Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2020
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to | ||
Energy Services Holdings, Inc.
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Delaware | 36-4904146 | ||||
| (State of Incorporation) | (I.R.S. Employer Identification No.) | ||||
1300 Corporate Center Way
Wellington, Florida 33414
(561) 383-5100
(Registrant'sincluding zip code, and telephone number, including area code)
code, of principal executive offices of registrant)
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
Common Stock, $0.01 Par Value | KLXE | The Nasdaq Global Select Market | ||||||||||||
Yes
☒ No ☐Yes
☒ No ☐| Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||||||||||||||||
| Emerging growth company | ☒ | |||||||||||||||||||
Yes
☐ No ☒KLX ENERGY SERVICES HOLDINGS, INC.
Energy Services Holdings, Inc.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||||
Energy Services Holdings, Inc. OCTOBER 31, JANUARY 31, 2019 2019 ASSETS Current assets: Cash and cash equivalents $ 121.1 $ 163.8 Accounts receivable–trade, less allowance for doubtful accounts ($13.8 at October 31, 2019 and $3.1 at January 31, 2019) 103.3 119.6 Inventories, net 12.8 15.4 Other current assets 13.5 9.5 Total current assets 250.7 308.3 Property and equipment, net of accumulated depreciation ($192.2 at October 31, 2019 and $152.7 at January 31, 2019) 321.5 271.9 Goodwill 24.0 43.2 Identifiable intangible assets, net 46.8 30.3 Other assets 14.9 19.1 $ 657.9 $ 672.8 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 36.4 $ 47.3 Accrued interest 14.4 7.2 Accrued liabilities 23.3 30.7 Total current liabilities 74.1 85.2 Long-term debt 242.8 242.2 Deferred income taxes 6.1 — Other non-current liabilities 6.2 4.7 Commitments, contingencies and off-balance sheet arrangements (Note 10) Stockholders’ equity: Common stock, $0.01 par value per share; 110.0 shares authorized; 24.0 shares issued as of October 31, 2019 and 22.6 shares issued as of January 31, 2019 0.2 0.2 Additional paid-in capital 407.9 345.0 Treasury stock: 0.3 shares as of October 31, 2019 and 0 shares as of January 31, 2019 (3.6) — Accumulated deficit (75.8) (4.5) Total stockholders’ equity 328.7 340.7 $ 657.9 $ 672.8 THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2019 2018 2019 2018 Service revenues $ 134.5 $ 123.2 $ 445.2 $ 351.4 Cost of sales 119.3 90.2 367.6 257.9 Selling, general and administrative 31.7 42.3 79.2 82.0 Research and development costs 0.8 0.6 2.3 1.9 Goodwill impairment charge 45.8 - 45.8 - Operating (loss) earnings (63.1) (9.9) (49.7) 9.6 Interest expense, net 7.2 - 21.7 - (Loss) earnings before income taxes (70.3) (9.9) (71.4) 9.6 Income tax (benefit) expense (0.5) - (0.1) 0.1 Net (loss) earnings $ (69.8) $ (9.9) $ (71.3) $ 9.5 Net (loss) earnings per share - basic $ (3.10) $ (0.49) $ (3.24) $ 0.47 Net (loss) earnings per share - diluted $ (3.10) $ (0.49) $ (3.24) $ 0.47 See accompanying notes to condensed consolidated financial statements. KLX Energy Services Holdings, Inc. Additional Total Common Stock Paid-in Treasury Accumulated Stockholders’ Shares Amount Capital Stock Deficit Equity Balance, January 31, 2019 22.6 $ 0.2 $ 345.0 $ — $ (4.5) $ 340.7 Restricted stock, net of forfeitures — — 4.4 — — 4.4 Issuance of shares as a component of Tecton acquisition price 0.5 — 12.1 — — 12.1 Shares reserved as a component of Red Bone acquisition price — — 36.4 — — 36.4 Escrowed shares related to Tecton acquisition — — — (1.4) — (1.4) Net loss — — — — (5.0) (5.0) Balance, April 30, 2019 23.1 0.2 397.9 (1.4) (9.5) 387.2 Sale of stock under employee stock purchase plan 0.1 — 0.9 — — 0.9 Restricted stock, net of forfeitures — — 4.5 — — 4.5 Issuance of shares reserved as a component of Red Bone acquisition price 0.4 — — — — — Net earnings — — — — 3.5 3.5 Balance, July 31, 2019 23.6 0.2 403.3 (1.4) (6.0) 396.1 Restricted stock, net of forfeitures — — 4.6 (1.0) — 3.6 Purchase of treasury stock — — — (1.2) — (1.2) Issuance of shares reserved as a component of Red Bone acquisition price 0.4 — — — — — Net loss — — — — (69.8) (69.8) Balance, October 31, 2019 24.0 $ 0.2 $ 407.9 $ (3.6) $ (75.8) $ 328.7 Former Additional Parent Accumulated Total Common Stock Paid-in Company Earnings Stockholders’ Shares Amount Capital Investment (Deficit) Equity Balance, January 31, 2018 — $ — $ — $ 1,025.8 $ (801.2) $ 224.6 Net earnings — — — — 5.8 5.8 Net transfers from Former Parent — — — 16.5 — 16.5 Balance, April 30, 2018 — — — 1,042.3 (795.4) 246.9 Net earnings — — — — 13.6 13.6 Net transfers from Former Parent — — — (5.6) — (5.6) Balance, July 31, 2018 — — — 1,036.7 (781.8) 254.9 Capital contribution from Former Parent — — — 50.0 — 50.0 Net transfers from Former Parent (pre Spin-Off) — — — 20.6 — 20.6 Restricted stock grants, net of forfeitures and restricted stock unit vesting 2.2 — 12.7 — — 12.7 Net loss before spin-off — — — — (0.5) (0.5) Consummation of Spin-Off transaction on September 14, 2018 20.1 0.2 324.8 (1,107.3) 782.3 — Net loss after spin-off — — — — (9.4) (9.4) Balance, October 31, 2018 22.3 $ 0.2 $ 337.5 $ — $ (9.4) $ 328.3 KLX Energy Services Holdings, Inc. NINE MONTHS ENDED OCTOBER 31, OCTOBER 31, 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) earnings $ (71.3) $ 9.5 Adjustments to reconcile net (loss) earnings to net cash flows provided by operating activities: Depreciation and amortization 48.0 28.3 Goodwill impairment charge 45.8 — Non-cash compensation 13.8 19.2 Amortization of deferred financing fees 0.8 — Provision for inventory reserve 2.0 1.1 Change in allowance for doubtful accounts 10.7 (0.1) Loss on disposal of property, equipment and other 2.1 1.7 Changes in operating assets and liabilities: Accounts receivable 14.8 (13.4) Inventories 3.4 (4.7) Other current and non-current assets (5.5) (9.3) Accounts payable (9.3) 7.1 Other current and non-current liabilities (2.1) 12.2 Net cash flows provided by operating activities 53.2 51.6 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (67.4) (55.9) Proceeds from sale of assets 0.5 0.9 Acquisitions, net of cash acquired (27.6) — Net cash flows used in investing activities (94.5) (55.0) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (1.2) — Shares cancelled by employees for taxes (1.0) — Cash proceeds from stock issuance 0.8 — Proceeds from long-term debt — 250.0 Debt origination costs — (8.3) Capital contribution from Former Parent — 50.0 Net transfers from Former Parent (pre Spin-Off) — 24.9 Net cash flows (used in) provided by financing activities (1.4) 316.6 Net change in cash and cash equivalents (42.7) 313.2 Cash and cash equivalents, beginning of period 163.8 — Cash and cash equivalents, end of period $ 121.1 $ 313.2 Supplemental disclosures of cash flow information: Cash paid during period for: Change in deposits on capital expenditures $ (5.8) $ — Income taxes paid, net of refunds 1.0 — Interest 14.8 — Supplemental schedule of non-cash activities: Accrued capital expenditures $ 5.0 $ 6.3 KLX 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. and nine months ended October 31, 2020 and 2019 would have been as follows: Based on the Company’s Bone. acquisitions are included in the accompanying condensed consolidated statements of The following table summarizes the fair values of assets acquired and liabilities assumed in the Motley Tecton Red Bone Accounts receivable-trade $ 23.2 $ 2.1 $ 7.3 Inventories - - 2.7 Other current and non-current assets 9.4 0.1 - Property and equipment 56.3 6.2 23.6 Goodwill 43.5 10.8 15.5 Identified intangibles 28.3 6.2 13.2 Accounts payable (6.0) (0.7) (3.3) Accrued liabilities (5.7) (2.1) (0.9) Other current and non-current liabilities - - (6.1) Total consideration paid $ 149.0 $ 22.6 $ 52.0 UNAUDITED THREE MONTHS ENDED NINE MONTHS ENDED October 31, 2019 October 31, 2018 October 31, 2019 October 31, 2018 Pro forma Pro forma Pro forma Pro forma Revenues $ 134.5 $ 181.9 $ 452.9 $ 508.3 Net (loss) earnings (69.8) (6.9) (70.8) 15.3 (Loss) earnings per diluted share (3.10) (0.31) (3.18) 0.69 Useful October 31, January 31, Life (Years) 2019 2019 Land, buildings and improvements 1 - 40 $ 36.6 $ 32.3 Machinery 1 - 20 257.4 202.2 Furniture and equipment 1 - 10 219.7 190.1 513.7 424.6 Less accumulated depreciation 192.2 152.7 $ 321.5 $ 271.9 assets. October 31, 2019 January 31, 2019 Useful Life Original Accumulated Net Book Original Accumulated Net Book (Years) Cost Amortization Value Cost Amortization Value Customer contracts and relationships 20 $ 43.0 $ 1.8 $ 41.2 $ 24.9 $ 0.3 $ 24.6 Covenants not to compete 1.5 - 3 4.7 1.5 3.2 3.4 0.3 3.1 Developed technologies 15 3.3 0.9 2.4 3.3 0.7 2.6 $ 51.0 $ 4.2 $ 46.8 $ 31.6 $ 1.3 $ 30.3 Balance, January 31, 2019 $ 43.2 Acquisitions 26.3 Purchase price adjustments 0.3 Goodwill impairment (45.8) Balance, October 31, 2019 $ 24.0 October 31, January 31, 2019 2019 Accrued salaries, vacation and related benefits $ 10.1 $ 13.9 Accrued incentive compensation 1.8 9.1 Accrued property taxes 3.9 1.9 Other accrued liabilities 7.5 5.8 $ 23.3 $ 30.7 $243.6. The Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1. Accrued interest as of October 31, 2020 was $14.4. 2020. 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 2020. The following table presents revenues and operating Three Months Ended Nine Months Ended October 31, October 31, October 31, October 31, 2019 2018 2019 2018 Revenues Southwest $ 38.5 $ 38.2 $ 149.8 $ 118.6 Rocky Mountains 57.6 48.1 169.7 136.1 Northeast/Mid-Con 38.4 36.9 125.7 96.7 Total revenues 134.5 123.2 445.2 351.4 Operating (loss) earnings(1)(2) Southwest (39.6) (6.0) (45.2) (0.8) Rocky Mountains 2.6 (3.2) 14.2 3.3 Northeast/Mid-Con (26.1) (0.7) (18.7) 7.1 Total operating (loss) earnings (63.1) (9.9) (49.7) 9.6 Interest expense 7.2 - 21.7 - (Loss) earnings before income taxes $ (70.3) $ (9.9) $ (71.4) $ 9.6 Three Months Ended October 31, 2019 October 31, 2018 Rocky Northeast Rocky Northeast Southwest Mountains /Mid-Con Total Southwest Mountains /Mid-Con Total Completion revenues $ 26.5 $ 31.4 $ 18.9 $ 76.8 $ 22.1 $ 25.9 $ 17.9 $ 65.9 Intervention revenues 7.9 12.8 12.6 33.3 9.9 9.6 9.1 28.6 Production revenues 4.1 13.4 6.9 24.4 6.2 12.6 9.9 28.7 Total revenues $ 38.5 $ 57.6 $ 38.4 $ 134.5 $ 38.2 $ 48.1 $ 36.9 $ 123.2 Nine Months Ended October 31, 2019 October 31, 2018 Rocky Northeast Rocky Northeast Southwest Mountains /Mid-Con Total Southwest Mountains /Mid-Con Total Completion revenues $ 105.1 $ 96.4 $ 57.2 $ 258.7 $ 67.4 $ 70.4 $ 47.6 $ 185.4 Intervention revenues 27.9 36.4 39.2 103.5 32.1 31.5 24.7 88.3 Production revenues 16.8 36.9 29.3 83.0 19.1 34.2 24.4 77.7 Total revenues $ 149.8 $ 169.7 $ 125.7 $ 445.2 $ 118.6 $ 136.1 $ 96.7 $ 351.4 Three Months Ended Nine Months Ended October 31, October 31, October 31, October 31, 2019 2018 2019 2018 Southwest $ 2.1 $ 7.7 $ 17.1 $ 15.1 Rocky Mountains 3.1 5.0 25.8 18.6 Northeast/Mid-Con 5.4 7.0 24.5 22.2 $ 10.6 $ 19.7 $ 67.4 $ 55.9 October 31, January 31, 2019 2019 Southwest $ 213.5 $ 319.9 Rocky Mountains 241.5 208.0 Northeast/Mid-Con 202.9 144.9 $ 657.9 $ 672.8 October 31, January 31, 2019 2019 Southwest(1) $ — $ 22.1 Rocky Mountains 24.0 13.2 Northeast/Mid-Con(1) — 7.9 $ 24.0 $ 43.2 Three Months Ended Nine Months Ended October 31, October 31, October 31, October 31, 2019 2018 2019 2018 Net (loss) earnings $ (69.8) $ (9.9) $ (71.3) $ 9.5 (Shares in millions) Basic weighted average common shares 22.5 20.1 22.0 20.1 Effect of dilutive securities - dilutive securities - - - 0.1 Diluted weighted average common shares 22.5 20.1 22.0 20.2 Basic net (loss) earnings per common share(1)(2) $ (3.10) $ (0.49) $ (3.24) $ 0.47 Diluted net (loss) earnings per common share(1)(2) $ (3.10) $ (0.49) $ (3.24) $ 0.47 •competitive conditions; for the fiscal year ended January 31, 2020 KLX Energy Services was initially formed from the combination volatility. We remain focused on serving the needs of our customers by providing a broad portfolio of product service lines across all major basins, while preserving a solid balance sheet, maintaining sufficient operating liquidity and prudently managing our capital expenditures. Key Financial Performance Indicators The measures we believe most effective to Three Months Ended October 31, October 31, Percent 2019 2018 Change Southwest $ 38.5 $ 38.2 0.8 % Rocky Mountains 57.6 48.1 19.8 % Northeast/Mid-Con 38.4 36.9 4.1 % Total revenues $ 134.5 $ 123.2 9.2 % Operating The following is a summary of operating (loss) earnings by segment: Three Months Ended October 31, October 31, Percent 2019 2018 Change Southwest $ (39.6) $ (6.0) (560.0) % Rocky Mountains 2.6 (3.2) 181.3 % Northeast/Mid-Con (26.1) (0.7) nm Total operating loss $ (63.1) $ (9.9) (537.4) % 2019 Nine Months Ended October 31, October 31, Percent 2019 2018 Change Southwest $ 149.8 $ 118.6 26.3 % Rocky Mountains 169.7 136.1 24.7 % Northeast/Mid-Con 125.7 96.7 30.0 % Total revenues $ 445.2 $ 351.4 26.7 % The overall decrease in revenues reflects the lingering impacts of the unforeseen global oil market share dispute and the prolonged demand destruction caused by the COVID-19 pandemic, resulting in a depression in oil prices, a historically low rig count and, ultimately, decreased demand for services such as those provided by the Company. depreciation expense for the nine months ended October 31, 2020 and 2019, respectively. The following is a summary of operating (loss) earnings by segment: Nine Months Ended October 31, October 31, Percent 2019 2018 Change Southwest $ (45.2) $ (0.8) nm Rocky Mountains 14.2 3.3 330.3 % Northeast/Mid-Con (18.7) 7.1 (363.4) % Total operating (loss) earnings $ (49.7) $ 9.6 (617.7) % Merger and increased impairment and other charges of $167.3. liquidity to date have been capital contributions from our equity and note holders and borrowings under the Company’s $100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”) and cash flows from operations. At October 31, During the nine months ended October 31, 2020. On a net basis, after taking into consideration the debt issuance costs for the Notes, total debt as of October 31, 2020 was $243.6. The Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1. Accrued interest as of October 31, 2020 was $14.4. Year Ending January 31, Contractual Obligations 2020 2021 2022 2023 2024 Thereafter Total Long-term debt and other non-current liabilities $ — $ 3.3 $ 0.2 $ 0.2 $ 0.2 $ 252.3 $ 256.2 Operating leases 10.4 23.9 15.0 8.1 6.6 6.6 70.6 Future interest and fees on outstanding debt (1) 14.5 29.3 29.3 29.3 29.1 57.5 189.0 Total $ 24.9 $ 56.5 $ 44.5 $ 37.6 $ 35.9 $ 316.4 $ 515.8 Commercial Commitments Letters of credit $ 0.8 — — — — — $ 0.8 Off-Balance Sheet Arrangements under which we 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 and 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 we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable. Our management believes that any liability for these indemnities, commitments and guarantees would not be material to our financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees. 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 estimates and assumptions determined by management. The estimated fair value of the assets acquired, net of liabilities assumed, exceeds the purchase consideration, resulting in a bargain purchase gain. reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is We identified a material weakness in our internal control over financial reporting as of October 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to inadequate review of the measurement of depreciation expense for impaired property and equipment. Period Total number of shares purchased1 Average price paid per share2 Total number of shares purchased as part of publicly announced plans or programs3 Approximate dollar value of shares that may yet be purchased under the plans or programs August 1, 2019 - August 31, 2019 112,341 $ 10.15 112,341 $ September 1, 2019 - September 30, 2019 96,536 10.77 — October 1, 2019 - October 31, 2019 — — — Total 208,877 112,341 XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document KLX ENERGY SERVICES HOLDINGS, INC. ENERGY SERVICES HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)other than per share amounts)of U.S. dollars and shares)October 31, 2020 January 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 79.8 $ 123.5 Accounts receivable–trade, net of allowance of $3.8 and $12.9 49.4 79.2 Inventories, net 23.1 12.0 Other current assets 16.2 13.8 Total current assets 168.5 228.5 Property and equipment, net 220.5 306.8 Goodwill 0 28.3 Intangible assets, net 2.6 45.8 Other assets 6.0 14.0 Total assets $ 397.6 $ 623.4 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 34.4 $ 31.4 Accrued interest 14.4 7.2 Accrued liabilities 33.8 26.2 Total current liabilities 82.6 64.8 Long-term debt 243.6 243.0 Deferred income taxes 0.1 0 Other non-current liabilities 9.4 3.4 Commitments, contingencies and off-balance sheet arrangements (Note 11) Stockholders’ equity: 0.1 0.1 Additional paid-in capital 468.5 416.6 (4.0) (3.6) Accumulated deficit (402.7) (100.9) Total stockholders’ equity 61.9 312.2 Total liabilities and stockholders' equity $ 397.6 $ 623.4 accompanying notes to condensedconsolidated financial statements.Note 1.3KLX ENERGY SERVICES HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS (UNAUDITED)(In millions, other than per share amounts)4ENERGY SERVICES HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)THREE AND NINE MONTHS ENDED OCTOBER 31, 2019 AND 2018millions)millions of U.S. dollars, except per share amounts)Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Revenues $ 70.9 $ 134.5 $ 190.1 $ 445.2 Costs and expenses: Cost of sales 80.1 119.3 220.4 367.6 Selling, general and administrative 14.3 31.7 73.5 79.2 Research and development costs 0.1 0.8 0.6 2.3 Impairment and other charges 4.4 45.8 213.1 45.8 Bargain purchase gain 2.4 0 (38.7) 0 Operating loss (30.4) (63.1) (278.8) (49.7) Non-operating expense: Interest expense, net 7.7 7.2 22.7 21.7 Loss before income tax (38.1) (70.3) (301.5) (71.4) Income tax expense (benefit) 0.2 (0.5) 0.3 (0.1) Net loss $ (38.3) $ (69.8) $ (301.8) $ (71.3) $ (4.56) $ (15.50) $ (50.26) $ (16.20) $ (4.56) $ (15.50) $ (50.26) $ (16.20) 5ENERGY SERVICES HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)millions)millions of U.S. dollars and shares)Common Stock Additional Paid-in Capital Treasury
StockAccumulated
DeficitTotal Stockholders’ Equity Shares Amount Balance at January 31, 2020 5.0 $ 0.1 $ 416.6 $ (3.6) $ (100.9) $ 312.2 Restricted stock, net of forfeitures — — (0.7) — — (0.7) Purchase of treasury stock — — — (0.3) — (0.3) Red Bone acquisition price shares reserved 0.1 — — — — 0 Net loss — — — — (243.1) (243.1) Balance at April 30, 2020 5.1 0.1 415.9 (3.9) (344.0) 68.1 Restricted stock, net of forfeitures — — 17.4 (0.1) — 17.3 QES acquisition price shares issuance 3.4 — 34.7 — — 34.7 Net loss — — — — (20.4) (20.4) Balance at July 31, 2020 8.5 0.1 468.0 (4.0) (364.4) 99.7 Restricted stock, net of forfeitures — — 0.5 — — 0.5 Net loss — — — — (38.3) (38.3) Balance at October 31, 2020 8.5 $ 0.1 $ 468.5 $ (4.0) $ (402.7) $ 61.9 Common Stock Additional Paid-in Capital Treasury Stock Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at January 31, 2019 4.5 $ 0 $ 345.2 $ 0 $ (4.5) $ 340.7 Restricted stock, net of forfeitures — — 4.4 — — 4.4 Tecton acquisition price shares issuance 0.1 — 12.1 — — 12.1 Red Bone acquisition price shares reserved — — 36.4 — — 36.4 Tecton acquisition shares escrowed — — — (1.4) — (1.4) Net loss — — — — (5.0) (5.0) Balance at April 30, 2019 4.6 0 398.1 (1.4) (9.5) 387.2 Sale of stock under employee stock purchase plan — — 0.9 — — 0.9 Restricted stock, net of forfeitures — — 4.5 — — 4.5 Red Bone acquisition price shares issuance 0.1 — — — — 0 Net earnings — — — — 3.5 3.5 Balance at July 31, 2019 4.7 0 403.5 (1.4) (6.0) 396.1 Restricted stock, net of forfeitures — — 4.6 (1.0) — 3.6 Purchase of treasury stock — — — (1.2) — (1.2) Issuance of shares reserved as a component of Red Bone acquisition price 0.1 — — — — 0 Net loss — — — — (69.8) (69.8) Balance at October 31, 2019 $ 4.8 $ 0 $ 408.1 $ (3.6) $ (75.8) $ 328.7 ENERGY SERVICES HOLDINGS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSEnergy Services Holdings, Inc.Nine Months Ended October 31, 2020 October 31, 2019 Cash flows from operating activities: Net loss $ (301.8) $ (71.3) Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities Depreciation and amortization 43.8 48.0 Impairment and other charges 213.1 45.8 Non-cash compensation 17.2 13.8 Amortization of deferred financing fees 1.0 0.8 Provision for inventory reserve 2.8 2.0 Change in allowance for doubtful accounts (9.4) 10.7 (Gain) loss on disposal of property, equipment and other (0.2) 2.1 Bargain purchase gain (38.7) 0 Changes in operating assets and liabilities: Accounts receivable 51.5 14.8 Inventories (2.2) 3.4 Other current and non-current assets 7.0 (5.5) Accounts payable (20.2) (9.3) Other current and non-current liabilities 0.3 (2.1) Net cash flows (used in) provided by operating activities (35.8) 53.2 Cash flows from investing activities: Purchases of property and equipment (11.1) (67.4) Proceeds from sale of property and equipment 1.8 0.5 Acquisitions, net of cash acquired (1.0) (27.6) Net cash flows used in investing activities (10.3) (94.5) Cash flows from financing activities: Purchase of treasury stock (0.4) (1.2) Shares cancelled by employees for taxes — (1.0) Cash proceeds from stock issuance 0 0.8 Change to financed payables 2.8 0 Net cash flows provided by (used in) financing activities 2.4 (1.4) Net decrease in cash and cash equivalents (43.7) (42.7) Cash and cash equivalents, beginning of period 123.5 163.8 Cash and cash equivalents, end of period $ 79.8 $ 121.1 Supplemental disclosures of cash flow information: Cash paid during period for: Income taxes paid, net of refunds $ (0.3) $ 1.0 Interest 14.8 14.8 Supplemental schedule of non-cash activities: Issuance of common stock and stock based payments for QES acquisition $ 34.7 $ 0 Change in deposits on capital expenditures (5.6) (5.8) Accrued capital expenditures 0.5 5.0 millions)millions of U.S. dollars)Note 1.On September 14, 2018, KLX Inc. (the “Former Parent” or “KLX”) created an independent, publicly-traded company through a spin-off of its Energy Services Group business to Former Parent’s stockholders (the “Spin-Off”). As a result of the Spin-Off, now operates as an independent, publicly-traded company.The Company is a growth-oriented provider of completion, intervention and productiondiversified oilfield services and products to the majorleading onshore oil and natural gas producing regionsexploration and production (“E&P”) companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States.Prior to the Spin-Off on September 14, 2018, the Company’s condensed financial statements were derived from the Former Parent’s condensed consolidated financial statements and accounting records as if it was operated on a stand-alone basis and werehave been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All intercompany transactions and account balances within the Company have been eliminated.The condensed consolidated statements of (loss) earnings for periods prior to the Spin-Off reflect allocations of general corporate expenses from the Former Parent, including, but not limited to, executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services. The allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures. Management of the Company considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.Former Parent Company Investment – Former Parent company investment in the condensed consolidated statement of stockholders’ equity for the three and nine months ended October 31, 2018 represents Former Parent’s historical investment in the Company, the net effect of cost allocations from transactions with Former Parent and net transfers of cash and assets from Former Parent. See Note 6 for a further description of the transactions between the Company and Former Parent.Financial Statement Preparation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All adjustments which, in the opinion of the Company’s management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the condensed consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year 2020 or for any future period.7Note 2.January 2017,March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-01, Business Combinations. This update clarifiesAccounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the definitionEffects of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.Reference Rate Reform on Financial Reporting. This ASU isprovides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments in this ASU are effective for fiscal years beginning afterall entities, if elected, through December 15, 2018, including interim periods within those fiscal years. The adoption31, 2022. While the exact impact of ASU 2017-01 didthis standard is not known, the guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements. the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230)(“Topic 230”): Classification of Certain Cash Receipts and Cash Payments, related towhich addresses how certain cash receipts and payments are presented and classified in the statement of cash flows. These cash flow issues include debt prepayment or extinguishment costs, settlement of zero-coupon debt, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted, and should be applied retrospectively. The Company does not expect a material impact upon adoption of this ASU to its condensed consolidated financial statements as the Company’s condensed consolidated statements of cash flows are not impacted by the eight issues listed above.In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation—Stock Compensation. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including that excess tax benefits and shortfalls be recorded as income tax benefit or expense in the statement of earnings, rather than equity, and requires excess tax benefits from stock-based compensation to be classified in cash flows from operations. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of this ASU2016-15 did not have a material impact on the Company’s condensed consolidated financial statements. the FASB issued ASU 2016-02, Leases (“Topic 842”), which supersedes ASC Topic 840, Leases, and creates a new topic, ASCLeases. Topic 842 Leases. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02Topic 842 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In November 2019, the FASB deferred the effective date for implementation of ASU 2016-02Topic 842 by one year and, in June 2020, FASB deferred the effective date by an additional year. The guidance under ASU 2016-02Topic 842 is effective for fiscal years beginning after December 15, 20202021 and interim periods within fiscal years beginning after December 15, 2021.2022. Earlier adoption is permitted. To assess the impact of this guidance, the Company has established a cross functional implementation project team and is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company is in the process of developing its new accounting policies and determining the potential aggregate impact this guidance is likely to have on its condensed consolidated financial statements as of its adoption date.In May 2014, FASB issued ASU 2014-09, Revenue from ContractsCustomers, which updated the guidance in ASC Topic 606, Revenue Recognition. The core principleQES, a diversified provider of the guidance is that an entity should recognize revenue to depict the transfer of promised goods oroilfield services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should identify the contract(s) with a customer, identify the8performance obligationsonshore oil and natural gas E&P companies operating in the contract, determine the transactionUnited States. The Merger purchase price allocate the transaction pricewas approximately $44.4 with cash paid to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date for implementationsettle QES debt, comprised of ASU 2014-09 by one year and during 2016, the FASB issued various related accounting standard updates, which clarified revenue accounting principles and provided supplemental adoption guidance. The guidance under ASU 2014-09 is effective for fiscal years beginning after December 15, 2018 and interim periods within annual reporting periods beginning after December 15, 2019. To assess the impact of this guidance, the Company established a cross functional implementation project team, inventoried its revenue streams and contracts with customers and applied the principles of the guidance against a selection of contracts to assist in the determination of potential revenue accounting differences. No individually significant implementation matters were identified, and revenue is recognized on a “point-in-time” basis for product revenues and over time for service revenues under the new standard, which is consistent with previous practice. The Company implemented internal controls, policies and processes to comply with the new standard. The Company adopted ASC Topic 606 in the first quarter of fiscal 2019 using the modified retrospective method of adoption, which resulted in no changes to the opening balance sheet as of February 1, 2019. Prior period statements of (loss) earnings will remain unchanged.Note 3.Business CombinationsOn November 5, 2018, the Company acquired Motley Services, LLC (“Motley”), a premier provider of well completion and intervention services for complex, long lateral, horizontal wells, for $140.0 in cash (net of cash acquired) and $9.0 of3.4 million shares of the Company’s common stock payable to certain employees of Motley.stock. Based on the Company’s preliminary purchase price allocation, the excess of the purchase price overwas less than the fair value of the identifiable assets acquired, approximated $71.8,which resulted in a $38.7 bargain purchase gain being recorded on the condensed consolidated statements of which $28.3operations for the nine months ended October 31, 2020. The Company recorded a reduction in bargain purchase gain of $2.4 during the three months ended October 31, 2020 related to continued evaluation of the preliminary purchase price allocation. In connection with the closing of the Merger, $9.7 in outstanding borrowings and associated fees and expenses of QES's five-year asset-based revolving credit agreement (the “QES ABL Facility”) were paid off. In addition, the Company assumed certain QES compensation agreements, including restricted stock units ("RSU"), with an estimated fair value of $2.0. Based on the service period related to the period prior to the acquisition date, $0.4 was allocated to identifiable intangible assets consistingthe purchase price, and $1.6 relating to post-acquisition services will be recorded as operating expenses over the remaining requisite service periods. RSUs were valued based on the July 28, 2020 grant date.customer contracts and relationships and covenants not to compete, and $43.5 isoperations for the acquisition are included in goodwill. the accompanying condensed consolidated statements of operations from the respective date of acquisition.useful lifefair values assigned to certain assets acquired and liabilities assumed in relation to the customer contractsCompany’s acquisition have been prepared on a preliminary basis with information currently available and relationshipsare subject to change. The Company expects to finalize its analysis during fiscal 2020. The following table summarizes the fair values of assets acquired and liabilities assumed in the Merger in accordance with ASC 805:QES Cash $ 8.7 Accounts receivable-trade 12.2 11.8 Other current and non-current assets 6.3 Property and equipment 84.5 Accounts payable (27.2) Other current and non-current liabilities (13.2) Bargain purchase (38.7) $ 44.4 20 years,not practicable to report stand-alone revenues and operating (loss) earnings of the covenantsQES business since the Merger date.compete are being amortized over their contractualbe 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, 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 Merger.years.Unaudited Pro Forma Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Revenues $ 70.9 $ 242.8 $ 283.6 $ 815.6 Net loss (35.9) (116.7) (353.7) (134.5) Loss per diluted share (4.27) (14.96) (42.61) (17.47) leading provider of flowback drill-out and production testing services, operating primarily in the greater Rocky Mountains. On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a premier provider of oilfieldfishing and thru-tubing services primarily in the Mid-Continent, providing fishing, non-frac high pressure pumping, thru-tubing and certain other services.Mid-Continent. The aggregate acquisition price of the acquisitions was approximately $74.6, comprised of approximately $47.0 in shares of the Company’s common stock issuable over time at a fixed price and approximately $27.6 in cash to the sellers and for the retirement of debt. The Company issued shares in a subsidiary company to effect the Red Bone acquisition, which become exchangeable for KLXE common stock over specified dates between the acquisition date and September 19, 2021. The Company issued shares in its common stock to effect the Tecton acquisition, a portion of which is not included in purchase consideration as the shares were escrowed and held as treasury stock to satisfy identified future tax obligations through cancellation of the shares. The shares issued to the sellers of Tecton and Red Bone are subject to restrictions on public re-sale from a minimum of six months to a maximum of 24 months, subject to acceleration upon the occurrence of certain events.preliminaryfinal purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $45.7,$51.2, of which $19.4 was allocated to identifiable intangible assets consisting of customer contracts and relationships and covenants not to compete, and $26.3 is included in$31.8 was allocated to goodwill. The useful life assigned to the customer contracts and relationships is 2010 years, and the covenants not to compete are being amortized over their contractual periods of 18 months and three1.5 - 3 years for Tecton and Red Bone, respectively. Motley, Tecton and Red Bone acquisitions were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”). The assets purchased and liabilities assumed have been reflected, as of the respective dates of acquisition, in the accompanying condensed consolidated balance sheet as of October 31, 2019 and January 31, 2019.805. The results of operations for the Motley, Tecton and Red Bone9(loss) earningsoperations from the respective dates of acquisition. The valuation of certain assets, principally intangible assets including goodwill and identified intangible assets related to the Tecton and Red Bone acquisitions, is not yet complete, and as such, the Company has not yet finalized its allocation of the purchase price for the acquisitions.Motley acquisition, and the current estimates of fair values of assets acquired and liabilities assumed in the Tecton and Red Bone acquisitions which are currently recorded based on management’s estimates in accordance with ASC 805:Tecton Red Bone Accounts receivable-trade $ 2.1 $ 7.2 Inventories 0 2.7 Other current and non-current assets 0.2 0 Property and equipment 2.8 23.6 Goodwill 15.0 16.8 Identified intangibles 6.2 13.2 Accounts payable and accrued liabilities Accounts payable and accrued liabilities (2.1) (4.2) Other current and non-current liabilities (1.6) (7.3) Total consideration paid $ 22.6 $ 52.0 The majority of goodwill and intangible assets for Motley are expected to be deductible for tax purposes. As more fully described in Note 5, the Company performed an interim goodwill impairment test and a long-lived asset recovery test, which resulted in a $45.8 goodwill impairment charge and no charge to the amounts recorded for long-lived assets. The goodwill impairment charge is included in the condensed consolidated statements of (loss) earnings for the three and nine months ended October 31, 2019. Motley and Red Bone and, as a result, it is not practicable to report stand-alone revenues and operating earnings of the acquired businessesbusiness since the acquisition date. The amount of Tecton revenues included in the Company’s results was approximately $7.0 and $16.1 for the three and nine months ended October 31, 2019, respectively. It is not practicable to report stand-alone operating earnings of Tecton since the acquisition date. Motley, Tecton and Red Bone acquisitions, as if they occurred on February 1, 2018,2019, revenues, net (loss) earningsloss and (loss) earningsloss per diluted share inclusive of a $45.8 goodwill impairment charge, for the three and nine months ended October 31, 20192020 and 20182019 would have been as follows:Unaudited Pro Forma Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Revenues $ 70.9 $ 134.5 $ 190.1 $ 452.9 Net loss (38.3) (69.8) (301.8) (70.8) Loss per diluted share (4.56) (15.50) (50.26) (15.90) 10Note 4.As the Company continues to integrate the QES business, there will be further charges in future periods relating to, among other things, fixed assets, facilities, workforce reductions and other assets.Three Months Ended October 31, 2020 Nine Months Ended October 31, 2020 Merger costs $ 1.3 $ 27.8 Integration costs 8.5 8.5 Total Merger and Integration Costs $ 9.8 $ 36.3 October 31, 2020 January 31, 2020 Supplies $ 14.1 $ 5.6 Plugs 5.8 6.1 Consumables 4.0 1.0 Work-in-progress 0 0.2 Other 1.4 0.6 Subtotal 25.3 13.5 Inventory reserve (2.2) (1.5) Total inventories $ 23.1 $ 12.0 consistconsisted of the following:Useful Life (Years) October 31, 2020 January 31, 2020 Land, buildings and improvements 1 — 40 $ 44.5 $ 38.2 Machinery 1 — 20 222.0 257.9 Furniture and equipment 1 — 15 183.0 216.7 Total property and equipment Total property and equipment 449.5 512.8 Less accumulated depreciation 229.0 206.0 Property and equipment, net Property and equipment, net $ 220.5 $ 306.8 $15.7$14.7 and $10.0 $15.7for the three months ended October 31, 20192020 and 2018,2019, respectively, and $45.1$40.0 and $28.1$45.1 for the nine months ended October 31, 2020 and 2019, respectively.2018, respectively. Refer to Noterepresent the value of 5 for a discussionoperational facilities. In light of the interimlong-lived asset recovery test performed duringcurrent market environment and as part of the three months endedongoing integration of the QES business, the Company has consolidated operations within certain geographies rendering these locations unnecessary to support the efficient operations of the Company. These assets are being actively marketed for sale as of October 31, 2019.2020 and are recorded at the lower of their carrying value or fair value less costs to sell.Note 5.October 31, 2020 January 31, 2020 Useful Life (Years) Original Cost Accumulated Amortization Net Book Value Original
CostAccumulated Amortization Net Book Value 10 $ 5.7 $ 3.1 $ 2.6 $ 43.0 $ 2.4 $ 40.6 Covenants not to compete 1.5 - 3 0.5 0.5 0 4.7 1.9 2.8 Developed technologies 15 0 0 0 3.3 0.9 2.4 Total intangible assets $ 6.2 $ 3.6 $ 2.6 $ 51.0 $ 5.2 $ 45.8 industry conditions,demand during the second half of 2019, which accelerated throughhas continued into 2020. During the endfirst quarter of 2020, the novel coronavirus (“COVID-19”) pandemic emerged and applied significant downward pressure on the global economy and oil demand and prices, leading North American operators to announce significant cuts to planned 2020 capital expenditures. The combination of the COVID-19 pandemic and supply concerns has driven a steep drop in oil prices, leading to decreases in demand for the Company’s third quarter, was driven by a sharp sequential quarterly decline in U.S. land rig count and an unprecedented decline in active frac spreads from the second quarter to the third quarter. In fact, there was a significant sequential decline in hydraulic fracturing activity during each month of the third quarter. The decline in exploration & production activity resulted in lower demand levelsservices and lower current and expected revenues for the Company. Asresult,goodwill and long-lived asset impairment analysis during the three months ended April 30, 2020. The results of the impairment analysis concluded that the carrying amount of the long-lived assets exceeded the relative fair values of two of the reporting units asset groups. As a result, the Company recorded a $180.4 long-lived asset impairment charge, $39.2 related to intangible assets and $141.2 related to property and equipment, which is included in the condensed consolidated statements of operations for the nine months ended October 31, 2019,2020. This charge reflects $91.3 and $89.1 of the long-lived assets attributable to the Southwest and Northeast/Mid-Con segments, respectively.performed an interim goodwill impairment test and acontinues to be unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Company’s long-lived asset recoverability test.910 for additional information regarding the fair value determination. The results of the goodwill impairment test as of October 31, 2019,April 30, 2020 indicated that goodwill was impaired because the carrying value of two of the Rocky Mountains reporting unitsunit exceeded theits relative fair value. Accordingly, the Company recorded a $45.8$28.3 goodwill impairment charge, which is included in the condensed consolidated statements of (loss) earningsoperations for the three and nine months ended October 31, 2019. The charges reflect2020. This charge reflects the full value of the goodwill attributable to the Northeast/Mid-Con and Southwest segments,Rocky Mountains segment, leaving the Company with $24.00 goodwill related to the Rocky Mountains segment as of October 31, 2019. The fair value2020.Rocky Mountains reporting unit exceeded the carrying value by approximately 15.9% as of October 15, 2019. The portioncustomer relationship intangible assets, an analysis of the goodwill impairment charge attributablefuture contributions to Red Bone is provisional upon finalizationrevenue from these customers resulted in forecast declines of approximately 50%. As a result of the purchase price allocation inreview, the fourth quarterCompany recognized a charge of 2019.Long-lived assets, such as property and equipment and purchased intangibles subject$2.7 reflecting accelerated amortization 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 inreduce the carrying value of its customer relationships intangible. The accelerated amortization charge is included in the related asset and a charge to operating results. Based on the impairment indicators above, the Company performed a long-lived asset impairment analysis and concluded that the undiscounted cash flowscondensed consolidated statements of the long-lived assets exceeded the carrying amount of each segment’s asset group. The sum of the undiscounted cash flows of the Southwest, Rocky Mountains and Northeast/Mid-Con long-lived assets exceeded the carrying value by approximately 20.7%, 64.4% and 32.9%, respectively, as of October 15, 2019. As a result, the Company determined that its long-lived assets were not impaired as of October 31, 2019.11As of October 31, 2019, $24.0 of goodwill and $46.8 of identifiable intangible assets remain. The Company's cash flow projections were a significant input into the October 15, 2019 fair value. If the business continues to be unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Rocky Mountains reporting unit and the Company’s long-lived assets and result in an impairment charge.The following sets forth the intangible assets by major asset class, all of which were acquired through business purchase transactions:Amortization expense associated with identifiable intangible assets was $1.0 and $0.1 for the three months ended October 31, 2019 and 2018, respectively, and $2.9 and $0.2operations for the nine months ended October 31, 2019 and 2018, respectively. The Company currently expects to recognize amortization expense related to intangible assets of approximately $4.0 in each2020.next five fiscal years. The future amortization amounts are estimates. Actual future amortization expense may be different due to future acquisitions, impairments, changes in amortization periods or other factors.The changes in the carrying amount of goodwill for the nine months ended October 31, 2019 are as follows:Note 6.Related Party TransactionsThe condensed consolidated statements of (loss) earnings for the three and nine months ended October 31, 2018 include an allocation of general corporate expenses from our former parent, KLX. These costs were allocated to the Company on a systematic and reasonable basis utilizing a direct usage basis when identifiable, with the remainder allocated on the basis of revenue generated, costs incurred, headcount or other measures.Allocations for general corporate expenses, including management costs and corporate support services provided to the Company, totaled $3.2 and $16.6 for the three and nine months ended October 31, 2018 up through the date of the Spin-Off, respectively and were reported in the Company’s selling, general and administrative expenses on its condensed consolidated statements of (loss) earnings. These amounts include costs for allocations related to Former Parent’s strategic alternatives review process in the first quarter of Fiscal 2018, the Company’s Spin-Off process in the second and third quarters of Fiscal 2018 as well as for functions including executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services.In connection with the consummation of the Spin-Off, KLX Energy Services entered into a number of agreements with KLX, including a transition services agreement, distribution agreement, an employee matters agreement and an Intellectual Property (“IP”) matters agreement. These agreements govern the relationship12October 31, 2020 January 31, 2020 Accrued salaries, vacation and related benefits $ 9.2 $ 13.9 Accrued property taxes 6.1 2.3 Accrued incentive compensation 1.1 2.3 Other accrued liabilities 17.4 7.7 Total accrued liabilities $ 33.8 $ 26.2 between us and KLX and provide for the allocation between us and KLX of various assets, liabilities and obligations (including employee benefits, information technology and insurance).All services under the transition services agreement with Former Parent were terminated in the prior fiscal year.Note 7.Accrued LiabilitiesAccrued liabilities consist of the following:Note 8.NOTE 9 - Long-Term Debt2019,2020, long-term debt consisted of $250.0 principal amount of 11.5% senior secured notes due 2025 (the “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 issueissuance costs for the Notes, total debt as of October 31, 20192020 was $242.8.2019,2020, the Company also had a $100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”). The ABL Facility became effective on September 14, 2018 the date of the Spin-Off, and matures in September 2023. On October 22, 2018, the ABL Facility was amended primarily to permit the Company to issue the Notes and acquire Motley Services, LLC (“Motley”) and the definition of the required ratio (as defined in the ABL Facility) was also amended as a result of the Notes issuance.the London Interbank Offered RateLIBOR plus the applicable margin (as defined in the ABL Facility). NoThere were 0 outstanding amounts were outstanding under the ABL Facility as of October 31, 2019.covenants.covenants as long as the minimum level of borrowing availability is maintained. During the three months ended October 31, 2020, the Company included the acquired QES current asset collateral into the borrowing base formula used to calculate the Company’s borrowing availability. The ABL Facility is secured by, among other things, a first priority lien on ourthe Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants, all of which were metcovenants.2019.Letters2020 and January 31, 2020, respectively. The decrease in availability during the nine months ended October 31, 2020 is primarily related to lower levels of activity and correspondingly lower levels of accounts receivable at October 31, 2020.issuedoutstanding under the ABL Facility aggregated $0.8were $9.6 at October 31, 2019.Note 9.2020, of which $2.8 have been extinguished during the fourth quarter of 2020.13no0 debt outstanding under the ABL Facility as of October 31, 2019.2020. The fair value of the Company’s Notes, based on market prices for publicly-tradedpublicly traded debt, (whichwhich the Company classifies as Level 2 inputs),inputs, was $218.8$120.0 and $254.1$202.5 as of October 31, 20192020 and January 31, 2019,2020, respectively.Goodwill wasby $45.8as a result of the first quarter 2020 interim goodwill and written down to its estimated fair value of $24.0 during the third quarter of Fiscal 2019.long-lived asset impairment tests. The goodwill levelLevel 3 fair value was determined using the average of the guideline public company analysis and the discounted cash flow analysis, both of which were unobservable. The long-lived asset Level 3 fair value was determined using the discounted cash flow analysis using the market and income approaches, both of which were unobservable.date using level 3 inputs.date. The carrying value and fair values of the impaired assets as of April 30, 2020 was $194.0 and $52.8 for property and equipment, net, $28.3 and $0.0 for goodwill, and $39.2 and $0.0 for intangible assets, net, respectively. See Note 57 for a discussion of the changes in goodwill and long-lived asset values due to impairment chargecharges recorded during the three and nine months ended October 31, 2019.The carrying amounts2020.Note 10.Lease Commitments – finances its useis subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the termsenvironment. The Company continues to monitor the status of these arrangements meetlaws and regulations. However, the accounting definitionCompany cannot predict the future impact of operating lease arrangements,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 aggregate sumCompany has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect on its condensed 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 minimum lease paymentsto maintain compliance. The amount of such future expenditures is not reflected ondeterminable due to several factors, including the condensed consolidated balance sheets. Atunknown 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.2019,2020, the Company received an insurance reimbursement of $2.5 from insurance providers (which is included in cost of sales for the three and nine months ended October 31, 2020). The Company implemented additional expenditure controls to reduce the likelihood of similar thefts in the future, minimum lease payments under these arrangements approximated $70.6, of which $22.9 is related to long-term real estate leases.Litigation – such as daily limits on all fuel cards and additional credit card activity reviews by management. – normalordinary 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, andas 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 condensed consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.Note 11.its Compensation Committeethe compensation committee of the Board (the “Compensation Committee”) has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity basedequity-based or equity relatedequity-related awards.14Compensation 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.20192020 and 2018 primarily2019 related to grants of restricted stock and restricted stock units granted or approved by ourthe Compensation Committee and Former Parent, respectively. The vesting of all unvested sharesCommittee. Certain grants of restricted stock wasto directors and management accelerated uponin connection with the sale of our Former Parent to the Boeing CompanyMerger on October 9, 2018,July 28, 2020, resulting in approximately $10.7$15.1 of share basedstock-based compensation expense during the threenine months ended October 31, 2018.2020. As a result, share basedstock-based compensation was $4.6$0.5 and $14.1$4.6 for the three months ended October 31, 20192020 and 2018,2019, respectively, and $13.6$17.2 and $19.2$13.6 for the nine months ended October 31, 20192020 and 2018,2019, respectively. Unrecognized compensation cost related to restricted stock awards made by the Company was $52.1$4.5 at October 31, 2019. established a qualified Employee Stock Purchase Plan (the “ESPP”), the terms of which allow for qualified employees (as defined in the Plan)ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85% of the closing price on the last business day of each semi-annual stock purchase period. The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares. CompensationBecause the ESPP did not have enough shares reserved to satisfy outstanding options to purchase during the offering period ended June 30, 2020, the Company refunded participants’ contributions. In addition, the Company agreed with QES to suspend the ESPP due to the Merger. As a result, compensation cost was $0.0 and $0.1 for the three months ended October 31, 2020 and 2019, respectively, and $0.0 and $0.2 for the nine months ended October 31, 2018,2020 and relates2019, respectively. The Company’s shareholders approved an amendment to the Former Parent’s employee stock purchase plan. Former Parent’s final option period endedESPP at the Company’s annual meeting on June 30, 2018; as a result, thereJuly 24, 2020, for an increase of 0.3 million shares to the ESPP’s share reserve.no compensation cost for the three months ended October 31, 2018. The Company’s first option period began on January 1, 2019. Compensation cost was $0.1$0.2 and $0.2$0.3 for the three and nine months ended October 31, 2019, respectively.Income2020, respectively, and was comprised primarily of state and local taxes, compared to income tax benefit wasof $0.5 and $0.1 for the three and nine months ended October 31, 2019, respectively as compared to income tax expense of $0 and $0.1 for the three and nine months ended October 31, 2018, respectively. The Company has established a valuation allowance against the majority of its deferred tax balances with a net deferred tax liability remaining related to the Red Bone acquisition. Due to the fact the Company has a valuation allowance against the majority of its deferred tax balances, with the exception of Red Bone,and as a result, it was unable to recognize a tax benefit at the federal statutory rate of 21% on its year to date losses.Note 13.Ford)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)Haynesville Shale). The segments regularly report their results of operations and make requestsCompany’s chief operational decision-making group (“CODM”). This group is comprised of the Chairman and Chief Executive Officer and the Senior Vice President and Chief Financial Officer.CODM. As a result, the CODM has determined the Company has three3 reportable segments.15(losses)(loss) earnings by reportable segment:Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Revenues Southwest $ 24.8 $ 38.5 $ 53.4 $ 149.8 Rocky Mountains 18.2 57.6 70.1 169.7 Northeast/Mid-Con 27.9 38.4 66.6 125.7 Total revenues 70.9 134.5 190.1 445.2 Southwest (8.2) (36.1) (113.5) (30.9) Rocky Mountains (4.6) 8.7 (45.2) 31.8 Northeast/Mid-Con (4.0) (22.1) (104.2) (6.0) (11.2) (13.6) (54.6) (44.6) Bargain purchase gain (2.4) 0 38.7 0 Total operating loss (30.4) (63.1) (278.8) (49.7) Interest expense, net 7.7 7.2 22.7 21.7 Loss before income tax $ (38.1) $ (70.3) $ (301.5) $ (71.4)
(1) Historically, and through July 31, 2020, the Company’s total corporate overhead costs were allocated and reported within each reportable segment. During the third quarter of 2020, the Company changed the corporate overhead allocation methodology to include corporate costs incurred on behalf of its operating segments, which includes accounts payable, accounts receivable, insurance, audit, supply chain, health, safety and environmental and others. The remaining unallocated corporate costs are reported as a reconciling item. The change will better reflect the CODM’s philosophy on assessing performance and allocating resources, as well as improve comparability to the Company’s peer group.(1)Operating (loss) earnings include an allocation of employee benefits and general and administrative costs primarily based on each segment’s percentage of total revenues for the three and nine months ended October 31, 2019 and 2018.
(2) Operating loss for the nine-month period ended October 31, 2020 includes impairment and other charges of $213.1 which is comprised of a goodwill and long-lived asset impairment charge of $208.7, of which $91.3 was attributable to the Southwest segment, $28.3 was attributable to the Rocky Mountains segment and $89.1 was attributable to the Northeast/Mid-Con segment, and a lease termination charge of $4.4, of which $2.3 was attributable to Corporate and other and $1.4 and $0.7 was attributable to the Southwest and Northeast/Mid-con segments, respectively.(2)Operating loss for the three and nine month periods ended October 31, 2019 includes a goodwill impairment charge of $45.8, of which $22.4 was attributable to the Southwest segment and $23.4 was attributable to the Northeast/Mid-Con segment.Three Months Ended October 31, 2020 October 31, 2019 Southwest Rocky
MountainsNortheast
/Mid-ConTotal Southwest Rocky
MountainsNortheast
/Mid-ConTotal Drilling $ 7.1 $ 0.2 $ 8.0 $ 15.3 $ 2.5 $ 0 $ 8.5 $ 11.0 Completion 11.9 8.9 10.3 31.1 24.2 31.4 11.1 66.7 Production 1.5 4.3 1.7 7.5 3.9 13.3 6.2 23.4 Intervention 4.3 4.8 7.9 17.0 7.9 12.9 12.6 33.4 Total revenues $ 24.8 $ 18.2 $ 27.9 $ 70.9 $ 38.5 $ 57.6 $ 38.4 $ 134.5 16Nine Months Ended October 31, 2020 October 31, 2019 Southwest Rocky
MountainsNortheast
/Mid-ConTotal Southwest Rocky
MountainsNortheast
/Mid-ConTotal Drilling $ 9.2 $ 0.2 $ 17.5 $ 26.9 $ 8.4 $ 0.1 $ 30.0 $ 38.5 Completion 27.5 40.1 24.8 92.4 97.6 96.3 29.8 223.7 Production 5.5 15.0 6.7 27.2 15.9 36.9 26.6 79.4 Intervention 11.2 14.8 17.6 43.6 27.9 36.4 39.3 103.6 Total revenues $ 53.4 $ 70.1 $ 66.6 $ 190.1 $ 149.8 $ 169.7 $ 125.7 $ 445.2 January 31, 2020 Southwest $ 93.2 $ 153.3 Rocky Mountains 118.2 186.8 Northeast/Mid-Con 97.7 144.2 Total 309.1 484.3 Corporate and other 88.5 139.1 Total assets $ 397.6 $ 623.4 Capital expenditures for the administrative office and functions have been allocated to the above segments based on each segment’s percentage of total capital expenditures.The following table presents total assets by reportable segment:Assets for the administrative office and functions have been allocated to the above segments based on each segment’s percentage of total assets.The following table presents total goodwill by reportable segment:Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Southwest $ 0.8 $ 1.9 $ 3.0 $ 16.0 Rocky Mountains 0.9 2.8 4.3 24.2 Northeast/Mid-Con 0.6 5.1 2.2 23.0 Corporate and other 0.3 0.8 1.6 4.2 Total capital expenditures $ 2.6 $ 10.6 $ 11.1 $ 67.4 (1)See Note 5 for a discussion of the goodwill impairment charge recorded during the three and nine months ended October 31, 2019.Note 14.(Loss) EarningsLoss Per Common Share(loss) earningsloss per common share is computed using the weighted average common shares outstanding during the period and includes 1.7 shares issued in a subsidiary company to effect the Red Bone acquisition, which become exchangeable for KLXE common stock over specified dates between the acquisition date and September 19, 2021. Such shares are included in the computation of basic weighted average common shares from the date of the acquisition.period. Diluted net (loss) earningsloss per common share is computed by using the weighted average common shares outstanding, including the dilutive effect of restricted shares based on an average share price during the period. For the three months ended October 31, 2020 and 2019, 0.3 and 2018, 2.2 and 0.10.4 million shares of the Company’s common stock, respectively, and for the nine months ended October 31, 2020 and 2019, 0.5 million and 2018, 4.7 and no0.9 million shares, respectively, were excluded from the determination of diluted net (loss) earningsloss per common share because their effect would have been anti-dilutive. The computations of basic and diluted net (loss) earningsloss per share for the three and nine months ended October 31, 20192020 and 20182019 are as follows:17Three Months Ended Nine Months Ended October 31, 2020 October 31, 2019 October 31, 2020 October 31, 2019 Net loss $ (38.3) $ (69.8) $ (301.8) $ (71.3) Basic weighted average common shares 8.4 4.5 6.0 4.4 Effect of dilutive securities - dilutive securities 0 0 0 0 Diluted weighted average common shares 8.4 4.5 6.0 4.4 $ (4.56) $ (15.50) $ (50.26) $ (16.20) $ (4.56) $ (15.50) $ (50.26) $ (16.20)
(1) On July 28, 2020, each issued and outstanding share of QES common stock was automatically converted into the right(1)On September 14, 2018, the distribution date, KLX stockholders of record as of the close of business on September 3, 2018 received 0.4 shares of KLX Energy Services common stock for every 1.0 share of KLX common stock held as of the record date.(2)Basic and diluted net (loss) earnings per common share for the three and nine months ended October 31, 2018 is computed using the weighted average common shares outstanding beginning on September 14, 2018.18($ In millions)20192020, as compared to our results of operations for the three and nine months ended October 31, 2018.2019. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.Company OverviewWe are a leading provider The previously announced merger of completion, interventionKrypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE ("Merger Sub"), with and production services and products (our “product service lines” or “PSLs”) tointo QES, with QES surviving the major onshore oil and gas producing regions of the United States. We offer a range of differentiated, complementary technical services and related tools and equipment in challenging environments that provide “mission critical” solutions for our customers throughout the life cycle of the well.We serve many of the leading companies engaged in the exploration and development of North American onshore conventional and unconventional oil and natural gas reserves. Our customers are primarily independent major oil and gas companies. We actively support these customer operations from over 35 principal service facilities located in the key major shale basins. We operate in three segments on a geographic basis, including the Southwest Region (the Permian Basin and the Eagle Ford), 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 as well as the Mid-Continent STACK and SCOOP and Haynesville). Our revenues, operating profits and identifiable assets are primarily attributable to these three reportable geographic segments. However, while we manage our business based upon these regional groupings, our assets and our technical personnel are deployed on a dynamic basis across all of our service facilities to optimize utilization and profitability.We work with our customers to provide engineered solutions across the entire lifecycle of the well, by streamlining operations, reducing non-productive time and developing cost effective solutions and customized tools for our customers’ most challenging service needs, which include technically complex unconventional wells requiring extended reach horizontal laterals with greater completion intensity per well. Revenue growth continues to reflect increases in the number of new customers served and a significant increase in the breadth of services provided to existing customers as compared with the same period in the prior year.We offer a variety of targeted services that are differentiated by the technical competence and experience of our field service engineers and their deployment of a broad portfolio of specialized tools and equipment. Our innovative and adaptive approach to proprietary tool design has been employed by our in-house research and development (“R&D”) organization and, in selected instances, by our technology partners, to develop tools covered by 18 patents and 20 U.S. and foreign pending patent applications as well as 21 additional proprietary tools. Our technology partners include manufacturing and engineering companies that produce tools, which we design and utilize in our service offerings.We utilize outside, dedicated manufacturers to produce our products, which, in many cases, our engineers have developed from input and requests from our customers and customer-facing managers, thereby maintaining the integrity of our intellectual property while avoiding manufacturing startup and maintenance costs. We have found that doing so leverages our technical strengths as well as those of our technology partners. These PSLs are modest in cost to the customer relative to other well construction expenditures but have a high cost of failure and are, therefore, “mission critical” to our customers’ outcomes. We believe our customers have come to depend on our decades of combined field experience to execute on some of the most challenging problems they face. We believe we are well positionedmerger as a company for continued growth, assubsidiary of KLXE (the "Merger") closed on July 28, 2020. Unless otherwise noted or the oilcontext requires otherwise, references herein to KLX Energy Services with respect to time periods prior to July 28, 2020 include KLX Energy Services and gas industry continuesits consolidated subsidiaries and do not include QES and its consolidated subsidiaries, while references herein to drillKLX Energy Services with respect to time periods from and complete thousands of increasingly complex wells each yearafter July 28, 2020 include QES and as thousands of older legacy wells require remediation.19and integration of seven private oilfield service companies acquired over theduring 2013 through 2014 time period.and 2014. Each of the acquired businesses was regional in nature and brought one or two specific service capabilities to KLX Energy Services. Once the acquisitions were completed, we undertook a comprehensive integration of these businesses to align our services, our people and our assets across all the geographic regions where we maintain a presence. We established a matrix management organizational structure where each regional manager has the resources to provide a complete suite of services supported by technical experts in our primary service categories. In November 2018, we expanded our completion and intervention service offerings through the acquisition ofacquired Motley Services, LLC (“Motley”) and, during 2019, we acquired Tecton Energy Services (“Tecton”) and Red Bone Energy Services LLC (“Red Bone”). We recently acquired QES during the second quarter of 2020 pursuant to the Merger and, by doing so, helped establish KLXE as an industry leading provider of asset-light oilfield solutions across the full well lifecycle, including drilling, completion, production and intervention services and products (our “product service lines” or “PSLs”) to the major onshore oil and gas producing regions of the United States.premierfully-diluted basis. As a result of the Merger, our Board is now comprised of nine directors, consisting of five directors designated by KLXE and four directors designated by QES. Additionally, Christopher J. Baker, the former President and Chief Executive Officer of QES, now serves as our President and Chief Executive Officer, and Keefer M. Lehner, the former Executive Vice President and Chief Financial Officer of QES, now serves as our Executive Vice President and Chief Financial Officer.further enhancing our completion tools business. Duringand wireline services and one of the fourthlargest independent providers of directional drilling to the U.S. market.2018, we successfully completed the integrationfiscal 2021 on an annualized basis, several months ahead of the Motley business. On March 15, 2019,timing at the announcement of the Merger. Additional synergies will be realized as management continues to rationalize redundant Houston and operational facilities and align common roles, processes and systems throughout each function and region. The Merger also enhances the Company’s ability to effect further industry consolidation. Looking ahead, the Company acquired Tecton Energy Services (“Tecton”), aexpects to pursue strategic, accretive consolidation opportunities that further strengthen the Company’s competitive positioning and capital structure and drive efficiencies, accelerate growth and create long‑term stockholder value.provider of flowback, drill-out and production testing services, operating primarilycompanies engaged in the greater Rocky Mountains. On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a premier providerexploration and development of oilfield services primarilyonshore conventional and unconventional oil and natural gas reserves in the United States. Our customers are primarily large independent and major oil and gas companies. We currently support these customer operations from over 50 service facilities located in the key major shale basins. We operate in three segments on a geographic basis, including 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 providing fishing, non-frac high pressure pumping, thru-tubingSTACK and certain other services. DuringSCOOP and Haynesville Shale). Our revenues, operating (losses) earnings and identifiable assets are primarily attributable to these three reportable geographic segments. While we manage our business based upon these geographic groupings, our assets and our technical personnel are deployed on a dynamic basis across all of our service facilities to optimize utilization and profitability.second quarter of 2019, we successfully completed the integrationlifecycle of the Red Bone business.well by streamlining operations, reducing non-productive time and developing cost effective solutions and customized tools for our customers’ most challenging service needs, including their most technically complex extended reach horizontal wells. We believe future revenue growth opportunities will continue to be driven by increases in the number of new customers served and the breadth of services we offer to existing and prospective customers.endeavoreddeveloped from input and requests from our customers and customer-facing managers, thereby maintaining the integrity of our intellectual property while avoiding manufacturing startup and maintenance costs. This approach leverages our technical strengths, as well as those of our technology partners. These services and related products are modest in cost to the customer relative to other well construction expenditures but have a high cost of failure and are, therefore, mission critical to our customers’ outcomes. We believe our customers have come to depend on our decades of field experience to execute on some of the most challenging problems they face. We believe we are well positioned as a company to service customers when they are drilling and completing complex wells, and remediating both newer and older legacy wells.“next generation”next generation oilfield services company in terms of management controls, processes and operating metrics, and have driven these processes down through the operating management&P&P”) companies with complex wells increasingly prefer service providers with the scale and resources to deliver best-in-class solutions that evolve in real time with the technology used for extraction. We believe we offer best-in-class service execution at the wellsite and innovative downhole technologies, positioning us to benefit from our ability to service the most technically complex wells where the potential for increased operating leverage is high due to the large number of stages per well.additionthe oil and natural gas industry is cyclical and subject to sudden and significant volatility. For example, the oilfield service industry experienced an abrupt deterioration in demand during the second half of 2019, which has continued into 2020. During the first quarter of 2020, the novel coronavirus (“COVID-19”) pandemic emerged and continues to apply significant downward pressure on the global economy and oil demand and prices. National and global demand for oil has been volatile due to uncertainty around the extent and duration of the COVID-19 pandemic, which has led North American operators to announce significant cuts to planned 2020 capital expenditures and caused continued acceleration of upstream oil and gas bankruptcies.focus on execution rather than price.base. However, if current conditions persist, there is no assurance that we will not experience losses in the future or delays in collecting our receivables.been awarded 18 U.S. patents, have 20 U.S.taken, and foreign pending patent applicationsare continuing to take, steps to reduce costs, including reductions in capital expenditures, as well as other workforce rightsizing and utilize 21 additional proprietary tools, someongoing cost initiatives.which have been developed in conjunction with our technology partners, which we believe differentiates us from our regional competition and also allows usConducting Our Businessdeliver more focused service and better outcomes in our specialized services than larger national competitors who do not discretely dedicate their resources to the services we provide.We are focused on generatinggenerate attractive returns on capital for our stockholders through the superior margins achieved by ourproviding differentiated services and the prudent application ofprudently applying our cash flow to select targeted growth opportunities, which is intendedwith the potential to deliver high returns that we believe offer superior margins over the long-term and short payback periods. Our services generally require less expensive equipment whichthat is also less expensive to maintain and fewer peopleis operated by a smaller staff than many other oilfield service activities. In addition to the superior margins our differentiated services generate, we believe the rising level of completion intensity in our core operating areas contributes to improved margins and returns.providers. As part of our returns-focused approach to capital spending, we are focused on maintaining aefficiently utilizing capital efficient program with respect to the development ofdevelop new products. We support our existing asset base with targeted investments in R&D, which we believe allowsallow us to maintain a technical advantage over our competitors providing similar services using standard equipment.cyclical. For example, the domestic E&P industry in the United States underwent a substantial downturn in 2015cyclical and much of 2016, placing unprecedented pressure on both our customerssubject to sudden and competitors. The market began to stabilize in late 2016 with oil prices rising through the $40’s per barrel and into the $60’s and $70’s in 2017 and 2018, respectively,20although there was a precipitous 44% decline in oil prices from $76 a barrel in October 2018 to $42 a barrel in December 2018.During the year ended January 31, 2019, we benefitted from our customers’ renewed commitment to their capital budgets. Revenue grew 54.5% as compared with the same period in the prior year driven primarily by a double-digit percentage increase in the number of new customers, a significant increase in the breadth of services provided to existing customers and the introduction of a number of new proprietary PSLs. Operating earnings turned positive during the first quarter of Fiscal 2018 and remained positive through the fourth quarter of Fiscal 2018, excluding costs associated with the Spin-Off, amendment of the asset-based revolving credit facility and acquisition of Motley. Revenue growth in Fiscal 2018 benefited from newly introduced PSLs including the downhole production solutions (“DHPS”) PSL and the HydroPullTM tool in combination with our patented Havok motor bearing assembly, along with the addition of Motley’s large diameter coiled tubing business, which helped offset the negative impact caused by the reduction in fourth quarter completion activity.Headwinds caused by the decline in oil prices in the fourth quarter of 2018 and the resulting decline in active frac cores carried into 2019. Additionally, severe weather conditions in the Mid-Con, including severe flooding, which led to impassable roads and highways, began in the month of May and persisted through June, resulting in a significant decline in activity in the Mid-Con during the second quarter of 2019. In the Permian, our customers’ completion activities have also been negatively impacted by the lack of available pipeline capacity for natural gas and regulatory limits on flaring. The additional pipeline capacity anticipated to come on-line in the Permian and Bakken within the next year is expected to alleviate some of the gas takeaway capacity issues impacting both regions.During the third quarter of 2019, the Company experienced an abrupt deterioration in industry conditions, which accelerated downward through October 31, 2019. Contemporaneously with the abrupt decline in activity, we took steps to align our business with current customer demand. Specifically, we implemented an approximate 17% reduction in force, as compared with the Company’s July 31, 2019 staffing levels, consistent with the approximate 18% sequential quarterly decline in our third quarter revenues. We aggressively cut costs in every area of our business, and we warm stacked the vast majority of our Permian based wireline assets. As a result of these and other measures, we recorded a third quarter charge of $13.3 for severance and higher reserves for bad debts related to recent customer bankruptcies and related matters (collectively, “Costs as Defined”).The second quarter to third quarter decrease in aggregate operating frac spreads in the DJ, Niobrara and Williston basins was approximately 20%, while our Rocky Mountains segment revenues declined approximately 9%. In the gassier basins, including the Marcellus, Utica, Woodford and Haynesville, the number of operating frac spreads declined approximately 50%, while our Northeast/Mid-Con segment revenues declined approximately 20%. In the Permian and Eagle Ford shale basins, the operating frac spread count declined approximately 22%, while our Southwest segment revenues were down approximately 28% as we elected to warm stack the vast majority of our wireline assets due to the weak pricing environment. We will continue to monitor our cost structure to ensure it is aligned with operating activity while maintaining our ability to support our customers.We expect to begin to realize the benefit of our business realignment actions early in the fourth quarter of this year, while we are also recruiting experienced coiled tubing personnel to join the Company in the fourth quarter as we have begun to receive and deploy our five new large diameter coiled tubing spreads. The impacts of both coiled tubing start-up costs and the onset of the traditionally slower winter season will be a drag on earnings in the fourth quarter. The implementation of the Company’s coiled tubing strategy in all of our geographical segments to pull through our broad range of asset light services will be a major strategic priority in 2020, along with continued tight cost control, free cash flow generation and further strengthening of the Company’s balance sheet.21The abrupt deterioration in industry conditions, which accelerated through the end of our third quarter, was driven by a sharp sequential quarterly decline in U.S. land rig count and an unprecedented decline in active frac spreads from the second quarter to the third quarter. In fact, there was a significant sequential decline in hydraulic fracturing activity during each month of the third quarter. The decline in Exploration & Production (“E&P”) activity resulted in lower demand levels and lower current and expected revenues for our business, which led the Company to perform an interim goodwill and a long-lived asset impairment test during the three months ended October 31, 2019. Our interim impairment testing during the third quarter of 2019 determined that $45.8 of our goodwill had been impaired. As of October 31, 2019, $24.0 of goodwill and $46.8 of identifiable intangible assets remain. The Company's cash flow projections were a significant input into the October 15, 2019 fair value. If the business continues to be unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Rocky Mountains reporting unit and the Company’s long-lived assets and result in an impairment charge. In an operating environment where our financial strength is a key differentiator, we believe the ongoing cost reduction efforts discussed above and the anticipated positive impact from the roll-out of five new large diameter coiled tubing units and the resulting pull through of our broad range of asset light services, will allow us to continue to deliver solid operating results despite the anemic demand levels the industry is experiencing.We believe our company is well positioned to operate successfully as a standalone company as a result of the numerous initiatives we undertook during the integration of the seven businesses acquired while we were part of KLX Inc. (the “Former Parent” or “KLX”). the historical financial reporting periods and that there isthe realization of the $46.0 of expected cost synergies associated with the Merger will only further reduce our cost structure and afford us greater flexibility to respond to changing industry conditions. We improved our cost structure by centralizing a number of common functions, as evidenced by our positive cash provided by operating activities in the nine months ended October 31, 2019. The implementation of integrated, company-wide management information systems and processes provideprovides more transparency to current operating performance and trends within each market where we compete and help us more acutely scale our cost structure and pricing strategies on a market-by-market basis. OurWe believe our ability to differentiate ourselves on the basis of quality contributesprovides an opportunity for us to revenue growth and profitability even in a stable or declining market environment throughgain market share gains and growingincrease our share of business with existing customers.We believeHistorically, we believed our services often generategenerated margins superior to our competitors based upon the differential quality of our performance, and that these margins also support strong freewould contribute to future cash flow generation. The required investment in our business includes both working capital (principally for account receivablesaccounts receivable, inventory and accounts payable growth tied to increasing activity and revenues) and capital expenditures for both maintenance of existing assets and growth.ultimately growth when returns justify the spending. Our required maintenance capital expenditures tend to be lower than other oilfield service providers due to the generally asset-liteasset-light nature of our services, the average age of our assets and our ability to charge back a portion of asset maintenance to customers for a number of our assets.The Spin-OffOn September 14, 2018, we completed our Spin-Off from KLX and became an independent, publicly-traded company. In connection with the consummation of the Spin-Off, KLX Energy Services entered into a number of agreements with KLX. All services under the transition services agreement with KLX were terminated prior to October 31, 2018. In addition, our undrawn $100.0 asset-based revolving credit facility (“ABL Facility”) is available for borrowing for working capital and other general corporate purposes. The approximately $72.2 availability under the ABL Facility is tied to the aggregate amount of our accounts receivable and inventory that satisfy specified criteria.issued $250.0 principal amount of 11.5% senior secured notes due 2025 (the “Notes”) and, depending on market conditions, we may incur other indebtednessEvaluate Our Operations22in the future to make additional acquisitions and/or provide for additional cash on the balance sheet, which could be used for future acquisitions.Factors Affecting the Comparability of our Results of OperationsOur results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the reasons described below:·Expenses Associated with Former Parent’s Strategic Alternatives Review: During the first quarter of Fiscal 2018, $3.8 of costs and expenses were allocated to us by KLX associated with its strategic alternatives review.·SG&A Allocation: Selling, general and administrative (“SG&A”) expense historically included allocations of general corporate expenses from KLX for periods through September 14, 2018, the date of the Spin-Off. The historical statements of earnings (loss) reflect allocations of general corporate expenses from KLX, including, but not limited to, executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services. The allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures. Our management considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, KLX Energy Services. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Please see Note 1 to our condensed consolidated financial statements, ''Description of Business and Basis of Presentation," for a description of the costs allocated, the methods of allocation, the reasons for the allocations and how future actual costs may differ from the amounts allocated under the ownership of KLX.·Ongoing Stand-Alone Public Company Expenses: We expect to incur direct, incremental expenses as a result of being a publicly-traded company, including, but not limited to, costs associated with hiring a dedicated corporate management team, annual and quarterly reports, quarterly tax provision preparation, independent auditor fees, expenses relating to compliance with the rules and regulations of the SEC and Nasdaq, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. These direct, incremental expenses are not included in our historical results of operations for periods prior to the Spin-Off. We expect recurring annual costs to be approximately $10.0 higher than the expenses historically allocated to us from KLX, reflecting 100% allocation of dedicated corporate resources and the expected higher revenues.1)(1) best measure the trends in our operations and 2)(2) provide baselines and targets to assess the performance of our managers.The metrics we regularly monitor within each of our geographic reporting regions include:·Variable cost by service;·Asset utilization by service; and·Revenue growth by service.23monitor and consider when rewarding management performanceachieve the above stated goals include:·Revenue growth rate;·EBITDA growth rate;·EBITDA margin;·Return on invested capital;·Cash flow generationafter investments in the business; and·Effectiveness of our health, safety and environmental practices.Our experience has shown us that measuring our performance is most meaningful when compared against our peers on a relative basis. Our compensation committee engages its own compensation consultant to recommend performance metrics and targets for our employees.24RESULTS OF OPERATIONSTHREE MONTHS ENDED OCTOBER 31, 2019COMPARED TO THREE MONTHS ENDED OCTOBER 31, 2018($ in Millions)The following•Adjusted EBITDA: Adjusted EBITDA is a summarysupplemental non-GAAP financial measure that is used by management and external users of revenuesour financial statements, such as industry analysts, investors, lenders and rating agencies. Adjusted EBITDA is not a measure of net earnings or cash flows as determined by segment:Three Months Ended October 31, 2020 October 31, 2019 % Change Revenue: Southwest $ 24.8 $ 38.5 (35.6) % Rocky Mountains 18.2 57.6 (68.4) % Northeast/Mid-Con 27.9 38.4 (27.3) % Total revenue $ 70.9 $ 134.5 (47.3) % third quarter ended October 31, 2019,2020, revenues of $134.5, increased $11.3,$70.9, decreased by $63.6, or 9.2%47.3%, as compared with the prior year period. Rocky Mountains segment revenue declined by $39.4, or 68.4%, Northeast/Mid-Con segment revenues declined by $10.5, or 27.3%, and Southwest segment revenue declined by $13.7, or 35.6%. On a product line basis, completiondrilling revenues increased by $4.3, or 39.1%, due to the incremental drilling service revenues acquired in the Merger with QES. Completion, production and intervention services revenues increaseddecreased by approximately 16.5%$35.6, $15.9 and 16.4%,$16.4, respectively, offset by a decrease in production services of approximately 15.0% as compared to the same period in the prior year. Capital spending by our E&P customers was lowerThe overall decrease in all segments as almost all of them intensified their focus on capital discipline in order to generate free cash flow. Despiterevenues reflects the headwinds from our customers managing their capital spending more aggressively, each of our segments generated year over year revenue growth. Rocky Mountains segment revenue growth of $9.5, or 19.8%, reflected an increase in the number of customers served, increased activity across substantially all product lines, improved adoption rates of recently introduced proprietary tools and contributions from Tecton flowback and testing revenues, partially offset by a number of customers suspending operations for the balancelingering impacts of the year, along with lower activity levels among certain other customers. Northeast/Mid-Con segment revenues reflected revenue growth of 4.1% driven by a significant increase in the number of customers served, improved adoption rates of proprietary toolsunforeseen and sudden global oil market share dispute and the March 2019 acquisitionprolonged demand destruction caused by the COVID-19 pandemic, resulting in a depression in oil prices, a historically low rig count and, ultimately, decreased demand for services such as those provided by the Company.Red Bone, partially offset by a number of customers suspending operations forsales. For the balance of the year, together with increased pricing pressure, particularly from natural gas customers. Southwest segment revenue growth of 0.8% reflected an increase in the number of customers served as well as the acquisition of Motley in the fourth quarter of 2018, offset by lower activity levels and the negative impact from the significantly lower utilization of wireline assets as the Company chose to warm stack these assets rather than operate at prices being offered by competitors.Third quarter 2019ended October 31, 2020, cost of sales was $119.3,$80.1, or 88.7%113.0% of sales, including $2.1 of Costs as Defined, as compared to the prior year period of $90.2,$119.3, or 73.2%88.7% of sales. Excluding the $2.1Cost of Costs as Defined (none in the prior year period), cost of sales in the third quarter of 2019 was $117.2, or 87.1% of revenues, and as a percentage of revenues increased by approximately 1,390 basis pointsprimarily due to negative operating leverage related to the 47.3% year-over-year decline in revenues as the significant decline in revenues outpaced the reduction in fixed costs. Cost of sales included $14.7 and $15.7 of depreciation expense for the three months ended October 31, 2020 and 2019, respectively.primarily duewere offset by non-recurring items related to startupthe Merger and integration such as severance costs associated with the roll out of flowback and testing services, roll out of greaseless wirelinelegal and plug and play disposable gun system and costs to support the roll out of the coiled tubing PSL in both the Northeast/Mid-Con and Rocky Mountains segments as well as significantly lower utilization of wireline assetsprofessional fees totaling $2.7. The Company also recorded a reduction in the Southwest segment. The aforementioned factors resulted in the year over year increase in costbargain purchase gain of sales as a percentage of revenues.Selling, general and administrative (“SG&A”) expenses during the third quarter of 2019, inclusive of Costs as Defined of $11.2, were $31.7, or 23.6% of revenues, as compared with $42.3, or 34.3% of revenues, (which included $23.0 of Spin-Off costs and expenses), in the prior year period. Excluding 2019 Costs as Defined ($23.0 in the prior year period), SG&A expenses in the third quarter of 2019 were $20.5, or 15.2% of revenues, as compared with $19.3, or 15.7% of revenues, in the prior year period. Third quarter 2019 research and development costs were $0.8 reflecting our continued focus on in-house research and development to deploy new specialized and proprietary tools and equipment.As previously described above and in Note 5 of the notes$2.4 related to the condensed consolidated financial statements, we recorded a $45.8 goodwill impairment charge during the three months ended October 31,252019. Approximately $22.4 of this charge was attributable to goodwill in the Southwest segment and $23.4 was attributable to goodwill in the Northeast/Mid-Con segment.loss and operating margin, including Costs as Defined of $13.3 and the goodwill impairment charge of $45.8, were $(63.1) and (46.9)%, respectively. Exclusive of the $13.3 of Costs as Defined ($23.0 in the prior year period) and the $45.8 goodwill impairment charge, current period operating loss was $(4.0) as compared to operating(loss) earnings of $13.1 in the prior year period. As previously discussed, operating results were negatively impacted by a number of customers suspending operations for the balance of the year in the Rocky Mountains and Northeast/Mid-Con segments, increased pricing pressure, particularly from natural gas customers in the Northeast/Mid-Con segment, low utilization of wireline assets in the Southwest segment due to our decision not to deploy these assets at pricing offered by our competitors, startup costs associated with the roll out of flowback and testing services, the greaseless wireline and plug and play disposable gun system and costs to support the roll out of the coiled tubing PSL in both the Northeast/Mid-Con and Rocky Mountains segments.Income tax benefit was $0.5 for the three months ended October 31, 2019, as compared to none in the prior year period. The Company has established a valuation allowance against the majority of its deferred tax balances with a net deferred tax liability remaining related to the Red Bone acquisition. Due to the fact the Company has a valuation allowance against the majority of its deferred tax balances, with the exception of Red Bone, it was unable to recognize a tax benefit on its year to date lossesNet loss for the three months ended October 31, 2019 was $(69.8) as compared to net loss of $(9.9) in the prior year period for the reasons mentioned above and $7.2 of interest expense in the third quarter of 2019 (none in 2018).Segment ResultsThree Months Ended October 31, 2020 October 31, 2019 % Change Operating (loss) earnings: Operating (loss) earnings: Southwest $ (8.2) $ (36.1) 77.3 % Rocky Mountains (4.6) 8.7 (152.9) % Northeast/Mid-Con (4.0) (22.1) 81.9 % Corporate and other Corporate and other (11.2) (13.6) 17.6 % Bargain purchase gain Bargain purchase gain 2.4 — NMF Total operating loss $ (30.4) $ (63.1) 51.8 % 2019, 2020, operating loss was $30.4 compared to operating loss of $63.1 in the prior year period, due to a decrease in impairment and other charges of $41.4 offset by a reduction in revenues due to reduced activity and pricing pressure caused by the COVID-19 pandemic and international pricing and production disputes, as well as non-recurring items related to the Merger.revenues of $57.6 increased by $9.5, or 19.8%, driven by an increase in the number of customers served, increased activity across substantially all product lines, improved adoption rates of recently introduced proprietary tools, including the HydroPullTM tool in combination with the Company’s proprietary motor bearing assembly, and dissolvable plugs, as well as approximately $7.0 of growth from the addition of Tecton flowback and testing revenues, partially offset by the approximate 20% decrease in frac spreads resulting from customers suspending or curtailing operations for the year, along with lower activity levels among certain other customers. Operating earnings and operating margin were approximately $2.6 and 4.5%, increases of 181% and 1,120 basis points, respectively, as compared to the prior year period.Third quarter ended October 31, 2019loss was $4.6, Northeast/Mid-Con segment revenues of $38.4 increased by approximately 4.1% driven by a significant increase in the number of customers served, improved adoption rates of proprietary tools and the March 2019 acquisition of Red Bone, offset by the approximate 50% decrease in frac spreads resulting from customers suspending or curtailing operations for the year. Operating efficiency and operating earnings were severely impacted by a number of customers suspending operations for the balance of the year, together with increased pricing pressure, particularly from natural gas customers and the Northeast/Mid-Con segment portion of the impaired goodwill, and as a result, operating loss for the current period was $(26.1).26For the quarter ended October 31, 2019, Southwest segment revenues of $38.5 increased 0.8% driven primarily by the acquisition of Motley in the fourth quarter of 2018 as well as an increase in the number of customers served, both of which were offset by the approximate 22% decrease in frac spreads resulting from customers suspending or curtailing operations for the year, lower activity levels by certain customers and low utilization of wireline assets as the Company chose not to deploy these assets at prices being offered by competitors. The Southwest segment is also incurring the additional cost of rolling out flowback and testing services and rolling out greaseless wireline and a fully addressable plug and play disposable gun system in the Permian that has already been successfully rolled out in the Rocky Mountains segment. The Southwest segment also continues to incur costs to support the rollout of the coiled tubing PSL in both the Northeast/Mid-Con and the Rocky Mountains segments. Primarily as a result of the factors described above, and the goodwill impairment attributable to the Southwest segment of $22.4, operating loss was $(39.6)$4.0 and Southwest segment operating loss was $8.2 for the three months ended October 31, 2019.27NINE MONTHS ENDED OCTOBER2019COMPARED TO NINE MONTHS ENDED OCTOBER2020 Compared to Nine Months Ended October 31, 2018is a summary oftable provides revenues by segment:segment for the periods indicated:Nine Months Ended October 31, 2020 October 31, 2019 % Change Revenue: Revenue: Southwest $ 53.4 $ 149.8 (64.4) % Rocky Mountains 70.1 169.7 (58.7) % Northeast/Mid-Con 66.6 125.7 (47.0) % Total revenue Total revenue $ 190.1 $ 445.2 (57.3) % 2019,2020, revenues of $445.2 increased $93.8,$190.1 decreased by $255.1, or 26.7%57.3%, as compared with the prior year period and reflected the November 2018 acquisition of Motley and March 2019 acquisitions of Tecton and Red Bone. Compared to the prior year period, Southwest revenues increased 26.3%,period. Rocky Mountains revenues increased 24.7% andsegment revenue declined by $99.6, or 58.7%, Northeast/Mid-Con revenues increased 30.0%. Revenue growth reflected an increase in the number of customers served, increased activity across substantially all product lines and improved adoption rates of proprietary tools, partially offsetsegment revenue declined by a number of customers suspending operations for the balance of the year in the Rocky Mountain and Northeast/Mid-Con segments during the third quarter of 2019 and increased pricing pressure, particularly from natural gas customers in the Northeast/Mid-Con$59.1, or 47.0%, and Southwest segments. The Company chose not to deploy wireline assets at prices being offeredsegment revenue declined by competitors in the Southwest segment during the second and third quarters of 2019.$96.4, or 64.4%. On a product line basis, completion, interventiondrilling, production and productionintervention services revenues increaseddecreased by approximately 39.5%, 17.2%$131.3, $11.6, $52.2 and 6.8%,$60.0, respectively, as compared to the same period in the prior year. for. For the period was $367.6, or 82.6%nine months ended October 31, 2020, cost of sales including $4.2was $220.4, or 115.9% of Costs as Defined,sales, as compared to the prior year period of $257.9,$367.6, or 73.4%82.6% of sales. Excluding the $4.2Cost of Costs as Defined (none in the prior year), cost of sales for the period was $363.4, or 81.6% of revenues, and as a percentage of revenues increased by approximately 820 basis points primarily due to under-absorption ofnegative operating leverage related to the 57.3% year-over-year decline in revenues as the significant decline in revenues outpaced the reduction in fixed costs in 2019 as a result of the abrupt deterioration in industry conditions, the roll out of flowback and testing services, the roll out of greaseless wireline services and coiled tubing costs incurred by the Southwest in support of the coiled tubing roll out in the Rockies and Northeast/Mid-Con segments, resulting in higher costcosts. Cost of sales as a percentageincluded $40.0 and $45.1 of revenues.2019, inclusive of Costs as Defined,2020 were $79.2,$73.5, or 17.8%38.7% of revenues, as compared with $82.0,$79.2, or 23.3% of revenues, in the prior year period (which included $28.7 of costs related to the Spin-Off). Excluding the $15.0 of Costs as Defined ($28.7 in the prior year period), SG&A was $64.2, or 14.4% of revenues, as compared with $53.3, or 15.2%17.8% of revenues, in the prior year period. ResearchThe bargain purchase gain on the Merger of $38.7 was partially offset by other non-recurring items related to the Merger and developmentintegration totaling $28.9. R&D costs forduring the nine months ended October 31, 2020 were $0.6, as compared to the prior year period wereof $2.3, reflecting our continued focus on maintaining an in-house research and development to deploy new specialized and proprietary tools and equipment.As previously described above and in Note 5 of the notes to the condensed consolidated financial statements, we recorded a $45.8 goodwill impairment charge during the three months ended October 31, 2019. Approximately $22.4 of this charge was attributable to goodwill in the Southwest segment and $23.4 was attributable to goodwill in the Northeast/Mid-Con segment.Operating loss and operating margin, including Costs as Defined and the goodwill impairment charge discussed above, were $(49.7) and (11.2)%, respectively. Exclusive of the $19.2 of Costs as Defined ($28.7 in the prior year) and the $45.8 goodwill impairment charge, operating earnings of $15.3 decreased by $23.0. As previously discussed, operating results were negatively impacted by a number of customers suspending or curtailing operations for the balance of the year in the Rocky Mountains and Northeast/Mid-Con segments, increased pricing pressure, particularly from natural gas customers in the Northeast/Mid-Con segment, low utilization of wireline assets in the Southwest segment due to our decision not to deploy these assets at pricing offered by our competitors, startup costs associated with the roll out of flowback and testing services,28the greaseless wireline and plug and play disposable gun system andR&D function while scaling costs to support the roll outadjust to current levels of the coiled tubing PSL in both the Northeast/Mid-Con and Rocky Mountains segments.Income tax benefit was $0.1 for the nine months ended October 31, 2019, as compared to income tax expense of $0.1 in the prior year period. The Company has established a valuation allowance against the majority of its deferred tax balances with a net deferred tax liability remaining related to the Red Bone acquisition. Due to the fact the Company has a valuation allowance against the majority of its deferred tax balances, with the exception of Red Bone, it was unable to recognize a tax benefit on its year to date losses.Net loss for the nine months ended October 31, 2019 was $(71.3) as compared to netcustomer demand. of $9.5 in the prior year period for the reasons mentioned above and $21.7 of interest expense in the current period (none in the prior year).Segment ResultsNine Months Ended October 31, 2020 October 31, 2019 % Change Operating (loss) earnings: Operating (loss) earnings: Southwest $ (113.5) $ (30.9) (267.3) % Rocky Mountains (45.2) 31.8 (242.1) % Northeast/Mid-Con (104.2) (6.0) NMF Corporate and other Corporate and other (54.6) (44.6) (22.4) % Bargain purchase gain Bargain purchase gain (38.7) — NMF Total operating (loss) earnings $ (278.8) $ (49.7) (461.0) % 2019, Rocky Mountains segment revenues2020, operating loss was $278.8, as compared to operating loss of $169.7 increased by 24.7%,$49.7 in the prior year period, largely driven by increasesa reduction in completions, interventionrevenues due to reduced activity and pricing pressure caused by the COVID-19 pandemic and international pricing and production of 36.9%, 15.6% and 7.9%, respectively. The Rocky Mountains segment experienced an increase in the number of customers served, increased activity across substantially all product lines, improved adoption rates of recently introduced proprietary tools, including the HydroPullTM tool in combination with the Company’s proprietary motor bearing assembly, and dissolvable plugs,disputes, as well as approximately $16.1 of growth from the addition of Tecton flowback and testing revenues, partially offset by the approximate 20% decrease in frac spreads resulting from customers suspending or curtailing operations for the year, along with lower activity levels among certain other customers. Operating earnings and operating margin were approximately $14.2 and 8.4%, increases of 330% and 590 basis points, respectively, as comparednon-recurring items related to the prior year period.2019,2020, Rocky Mountains segment operating loss was $45.2, Northeast/Mid-Con segment revenues of $125.7 increased by approximately 30.0%operating loss was $104.2 and Southwest segment operating loss was $113.5, in each case primarily driven by increases in completions, intervention and production of 20.2%, 58.7% and 20.1%, respectively. The Northeast/Mid-Con segment experienced a significant increase in the number of customers served, improved adoption rates of proprietary tools and the March 2019 acquisition of Red Bone, offset by the approximate 50% decrease in frac spreads resulting from customers suspending or curtailing operations for the year. Operating efficiency and operating earnings were severely impacted by a number of customers suspending operations for the balance of the year, together with increased pricing pressure, particularly from natural gas customers and the Northeast/Mid-Con segment portion of the impaired goodwill, and as a result, operating loss for the current period was $(18.7). Operating loss and operating margin were approximately $(18.7) and (14.9)%, reflecting the additional fixed costs resulting from the Red Bone acquisition and negative impact of the increased pricing pressure previously discussed.For the nine months ended October 31, 2019, Southwest segmentlower revenues of $149.8 increased 26.3% driven by an increase in completions of 55.9% partially offset by decreases in intervention and production of 13.1% and 12.0%, respectively. The increase in Southwest segment revenues was driven by the Motley acquisition in the fourth quarter of 2018 as well as an increase in the number of customers served, both of which were offset by the approximate 22% decrease in frac spreads resulting from customers suspending or curtailing operations for the year, lower activity levels by certain of its customers and low utilization of wireline assets as the Company chose not to deploy these assets at prices being offered by29competitors. The Southwest segment is also incurring the additional cost of rolling out flowback and testing services and rolling out greaseless wireline and a fully addressable plug and play disposable gun system in the Permian that has already been successfully rolled out in the Rocky Mountains segment. The Southwest segment also continues to incur costs to support the rollout of the coiled tubing PSL in both the Northeast/Mid-Con and the Rocky Mountains segments. Primarily as a result of decreased demand for the factors described above,Company's products and the goodwill impairment attributable to the Southwest segment of $22.4, operating lossservices.$(45.2)$0.3 for the nine months ended October 31, 2019.2020, as compared to income tax benefit $0.1 in the prior year period, and was comprised primarily of state and local taxes. The Company did not recognize a tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.30LIQUIDITY AND CAPITAL RESOURCESCurrent Financial Condition2019,2020, we had $121.1$79.8 of cash and cash equivalents and $26.4 available on the ABL Facility, which resulted in a total liquidity position of $106.2. During the fourth quarter of 2020, $2.8 of the outstanding letters of credit have been extinguished, further increasing the Company’s liquidity position.20192020 decreased by $42.7$43.7, as compared with $163.8$123.5 cash on hand at January 31, 20192020 as a result of $35.8 of cash flows used to fund acquisitions of $27.6 and capital expenditures of $67.4, principallyby operating activities primarily related to investments for growth capital expenditures in the first half $14.8of 2019, offset byinterest, and $9.7 to pay down QES's five year asset-based revolving credit agreement; and $10.3 of cash flows from operating activities of $53.2.used in investing activities. Our liquidity requirements consist of working capital needs, debt service obligations and ongoing capital expenditure requirements. Our primary requirements for working capital are directly related to the activity level of our operations. Our sources20192020 was $176.6,$20.5, a decrease of $46.5$26.9 as compared with net working capital at January 31, 2019.2020. As of October 31, 2019,2020, total current assets excluding cash decreased by $57.6$16.3 and total current liabilities decreasedincreased by $11.1.$10.6. The decrease in current assets was primarily related to a decrease in cash and accounts receivable of $42.7 and $16.3, respectively.$29.8. The decreaseincrease in total current liabilities was primarily due to a $10.9 decrease$3.0 and $7.6 increase in accounts payable.Cash FlowsAs of October 31, 2019,payable and accrued liabilities, respectively.and cash equivalents were $121.1 as compared to $163.8 at January 31, 2019. flows for the periods presented below: Nine Months Ended October 31, 2020 October 31, 2019 Net cash (used in) provided by operating activities $ (35.8) $ 53.2 Net cash used in investing activities (10.3) (94.5) Net cash provided by (used in) financing activities 2.4 (1.4) Net change in cash (43.7) (42.7) Cash balance end of period $ 79.8 $ 121.1 flows(used in) provided by operating activities2019 as compared to $51.6 in the prior year, reflecting a $80.82019. The decrease in net earnings and a $11.4operating cash flows was primarily attributable to the decrease in accounts payablerevenues across all operating segments and othermost PSLs driven by the current slowdown and non-current liabilities ($19.3 increasemarket headwinds. In addition, the overall cash collected from the reduction in working capital could not offset the prior year) partially offset by a $14.8 decreasedecline in accounts receivable ($13.4 increase inoperating leverage, and thus, the prior year), the goodwill impairment charge of $45.8 and a $19.7 increase in depreciation and amortization. Cash used in investing activities primarily consists of $27.6 used for the Tecton and Red Bone acquisitions (none in the prior year) and capital expenditures of $67.4 and $55.9Company incurred an operating loss for the nine months ended October 31, 2019 and 2018, respectively, and reflects our strategic decision to roll out our product service lines from acquired businesses to each of our business segments. Cash flows2020.financinginvesting activities of $1.4the current year period reflect shares cancelled in conjunction with restricted stock vesting and $1.2 of common stock repurchased, offset by $0.8 of proceeds from stock issuance. Cash flows provided by financinginvesting activities of $316.6was $10.3 for the nine months ended October 31, 2018, reflect $250.02020, as compared to net cash used in investing activities of proceeds from long-term debt and $74.9 of aggregate pre-Spin-Off net funding from our Former Parent, offset by $8.3 of debt offering costs in the prior period.Capital SpendingOur capital expenditures were $67.4 during$94.5 for the nine months ended October 31, 2019 ($55.92019. The cash flow used in the prior year period), which includes a return of deposits on equipment of $3.4 during the third quarter of 2019. We expect to incur approximately $75.0 in capital expendituresinvesting activities for the year ending Januarynine months ended October 31, 2020. The nature2020 was primarily driven by critical maintenance capital spending tied to the operation of our capital expenditures is comprisedexisting asset base. These investments were offset by the sale of a base level of investment required to support our current operationstrucks and amounts related to growth and companyother idle assets resulting from the cost reduction initiatives. Capital expendituresgrowth and company initiatives are discretionary. We continually evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including expected industry activity levels and company initiatives. We expect to fund future capital expenditures from cash on hand and cash flow from operations. We have funds available from our secured $100.0 ABL Facility, none of which was drawn atnine months ended October 31, 2020 due to a change in financed payables, compared to net cash used in financing activities of $1.4 for the nine months ended October 31, 2019.In connection with the Spin-Off, we the date of the Spin-Off, and is scheduled to mature in September 2023. Borrowings under the ABL Facility bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus the applicable margin (as defined in the ABL Facility) plus the applicable margin (as defined). Availability under the ABL Facility is tied to a borrowing base formula and the ABL Facility has no maintenance financial covenants.covenants as long as we maintain a minimum level of borrowing availability. During the three months ended October 31, 2020, the Company included the acquired QES current asset collateral into the borrowing base formula used to calculate the KLXE borrowing availability. The ABL Facility is secured by, among other things, a first priority lien on our accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants, all of which were met as of October 31, 2019.covenants. No amounts were outstanding under the ABL Facility as of October 31, 2019.2020. The effective interest rate under the ABL Facility would have been approximately 3.9%2.75% on October 31, 2019. cash from operating activities, our financial plans for Fiscal 2019 and the approximately $72.2along with $26.4 of availability under our $100.0 undrawn ABL Facility, provideprovides us with the ability to fund our operations, make planned capital expenditures, repurchase our debt or equity securities, meet our debt service obligations and provide funding for potential future acquisitions.Contractual ObligationsThe following chart reflects our contractual obligationscommercial commitments asSources of LiquidityCommercial commitments include linesWe expect to incur between $13.0 and $15.0 in capital expenditures for the year ending January 31, 2021, based on current industry conditions and our recent significant investments in capital expenditures over the past several years. The nature of credit, guaranteesour capital expenditures is comprised of a base level of investment required to support our current operations and amounts related to growth and Company initiatives. Capital expenditures for growth and Company initiatives are discretionary. We continually evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including expected industry activity levels and Company initiatives. We expect to fund future capital expenditures from cash on hand and cash flow from operations. We have funds available from our $100.0 ABL Facility (under which the amount of availability depends in part on a borrowing base tied to the aggregate amount of our accounts receivable and inventory satisfying specified criteria and our compliance with a minimum fixed charge coverage ratio), none of which was drawn at October 31, 2020.potentialfactors, many of which are beyond our control. We believe that our cash outflows resulting fromflows, together with cash on hand, will provide us with the ability to fund our operations and make planned capital expenditures for at least the next 12 months.contingent event that requires performancesmaller reporting company, we are not required to provide the disclosure required by us or our subsidiaries pursuant to a funding commitment.(1)Interest payments include interest payments due on the Notes based on the stated rate of 11.5%. To the extent we incur interest on the ABL Facility, interest payments would fluctuate based on LIBOR or the prime rate pursuant to the terms of the ABL Facility.Lease ArrangementsWe finance our use of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on our balance sheets. At October 31, 2019, future minimum lease payments under these arrangements approximated $70.6, of which $22.9 is related to long-term real estate leases.32We have employment agreements with certain key members of management expiring on various dates. Our employment agreements generally provide for certain protections in the event of a change of control. These protections generally include the payment of severance and related benefits under certain circumstances in the event of a change of control.SeasonalityOur operations are subject to seasonal factors and our overall financial results reflect seasonal variations. Specifically, we typically have experienced a pause by our customers around the holiday season in the fourth quarter, which may be compounded as our customers exhaust their annual capital spending budgets towards year end. Additionally, our operations are directly affected by weather conditions. During the winter months (first and fourth quarters) and periods of heavy snow, ice or rain, particularly in our Rocky Mountains and Northeast/Mid-Con segments, our customers may delay operations, or we may not be able to operate or move our equipment between locations. Also, during the spring thaw, which normally starts in late March and continues through June, some areas may impose transportation restrictions to prevent damage caused by the spring thaw. Lastly, throughout the year, heavy rains adversely affect activity levels, as well locations and dirt access roads can become impassible in wet conditions. Weather conditions also affect the demand for, and prices of, oil and natural gas and, as a result, demand for our services. Demand for oil and natural gas is typically higher in the first and fourth quarters, resulting in higher prices in these quarters.BacklogWe operate under master service agreements (“MSAs”) with our E&P customers, which set forth the terms and conditions for the provision of services and related tools and equipment. Completion services are typically based on a day rate with rates based on the type of equipment and competitive conditions. As a result, we do not record backlog.Effect of InflationInflation has not had and is not expected to have a significant effect on our operations.20182019 Annual Report on Form 10-K. Except10-K filed with the SEC on March 24, 2020 and this quarterly report on Form 10-Q as of the fiscal quarter ended October 31, 2020.changes below, there have been no changesperiod subsequent to our criticalthe acquisition date.policies since January 31, 2019.33 We provide expanded discussion of our more significant accounting policies, estimates and judgments below. We believe that most of these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.Revenue from Contracts with CustomersUnder ASC Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, we perform the following five steps: (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. We recognize revenue 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. Contracts are pursuant to an MSA combined with a completed field ticket or a work order, which sets forth the details of the specific transaction, including pricing.Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery in accordance with the terms of the field ticket or work order. We provide allowances for credits, based on historic experience, and adjust such allowances as considered necessary.We operate under MSAs with our oil and gas customers, which set forth the terms and conditions for the provision of services. Service contracts are typically based on a day rate with rates based on the type of equipment and competitive conditions. As a result, we do not record backlog.JOBSJumpstart Our Business Startups Act (the “JOBS Act”), we are offered an opportunity to use an extended transition period for the adoption of new or revised financial accounting standards. We operate under the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, until we are no longer an emerging growth company. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.FORWARD-LOOKING STATEMENTSThe PrivateITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 4. CONTROLS AND PROCEDURES Litigation ReformExchange Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide prospectivereasonable assurance that information required to investors. Thisbe disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers (who are our Chief Executive Officer and Chief Financial Officer, respectively), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.34(this “Form 10-Q”) includes forward-looking statements that reflect our current expectations and projections about our future results, performance and prospects. Forward-looking statements include all statements that are not historical in naturehave materially affected or, are not current facts. We have triedreasonably likely to identify these forward-looking statements by using forward-looking words including "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "might," "should," "could," "will" ormaterially affect, our internal control over financial reporting.ITEM 1. LEGAL PROCEEDINGS negativenormal course of these terms or similar expressions.These forward-looking statementsbusiness, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are subjectlikely to result in a numbermaterial adverse effect on the Company’s financial condition, cash flows and results of risks, uncertainties, assumptions and otheroperations.ITEM 1A. RISK FACTORS that could cause our actual results, performance and prospects to differ materially from those expresseddescribed in or implied by, these forward-looking statements. Factors that might cause such a difference include those discussed in our filings with the SEC, in particular those discussed under the headingsPart I, Item IA. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2019, including the following factors:·regulation of and dependence upon the energy industry;·the cyclical nature of the energy industry;·market prices for fuel, oil and natural gas;·competitive conditions;·legislative or regulatory changes and potential liability under federal and state laws and regulations;·decreases in the rate at which oil or natural gas reserves are discovered or developed;·the impact of technological advances2020, and our Quarterly Reports on the demand for our products and services;·delays of customers obtaining permits for their operations;·hazards and operational risks that may not be fully covered by insurance;·the write-off of a significant portion of intangible assets;·the need to obtain additional capital or financing, and the availability and/or cost of obtaining such capital or financing;·limitations that our organizational documents, debt instruments and U.S. federal income taxrequirements may have on our financial flexibility, our ability to engage in strategic transactions or our ability to declare and pay cash dividends on our common stock;·our credit profile;·changes in supply and demand of equipment;·oilfield anti-indemnity provisions;·severe weather;·reliance on information technology resources and the inability to implement new technology;·increased labor costs or the unavailability of skilled workers;·the inability to successfully consummate acquisitions or inability to manage potential growth; and·the inability to achieve some or all of the benefits of the Spin-Off.In light of these risks and uncertainties, you are cautioned not to put undue reliance on any forward-looking statements in this Form 10-Q. These statements should be considered only after carefully reading this entire Form 10-Q. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Form 10-Q not to occur.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAt Octoberfor the quarters ended April 30, 2020 and July 31, 2019 and January 31, 2019, we held no significant derivative instruments.Interest Rate Risk – 2020.will have interest rate exposure arising from variable interest with respect to our ABL Facility as any borrowings would be impacted by changes in short-term interest rates.35As of October 31, 2019, we maintainedidentified a portfolio of cash and securities consisting mainly of taxable, interest-bearing deposits with weighted average maturities of less than three months. If short-term interest rates were to increase or decrease by 10%, we estimate interest income would increase or decrease by approximately $0.1.Commodity Price Risk – Our fuel purchases expose us to commodity price risk. Our fuel costs consist primarily of diesel fuel used by our various trucks and other motorized equipment. The prices for fuel are volatile and are impacted by changes in supply and demand, as well as market uncertainty and regional shortages. Recently, we have been able to pass along price increases to our customers, but we may be unable to do so in the future. We generally do not engage in commodity price hedging activities.ITEM 4. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness, as of October 31, 2019, of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, our Chairman and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 31, 2019.Internal Control Over Financial ReportingThere were no changesmaterial weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.occurred duringthere is a reasonable possibility that asecond fiscal quartermeasurement of depreciation expense for impaired property and equipment. As a result of this material weakness, our management concluded that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting was not effective as of October 31, 2020.36ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSShare Repurchases($ in Millions, Except Shares and Per Share Data)The following table presents the total number of shares of our common stock that we repurchased during the three months ended October 31, 2019:48,859,603 48,859,603 48,859,603 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (1)Includes shares purchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants under the Company’s Long-Term Incentive Plan.ITEM 3. DEFAULTS UPON SENIOR SECURITIES ITEM 4. MINE SAFETY DISCLOSURES ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS (2)The average price paid per share3.1 3.2 31.1*
Sarbanes-Oxley Act of 2002.(3)In August 2019, our board of directors authorized a share repurchase program for the repurchase of outstanding sharesSection 302 of the Company’s common stock having an aggregate purchase price up to $50.3731.2* Exhibit 31 – Rule 13a-14(a)/15d-14(a) Certifications31.132.1** 31.2Exhibit 32 – Section 1350 Certifications32.132.2** 32.2101.SCH* Exhibit 101 – Interactive Data Files101.INSXBRL Instance Document101.SCH101.CAL* 101.CAL101.DEF* 101.DEF101.LAB* 101.LAB101.PRE* 101.PRE104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 38By: /s/ Christopher J. Baker Date: December 10, 2019By:/s/ AminChristopher J. KhouryAmin J. KhouryChairman,President and Chief Executive Officer and PresidentBy:/s/ Thomas P. McCaffreyThomas P. McCaffreyBy: Senior/s/ Keefer M. LehnerKeefer M. Lehner Executive Vice President and Chief Financial Officer Date: December 9, 2020 By: /s/ Geoffrey C. Stanford Geoffrey C. Stanford Vice President and Chief Accounting Officer Date: December 9, 2020 39