KLX Energy Services Holdings, Inc. 10-K

Item 8. FINANCIAL STATEMENTS Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID No 34 ) 66 Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 68 Consolidated Statements of Operations for the Year s Ended December 31, 2023 and December 31, 2022 69 Consolidated Statements of Stockholders' Equity for the Yea r s Ended December 31, 2023 and December 31, 2022 70 Consolidated Statements of Cash Flows for the Year s Ended December 31, 2023 and December 31, 2022 71 Notes to Consolidated Financial Statements 72 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of KLX Energy Services Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of KLX Energy Services Holdings, Inc. and subsidiaries (the "Company") as of December 31, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. 66 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 Houston, Texas March 8, 2024 We have served as the Company's auditor since 2018. 67 KLX Energy Services Holdings, Inc. Consolidated Balance Sheets (In millions of U.S. dollars and shares, except per share data) As of December 31 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 112.5 $ 57.4 Accounts receivable–trade, net of allowance of $ 5.5 and $ 5.7 127.0 154.3 Inventories, net 33.5 25.7 Prepaid expenses and other current assets 17.3 17.3 Total current assets 290.3 254.7 Property and equipment, net (1) 220.6 168.1 Operating lease assets 22.3 37.4 Intangible assets, net 1.8 2.1 Other assets 4.8 3.6 Total assets $ 539.8 $ 465.9 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 87.9 $ 84.2 Accrued interest 4.6 4.8 Accrued liabilities 42.7 41.0 Current portion of operating lease liabilities 6.9 14.2 Current portion of finance lease liabilities 22.0 10.2 Total current liabilities 164.1 154.4 Long-term debt 284.3 283.4 Long-term operating lease liabilities 16.0 22.8 Long-term finance lease liabilities 36.2 20.3 Other non-current liabilities 0.4 0.8 Commitments, contingencies and off-balance sheet arrangements (Note 10) Stockholders’ equity: Common Stock, $ 0.01 par value; 110.0 authorized; 16.9 and 14.3 issued 0.1 0.1 Additional paid-in capital 553.4 517.3 Treasury stock, at cost, 0.4 shares and 0.4 shares ( 5.3 ) ( 4.6 ) Accumulated deficit ( 509.4 ) ( 528.6 ) Total stockholders’ equity (deficit) 38.8 ( 15.8 ) Total liabilities and stockholders' equity $ 539.8 $ 465.9 (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. 68 KLX Energy Services Holdings, Inc. Consolidated Statements of Operations (In millions of U.S. dollars, except per share data) Year Ended December 31, 2023 December 31, 2022 Revenues $ 888.4 $ 781.6 Costs and expenses: Cost of sales 672.5 621.3 Depreciation and amortization 72.8 56.8 Selling, general and administrative 86.7 70.4 Research and development costs 1.4 0.6 Bargain purchase gain ( 1.9 ) — Operating income 56.9 32.5 Non-operating expense: 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 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. 69 KLX Energy Services Holdings, Inc. Consolidated Statements of Stockholders' Equity Years Ended December 31, 2023 and December 31, 2022 ( In millions of U.S. dollars and shares ) Common Stock Additional Paid-in Capital Treasury Stock Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at January 31, 2022 10.5 $ 0.1 $ 478.1 $ ( 4.3 ) $ ( 525.3 ) $ ( 51.4 ) Adjustment to beginning period retained earnings as a result of ASC 326 adoption — — — — ( 0.2 ) ( 0.2 ) Restricted stock, net of forfeitures 0.2 — 3.0 — — 3.0 Purchase of treasury stock — — — ( 0.3 ) — ( 0.3 ) Issuance of Common Stock, net of cost 3.6 — 36.2 — — 36.2 Net loss — — — — ( 3.1 ) ( 3.1 ) Balance at December 31, 2022 14.3 $ 0.1 $ 517.3 $ ( 4.6 ) $ ( 528.6 ) $ ( 15.8 ) 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 income — — — — 19.2 19.2 Balance at December 31, 2023 16.9 $ 0.1 $ 553.4 $ ( 5.3 ) $ ( 509.4 ) $ 38.8 See accompanying notes to consolidated financial statements. 70 KLX Energy Services Holdings, Inc. Consolidated Statements of Cash Flows (In millions of U.S. dollars) Year Ended December 31, 2023 December 31, 2022 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 Non-cash compensation 3.0 3.0 Amortization of deferred financing fees 1.8 1.6 Provision for inventory reserve 0.5 2.8 Gain on disposal of property, equipment and other ( 10.0 ) ( 13.2 ) Bargain purchase gain ( 1.9 ) — Other ( 1.2 ) ( 1.2 ) Changes in operating assets and liabilities: Accounts receivable 44.0 ( 51.0 ) Inventories ( 9.0 ) ( 6.2 ) 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 ) Net cash flows provided by operating activities 115.6 15.7 Cash flows from investing activities: Purchases of property and equipment ( 57.1 ) ( 35.6 ) Proceeds from sale of property and equipment 16.3 16.9 Cash from acquisition 1.1 — Net cash flows used in investing activities ( 39.7 ) ( 18.7 ) Cash flows from financing activities: Borrowings on ABL Facility — 20.0 Proceeds from stock issuance, net of costs ( 0.4 ) 24.8 Payments on finance lease obligations ( 14.6 ) ( 9.7 ) Payments of debt issuance costs ( 0.5 ) ( 1.7 ) Change in financed payables ( 4.6 ) ( 2.1 ) 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 Cash and cash equivalents, beginning of period 57.4 28.0 Cash and cash equivalents, end of period $ 112.5 $ 57.4 Supplemental disclosures of cash flow information: Cash paid during period for: Income taxes paid, net of refunds $ 0.6 $ 0.6 Interest 35.0 33.7 Supplemental schedule of non-cash activities: Change in deposits on capital expenditures $ 1.4 $ ( 0.2 ) 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. 71 KLX Energy Services Holdings, Inc. Notes to Consolidated Financial Statements (U.S. dollars in millions, except per share amounts) NOTE 1 - Description of Business and Significant Accounting Policies Description of Business KLX Energy Services Holdings, Inc. (the “Company”, “KLXE” or “KLX Energy Services”) is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States. The Company delivers mission critical oilfield services focused on drilling, completion, production and intervention activities for the most technically demanding wells in over 50 service and support facilities located throughout the United States. The Company offers a complementary suite of proprietary products and specialized services that is supported by technically skilled personnel and a broad portfolio of innovative in-house manufacturing, repair and maintenance capabilities. KLXE’s primary services include coiled tubing, directional drilling, hydraulic fracturing rentals, fishing, pressure control, wireline, rig-assisted snubbing, fluid pumping, flowback, testing and well control services. KLXE’s primary rentals and products include hydraulic fracturing stacks, blow out preventers, tubulars, downhole tools, dissolvable plugs, composite plugs and accommodation units. On July 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 “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 The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP”). The consolidated financial statements include all accounts of KLXE and its subsidiaries. All intercompany transactions and account balances have been eliminated upon consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized upon the customer obtaining control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Accounting Standards Codification (“ASC”) Topic 606, the following five steps are performed: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Revenue is recognized in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Service revenues are recorded over time throughout and for the duration of the service period pursuant to a 72 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. Income Taxes The Company accounts for deferred income taxes through the asset and liability method. Under this method, a deferred tax liability or asset is recognized for the expected future tax consequences resulting from the differences in financial reporting bases and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes accrued interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand, and certificates of deposits. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalents in various financial institutions, which at times may exceed federally insured amounts. Management believes that this risk is not significant. Accounts Receivable, Net The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. The allowance for doubtful accounts at December 31, 2023 and December 31, 2022 was $ 5.5 and $ 5.7 , respectively. 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 December 31, 2023 $ 5.7 $ — $ 0.6 $ ( 0.8 ) $ 5.5 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. Inventories Inventories, made up primarily of dissolvable plugs, supplies, finished goods and other consumables used to perform services for customers. The Company values inventories at the lower of cost or net realizable value. Reserves for excess and obsolete inventory were approximately $ 4.5 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). 73 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, 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. Leases 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 Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are tested for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. For the 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 (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 The Company has potential Common Stock equivalents related to its outstanding restricted stock awards and restricted stock units. These potential Common Stock equivalents are not included in diluted loss per share for any period presented in which there is a net loss because the effect would have been anti‑dilutive. Stock-Based Compensation The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB ASC 718, whereby share-based compensation cost is measured on the date of grant, based on the calculated fair value of the award and recognized as selling, general and administrative expenses in the consolidated statement of operations over the requisite service period. Compensation cost recognized during the 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. 74 Concentration of Risk The Company provides products and services to energy industry customers who focus on developing and producing oil and gas onshore in North America. The Company’s management performs ongoing credit evaluations on the financial condition of all of its customers and maintains allowances for uncollectible accounts receivable based on expected collectability. Credit losses have historically been within management’s expectations and the provisions established. Significant customers change from year to year depending on the level of E&P activity and the use of the Company’s services. During the 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 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). 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. 75 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: Greene's Cash $ 1.1 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 Year Ended December 31, 2023 December 31, 2022 Revenues $ 900.7 $ 850.0 Net income 19.2 2.2 76 NOTE 4 - Inventories, net Inventories consisted of the following: December 31, 2023 December 31, 2022 Spare parts $ 21.9 $ 17.9 Plugs 8.3 6.3 Consumables 4.1 3.2 Other 3.7 2.7 Subtotal 38.0 30.1 Less: Inventory reserve ( 4.5 ) ( 4.4 ) 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 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 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) Balance at end of period December 31, 2023 $ 4.4 $ 0.5 $ ( 0.4 ) $ 4.5 December 31, 2022 $ 2.7 $ 2.9 $ ( 1.2 ) $ 4.4 (1) Reserve for inventory balances written off during the period, net of recoveries. NOTE 5 - Property and Equipment, Net Property and equipment consisted of the following: Useful Life (Years) December 31, 2023 December 31, 2022 Land, buildings and improvements 1 — 40 $ 36.0 $ 33.1 Machinery 1 — 20 259.4 216.2 Equipment and furniture 1 — 15 215.2 194.5 ROU assets - finance leases 1 — 20 84.2 39.9 Total property and equipment 594.8 483.7 Less: Accumulated depreciation ( 382.2 ) ( 320.8 ) Add: Construction in progress 8.0 5.2 Total property and equipment, net $ 220.6 $ 168.1 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 $ 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, 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. 77 NOTE 6 - Accrued Liabilities Accrued liabilities consisted of the following: December 31, 2023 December 31, 2022 Accrued salaries, vacation and related benefits $ 17.6 $ 16.3 Accrued property taxes 2.4 2.3 Accrued taxes other than property 7.3 4.7 Accrued incentive compensation 8.3 12.2 Other accrued liabilities 7.1 5.5 Total accrued liabilities $ 42.7 $ 41.0 NOTE 7 - Long-Term Debt Outstanding long-term debt consisted of the following: December 31, 2023 December 31, 2022 Senior Notes $ 237.3 $ 237.3 ABL Facility 50.0 50.0 Total principal outstanding 287.3 287.3 Less: Unamortized debt issuance costs ( 3.0 ) ( 3.9 ) Total debt $ 284.3 $ 283.4 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. On a net basis, after taking into consideration the debt issuance costs for the Senior Notes, long-term debt related to the Senior Notes as of December 31, 2023 was $ 234.4 . The Senior Notes bear interest at an annual rate of 11.5 %, payable semi-annually in arrears on May 1 and November 1. Interest expense related to the Senior Notes amounted to $ 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”) 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”). The Company’s shares of Common Stock issued in connection with the Exchanges were not registered under the Securities Act, and were issued to existing holders of the Company’s securities without commission in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act. The Senior Notes exchanged represent approximately 5.1 % of the outstanding principal amount of outstanding Senior Notes prior to the Exchanges. Following the Exchanges, approximately $ 237.3 in aggregate principal amount of Senior Notes remained outstanding. As of December 31, 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 78 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 $ 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. Interest expense amounted to $ 3.9 for the year ended December 31, 2023. Accrued interest under the ABL Facility was $ 0.0 as of December 31, 2023. The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants as long as the minimum level of borrowing availability is maintained. The ABL Facility is secured by, among other things, a first priority lien on the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants. The ABL Facility includes a springing financial covenant which requires the Company’s 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 ABL Facility as of December 31, 2023. We have funds available of $ 41.9 based on the December 2023 borrowing base certificate. The Company uses standby letters of credit to facilitate commercial transactions with third parties and to secure our performance to certain vendors. Total letters of credit outstanding under the ABL Facility were $ 6.4 at December 31, 2023. To the extent liabilities are incurred as a result of the activities covered by the letters of credit, such liabilities are included on the accompanying consolidated balance sheets. Maturities of long-term debt are as follows: Years ending December 31, Amount 2024 $ — 2025 287.3 2026 — 2027 — 2028 — Thereafter — Total maturities of long-term debt $ 287.3 NOTE 8 - Leases The Company, as part of its normal business operations, leases certain equipment, vehicles, manufacturing facilities, and office space under various operating and finance leases. We determine if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits and has the ability to direct the use of the underlying asset. Leases with an initial term of twelve months or less meet the definition of a short-term lease and are not recorded on the balance sheet. 79 At the lease commencement date, the Company recognized a lease liability and an ROU asset representing its right to use the underlying asset over the lease term. The initial measurement of the lease liability is calculated on the basis of the present value of the remaining lease payments and the ROU asset is measured on the basis of this liability, adjusted by prepaid and accrued rent, lease incentives, and initial direct costs. The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease. Operating lease cost is recognized on a straight-line basis over the lease term, with the cost presented as a component of the Selling, general and administrative expenses line item in the Consolidated Statement of Operations. Finance lease cost is comprised of a separate interest component and amortization component and is presented as a component of the Interest expense, net and Depreciation and amortization line items, respectively, in the Consolidated Statement of Operations. 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. Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate when measuring its leases. We estimate our incremental borrowing rate to discount the lease payments at the lease commencement date based on credit adjusted interest rates available to us over the lease term. The Company does not have any material leases that have not yet commenced that would create significant rights and obligations, nor does it have any material leases with related parties. Additionally, the Company’s leases do not impose any restrictions or covenants on us. Short-term lease expense is not material for the Company. The components of lease expense were as follows: Year Ended December 31, 2023 December 31, 2022 Operating lease fixed cost $ 16.9 $ 18.3 Finance lease fixed cost 14.5 7.3 Interest on finance lease liabilities 3.2 1.4 Lease variable cost 5.9 3.1 Total lease cost $ 40.5 $ 30.1 Supplemental cash flow information related to leases was as follows: Year Ended December 31, 2023 December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 16.4 $ 18.3 Operating cash flows for finance leases 3.2 1.4 Financing cash flows for finance leases 14.6 9.7 ROU assets obtained in exchange for lease obligations: Operating leases $ 7.2 $ 7.0 Finance leases 44.0 25.6 80 Supplemental balance sheet information related to leases was as follows: December 31, 2023 December 31, 2022 Operating Leases Operating lease assets $ 22.3 $ 37.4 Current portion of operating lease liabilities $ 6.9 $ 14.2 Long-term operating lease liabilities 16.0 22.8 Total operating lease liabilities $ 22.9 $ 37.0 Finance leases Property and equipment, net $ 59.9 $ 29.4 Total finance lease assets $ 59.9 $ 29.4 Current portion of finance lease liabilities $ 22.0 $ 10.2 Long-term finance lease liabilities 36.2 20.3 Total finance lease liabilities $ 58.2 $ 30.5 Weighted Average Remaining Lease Term Operating leases (in years) 3.6 3.0 Finance leases (in years) 2.7 3.1 Weighted Average Discount Rate Operating leases 6.7 % 5.6 % Finance leases 9.8 % 8.3 % Maturities of lease liabilities were as follows: Years ending December 31, Operating Leases Finance Leases 2024 $ 8.2 $ 26.7 2025 6.8 23.6 2026 5.5 15.1 2027 3.8 0.7 2028 1.5 0.1 Thereafter — — Total lease payments 25.8 66.2 Less: imputed interest ( 2.9 ) ( 8.0 ) 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 All financial instruments are carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations. Level 1 – quoted prices in active markets for identical assets and liabilities. 81 Level 2 – quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities. Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions. The carrying amounts of cash and cash equivalents, accounts receivable-trade and accounts payable represent their respective fair values due to their short-term nature. There was $ 50.0 debt outstanding under the ABL Facility as of December 31, 2023. The fair value of the ABL Facility approximates its carrying value as of December 31, 2023. The following tables present the placement in the fair value hierarchy of the Senior Notes, based on market prices for publicly traded debt, as of December 31, 2023 and December 31, 2022: Fair value measurements at reporting date using December 31, 2023 Level 1 Level 2 Level 3 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 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: Fair value measurements at reporting date using December 31, 2023 Level 1 Level 2 Level 3 Assets Held for Sale $ 2.3 $ — $ 2.3 $ — Total Assets Held for Sale $ 2.3 $ — $ 2.3 $ — Fair value measurements at reporting date using December 31, 2022 Level 1 Level 2 Level 3 Assets Held for Sale $ 2.3 $ — $ 2.3 $ — Total Assets Held for Sale $ 2.3 $ — $ 2.3 $ — 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 Environmental Regulations & Liabilities 82 The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the future impact of such laws and regulations, as well as standards and requirements, on its business, which are subject to change and can have retroactive effectiveness. Currently, the Company has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect on its consolidated financial statement position, results of operations, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the future to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions that may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification. Litigation The Company is at times either a plaintiff or a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s consolidated financial statements, except as noted herein. Indemnities, Commitments and Guarantees During its ordinary course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, as well as indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees. NOTE 11 - Employee Retirement Plans The Company sponsors a qualified, defined contribution savings and investment plan, covering substantially all employees. The KLX Energy Services Holdings, Inc. Retirement Plan (“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 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 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 . On 83 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. The Equity Distribution Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and the Agent, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. Under the terms of the Equity Distribution Agreement, the Company will pay the Agent a commission equal to 3.0 % of the gross sales price of the Common Stock sold. The Company plans to use the net proceeds from the 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. 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 following table summarizes shares of restricted stock awards that were granted, vested, forfeited and outstanding. 84 Year Ended December 31, 2023 December 31, 2022 Number of Shares (in thousands) Weighted Average Grant Date Fair Value per Share Weighted Average Remaining vesting Period (in years) Number of Shares (in thousands) Weighted Average Grant Date Fair Value per Share Weighted Average Remaining vesting Period (in years) Outstanding, beginning of period 511 $ 11.86 2.00 540 $ 14.95 2.50 Shares granted 278 11.48 196 6.88 Shares vested ( 233 ) 11.28 ( 217 ) 14.97 Shares forfeited ( 6 ) 9.87 ( 8 ) 15.82 Outstanding, end of period 550 $ 11.81 1.2 511 $ 11.86 2.00 . NOTE 13 - Income Taxes Income tax expense consisted of the following: Year Ended December 31, 2023 December 31, 2022 Current: Federal $ 2.3 $ — State 1.3 0.6 Total current income tax expense $ 3.6 $ 0.6 Deferred: Federal $ ( 0.6 ) $ — State — — Total deferred income tax expense (benefit) ( 0.6 ) — Total income tax expense $ 3.0 $ 0.6 A reconciliation of income tax expense using the federal statutory income tax rate to the actual income tax consists of the following: Year Ended December 31, 2023 December 31, 2022 Income tax provision computed at the statutory federal rate $ 4.6 $ ( 0.5 ) State income taxes, net of federal tax benefit 1.1 0.5 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 Stock based compensation ( 0.1 ) 0.4 Non-deductible meals and entertainment 1.4 0.4 Officer compensation 0.6 0.9 Bargain purchase gain ( 0.5 ) — Total income tax expense $ 3.0 $ 0.6 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. 85 The tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consisted of the following: Year Ended December 31, 2023 December 31, 2022 Deferred tax assets: Intangible assets $ 74.1 $ 90.6 Net operating loss carryforward 180.1 152.5 Operating lease liabilities 5.4 8.7 Other 7.0 7.3 Interest expense limitation 10.3 14.3 276.9 273.4 Deferred tax liabilities: Bargain purchase gain — ( 9.4 ) Operating lease assets ( 5.2 ) ( 8.3 ) Other ( 1.1 ) ( 0.7 ) Depreciation ( 16.4 ) ( 5.1 ) ( 22.7 ) ( 23.5 ) Net deferred tax asset before valuation allowance $ 254.2 $ 249.9 Valuation allowance ( 254.1 ) ( 249.8 ) Net deferred tax asset $ 0.1 $ 0.1 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. 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 86 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 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 beginning in 2020 and after. NOTE 14 - Segment Reporting The Company is organized on a geographic basis. The Company’s reportable segments, which are also its operating segments, are comprised of the Southwest Region (the Permian Basin and the Eagle Ford Shale), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale). The segments regularly report their results of operations and make requests for capital expenditures and acquisition funding to the CODM. As a result, Company has three reportable segments. The following table presents revenues and operating (loss) earnings by reportable segment: Year Ended December 31, 2023 December 31, 2022 Revenues Rocky Mountains $ 271.3 $ 229.0 Southwest 304.9 255.2 Northeast/Mid-Con 312.2 297.4 Total revenues 888.4 781.6 Operating income (loss) Rocky Mountains 46.1 27.3 Southwest 19.3 14.5 Northeast/Mid-Con 40.6 39.1 Corporate and other ( 49.1 ) ( 48.4 ) Total operating income (loss) 56.9 32.5 Interest income ( 1.8 ) — Interest expense 36.5 35.0 Income (loss) before income tax $ 22.2 $ ( 2.5 ) 87 The following table presents revenues by service offering by reportable segment: Year Ended December 31, 2023 December 31, 2022 Rocky Mountains Southwest Northeast /Mid-Con Total Rocky Mountains Southwest Northeast /Mid-Con Total Drilling $ 30.9 $ 100.1 $ 89.2 $ 220.2 $ 26.0 $ 115.1 $ 77.6 $ 218.7 Completion 149.9 138.9 179.7 468.5 125.7 88.6 179.0 393.3 Production 65.2 34.0 18.6 117.8 50.5 26.9 16.8 94.2 Intervention 25.3 31.9 24.7 81.9 26.8 24.6 24.0 75.4 Total revenues $ 271.3 $ 304.9 $ 312.2 $ 888.4 $ 229.0 $ 255.2 $ 297.4 $ 781.6 The following table presents total assets by segment: December 31, 2023 December 31, 2022 Rocky Mountains $ 135.8 $ 133.0 Southwest 174.3 152.2 Northeast/Mid-Con 117.2 123.3 Total 427.3 408.5 Corporate and other 112.5 57.4 Total assets $ 539.8 $ 465.9 The following table presents capital expenditures by reportable segment: Year Ended December 31, 2023 December 31, 2022 Rocky Mountains $ 14.1 $ 10.0 Southwest 16.4 10.4 Northeast/Mid-Con 25.7 15.2 Corporate and other 0.9 — Total capital expenditures $ 57.1 $ 35.6 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: Year Ended December 31, 2023 December 31, 2022 Net income (loss) $ 19.2 $ ( 3.1 ) (Shares in millions) Basic weighted average common shares 15.6 11.3 Effect of dilutive securities - dilutive securities 0.1 — Diluted weighted average common shares 15.7 11.3 Basic net income (loss) per common share $ 1.23 $ ( 0.27 ) Diluted net income (loss) per common share $ 1.22 $ ( 0.27 ) 88 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.