KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) Q2 2024 Earnings Call Transcript

KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) Q2 2024 Earnings Call Transcript August 11, 2024

Operator: Greetings, and welcome to KLX Energy Services Second Quarter 2024 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, Mr. Dennard. You may begin.

Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for the KLX Energy Services conference call and webcast to review second quarter 2024 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 second quarter and outlook before opening the call for your questions. There will be a replay of today’s call. It will be available via webcast on the company’s website and that’s klx.com, and there will be a telephonic recorded replay available until August 22, 2024. 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, August 8, 2024, and therefore, you’re 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 will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of KLX’s management. However, various risks, 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.

The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations 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 I’d like to turn the call over to Chris Baker. Chris?

Christopher Baker: Thank you, Ken, and good morning, everyone. I’ll start by apologizing for my voice this morning, but I want to ensure you that my voice or perceived lack of oxygen has absolutely 0 to do with how proud we are of our second quarter and returning KLX to more normalized levels of profitability and the execution by our team. Now with that out of the way, I’ll run through the second quarter highlights before turning the call over to Keefer to review our financials in more detail and then I’ll rejoin the call to add some commentary on our outlook and concluding remarks before opening the call for Q&A. In summary, our consolidated second quarter results included $180 million in revenue, $27 million in adjusted EBITDA and adjusted EBITDA margin of 15% and we returned to positive levered free cash flow of $10 million.

Our Q2 results return to what we view as a more normalized level for the current market. Q1 was burdened by several nonrecurring items, and we are proud to report that our second quarter performance bounced back from both exacerbated seasonality and the previously discussed transitory impacts that afflicted Q1. Despite a 7% decline in rig count and a reduction of over 40 rigs from year-end 2023, continued drilling and completion volatility in persistent pockets of industry softness KLX achieved strong Q2 results and sees continued strength into Q3. We believe that our Q1 2024 results will ultimately be viewed as a small blip in what has been consistent strong performance over the last 8 quarters, where we have generated aggregate revenue, adjusted EBITDA and levered free cash flow of $1.7 billion, $251 million and $83 million, respectively.

The 3% sequential improvement in total revenue stems with increased sales in our Rocky segment and a higher-margin product and service lines, such as rentals and tech services, which includes fishing. Tech Services and Rentals Q2 revenue increased sequentially by 20% and 17%, respectively. KLX’s geographic and product service line diversification drove margin sustainability in the face of market softness, highlighting the strength of the KLX platform as seasonal impacts on mining and production and innovation activity returned to more normalized levels. KLX’s leading presence in extended reach laterals, completion technologies and production and intervention services should continue to yield sustainable results and positive free cash flow even in a flat rig count environment.

Our revenue is highly correlated to rig out and KLX has steadily driven higher revenue per rig as we captured market share. Revenue per rig as of Q2 2024 was up approximately 10% sequentially and 27% compared to Q2 2022. This gain in revenue per rig reflects the market share we have captured over time due to our targeted strategy of customer alignment and driving multiple PSLs through all sales channels. The sequential improvement in adjusted EBITDA and adjusted EBITDA margin was driven by nonrecurrence of first quarter 2024 transitory issues, cost structure optimization initiatives, improved crude utilization, seasonally reduced payroll tax exposure, incremental activity and a shift in revenue mix towards higher-margin geographies and PSLs including the Rockies and our rentals and tech services product service lines, particularly within the Rockies and Southwest segment.

During late Q1 and early Q2, we implemented approximately $16 million of annualized cost savings. Q2 benefited from almost a full quarterly impact of those savings. The cost reductions benefited both cost of sales and G&A. Recurring cost of sales and G&A were down sequentially 5% and 8%, respectively. Moving to our segment results. Geographically, the Southwest represented 39% of Q2 revenue compared to 40% in Q1. The Northeast/Mid-Con represented 27% of revenue compared to 34% in Q1 and the Rockies generated 34% of revenue compared to 26% in Q1, illustrating the normalization of the contribution of our Rockies business. More importantly, adjusted EBITDA margin expanded in two of our 3 geo segments, led by the previously mentioned PSL rotation and seasonal normalization.

From a product line perspective, completion-focused activity drove 51% of Q2 revenue. Drilling was 21% and production and intervention was 28%. The sequential improvement in production and intervention revenue was driven by the culmination of our strategic capital spending and repositioning efforts across our rental portfolio over the last few quarters and continued positive traction with the KLX downhole technology portfolio plus a rebound in fishing activity coming off to doldrums of early 2024. Our geographic and product service line diversification continues to drive sustainability in earnings and cash flow. And our team continues to demonstrate their agility in managing difficult markets, effectively and decisively repositioning assets and maintaining a lean cost structure.

Lastly, I’d highlight that the KLX team has once again set all-time low HSE records across our 3 key metrics: all while delivering our market-leading services and proprietary products for the largest, most active and well-capitalized operators in the U.S. onshore market. With that, I’ll now turn the call over to Keefer, who will review our financial results in more detail, and I’ll return later in the call to discuss our outlook. Keefer?

Keefer Lehner: Thanks, Chris, and good morning, everyone. As Chris mentioned, we reported Q2 revenue of $180.2 million, representing a 3% sequential increase and consolidated Q2 adjusted EBITDA of $27 million. Adjusted EBITDA margin was 15%. We returned the business to positive levered free cash flow for the quarter. On a consolidated basis, the sequential increase in revenue was driven by improved crew utilization and increased activity with higher contributions from the Lockheeds and from our rentals and tech service product service lines. The Southwest and Northeast Mid-Con segments contributed 39% and 27% of Q2 revenue, respectively, led in the Southwest by our directional drilling, rentals and frac rentals product service lines and in the Mid-Con by our pressure pumping, accommodation and directional drilling offerings.

The Rockies contributed 34%, led by rentals, coiled tubing and tech services. Total SG&A expense for Q2 was $19.3 million. When you back out nonrecurring costs, adjust SG&A expense for Q2 would have been only $17.1 million or just 9% of quarterly revenue. During Q2, we actioned several changes to our cost structure related to insurance IT and third-party professional fees to reduce our overhead going forward. Q2 benefited substantially from the reductions, but there will likely be some marginal amount of incremental savings into Q3. These cost reductions will continue through the remainder of 2024 and beyond. Turning now to a review of our segment results. Starting with the Rockies, Rocky Mountain revenue, operating income and adjusted EBITDA were $61.4 million, $10.5 million and $17.2 million, respectively, for the second quarter of 2024.

Second quarter revenue represents a 35% sequential increase over the first quarter of 2024 despite a 4% reduction in average active regional rig count, a normalization of Rockies activity driven by a non-recurrence of Q1 transitory issues coupled with an outsized rebound in rentals and tech services revenue led to sequential revenue expansion. We experienced sequential revenue growth across all PSLs that we operate in this segment. Adjusted EBITDA increased approximately 220% sequentially as a function of the increase in revenue, a revenue mix shift and the reduced cost structure. Moving to the Southwest. Revenue, operating income and adjusted EBITDA for Q2 were $69.9 million, $2.6 million and $10.4 million, respectively. Second quarter revenue represents a 1% sequential increase over the first quarter of 2024, largely due to a shift towards higher-margin product service lines, such as rentals and tech services, including our fishing business.

Segment adjusted EBITDA increased 55% sequentially as a function of cost structure optimization initiatives, improved crew utilization and incremental activity and higher-margin service lines. Moving to the Northeast Mid-Con. Revenue, operating loss and adjusted EBITDA for the Northeast Mid-Con segment was $48.9 million, negative $2.5 million and $6.4 million, respectively, for the second quarter of 2024. Second quarter revenue represents an 18% sequential decrease over the first quarter of 2024 due to reduced regional gas-focused activity across the vast majority of our drilling completion and production offerings, including coiled tubing, directional drilling, accommodations and tech services. Segment operating income and adjusted EBITDA decreased 204% and 37%, respectively, largely due to lower activity and pricing.

At corporate, our adjusted operating loss and adjusted EBITDA loss for Q2 were $9.2 million and $7 million, respectively. Our corporate adjusted EBITDA loss decreased 32% sequentially and is expected to remain at similar levels in Q3. I’ll now turn to our balance sheet, cash flow and capitalization. We ended the quarter with a net debt balance of $198 million. Our June 30 cash balance was $87 million, up by $2 million sequentially and up 6% from $82 million in Q2 of 2023. We ended the second quarter with roughly $121 million in liquidity, consisting of $87 million in cash and availability of $34 million under our June 2024 ABL borrowing base certificate. Note, we did have approximately $3 million of suppressed availability as of June 30 due to structural limitations within the ABL that are expected to reverse in Q3.

Our ABL and senior secured notes both mature in the fall of 2025. Given our conservative capitalization, strong Q2 results returning to 2023 margins and positive free cash flow and generally strong consistent performance over the last two years, we believe the business is well positioned. We will continue to monitor market conditions and evaluate opportunities to refi the outstanding notes and ABL in 2024. Now turning to CapEx. Second quarter capital expenditures were $15.3 million, which were primarily focused on maintenance spending across our segments. Q2 net CapEx, defined as CapEx less asset sales was approximately $12 million. Going forward, we continue to expect total CapEx for 2024 to be in the range of $50 million to $55 million, with approximately 80% plus earmarked for maintenance expenses.

Going forward, our focus remains on maximizing margin and free cash flow generation, ensuring robust financial strength and flexibility and that KLX is well positioned to execute our strategy. With that, I’ll now turn the call back to Chris.

Christopher Baker: Thanks, Keefer. Before we wrap up, I’d like to share some additional color on our outlook. Our current calendar for Q3 calls for continued strength in the Rockies and Southwest with an uptick in the Northeast Mid-Con. We expect the completions and production-oriented activity will continue to lead the way in the current market. Consistent with our pre-release and our prior guidance for Q3 issued 23 days ago, we continue to expect third quarter 2024 revenue to be flat to slightly up relative to the second quarter with adjusted EBITDA margins similar to the second quarter based on current schedules and latest customer conversations. KLX is maintaining and improving our asset base to ensure we are well positioned from the technology and equipment specification standpoint to continue to deliver the highest levels of performance on the most demanding wells and will ultimately be well positioned for the next market up cycle.

As we begin to look at 2025, we expect an increase in activity over 2024 levels driven by our customers completing ongoing integration initiatives related to the massive wave of consolidation that has occurred over the last 18 months and an increase in gas directed activity driven by robust future demand from LNG export volumes and data centers. We believe KLX is more efficient today and in a rising rig count environment has substantial upside back to 2023 levels and beyond based on our improved cost structure, differentiated technology portfolio and well maintained and upgraded asset base. KLX stands apart with its performance-driven, technologically differentiated offerings, exemplary safety record and premier job execution. These capabilities, combined with our broad geographic footprint, contributes to our strong competitive position.

I would like to thank our customers and shareholders for their support of KLX and most importantly, our team members for their essential role in our collective success. With that, we’ll now take your questions. Operator?

Q&A Session

Operator: [Operator Instructions] The first question comes from the line of Luke Lemoine with Piper Sandler. Please go ahead.

Luke Lemoine: Yeah, hey, good morning. Chris, Keefer. Really good outlook for 3Q that you put out a couple of weeks ago and reiterating today. Chris, just wanted to see if you had any kind of visibility in 4Q yet and kind of what you’re thinking about activity or how results could be just kind of a seasonal slowdown and what that could look like?

Christopher Baker: Yes, it’s a great question. We put out 3Q guidance, I guess, 23 days ago, we iterated it yesterday. — look, I guess, let’s address 3Q first. The reality is basin-by-basin schedules are as episodic as we’ve ever seen. I mean at least here in COVID, it was one way down then back up. But at this base level of D&C activity, as you well know, it’s really difficult to backfill spot work or more importantly, difficult to backfill spot work that actually has margin and it doesn’t just cover crew cost. And so in Q2, we had a couple of dedicated customers that took some 1-month completion breaks, et cetera, reduced fleet as part of their integration efforts from the M&A wave, et cetera. And so as we sit here today, what we see for 3Q is far fewer breaks.

We see some of the customers that are conducting those integration efforts kind of fully rationalizing programs and putting some spreads and some rigs kind of back to work. So I don’t — I’m not saying it’s a step change whatsoever. I think it’s purely customer alignment and activity and timing as it pertains to KLX and our customer base as you think through Q3 guidance. To your question on Q4, look, it’s premature and we haven’t provided Q4 at this point. We have talked historically about there’s the potential opportunity set for some of the Haynesville and Northeast operators start to complete some DUCs. That looked maybe more viable a month ago as natural gas prices really started to rally, they since retrenched. But as you and I both know, they can turn on the spending tap really quick.

And so I think the question is, do you see some completions activity ramp, trying to get molecules into the pipeline late this year — and does that soften some of the typical seasonality in the Rockies and other basins. And you give us another two months, and I think we have a lot better line of sight on that, the reality of it.

Operator: Next question comes from the line of Steve Ferazani with Sidoti & Company. Please go ahead.

Steve Ferazani: Morning, Chris Kiefer. Appreciate the color on the call.. Obviously, a very nice bounce back quarter. But beyond just the sequential in the Rockies, we’re looking at your margins there, even year-over-year, getting better. And obviously, there’s pricing pressure and you talked about trying to backfill work. How are you getting margins better in that market? Is that mix? Have you brought in higher margin type assets into that market? If you can explain a little bit because that was the surprise to us.

Christopher Baker: Yes, it’s a great question. Look, we talked in Q1, how Q1 was plagued by transitory issues and in Q2 definitely returned to operating levels, and we’ve alluded to this in the past, some of the KPIs we track, et cetera. But Q2 across the company returned to operating levels. But candidly, in many instances were better than Q4 of 2023. When you think about rig count that declined 7% on a quarterly basis, 7% on a year-to-date basis, we returned revenue across the company. Revenue per head count returns almost $100,000 per employee. That’s up from kind of the high 80s in Q1. If you think about revenue per active rig across North America, we averaged almost $315,000 per rig. That’s up from low 280s in Q1, and it’s candidly higher than any revenue per rig count that you back into in 2022 and compares very favorably to a $334,000 average in ’23.

And so there’s probably four key factors that drove the improvement, not just in the Rockies, but in the Rockies as well as the southwest. Look, we had $6 million of incremental revenue largely from higher-margin PSLs. We talked about the $16 million of cost cuts. We realized approximately 80%, 90% of that in Q2. That was across both the fixed and variable side of the business. To your point, the Rockies rebounded to $61 million. That’s approaching our average level of revenue in 2023, and the Southwest was basically flat to slightly up revenue despite a continuous slide in Permian and Eagle Ford rig count, but yet margin expanded, right, from 10% to 15%. So — and candidly, given the role in Mid-Con Northeast revenue, margin held in pretty well.

And so what drove all that? Look, to your point, a sizable mix shift. And that mix shift, we saw our tech services and our rentals business up 20% to 17%, respectively. There’s a couple of factors there. The first is that’s being driven by some of our long-term capital spending and capital allocation when we think about strategic initiatives to both reposition assets, augment technology, improve our fleet so it’s cutting edge, as you think about the majors and the title wave of M&A that’s been driven largely by the majors. You have to have Tier 1 equipment, redundant backup engines, enhanced pressure control, et cetera, as well as our Oracle SRT. But that really culminated in an increase in underlying production intervention activity and as you know, a lot of our production intervention activity starts in February and March typically kind of runs through early fourth quarter.

And as we think about our PSLs, I think this was our lowest quarterly impact from completions, but a lot of those assets, whether it be tech services, rentals, coiled tubing assets, et cetera, are pretty fungible and they can go and attack that production and intervention market. I think our team did a great job of reallocating into the face of strength there. And I think it speaks to how well positioned we are when completions activity ultimately recovers in ’25 and ’26. So the long-winded way of saying, being lean, being diverse and agile is basically the name of the game.

Steve Ferazani: Excellent. That’s helpful. Talk to me about the balance sheet because this has been a very difficult last few quarters. But when I look at your net debt, it’s lower than it was five quarters ago. It’s basically flat for the last four quarters, and it was down $20 million into Q2 in what is a challenging environment. How are you managing the balance sheet? Obviously, you’ve gone down to almost maintenance CapEx, but talk to me about cash flow and the balance sheet in this environment?

Keefer Lehner: Yes, absolutely. So we’ve obviously been focused on maximizing margins and turn driving free cash flow generation. Certainly coming off the blip that was Q1, we returned the business back to largely 2023 margin levels that, in turn, return the business back to positive leverage free cash flow as you think about our second quarter 2024 results. So I think from a capitalization standpoint, the business is well positioned. On an LTM basis, we’re roughly at 2x leverage on a net basis. On a run rate basis, we’re slightly below there at about a 1.8x net leverage ratio. So I think the business continues to be conservatively capitalized from a leverage standpoint. And we’re coming off a year in 2023 where we generated almost $80 million of levered free cash flow in the year.

So to Chris’ point, we’re continuing to focus on go-forward margin maximization, free cash flow maximization, reducing net debt, building cash and driving continued strength in the balance sheet.

Steve Ferazani: If I could get one more in, net leverage around 2x. How does that position you potentially in the M&A pipeline front? We’ve seen some smaller deals. We’ve seen some slightly larger deals in OFS. What are you seeing out there? And what are you comfortable doing at a 2x leverage right now spot?

Keefer Lehner: Yes, good question. I think first and foremost, we’re more focused today on strategically refinancing our existing notes and ABL. With that said, we’re always evaluating M&A and strategic inorganic opportunities. By and large, we’ve looked to use equity currency historically to effectuate M&A. We think that drives alignment, and we’ve been able to do deals that I think are largely highly accretive, very synergistic and strong strategic fit. I think Green is a good blueprint by which we’d look to execute additional M&A. But today, we are focused both more internally from a margin maximization, cash flow maximization standpoint as well as a focus on the refinancing, but we’re always continuing to monitor the market as it relates to M&A.

Operator: Next question comes from the line of John Daniel with Daniel Energy.

John Daniel: Please go back. Hey, guys. Chris you noted in one of the answers or maybe his prepared remarks about repositioning assets and things like that. I’m curious, some of your peer group has started talking about facility rationalizations for potentially closures of stuff. Have you guys come to that point yet? And is that something that might be on the table? And then if so, just your thoughts on how the industry then reacts four to five quarters from now if the market does, in fact, turn with natural gas recovery? Big picture question.

Christopher Baker: Right. No, fair enough. Look, I mean, it feels like we’ve gone through four years of facility rationalization and consolidation coming off the heels of the KLX-QES integration, right? So you think about that situation, we were north of 60 facilities. We’re now operating approximately 35. There’s a couple real-time live that we’ve consolidated two into 1, et cetera. I think our footprint is by and large, rationalized. Do we look at opportunity sets to drive efficiencies. We do so all at the time. But we don’t have any big picture plan. We have talked about moving assets out of some of the gassy basins, but maintaining capacity, maintaining expertise in personnel in those stations, and we’ve done that, and we’ve done that while still driving profitable margins in the face of weakness.

And so I feel like we’re pretty well positioned. To your point, look, everybody is well aware of the pending gas demand market inflection and I’m not going to anticipate on whether that’s a first half of ’25, second half of ’25 or otherwise situation. What we know is we’re continuing to invest in our asset base, our customer base, latest generation tools and equipment. And I think KLX is exceptionally well positioned if and when gas directed activity ramps or if and when some of the oil-directed activity as people rationalize some of their programs or sell off noncore assets to the privates with some of the hanging chads coming out of the acreage roll-ups. If and when activity rebounds, I think KLX is very well positioned to participate from both an asset and personnel standpoint.

John Daniel: Okay. And then the follow-up for me, Chris, is slightly unrelated, is just different anecdote fuel that come out, it’s about spot activity in the frac market, coil market, could you just provide your views on the business at what point does it make sense to idle staff versus are your customers — are they working with you recognizing the, if you will, the challenges and the attrition that is prevalent in that sector. Just again, big picture thoughts.

Christopher Baker: Yes, it’s a great question. Look, we have stacked assets. We have stacked assets in both of the product lines you referenced that we can redeploy into markets. There’s some strategies that we’ve evaluated, especially on the coil business of unstacking some of those assets to provide better optionality. But tying back to Luke’s question, the reality is when you’re a 580-something land-based rigs and the level of activity we’re at, the spot market margin or the ability to drive margin in the spot market is very benign. There’s no two ways about it. And so you would much prefer to position yourself with customers with dedicated programs, consistent well-to-well, pad-to-pad type packages. And I think we’ve done that quite well.

And as we look back to my point earlier, as we look at our Q3 calendar, it looks like it has less white space as we sit here today than candidly Q2 did for many of our completions service lines. Candidly, specifically on coil, it feels like that market has held up better this cycle from a pricing standpoint in general than it has in past cycles. And whether there’s been marginal consolidation there in that service line, not as much as in maybe well servicing, et cetera, but pricing definitely held up better than, say, Wireline, one of the product lines we talked about often. Does that mean that it’s held up well in the spot market? No, you still see a night fight occasionally. But I think in general, it’s held up better than prior cycles.

Operator: Next question comes from the line of David Marsh with Singular Research. Please go ahead.

David Marsh: Hey, good morning, guys. Thanks for taking the questions. If I could start, Keefer, just a question for you. Could you just tell me the total nonrecurring for the quarter, I was trying to piece it together from the different segments, I was coming up with about 1.4. I was hoping you could confirm that for me.

Keefer Lehner: Yes. Recurring G&A was $17.1 million. Total nonrecurring costs were $1.4 million. It’s included on, I think, Page 11 of the earnings release.

David Marsh: Got it. Got it. Perfect. Okay. And then — congrats on the gross margin. I mean, this is a really good number in light of the revenue number. Could you just talk about your thoughts in terms of the sustainability of that type of level of gross margin and possible expansion back to kind of closer to those peaks that you — near-term peaks you had in the middle of last year.

Keefer Lehner: Yes. Good question. And certainly, we’re proud to see where margins return you back on a Q2 basis, which I think is certainly more normalized as you think about our 2023 performance across our various segments as well as the eight eight aggregate business. I think that was partly driven to Chris’ point, by reduced white space in the calendar. He just said that we see kind of further reduction in white space as we look to Q3 versus Q2. But certainly, another big driver of sequential margin from Q1 to Q2 or just that return to normalcy in general, with some of the cost cuts that we were able to effectuate that impacted both the G&A level as well as the cost of goods sold level. And so I think going forward, from a fixed cost standpoint, we really work to attack the cost structure. And I think those savings that were realized and effectuated during the second quarter are going to continue as we work through Q3 and the remainder of the year.

David Marsh: That’s great. And then just on the — if I could just circle back on the SG&A. So you said recurring is 17.9. So obviously, as revenue fluctuates up and down, there’s going to be some natural movement there. But — so the $19.3 million number, it sounds like that number could actually come down a little bit sequentially, potentially in 3Q. Am I reading that right?

Keefer Lehner: So right. So recurring costs quarter-over-quarter should be relatively consistent and the cost cuts that were actuated in the second quarter would continue into Q3.

David Marsh: Great. Got it. Okay. And then just lastly from me, in terms of the refinancing window, it does look like they are starting to get some deals done in some spaces that have been perhaps a little bit out of favor. I mean, are you — can you give us a sense of what the market is telling you in terms of your opportunity and your window around refinancing the facility and the notes.

Keefer Lehner: Yes, good question. And we talked about this a little bit on a prior question. I think the business continues to be performing well. I think we’re well positioned from a leverage, liquidity and cash perspective, and what we’ve talked about is that we’re going to continue to kind of analyze and monitor market conditions, and we’re working to evaluate opportunities during 2024. So for the remainder of the year to advantageously refinance the notes and the ABL.

Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Chris Baker for closing comments.

Christopher Baker: Thank you once again for joining us on this call and for your interest in KLX. We look forward to speaking with you again next quarter.

Operator: Thank you. This concludes our today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.