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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 July 31, 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)
Delaware36-4904146
(State of Incorporation)(I.R.S. Employer Identification No.)

3040 Post Oak Boulevard, 15th Floor
Houston, TX 77056
(832) 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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 Par ValueKLXEThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 8,879,876 shares were outstanding as of September 3, 2021.



Table of Contents
KLX Energy Services Holdings, Inc.
Form 10-Q
Table of Contents
Balance Sheets as of July 31, 2021 and January 31, 2021
Statements of Cash Flows for the Six Months Ended July 31, 2021 and 2020

2

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)
July 31, 2021January 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$39.4 $47.1 
Accounts receivable–trade, net of allowance of $6.1 and $6.5
79.1 67.0 
Inventories, net22.6 20.8 
Other current assets10.2 15.8 
Total current assets151.3 150.7 
Property and equipment, net 175.9 203.7 
Intangible assets, net2.3 2.5 
Other assets5.1 5.8 
Total assets$334.6 $362.7 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$43.4 $39.4 
Accrued interest7.4 7.2 
Accrued liabilities28.2 29.2 
Current portion of capital leases1.9 1.9 
Total current liabilities80.9 77.7
Long-term debt274.4 243.9 
Long-term capital lease obligations3.4 4.4 
Other non-current liabilities4.1 4.6 
Commitments, contingencies and off-balance sheet arrangements (Note 11)
Stockholders’ equity (deficit):
Common stock, $0.01 par value; 110.0 authorized; 9.2 and 8.6 issued
0.1 0.1 
Additional paid-in capital470.9 469.1 
Treasury stock, at cost, 0.3 shares and 0.3 shares
(4.3)(4.0)
Accumulated deficit(494.9)(433.1)
Total stockholders’ equity (deficit)(28.2)32.1 
Total liabilities and stockholders' equity (deficit)$334.6 $362.7 

See accompanying notes to condensed consolidated financial statements.

3

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 EndedSix Months Ended
July 31, 2021July 31, 2020July 31, 2021July 31, 2020
Revenues$111.9 $36.2 $202.7 $119.2 
Costs and expenses:
   Cost of sales (exclusive of items shown separately below)99.2 37.9 187.8 114.9
   Depreciation and amortization14.5 12.9 29.9 29.1
   Selling, general and administrative expenses14.3 39.1 29.3 55.5 
   Research and development costs0.1 0.2 0.2 0.5 
   Impairment and other charges0.2  0.8 208.7 
Bargain Purchase Gain0.5 (41.1)0.5 (41.1)
Operating loss(16.9)(12.8)(45.8)(248.4)
Non-operating expense:
   Interest expense, net8.0 7.6 15.8 15.0 
Loss before income tax(24.9)(20.4)(61.6)(263.4)
   Income tax expense0.1  0.2 0.1 
Net loss$(25.0)$(20.4)$(61.8)$(263.5)
Net loss per share-basic $(2.98)$(4.12)$(7.39)$(55.00)
Net loss per share-diluted$(2.98)$(4.12)$(7.39)$(55.00)

See accompanying notes to condensed consolidated financial statements.
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KLX Energy Services Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
Six Months Ended July 31, 2021 and 2020
(In millions of U.S. dollars and shares)
(Unaudited)

Common StockAdditional Paid-in CapitalTreasury StockAccumulated DeficitTotal Stockholders’ Equity (Deficit)
Shares Amount
Balance at January 31, 20218.6 $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, 20219.1 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, 20219.2 $0.1 $470.9 $(4.3)$(494.9)$(28.2)
Common StockAdditional Paid-in CapitalTreasury
Stock
Accumulated
Deficit
Total Stockholders’ Equity
 SharesAmount
Balance at January 31, 20205.0 $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 reserved0.1 — — — — — 
Net loss— — — — (243.1)(243.1)
 Balance at April 30, 20205.1 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 issuance3.4 — 34.7 — — 34.7 
Net loss— — — — (20.4)(20.4)
Balance at July 31, 20208.5 $0.1 $468.0 $(4.0)$(364.4)$99.7 

See accompanying notes to condensed consolidated financial statements.
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KLX Energy Services Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
Six Months Ended
July 31, 2021July 31, 2020
Cash flows from operating activities:
Net loss$(61.8)$(263.5)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities
Depreciation and amortization29.9 29.1 
Impairment and other charges0.8 208.7 
Non-cash compensation1.8 16.7 
Amortization of deferred financing fees0.6 0.6 
Provision for inventory obsolescence reserve0.1 1.4 
Change in allowance for doubtful accounts0.2 (7.8)
(Gain) loss on disposal of property, equipment and other(4.2)0.7 
Bargain purchase gain0.5 (41.1)
Changes in operating assets and liabilities:
   Accounts receivable(12.3)58.8 
   Inventories(1.9)(2.2)
   Other current and non-current assets5.1 6.0 
   Accounts payable3.8 (22.2)
   Other current and non-current liabilities (0.7)
     Net cash flows used in operating activities(37.4)(15.5)
Cash flows from investing activities:
Purchases of property and equipment(5.7)(8.5)
Proceeds from sale of property and equipment8.6 0.4 
Acquisitions, net of cash acquired (1.0)
     Net cash flows provided by (used in) investing activities2.9 (9.1)
Cash flows from financing activities:
Borrowings from ABL Facility30.0  
Purchase of treasury stock(0.3)(0.4)
Payments on capital lease obligations(1.1) 
Change to financed payables(1.8) 
     Net cash flows provided by (used in) financing activities26.8 (0.4)
     Net decrease in cash and cash equivalents(7.7)(25.0)
Cash and cash equivalents, beginning of period47.1 123.5 
Cash and cash equivalents, end of period$39.4 $98.5 
Supplemental disclosures of cash flow information:
Cash paid during period for:
Income taxes paid, net of refunds$0.3 $0.3 
Interest14.7 14.6 
Supplemental schedule of non-cash activities:
Change in deposits on capital expenditures (5.4)
Accrued capital expenditures1.91.2

See accompanying notes to condensed consolidated financial statements.

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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 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 from over 50 service and support facilities located throughout the United States.

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

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”).

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 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 2020 Annual Report on Form 10-K filed with the SEC on 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.

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


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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

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") 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. 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 six months ended July 31, 2020 to the Company’s three reportable segments increased by $6.5 and decreased by $2.3, 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 six months ended July 31, 2020, the total drilling revenues reported within segment reporting was $3.7 and $10.6, respectively.

These 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.
NOTE 2 - Recent Accounting Pronouncements

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, 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.
    
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
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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 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 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 July 31, 2021 had a third-party accounts receivable balance, net of allowance, of $79.1. Topic 326 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

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 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 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 $39.8 bargain purchase gain being recorded in fiscal 2020. 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. 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 on July 28, 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.

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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-trade12.2 
Inventories11.8 
Other current and non-current assets7.4
Property and equipment84.2
Accounts payable(27.1)
Other current and non-current liabilities(13.0)
Bargain purchase(39.8)
     Total purchase price (1)
$44.4 
(1) The total consideration of the Merger was approximately $44.4, which was comprised of 3.4 million shares of the Company's common stock and cash paid to settle QES 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, 2020, revenues, net loss and loss per diluted share for the three and six months ended July 31, 2020 would have been as follows:

Unaudited Pro Forma
Three Months EndedSix Months Ended
July 31, 2020July 31, 2020
Revenues$54.5 $212.7 
Net loss54.8 317.8 
Loss per diluted share6.52 38.76 
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 and integration costs totaled $0.5 for the three months ended July 31, 2021 compared to $26.5 for the three months ended July 31, 2020. $0.1 and $0.3 was recorded to cost of sales in the interim condensed consolidated statements of operations for the three months ended July 31, 2021 and 2020, respectively. $0.4 and $26.2 was recorded to selling, general and administrative expenses in the interim condensed consolidated statements of operations for the three months ended July 31, 2021 and 2020, respectively.

Merger and integration costs totaled $2.3 for the six months ended July 31, 2021 compared to $26.5 for the six months ended July 31, 2020. $1.2 and $0.3 was recorded to cost of sales in the interim condensed
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consolidated statements of operations for the six months ended July 31, 2021 and 2020, respectively. $0.5 and $26.2 was recorded to selling, general and administrative expenses in the interim condensed consolidated statements of operations for the six months ended July 31, 2021 and 2020, respectively. Lease termination costs of $0.6 and nil was recorded to impairment and other charges in the interim condensed consolidated statements of operations for the six months ended July 31, 2021 and 2020, respectively.

As of July 31, 2021 and January 31, 2021, accrued lease termination costs were:

Beginning balance as of January 31, 2021
$3.4 
Charged (credited) to costs and expenses0.6 
Deductions(0.9)
Balance as of April 30, 20213.1 
Deductions(0.6)
Ending balance as of July 31, 2021
$2.5 

The following table presents Merger and integration costs that were recorded for the three and six months ended July 31, 2021 and 2020 in the interim condensed consolidated statements of operations:

Three Months EndedSix Months Ended
July 31, 2021July 31, 2020July 31, 2021July 31, 2020
Merger costs$ $26.5 $ $26.5 
Integration costs0.5  2.3  
Total Merger and Integration Costs$0.5 $26.5 $2.3 $26.5 
NOTE 5 - Inventories, Net
Inventories, net consisted of the following:
July 31, 2021January 31, 2021
Spare parts$14.3 $13.5 
Plugs5.6 4.6 
Consumables2.5 2.8 
Other2.7 2.3 
Subtotal25.1 23.2 
   Inventory obsolescence reserve(2.5)(2.4)
Total inventories, net$22.6 $20.8 

Inventories are made up of composite and dissolvable plugs, spare parts and consumables used to perform services for customers. The Company values inventories at the lower of cost or net realizable value. Inventories are reported net of obsolescence reserves of $2.5 and $2.4 as of July 31, 2021 and January 31, 2021, respectively.
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NOTE 6 - Property and Equipment, Net

Property and equipment consisted of the following:
Useful Life (Years)July 31, 2021January 31, 2021
Land, buildings and improvements140$41.0 $43.7 
Machinery120218.0221.8
Furniture and equipment115182.2183.2
   Total property and equipment441.2448.7
Less accumulated depreciation265.3245.0
   Property and equipment, net$175.9 $203.7 

Depreciation expense was $14.4 and $10.1 for the three months ended July 31, 2021 and 2020, respectively, and $29.7 and $25.3 for the six months ended July 31, 2021 and 2020, respectively.

Assets Held for Sale

As of July 31, 2021, the Company’s condensed consolidated balance sheet includes assets classified as held for sale of $3.4. The assets held for sale are reported within other current assets on the condensed consolidated balance sheet and represent the value of three operational facilities, corporate aircraft and select equipment. In light of the current market environment and as part of the ongoing integration of the QES business, the Company has consolidated operations within certain geographies rendering these locations unnecessary to support the efficient operations of the Company. These assets are being actively marketed for sale as of July 31, 2021 and are recorded at the lower of their carrying value or fair value less costs to sell. Subsequent to July 31, 2021, the Company has completed the sale of one operational facility with a carrying value of $0.7 for total sales proceeds of $0.7.

NOTE 7 - Goodwill and Intangible Assets, Net

Amortization expense associated with intangible assets was $0.1 and $2.8 for the three months ended July 31, 2021 and 2020, respectively, and $0.2 and $3.8 for the six months ended July 31, 2021 and 2020, respectively. During the three months ended July 31, 2020, accelerated amortization of $2.7 was recognized related to the Company's customer contracts and relationships long-lived intangible. The remaining intangible balance will be amortized straight-line over 7.7 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 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 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.

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' 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 six months ended July 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 six months ended July 31, 2020. This charge reflects the full value of the goodwill attributable to the Rocky Mountains segment, leaving the Company with no goodwill.

No impairment indicators were identified for the quarter ended July 31, 2021.
NOTE 8 - Accrued Liabilities

Accrued liabilities consisted of the following:
July 31, 2021January 31, 2021
Accrued salaries, vacation and related benefits$16.7 $14.3 
Accrued property taxes2.9 1.8 
Accrued incentive compensation0.4 1.9 
Accrued lease termination costs2.5 3.4 
Other accrued liabilities5.7 7.8 
     Total accrued liabilities$28.2 $29.2 
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NOTE 9 - Long-Term Debt
Outstanding debt and capital lease obligations consisted of the following:
July 31, 2021January 31, 2021
Notes$250.0 $250.0 
ABL Facility30.0  
Capital lease obligations5.3 6.3 
Total principal outstanding285.3 256.3 
Unamortized debt issuance costs5.6 6.1 
Total debt, net279.7 250.2 
Current portion of capital lease obligations1.9 1.9 
Long-term portion of debt and capital lease obligations$277.8 $248.3 
As of July 31, 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 debt issuance costs for the Notes, total debt related to the Notes as of July 31, 2021 was $244.4. 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 July 31, 2021 was $7.2.

As of July 31, 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.

The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants as long as the minimum level of borrowing availability is maintained. The ABL Facility is secured by, among other things, a first priority lien on the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.

The ABL Facility includes a springing financial covenant which requires the Company’s 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 six months ended July 31, 2021, availability exceeded this threshold, and the Company was not subject to this financial covenant. As of July 31, 2021, the FCCR was below 1.0 to 1.0. The Company was in full compliance with its credit facility as of July 31, 2021.

Borrowings outstanding under the ABL Facility were $30.0 as of July 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 July 31, 2021. Total letters of credit outstanding under the ABL Facility were $6.6 at July 31, 2021. Accrued interest under the ABL Facility was $0.2 as of July 31, 2021.

Availability under the ABL Facility, net of $10.0 FCCR holdback, was $17.8 based on the July 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 City, Oklahoma and Elk City,
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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 55 months, and the interest rates range between 3.0% to 7.0%.
Total capital lease obligations were $5.3 as of July 31, 2021.
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 and accounts payable represent their respective fair values due to their short-term nature. The fair value of the ABL Facility approximates its carrying value as of July 31, 2021.

The following tables present the placement in the fair value hierarchy of the Notes, based on market prices for publicly traded debt, as of July 31, 2021 and January 31, 2021:

Fair value measurements at reporting date using
July 31, 2021Level 1Level 2Level 3
Senior Secured Notes, 11.5 Percent Due 2025
$162.5 $ $162.5 $ 
Total Senior Secured Notes$162.5 $ $162.5 $ 

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

During the three months ended 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 of the impaired assets as of April 30, 2020 was $194.0 and $52.8 for property and equipment, net, $28.3 and nil for goodwill, and $39.2 and 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 three months ended 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 July 31, 2021, future minimum lease payments under these arrangements approximated $66.6 of which $25.7 is related to long-term real estate leases and $25.6 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

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. ("Redmon") 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 defendants in response to an offshore well blowout near Bob Hall Pier in Corpus Christi, Texas. Magellan did not dispute the invoices or the charges therein but alleged an inability to pay prior to obtaining funding from Underwriters under Magellan's Owner's Extra Expense ("OEE") policy. An OEE policy is an industry norm to provide insurance coverage in the event of a blowout. Magellan's OEE policy has a limit of $20.0. We believe that total invoices issued to Magellan by its blowout vendors total $14.3 and are within policy limits. The Company's Texas court action includes claims against Magellan and as an additional insured under the OEE policy and also against Redmon-Keys as Magellan's broker who issued the additional insured certificate to the Company.

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 approximately $7.4 of the total $14.3 in blowout related expenses fall outside of policy coverage referencing a date on which they believe coverage ceased to apply. The Company disputes Underwriters' allegations on coverage and will likely litigate the issue in one or more court actions. Nonetheless, we note here that approximately $2.3 or half of the Company's total $4.6 in invoice to Magellan relate to services rendered and materials provided prior to the coverage dispute date alleged by Underwriters. In its declaratory judgment action, Underwriters further alleged that it had made some payments to Magellan. As Magellan had not made onward payments to the Company, the Company filed a request for a Temporary Restraining Order ("TRO") against Magellan in its Texas state court lawsuit.
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On March 30, 2021, hours before the TRO hearing, Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S. bankruptcy code.

The Company believes that the OEE policy is now an asset of the Chapter 7 estate. Since the Chapter 7 filing by Magellan, the U.S. Trustee has begun to advance claims against the Underwriter syndicate. Underwriters will now pay an additional $1.2 of insured expense while continuing to dispute an additional $7.4 of expenses claimed by Magellan. We expect that the Trustee will continue to pursue the remaining $7.4 from Underwriters as well as preference claims for monies paid by Magellan in the months leading up to its bankruptcy for which the Company has no exposure. Additionally, the Trustee will evaluate claims against Magellan’s former directors and officers.

Separately, KLXE is continuing to discuss its alleged claims against Redmon based on the representations made by Redmon relative to the certificate of insurance it issued to KLXE as an ‘additional insured’.

The bankruptcy proceedings are in their initial stages. 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. These invoices remain fully reserved as of July 31, 2021. However, we believe that the proceeds from the OEE policy will ultimately be allocated to the blowout creditors and KLXE will be offering our support to the U.S. Trustee in its pursuit of full recovery under the OEE policy from Underwriters.

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.

NOTE 12 - 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
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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 six months ended July 31, 2021, the Company sold 60,216 shares of Common Stock in exchange for gross proceeds of approximately $0.6 through its at-the-market offering and paid fees to the sales agent and other legal and accounting fees to establish the Offering of $0.6. Going forward, we expect the legal and accounting costs to maintain the Offering will be lower than what we incurred to establish the Offering in the second fiscal quarter.

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 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 six months ended July 31, 2021 and 2020 was related to grants of restricted stock 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 three months ended July 31, 2020. Stock-based compensation was $1.0 and $17.4 for the three months ended July 31, 2021 and 2020, respectively and $1.8 and $16.7 for the six months ended July 31, 2021 and 2020, respectively. Unrecognized compensation cost related to restricted stock awards made by the Company was $7.8 at July 31, 2021.

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.

NOTE 13 - Income Taxes

Income tax expense was $0.1 and $0.2 for the three and six months ended July 31, 2021, respectively, and was comprised primarily of state and local taxes, compared to nil and $0.1 for the three and six months ended July 31, 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 on its 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
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assist companies. Under the CARES Act, the Company has deferred the employer portion of FICA tax payments of $3.8 as of July 31, 2021. This deferral is included on the condensed consolidated balance sheet. Accrued and other non-current liabilities each had a balance of $1.9 as of July 31, 2021. These payments are due in two installments: half on December 31, 2021; and half on December 31, 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 for capital expenditures and acquisition funding to the CODM. As a result, the Company has three reportable segments.

The following table presents revenues and operating loss by reportable segment:
Three Months EndedSix Months Ended
July 31, 2021July 31, 2020July 31, 2021July 31, 2020
Revenues
Rocky Mountains$33.6 $18.0 $57.9 $51.8 
Southwest43.0 4.2 81.0 28.6 
Northeast/Mid-Con35.3 14.0 63.8 38.8 
Total revenues111.9 36.2 202.7 119.2 
Operating loss (1)
Rocky Mountains(2.2)(6.7)(9.4)(40.7)
Southwest(3.7)(7.2)(11.2)(105.3)
Northeast/Mid-Con(3.8)(5.4)(10.6)(100.1)
Corporate and other (1)
(7.2)6.5 (14.6)(2.3)
Total operating loss(16.9)(12.8)(45.8)(248.4)
Interest expense, net8.0 7.6 15.8 15.0 
Loss before income tax$(24.9)$(20.4)$(61.6)$(263.4)
(1) Historically, and through July 31, 2020, the Companys 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
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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 Companys peer group.

The following tables present revenues by service offering by reportable segment:

Three Months Ended
July 31, 2021July 31, 2020
Rocky
Mountains
SouthwestNortheast
/Mid-Con
TotalRocky
Mountains
SouthwestNortheast
/Mid-Con
Total
Drilling$2.3 $18.6 $11.1 $32.0 $ $0.4 $3.3 $3.7 
Completion18.7 14.5 18.0 51.2 12.0 1.3 6.0 19.3 
Production8.1 5.8 2.8 16.7 4.2 1.2 2.8 8.2 
Intervention4.5 4.1 3.4 12.0 1.8 1.3 1.9 5.0 
Total revenues$33.6 $43.0 $35.3 $111.9 $18.0 $4.2 $14.0 $36.2 

Six Months Ended
July 31, 2021July 31, 2020
Rocky
Mountains
SouthwestNortheast
/Mid-Con
TotalRocky
Mountains
SouthwestNortheast
/Mid-Con
Total
Drilling$3.3 $33.1 $20.3 $56.7 $0.1 $2.0 $8.5 $10.6 
Completion33.0 30.7 32.4 96.1 32.6 16.7 17.6 66.9 
Production13.79.7 5.2 28.613.1 4.1 6.7 23.9
Intervention7.97.5 5.9 21.3 6.0 5.8 6.0 17.8 
Total revenues$57.9 $81.0 $63.8 $202.7 $51.8 $28.6 $38.8 $119.2 


The following table presents capital expenditures by reportable segment:

Three Months EndedSix Months Ended
July 31, 2021July 31, 2020July 31, 2021July 31, 2020
Rocky Mountains$1.2 $1.6 $1.9 $3.5 
Southwest1.1 0.8 1.9 2.1 
Northeast/Mid-Con1.1 0.61.8 1.6
Corporate and other0.1 0.7 0.1 1.3 
   Total capital expenditures$3.5 $3.7 $5.7 $8.5 

The following table presents total assets by segment:

July 31, 2021January 31, 2021
Rocky Mountains$134.9 $121.1 
Southwest89.0 91.6 
Northeast/Mid-Con68.1 98.1 
   Total segment assets292.0 310.8 
Corporate and other42.6 51.9 
   Total assets$334.6 $362.7 





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NOTE 15 - Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average common shares outstanding during the period. Diluted net loss per common share is computed by using the weighted average common shares outstanding, including the dilutive effect of restricted shares based on an average share price during the period. For the three months ended July 31, 2021 and 2020, 0.5 and 0.7 million shares of the Company’s common stock, respectively, and for the six months ended July 31, 2021 and 2020, 0.4 and 0.7 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 six months ended July 31, 2021 and 2020 are as follows:
Three Months EndedSix Months Ended
July 31, 2021July 31, 2020July 31, 2021July 31, 2020
Net loss$(25.0)$(20.4)$(61.8)$(263.5)
(Shares in millions)
Basic weighted average common shares8.4 5.0 8.4 4.8 
Diluted weighted average common shares8.4 5.0 8.4 4.8 
Basic net loss per common share
$(2.98)$(4.12)$(7.39)$(55.00)
Diluted net loss per common share
$(2.98)$(4.12)$(7.39)$(55.00)






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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 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, 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 COVID-19 repercussions in the workforce or in response to reductions in demand;
uncertainty regarding our future operating results;
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;
competitive conditions within the industry;
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 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 originating from our organizational documents, debt instruments and U.S. federal income tax 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 and qualified workers;
the inability to successfully consummate acquisitions or inability to manage potential growth; and
our ability to remediate any material weakness in, or to maintain effective, internal controls over financial reporting and disclosure controls and procedures.
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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 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, 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 Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly Report.

The following discussion and analysis addresses the results of our operations for the three and six months ended July 31, 2021, as compared to our results of operations for the three and six months ended July 31, 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 expanded our completion and intervention service offerings through the acquisition of Motley Services, LLC (“Motley”), 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, the 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 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 successfully completed the integration of the Tecton and Red Bone businesses during fiscal 2019. We acquired QES during the second quarter of 2020 and, by doing so, helped establish KLXE as an industry leading provider of diversified oilfield solutions across the full well lifecycle to the major onshore oil and gas producing regions of the United States.

On July 26, 2020, the Company’s Board approved a 1-for-5 Reverse Stock 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.

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