KLX Energy Services Q4 Earnings Call Highlights

KLX Energy Services (NASDAQ:KLXE) reported fourth quarter and full-year 2025 results on Wednesday, highlighting its strongest profitability of the year in the final quarter amid what management described as a “choppy market.” President and CEO Chris Baker said the company finished 2025 “on a high note,” pointing to record-for-the-year adjusted EBITDA and adjusted EBITDA margin in the fourth quarter, continued corporate cost reductions, and a growing mix of gas-directed work.

Baker also noted KLX’s increasing alignment with gas-weighted activity, saying the company “leaned into gas-weighted asset allocation” as it realigned certain service lines and benefited from industry capacity rationalization. He added that the company’s strategy remains focused on “higher margin, technically differentiated work,” cost discipline, and selective capital deployment.

Fourth quarter results and segment performance

Interim CFO Geoff Stanford said fourth quarter revenue was approximately $157 million, in line with the company’s guidance. He said revenue declined as expected due to seasonality and customer budget exhaustion, but profitability improved. KLX generated about $23 million of adjusted EBITDA in the quarter, its highest quarterly adjusted EBITDA of 2025, with an adjusted EBITDA margin of roughly 14%, also a 2025 high. Stanford attributed margin performance to favorable product line mix, ongoing cost reductions, a “normal fourth quarter approval unwind,” and impacts from fleet refresh and asset rationalization.

By segment, Stanford and Baker repeatedly pointed to the Northeast Mid-Con as the standout performer. Northeast Mid-Con revenue was $69.6 million, essentially flat sequentially, while adjusted EBITDA margin expanded to 25.3%, generating $15.1 million of adjusted EBITDA. Management emphasized continued strength in gas-directed work, with dry gas revenue in the segment up 5.3% quarter-over-quarter and up 44% compared with the fourth quarter of 2024. Baker said most service lines held up “exceptionally well” and cited continued completion programs into year-end and wins in accommodations and flowback, including in East Texas.

Other regions reflected weaker macro conditions. Rockies revenue declined to $46.3 million, down roughly 9% sequentially, primarily due to weather, seasonality, and budget exhaustion. Adjusted EBITDA in the Rockies was $6.9 million, with a 15% margin. In the Southwest, revenue declined about 10% sequentially to $50.9 million, driven by budget exhaustion and softer oil-directed activity in the Permian. However, Stanford said Southwest adjusted EBITDA increased to $6.8 million as margins improved, and Baker said that improvement reflected optimization of product and service mix.

Cost structure, efficiency metrics, and capital spending

Management stressed ongoing efforts to align costs with demand. Baker said KLX reduced headcount while protecting service quality and maintained “healthy metrics for revenue per rig and revenue per headcount,” alongside a “meaningful reduction” in corporate cost year-over-year.

Stanford said corporate adjusted EBITDA loss improved to about $6.3 million in the fourth quarter from $6.6 million in the third quarter. For the full year, corporate adjusted EBITDA loss was around $26 million, which he said brought corporate costs “back towards the 2021, 2022 levels.” He attributed this to structural G&A rightsizing, including an approximately 12% decline in total headcount when comparing average fourth quarter 2025 headcount versus the fourth quarter of 2024.

On operational efficiency, Baker said fourth quarter revenue per rig was approximately $297,000, the second-highest quarter of 2025, and the company delivered more than $40,000 of EBITDA per rig for the second time during the year.

For capital allocation, Stanford said net capital expenditures for 2025 were approximately $33 million. Looking ahead, KLX expects 2026 gross capital expenditures of about $40 million, down from $49 million in 2025, with net CapEx expected in a $30 million to $35 million range. Baker said the 2026 plan assumes disciplined spending with limited need for incremental CapEx, and he referenced expected asset rationalization and items such as lost-in-hole and other tool-related activity as factors that could reduce net CapEx.

Cash flow, liquidity, and leverage covenant amendment

Stanford said cash provided by operating activities was $13 million in the fourth quarter, slightly below the $14 million reported in the third quarter due to the seasonal revenue impact. He also reported unlevered free cash flow of $15 million, a 43% increase from the prior quarter.

Total debt at year-end was $258.3 million, including $222.3 million in senior notes and $36 million in ABL borrowings, compared with $259.2 million at the end of the third quarter. KLX ended the year with approximately $56 million of available liquidity, including about $50 million of availability under its asset-based revolving credit facility and about $6 million in cash and cash equivalents. Stanford noted the company drew approximately $8 million at year-end to fund the first payroll of 2026 due to New Year’s Eve holiday timing.

Management also discussed capital lease obligations and the company’s use of paid-in-kind (PIK) interest. Stanford said capital lease obligations rose from a low point in the second quarter of 2025 due to KLX’s fleet refresh initiative but are expected to amortize down quickly during 2026. He added that coil leases roll off at the end of 2026, which would eliminate approximately $8.2 million of annual lease payments beginning in 2027.

During the fourth quarter, KLX paid senior note interest two-thirds in cash and one-third in PIK. Stanford said that in the first two months of 2026, the company paid 25% in cash and 75% in PIK, and it will continue to evaluate cash versus PIK based on market conditions, leverage, and liquidity. Baker added that capital lease balances are included in the leverage ratio calculation and said the capital lease balance at year-end is expected to amortize significantly during 2026, which management considers when evaluating PIK usage.

KLX reported covenant compliance, with a net leverage ratio of 4.07x at year-end versus a covenant of 4.5x. However, Stanford said that while working through the 10-K and conducting market-risk stress testing, the company identified a potential need for relief in future periods. As a result, KLX proactively amended its indenture to keep the leverage covenant at 4.5x through March 31, 2027 (before resuming the original step-down schedule beginning June 30, 2027) and to exclude capital lease balances from the leverage ratio calculation during that period. Stanford said the change provides “adequate cushion for the next five quarters” and added flexibility for CapEx, M&A, and other capital needs.

2026 outlook: seasonal Q1 low point, gas-led improvement

Looking to 2026, Baker said the company has a “constructive but measured outlook,” with the first quarter expected to be the low point due to budget resets, slower completion restarts, and weather disruptions. KLX forecast first-quarter 2026 revenue of $145 million to $150 million, which Baker said would be down about 3% from the first quarter of 2025 despite an 8% decline in rig count over the same period. The forecast includes the impact of Winter Storm Fern, which management said cost roughly four to five revenue days across many product service lines and districts.

For the second quarter of 2026, KLX expects revenue to rebound to $160 million to $170 million, which would be higher than the second quarter of 2025. Baker said the company’s internal budget contemplates a year that is “broadly flat to slightly up” versus 2025, with most improvement weighted to the second half of the year.

Management said it expects gas-directed basins to lead incremental improvement, while oil-directed markets—particularly the Permian—remain in a “slow, extended downturn.” Baker added that consolidation and capacity rationalization are continuing themes across oilfield services and said KLX has seen smaller competitors exit in recent months, which he believes supports a more rational competitive environment.

Customer trends: simul-frac and coiled tubing market dynamics

In response to analyst questions, Baker said simul-frac adoption in the Mid-Con has not been as rapid as in other basins, though KLX is “participating in simul-frac in the Permian and other basins in a very material way” through offerings such as frac rentals and wellhead isolation. He said KLX’s stage-count forecast for 2026 implies about 25% to 30% simul-frac activity, up year-over-year.

On coiled tubing, Baker said the company has seen attrition of units and referenced market changes including a smaller coiled tubing market in the Bakken and equipment relocating to other regions. He also said wellbore lengths have surpassed the capacity of some units, contributing to growth in alternatives such as snubbing and stick pipe. Baker noted limited new-build activity, with new equipment largely focused on ultra-deep extended-reach laterals, and described the technical requirements and increased risks of servicing longer laterals. He said KLX believes it has an advantage through technologies including in-house proprietary mud motors and extended reach tools.

Baker also addressed uncertainty tied to conflict in the Middle East, saying the company has not yet seen a direct reaction in activity levels despite higher crude prices. He said operators appear to be taking a “wait-and-see approach” after setting budgets, and he noted that industry cycles have shortened as operators rely on shorter-duration rig commitments. Baker added that KLX can see activity increases without incremental rig count through refracs, workovers, and well intervention, and said the company would be prepared to respond if customers elect to ramp activity.

About KLX Energy Services (NASDAQ:KLXE)

KLX Energy Services is a provider of completion tools and pumping equipment for the upstream oil and gas sector, offering high-pressure pumping systems, pressure control equipment, solids control services and downhole rental tools. The company supports well completion and stimulation operations by supplying, installing and maintaining critical equipment used in hydraulic fracturing, coiled tubing interventions and associated wellsite activities.

The firm’s product portfolio includes deck-mounted and portable fracturing pumps, high-pressure manifolds, flowback and well testing units, filtration and separation systems, and wellsite automation solutions.