which compares favorably to Wolfpack's previously disclosed full year 2025 revenue of $38 million. Integration has progressed smoothly. Cross-selling opportunities are already being realized, and we have increased our expected annual synergy targets to approximately $2.5 million. Excluding Wolfpack, the KLX base business grew more than 13% sequentially, outpacing the 5.8% increase in U.S. Land Rig Counts. This reflects steady demand and solid execution across the portfolio, led by sequential revenue growth in coiled tubing, directional drilling, technical services, and accommodations.

From an in-market perspective, drilling-focused revenue represented approximately 23% of total revenue in Q2, up from 20% in the first quarter. It's worth noting that Wolfpack and our legacy accommodations PSL revenue is currently classified within drilling, which contributed to that shift. Completion, production, and intervention services saw revenue increases as well. However, the mix still leaned more towards drilling on a historical basis, which limited the incremental margins on the additional revenue. At our scale, and with the macro backdrop of a mid 500 rig count operating environment, the timing of individual large jobs and associated revenue can move meaningfully between quarters based on customer scheduling. We saw that in both the first and second quarters of 2026.

This is emblematic of a business our size rather than a change in underlying demand, and it is worth keeping in mind as you think about quarter-to-quarter comparisons. Revenue per average operated rig came in at approximately $311,000 in Q2, up from $273,000 in Q1. On the same basis, revenue per rig was stronger than last year's second quarter, while EBITDA per rig was effectively flat, highlighting the impact of PSL mix and the competitive pricing environment. From a segment perspective, the Rockies and Southwest showed strong sequential improvement in both revenue and incremental adjusted EBITDA, driven by improvements in the majority of PSLs. The Mid-Con revenue was essentially flat, yet still realized improved margins due to a mix shift in PSLs and cost controls. Overall, the second quarter demonstrated the earnings leverage in our business as activity improves.

We continue to focus on utilization, cost discipline, cash generation, and integrating Wolfpack to strengthen our position across key markets. With that, I will 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? Thanks, Chris. Good morning, everybody.

Activity improved markedly from Q1. Our Q2 earnings profile still reflects a business mix tilted more towards drilling and away from some of our higher margin service lines. That dynamic is important to keep in mind as you work through both the consolidated numbers and the segment detail. Revenue for the second quarter was up 15.6% sequentially to $167.3 million from $144.7 million in the first quarter, and up approximately 5% compared to the second quarter of 2025. Excluding the Wolfpack acquisition, the base business grew nicely, up more than 13% sequentially. Adjusted EBITDA was also up to $18.7 million versus $11.1 million in Q1. Adjusted EBITDA margin was 11.2% compared to 7.7% in the first quarter.

This 68% sequential increase in adjusted EBITDA was roughly 350 basis points of margin expansion on incremental margins of approximately 34%, also absorbing about $600,000 of bad debt write-offs. Net loss for the quarter was $8 million or $0.41 per share, compared to a net loss of $24 million or $1.23 per share in the first quarter. Results include a $6.5 million bargain purchase gain recognized in conjunction with the Wolfpack acquisition, reflecting the fair value of the net assets acquired relative to the purchase price. Because that gain is non-recurring, we excluded it from both adjusted EBITDA and adjusted net loss. Excluding the gain, we generated an operating loss of approximately $4.4 million in the quarter versus an operating loss of $12.1 million in the first quarter. Corporate costs moved up both sequentially and against the prior year period, primarily because of seasonality and bonus accrual timing.