What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-04-28 compared with 2020-03-24 · 12 added, 424 removed, 15 unchanged (97% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the Nasdaq Global Select Market under the symbol “KLXE”.

On March 20, 2020, the last reported sale price of our common stock as reported by Nasdaq was $1.00 per share.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the Nasdaq Global Select Market under the symbol “KLXE”.

On April 26, 2021, the last reported sale price of our common stock as reported by Nasdaq was $9.01 per share.

As of such date, based on information provided to us by Computershare, our transfer agent, we had 994 registered holders, and because many of these shares are held by brokers and other institutions on behalf of the beneficial holders, we are unable to estimate the number of beneficial stockholders represented by these holders of record.

We have provided a line graph comparing the cumulative total stockholder return on our common stock between September 17, 2018 (our first trading day on the Nasdaq) and January 31, 2020 to the cumulative total returns of the S&P 500 Index and the Philadelphia Stock Exchange’s (“PHLX”) Oil Service Sector Index (“OSX”).

Dividend Policy

We do not currently intend to pay dividends.

3 unchanged sentences

Accordingly, we cannot assure you that we will either pay dividends in the future or continue to pay any dividend that we may commence in the future.

Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

($ in Millions, Except Shares and Per Share Data)

Recent Sales of Unregistered Equity Securities

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table presents the total number of shares of our common stock that we repurchased during the three months ended January 31, 2021:

Total number of shares purchased 1

Period Total number of shares purchased (1)

Average price paid per share (2)

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January 1, 2021 - January 31, 2021 32 $ 4.12 — $ 48,859,603

Includes shares purchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants under the Company’s Long-Term Incentive Plan.

Total 1,108 —

(1) Includes shares purchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants under the Company’s Long-Term Incentive Plan.

(2) The average price paid per share of common stock repurchased under the share repurchase program includes commissions paid to the brokers.

In August 2019, our board of directors authorized a share repurchase program for the repurchase of outstanding shares of the Company’s common stock having an aggregate purchase price up to $50.

(3) In August 2019, our board of directors authorized a share repurchase program for the repurchase of outstanding shares of the Company’s common stock having an aggregate purchase price up to $50.

Selected Financial Data

In this section, dollar amounts are shown in millions, except for per share data or as otherwise specified.

The following table presents selected historical financial data for the periods indicated below.

We derived the selected historical statements of earnings data for the years ended January 31, 2020, 2019 and 2018 and the balance sheet data as of January 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this Form 10‑K.

We derived the selected historical financial data as of January 31, 2018, 2017 and 2016 and for the fiscal years ended January 31, 2017 and 2016 from audited financial statements.

We derived the selected historical financial data as of January 31, 2016 from KLX’s accounting records.

The historical statements of (loss) earnings for periods prior to September 14, 2018 reflect allocations of general corporate expenses from KLX, including, but not limited to, executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management and other shared services.

The allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures.

Our management considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, KLX Energy Services.

The allocations may not, however, reflect the expense we would have incurred as a stand‑alone public company for the periods presented.

Actual costs that may have been incurred if we had been a stand‑alone company would depend on a number

of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

The financial statements for periods prior to the spin-off from KLX on September 14, 2018 included in this Form 10‑K may not necessarily reflect our financial position, results of operations and cash flows as if we had operated as a stand‑alone public company during all periods presented.

Accordingly, our historical results should not be relied upon as an indicator of our future performance.

In presenting the financial data in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,”

included elsewhere in this Form 10‑K for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

The following selected historical financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and our audited consolidated financial statements and related notes included elsewhere in this Form 10‑K.

Statements of Earnings Data:

Service revenues

Cost of sales (1)

Selling, general and administrative (1)

Research and development costs

Goodwill impairment charge (2)(3)

Long-lived asset impairment charge (3)

Operating (loss) earnings

Interest expense, net

(Loss) earnings before income taxes

Income tax (benefit) expense

Net (loss) earnings

Basic net (loss) earnings per share (4) :

Net (loss) earnings

Weighted average common shares

Diluted net (loss) earnings per share (4) :

Net (loss) earnings

Weighted average common shares

Balance Sheet Data (end of period):

Working capital

Goodwill, intangible and other assets, net

Stockholders’

Depreciation and amortization

For the year ended January 31, 2020, cost of sales and selling, general and administrative (“SG&A”) expense include $7.2 and $17.3, respectively, of costs primarily associated with cost rationalization and other costs, asset impairment costs and new product service line introduction costs as we rolled out large diameter coil tubing and flowback and testing services to additional geographic regions (collectively, “Costs as Defined”).

For the year ended January 31, 2019, cost of sales and SG&A expense include $0.4 and $30.2, respectively, of costs primarily associated with the completion of the merger of the Aerospace Solutions business of KLX Inc.

(“KLX”) with The Boeing Company, the spin-off of the company from our former parent, KLX, including $10.7 of non-cash compensation expense related to the acceleration of unvested shares held by our employees, the amendment of the ABL Facility due to the issuance of $250.0 of Notes and the acquisition of Motley (collectively, “Fiscal 2018 Costs

as Defined”).

For the year ended January 31, 2018, cost of sales and SG&A expense include $0.3 and $3.3, respectively, of costs primarily associated with KLX’s strategic alternatives review and also a restructuring of the Eagle Ford region.

For the year ended January 31, 2016, cost of sales and SG&A expense include $23.1 and $15.4, respectively, primarily associated with business separation and start-up costs such as costs related to the spin-off of KLX from its former parent, expansion initiatives, branding and IT implementation costs.

During the fiscal year ended January 31, 2020, we recorded a $47.0 goodwill impairment charge.

The abrupt deterioration in industry conditions, which began in the third quarter and accelerated through the end of our fourth quarter of Fiscal 2019, was driven by a sharp decline in U.S.

land rig count and an unprecedented decline in operating frac spreads from the second quarter through the end of 2019.

The decline in E&P activity resulted in lower demand levels and lower current and expected revenues for our business, which led us to perform an interim goodwill impairment test in the third quarter.

As a result, we reported a non-cash asset impairment charge of $47.0 in Fiscal 2019.

During the fiscal year ended January 31, 2016, we recorded a $640.2 goodwill and long-lived asset impairment charge.

The rapid downturn in the oil and gas industry, including the nearly 75% decrease in the number of onshore drilling rigs and the resulting significant cutback in capital expenditures by our customers, resulted in a significant adverse change in the business climate, which indicated that our goodwill was impaired and our long-lived assets might not be recoverable.

As a result, during the third quarter ended October 31, 2015, we performed an interim goodwill impairment test and a long-lived asset recoverability test and determined that our goodwill was fully impaired and recorded a pre-tax impairment charge of $310.4.

Further, we utilized a combination of cost and market approaches to determine the fair value of our long-lived assets, resulting in an impairment charge of $177.8 related to identified intangibles and $152.0 related to property and equipment.

On September 14, 2018, KLX distributed to its stockholders of record as of the close of business on September 3, 2018, 0.4 shares of KLX Energy Services common stock for every 1.0 share of KLX common stock held as of the record date.

January 31, 2018, 2017 and 2016 basic and diluted net loss per common share and the average number of common shares outstanding were calculated using the number of KLX Energy Services common shares outstanding immediately following the distribution.

See Note 10 to our audited consolidated financial statements included elsewhere in this Form 10-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition together with our audited consolidated financial statements and accompanying notes included elsewhere in this Form 10-K as well as the discussion in “Item 1.

Business.”

This discussion contains forward-looking statements that involve risks and uncertainties.

The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results.

Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in “Item 1A.

Risk Factors”

and “Cautionary Statement Regarding Forward-Looking Statements.”

Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows.

The financial information for periods prior to the spin-off from KLX on September 14, 2018 included in this Form 10-K may not necessarily reflect what our financial condition, results of operations or cash flows would have been had we been operated as a separate, independent entity during all periods presented.

In this section, dollar amounts are shown in millions, except for per share and per barrel amounts or as otherwise specified.

Company Overview

We are a leading provider of completion, intervention and production services and products (our “product service lines”

or “PSLs”) to the major onshore oil and gas producing regions of the United States.

We offer a range of differentiated, complementary technical services and related tools and equipment in challenging environments that provide “mission critical”

solutions for our customers throughout the life cycle of the well.

We serve many of the leading companies engaged in the exploration and development of North American onshore conventional and unconventional oil and natural gas reserves.

Our customers are primarily independent major oil and gas companies.

We actively support these customer operations from over 35 principal service facilities located in the key major shale basins.

We operate in three segments on a geographic basis, including the Southwest Region (the Permian Basin and the Eagle Ford), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica as well as the Mid-Continent STACK and SCOOP and Haynesville).

Our revenues, operating profits and identifiable assets are primarily attributable to these three reportable geographic segments.

However, while we manage our business based upon these regional groupings, our assets and our technical personnel are deployed on a dynamic basis across all of our service facilities to optimize utilization and profitability.

We work with our customers to provide engineered solutions across the entire lifecycle of the well, by streamlining operations, reducing non-productive time and developing cost effective solutions and customized tools for our customers’

most challenging service needs, which include technically complex unconventional wells requiring extended reach horizontal laterals with greater completion intensity per well.

We believe future revenue growth opportunities will continue to be driven by increases in the number of new customers served and the breadth of services we offer to existing and prospective customers.

We offer a variety of targeted services that are differentiated by the technical competence and experience of our field service engineers and their deployment of a broad portfolio of specialized tools and equipment.

Our innovative and adaptive approach to proprietary tool design has been employed by our in-house research and development (“R&D”) organization and, in selected instances, by our technology partners to develop tools covered by 20 patents and 18 U.S.

and foreign pending patent applications.

Our technology partners include manufacturing and engineering companies that produce tools, which we design and utilize in our service offerings.

We utilize contract manufacturers to produce our products, which, in many cases, our engineers have developed from input and requests from our customers and customer-facing managers, thereby maintaining the integrity of our intellectual property while avoiding manufacturing startup and maintenance costs.

We have found that doing so leverages our technical strengths as well as those of our technology partners.

These PSLs are modest in cost to the

customer relative to other well construction expenditures but have a high cost of failure and are, therefore, “mission critical”

to our customers’

We believe our customers have come to depend on our decades of combined field experience to execute on some of the most challenging problems they face.

We believe we are well positioned as a company to service customers when they are drilling and completing complex wells and remediating older legacy wells.

KLX Energy Services was initially formed from the combination and integration of seven private oilfield service companies acquired over the 2013 through 2014 time period.

Each of the acquired businesses was regional in nature and brought one or two specific service capabilities to KLX Energy Services.

Once the acquisitions were completed, we undertook a comprehensive integration of these businesses, to align our services, our people and our assets across all the geographic regions where we maintain a presence.

We established a matrix management organizational structure, where each regional manager has the resources to provide a complete suite of services, supported by technical experts in our primary service categories.

In November 2018, we expanded our completion and intervention service offerings through the acquisition of Motley Services, LLC (“Motley”), a premier provider of large diameter coiled tubing services, further enhancing our completion tools business.

We successfully completed the integration of the Motley business during Fiscal 2018.

On March 15, 2019, the Company acquired Tecton Energy Services (“Tecton”), a leading provider of flowback, drill-out and production testing services, operating primarily in the greater Rocky Mountains.

On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a premier provider of oilfield services primarily in the Mid-Continent, providing fishing, non-frac high pressure pumping, thru-tubing and certain other services.

We successfully completed the integration of the Red Bone business during Fiscal 2019.

We have endeavored to create a “next generation”

oilfield services company in terms of management controls, processes and operating metrics and have driven these processes down through the operating management structure in every region, which we believe differentiates us from many of our competitors.

This allows us to offer our customers in all of our geographic regions discrete, comprehensive and differentiated services that leverage both the technical expertise of our skilled engineers and our in-house R&D team.

Following the acquisition of Motley, we have invested in seven additional large diameter coil tubing spreads which we believe will allow us to gain a greater share of customer spend by pulling through the Company’s broad range of asset light services.

We invest in innovative technology and equipment designed for modern production techniques that increase efficiencies and production for our customers.

North American unconventional onshore wells are increasingly characterized by extended lateral lengths, tighter spacing between hydraulic fracturing stages, increased cluster density and heightened proppant loads.

Drilling and completion activities for wells in unconventional resource plays are extremely complex, and downhole challenges and operating costs increase as the complexity and lateral length of these wells increase.

For these reasons, E&P companies with complex wells increasingly prefer service providers with the scale and resources to deliver best-in-class solutions that evolve in real time with the technology used for extraction.

We believe we offer best-in-class service execution at the wellsite and innovative downhole technologies, positioning us to benefit from our ability to service the most technically complex wells where the potential for increased operating leverage is high due to the large number of stages per well in addition to customer focus on execution rather than price.

We have been awarded 20 U.S.

patents and have 18 U.S.

and foreign pending patent applications, which we believe differentiates us from our regional competition and also allows us to deliver more focused service and better outcomes in our specialized services than larger national competitors who do not discretely dedicate their resources to the services we provide.

Our business strategy seeks to generate attractive returns on capital through the provision of differentiated services and the prudent application of our cash flow to select targeted opportunities, with the potential to deliver high returns that we believe offer superior margins over the long-term and short payback periods.

Our services generally require less expensive equipment, which is also less expensive to maintain, and fewer people than many other oilfield service activities.

In addition to the superior margin potential of our differentiated services, we believe the rising level of completion intensity in our core operating areas contributes to improved margins and returns on services provided for those wells.

As part of our returns-focused approach to capital spending, we are focused on maintaining a capital efficient program with respect to the development of new products.

We support our existing asset base with targeted investments in R&D, which we believe allows us to maintain a technical advantage over our competitors providing similar services using standard equipment.

Demand for services in the oil and natural gas industry is cyclical and subject to sudden and significant volatility.

For example, the oilfield service industry experienced an abrupt deterioration in demand during the second half of 2019, principally due to the E&P companies’

intense focus on capital discipline and free cash flow generation and customer budget exhaustion, which led to a sharp decline in U.S.

land rig count and an unprecedented decline in operating frac spreads from the second quarter through the end of 2019.

These downturns placed unprecedented pressure on both our customers and competitors.

As a result of the ongoing decrease in global demand for oil and gas resulting from the recent COVID-19 outbreaks, in March 2020, members of OPEC and Russia considered extending their agreed oil production cuts and making additional oil production cuts.

Negotiations were unsuccessful, and Saudi Arabia announced an immediate significant reduction in its oil export prices, and Russia announced that all agreed oil production cuts between Russia and OPEC members would expire on April 1, 2020.

Oil and natural gas prices declined sharply immediately following these announcements and have further declined to levels as low as approximately $21 per barrel.

Oil and natural gas prices are expected to continue to be volatile as a result of the near term production increases and the ongoing COVID-19 outbreaks and as changes in oil and natural gas inventories, industry demand and global and national economic performance are reported.

Significant factors that are likely to affect commodity prices in current and future periods include, but are not limited to, the extent and duration of price reductions and increased production by OPEC members and other oil exporting nations;

the effect of U.S.

energy, monetary and trade policies, U.S.

and global economic conditions, U.S.

and global political and economic developments, including the outcome of the U.S.

presidential election and resulting energy and environmental policies, the impact of the ongoing COVID-19 outbreaks and conditions in the U.S.

oil and gas industry and the resulting demand and pricing for domestic land oilfield services.

The reduction in oil prices to current levels and the ongoing effects of the global COVID-19 outbreaks will likely result in a global recession, with the possibility of numerous bankruptcies of E&P companies and oilfield services companies during 2020 and a significant decline in demand and prices for oilfield services during 2020.

We have taken, and are continuing to take, steps to reduce costs, including reductions in capital expenditures, as well as other workforce rightsizing and ongoing cost initiatives.

Despite very difficult industry conditions during the second half of 2019, we were able to execute our strategy to expand our key product service lines, including coil tubing spreads, flowback and testing, and we expanded our intervention capabilities in the Mid-Con, Northeast and South Texas.

We believe these actions will allow us to increase our share of customer spend as we deploy coil tubing spreads and continue to pull through asset light services such as flowback, thru-tubing and pressure control services, while leveraging our recently enhanced cost structure.

We remain focused on serving the needs of our customers by providing a broad portfolio of product service lines across all major basins, while preserving a solid balance sheet, maintaining sufficient operating liquidity and prudently managing our capital expenditures.

We believe we have positioned our company to operate successfully as a standalone company as a result of the numerous initiatives we undertook during the integration of the seven businesses acquired while we were part of KLX Inc.

(the “Former Parent”

or “KLX”).

We believe our operating cost structure is now materially lower than during the historical financial reporting periods and that there is greater flexibility to respond to changing industry conditions.

We improved our cost structure by centralizing a number of common functions, as evidenced by our positive cash provided by operating activities in Fiscal 2019.

The implementation of integrated, company-wide management information systems and processes provide more transparency to current operating performance and trends within each market where we compete and help us more acutely scale our cost structure and pricing strategies on a market-by-market basis.

We believe our ability to differentiate ourselves on the basis of quality provides an opportunity for us to gain market share and increase our share of business with existing customers.

We believe we have strong management systems in place, which will allow us to manage our operating resources and associated expenses relative to market conditions.

We believe our services often generate margins superior to our competitors based upon the differential quality of our performance, and that these margins can contribute to free

cash flow generation.

The required investment in our business includes both working capital (principally for account receivables growth tied to increasing revenues) and capital expenditures for both maintenance of existing assets and growth.

Our required maintenance capital expenditures tend to be lower than other oilfield service providers due to the generally asset-lite nature of our services, the average age of our assets and our ability to charge back a portion of asset maintenance to customers for a number of our assets.

On September 14, 2018, we completed our spin-off from KLX and became an independent, publicly-traded company.

In connection with the consummation of the spin-off, KLX Energy Services entered into a number of agreements with KLX.

All services under the transition services agreement with KLX were terminated prior to October 31, 2018, and amounts under such agreement were not material for the year ended January 31, 2019.

In addition, our undrawn $100.0 asset-based revolving credit facility (“ABL Facility”) is available for borrowing for working capital and other general corporate purposes.

The approximately $60.0 availability under the ABL Facility is tied to the aggregate amount of our accounts receivable and inventory that satisfy specified criteria and is subject to further limitation based upon our maintaining a minimum fixed charge coverage ratio.

We issued $250.0 principal amount of 11.5% senior secured notes due 2025 (the “Notes”) and, depending on market conditions, we may incur other indebtedness in the future to make additional acquisitions and/or provide for additional cash on the balance sheet, which could be used for future acquisitions.

For the years ended January 31, 2019 and 2018, selling, general and administrative (“SG&A”) expense included allocations of general corporate expenses from KLX for periods through September 14, 2018, the date of the spin-off.

The historical consolidated statements of (loss) earnings for periods prior to the spin-off reflect allocations of general corporate expenses from KLX, including, but not limited to, executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services.

The allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures.

Our management considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, KLX Energy Services during such periods.

The allocations may not, however, reflect the expense we would have incurred as a stand-alone company for the periods presented.

Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

“Description of Business and Summary of Significant Accounting Policies”

to our audited consolidated financial statements included elsewhere in this Form 10-K for a description of the costs allocated, the methods of allocation, the reasons for the allocations and how our actual costs may differ from the amounts allocated under the ownership of KLX.

Key Financial Performance Indicators

We recognize the highly cyclical nature of our business and the need for metrics to (1) best measure the trends in our operations and (2) provide baselines and targets to assess the performance of our managers.

The metrics we regularly monitor within each of our geographic reporting regions include:

Variable cost by service;

Asset utilization by service;

Revenue growth by service.

The measures we believe most effective to monitor and consider when rewarding management performance include:

Revenue growth rate;

EBITDA growth rate;

EBITDA margin;

Return on invested capital;

Cash flow generation after investments in the business;

Effectiveness of our health, safety and environmental practices.

Our experience has shown us that measuring our performance is most meaningful when compared against our peers on a relative basis.

Our compensation committee engages its own compensation consultant to recommend performance metrics and targets for our employees.

Year Ended January 31, 2020 Compared to Year Ended January 31, 2019

The following is a summary of revenues by segment:

Rocky Mountains

Northeast/Mid-Con

Total revenues

Revenues for the year ended January 31, 2020 were $544.0, an increase of $48.7, or 9.8%, as compared to the prior year.

Revenue growth reflects the addition of coil tubing, flow back and testing services and intervention product service lines during Fiscal 2019, offset by the impact from the aforementioned second half deterioration in industry conditions.

Revenues in the first half of Fiscal 2019 increased by approximately $82.5 as compared with the same period in the prior year;

revenues in the second half of Fiscal 2019 were approximately $33.8 lower than the same period in the prior year.

On a product line basis, completion and intervention services revenues increased approximately 15.3% and 8.9%, respectively, while production revenues declined approximately 3.4%.

Cost of sales for the year ended January 31, 2020 was $470.0, or 86.4% of sales, including $7.2 of Costs as Defined, as compared to the prior year period of $370.4, or 74.8% of sales.

Excluding the $7.2 of Costs as Defined ($0.4 in the prior year period), cost of sales was $462.8, or 85.1% of revenues ($370.0, or 74.7% of revenues, in the prior year period), and increased by $92.8 as compared to the prior year period.

Cost of sales increased primarily due to the under-absorption of fixed costs as a result of the abrupt deterioration in demand during the second half of 2019 as well as the startup costs associated with the roll out of flowback and testing services and costs to support the roll out of the coiled tubing PSL in both the Northeast/Mid-Con and Rocky Mountains segments.

SG&A expenses for the year ended January 31, 2020, inclusive of Costs as Defined of $17.3, were $100.0, or 18.4% of revenues, as compared with $100.4, or 20.3% of revenues (which included $30.2 of spin-off costs and expenses), in the prior year period.

Excluding the Costs as Defined in the current year period ($30.2 in the prior year period), SG&A expenses were $82.7, or 15.2% of revenues, as compared with $70.2, or 14.2% of revenues, in the prior year period.

Research and development costs were $2.7 in the current year period as compared to $2.4 in the prior year period, reflecting our continued focus on in-house research and development to deploy new specialized and proprietary tools and equipment.

As previously described above and in Note 4 to our audited consolidated financial statements included elsewhere in this Form 10-K, we recorded $47.0 of goodwill impairment charges during the six months ended January 31, 2020.

Approximately $22.4 of this charge was attributable to goodwill in the Southwest segment and $24.6 was attributable to goodwill in the Northeast/Mid-Con segment.

Operating loss and operating margin, including Costs as Defined of $24.5 and the goodwill impairment charges of $47.0, were $(75.7) and (13.9)%, respectively.

Exclusive of the $24.5 of Costs as Defined ($30.6 in the prior year period) and the $47.0 goodwill impairment charge, current period operating loss was $(4.2) as compared to operating earnings of $52.7 in the prior year period.

As previously discussed, operating results were negatively impacted by a number of customers suspending operations for the balance of the year in the Rocky Mountains and Northeast/Mid-Con segments, increased pricing pressure, particularly from natural gas customers in the Northeast/Mid-Con segment, low utilization of wireline assets in the Southwest segment due to our decision not to deploy these assets at pricing offered by

our competitors, startup costs associated with the roll out of flowback and testing services and costs to support the roll out of the coiled tubing PSL in both the Northeast/Mid-Con and Rocky Mountains segments.

Income tax benefit was $8.5 for the year ended January 31, 2020, as compared to $0.6 of income tax expense in the prior year period, reflecting the effective tax rate of approximately 8.1% resulting primarily from the benefit recorded in the fourth quarter of Fiscal 2019.

The income tax benefit relates to the reduction of the valuation allowance relative to acquired Red Bone and Tecton’s deferred tax liabilities via purchase accounting of approximately $8.9.

The benefit is partially offset by current state tax expense of $0.4.

Aside from a negligible amount of state and local taxes, there was no income tax expense in the prior year due to the fact that we had established a full valuation allowance against our net deferred tax asset.

Net loss for the year ended January 31, 2020 was $(96.4) as compared to net earnings of $14.4 in the prior year period for the reasons mentioned above as well as $29.2 of interest expense ($7.1 in the prior year period).

Segment Results

The following is a summary of operating (loss) earnings by segment:

Rocky Mountains

Northeast/Mid-Con

Total operating (loss) earnings

For the year ended January 31, 2020, Rocky Mountains segment revenues of $216.4 increased by 20.4%, driven by increases in completions, intervention and production of 33.6%, 8.8% and 4.8%, respectively.

The Rocky Mountains segment experienced an increase in the number of customers served, increased activity across substantially all product lines, improved adoption rates of recently introduced proprietary tools, including the HydroPullTM tool in combination with our proprietary motor bearing assembly, and dissolvable plugs, as well as approximately $23.1 of growth from the addition of Tecton flowback and testing revenues.

The revenue increases were partially offset by a number of customers suspending operations for the latter part of the year due to budget exhaustion and E&P companies’

intense focus on capital discipline and free cash flow generation.

Operating earnings and operating margin were approximately $10.1 and 4.7%, increases of 83.6% and 160 basis points, respectively, as compared to the prior year period.

For the year ended January 31, 2020, Northeast/Mid-Con segment revenues of $149.7 increased by approximately 15.7% driven by increases in completions and intervention of 9.1% and 46.6%, respectively, partially offset by a decrease in production of 0.6%.

The Northeast/Mid-Con segment experienced an increase in the number of customers served, improved adoption rates of proprietary tools and the March 2019 acquisition of Red Bone.

These increases were offset by a number of customers suspending operations for the latter part of the year due to budget exhaustion and E&P companies’

intense focus on capital discipline and free cash flow generation, along with lower activity levels among certain other customers, particularly from natural gas customers.

The Northeast/Mid-Con segment has the highest exposure, as a percentage of revenues, to natural gas customers.

Natural gas rigs declined by almost 43% as compared with February 2019.

As a result of the aforementioned industry conditions and associated goodwill impairment charge of $24.6, as well as unabsorbed fixed costs related to the Red Bone acquisition and the aforementioned subsequent abrupt decline in demand, operating loss and operating margin for the current period were $(31.5) and (21.0)%, respectively.

For the year ended January 31, 2020, Southwest segment revenues of $177.9 decreased 4.5% primarily due to decreases in intervention and production of 18.9% and 21.3%, respectively, partially offset by an increase in completions of 4.5%.

The decrease in Southwest segment revenues was primarily driven by lower overall activity levels due to budget exhaustion and E&P companies’

intense focus on capital discipline and free cash flow generation and a decline in wireline revenues as we continued to warm stack the vast majority of our Permian based wireline assets in the weak demand and pricing environment.

The decreases were partially offset by the addition of revenues from the Motley

The Southwest segment also incurred costs to support the rollout of the coiled tubing PSL in both the Northeast/Mid-Con and the Rocky Mountains segments.

Primarily as a result of the factors described above, as well as the goodwill impairment attributable to the Southwest segment of $22.4, operating loss was $(54.3) for the year ended January 31, 2020.

Year Ended January 31, 2019 Compared to Year Ended January 31, 2018

The following is a summary of revenues by segment:

Rocky Mountains

Northeast/Mid-Con

Total revenues

Fiscal 2018 revenues were $495.3, an increase of $174.8, or 54.5%, as compared with the same period of the prior year.

Revenue growth was driven by a 70.0% increase in Southwest revenues, a 41.5% increase in Rocky Mountains revenues and a 54.0% increase in Northeast/Mid-Con revenues, reflecting a double-digit percentage increase in the number of new customers and a significant increase in the breadth of services provided to existing customers along with the contribution of the Motley acquisition in the Southwest.

Year-over-year product line revenue growth for completion, production and intervention services was 77.2%, 50.4% and 21.0%, respectively.

Cost of sales for Fiscal 2018, including $0.4 of Fiscal 2018 Costs as Defined, was $370.4, or 74.8% of sales, as compared to $269.1, or 84.0% of sales, in the prior year.

Cost of sales as a percentage of revenues improved by approximately 920 basis points, due to substantially improved results at all three segments of our business resulting from improved market conditions, increased sales of higher margin PSLs and operating leverage.

SG&A expense during Fiscal 2018 was $100.4, or 20.3% of revenues, as compared with $73.4, or 22.9% of revenues, in the prior year.

SG&A, as a percentage of revenues, decreased by approximately 260 basis points as compared with the prior year primarily due to increased operating leverage as the 54.5% increase in revenues outpaced the 36.8% increase in SG&A.

Excluding the $30.2 of Fiscal 2018 Costs as Defined ($3.3 in the prior year period), SG&A was $70.2, or 14.2% of revenues, and as a percentage of revenues, improved approximately 770 basis points for Fiscal 2018 as compared with the prior year primarily due to the increased operating leverage and a $4.0 gain on the divestiture of certain assets in the Northeast/Mid-Con segment, which was partially offset by new product introduction costs and Motley integration costs.

Research and development costs for Fiscal 2018 were $2.4 as compared to $2.0 in the prior year, reflecting our continued focus on in-house research and development to deploy new specialized and proprietary tools.

Operating earnings were $22.1, including the $30.6 of Fiscal 2018 Costs as Defined discussed above, as compared to a loss of $(24.0) in the prior year.

Exclusive of Fiscal 2018 Costs as Defined, operating earnings of $52.7 for the year ended January 31, 2019 increased by $73.1 reflecting a higher level of activity by our customers throughout our geographic regions and incremental operating leverage.

The continued recovery in the major oil and gas producing basins of the onshore U.S.

market has resulted in increased demand for our products and services.

Additionally, we believe incremental growth has been driven by differentiation in our products and services due to successful R&D initiatives and the quality and depth of our personnel.

Income tax expense for Fiscal 2018 was $0.6 reflecting the effective tax rate of approximately 4% resulting primarily from state and local taxes.

The statutory tax rate of 21% offset by a benefit from the Company’s deferred tax assets resulted in no additional tax expense.

Net earnings were $14.4 for Fiscal 2018 as compared to a net loss of $(24.1) in the prior year.

were favorably impacted by the improvements in pricing and activity driven by the overall improvement in the oil and gas sector offset by the $30.6 of aforementioned Fiscal 2018 Costs as Defined.

Segment Results

The following is a summary of operating earnings (loss) by segment:

Rocky Mountains

Northeast/Mid-Con

Total operating earnings (loss) (1)

During the year ended January 31, 2019, we incurred approximately $30.6 of Fiscal 2018 Costs as Defined ($3.6 in the prior year).

For Fiscal 2018, Southwest revenues of $186.2 increased by $76.7, or 70.0%, as compared to the prior year, driven primarily by significant increases in both the number of active customers and the breadth of services provided to existing customers.

The Southwest also benefited from the newly introduced PSLs, including the downhole product solutions PSL, and the addition of Motley’s large diameter coiled tubing business.

Revenues from completion, production and intervention activities increased approximately 87.3%, 66.5% and 36.9%, respectively.

Southwest operating earnings of $3.2 improved by $16.0, including the negative impact of $10.2 of Fiscal 2018 Costs as Defined ($1.2 in the prior year), reflecting the increased demand for our products and services and operating leverage inherent in our cost and operating structure.

For Fiscal 2018, Rocky Mountains revenues of $179.7 increased by $52.7, or 41.5%, driven primarily by significant increases in both the number of active customers and the breadth of services provided to existing customers.

Revenues from completion and production activities increased approximately 75.5% and 40.2%, respectively.

Rocky Mountains operating earnings of $5.5 improved by $6.3, including the negative impact of $11.9 of Fiscal 2018 Costs as Defined ($1.4 in the prior year), reflecting the increased demand for our products and services and operating leverage inherent in our cost and operating structure.

For Fiscal 2018, Northeast/Mid-Con revenues of $129.4 increased by $45.4, or 54.0%, also driven primarily by significant increases in both the number of active customers and the breadth of services provided to existing customers.

Revenues from completion, production and intervention activities increased approximately 63.4%, 53.9% and 37.9%, respectively.

Northeast/Mid-Con operating earnings of $13.4 improved by $23.8, including the $4.0 gain on the sale of assets no longer deployed and the negative impact of $8.5 of Fiscal 2018 Costs as Defined ($1.0 in the prior year), reflecting the increased demand for our products and services and operating leverage inherent in our cost and operating structure.

Liquidity and Capital Resources

Current Financial Condition

Cash on hand at January 31, 2020 decreased by $40.3 as compared with cash on hand at January 31, 2019 primarily as a result of $70.8 of capital expenditures and $27.6 related to the acquisition of Red Bone and Tecton, offset by cash flows from operating activities of $58.1.

Our liquidity requirements consist of working capital needs and ongoing capital expenditure requirements.

Our primary requirements for working capital are directly related to the level of our operations.

Our pre-spin-off sources of liquidity historically were from advances from KLX and cash flow from operations.

Working Capital

Working capital as of January 31, 2020 was $163.7, a decrease of $59.4 as compared with working capital at January 31, 2019.

As of January 31, 2020, total current assets decreased by $79.8 and total current liabilities decreased by $20.4.

The decrease in current assets was primarily related to a decrease in accounts receivable of $40.4 and a decrease in cash and cash equivalents of $40.3.

The decrease in total current liabilities was primarily due to a decrease in accounts payable of $15.9.

Working capital as of January 31, 2019 was $223.1, an increase of $185.0 as compared with working capital at January 31, 2018.

As of January 31, 2019, total current assets increased by $222.2 and total current liabilities increased by $37.2.

The increase in current assets was primarily related to an increase in cash of $163.8.

The increase in total current liabilities was primarily due to an increase in accounts payable of $15.5 and accrued liabilities of $14.5.

Net cash flows provided by operating activities was $58.1 for the year ended January 31, 2020 as compared to $62.0 in the prior year, primarily reflecting a $110.8 decrease in net earnings adjusted for non-cash depreciation and amortization of $64.1 ($41.5 in the prior year), impairment charge of $47.0 (none in the prior year) and a decrease in accounts receivable of $39.9 ($23.2 increase in the prior year).

Net cash flows used in investing activities was $97.7 for the year ended January 31, 2020 as compared to $214.1 in the prior year, and were primarily related to capital expenditures of $70.8 ($84.0 in the prior year) and the acquisition of Red Bone and Tecton for $27.6 ($140.0 in the prior year related to the acquisition of Motley).

Net cash flows used in financing activities was $0.7 for the year ended January 31, 2020, as compared to net cash flows provided by financing activities of $315.9 in the prior year, and primarily reflect $1.5 cash proceeds from restricted stock issuance offset by $1.2 of common stock repurchased and $1.0 for restricted stock cancelled for taxes (none in the prior year).

Net cash flows provided by operating activities was $62.0 for the year ended January 31, 2019 as compared to net cash used in operating activities of $9.4 in the prior year, primarily reflecting a $38.5 increase in net earnings adjusted by depreciation and amortization of $41.5 ($33.5 in the prior year) and a $17.5 increase in accounts payable and accrued liabilities ($18.4 increase in the prior year) offset by a $23.2 increase in accounts receivable ($43.0 increase in the prior year).

Net cash used in investing activities was $214.1 for the year ended January 31, 2019, as compared to $48.8 in the prior year, and were primarily related to capital expenditures of $84.0 ($49.4 in the prior year), including $5.2 in deposits on capital expenditures to be received in 2019, and the acquisition of Motley for $140.0.

Net cash flows provided by financing activities was $315.9 for the year ended January 31, 2019, as compared to $58.2 in the prior year, and primarily reflect $250.0 of proceeds from long-term debt and $75.2 of aggregate pre-spin-off net funding from our Former Parent ($58.2 in the prior year), offset by $9.3 of debt offering costs.

Capital Spending

Our capital expenditures were $70.8 (net of $9.8 in deposits accounted for as capital expenditures in a prior period), $84.0 (including $5.2 in deposits on equipment) and $49.4 during the years ended January 31, 2020, 2019 and 2018, respectively.

We currently expect to incur approximately $25 to $30 in capital expenditures for the year ending January 31, 2021, based on current industry conditions and our recent significant investments in capital expenditures over the past several years.

The nature of our capital expenditures is comprised of a base level of investment required to support our current operations and amounts related to growth and company initiatives.

Capital expenditures for growth and company initiatives are discretionary.

We continually evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including expected industry activity levels and company initiatives.

We expect to fund future capital expenditures from cash on hand and cash flow from operations.

We have funds available from our ABL Facility (under which the amount of availability depends in part on a borrowing base tied to the aggregate amount of our accounts receivable and inventory satisfying specified criteria and our compliance with a minimum fixed charge coverage ratio).

Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, the level of drilling, completion, intervention and production activity for North American onshore oil and natural gas resources, and financial and business and other factors, many of which are beyond our control.

We believe that our cash flows, together with cash on hand, will provide us with the ability to fund our operations and make planned capital expenditures for at least the next 12 months.

We have funds available under our ABL Facility (under which the amount of availability depends in part on a borrowing base tied to the aggregate amount of our accounts receivable and inventory satisfying specified criteria and our compliance with a minimum fixed charge coverage ratio).

Financing Arrangements

We entered into a $100.0 ABL Facility on August 10, 2018.

The ABL Facility became effective on September 14, 2018, the date of the spin-off, and is scheduled to mature in September 2023.

Borrowings under the ABL Facility bear interest at a rate equal to the London interbank offered rate (“LIBOR”) (as defined in the ABL Facility) plus the applicable margin (as defined).

Availability under the ABL Facility is tied to a borrowing base formula and the ABL Facility has no maintenance financial covenants as long as we maintain a minimum level of borrowing availability.

The ABL Facility is secured by, among other things, a first priority lien on our accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants, all of which were met as of January 31, 2020.

No amounts were outstanding under the ABL Facility as of January 31, 2020.

The effective interest rate under the ABL Facility would have been approximately 3.8% on January 31, 2020.

In conjunction with the acquisition of Motley, we issued $250.0 of Notes due 2025 offered pursuant to Rule 144A under the Securities Act and to certain non-U.S.

persons outside the United States in compliance with Regulation S under the Securities Act.

On a net basis, after taking into consideration the debt issue costs for the Notes, total net proceeds were $242.0, which a portion was used to acquire Motley, and the balance is available for general corporate purposes including potential acquisitions.

We believe our cash at January 31, 2020 of $123.5 along with $60.0 of availability under our $100 undrawn ABL Facility, provide us with the ability to fund our operations, make planned capital expenditures, repurchase our debt or equity securities, meet our debt service obligations and provide funding for potential future acquisitions.

During periods in which our fixed charge coverage ratio as determined under the ABL Facility is not at least 1:1 for the trailing four quarters for which financial statements have been delivered, the amount of availability under the ABL facility will be reduced by the greater of $10.0 or 15% of the borrowing base.

Contractual Obligations

The following table reflects our contractual obligations and commercial commitments as of January 31, 2020.

Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires performance by us or our subsidiaries pursuant to a funding commitment.

Year Ending January 31,

Contractual Obligations

Long-term debt and other non-current liabilities

Operating leases

Future interest and fees on outstanding debt (1)

Commercial Commitments

Letters of credit

Interest payments include interest payments due on the Notes based on the stated rate of 11.5%.

To the extent we incur interest on the ABL Facility, interest payments would fluctuate based on LIBOR or the prime rate pursuant to the terms of the ABL Facility.

Off‑Balance Sheet Arrangements

Lease Arrangements

We finance our use of certain facilities and equipment under committed lease arrangements provided by various institutions.

Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on our consolidated balance sheets.

At January 31, 2020, future minimum lease payments under these arrangements approximated $72.2, of which $24.7 is related to long-term real estate leases.

Rent expense for the years ended January 31, 2020, 2019 and 2018 was $44.3, $29.5 and $19.7, respectively.

Indemnities, Commitments and Guarantees

In the normal course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions.

These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to other parties to certain acquisition agreements.

The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite.

Many of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments we could be obligated to make.

However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable.

Our management believes that any liability for these indemnities, commitments and guarantees would not be material to our consolidated financial statements.

Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.

We have employment agreements with certain key members of management expiring on various dates.

Our employment agreements generally provide for certain protections in the event of a change of control.

These protections generally include the payment of severance and related benefits under certain circumstances in the event of a change of control.

Our operations are subject to seasonal factors and our overall financial results reflect seasonal variations.

Specifically, we typically have experienced a pause by our customers around the holiday season in the fourth quarter, which may be compounded as our customers exhaust their annual capital spending budgets towards year end.

Additionally, our operations are directly affected by weather conditions.

During the winter months (first and fourth quarters) and periods of heavy snow, ice or rain, particularly in our Rocky Mountains and Northeast/Mid-Con segments, our customers may delay operations or we may not be able to operate or move our equipment between locations.

Also, during the spring thaw, which normally starts in late March and continues through June, some areas may impose transportation restrictions to prevent damage caused by the spring thaw.

Lastly, throughout the year, heavy rains adversely affect activity levels, as well locations and dirt access roads can become impassible in wet conditions.

Weather conditions also affect the demand for, and prices of, oil and natural gas and, as a result, demand for our services.

Demand for oil and natural gas is typically higher in the fourth and first quarters, resulting in higher prices in these quarters.

We operate under master service agreements (“MSAs”) with our E&P customers, which set forth the terms and conditions for the provision of services and related tools and equipment.

Completion services are typically based on a day rate with rates based on the type of equipment and competitive conditions.

As a result, we do not record backlog.

Effect of Inflation

Inflation has not had and is not expected to have a significant effect on our operations.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used.

We evaluate our estimates and assumptions on a regular basis.

We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements.

We provide expanded discussion of our more significant accounting policies, estimates and judgments below.

We believe that most of these accounting policies reflect our more significant estimates and assumptions used in preparation of our consolidated financial statements.

Emerging Growth Company Status

We are an “emerging growth company”

and are entitled to take advantage of certain relaxed disclosure requirements.

We intend to operate under certain reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, until we are no longer an emerging growth company.

Our election to use the phase-in periods permitted by this election may make it difficult to compare our consolidated financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods and who will comply with new or revised financial accounting standards.

If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable.

Revenue from Contracts with Customers

Under ASC Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy a performance obligation.

We recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Service revenues are recorded over time throughout and for the duration of the service period.

Contracts are pursuant to an MSA combined with a completed field ticket or a work order, which sets forth the details of the specific transaction, including pricing.

Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery in accordance with the terms of the field ticket or work order.

We provide allowances for credits, based on historic experience, and adjust such allowances as considered necessary.

We operate under MSAs with our oil and gas customers, which set forth the terms and conditions for the provision of services.

Service contracts are typically based on a day rate with rates based on the type of equipment and competitive conditions.

As a result, we do not record backlog.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of their current credit information.

continuously monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified.

The allowance for doubtful accounts at January 31, 2020 and 2019 was $12.9 and $3.1, respectively.

Long‑Lived Assets and Goodwill

In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), we assess goodwill and indefinite life intangible assets for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value.

During Fiscal 2019, the abrupt deterioration in industry conditions, which accelerated through the end of our fourth quarter, was driven by a sharp decline in U.S.

land rig count and an unprecedented decline in operating frac spreads from the second quarter through the end of 2019.

The decline in E&P activity resulted in lower demand levels and lower current and expected revenues.

As a result, during the three months ended October 31, 2019, we performed an interim goodwill impairment test and a long-lived asset recoverability test.

The valuation of the company and its reportable segments’

goodwill impairment test was estimated using the guideline public company analysis and the discounted cash flow analysis, which were equally weighted in the fair value analysis.

“Fair Value Information”

to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information regarding the fair value determination.

The results of the goodwill impairment test as of October 31, 2019, indicated that goodwill was impaired because the carrying value of two of the reporting units exceeded the fair value, which resulted in a $47.0 goodwill impairment charge for Fiscal 2019.

Due to continued deterioration in industry conditions, which accelerated through the end of our fourth quarter, the quantitative goodwill impairment test was performed again as of December 31, 2019 for the Rocky Mountains segment, which concluded that the fair value of the reporting unit exceeded the carrying value.

In accordance with ASC 360, Property, Plant and Equipment, we assess long-lived assets, such as property and equipment and purchased intangibles subject to amortization, for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered.

An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount.

Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.

Based on the impairment indicators above, we performed a long-lived asset impairment analysis during the three months ended October 31, 2019 and December 31, 2019 and concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying amount of each segment’s asset group in both periods.

For the years ended January 31, 2020, 2019 and 2018, there were no impairments of long-lived assets.

“Goodwill and Intangible Assets, Net”

to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information regarding our goodwill and long-lived assets as of January 31, 2020.

As a smaller reporting company, we are not required to provide the information required by Item 301 of Regulation S-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity