KLX Inc. (“KLX” or the “Company”) (NASDAQ: KLXI), a leading
distributor and value added service provider of aerospace fasteners
and consumables, and a provider of services and products to the oil
and gas exploration and production industry, today reported its
second fiscal quarter ended July 31, 2018 financial results.
On a GAAP basis, for the three-month period ended July 31, 2018,
as compared to the same period of the prior year, revenues
increased 22.4 percent to $527.2 million, while operating earnings
increased 22.4 percent to $64.0 million. GAAP net earnings of $34.8
million and net earnings per diluted share of $0.68, increased 68.1
percent and 70.0 percent, respectively, as compared to the
three-month period ended July 31, 2017. During the second quarter
of 2018, the Company incurred approximately $23.1 million of
one-time costs associated with the pending sale of its Aerospace
Solutions Group (“ASG”) business to The Boeing Company (“Boeing”),
the spin-off of its Energy Services Group (“ESG”) business to
shareholders and the transition to ASG’s new global distribution
and operations center. The costs associated with the pending sale
of its ASG business to The Boeing Company, the spin-off of its ESG
business to shareholders and transition to the new ASG facility are
collectively referred to as “Costs as Defined.” SECOND
QUARTER HIGHLIGHTS
- Consolidated revenue growth of 22.4 percent to $527.2
million
- Consolidated Adjusted operating earnings of $87.1 million
increased 66.5 percent1
- Adjusted Net Earnings and Adjusted Net Earnings per diluted
share were $66.6 million and $1.31 per diluted share, respectively,
representing increases of 76.2 percent and 79.5 percent,
respectively1
1 Excludes approximately $23.1 million of Costs as Defined.
We have presented Adjusted Net Earnings and Adjusted Net
Earnings per diluted share to reflect net earnings before Costs as
Defined and amortization and non-cash compensation expense, and to
include the tax benefit from the amortization of tax-deductible
goodwill (“Adjusted Net Earnings” and “Adjusted Net Earnings per
diluted share”). This release includes “Adjusted operating
earnings” and “free cash flow,” which exclude Costs as Defined.
This release also includes “Adjusted EBITDA,” which excludes Costs
as Defined and non-cash compensation expense, and “ESG Adjusted
EBITDA,” which excludes costs related to the spin-off of ESG and
non-cash compensation expense. Each of the aforementioned metrics
are “non-GAAP financial measures” as defined in Regulation G of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
See “Reconciliation of Non-GAAP Financial Measures.”
SECOND QUARTER CONSOLIDATED RESULTS
On a consolidated basis, revenues increased 22.4 percent to
$527.2 million, driven by an approximate 14.6 percent increase in
ASG revenues and an approximate 60.4 percent increase in ESG
revenues. Adjusted operating earnings and Adjusted operating margin
were $87.1 million and 16.5 percent, respectively. Adjusted Net
Earnings and Adjusted Net Earnings per diluted share increased 76.2
percent and 79.5 percent, to $66.6 million and $1.31 per diluted
share, respectively.
Amin J. Khoury, Chairman and Chief Executive Officer of KLX
commented, “We are pleased to report strong second quarter
financial results for both our ASG and ESG businesses. Our ASG
segment delivered record quarterly revenues, driven by double-digit
percentage increases in sales to support both commercial aerospace
manufacturing customers and to support aftermarket customers. In
addition, ASG reported a major customer competitive win and
significant market share gain during the second quarter.”
Mr. Khoury continued, “Our ESG segment generated approximately
60 percent year-over-year organic revenue growth and an over 1,700
basis point improvement in Adjusted EBITDA margin, driven by strong
growth in demand for our intervention and completion services,
particularly our higher margin proprietary product services lines
(“PSLs”). In addition, revenues continue to increase at a faster
rate than fixed costs due to the efficient organizational structure
we have developed, as a result of the complete integration of the
acquired businesses.”
SECOND QUARTER SEGMENT RESULTS
As a result of the pending merger of the ASG business with The
Boeing Company, the Company will no longer be providing segment
level ASG results or guidance (other then what is reported in the
Company’s 10-Q filing).
For the three months ended July 31, 2018, as compared to the
same period of the prior year, ESG revenues of $117.9 million
reflected revenue growth of approximately 60.4 percent, driven by
strong growth in demand for intervention and completion services,
particularly higher margin proprietary PSLs, including frac stacks,
proprietary fishing tools and proprietary down hole production
PSLs. ESG revenues are increasing at a faster rate than fixed costs
due to the complete integration and reorganization of the seven
private oilfield service companies acquired over the 2013 through
2014 time period, which is resulting in substantial margin
expansion. GAAP operating earnings of $12.2 million, included $1.9
million of costs related to the spin-off of the ESG business.
Exclusive of the aforementioned costs, ESG’s Adjusted operating
earnings increased $21.9 million to $14.1 million in the second
quarter, while Adjusted EBITDA was $26.2 million, or 22.2 percent
of revenues. As compared to the first quarter of 2018, revenues
increased by 6.2 percent, Adjusted operating earnings improved by
36.9 percent and Adjusted EBITDA improved by 19.1 percent. ESG cash
provided by operations, exclusive of spin-off related costs, was
$25.6 million and capital expenditures were approximately $18.2
million. ESG free cash flow, adjusted to exclude costs related to
the spin-off of the ESG business was $7.4 million, or 6.3 percent
of revenues.
PENDING BOEING TRANSACTION AND ESG SPIN-OFF
UPDATE
A special meeting of stockholders to vote on the merger was held
on August 24, 2018 at the Boston Harbor Hotel, Boston,
Massachusetts at 10:30 AM (Eastern time), wherein the merger of KLX
Inc into The Boeing Company was approved by shareholders of KLX
Inc.
On August 24th, the Securities and Exchange Commission (‘SEC”)
declared the KLX Energy Services Form 10 registration statement
effective. As previously reported, the distribution of the KLXE
shares will occur on September 14, 2018.
Beginning on Wednesday, August 29, 2018, there will be a
when-issued market for KLX Energy Services common stock under the
ticker symbol “KLXEV.” The when-issued market will continue until
regular-way trading in KLX Energy Services common stock begins
under the ticker symbol “KLXE” on September 17, 2018, the first
trading day after the distribution date.
GUIDANCE/OUTLOOK
As a result of the pending sale of ASG to Boeing, the Company
will no longer be providing ASG segment level guidance.
ESG’s Fiscal 2018 outlook excludes costs related to the spin-off
of ESG, as well as a charge for the acceleration of the vesting of
restricted stock grants, which will result from the closing of the
sale of KLX to Boeing.
On December 6, 2017, the date on which the Company released its
third quarter 2017 earnings results, the Company provided full year
2018 revenue guidance for ESG, with revenues expected to increase
approximately 40 percent to $450 million.
On March 6, 2018, the date on which the Company released its
fourth quarter 2017 earnings results, the Company forecasted ESG
revenues to increase approximately 44 percent to approximately $450
- $475 million.
On May 21, 2018, the date on which the Company released its
first quarter 2018 earnings results, the Company raised ESG
guidance for a second time, forecasting revenues to increase
approximately 50 percent to approximately $500 million, and
Adjusted EBITDA to increase more than 300 percent to approximately
$110 million.
Mr. Khoury commented, “Today, we are confirming our 2018 revenue
and Adjusted EBITDA guidance for KLX Energy Services of
approximately $500 million and approximately $110 million,
respectively.”
Mr. Khoury concluded, “Consistent with the Company’s prior
practice, on or about the time we release our third quarter
results, we expect to provide 2019 KLX Energy Services financial
guidance, including revenues, operating earnings, Adjusted EBITDA,
Adjusted Net Earnings, Adjusted Net Earnings per diluted share,
free cash flow and return on invested capital.”
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Exchange Act. Such forward-looking
statements involve risks and uncertainties. The Company’s actual
experience and results may differ materially from the experience
and results anticipated in such statements. Factors that might
cause such a difference include those discussed in the Company’s
filings with the SEC, which include its Annual Report on Form 10-K
and Current Reports on Form 8-K. For more information, see the
section entitled “Forward-Looking Statements” contained in the
Company’s Annual Report on Form 10-K and in other filings. The
forward-looking statements included in this news release are made
only as of the date of this news release and, except as required by
federal securities laws and rules and regulations of the SEC, the
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
About KLX Inc. KLX Inc., through its two
operating segments, provides mission critical products and complex
logistical solutions to support its customers’ high value assets.
KLX serves its customers in demanding environments that face high
cost of downtime and require dependable, high quality just-in-time
customer support. The Aerospace Solutions Group is a leading
distributor and value added service provider of aerospace fasteners
and consumables offering the broadest range of aerospace hardware
and consumables and inventory management services worldwide. The
Energy Services Group provides vital services and products to oil
and gas exploration and production companies on an episodic, 24/7
basis. For more information, visit the KLX website at
www.klx.com.
KLX INC.CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In Millions, Except Per Share Data)
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
July 31, 2018 |
|
July 31, 2017 |
|
July 31, 2018 |
|
July 31, 2017 |
|
|
|
|
|
|
|
|
Revenues |
$ |
527.2 |
|
$ |
430.6 |
|
$ |
1,026.3 |
|
$ |
841.9 |
Cost of sales |
|
377.5 |
|
|
312.0 |
|
|
737.2 |
|
|
610.4 |
Selling, general and
administrative |
|
85.7 |
|
|
66.3 |
|
|
163.9 |
|
|
130.6 |
|
|
|
|
|
|
|
|
Operating earnings |
|
64.0 |
|
|
52.3 |
|
|
125.2 |
|
|
100.9 |
|
|
|
|
|
|
|
|
Interest expense |
|
18.9 |
|
|
19.0 |
|
|
37.8 |
|
|
38.0 |
|
|
|
|
|
|
|
|
Earnings before income
taxes |
|
45.1 |
|
|
33.3 |
|
|
87.4 |
|
|
62.9 |
|
|
|
|
|
|
|
|
Income tax expense |
|
10.3 |
|
|
12.6 |
|
|
20.9 |
|
|
23.8 |
|
|
|
|
|
|
|
|
Net earnings |
$ |
34.8 |
|
$ |
20.7 |
|
$ |
66.5 |
|
$ |
39.1 |
|
|
|
|
|
|
|
|
Net earnings per common
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.69 |
|
$ |
0.41 |
|
$ |
1.33 |
|
$ |
0.77 |
Diluted |
$ |
0.68 |
|
$ |
0.40 |
|
$ |
1.30 |
|
$ |
0.76 |
|
|
|
|
|
|
|
|
Weighted average common
shares: |
|
|
|
|
|
|
|
Basic |
|
50.2 |
|
|
50.9 |
|
|
50.1 |
|
|
51.0 |
Diluted |
|
51.0 |
|
|
51.7 |
|
|
51.0 |
|
|
51.7 |
|
|
|
|
|
|
|
|
|
|
|
|
KLX
INC.CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)(In
Millions)
|
July 31, |
|
January 31, |
|
2018 |
|
2018 |
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
322.7 |
|
$ |
255.3 |
Accounts
receivable |
|
353.1 |
|
|
316.1 |
Inventories, net |
|
1,418.0 |
|
|
1,407.9 |
Other
current assets |
|
46.9 |
|
|
51.7 |
Total
current assets |
|
2,140.7 |
|
|
2,031.0 |
Long-term
assets |
|
1,735.4 |
|
|
1,759.0 |
|
$ |
3,876.1 |
|
$ |
3,790.0 |
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Total
current liabilities |
$ |
321.0 |
|
$ |
287.5 |
Total
long-term liabilities |
|
1,235.5 |
|
|
1,232.6 |
Total
stockholders' equity |
|
2,319.6 |
|
|
2,269.9 |
|
$ |
3,876.1 |
|
$ |
3,790.0 |
|
|
|
|
|
|
KLX INC. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)(In
Millions)
|
SIX MONTHS ENDED |
|
July 31, 2018 |
|
July 31, 2017 |
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
Net
earnings |
$ |
66.5 |
|
|
$ |
39.1 |
|
Adjustments to reconcile net earnings to net cash flows
provided by operating activities: |
|
|
|
Depreciation and amortization |
|
38.0 |
|
|
|
33.0 |
|
Deferred
income taxes |
|
19.6 |
|
|
|
21.0 |
|
Non-cash
compensation |
|
10.3 |
|
|
|
13.0 |
|
Provision
for inventory reserve |
|
6.7 |
|
|
|
9.1 |
|
Change in
allowance for doubtful accounts and sales returns |
|
(0.2 |
) |
|
|
4.8 |
|
Loss on
disposal of property and equipment |
|
0.5 |
|
|
|
0.5 |
|
Amortization of deferred financing fees |
|
2.3 |
|
|
|
2.2 |
|
Changes
in operating assets and liabilities: |
|
|
|
Accounts
receivable |
|
(36.9 |
) |
|
|
(54.8 |
) |
Inventories |
|
(16.8 |
) |
|
|
(25.6 |
) |
Other
current and non-current assets |
|
- |
|
|
|
(13.7 |
) |
Accounts
payable |
|
37.9 |
|
|
|
19.4 |
|
Other
current and non-current liabilities |
|
0.3 |
|
|
|
5.3 |
|
Net cash flows provided
by operating activities |
|
128.2 |
|
|
|
53.3 |
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
Capital
expenditures |
|
(52.7 |
) |
|
|
(32.6 |
) |
Acquisitions, net of cash acquired |
|
(2.4 |
) |
|
|
- |
|
Net cash flows used in
investing activities |
|
(55.1 |
) |
|
|
(32.6 |
) |
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
Purchase
of treasury stock and other |
|
(0.2 |
) |
|
|
(29.6 |
) |
Cash
proceeds from stock issuance |
|
1.2 |
|
|
|
1.0 |
|
Net cash flows provided
by (used in) financing activities |
|
1.0 |
|
|
|
(28.6 |
) |
|
|
|
|
Effect of foreign
exchange rate changes on cash and cash equivalents |
|
(6.7 |
) |
|
|
6.4 |
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents |
|
67.4 |
|
|
|
(1.5 |
) |
Cash and cash
equivalents, beginning of period |
|
255.3 |
|
|
|
277.3 |
|
Cash and cash
equivalents, end of period |
$ |
322.7 |
|
|
$ |
275.8 |
|
|
|
|
|
|
|
|
|
KLX INC.RECONCILIATION
OF NON-GAAP FINANCIAL MEASURES
This release includes “Adjusted Net Earnings” and “Adjusted Net
Earnings per diluted share” to reflect net earnings before Costs as
Defined, amortization, non-cash compensation expense, and to
include the tax benefit from the amortization of tax-deductible
goodwill. This release includes “Adjusted operating earnings” and
“free cash flow,” which excludes Costs as Defined. This release
also includes “ESG Adjusted operating earnings,” which excludes
costs related to the spin-off of ESG. This release also includes
“Adjusted EBITDA,” which excludes Costs as Defined and non-cash
compensation expense, and “ESG Adjusted EBITDA,” which excludes
costs related to the spin-off of ESG and non-cash compensation
expense. Each of the aforementioned metrics are “non-GAAP financial
measures” as defined in Regulation G of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).
The Company uses the above described adjusted measures to
evaluate and assess the operational strength and performance of the
business and of particular segments of the business. The Company
believes these financial measures are relevant and useful for
investors because it allows investors to have a better
understanding of the Company’s actual operating performance
unaffected by the impact of the Costs as Defined. These
financial measures should not be viewed as a substitute for, or
superior to, operating earnings, net earnings or net cash flows
provided by operating activities (each as defined under GAAP), the
most directly comparable GAAP measures, as a measure of the
Company’s operating performance.
Pursuant to the requirements of Regulation G of the Exchange
Act, we are providing the following tables that reconcile the above
mentioned non-GAAP financial measures to the most directly
comparable GAAP financial measures:
KLX INC.RECONCILIATION
OF NET EARNINGSTO ADJUSTED NET EARNINGS PER
DILUTED SHARE(In Millions, Except Per Share
Data)
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
|
July 31, 2018 |
|
July 31, 2017 |
|
July 31, 2018 |
|
July 31, 2017 |
Net earnings |
|
$ |
34.8 |
|
$ |
20.7 |
|
$ |
66.5 |
|
$ |
39.1 |
Amortization expense |
|
|
4.9 |
|
|
4.8 |
|
|
9.9 |
|
|
9.6 |
Non-cash
compensation |
|
|
5.1 |
|
|
7.1 |
|
|
10.3 |
|
|
13.0 |
Income
taxes |
|
|
10.3 |
|
|
12.6 |
|
|
20.9 |
|
|
23.8 |
Costs as
Defined 1 |
|
|
23.1 |
|
|
- |
|
|
37.4 |
|
|
- |
Adjusted
earnings before tax expense |
|
78.2 |
|
|
45.2 |
|
|
145.0 |
|
|
85.5 |
Income
taxes |
|
|
17.8 |
|
|
17.1 |
|
|
34.7 |
|
|
32.3 |
Less: impact of goodwill deduction 2 |
|
6.2 |
|
|
9.7 |
|
|
13.2 |
|
|
19.4 |
Adjusted income
taxes |
|
|
11.6 |
|
|
7.4 |
|
|
21.5 |
|
|
12.9 |
Adjusted net
earnings |
|
$ |
66.6 |
|
$ |
37.8 |
|
$ |
123.5 |
|
$ |
72.6 |
|
|
|
|
|
|
|
|
|
Adjusted
net earnings per diluted share |
$ |
1.31 |
|
$ |
0.73 |
|
$ |
2.42 |
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares |
|
|
51.0 |
|
|
51.7 |
|
|
51.0 |
|
|
51.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Costs and expenses associated with the pending sale of the ASG
business to The Boeing Company and the spin-off the ESG business to
shareholders.2 For purposes of this calculation, tax benefit of
goodwill deduction is limited to income tax at current effective
rate for year-to-date periods ended July 31, 2018 and July 31, 2017
of approximately 23.9% and approximately 37.8%, respectively.
KLX INC. |
RECONCILIATION OF CONSOLIDATED OPERATING
EARNINGS |
TO ADJUSTED OPERATING EARNINGS AND ADJUSTED
EBITDA |
(In Millions) |
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
July 31, 2018 |
|
July 31, 2017 |
|
July 31, 2018 |
|
July 31, 2017 |
Operating earnings |
$ |
64.0 |
|
|
$ |
52.3 |
|
|
$ |
125.2 |
|
|
$ |
100.9 |
|
Costs as
Defined 1 |
|
23.1 |
|
|
|
- |
|
|
|
37.4 |
|
|
|
- |
|
Adjusted
operating earnings |
|
87.1 |
|
|
|
52.3 |
|
|
|
162.6 |
|
|
|
100.9 |
|
Depreciation and amortization |
|
18.0 |
|
|
|
16.5 |
|
|
|
35.4 |
|
|
|
33.0 |
|
Non-cash
compensation |
|
5.1 |
|
|
|
7.1 |
|
|
|
10.3 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
110.2 |
|
|
$ |
75.9 |
|
|
$ |
208.3 |
|
|
$ |
146.9 |
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF ENERGY SERVICES GROUP
OPERATING EARNINGS (LOSS) |
TO ADJUSTED OPERATING EARNINGS (LOSS) AND
ADJUSTED EBITDA |
(In Millions) |
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
July 31, 2018 |
|
July 31, 2017 |
|
July 31, 2018 |
|
July 31, 2017 |
ESG operating earnings
(loss) |
$ |
12.2 |
|
|
$ |
(7.8 |
) |
|
$ |
18.7 |
|
|
$ |
(17.9 |
) |
One-time
costs 2 |
|
1.9 |
|
|
|
- |
|
|
|
5.7 |
|
|
|
- |
|
Adjusted
ESG operating earnings (loss) |
|
14.1 |
|
|
|
(7.8 |
) |
|
|
24.4 |
|
|
|
(17.9 |
) |
Depreciation and amortization |
|
9.6 |
|
|
|
8.6 |
|
|
|
18.7 |
|
|
|
17.2 |
|
Non-cash
compensation |
|
2.5 |
|
|
|
3.0 |
|
|
|
5.1 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
26.2 |
|
|
$ |
3.8 |
|
|
$ |
48.2 |
|
|
$ |
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NET CASH FLOW PROVIDED
BY |
OPERATING ACTIVITIES TO FREE CASH
FLOW |
(In Millions) |
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
July 31, 2018 |
|
July 31, 2017 |
|
July 31, 2018 |
|
July 31, 2017 |
Net cash flow provided
by operating activities |
$ |
54.8 |
|
|
$ |
33.3 |
|
|
$ |
128.2 |
|
|
$ |
53.3 |
|
Capital
expenditures |
|
(25.7 |
) |
|
|
(18.1 |
) |
|
|
(52.7 |
) |
|
|
(32.6 |
) |
Free cash flow |
$ |
29.1 |
|
|
$ |
15.2 |
|
|
$ |
75.5 |
|
|
$ |
20.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Costs and expenses related to the pending sale of the ASG
business to The Boeing Company and the spin-off the ESG business to
shareholders2 One-time costs related to the pending spin-off of
ESG
KLX ENERGY
SERVICESRECONCILIATION OF 2018 GUIDANCE; OPERATING
EARNINGSTO ADJUSTED OPERATING EARNINGS AND
ADJUSTED EBITDA(In Millions)
|
2018 Guidance |
|
(Approximate Amounts) |
Operating earnings |
$ |
59 |
|
One-time
costs (to date) |
|
6 |
|
Adjusted operating
earnings |
|
65 |
|
Depreciation and amortization |
|
35 |
|
Non-cash
compensation |
|
10 |
|
Adjusted EBITDA |
$ |
110 |
|
|
|
Net cash flows provided
by operating activities |
|
85 |
|
Capital
expenditures |
|
(68 |
) |
Free cash flow |
$ |
17 |
|
|
|
|
|
CONTACT:Michael PerlmanDirector, Investor
RelationsKLX Inc.(561) 791-5435
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