KLX Energy (KLXE) Q4 2025 Earnings Call Transcript

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Date

Thursday, March 12, 2026 at 10 a.m. ET

Call participants

• President and Chief Executive Officer — Christopher J. Baker
• Interim Chief Financial Officer — Jeff Stanford
• Managing Partner, Dennard Lascar Investor Relations — Ken Dennard

Takeaways

• Revenue -- $157 million for the quarter, matching internal guidance, reflecting expected seasonal and budget-related softness.
• Adjusted EBITDA -- $23 million, the highest quarterly result for the year, with a 14% margin also at a yearly high.
• Northeast/Mid-Con segment revenue -- $69.6 million, essentially flat sequentially, with dry gas revenue up 5.3% quarter over quarter and 44% year over year.
• Northeast/Mid-Con adjusted EBITDA margin -- 25.3%, yielding $15.1 million in segment adjusted EBITDA, driven by gas-directed activity.
• Rockies segment revenue -- $46.3 million, down roughly 9% sequentially, attributed to weather, seasonality, and customer budget exhaustion.
• Southwest segment revenue -- $50.9 million, representing a 10% decrease from the prior quarter, primarily due to lower oil-directed activity and shifting of assets.
• Southwest adjusted EBITDA margin -- 33%, with $6.8 million in segment adjusted EBITDA, showing improved product and service mix management.
• Revenue per rig -- Approximately $297,000, marking the second-highest quarter of the year, with more than $40,000 of EBITDA per rig.
• Headcount reduction -- Average fiscal Q4 2025 headcount declined approximately 12% compared to fiscal Q4 2024, supporting year over year corporate cost reduction.
• Corporate adjusted EBITDA loss -- Improved to $6.3 million in the quarter, down from $6.6 million in the prior quarter, totaling $26 million loss for the year.
• Net capital expenditures (CapEx) -- $33 million for 2025; 2026 net CapEx guidance is $30 million to $35 million, primarily for maintenance.
• Cash provided by operating activities -- $13 million in the quarter, slightly below the $14 million generated in the previous quarter.
• Unlevered free cash flow -- $15 million, up 43% sequentially from Q3.
• Total year-end debt -- $258.3 million, including $222.3 million in senior notes and $36 million in ABL borrowings, reduced from $259.2 million at prior quarter end.
• Available liquidity -- Approximately $56 million, with $50 million available on the asset-based revolving credit facility and $6 million in cash and equivalents.
• Net leverage ratio -- 4.07x at period end, within the 4.5x senior notes covenant; a step-down to 4.0x had been scheduled for March 2026.
• Leverage covenant amendment -- Amended to keep covenant at 4.5x for five quarters through March 2027; capital lease balances excluded from leverage ratio during this period, enhancing funding flexibility.
• Senior note interest payment mix -- In the quarter, two-thirds paid in cash, one-third paid in PIK (payment-in-kind); in January and February 2026, 25% cash and 75% PIK.
• Fiscal Q1 2026 revenue forecast -- $145 million to $150 million, expected down approximately 3% despite an 8% reduction in rig count; includes the impact of Winter Storm Firm costing four to five revenue days in several districts.
• Fiscal Q2 2026 revenue guidance -- Anticipated rebound to $160 million to $170 million, exceeding the prior-year comparable quarter.
• Industry competition -- Management noted the market has seen several smaller competitors exit, helping remove inefficient capacity, particularly benefiting KLX Energy Services Holdings.
• Simulfrac operations exposure -- Around 25%-30% of forecasted stage count utilizes simulfrac, up year over year but with slower adoption in the Mid-Con relative to the Permian.
• Coiled tubing market dynamics -- Management described "attrition of units" and reduced new builds, especially in the Bakken, with remaining new builds focused on ultra-deep, extended-reach laterals.

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Risks

• Stanford said, "stress testing for market risk indicated a potential need for a covenant relief in future periods," leading to a proactive leverage covenant amendment due to possible covenant pressure.
• Management expects the first quarter to be the low point for the year, citing "customer budget resets, slower restarts of completion programs, and weather-related disruptions."
• Baker stated the outlook remains "tenuous" due to the Middle East conflict and acknowledged a lack of visibility into oil-directed market recovery timing.
• Baker noted ongoing industry pressures, referencing "budget exhaustion and softer oil-directed activity," and asset relocations that contributed to revenue declines in the Rockies and Southwest segments.

Summary

KLX Energy Services Holdings (NASDAQ:KLXE) reported sequentially stable revenue in its highest-margin segment and achieved yearly highs in both absolute and margin-adjusted adjusted EBITDA despite persistent macro challenges. Segment analysis shows divergent performance, with Northeast/Mid-Con driven by gas activity and margin expansion, but offset by declines in the Rockies and Southwest due to seasonality, weather, and customer budget constraints. Capital discipline persisted, evidenced by a 12% average headcount reduction, lower corporate expenses, and a reduced net CapEx outlook for 2026, with funding flexibility enhanced by a recent leverage covenant amendment. Unlevered free cash flow increased substantially versus the prior quarter, while available liquidity and compliance with amended debt covenants position the company for continued operation as industry rationalization unfolds.

• Management projects a gradual market improvement post-Q1, led by gas-centric basins, with growth expectations weighted toward the year's second half and revenue trending "flat to slightly up" versus 2025.
• The call highlights the company's proactive use of PIK interest options under its senior notes to manage leverage and liquidity, varying the cash/PIK mix in accordance with market and operational demands.
• KLX Energy Services Holdings anticipates incremental returns from declining capital lease obligations and the end of coil leases in 2026, which will eliminate approximately $8.2 million in annual lease payments from 2027 onward.
• Baker said, "Our portfolio is increasingly aligned" with gas-directed growth, and reaffirmed the company's readiness to participate should oil-directed activity accelerate in response to global market shocks.

Industry glossary

• Simulfrac: Simultaneous hydraulic fracturing of multiple wells on the same pad, increasing efficiency through parallel treatment stages.
• PIK (Payment-in-kind): A financial arrangement allowing interest payments on debt to be made through additional debt or equity instruments, rather than cash.
• Asset-based revolving credit facility (ABL): A loan secured by company assets, typically tied to receivables or inventory, allowing for flexible short-term borrowing.
• Coiled tubing: Continuous-length steel pipe used in well intervention, completion, or drilling operations, deployed from a reel directly into a wellbore.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted for certain non-cash and non-recurring items, serving as a metric of operational performance.

Full Conference Call Transcript

Operator: Greetings, and welcome to the KLX Energy Services Holdings, Inc. Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, Ken. You may begin.

Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services Holdings, Inc. conference call and webcast to review fourth quarter and full year 2025 results. With me today are Christopher J. Baker, President and Chief Executive Officer, and Jeff Stanford, Interim 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 that will be available by webcast on the company's website at klx.com.

There will also be a telephonic recorded replay available until 03/26/2026, and, of course, there is more information on how to access these replay features that was in yesterday's earnings release. Please note that information reported on this call speaks only as of today, 03/12/2026, 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 Energy Services Holdings, Inc. management; however, various risks, 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-Ks, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K to understand certain 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 also be found on the KLX Energy Services Holdings, Inc. website.

I will now turn the call over to Christopher J. Baker.

Christopher J. Baker: Thank you, Ken. And good morning, everyone. Before we discuss our results, I would like to take a moment to say our thoughts and prayers are with all of the military personnel serving in the Middle East in the midst of this significant conflict. KLX Energy Services Holdings, Inc. has very close ties to our military. There are almost 100 veterans that work for KLX Energy Services Holdings, Inc., and so many other veterans and their family members in the broader oilfield services space that we are all connected in some way. So, again, our thoughts and prayers to all of our men and women in the military for a safe return. We sincerely thank you for your service.

Now for our 2025 performance. 2025 was another solid year for KLX Energy Services Holdings, Inc. despite a choppy market, and we finished the year on a high note. The fourth quarter delivered our strongest profitability of the year with adjusted EBITDA and adjusted EBITDA margin both at 2025 highs. Throughout 2025, we continued to optimize our corporate cost structure and thoughtfully invested in our product lines while leaning into gas-weighted asset allocation as we realigned certain product service lines and benefited from capacity rationalization in the industry. KLX Energy Services Holdings, Inc. continues to execute against the playbook that we have outlined on prior calls.

We focus on higher-margin, technically differentiated work, lean into cost discipline, and are very intentional and diligent about where we strategically deploy capital and people. Operationally, the Northeast/Mid-Con segment was the standout in the quarter. Despite typical winter weather and year-end budget dynamics, that segment held revenue essentially flat sequentially and, again, expanded margins, driven by robust demand in our gas-directed work. Our dry gas exposure continued to grow as a share of the portfolio, and gas-levered revenue has steadily been marching back toward prior cycle peaks.

In fact, dry gas revenue in this segment increased 5.3% quarter over quarter and 44% when you compare 2025 versus 2024, with broad-based gains across most of the product service lines we operate in this segment. On the other side of the ledger, the Rockies and Southwest reflected the realities of the macro environment. The Rockies were impacted by severe weather and customer budget exhaustion late in the year, and the Southwest experienced lower activity or reduced oil-directed rigs in the Permian. Even in that backdrop, Southwest margins expanded as we optimized our product and service mix, which is exactly the kind of blocking and tackling that is firmly within our control.

Across the business, we continue to cut the suit to fit demand by aligning our footprint and cost structure with activity levels. We reduced headcount while protecting service quality. We maintained healthy metrics for revenue per rig and revenue per headcount, and we drove a meaningful reduction in our corporate costs year over year. Our efficiency metrics remain solid. In Q4, revenue per rig was approximately $297,000, the second-highest quarter of the year, and we delivered more than $40,000 of EBITDA per rig for the second time in 2025. Revenue per headcount also held up well, consistent with our focus on aligning staffing with activity.

I would like to take this time to personally thank everyone at KLX Energy Services Holdings, Inc. for their hard work, dedication, and persistence, which allowed us to achieve the above results in an admittedly challenging macro environment. Our employees' commitment to safe, efficient, and quality work performance is what drives KLX Energy Services Holdings, Inc. and is the basis of the strong customer relationships that help us stand out from competitors. With that overview, I will now turn 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?

Jeff Stanford: Thanks, Chris. Good morning, everybody. Starting with the fourth quarter, we generated revenues of approximately $157 million, which was in line with our Q4 guidance. As expected, revenues decreased due to seasonality and budget exhaustion. We generated approximately $23 million of adjusted EBITDA, our highest quarterly adjusted EBITDA of the year, and an adjusted EBITDA margin of about 14%, also the high for 2025. The margin performance reflected favorable product line mix, ongoing cost reductions and normal fourth-quarter accrual unwind as well as impacts from our fleet refresh, asset rationalization, and other year-end items.

By segment, Northeast/Mid-Con revenue was essentially flat sequentially at $69.6 million, up about 0.5%, while delivering another quarter of adjusted EBITDA margin expansion to 25.3% and $15.1 million of total adjusted EBITDA, driven by gas-directed activity. Within that segment, dry gas revenue increased 5.3% quarter over quarter, continuing the trend of our gas-levered revenue base growing as a share of the portfolio. In the Rockies, revenues declined to $46.3 million, roughly 9% sequentially, primarily due to weather, seasonality, and customer budget exhaustion. Adjusted EBITDA declined to $6.9 million, or 15%. In the Southwest, revenue declined about 10% to $50.9 million from the third quarter, mostly tied to budget exhaustion and softer oil-directed activity in the Permian.

Adjusted EBITDA increased to $6.8 million, or 33%. On corporate costs, we made measurable progress. Corporate adjusted EBITDA loss improved to approximately $6.3 million in Q4, down from $6.6 million in Q3. For the full year, corporate adjusted EBITDA loss was around $26 million, bringing us back toward the 2021–2022 levels. This reflects structural G&A rightsizing, including approximately a 12% decline in total headcount when comparing average Q4 2025 headcount versus Q4 2024. Turning to capital allocation, net CapEx for 2025 was approximately $33 million.

For 2026, we expect gross capital expenditures of approximately $40 million, down from $49 million in 2025, and net CapEx in the range of $30 million to $35 million, with the vast majority of that devoted to maintenance CapEx. Cash flow generation was strong in Q4, with cash provided by operating activities at $13 million, slightly lower than the $14 million in Q3 due to the aforementioned seasonality and budget exhaustion affecting the bottom line. Unlevered free cash flow was $15 million, a 43% increase over Q3. Total debt at year end was $258.3 million, including $222.3 million in senior notes and $36 million in ABL borrowings, down from Q3 total of $259.2 million.

We ended the year with available liquidity of approximately $56 million, including availability of approximately $50 million on the December 2025 asset-based revolving credit facility borrowing base certificate and approximately $6 million in cash and cash equivalents. Of note, due to the New Year's Eve holiday timing, 12/31/2025, we drew approximately $8 million in cash to fund the first payroll of 2026. From a balance sheet perspective, our capital lease obligations grew from their low point in 2025 due to our previously discussed fleet refresh initiative but will amortize down quickly through 2026, and we expect a meaningfully lower capital lease balance at year end.

In addition, our coil leases roll off at the end of 2026, which will eliminate approximately $8.2 million of annual lease payments from our cash outflows beginning in 2027 and create incremental cash flow. During the fourth quarter, the company paid senior note interest expense two-thirds in cash and one-third in PIK. We will evaluate future cash versus PIK decisions based on market conditions, and company leverage and liquidity. As of the first two months of 2026, the company paid 25% cash and 75% in PIK. We were in compliance with all covenants under our senior notes.

At year end, our net leverage ratio was 4.07x versus a covenant of 4.5x, and the covenant was scheduled to step down to 4.0x at 03/31/2026. As we work through the 10-K filing, stress testing for market risk indicated a potential need for a covenant relief in future periods. We took the proactive step to amend the indenture and provide adequate cushion for the next five quarters. The amendment provides that the covenant will remain 4.5x through 03/31/2027, resuming to the original step-downs as of 06/30/2027. The amendment also excludes capital lease balances from the leverage ratio calculation during the same period, affording us incremental flexibility to fund CapEx, M&A, and other capital needs.

With that, I will hand it back over to Chris for his concluding remarks.

Christopher J. Baker: Thanks, Jeff. Let me start with the market backdrop and how we are thinking about 2026. We are approaching the year with a constructive but measured outlook. We expect the first quarter to be the low point for the year, reflecting the familiar seasonal combination of customer budget resets, slower restarts of completion programs, and weather-related disruptions. Beyond Q1, we see a path to a gradually improving market led by gas-directed basins, where we believe incremental rigs are more likely to show up before we see a more meaningful recovery in certain oil-directed markets. This, of course, is tenuous given the Middle East situation, and we will continue to monitor for oil-directed activity inflections.

Our portfolio is increasingly aligned with that opportunity set. The Northeast/Mid-Con and other gas-focused basins have been areas of momentum for us, and we expect them to remain important contributors as potential areas of growth on a relative basis. In oil-directed basins, particularly the Permian, we are managing through what has been a slow, extended downturn by rightsizing our footprint and cost structure to current demand while maintaining the flexibility to respond when conditions improve.

Finally, in terms of how we are framing 2026 revenue, our internal budget contemplates a year that is broadly flat to slightly up versus 2025, with the majority of improvement weighted toward the second half of the year, yielding results that trend toward the stronger run rate we delivered in 2025. That framework will be updated as the year progresses and we gain more visibility into customer plans and basin-level activity. From a Q1 perspective, we are forecasting revenue of $145 million to $150 million, down approximately 3% from 2025 despite rig count being down 8% over the same period.

This forecast does include the impact of Winter Storm Firm, where we lost approximately four to five revenue days in many product service lines in certain districts. Looking forward to Q2 2026, we expect revenue to rebound to the $160 million to $170 million range, which is higher than Q1 2025. Industry consolidation and capacity rationalization remain important themes across the oilfield services landscape, and we believe KLX Energy Services Holdings, Inc. is well positioned to be a net beneficiary. We have seen a number of smaller competitors exit the market in the last several months, which helped remove inefficient capacity and support a more rational competitive environment. On capital and fleet readiness, our philosophy has not changed.

We continue to invest at a level that maintains our asset base and keeps us ready for a market inflection. At the same time, our capital program is disciplined and predominantly maintenance-oriented, which we believe strikes the right balance between prudence and preparedness in the current environment. With that, we will now take your questions. Operator, thank you.

Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Steve Ferazani with Sidoti & Company.

Christopher J. Baker: Please proceed with your question.

Steve Ferazani: Good morning, Chris. Morning, Jeff. Appreciate all the two positive surprises, very similar to what you reported in 3Q, in that, at least compared to our estimates, Northeast/Mid-Con was stronger and your margins were much stronger than we were modeling. Can you provide— and you covered this in the call, but I was hoping for a little bit more color, particularly on the strength in Northeast/Mid-Con, which normally would expect to see some hit late in the year because of weather.

Christopher J. Baker: Good— first of all, good morning, Steve. Appreciate the question. I think if you look at the segment as a whole, when you think about Mid-Con through our ArcoTex to the Northeast, it is a pretty geographically diverse segment. But if you look at segment-level rig count aggregated, rig count increased about 6% across that entire segment quarter over quarter. Our dry gas exposure, as we referenced in the call, increased 5.3%, and furthermore, to your question, I think all of the service lines held up exceptionally well. It is a continuation of the theme, and I think you asked a similar question last quarter.

We saw an early start in the Northeast last year that sustained through Q4, and we were not sure how well it would sustain through November and December post-Thanksgiving because that is a very seasonally impacted business. But we saw the Mid-Con continue with completion programs through the year end. We continue to see wins in our accommodations business, our flowback business in East Texas. And so, yes, it held up exceptionally well. Margin, of course, held up well, and, yes, look, we would forecast a slight decrease in revenue in that segment in Q1, predominantly tied to the previously discussed Winter Storm Firm, which really hit the Mid-Con pretty hard. But overall, we expect continued improvements throughout 2026.

Steve Ferazani: And then the overall margin improvement, how much of that do you owe to product line mix versus efficiencies versus what clearly has been some cost reductions? Is it very much a mix, or would you weigh it more towards one or the other?

Christopher J. Baker: I think— it is a great question. In the Northeast/Mid-Con specifically, I think it is both, I guess. But, yes, it is really lack of white space, really absorption of fixed costs, staying sustainably busy, and product line mix.

Steve Ferazani: Helpful. Switching to the Southwest, when I look at that revenue line, was that primarily the impact on your completion product lines, and I am assuming that continues at least through the first part of Q1.

Christopher J. Baker: Yes. It is a combination. We actually saw some on the drilling side of the business. Rig count stayed pretty flat. I think it was up from a segment level when you combine all of the Southwest basins by about 2%. But, yes, we did see some budget exhaustion and completion programs tailing off going into the fourth quarter. Some of our PSL and asset realignment rotations that we referenced on the call were really pulling certain assets out of the Southwest segment, pushing them into the Haynesville, so that attributes to some of the revenue decline.

Steve Ferazani: That makes sense. Okay. That is helpful. In terms of how you are thinking about CapEx and cash as we go into 2026, and knowing that we have markets that can move in different directions given the uncertainty that is out there, how are you thinking about CapEx and cash flow as we enter the year, knowing it can clearly change?

Christopher J. Baker: Look, the world is in turmoil, and we are not budgeting for increases, clearly. Our budget was set before the events of eleven days ago, twelve days ago really kicked off. And so we are targeting gross capital spending of $40 million. That is down from $49 million on a year-over-year basis in a year when we think revenue is flat to up. And so I think that speaks to, A, we do not have a lot of end-up need for incremental CapEx in our business.

We have continued to spend to support the business, and we think that we will continue to see some asset rationalization— DBR tools, lost-in-hole, etc.— that will drive net CapEx down into the $30 million to $35 million range. That is all subject to change based on market inflections, but I think we are doing the appropriate level of spending and being prudent, so we are staged and ready to go for any market inflection.

Steve Ferazani: Got it. And if I could talk just about the PIK option, how you are thinking about that, and then the covenant relief. It looks— typically you have very significant working capital seasonality, and typically 1Q is your significant cash outflow. The covenant relief, is that primarily related to what we see as typically the working capital build in Q1, which would potentially put you at a closer point to where it was going to step down to? And how do you think about the relief now in your comfort level over the next few quarters?

Jeff Stanford: Hey, guys. Good morning, Steve. This is Jeff Stanford. Great question on that. The waiver— we know, closing our books out, doing our year-end budget, going through the year-end audit— we are going through all these things at year end. We do look at stress testing of that, so you look at certain ramifications if this happens or that happens. Going through that stress testing, we entered into it more as a proactive measure, give us some cushion for the future periods, goes out five quarters or fifteen months, so we feel really good about that. It gives us a lot of cushion there. But a lot of things happen as you move forward.

Working capital is one piece of that, but also, as you stress test the model, what does it look like? So that provided us a good proactive measure to make sure we had cushion for future periods. That is the main reason that we entered into the waiver. As far as the PIK option, I think your first question— we PIKed 75% in January and February of this year. We did PIK 33% of it in Q4. The PIK option on the note is designed for flexibility. We utilize that flexibility as we see fit.

So, in this case, we PIK some, we pay some in cash, and we look at it, kind of throttle up and down as we need to. Market dynamics, liquidity, leverage considerations are taken into account in our algorithm. That is how we want to do it. That is what we did in the past and what we are doing the first two months of this year. That is how we look at the PIK option. We do like that flexibility and use it as needed.

Steve Ferazani: Got it. That is helpful. And, Chris, I know it is way too early to really have an outlook on this, but what is your take on the potential impact from the Middle East conflict if it is extended? If it is not, what do you think— and I know there are a lot of different outcomes— but just how you are looking at it on your business and what the potential outcomes could be.

Christopher J. Baker: It is a great question. Just one thing I want to clarify on the PIK, to Jeff's point. Recall our leverage ratio includes capital lease balances as debt. That capital lease balance at year end is going to amortize off pretty significantly this year. And so there is an amount that you can PIK where you can stay, all else equal, basically net-debt neutral. And so that is another consideration that we factor in when we think about overall leverage profile. Returning to your question, it is a great question regarding the Middle East conflict, and as we said at the outset, thoughts and prayers to the servicemen and women that are over there.

If you think on a historical basis, Steve, we have typically seen a 60- to 90-day lag in activity increases or decreases post commodity prices moving. What we saw in April was almost an immediate reaction, but we definitely saw kind of 45–60 days, a material reduction in rig count post “Liberation Day” with the tariffs and when commodity prices change. We have not seen— so I think what that speaks to is the cycles have gotten shorter, and that is for a couple of reasons. Operators do not have a lot of duration and tenor in their rig contracts today.

They are going pad to pad, well to well, etc., and so they react in much shorter time frames than they have historically. We have not really seen any reaction to $100 crude yet, and we think most operators are taking a wait-and-see approach. They just set their 2026 budgets. It is hard to say. What I will say is, as of this morning, the forward strip— you can do forward swaps at $72-plus in December ’26— but the strip, and the tail of the strip, is clearly much more conducive to Lower 48 activity.

The other point would be, from a KLX Energy Services Holdings, Inc. perspective, we do not actually have to see incremental rig count to see increases in our own activity. If you think about our completion, production, intervention business line, we benefit from increases in refrac activity, workovers, well intervention, stimulation of existing wells. We have talked a lot over the last year about how the refrac market, specifically in the Bakken, to a lesser extent in the Eagle Ford, slowed down through 2025. We are keeping our ear to the ground, trying to stay close to customers.

We will see how protracted the situation becomes, how much energy infrastructure in the Middle East is damaged, and what happens to commodity prices, and I think specifically the tail over the next month. But, as you know, KLX Energy Services Holdings, Inc. has the right asset base. We have the right technology and people. If customers elect to ramp activity, we will absolutely be there and be prepared to participate.

Steve Ferazani: That is great. Thanks, Chris. Thanks, Jeff.

Christopher J. Baker: Appreciate it, Steve. Thanks, Steve.

Ken Dennard: Thanks, Steve. This is Ken. John Daniel— he had to drop, but he emailed me some questions, and so I am going to read them to you so that way, he will hear them on the replay. Fair enough.

John Daniel: There continues to be a push by some operators to move to simulfrac operations. Can you speak to your frac business and customer base and let us know what trends you are seeing?

Christopher J. Baker: At a high level, specifically in the Mid-Con, we have not seen the huge adoption of simulfrac relative— on the same pace— that we have seen in other basins. We clearly are participating in simulfrac in the Permian and other basins in a very material way with our frac rentals business, wellhead isolation business, etc. That is not to say that the Mid-Con has not adopted simulfrac, but I think there are numerous reasons for the slower adoption rate, one being the acreage profile, operator size, in some instances pad sizes, lack of electrical infrastructure when you think about comparing to the large electric spreads in the Permian. We have seen some adoption.

I would say, on a stage count basis, if you think about our forecast for this year, we are probably somewhere between 25%–30% simulfrac, and that is up year over year, but it clearly does not have the propensity that you would see in the Permian.

John Daniel: So if not mistaken, that is not a basin that has seen a lot of new capacity in some years. So would it seem that attrition would be a little more pronounced, or is that too optimistic on my part?

Christopher J. Baker: John is always optimistic, but tying back to the first part of the question, simulfrac definitely adds a layer of complexity— incremental horsepower needs— that some providers just are not adept at managing either from a rate or pressure perspective. A lot of providers are limited to 100 barrels a minute under 10k. As you think about attrition within the basin— and I am sure John is on the call; I am sure he is aware— the general industry said there were about 10 spreads sold last year to international locations. Most of those spreads were Tier 2 equipment. There was some horsepower that left the basin. But as you think about the basin today, it is amply supplied.

I do not think we are short horsepower by any stretch, and barring any material pickup in activity— back to Steve’s prior question around the Middle East situation, commodity prices— barring any material pickup in activity, I think John is probably optimistic that attrition is going to drive overall results. I think it is a pretty balanced basin today.

John Daniel: Second topic is coiled tubing. We have heard at least one coiled tubing company suspending operations in recent months, and we believe some of those assets may be reconstituted by some other folks. At the same time, there are a very small number of units being built. Thus, on one hand are those who have struggled and those who are doing well. Can you give us your thoughts on the U.S. coiled tubing market? Do you see the sector beginning to rationalize itself, or is that something you expect will occur in the next year or two, if at all?

Christopher J. Baker: That is a broad question. I will jump in on the first point. We have definitely seen some attrition of units. We have seen over the last couple years— one player exited the market about two years ago and that equipment candidly vanished. I am aware of the player that John is talking about. The majority of the optimal assets were reconstituted into and absorbed by a pretty sizable player in the business today. There were some assets that landed in a startup. We are aware of another situation that is currently active with another smaller player exiting the market altogether. So, yes, I think the business is shaking out, but for different market dynamics.

If you think about the Bakken, that has shrunk as a coil market. We have seen players move equipment out of the Bakken, either back to Canada or down to the Permian and other basins, Waco, and so there has been a lot of coil decline in certain regions due to the length of the wellbores surpassing capacity of the units in those regions and the growth of snubbing and stick pipe. Pivoting to the second part of his question, from a new build perspective, John is correct. There are very few new build units that are under construction, and the ones that are solely focused on ultra-deep, extended-reach laterals. That is where the market is heading.

The routine frac screen-outs, wellbore cleanouts have become fewer and fewer, and so a provider has to have the expertise, the scale, to manage all of the technologies required to complete four-mile laterals with coiled tubing. That is multiple ERTs, coil connectors, string and fluid design— they all have to be optimized. Risk and pipe costs are increased, and operators are monitoring ROP KPIs in real time, and switching costs are candidly minimal as they are trying to think about the risk-reward and efficiency gains of coil versus alternatives.

Candidly, I think that is where KLX Energy Services Holdings, Inc. has an advantage with our in-house proprietary mud motors, our extended reach tools, as well as additional technologies that we are bringing to bear to extend the commercially viable life of coiled tubing and expand the addressable wellbores.

Operator: Good. Okay. This concludes our Q&A session. I would now like to turn the call back over to Christopher J. Baker for final comments.

Christopher J. Baker: Thank you once again for joining us on this call today and for your continued interest in KLX Energy Services Holdings, Inc. We look forward to speaking with you next quarter.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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