Outlook Signals Northeast/Mid-Con Improvement: In Q1, KLXE Energy’s (KLXE) management described the macro backdrop as volatile amid ongoing geopolitical tensions. Despite that, KLX noted an increase in customer discussions about incremental work, particularly in the Permian. The company expects a broad-based sequential recovery in Q2, with all three operating regions and nearly every major service line expected to improve.
Management specifically highlighted anticipated strength from the Northeast/Mid-Con region and a seasonal rebound in the Rockies. Southwest activity is expected to gradually recover as Permian conditions stabilize. Management stated that operators are increasingly demanding certified, higher-specification equipment, which the company believes positions KLX favorably as activity improves. However, the service mix remains less favorable than historical norms, with completions activity still below prior-cycle levels despite improving trends.
Segment Performance in Q1:
In Q1, the Rocky Mountains segment revenue declined ~17% sequentially, while adjusted EBITDA fell ~70%, reflecting lower activity across several product lines and seasonal softness. Southwest revenue increased modestly (~5%) sequentially, but adjusted EBITDA declined ~32%, as higher operating costs and weaker Permian activity pressured profitability.
Northeast/Mid-Con revenue declined ~12% quarter-over-quarter in Q1, while adjusted EBITDA declined ~28%, reflecting normalization after unusually strong gas-focused activity late in 2025. So, in Q1, KLX’s natural gas-weighted activity remains structurally stronger, while oil-weighted basins continue to recover unevenly.
FCF Negative; Debt Increased: In Q1, KLXE’s FCF turned negative in Q1, with levered free cash flow of approximately negative $5 million. Liquidity remains constrained. Cash balances were just ~$6 million at quarter-end, although total liquidity improved to ~$48 million following the March 2026 ABL refinancing. Net debt increased to ~$270 million, while shareholders’ equity remained deeply negative due to accumulated losses.
Thanks for reading the KLXE Take Three, designed to give you three critical takeaways from KLXE's earnings report. Soon, we will present a second update on KLXE's earnings, highlighting its current strategy, news, and notes we extracted from our deeper dive.
