Greetings. Welcome to KLX Energy Services Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ken Dennard. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for KLX Energy Services conference call and webcast to review fourth quarter 2022 results. With me today are Chris Baker, KLX Energy's President and Chief Executive Officer; and Keefer Lehner, Executive Vice President and Chief Financial Officer. Following my remarks, management will provide a high-level commentary on the financial details of the fourth quarter and outlook before we open the call up for your questions. As you know, there will be a replay of today's call that will be available by webcast on the company's website at klxenergy.com. There'll also be a telephonic recorded replay available until March 23, 2023. More information on how to access these replay features was included in yesterday's earnings release. Please note that information reported on this call speaks only as of today, March 9, 2023, 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 may 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 certain of those risks, uncertainties and contingencies. These comments today may also include certain non-GAAP financial measures. Additional details and reconciliations to the most direct comparable GAAP financial measures are included in the press release, which can be found on the KLX Energy website. And now with that behind me, I'd like to turn the call over to KLX Energy Services' President and CEO, Mr. Chris Baker. Chris?

Thank you, Ken, and good morning, everyone. We will start with the acquisition news and move into Q4 prepared remarks. Yesterday, after Q4 earnings were released, KLX announced that we acquired 100% of the equity of Greene’s Energy Group LLC in an all-stock accretive deleveraging transaction. The total consideration for the acquisition consisted of the issuance of approximately 2.4 million shares of KLX stock, subject to customary post-closing adjustments with an enterprise value of approximately $30.3 million based on a 30-day VWAP as of March 7 less acquired cash of approximately $1.7 million. Former Greene shareholders will own approximately 14.7% of the fully diluted common stock of KLX. Greene's is a leading provider of wellhead protection, flowback and well testing services. The acquisition of Greene’s is expected to be accretive to KLX in 2023 and augments the KLX frac rental and flowback offering, providing KLX with a broader presence in the Permian and Eagle Ford basins. I'd like to take this opportunity to personally welcome every member of the Greene’s team to KLX. We are thrilled to welcome Greene's exceptional management team and talented team members to KLX. Greene’s has an excellent industry reputation and fits naturally within KLX's Southwest segment, supporting both Permian and Eagle Ford operators. Greene’s has a strong unlevered balance sheet reporting unaudited 2022 revenue and adjusted EBITDA of $68 million and $14.7 million, respectively. We are excited about the synergistic fit between the organizations and look forward to growing our surface pressure control franchise with the addition of Greene. Looking forward to 2023, we expect Greene's revenue and adjusted EBITDA of $70 million to $75 million and $18 million to $20 million, respectively, on a full year basis. Lastly, this transaction is deleveraging for KLX and pro forma for the combination, the KLX second half…

Thanks, Chris. Good morning, everyone. Let me begin by discussing the acquisition, and then I'll jump into our fourth quarter 2022 consolidated results. First, I'd like to echo Chris' comments on the Greene's transaction and welcome the Greene's team to the KLX family. We are thrilled with the strategic, accretive deleveraging combination that follows a similar equity-oriented framework, which we believe best drives integration and alignment of incentives. We believe this transaction drives accretive shareholder value and galvanizes our go-forward consolidation strategy. 2022 was a big year for KLX. We experienced a 79% sequential increase in annual revenue, outpacing the 33% increase in rig count and 37% increase in oil price. Adjusted EBITDA increased approximately $100 million year-over-year, and net income and EPS improved $102 million and $12 per share, respectively. All of that growth translated into a material reduction in net debt. Jumping into Q4 results. We are pleased to have experienced slight sequential improvement in our consolidated revenue and margins despite seasonality and customer drilling and schedule delays. For the fourth quarter, revenues were $223.3 million and similar to our Q3 results were driven by continued strong pricing and utilization across our drilling, completion, production and intervention activities. In Q4, we were able to overcome seasonal slowdowns and still generate sequential increases in revenue, adjusted operating income, adjusted EBITDA, net income and EPS. On a product line basis, drilling, completion, production and intervention services contributed approximately 30%, 49%, 12% and 9%, respectively, to revenues for the fourth quarter of 2022. Adjusted operating income for the fourth quarter was $21.7 million. This is the third consecutive positive quarterly results on the adjusted operating income line. Adjusted EBITDA and adjusted EBITDA margin were $37.3 million and 16.7%, respectively. Net income and EPS for the fourth quarter were post-merger KLX records…

Thanks, Keefer. Before we wrap up, I'd like to share some more detail on our go-forward strategy, including potential for further consolidation in light of the Greene’s acquisition. As I mentioned earlier, we ended the year on a strong exit rate and that has carried forward into January and February. While the recent headwinds on the natural gas side have generated concerns regarding activity disruptions, thus far, we have successfully mitigated the majority of our activity losses, backfilling utilization with other customers or existing pent-up demand for KLX services. Furthermore, to Keefer's earlier comments regarding our Haynesville exposure, we believe we are aligned with the most active operators in the basin and customers who intend on continuing forward with drilling programs or restarting them in the summer, assuming gas prices have rebounded. Our revenue in the Haynesville is also more heavily weighted towards drilling, so should operators elect to DUC wells, then reductions in completions activity will be less impactful to KLX. For the most part, our calendars across most of our basins are booked solid through at least April if not into May, and we believe there is ample opportunity across our diversified opportunity set to continue to drive revenue growth. Looking ahead, our operational strategy will continue to be focused on efficient deployment of assets, maintaining strong utilization and driving pricing marginally higher, where possible and ahead of inflationary pressures. We will work to integrate the Greene’s acquisition as quickly as possible and believe there is a compelling fit within our existing Southwest segment and PSLs that will enable a seamless integration. In addition, we will remain prudent with our capital spending program by focusing our budgeted CapEx predominantly on maintenance spending, along with high-quality quick payback projects that are front-end loaded in the year in order to…

[Operator Instructions] One moment while we poll for questions.

Kerry, while we're polling for questions, I just want to let everybody know real quick. This is Ken. Management will be at Piper Sandler's Energy Conference later this month. I think it's the 21st of March. So I hope to see many of you there signing up in person.

Our first question is from Luke Lemoine with Piper Sandler.

Good morning, Chris, Keefer and Ken. Thanks for the nice plot there, March 21 and 22 in Las Vegas for the conference. I guess, well, first, congratulations on the deal. And Chris, looking at Greene’s and from your press release and our website, it looks like this is exclusively an Eagle Ford and Permian business. Just wanted to make sure that was correct. And then I'm guessing the revenue or EBITDA split is probably fairly proportional to the activity levels between the two basins. Is all that pretty fair? Or how should we think about that?

Yes, I appreciate it and look forward to seeing you guys out there in Vegas. Look, we're really excited about the Greene’s opportunity. You are 100% correct as of today, their opportunity set is Permian and Eagle Ford focused. We haven't provided any detail on the split. But I think your assessment is probably pretty consistent with the overall activity set.

Okay. Got it. And then Keefer, you talked about some of your growth CapEx being for the continued electrification for coil and wireline. Can you just kind of refresh us where you are on this initiative?

So I'll jump in and then Keefer can. This is Chris. Yes. So last year, we electrified one of our power packs on our coal tubing units. We've electrified one of our snubbing units. We've got a couple of hybrid electric wireline units in the field and have been running in the field for better part of the last year. I think we mentioned on our 3Q call that we've got two that are in process, two wireline units that is that are in process of being electrified today, which should come out and be ready to go to the field kind of late Q1. And then we've got some additional electrification initiatives underway on the coil front.

Right good deal. And then I'll sneak one more in here, Chris, can you remind us where you are in your active frac fleet count and where are these working right now?

The numbers are spot on similar to the conversation we had in 3Q. So we still have two in the Mid-Con and the smaller spread up in Gillette and still have the -- or the incremental horsepower to reactivate.

Our next question is from Ignacio Bernaldez with EF Hutton.

Thank you for your time and congratulations on the really great quarter and the great acquisition as well. When you talk about M&A and consolidation, are we talking bolt-on acquisitions? Or do you see a scenario where you could be looking at larger-scale things?

Yes, it's a great question. We've talked over, I think, the last four quarters that the industry continues to need consolidation as we talked about in our prepared remarks. We think the Greene’s platform provides a very synergistic fit to our existing platform. So it's, to your point, one of the opportunity sets from a bolt-on perspective, when you think about Greene’s, it really bolsters and adds a third operating region to now realigned flowback and well testing franchise. So a big part of our initiatives last year was to realign our asset base. Flowback was one of those asset classes or PSLs that we realigned into two core asset bases to provide scale. And so this now provides a third. And then when you think about Greene's West Texas, it provides scale to our existing frac rentals and monoline business as well as the addition of their proprietary isolation tool for wellhead protection. So we believe that isolation tool, along with our recently acquired pressure control valve fleet is going to create kind of a market-leading and comprehensive surface pressure solution for our clients. And so that is an example of kind of a tuck-in or bolt-on that is just incredibly synergistic to our platform, given our diversified offering. We also think we've got the roadmap and the management team that has executed on a couple in the past and is very capable of executing on transformative, more merger of equal type opportunities, and we'll evaluate those as they come

Our next question is from John Daniel with Daniel Energy Partners.

I guess first question, follow-up a little bit to Luke's query. You spoke about electrification on some of the other product lines. Can you speak to any efforts to incorporate dual fuel into any of your services?

We've had some conversations, especially around some of the stacked horsepower with clients, John, as to if we were to reactivate that, the incremental cost to reactivate it to dual fuel isn't that onerous. We've had conversations as well with a couple of the manufacturing parties. Specifically with the electrification, we just found, especially on the smaller assets, if you will, relative to a frac spread, such as wireline, coil, et cetera, going straight electric, especially for clients that are especially ESG-sensitive in certain basins is maybe the preferred step.

Got it. Okay. And then the final one, just your philosophy on pricing. And the reason I ask is there's some isolated anecdotes of outbreaks of hostility out there. And I'm just curious if we're in a flat to slightly down market, like what's your directive to the team and how would you envision pricing over the course of the next several quarters?

Yes. It's a fair question. And of course, I think, as you well know, and you have -- you probably have as many conversations with operators as we do collectively. So you're very much in tune with the market. The interesting thing is the OFS market just got back to a level of sustainable service pricing late last year. As we look at our platform on a weighted average basis across all of our PSLs and regions, we increased pricing approximately 49% in 2022. Yet we are only generating a 16.7% EBITDA margin. So you're just now getting back to a level that's truly sustainable. And of course, we've had cost pressures and supply chain pressures along the way. But there is a natural tension out there. And I think just like many people espoused at the Thrive Conference, we're going to do our best to hold the line on pricing, not because we want to, but because we have to, right, if we're going to continue to reinvest in our asset base. As you know, all of our assets have wheels can travel. However, longer term, candidly, we're pretty bullish on the natural gas market once we get past the summer in the choppy market. And so if we have to stack out assets, we will. And we'll kind of see how the market plays out.

Our next question is from David Marsh with Singular Research.

Guys, congrats on the acquisition and the quarter. So if we could just take a look at the guidance. So the updated guidance with the acquisition for top line is $975 million to a little over $1 billion. Could you talk about how that spreads across the year? Are we -- should we expect some seasonal weakness in the first quarter as a result of the nat gas slowdown and kind of a stronger second half?

Yes, I'll jump in and then -- David, this is Chris. And Keefer can jump in as well. But as we look through our Q4, it was seasonally very strong relative to the typical winter time and holiday slowdown. The reality of the situation, and Keefer alluded to this in our prepared remarks, we estimate that we lost about $15 million of completions revenue across multiple product lines due to some last-minute third-party drilling delays in December. So when you think about the base load of activity set for KLX in Q4, the market and demand was there really for KLX even better than we did candidly. And so we're happy with Q4's results but they could have been better. And if you think about Q4's run rate, you're on a revenue run rate of $892 million and an adjusted EBITDA run rate of approximately $149 million, $150 million of EBITDA. But clearly, that could have even been improved. And so there's no doubt the natural gas market has some headwinds. That's somewhat impacting our Q1 guidance that we provided. There's also just natural seasonality to Q1. And so we talked about that in prepared remarks. But as we think -- as we get into April and we exit the winter season, we go through what is typically very rough patterns, especially in our northern operations and seasonality in the northern district, we really think they'll kick into fourth gear, which is what we saw last year and think that mid-second through the mid fourth quarter should be pretty robust.

Got it. And then could you talk about geographically in terms of the acquisitions that you may be considering if there's a particular region that's more appealing than others and that you are seeing more opportunity in.

I think, look, we take M&A as it comes. There's some opportunity sets that are negotiated on a one-off basis where we are the candidate that -- or party that provides the outreach. But I wouldn't say that we're necessarily targeting M&A geographically.

Yes. I think we're more focused on strategic fit, customer relationships, driving accretion, the ability to further delever our platform, focused on both revenue and cost synergies, it's probably those factors that are driving our consolidation and M&A efforts more so than necessarily geography. Obviously, that's a consideration. But the fact that we are geographically diverse today probably provides for a more fertile hunting ground as we think about future M&A opportunities.

Right. That makes sense. And then just lastly for me. When we look at the CapEx guidance, $60 million to $70 million, should we expect that to kind of track with revenue across the course of the year? I mean, obviously, first quarter, you probably have a little less, but maybe in the latter part of the year, you do a little more? Or is there a different spread there?

Yes, it's a good question. On the maintenance side, it would largely more closely track revenue over time. With that said, we are trying to frontload our capital spending this year as much as we possibly can, just to try to bring forward the returns associated with that capital spending.

This concludes our question-and-answer portion of the call. I will now turn the call back to Mr. Chris Baker for closing comments.

Thank you, operator. Thank you once again for joining us on this call and your interest in KLX Energy Services. We look forward to speaking with you again next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.