KLXE - NASDAQ

Greetings, and welcome to the KLX Energy Services Third Quarter 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. Thank you, sir. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review third 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 third quarter and outlook before opening the call for your questions. There will be a replay of today's call. It will be available by webcast on the company's website at klxenergy.com, and there'll also be a telephonic recorded replay available until November 24, 2022. 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, November 10, 2022, 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 listeners 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. The comments today may also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly 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. Our third quarter results represent a record quarter for the company and the best quarter on a pro forma basis since early 2019. Despite commodity price volatility, there is strong demand for KLX's services at continually improved pricing. Average U.S. rig count was up approximately 6% during the quarter and frac spread count was up 2% sequentially. Crude prices averaged over $93 a barrel and natural gas prices averaged per MMBtu. KLX continues to capitalize on this constructive industry backdrop and our operating leverage driven by the 2020 combination with QES. For the third quarter, KLX generated $222 million in revenue, up 20% sequentially from Q2, which was above our increased guidance range of 16% to 18% and well ahead of overall market growth in rig count and frac spreads. We generated Q3 adjusted EBITDA of $37 million, increasing 112% sequentially. Adjusted EBITDA margin increased to 16.7% from 9% sequentially, which was also slightly above our September guidance of 14% to 16%. Based on Q3 annualized results, we have returned the business to 2019 pro forma EBITDA levels while running fewer assets and operating in a market that is running 19% fewer rigs than in 2019. Overall, the industry's equipment and labor market tightness contributed to both improved pricing and higher utilization. The increase in utilization followed strong demand in drilling, completion, production and intervention services and additional demand for equipment and services in general. During the quarter, directional drilling charge days were up 5%. Fishing activity was up approximately 8%. Accommodations rental days were up approximately 5%. Wireline unconventional stages were up approximately 13%. Pressure pumping revenue, including frac, cementing and acidizing was up approximately 27%. BOP rental days were up 9% and tubular rental days were up 20%. And last but not least, coiled tubing job days were up 19% quarter-over-quarter. Our comprehensive service and product offerings enable our ability to cross-sell to a vast majority of our active customers. Our regional diversification once again proved to be an asset. We experienced outsized activity and pricing gains in some of our smaller markets and gas-oriented plays as E&P investment growth spreads to additional basins. Pricing rose approximately 5% to 10% sequentially across the majority of our product service lines. Operating leverage enabled us to grow our margins above 2019 levels in certain product lines, and we expect additional margin improvement across our portfolio as we look out to 2023. These price increases plus incremental demand for our services drove the improved utilization across key product lines, which resulted in significant incremental margins. Likewise, we are able to deliver incremental efficiencies to our clients, providing them with safe execution while maintaining the overall quality they have come to expect from KLX. With that, I'll now turn the call over to Keefer who will review our financial results, and I will return later in the call to discuss our outlook in greater detail. Keefer?

Thanks, Chris. Good morning, everyone. For our third quarter 2022 consolidated results, we are proud to have generated broad-based improvement in revenue and margins across all geographic segments and product service lines. Third quarter revenues were $221.6 million, an increase of $37.2 million or 20.2% as compared to the second quarter. Top line growth was driven by higher utilization across our drilling, completion, production and intervention activities, reduced white space, and pricing improvement across the majority of our core product service offerings. On a product line basis, drilling, completion, production and intervention products and services contributed approximately 26%, 52%, 12% and 10% to revenue, respectively, for the third quarter of 2022. Adjusted operating income for the third quarter was $22.1 million, adjusted EBITDA and adjusted EBITDA margin were $37.1 million and 16.7%, respectively. Adjusted operating income and adjusted EBITDA improved sequentially by $19.5 million and $19.7 million or 750% and 113%, respectively. We generated a robust 53% incremental margin from Q2 to Q3, which is leading edge when compared to the results of the broader onshore services sector. In the third quarter, we returned KLX to positive free cash flow and generated $11.1 million of net income and EPS of $0.96 per share. We continue to be burdened by $2.1 million of quarterly lease expense related to coiled tubing packages leased in the fourth quarter of 2019. As a reminder, we do not add this cost back but it does impact our comparability to peer results. KLX now has one of the most efficient fixed cost structures in the OFS industry, and we believe we can continue to scale from current levels with minimal fixed cost G&A additions. Total SG&A expense for Q3 was approximately $18 million, which equates to roughly 8.1% of Q3 revenue. If you back out nonrecurring G&A expense, we were really at 7.7% of revenue in the third quarter. For our segment results, let me begin with the Rockies. The Rocky Mountains segment third quarter revenue of $66.5 million, increased by $13.4 million or 25% as compared with the second quarter. The sequential increase in revenue was primarily driven by an increase in activity and pricing throughout the DJ Basin, Wyoming and Bakken across all of our product lines, led by coiled tubing, wireline, rental and fishing. Adjusted operating income for the third quarter was $12 million as compared to $4.1 million for the second quarter. Adjusted EBITDA was $17.3 million as compared to second quarter adjusted EBITDA of $9.3 million. The increase in profitability was driven by the previously mentioned increase in activity and pricing across the bulk of the aforementioned product service lines. For our Southwest segment, revenue increased by 14% sequentially, generating revenue of $68.5 million in Q3. The increase in revenue was primarily driven by increased activity and pricing across the majority of our product service lines with coiled tubing, wireline and rental experiencing our largest increases. Q3 adjusted operating income for the segment was $5.6 million compared to $1.8 million in the second quarter and adjusted EBITDA was $10.2 million for the third quarter compared to second quarter adjusted EBITDA of $6.4 million. The increase in profitability was driven by the previously mentioned increases in activity and pricing across those same product service lines. Now to wrap up the segment discussion with the Northeast and Mid-Con, Q3 revenue was up $15.3 million sequentially to $86.6 million. The increase in revenue was primarily driven by sequential improvement again in both activity and pricing across directional drilling, pressure pumping, coiled tubing, fishing and rental services across the region. Adjusted operating income for the third quarter was $17.2 million as compared with $7.4 million in the second quarter. Adjusted EBITDA was $21.3 million in the third quarter as compared to second quarter adjusted EBITDA of $11.1 million. Again, the increase in profitability was driven by the previously mentioned increases in both activity and pricing led by meaningful margin expansion across those same product service lines. I'll now turn to our balance sheet and cash flow. Our Q3 cash balance increased sequentially by $9.9 million or 31% to $41.4 million despite the impact of an extra payroll cycle processed in the third quarter. The increase in cash was largely driven by $18.5 million of positive operating cash flow as well as $1.6 million in share sales under our ATM program and continued monetization of $5.3 million in obsolete assets and noncore real property. We continue to proactively manage working capital and convert cash flow as quickly as possible. Net working capital was $62.9 million in Q3, up approximately 23% compared to Q2. The increase was largely driven by the 20% increase in revenue and a reduction in days payable, but we were able to offset some of the investments by reducing DSO by 2% to approximately 59 days as of Q3. Capital expenditures for the third quarter were approximately $12.5 million and were primarily focused on maintenance spending across our various segments. Going forward, we increased our full year 2022 CapEx guide to be in the range of $30 million to $35 million. As of September 30, we had $4.9 million of assets held for sale related primarily to real property and equipment in the Rockies and Southwest segments. Based on the current status, we expect to close approximately $2.4 million of sales in the fourth quarter. In September, we announced the amendment and extension of our ABL facility under improved terms. The new terms included a new September 2024 maturity date, the resetting of the springing fixed charge coverage ratio covenant, which resulted in the removal of the fixed charge coverage ratio holdback, a 50 bp margin increase and the replacement of LIBOR with SOFR, among other augmented terms. The amendment improves our liquidity and positions KLX to continue to generate free cash flow and ultimately delever the balance sheet. During the quarter, liquidity improved approximately $30 million or 53%, bringing liquidity to $86.4 million at quarter end. This consists of $41.4 million of cash and $45 million of available borrowing capacity on the September 30, 2022, ABL facility borrowing base certificate. Total debt outstanding as of September 30 was $295.6 million, which was largely flat to Q2. The senior secured notes bear interest at an annual rate of 11.5%, payable semiannually in arrears on May 1 and November 1. Accrued interest as of September 30 was $12.7 million, with approximately 95% of that related to the senior secured notes. Based on annualized Q3 results, we have reduced our net leverage ratio to approximately 1.7x. We made our interest payment on November 1 and as of November 4, had a cash balance of approximately $42 million. Additionally, the amended ABL agreement affords KLX the opportunity to execute debt exchange transactions. And post closing the third quarter, we've redeemed $4 million of our 2025 senior secured notes in exchange for 235,000 shares of KLX. While market conditions continue to remain constructive, our primary focus remains on a balanced approach of free cash flow generation, prudent capital allocation, accretive M&A and a continued expansion of cash and liquidity while deleveraging through a combination of improved EBITDA generation and a reduction in net debt. Based on strong activity demand and pricing trends, we remain very excited about what the future holds in 2023 and for the longer-term outlook for our business. I'll now turn the call back to Chris, who will provide some additional color on our outlook.

Thanks, Keefer. Before we wrap up, I'd like to share some more detail on our outlook and expectations for Q4 in 2023. We are proud of our performance in the third quarter as well as our success in completing the turnaround to 2019 levels across most of our product service lines on a run rate basis. KLX' performance in driving these efficiencies and bringing market-leading technological advancements to bear along with ESG-friendly solutions will continue to position KLX exceptionally well. We still have incremental deployable assets across several of our service lines and will focus on deploying incremental assets as returns warrant. Looking to the fourth quarter, we expect revenue to be flat to slightly up relative to the third quarter despite slight holiday slowdowns, typical winter weather impacts and a natural shift in activity as operators transition from 2022 programs to 2023. We expect fourth quarter adjusted EBITDA margins to be in the range of 15% to 17%. We are also increasing our full year revenue guidance to a range of $780 million to $790 million. Finally, we reaffirm our September free cash flow guidance and will generate positive free cash flow for the second half of 2022, a trend which we expect to continue into 2023. We will continue to use market conditions to our advantage by selectively allocating assets and resources to regions and customers with consistent programs generating optimal returns while exercising strong cost controls and strict capital discipline. Based on early 2023 customer conversations, larger operators are looking to creatively lock up crews in order to grandfather year-end '22 pricing into 2023. We believe our execution excellence, exceptional crews and latest generation equipment and technology will continue to facilitate demand for KLX's services with top operators. This is illustrated by our success in cross-selling numerous product lines to our key customers. On a year-to-date basis, all of our top 10 customers utilize more than 1 KLX product line and 83% of our top 100 customers use more than 1 product line. Looking ahead, we are extremely optimistic about 2023, given our 2022 performance year-to-date and fourth quarter expectations. A favorable macro backdrop is driving continued improvement in utilization and net pricing, which should allow us to drive further margin expansion throughout 2023. Additionally, we have some quick payback, organic growth opportunities we plan to execute on and strategic M&A opportunities are heating up within the industry. We believe industry consolidation will play a key part in KLX's future, and we are now better positioned to pursue additional M&A opportunities going forward. We have seen sell-side M&A pick up significantly in the past few months. And interestingly, we've seen some of our pure-play frac competitors begin to add complementary service lines and diversify their platforms. With a focus on strategic growth, we believe we have the strongest track record in the industry for executing and integrating complicated, consolidating transactions. In closing, I'd like to acknowledge and thank our employees for their hard work. Every member of the KLX team has played a key part in our tremendous success over the last 9 months. And our ongoing and future success will be driven by the skillful execution and unwavering focus of our dedicated teams in each of our businesses. With that, we will now take your questions. Operator?

[Operator Instructions]. The first question today is coming from Luke Lemoine of Piper Sandler.

Chris, can you remind us where you are on your active frac fleet count, I believe it should be 2? And were these fleets fairly fully utilized in 3Q?

Appreciate the question. So yes, we're currently staffed and running 2 in 1 basin and then we've got a smaller crew that is running in the Rockies doing refrac work, et cetera. And then yes.

I'm sorry, go ahead.

Go ahead. sorry.

Yes, I guess I would kind of leave you with one, you could reactivate and just kind of what's your appetite to bring that out? And what would the reactivation cost be?

Yes. So look, what I would say, is within the company as a whole, we've got about 235,000 horsepower. We've got about 70,000 horsepower that's still stacked at this point in time. And so while we've got those 2 spreads plus the smaller spread active, we've done a great job of redeploying horsepower through a number of different product lines. So we've got horsepower deployed into coiled tubing support, into our rentals and tech services business for kill pumps. We've got horsepower deployed and making very strong returns in the pump-down market as well. So as you well know, the market for horsepower is incredibly tight. And so we found niche market opportunities to deploy horsepower on a single, double pump basis at very attractive revenue levels. With regards to redeploying that third spread or the incremental horsepower, whether it's a spread or through other product lines, what I would say is, we are having real-time discussions and have had a number of operators reach out to us around both dedicated opportunities, prepayment opportunities, et cetera, and we're evaluating those real-time as we speak.

[Operator Instructions]. The next question is coming from Bill Austin of Daniel Energy Partners.

Just wanted to ask a couple of quick questions for you. so you mentioned a little bit on the next year and your guidance a little bit, but which geographic region shows the most promise for you guys?

It's interesting, Bill, as you look at -- I'm sure you've reviewed our results. The Rocky Mountains in the Mid-Con, Northeast expanded materially over the last couple of quarters. And as you and Don -- John, sorry, I've articulated, we've seen a lot of kind of niche market opportunities in some of the smaller basins. Clearly, gas rig count has expanded that doesn't discount the Permian, it is still the 800-pound gorilla from an overall rig count projective. But if you look at year-to-date rig count growth, frac spread growth, it's really the Mid-Con, Haynesville and other areas. And we've got great customer relationships in all of those areas. And so that's been a big part of the leg up. If you look at the Rockies, the Mid-Con and the Northeast, over the last 2 quarters and it feels like those markets have sort of stabilized at a level where you're going to see that demand kind of carry forward into 2023. And I think across the U.S., you start to see a more normalized and even leg up. And we don't want to talk about 2023 just yet because all of our operators and customers haven't fully guided on what they expect from an activity increase standpoint. But we do think there's another leg up, and we think that, that leg up is kind of uniform and pro rata across the basins where we operate.

Great. And I know you talked a little bit about this at the end as well on the acquisition side. So it sounds like you're starting to see a lot more activity there. How active will you guys be -- or how are you thinking about that?

Yes, sure. So I'll let Keefer jump in a second as well. But we've seen a few recent deals that are asset purchases, especially in the CT space as you well know. ProPetro just did an interesting deal with Silvertip. Ultimately, we think consolidation helps the services space as a whole as long as the executing party is a prudent steward of capital. And so we'd like to see consolidation, and we've definitely seen deal flow activity pick up recently, and we're evaluating a number of different strategic alternatives. Keefer, do you want to add anything?

Yes, sure. I think if you just take a step back from a macro strategic perspective, we believe that our diversification from a product service line standpoint as well as a geographic coverage standpoint is a core differentiator for KLX and allows us to execute on the strategy Chris articulated in the prepared remarks of cross-selling as well as taking a kind of portfolio management approach to allocating assets across our various regions. I think if you just think about the breadth of services that exist within our portfolio today, we're focused more on augmenting the position that we have within those existing service lines in order to execute on what we think of as kind of true consolidation transactions. I think we've got a market-leading position in many of the product lines and service lines that we operate in today, and we look to expand those positions or augment our competitive position in other, maybe, smaller service lines where we're only active in, say, 1 or 2 basins. Like Chris said, there's a lot more sell-side supply today than we've seen in some time. And I think we're probably better positioned today on to execute on additional M&A than we've been since we did the QES merger back in the summer of 2020.

[Operator Instructions]. Next question is coming from Ignacio Bolandos of [indiscernible].

Congratulations on the strong quarter. I know you've mentioned guidance and how you're looking at CapEx. I guess any more color on the cadence of that CapEx in 2023? I know a lot of it is maintenance related, but kind of how should we be looking at it by service line? And yes.

Great question. As you well know, I think everybody in the industry knows simply procuring capital items has been difficult at certain times of this year due to supply constraints. Look, we've experienced numerous delays in deploying capital, specifically in our rentals product line for tubulars to a lesser extent, mud motors in our DD business. So we've made some bulk orders, attempts to manage the supply chain, et cetera. There's some prepayments associated with that. But really, the increase is primarily driven by a higher level of activity in revenue than we had forecasted at the beginning of the year. And so I guess, if you step back, I'd point out 2 key points. The first -- the high end of our range at $35 million of CapEx guidance is still only 4.4% based on the midpoint of our full year revenue guidance. And second, the same supply chain challenges that have created issues for everybody in the services space has really afforded us a great opportunity as we continue to integrate the asset base. And so we've actually monetized about almost $12 million of assets, both real property and obsolete assets throughout this year. So if you think about it on a net CapEx basis, we're still well below our original CapEx guidance. The other thing, I would say, you asked about 2023 CapEx. Look, a number of our peers have given guidance that they're kind of capital framework is 6% to 9% of revenue on a go-forward basis. I'd say if you look at our asset base and product service offering, we've got numerous service lines such as our tech services, fishing, wireline, downhole tool business, which is materially less asset intensive, whereas the rentals business pumping, coiled tubing, et cetera, are more capital-intensive businesses. So I think if you think about 2023 on a blended basis, and we haven't finalized our budget yet. But if you think about '23 on a blended basis, I think 5% to 7% of revenue is a reasonable assumption. And of course, we're very focused on moving price. And as we move price, that CapEx as a percentage of revenue goes down marginally.

The next question is coming from [indiscernible] of Singular Research.

Just quickly on the -- congrats on the quarter and congrats on the extension of the credit agreement. Just quickly on the credit agreement, any reason -- any particular reason why you didn't extend more than 1 year?

No, we don't have -- first of all, thanks, and I appreciate the question. Regarding the amendment, we're thrilled to have gotten that done. And we think that we were able to improve terms. So we pushed maturity out a year through the fall of '24. Additionally, we reset the fixed charge coverage ratio. And in doing so, we've eliminated the fixed charge coverage ratio holdback. That was a net to liquidity in prior quarters as well as modifying some other terms. So we were thrilled to have gotten that extension done, and we think it's a great modification for the business.

Yes, absolutely. I would agree with that. I just -- I guess my question is where the banks -- was the bank willing to go longer or not so much? I mean was it -- or is it -- was it a decision by you guys because perhaps you're going to look at a more comprehensive reset a year from now or so?

Yes. We looked at a range of opportunities and ultimately believe we landed on what was the best opportunity for the business today, but we're not going to get into specifics of negotiations with our bank group or other potential capital providers.

Sure, sure. No, not a problem, not a problem. With regard to the other debt, the public debt, congrats on retiring some of it with the equity exchange. Does your facility enable you guys to consider open market repurchases?

Yes, good question. This was another piece that we did amend in the ABL document to permit exactly what you're asking about. So we are permitted now to execute on open market repurchases, provided that we're using proceeds from an equity offering or the ATM so there is a caveat there in terms of the source of the proceeds to execute on an open market repurchase.

Got it. Got it. And then just lastly, obviously, I know it's a little early for you guys to put out any kind of guidance for '23. But it sounded, Chris, from your comments like you guys feel like at least directionally, '23 feels like it's going to be an up year. Is that a fair comment?

Yes. All indications right now from a macro demand perspective suggests that it's going to be enough year. We don't have full guidance from our customers, as I stated to Bill earlier. At the end of the day, we're going through RFQ season as we speak. And I think, look, we've got -- and I mentioned it in the prepared remarks, but we've got a significant volume of incremental assets available to deploy. And so as we've stated in the past, I think we've been conservative, if not prudent as it comes to redeploying assets. Our primary focus has been to maximize crew utilization and move price first and foremost. And then second, focus on redeploying assets in the face of increasing demand at incrementally higher prices. And so we balance standup costs with demand capacity and capital deployment. And so I think if you look at our incrementals of 39% in Q2 and 53% in Q3, I think the strategy has worked pretty well. The reality of the situation is, we have a number of asset classes like our accommodations fleet, certain size of BOPs and tubulars, our active pressure pumping fleet, basically running at near capacity. That being said, we were down 2 coiled tubing units, large diameter coiled tubing units, for the entire third quarter, undergoing a manufacturing upgrading process. We now have one of those units back in the fleet. And then you kind of go through every single product line, we've got tubulars coming into the fleet now in the fourth quarter that we have immediate demand for. We've got 5 to 10 kits of incremental capacity in DD that we think will deploy going into the first part of next year. We've got additional wireline trucks undergoing electric conversion today that will come into the market next year as well as numerous other product lines. And all of that excludes assumptions on additional net price increases. So assuming that the market is up, another 50-plus rigs in 2023, if you just look at our run rate, it would imply 2023 should be a very positive year and another leg up from full year 2022.

And again, congrats on the quarter and congrats on the amendment.

Chris, this is Ken again. We've got a couple of e-mail questions and text questions during the call. One of them was elaborating on the labor and staff incremental assets, how do you staff those incremental assets?

Yes. Look, that's a great question, similar to the incremental assets available to deploy. I think -- the entire market, right, equity research operators have lamented labor constraints in the labor market tightness. It's a very fair question. There's no doubt in the industry space a number of challenges this year staffing up incremental services demand. KLX is not immune to the issues. However, I'm proud to say, I think we have performed better than average from an attrition standpoint. In fact, if you look at our attrition levels, compared to prior levels coming out of rebounds of cycles, we're kind of right on top of those. And so we've spent considerable time around employee engagement, developing our culture, and we think our culture is a strong selling point for KLX. Earlier this year, we worked through a standard merit raise cycle, et cetera. So we've done a number of things. The other thing we did was last year in 2021, December of '21, we partially reinstated our 401(k) match. And as of this quarter, we fully reinstated our 401(k) match. So I think all of these help with retention overall. The last point I'd make is employees want to work for a company that provides high-quality, highly efficient assets so they can maximize their opportunity set in compensation. KLX does this exceptionally well. We're able to attract and retain employees that buy into our strategy of operating excellence.

Thanks. That's good. And I got another 1 for Keefer that says, congrats on your return to positive free cash flow. How do you feel about the uses of free cash flow going forward?

Yes. Thanks, Ken. Good question. I mean just from a macro perspective, I think Chris and I and the rest of the team just couldn't be prouder of the hard work that's gone into returning the business to positive free cash flow. We're frankly happy to just be having that discussion today. It's not something that we've spent a lot of time talking about over the last few years. We did reaffirm our guidance for positive free cash flow in the second half of the year. We believe that trend continues into '23. So as we look forward, we plan to continue to be good stewards of capital. We're going to evaluate any and all growth opportunities, whether they're organic growth or inorganic growth through the lens of a risk-adjusted return on invested capital. So with that said, I think there's a couple of different ways we're going to look at opportunities to redeploy free cash flow generation. First, being deploy organic growth CapEx. Chris mentioned this earlier a bit but there's opportunity to deploy CapEx on some relatively quick payback growth projects. We'd expect to start to execute on some of those in early in '23. Additionally, we look to potentially use cash as a portion of M&A consideration, although I think that really is going to depend on a couple of things: one, valuation; and two, just structure as we believe equity consideration drives significantly better alignment to really integrate a combination in this industry. And then last but certainly not least, is continuing to explore opportunities to further delever and chip away at the interest-bearing debt as we work to continue to improve our net leverage ratio. We've spent a lot of time focused on returning the business to historical operating and margin levels. Proud to have gotten back to that point at this point. We mentioned in the prepared remarks that we're at a 1.7x leverage ratio as of our Q3 run rate. So we've done a lot of work to build back up the denominator piece there in terms of our EBITDA run rate, and we'll continue to look at opportunities to chip away at the numerator of the net leverage ratio.

Thanks, Keefer. So Chris, that ends the question-and-answer session. I'll hand it to you right to make some final remarks.

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