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Item 7. Management’s Discussion and Analysis

2023-03-09 compared with 2021-04-28 · 228 added, 233 removed, 114 unchanged (80% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In millions of U.S.

dollars and shares)

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (U.S.

dollars in millions, except per unit data)

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

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Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

The following discussion and analysis addresses the results of our operations for the year ended January 31, 2021, as compared to our results of operations for the year ended January 31, 2020.

The following discussion and analysis addresses the results of our operations for the twelve months ended December 31, 2022, as compared to the eleven months ended December 31, 2021.

In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

The previously announced merger of Krypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE ("Merger Sub"), with and into Quintana Energy Services Inc.

(“QES”), with QES surviving the merger as a subsidiary of KLXE (the "Merger") closed on July 28, 2020.

Unless otherwise noted or the context requires otherwise, references herein to KLX Energy Services with respect to time periods prior to July 28, 2020 include KLX Energy Services and its consolidated subsidiaries and do not include QES and its consolidated subsidiaries, while references herein to KLX Energy Services with respect to time periods from and after July 28, 2020 include QES and its consolidated subsidiaries.

Company History

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On July 28, 2020, we successfully completed the all-stock Merger with QES.

At the time of the closing, the holders of QES common stock received 0.0969 shares of KLXE common stock in exchange for each share of QES common stock held.

KLXE and QES stockholders owned approximately 59% and 41%, respectively, of the equity of the combined company on a fully-diluted basis.

As a result of the Merger, our Board is now comprised of nine directors, consisting of five directors designated by KLXE and four directors designated by QES.

Additionally, Christopher J.

Baker, the former President and Chief Executive Officer of QES, now serves as our President and Chief Executive Officer, and Keefer M.

Lehner, the former Executive Vice President and Chief Financial Officer of QES, now serves as our Executive Vice President and Chief Financial Officer.

The Merger of KLXE and QES provides increased scale to serve a blue-chip customer base across the onshore oil and gas basins in the United States.

The Merger combines two strong company cultures

comprised of highly talented teams with shared commitments to safety, performance, customer service and profitability.

The combination leverages two of the largest fleets of coiled tubing and wireline assets, with KLXE becoming a leading provider of large diameter coiled tubing and wireline services and one of the largest independent providers of directional drilling to the U.S.

After closing the Merger, the Company has been focused on integrating personnel, facilities, processes and systems across all functional areas of the organization.

As of January 31, 2021, the Company implemented approximately $46.0 of annualized cost savings.

We are diligently focused on generating additional cost savings from the Merger and to date have realized such savings through eliminating KLXE's legacy corporate headquarters in Wellington, Florida, rationalizing associated corporate functions to Houston, and capturing operational synergies in the areas of personnel, facilities and rolling stock.

Additional synergies may be realized as management continues to rationalize operational facilities and align common roles, processes and systems throughout each function and region.

The Merger also enhances the Company’s ability to effect further industry consolidation.

Looking ahead, the Company expects to pursue strategic, accretive consolidation opportunities that further strengthen the Company’s competitive positioning and capital structure and drive efficiencies, accelerate growth and create long‑term stockholder value.

The Merger of KLXE and QES provided increased scale to serve a blue-chip customer base across the onshore oil and gas basins in the United States.

The Merger combined two strong company cultures comprised of highly talented teams with shared commitments to safety, performance, customer service and profitability.

The combination leveraged two of the largest fleets of coiled tubing and wireline assets, with KLXE becoming a leading provider of large diameter coiled tubing and wireline services and one of the largest independent providers of directional drilling to the U.S.

After closing the Merger, the Company integrated personnel, facilities, processes and systems across all functional areas of the organization.

We focused on generating additional cost savings from the Merger and to date have realized such savings through eliminating KLXE's legacy corporate headquarters in Wellington, Florida, rationalizing associated corporate functions to Houston, and capturing operational synergies in the areas of personnel, facilities and rolling stock.

The Merger also enhanced the Company’s ability to effect further industry consolidation.

Looking ahead, the Company continues to pursue strategic, accretive consolidation opportunities that further strengthen the Company’s competitive positioning and capital structure and drive efficiencies, accelerate growth and create long‑term stockholder value.

Greene’s Acquisition

On March 8, 2023, the Company completed the acquisition of all of the equity interests of Greene’s Energy Group, LLC (“Greene’s”), including $1.7 million in cash remaining at Greene's (the “Greene’s Acquisition”), pursuant to that certain purchase and sale agreement dated March 8, 2023, between the Company and Greene’s Holding Corporation (the “Purchase Agreement”).

Greene's is a provider of wellhead protection, flowback and well testing services.

The total consideration for the Greene’s Acquisition under the Purchase Agreement consisted of the issuance of approximately 2.4 million shares of the Company's common stock, par value $0.01 per share, subject to customary post-closing adjustments, representing 14.7% of the fully diluted common stock of the Company with an implied enterprise value of approximately $30.3 million based on a 30-day volume weighted average price as of March 7, 2023 less acquired cash.

Company Overview

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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 proprietary equipment.

Our innovative and adaptive approach to proprietary tool design has been employed by our in-house R&D organization and, in selected instances, by our technology partners to develop tools covered by 25 patents and 14 pending patent applications, which we believe differentiates us from our regional competitors and also allows us to deliver more focused service and better outcomes in our specialized

services than larger national competitors that do not discretely dedicate their resources to the services we provide.

Our innovative and adaptive approach to proprietary tool design has been employed by our in-house R&D organization and, in selected instances, by our technology partners to develop tools covered by 30 patents and 8 pending patent applications, which we believe differentiates us from our regional competitors and also allows us to deliver more focused service and better outcomes in our specialized services than larger national competitors that do not discretely dedicate their resources to the services we provide.

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.

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These services and related products 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’ outcomes.

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

We believe our customers

have come to depend on our decades of 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 both newer and older legacy wells.

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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.

Segment Reporting

The Company changed its presentation of reportable segments related to the allocation of corporate overhead costs to reflect the presentation used by the Company's chief operational decision-making group ("CODM") to make decisions about resources to be allocated to the Company’s reportable segments and to assess segment performance.

Historically, and through July 31, 2020, the Company’s total corporate overhead costs were allocated and reported within each reportable segment.

During the third quarter of 2020, the Company changed the corporate overhead allocation methodology to only include corporate costs incurred on behalf of its operating segments, which includes accounts payable, accounts receivable, insurance, audit, supply chain, health, safety and environmental and others.

The remaining unallocated corporate costs are reported as a reconciling item in the Company’s segment reporting disclosures.

The change is reflected retroactively in the accompanying financial statements, which resulted in a decrease to the total corporate overhead costs allocated to our three reportable segments for the year ended January 31, 2021, and 2020 of $62.0 and $54.7, respectively.

In conjunction with the change in presentation of reportable segments, the Company also changed its presentation of segment assets.

Historically, and through July 31, 2020, the Company’s corporate assets were allocated and reported within each reportable segment.

During the third quarter of 2020, the Company changed the presentation of total assets to present corporate assets separately as a reconciling item in its segment reporting disclosures.

As a result of the change in presentation, the total corporate assets allocated to the Company’s three reportable segments decreased by $51.9 and $139.1 as of January 31, 2021 and 2020, respectively.

The Company also changed its presentation of service offering revenues.

Historically, and through July 31, 2020, the Company’s service offering revenues included revenues from the completion, production and intervention market types within segment reporting.

During the third quarter of 2020, the Company changed the presentation of its service offering revenues by separately reporting a drilling market type revenue, which includes directional drilling, drilling accommodation units and related drilling support services.

The reclassifications are retroactively reported in the Company’s segment reporting disclosures to reflect the drilling revenue change and use of the information by the Company’s CODM.

For the year ended January 31, 2021 and 2020, the total drilling revenues reported within segment reporting was $46.7 and $44.4, respectively.

These current period changes in the Company’s corporate allocation method and service offering revenue disclosures have no net impact to the consolidated financial statements.

The change better reflects the CODM’s philosophy on assessing performance and allocating resources as well as improves the Company’s comparability to its peer group.

“Segment Reporting” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Depreciation and Amortization

During the quarter ended October 31, 2021, as a result of increased usage from improving drilling activity levels and changes in the manner and conditions in which various types of our small tools are used, we updated the estimated useful lives of such tools to one to three years, resulting in approximately $2.4 of incremental yearly depreciation on a prospective basis.

Fiscal Year End Change

On September 3, 2021, the Board of the Company adopted the Fourth Amended and Restated Bylaws of the Company, effective as of such date, to change the Company’s fiscal year-end from January 31 to December 31, effective beginning with the year ended December 31, 2021.

As a result, the Company’s prior fiscal year 2021 was shortened from 12 months to 11 months and ended on December 31, 2021.

The Company has undertaken this change in an effort to normalize our fiscal year-end and improve comparability with our peers.

Recent Trends and Outlook

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

Market demand for our services during 2020 was challenged due to the COVID-19 pandemic and macro supply and demand concerns.

The oilfield service industry experienced an abrupt deterioration in demand during the second half of 2019, which continued into 2020.

During the first quarter of 2020, the emergence of COVID-19, and the global pandemic caused thereby, placed significant downward pressure on the global economy and oil demand and prices, leading North American operators to announce significant cuts to planned 2020 capital expenditures and causing the continued acceleration of upstream oil and gas bankruptcies.

In the midst of the ongoing COVID-19 pandemic, OPEC+ were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production.

The convergence of the COVID-19 pandemic and the crude oil production increases caused the unprecedented dual impact of global oil demand decline and the risk of a substantial increase in supply.

While OPEC+ agreed in April 2020 to cut production, downward pressure on commodity prices remained through much of Fiscal 2020.

WTI's average daily price per barrel decreased by approximately $18.91, or 32.9%, to $38.59 per barrel (“Bbl”) during Fiscal 2020, compared to Fiscal 2019's average daily price per barrel of $57.50.

In response to the COVID-19 pandemic and the concurrent Saudi-Russia market share dispute, activity levels in the US plunged to record lows.

US operators responded by shutting-in production and drastically reducing drilling and completions activity and associated spending.

For example, US operators laid down nearly 70% of active rigs between the first and third quarters of 2020 and a majority of US operators reduced 2020 capital spending by 50% when compared to 2019 and renewed their focus on living within free cash flow.

Ultimately OPEC plus curtailed production and stabilized crude prices in mid-2020.

This resulted in a material increase in commodity prices over the course of the second half of 2020.

US operators remain focused on executing on free cash flow centric strategies but have increased drilling and completion activity meaningfully since the market bottomed in mid-2020.

Despite these market headwinds experienced in 2020, the Company remained focused on building a leaner and more profitable set of service offerings, which allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA.

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.

Our completions services have been the first to reflect an improvement in market activity, as operators have focused on completing their backlog of drilled uncompleted wells from earlier in the year.

We began to see an uptick in activity at the end of the second quarter.

An increase in completions activity during the fourth quarter

of 2020 has driven the activity rebound, while drilling activity has been slower to rebound with rig count bottoming in August 2020 and rebounding 136 rigs, or 59.6%, to 364 rigs as of January 31, 2021.

We believe our diverse product and service offerings uniquely positions KLXE to respond to a rapidly evolving marketplace where we can provide a comprehensive suite of engineered solutions for our customers with one call and one master services agreement.

The extent and duration of the continued global impact of the COVID-19 pandemic is unknown.

While economic activity has increased from the April 2020 lows, and signs of a potential global economic recovery have emerged, driven by the rollout of COVID-19 vaccines, fiscal and monetary stimulus policies, and pent-up demand for goods and services, concerns about a COVID-19 resurgence have hindered the pace of a full return of social and commercial activity.

In February of 2021, we experienced a material slow down due to the unprecedented North American Winter Storm Uri, the costliest winter storm in U.S.

As a result of the storm conditions, our customers shut in wells and delayed work causing us at least seven days of lost revenue, primarily in the Permian and the Mid-continent regions.

Looking ahead to Fiscal 2021, provided that the impact of the COVID-19 pandemic lessens, economic activity continues to increase, and commodity prices remain strong, we believe that our customers will sustain activity in order to hold their production flat to 2020 exit levels, with completions spend expected to outpace drilling.

So far in Fiscal 2021, WTI prices have increased an incremental 12.8% from February 1 to April 1.

In response, US have continued to increase drilling and completion activity levels relative to where the market exited 2020.

As of April 1, 2021, US rig count was up to 430, an increase of 12.0% since January 31, 2021.

Additionally, we have continued to see US shale operators consolidate within certain basins, particularly the Permian and many operators have announced that they are targeting oil and gas production at the end of 2021 to be consistent with production levels at year end 2020.

WTI's average daily price per barrel increased by approximately $25.49, or 36.7%, to $94.90 per Bbl during the twelve months ended December 31, 2022, compared to the eleven months ended December 31, 2021's average daily price per barrel of $69.41.

As of December 31, 2022, U.S.

rig count had reached 779, an increase of 32.9% since December 31, 2021.

Despite the market headwinds experienced in the fiscal year ended December 31, 2021, the Company remained focused on building a leaner and more profitable set of service offerings, which allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA.

During the twelve months ended December 31, 2022, the oil & gas industry has been increasing drilling and production activity, which is also reflected in the higher demand for our services.

Looking ahead to the year ending December 31, 2023, as economic activity continues to increase and commodity prices remain strong but volatile, we anticipate that our customers will continue to cautiously increase capital and operating expense spending.

So far in the year ending December 31, 2023, WTI prices have remained flat, as increased demand for oil and gas products is balanced against expectations of an

upcoming recession.

As of February 3, 2023, U.S.

rig count was 759, a decrease of (2.6%) since December 31, 2022.

How We Generate Revenue and the Costs of Conducting Our Business

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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 our operating cost structure is now materially lower than during historical financial reporting periods and the realization of the $46.0 of expected cost synergies associated with the Merger will only further reduce our cost structure and afford us greater flexibility to respond to changing industry conditions.

The implementation of integrated, company-wide management information systems and processes provides 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.

As of January 31, 2021, the QES integration and the implementation of all synergies was complete.

The potential for further cost savings remains as we continue to refine and optimize the business.

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.

Historically, we believed our services generated margins superior to our competitors based upon the differential quality of our performance, and that these margins would contribute to future cash flow generation.

The required investment in our business includes both working capital (principally for accounts receivable, inventory and accounts payable growth tied to increasing activity and revenues) and capital expenditures for both maintenance of existing assets and ultimately growth when returns justify the spending.

Our required maintenance capital expenditures tend to be lower than other oilfield service providers due to the generally asset-light 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.

How We Evaluate Our Operations

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 measures we believe most effective to achieve the above stated goals include:

• Adjusted Earnings before interest, taxes, depreciation and amortization ("EBITDA") :

Adjusted EBITDA is a supplemental non-Generally Accepted Accounting Principles ("GAAP") financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies.

Adjusted EBITDA is not a measure of net earnings or cash flows as determined by GAAP.

We define Adjusted EBITDA as net earnings (loss) before interest, taxes, depreciation and amortization, further adjusted for (i) goodwill and/or long-lived asset impairment charges, (ii) stock-based compensation expense, (iii) restructuring charges, (iv) transaction and integration costs related to acquisitions and (v) other expenses or charges to exclude certain items that we believe are not reflective of ongoing performance of our business.

• Adjusted EBITDA Margin:

Adjusted EBITDA Margin is defined as Adjusted EBITDA, as defined above, as a percentage of revenue.

We believe Adjusted EBITDA is useful because it allows us to supplement the GAAP measures in order to evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure.

We exclude the items listed above in arriving at Adjusted EBITDA (Loss) because these amounts can vary substantially from company to company within our industry depending upon accounting methods, book values of assets, capital structures and the method by which the assets were acquired.

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net (loss) earnings as determined in accordance with GAAP, or as an indicator of our operating performance or liquidity.

Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA.

Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Historically, we believe our services generated margins superior to our competitors based upon the differential quality of our performance, and that these margins would contribute to future cash flow generation.

The required investment in our business includes both working capital (principally for accounts receivable, inventory and accounts payable growth tied to increasing activity) and capital expenditures for both maintenance of existing assets and ultimately growth when economic returns justify the spending.

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

Results of Operations

Year Ended January 31, 2021 Compared to Year Ended January 31, 2020

The following table provides revenues by segment for the periods indicated:

January 31, 2021 January 31, 2020 % Change

Southwest $ 83.6 $ 177.9 (53.0) %

Twelve Months Ended December 31, 2022 Compared to Eleven Months Ended December 31, 2021

The following table provides revenues by segment and product line for the periods indicated:

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021 % Change

Rocky Mountains $ 229.0 $ 118.2 93.7 %

Southwest 255.2 160.9 58.6 %

Northeast/Mid-Con 297.4 157.0 89.4 %

Total revenue $ 781.6 $ 436.1 79.2 %

For the year ended January 31, 2021, revenues of $276.8 decreased by $267.2, or 49.1%, as compared with the prior year period.

Southwest segment revenue declined by $94.3, or 53.0%, Rocky Mountains segment revenue declined by $117.1, or 54.1%, and Northeast/Mid-Con segment revenue declined by $55.8, or 37.3%.

On a product line basis, drilling, completion, production and intervention services contributed approximately 16.9%, 52.0%, 16.4% and 14.7%, respectively, to fiscal 2020 revenues.

On a product line basis completion, production and intervention services revenues decreased by approximately $150.1, $67.6 and $51.8, respectively, as compared to the same period in the prior year.

The overall decrease in revenues reflects the lingering impacts of the unforeseen global oil market share dispute and the prolonged demand destruction caused by the COVID-19 pandemic, resulting in a depression in oil prices, a historically low rig count and, ultimately, decreased demand for services such as those provided by the Company.

Drilling revenues increased $2.3, driven primarily by addition of QES's Directional Drilling business as part of the Merger and increased market activities experienced during the fourth quarter of 2020.

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021 % Change

Drilling $ 218.7 $ 123.2 77.5 %

Completion 393.3 210.3 87.0 %

Production 94.2 59.7 57.8 %

Intervention 75.4 42.9 75.8 %

Total revenue $ 781.6 $ 436.1 79.2 %

For the twelve months ended December 31, 2022, revenues of $781.6 increased by $345.5 or 79.2% as compared with the eleven months ended December 31, 2021.

The overall increase in revenues reflects the recovery in economic activity and increase in WTI prices during the year, leading to increased demand for our services and a positive pricing environment, as well as one additional month of revenues.

Increased weighted average price contributed to approximately 49% of the $345.5 increase, and increased weighted average volume contributed to the remaining approximately 51%.

On a segment basis, Rocky Mountains segment revenue increased by $110.8 or 93.7%.

Increased weighted average price contributed to approximately 32% of the dollar increase, and increased weighted average volume contributed to approximately 68%.

Southwest segment revenue increased by $94.3 or 58.6%.

Increased weighted average price contributed to approximately 51% of the dollar increase, and increased weighted average volume contributed to the remaining approximately 49%.

Northeast/Mid-Con segment revenue increased by $140.4 or 89.4% .

Increased weighted average price contributed to approximately 61% of the dollar increase, and increased weighted average volume contributed to the remaining 39%.

Cost of sales .

For the year ended January 31, 2021, cost of sales was $314.8, or 113.7% of sales, as compared to the prior year period of $470.0, or 86.4% of sales.

Cost of sales as a percentage of revenues increased primarily due to negative operating leverage related to the 49.1% year-over-year decline in revenues as the significant decline in revenues outpaced the reduction in fixed costs.

Cost of sales included $57.7 and $60.2 of depreciation expense for the year ended January 31, 2021 and 2020, respectively.

For the twelve months ended December 31, 2022, cost of sales was $621.3, or 79.5% of sales, as compared to $389.9, or 89.4% of sales, in the eleven months ended December 31, 2021.

The increase in dollar amount was primarily due to increased activity and to a lesser degree, increased pricing due to inflation.

The decrease in cost of sales as a percentage of revenues was generally consistent across our segments.

The two largest components of cost of sales are labor and repair & maintenance.

Although cost of sales as a percentage of revenues decreased, labor costs per employee increased by 26.9% as compared with the eleven months ended December 31, 2021.

Repair & maintenance costs as a percentage of revenues increased by 9.3% as compared to the eleven months ended December 31, 2021.

Selling, general and administrative expenses ("SG&A") .

SG&A expenses during the year ended January 31, 2021, were $88.8, or 32.1% of revenues, as compared with $100.0, or 18.4% of revenues, in the prior year period.

SG&A decreased primarily due to reductions in payroll and related expenses and bad debt expense of $7.5 and $10.8, respectively, offset by increases in professional fees of $9.6.

R&D costs during the year ended January 31, 2021 were $0.7, as compared to the prior year period of $2.7, reflecting our continued focus on maintaining an in-house R&D function while scaling costs to adjust to current levels of customer demand.

Fiscal 2020 SG&A expenses include six months of incremental activity related to the Merger, that wasn't included in prior year results.

Operating (loss) earnings .

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

January 31, 2021 January 31, 2020 % Change

Operating (loss) earnings:

Southwest $ (120.0) $ (37.4) (220.9) %

SG&A expenses during the twelve months ended December 31, 2022, were $70.4, or 9.0% of revenues, as compared with $54.6, or 12.5% of revenues, in the eleven months ended December 31, 2021.

SG&A increased by $15.8 due to increased labor costs and professional fees.

SG&A as a percentage of revenues decreased primarily due to better leverage of fixed costs against higher revenues in the current period.

R&D costs during the twelve months ended December 31, 2022 were $0.6, as compared to $0.6 in the eleven months ended December 31, 2021,

reflecting our continued focus on maintaining an in-house R&D function while scaling costs to adjust to current levels of customer demand.

Operating income (loss) .

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

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021 % Change

Operating income (loss):

Rocky Mountains $ 27.3 $ (13.4) 303.7 %

Northeast/Mid-Con (116.0) (16.3) NMF

Southwest 14.5 (15.4) 194.2 %

Northeast/Mid-Con 39.1 (8.7) 549.4 %

Corporate and other (48.4) (26.6) (82.0) %

Bargain purchase gain 40.3 — NMF

Total operating (loss) earnings $ (301.1) $ (75.7) (297.8) %

For the year ended January 31, 2021, operating loss was $301.1, as compared to operating loss of $75.7 in the prior year period, largely driven by a reduction in revenues due to reduced activity and pricing pressure caused by the COVID-19 pandemic and international pricing and production disputes, as well as non-recurring items related to the Merger and increased impairment and other charges .

For the years ended January 31, 2021 and 2020, there were $180.4 and $0.0 impairments of long lived assets.

For the years ended January 31, 2021 and 2020, the Company determined goodwill was impaired and recorded goodwill impairment charges of $28.3 and $47.0, respectively.

For the year ended January 31, 2021, Rocky Mountains segment operating loss was $43.4, Northeast/Mid-Con segment operating loss was $116.0 and Southwest segment operating loss was $120.0, in each case primarily driven by lower revenues as a result of decreased demand for the Company's products and services.

Income tax expense (benefit) .

Income tax expense was $0.4 for the year ended January 31, 2021, as compared to income tax benefit of $8.5 in the prior year period, and was comprised primarily of state and local taxes.

Total operating income (loss) (1)

$ 32.5 $ (64.1) 150.7 %

(1) Includes reduction to bargain purchase gain of $0.5 during the eleven months ended December 31, 2021.

For the twelve months ended December 31, 2022, operating income was $32.5, as compared to operating loss of $64.1 in the eleven months ended December 31, 2021, largely driven by an improvement in revenues due to increased activity .

For the twelve months ended December 31, 2022 and the eleven months ended December 31, 2021, there were $0.0 and $0.8 in impairments of long-lived assets, respectively.

For the twelve months ended December 31, 2022, each of our segments demonstrated significant improvement in operating income (loss) compared to the eleven months ended December 31, 2021, driven by the increase in pricing and utilization outpacing increases in operating costs and labor in the twelve months ended December 31, 2022.

Rocky Mountains segment operating income (loss) improved by $40.7 or 303.7% from a loss of $(13.4) in the eleven months ended December 31, 2021 to income of $27.3 in the twelve months ended December 31, 2022.

Southwest segment operating income (loss) improved by $29.9 or 194.2% from a loss of $(15.4) in the eleven months ended December 31, 2021 to income of $14.5 in the twelve months ended December 31, 2022.

Northeast/Mid-Con segment operating income (loss) improved by $47.8 or 549.4% from a loss of $(8.7) in the eleven months ended December 31, 2021 to income of $39.1 in the twelve months ended December 31, 2022.

The 82.0% increase in operating loss in our Corporate and other segment in the twelve months ended December 31, 2022 was primarily driven by higher professional service fees and incentive bonus costs.

Income tax expense .

Income tax expense was $0.6 for the twelve months ended December 31, 2022, as compared to income tax expense of $0.3 in the eleven months ended December 31, 2021, and was comprised primarily of state and local taxes.

The Company did not recognize a tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.

Net loss for the year ended January 31, 2021 was $332.2, as compared to $96.4 in the prior year period, primarily due to decreased demand, increased impairment and other charges, non-recurring items related to the Merger and integration totaling $39.7, offset by the bargain purchase gain on the Merger of $40.3 as described above.

Net loss for the twelve months ended December 31, 2022 was $3.1, as compared to net loss of $93.8 in the eleven months ended December 31, 2021, primarily due to increased pricing and improved margins for our services.

Liquidity and Capital Resources

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions.

Our primary sources of liquidity to date have been capital contributions from our equity and note holders and borrowings under the Company’s ABL Facility and cash flows from operations.

At January 31, 2021, we had $47.1 of cash and cash equivalents and $34.9 available on the ABL Facility, net of $10 FCCR holdback, which resulted in a total liquidity position of $82.0.

Volatile WTI prices, challenges created by the global COVID-19 pandemic and the current oil supply demand imbalance have further decreased demand for our services.

Our cash flows used in operations for the year ended January 31, 2021 were approximately $64.9.

In response to declining customer activity and commodity price instability, in the third quarter of 2020 we fully implemented actions to achieve previously announced annualized run-rate cost synergies.

However, there is no certainty that cash flow will improve or that we will have positive operating cash flow for a sustained period of time.

Our operating cash flow is sensitive to many variables, the most significant of which are utilization and profitability, the timing of billing and customer collections, payments to our vendors, repair and maintenance costs and personnel, any of which may affect our available cash.

The COVID-19 pandemic and the related significant decrease in the price of oil resulted in a decrease in demand for our services in the last part of the first quarter through the third quarter.

Additionally, should our customers experience financial distress due to the current market conditions, they could default on their payments owed to us, which would affect our cash flows and liquidity.

Our primary use of capital resources has been for funding working capital and investing in property and equipment used to provide our services.

We actively manage our capital spending and are focused on required maintenance spending.

In addition, we regularly monitor potential sources of capital, including equity and debt financings, in an effort to meet our planned capital expenditure and liquidity requirements.

The COVID-19 pandemic, coupled with the global crude oil supply and demand imbalance and resulting decline in crude oil prices, has significantly affected the value of our common stock, which may reduce our ability to access capital in the bank and capital markets, including through equity or debt offerings without a viable recovery and uptick in the demand for our services.

At January 31, 2021, we had $47.1 of cash and cash equivalents.

Cash on hand at January 31, 2021 decreased by $76.4, as compared with $123.5 cash on hand at January 31, 2020 as a result of $64.9 of cash flows used by operating activities primarily related to $29.4 of interest, and $9.7 to pay down QES's five year asset-based revolving credit agreement;

and $11.9 of cash flows used in investing activities.

Our liquidity requirements consist of working capital needs, debt service obligations and ongoing capital expenditure requirements.

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

Net working capital as of January 31, 2021 was $35.0, a decrease of $12.4 as compared with net working capital of $47.4 at January 31, 2020.

Net working capital is calculated as current assets, excluding cash, less current liabilities, excluding accrued interest and capital lease obligations.

As of January 31, 2021, total current assets excluding cash decreased by $1.4 and total current liabilities increased by $11.0.

The increase in current assets was primarily related to an accounts receivable-trade, net decrease of $12.2, offset by a $8.8 increase in inventory, net and a $2.0 increase in other current assets.

The increase in total current liabilities was due to a $8.0 and $3.0 increase in accounts payable and accrued liabilities, respectively.

The following table sets forth our cash flows for the periods presented below:

January 31, 2021 January 31, 2020

Net cash (used in) provided by operating activities $ (64.9) $ 58.1

Net cash used in investing activities (11.9) (97.7)

Net cash provided by (used in) financing activities 0.4 (0.7)

Net change in cash (76.4) (40.3)

Cash balance end of period $ 47.1 $ 123.5

Net cash (used in) provided by operating activities

Net cash used in operating activities was $64.9 for the year ended January 31, 2021, as compared to net cash provided by operating activities of $58.1 for the year ended January 31, 2020.

The decrease in operating cash flows was primarily attributable to the decrease in revenues across all operating segments and most service and related product lines driven by the current slowdown and market headwinds.

In addition, the overall cash collected from the reduction in working capital could not offset the decline in operating leverage, and thus, the Company incurred an operating loss for the year ended January 31, 2021.

Net cash used in investing activities

Net cash used in investing activities was $11.9 for the year ended January 31, 2021, as compared to net cash used in investing activities of $97.7 for the year ended January 31, 2020.

The cash flow used in investing activities for the year ended January 31, 2021 was primarily driven by critical maintenance capital spending tied to the operation of our existing asset base.

These investments were offset by the sale of trucks and other idle assets resulting from the cost reduction initiatives.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $0.4 for the year ended January 31, 2021 due to a change in financed payables, compared to net cash used in financing activities of $0.7 for the year ended January 31, 2020.

During the year ended January 31, 2021, $0.4 was paid for treasury shares 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 program.

Financing Arrangements

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, debt service obligations, investments and acquisitions.

Our primary sources of liquidity to date have been capital contributions from our equity and note holders, borrowings under the Company’s ABL Facility and cash flows from operations.

At December 31, 2022, we had $57.4 of cash and cash equivalents and $44.4 available on the ABL Facility.

We have taken several actions to continue to improve our liquidity position, including closing our Florida legacy corporate headquarters and relocating all key functions to Houston, elimination of redundancies and

duplicative functions throughout our operations following the merger with QES, equity issuances under our ATM program, debt for equity exchanges that have reduced interest burden and monetized non-core and obsolete assets.

We actively manage our capital spending and are focused primarily on required maintenance spending.

Additionally, increasing oil prices have resulted in an increase in demand for our services and an improvement in our operating cash flow, which became positive in the third and fourth quarters of 2022.

We believe based on our current forecasts, our cash on hand, the ABL Facility availability, together with our cash flows, will provide us with the ability to fund our operations, including planned capital expenditures, for at least the next twelve months.

We have substantial indebtedness.

As of December 31, 2022, we had total outstanding long-term indebtedness of $283.4 under our ABL Facility and Senior Notes as described in greater detail under “— ABL Facility” and “—Senior Notes” below.

Our ability to pay the principal and interest on our long-term debt and to satisfy our other liabilities will depend on our future operating performance and ability to refinance our debt as it becomes due.

Our future operating performance and ability to refinance such indebtedness will be affected by prevailing economic and political conditions, the level of drilling, completion, production and intervention services activity for North American onshore oil and natural gas resources, the continuation of the COVID-19 pandemic, the willingness of capital providers to lend to our industry and other financial and business factors, many of which are beyond our control.

Our ability to refinance our debt will depend on the condition of the public and private debt markets and our financial condition at such time, among other things.

Any refinancing of our debt could be at higher interest rates and may require us to comply with covenants, which could further restrict our business operations.

A rising interest rate environment could have an adverse impact on the price of our shares, or our ability to issue equity or incur debt to refinance our existing indebtedness, for acquisitions or other purposes.

In addition, incurring additional debt in excess of our existing outstanding indebtedness would result in increased interest expense and financial leverage, and issuing common stock may result in dilution to our current stockholders.

Our ABL Facility matures in September 2024 and we intend to work with our existing lenders or other sources of capital to refinance the ABL Facility.

If we are unable to refinance the ABL Facility over the next twelve months and uncertainty around our ability to refinance our existing long-term debt still exists, that could result in our auditors issuing a “going concern” or like qualification or exception as early as our audit opinion with respect to the year ending December 31, 2023.

The delivery of an audit opinion with such a qualification would result in an event of default under our ABL Facility.

If an event of default occurs, the lenders under the ABL Facility would be entitled to accelerate any outstanding indebtedness, terminate all undrawn commitments and enforce liens securing our obligations under the ABL Facility.

Further, the acceleration of indebtedness under our ABL Facility could cause an event of default under our Senior Notes, entitling the requisite holders of the Senior Notes to accelerate our indebtedness in respect thereof and enforce liens securing our obligations under the Senior Notes.

If our lenders or noteholders accelerate our obligations under the affected debt agreements, we may not have sufficient liquidity to repay all of our outstanding indebtedness then due and payable.

In light of our substantial leverage position, as market conditions warrant and subject to our contractual restrictions, liquidity position and other factors, we may access the public or private debt and equity markets or seek to recapitalize, refinance or otherwise restructure our capital structure.

Some of these alternatives may require the consent of current lenders, stockholders or noteholders, and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all.

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

The ABL Facility became effective on September 14, 2018 and is scheduled to mature in September 2024.

Borrowings under the ABL Facility bear interest at a rate equal to 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.

During the third quarter of 2020, the Company included the acquired QES current asset collateral into the borrowing base formula used to calculate the KLXE 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.

No amounts were outstanding under the ABL Facility as of January 31, 2021.

The effective interest rate under the ABL Facility would have been approximately 2.75% on January 31, 2021.

The ABL Facility includes a financial covenant which requires the Company’s consolidated FCCR to be at least 1.0 to 1.0 if availability falls below the greater of $10.0 or 15% of the borrowing base.

At all times during the year ended January 31, 2021, availability exceeded this threshold, and the Company was not subject to this financial covenant.

As of January 31, 2021, the FCCR was below 1.0 to 1.0.

The Company was in full compliance with its credit facility as of January 31, 2021.

In conjunction with the acquisition of Motley in 2018, we issued $250.0 principal amount of 11.5% senior secured notes due 2025 (the "Notes") offered pursuant to Rule 144A under the Securities Act of 1933 (as amended, the "Securities Act") and to certain non-U.S.

Borrowings under the ABL Facility bear interest at a rate equal to Term SOFR (as defined in the ABL Facility) plus the applicable margin (as defined).

The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants as long as the minimum level of borrowing availability is maintained.

The ABL Facility is secured by, among other things,

a first priority lien on the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.

$50.0 was outstanding under the ABL Facility as of December 31, 2022.

The effective interest rate under the ABL Facility was approximately 7.42% on December 31, 2022.

On September 22, 2022, the Company entered into a Third Amendment to the ABL Facility, with certain of its subsidiaries party thereto, as guarantors, with JPMorgan Chase Bank, N.A., as administrative agent and an issuing lender, and the other lenders and issuing lenders party thereto from time to time (the “Amendment”).

The Amendment, among other things, (i) extends the maturity date of the ABL Facility by a year from September 14, 2023 to September 15, 2024, (ii) increases the applicable margin by 0.50%, (iii) replaces LIBOR as the benchmark rate with Term SOFR, (iv) provides the Company with the ability to redeem, repurchase, defease or otherwise satisfy its outstanding Senior Notes using proceeds of equity issuances or by converting or exchanging Senior Notes for equity, (v) resets consolidated EBITDA solely for purposes of calculating the springing fixed charge coverage ratio (“FCCR”) to be annualized beginning with the fiscal quarter ended as of June 30, 2022 until the fourth fiscal quarter ended thereafter (provided that fixed charges will continue to be calculated on a trailing-twelve month basis), (vi) requires that, after giving effect to any borrowing and the use of proceeds thereof, the Company not have more than $35.0 in excess cash on its balance sheet and (vii) increases the availability trigger for a cash dominion event.

The ABL Facility includes a springing financial covenant which requires the Company’s FCCR to be at least 1.0 to 1.0 if availability falls below the greater of $15.0 or 20% of the borrowing base.

At all times during the year ended December 31, 2022, availability exceeded this threshold, and the Company was not subject to this financial covenant.

As of December 31, 2022, the FCCR was above 1.0 to 1.0.

The Company was in full compliance with its credit facility as of December 31, 2022.

The ABL Facility includes financial, operating and negative covenants that limit our ability to incur indebtedness, to create liens or other encumbrances, to make certain payments and investments, including dividend payments, to engage in transactions with affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities.

It also includes a covenant to deliver annual audited financial statements that are not qualified by a “going concern” or like qualification or exception.

A failure to comply with the obligations contained in the ABL Facility could result in an event of default, which could permit acceleration of the debt, termination of undrawn commitments and enforcement against any liens securing the debt.

In conjunction with the acquisition of Motley in 2018, we issued $250.0 principal amount of 11.5% senior secured notes due 2025 (the "Senior Notes") 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 issuance costs for the Notes, total debt as of January 31, 2021 was $243.9.

The Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1.

Accrued interest as of January 31, 2021 was $7.2.

We believe our cash on hand, along with $34.9 of availability under our $100.0 undrawn ABL Facility, net of $10 FCCR holdback, provides 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.

Capital Requirements and Sources of Liquidity

Our capital expenditures were $12.2 during the year ended January 31, 2021, compared to $70.8 in the year ended January 31, 2020.

We expect to incur between $15.0 and $20.0 in capital expenditures for the year ending January 31, 2022, based on current industry conditions and our recent significant investments in capital expenditures over the past several years.

On a net basis, after taking into consideration the debt issuance costs for the Senior Notes, total debt as of December 31, 2022 was $233.4.

The Senior Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1.

Accrued interest as of December 31, 2022 was $4.6.

The Indenture contains customary affirmative and negative covenants restricting, among other things, the Company’s ability to incur indebtedness and liens, pay dividends or make other distributions, make certain other restricted payments or investments, sell assets, enter into restrictive agreements, enter into transactions with the Company’s affiliates, and merge or consolidate with other entities or sell substantially all of the Company’s assets.

The Indenture also contains customary events of default including, among other things, the failure to pay interest for 30 days, failure to pay principal when due, failure to observe or perform any other covenants or agreement in the Indenture subject to grace periods, cross-acceleration to indebtedness with an aggregate principal amount in excess of $50.0, material impairment of liens, failure to pay certain material judgments and certain events of bankruptcy.

During the year ended December 31, 2022, we entered into debt for equity exchange agreements (the “Exchange Agreements” and each, an “Exchange Agreement”) with certain holders (the “Noteholders”) of our Senior Notes.

Pursuant to the Exchange Agreements, the Noteholders exchanged $12.8 in aggregate principal amount of the Company’s outstanding Senior Notes for an aggregate of 777,811 shares of our common stock (the "Exchanges" and each, an “Exchange”).

The Company’s shares of common stock issued in connection with the Exchanges were not registered under the Securities Act, and were issued to existing holders of the Company’s securities without commission in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act.

The Senior Notes exchanged represent approximately 5.1% of the outstanding principal amount of outstanding Senior Notes prior to the Exchanges.

Following the Exchanges, approximately $237.3 in aggregate principal amount of Senior Notes remained outstanding.

Capital Expenditures

Our capital expenditures were $35.6 during the twelve months ended December 31, 2022, compared to $11.0 in the eleven months ended December 31, 2021.

Based on current industry conditions and our significant investments in capital expenditures over the past several years, we expect to incur between $60.0 and $70.0 in capital expenditures for the year ending December 31, 2023, out of which $45.0 to $50.0 for maintenance capital spending.

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.

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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 $100.0 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), none of which was drawn at January 31, 2021.

Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic and political conditions, the level of drilling, completion, production and intervention services activity for North American onshore oil and natural gas resources, the continuation of the COVID-19 pandemic, and financial and business and other factors, many of which are beyond our control.

We believe based on our current forecasts, our cash on hand, the ABL Facility availability, together with our cash flows,

will provide us with the ability to fund our operations and make planned capital expenditures for at least the next 12 months.

The Company also continues to assess various sources and options including public and private financings to bolster its liquidity and believes that, given current market conditions, it has opportunities to do so.

Contractual Obligations

As a smaller reporting company, we are not required to provide the disclosure required by Item 303(a)(5)(i) of Regulation S-K.

Equity Distribution Agreement

On June 14, 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co.

as sales agent (the “Agent”).

Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Agent (the “ATM Offering”) the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $50.0 (the “Common Stock”).

Any Common Stock offered and sold in the ATM Offering will be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No.

333-256149) filed with the SEC on May 14, 2021 and declared effective on June 11, 2021 (the “Registration Statement”), the prospectus supplement relating to the ATM Offering filed with the SEC on June 14, 2021 and any applicable additional prospectus supplements related to the ATM Offering that form a part of the Registration Statement.

Sales of Common Stock under the Equity Distribution Agreement may be made in any transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act.

The Equity Distribution Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and the Agent, including for liabilities under the Securities Act, other obligations of the parties and termination provisions.

Under the terms of the Equity Distribution Agreement, the Company will pay the Agent a commission equal to 3% of the gross sales price of the Common Stock sold.

The Company plans to use the net proceeds from the ATM Offering, after deducting the Agent’s commissions and the Company’s offering expenses, for general corporate purposes, which may include, among other things, paying or refinancing all or a portion of the Company’s then-outstanding indebtedness, and funding acquisitions, capital expenditures and working capital.

During the three and twelve months ended December 31, 2022, the Company sold 976,808 and 2,803,007 shares of Common Stock, respectively, in exchange for gross proceeds of approximately $15.0 and $25.1, respectively, through its at-the-market offering and paid legal and administrative fees of $0.1 and $0.3, respectively.

During the two and eleven months ended December 31, 2021, the Company sold 250,289 and 1,380,505 shares of Common Stock, respectively, in exchange for gross proceeds of approximately $1.1 and $6.6, respectively, and paid fees to the sales agent and other legal and accounting fees of $0.1 and $0.8, respectively, to establish the ATM Offering.

At December 31, 2022, we had $57.4 of cash and cash equivalents.

Cash on hand at December 31, 2022 increased by $29.4 during the year then ended, mainly due to $15.7 of cash flows provided by operating activities and $32.4 of cash flows provided by financing activities, partially offset by $18.7 of cash flows used in investing activities.

Our liquidity requirements consist of working capital needs, debt service obligations and ongoing capital expenditure requirements.

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

This Annual Report includes net working capital, which is a “non-GAAP financial measure” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Net working capital is calculated as current assets, excluding cash, less current liabilities, excluding accrued interest, operating lease obligations and finance lease obligations.

We believe that net working capital provides useful information to investors because it is an important indicator of the Company's liquidity.

Our computations of net working capital may not be comparable to other similarly titled measures of other companies.

The following table sets forth the reconciliation of current assets and current liabilities to net working capital:

December 31, 2022 December 31, 2021

Current assets $ 254.7 $ 164.7

Cash 57.4 28.0

Net current assets 197.3 136.7

Current liabilities 154.4 122.7

Accrued interest 4.8 5.0

Operating lease obligations 14.2 15.9

Finance lease obligations 10.2 5.6

Net current liabilities 125.2 96.2

Net Working Capital $ 72.1 $ 40.5

Net working capital as of December 31, 2022 was $72.1, an increase of $31.6 as compared to net working capital of $40.5 as of December 31, 2021.

Net working capital is calculated as current assets, excluding cash, less current liabilities, excluding accrued interest, operating lease obligations and finance lease obligations.

As of December 31, 2022, total current assets excluding cash increased by $60.6 and total current liabilities excluding accrued interest, operating lease obligations and finance lease obligations increased by $29.0.

The increase in current assets was primarily related to accounts receivable-trade, net increase of $51.1, a $6.2 increase in prepaid expenses and other current assets and an increase of $3.3 in inventory.

The increase in total current liabilities was due to a $12.1 increase in accounts payable and a $16.9 increase in accrued liabilities.

The following table sets forth our cash flows for the periods presented below:

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021

Net cash provided by (used in) operating activities $ 15.7 $ (55.6)

Net cash (used in) provided by investing activities (18.7) 4.5

Net cash provided by financing activities 32.4 32.0

Net change in cash 29.4 (19.1)

Cash balance end of period $ 57.4 $ 28.0

Net cash provided by (used in) operating activities

Net cash provided by operating activities was $15.7 for the twelve months ended December 31, 2022, as compared to net cash used in operating activities of $55.6 for the eleven months ended December 31, 2021.

The increase in operating cash flows was primarily attributable to the increase in revenues across all operating segments and most service and related product lines driven by a broader recovery in industry activity.

Net cash (used in) provided by investing activities

Net cash used in investing activities was $18.7 for the twelve months ended December 31, 2022, as compared to net cash provided by investing activities of $4.5 for the eleven months ended December 31, 2021.

The cash used in investing activities for the twelve months ended December 31, 2022 was primarily driven by increased maintenance and growth capital spending to support our growing business operations.

Net cash provided by financing activities

Net cash provided by financing activities was $32.4 for the twelve months ended December 31, 2022, compared to net cash provided by financing activities of $32.0 for the eleven months ended December 31, 2021.

During the twelve months ended December 31, 2022, the Company borrowed $20.0 under the ABL facility, sold stock as part of its Equity Distribution Agreement for proceeds of $24.8 and received proceeds from finance lease refinancing of $1.4, which were partially offset by payments on finance lease obligations of $9.7, payment on note payable of $2.1, payments on debt issuance costs of $1.7 and purchase of treasury stock of $0.3.

Off-Balance Sheet Arrangements

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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.

These 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.

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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.

Lease Commitments

The Company finances its 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 the consolidated balance sheets.

At January 31, 2021, future minimum lease payments under these arrangements approximated $72.1, of which $21.6 is related to long-term real estate leases.

“Commitments, Contingencies and Off-Balance Sheet Arrangements” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Critical Accounting Policies and Estimates

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 GAAP.

Critical Accounting Estimates

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 Generally Accepted Accounting Principles ("GAAP").

The preparation of our 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.

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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 financial statements.

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We 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, 2021 and 2020 was $6.5 and $12.9, respectively.

Business Combinations

We completed our acquisition of QES on July 28, 2020.

QES's results of operations have been included in our financial results for the period subsequent to the acquisition date.

Under the acquisition method of accounting, we allocate the fair value of purchase consideration transferred to the tangible assets and intangible assets acquired, if any, and liabilities assumed based on their estimated fair values on the date of the acquisition.

The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management.

The estimated fair value of the assets acquired, net of liabilities assumed, exceeds the purchase consideration, resulting in a bargain purchase gain.

When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to bargain purchase gain if new information is obtained related to facts and circumstances that existed as of the acquisition date.

After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations.

Acquisition costs, such as legal and consulting fees, are expensed as incurred.

The allowance for doubtful accounts at December 31, 2022 and December 31, 2021 was $5.7 and $6.4, respectively.

Goodwill and Intangible Assets, Net

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.

Under Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles—Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.

Acquired intangible assets with definite lives are amortized over their individual useful lives.

As of January 31, 2021, the Company had three reporting units, which were determined based on the guidelines contained in FASB ASC Topic 350, Subtopic 20, Section 35.

Each reporting unit constitutes a business, for which there is discrete financial information available that is regularly reviewed by the CODM.

Goodwill is tested at least annually as of December 31, and the Company’s management assesses whether there has been any impairment in the value of goodwill by comparing the fair value of the reporting unit to its net carrying value.

If the carrying value exceeds its estimated fair value, an impairment loss is recognized for the difference up to the carrying value of goodwill.

In this event, the asset is written down accordingly.

The fair value is determined using valuation techniques based on estimates, judgments and assumptions that the Company’s management believes are appropriate in the circumstances.

For the years ended January 31, 2021 and 2020, the Company determined goodwill was impaired and recorded goodwill impairment charges of $28.3 and $47.0, respectively.

See Note 7 for additional information.

As of December 31, 2022 and December 31, 2021, there were net intangible assets with definite lives of $2.1 and $2.2, respectively, and Goodwill of nil and nil, respectively.

The Company adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases ASC Topic 842 effective February 1, 2021.

We elected the modified retrospective transition method under ASC Topic 842 and as such information prior to February 1, 2021 has not been restated and continues to be reported under the accounting standards in effect for the period (ASC Topic 840-Leases).

We carried forward the historical lease classifications and assessment of initial direct costs, account for lease and non-lease components as a single component, and exclude leases with an initial term of less than 12 months in the lease assets and liabilities.

For leases entered into after February 1, 2021, the Company determines if an arrangement is a lease at inception and evaluates identified leases for operating or finance lease treatment.

Operating or finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

We use our incremental borrowing rate based on the information

available at the commencement date in determining the present value of lease payments.

Lease terms may include options to renew;

however, we typically cannot determine our intent to renew a lease with reasonable certainty at inception.

Long‑Lived Assets

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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.

For the years ended January 31, 2021 and 2020, there were $180.4 and $0.0 impairments of long lived assets.

See Note 7 for additional information.

For the twelve months ended December 31, 2022 and eleven months ended December 31, 2021, there were $0.0 and $0.8 impairments of long-lived assets.

Revenue Recognition

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If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

How We Evaluate Our Operations

Key Financial Performance Indicators

The measures we believe most effective to achieve the above stated goals include:

• Adjusted Earnings before interest, taxes, depreciation and amortization ("EBITDA") :

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies.

Adjusted EBITDA is not a measure of net earnings or cash flows as determined by GAAP.

• Adjusted EBITDA Margin:

Adjusted EBITDA Margin is defined as Adjusted EBITDA, as defined above, as a percentage of revenue.

Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 7. Management’s Discussion and Analysis