What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-08 compared with 2023-03-09 · 114 added, 132 removed, 210 unchanged (54% of the section changed)

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

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

The following discussion and analysis addresses the results of our operations for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

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

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KLX Energy Services was initially formed from the combination of seven private oilfield service companies acquired during 2013 and 2014.

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

The Company continued to selectively acquire regional and product line specific businesses through 2019 to expand our service capabilities and broaden our geographic presence.

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

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

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

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

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

We successfully completed the integration of the Tecton and Red Bone businesses during Fiscal 2019.

We acquired QES during the second quarter of 2020 and, by doing so, helped establish KLXE as an industry leading provider of asset-light oilfield solutions across the full well lifecycle to the major onshore oil and gas producing regions of the United States.

On July 26, 2020, the Company’s Board approved a 1-for-5 reverse stock split to stockholders that became effective at 12:01 a.m.

on July 28, 2020 (the “Reverse Stock Split”).

on July 28, 2020.

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

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

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

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

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

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

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

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

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

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

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

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

Greene’s Acquisition

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

On March 8, 2023, the Company completed the acquisition of all of the equity interests of Greene’s, including $1.7 in cash remaining at Greene's, which was subsequently adjusted to $1.1 due to a $0.6 working capital adjustment.

The acquisition was made pursuant to that certain purchase and sale agreement dated March 8, 2023, between the Company and Greene’s Holding Corporation (the “Purchase Agreement”).

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

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

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 based on a 30-day volume weighted average price as of March 7, 2023 less acquired cash.

As of the date of this filing, the integration is complete.

See Note 3 - Business Combinations to our audited consolidated financial statements included in Item 8 in this Form 10-K.

Company Overview

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These services and related products are modest in cost to the customer relative to other well construction expenditures but have a high cost of failure and are, therefore, mission critical to our customers’ outcomes.

We believe our customers

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

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

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

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

Depreciation and Amortization

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

Fiscal Year End Change

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

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

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

Recent Trends and Outlook

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

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

The oil and gas industry experienced significant increases in activity in late 2021 and 2022 due to the recovery from the COVID-19 pandemic and increasing demand for oil and gas.

Furthermore, sanctions and import bans on Russian oil have been implemented by various countries in response to the ongoing conflict in Ukraine, further impacting global oil supply.

While oil prices declined in the first half of 2023 from their 2022 highs, oil prices rebounded in the third quarter of 2023 due to stronger than anticipated economic growth and sustained production cuts from Saudi Arabia and Russia, followed by oil price decreases in the fourth quarter of 2023 due to a decrease in demand as the overall economy declined.

Natural gas prices also declined in the fourth quarter of 2023.

Oil and natural gas prices have been, and may remain, volatile, which impacts demand for our business.

WTI's average daily price per barrel decreased by approximately $17.32, or 18.3%, to $77.58 per Bbl during the year ended December 31, 2023, compared to the average daily price per barrel of $94.90 during the year ended December 31, 2022.

As of December 31, 2023, U.S.

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

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

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

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

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

upcoming recession.

As of February 3, 2023, U.S.

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

rig count stood at 622, a decrease of 20.2% since December 31, 2022.

Despite the decrease in commodity prices during the fiscal year ended December 31, 2023, the Company remained focused on building a leaner and more profitable set of service offerings, which allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA (as defined below).

Looking ahead to the year ending December 31, 2024, assuming economic activity holds at the recent level and commodity prices remain volatile, we anticipate that our customers will continue to cautiously allocate capital and operating expense spending.

So far in the year ending December 31, 2024, WTI prices have noted a slight increase of 10%, as demand for oil and gas products persists.

Currently, global oil inventories supplied from OPEC and its allies (“OPEC+”) and other oil producing nations are expected to transition to inventory decreases throughout the majority of 2024 from inventory builds during the first half of 2023.

This persisting demand and expectation of decreased inventory is balanced against weather-related challenges across the country as well as a cautious approach to drilling expansion, as evidenced by the U.S.

rig count being flat through January 29, 2024.

Oil and natural gas prices could decrease or increase with any changes in demand due to, among other things, the ongoing conflict in Ukraine, the recent Israel-Hamas conflict, international sanctions, speculation as to future actions by OPEC+, gas prices, interest rates, inflation and government efforts to reduce inflation, and possible changes in the overall health of the global economy, including a perceived economic recovery or any increased volatility in financial and credit markets or a prolonged recession.

To what extent these and other external factors (such as government action with respect to climate change regulation) ultimately impact

our future business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous factors, including future developments, that are not within our control and cannot be accurately predicted.

How We Generate Revenue and the Costs of Conducting Our Business

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

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

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

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

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Results of Operations

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

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022 % Change

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Total revenue $ 888.4 $ 781.6 13.7 %

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022 % Change

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Total revenue $ 888.4 $ 781.6 13.7 %

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

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

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

For the year ended December 31, 2023, revenues of $888.4 increased by $106.8 or 13.7% as compared with the year ended December 31, 2022.

The overall increase in revenues reflects increased demand for our services and a positive pricing environment in the first half of 2023, even as activity fell and then stabilized in the second half of the year.

This increase was driven entirely by an increase in weighted average price.

On a segment basis, Rocky Mountains segment revenue increased by $42.3 or 18.5%.

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Southwest segment revenue increased by $49.7 or 19.5%.

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

This increase was driven by the Greene's Acquisition, offset by activity declines in the base business, as well as modestly improved pricing.

Northeast/Mid-Con segment revenue increased by $14.8 or 5.0% .

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

This increase was driven entirely by an increase in weighted average volume.

Cost of sales .

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

For the year ended December 31, 2023, cost of sales was $672.5, or 75.7% of revenues, as compared to $621.3, or 79.5% of revenues, in the year ended December 31, 2022.

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

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

The decrease in cost of sales as a percentage of revenues was generally consistent across our segments and a result of better leverage of fixed costs due to increased activity.

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

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

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

Although cost of sales as a percentage of revenues decreased, labor costs per employee increased by 1.7% as compared with the year ended December 31, 2022.

Repair & maintenance costs as a percentage of revenues increased by 2.2% as compared to the year ended December 31, 2022.

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

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

SG&A expenses during the twelve months ended December 31, 2023, were $86.7, or 9.8% of revenues, as compared with $70.4, or 9.0% of revenues, in the year ended December 31, 2022.

SG&A increased by $16.3 due to increased labor costs and professional fees.

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

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

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

Operating income (loss) .

SG&A as a percentage of revenues increased primarily due to an increase in insurance costs along with certain costs related to the acquisition and integration of Greene's.

R&D costs during the year ended December 31, 2023 were $1.4, as compared to $0.6 in the year ended December 31, 2022, reflecting our continued focus on maintaining an in-house R&D function while scaling costs to adjust to current levels of customer demand.

Operating income .

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

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022 % Change

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Corporate and other (49.1) (48.4) (1.4) %

Total operating income (loss) (1)

$ 32.5 $ (64.1) 150.7 %

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

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

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

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

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

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

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

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

Total operating income $ 56.9 $ 32.5 75.1 %

For the year ended December 31, 2023, operating income was $56.9, as compared to operating income of $32.5 in the year ended December 31, 2022, largely driven by an improvement in revenues due to increased activity .

For the year ended December 31, 2023, each of our segments demonstrated improvement in operating income (loss) compared to the year ended December 31, 2022, driven by the increase in pricing and utilization outpacing increases in operating costs and labor in the year ended December 31, 2023.

Rocky Mountains segment operating income improved by $18.8 or 68.9% from $27.3 in the year ended December 31, 2022 to $46.1 in the year ended December 31, 2023.

Southwest segment operating income improved by $4.8 or 33.1% from $14.5 in the year ended December 31, 2022 to $19.3 in the year ended December 31, 2023.

Northeast/Mid-Con segment operating income improved by $1.5 or 3.8% from $39.1 in the year ended December 31, 2022 to $40.6 in the year ended December 31, 2023.

The 1.4% increase in operating loss in our Corporate and other segment in the year ended December 31, 2023 was primarily driven by higher professional service fees and incentive bonus costs.

Income tax expense .

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

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

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

Income tax expense was $3.0 for the year ended December 31, 2023, and was comprised of federal, state and local taxes, as compared to income tax expense of $0.6 in the year ended December 31, 2022, which was comprised primarily of state and local taxes.

Net income (loss) .

Net income for the year ended December 31, 2023 was $19.2, as compared to net loss of $3.1 in the year ended December 31, 2022, primarily due to increased pricing and improved margins for our services.

Liquidity and Capital Resources

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At December 31, 2023, we had $112.5 of cash and cash equivalents and $41.9 available on the ABL Facility.

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

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

We have taken several actions to continue to improve our liquidity position, including efficiencies gained from the QES Merger, equity issuances under our ATM Offering program, debt for equity exchanges that have reduced interest burden and monetized non-core and obsolete assets.

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

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

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

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

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

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

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

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

Our ABL Facility matures on the ABL Maturity Date (as defined below) and we intend to work with our existing lenders or other sources of capital to refinance the ABL Facility as well as our Senior Notes.

If we are unable to refinance the ABL Facility as planned and uncertainty around our ability to refinance our existing long-term debt still exists, that could result in our auditors issuing a “going concern” or like qualification or exception as early as our audit opinion with respect to the year ending December 31, 2024.

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

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

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

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

The ABL Facility became effective on September 14, 2018 and is scheduled to mature on the ABL Maturity Date in 2025.

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

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 is secured by, among other things, a first priority lien on the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.

$50.0 was outstanding under the ABL Facility as of December 31, 2023.

The effective interest rate under the ABL Facility was approximately 7.96% on December 31, 2023.

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

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

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

On June 20, 2023, the Company entered into a Fourth Amendment to the ABL Facility, with certain of its subsidiaries party thereto, as guarantors, with JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and an issuing lender, and the other lenders and issuing lenders party thereto from time to time (the “ABL Amendment”).

The ABL Amendment, among other things, (i) extended the maturity date of the ABL Facility from September 15, 2024 to the earlier of (A) September 15, 2025 or (B) August 1, 2025, if the Company's Senior Notes are still outstanding as of such date (the earlier of the foregoing item (A) or item (B), the “ABL Maturity Date”) and (ii) increased the revolving credit commitment from $100.0 to $120.0.

The ABL Facility includes a springing financial covenant which requires the Company’s fixed-charge coverage ratio (“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, 2023, availability exceeded this threshold, and the Company was not subject to this financial covenant.

As of December 31, 2023, the FCCR was above 1.0 to 1.0.

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

The Company was in full compliance with its ABL Facility as of December 31, 2023.

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

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

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

In conjunction with the acquisition of Motley Services, LLC (“Motley”) in 2018, we issued $250.0 principal amount of the Senior Notes offered pursuant to Rule 144A under the Securities Act and to certain non-U.S.

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

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

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

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

During the year ended December 31, 2022, we entered into the Exchange Agreements with the Noteholders of our Senior Notes.

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.

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Capital Expenditures

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

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

Our capital expenditures were $57.1 during the year ended December 31, 2023, compared to $35.6 in the year ended December 31, 2022.

Based on current industry conditions and our significant investments in capital expenditures over the past several years, we expect to incur between $50.0 and $60.0 in capital expenditures for the year ending December 31, 2024, out of which approximately 75% is earmarked for maintenance capital spending.

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

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Equity Distribution Agreement

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

as sales agent (the “Agent”).

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

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

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

On June 14, 2021, the Company entered into the Equity Distribution Agreement with the Agent.

Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Agent, in the ATM Offering, the Company’s Common Stock, having an aggregate offering price of up to $50.0.

On November 16, 2022, the Company entered into the EDA Amendment.

Among other things, the EDA Amendment allows for debt for equity exchanges in accordance with Section 3(a)(9) of the Securities Act.

Any Common Stock offered and sold in the ATM Offering will be issued pursuant to the Company’s Registration Statement, the prospectus supplement relating to the ATM Offering filed with the SEC on June 14, 2021 and any applicable additional prospectus supplements related to the ATM Offering that form a part of the Registration Statement.

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

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

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

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

During the three and twelve months ended December 31, 2023, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $0.1 and $0.5, respectively.

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, and paid fees to the sales agent and other legal and accounting fees of $0.1 and $0.3, respectively, to establish the ATM Offering.

At December 31, 2023, we had $112.5 of cash and cash equivalents.

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

Cash on hand at December 31, 2023 increased by $55.1 during the year then ended, due to $115.6 of cash flows provided by operating activities, partially offset by $20.8 of cash flows used in financing activities and $39.7 of cash flows used in investing activities.

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

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Net Working Capital $ 47.2 $ 72.1

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

Net working capital as of December 31, 2023 was $47.2, a decrease of $24.9 as compared to net working capital of $72.1 as of December 31, 2022.

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

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

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

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

As of December 31, 2023, total current assets excluding cash decreased by $19.5 and total current liabilities excluding accrued interest, operating lease obligations and finance lease obligations increased by $5.4.

The decrease in net current assets was primarily related to a decrease of $27.3 in accounts receivable-trade, net and an increase of $7.8 in inventory.

The increase in total current liabilities was due to an increase of $3.7 in accounts payable and an increase of $1.7 in accrued liabilities.

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

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022

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

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

Net cash provided by financing activities 32.4 32.0

Net cash provided by operating activities $ 115.6 $ 15.7

Net cash used in investing activities (39.7) (18.7)

Net cash (used in) provided by financing activities (20.8) 32.4

Net change in cash 55.1 29.4

Cash balance end of period $ 112.5 $ 57.4

Net cash provided by (used in) operating activities

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

Net cash provided by operating activities

Net cash provided by operating activities was $115.6 for the year ended December 31, 2023, as compared to net cash provided by operating activities of $15.7 for the year ended December 31, 2022.

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

Net cash (used in) provided by investing activities

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

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

Net cash provided by financing activities

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

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

Net cash used in investing activities

Net cash used in investing activities was $39.7 for the year ended December 31, 2023, as compared to net cash used in investing activities of $18.7 for the year ended December 31, 2022.

The cash used in investing

activities for the year ended December 31, 2023 was primarily driven by increased maintenance and growth capital spending to support our growing business operations.

Net cash (used in) provided by financing activities

Net cash used in financing activities was $20.8 for the year ended December 31, 2023, compared to net cash provided by financing activities of $32.4 for the year ended December 31, 2022.

During the year ended December 31, 2023, there were no additional borrowings under our ABL Facility and no sales under our ATM Offering program.

Off-Balance Sheet Arrangements

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

Emerging Growth Company Status

We are an “emerging growth company” and are entitled to take advantage of certain relaxed disclosure requirements.

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

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

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

Business Combinations

We completed our acquisition of Greene's on March 8, 2023.

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

Under the ASC 805 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 assumptions and methodologies determined by management.

Real property was valued using a market approach.

Personal property was valued using a combination of market approach and replacement cost approach.

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

When determining the fair value of assets acquired, including real property and personal property, 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.

Accounts Receivable

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The allowance for doubtful accounts at December 31, 2023 and December 31, 2022 was $5.5 and $5.7, respectively.

Goodwill and Intangible Assets, Net

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

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

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

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

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

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

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

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

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

We use our incremental borrowing rate based on the information

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

Lease terms may include options to renew;

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

The Company has 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.

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

For the years ended December 31, 2023 and December 31, 2022, there were no impairments of long-lived assets.

Revenue Recognition

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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.

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

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See Note 2 - Recent Accounting Pronouncements to our consolidated financial statements for a discussion of recently issued accounting pronouncements.

As an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”), we are offered an opportunity to use an extended transition period for the adoption of new or revised financial accounting standards.

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

Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards.

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

How We Evaluate Our Operations

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

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

• Operating Income

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

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

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis