Item 8. Financial Statements and Supplementary Data
Item 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No 34 )
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Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024
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Consolidated Statements of Operations for the Years Ended December 31, 2025 and December 31, 2024
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Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2025 and December 31, 2024
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Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and December 31, 2024
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Notes to Consolidated Financial Statements
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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, 2025 and 2024, the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with applicable accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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.
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Revenue Recognition – Accrued Revenue – Refer to Note 1 to the consolidated financial statements
Critical Audit Matter Description
As discussed in Note 1 to the consolidated financial statements, 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, which generally reflects the amount the Company has the right to invoice. As most projects are not billed until completion, the Company accrues revenue at the end of each month for jobs that are on-going and have not been invoiced. As of December 31, 2025, the Company recognized $16.5 million of accrued revenue which is included within the “Revenue” financial statement line item within the financial statements. The amount to be recorded is dependent upon estimates prepared by management.
We identified the estimated accrued revenue as a critical audit matter due to the inherent subjectivity and degree of judgment made by management in estimating the amount to be accrued.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to accrued revenue included the following, among others:
• We evaluated the reasonableness of the Company’s policies for recording the accrual including whether there were changes in those policies in the current year.
• We tested the design and implementation of internal controls over accrued revenue, including (1) the process to estimate the revenue accrual, including the assumptions related to status of jobs on-going at the date of the accrual, and (2) management’s analysis of the actual revenue invoiced in the subsequent period compared to the amount accrued for at year-end.
• We evaluated the reasonableness of the assumptions and degree of judgment utilized in the determination of the accrual, tested the source of information used to estimate the accrual, and validated the mathematical accuracy of management’s calculation.
• We selected a sample of accrued revenue transactions and performed the following:
o Evaluated the Company’s methodology and assumptions in developing their revenue accrual, including assessing the completeness and accuracy of the underlying data used by management in their estimates.
o Compared the related revenue billed subsequently in January 2026 to the estimate recorded.
/s/ Deloitte & Touche LLP
Houston, Texas
March 12, 2026
We have served as the Company's auditor since 2018.
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KLX Energy Services Holdings, Inc.
Consolidated Balance Sheets
(In millions of U.S. dollars and shares, except per share data)
As of December 31
2025 2024
ASSETS
Current assets:
Cash and cash equivalents $ 5.7 $ 91.6
Accounts receivable–trade, net of allowance of $ 1.7 and $ 4.2
102.7 96.9
Inventories, net 30.7 31.0
Prepaid expenses and other current assets 10.8 13.5
Total current assets 149.9 233.0
Property and equipment, net (1)
161.1 197.1
Operating lease assets 22.3 19.6
Intangible assets, net 1.1 1.5
Other assets 5.9 5.1
Total assets $ 340.3 $ 456.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 68.7 $ 74.4
Accrued interest 0.4 4.5
Accrued liabilities 26.0 41.3
Current portion of long-term debt 4.4 —
Current portion of operating lease liabilities 7.1 6.9
Current portion of finance lease liabilities 19.6 13.0
Total current liabilities 126.2 140.1
Long-term debt 253.9 285.1
Long-term operating lease liabilities 15.9 13.5
Long-term finance lease liabilities 17.4 26.4
Other non-current liabilities 1.1 1.7
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common Stock, $ 0.01 par value; 110.0 authorized; 18.9 and 17.5 issued
0.2 0.2
Additional paid-in capital 571.3 557.5
Treasury stock, at cost, 0.5 shares and 0.5 shares
( 6.2 ) ( 5.8 )
Accumulated deficit ( 639.5 ) ( 562.4 )
Total stockholders’ deficit ( 74.2 ) ( 10.5 )
Total liabilities and stockholders' deficit $ 340.3 $ 456.3
(1) Includes right-of-use ("ROU") assets - finance leases. See Note 4 - Property and Equipment, Net and Note 7 - Leases.
See accompanying notes to consolidated financial statements.
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KLX Energy Services Holdings, Inc.
Consolidated Statements of Operations
(In millions of U.S. dollars, except per share data)
Year Ended
December 31, 2025 December 31, 2024
Revenues $ 636.6 $ 709.3
Costs and expenses:
Cost of sales 501.5 549.7
Depreciation and amortization 95.2 94.0
Selling, general and administrative 68.5 79.6
Research and development costs 1.7 1.4
Impairment and other charges — 0.1
Operating loss ( 30.3 ) ( 15.5 )
Non-operating expense:
Interest income ( 0.4 ) ( 2.5 )
Interest expense 45.2 39.4
Loss on debt extinguishment 1.2 —
Net loss before income tax ( 76.3 ) ( 52.4 )
Income tax expense 0.8 0.6
Net loss $ ( 77.1 ) $ ( 53.0 )
Net loss per share-basic $ ( 4.12 ) $ ( 3.27 )
Net loss per share-diluted $ ( 4.12 ) $ ( 3.27 )
See accompanying notes to consolidated financial statements.
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KLX Energy Services Holdings, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2025 and December 31, 2024
( 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 1, 2024 16.9 $ 0.1 $ 553.4 $ ( 5.3 ) $ ( 509.4 ) $ 38.8
Restricted stock, net of forfeitures — — 3.6 — — 3.6
Purchase of treasury stock — — — ( 0.5 ) — ( 0.5 )
Issuance of Common Stock, net of cost 0.6 0.1 0.5 — — 0.6
Net loss — — — — ( 53.0 ) ( 53.0 )
Balance at December 31, 2024
17.5 $ 0.2 $ 557.5 $ ( 5.8 ) $ ( 562.4 ) $ ( 10.5 )
Restricted stock, net of forfeitures — — 2.5 — — 2.5
Purchase of treasury stock — — — ( 0.4 ) — ( 0.4 )
Issuance of Common Stock, net of cost 0.6 0.0 0.3 — — 0.3
Issuance of warrants — — 11.0 — — 11.0
Exercise of warrants 0.8 0.0 0.0 — — —
Net loss — — — — ( 77.1 ) ( 77.1 )
Balance at December 31, 2025
18.9 $ 0.2 $ 571.3 $ ( 6.2 ) $ ( 639.5 ) $ ( 74.2 )
See accompanying notes to consolidated financial statements.
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KLX Energy Services Holdings, Inc.
Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
Year Ended
December 31, 2025 December 31, 2024
Cash flows from operating activities:
Net loss $ ( 77.1 ) $ ( 53.0 )
Adjustments to reconcile net loss to net cash flows from operating activities
Depreciation and amortization 95.2 94.0
Non-cash compensation 2.6 3.9
Amortization of deferred financing fees 4.7 2.6
Provision for inventory reserve 1.3 0.9
Gain on disposal of property, equipment and other ( 11.0 ) ( 11.9 )
Non-cash interest expense 16.6 —
Loss on debt extinguishment 1.2 —
Other 0.7 ( 0.6 )
Changes in operating assets and liabilities:
Accounts receivable ( 6.0 ) 30.6
Inventories ( 1.8 ) 1.4
Prepaid expenses and other current and non-current assets 7.9 14.0
Accounts payable ( 2.0 ) ( 16.6 )
Other current and non-current liabilities ( 24.8 ) ( 11.1 )
Net cash flows provided by operating activities 7.5 54.2
Cash flows from investing activities:
Purchases of property and equipment ( 49.1 ) ( 65.1 )
Proceeds from sale of property and equipment and other 16.2 14.0
Net cash flows used in investing activities ( 32.9 ) ( 51.1 )
Cash flows from financing activities:
Borrowings under 2028 ABL Facility 139.0 —
Repayments on 2028 ABL Facility ( 103.0 ) —
Repayments on Prior ABL Facility ( 50.0 ) —
Proceeds from issuance of 2030 Senior Notes and warrants 225.2 —
Repayment of 2025 Senior Notes ( 236.3 ) —
Mandatory redemption on 2030 Senior Notes ( 4.8 ) —
Payments on finance lease obligations ( 19.9 ) ( 21.6 )
Payments of debt issuance costs ( 10.5 ) ( 0.9 )
Proceeds from note payable 6.5 5.4
Change in financed payables ( 6.6 ) ( 6.1 )
Other ( 0.1 ) ( 0.8 )
Net cash flows used in financing activities ( 60.5 ) ( 24.0 )
Net change in cash and cash equivalents ( 85.9 ) ( 20.9 )
Cash and cash equivalents, beginning of period 91.6 112.5
Cash and cash equivalents, end of period $ 5.7 $ 91.6
Supplemental disclosures of cash flow information:
Cash paid during period for interest 27.8 37.1
Supplemental schedule of non-cash activities:
Accrued capital expenditures 9.1 12.7
Non-cash interest expense (paid in kind) 16.6 —
Debt-for-equity exchanges — 1.0
See accompanying notes to consolidated financial statements.
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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 unconve ntional 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 60 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, which generally reflects the amount we have the right to invoice. 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
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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.
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, 2025 and December 31, 2024 was $ 1.7 and $ 4.2 , respectively.
Activity in our allowance for doubtful accounts during the years ended December 31, 2025 and December 31, 2024 is set forth in the table below:
Allowance for doubtful accounts Balance at beginning of period Charged (credited) to costs and expenses Deductions (1)
Balance at end of period
December 31, 2025 $ 4.2 $ 1.4 $ ( 3.9 ) $ 1.7
December 31, 2024 $ 5.5 $ 0.6 $ ( 1.9 ) $ 4.2
* 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 and uses the weighted average costing and first-in, first-out methods. Reserves for excess and obsolete inventory were approximately $ 4.1 and $ 3.2 as of years ended December 31, 2025 and December 31, 2024, respectively.
Property and Equipment
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Property and equipment is stated at cost and depreciated under the straight-line method over the estimated useful life of the asset. Equipment held under finance leases is stated at the present value of its future minimum lease payments and is depreciated under the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Estimating useful lives of property and equipment requires significant judgment which is influenced by our historical experience in operating property and equipment, technological developments, and expectations of future demand.
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 under the straight-line method over their individual useful lives. As of December 31, 2025 and December 31, 2024, there were net intangible assets, consisting of customer relationships and patents, with definite lives of $ 1.1 and $ 1.5 , respectively. As of December 31, 2025 and December 31, 2024, intangible assets had gross carrying amount of $ 5.9 and $ 5.9 and accumulated amortization of $ 4.8 and $ 4.4 , respectively, with amortization expense for the years then ended of $ 0.4 and $ 0.3 , respectively.
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, 2025 and December 31, 2024, 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 Prior ABL Facility and the 2028 ABL Facility are presented net of amortization as a non-current asset. Debt issuance costs related to the Company’s senior secured notes due 2030 (the “2030 Senior Notes”) and senior secured notes due 2025 (the “2025 Senior Notes”) are presented net of amortization as an offset to the liability. Amortized debt issuance costs are included in interest expense and totaled $ 2.3 for the year ended December 31, 2025 and $ 2.6 for the year ended December 31, 2024.
Original Issue Discount
The Company capitalizes the original issue cash discount and the original issue warrant discount, both related to the 2030 Senior Notes, and amortizes these costs over the life of the debt using the effective interest method. These discounts are presented net of amortization as an offset to the liability. Discount amortization is included in interest expense and totaled $ 2.4 for the year ended December 31, 2025 and $ — for the year ended December 31, 2024.
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
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The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB ASC Topic 718, Stock Compensation 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, 2025 and December 31, 2024 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 11 - Equity and Stock-Based Compensation for additional information related to stock-based compensation.
Concentration of Risk
The Company provides products and services to energy industry customers who focus on developing and producing oil and gas onshore in North America. The Company’s management performs ongoing credit evaluations on the financial condition of all of its customers and maintains allowances for uncollectible accounts receivable based on expected collectability. Credit losses have historically been within management’s expectations and the provisions established, see " Accounts Receivable, Net" above.
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, 2025 and December 31, 2024, no single customer accounted for more than 10% of the Company’s revenues.
NOTE 2 - Recent Accounting Pronouncements
Recently Adopted Accounting Standard Updates
In December 2023, FASB issued Accounting Standards Update (“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 Company adopted ASU 2023-09 on January 1, 2025 using a fully retrospective method of transition. Refer to Note 12 - Income Taxes.
NOTE 3 - Inventories, net
Inventories consisted of the following:
December 31, 2025 December 31, 2024
Spare parts $ 19.3 $ 20.5
Plugs 9.0 8.0
Consumables 4.6 3.9
Other 1.9 1.8
Subtotal 34.8 34.2
Less: Inventory reserve ( 4.1 ) ( 3.2 )
Total inventories, net $ 30.7 $ 31.0
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 $ 4.1 and $ 3.2 as of December 31, 2025 and December 31, 2024, respectively.
Activity in the reserve for inventory accounts during the years ended December 31, 2025 and December 31, 2024 is set forth in the table below:
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Reserve for inventory Balance at beginning of period Charged to costs and expenses Deductions (1)
Balance at end of period
December 31, 2025
$ 3.2 $ 1.3 $ ( 0.4 ) $ 4.1
December 31, 2024 $ 4.5 $ 1.0 $ ( 2.3 ) $ 3.2
(1) Reserve for inventory balances written off during the period, net of recoveries.
NOTE 4 - Property and Equipment, Net
Property and equipment consisted of the following:
Useful Life (Years) December 31, 2025 December 31, 2024
Land, buildings and improvements
1 — 40 $ 36.1 $ 36.3
Machinery 1 — 20 299.8 289.0
Equipment and furniture 1 — 15 248.6 243.4
ROU assets - finance leases 1 — 20 84.9 83.9
Total property and equipment 669.4 652.6
Less: Accumulated depreciation ( 512.3 ) ( 461.1 )
Add: Construction in progress 4.0 5.6
Total property and equipment, net $ 161.1 $ 197.1
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 $ 74.9 and $ 69.7 for the years ended December 31, 2025 and December 31, 2024, respectively. Finance lease amortization expense was $ 20.0 and $ 24.0 for the years ended December 31, 2025 and December 31, 2024.
Assets Held for Sale
As of December 31, 2025 and December 31, 2024, the Company’s consolidated balance sheet includes assets classified as held for sale of $ — and $ 2.3 , respectively.
NOTE 5 - Accrued Liabilities
Accrued liabilities consisted of the following:
December 31, 2025 December 31, 2024
Accrued compensation and employee benefits $ 14.3 $ 27.9
Accrued property taxes 1.6 1.8
Accrued taxes other than property 2.2 3.5
Other accrued liabilities 7.9 8.1
Total accrued liabilities $ 26.0 $ 41.3
NOTE 6 - Long-Term Debt
Outstanding long-term debt consisted of the following:
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December 31, 2025 December 31, 2024
2025 Senior Notes $ — $ 236.3
2030 Senior Notes 244.1 —
Prior ABL Facility — 50.0
2028 ABL Facility 36.0 —
Total principal outstanding 280.1
286.3
Less: Unamortized debt issuance costs ( 6.2 ) ( 1.2 )
Less: Unamortized original issue discount ( 15.6 ) —
Total debt 258.3 285.1
Less: Current portion of long-term debt 4.4 —
Long-term debt $ 253.9 $ 285.1
Refinancing
On March 7, 2025, the Company and certain of our subsidiaries party thereto entered into a Securities Purchase Agreement with certain holders (the “Investors”) of our 11.5 % senior secured notes due 2025 (the “2025 Senior Notes”), pursuant to which the Company agreed to issue and sell to the Investors (a) approximately $ 232.2 in aggregate principal amount of the Senior Secured Floating Rate Cash / PIK Notes due 2030 (the “2030 Senior Notes” and, together with the 2025 Senior Notes, the “Senior Secured Notes”) and (b) warrants entitling the holders thereof to purchase, in the aggregate, up to 2,373,187 shares of Common Stock, at an exercise price of $ 0.01 per share, subject to adjustment in exchange for (i) approximately $ 78.4 in aggregate cash consideration and (ii) approximately $ 143.6 aggregate principal amount of the 2025 Senior Notes, which were cancelled by the Company upon receipt thereof (collectively, the “Refinancing”). The Company consummated the Refinancing on March 12, 2025.
Senior Secured Notes
2030 Senior Notes
On March 12, 2025, as part of the Refinancing, the Company and certain of its subsidiaries entered into an indenture, dated as of March 12, 2025 (the “2030 Senior Notes Indenture”), with U.S. Bank Trust Company, National Association, as the trustee and notes collateral agent, pursuant to which $ 232.2 of the 2030 Senior Notes were issued. The 2030 Senior Notes will mature on March 12, 2030 and bear a floating rate of interest of Term SOFR plus the Applicable Margin (as defined in the 2030 Senior Notes Indenture) based on the Secured Net Leverage Ratio (as defined in the 2030 Senior Notes Indenture) payable on the last day of the applicable interest period in cash or, at the Company’s election, additional 2030 Senior Notes paid-in-kind on one-, three- or six-month interest periods, which shall include a 100 basis point premium for any period where interest is paid-in-kind. The 2030 Senior Notes are senior secured obligations of the Company and are guaranteed on a senior secured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries, subject to agreed guaranty and security principles and certain exclusions.
The 2030 Senior Notes are fully and unconditionally guaranteed by each of the Company’s current subsidiaries. The 2030 Senior Notes will also be guaranteed by each of the Company’s future subsidiaries that guarantee the Company’s indebtedness or indebtedness of guarantors, including under the 2028 ABL Facility and such subsidiaries that become guarantors in the future will also pledge their collateral in support of such guarantees. These guarantees are senior secured obligations of the guarantors secured by a first priority security interest on substantially all of the guarantors’ assets (other than collateral securing the 2028 ABL Facility on a first priority basis) and a second priority security interest on the guarantors’ assets which secure the 2028 ABL Facility on a first priority basis, subject in each case to certain excluded assets.
The Company is required to redeem the 2030 Senior Notes in an amount equal to 2.00 % per annum of all 2030 Senior Notes outstanding as of the prior applicable Interest Payment Date (as defined in the 2030 Senior Notes Indenture) on the last business day of each of March, June, September and December.
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Additionally, upon certain changes of control, consummation of certain asset sales and other events, the Company will be required to repurchase the 2030 Senior Notes at the applicable redemption prices.
The 2030 Senior Notes Indenture contains certain financial covenants that include (i) a maximum total net leverage ratio of not greater than 4.50 to 1.0 for the test periods ending March 31, 2025 through December 31, 2025, stepping down to 4.00 to 1.0 for the test periods ending March 31, 2026 through December 31, 2026, 3.50 to 1.0 for the test periods ending March 31, 2027 through December 31, 2027, 3.00 to 1.0 for the test periods ending March 31, 2028 through December 31, 2028, and 2.50 to 1.0 for each test period thereafter and (ii) restrictions on making net capital expenditures in any test period in excess of the greater of (x) $ 65.0 in the aggregate or (y) 7 % of revenues during such test period. As of December 31, 2025, the Company was in compliance with its debt covenants under the 2030 Senior Notes.
The 2030 Senior Notes Indenture also restricts, among other things, the Company’s ability to incur indebtedness and liens, pay dividends or make other distributions, make certain other restricted payments or investments, sell assets, enter into restrictive agreements, enter into transactions with the Company’s affiliates, and merge or consolidate with other entities or convey, transfer or lease all or substantially all of the Company’s properties and assets to another person, which, in each case, is subject to certain limitations and exceptions. The 2030 Senior Notes Indenture also contains customary events of default including, among other things, the failure to pay interest for three business days, failure to pay principal when due, failure to observe or perform any other covenants or agreement in the 2030 Senior Notes Indenture subject to grace periods, cross-acceleration to indebtedness with an aggregate principal amount in excess of $ 7.5 , material impairment of liens, failure to pay certain material judgments and certain events of bankruptcy. The 2030 Senior Notes Indenture permits the Company to incur additional pari passu indebtedness of up to $ 150.0 within twelve months of the Refinancing (including for the purpose of consummating permitted acquisitions and investments) subject to the terms and conditions contained in the 2030 Senior Notes Indenture and contains certain other covenants, events of default and other customary provisions.
As of December 31, 2025, the principal amount outstanding under the 2030 Senior Notes was $ 244.1 . On a net basis, after taking into consideration unamortized debt issuance costs and original issue discount for the 2030 Senior Notes, total debt related to the 2030 Senior Notes as of December 31, 2025 was $ 222.3 . The effective interest rate under the 2030 Senior Notes was approximately 12.3 % on December 31, 2025. Accrued interest related to the 2030 Senior Notes was $ — as of December 31, 2025.
2025 Senior Notes
The previously-issued 2025 Senior Notes were redeemed on March 30, 2025 and the related indenture was satisfied and discharged. On a net basis, after taking into consideration the debt issuance costs for the 2025 Senior Notes, total debt related to the 2025 Senior Notes as of December 31, 2024 was $ 235.1 . The 2025 Senior Notes bore interest at an annual rate of 11.5 %, payable semi-annually in arrears on May 1 and November 1. Accrued interest as of December 31, 2024 was $ 4.5 .
ABL Facilities
2028 ABL Facility
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On March 7, 2025, the Company also entered into a Credit Agreement, dated as of March 7, 2025 (the “2028 ABL Facility”), with the Company, as borrower, Eclipse Business Capital LLC, as administrative agent, as collateral agent and as FILO administrative agent and the lenders party thereto. The 2028 ABL Facility is comprised of an asset-based revolving credit facility with a $ 125.0 commitment (the “Revolving Facility”), a first-in-last-out asset-based credit facility with a $ 10.0 commitment (the “FILO Facility”), and a committed incremental loan option under the Revolving Facility with a $ 25.0 commitment (the “Incremental Revolving Loans”). The availability of the Incremental Revolving Loans are subject to usual and customary conditions to effectiveness, including, for example, the Company electing to utilize such Incremental Revolving Loans by a date certain and the payment of required fees. Borrowings under the Revolving Facility (including, to the extent incurred, the Incremental Revolving Loans) bear interest at a rate equal to adjusted term SOFR plus an applicable margin of 4.625 %. Borrowings under the FILO Facility bear interest at a rate equal to adjusted term SOFR plus an applicable margin of 6.00 %. The applicable margin under the Revolving Facility is subject to a 0.125 % reduction and the applicable margin under the FILO Facility is subject to a 0.50 % reduction, in each case upon the repayment in full of a $ 5.0 over-advance provided on the initial funding date under the Revolving Facility. The 2028 ABL Facility is secured by, among other things, a first priority lien on accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.
The initial funding under the 2028 ABL Facility occurred on March 12, 2025, and the proceeds therefrom were used to repay the Prior ABL Facility in full. After giving effect to the foregoing, we had approximately $ 39.9 of available borrowing capacity under the 2028 ABL Facility. Our 2028 ABL Facility matures on March 7, 2028.
The 2028 ABL Facility includes a springing financial covenant which requires the Company’s consolidated fixed charge coverage ratio to be at least 1.0 to 1.0 if availability under the Revolving Facility falls below $ 7.0 .
The 2028 ABL Facility includes financial, operating and negative covenants that limit our ability to incur indebtedness, to create liens or other encumbrances, to make certain payments and investments, including dividend payments, to engage in transactions with affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities. It also includes a covenant to deliver annual audited financial statements that are not qualified by a “going concern” or like qualification or exception. A failure to comply with the obligations contained in the 2028 ABL Facility could result in an event of default, which could permit acceleration of the debt, termination of undrawn commitments and enforcement against any liens securing the debt. The 2028 ABL Facility contains certain other covenants (including the ability to incur indebtedness for the purpose of consummating permitted acquisitions, subject to the terms of the 2028 ABL Facility), events of default and other customary provisions. As of December 31, 2025, the Company was in compliance with its debt covenants under the 2028 ABL Facility.
As of December 31, 2025, the borrowings outstanding under the 2028 ABL Facility were $ 36.0 . The effective interest rate under the 2028 ABL Facility was approximately 8.61 % on December 31, 2025. Accrued interest related to the 2028 ABL Facility was $ 0.4 as of December 31, 2025.
We have funds available under the 2028 ABL Facility of $ 50.6 on the December 2025 borrowing base certificate, which includes the undrawn availability on the FILO Facility.
Prior ABL Facility
On March 12, 2025, in connection with the completion of the Refinancing, the Prior ABL Facility was repaid in full using borrowings under the 2028 ABL Facility and the commitments thereunder terminated. As of December 31, 2024, $ 50.0 was outstanding under the Prior ABL Facility and the effective interest rate under the Prior ABL Facility was approximately 7.44 %.
Other debt-related items
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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 2028 ABL Facility were $ 6.9 at December 31, 2025. 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.
As of December 31, 2025, the Company had $ 1.9 of outstanding short-term indebtedness related to the financing of various insurance premiums at a weighted average interest rate of approximately 6.77 %.
NOTE 7 - Leases
The Company, as part of its normal business operations, leases certain equipment, vehicles, manufacturing facilities, and office space under various operating and finance leases. We determine if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits and has the ability to direct the use of the underlying asset. Leases with an initial term of twelve months or less meet the definition of a short-term lease and are not recorded on the balance sheet.
At the lease commencement date, the Company recognized a lease liability and an ROU asset representing its right to use the underlying asset over the lease term. The initial measurement of the lease liability is calculated on the basis of the present value of the remaining lease payments and the ROU asset is measured on the basis of this liability, adjusted by prepaid and accrued rent, lease incentives, and initial direct costs. The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease. Operating lease cost is recognized on a straight-line basis over the lease term, with the cost presented as a component of the Selling, general and administrative expenses line item in the Consolidated Statement of Operations. Finance lease cost is comprised of a separate interest component and amortization component and is presented as a component of the Interest expense, net and Depreciation and amortization line items, respectively, in the Consolidated Statement of Operations.
ASU 2016-02, Leases (Topic 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, 2025 December 31, 2024
Operating lease fixed cost $ 8.4 $ 9.2
Finance lease fixed cost 20.0 24.0
Interest on finance lease liabilities 3.7 4.8
Lease variable cost 5.2 5.5
Total lease cost $ 37.3 $ 43.5
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Supplemental cash flow information related to leases was as follows:
Year Ended
December 31, 2025 December 31, 2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 8.8 $ 8.7
Operating cash flows for finance leases 3.6 4.8
Financing cash flows for finance leases 19.9 21.6
ROU assets obtained in exchange for lease obligations:
Operating leases $ 9.4 $ 4.9
Finance leases 20.7 3.9
Supplemental balance sheet information related to leases was as follows:
Year Ended
December 31, 2025 December 31, 2024
Operating Leases
Operating lease assets $ 22.3 $ 19.6
Current portion of operating lease liabilities $ 7.1 $ 6.9
Long-term operating lease liabilities 15.9 13.5
Total operating lease liabilities $ 23.0 $ 20.4
Finance Leases
Property and equipment, net $ 34.8 $ 38.9
Total finance lease assets $ 34.8 $ 38.9
Current portion of finance lease liabilities $ 19.6 $ 13.0
Long-term finance lease liabilities 17.4 26.4
Total finance lease liabilities $ 37.0 $ 39.4
Weighted Average Remaining Lease Term
Operating leases (in years)
4.4 3.1
Finance leases (in years)
2.9 2.2
Weighted Average Discount Rate
Operating leases 11.8 % 9.0 %
Finance leases 12.5 % 10.3 %
Maturities of lease liabilities were as follows:
Years ending December 31, Operating Leases Finance Leases
2026 $ 9.4 $ 22.8
2027 7.2 7.9
2028 4.5 6.5
2029 2.6 5.2
2030 1.7 1.4
Thereafter 5.4 —
Total lease payments 30.8 43.8
Less: imputed interest ( 7.8 ) ( 6.8 )
Total $ 23.0 $ 37.0
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NOTE 8 - Fair Value Information
All financial instruments are carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations.
Level 1 – quoted prices in active markets for identical assets and liabilities.
Level 2 – quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
The carrying amounts of cash and cash equivalents, accounts receivable-trade and accounts payable represent their respective fair values due to their short-term nature. There was $ 36.0 debt outstanding under the 2028 ABL Facility as of December 31, 2025 and $ 50.0 debt outstanding under the Prior ABL Facility as of December 31, 2024. The fair value of each the 2028 ABL Facility and the Prior ABL Facility approximates each of their respective carrying values as of year-end.
The following tables present the placement in the fair value hierarchy of the 2025 Senior Notes, based on market prices for publicly traded debt, as of December 31, 2025 and December 31, 2024:
Fair value measurements at reporting date using
December 31, 2025 Level 1 Level 2 Level 3
2030 Senior Notes $ 246.0 $ — $ — $ 246.0
Total Senior Notes $ 246.0 $ — $ — $ 246.0
Fair value measurements at reporting date using
December 31, 2024 Level 1 Level 2 Level 3
2025 Senior Notes $ 231.2 $ — $ 231.2 $ —
Total Senior Notes $ 231.2 $ — $ 231.2 $ —
The following tables present the placement in the fair value hierarchy of Assets Held for Sale, as disclosed in Note 4, based on sales contracts and comparative price quotes, as of December 31, 2025 and December 31, 2024:
Fair value measurements at reporting date using
December 31, 2025 Level 1 Level 2 Level 3
Assets Held for Sale $ — $ — $ — $ —
Total Assets Held for Sale $ — $ — $ — $ —
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Fair value measurements at reporting date using
December 31, 2024 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, 2025 and December 31, 2024, there was $ 0.2 and no before-tax loss related to Assets Held for Sale, respectively.
NOTE 9 - Commitments, Contingencies and Off-Balance Sheet Arrangements
Environmental Regulations & Liabilities
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the future impact of such laws and regulations, as well as standards and requirements, on its business, which are subject to change and can have retroactive effectiveness. Currently, the Company has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect on its consolidated financial statement position, results of operations, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the future to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions that may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
The Company is at times either a plaintiff or a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s consolidated financial statements, except as otherwise noted in Item 3 Legal Proceedings.
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 10 - Employee Retirement Plans
The Company sponsors a qualified, defined contribution savings and investment plan, covering substantially all employees. The KLX Energy Services Holdings, Inc. Retirement Plan (“401(k) Plan”) was established
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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. Total expense for the Plan was $ 3.2 and $ 3.4 for the years ended December 31, 2025 and December 31, 2024, respectively.
NOTE 11 - Equity and 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 November 16, 2022, the Company entered into Amendment No. 1 to the Equity Distribution Agreement, which, among other things, allows for debt-for-equity exchanges in accordance with Section 3(a)(9) of the Securities Act. On March 14, 2025, the Company entered into Amendment No. 2 to the Equity Distribution Agreement (the “EDA Amendment”), which, among other things, increased the aggregate offering price to up to approximately $ 57.8 (which amount includes all of the Common Stock previously sold pursuant to the Equity Distribution Agreement prior to the EDA Amendment) and provides for the Company’s election not to deliver a placement notice.
Any Common Stock offered and sold in the ATM Offering may be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-271182) filed with the SEC on April 7, 2023 and declared effective on April 19, 2023 (the “Registration Statement”), the prospectus supplement relating to the ATM Offering filed with the SEC on March 14, 2025 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, as amended to date, may be made in any transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act. As of the filing of this Annual Report, the Company is subject to the General Instruction I.B.6 to Form S-3, known as the “baby shelf” rule, which limits the amount of securities we can sell under the Registration Statement in any 12-month period.
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 has used and 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, 2025, the Company sold — and 167,769 shares of Common Stock, respectively, in exchange for gross proceeds of $ — and $ 0.6 , respectively, and incurred legal and administrative fees of $ — and $ 0.3 , respectively. During the three and twelve months ended December 31, 2024, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $ 0.3 and $ 0.5 , respectively.
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
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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, 2025 and December 31, 2024 related to grants of restricted stock granted by or approved by the Compensation Committee. Stock-based compensation was $ 2.6 and $ 3.9 for the years ended December 31, 2025 and December 31, 2024, respectively. Unrecognized compensation cost related to restricted stock awards made by the Company was $ 3.0 at December 31, 2025 and $ 3.9 at December 31, 2024.
The following table summarizes shares of restricted stock awards that were granted, vested, forfeited and outstanding:
Year Ended
December 31, 2025
December 31, 2024
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 721 $ 9.98 1.42 550 $ 11.81 1.20
Shares granted 436 5.12 441 9.26
Shares vested ( 410 ) 10.66 ( 249 ) 12.35
Shares forfeited ( 41 ) 6.49 ( 21 ) 9.44
Outstanding, end of period 706 $ 6.88 1.56 721 $ 9.98 1.42
.
NOTE 12 - Income Taxes
The Company is subject to taxation only in the United States and various U.S. states.
Year Ended
December 31, 2025 December 31, 2024
Net loss before income tax $ ( 76.3 ) $ ( 52.4 )
Income tax expense consisted of the following:
Year Ended
December 31, 2025 December 31, 2024
Current:
Federal $ — $ ( 0.3 )
State 0.5 0.9
Total current income tax expense $ 0.5 $ 0.6
Deferred:
Federal $ — $ —
State 0.3 —
Total deferred income tax expense 0.3 —
Total income tax expense $ 0.8 $ 0.6
A reconciliation of income tax expense using the federal statutory income tax rate of 21% to the actual income tax consists of the following:
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Year Ended
December 31, 2025 December 31, 2024
Amount Percent Amount Percent
Income tax (benefit) expense at statutory rate $ ( 16.0 ) 21.0 % $ ( 11.0 ) 21.0 %
State income taxes, net of federal tax benefit (1)
0.6 ( 0.8 ) % 0.7 ( 1.3 ) %
Valuation allowance 14.2 ( 18.6 ) % 9.5 ( 18.1 ) %
Nontaxable or nondeductible items
Stock based compensation 0.5 ( 0.7 ) % 0.1 ( 0.2 ) %
Meals and entertainment 1.1 ( 1.4 ) % 1.3 ( 2.5 ) %
Officer compensation 0.3 ( 0.4 ) % 0.3 ( 0.6 ) %
Other 0.1 ( 0.1 ) % — — %
Other
Adjustments to prior year tax accruals — — % ( 0.3 ) 0.6 %
Total income tax expense and effective tax rate $ 0.8 ( 1.0 ) % $ 0.6 ( 1.1 ) %
(1) State taxes in Texas made up the majority (greater than 50%) of the tax effect in this category.
Income tax expense was $ 0.8 for the year ended December 31, 2025, which reflects an effective tax rate of approximately ( 1.0 )%. For the fiscal year ended December 31, 2025, the Company recognized current state tax expense of $ 0.5 on its year-to-date income, plus deferred state tax expense of $ 0.3 , primarily related to Texas franchise tax. For the fiscal year ended December 31, 2024, the Company recognized current state tax expense of $ 0.9 on its year-to-date income, primarily related to Texas franchise tax, less a federal tax adjustment of ($ 0.3 ) to the prior year accrual, which reflects an effective tax rate of approximately ( 1.1 )%.
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, 2025 December 31, 2024
Deferred tax assets:
Intangible assets $ 41.1 $ 57.6
Net operating loss carryforward 225.2 195.0
Operating lease liabilities 5.4 4.8
Interest expense limitation 27.8 23.3
Other 5.0 6.8
304.5 287.5
Deferred tax liabilities:
Operating lease assets ( 5.3 ) ( 4.6 )
Depreciation ( 17.1 ) ( 16.4 )
Other ( 2.0 ) ( 1.2 )
( 24.4 ) ( 22.2 )
Net deferred tax asset before valuation allowance $ 280.1 $ 265.3
Valuation allowance ( 280.3 ) ( 265.2 )
Net deferred tax asset (liability) $ ( 0.2 ) $ 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 that existed for the three-year period ended December 31, 2025. 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, 2025 and December 31, 2024, a valuation allowance of $ 280.3 and $ 265.2 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,
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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, 2024 was a net increase of $ 15.1 , which is primarily due to the current year operating loss. The valuation allowance recorded is exclusive of the deferred tax liability $ 0.2 relating to the Texas franchise tax.
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 $ 972.9 and $ 840.2 , for the fiscal years ended December 31, 2025 and December 31, 2024, respectively. Of these net operating losses, $ 763.2 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 $ 312.4 for the fiscal year ended December 31, 2025, and $ 269.3 for the fiscal year ended December 31, 2024, 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, 2025 and December 31, 2024.
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 2021 and after.
Income taxes paid, net of refunds received, consisted of the following:
Year Ended
December 31, 2025 December 31, 2024
Federal $ — $ 2.2
State
Texas 0.8 1.0
Colorado 0.1 —
Other 0.1 0.1
Total State 1.0 1.1
Total income taxes paid, net $ 1.0 $ 3.3
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NOTE 13 - Segment Reporting
The Company is organized on a geographic basis. The Company’s reportable segments, which are also its operating segments, are comprised of the Southwest Region (the Permian Basin and the Eagle Ford Shale), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale). The Company’s segments report operating results and capital or acquisition funding requests to the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer. The CODM evaluates each segment’s performance based on segment operating income (loss) relative to budget and historical results. These evaluations are used to allocate resources and determine capital expenditures and management compensation for each segment. Accordingly, the Company has three reportable segments.
The following tables present revenues, significant expenses and operating income (loss) by reportable segment:
Year Ended
December 31, 2025
Rocky
Mountains Southwest Northeast
/Mid-Con Eliminations Total
Revenues $ 199.2 $ 232.5 $ 206.3 $ ( 1.4 ) $ 636.6
Less
Cost of sales 154.2 188.1 157.5 ( 1.4 )
Depreciation and amortization 25.5 33.4 34.1
Selling, general and administrative (1)
7.5 12.1 6.0
Other segment items 6.3 2.4 5.1
Segment operating income (loss) $ 5.7 $ ( 3.5 ) $ 3.6 $ — $ 5.8
Reconciliation of profit or loss (segment profit/(loss))
Unallocated corporate expenses (2)
( 36.1 )
Interest income 0.4
Interest expense ( 45.2 )
Loss on debt extinguishment ( 1.2 )
Loss before income tax $ ( 76.3 )
(1) Note that the Selling, general and administrative line item in the Consolidated Statement of Operations contains the Other segment items line item here, less the Research and development costs line item.
(2) For the twelve months ended December 31, 2025, these consist of $ 3.2 of cost of sales, $ 2.3 of depreciation and amortization, $ 28.9 of selling, general and administrative, and $ 1.7 of other segment items.
Year Ended
December 31, 2024
Rocky
Mountains Southwest Northeast
/Mid-Con Eliminations Total
Revenues $ 229.1 $ 270.7 $ 211.6 $ ( 2.1 ) $ 709.3
Less
Cost of sales 164.6 218.4 164.9 ( 2.1 )
Depreciation and amortization 27.3 30.8 34.1
Selling, general and administrative (1)
7.7 12.7 6.6
Other segment items 5.9 4.8 3.8
Segment operating income $ 23.6 $ 4.0 $ 2.2 $ — $ 29.8
Reconciliation of profit or loss (segment profit/(loss))
Unallocated corporate expenses (2)
( 45.3 )
Interest income 2.5
Interest expense ( 39.4 )
Loss before income tax $ ( 52.4 )
(1) Note that the Selling, general and administrative line item in the Consolidated Statement of Operations contains the Other segment items line item here, less the Research and development costs line item.
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(2) For the twelve months ended December 31, 2024, these consist of $ 4.0 of cost of sales, $ 1.8 of depreciation and amortization, $ 38.0 of selling, general and administrative, and $ 1.5 of other segment items.
Other segment items include research and development costs, allocations and other expenses.
The following tables present revenues by service offering by reportable segment:
Year Ended
December 31, 2025
Rocky
Mountains Southwest Northeast
/Mid-Con Eliminations Total
Drilling $ 23.0 $ 43.8 $ 45.5 $ ( 1.4 ) $ 110.9
Completion 107.6 121.9 127.0 356.5
Production 50.3 41.7 15.3 107.3
Intervention 18.3 25.1 18.5 61.9
Total revenues $ 199.2 $ 232.5 $ 206.3 $ ( 1.4 ) $ 636.6
December 31, 2024
Rocky
Mountains Southwest Northeast
/Mid-Con Eliminations Total
Drilling $ 24.6 $ 76.3 $ 57.3 $ ( 2.1 ) $ 156.1
Completion 123.8 125.6 123.3 372.7
Production 58.2 37.9 14.6 110.7
Intervention 22.5 30.9 16.4 69.8
Total revenues $ 229.1 $ 270.7 $ 211.6 $ ( 2.1 ) $ 709.3
The following table presents total assets by segment:
December 31, 2025 December 31, 2024
Rocky Mountains $ 103.0 $ 114.0
Southwest 139.2 152.3
Northeast/Mid-Con 92.4 98.4
Total 334.6 364.7
Unallocated corporate assets 5.7 91.6
Total assets $ 340.3 $ 456.3
The following table presents capital expenditures by reportable segment:
Year Ended
December 31, 2025 December 31, 2024
Rocky Mountains $ 9.7 $ 14.5
Southwest 15.7 24.1
Northeast/Mid-Con 23.1 26.1
Unallocated corporate capital expenditures 0.6 0.4
Total capital expenditures $ 49.1 $ 65.1
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 years ended December 31, 2025 and December 31, 2024, we excluded 0.7 and 0.4 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, 2025 and December 31, 2024 are as follows:
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Year Ended
December 31, 2025 December 31, 2024
Net loss $ ( 77.1 ) $ ( 53.0 )
(Shares in millions)
Basic weighted average common shares 18.7 16.2
Effect of dilutive securities - dilutive securities — —
Diluted weighted average common shares 18.7 16.2
Basic net loss per common share $ ( 4.12 ) $ ( 3.27 )
Diluted net loss per common share $ ( 4.12 ) $ ( 3.27 )
NOTE 15 - Related Party Transactions
Stuart Porter, a greater than 5% passive shareholder of the company, is the Senior Partner of Trace Capital. From time to time and in the ordinary course of business and at arms-length, certain Trace Capital portfolio companies engage us as service providers. The revenue associated with these related party transactions was $ 11.6 for the year ended December 31, 2025 and the related accounts receivable balance was $ 3.9 as of December 31, 2025.
NOTE 16 - Subsequent Events
Subsequent events have been evaluated through the date of issuance of these financial statements, and there have been no events subsequent to December 31, 2025, other than those items disclosed below, that would require additional adjustments to our disclosure in our financial statements during the period.
On March 6, 2026, the requisite holders agreed to execute the First Amendment to the 2030 Senior Notes Indenture (the “First Amendment to the Indenture”) to provide financial covenant relief in the form of (i) extending the period for which the maximum total net leverage ratio covenant is tested at 4.50 to 1.0 through and including the testing period ending March 31, 2027, stepping down to 3.50 to 1.0 for the testing periods ending June 30, 2027 through and including March 31, 2028, to 3.00 to 1.0 for the testing periods ending June 30, 2028 through and including March 31, 2029, and to 2.50 to 1.0 for the testing periods ending June 30, 2029 and thereafter, (ii) a temporary holiday to exclude capital lease obligations as indebtedness for the purposes of determining compliance with the maximum total net leverage ratio covenant for the testing periods ending December 31, 2025 through and including March 31, 2027 and (iii) clarifying that proceeds from our ATM Offering program may be applied as an equity cure. The First Amendment to the Indenture also establishes additional debt and lien baskets to permit the issuance of letters of credit by third parties for the Company’s account in favor of insurers in connection with a $ 6.7 substitute insurance collateral facility. There is no certainty that, following the First Amendment to the Indenture, we will continue being able to comply with our covenants or that we will be able to obtain future amendments in the event we are unable to comply with our covenants.
In connection with our entry into the First Amendment to the Indenture, on March 6, 2026, we issued Warrants to our noteholders, based on their pro rata ownership of principal amount of the 2030 Senior Notes, providing for the purchase of up to 803,712 shares of Common Stock at an exercise price of $ 0.01 per share, subject to adjustment, pursuant to Section 4(a)(2) of the Securities Act. Under the warrant agreements governing the Warrants, the Company undertakes to file a registration statement with SEC with respect to the shares of Common Stock underlying the Warrants within 90 days of their issuance, providing for registered resale pursuant thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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