What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-09 compared with 2021-04-28 · 337 added, 477 removed, 363 unchanged (69% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

KLX Energy Services Holdings, Inc.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of January 31, 2021 and 2020 64

Consolidated Statements of Operations for the Years Ended January 31, 2021 and 2020 65

Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2021 and 2020 66

Consolidated Statements of Cash Flows for the Years Ended January 31, 2021 and 2020 67

Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021

Consolidated Statements of Operations for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021

Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021

Consolidated Statements of Cash Flows for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021

Notes to Consolidated Financial Statements 74

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We have audited the accompanying consolidated balance sheets of KLX Energy Services Holdings, Inc.

and subsidiaries (the "Company") as of January 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two years in the period ended January 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows, for the year ended December 31, 2022 and the eleven-month period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and the eleven-month period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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/s/ Deloitte & Touche LLP

Tampa, Florida

April 28, 2021

Houston, Texas

March 9, 2023

We have served as the Company's auditor since 2018.

3 unchanged sentences

dollars and shares, except per share data)

January 31, 2021 January 31, 2020

As of December 31

Current assets:

2 unchanged sentences

Inventories, net 25.7 22.4

Other current assets 15.8 13.8

Prepaid expenses and other current assets 17.3 11.1

Total current assets 254.7 164.7

Property and equipment, net (1)

Goodwill — 28.3

Operating lease assets 37.4 47.4

Intangible assets, net 2.1 2.2

6 unchanged sentences

Accrued liabilities 41.0 24.1

Current portion of capital lease obligations 1.9 —

Current portion of operating lease liabilities 14.2 15.9

Current portion of finance lease liabilities 10.2 5.6

Total current liabilities 154.4 122.7

Long-term debt 283.4 274.8

Long-term capital lease obligations 4.4 —

Long-term operating lease liabilities 22.8 31.5

Long-term finance lease liabilities 20.3 9.1

Other non-current liabilities 0.8 1.0

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Total liabilities and stockholders' equity $ 465.9 $ 387.7

(1) Common stock and treasury stock were retroactively adjusted for the Company's 1-for-5 Reverse Stock Split effective July 28, 2020.

(1) Includes ROU assets - finance leases, see Note 4 - Property and Equipment, Net and Note 7 - Leases

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In millions of U.S.

dollars, except per share amounts)

January 31, 2021 January 31, 2020

dollars, except per share data)

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021

Revenues $ 781.6 $ 436.1

1 unchanged sentence

Cost of sales 621.3 389.9

Depreciation and amortization 56.8 53.8

Selling, general and administrative 70.4 54.6

2 unchanged sentences

Bargain purchase gain — 0.5

Operating loss ( 301.1 ) ( 75.7 )

Operating income (loss) 32.5 ( 64.1 )

Non-operating expense:

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Loss before income tax ( 2.5 ) ( 93.5 )

Income tax expense (benefit) 0.4 ( 8.5 )

Income tax expense 0.6 0.3

Net loss $ ( 3.1 ) $ ( 93.8 )

Net loss per share-basic $ ( 0.27 ) $ ( 10.83 )

$ ( 50.86 ) $ ( 21.61 )

Net loss per share-diluted $ ( 0.27 ) $ ( 10.83 )

$ ( 50.86 ) $ ( 21.61 )

(1) Basic and diluted net loss per share were retroactively adjusted for the Company’s 1-for-5 Reverse Stock

Split effective July 28, 2020.

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

Years Ended January 31, 2021 and 2020

Year Ended December 31, 2022 and Eleven-month Transition Period Ended December 31, 2021

( In millions of U.S.

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Balance at January 31, 2021

Sale of stock under employee stock purchase plan — — 1.8 — — 1.8

8.6 $ 0.1 $ 469.1 $ ( 4.0 ) $ ( 433.1 ) $ 32.1

Adjustment to beginning period Retained Earnings as a result of ASC 842 adoption — — — — 1.6 1.6

Restricted stock, net of forfeitures 0.5 — 3.2 ( 0.3 ) — 2.9

Purchase of treasury stock — — — — — —

Red Bone acquisition price shares reserved 0.2 — 36.4 — — 36.4

Issuance of shares as a component of Tecton acquisition price 0.1 — 12.1 — — 12.1

Issuance of shares as a component of Motley acquisition price 0.1 0.1 2.9 — — 3.0

Escrowed shares related to Tecton acquisition — — — ( 1.4 ) — ( 1.4 )

Issuance of common stock, net of cost 1.4 — 5.8 — — 5.8

Net loss — — — — ( 93.8 ) ( 93.8 )

Balance at January 31, 2020 5.0 0.1 416.6 ( 3.6 ) ( 100.9 ) 312.2

Balance at December 31, 2021

10.5 $ 0.1 $ 478.1 $ ( 4.3 ) $ ( 525.3 ) $ ( 51.4 )

Adjustment to beginning period Retained Earnings as a result of ASC 326 adoption — — — — ( 0.2 ) ( 0.2 )

Restricted stock, net of forfeitures 0.2 — 3.0 — — 3.0

Purchase of treasury stock — — — ( 0.3 ) — ( 0.3 )

Red Bone acquisition price shares reserved 0.2 — — — — —

QES acquisition price shares issuance 3.4 — 34.7 — — 34.7

Issuance of common stock, net of cost 3.6 — 36.2 — — 36.2

Net loss — — — — ( 3.1 ) ( 3.1 )

Balance at January 31, 2021 8.6 $ 0.1 $ 469.1 $ ( 4.0 ) $ ( 433.1 ) $ 32.1

Balance at December 31, 2022

14.3 $ 0.1 $ 517.3 $ ( 4.6 ) $ ( 528.6 ) $ ( 15.8 )

See accompanying notes to consolidated financial statements.

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(In millions of U.S.

January 31, 2021 January 31, 2020

Year Ended Eleven-month Transition Period Ended

December 31, 2022 December 31, 2021

Cash flows from operating activities:

Net loss $ ( 3.1 ) $ ( 93.8 )

Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities

Adjustments to reconcile net loss to net cash flows from operating activities

Depreciation and amortization 56.8 53.8

Deferred income taxes ( 0.1 ) ( 8.9 )

Impairment and other charges — 0.8

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Provision for inventory reserve 2.8 0.8

Change in allowance for doubtful accounts ( 6.9 ) 9.8

(Gain) loss on disposal of property, equipment and other ( 1.7 ) 5.0

Gain on disposal of property, equipment and other ( 13.2 ) ( 7.9 )

Bargain purchase gain — 0.5

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Inventories ( 6.2 ) ( 2.4 )

Other current and non-current assets 7.4 ( 9.0 )

Prepaid expenses and other current assets and other assets (non-current) 16.4 6.8

Accounts payable 11.7 29.1

Other current and non-current liabilities ( 1.9 ) ( 11.6 )

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

Other ( 1.2 ) 0.5

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

Cash flows from investing activities:

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Proceeds from sale of property and equipment 16.9 15.5

Acquisitions, net of cash acquired ( 4.0 ) ( 27.6 )

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

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

Cash flows from financing activities:

Purchase of treasury stock ( 0.3 ) ( 0.3 )

Shares cancelled by employees for taxes — ( 1.0 )

Cash proceeds from stock issuance — 1.5

Payments on capital lease obligations ( 1.1 ) —

Change to financed payables 1.9 —

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

Net decrease in cash and cash equivalents ( 76.4 ) ( 40.3 )

Borrowings on ABL Facility 20.0 30.0

Proceeds from stock issuance, net of costs 24.8 5.8

Payments on finance lease obligations ( 9.7 ) ( 2.6 )

Payments of debt issuance costs ( 1.7 ) —

Proceeds from finance lease refinancing 1.4 —

Change in financed payables ( 2.1 ) ( 0.9 )

Net cash flows provided by financing activities 32.4 32.0

Net change in cash and cash equivalents 29.4 ( 19.1 )

Cash and cash equivalents, beginning of period 28.0 47.1

6 unchanged sentences

Change in deposits on capital expenditures $ ( 0.2 ) $ —

Accrued capital expenditures 1.7 4.5

Change in accrued capital expenditures 0.4 5.3

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

(In millions of U.S.

dollars in millions)

NOTE 1 - Description of Business and Significant Accounting Policies

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KLXE’s primary rentals and products include hydraulic fracturing stacks, blow out preventers, tubulars, downhole tools, dissolvable plugs, composite plugs and accommodation units.

On July 24, 2020, KLXE stockholders approved an amendment to the amended and restated certificate of incorporation of KLXE (the “Reverse Stock Split Amendment”) to effect a reverse stock split of KLXE common stock at a ratio within a range of 1-for-5 and 1-for-10 (the “Reverse Stock Split”), as determined by KLXE’s board of directors (the “Board”).

The Board subsequently resolved to implement the Reverse Stock Split at a ratio of 1-for-5.

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All intercompany transactions and account balances have been eliminated upon consolidation.

The consolidated financial statements for Fiscal 2019 and for the period from February 1, 2020 to July 28, 2020 reflect only the historical results of the Company prior to the completion of the Merger.

The accompanying consolidated financial statements present the consolidated KLXE and QES financial position as of January 31, 2021.

The consolidated statement of operations and the consolidated statement of cash flows for the year ended January 31, 2021 includes QES’s results for the period July 29, 2020 through January 31, 2021.

Following the end of the Company's fiscal year ended January 31, 2020, the Company transitioned to a December 31 fiscal year-end date.

As a result, this Form 10-K includes financial information for the eleven-month period from February 1, 2021 to December 31, 2021 (the "Transition Period").

Use of Estimates

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Actual results could differ from those estimates.

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.

See Note 15 for additional information.

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.

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, exceeded 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.

Revenue Recognition

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The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified.

The allowance for doubtful accounts at January 31, 2021 and 2020 was $ 6.5 and $ 12.9 , respectively.

Activity in our allowance for doubtful accounts during the years ended January 31, 2021 and 2020 is set forth in the table below:

Allowance of doubtful accounts Balance at beginning of period Charged (credited) to costs and expenses Deductions (1)

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

For more information on our adoption of Topic 326 Current Expected Credit Losses , see Note 2 Recent Accounting Pronouncements.

Activity in our allowance for doubtful accounts during the year ended December 31, 2022 and Transition Period ended December 31, 2021 is set forth in the table below:

Allowance for doubtful accounts Balance at beginning of period ASC 326 Adjustment Charged (credited) to costs and expenses Deductions (1)

Balance at end of period

2021 $ 12.9 $ 2.0 $ ( 8.4 ) $ 6.5

2020 $ 3.1 $ 11.6 $ ( 1.8 ) $ 12.9

December 31, 2022 $ 6.4 $ ( 0.1 ) $ 0.2 $ ( 0.8 ) $ 5.7

December 31, 2021 $ 6.5 $ 0.2 $ 0.3 $ ( 0.6 ) $ 6.4

(1) Accounts receivable balances written off during the period, net of recoveries.

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The Company values inventories at the lower of cost or net realizable value.

Reserves for excess and obsolete inventory were approximately $ 2.4 and $ 1.5 as of January 31, 2021 and 2020, respectively.

Reserves for excess and obsolete inventory were approximately $ 4.4 and $ 2.7 as of year ended December 31, 2022 and Transition Period ended December 31, 2021, respectively.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated generally under the straight-line method over their estimated useful lives of one to forty years (or the lesser of the term of the lease for leasehold improvements, as appropriate).

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.

Goodwill and Intangible Assets, Net

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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.

As of December 31, 2022 and December 31, 2021, intangible assets had gross carrying amount of $ 5.9 and $ 5.7 and accumulated amortization of $ 3.8 and $ 3.5 , respectively, with amortization expense for the twelve months and eleven months then ended of $ 0.3 and $ 0.3 , respectively.

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

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

We elected the practical expedients for all asset classes to carry 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 twelve 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.

Since the rate implicit in the lease is not readily determinable, 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 year ended December 31, 2022 and Transition Period ended December 31, 2021, there were $ 0.0 and $ 0.8 in impairments of long lived assets, respectively.

Debt Issuance Costs

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Debt issuance costs related to the Company’s $ 100.0 senior secured asset-based lending facility are presented net of amortization as a non-current asset.

Debt issuance costs related to the Company’s $ 250.0 principal amount of 11.5 % senior secured notes due 2025 is presented net of amortization as an offset to the liability.

Amortized debt issuance costs are included in interest expense and totaled $ 1.3 and $ 1.1 for the years ended January 31, 2021 and 2020, respectively.

Debt issuance costs related to the Company’s $ 237.3 principal amount of 11.5 % senior secured notes due 2025 are presented net of amortization as an offset to the liability.

Amortized debt issuance costs are included in interest expense and totaled $ 1.6 and $ 0.9 for the year ended December 31, 2022 and Transition Period ended December 31, 2021, respectively.

Common Stock Equivalents

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The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB ASC 718, whereby share-based compensation cost is measured on the date of grant, based on the calculated fair value of the award and recognized as selling, general and administrative expenses in the consolidated statement of operations over the requisite service period.

Compensation cost recognized during the year ended January 31, 2021 and 2020 primarily related to grants of restricted stock and restricted stock units granted or approved by the Company’s Compensation Committee.

Compensation cost recognized during the year ended December 31, 2022 and Transition Period ended December 31, 2021 primarily related to grants of restricted stock and restricted stock units granted or approved by the Company’s Compensation Committee.

See “Note 11 - Stock-Based Compensation” for additional information related to stock-based compensation.

The Company has established a qualified ESPP, the terms of which, when active, allow for qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85 % of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

The Company’s first option period began on January 1, 2019.

The ESPP did not have enough shares reserved to satisfy outstanding options to purchase during the offering period ended June 30, 2020, therefore, the Company refunded participants’ contributions.

In addition, the Company agreed with QES to temporarily suspend the ESPP due to the Merger.

The ESPP was still suspended as of January 31, 2020.

The value of the rights granted during the years ended January 31, 2021 and 2020 was $ 0.0 and $ 0.3 , respectively.

See “Note 13 - Stock-Based Compensation” for additional information related to the ESPP.

Concentration of Risk

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Significant customers change from year to year depending on the level of E&P activity and the use of the Company’s services.

During the years ended January 31, 2021 and 2020, no single customer accounted for more than 10% of the Company’s revenues.

During the year ended December 31, 2022 and Transition Period ended December 31, 2021, no single customer accounted for more than 5% of the Company’s revenues.

NOTE 2 - Recent Accounting Pronouncements

In March 2020, FASB issued accounting standard update, ("ASU") 2020-04, Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”).

The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The expedients and exceptions provided by the amendments in this ASU are effective for all entities, if elected, through December 31, 2022.

While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Standard Updates

In December 2019, FASB issued ASU 2019-12, Income Taxes (“Topic 740”):

Simplifying the Accounting for Income Taxes .

This ASU is intended to simplify aspects of income tax approach for intra-period tax allocations when there is a loss from continuing operations and income or a gain from other items, and to provide a general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

This ASU is intended to simplify aspects of income tax approach for intraperiod tax allocations when there is a loss from continuing operations and income or a gain from other items, and to provide a general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

Topic 740 also provides guidance to simplify how an entity recognizes a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and evaluations of when step ups in the tax basis of goodwill should be considered part of a business combination.

Companies should also reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The guidance is effective for the Company for the fiscal year beginning February 1, 2022.

While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”):

Measurement of Credit Losses on Financial Instruments.

This ASU is intended to update the measurement of credit losses on financial instruments.

This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses (“CECL”) model.

This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

The new accounting standard introduces the CECL methodology for estimating allowances for credit losses.

The Company is an oilfield service company and as of January 31, 2021 had a third-party accounts receivable balance, net of allowance, of $ 67.0 .

Topic 326 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases (“Topic 842”), which supersedes ASC Topic 840, Leases.

Topic 842 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet.

The update also expands the required quantitative and qualitative disclosures surrounding leases.

Topic 842 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

In November 2019, FASB deferred the effective date for implementation of Topic 842 by one year and, in June 2020, FASB deferred the effective date by an additional year.

The guidance under Topic 842 is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.

Earlier adoption is permitted.

To assess the impact of this guidance, the Company has established a cross functional implementation project team and is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard.

The Company is in the process of developing its new accounting policies and determining the potential aggregate impact this guidance is likely to have on its consolidated financial statements as of its adoption date.

NOTE 3 - Business Combinations

On July 28, 2020, the Company completed the Merger with QES, a diversified provider of oilfield services to onshore oil and natural gas E&P companies operating in the United States.

The Merger purchase price was approximately $ 44.4 , which was comprised of 3.4 million shares of the Company’s common stock and cash paid to settle QES debt.

Based on the Company’s preliminary purchase price allocation, the purchase price was less than the fair value of the identifiable assets acquired, which resulted in a $ 40.3 bargain purchase gain being recorded on the consolidated statements of operations for the year ended January 31, 2021.

In connection with the closing of the Merger, $ 9.7 in outstanding borrowings and associated fees and expenses of QES's five-year asset-based revolving credit agreement (the “QES ABL Facility”) were paid off.

In addition, the Company assumed certain QES compensation agreements, including restricted stock units ("RSU"), with an estimated fair value of $ 2.0 .

Based on the service period related to the period prior to the acquisition date, $ 0.4 was allocated to the purchase price, and $ 1.6 relating to post-acquisition services will be recorded as operating expenses over the remaining requisite service periods.

As of the Merger date, each unvested QES RSU was converted into a replacement KLXE RSU award at a conversion rate of 0.0969 and valued on July 28, 2020.

The Merger was accounted for as a purchase under FASB ASC 805, Business Combinations (“ASC 805”).

The results of operations for the acquisition are included in the accompanying consolidated statements of operations from the respective date of acquisition.

The fair values assigned to certain assets acquired and liabilities assumed in relation to the Company’s acquisition have been prepared on a preliminary basis with information currently available and are subject to change.

The Company expects to finalize its analysis by the second quarter of fiscal 2021.

The following table summarizes the fair values of assets acquired and liabilities assumed in the Merger in accordance with ASC 805:

Accounts receivable-trade 12.2

Inventories 11.8

Other current and non-current assets 7.4

Property and equipment 84.5

Accounts payable ( 27.1 )

Other current and non-current liabilities ( 12.8 )

Bargain purchase ( 40.3 )

Total purchase price (1)

(1) The total consideration the Merger was approximately $ 44.4 , which was comprised of 3.4 million shares of the Company’s common stock and cash paid to settle QES debt.

The Company has substantially integrated portions of the QES business and, as a result, it is not practicable to report stand-alone revenues and operating (loss) earnings of the QES business since the Merger date.

Unaudited Supplemental Pro Forma Information

The unaudited supplemental pro forma financial information has been provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by combining the companies for the periods presented, or of the results that may be achieved by the combined companies in the future.

Further, results may vary significantly from the results reflected in the following unaudited supplemental pro forma financial information because of future events and transactions, as well as other factors.

The unaudited supplemental pro forma financial information does not include adjustments to reflect the impact of other cost savings or synergies that may result from the Merger.

On a pro forma basis to give effect to the Merger, as if it occurred on February 1, 2019, revenues, net loss and loss per diluted share for the years ended January 31, 2021 and 2020 would have been as follows:

Unaudited Pro Forma

Year Ended January 31,

Revenues $ 370.4 $ 1,010.1

Net loss 386.6 167.6

Loss per diluted share ( 46.58 ) ( 21.77 )

2019 Acquisitions

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

On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a provider of fishing and thru-tubing services in the Mid-Continent.

The aggregate acquisition price of the acquisitions was approximately $ 74.6 , comprised of approximately $ 47.0 in shares of the Company’s common stock issuable over time at a fixed price and approximately $ 27.6 in cash to the sellers and for the retirement of debt.

The Company issued shares in a subsidiary company to effect the Red Bone acquisition, which were exchanged for KLXE common stock over specified dates between the acquisition date and Fiscal 2020.

Based on the Company’s final purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $ 51.2 , of which $ 19.4 was allocated to intangible assets consisting of customer contracts and relationships and covenants not to compete, and $ 31.8 was allocated to goodwill.

The useful life assigned to the customer contracts and relationships is 10 years, and the covenants not to compete are being amortized over their contractual periods of 1.5 and 3 years for Tecton and Red Bone, respectively.

The Tecton and Red Bone acquisitions were accounted for as purchases under ASC 805.

The results of operations for the acquisitions are included in the accompanying consolidated statements of operations from the respective dates of acquisition.

The following table summarizes the fair values of assets acquired and liabilities assumed in the Tecton and Red Bone acquisitions in accordance with ASC 805:

Tecton Red Bone

Accounts receivable-trade $ 2.1 $ 7.2

Inventories — 2.7

Other current and non-current assets 0.2 —

Property and equipment 2.8 23.6

Goodwill 15.0 16.8

Identified intangibles 6.2 13.2

Accounts payable and accrued liabilities ( 2.1 ) ( 4.2 )

Other current and non-current liabilities ( 1.6 ) ( 7.3 )

Total consideration paid $ 22.6 $ 52.0

The Company has substantially integrated Red Bone and, as a result, it is not practicable to report stand-alone revenues and operating earnings of the acquired business since the acquisition date.

The amount of Tecton revenues included in the Company’s results was approximately $ 21.8 for the year ended January 31, 2020.

Unaudited Supplemental Pro Forma Information

On a pro forma basis to give effect to the Tecton and Red Bone acquisitions, as if they occurred on February 1, 2018, revenues, net (loss) earnings and (loss) earnings per diluted share for the years ended January 31, 2020 and 2019 would have been as follows:

Unaudited Pro Forma

Year Ended January 31,

Revenues $ 551.7 $ 566.2

Net (loss) earnings ( 95.9 ) 19.9

(Loss) earnings per diluted share ( 21.50 ) 4.45

Motley Services Acquisition

On November 5, 2018, the Company acquired Motley Services, LLC (“Motley”), a premier provider of well

completion and intervention services for complex, long lateral, horizontal wells, for $ 140.0 in cash (net of cash acquired) and $ 9.0 of shares of the Company’s common stock payable to certain employees of Motley.

The final $ 3.0 installment of the consideration was settled in cash during the year ended January 30, 2021.

NOTE 4 - Merger and Integration Costs

Merger and integration costs were recorded separately from the acquisition of assets and assumptions of liabilities in the Merger.

Merger costs consist of legal and professional fees and accelerated stock compensation expense incurred in connection with the Merger (“Merger costs”).

Integration costs consist of expenses to relocate corporate headquarters, integrate the QES business, reduce headcount, and consolidate service and support facilities following the Merger (“Integration costs”).

Merger and Integration costs totaled $ 39.7 for the year ended January 31, 2021.

$ 3.4 were recorded to cost of sales in the consolidated statement of operations for the year ended January 31, 2021.

Additionally, $ 31.0 were recorded to selling, general and administrative in the consolidated statement of operations for the year ended January 31, 2021.

Lease termination costs of $ 5.3 were recorded to impairment and other charges in the consolidated statement of operations for the year ended January 31, 2021.

As of January 31, 2021, and 2020, accrued lease termination costs were:

Beginning Balance as of January 31, 2020 $ —

Charged (credited) to costs and expenses 5.3

Deductions ( 1.9 )

Ending balance as of January 31, 2021 $ 3.4

As the Company continues to integrate the QES business, there will be further charges in future periods relating to, among other things, fixed assets, facilities, workforce reductions and other assets.

The following table presents Merger and Integration costs that were recorded for the year ended January 31, 2021 in the consolidated statement of operations:

Year Ended January 31,

Merger costs $ 27.8

Integration costs 11.9

Total Merger and Integration Costs $ 39.7

The guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company early adopted Topic 740 in the first quarter of 2022.

This adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The expedients and exceptions provided by the amendments in this ASU are effective for all entities, if elected, through December 31, 2022.

In September 2022, we entered into a Third Amendment to our ABL Facility (as defined below), which, among other things, replaced LIBOR as the benchmark rate with CME Term Secured Overnight Financing Rate (“Term SOFR”) as administered by CME Group Benchmark Administration, Ltd.

See Note 6 for further discussion regarding our ABL Facility.

In connection with the Amendment, we adopted the above standard in the third quarter of 2022 and have elected the optional expedients for contracts under the scope of Topic 470, Debt.

We have concluded that the modification to the ABL Facility is not substantial.

This adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The Company adopted ASU No 2016-13, Current Expected Credit Losses ( “ Topic 326 ” ) on December 31, 2022 on a modified retrospective basis with a cumulative-effect adjustment of $ 0.2 included in the opening balance of retained earnings.

This ASU replaces the current loss model for financial assets measured at amortized cost with an expected credit loss model, which for the Company applies mainly to accounts receivable-trade.

The Company is exposed to credit losses primarily from providing oilfield services.

The Company’s expected credit loss allowance for accounts receivable is based on historical collection experience as well as current and future economic and market conditions as assessed over a reasonable forecast period.

Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances.

Receivables that have a higher risk profile are included in an at risk pool, where they are reserved for based on the expected credit loss for that asset on an individual basis.

Balances are written off when determined to be uncollectable and recoveries of amounts previously written off are recorded when collected.

NOTE 3 - Inventories, net

Inventories consisted of the following:

January 31, 2021 January 31, 2020

Supplies $ 13.5 $ 5.6

December 31, 2022 December 31, 2021

Spare parts $ 17.9 $ 14.7

Plugs 6.3 6.0

Consumables 3.2 2.4

Work-in-progress — 0.2

Other 2.7 2.0

1 unchanged sentence

Inventory reserve ( 4.4 ) ( 2.7 )

Total inventories $ 20.8 $ 12.0

Inventories are made up primarily of composite and dissolvable plugs, supplies and consumables used to perform services for customers.

Total inventories, net $ 25.7 $ 22.4

Inventories are made up primarily of spare parts, composite and dissolvable plugs, consumables (including thru tubing accessory tools, chemicals and cement) and other (including fluid ends) used to perform services for customers.

The Company values inventories at the lower of cost or net realizable value.

Inventory reserves were approximately $ 2.4 and $ 1.5 as of January 31, 2021 and 2020, respectively.

During the third quarter of 2020, the Company identified certain excess inventory of $ 1.2 , which was written off to cost of sales in the consolidated statement of operations.

Activity in the reserve for inventory accounts during the years ended January 31, 2021 and 2020 is set forth in the table below:

Inventory reserves were approximately $ 4.4 and $ 2.7 as of December 31, 2022 and December 31, 2021, respectively.

Activity in the reserve for inventory accounts during the year ended December 31, 2022 and Transition Period ended December 31, 2021 is set forth in the table below:

Reserve for inventory Balance at beginning of period Charged to costs and expenses Deductions (1)

Balance at end of period

2021 $ 1.5 $ 1.8 $ ( 0.9 ) $ 2.4

December 31, 2022

$ 2.7 $ 2.9 $ ( 1.2 ) $ 4.4

December 31, 2021 $ 2.4 $ 2.2 $ ( 1.9 ) $ 2.7

(1) Reserve for inventory balances written off during the period, net of recoveries.

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Property and equipment consisted of the following:

Useful Life (Years) January 31, 2021 January 31, 2020

Useful Life (Years) December 31, 2022 December 31, 2021

Land, buildings and improvements

1 — 40 $ 33.1 $ 38.9

Machinery 1 — 20 216.2 211.4

Furniture and equipment 1 — 15 183.2 216.7

Equipment and furniture 1 — 15 194.5 179.9

ROU assets - finance leases 1 — 20 39.9 16.5

Total property and equipment 483.7 446.7

Less accumulated depreciation 245.0 206.0

Property and equipment, net $ 203.7 $ 306.8

Depreciation expense was $ 57.7 and $ 60.2 for the years ended January 31, 2021 and 2020, respectively.

Accumulated depreciation ( 320.8 ) ( 280.1 )

Construction in progress 5.2 4.4

Total property and equipment, net $ 168.1 $ 171.0

Depreciation of assets is computed using the straight-line method over the lesser of the estimated useful lives of the respective assets or the lease term, if shorter.

Depreciation expense related to non-leased assets was $ 49.2 and $ 49.5 for the year ended December 31, 2022 and Transition Period ended December 31, 2021, respectively.

Finance lease amortization expense was $ 7.3 and $ 3.4 for the year ended December 31, 2022 and Transition Period ended December 31, 2021.

Assets Held for Sale

As of January 31, 2021, the Company’s consolidated balance sheet includes assets classified as held for sale of $ 4.4 .

The assets held for sale are reported within other current assets on the consolidated balance sheet and represent the value of six facilities.

In light of the current market environment and as part of the ongoing integration of the QES business, the Company has consolidated operations within certain geographies rendering these locations unnecessary to support the efficient operations of the Company.

These assets are being actively marketed for sale as of January 31, 2021 and are recorded at the lower of their carrying value or fair value less costs to sell.

Subsequent to January 31, 2021, the Company has completed the sale of four operational facilities with a carrying value of $ 3.0 for total sales proceeds of $ 3.5 .

NOTE 7 - Goodwill and Intangible Assets, Net

The following sets forth the intangible assets by major asset class, all of which were acquired through business purchase transactions:

January 31, 2021 January 31, 2020

Useful Life (Years) Original Cost Accumulated Amortization Net Book Value Original

Cost Accumulated Amortization Net Book Value

Customer contracts and relationships (1)

10 $ 5.7 $ 3.2 $ 2.5 $ 43.0 $ 2.4 $ 40.6

Covenants not to compete 1.5 - 3

0.5 0.5 — 4.7 1.9 2.8

Developed technologies 15 — — — 3.3 0.9 2.4

Total intangible assets $ 6.2 $ 3.7 $ 2.5 $ 51.0 $ 5.2 $ 45.8

(1) The customer contracts and relationships intangible asset’s useful life was reduced from 20 to 10 years as of July 31, 2020.

Amortization expense associated with intangible assets was $ 4.0 and $ 3.9 for the year ended January 31, 2021 and 2020, respectively.

During the year ended January 31, 2021, accelerated amortization of $ 2.7 was recognized related to the Company’s customer contracts and relationships long-lived intangible.

Due to the accelerated amortization of intangible assets, the Company does not expect to recognize future material amortization expense related to intangible assets.

Actual future amortization expense may be different due to future acquisitions, impairments, changes in amortization periods or other factors.

During the second quarter 2020 review of the customer relationship intangible assets, an analysis of the future contributions to revenue from these customers resulted in forecast declines of approximately 50 %.

As a result of the review, the Company recognized a charge of $ 2.7 reflecting accelerated amortization to reduce the carrying value of its customer relationships intangible.

The accelerated amortization charge is included in the consolidated statement of operations for the year ended January 31, 2021.

Goodwill and indefinite life intangible assets are tested 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.

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 novel coronavirus (“COVID-19”) pandemic emerged and applied 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.

The combination of the COVID-19 pandemic and supply concerns drove a steep drop in oil prices, which led to decreases in demand for the Company’s services and lower current and expected revenues for the Company.

Based on the impairment indicators above, the Company performed a goodwill and long-lived asset impairment analysis as of the April 30, 2020.

The results of the impairment analysis concluded that the carrying amount of the long-lived assets exceeded the relative fair values of two of the reporting units asset groups.

As a result, the Company recorded a $ 180.4 long-lived asset impairment charge, $ 39.2 related to intangible assets and $ 141.2 related to property and equipment, which is included in the consolidated statement of operations for the year ended January 31, 2021.

This charge reflects $ 91.3 and $ 89.1 of the long-lived assets attributable to the Southwest and Northeast/Mid-Con segments, respectively.

Determining fair value requires the use of estimates and assumptions.

Such estimates and assumptions include revenue growth rates, operating profit margins, weighted average cost of capital, terminal growth rates, future market share and future market conditions, among others.

The Company’s cash flow projections were a significant input into the April 30, 2020 fair values.

See Note 10 for additional information regarding the fair value determination.

If the Company continues to be unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Company’s long-lived assets.

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.

See Note 10 for additional information regarding the fair value determination.

The results of the goodwill impairment test as of April 30, 2020 indicated that goodwill was impaired because the carrying value of the Rocky Mountains reporting unit exceeded its relative fair value.

Accordingly, the Company recorded a $ 28.3 goodwill impairment charge, which is included in the consolidated statement of operations for the year ended January 31, 2021.

This charge reflects the full value of the goodwill attributable to the Rocky Mountains segment, leaving the Company with no goodwill as of January 31, 2021.

The Company recorded a $ 47.0 goodwill impairment charge during the year ended January 31, 2020, which is included in the consolidated statements of operations.

The charges reflect the full value of the goodwill attributable to the Northeast/Mid-Con and Southwest segments.

The changes in the carrying amount of goodwill for the years ended January 31, 2021 and 2020 are as follows:

Balance, January 31, 2019 $ 43.2

Acquisitions 31.8

Purchase price adjustments 0.3

Goodwill impairment ( 47.0 )

Balance, January 31, 2020 28.3

Goodwill impairment ( 28.3 )

Balance, January 31, 2021 $ —

As of December 31, 2022 and December 31, 2021, the Company’s consolidated balance sheet includes assets classified as held for sale of $ 4.9 and $ 1.9 , respectively.

As of December 31, 2022, the assets held for sale are reported within prepaid expenses and other current assets on the consolidated balance sheet and

represent the value of two facilities, land and select equipment.

These assets are being actively marketed for sale as of December 31, 2022 and are recorded at the lower of their carrying value or fair value less costs to sell.

NOTE 5 - Accrued Liabilities

Accrued liabilities consisted of the following:

January 31, 2021 January 31, 2020

December 31, 2022 December 31, 2021

Accrued salaries, vacation and related benefits $ 16.3 $ 13.9

Accrued property taxes 2.3 2.8

Accrued taxes other than property 4.7 3.0

Accrued lease termination costs — 0.1

Accrued incentive compensation 12.2 1.5

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NOTE 6 - Long-Term Debt

Long-term debt consisted of the following:

January 31, 2021 January 31, 2020

Outstanding long-term debt consisted of the following:

December 31, 2022 December 31, 2021

Senior Secured Notes $ 237.3 $ 250.0

Less unamortized debt issuance costs 6.1 7.0

Total debt obligations, net of debt issuance costs 243.9

Capital leases 6.3 —

current portion of capital lease obligations ( 1.9 ) —

Total long-term debt and capital lease obligations 248.3 243.0

As of January 31, 2021, long-term debt consisted of $ 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.

ABL Facility 50.0 30.0

Total principal outstanding 287.3

Unamortized debt issuance costs ( 3.9 ) ( 5.2 )

Total debt $ 283.4 $ 274.8

As of December 31, 2022, long-term debt included $ 237.3 principal amount of 11.5 % senior secured notes due 2025 (the “Senior Notes”) offered pursuant to Rule 144A under the Securities Act of 1933 (as amended, 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.

Interest expense amounted to $ 30.7 and $ 29.2 for the years ended January 31, 2021 and 2020, respectively.

Accrued interest as of January 31, 2021 and 2020 was $ 7.2 for both periods.

As of January 31, 2021, the Company also had a $ 100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”).

On a net basis, after taking into consideration the debt issuance costs for the Senior Notes, long-term debt related to the Senior Notes 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.

Interest expense related to the Senior Notes amounted to $ 28.6 and $ 28.6 for the year ended December 31, 2022 and Transition Period ended December 31, 2021, respectively.

Accrued interest related to the Senior Notes as of December 31, 2022 and December 31, 2021 was $ 4.6 and $ 4.8 , respectively.

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.

As of December 31, 2022, the Company also had a $ 100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”).

The ABL Facility became effective on September 14, 2018 and matures in September 2024.

On October 22, 2018, the ABL Facility was amended primarily to permit the Company to issue the Notes and acquire Motley and the definition of the required ratio (as defined in the ABL Facility) was also amended as a result of the Notes issuance.

Unamortized deferred costs for the ABL Facility of $ 0.7 and $ 0.9 were recorded in other non-current assets as of January 31, 2021 and 2020, respectively.

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

There were no outstanding amounts under the ABL Facility as of January 31, 2021 or 2020.

On October 22, 2018, the ABL Facility was

amended primarily to permit the Company to issue the Senior Notes and acquire Motley and the definition of the required ratio (as defined in the ABL Facility) was also amended as a result of the Senior Notes issuance.

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.

Unamortized deferred costs for the ABL Facility of $ 1.7 and $ 0.4 were recorded in other non-current assets as of December 31, 2022 and December 31, 2021, respectively.

Borrowings outstanding under the ABL Facility were $ 50.0 and $ 30.0 as of December 31, 2022 and December 31, 2021, respectively, and bear interest at a rate equal to Term SOFR plus the applicable margin (as defined in the ABL Facility).

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

Interest expense amounted to $ 2.6 for the year ended December 31, 2022.

Accrued interest under the ABL Facility was $ 0.2 as of December 31, 2022.

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.

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

Availability under the ABL Facility is determined by the borrowing base formula calculated based on a percentage of our accounts receivable and inventory, net of a consolidated fixed charge coverage ratio (“FCCR”) holdback of $ 10.0 .

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.

Availability under the ABL Facility was $ 34.9 , net of $ 10.0 FCCR holdback, as of January 31, 2021.

The ABL Facility includes a financial covenant which requires the Company’s consolidated fixed charge coverage ratio (“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.

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.

We have funds available of $ 44.4 based on the December 2022 borrowing base certificate.

The Company uses standby letters of credit to facilitate commercial transactions with third parties and to secure our performance to certain vendors.

Total letters of credit outstanding under the ABL Facility were $ 6.7 at January 31, 2021.

Total letters of credit outstanding under the ABL Facility were $ 5.6 at December 31, 2022.

To the extent liabilities are incurred as a result of the activities covered by the letters of credit, such liabilities are included on the accompanying consolidated balance sheets.

Maturities of long-term debt are as follows:

Years ended January 31,

Years ending December 31, Amount

Total maturities of long-term debt $ 287.3

Capital Lease Obligations

The Company acquired QES's long-term capital lease agreements in the Merger.

The leases are for a manufacturing and office facility supporting completion operations in Oklahoma City, Oklahoma and Elk City, Oklahoma.

The capital lease for the facility in Oklahoma City, Oklahoma commenced in December 2006 and is payable monthly in amounts ranging from $ 28,000 to $ 35,000 over the 20 year lease term.

The lease for the facility in Elk City, Oklahoma commenced in April 2007 is payable monthly in amounts ranging from $ 25,000 to $ 29,000 over the 20 year lease term.

During Fiscal 2020, the Company leased certain vehicles, machinery and service equipment under capital leases.

The capital lease obligations for these assets have lease terms ranging from 36 months to 55 months, and the interest rates range between 3.0 % to 7.0 %.

As of January 31, 2021, the future minimum lease payments acquired under the Company’s capital leases are as follows (in millions of dollars):

Years ended January 31,

NOTE 7 - Leases

The Company, as part of its normal business operations, leases certain equipment, vehicles, manufacturing facilities, and office space under various operating and finance leases.

We determine if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits and has the ability to direct the use of the underlying asset.

Leases with an initial term of twelve months or less meet the definition of a short-term lease and are not recorded on the balance sheet.

At the lease commencement date, the Company recognized a lease liability and an ROU asset representing its right to use the underlying asset over the lease term.

The initial measurement of the lease liability is calculated on the basis of the present value of the remaining lease payments and the ROU asset is measured on the basis of this liability, adjusted by prepaid and accrued rent, lease incentives, and initial direct costs.

The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease.

Operating lease cost is recognized on a straight-line basis over the lease term, with the cost presented as a component of the Selling, general and administrative expenses line item in the Consolidated Statement of Operations.

Finance lease cost is comprised of a separate interest component and amortization component and is presented as a component of the Interest expense, net and Depreciation and amortization line items, respectively, in the Consolidated Statement of Operations.

Certain of our leases require other payments such as costs related to service components, real estate taxes, common area maintenance, and insurance.

These costs are generally variable in nature and based on the actual costs incurred and required by the lease.

As the Company has elected to not separate lease and nonlease components for all classes of underlying asset, all variable costs associated with the lease are expensed in the period incurred and presented and disclosed as variable lease costs.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive financial covenants.

Our leases have remaining lease terms of one year to eight years , some of which include options to extend the leases for up to five years , and some of which include options to terminate the leases within one year .

Options to extend a lease term are considered within the lease term when the lessee is reasonably certain to exercise the option while termination options are considered within the lease term when they are reasonably certain not to be exercised.

Topic ASC 842 requires that a lessee use the rate implicit in the lease when measuring the lease liability and ROU asset, when available.

Alternatively, the Company is permitted to use its incremental borrowing rate which is defined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate when measuring its leases.

We estimate our incremental borrowing rate to discount the lease payments at the lease commencement date based on credit adjusted interest rates available to us over the lease term.

The Company does not have any material leases that have not yet commenced that would create significant rights and obligations, nor does it have any leases with related parties.

Additionally, the Company’s leases do not impose any restrictions or covenants on us.

Short-term lease expense is not material for the Company.

The components of lease expense were as follows:

December 31, 2022 December 31, 2021

Operating lease fixed cost $ 18.3 $ 9.2

Finance lease fixed cost 7.3 3.4

Interest on lease liabilities 1.4 0.5

Lease variable cost 3.1 4.9

Total lease cost $ 30.1 $ 18.0

Supplemental cash flow information related to leases was as follows:

December 31, 2022 December 31, 2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases $ 18.3 $ 19.9

Operating cash flows for finance leases 1.4 2.6

Financing cash flows for finance leases 9.7 0.5

ROU assets obtained in exchange for lease obligations:

Operating leases (1)

Finance leases 25.6 2.6

(1) Amount for Transition Period ended December 31, 2021 excludes the impact of adopting ASC 842.

Supplemental balance sheet information related to leases was as follows:

December 31, 2022 December 31, 2021

Operating Leases

Operating lease assets $ 37.4 $ 47.4

Current portion of operating lease liabilities $ 14.2 $ 15.9

Long-term operating lease liabilities 22.8 31.5

Total operating lease liabilities $ 37.0 $ 47.4

Finance leases

Property and equipment, net $ 29.4 $ 12.5

Total finance lease assets $ 29.4 $ 12.5

Current portion of finance lease liabilities $ 10.2 $ 5.6

Long-term finance lease liabilities 20.3 9.1

Total finance lease liabilities $ 30.5 $ 14.7

Weighted Average Remaining Lease Term

Operating leases (in years)

Finance leases (in years)

Weighted Average Discount Rate

Operating leases 5.6 % 5.0 %

Finance leases 8.3 % 6.0 %

Maturities of lease liabilities were as follows:

Years ending December 31, Operating Leases Finance Leases

2023 $ 15.8 $ 12.3

2024 13.7 11.3

Thereafter 0.3 —

Total capital lease payments 7.3

Total lease payments 40.2 34.6

imputed interest ( 3.2 ) ( 4.1 )

Total maturities of capital lease obligations $ 6.3

The interest expense associated with the capital lease payments during the year ended January 31, 2021 and 2020 totaled $ 0.3 and $ 0.0 , respectively.

Total $ 37.0 $ 30.5

NOTE 8 - Fair Value Information

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The carrying amounts of cash and cash equivalents, accounts receivable-trade and accounts payable represent their respective fair values due to their short-term nature.

There was no debt outstanding under the ABL Facility as of January 31, 2021.

The fair value of the Notes, based on market prices for publicly traded debt, which the Company classifies as Level 2 inputs, was $ 132.5 and $ 202.5 as of January 31, 2021 and 2020, respectively.

During the year ended January 31, 2021, goodwill and long-lived assets, including certain property and equipment and purchased intangibles subject to amortization, were impaired as a result of the interim goodwill and long-lived asset impairment tests performed as of April 30, 2020.

The goodwill Level 3 fair value was determined using the average of the guideline public company analysis and the discounted cash flow analysis, both of which were unobservable.

The long-lived asset Level 3 fair value was determined using the discounted cash flow analysis using the market and income approaches, both of which were unobservable.

Fair value is measured as of the impairment date.

The carrying value and fair values of the impaired assets as of April 30, 2020 was $ 194.0 and $ 52.8 for property and equipment, net, $ 28.3 and $ 0.0 for goodwill, and $ 39.2 and $ 0.0 for intangible assets, net, respectively.

See Note 7 for a discussion of the changes in goodwill and long-lived asset values due to impairment charges recorded during the year ended January 31, 2021.

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

The fair value of the ABL Facility approximates its carrying value as of December 31, 2022.

The following tables present the placement in the fair value hierarchy of the Senior Notes, based on market prices for publicly traded debt, as of December 31, 2022 and December 31, 2021:

Fair value measurements at reporting date using

December 31, 2022 Level 1 Level 2 Level 3

Senior Secured Notes, 11.5 Percent Due 2025

$ 213.5 $ — $ 213.5 $ —

Total Senior Secured Notes $ 213.5 $ — $ 213.5 $ —

Fair value measurements at reporting date using

December 31, 2021 Level 1 Level 2 Level 3

Senior Secured Notes, 11.5 Percent Due 2025

$ 136.3 $ — $ 136.3 $ —

Total Senior Secured Notes $ 136.3 $ — $ 136.3 $ —

The following tables present the placement in the fair value hierarchy of Assets Held for Sale, as disclosed in Note 4, based on sales contracts and comparative price quotes, as of December 31, 2022 and December 31, 2021:

Fair value measurements at reporting date using

December 31, 2022 Level 1 Level 2 Level 3

Assets Held for Sale $ 2.3 $ — $ 2.3 $ —

Total Assets Held for Sale $ 2.3 $ — $ 2.3 $ —

Fair value measurements at reporting date using

December 31, 2021 Level 1 Level 2 Level 3

Assets Held for Sale $ 1.9 $ — $ 1.9 $ —

Total Assets Held for Sale $ 1.9 $ — $ 1.9 $ —

During the twelve months ended December 31, 2022, the before-tax loss (gain) related to Assets Held for Sale was $( 0.3 ).

During the eleven months ended December 31, 2021, the before-tax loss related to Assets Held for Sale was $ 1.0 .

NOTE 9 - Commitments, Contingencies and Off-Balance-Sheet Arrangements

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.

Rent expense for the years ended January 31, 2021 and 2020 was $ 39.3 and $ 44.3 , respectively.

Future payments under operating leases with terms greater than one year as of January 31, 2020 are as follows:

Years ended January 31,

Thereafter 1.1

Total future operating lease payments $ 72.1

Environmental Regulations & Liabilities

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However, the Company cannot predict the future impact of such laws and regulations, as well as standards and requirements, on its business, which are subject to change and can have retroactive effectiveness.

Currently, the Company has not been fined, cited or notified of any

environmental violations or liabilities that would have a material adverse effect on its consolidated financial statement position, results of operations, liquidity or capital resources.

Currently, the Company has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect on its consolidated financial statement position, results of operations, liquidity or capital resources.

However, management does recognize that by the very nature of its business, material costs could be incurred in the future to maintain compliance.

The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions that may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

During the year ended January 31, 2020, the Company discovered a credit card theft of approximately $ 2.6 (which is included in cost of sales for the year ended January 31, 2020) and promptly reported the theft to its insurers and law enforcement.

The Company also filed suit against several third parties to recover damages related to the theft.

During the year ended January 31, 2021, the Company received an insurance reimbursement of $ 2.5 from insurance providers (which is included in cost of sales for the year ended January 31, 2021).

The Company implemented additional expenditure controls to reduce the likelihood of similar thefts in the future, such as daily limits on all fuel cards and additional credit card activity reviews by management.

The Company is at times either a plaintiff or a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s consolidated financial statements, except as noted herein.

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(“Magellan”), Redmon-Keys Insurance Group, Inc.

("Redmon") and Certain Underwriters at Lloyd's ("Underwriters") to recover $ 4.6 owed on invoices duly issued by the Company for services rendered on behalf of defendants in response to an offshore well blowout near Bob Hall Pier in Corpus Christi, Texas.

Magellan did not dispute the invoices or the charges therein but alleged an inability to pay prior to obtaining funding from Underwriters under Magellan's Owner's Extra Expense ("OEE") policy.

An OEE policy is an industry norm to provide insurance coverage in the event of a blowout.

Magellan's OEE policy has a limit of $ 20 .

We believe that total invoices issued to Magellan by its blowout vendors total $ 14.3 and are within policy limits.

The Company's Texas court action includes claims against Magellan and as an additional insured under the OEE policy and also against Redmon-Keys as Magellan's broker who issued the additional insured certificate to the Company.

On March 19, 2021, Underwriters filed a declaratory judgment action in the United States District Court for the Southern District of Texas seeking a declaration that approximately $ 7.4 of the total $ 14.3 in blowout related expenses fall outside of policy coverage referencing a date on which they believe coverage ceased to apply.

The Company disputes Underwriters allegations on coverage and will likely litigate the issue in one or more court actions.

Nonetheless, we note here that approximately $ 2.3 or half of the Company's total $ 4.6 in invoice to Magellan relate to services rendered and materials provided prior to the coverage dispute date alleged by Underwriters.

In its declaratory judgment action, Underwriters further alleged that it had made some payments to Magellan.

As Magellan had not made onward payments to the Company, the Company filed a request for a Temporary Restraining Order ("TRO") against Magellan in its Texas state court lawsuit.

On March 30, 2021, hours before the TRO hearing, Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S.

and certain underwriters at Lloyd's to recover $ 4.6 owed on invoices duly issued by the Company for services rendered on behalf of the defendants in response to an offshore well blowout near Bob Hall Pier in Corpus Christi, Texas.

Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S.

bankruptcy code.

The Company believes that the OEE policy is now an asset of the Chapter 7 estate.

The bankruptcy proceedings are in their initial stages.

At this time, the Company has reserved the full amount of its invoices totaling $ 4.6 as a prudent action in light of the Chapter 7 filing.

However, we believe that the proceeds from the OEE policy will ultimately be allocated to the blowout creditors and will be offering our support to the U.S.

Trustee in its pursuit of full recovery under the OEE policy from Underwriters.

The bankruptcy proceedings are ongoing.

During the fiscal year ended January 31, 2021, the Company reserved the full amount of its invoices totaling $ 4.6 as a prudent action in light of the Chapter 7 filing.

Indemnities, Commitments and Guarantees

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

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

However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities

are contingent upon the occurrence of events that are not reasonably determinable.

Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying consolidated financial statements.

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

The Company has employment agreements with certain key members of management expiring on various dates.

The Company’s 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.

NOTE 10 - Employee Retirement Plans

3 unchanged sentences

Under the terms of this plan, covered employees may contribute up to 100 % of their annual compensation, limited to certain statutory maximum contributions.

Following the Merger, the Company continued to sponsor the legacy QES 401(k) Plan and the KLX 401(k) Plan through the end of their respective Plan year – December 31, 2020.

Pursuant to the KLX 401(k) Plan, the Company had a non-discretionary match with a matching percentage of 100 % of the first 3 % of employee contributions and 50 % on the next 2 % of employee contributions, and the matching contribution vested immediately.

Pursuant to the QES 401(k) Plan, the Company’s matching was discretionary with a matching percentage of 50 % of the first 6 % of employee contributions.

Given the QES match was discretionary, it was suspended prior to the Merger through August 7, 2020.

On December 31, 2020, the KLX 401(k) Plan was terminated and its assets were transferred to the QES 401(k) Plan, which was renamed the KLX Energy Services Holdings, Inc.

On a go forward basis, participants are vested in discretionary matching contributions in an amount equal to 50 % of the first 6 % of an employee’s eligible compensation that is contributed to the 401(k) Plan based on a 3 year vesting schedule.

Total expense for the Plans was $ 1.9 and $ 4.1 for the years ended January 31, 2021 and 2020, respectively.

Participants would vest in discretionary matching contributions in an amount equal to 50 % of the first 6 % of an employee’s eligible compensation that is contributed to the 401(k) Plan based on a 3-year vesting schedule.

Note that in the second quarter of 2021, the Company suspended the 401(k) Plan match, in the fourth quarter of 2021 reinstated it at a rate of 50 % for the first 4 %, and in the fourth quarter of 2022 fully reinstated it at the rate of 50 % of the first 6 %.

Total expense for the Plan was $ 2.7 and $ 0.7 for the year ended December 31, 2022 and Transition Period ended December 31, 2021, respectively.

NOTE 11 - Stock-Based Compensation

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 “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 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 Offering filed with the SEC on June 14, 2021 and any applicable additional prospectus supplements related to the 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 3.0 % of the gross sales price of the Common Stock sold.

The Company plans to use the net proceeds from the 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.

The Company has a Long-Term Incentive Plan (“LTIP”) under which the compensation committee of the Board (the “Compensation Committee”) has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity-based or equity-related awards.

Compensation cost for the LTIP grants is generally recorded on a straight-line basis over the vesting term of the shares based on the grant date value using the closing trading price.

Compensation cost recognized during the year ended January 31, 2021 and 2020 related to grants of restricted stock granted by or approved by the Compensation Committee.

Certain grants of restricted stock to directors and management accelerated in connection with the Merger on July 28, 2020, resulting in approximately $ 15.1 of stock-based compensation expense during the year ended January 31, 2021.

As a result, stock-based compensation was $ 17.8 and $ 18.2 for the year ended January 31, 2021 and 2020, respectively.

Unrecognized compensation cost related to restricted stock awards made by the Company was $ 3.7 at January 31, 2021.

As of the date of the QES acquisition, each unvested QES restricted stock unit award was converted into a replacement KLXE restricted stock unit award at a conversion rate of 0.0969 .

Approximately 2.0 million

shares of QES common stock subject to awards outstanding were converted to 0.2 million shares of common stock assumed by KLXE.

On February 12, 2021, the stockholders of KLXE approved the KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan (Amended and Restated as of December 2, 2020) (the “Amended and Restated LTIP”), which, among other things, increased the total number of shares of Company Common Stock, par value $ 0.01 per share, and reserved for issuance under the Amended and Restated LTIP by 632,051 shares.

A description of the Amended and Restated LTIP is included in the Company’s proxy statement, filed with the SEC on January 11, 2021.

Stock-based compensation cost recognized during the year ended December 31, 2022 and Transition Period ended December 31, 2021 related to grants of restricted stock granted by or approved by the Compensation Committee.

Stock-based compensation was $ 3.0 and $ 3.2 for the year ended December 31, 2022 and the Transition Period ended December 31, 2021, respectively.

Unrecognized compensation cost related to restricted stock awards made by the Company was $ 4.2 at December 31, 2022 and $ 6.8 at December 31, 2021.

The Company also has a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85 % of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

Because the ESPP did not have enough shares reserved to satisfy outstanding options to purchase during the offering period ended June 30, 2020, the Company refunded participants’ contributions.

In addition, the Company agreed with QES to temporarily suspend the ESPP due to the Merger.

As a result, compensation cost was $ 0.0 and $ 0.3 for the year ended January 31, 2021 and 2020, respectively.

The Company’s stockholders approved an amendment to the ESPP at the Company’s annual meeting on July 24, 2020, for an increase of 0.3 million shares to the ESPP’s share reserve.

As of January 31, 2021 the ESPP plan remained suspended.

As a result, compensation cost was nil for both the year ended December 31, 2022 and the Transition Period ended December 31, 2021.

As of December 31, 2022, the ESPP plan has been terminated.

The following table summarizes shares of restricted stock awards that were granted, vested, forfeited and outstanding.

Year ended January 31, 2021 Year ended January 31, 2020

Year Ended Transition Period Ended

December 31, 2022

December 31, 2021

(in thousands) Weighted Average Grant Date Fair

2 unchanged sentences

(in years) Number of

(in thousands) (1)

Weighted Average Grant Date Fair

Value per Share (1)

Weighted Average

(in thousands) Weighted Average Grant Date Fair

Value per Share Weighted Average

Remaining vesting Period

Outstanding, beginning of period 540 $ 14.95 2.5 248 $ 20.14 1.61

Shares granted including QES 401 7.39 124 41.05

Shares granted 196 6.88 444 14.97

Shares vested ( 217 ) 14.97 ( 106 ) 22.17

1 unchanged sentence

Outstanding, end of period 511 $ 11.86 2.0 540 $ 14.95 2.50

(1) The number of shares and weighted average grant date fair value per share were retroactively adjusted for the Company’s 1-for-5 Reverse Stock Split effective July 28, 2020.

NOTE 12 - Income Taxes

Income tax expense (benefit) consisted of the following:

Year Ended January 31,

Income tax expense consisted of the following:

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Federal $ — $ —

2 unchanged sentences

Federal $ — $ —

State ( 0.1 ) ( 0.9 )

Total deferred income tax expense (benefit) — —

Total income tax expense (benefit) $ 0.4 $ ( 8.5 )

Year Ended January 31,

Total income tax expense $ 0.6 $ 0.3

A reconciliation of income tax expense using the federal statutory income tax rate to the actual income tax consists of the following:

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Income tax provision computed at the statutory federal rate $ ( 0.5 ) $ ( 19.6 )

5 unchanged sentences

Officer compensation 0.9 —

Tax credits — ( 0.2 )

Goodwill impairment 3.5 3.9

Acquisition costs 0.4 0.4

Total income tax expense (benefit) $ 0.4 $ ( 8.5 )

Income tax expense was $ 0.4 for the year ended January 31, 2021, relating to the Texas franchise tax, which reflects an effective tax rate of approximately ( 0.11 )%.

Total income tax expense $ 0.6 $ 0.3

Income tax expense was $ 0.6 for the year ended December 31, 2022, relating to the Texas franchise tax, which reflects an effective tax rate of approximately ( 24.0 )%.

The Company did not recognize a tax benefit on its year-to-date losses due to the full valuation allowance recorded against its net deferred tax assets.

The prior year income tax benefit of $ 8.5 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 , which was partially offset by state tax expense of $ 0.4 .

The prior year income tax expense of $ 0.3 related to the Texas franchise tax.

The tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consisted of the following:

Year Ended January 31, 2021 Year Ended January 31, 2020

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Deferred tax assets:

2 unchanged sentences

Net operating loss carryforward 152.5 153.4

Operating lease liabilities 8.7 11.5

Inventory capitalization 0.8 0.7

Interest expense limitation 14.3 7.1

$ 262.1 $ 131.1

Deferred tax liability:

Deferred tax liabilities:

Bargain purchase gain $ ( 9.4 ) $ ( 9.6 )

Operating lease assets ( 8.3 ) ( 10.7 )

Other ( 0.7 ) ( 1.3 )

8 unchanged sentences

The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on its deferred tax assets.

As of January 31, 2021, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets as a result of historical losses, the difficulty of forecasting future taxable income, and other factors.

As of December 31, 2022, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets as a result of historical losses, the difficulty of forecasting future taxable income, and other factors.

Given the weight of objectively verifiable historical losses from the Company's operations, it has recorded a full valuation allowance on its deferred tax assets, exclusive of $ 0.1 relating to the Texas franchise tax to which the Company expects to fully realize.

The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reversal.

As of January 31, 2021 and 2020, the Company recorded valuation allowances of $( 233.5 ) and $( 74.9 ), respectively.

The change in the valuation allowance from January 31, 2020, was an increase of $ 158.6 which is comprised of $ 71.2 current year activity and $ 87.4 from QES.

The Company had an ownership change during the year.

As of December 31, 2022 and December 31, 2021, the Company recorded valuation allowances of $ 249.8 and $ 257.5 , respectively.

The change in the valuation allowance from December 31, 2021 was a decrease of $ 7.7 , which is comprised of $ 5.1 current year activity and $ 2.6 from other activity.

The decrease in the Company's valuation allowance was primarily attributable to the improvement in operating results and changes to statutory tax rates.

Internal Revenue Code (“IRC”) Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future U.S.

taxable income in the event of a change in ownership.

The Company's annual limitation of tax-effected federal net operating loss utilization under Section 382, is approximately $ 0.1 .

As of January 31, 2021, the Company had tax-effected U.S.

federal net operating loss carryforwards of $ 81.8 , which includes $ 70.0 of net operating losses subject to an IRC Section 382 limitation, exclusive of QES pre-merger net operating losses.

The Company also had tax-effected state net operating loss carryforwards of $ 11.3 as of January 31, 2021, which begin to expire for tax years ending in 2024.

As of January 31, 2020, the Company had $ 33.5 of tax-effected U.S.

federal net operating losses and $ 2.9 of tax-effected state net operating losses.

The Company had an ownership change during 2020 and the Company's annual limitation of tax-effected federal net operating loss utilization under Section 382, is approximately $ 0.1 .

In addition, on July 28, 2020, the Company completed the all stock merger with QES, in which QES became a wholly owned subsidiary of the Company, triggering an ownership change under IRC Section 382.

On the merger date, QES estimated a tax-effected $ 35.3 federal net operating loss carryforward.

The ownership change results in an annual limitation of tax-effected federal net operating loss utilization of approximately $ 0.1 under Section 382.

The Company has recorded a valuation allowance on the net operating loss balance as it believes that it is more likely than not that the deferred tax asset will not be realized.

The ownership change resulted in an annual limitation of tax-effected federal net operating loss utilization of approximately $ 0.1 under Section 382 on QES tax attributes generated prior to the ownership change date, which begin to expire in 2029.

The Company had tax-effected U.S.

federal net operating loss carryforwards of $ 140.0 and $ 137.5 , for the year ended December 31, 2022 and for the Transition period ended December 31, 2021, respectively.

Of these net operating losses, $ 106.5 is subject to an IRC Section 382 limitation.

The Company also had tax-

effected state net operating loss carryforwards of $ 12.5 for the year ended December 31, 2022, and $ 15.9 for the Transition Period ended December 31, 2021, which begin to expire for tax years ending in 2024.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company had no unrecognized tax benefits for years ended January 31, 2021 and 2020.

The Company had no unrecognized tax benefits for the year ended December 31, 2022 and Transition Period ended December 31, 2021.

The Company is subject to taxation in the United States and various states.

Tax years that remain subject to examinations by major tax jurisdictions are generally open for tax years ending in 2019 and after.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus.

These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws.

The Coronavirus Aid, Relief, and Economic Security Act, which was enacted on March 27, 2020 in the United States, includes measures to assist companies, including temporary changes to income and non-income-based tax laws.

The Company has deferred the employer portion of FICA tax payments of $ 3.8 through December 31, 2020.

This deferral is included on the consolidated balance sheet.

Accrued and other non-current liabilities each have a balance of $ 1.9 .

These payments are due in two installments:

half on December 31, 2021;

and half on December 31, 2022.

The Company continues to monitor additional guidance issued by the U.S.

Treasury Department, the Internal Revenue Service and others.

NOTE 13 - Segment Reporting

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The Company’s reportable segments, which are also its operating segments, are comprised of the Southwest Region (the Permian Basin and the Eagle Ford Shale), 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 Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale).

The segments regularly report their results of operations and make requests

for capital expenditures and acquisition funding to the CODM.

As a result, the CODM has determined the Company has three reportable segments.

The segments regularly report their results of operations and make requests for capital expenditures and acquisition funding to the CODM.

As a result, Company has three reportable segments.

The following table presents revenues and operating (loss) earnings by reportable segment:

January 31, 2021 January 31, 2020

Southwest $ 83.6 $ 177.9

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Rocky Mountains $ 229.0 $ 118.2

Southwest 255.2 160.9

Northeast/Mid-Con 297.4 157.0

Total revenues 781.6 436.1

Operating (loss) earnings (1)(2)

Southwest ( 120.0 ) ( 37.4 )

Operating income (loss)

Rocky Mountains 27.3 ( 13.4 )

Southwest 14.5 ( 15.4 )

Northeast/Mid-Con 39.1 ( 8.7 )

1 unchanged sentence

( 48.4 ) ( 26.6 )

Bargain purchase gain 40.3 —

Total operating loss ( 301.1 ) ( 75.7 )

Total operating income (loss) 32.5 ( 64.1 )

Interest expense, net 35.0 29.4

Loss before income tax $ ( 2.5 ) $ ( 93.5 )

(1) 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 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.

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

(2) Operating loss for the year ended January 31, 2021 includes impairment and other charges of $ 213.9 of which $ 92.3 was attributable to the Southwest segment, $ 28.3 was attributable to the Rocky Mountains segment, $ 90.9 was attributable to the Northeast/Mid-Con segment and $ 2.4 was attributable to Corporate and other.

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

The following table presents revenues by service offering by reportable segment:

January 31, 2021 January 31, 2020

Southwest Rocky

Mountains Northeast

/Mid-Con Total Southwest Rocky

Mountains Northeast

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Mountains Southwest Northeast

/Mid-Con Total Rocky

Mountains Southwest Northeast

/Mid-Con Total

4 unchanged sentences

Total revenues $ 229.0 $ 255.2 $ 297.4 $ 781.6 $ 118.2 $ 160.9 $ 157.0 $ 436.1

$ 177.9 $ 216.4

The following table presents total assets by segment:

January 31, 2021 (1)

January 31, 2020

Southwest $ 91.6 $ 153.3

December 31, 2022 December 31, 2021

Rocky Mountains $ 133.0 $ 127.7

Southwest 152.2 134.4

Northeast/Mid-Con 123.3 97.6

2 unchanged sentences

Total assets $ 465.9 $ 387.7

(1) See Note 7 for a discussion of the goodwill and long-lived asset impairment charge recorded during the year ended January 31, 2021.

The following table presents capital expenditures by reportable segment:

January 31, 2021 January 31, 2020

Southwest $ 3.5 $ 18.2

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Rocky Mountains $ 10.0 $ 2.4

Southwest 10.4 3.6

Northeast/Mid-Con 15.2 4.5

2 unchanged sentences

NOTE 14 - Net Loss Per Common Share

On July 28, 2020, immediately prior to consummation of the Merger, the Reverse Stock Split Amendment became effective and thereby effectuated the 1-for-5 Reverse Stock Split of the Company’s issued and outstanding common stock.

Basic net loss per common share is computed using the weighted average common shares outstanding during the period.

Diluted net loss per common share is computed by using the weighted average common shares outstanding, including the dilutive effect of restricted shares based on an average share price during the period.

For the year ended January 31, 2021 and 2020, 0.3 and 0.5 million shares of the Company’s common stock, respectively, were excluded from the determination of diluted net loss per common share because their effect would have been anti-dilutive.

The computations of basic and diluted net loss per share for the years ended January 31, 2021 and 2020 are as follows:

January 31, 2021 January 31, 2020

Diluted net loss per common share is computed by using the weighted average common shares outstanding, excluding unvested restricted shares when their inclusion would be anti-dilutive.

For the year ended December 31, 2022 and Transition Period ended December 31, 2021, we excluded 0.3 and 0.0 million shares of the Company’s common stock, respectively.

The computations of basic and diluted net loss per share for the year ended December 31, 2022 and Transition Period ended December 31, 2021 are as follows:

Year Ended Transition Period Ended

December 31, 2022 December 31, 2021

Net loss $ ( 3.1 ) $ ( 93.8 )

4 unchanged sentences

Basic net loss per common share $ ( 0.27 ) $ ( 10.83 )

$ ( 50.86 ) $ ( 21.61 )

Diluted net loss per common share $ ( 0.27 ) $ ( 10.83 )

$ ( 50.86 ) $ ( 21.61 )

(1) On July 28, 2020, each issued and outstanding share of QES common stock was automatically converted into the right

to receive 0.0969 shares of KLXE common stock, which reflects adjustment for the 1-for-5 Reverse Stock Split of the KLXE common stock effected immediately prior to the consummation of the Merger.

(2) Shares and per share data have been retroactively adjusted to reflect the Company ’ s 1-for-5 Reverse Stock Split effective July 28, 2020.

NOTE 17 - SUBSEQUENT EVENT

Amended and Restated LTIP

On February 12, 2021, the stockholders of KLXE approved the KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan (Amended and Restated as of December 2, 2020) (the “Amended and Restated LTIP”), which, among other things:

(i) increases the total number of shares of Company Common Stock, par value $ 0.01 per share, reserved for issuance under the Amended and Restated LTIP by 632,051 shares.

A description of the Amended and Restated LTIP is included in the Company’s proxy statement, filed with the Securities and Exchange Commission on January 11, 2021.

NOTE 15 - Subsequent Events

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 with 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”).

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.

The acquisition will be accounted for as a business combination under ASC 805, which requires assets acquired and liabilities assumed to be measured at their acquisition date fair value.

Provisional fair value measurement will be made in the first quarter of 2023 for acquired assets and assumed liabilities, and adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date as information necessary to complete the analysis is obtained.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data