KLX Energy Services Holdings, Inc. 10-K

Item 8. FINANCIAL STATEMENTS Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 69 Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021 70 Consolidated Statements of Operations for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021 71 Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021 72 Consolidated Statements of Cash Flows for the Year Ended December 31, 2022 and Transition Period Ended December 31, 2021 73 Notes to Consolidated Financial Statements 74 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of KLX Energy Services Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of KLX Energy Services Holdings, Inc. 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Houston, Texas March 9, 2023 We have served as the Company's auditor since 2018. 69 KLX Energy Services Holdings, Inc. Consolidated Balance Sheets (In millions of U.S. dollars and shares, except per share data) As of December 31 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 57.4 $ 28.0 Accounts receivable–trade, net of allowance of $ 5.7 and $ 6.4 154.3 103.2 Inventories, net 25.7 22.4 Prepaid expenses and other current assets 17.3 11.1 Total current assets 254.7 164.7 Property and equipment, net (1) 168.1 171.0 Operating lease assets 37.4 47.4 Intangible assets, net 2.1 2.2 Other assets 3.6 2.4 Total assets $ 465.9 $ 387.7 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 84.2 $ 72.1 Accrued interest 4.8 5.0 Accrued liabilities 41.0 24.1 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 operating lease liabilities 22.8 31.5 Long-term finance lease liabilities 20.3 9.1 Other non-current liabilities 0.8 1.0 Commitments, contingencies and off-balance sheet arrangements (Note 9) Stockholders’ equity: Common stock, $ 0.01 par value; 110.0 authorized; 14.3 and 10.5 issued 0.1 0.1 Additional paid-in capital 517.3 478.1 Treasury stock, at cost, 0.4 shares and 0.3 shares ( 4.6 ) ( 4.3 ) Accumulated deficit ( 528.6 ) ( 525.3 ) Total stockholders’ equity ( 15.8 ) ( 51.4 ) Total liabilities and stockholders' equity $ 465.9 $ 387.7 (1) Includes ROU assets - finance leases, see Note 4 - Property and Equipment, Net and Note 7 - Leases See accompanying notes to consolidated financial statements. 70 KLX Energy Services Holdings, Inc. Consolidated Statements of Operations (In millions of U.S. dollars, except per share data) Year Ended Eleven-month Transition Period Ended December 31, 2022 December 31, 2021 Revenues $ 781.6 $ 436.1 Costs and expenses: Cost of sales 621.3 389.9 Depreciation and amortization 56.8 53.8 Selling, general and administrative 70.4 54.6 Research and development costs 0.6 0.6 Impairment and other charges — 0.8 Bargain purchase gain — 0.5 Operating income (loss) 32.5 ( 64.1 ) Non-operating expense: Interest expense, net 35.0 29.4 Loss before income tax ( 2.5 ) ( 93.5 ) Income tax expense 0.6 0.3 Net loss $ ( 3.1 ) $ ( 93.8 ) Net loss per share-basic $ ( 0.27 ) $ ( 10.83 ) Net loss per share-diluted $ ( 0.27 ) $ ( 10.83 ) See accompanying notes to consolidated financial statements. 71 KLX Energy Services Holdings, Inc. Consolidated Statements of Stockholders' Equity Year Ended December 31, 2022 and Eleven-month Transition Period Ended December 31, 2021 ( In millions of U.S. dollars and shares ) Common Stock Additional Paid-in Capital Treasury Stock Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at January 31, 2021 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 — — — — — — Issuance of common stock, net of cost 1.4 — 5.8 — — 5.8 Net loss — — — — ( 93.8 ) ( 93.8 ) 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 ) Issuance of common stock, net of cost 3.6 — 36.2 — — 36.2 Net loss — — — — ( 3.1 ) ( 3.1 ) Balance at December 31, 2022 14.3 $ 0.1 $ 517.3 $ ( 4.6 ) $ ( 528.6 ) $ ( 15.8 ) See accompanying notes to consolidated financial statements. 72 KLX Energy Services Holdings, Inc. Consolidated Statements of Cash Flows (In millions of U.S. dollars) 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 from operating activities Depreciation and amortization 56.8 53.8 Impairment and other charges — 0.8 Non-cash compensation 3.0 3.2 Amortization of deferred financing fees 1.6 1.2 Provision for inventory reserve 2.8 0.8 Gain on disposal of property, equipment and other ( 13.2 ) ( 7.9 ) Bargain purchase gain — 0.5 Changes in operating assets and liabilities: Accounts receivable ( 51.0 ) ( 36.6 ) Inventories ( 6.2 ) ( 2.4 ) 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 ) Other ( 1.2 ) 0.5 Net cash flows provided by (used in) operating activities 15.7 ( 55.6 ) Cash flows from investing activities: Purchases of property and equipment ( 35.6 ) ( 11.0 ) Proceeds from sale of property and equipment 16.9 15.5 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 ) 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 Cash and cash equivalents, end of period $ 57.4 $ 28.0 Supplemental disclosures of cash flow information: Cash paid during period for: Income taxes paid, net of refunds $ 0.6 $ 0.3 Interest 33.7 30.5 Supplemental schedule of non-cash activities: Change in deposits on capital expenditures $ ( 0.2 ) $ — Change in accrued capital expenditures 0.4 5.3 See accompanying notes to consolidated financial statements. 73 KLX Energy Services Holdings, Inc. Notes to Consolidated Financial Statements (U.S. dollars in millions) NOTE 1 - Description of Business and Significant Accounting Policies Description of Business KLX Energy Services Holdings, Inc. (the “Company”, “KLXE” or “KLX Energy Services”) is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States. The Company delivers mission critical oilfield services focused on drilling, completion, production and intervention activities for the most technically demanding wells in over 50 service and support facilities located throughout the United States. The Company offers a complementary suite of proprietary products and specialized services that is supported by technically skilled personnel and a broad portfolio of innovative in-house manufacturing, repair and maintenance capabilities. KLXE’s primary services include coiled tubing, directional drilling, hydraulic fracturing rentals, fishing, pressure control, wireline, rig-assisted snubbing, fluid pumping, flowback, testing and well control services. 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” or "Board of Directors"). The Board subsequently resolved to implement the Reverse Stock Split at a ratio of 1-for-5. On July 28, 2020, KLX Energy Services, Krypton Intermediate, LLC, an indirect wholly owned subsidiary of KLXE, Krypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE (“Merger Sub”), and Quintana Energy Services Inc. (“QES”) completed the previously announced acquisition of QES, by means of a merger of Merger Sub with and into QES, with QES surviving the merger as a subsidiary of KLXE (the “Merger”). On July 28, 2020, immediately prior to the 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. Basis of Presentation The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP”). The consolidated financial statements include all accounts of KLXE and its subsidiaries. All intercompany transactions and account balances have been eliminated upon consolidation. 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 The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. 74 Revenue Recognition Revenue is recognized upon the customer obtaining control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC Topic 606, the following five steps are performed: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Revenue is recognized in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Service revenues are recorded over time throughout and for the duration of the service period pursuant to a master services agreement (“MSA”) combined with a completed field ticket or a work order. Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, typically upon delivery in accordance with the terms of the field ticket or work order. Income Taxes The Company accounts for deferred income taxes through the asset and liability method. Under this method, a deferred tax liability or asset is recognized for the expected future tax consequences resulting from the differences in financial reporting bases and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes accrued interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand, and certificates of deposits. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalents in various financial institutions, which at times may exceed federally insured amounts. Management believes that this risk is not significant. Accounts Receivable, Net The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of their current credit information. 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 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 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. 75 Inventories Inventories, made up primarily of dissolvable plugs, supplies, finished goods and other consumables used to perform services for customers. The Company values inventories at the lower of cost or net realizable value. 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 Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment. Acquired intangible assets with definite lives are amortized over their individual useful lives. 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. Leases 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 Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are tested for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. 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 76 The Company capitalizes certain third-party fees directly related to the issuance of debt and amortizes these costs over the life of the debt using the effective interest method. 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 $ 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 The Company has potential common stock equivalents related to its outstanding restricted stock awards and restricted stock units. These potential common stock equivalents are not included in diluted loss per share for any period presented in which there is a net loss because the effect would have been anti‑dilutive. Stock-Based Compensation 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 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. Concentration of Risk The Company provides products and services to energy industry customers who focus on developing and producing oil and gas onshore in North America. The Company’s management performs ongoing credit evaluations on the financial condition of all of its customers and maintains allowances for uncollectible accounts receivable based on expected collectability. Credit losses have historically been within management’s expectations and the provisions established. 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 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 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 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 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. 77 In March 2020, FASB issued 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. 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. 78 NOTE 3 - Inventories, net Inventories consisted of the following: December 31, 2022 December 31, 2021 Spare parts $ 17.9 $ 14.7 Plugs 6.3 6.0 Consumables 3.2 2.4 Other 2.7 2.0 Subtotal 30.1 25.1 Less: Inventory reserve ( 4.4 ) ( 2.7 ) 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 $ 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 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. NOTE 4 - Property and Equipment, Net Property and equipment consisted of the following: 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 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 ( 320.8 ) ( 280.1 ) Add: 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. 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. Assets Held for Sale 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 79 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: 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 Other accrued liabilities 5.5 2.8 Total accrued liabilities $ 41.0 $ 24.1 NOTE 6 - Long-Term Debt Outstanding long-term debt consisted of the following: December 31, 2022 December 31, 2021 Senior Secured Notes $ 237.3 $ 250.0 ABL Facility 50.0 30.0 Total principal outstanding 287.3 280.0 Less: 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 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 80 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. 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. 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 $ 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 ending December 31, Amount 2023 $ — 2024 50.0 2025 237.3 2026 — 2027 — Thereafter — Total maturities of long-term debt $ 287.3 81 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 82 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) $ 7.0 $ 1.3 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) 3.0 3.4 Finance leases (in years) 3.1 2.2 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 2025 5.1 7.8 2026 3.5 2.6 2027 1.8 0.6 Thereafter 0.3 — Total lease payments 40.2 34.6 Less: imputed interest ( 3.2 ) ( 4.1 ) Total $ 37.0 $ 30.5 83 NOTE 8 - Fair Value Information All financial instruments are carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations. Level 1 – quoted prices in active markets for identical assets and liabilities. Level 2 – quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities. Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions. 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 $ 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 $ — 84 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 Environmental Regulations & Liabilities The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment. The Company continues to monitor the status of these laws and regulations. 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. 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. Litigation 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. On March 9, 2021, the Company filed claims in the District Court of Harris County, Texas against Magellan E&P Holdings, Inc. (“Magellan”), Redmon-Keys Insurance Group, Inc. 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 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 During its ordinary course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, as well as indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments 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 85 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. NOTE 10 - Employee Retirement Plans The Company sponsors a qualified, defined contribution savings and investment plan, covering substantially all employees. The KLX Energy Services Holdings, Inc. Retirement Plan (“KLX 401(k) Plan”) was established pursuant to Section 401(k) of the Internal Revenue Code. Under the terms of this plan, covered employees may contribute up to 100 % of their annual compensation, limited to certain statutory maximum contributions. 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. 86 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. 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. In addition, the Company agreed with QES to temporarily suspend the ESPP due to the Merger. 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 Transition Period Ended December 31, 2022 December 31, 2021 Number of Shares (in thousands) Weighted Average Grant Date Fair Value per Share Weighted Average Remaining vesting Period (in years) Number of Shares (in thousands) Weighted Average Grant Date Fair Value per Share Weighted Average Remaining vesting Period (in years) Outstanding, beginning of period 540 $ 14.95 2.5 248 $ 20.14 1.61 Shares granted 196 6.88 444 14.97 Shares vested ( 217 ) 14.97 ( 106 ) 22.17 Shares forfeited ( 8 ) 15.82 ( 46 ) 27.85 Outstanding, end of period 511 $ 11.86 2.0 540 $ 14.95 2.50 . 87 NOTE 12 - Income Taxes Income tax expense consisted of the following: Year Ended Transition Period Ended December 31, 2022 December 31, 2021 Current: Federal $ — $ — State 0.6 0.3 Total current income tax expense $ 0.6 $ 0.3 Deferred: Federal $ — $ — State — — Total deferred income tax expense (benefit) — — 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 ) State income taxes, net of federal tax benefit 4.4 ( 2.8 ) Change in valuation allowance ( 5.1 ) 22.0 Non-taxable/non-deductible items 0.1 — Stock based compensation 0.4 0.3 Non-deductible meals and entertainment 0.4 0.4 Officer compensation 0.9 — 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 expense of $ 0.3 related to the Texas franchise tax. 88 The tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consisted of the following: Year Ended Transition Period Ended December 31, 2022 December 31, 2021 Deferred tax assets: Accrued liabilities $ 6.5 $ 5.4 Intangible assets 90.6 110.7 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 7.1 273.4 288.8 Deferred tax liabilities: Bargain purchase gain $ ( 9.4 ) $ ( 9.6 ) Operating lease assets ( 8.3 ) ( 10.7 ) Other ( 0.7 ) ( 1.3 ) Depreciation ( 5.1 ) ( 9.6 ) ( 23.5 ) ( 31.2 ) Net deferred tax asset before valuation allowance $ 249.9 $ 257.6 Valuation allowance ( 249.8 ) ( 257.5 ) Net deferred tax asset $ 0.1 $ 0.1 Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation allowance, the Company looked to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income. The need for a valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. 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 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 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 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. 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- 89 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 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. NOTE 13 - Segment Reporting The Company is organized on a geographic basis. 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, Company has three reportable segments. The following table presents revenues and operating (loss) earnings by reportable segment: Year Ended Transition Period Ended December 31, 2022 December 31, 2021 Revenues 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 income (loss) Rocky Mountains 27.3 ( 13.4 ) Southwest 14.5 ( 15.4 ) Northeast/Mid-Con 39.1 ( 8.7 ) Corporate and other (1) ( 48.4 ) ( 26.6 ) Total operating income (loss) 32.5 ( 64.1 ) Interest expense, net 35.0 29.4 Loss before income tax $ ( 2.5 ) $ ( 93.5 ) (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: Year Ended Transition Period Ended December 31, 2022 December 31, 2021 Rocky Mountains Southwest Northeast /Mid-Con Total Rocky Mountains Southwest Northeast /Mid-Con Total Drilling $ 26.0 $ 115.1 $ 77.6 $ 218.7 $ 9.5 $ 67.2 $ 46.6 $ 123.3 Completion 125.7 88.6 179.0 393.3 64.0 58.7 87.7 210.4 Production 50.5 26.9 16.8 94.2 29.3 20.1 10.2 59.6 Intervention 26.8 24.6 24.0 75.4 15.4 14.9 12.5 42.8 Total revenues $ 229.0 $ 255.2 $ 297.4 $ 781.6 $ 118.2 $ 160.9 $ 157.0 $ 436.1 90 The following table presents total assets by segment: December 31, 2022 December 31, 2021 Rocky Mountains $ 133.0 $ 127.7 Southwest 152.2 134.4 Northeast/Mid-Con 123.3 97.6 Total 408.5 359.7 Corporate and other 57.4 28.0 Total assets $ 465.9 $ 387.7 The following table presents capital expenditures by reportable segment: 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 Corporate and other — 0.5 Total capital expenditures $ 35.6 $ 11.0 NOTE 14 - Net Loss Per Common Share 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, 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 ) (Shares in millions) Basic weighted average common shares 11.3 8.7 Effect of dilutive securities - dilutive securities — — Diluted weighted average common shares 11.3 8.7 Basic net loss per common share $ ( 0.27 ) $ ( 10.83 ) Diluted net loss per common share $ ( 0.27 ) $ ( 10.83 ) 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. 91 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.