KLX Energy Services (NASDAQ:KLXE) reported second-quarter revenue and adjusted EBITDA growth as activity improved, while outlining a balance-sheet plan centered on a $125 million backstop equity rights offering and continued integration of its Wolfpack Rentals acquisition.
Revenue for the quarter totaled $167.3 million, up 15.6% from $144.7 million in the first quarter and approximately 5% from the year-earlier period. Adjusted EBITDA rose 68% sequentially to $18.7 million, producing an adjusted EBITDA margin of 11.2%, compared with 7.7% in the first quarter.
Wolfpack acquisition adds revenue and higher synergy target
KLX closed its acquisition of Wolfpack Rentals on June 2. Wolfpack contributed $3.4 million of revenue during June, implying an annualized revenue run rate of about $41 million, compared with its previously disclosed 2025 revenue of $38 million.
Baker said integration has progressed smoothly, with systems fully integrated as of July 1 and cross-selling opportunities beginning to emerge. The company raised its expected annual synergy target from the acquisition to about $2.5 million.
Wolfpack expanded KLX’s accommodations business, added assets that Baker said helped offset some planned capital expenditures, and brought water-filtration technologies. He said the acquisition also created potential opportunities with industrial customers, including data centers and lithium-mining operations.
Excluding Wolfpack, KLX’s base business grew more than 13% sequentially, exceeding the 5.8% rise in U.S. land rig counts cited by management. Growth was led by coiled tubing, directional drilling, technical services and accommodations.
Drilling-focused revenue represented about 23% of total second-quarter revenue, up from 20% in the first quarter. Management said Wolfpack and legacy accommodations revenue are classified within drilling. While completion, production and intervention services also posted revenue gains, the higher drilling mix limited incremental margins because the company described drilling as a lower-margin part of its portfolio.
Net loss narrows as segment margins improve
KLX reported a net loss of $8 million, or $0.41 per share, compared with a net loss of $24 million, or $1.23 per share, in the first quarter. Results included a $6.5 million nonrecurring bargain-purchase gain related to Wolfpack, which was excluded from adjusted EBITDA and adjusted net loss.
Excluding that gain, the company recorded an operating loss of approximately $4.4 million, improving from a $12.1 million operating loss in the first quarter. Interim Chief Financial Officer and Chief Accounting Officer Geoff Stanford said the 68% sequential increase in adjusted EBITDA reflected roughly 350 basis points of margin expansion and incremental margins of approximately 34%, while also absorbing about $600,000 of bad-debt write-offs.
- Rockies: Revenue increased nearly 31.6% sequentially to $50.8 million. Adjusted EBITDA was $6.3 million, with margin rising to 12.4% from 5.4% in the first quarter.
- Southwest: Revenue rose about 20% sequentially to $64.5 million. Adjusted EBITDA was $7.6 million and margin improved to 11.8% from 8.6%.
- Northeast Mid-Con: Revenue was $52 million, down 1% sequentially, as a decline in flowback was partly offset by directional-drilling and accommodations gains. Adjusted EBITDA increased to $12.5 million, and margin rose to 24% from 20.8%.
In the Northeast Mid-Con region, Baker said Haynesville activity was affected by the loss of one customer in one product line and a plateau in the Haynesville rig count. He said management expects dry-gas revenue as a percentage of total revenue to remain relatively consistent. In the Southwest, he cited expansion opportunities in the Eagle Ford and stronger Permian performance, including activity pulled forward by some private operators.
Cash flow, liquidity and debt strategy
Second-quarter capital expenditures were $8.6 million, or $6.4 million net of $2.2 million in asset-sale proceeds. Management said spending was primarily maintenance-related. Net cash from operating activities was $10.5 million, while unlevered free cash flow was $6.6 million and levered free cash flow was $4.1 million, excluding Wolfpack acquisition sources and uses.
KLX ended the quarter with total debt of $288.9 million, cash and cash equivalents of $7.9 million, and $45.4 million of availability under its asset-based lending facility, including undrawn FILO capacity. Net working capital was $46 million.
Stanford said the company now expects the third quarter, rather than the second quarter, to represent the low point for liquidity because expected revenue growth will require additional working capital before collections catch up. KLX elected to pay 100% of senior secured notes interest in kind during the second quarter and expects to do the same in the third quarter. It anticipates a 50% cash and 50% PIK mix in the fourth quarter, subject to market conditions, leverage and liquidity.
Of $12.4 million in second-quarter interest expense, about $2.5 million was paid in cash and approximately $8.2 million was added to principal, Stanford said. The company said it was in compliance with financial covenants under its notes indenture and ABL facility at quarter-end.
Rights offering aims to reduce leverage
KLX announced its $125 million backstop equity rights offering after the market closed the day before the call. Baker characterized the transaction as a proactive effort to reduce debt, improve liquidity and add flexibility rather than a response to operational challenges. He emphasized that the transaction is not a Chapter 11 filing or bankruptcy process.
According to Baker, the structure provides for at least $94 million of debt deleveraging or equitization. He said that amount could reduce annual interest costs by more than $11 million, with potential savings of roughly $11 million to $14 million depending on interest-rate assumptions and participation in the offering. He also said coiled-tubing leases scheduled to roll off at the end of 2026 represent an additional annual burden of about $8.2 million, and that the combined effects could improve the company’s free-cash-flow profile by about $20 million in 2027, all else equal.
Pro forma for the offering, KLX expects its net leverage ratio to decline to approximately 2.7 times. Baker said shareholders can purchase shares at the same price as backstop parties or sell their transferable rights.
Third-quarter outlook calls for further growth
For the third quarter, KLX forecast revenue of $176 million to $188 million, with a midpoint of $182 million, about $15 million above second-quarter revenue. Excluding Wolfpack from both periods, the midpoint implies mid-single-digit sequential growth in the base business, despite management’s expectation for broadly flat market activity.
Baker said the company expects revenue growth across the Rockies, Southwest and Northeast Mid-Con segments and expects margins to continue improving as activity increases and fixed costs are absorbed. He said third-quarter drilling revenue will likely remain above historical levels because of a full quarter of Wolfpack contributions, but management still expects margin expansion based on preliminary July results and operating leverage.
Management said pricing remains insufficient across much of the oilfield-services industry to support widespread equipment reactivations or material growth capital spending. Baker said KLX has secured price increases in selected product service lines and basins, particularly in more asset-intensive businesses, while personnel-intensive operations remain more vulnerable to pricing pressure and idle time.
About KLX Energy Services (NASDAQ:KLXE)
KLX Energy Services is a provider of completion tools and pumping equipment for the upstream oil and gas sector, offering high-pressure pumping systems, pressure control equipment, solids control services and downhole rental tools. The company supports well completion and stimulation operations by supplying, installing and maintaining critical equipment used in hydraulic fracturing, coiled tubing interventions and associated wellsite activities.
The firm’s product portfolio includes deck-mounted and portable fracturing pumps, high-pressure manifolds, flowback and well testing units, filtration and separation systems, and wellsite automation solutions.
