UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended October 31, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to

Commission File No. 001-38609

KLX Energy Services Holdings, Inc.

(Exact name of registrant as specified in its charter)



Delaware			36-4904146
(State of Incorporation)			(I.R.S. Employer Identification No.)

~~1415 Louisiana Street, Suite 2900~~3040 Post Oak Boulevard, 15th Floor

Houston, ~~Texas 77002~~TX 77056

(832) ~~518-4094~~844-1015

(Address, including zip code, and telephone number, including area code, of principal executive offices of registrant)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒☐

Non-accelerated filer

☐☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant has one class of common stock, $0.01 par value, of which ~~8,427,351~~10,346,840 shares were outstanding as of ~~November 27, 2020.~~December 3, 2021.

Table of Contents

KLX Energy Services Holdings, Inc.

Form 10-Q

Table of Contents


PART I - FINANCIAL INFORMATION		3
	Item 1. Condensed Consolidated Financial Statements (Unaudited)	3
	Balance Sheets as of October 31, 2021 ~~31, 2020~~ andJanuary 31, ~~2020~~2021	3
	Statements of Operations for the Three and Nine Months Ended October 31, 2021 ~~31, 2020~~ and ~~2019~~2020	4
	Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended October 31, 2021 ~~31, 2020~~ and ~~2019~~2020	5
	Statements of Cash Flows for the Nine Months Ended October 31, 2021 ~~31, 2020~~ and ~~2019~~2020	76
	Notes to Condensed Consolidated Financial Statements	87
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3736

	Item 4. Controls and Procedures	3736
PART II - OTHER INFORMATION		3836
	Item 1. Legal Proceedings	3836
	Item 1A. Risk Factors	3837
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3937
	Item 3. Defaults Upon Senior Securities	3937
	Item 4. Mine Safety Disclosures	3937
	Item 5. Other Information	4037
	Item 6. Exhibits	4038
SIGNATURES		4139

Table of Contents

PART 1 – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KLX Energy Services Holdings, Inc.

Condensed Consolidated Balance Sheets

(In millions of U.S. dollars and shares)

(Unaudited)


		October 31, 2020		January 31, 2020			October 31, 2021		January 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	79.8	$	123.5	Cash and cash equivalents	$	40.8	$	47.1
Accounts receivable–trade, net of allowance of $3.8 and $12.9		49.4		79.2
Accounts receivable–trade, net of allowance of $6.3 and $6.5						Accounts receivable–trade, net of allowance of $6.3 and $6.5	102.9		67.0
Inventories, net	Inventories, net	23.1		12.0		Inventories, net	22.7		20.8
Other current assets	Other current assets	16.2		13.8		Other current assets	11.6		15.8
Total current assets	Total current assets	168.5		228.5		Total current assets	178.0		150.7
Property and equipment, net	Property and equipment, net	220.5		306.8		Property and equipment, net	169.7		203.7
Goodwill		0		28.3
Intangible assets, net	Intangible assets, net	2.6		45.8		Intangible assets, net	2.3		2.5
Other assets	Other assets	6.0		14.0		Other assets	4.8		5.8
Total assets	Total assets	$	397.6	$	623.4	Total assets	$	354.8	$	362.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)						LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	34.4	$	31.4	Accounts payable	$	64.1	$	39.4
Accrued interest	Accrued interest	14.4		7.2		Accrued interest	14.7		7.2
Accrued liabilities	Accrued liabilities	33.8		26.2		Accrued liabilities	28.7		29.2
Current portion of capital leases						Current portion of capital leases	3.8		1.9
Total current liabilities	Total current liabilities	82.6		64.8		Total current liabilities	111.3		77.7
Long-term debt	Long-term debt	243.6		243.0		Long-term debt	274.6		243.9
Deferred income taxes		0.1		0
Long-term capital lease obligations						Long-term capital lease obligations	6.3		4.4
Other non-current liabilities	Other non-current liabilities	9.4		3.4		Other non-current liabilities	3.9		4.6
Commitments, contingencies and off-balance sheet arrangements (Note 11)	Commitments, contingencies and off-balance sheet arrangements (Note 11)					Commitments, contingencies and off-balance sheet arrangements (Note 11)	0		0
Stockholders’ equity:
Common stock, $0.01 par value; 110.0 authorized; 8.5 and 5.0 issued (1)		0.1		0.1
Stockholders’ equity (deficit):						Stockholders’ equity (deficit):
Common stock, $0.01 par value; 110.0 authorized; 10.2 and 8.6 issued						Common stock, $0.01 par value; 110.0 authorized; 10.2 and 8.6 issued	0.1		0.1
Additional paid-in capital	Additional paid-in capital	468.5		416.6		Additional paid-in capital	476.6		469.1
Treasury stock, at cost, 0.1 shares and 0.1 shares (1)		(4.0)		(3.6)
Treasury stock, at cost, 0.3 shares and 0.3 shares						Treasury stock, at cost, 0.3 shares and 0.3 shares	(4.3)		(4.0)
Accumulated deficit	Accumulated deficit	(402.7)		(100.9)		Accumulated deficit	(513.7)		(433.1)
Total stockholders’ equity		61.9		312.2
Total liabilities and stockholders' equity		$	397.6	$	623.4
Total stockholders’ equity (deficit)						Total stockholders’ equity (deficit)	(41.3)		32.1
Total liabilities and stockholders' equity (deficit)						Total liabilities and stockholders' equity (deficit)	$	354.8	$	362.7

~~(1) Common stock and treasury stock were retroactively adjusted for the Company's 1-for-5 Reverse Stock Split effective July 28, 2020. See Note 1.~~

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KLX Energy Services Holdings, Inc.

Condensed Consolidated Statements of Operations

(In millions of U.S. dollars, except per share amounts)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		October 31, 2020		October 31, 2019		October 31, 2020		October 31, 2019			October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Revenues	Revenues	$	70.9	$	134.5	$	190.1	$	445.2	Revenues	$	139.0	$	70.9	$	341.7	$	190.1
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of sales	Cost of sales	80.1		119.3		220.4		367.6		Cost of sales	120.7		65.6		308.5		180.5

Selling, general and administrative		14.3		31.7		73.5		79.2
Depreciation and amortization										Depreciation and amortization	13.7		14.7		43.6		43.8
Selling, general and administrative expenses										Selling, general and administrative expenses	14.8		14.1		44.1		69.6
Research and development costs	Research and development costs	0.1		0.8		0.6		2.3		Research and development costs	0.2		0.1		0.4		0.6
Impairment and other charges	Impairment and other charges	4.4		45.8		213.1		45.8		Impairment and other charges	—		4.4		0.8		213.1
Bargain purchase gain		2.4		0		(38.7)		0
Bargain Purchase Gain										Bargain Purchase Gain	—		2.4		0.5		(38.7)
Operating loss	Operating loss	(30.4)		(63.1)		(278.8)		(49.7)		Operating loss	(10.4)		(30.4)		(56.2)		(278.8)
Non-operating expense:	Non-operating expense:									Non-operating expense:
Interest expense, net	Interest expense, net	7.7		7.2		22.7		21.7		Interest expense, net	8.2		7.7		24.0		22.7
Loss before income tax	Loss before income tax	(38.1)		(70.3)		(301.5)		(71.4)		Loss before income tax	(18.6)		(38.1)		(80.2)		(301.5)
Income tax expense (benefit)		0.2		(0.5)		0.3		(0.1)
Income tax expense										Income tax expense	0.2		0.2		0.4		0.3
Net loss	Net loss	$	(38.3)	$	(69.8)	$	(301.8)	$	(71.3)	Net loss	$	(18.8)	$	(38.3)	$	(80.6)	$	(301.8)

Net loss per share-basic (1)	Net loss per share-basic (1)	$	(4.56)	$	(15.50)	$	(50.26)	$	(16.20)	Net loss per share-basic(1)	$	(2.19)	$	(4.56)	$	(9.60)	$	(50.26)
Net loss per share-diluted (1)	Net loss per share-diluted (1)	$	(4.56)	$	(15.50)	$	(50.26)	$	(16.20)	Net loss per share-diluted(1)	$	(2.19)	$	(4.56)	$	(9.60)	$	(50.26)

(1) ~~Basic~~ Common stock and ~~diluted net loss per share~~treasury stock were retroactively adjusted for the ~~Company’s~~Company's 1-for-5 Reverse Stock

Split effective July 28, 2020. See Note 1.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KLX Energy Services Holdings, Inc.

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

~~Three and~~ Nine Months Ended October 31, ~~2020~~2021 and ~~2019~~2020

(In millions of U.S. dollars and shares)

(Unaudited)

Common Stock Additional Paid-in Capital Treasury
Stock Accumulated
Deficit Total 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

~~Table of Contents~~


	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance at January 31, 2021	8.6	$	0.1	$	469.1	$	(4.0)	$	(433.1)	$	32.1
Restricted stock, net of forfeitures	0.5	—		0.8		—		—		0.8
Purchase of treasury stock	—	—		—		(0.3)		—		(0.3)
Net loss	—	—		—		—		(36.8)		(36.8)
Balance at April 30, 2021	9.1	0.1		469.9		(4.3)		(469.9)		(4.2)
Restricted stock, net of forfeitures	—	—		1.0		—		—		1.0
Issuance of common stock, net of cost	0.1	—		—		—		—		—
Net loss	—	—		—		—		(25.0)		(25.0)
Balance at July 31, 2021	9.2	0.1		470.9		(4.3)		(494.9)		(28.2)
Restricted stock, net of forfeitures	—	—		0.9		—		—		0.9
Issuance of common stock, net of cost	1.0	—		4.8		—		—		4.8
Net loss	—	—		—		—		(18.8)		(18.8)
Balance at October 31, 2021	10.2	$	0.1	$	476.6	$	(4.3)	$	(513.7)	$	(41.3)

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


	Common Stock(1)			Additional Paid-in Capital		Treasury Stock(1)		Accumulated Deficit		Total 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	—		—		—		—		—
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

(1) Common stock and treasury stock were retroactively adjusted for the Company's 1-for-5 Reverse Stock Split effective July 28, 2020. See Note 1.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KLX Energy Services Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions of U.S. dollars)

(Unaudited)


		Nine Months Ended					Nine Months Ended
		October 31, 2020		October 31, 2019			October 31, 2021		October 31, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(301.8)	$	(71.3)	Net loss	$	(80.6)	$	(301.8)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities
Adjustments to reconcile net loss to net cash flows used in operating activities						Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization	Depreciation and amortization	43.8		48.0		Depreciation and amortization	43.6		43.8
Impairment and other charges	Impairment and other charges	213.1		45.8		Impairment and other charges	0.8		213.1
Non-cash compensation	Non-cash compensation	17.2		13.8		Non-cash compensation	2.7		17.2
Amortization of deferred financing fees	Amortization of deferred financing fees	1.0		0.8		Amortization of deferred financing fees	0.9		1.0
Provision for inventory reserve		2.8		2.0
Provision for inventory obsolescence reserve						Provision for inventory obsolescence reserve	0.6		2.8
Change in allowance for doubtful accounts	Change in allowance for doubtful accounts	(9.4)		10.7		Change in allowance for doubtful accounts	0.4		(9.4)
(Gain) loss on disposal of property, equipment and other		(0.2)		2.1
Gain on disposal of property, equipment and other						Gain on disposal of property, equipment and other	(7.1)		(0.2)
Bargain purchase gain	Bargain purchase gain	(38.7)		0		Bargain purchase gain	0.5		(38.7)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	51.5		14.8		Accounts receivable	(36.3)		51.5
Inventories	Inventories	(2.2)		3.4		Inventories	(2.5)		(2.2)
Other current and non-current assets	Other current and non-current assets	7.0		(5.5)		Other current and non-current assets	3.0		7.0
Accounts payable	Accounts payable	(20.2)		(9.3)		Accounts payable	22.8		(20.2)
Other current and non-current liabilities	Other current and non-current liabilities	0.3		(2.1)		Other current and non-current liabilities	8.0		0.3
Net cash flows (used in) provided by operating activities		(35.8)		53.2
Net cash flows used in operating activities						Net cash flows used in operating activities	(43.2)		(35.8)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(11.1)		(67.4)		Purchases of property and equipment	(7.5)		(11.1)
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	1.8		0.5		Proceeds from sale of property and equipment	13.7		1.8
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(1.0)		(27.6)		Acquisitions, net of cash acquired	—		(1.0)
Net cash flows used in investing activities		(10.3)		(94.5)
Net cash flows provided by (used in) investing activities						Net cash flows provided by (used in) investing activities	6.2		(10.3)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings from ABL Facility						Borrowings from ABL Facility	30.0		—
Purchase of treasury stock	Purchase of treasury stock	(0.4)		(1.2)		Purchase of treasury stock	(0.3)		(0.4)
Shares cancelled by employees for taxes		—		(1.0)
Cash proceeds from stock issuance		0		0.8
Proceeds from stock issuance, net of costs						Proceeds from stock issuance, net of costs	4.8		—
Payments on capital lease obligations						Payments on capital lease obligations	(2.0)		—
Change to financed payables	Change to financed payables	2.8		0		Change to financed payables	(1.8)		2.8
Net cash flows provided by (used in) financing activities		2.4		(1.4)
Net cash flows provided by financing activities						Net cash flows provided by financing activities	30.7		2.4
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(43.7)		(42.7)		Net decrease in cash and cash equivalents	(6.3)		(43.7)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	123.5		163.8		Cash and cash equivalents, beginning of period	47.1		123.5
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	79.8	$	121.1	Cash and cash equivalents, end of period	$	40.8	$	79.8

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during period for:	Cash paid during period for:					Cash paid during period for:
Income taxes paid, net of refunds	Income taxes paid, net of refunds	$	(0.3)	$	1.0	Income taxes paid, net of refunds	$	0.2	$	(0.3)
Interest	Interest	14.8		14.8		Interest	15.4		14.8
Supplemental schedule of non-cash activities:	Supplemental schedule of non-cash activities:					Supplemental schedule of non-cash activities:
Issuance of common stock and stock based payments for QES acquisition	Issuance of common stock and stock based payments for QES acquisition	$	34.7	$	0	Issuance of common stock and stock based payments for QES acquisition	$	—	$	34.7
Change in deposits on capital expenditures	Change in deposits on capital expenditures	(5.6)		(5.8)		Change in deposits on capital expenditures	—		(5.6)
Accrued capital expenditures	Accrued capital expenditures	0.5		5.0		Accrued capital expenditures	3.5		0.5

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KLX Energy Services Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited – In millions of U.S. dollars)

NOTE 1 - Description of Business and Basis of Presentation

Description of Business

KLX Energy Services Holdings, Inc. (the “Company”, “KLXE” or “KLX Energy Services”) is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in both conventional and unconventional plays in all ~~of the~~major active ~~major~~ basins throughout the United States. The Company delivers mission critical oilfield services focused on drilling, completion, production and intervention activities for the most technically demanding wells infrom over 50 service and support facilities located throughout the United States.

The Company offers a complementary suite of proprietary products and specialized services that is supported by technically skilled personnel and a broad portfolio of innovative in-house manufacturing, repair and maintenance capabilities. KLXE’s primary services include ~~coiled-tubing,~~coiled tubing, directional drilling, ~~frac~~thru-tubing, hydraulic fracturing rentals, fishing, pressure control, wireline, rig-assisted snubbing, fluid pumping, flowback, ~~testing~~pressure pumping and ~~well control~~special situation services. KLXE’s primary rentals ~~and products~~ include hydraulic fracturing stacks, blow out preventers, tubulars, downhole tools, and accommodation units. KLXE's primary product offering includes a suite of proprietary dissolvable ~~plugs,~~and composite plugs along with liner hangers, stage cementing tools, inflatables, and ~~accommodation units.~~float/casing equipment.

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

On July 28, 2020, KLX Energy Services, Krypton Intermediate, LLC, an indirect wholly owned subsidiary of KLXE, Krypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE (“Merger Sub”), and Quintana Energy Services Inc. (“QES”) completed the previously announced acquisition of QES, by means of a merger of Merger Sub with and into QES, with QES surviving the merger as a subsidiary of KLXE (the “Merger”). On July 28, 2020, immediately prior to the consummation of the Merger, the Reverse Stock Split Amendment became effective and thereby effectuated the 1-for-5 Reverse Stock Split of the Company’s issued and outstanding common stock.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange 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~~2021 or for any future period. The information included in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on ~~March 24, 2020.~~April 28, 2021.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

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The accompanying unaudited condensed consolidated financial statements present the consolidated KLXE and QES financial position as of October 31, ~~2020,~~2021 and ~~the condensed consolidated statement of operations for the three months ended October~~January 31, ~~2020 includes an entire quarter of combined~~2021. Combined results for both legacy KLXE and legacy ~~QES.~~QES are included for the entire period in the condensed consolidated statements of operations and cash flows for the three and nine months ended October 31, 2021. The condensed consolidated ~~statement~~statements of operations and cash flows for the three and nine months ended October 31, 2020 ~~and the condensed consolidated statement of cash flows for the nine months ended October 31, 2020~~includes QES’s results for the ~~period~~final three days of the Company's second fiscal quarter, July 29, 2020 through ~~October~~July 31, 2020.

On September 3, 2021, the Board of the Company adopted the Fourth Amended and Restated Bylaws of the Company, effective as of such date, to change the Company’s fiscal year-end from January 31 to December 31, effective beginning with the year ending December 31, 2021. As a result, the Company’s current fiscal year 2021 will be shortened from 12 months to 11 months and end on December 31, 2021. The Company is undertaking this change in an effort to normalize our fiscal year-end and improve comparability with our peers.

Depreciation and Amortization

The Company changed its presentation of depreciation and amortization expense in the first quarter of 2021. Depreciation and amortization expense is presented separately from cost of sales and selling, general, and administrative expenses. Prior period results have been reclassified to conform with current presentation.

Segment Reporting

~~The~~During the third quarter of 2020, the Company changed its presentation of reportable segments related to the allocation of corporate overhead costs to reflect the presentation used by the Company's chief operational decision-making group ~~(“CODM”~~("CODM") to make decisions about resources to be allocated to the Company’s reportable segments and to assess segment performance. Historically, and through July 31, 2020, the Company’s total corporate overhead costs were allocated and reported within each reportable segment. ~~During~~Starting in the third quarter of 2020, the Company changed the corporate overhead allocation methodology to only 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 in the Company’s segment reporting disclosures. See Note 14 for additional information. As a result of the change in presentation, the total corporate overhead costs allocated for the three and nine months ended October 31, 2020 to the Company’s 3 reportable segments decreased ~~$11.2~~by $11.4 and $54.6, respectively. For the three and nine months ended October 31, 2019, the total corporate overhead costs allocated to the Company’s 3 reportable segments decreased $13.6 and $44.6, respectively.

In conjunction with the change in presentation of reportable segments, the Company also changed its presentation of segment assets. Historically, and through July 31, 2020, the Company’s corporate assets were allocated and reported within each reportable segment. During the third quarter of 2020, the Company changed the presentation of total assets to present corporate assets separately as a reconciling item in its segment reporting disclosures. As a result of the change in presentation, the total corporate assets allocated to the Company’s 3 reportable segments decreased by $88.5 and $139.1 as of October 31, 2020 and January 31, 2020,$13.7, respectively.

The Company also changed its presentation of service offering revenues. Historically, and through July 31, 2020, the Company’s service offering revenues included revenues from the completion, production and intervention market types within segment reporting. During the third quarter of 2020, the Company changed the presentation of its service offering revenues by separately reporting a drilling market type revenue, which includes directional drilling, drilling accommodation units and related drilling support services. The reclassifications are retroactively reported in the Company’s segment reporting disclosures to reflect the drilling revenue change and use of the information by the Company’s CODM. For the three and nine months ended October 31, 2020, the total drilling revenues reported within segment reporting was $15.3 and $26.9, respectively. For the three and nine months ended October 31, 2019, the total drilling revenues reported within segment reporting was $11.0 and $38.5, respectively.

These ~~current period~~ changes in the Company’s corporate allocation method and service offering revenue disclosures have no net impact to the condensed consolidated financial statements. The ~~change~~changes better ~~reflects~~reflect the CODM’s philosophy on assessing performance and allocating resources as well as ~~improves~~improve the Company’s comparability to its peer group.

~~Correction of Erro~~rsProperty and Equipment, Net

Property and equipment are stated at cost and depreciated generally under the straight-line method over their estimated useful lives of one to forty years (or the lesser of the term of the lease for leasehold improvements, as appropriate). During the ~~three months ended October 31, 2020, the Company determined that accumulated depreciation was overstated following the impairment of certain property and equipment in prior periods. As~~quarter, as a result ~~a prior period correction~~ of ~~$3.7 to reduce accumulated depreciation~~increased usage from improving drilling activity levels and ~~depreciation expense was recorded during the three months ended October 31, 2020, of which $2.3 relates to depreciation expense recognized~~changes in the ~~three months ended July 31, 2020 for assets impaired as~~manner and conditions in which various types of ~~April 30, 2020.~~our small tools are used, we updated the

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~~In addition, the Company identified~~estimated useful lives of such tools to 1 - 3 years, resulting in approximately $0.2 of incremental monthly depreciation on a $2.0 gain on termination of leased vehicles which related to the three months ended July 31, 2020 but was recorded in the three months ended October 31, 2020. There was no impact to the condensed consolidated financial statements as of and for the nine months ended October 31, 2020 related to this error.

~~The Company concluded the errors were not material to previously issued financial statements.~~prospective basis.

NOTE 2 - Recent Accounting Pronouncements

Accounting Standard Update not yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments in this ASU are effective for all entities, if elected, as of March 12, 2020 through December 31, 2022. While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Financial Services industry and market participants continue to work towards transitioning away from interbank offered rates ("IBOR"), including the LIBOR, that are being phased out imminently. This phasing out will have an impact on the ABL Facility (defined below) that utilizes LIBOR as a benchmark. To transition from IBOR Reference Rate, the ABL Facility agreement between the Company and JP Morgan Chase & Co. ("JP Morgan"), which currently has borrowings outstanding of $30.0, will be amended to adopt an alternate rate effective on or before June 30, 2023.Until the ABL Facility agreement is amended to allow for Secured Overnight Financing Rate ("SOFR") as the replacement to LIBOR, the Alternate Base Rate ("ABR"), is the default rate that JP Morgan has agreed to use as the LIBOR replacement.

In December 2019, FASB issued ASU 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify aspects of income tax approach for intraperiod tax allocations when there is a loss from continuing operations and income or a gain from other items, and to provide a general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Topic 740 also provides guidance to simplify how an entity recognizes a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and evaluations of when step ups in the tax basis of goodwill should be considered part of a business combination. Companies should also reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The guidance is effective for the Company for the fiscal year beginning ~~February~~January 1, 2022. While the exact impact of this standard is not known, the guidance is not expected to ~~have a material impact on the Company’s condensed consolidated financial statements.~~

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (“Topic 230”): Classification of Certain Cash Receipts and Cash Payments, which 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 adoption of ASU 2016-15 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments. This ASU is intended to update the measurement of credit losses on financial instruments. This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses (“CECL”) model. This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The new accounting standard introduces the CECL methodology for estimating allowances for credit losses. The Company is an oilfield service company and as of October 31, ~~2020~~2021 had a third-party accounts receivable balance, net of allowance, of ~~$49.4.~~$102.9. Topic 326 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

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In February 2016, FASB issued ASU 2016-02, Leases (“Topic 842”), which supersedes ASC Topic 840, Leases. Topic 842 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. Topic 842 will be applied using a

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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, FASB deferred the effective date for implementation of Topic 842 by one year and, in June 2020, FASB deferred the effective date by an additional year. The guidance under Topic 842 is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 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.

NOTE 3 - Business Combinations

QES Merger

On July 28, 2020, the Company completed the Merger with QES, a diversified provider of oilfield services to onshore oil and natural gas E&P companies operating in the United States. The Merger purchase price was approximately $44.4 ~~with~~inclusive of cash paid to settle QES debt, comprised of 3.4 million shares of the Company’s common stock. Based on the Company’s preliminary purchase price allocation, the purchase price was less than the fair value of the identifiable assets acquired, which resulted in a ~~$38.7~~$39.8 bargain purchase gain being recorded ~~on the condensed consolidated statements of operations for the nine months ended October 31,~~in fiscal 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 the purchase price, and $1.6 relating to post-acquisition services will be recorded as operating expenses over the remaining requisite service periods. ~~RSUs were~~As of the Merger date, each unvested QES RSU was converted into a KLXE RSU award at a conversion rate of 0.0969 and valued ~~based~~ on ~~the~~ July 28, ~~2020 grant date.~~2020.

The Merger was accounted for as a purchase under FASB ASC 805, Business Combinations (“ASC 805”). The results of operations for the acquisition are included in the accompanying condensed consolidated statements of operations from the respective date of acquisition.

The fair values assigned to certain assets acquired and liabilities assumed in relation to the Company’s acquisition have been prepared on a preliminary basis with information currently available and are subject to change. The Company expects to finalize its analysis during fiscal 2020. The following table summarizes the final 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
Inventories~~(1)~~	11.8
Other current and non-current assets	~~6.3~~7.4
Property and equipment	~~84.5~~84.2


Accounts payable	~~(27.2)~~(27.1)

Other current and non-current liabilities	~~(13.2)~~(13.0)
Bargain purchase	~~(38.7)~~(39.8)
Total purchase price ~~(2)~~(1)	$	44.4

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~~(1) After conforming to the Company’s inventory accounting policy, certain items acquired in the Merger were removed from Inventory balance and an offset was recorded to Bargain Purchase Gain.~~

~~(2)~~ The total consideration ~~transferred~~ of the Merger was approximately $44.4, ~~includes a~~which was comprised of 3.4 million shares of the Company's common stock and cash ~~transfer of $9.7~~paid to ~~pay off the~~settle QES ~~ABL Facility.~~debt.

The Company has substantially integrated portions of the QES business and, as a result, it is not practicable to report stand-alone revenues and operating (loss) earnings of the QES business since the Merger date.

~~Unaudited Supplemental Pro Forma Information~~

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

On a pro forma basis to give effect to the Merger, as if it occurred on February 1, 2019, revenues, net loss and loss per diluted share for the three and nine months ended October 31, 2020 and 2019 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 $ 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)

~~2019 Acquisitions~~

On March 15, 2019, the Company acquired Tecton Energy Services (“Tecton”), a provider of flowback and production testing services, operating primarily in the Rocky Mountains. On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a provider of fishing and thru-tubing services in the 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. Based on the Company’s final purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $51.2, of which $19.4 was allocated to intangible assets consisting of customer contracts and relationships and covenants not to compete, and $31.8 was allocated to goodwill. The useful life assigned to the customer contracts and relationships is 10 years, and the covenants not to compete are being amortized over their contractual periods of 1.5 - 3 years for Tecton and Red Bone.

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The Tecton and Red Bone acquisitions were accounted for as purchases under ASC 805. The results of operations for the acquisitions are included in the accompanying condensed consolidated statements of operations from the respective dates of acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed in the Tecton and Red Bone acquisitions 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 (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 Tecton and Red Bone are not expected to be deductible for tax purposes.~~

The Company has substantially integrated Red Bone and, as a result, it is not practicable to report stand-alone revenues and operating earnings of the acquired business 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.

~~Unaudited Supplemental Pro Forma Information~~

On a pro forma basis to give effect to the Tecton and Red Bone acquisitions, as if they occurred on February 1, 2019, revenues, net loss and loss per diluted share for the three and nine months ended October 31, 2020 and 2019 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)

NOTE 4 - Merger and Integration Costs

Merger and integration costs were recorded separately from the acquisition of assets and assumptions of liabilities in the Merger. Merger costs consist of legal and professional fees and accelerated stock compensation expense. Integration costs consist of expenses to relocate corporate headquarters, integrate the QES business, reduce headcount, and consolidate service and support facilities.

~~Merger~~ Integration of the QES business is complete and the Company incurred no merger and integration costs ~~totaled $9.8 and $36.3~~ for the three ~~and nine~~ months ended October 31, 2020, respectively. $2.7 and $3.0 were recorded to cost of sales in the interim condensed consolidated statements of operations for the three and nine months ended October 31, 2020, respectively. $2.7 and $28.9 were recorded to selling, general and administrative in the interim condensed consolidated statements of operations for the three and nine months ended October 31, 2020, respectively. Lease termination costs of $4.4 and $4.4 were recorded to impairment and other charges in the interim condensed consolidated statements of operations for the three and nine months ended October 31, 2020, respectively.

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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.2021.

The following table presents ~~Merger~~merger and integration costs that were recorded for the three and nine months ended October 31, 2021 and 2020 in the interim condensed consolidated statements of operations ~~(in millions~~by line item:


	Three Months Ended				Nine Months Ended
	October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Cost of sales	$	—	$	2.7	$	1.2	$	3.0
Selling, general and administrative	—		2.7		0.5		28.9
Lease termination costs (part of impairment and other charges)	—		4.4		0.6		4.4
Total merger and integration costs	$	—	$	9.8	$	2.3	$	36.3

As of ~~U.S. dollars):~~October 31, 2021 and January 31, 2021, accrued lease termination costs were:

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


Beginning balance as of January 31, 2021	$	3.4
Charged to costs and expenses	0.6
Deductions	(0.9)
Balance as of April 30, 2021	3.1
Deductions	(0.6)
Balance as of July 31, 2021	2.5
Deductions	(0.2)
Ending balance as of October 31, 2021	$	2.3

The following table presents merger and integration costs that were recorded for the three and nine months ended October 31, 2021 and 2020 in the interim condensed consolidated statements of operations by type:


	Three Months Ended				Nine Months Ended
	October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Merger costs	$	—	$	1.3	$	—	$	27.8
Integration costs	—		8.5		2.3		8.5
Total merger and integration costs	$	—	$	9.8	$	2.3	$	36.3

NOTE 5 - Inventories, ~~net~~Net

Inventories, net consisted of the following:


		October 31, 2020		January 31, 2020			October 31, 2021		January 31, 2021
Supplies		$	14.1	$	5.6
Spare parts						Spare parts	$	15.3	$	13.5
Plugs	Plugs	5.8		6.1		Plugs	5.5		4.6
Consumables	Consumables	4.0		1.0		Consumables	2.6		2.8
Work-in-progress		0		0.2
Other	Other	1.4		0.6		Other	1.9		2.3
Subtotal	Subtotal	25.3		13.5		Subtotal	25.3		23.2
Inventory reserve		(2.2)		(1.5)
Total inventories		$	23.1	$	12.0
Inventory obsolescence reserve						Inventory obsolescence reserve	(2.6)		(2.4)
Total inventories, net						Total inventories, net	$	22.7	$	20.8

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Inventories ~~which consist~~are primarily made up of ~~finished goods, primarily include~~composite and dissolvable plugs, ~~packers~~spare parts and ~~other~~ consumables used to perform services for customers. The Company values inventories at the lower of cost or net realizable value. ~~Inventory~~Inventories are reported net of obsolescence reserves ~~were approximately $2.2~~of $2.6 and ~~$1.5~~$2.4 as of October 31, ~~2020~~2021 and January 31, ~~2020,~~2021, respectively.

~~During the quarter ended October 31, 2020, the Company identified certain excess inventory of $1.2, which was written off to cost of sales in the condensed consolidated statement of operations.~~

NOTE 6 - Property and Equipment, Net

Property and equipment, net consisted of the following:


		Useful Life (Years)			October 31, 2020		January 31, 2020			Useful Life (Years)			October 31, 2021		January 31, 2021
Land, buildings and improvements		1	—	40	$	44.5	$	38.2
Land, buildings and leasehold improvements									Land, buildings and leasehold improvements	1	—	40	$	39.5	$	43.7
Machinery	Machinery	1	—	20	222.0		257.9		Machinery	1	—	20	222.2		221.8
Furniture and equipment	Furniture and equipment	1	—	15	183.0		216.7		Furniture and equipment	1	—	15	183.5		183.2
Total property and equipment					449.5		512.8
Property and equipment									Property and equipment				445.2		448.7
Less accumulated depreciation	Less accumulated depreciation				229.0		206.0		Less accumulated depreciation				275.5		245.0
Property and equipment, net					$	220.5	$	306.8

Total property and equipment, net									Total property and equipment, net				$	169.7	$	203.7

Depreciation expense was 13.6 and $14.7 ~~and $15.7~~for the three months ended October 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$40.0~~$43.4 and ~~$45.1~~$40.0 for the nine months ended October 31, 2021 and 2020, ~~and 2019,~~ respectively.

Depreciation of assets is computed using the straight-line method over the lesser of the estimated useful lives of the respective assets or the lease term, if shorter. During the quarter, as a result of increased usage from improving drilling activity levels and changes in the manner and conditions in which various types of our small tools are used, we updated the estimated useful lives of such tools to 1 - 3 years, resulting in approximately $0.2 of incremental monthly depreciation on a prospective basis.

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Assets Held for Sale

As of October 31, ~~2020,~~2021, the Company’s condensed consolidated balance sheet ~~includes~~included assets classified as held for sale of ~~$4.5.~~$2.6. The assets held for sale ~~are~~were reported within other current assets on the condensed consolidated balance sheet and ~~represent~~represented the value of 53 operational ~~facilities.~~facilities and select equipment. In light of the current market environment and as part of the ~~ongoing~~global 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~~were being actively marketed for sale as of October 31, ~~2020~~2021 and ~~are~~were recorded at the lower of their carrying value or fair value less costs to sell. During the three months ended October 31, 2021, the Company completed the sale of 1 aircraft with a carrying value of $0.8 for total sales proceeds of $1.9 and 1 operational facility with a carrying value of $0.7 for total sales proceeds of $0.7.

NOTE 7 - Goodwill and Intangible Assets, Net

~~The following sets forth the intangible assets by major asset class, all of which were acquired through business purchase transactions:~~

October 31, 2020 January 31, 2020
Useful Life (Years) Original Cost Accumulated Amortization Net Book Value Original
Cost Accumulated Amortization Net Book Value
Customer contracts and relationships (1)
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

~~(1) The customer contracts and relationships intangible asset’s useful life was reduced from 20 to 10 years as of July 31, 2020.~~

Amortization expense associated with gross intangible assets of $5.7 was ~~$0.0~~$0.1 and ~~$1.0~~nil for the three months ended October 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$3.8~~$0.2 and ~~$2.9~~$3.8 for the nine months ended October 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~Due to the accelerated amortization of intangible assets, the Company does not expect to recognize future material amortization expense related to intangible assets.~~ During the ~~nine~~three months ended October 31, 2020, accelerated amortization of $2.7 was recognized related to the ~~Company’s~~Company's customer contracts and relationships long-lived intangible. ~~Actual future amortization expense may~~The remaining intangible balance will be ~~different due to future acquisitions, impairments, changes in amortization periods or other factors.~~amortized straight-line over 7.5 years.

Goodwill and indefinite life intangible assets are tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. 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 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~~drove a steep drop in oil prices, leading to decreases in demand for the Company’s services and lower current and expected revenues for the Company.

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Based on the impairment indicators above, the Company performed a 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~~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, 2020. This charge reflects $91.3 and $89.1 of the long-lived assets attributable to the Southwest and Northeast/Mid-Con segments, respectively.

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Determining fair value requires the use of estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating profit margins, weighted average cost of capital, terminal growth rates, future market share and future market conditions, among others. The Company’s cash flow projections were a significant input into the April 30, 2020 fair values. See Note 10 for additional information regarding the fair value determination. If the Company continues 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 assets.

The valuation of the Company and its reportable segments’ goodwill impairment test was estimated using the guideline public company analysis and the discounted cash flow analysis, which were equally weighted in the fair value analysis. See Note 10 for additional information regarding the fair value determination. The results of the goodwill impairment test as of April 30, 2020 indicated that goodwill was impaired because the carrying value of the Rocky Mountains reporting unit exceeded its relative fair value. Accordingly, the Company recorded a $28.3 goodwill impairment charge, which is included in the condensed consolidated statements of operations for the nine months ended October 31, 2020. This charge reflects the full value of the goodwill attributable to the Rocky Mountains segment, leaving the Company with ~~0 goodwill as of October 31, 2020.~~no goodwill.

During the second quarter 2020 review of the customer relationship intangible assets, an analysis of the future contributions to revenue from these customers resulted in forecast declines of approximately 50%. As a result of the review, the Company recognized a charge of $2.7 reflecting accelerated amortization to reduce the carrying value of its customer relationships intangible. The accelerated amortization charge is included in the condensed consolidated statements of operationsNo impairment indicators were identified for the ~~nine months~~quarter ended October 31, ~~2020.~~2021.

NOTE 8 - Accrued Liabilities

Accrued liabilities consisted of the following:

October 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


	October 31, 2021		January 31, 2021
Accrued salaries, vacation and related benefits	$	16.0	$	14.3
Accrued property taxes	3.2		1.8
Accrued taxes other than property	3.2		2.6
Accrued lease termination costs	2.3		3.4
Accrued incentive compensation	0.8		1.9
Other accrued liabilities	3.2		5.2
Total accrued liabilities	$	28.7	$	29.2

NOTE 9 - Long-Term Debt

Outstanding long-term debt and capital lease obligations consisted of the following:


	October 31, 2021		January 31, 2021
Notes	$	250.0	$	250.0
ABL Facility	30.0		—
Capital lease obligations	10.1		6.3
Total principal outstanding	290.1		256.3
Unamortized debt issuance costs	5.4		6.1
Total debt, net of debt issuance costs	$	284.7	$	250.2
Current portion of capital lease obligations	3.8		1.9
Long-term portion of debt and capital lease obligations	$	280.9	$	248.3

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As of October 31, ~~2020,~~2021, 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~~unamortized debt issuance costs for the Notes, total debt related to the Notes as of October 31, ~~2020~~2021 was ~~$243.6.~~$244.6. The Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1. Accrued interest related to the Notes was $14.4 as of October 31, ~~2020 was $14.4.~~2021.

As of October 31, ~~2020,~~2021, the Company also had a $100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”). The ABL Facility became effective on September 14, 2018 and matures in September 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.

Borrowings under the ABL Facility bear interest at a rate equal to LIBOR plus the applicable margin (as defined in the ABL Facility). There were 0 outstanding amounts under the ABL Facility as of October 31, 2020.

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The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants as long as the minimum level of borrowing availability is maintained. ~~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 the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.

Availability under the ABL Facility was $26.4 and $60.0 as of October 31, 2020 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.

The ABL Facility includes a springing financial covenant which requires the Company’s consolidated fixed charge coverage ratio (“FCCR”) to be at least 1.0 to 1.0 if availability falls below the greater of $10.0 or 15% of the borrowing base. At all times during the ~~three~~nine months ended October 31, ~~2020,~~2021, availability exceeded this threshold, and the Company was not subject to this financial covenant. As of October 31, ~~2020,~~2021, the FCCR was below 1.0 to 1.0. The Company was in full compliance with its credit facility as of October 31, ~~2020.~~2021.

Borrowings outstanding under the ABL Facility were $30.0 as of October 31, 2021 and bear interest at a rate equal to LIBOR plus the applicable margin (as defined in the ABL Facility). The effective interest rate under the ABL Facility was approximately 4.75% on October 31, 2021. Total letters of credit outstanding under the ABL Facility were ~~$9.6~~$5.0 at October 31, ~~2020,~~2021, a reduction of $1.6 or 24.2% compared to July 31, 2021. Accrued interest under the ABL Facility was $0.3 as of October 31, 2021.

Financial Services industry and market participants continue to work towards transitioning away from IBOR, including the LIBOR, that are being phased out imminently. This phasing out will have an impact on the ABL Facility that utilizes LIBOR as a benchmark. To transition from IBOR Reference Rate, the ABL Facility agreement between the Company and JP Morgan, which ~~$2.8~~currently has borrowings outstanding of $30.0, will be amended to adopt an alternate rate effective on or before June 30, 2023.Until the ABL Facility agreement is amended to allow for SOFR as the replacement to LIBOR, the ABR is the default rate that JP Morgan has agreed to use as the LIBOR replacement. See Note 2 for further discussion of upcoming changes from LIBOR to Term SOFR.

We have ~~been extinguished during~~total funds available of $40.0 and net funds available of $30.0, after $10.0 FCCR holdback, on the ~~fourth quarter~~October 31, 2021 borrowing base certificate.

Capital Lease Obligations

The Company acquired QES's long-term capital lease agreements in the Merger. The leases are for a manufacturing and office facility supporting completion operations in Oklahoma and have 20-year lease terms. The Company also leases certain vehicles, machinery and service equipment under capital leases. The capital lease obligations for these assets have lease terms ranging from 36 months to 101 months, and the interest rates range between 3.0% to 7.2%.

Total capital lease obligations were $10.1 as of ~~2020.~~October 31, 2021, including $3.8 of current capital lease obligations.

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NOTE 10 - Fair Value Information

All financial instruments are carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations.

Level 1 – quoted prices in active markets for identical assets and liabilities.

Level 2 – quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, accounts ~~receivable-trade~~receivable–trade and accounts payable represent their respective fair values due to their short-term nature. ~~There was 0 debt outstanding under~~The fair value of the ABL Facility approximates its carrying value as of October 31, ~~2020.~~ 2021.

The following tables present the placement in the fair value hierarchy of the Notes, based on market prices for publicly traded debt, ~~which the Company classifies as Level 2 inputs, was $120.0 and $202.5~~ as of October 31, ~~2020~~2021 and January 31, ~~2020, respectively.~~2021:


			Fair value measurements at reporting date using
	October 31, 2021		Level 1		Level 2		Level 3
Senior Secured Notes, 11.5 Percent Due 2025	$	143.1	$	—	$	143.1	$	—
Total Senior Secured Notes	$	143.1	$	—	$	143.1	$	—


			Fair value measurements at reporting date using
	January 31, 2021		Level 1		Level 2		Level 3
Senior Secured Notes, 11.5 Percent Due 2025	$	132.5	$	—	$	132.5	$	—
Total Senior Secured Notes	$	132.5	$	—	$	132.5	$	—

During the ~~nine~~three months ended ~~October 31,~~April 30, 2020, goodwill and long-lived assets, including certain property and equipment and purchased intangibles subject to amortization, were impaired as a result of the first quarter 2020 interim goodwill and long-lived asset impairment tests. The goodwill Level 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.

Fair value is measured as of the impairment date. The carrying value and fair ~~values~~value 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~~nil for goodwill, and $39.2 and ~~$0.0~~nil for intangible assets, net, respectively. See Note 7 for a discussion of the changes in goodwill and long-lived asset values due to impairment charges recorded during the ~~nine~~three months ended ~~October 31,~~April 30, 2020.

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NOTE 11 - Commitments, Contingencies and Off-Balance-Sheet Arrangements

Lease Commitments

The Company finances its 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 the consolidated balance sheets. At October 31, 2021, future minimum lease payments under these

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arrangements approximated $69.6 of which $30.1 is related to long-term real estate leases and $23.5 is related to long-term coiled tubing unit leases.

Environmental Regulations & Liabilities

The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the future impact of such laws and regulations, as well as standards and requirements, on its business, which are subject to change and can have retroactive effectiveness. Currently, the Company has not been fined, cited or notified of any environmental violations or liabilities that would have a material adverse effect on its 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 to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions that may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

Litigation

During the year ended January 31, 2020, the Company discovered a credit card theft of approximately $2.6 (which is included in cost of sales for the year ended January 31, 2020) and promptly reported the theft to its insurers and law enforcement. The Company also filed suit against several third parties to recover damages related to the theft. During the three months ended October 31, 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, such as daily limits on all fuel cards and additional credit card activity reviews by management.

The Company is at times either a plaintiff or a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s condensed consolidated financial statements.

On March 9, 2021, the Company filed claims in the District Court of Harris County, Texas against Magellan E&P Holdings, Inc. ("Magellan"), Redmon-Keys Insurance Group, Inc. and certain underwriters at Lloyd's ("Underwriters") to recover $4.6 owed on invoices duly issued by the Company for services rendered on behalf of the defendants in response to an offshore well blowout near Bob Hall Pier in Corpus Christi, Texas. Magellan did not dispute the invoices but alleged an inability to pay prior to obtaining funding from Underwriters under Magellan's Owner's Extra Expense Policy. On March 19, 2021, Underwriters filed a declaratory judgment action in the United States District Court for the Southern District of Texas seeking a declaration that certain blowout related expenses fall outside of policy coverage. On March 30, 2021, Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S. bankruptcy code. The bankruptcy proceedings are ongoing. We expect that the trustee will continue to pursue claims against Underwriters as well as preference and other claims to maximize the value of the Chapter 7 estate for the benefit of trade creditors. During the year ended January 31, 2021, the Company reserved the full amount of its invoices totaling $4.6 as a prudent action in light of the Chapter 7 filing.

Indemnities, Commitments and Guarantees

During its ordinary course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, as well as indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying condensed consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.

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NOTE 12 - ~~Accounting~~Stockholders' Equity (Deficit)

Equity Distribution Agreement

On June 14, 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. as sales agent (the “Agent”). Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Agent (the “Offering”) the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $50.0 (the “Common Stock”).

Any Common Stock offered and sold in the Offering will be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-256149) filed with the SEC on May 14, 2021 and declared effective on June 11, 2021 (the “Registration Statement”), the prospectus supplement relating to the Offering filed with the SEC on June 14, 2021 and any applicable additional prospectus supplements related to the Offering that form a part of the Registration Statement. Sales of Common Stock under the Equity Distribution Agreement may be made in any transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).

The Equity Distribution Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and the Agent, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. Under the terms of the Equity Distribution Agreement, the Company will pay the Agent a commission equal to 3.0% of the gross sales price of the Common Stock sold.

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

During the three and nine months ended October 31, 2021, the Company sold 1,070,000 and 1,130,216 shares of Common Stock, respectively, for gross proceeds of approximately $4.9 and $5.5, respectively, and paid legal and administrative fees of $0.1 and $0.7, respectively.

Stock-Based Compensation

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

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cost for the LTIP grants is generally recorded on a straight-line basis over the vesting term of the shares based on the grant date value using the closing trading price.

On February 12, 2021, the stockholders of KLXE approved the KLX Energy Services Holdings, Inc. Long-Term Incentive Plan (Amended and Restated as of December 2, 2020) (the “Amended and Restated LTIP”), which, among other things, increased the total number of shares of Company Common Stock, par value $0.01 per share, and reserved for issuance under the Amended and Restated LTIP by 632,051 shares. A description of the Amended and Restated LTIP is included in the Company’s proxy statement, filed with the SEC on January 11, 2021.

Compensation cost recognized during the three and nine months ended October 31, 2021 and 2020 ~~and 2019~~was related to grants of restricted stock ~~granted or~~as approved by the Compensation Committee. Certain grants of restricted stock to directors and management accelerated in connection with the Merger on July 28, 2020, resulting in approximately $15.1 of stock-based compensation expense during the nine months ended October 31, 2020. ~~As a result, stock-based~~Stock-based compensation was ~~$0.5~~$0.9 and ~~$4.6~~$0.5 for the three months ended October 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$17.2~~$2.7 and ~~$13.6~~$17.2 for the nine months ended October 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Unrecognized compensation cost related to restricted stock awards made by the Company was ~~$4.5~~$7.1 at October 31, ~~2020.~~2021.

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As of the date of the QES acquisition, each unvested QES restricted stock unit award was converted into a replacement 0.0969 KLXE restricted stock unit award. Approximately 2.0 million shares of QES common stock subject to awards outstanding were converted to 0.2 million shares of common stock assumed by KLXE.

The Company also has a qualified Employee Stock Purchase Plan (the “ESPP”), the terms of which allow for qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85% of the closing price on the last business day of each semi-annual stock purchase period. The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares. Because 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, 2020 and 2019, respectively. The Company’s shareholders approved an amendment to the ESPP at the Company’s annual meeting on July 24, 2020, for an increase of 0.3 million shares to the ESPP’s share reserve.

NOTE 13 - Income Taxes

Income tax expense was $0.2 and ~~$0.3~~$0.4 for the three and nine months ended October 31, ~~2020,~~2021, respectively, and was comprised primarily of state and local taxes, compared to ~~income tax benefit of $0.5~~$0.2 and ~~$0.1~~$0.3 for the three and nine months ended October 31, ~~2019,~~2020, respectively. The Company has a valuation allowance against its deferred tax balances, and as a result, it was unable to recognize a tax benefit ~~at the federal statutory rate of 21%~~ on its ~~year to date~~year-to-date losses.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020 in the United States, includes measures to assist ~~companies, including temporary changes to income and non-income-based tax laws. The~~companies. Under the CARES Act, the Company has deferred the employer portion of FICA tax payments of ~~$2.9~~$3.8 as of October 31, ~~2020.~~2021. This deferral is included ~~in other non-current liabilities~~ on the condensed consolidated balance sheet. Accrued and other non-current liabilities each had a balance of $1.9 as of October 31, 2021. These payments are due in ~~two~~2 installments: half on December 31, ~~2021;~~2021 and half on December 31, ~~2022~~2022.

The American Rescue Plan Act of 2021 (the "ARP”) enacted on March 11, 2021 in the United States, responds to the continued economic and health impacts of the COVID-19 pandemic. The ARP includes a wide variety of tax and non-tax provisions. The Company does not anticipate any material impacts from this legislation.

The Company continues to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

NOTE 14 - Segment Reporting

The Company is organized on a geographic basis. The Company’s reportable segments, which are also its operating segments, are comprised of the Southwest Region (the Permian Basin and the Eagle Ford Shale), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale). The segments regularly report their results of operations and make requests

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for capital expenditures and acquisition funding to the CODM. As a result, the ~~CODM has determined the~~ Company has 3 reportable segments.

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The following table presents revenues and operating ~~(loss) earnings~~loss 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
Operating (loss) earnings (1)(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)
Corporate and other (1)(2)
(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)


	Three Months Ended				Nine Months Ended
	October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Revenues
Rocky Mountains	$	36.5	$	18.2	$	94.4	$	70.1
Southwest	45.8		24.8		126.8		53.4
Northeast/Mid-Con	56.7		27.9		120.5		66.6
Total revenues	139.0		70.9		341.7		190.1
Operating loss (1)(2)
Rocky Mountains	(1.7)		(4.6)		(11.1)		(45.3)
Southwest	(4.1)		(9.3)		(15.3)		(114.6)
Northeast/Mid-Con	1.7		(5.1)		(8.9)		(105.2)
Corporate and other (1)	(6.3)		(11.4)		(20.9)		(13.7)
Total operating loss(3)	(10.4)		(30.4)		(56.2)		(278.8)
Interest expense, net	8.2		7.7		24.0		22.7
Loss before income tax	$	(18.6)	$	(38.1)	$	(80.2)	$	(301.5)

(1) Historically, and through July 31, 2020, the ~~Company~~’sCompany’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~~’sCompany’s peer group.

(2)Operating loss for the ~~nine-month period~~three and nine months ended October 31, 2020 includes impairment and other charges of $4.4 and $213.1, ~~which is comprised of a goodwill and long-lived asset impairment charge of $208.7,~~respectively, of which ~~$91.3 was~~$1.6 and $92.9, respectively, were attributable to the Southwest segment, $0.0 and $28.3, ~~was~~respectively, were attributable to the Rocky Mountains segment, $0.5 and ~~$89.1 was~~$89.6, respectively, were attributable to the Northeast/Mid-Con segment and ~~a lease termination charge of $4.4, of which~~ $2.3 ~~was~~and $2.3, respectively, were attributable to Corporate and ~~other~~other.

(3) Includes reduction in bargain purchase gain of $2.4 and ~~$1.4~~bargain purchase gain of $38.7 during the three and ~~$0.7 was attributable to the Southwest and Northeast/Mid-con segments,~~nine-month periods ending October 31, 2020, respectively.

The following ~~table presents~~tables present revenues by service offering by reportable segment:


		Three Months Ended																	Three Months Ended
		October 31, 2020								October 31, 2019									October 31, 2021								October 31, 2020
		Southwest		Rocky Mountains		Northeast /Mid-Con		Total		Southwest		Rocky Mountains		Northeast /Mid-Con		Total			Rocky Mountains		Southwest		Northeast /Mid-Con		Total		Rocky Mountains		Southwest		Northeast /Mid-Con		Total
Drilling	Drilling	$	7.1	$	0.2	$	8.0	$	15.3	$	2.5	$	0	$	8.5	$	11.0	Drilling	$	3.5	$	19.8	$	15.4	$	38.7	$	0.2	$	7.1	$	8.0	$	15.3
Completion	Completion	11.9		8.9		10.3		31.1		24.2		31.4		11.1		66.7		Completion	17.8		15.4		34.5		67.7		8.9		11.9		10.3		31.1
Production	Production	1.5		4.3		1.7		7.5		3.9		13.3		6.2		23.4		Production	10.2		6.2		3.1		19.5		4.3		1.5		1.7		7.5
Intervention	Intervention	4.3		4.8		7.9		17.0		7.9		12.9		12.6		33.4		Intervention	5.0		4.4		3.7		13.1		4.8		4.3		7.9		17.0
Total revenues	Total revenues	$	24.8	$	18.2	$	27.9	$	70.9	$	38.5	$	57.6	$	38.4	$	134.5	Total revenues	$	36.5	$	45.8	$	56.7	$	139.0	$	18.2	$	24.8	$	27.9	$	70.9


	Nine Months Ended
	October 31, 2021								October 31, 2020
	Rocky Mountains		Southwest		Northeast /Mid-Con		Total		Rocky Mountains		Southwest		Northeast /Mid-Con		Total
Drilling	$	6.8	$	52.9	$	35.7	$	95.4	$	0.2	$	9.2	$	17.5	$	26.9
Completion	50.8		46.1		66.9		163.8		40.1		27.5		24.8		92.4
Production	23.9		15.9		8.3		48.1		15.0		5.5		6.7		27.2
Intervention	12.9		11.9		9.6		34.4		14.8		11.2		17.6		43.6
Total revenues	$	94.4	$	126.8	$	120.5	$	341.7	$	70.1	$	53.4	$	66.6	$	190.1

2019

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Nine Months Ended
October 31, 2020 October 31, 2019
Southwest Rocky
Mountains Northeast
/Mid-Con Total Southwest Rocky
Mountains Northeast
/Mid-Con Total
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
The following table presents capital expenditures by reportable segment:


	Three Months Ended				Nine Months Ended
	October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Rocky Mountains	$	0.4	$	0.9	$	2.3	$	4.3
Southwest	0.7		0.8		2.6		3.0
Northeast/Mid-Con	0.7		0.6		2.5		2.2
Corporate and other	—		0.3		0.1		1.6
Total capital expenditures	$	1.8	$	2.6	$	7.5	$	11.1

The following table presents total assets by segment:

October 31, 2020 (1)
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

~~(1) See Note 7 for a discussion of the goodwill and long-lived asset impairment charge recorded during the nine months ended October 31, 2020.~~

~~The following table presents capital expenditures by reportable segment:~~


		Three Months Ended				Nine Months Ended					October 31, 2021		January 31, 2021
		October 31, 2020		October 31, 2019		October 31, 2020		October 31, 2019
Rocky Mountains										Rocky Mountains	$	115.0	$	121.1
Southwest	Southwest	$	0.8	$	1.9	$	3.0	$	16.0	Southwest	117.8		91.6
Rocky Mountains		0.9		2.8		4.3		24.2
Northeast/Mid-Con	Northeast/Mid-Con	0.6		5.1		2.2		23.0		Northeast/Mid-Con	78.5		98.1
Total segment assets										Total segment assets	311.3		310.8
Corporate and other	Corporate and other	0.3		0.8		1.6		4.2		Corporate and other	43.5		51.9
Total capital expenditures		$	2.6	$	10.6	$	11.1	$	67.4
Total assets										Total assets	$	354.8	$	362.7

NOTE 15 - Net Loss Per Common Share

On July 28, 2020, immediately prior to consummation of the Merger, the Reverse Stock Split Amendment became effective and thereby effectuated the 1-for-5 Reverse Stock Split of the Company’s issued and outstanding common stock.

Basic net loss per common share is computed using the weighted average common shares outstanding during the period. Diluted net loss per common share is computed by using the weighted average common shares outstanding, including the dilutive effect of restricted shares based on an average share price during the period. For the three months ended October 31, 2021 and 2020, 0.5 and ~~2019,~~ 0.3 ~~and 0.4~~ million shares of the Company’s common stock, respectively, and for the nine months ended October 31, 2021 and 2020, 0.4 and ~~2019,~~ 0.5 million ~~and 0.9 million~~ shares of the Company’s common stock, respectively, were excluded from the determination of diluted net loss per common share because their effect would have been anti-dilutive. The computations of basic and diluted net loss per share for the three and nine months ended October 31, ~~2020~~2021 and ~~2019~~2020 are as follows:


	Three Months Ended				Nine Months Ended
	October 31, 2021		October 31, 2020		October 31, 2021		October 31, 2020
Net loss	$	(18.8)	$	(38.3)	$	(80.6)	$	(301.8)
(Shares in millions)
Basic weighted average common shares	8.6		8.4		8.4		6.0
Diluted weighted average common shares	8.6		8.4		8.4		6.0

Basic net loss per common share	$	(2.19)	$	(4.56)	$	(9.60)	$	(50.26)
Diluted net loss per common share	$	(2.19)	$	(4.56)	$	(9.60)	$	(50.26)

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Three 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)
(Shares in millions) (2)
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
Basic net loss per common share (1) (2)
$ (4.56) $ (15.50) $ (50.26) $ (16.20)
Diluted net loss per common share (1) (2)
$ (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~~

~~to receive 0.0969 shares of KLXE common stock, which reflects adjustment for the 1-for-5 Reverse Stock Split of the KLXE common stock effected immediately prior to the consummation of the Merger.~~

~~(2) Shares and per share data have been retroactively adjusted to reflect the Company~~’~~s 1-for-5 Reverse Stock Split effective July 28, 2020.~~

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information to investors. This Quarterly Report on Form 10-Q (this “Quarterly Report”) 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 nature or are not current facts. When used in this Quarterly Report, the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could,” “will” or the negative of these terms or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance and prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Factors that might cause such a difference include those discussed in our filings with the ~~U.S. Securities and Exchange Commission (the “SEC”),~~SEC, in particular those discussed under the headings “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020, previously filed fiscal 2020 Quarterly Reports on Form 10-Q~~2021 and in this Quarterly Report, including the following factors:

•the extraordinary market environment and impacts resulting from the COVID-19 pandemic and related swift and material decline, as well as increased volatility, in national and global crude oil demand and crude oil prices;

•the possibility of inefficiencies, curtailments or shutdowns in our customers’ operations, whether due to ~~infection~~COVID-19 repercussions in the workforce or in response to reductions in demand;

•uncertainty regarding our future operating results;

•our ability to successfully integrate the assets and operations that we acquired in connection with our acquisition of Quintana Energy Services Inc. and its affiliates (“QES”) and to realize anticipated revenues, cost savings or other anticipated benefits of such acquisition;

•regulation of and dependence upon the energy industry;

•the cyclical nature of the energy industry;

•fluctuations in market prices for fuel, oil and natural gas;

•our ability to maintain acceptable pricing for our services;

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competitive conditions within the industry;

•~~competitive conditions;~~the loss of or interruption in operations of one or more key suppliers;

•legislative or regulatory changes and potential liability under federal and state laws and regulations;

•decreases in the rate at which oil and/or natural gas reserves are discovered and/or developed;

•the impact of technological advances on the demand for our products and services;

•customers' delays ~~of customers~~in 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~~originating from our organizational documents, debt instruments and U.S. federal income tax

~~requirements~~ obligations 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;

•general economic conditions;

•our credit profile;

•changes in supply, demand and costs of equipment;

•oilfield anti-indemnity provisions;

•seasonal and adverse weather conditions that can affect oil and natural gas operations;

•reliance on information technology resources and the inability to implement new technology and services;

•the possibility of terrorist or cyberattacks and the consequences of any such attacks;

•increased labor costs or our ability to employ, or maintain the employment of, a sufficient number of key employees, technical personnel, and other skilled ~~workers~~ and qualified workers;

•the inability to successfully consummate acquisitions or inability to manage potential growth; and

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•our ability to remediate any material weakness in, or to maintain effective, internal controls over financial reporting and disclosure controls and procedures.

In light of these risks and uncertainties, you are cautioned not to put undue reliance on any forward-looking statements in this Quarterly Report. These statements should be considered only after carefully reading this entire Quarterly Report. 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 Quarterly Report not to occur.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking ~~statements~~statement that we or persons acting on our behalf may issue.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In millions of U.S. dollars and shares)

The following discussion and analysis should be read in conjunction with the historical condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) as well as our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020~~2021. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary ~~Note~~Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly Report.

The following discussion and analysis addresses the results of ~~our~~KLX Energy Services Holdings, Inc.’s (the “Company”, “KLXE” or “KLX Energy Services”) operations for the three and nine months ended October 31, ~~2020,~~2021, as compared to our results of operations for the three and nine months ended October 31, ~~2019.~~2020. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. The previously announced merger of Krypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE ("Merger Sub"), with and into QES, with QES surviving the merger as a subsidiary of KLXE (the "Merger") closed on July 28, 2020. Unless otherwise noted or the context requires otherwise, references herein to KLX Energy Services with respect to time periods prior to July 28, 2020 include KLX Energy Services and its consolidated subsidiaries and do not include QES and its consolidated subsidiaries, while references herein to KLX Energy Services with respect to time periods from and after July 28, 2020 include QES and its consolidated subsidiaries.

Company History

KLX Energy Services was initially formed from the combination of seven private oilfield service companies acquired during 2013 and 2014. Each of the acquired businesses was regional in nature and brought one or two specific service capabilities to KLX Energy Services. Once the acquisitions were completed, we undertook a comprehensive integration of these businesses to align our services, our people and our assets across all the geographic regions where we maintain a presence. In November 2018, we ~~acquired~~expanded our completion and intervention service offerings through the acquisition of Motley Services, LLC (“Motley”) ~~and,~~, a premier provider of large diameter coiled tubing services, further enhancing our completions business. We successfully completed the integration of the Motley business during fiscal 2018. On March 15, 2019, wethe Company acquired Tecton Energy Services (“Tecton”), a leading provider of flowback, drill-out and production testing services, operating primarily in the greater Rocky Mountains. In March 2019, the Company acquired Red Bone ~~Energy~~ Services LLC (“Red Bone”)., a premier provider of oilfield services primarily in the Mid-Continent region, providing fishing, non-hydraulic fracturing high-pressure pumping, thru-tubing and certain other services. We ~~recently~~successfully completed the integration of the Tecton and Red Bone businesses during fiscal 2019. We 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~~diversified 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.

On July 26, 2020, the Company’s ~~board~~Board of ~~directors~~Directors (the ~~“Board”~~"Board") approved a 1-for-5 ~~reverse stock split to stockholders that became effective at 12:01 a.m. on July 28, 2020 (the “Reverse~~Reverse Stock ~~Split”).~~Split. On July 28, 2020, we successfully completed the all-stock Merger with QES. At the time of the closing, the holders of QES common stock received 0.0969 shares of KLXE common stock in exchange for each share of QES common stock held. KLXE and QES stockholders owned approximately 59% and 41%, respectively, of the equity of the combined company on a fully-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.

The Merger of KLXE and QES ~~provides~~provided increased scale to serve a blue-chip customer base across the onshore oil and gas basins in the United States. The Merger ~~combines~~combined two strong company cultures comprised of highly talented teams with shared commitments to safety, performance, customer service and profitability. The combination ~~leverages~~leveraged two of the largest fleets of coiled tubing and wireline assets, ~~with~~ and

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KLXE ~~becoming~~became a leading provider of large diameter coiled tubing and wireline services and one of the largest independent providers of directional drilling to the U.S. market.

After closing the Merger, the Company ~~has been~~ focused on integrating personnel, facilities, processes and systems across all functional areas of the organization. As

By the end of ~~October 31, 2020,~~first quarter of 2021, the Company ~~has~~

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had implemented approximately ~~$40.0~~$46.0 of annualized cost savings. ~~The Company has increased the annualized run-rate cost saving estimate by $6.0 and now expects~~We continue to ~~generate annualized cost savings of $46.0. We are~~be diligently focused on generating additional cost savings from the Merger and to date have realized such savings through eliminating KLXE's legacy corporate headquarters in Wellington, Florida, rationalizing associated corporate functions to Houston, and capturing operational synergies in the areas of personnel, facilities and rolling stock. ~~The Company expects~~

During the ~~remaining~~first quarter of 2021, we consolidated corporate offices in Houston, Texas and identified $4.4 of additional annualized fixed cost ~~synergies~~savings associated with headcount, facilities, changes to bemanagement processes and reduction in the size of the Board from nine directors to seven directors. These cost savings were fully implemented ~~as of~~by the end of the ~~first~~second quarter ~~of fiscal 2021 on an annualized basis, several months ahead of~~and were completely realized during the ~~timing at the announcement of the Merger.~~ third quarter.

Additional synergies ~~will~~may 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 expects 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.

Company Overview

We serve many of the leading companies engaged in the exploration and development of onshore 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, Eagle Ford Shale and the ~~Eagle Ford Shale)~~Gulf Coast including industrial and petrochemical facilities), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale). 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.

These expansive operating areas provide us with access to a number of nearby unconventional crude oil and natural gas basins, both with existing customers expanding their production footprint and third parties acquiring new acreage. Our proximity to existing and prospective customer activities allows us to anticipate or respond quickly to such customers’ needs and efficiently deploy our assets. We believe that our strategic geographic positioning will benefit us as activity increases in our core operating areas. Our broad geographic footprint provides us with exposure to the ongoing recovery in drilling, completion, production and intervention related service activity and will allow us to opportunistically pursue new business in basins with the most active drilling environments.

We work with our customers to provide engineered solutions across the 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, 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.

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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 proprietary 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 2328 patents and 177 pending patent applications, which we believe differentiates us from our regional competitors and also allows us to deliver more focused service and better outcomes in our specialized services than larger national competitors that do not discretely dedicate their resources to the services we provide.

We utilize contract 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. 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.

We ~~endeavor to create a next generation oilfield services company in terms of management controls, processes and operating metrics, and have driven these processes down through the operating management~~

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structure in every region, which we believe differentiates us from many of our competitors. This allows us to offer our customers in all of our geographic regions discrete, comprehensive and differentiated services that leverage both the technical expertise of our skilled engineers and our in-house R&D team.

We invest in innovative technology and equipment designed for modern production techniques that increase efficiencies and production for our customers. North American unconventional onshore wells are increasingly characterized by extended lateral lengths, tighter spacing between hydraulic fracturing stages, increased cluster density and heightened proppant loads. Drilling and completion activities for wells in unconventional resource plays are extremely complex, and downhole challenges and operating costs increase as the complexity and lateral length of these wells increase. For these reasons, exploration and production (“("E~~&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~~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.

We endeavor to continue to build a next generation oilfield services company in terms of management controls, processes and operating metrics, and have driven these processes down through the operating management structure in every region, which we believe differentiates us from many of our competitors. This allows us to offer our customers in all of our geographic regions discrete, comprehensive and differentiated services that leverage both the technical expertise of our skilled engineers and our in-house research and development team.

Depreciation and Amortization

During the quarter, as a result of increased usage from improving drilling activity levels and changes in the manner and conditions in which various types of our small tools are used, we updated the estimated useful lives of such tools to 1 - 3 years, resulting in approximately $0.2 of incremental monthly depreciation on a prospective basis.

Segment Reporting

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Company’s total corporate overhead costs were allocated and reported within each reportable segment. ~~During~~Starting in the third quarter of 2020, the Company changed the corporate overhead allocation methodology to only 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 in the Company’s segment reporting disclosures. See Note 14 to the condensed consolidated financial statements for additional information. As a result of the change in presentation, the total corporate overhead costs allocated for the three and nine months ended October 31, 2020 to the Company’s ~~3 reportable segments decreased $11.2 and $54.6, respectively. For the~~ three ~~and nine months ended October 31, 2019, the total corporate overhead costs allocated to the Company’s 3 reportable segments decreased $13.6 and $44.6, respectively.~~

In conjunction with the change in presentation of reportable segments, the Company also changed its presentation of segment assets. Historically, and through July 31, 2020, the Company’s corporate assets were allocated and reported within each reportable segment. During the third quarter of 2020, the Company changed the presentation of total assets to present corporate assets separately as a reconciling item in its segment reporting disclosures. As a result of the change in presentation, the total corporate assets allocated to the Company’s 3 reportable segments decreased by ~~$88.5~~$11.4 and ~~$139.1 as of October 31, 2020 and January 31, 2020,~~$13.7, respectively.

The Company also changed its presentation of service offering revenues. Historically, and through ~~July~~January 31, 2020, the Company’s service offering revenues included revenues from the completion, production and intervention market types within segment reporting. During the third quarter of 2020, the Company changed the presentation of its service offering revenues by separately reporting a drilling market type revenue, which includes directional drilling, drilling accommodation units and related drilling support services. The reclassifications are retroactively reported in the Company’s segment reporting disclosures to reflect the drilling revenue change and use of the information by the Company’s CODM. For the three and nine months ended October 31, 2020, the total drilling revenues reported within segment reporting was $15.3 and $26.9, respectively. For the three and nine months ended October 31, 2019, the total drilling revenues reported within segment reporting was $11.0 and $38.5, respectively.

These ~~current period~~ changes in the Company’s corporate allocation method and service offering revenue disclosures have no net impact to the condensed consolidated financial statements. The change better reflects the CODM’s philosophy on assessing performance and allocating resources as well as improves the Company’s comparability to its peer group.

~~Table~~On September 3, 2021, the Board of ~~Contents~~

the Company adopted the Fourth Amended and Restated Bylaws of the Company, effective as of such date, to change the Company’s fiscal year-end from January 31 to December 31, effective beginning with the year ended December 31, 2021. As a result, the Company’s current fiscal year 2021 will be shortened from 12 months to 11 months and end on December 31, 2021. The Company is undertaking this change in an effort to normalize our fiscal year-end and improve comparability with our peers.

Recent Trends and Outlook

Demand for services in the oil and natural gas industry is cyclical and subject to sudden and significant volatility. ~~For example, the oilfield service industry experienced an abrupt deterioration in~~Market demand for our services during ~~the second half of 2019, which has continued into 2020. During the first quarter of~~ 2020 was challenged due to the novel coronavirus ~~(“COVID-19”~~("COVID-19") pandemic ~~emerged~~ and ~~continues to apply significant downward pressure on~~macro supply and demand concerns. While 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.

The reduced activity levels have led to a plunging North America onshore rig count, which fell by 68% for the first half of 2020. For the three months ended October 31, 2020, rig count increased by a total of 44 rigs, but for the nine months ended October 31, 2020, rig count decreased by a total of 480 rigs.

~~The~~ extent and duration of the continued global impact of the COVID-19 pandemic is ~~unknown. While~~unknown, economic activity has increased from the April 2020 lows, ~~concerns about a COVID-19 resurgence have slowed the pace~~and signs of a ~~full return~~potential global economic recovery in fiscal 2021 have emerged, driven by the rollout of ~~social~~COVID-19 vaccines, fiscal and ~~commercial activity. The combination~~monetary stimulus policies, and pent-up demand for goods and services.

Despite the market headwinds experienced in 2020, the Company remained focused on building a leaner and more profitable set of service offerings, which allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA. See "How We Evaluate Our Operations" for additional information. We have taken, and are continuing to take, steps to reduce costs, including reductions in capital expenditures, as well as other workforce rightsizing and ongoing streamlining initiatives.

In February of 2021, we experienced a material slow down due to the unprecedented Winter Storm Uri, the costliest winter storm in U.S. history. As a result of the storm conditions, our customers shut-in wells and delayed work, causing us at least seven days of lost revenue, primarily in the Permian and the Mid-continent regions.

So far in fiscal 2021, West Texas Intermediate ("WTI") prices have increased an incremental 16.4% from May 1 to July 31 and another 12.9% from July 31 to October 31. In response, the United States has continued to increase drilling and completion activity levels relative to where the market exited 2020. As of October 31, 2021, U.S. rig count was up to 544, an increase of 11.5% since July 31, 2021. Additionally, we

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have continued to see U.S. shale operators consolidate within certain basins, particularly the Permian and Rocky Mountains, and many public operators have announced that they are targeting oil and gas production at the end of 2021 to be consistent with production levels at year end 2020.

We saw a meaningful increase in overall activity throughout the first three quarters of 2021, as commodity prices have reached levels last seen in 2014. Looking ahead to the remainder of fiscal 2021, provided that the impact of the COVID-19 pandemic lessens, economic activity continues to increase, and ~~supply concerns has driven a steep drop~~commodity prices remain strong, we expect to experience further increases in oil prices, leading to decreases in demand for the Company’s services. WTI decreased by approximately $18.38, or 34.0%, to $35.64 per barrel (“Bbl”) as of October 31, 2020, compared to the closing price on October 31, 2019 of $54.02 per Bbl. Subsequent to October 31, 2020, prices have increased based on the announcement of potential vaccines for COVID-19, but there is no certainty that they will not experience extreme volatility again.

~~Market demand for our services during the third quarter of 2020 remained challenged due to the COVID-19 pandemic~~activity and macro supply and demand concerns. There has been far too much uncertainty to predict the timing of a recovery. However, our completions services have been the first to reflect an improvement in market activity, as operators have focused on completing their backlog of drilled uncompleted wells from earliercorresponding improvements in the ~~year. We began to see an uptick in activity at the end~~price of ~~the second quarter~~our products and ~~the third quarter delivered notable increases in scheduled work, which drove the demand for coiled tubing, technical services and rentals~~ services.

An increase in completions activity during the third quarter has driven the market rebound, while drilling activity has been slower to rebound with rig count bottoming in August 2020 and rebounding 52 rigs, or 22.8%, subsequently. We believe our diverse product and service offerings uniquely positions KLXE to respond to a rapidly evolving marketplace where we can provide a comprehensive suite of engineered solutions for our customers with one call and one master services agreement.

Oil and natural gas prices are expected to continue to be volatile as a result of the near term demand instability, the ongoing COVID-19 outbreaks and as changes in oil and natural gas inventories, industry demand and global and national economic performance are reported. Significant factors that are likely to affect commodity prices in current and future periods include, but are not limited to: the extent and duration of price reductions and production instability by the Organization of Petroleum Exporting Countries and all other oil producing nations (“OPEC+”) and other oil exporting nations; the effect of U.S. energy, monetary and trade policies on the economy and demand; U.S. and global economic conditions; U.S. and global political and economic developments; the impact of the ongoing COVID-19 outbreaks; and conditions in the U.S. oil and gas industry and the resulting demand and pricing for domestic land oilfield services.

If the current pricing environment for crude oil does not improve, our customers are expected to further reduce their capital expenditures, causing additional declines in the demand for, and prices of, our services, which would adversely affect our future results of operations, cash flows and financial position. Additionally, the decrease in oil and natural gas prices has adversely affected our customers and resulted in a decrease in the creditworthiness of some E&P operators. We carefully select our customers and believe we have a high

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~~quality customer 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.~~

The reduction in oil prices to current levels and the ongoing effects of the global COVID-19 outbreaks resulted in significant market instability. The potential for a prolonged reemergence of or further spikes in COVID-19 outbreaks may result in a global recession, with the possibility of further bankruptcies of E&P companies and a significant decline in demand and prices for oilfield services during 2020. We have taken, and are continuing to take, steps to reduce costs, including reductions in capital expenditures, as well as other workforce rightsizing and ongoing cost initiatives.

How We Generate Revenue and the Costs of Conducting Our Business

Our business strategy seeks to generate attractive returns on capital by providing differentiated services and prudently applying our cash flow to select targeted opportunities, with the potential to deliver high returns that we believe offer superior margins over the long-term and short payback periods. Our services generally require equipment that is less expensive to maintain and is operated by a smaller staff than many other oilfield service providers. As part of our returns-focused approach to capital spending, we are focused on efficiently utilizing capital to develop new products. We support our existing asset base with targeted investments in ~~R&D,~~research and development, which we believe ~~allow~~allows us to maintain a technical advantage over our competitors providing similar services using standard equipment.

Demand for services in the oil and natural gas industry is cyclical and subject to sudden and significant volatility. We remain focused on serving the needs of our customers by providing a broad portfolio of product service lines across all major basins, while preserving a solid balance sheet, maintaining sufficient operating liquidity and prudently managing our capital expenditures.

We believe our operating cost structure is now materially lower than during historical financial reporting periods and the realization of the ~~$46.0~~$50.4 of ~~expected~~ cost synergies associated with the Merger ~~will only~~has further ~~reduce~~reduced our cost structure and ~~afford~~afforded us greater flexibility to respond to changing industry conditions. The implementation of integrated, company-wide management information systems and processes provides more transparency to current operating performance and trends within each market where we compete and ~~help~~helps us more acutely scale our cost structure and pricing strategies on a market-by-market basis. The potential for further cost savings remains as we continue to refine and optimize the business moving forward. We believe our ability to differentiate ourselves on the basis of quality provides an opportunity for us to gain market share and increase our share of business with existing customers.

We believe we have strong management systems in place which will allow us to manage our operating resources and associated expenses relative to market conditions. Historically, we ~~believed~~believe our services generated margins superior to our competitors based upon the differential quality of our performance, and that these margins would contribute to future cash flow generation. The required investment in our business includes both working capital (principally for accounts receivable, inventory and accounts payable growth tied to increasing ~~activity and revenues)~~activity) and capital expenditures for both maintenance of existing assets and ultimately growth when economic returns justify the spending. Our required maintenance capital expenditures tend to be lower than other oilfield service providers due to the generally asset-light nature of our services, the younger average age of our assets and our ability to charge back a portion of asset maintenance to customers for a number of our assets.

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How We Evaluate Our Operations

Key Financial Performance Indicators

We recognize the highly cyclical nature of our business and the need for metrics to (1) best measure the trends in our operations and (2) provide baselines and targets to assess the performance of our managers.

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

•Revenue

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•Adjusted ~~EBITDA~~Earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"): Adjusted EBITDA is a supplemental ~~non-GAAP~~non-Generally Accepted Accounting Principles financial measure that is used by management and external users of our 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 ~~GAAP.~~Generally Accepted Accounting Principles ("GAAP"). We define Adjusted EBITDA as net earnings (loss) before interest, taxes, depreciation and amortization, further adjusted for (i) goodwill and/or long-lived asset impairment charges, (ii) stock-based compensation expense, (iii) restructuring charges, (iv) transaction and integration costs related to acquisitions and (v) other expenses or charges to exclude certain items that we believe are not reflective of ongoing performance of our business.

•Adjusted EBITDA Margin: Adjusted EBITDA Margin is defined as Adjusted EBITDA, as defined above, as a percentage of revenue.

We believe Adjusted EBITDA is useful because it allows us to supplement the GAAP measures in order to evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above in arriving at Adjusted EBITDA (Loss) because these amounts can vary substantially from company to company within our industry depending upon accounting methods, book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net (loss) earnings as determined in accordance with GAAP, or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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Results of Operations

Three Months Ended October 31, ~~2020~~2021 Compared to Three Months Ended October 31, ~~2019~~2020

Revenue.The following is a summary of revenue by segment:


		Three Months Ended							Three Months Ended
		October 31, 2020		October 31, 2019		% Change			October 31, 2021		October 31, 2020		% Change
Revenue:	Revenue:							Revenue:
Rocky Mountains								Rocky Mountains	$	36.5	$	18.2	100.5	%
Southwest	Southwest	$	24.8	$	38.5	(35.6)	%	Southwest	45.8		24.8		84.7	%
Rocky Mountains		18.2		57.6		(68.4)	%
Northeast/Mid-Con	Northeast/Mid-Con	27.9		38.4		(27.3)	%	Northeast/Mid-Con	56.7		27.9		103.2	%
Total revenue	Total revenue	$	70.9	$	134.5	(47.3)	%	Total revenue	$	139.0	$	70.9	96.1	%

For the quarter ended October 31, ~~2020,~~2021, revenues were $139.0, an increase of ~~$70.9, decreased by $63.6,~~$68.1, or ~~47.3%~~96.1%, as compared with the prior year period. Rocky Mountains segment revenue ~~declined~~increased by ~~$39.4,~~$18.3, or ~~68.4%~~100.5%, Southwest segment revenue increased $21.0, or 84.7%, and Northeast/Mid-Con segment ~~revenues declined~~revenue increased by ~~$10.5,~~$28.8, or ~~27.3%,~~103.2%. The increases in all three operating segments were driven by a combination of increased pricing for the Company's products and ~~Southwest segment revenue declined~~services as well as increased activity. In the current quarter, rig count increased to 544, by ~~$13.7,~~248 or ~~35.6%.~~ 84% as compared to the same period of the prior year. This was driven by an increase in production activity across all three of our operating segments. Additionally, pricing has increased materially across most of our product service lines as compared to the same period of the prior year.

On a product line basis, drilling, ~~revenues~~completion, production and intervention services contributed approximately 27.8%, 48.8%, 14.0% and 9.4%, respectively, to revenue for the three months ended October 31, 2021 and 21.6%, 43.9%, 10.6% and 24.0%, respectively, for the three months ended October 31, 2020. The most significant contribution to the increase came from drilling, which increased by ~~$4.3,~~$23.4, or ~~39.1%~~152.9%, due to the ~~incremental~~directional drilling service revenues acquired in the Merger with QES. Completion, production and intervention services revenues ~~decreased~~changed by approximately ~~$35.6, $15.9~~$36.6 or 117.7%, $12.0 or 160.0% and ~~$16.4,~~$(3.9) or (22.9)%, respectively, as compared to the same period in the prior year. The overall decrease in revenues reflects the lingering impacts of the unforeseen and sudden 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.

Cost of sales. For the quarter ended October 31, ~~2020,~~2021, cost of sales ~~was $80.1,~~were $120.7, or ~~113.0%~~86.8% of ~~sales,~~revenues, as compared to the prior year period of ~~$119.3,~~$65.6, or ~~88.7%~~92.5% of ~~sales.~~revenues. Cost of sales as a percentage of revenues ~~increased~~decreased primarily due to ~~negative operating leverage~~the improvement in pricing discussed above, which has more than offset cost pressures 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~~labor and ~~$15.7 of depreciation expense for the three months ended October 31, 2020 and 2019, respectively.~~supply chain.

Selling, general and administrative expenses. For the quarter ended October 31, ~~2020,~~2021, selling, general and administrative (“SG&A”) expenses ~~was $14.3,~~were $14.8, or ~~20.2%~~10.6% of revenues, as compared with ~~$31.7,~~$14.1, or ~~23.6%~~19.9% of revenues, in the prior year period. Decrease in SG&A as a percentage of revenues was driven primarily by the improvement in pricing discussed above. Additionally, SG&A expenses for the quarter ended October 31, 2020, included $2.7 of merger and integration costs.

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


	Three Months Ended
	October 31, 2021		October 31, 2020		% Change
Operating loss:
Rocky Mountains	$	(1.7)	$	(4.6)	63.0	%
Southwest	(4.1)		(9.3)		55.9	%
Northeast/Mid-Con	1.7		(5.1)		133.3	%
Corporate and other(1)	(6.3)		(11.4)		44.7	%
Total operating loss(1)	$	(10.4)	$	(30.4)	65.8	%

(1) Includes reduction in bargain purchase gain of $2.4 during the three months ended October 31, 2020.

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For the quarter ended October 31, 2021, operating loss was $10.4 compared to operating loss of $30.4 in the prior year period, due to above increases in activity and improvements in pricing, along with synergies implemented related to integration of the Merger and consolidating operating facilities and headcount. Additionally, operating loss for Corporate and other for the quarter ended October 31, 2020 includes $2.4 of a non-recurring reduction in bargain purchase gain.

Results improved in all segments compared to prior year period, as Rocky Mountains segment operating loss was $1.7, Southwest segment operating loss was $4.1, and Northeast/Mid-Con segment operating income was $1.7 for the three months ended October 31, 2021, in each case primarily driven by increased activity due to higher rig count, improved pricing, and a reduced cost ~~reduction initiatives resulting~~structure driven by successful integration of the QES business.

Income tax expense. For the quarter ended October 31, 2021, income tax expense was $0.2, which was consistent with 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, which prevents the Company from recording such benefit.

Net loss. For the quarter ended October 31, 2021, net loss was $18.8, as compared to $38.3 in ~~lower headcount~~the prior year period, due to above-mentioned increase in activity as well as improvements in pricing.

Results of Operations

Nine Months Ended October 31, 2021 Compared to Nine Months Ended October 31, 2020

Revenue.The following is a summary of revenue by segment:


	Nine Months Ended
	October 31, 2021		October 31, 2020		% Change
Revenue:
Rocky Mountains	$	94.4	$	70.1	34.7	%
Southwest	126.8		53.4		137.5	%
Northeast/Mid-Con	120.5		66.6		80.9	%
Total revenue	$	341.7	$	190.1	79.7	%

For the nine months ended October 31, 2021, revenues were $341.7, an increase of $151.6, or 79.7%, as compared with the prior year period. Rocky Mountains segment revenue increased by $24.3, or 34.7%, Southwest segment revenue increased $73.4, or 137.5%, and ~~fixed costs,~~Northeast/Mid-Con segment revenue increased by $53.9, or 80.9%. The increases in all three operating segments were driven by a combination of increased pricing for the Company's products and services as well as increased activity. In the current quarter, rig count increased to 544, by 248 or 84% as compared to the same period of the prior year. This was driven by an increase in production activity across all three of our operating segments. Additionally, pricing has increased materially across most of our product service lines as compared to the same period of the prior year.

On a product line basis, drilling, completion, production and intervention services contributed approximately 27.9%, 47.9%, 14.1% and 10.1%, respectively, to revenue for the nine months ended October 31, 2021 and 14.2%, 48.6%, 14.3% and 22.9%, respectively, for the nine months ended October 31, 2020. The most significant contribution to the increase came from drilling, which increased by $68.5, or 254.6%, due to the directional drilling service revenues acquired in the Merger with QES. Completion, production, and intervention services revenues changed by approximately $71.4 or 77.3%, $20.9 or 76.8% and $(9.2) or (21.1)%, respectively, as compared to the same period in the prior year.

Cost of sales. For the nine months ended October 31, 2021, cost of sales were $308.5, or 90.3% of revenues, as compared to the prior year period ~~were offset by non-recurring items related to the Merger and integration such~~of $180.5, or 95.0% of revenues. Cost of sales as ~~severance costs and legal and professional fees totaling $2.7. The Company also recorded~~ a ~~reduction in the bargain purchase gain of $2.4 related to the Merger.~~

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percentage of revenues decreased primarily due to the improvement in pricing discussed above, which has more than offset cost pressures related to labor and supply chain.

Selling, general and administrative expenses. For the nine months ended October 31, 2021, SG&A expenses were $44.1, or 12.9% of revenues, as compared with $69.6, or 36.6% of revenues, in the prior year period. Decreases in SG&A expense and SG&A as a percentage of revenues were driven by the improvement in pricing discussed above. Additionally, SG&A expenses for the nine months ended October 31, 2020, included $28.9 of merger and integration costs.

Operating ~~(loss) earnings~~loss. The following is a summary of operating ~~(loss) earnings~~loss by segment:


		Three Months Ended							Nine Months Ended
		October 31, 2020		October 31, 2019		% Change			October 31, 2021		October 31, 2020		% Change
Operating (loss) earnings:
Operating loss:								Operating loss:
Rocky Mountains								Rocky Mountains	$	(11.1)	$	(45.3)	75.5	%
Southwest	Southwest	$	(8.2)	$	(36.1)	77.3	%	Southwest	(15.3)		(114.6)		86.6	%
Rocky Mountains		(4.6)		8.7		(152.9)	%
Northeast/Mid-Con	Northeast/Mid-Con	(4.0)		(22.1)		81.9	%	Northeast/Mid-Con	(8.9)		(105.2)		91.5	%
Corporate and other	Corporate and other	(11.2)		(13.6)		17.6	%	Corporate and other	(20.9)		(13.7)		(52.6)	%
Bargain purchase gain		2.4		—		NMF
Total operating loss		$	(30.4)	$	(63.1)	51.8	%
Total operating loss(1)								Total operating loss(1)	$	(56.2)	$	(278.8)	79.8	%

(1) Includes bargain purchase gain of $38.7 during the nine months ended October 31, 2020.

For the ~~quarter~~nine months ended October 31, ~~2020,~~2021, operating loss was ~~$30.4~~$56.2 compared to operating loss of ~~$63.1~~$278.8 in the prior year period, due to a decrease in impairment and other charges ~~of $41.4 offset by a reduction~~from $213.1 in ~~revenues due~~2020 to ~~reduced activity and pricing pressure caused by the COVID-19 pandemic and international pricing and production disputes,~~$0.8 in 2021, as well as ~~non-recurring items~~due to above increases in activity and improvements in pricing, along with synergies implemented related to integration of the ~~Merger.~~Merger and consolidating operating facilities and headcount.

Results improved in all segments compared to the prior year period, as Rocky Mountains segment operating loss was ~~$4.6,~~$11.1, Southwest segment operating loss was $15.3, and Northeast/Mid-Con segment operating loss was ~~$4.0 and Southwest segment operating loss was $8.2~~$8.9 for the ~~three~~nine months ended October 31, ~~2020,~~2021, in each case primarily driven by lower ~~revenues~~impairment and other charges as ~~a result of decreased demand for the Company's products~~well as higher rig count and ~~services.~~improved pricing.

Income tax expense ~~(benefit)~~. For the ~~quarter~~nine months ended October 31, ~~2020,~~2021, income tax expense was ~~$0.2,~~$0.4, as compared to income tax ~~benefit~~expense of ~~$0.5~~$0.3 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.~~balances, which prevents the Company from recording such benefit.

Net loss. For the ~~quarter~~nine months ended October 31, ~~2020,~~2021, net loss was ~~$38.3,~~$80.6, as compared to ~~$69.8~~$301.8 in the prior year period, primarily due to a decrease in impairment and other charges ~~of $41.4.~~

~~Correction of errors. During the three months ended October 31,~~from $213.1 in 2020 ~~the Company determined that accumulated depreciation was overstated following the impairment of certain property and equipment~~to $0.8 in prior periods. As a result, a prior period correction of $3.7 to reduce accumulated depreciation and depreciation expense was recorded during the three months ended October 31, 2020, of which $2.3 relates to depreciation expense recognized2021, along with above-mentioned increase in ~~the three months ended July 31, 2020 for assets impaired as of April 30, 2020.~~

In addition, the Company identified a $2.0 gain on termination of leased vehicles which related to the three months ended July 31, 2020 but was recorded in the three months ended October 31, 2020. There was no impact to the condensed consolidated financial statements as of and for the nine months ended October 31, 2020 related to this error.

~~The Company concluded the errors were not material to previously issued financial statements.~~

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~~Nine Months Ended October 31, 2020 Compared to Nine Months Ended October 31, 2019~~

~~Revenue. The following table provides revenues by segment for the periods indicated:~~

Nine Months Ended
October 31, 2020 October 31, 2019 % Change
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 $ 190.1 $ 445.2 (57.3) %

For the nine months ended October 31, 2020, revenues of $190.1 decreased by $255.1, or 57.3%, as compared with the prior year period. Rocky Mountains segment revenue declined by $99.6, or 58.7%, Northeast/Mid-Con segment revenue declined by $59.1, or 47.0%, and Southwest segment revenue declined by $96.4, or 64.4%. On a product line basis, completion, drilling, production and intervention services revenues decreased by approximately $131.3, $11.6, $52.2 and $60.0, respectively, as compared to the same period in the prior year. 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.

~~Cost of sales~~. For the nine months ended October 31, 2020, cost of sales was $220.4, or 115.9% of sales, as compared to the prior year period of $367.6, or 82.6% of sales. Cost of sales as a percentage of revenues increased primarily due to negative 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. Cost of sales included $40.0 and $45.1 of depreciation expense for the nine months ended October 31, 2020 and 2019, respectively.

~~Selling, general and administrative expenses~~. SG&A expenses during the nine months ended October 31, 2020 were $73.5, or 38.7% of revenues, as compared with $79.2, or 17.8% of revenues, in the prior year period. The bargain purchase gain on the Merger of $38.7 was partially offset by other non-recurring items related to the Merger and integration totaling $28.9. R&D costs during the nine months ended October 31, 2020 were $0.6, as compared to the prior year period of $2.3, reflecting our continued focus on maintaining an in-house R&D function while scaling costs to adjust to current levels of customer demand.

~~Operating (loss) earnings. The following is a summary of operating (loss) earnings by segment:~~

Nine Months Ended
October 31, 2020 October 31, 2019 % Change
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 (54.6) (44.6) (22.4) %
Bargain purchase gain (38.7) — NMF
Total operating (loss) earnings $ (278.8) $ (49.7) (461.0) %

~~For the nine months ended October 31, 2020, operating loss was $278.8, as compared to operating loss of $49.7 in the prior year period, largely driven 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 and increased impairment and other charges of $167.3.~~

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~~For the nine months ended October 31, 2020, Rocky Mountains segment operating loss was $45.2, Northeast/Mid-Con segment operating loss was $104.2 and Southwest segment operating loss was $113.5,~~improvements in ~~each case primarily driven by lower revenues as a result of decreased demand for the Company's products and services.~~

~~Income tax expense (benefit)~~. Income tax expense was $0.3 for the nine months ended October 31, 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.

~~Net loss~~. Net loss for the nine months ended October 31, 2020 was $301.8, as compared to $71.3 in the prior year period, primarily due to decreased demand and increased impairment and other charges as described above.pricing.

Liquidity and Capital Resources

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions. Our primary sources of 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”~~("ABL Facility") and cash flows from operations. At October 31, ~~2020,~~2021, we had ~~$79.8~~$40.8 of cash and cash equivalents and ~~$26.4~~total $40.0 available and net $30.0 available after $10.0 fixed charge coverage ratio ("FCCR") holdback on the October 31, 2021 ABL Facility Borrowing Base Certificate, which resulted in a total liquidity position of ~~$106.2. During the fourth quarter~~$80.8 and a net liquidity position of ~~2020, $2.8 of the outstanding letters of credit have been extinguished, further increasing the Company’s liquidity position.~~$70.8.

~~Volatile WTI prices, challenges created by the global COVID-19 pandemic and the current oil supply demand imbalance have further decreased demand for our services.~~ Our cash flow used in operations for the nine months ended October 31, ~~2020~~2021 was approximately $43.2 as compared to approximately $35.8 used in ~~cash flows.~~operations for the same period in 2020. In response to declining customer activity and commodity price instability, in the third quarter of 2020 we ~~recently~~ implemented ~~a series~~actions to achieve our previously announced annualized run-rate cost synergies. By the end of first quarter of 2021, the

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Company implemented approximately $46.0 of annualized cost savings and also identified and actioned an additional $4.4 of annualized cost ~~reductions to reduce our cost structure.~~savings. However, there is no certainty that cash flow will improve or that we will have positive operating cash flow for a sustained period of time. Our operating cash flow is sensitive to many variables, the most significant of which are utilization and profitability, the timing of billing and customer collections, payments to our vendors, repair and maintenance costs and personnel, any of which may affect our ~~cash available.~~available cash. The COVID-19 ~~outbreak~~pandemic and the related significant decrease in the price of oil resulted in a decrease in demand for our services in the last part of the first quarter ~~and~~through the third quarter of 2020. We started to see a moderate increase in overall activity throughout the ~~second and third~~first three quarters ~~and~~of 2021, which we expect ~~lower pricing and activity levels~~ to continue ~~until there are clear signs~~into the remainder of ~~a commodity price recovery.~~the fiscal year. Additionally, should our customers experience financial distress due to the current market conditions, they could default on their payments owed to us, which would affect our cash flows and liquidity. As of October 31, 2021, we have $5.0 of trade accounts receivable reserved for customers in bankruptcy, primarily related to Magellan. See Part II, Item 1 "Legal Proceedings" for more information regarding the amount due from Magellan.

Our primary use of capital resources has been for funding working capital and investing in property and equipment used to provide our services. ~~Our primary uses of cash~~We actively manage our capital spending and are ~~critical~~focused on required maintenance ~~capital expenditures and investments. We~~spending. In addition, we regularly monitor potential sources of capital, ~~sources,~~ including equity and debt financings, in an effort to meet our planned capital expenditure and liquidity ~~requirements.~~requirements and reduce cost. The COVID-19 pandemic, coupled with the global crude oil supply and demand imbalance and the resulting ~~decline~~volatility in ~~crude~~U.S. onshore oil ~~prices,~~and gas activity, has significantly affected the value of our common stock, which, without a viable recovery and uptick in the demand for our services, may reduce our ability to access capital in the bank and capital markets, including through equity or debt offerings.

At October 31, ~~2020,~~2021, we had ~~$79.8~~$40.8 of cash and cash equivalents. Cash on hand at October 31, ~~2020~~2021 decreased by ~~$43.7,~~$6.3, as compared with ~~$123.5~~$47.1 cash on hand at January 31, ~~2020~~2021 as a result of ~~$35.8~~$43.2 of cash ~~flows~~ used byin operating activities ~~primarily related to $14.8of interest, and $9.7 to pay down QES's five year asset-based revolving credit agreement; and $10.3~~offset by $6.2 of cash ~~flows used in~~provided by investing activities and $30.7 of cash provided by financing 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.

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Net working capital as of October 31, 2020 was $20.5, a decrease of $26.9 as compared with net working capital at January 31, 2020. As of October 31, 2020, total current assets excluding cash decreased by $16.3 and total current liabilities increased by $10.6. The decrease in current assets was primarily related to a decrease in accounts receivable of $29.8. The increase in total current liabilities was due to a $3.0 and $7.6 increase in accounts payable and accrued liabilities, respectively.

The following table sets forth our cash 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


	Nine Months Ended
	October 31, 2021		October 31, 2020
Net cash used in operating activities	$	(43.2)	$	(35.8)
Net cash provided by (used in) investing activities	6.2		(10.3)
Net cash provided by financing activities	30.7		2.4
Net change in cash	(6.3)		(43.7)
Cash balance end of period	$	40.8	$	79.8

Net cash ~~(used in) provided by~~used in operating activities

Net cash used in operating activities was $43.2 for the nine months ended October 31, 2021, as compared to $35.8 for the nine months ended October 31, ~~2020, as compared to net cash provided by operating activities of $53.2 for the nine months ended October 31, 2019.~~2020. The decrease in operating cash flows was primarily attributable to ~~the decrease in revenues across all operating segments and most PSLs driven by the current slowdown and market headwinds. In addition, the overall cash collected from the reduction in~~ working capital ~~could not offset the decline in operating leverage,~~investments associated with increased accounts receivable from associated increased revenue and ~~thus, the Company incurred an operating loss~~utilization.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $6.2 for the nine months ended October 31, ~~2020.~~

~~Net cash used in investing activities~~

~~Net cash used in investing activities was $10.3 for the nine months ended October 31, 2020,~~2021, as compared to net cash used in investing activities of ~~$94.5~~$10.3 for the nine months ended October 31, ~~2019.~~2020. The ~~cash flow used~~increase in investing ~~activities~~cash flows for the nine months ended October 31, ~~2020~~2021 was primarily driven by ~~critical maintenance capital spending tied to the operation~~sales of ~~our existing asset base. These investments were offset by the sale of~~facilities, trucks and other idle assets resulting from ~~the~~ cost reduction ~~initiatives.~~initiatives, as well as lost-in-hole tools billed to customers as a result of increased activity.

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Net cash provided by ~~(used in)~~ financing activities

Net cash provided by financing activities was $30.7 for the nine months ended October 31, 2021, compared to $2.4 for the nine 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.~~2020. During the nine months ended October 31, ~~2020, $0.4 was~~2021, borrowings under the ABL facility were $30.0 and proceeds from stock issuance, net of costs were $4.8, offset by $1.8 paid on financed payables, $2.0 paid on capital lease obligations, and $0.3 paid for treasury shares 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 program.

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Financing Arrangements

We entered into a $100.0 ABL Facility on August 10, 2018. The ABL Facility became effective on September 14, 2018 and is scheduled to mature in September 2023. Borrowings under the ABL Facility bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) (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 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. ~~No amounts were~~There was $30.0 outstanding under the ABL Facility as of October 31, ~~2020.~~2021. Total letters of credit outstanding under the ABL Facility were $5.0 at October 31, 2021. The effective interest rate under the ABL Facility ~~would have been~~was approximately ~~2.75%~~4.75% on October 31, ~~2020.~~2021. Accrued interest as of October 31, 2021 was $0.3.

Financial Services industry and market participants continue to work towards transitioning away from interbank offered rates ("IBOR"), including the LIBOR, that are being phased out imminently. This phasing out will have an impact on the ABL Facility that utilizes LIBOR as a benchmark. To transition from IBOR Reference Rate, the ABL Facility agreement between the Company and JP Morgan Chase & Co. ("JP Morgan"), which currently has borrowings outstanding of $30.0, will be amended to adopt an alternate rate effective on or before June 30, 2023.Until the ABL Facility agreement is amended to allow for Secured Overnight Financing Rate ("SOFR") as the replacement to LIBOR, the Alternate Base Rate ("ABR"), is the default rate that JP Morgan has agreed to use as the LIBOR replacement. See Note 2 for further discussion of upcoming changes from LIBOR to Term SOFR.

The ABL Facility includes a springing financial covenant which requires the Company’s consolidated ~~fixed charge coverage ratio (“FCCR”)~~FCCR to be at least 1.0 to 1.0 if availability falls below the greater of $10.0 or 15% of the borrowing base. At all times during the ~~three~~nine months ended October 31, ~~2020,~~2021, availability exceeded this threshold, and the Company was not subject to this financial covenant. As of October 31, ~~2020,~~2021, the FCCR was below 1.0 to 1.0. The Company was in full compliance with its credit facility as of October 31, ~~2020.~~2021.

In conjunction with the acquisition of Motley in 2018, we issued $250.0 principal amount of ~~Notes~~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 issuance costs for the Notes, total debt as of October 31, ~~2020~~2021 was ~~$243.6.~~$244.6. 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~~2021 was $14.4.

We believe our cash on hand, along with $26.4 of availability under our $100.0 undrawn ABL Facility, provides 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.

Capital Requirements and Sources of Liquidity

Our capital expenditures were ~~$11.1~~$7.5 during the nine months ended October 31, ~~2020,~~2021, compared to ~~$67.4~~$11.1 in the nine months ended October 31, ~~2019.~~2020. We expect to incur a total between ~~$13.0 and $15.0~~$9.0 to $11.0 in capital expenditures for the year ending ~~January~~December 31, 2021, based on current industry ~~conditions and our recent significant investments~~conditions. This is more than a 30% reduction from the previous range of $14.0 to $16.0, partially driven by the change in ~~capital expenditures over the past several years.~~year-end. The nature of our capital expenditures is comprised of a base level of investment required to support our current operations and amounts related to growth and Company initiatives. Capital expenditures for growth and

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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, the ABL Facility availability, Equity Distribution Agreement (defined below) and cash flow from operations. We have total funds available of $40.0 and net funds available of $30.0, after $10.0 FCCR holdback, as of October 31, 2021, 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.~~.

Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic and political conditions, the level of drilling, completion, production and intervention services activity for North American onshore oil and natural gas resources, the continuation of the COVID-19 pandemic, and financial and business and other factors, many of which are beyond our control. We believe ~~that~~based on our current forecasts, our cash ~~flows,~~on hand, the ABL Facility availability, the Equity Distribution Agreement (defined below), together with our cash ~~on hand,~~flows, will provide us with the ability to fund our operations, meet our debt service obligations, and make planned capital expenditures for at least the next 12 months. However, we can make no assurances regarding our ability to achieve our forecasts, which are materially dependent on our financial performance and demand for our services.

The Company also continues to assess various sources and options including public and private financings to bolster its liquidity and believes that, given current market conditions, it has opportunities to do so, however, there are no guarantees regarding these future financings.

Equity Distribution Agreement

The Equity Distribution Agreement contains customary representations, warranties and agreements by the Company, indemnification obligations of the Company and the Agent, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. Under the terms of the Equity Distribution Agreement, the Company will pay the Agent a commission equal to 3% of the gross sales price of the Common Stock sold.

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Contractual Obligations

As a smaller reporting company, we are not required to provide the disclosure required by Item 303(a)(5)(i) of Regulation S-K.

Off-Balance Sheet Arrangements

Indemnities, Commitments and Guarantees

In the normal course of our business, we make certain indemnities, commitments and guarantees 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 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 in control.

Lease Commitments

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2019~~2020 Annual Report on Form 10-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.~~

~~We completed our acquisition of QES on July~~April 28, ~~2020. QES's results of operations have been included in our financial results for the period subsequent to the acquisition date.~~

Under the acquisition method of accounting, we allocate the fair value of purchase consideration transferred to the tangible assets and intangible assets acquired, if any, and liabilities assumed based on their estimated fair values on the date of the acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on 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.

When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to bargain purchase gain if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the condensed consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the 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

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a reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements.2021.

Recent Accounting Pronouncements

See Note 2 “Recent Accounting Pronouncements” to our condensed consolidated financial statements for a discussion of recently issued accounting pronouncements. As an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”), we are offered an opportunity to use an extended transition period for the adoption of new or revised financial accounting standards. We operate under the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, until we are no longer an emerging growth company. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or

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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.


ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulation S-K.


ITEM 4.			CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, 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 reasonable assurance that information required to be 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.

In connection with the preparation of this Quarterly Report for the quarter ended October 31, ~~2020,~~2021, an evaluation was performed under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures were ~~not~~ effective as of October 31, ~~2020, due to the material weakness in internal control over financial reporting as described below.~~

~~Material Weakness~~

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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.

~~Remediation Plan~~

We are currently in the process of remediating the material weakness and have taken and continue to take steps that we believe will address the underlying causes of the material weakness. Steps we are taking or have taken include transitioning key roles following the Merger, hiring of additional accounting personnel, providing training, and enhancing review controls of the measurement of depreciation expense.

We can give no assurance that these actions will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Additionally, this material weakness could result in misstatements to our financial statements or disclosures that would result in material misstatements to our annual or interim consolidated financial statements that would not be prevented or detected.

As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures to address the material weakness identified above or determine to modify the remediation steps described above. Until the remediation steps set forth above are fully developed, implemented and operating for a sufficient amount of time to validate the remediation, the material weakness described above will continue to exist.2021.

Changes in Internal Control over Financial Reporting

~~Other than the material weakness noted above and efforts to remediate the reported material weakness, there~~There have been no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


ITEM 1.			LEGAL PROCEEDINGS

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Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S. bankruptcy code. The bankruptcy proceedings are ongoing. We expect that the trustee will continue to pursue claims against Underwriters as well as preference and other claims to maximize the value of the Chapter 7 estate for the benefit of trade creditors. During the year ended January 31, 2021, the Company reserved the full amount of its invoices totaling $4.6 as a prudent action in light of the Chapter 7 filing.


ITEM 1A.			RISK FACTORS

In addition to the information set forth in this report, you should carefully consider the risk factors previously described in Part I, Item IA. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020, and our Quarterly Reports on Form 10-Q for the quarters ended April 30, 2020 and July 31, 2020.~~

We have identified a material 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.

We and our independent registered public accounting firm have identified a material weakness in 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

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material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness is related to inadequate review of the measurement of depreciation expense for impaired property and equipment. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of October 31, 2020.

We are enhancing our internal controls, processes and related documentation necessary to remediate our material weakness. We have taken, and continue to take, the following actions: transitioning key roles following the merger with Quintana Energy Services, Inc.; hiring of additional accounting personnel; providing training; and enhancing review controls of the measurement of depreciation expense.

We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.

Any failure to maintain effective internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. Ineffective internal controls could also potentially cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

When we cease to be an “emerging growth company” under the federal securities laws, our registered public accounting firm will be required to express an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control over financial reporting is effective, or if our registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could potentially lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline.2021.


ITEM 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Not applicable.~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table presents the total number of shares of our common stock that we repurchased during the three months ended October 31, 2021:


Period	Total number of shares purchased(1)	Average price paid per share(2)		Total number of shares purchased as part of publicly announced plans or programs(3)	Approximate dollar value of shares that may yet be purchased under the plans or programs
August 1, 2021 - August 31, 2021	—	$	—	—	$	48,859,603
September 1, 2021 - September 30, 2021	—	$	—	—	$	48,859,603
October 1, 2021 - October 31, 2021	—	$	—	—	$	48,859,603
Total	—			—

(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.

(2) The average price paid per share of common stock repurchased under the share repurchase program includes commissions paid to the brokers.

(3) In August 2019, our Board authorized a share repurchase program for the repurchase of outstanding shares of the Company’s common stock having an aggregate purchase price up to $50.


ITEM 3.			DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.			MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.			OTHER INFORMATION

Not applicable.

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ITEM 6.			EXHIBITS


3.1			Amended and Restated Certificate of Incorporation of KLX Energy Services Holdings, Inc. ~~(incorporated~~(incorporated by reference to Exhibit 3.1 of KLX Energy Services Holdings, ~~Inc’s~~Inc .’s Quarterly Report on Form 10-Q, filed on September 8, 2020, File No. 001-38609).
3.2			~~Third~~Fourth Amended and Restated Bylaws of KLX Energy Services Holdings, Inc.~~(incorporated~~ (incorporated by reference to Exhibit 3.1 of KLX Energy Services Holdings,, Inc.'s Current Report on Form 8-K, filed on De ~~cember 8, 2020,~~September 9, 2021 File No. 001-38609).
31.1*			Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH*			XBRL Taxonomy Extension Schema Document
101.CAL*			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*			XBRL Taxonomy Extension Label Linkbase Document
101.PRE*			XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


KLX ENERGY SERVICES HOLDINGS, INC.

By:						/s/ Christopher J. Baker
						Christopher J. Baker
						President and Chief Executive Officer

Date: December ~~9, 2020~~10, 2021

By:						/s/ Keefer M. Lehner
						Keefer M. Lehner
						Executive Vice President and Chief Financial Officer

Date: December ~~9, 2020~~10, 2021

By:						/s/ Geoffrey C. Stanford
						Geoffrey C. Stanford
						Senior Vice President and Chief Accounting Officer

Date: December ~~9, 2020~~10, 2021

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	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Deficit		Total 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


	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)


	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	(2.1)		(4.2)

Other current and non-current liabilities	(1.6)		(7.3)

Total consideration paid	$	22.6	$	52.0


	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 (1)		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