What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-09 · 206 added, 210 removed, 490 unchanged (46% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No 34 )

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

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

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

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

Consolidated Statements of Operations for the Year s Ended December 31, 2023 and December 31, 2022

Consolidated Statements of Stockholders' Equity for the Yea r s Ended December 31, 2023 and December 31, 2022

Consolidated Statements of Cash Flows for the Year s Ended December 31, 2023 and December 31, 2022

Notes to Consolidated Financial Statements

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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.

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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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.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business combinations – Acquisition of Greene's Energy Group, LLC – Refer to Note 3 to the consolidated financial statements

Critical Audit Matter Description

On March 8, 2023, KLXE acquired all of the equity interests of Greene’s Energy Group, LLC (“Greene’s”), in an all-stock transaction.

This transaction was accounted for as a purchase under FASB ASC Topic 805, Business Combinations (“ASC 805”).

Under the acquisition method of accounting, the fair value of purchase consideration transferred is allocated to the tangible assets acquired, and liabilities assumed based on their estimated fair values on the date of the acquisition.

The fair values assigned are based on assumptions and methodologies determined by management.

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

We identified the estimated fair value of personal property acquired in the Greene’s acquisition as a critical audit matter due to the assumptions and methodologies made by management in estimating the respective fair value.

Auditing management’s assumptions and methodologies required a high degree of auditor judgment and increased extent of effort, including the use of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s selected valuation methodologies for the acquired personal property and the assumptions related to the value of the personal property acquired.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation of acquired personal property included the following, among others:

• We tested the effectiveness of controls over the valuation of the acquired personal property.

• With the assistance of internal fair value specialists, we:

o Evaluated the appropriateness of the market approach and replacement cost approach valuation methodologies used to value the acquired personal property.

o Evaluated the appropriateness of the valuation assumptions, including assumptions made about replacement cost and normal useful life, used to value the acquired personal property.

o Tested the mathematical accuracy of management’s calculations.

/s/ Deloitte & Touche LLP

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Accumulated deficit ( 509.4 ) ( 528.6 )

Total stockholders’ equity ( 15.8 ) ( 51.4 )

Total stockholders’ equity (deficit) 38.8 ( 15.8 )

Total liabilities and stockholders' equity $ 539.8 $ 465.9

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

(1) Includes right-of-use ("ROU") assets - finance leases.

See Note 5 - Property and Equipment, Net and Note 8 - Leases.

See accompanying notes to consolidated financial statements.

3 unchanged sentences

dollars, except per share data)

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022

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Research and development costs 1.4 0.6

Impairment and other charges — 0.8

Bargain purchase gain ( 1.9 ) —

Operating income (loss) 32.5 ( 64.1 )

Operating income 56.9 32.5

Non-operating expense:

Interest expense, net 35.0 29.4

Loss before income tax ( 2.5 ) ( 93.5 )

Interest income ( 1.8 ) —

Interest expense 36.5 35.0

Net income (loss) before income tax 22.2 ( 2.5 )

Income tax expense 3.0 0.6

Net loss $ ( 3.1 ) $ ( 93.8 )

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

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

Net income (loss) $ 19.2 $ ( 3.1 )

Net income (loss) per share-basic $ 1.23 $ ( 0.27 )

Net income (loss) per share-diluted $ 1.22 $ ( 0.27 )

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

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

Years Ended December 31, 2023 and December 31, 2022

( In millions of U.S.

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

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

Restricted stock, net of forfeitures 0.2 — 2.6 — — 2.6

Purchase of treasury stock — — — ( 0.7 ) — ( 0.7 )

Greene's Acquisition 2.4 — 34.0 — — 34.0

Issuance of Common Stock, net of cost — — ( 0.5 ) — — ( 0.5 )

Net loss — — — — ( 3.1 ) ( 3.1 )

Net income — — — — 19.2 19.2

Balance at December 31, 2023

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(In millions of U.S.

Year Ended Eleven-month Transition Period Ended

December 31, 2023 December 31, 2022

Cash flows from operating activities:

Net loss $ ( 3.1 ) $ ( 93.8 )

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

Net income (loss) $ 19.2 $ ( 3.1 )

Adjustments to reconcile net income (loss) to net cash flows from operating activities

Depreciation and amortization 72.8 56.8

Impairment and other charges — 0.8

Non-cash compensation 3.0 3.0

3 unchanged sentences

Bargain purchase gain ( 1.9 ) —

Other ( 1.2 ) ( 1.2 )

Changes in operating assets and liabilities:

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Inventories ( 9.0 ) ( 6.2 )

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

Prepaid expenses and other current and non-current assets 18.7 16.4

Accounts payable ( 4.2 ) 11.7

Other current and non-current liabilities ( 18.1 ) ( 1.9 )

Other ( 1.2 ) 0.5

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

Net cash flows provided by operating activities 115.6 15.7

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of property and equipment 16.3 16.9

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

Cash from acquisition 1.1 —

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

Cash flows from financing activities:

Purchase of treasury stock ( 0.3 ) ( 0.3 )

Borrowings on ABL Facility — 20.0

2 unchanged sentences

Payments of debt issuance costs ( 0.5 ) ( 1.7 )

Proceeds from finance lease refinancing 1.4 —

Change in financed payables ( 4.6 ) ( 2.1 )

Net cash flows provided by financing activities 32.4 32.0

Other ( 0.7 ) 1.1

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

Net change in cash and cash equivalents 55.1 29.4

8 unchanged sentences

Change in accrued capital expenditures 4.8 0.4

Acquisition of Greene's Energy Group, LLC ( 32.9 ) —

Issuance of KLX stock for Acquisition of Greene's Energy Group, LLC 34.0 —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Notes to Consolidated Financial Statements

dollars in millions)

dollars in millions, except per share amounts)

NOTE 1 - Description of Business and Significant Accounting Policies

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

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

(“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 “QES Merger”).

On July 28, 2020, immediately prior to the consummation of the QES 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

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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

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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:

To determine revenue recognition for arrangements within the scope of Accounting Standards Codification (“ASC”) Topic 606, the following five steps are performed:

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

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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

master services agreement 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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The allowance for doubtful accounts at December 31, 2023 and December 31, 2022 was $ 5.5 and $ 5.7 , 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)

Activity in our allowance for doubtful accounts during the years ended December 31, 2023 and December 31, 2022 is set forth in the table below:

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

Balance at end of period

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

* ASC Topic 326, Financial Instruments - Credit Losses.

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

1 unchanged sentence

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.

Reserves for excess and obsolete inventory were approximately $ 4.5 and $ 4.4 as of years ended December 31, 2023 and December 31, 2022, 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.

Intangible Assets, Net

Under Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles—Goodwill and Other, 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.

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.

As of December 31, 2023 and December 31, 2022, there were net intangible assets with definite lives of $ 1.8 and $ 2.1 , respectively.

As of December 31, 2023 and December 31, 2022, intangible assets had gross carrying amount of $ 5.9 and $ 5.9 and accumulated amortization of $ 4.1 and $ 3.8 , respectively, with amortization expense for the years then ended of $ 0.3 and $ 0.3 , respectively.

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 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.

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

Debt Issuance Costs

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.

Debt issuance costs related to the Company’s $ 100.0 senior secured asset-based lending facility (the “ABL 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 (the “Senior Notes”) are presented net of amortization as an offset to the liability.

Amortized debt issuance costs are included in interest expense and totaled $ 1.8 and $ 1.6 for the years ended December 31, 2023 and December 31, 2022, respectively.

Common Stock Equivalents

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

Compensation cost recognized during the year ended 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.

Compensation cost recognized during the years ended December 31, 2023 and December 31, 2022 primarily related to grants of restricted stock and restricted stock units granted or approved by the Board’s compensation committee (the “Compensation Committee”).

See Note 12 - Stock-Based Compensation for additional information related to stock-based compensation.

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

During the 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.

During the years ended December 31, 2023 and December 31, 2022, no single customer accounted for more than 10% of the Company’s revenues.

NOTE 2 - Recent Accounting Pronouncements

Recently Adopted Accounting Standard Updates

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280).

This ASU is intended to enhance reportable segment disclosures by adopting a number of provisions currently in Regulation S-X and Regulation S-K upon the provisions' removal from these regulations.

The guidance is effective for the Company for the fiscal year beginning January 1, 2024 and is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2023, FASB issued ASU 2023-09, 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.

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.

This ASU includes specific requirements for the rate reconciliation, income taxes paid and other tax-related disclosures.

The guidance is effective for the Company for the fiscal year beginning January 1, 2025 and is not expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Standard Updates

In July 2023, FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718):

Amendments to Securities and Exchange Commission (the “SEC”) Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.

This ASU provides guidance for the valuation of spring-loaded stock-based compensation awards.

We have adopted ASU 2023-03 effective immediately.

The changes in the guidance are currently not applicable to our calculation of stock-based compensation awards, but we continue to evaluate and will comply with the updated guidance for any stock-based compensation awards, where applicable.

NOTE 3 - Business Combinations

On March 8, 2023, KLXE acquired all of the equity interests of Greene's Energy Group, LLC (“Greene’s”), in an all-stock transaction (“Greene's Acquisition”), including $ 1.7 in cash, which was subsequently adjusted to $ 1.1 due to a $ 0.6 working capital adjustment.

The total consideration for the acquisition consisted of the issuance of approximately 2.4 million shares of KLXE Common Stock, subject to customary post-closing adjustments, 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.

Following the closing of the transaction, former shareholders of Greene’s held approximately 14.7 % of the fully diluted Common Stock of the Company, as of March 8, 2023.

The integration was complete in the third quarter of 2023.

This transaction was accounted for as a purchase under FASB ASC Topic 805, Business Combinations (“ASC 805”).

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

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.

This has been presented as a separate line item on the consolidated statements of operations for the year ended December 31, 2023.

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

The Company expects to finalize its analysis by the first quarter of 2024.

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

Accounts receivable-trade 17.1

Other current and non-current assets 0.2

Property and equipment 23.1

Accounts payable ( 3.2 )

Accrued liabilities ( 1.2 )

Other current and non-current liabilities ( 1.2 )

Bargain purchase, net of deferred taxes ( 1.9 )

Total purchase price $ 34.0

Unaudited Supplemental Pro Forma Information

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

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

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

On a pro forma basis to give effect to the acquisition, as if it occurred on January 1, 2022, revenues and net income for the years ended December 31, 2023 and December 31, 2022 would have been as follows:

Unaudited Pro Forma

December 31, 2023 December 31, 2022

Revenues $ 900.7 $ 850.0

Net income 19.2 2.2

NOTE 4 - Inventories, net

8 unchanged sentences

Total inventories, net $ 33.5 $ 25.7

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.

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

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

Inventory reserves were approximately $ 4.5 and $ 4.4 as of December 31, 2023 and December 31, 2022, 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:

Activity in the reserve for inventory accounts during the years ended December 31, 2023 and December 31, 2022 is set forth in the table below:

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

17 unchanged sentences

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.

Depreciation expense related to non-leased assets was $ 57.7 and $ 49.2 for the years ended December 31, 2023 and December 31, 2022, respectively.

Finance lease amortization expense was $ 14.5 and $ 7.3 for the years ended December 31, 2023 and December 31, 2022.

Assets Held for Sale

As of December 31, 2023 and December 31, 2022, the Company’s consolidated balance sheet includes assets classified as held for sale of $ 2.3 and $ 4.9 , respectively.

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

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

As of December 31, 2023, the assets held for sale are reported within prepaid expenses and other current assets on the consolidated balance sheet and represent the value of one facility and select equipment.

These assets are being actively marketed for sale as of December 31, 2023 and are recorded at the lower of their carrying value or fair value less costs to sell.

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Accrued taxes other than property 7.3 4.7

Accrued lease termination costs — 0.1

Accrued incentive compensation 8.3 12.2

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December 31, 2023 December 31, 2022

Senior Secured Notes $ 237.3 $ 250.0

Senior Notes $ 237.3 $ 237.3

ABL Facility 50.0 50.0

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Total debt $ 284.3 $ 283.4

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.

As of December 31, 2023, long-term debt included $ 237.3 principal amount of 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.

1 unchanged sentence

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.

Interest expense related to the Senior Notes amounted to $ 27.3 and $ 28.6 for the years ended December 31, 2023 and December 31, 2022, respectively.

Accrued interest related to the Senior Notes as of December 31, 2023 and December 31, 2022 was $ 4.5 and $ 4.6 , 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”).

During the year ended December 31, 2022, we entered into debt for equity exchange agreements (the “Exchange Agreements”) with certain holders (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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Following the Exchanges, approximately $ 237.3 in aggregate principal amount of Senior Notes remained outstanding.

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

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

On October 22, 2018, the ABL Facility was

amended primarily to permit the Company to issue the 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.

As of December 31, 2023, the Company also had a $ 120.0 ABL Facility pursuant to a senior secured credit agreement dated August 10, 2018.

The ABL Facility became effective on September 14, 2018 and matures on the ABL Maturity Date (as defined below) in 2025.

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

On 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 .

Unamortized deferred costs for the ABL Facility of $ 1.3 and $ 1.7 were recorded in other non-current assets as of December 31, 2023 and December 31, 2022, 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).

Borrowings outstanding under the ABL Facility were $ 50.0 and $ 50.0 as of December 31, 2023 and December 31, 2022, respectively, and 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 effective interest rate under the ABL Facility was approximately 7.96 % on December 31, 2023.

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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.

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.

We have funds available of $ 41.9 based on the December 2023 borrowing base certificate.

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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.

ASU 2016-02, Leases Topic 842 (“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.

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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.

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 material leases with related parties.

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

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Finance lease fixed cost 14.5 7.3

Interest on lease liabilities 1.4 0.5

Interest on finance lease liabilities 3.2 1.4

Lease variable cost 5.9 3.1

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Finance leases 44.0 25.6

(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:

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2025 6.8 23.6

2026 5.5 15.1

Thereafter — —

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Total $ 22.9 $ 58.2

As of December 29, 2023, the Company has entered into an agreement to modify the leases for its five coiled tubing units.

As a result, these are now classified as finance leases on the balance sheet as of December 31, 2023.

The lease cost up to December 29, 2023, is included in the operating lease cost disclosure in this footnote, and the lease cash flows up to December 29, 2023, are included in the operating cash flows for operating leases disclosure in this footnote.

NOTE 9 - Fair Value Information

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December 31, 2023 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 $ —

Senior Notes $ 233.7 $ — $ 233.7 $ —

Total Senior Notes $ 233.7 $ — $ 233.7 $ —

Fair value measurements at reporting date using

December 31, 2022 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 $ —

Senior Notes $ 213.5 $ — $ 213.5 $ —

Total Senior Notes $ 213.5 $ — $ 213.5 $ —

The following tables present the placement in the fair value hierarchy of Assets Held for Sale, as disclosed in Note 5, based on sales contracts and comparative price quotes, as of December 31, 2023 and December 31, 2022:

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

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 .

During the years ended December 31, 2023 and December 31, 2022, the before-tax loss (gain) related to Assets Held for Sale was nil and $( 0.3 ), respectively.

NOTE 10 - Commitments, Contingencies and Off-Balance Sheet Arrangements

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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

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

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

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

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

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

3 unchanged sentences

The KLX Energy Services Holdings, Inc.

Retirement Plan (“KLX 401(k) Plan”) was established pursuant to Section 401(k) of the Internal Revenue Code.

Retirement Plan (“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 that in the fourth quarter of 2022, the Company fully reinstated the previously suspended 401(k) Plan match at the rate of 50 % of the first 6 %.

Total expense for the Plan was $ 3.5 and $ 2.7 for the years ended December 31, 2023 and December 31, 2022, respectively.

NOTE 12 - Stock-Based Compensation

2 unchanged sentences

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.

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 .

November 16, 2022, the Company entered into Amendment No.

1 to the Equity Distribution Agreement (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 shelf registration statement on Form S-3 (Registration No.

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

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

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Under the terms of the Equity Distribution Agreement, the Company will pay the Agent a commission equal to 3.0 % of the gross sales price of the Common Stock sold.

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

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

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

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

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, 2023, the Company did no t 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.

The Company has a Long-Term Incentive Plan (“LTIP”) under which 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.

An amendment to the LTIP was approved by stockholders on May 10, 2023 to, among other things, increase the total number of shares of Common Stock for issuance by 1,200,000 shares, resulting in an increase of the total number of shares of our Common Stock reserved for issuance to 1,256,289 , and extend the expiration date to March 8, 2033.

Stock-based compensation cost recognized during the years ended December 31, 2023 and December 31, 2022 related to grants of restricted stock granted by or approved by the Compensation Committee.

Stock-based compensation was $ 3.0 and $ 3.0 for the years ended December 31, 2023 and December 31, 2022, respectively.

Unrecognized compensation cost related to restricted stock awards made by the Company was $ 4.2 at December 31, 2023 and $ 4.2 at December 31, 2022.

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, 2023

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Income tax expense consisted of the following:

Year Ended Transition Period Ended

December 31, 2023 December 31, 2022

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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, 2023 December 31, 2022

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Change in valuation allowance ( 6.4 ) ( 5.1 )

Adjustments to prior year tax accruals 2.2 —

Change in state tax rate — 3.9

Non-taxable/non-deductible items 0.1 0.1

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Officer compensation 0.6 0.9

Bargain purchase gain ( 0.5 ) —

Total income tax expense $ 3.0 $ 0.6

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.

Income tax expense was $ 3.0 for the year ended December 31, 2023, which reflects an effective tax rate of approximately 13.5 %.

For the fiscal year ended December 31, 2023, the Company recognized current federal tax expense on its year-to-date income of $ 0.3 and $ 1.1 of state income tax, primarily related to Texas franchise tax, less a deferred tax benefit of $( 0.6 ), primarily due to the bargain purchase gain related to the Greene's Acquisition.

In addition, the Company recognized $ 2.0 of federal tax expense and $ 0.2 of state income tax expense for the fiscal year ended December 31, 2022.

The prior year income tax expense of $ 0.6 , as reported, relates to the Texas franchise tax.

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

Year Ended Transition Period Ended

December 31, 2023 December 31, 2022

Deferred tax assets:

Accrued liabilities $ 6.5 $ 5.4

Intangible assets $ 74.1 $ 90.6

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Operating lease liabilities 5.4 8.7

Inventory capitalization 0.8 0.7

Other 7.0 7.3

Interest expense limitation 10.3 14.3

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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.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2023.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2023 and December 31, 2022, a valuation allowance of $ 254.1 and $ 249.8 has been recorded, respectively, to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

The amount of the deferred tax assets considered realizable, however, could be adjusted if additional objectively verifiable positive evidence materializes in future reporting periods, such as a demonstrated operating profitability.

The change in the valuation allowance from December 31, 2022 was a net increase of $ 4.3 , which is comprised of a decrease due to current year operating profitability, offset by an increase to the net operating losses due to Section 382 limitations.

The valuation allowance recorded is exclusive of the $ 0.1 relating to the Texas franchise tax, which the Company expects to fully realize.

Internal Revenue Code (“IRC”) Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its net operating loss and other 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-

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 had an ownership change during 2020.

As a result, the Company's pre-ownership change net operating loss carryforwards and recognized built-in-losses are subject to an annual limitation, which will significantly restrict its ability to use the net operating losses and recognized built-in-losses to offset taxable income in periods following the ownership change.

The Company is limited to an approximate $ 0.5 annual limitation on its pre-change net operating loss carryforwards and recognized built-in-losses.

In addition, on July 28, 2020, the Company completed the all stock QES Merger, in which QES became a wholly owned subsidiary of the Company.

The QES Merger resulted in an ownership change under IRC Section 382 of the historical QES net operating losses and other tax attributes.

QES's pre-merger net operating losses and other tax attributes are subject to an annual limitation of $ 0.3 .

The Company has U.S.

federal net operating loss carryforwards of $ 780.0 and $ 666.4 , for the fiscal years ended December 31, 2023 and December 31, 2022, respectively.

Of these net operating losses, $ 656.3 is

subject to an IRC Section 382 limitation, excluding $ 12.1 that will expire between 2029 and 2037 that the Company believes will not be utilized.

The Company also has state net operating loss carryforwards of $ 291.7 for the fiscal year ended December 31, 2023, and $ 295.1 for the fiscal year ended December 31, 2022, which begin to expire for tax years ending in 2028.

The Company's ability to utilize the state net operating loss carryforwards may be limited according to state law and conformity to the IRC Section 382 limitation.

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 had no unrecognized tax benefits for the years ended December 31, 2023 and December 31, 2022.

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.

Tax years that remain subject to examinations by major tax jurisdictions are generally open for tax years beginning in 2020 and after.

NOTE 14 - Segment Reporting

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

Year Ended Transition Period Ended

December 31, 2023 December 31, 2022

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Corporate and other ( 49.1 ) ( 48.4 )

( 48.4 ) ( 26.6 )

Total operating income (loss) 56.9 32.5

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.

Interest income ( 1.8 ) —

Interest expense 36.5 35.0

Income (loss) before income tax $ 22.2 $ ( 2.5 )

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

Year Ended Transition Period Ended

December 31, 2023 December 31, 2022

17 unchanged sentences

The following table presents capital expenditures by reportable segment:

Year Ended Transition Period Ended

December 31, 2023 December 31, 2022

4 unchanged sentences

Total capital expenditures $ 57.1 $ 35.6

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

NOTE 15 - Net Income (Loss) Per Common Share

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

Diluted net income (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 years ended December 31, 2023 and December 31, 2022, we excluded 0.0 and 0.3 million shares of the Company’s Common Stock, respectively.

The computations of basic and diluted net loss per share for the years ended December 31, 2023 and December 31, 2022 are as follows:

December 31, 2023 December 31, 2022

Net loss $ ( 3.1 ) $ ( 93.8 )

Net income (loss) $ 19.2 $ ( 3.1 )

(Shares in millions)

2 unchanged sentences

Diluted weighted average common shares 15.7 11.3

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.

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.

Basic net income (loss) per common share $ 1.23 $ ( 0.27 )

Diluted net income (loss) per common share $ 1.22 $ ( 0.27 )

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data