Earnings call transcript: KLX Energy Q3 2025 sees revenue rise, EPS miss

KLX Energy Services Holdings Inc. reported its third-quarter 2025 earnings, revealing a revenue of $167 million, surpassing the forecast of $162.1 million. However, the company posted an EPS of -$0.74, significantly missing the forecast of -$12.8. Despite the earnings miss, KLX Energy’s stock rose 5.75% in premarket trading, reflecting a positive market sentiment driven by better-than-expected revenue and operational improvements.

Key Takeaways

• Revenue for Q3 2025 increased 5% sequentially, reaching $167 million.
• EPS fell short of expectations at -$0.74, compared to the forecast of -$12.8.
• Stock price rose 5.75% in premarket trading, indicating positive investor sentiment.
• Adjusted EBITDA improved by 14% from the previous quarter.
• The company anticipates a mid-single-digit revenue decline in Q4 2025.

Company Performance

KLX Energy demonstrated resilience in Q3 2025, with a 5% sequential revenue increase, although revenue was 12% lower than the same period last year. The company achieved a 14% increase in adjusted EBITDA, reflecting improved operational efficiency. KLX’s focus on completion-oriented product lines and the rebound in Haynesville activity contributed to this performance.

Financial Highlights

• Revenue: $167 million (5% increase sequentially, 12% decrease YoY)
• Adjusted EBITDA: $21 million (14% increase from Q2 2025)
• Adjusted EBITDA Margin: 13% (100 basis points improvement sequentially)
• Total SG&A Expense: $15.6 million
• Adjusted SG&A Expense: $14.8 million (30% reduction YoY)

Earnings vs. Forecast

KLX Energy’s EPS of -$0.74 fell significantly short of the forecasted -$12.8, marking a surprise of -94.22%. This substantial miss contrasts with the company’s historical performance, where earnings typically aligned more closely with forecasts. However, the revenue beat by 3.02% indicates stronger-than-expected sales.

Market Reaction

Despite the EPS miss, KLX Energy’s stock climbed 5.75% in premarket trading to $1.84, up from the previous close of $1.74. The stock’s movement suggests that investors are optimistic about the company’s revenue performance and operational improvements. The stock remains within its 52-week range, between $1.46 and $7.4.

Outlook & Guidance

Looking ahead, KLX Energy expects a mid-single-digit revenue decline in Q4 2025 but anticipates stable adjusted EBITDA margins. The company remains optimistic about the natural gas market and foresees a potential rebound in activity in 2026. KLX plans to continue focusing on completion-focused service lines and operational efficiency.

Executive Commentary

CEO Chris Baker highlighted the company’s improved efficiency, stating, "KLX is significantly more efficient today than we’ve been in prior cycles." He emphasized the company’s commitment to operational discipline and margin optimization, adding, "We continue to emphasize operational discipline, margin optimization, and proactive capital stewardship."

Risks and Challenges

• Declining rig and frac spread counts could pressure future revenue.
• Market volatility and macroeconomic pressures may impact demand.
• Potential asset sales and operational restructuring pose execution risks.

Q&A

During the earnings call, analysts focused on the strong performance of the Northeast Mid-con segment and inquired about Q4 expectations and potential market dynamics. Management addressed balance sheet flexibility and liquidity management, reinforcing confidence in navigating the remainder of 2025 successfully.

Full transcript - KLX Energy Services Holdings Inc (KLXE) Q3 2025:

Conference Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the KLX Energy Services Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Ken Dennard. Thank you. You may begin.

Ken Dennard, Investor Relations, KLX Energy Services: Good morning, everyone. We appreciate you joining us for the KLX Energy Services Conference Call and webcast to review third quarter 2025 results. With me today are Chris Baker, President and Chief Executive Officer, and Keefer Lehner, Executive Vice President and Chief Financial Officer. Following my remarks, management will provide commentary on its quarterly financial results and outlook before opening the call for your questions. There will be a replay of today’s call, and it’ll be available by webcast by going to the company’s website at KLX.com. There’ll also be a telephonic recorded replay available until November 20th, 2025. For more information on how to access these replay features, go to yesterday’s earnings release. Please note that information reported on this call speaks only as of today, November 6th, 2025. Therefore.

You’re advised that time-sensitive information may no longer be accurate as 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 Energy Services 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 risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the KLX Energy Services website.

With that behind me, I’d like to turn the call over to Chris Baker. Chris.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Thank you, Ken, and good morning, everyone. Thank you for joining us today. The third quarter represents the strongest quarter of the year, overcoming continued market headwinds, including commodity price volatility and a softer OFS activity environment. KLX generated revenue of $167 million, up 5% from Q2, and adjusted EBITDA of $21 million, up 14% from Q2, ahead of our prior guidance. Adjusted EBITDA margin improved materially by 100 basis points sequentially to 13%, despite the average US land rig count declining 6% and average frac spread count being down 12% over the same time period. Our results were driven by a 29% revenue increase in our Northeast Mid-con segment, which more than offset softer activity in the Rockies and Southwest segments. KLX outperformed the industry trend once again by strategically allocating its assets across our broad footprint, focusing on field execution and efficiencies and tight cost controls.

Operationally, our completion-oriented product lines in the Northeast Mid-con, along with a rebound in our accommodations and flowback businesses, contributed meaningfully to this quarter’s top-line strength. KLX’s third-quarter results are a testament to our team’s agility, dedication, and collaboration, effectively managing white space in a difficult market, all while controlling cost. The operating environment remains challenging, shaped by OPEC Plus supply growth and depressed rig counts across all major basins. We believe that our diversified asset base, premium customer alignment, and diverse geographic footprint will continue to support consistent performance. Third-quarter revenue and adjusted EBITDA per rig were $318,000 and $40,000 respectively, 20% and 227% above the levels from the fourth quarter of 2021, the last time industry activity was at similar levels. This underscores the progress we’ve made in strengthening our competitive standing and driving operational and organizational cost efficiencies over the past several years.

Simply put, KLX is significantly more efficient today than we’ve been in prior cycles. Now, let’s look at our segment results. The Southwest represented 34% of Q3 revenue, down from 37% in Q2. Northeast Mid-con was 36%, up from 29% in the prior quarter, and the Rockies was 30%, down from 34% in Q2. The Rockies experienced reduced completion activity in our tech services, frac rentals, and coil tubing product service lines. In the Southwest, weaker demand in directional drilling, flowback, and rentals driven by the overall reduction in Permian activity and white space associated with customer M&A integration initiatives resulted in a softer top line, with revenue declining 4%, albeit still outperforming the segment’s average rig count decline of 9%.

The Northeast Mid-con segment was a standout in Q3, with our completions-oriented product lines delivering sequential growth for both revenues and margins, demonstrating our ability to capture incremental activity by basin, focusing on crew and equipment allocation throughout the KLX footprint, and we expect continued momentum into Q4. By end market, drilling, completion, and production intervention services contributed approximately 15%, 60%, and 25% of Q3 revenue, respectively. Based on current customer calendars, we expect a healthy Q4 despite typical seasonality and budget exhaustion. This reflects recent market share gains, the solid execution of our strategy, and a steady focus on long-term value creation, all of which positions KLX for increased activity anticipated in 2026. I’ll now turn the call over to Keefer to review our financial results in greater detail, and I will return later to discuss our outlook. Keefer.

Keefer Lehner, Executive Vice President and Chief Financial Officer, KLX Energy Services: Thanks, Chris. Good morning, everyone. As Chris mentioned, Q3 2025 revenue was $167 million, a 5% sequential increase, but 12% lower than Q3 2024. Average rig count was down 6% over this period, and frac spread count was down 12% over the same period. Our Q3 sequential results were driven largely by strong growth in the Northeast Mid-con segment, which saw a 29% quarter-over-quarter top line increase. The outperformance was complemented by disciplined management of fixed costs, resulting in consolidated adjusted EBITDA margin expansion to 12.7% from 11.6% in Q2, and was in line with last quarter’s guidance and approaching Q3 2024 margin levels of 15%, despite a market environment measured by rig count that is down 7% over the same period. Total SG&A expense for the quarter was $15.6 million.

Excluding non-recurring items, adjusted SG&A expense came to $14.8 million, representing a 30% reduction from the same period last year and an 18% improvement sequentially. These reductions reflect the full impact of the cost structure initiatives implemented in 2024, supported by incremental efficiency gains realized throughout 2025, reduced third-party spend, and settlement of a legal claim. Looking ahead, adjusted SG&A is expected to remain in the 9%-10% of revenue range for the year. Moving to our segment results, the Rockies segment had Q3 revenue of $50.8 million and adjusted EBITDA of $8.1 million. Sequential revenue and adjusted EBITDA decreased 6% and 22%, respectively, mainly due to a slowdown in completions activity due to discrete customer scheduling, particularly in tech services, frac rentals, and coil tubing. As we move into Q4, we’ve seen some choppiness to customer schedules and expect typical holiday slowdowns.

In the southwest segment, revenue and adjusted EBITDA were $56.6 million and $5.1 million, respectively. On a quarterly basis, Q3 revenue decreased 4% sequentially, with EBITDA down 29%. As expected, given the 9% decline in southwest rig count and 18% decline in Permian frac spread count, the southwest experienced lower activity across directional drilling, flowback, and rentals, which drove a corresponding downward pressure on margins during the period. For the northeast mid-con segment, revenue was $59.3 million, and adjusted EBITDA was $14.5 million. The sequential increases in revenue of 29% and adjusted EBITDA of 101% were largely driven by higher utilization across our completions portfolio, reduced white space in our calendar, and targeted expense management across our various PSLs operating within this segment. At corporate, our operating loss and adjusted EBITDA loss for Q3 were $8 million and $6.6 million, respectively, with our operating loss improving 11% from last quarter.

Our adjusted EBITDA loss was within $300,000 of Q2 2025. Turning to our balance sheet, cash flow, and capitalization. We ended the third quarter with approximately $65 million in liquidity, in line with Q2, including $8.3 million of cash and cash equivalents and $56.9 million of availability on our revolving credit facility, which includes $5.3 million on an undrawn FILO facility. Total debt as of September 30 was $259.2 million, including $219.2 million in notes and $40 million in ABL borrowings, and is also largely in line with Q2 levels. We remain in compliance with our debt covenants. Our bonds require a 2% annual mandatory redemption paid quarterly. We’ve continued to make these payments, but we did PIK $6 million of interest in Q3, and we will evaluate future PIK versus cash decisions based on market conditions and company leverage and liquidity.

It’s worth noting that our most recent pick election was 100% cash-paid interest. Moving to working capital. As of September 30, we had $50.1 million of net working capital, and our DSO held steady at a normalized level of 61 days, and our DPO increased slightly to approximately 50 days, both roughly in line with long-term historical averages. We remain focused on disciplined and proactive management of working capital to ensure flexibility and resilience in the current market environment. Our capital expenditures for the quarter were $12 million, and $7.8 million net of asset sales. Down 6% from Q2, and we expect a further decline in Q4. In line with our focus on further capital efficiency. Year-to-date, capital spending trends suggest a full-year gross CapEx of $43-$48 million, with net CapEx of $30-$35 million when you include asset sales.

As activity declined, headcount was reduced approximately 2% sequentially, supporting overhead control and increased operating leverage. Also, we completed the sale of a facility in Q3 and expect additional asset sales to close in Q4. We continue to monitor and respond to asset performance, and our finance leases are beginning to transition as older vehicles roll off in Q4, contributing to increased operational agility into 2026, and our portfolio of finance-leased coil tubing units will be owned outright in late 2026, which will drive a meaningful improvement in free cash flow profile going forward. I’ll now hand the call back to Chris for his concluding remarks and more color on our outlook.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Thanks, Keefer. While the broader market conditions remain mixed and near-term visibility is limited, we are encouraged by recent signs of stabilization in rig activity and the emergence of sustained and incremental activity in the natural gas basins. We continue to emphasize operational discipline, margin optimization, and proactive capital stewardship sustained by close coordination across our operating regions to weather current market volatility. With improved overhead efficiency, a disciplined cost structure, and a flexible balance sheet, we are confident in our ability to navigate the remainder of 2025 successfully and capture upside as the market strengthens. As we look ahead, we anticipate typical seasonality and budget exhaustion to moderate activity through the fourth quarter, yielding a mid-single-digit revenue decline from Q3 to Q4. This signals a less pronounced Q4 reduction than in years past.

Importantly, we expect continued stable adjusted EBITDA margins aided by ongoing cost discipline, year-end accrual dynamics, vehicle turnover, and regional activity mix. Our fourth-quarter guidance reflects steady demand across our core product service lines, supported by new project awards from key accounts. Operationally, our diversified portfolio, prudent capital discipline, and proven operating leverage continue to drive strong execution, helping to offset macro volatility and commodity noise. In addition, KLX stands to benefit as natural gas demand accelerates, underpinned by new LNG export capacity and increased data center activity. On a quarter-over-quarter basis, dry gas revenue rose 15%, building on the 25% increase we saw in Q2. Haynesville activity rebounded by six rigs in Q3, and we continue to monitor demand drivers across the board.

With close to 11 BCF per day of new LNG export projects scheduled to come online over the next five years, including key capacity additions along the Gulf Coast, the U.S. is well-positioned to strengthen its role as a global energy supplier. Our internal planning highlights continued relative stability in completion-focused service lines, along with a modest Q4 bounce-back in drilling activity. Combined with incremental benefits from strategic cost controls already underway, these strengths reinforce our confidence in delivering profitable growth in 2026. Our strategic capital stewardship ensures we remain ready for both measured top line expansion and sustained margin strength. In summary, unused fleet capacity and minimal white space have allowed us to adapt operations efficiently and support margin expansion, even in periods of softer activity.

KLX is now better situated from an overhead efficiency standpoint than at any time in our post-COVID history, empowering us to strategically capitalize on future opportunities. KLX has significant operating leverage to a rebound in market activity, and similar to prior cycles, we will ensure we are best positioned from a personnel, asset, and technology standpoint to maximize our upside in future periods. We appreciate the ongoing dedication and commitment of our team members, the partnership of our customers, and the support of our stakeholders, empowering us to deliver value and drive KLX forward. With that, we will now take your questions. Operator.

Conference Operator: Thank you. At this time, we will be conducting a question-and-answer session. If you’d like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If you wish to remove your question from the queue, please press Star 2. Our first question is from Steve Ferazani with Sidoti & Company.

Steve Ferazani, Analyst, Sidoti & Company: Good morning, Chris. Morning, Keefer. Appreciate all the detail on the call.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Good morning, Steve.

Keefer Lehner, Executive Vice President and Chief Financial Officer, KLX Energy Services: Morning, Steve.

Steve Ferazani, Analyst, Sidoti & Company: Morning. Got to start with the Northeast Midcon, which we expected it to trend higher for you. But those numbers were way past our expectations. Your Northeast Midcon margin was the highest it has been in three years, and three years ago, natural gas prices were over $8. Can you indicate the performance? Because it is impressive.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: No, look, I appreciate that. Our Northeast, if you really dig into it, our Northeast business within the Northeast Midcon remained relatively stable, predominantly driven by rentals and fishing. You dig into the Haynesville, we were able to capture revenue increases in accommodations and flowback specifically. I think perhaps most importantly, we saw less white space overall in our Midcon PSL. When you think about the positive operating leverage of just being base-loaded, you see a lot of margin expansion. I wish we were back in a market where we were at an $8 gas price. We’re not. I don’t expect to go there anytime soon. I do think a macro theme, though, is KLX as a whole is just more efficient today than we were in the periods you referenced. I think that shined through in our Northeast Midcon performance.

Steve Ferazani, Analyst, Sidoti & Company: Is it also fair to say you’re gaining market share?

Chris Baker, President and Chief Executive Officer, KLX Energy Services: I think rig count was up, what, six rigs quarter over quarter on average in the Haynesville. You can think about that on a percentage basis where, once again, we drove quarter over quarter revenue just from a dry gas perspective of 15%, 25% in the prior quarter, if you recall our Q2 discussion. I think within certain product lines, yes, we’ve gained market share.

Steve Ferazani, Analyst, Sidoti & Company: Then flipping to the other side, which was the Rockies, we know that drilling and completions are trending down, but you did outperform our estimates. Was there anything specific going on in that market in the three-queue beyond the general macro?

Chris Baker, President and Chief Executive Officer, KLX Energy Services: I think specific in nature, look, rig count, to your point, was really flat in the Rockies quarter over quarter. There were puts and takes in the various basins within the Rockies, but overall, Rockies was generally flat. However, what we did see was some very episodic completion programs with an overall decline in kind of refract activity. We saw a lot of refract activity in 2023 and continuing into parts of 2024. I think the episodic nature of those completion programs, back to the point with the Midcon, really highlights the negative operating leverage when your cost structure is relatively fixed in the short term and at current market pricing levels.

When you get a last-minute delay in a completion program that pushes revenue out of the schedule or maybe out for a month, it’s really hard to adjust your cost structure in the short term. The negative operating leverage really impacts margin.

Steve Ferazani, Analyst, Sidoti & Company: That’s helpful. Thanks. When you’re indicating the slower year-end slowdown, you’re certainly not the first company to say that during earnings season. What is it you’re hearing from operators, and how does that make us think about next year when obviously a lot of folks are concerned about oil oversupply and pressure on WTI?

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Yes. I think there’s really two questions there. First, Q4, we stated a mid-single-digit revenue decline on a percentage basis. That’s materially below the 13% quarter-over-quarter decline we saw last year. The decline’s largely going to be driven by holiday slowdowns, I think less pronounced budget exhaustion versus prior periods. I would note that on a monthly basis, our October revenue was flat to September. Whereas if you look at 2024, we saw a 7% decline October versus September in the same period. We are already off to kind of, on a relative basis, a better start. On the margin side, we expect margins to hold up despite declining revenue, really just due to cost controls. We’ve got our typical Q4 accrual unwinds relative to PTO and other accruals. We also talked about the fleet turnover in our prepared remarks that typically occurs in Q4.

That’s how we’re set up on Q4 as we sit here today.

Steve Ferazani, Analyst, Sidoti & Company: Okay. Thoughts, go ahead.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Yeah. I was going to say on next year, look, it’s still too early to give firm guidance from a 2026 perspective. We’ve seen puts and takes with operators saying their CapEx budget for next year is going to be flat, flat to slightly down. I think we’re set up where the gas market is going to be very consistent, and everybody’s projecting a full year-over-year increase in activity, and we would expect that to hold true for us. We continue to see consolidation. We saw a major consolidation transaction earlier this week. We know these transactions can lead to episodic white space and growing pains as they integrate their portfolios. Net net, we are typically the beneficiaries, as we’ve talked about before, of consolidation, but it still can create some puts and takes.

I will say we’ve received some recent wins from an RFQ perspective on the award front, which we think are supportive of both Q1 and 2026 overall. Lastly, I think the last part of your question, the EIA just posted a report earlier this week saying, I think it was on Tuesday, saying we’re going to have to ramp up U.S. activity to sustain U.S. crude production. It is very circular. I think it is a if and when. When production declines take over, that is supportive of commodity prices, and higher commodity prices is supportive of activity. It feels like it is a question of when, not if, activity rebounds in the oil basins. I think there is some optimism building around the second half of 2026 into 2027. We will just have to see how it plays out.

Steve Ferazani, Analyst, Sidoti & Company: Fair enough. That’s very helpful. Thanks, Chris. I do want to touch on the balance sheet. $65 million in available liquidity. Four Q tends to be a strong cash flow quarter, but then Q1 is the working capital builds again more dramatically. I’m just trying to think about your flexibility. You haven’t used the pick option yet. You have that at your disposal, which can help depending on how the first part of next year plays out. Generally speaking, and you’ve been selling some equipment, I think you talked about some facility sales. Can you just give us a general overview about, and you’ve done a great job trying to protect the balance sheet during this downturn, just generally how you’re thinking about that without knowing exactly how activity plays out first part of next year?

Keefer Lehner, Executive Vice President and Chief Financial Officer, KLX Energy Services: Yeah. Good question. Lots of moving pieces, obviously, in there from a free capital perspective. First, on the PIK, we did PIK a portion of our Q3 interest. We PIKed about $6 million of interest in the third quarter. In the prepared remarks, we did say that our most recent cash PIK election that we submitted last week, we did do 100% cash pay there. We will continue to evaluate PIK versus cash decisions through the lens of managing the balance sheet from a leverage and liquidity standpoint. Nothing’s going to change there. As it relates to free cash flow, you’re spot on that Q4 is typically a strong free cash flow quarter for us. We had $11 million or so of unlevered free cash flow in Q3. We did guide Q4 down on a mid-single-digit % basis.

With that said, working capital should unwind given that decline. Q4 does not also have the extra payroll that we have in the third quarter. Those two things combined should lead to improved kind of free cash flow generation in the quarter, largely due to working capital trends. DSO has been holding in pretty consistently around 60-61 days. I would expect that to hold going forward. On the DPO side, we have been kind of trending in the low 50s. Again, I would expect that to hold going forward. As you think about CapEx and its impact on free cash flow, we are guiding to a much lower kind of minimal net CapEx spend in Q4. Obviously, kind of gross spending will be down, but that will be offset by some of the asset sales that we mentioned and you alluded to in your question.

I think all those things combine to Q4 being a strong quarter, and that’s why we continue to reiterate that we expect liquidity to continue to improve as we navigate the remainder of this year. As you turn into 2026, I think the quarterly trends there, as you point out, will continue to play out to some extent. I will say that I expect Q1 2026 to be less burdensome from a working capital investment standpoint compared to the 2024 to 2025 transition, just given what we know today.

Steve Ferazani, Analyst, Sidoti & Company: Excellent. Really helpful.

Keefer Lehner, Executive Vice President and Chief Financial Officer, KLX Energy Services: Hopefully, that answered it.

Steve Ferazani, Analyst, Sidoti & Company: Very well. Thank you. Thanks, Chris. Thanks, Keefer.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Thanks, Steve. Appreciate it.

Conference Operator: Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Chris Baker for closing remarks.

Chris Baker, President and Chief Executive Officer, KLX Energy Services: Thank you, operator. Thank you once again for joining us on the call today and your continued interest in KLX. We look forward to speaking with you again next quarter.

Conference Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time.

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