Ladies and gentlemen, thank you for standing by and welcome to the KLX Energy Services First Quarter 2020 Earnings Conference Call. At this time, all participant are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. It is now my pleasure to introduce VP of Corporate Development, Ryan Tyler.

Thank you, Andrew. Good morning and thank you for joining us. Today we are here to discuss KLX Energy Services financial results for the first quarter ended April 30, 2020. For comparative purposes, we have presented our financial results adjusted to exclude costs associated with asset impairment charges, the company's major downsizing program, and costs associated with the pending merger. These costs are collectively referred to as costs as defined. The company's earnings news release, which was issued earlier this morning, presents our results. If you haven't received it, you'll find a copy on our website. We will begin with remarks from Tom McCaffrey, President, Chief Executive Officer, and Chief Financial Officer of KLX Energy Services. For today's call, we have prepared a few slides to help you follow our discussion. You can find our presentation on the Investor Relations page of the KLX Energy Services website at klxenergy.com. In addition, copies of the slides are posted on our website for you to refer to. Before we begin, we have some additional information to cover. Any forward-looking statements that we make are subject to risks and uncertainties and as always in our prepared remarks and our responses to your questions we will rely on the Safe Harbor exemptions under the various securities acts and our Safe Harbor statements and the company's filings with the Securities and Exchange Commission. We will address questions following our prepared remarks, at that time the operator will provide Q&A instructions. Now, I will turn the call over to Tom McCaffrey.

Thank you Ryan and good morning everyone. Thank you for joining us today to discuss our first quarter financial results and the pending merger with Quintana Energy Services or QES. The oilfield services industry experienced an abrupt deterioration in demand during the second half of 2019 which is continuing into 2020 and was further exacerbated by the unprecedented demand destruction caused by the COVID-19 pandemic. The combination of the Saudi Arabia/Russia oil market share dispute and the demand destruction caused by the COVID-19 pandemic has driven the price of oil to unprecedented levels resulting in an abrupt and steep decrease in demand for oilfield services. The company responded with contemporaneous cost reductions in all aspects of the company’s business, resulting in business rationalization costs, and initial costs related to the pending merger with QES, totaling $14 million. In addition, the company recorded an approximately $209 million non-cash asset impairment charge, as required by GAAP, due to the sudden decline in demand for oilfield services. All of these costs aggregated approximately $223 million. As we previously discussed we initiated an ongoing comprehensive business review and cost rationalization program targeted at aligning our cost structure with customer demand. Specifically we implemented referral program and approximately 15% reduction in base pay, we realigned our field compensation structure, we set expectations for no-cash bonuses in the current environment, and we trimmed our selling, general, and administrative costs in various areas to allow the company to align our organizational structure with expected demand. All of these actions are expected to reduce our cost structure by approximately $100 million per year compared to our cost structure at the end of the second quarter of 2019. Our workforce, which stood at approximately 1650 employees at the end of the second quarter 2019, was reduced to approximately 790…

Thank you, Tom. I will now turn the call over to the operator for the Q&A portion of today's call. The operator will provide instructions on how to ask a question. Andrew.

Thank you. [Operator Instructions]. So our first question comes from the line of Jamie Perez with Lassidy [ph].

Good morning everybody. Thanks for taking my call. Yeah, it was a solid quarter. This was a tough market, but it was a solid quarter, almost double the EBITDA. But we've been hearing some of the Permian producers are going back and restarting wells, limited -- although a limited amount and some haven't trimmed down their completion activity since the trough of May. I mean, could you tell us -- give us some color, where do you think the market is heading towards in the next couple of months, given the fact that some producers are actually going in and restarting wells?

Jamie, I think that it's awfully early for us to talk about providing additional color on the initial activity of a few folks which are initiating completion activity. What we do believe is beginning to occur and will occur first is the most logical thing is to a number of the wells that have been shut in are actually now beginning to -- the E&Ps are going back and having those wells re-stimulated and put them back in production. If you think about it, the fastest way to generate revenues and profits is to go to a producing well. And that's an area where we're very well suited with our strong intervention business. But I think we have one of the largest fishing tool inventories and our industry expertise in each of the regions is pretty well known. So we think that's going to be an area where we'll see an uptick first. And if you think about it, the natural progression from deployment of capital from an E&P perspective would seem to be first put back into production what previously had not, which you had capped off. And it's the cheapest and best way to get revenues and cash flow going for an E&P. And then the second would be to look at, the over 8000 ducts drilled and uncompleted wells, which are scattered throughout the U.S. and the inventories of the E&Ps that they look there to complete their wells before initiating new drilling activities. And so some of the completions we may be referring to very well could be some of the ducts in the Permian. But right now, there's not enough information to really provide anything more anecdotal on that topic. I hope that's helpful.

Yeah, that was helpful. Also, some of the producers mentioned that another basins open up the PRB is attractive, is that something you will consider going into the future, do you have any assets that could be redeployed in the PRB area?

We are -- we have a presence in each of the major basins and so wide proportion of our Rocky’s business. So it really is, its -- as we look at the opportunities which are being presented to us, we are hearing that some people are going to reactivate as soon as July or August, we will have to see what that is and what the pricing is going to be. As we have been in the past, we're not going to work for free and just run our assets down. So I think that we will be smart about how we deploy our assets and bring people back on, because it has to be done with a view towards generating profits and not just running our assets into the ground for cash flow purposes. We have a healthy balance sheet and we want to keep it that way.

Yes, that's the primary thing and it is more keeping a solid balance sheet, which you guys have done an excellent job for it you should be commended for, especially in this tough environment. That's all the questions I have for now. I'll pass it along. Thank you.

Thank you. [Operator Instructions]. Our next question comes from the line of Simon Wong with G Research.

Good morning, Tom and Ryan. How are you?

Good, how are you Simon?

Good, just a quick question on the cost saving, looks like you did a good job remaining at detrimental [ph] in the first quarter you've got $8 million of cost savings, how do you see the cost saving wrapping up for the rest of the year?

Well, it's the cost from our business and by the way we normally don't break out gross profit excluding depreciation, but we thought it was helpful in this situation just to show with the cash benefit otherwise it gets lost a little bit in the non-cash charge. I think that you'll begin to see further benefit as we go through each of the quarters that the costs that we've taken out in the first quarter, we'll begin to realize the exact order. And as we talk through it, it always seems that most of the reductions for whatever reason are always at the end of a period. So they tend to be back end loaded and maybe a little bit of that has just has to do with the timing of jobs and also human nature. But you should see the benefits begin to improve. I think that as we look at activity being when it does begin to improve we should see an additive benefit associated with that is really bringing demand increases to the point where we need to bring people back. Our cost structure will change again and will actually add some people in. But that'll be a positive thing because we won't add them in unless we're generating profits.

Can you quantify how much of this -- that does help. Can you quantify how much of the cost savings, the $100 million in cost saving is structural versus variable?

It's almost all variable. I mean, to the extent you think about it it's labor, it is all on a fully loaded basis. It's the trucks that people drive. It's the health and benefit costs, it's subsistence with people are in man camps offsite. It's -- there's a lot of costs that go into each to maintain each individual. It's the training that's required to bring people and onboard them. All of those costs drop off when you don't -- when the employees aren't there and going through an incurring costs on a regular basis. Gas, fuel, I mean, it just literally it sort of stair steps down with the drop off in activity.

Okay, just a final question. You talked about the $100 million in revolving credit facility is undrawn. But you only have about 42 million available. Is that because it's an asset backed facility that's where the availability is lower than what -- 42 million is lower than 100 million?

Yes, it is. Yes, it is. So it's -- well, I think it shows we've done a very good job in managing our receivables and our receivable exposure. If you are going through receivables, you can't pledge them if they're not there. So I think it's simple as that as the business begins to grow there's working capital, we have the availability. Candidly, we've never drawn on our revolver with sort of just in case money, sort of the way that we look at that. And I don’t think that we ever drew our loan before we did the spin off at KLX. So we tend to run an overly conservative balance sheet but I think in a highly cyclical industry, that's really important both to our shareholders, the equity holders, and the bondholders is to know that we are -- we just don't intend to take the risk and put the company in harm's way. And I don’t think we are going to change our stripes. I know that Chris Baker and Keefer Lehner over at QES share that same view. And so you should not expect any change post-merger.

Alright. Okay, great. That's all I have.

Okay, thanks Simon. Be safe.

You too.

Thank you. I'll now turn the call back over to Ryan Tyler for closing remarks.

Yes. Thank you to everyone for participating on this morning's call. We look forward to speaking to you again next quarter. Thanks and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.