KLX Energy Services Holdings Inc

Previous wording

The following discussion and analysis addresses the results of our operations for the three and six months ended June 30, 2024, as compared to our results of operations for the three and six months ended June 30, 2023. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

Current wording

The following discussion and analysis addresses the results of our operations for the three and nine months ended September 30, 2024, as compared to our results of operations for the three and nine months ended September 30, 2023. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

Previous wording

Demand for services in the oil and natural gas industry is cyclical and subject to sudden and significant volatility. The oil and gas industry experienced significant increases in activity in late 2021 and 2022 due to the recovery from the COVID-19 pandemic and increasing demand for oil and gas. Furthermore, sanctions and import bans on Russian oil have been implemented by various countries in response to the ongoing war in Ukraine, further impacting global oil supply. While oil prices declined in the first half of 2023 from their 2022 highs, oil prices rebounded in the third quarter of 2023 due to stronger than anticipated economic growth and sustained production cuts from Saudi Arabia and Russia, followed by oil price decreases in the fourth quarter of 2023 due to a decrease in demand as the overall economy declined. Natural gas prices also declined in the fourth quarter of 2023. Oil and natural gas prices have been, and may remain, volatile, which impacts demand for our business. West Texas Intermediate’s (“WTI") average daily price per barrel increased by approximately 4.2%, to $81.81 per Bbl during the three months ended June 30, 2024, compared to the WTI average daily price per barrel of $78.53 per Bbl during the three months ended December 31, 2023. As of June 30, 2024, U.S. land rig count stood at 560, a decrease of 7.0% compared to December 31, 2023, when the U.S. rig count was 602.

Current wording

Demand for services in the oil and natural gas industry is cyclical and subject to sudden and significant volatility. The oil and gas industry experienced significant increases in activity in late 2021 and 2022 due to the recovery from the COVID-19 pandemic and increasing demand for oil and gas. Furthermore, sanctions and import bans on Russian oil have been implemented by various countries in response to the ongoing war in Ukraine, further impacting global oil supply. Natural gas prices also declined in the fourth quarter of 2023, however, they rebounded in the second and third quarters of 2024. Oil and natural gas prices have been, and may remain, volatile, which impacts demand for our business. West Texas Intermediate’s (“WTI") average daily price per barrel decreased by approximately 2.7%, to $76.43 per Bbl during the three months ended September 30, 2024, compared to the WTI average daily price per barrel of $78.53 per Bbl during the three months ended December 31, 2023. As of September 30, 2024, U.S. land rig count stood at 567, a decrease of 5.8% compared to December 31, 2023, when the U.S. rig count was 602.

Previous wording

Despite the decrease in commodity prices during the fiscal year ended December 31, 2023, the Company remains focused on providing the highest level of customer service across our regions and different service offerings, which has allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA (as defined below). We are taking steps to hire essential personnel and increase capital expenditures as activity rebounds, but we are measured in our growth and focused on returns.

Current wording

Despite the slight decrease in industry metrics above for the first nine months of the year, the Company remains focused on providing the highest level of customer service across our regions and different service offerings, which has allowed us to make meaningful positive impacts to our revenue, operating margins, cash flows and Adjusted EBITDA (as defined below). We are taking steps to hire essential personnel and increase capital expenditures as activity rebounds, but we are measured in our growth and focused on returns.

Previous wording

Looking ahead to the year ending December 31, 2024, assuming economic activity holds at the recent level and commodity prices remain volatile, we anticipate that our customers will continue to cautiously allocate capital and operating expense spending. So far in the year ending December 31, 2024, WTI prices have noted a slight increase, as demand for oil and gas products persists. Currently, global oil inventories supplied from OPEC and its allies (“OPEC+”) and other oil producing nations are expected to transition to inventory decreases throughout the majority of 2024 from inventory builds during 2023. This persisting demand and expectation of decreased inventory is balanced against weather-related challenges across the country as well as a cautious approach to drilling expansion, as evidenced by the U.S. rig count marking a slight decline through mid-July 2024.

Current wording

Looking ahead to the year ending December 31, 2025, assuming economic activity holds at the recent level and commodity prices remain volatile, we anticipate that our customers will continue to cautiously allocate capital and operating expense spending. So far in the year ending December 31, 2024, WTI prices have noted a slight increase, as demand for oil and gas products persists. Currently, expectations for future oil demand per OPEC and its allies (“OPEC+”) are to increase by 1.78 million barrels next year. This persisting demand is a positive sign that might help our business grow; however, there are a number of factors that might temper demand, such as those relating to U.S. elections and international events.

Previous wording

In the medium term, we anticipate demand for oil and gas products to hold and even expand, as demand for energy generated from oil and gas grows across the United States. Per S&P Global, nearly 50GW of electricity generation capacity is expected to be added to the U.S. grid by 2028 to support the operations of datacenters. Per the Electric Reliability Council of Texas, generation capacity in the state is set to almost double by 2030, citing increased demand from AI data centers and crypto-mining. In addition to domestic electricity generation, there are indications of higher demand for natural gas for export, with S&P Global projecting that feedgas demand could more than double by 2032. These and other expected developments point to increased demand for the products our services help to extract.

Current wording

In the medium term, we anticipate demand for oil and gas products to hold and even expand, as demand for energy generated from oil and gas grows across the United States. Per S&P Global, nearly 50GW of electricity generation capacity is expected to be added to the U.S. grid by 2028 to support the operations of datacenters. Per the Electric Reliability Council of Texas, generation capacity in the state is set to almost double by 2030, citing increased demand from artificial intelligence data centers and crypto-mining. In addition to domestic electricity generation, there are indications of higher demand for natural gas for export, with S&P Global projecting that feedgas demand could more than double by 2032. These and other expected developments point to increased demand for the products our services help to extract.

Previous wording

For the quarter ended June 30, 2024, revenues were $180.2, a decrease of $53.8, or 23.0%, as compared with the prior year period. The overall decrease in revenues reflects a decline in activity during the quarter, leading to lower demand for our services. Lower weighted average price contributed to approximately 19% of the $53.8 decrease, and lower weighted average volume contributed to the remaining approximately 81%. On a segment basis, Rocky Mountains segment revenue decreased by $5.0 or 7.5%. This decrease was driven entirely by a decrease in weighted average volume. Southwest segment revenue decreased by $16.4 or 19.0%. This decrease was driven entirely by a decrease in weighted average volume. Northeast/Mid-Con segment revenue decreased by $32.4 or 39.9%. Lower weighted average price contributed to approximately 38% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 62%.

Current wording

For the quarter ended September 30, 2024, revenues were $188.9, a decrease of $31.7, or 14.4%, as compared with the prior year period. The overall decrease in revenues reflects a decline in industry activity and pricing during the quarter, leading to lower demand and pricing for our services. Lower weighted average price contributed to approximately 47% of the $31.7 decrease, and lower weighted average volume contributed to the remaining approximately 53%. This decrease was driven entirely by a decrease in weighted average volume. On a segment basis, Rocky Mountains segment revenue decreased by $9.1 or 11.8%. Lower weighted average price contributed to approximately 54% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 46%. Southwest segment revenue decreased by $9.2 or 11.8%. This decrease was driven entirely by a decrease in weighted average volume. Northeast/Mid-Con segment revenue decreased by $13.4 or 20.4%. This decrease was driven entirely by a decrease in weighted average price.

Previous wording

Cost of sales. For the quarter ended June 30, 2024, cost of sales were $136.0, or 75.5% of sales, as compared to the three months ended June 30, 2023 of $173.3, or 74.1% of sales. Cost of sales as a percentage of revenues increased primarily due to a decrease in revenue days which led to lower leverage of fixed costs during the quarter. The two largest components of cost of sales are labor and repair & maintenance. Although cost of sales as a percentage of revenues increased, labor costs per employee decreased by 15.0% as compared with the three months ended June 30, 2023. Repair & maintenance costs as a percentage of revenues increased by 13.3% as compared to the three months ended June 30, 2023, due to the lower revenues during the quarter.

Current wording

Cost of sales. For the quarter ended September 30, 2024, cost of sales were $142.3, or 75.3% of sales, as compared to the three months ended September 30, 2023 of $166.2, or 75.3% of sales. Cost of sales as a percentage of revenues did not change during the quarter. The two largest components of cost of sales are labor and repair and maintenance. Although cost of sales as a percentage of revenues did not change, labor costs per employee decreased by 2.4% as compared with the three months ended September 30, 2023. Repair & maintenance costs as a percentage of revenues increased by 21.2% as compared to the three months ended September 30, 2023, largely due to the lower pricing during the quarter.

Previous wording

Selling, general and administrative expenses (“SG&A”). For the quarter ended June 30, 2024, SG&A expenses were $19.3, or 10.7% of revenues, as compared with $22.0, or 9.4% of revenues, in the prior year period. The increase in percentage of revenues is due to the lower revenues and lower leverage of fixed costs during the quarter, as SG&A has decreased on a dollar basis compared to the three months ended June 30, 2023.

Current wording

Selling, general and administrative expenses (“SG&A”). For the quarter ended September 30, 2024, SG&A expenses were $21.2, or 11.2% of revenues, as compared with $18.6, or 8.4% of revenues, in the prior year period. The increase in percentage of revenues is due to the more fixed cost nature of our SG&A costs which decreased at a slower pace than revenues, as SG&A has decreased on a dollar basis compared to the three months ended September 30, 2023.

Previous wording

For the quarter ended June 30, 2024, operating income was $1.4 compared to operating income of $19.6 in the prior year period, due to a reduction in activity and pricing.

Current wording

For the quarter ended September 30, 2024, operating income was $1.1 compared to operating income of $16.4 in the prior year period, primarily due to a reduction in activity and pricing.

Previous wording

The operating results across our three geographic segments declined as a function of lower revenues compared to the prior year period. Rocky Mountains segment operating income was $9.3, Southwest segment operating income was $1.9, and Northeast/Mid-Con segment operating loss was $0.1 for the six months ended June 30, 2024. The operating loss for the Corporate and other segment decreased slightly due to non-recurring costs related to the Greene's Acquisition in the prior year.

Current wording

The operating results across our three geographic segments declined as a function of lower revenues compared to the prior year period. Rocky Mountains segment operating income was $9.7, Southwest segment operating income was $0.7, and Northeast/Mid-Con segment operating income was $2.0 for the three months ended September 30, 2024. The operating loss for the Corporate and other segment was consistent with prior year.

Previous wording

Income tax expense (benefit). For the quarter ended June 30, 2024, income tax expense was $0.2, as compared to income tax benefit of $0.3 in the prior year period, and was comprised primarily of state and local taxes. The Company did not recognize a federal tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.

Current wording

Income tax expense. For the quarter ended September 30, 2024, income tax expense was $0.2, as compared to income tax expense of $0.3 in the prior year period, and was comprised primarily of state and local taxes. The Company did not recognize a federal tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.

Previous wording

Net (loss) income. For the quarter ended June 30, 2024, net loss was $8.0, as compared to net income of $11.4 in the prior year period, decreasing primarily as a result of lower revenues as discussed above.

Current wording

Net (loss) income. For the quarter ended September 30, 2024, net loss was $8.2, as compared to net income of $7.6 in the prior year period, decreasing primarily as a result of lower revenues as discussed above.

Previous wording

For the six months ended June 30, 2024, revenues were $354.9, a decrease of $118.7, or 25.1%, as compared with the prior year period. The overall decrease in revenues reflects a decline in activity during the quarter, leading to lower demand for our services. Lower weighted average price contributed to approximately 28% of the $118.7 decrease, and lower weighted average volume contributed to the remaining approximately 72%. On a segment basis, Rocky Mountains segment revenue decreased by $27.3 or 20.3%. Lower weighted average price contributed to approximately 19% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 81%. Southwest segment revenue decreased by $20.4 or 12.8%. This decrease was driven entirely by a decrease in weighted average volume. Northeast/Mid-Con segment revenue decreased by $71.0 or 39.5%. Lower weighted average price contributed to approximately 51% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 49%.

Current wording

For the nine months ended September 30, 2024, revenues were $543.8, a decrease of $150.4, or 21.7%, as compared with the prior year period. The overall decrease in revenues reflects a decline in activity and pricing during the nine-month period, leading to lower demand for our services. Lower weighted average price contributed to approximately 20% of the $150.4 decrease, and lower weighted average volume contributed to the remaining approximately 80%. On a segment basis, Rocky Mountains segment revenue decreased by $36.4 or 17.2%. Lower weighted average price contributed to approximately 1% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 99%. Southwest segment revenue decreased by $29.6 or 12.5%. This decrease was driven entirely by a decrease in weighted average volume. Northeast/Mid-Con segment revenue decreased by $84.4 or 34.4%. Lower weighted average price contributed to approximately 68% of the dollar decrease, and lower weighted average volume contributed to the remaining approximately 32%.

Previous wording

Cost of sales. For the six months ended June 30, 2024, cost of sales were $280.0, or 78.9% of sales, as compared to the six months ended June 30, 2023 of $354.2, or 74.8% of sales. Cost of sales as a percentage of revenues increased primarily due to a decrease in revenue days which led to lower leverage of fixed costs during the quarter. The two largest components of cost of sales are labor and repair & maintenance. Although cost of sales as a percentage of revenues increased, labor costs per employee decreased by 15.0% as compared with the six months ended June 30, 2023. Repair & maintenance costs as a percentage of revenues increased by 21.1% as compared to the six months ended June 30, 2023, due to the lower revenues during the quarter.

Current wording

Cost of sales. For the nine months ended September 30, 2024, cost of sales were $422.3, or 77.7% of sales, as compared to the nine months ended September 30, 2023 of $520.4, or 75.0% of sales. Cost of sales as a percentage of revenues increased primarily due to a decrease in pricing which led to lower operating leverage of fixed costs during the nine-month period ended September 30, 2024. The two largest components of cost of sales are labor and repair and maintenance. Although cost of sales as a percentage of revenues increased, labor costs per employee decreased by 10.9% as compared with the nine months ended September 30, 2023. Repair & maintenance costs as a percentage of revenues increased by 20.9% as compared to the nine months ended September 30, 2023, largely due to the lower pricing during the nine-month period.

Previous wording

Selling, general and administrative expenses (“SG&A”). For the six months ended June 30, 2024, SG&A expenses were $40.9, or 11.5% of revenues, as compared with $48.2, or 10.2% of revenues, in the prior year period. The increase in percentage of revenues is due to the lower revenues and lower leverage of fixed costs during the quarter, as SG&A has decreased on a dollar basis compared to the six months ended June 30, 2023.

Current wording

Selling, general and administrative expenses (“SG&A”). For the nine months ended September 30, 2024, SG&A expenses were $62.1, or 11.4% of revenues, as compared with $66.8, or 9.6% of revenues, in the prior year period. The increase in percentage of revenues is due to the more fixed cost nature of our SG&A costs which decreased at a slower pace than revenues during the nine-month period, as SG&A has decreased on a dollar basis compared to the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, operating loss was $11.7 compared to operating income of $38.5 in the prior year period, due to a reduction in activity and pricing.

Current wording

For the nine months ended September 30, 2024, operating loss was $10.6 compared to operating income of $54.9 in the prior year period, due primarily to a reduction in activity and pricing.

Previous wording

The operating results across our three geographic segments declined as a function of lower revenues compared to the prior year period. Rocky Mountains segment operating income was $10.5, Southwest segment operating income was $2.6, and Northeast/Mid-Con segment operating loss was $2.5 for the three months ended June 30, 2024. The operating loss for the Corporate and other segment decreased slightly due to non-recurring costs related to the Greene's Acquisition in the prior year.

Current wording

The operating results across our three geographic segments declined as a function of lower revenues compared to the prior year period. Rocky Mountains segment operating income was $19.0, Southwest segment operating income was $2.6, and Northeast/Mid-Con segment operating income was $1.9 for the nine months ended September 30, 2024. The operating loss for the Corporate and other segment decreased slightly due to non-recurring costs related to the Greene's Acquisition in the prior year.

Previous wording

Income tax expense (benefit). For the six months ended June 30, 2024, income tax expense was $0.4, as compared to income tax benefit of $0.1 in the prior year period, and was comprised primarily of state and local taxes. The Company did not recognize a federal tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.

Current wording

Income tax expense. For the nine months ended September 30, 2024, income tax expense was $0.6, as compared to income tax expense of $0.2 in the prior year period, and was comprised primarily of state and local taxes. The Company did not recognize a federal tax benefit on its year-to-date losses because it has a valuation allowance against its deferred tax balances.

Previous wording

Net (loss) income. For the six months ended June 30, 2024, net loss was $30.2, as compared to net income of $20.8 in the prior year period, decreasing primarily as a result of lower revenues as discussed above.

Current wording

Net (loss) income. For the nine months ended September 30, 2024, net loss was $38.4, as compared to net income of $28.4 in the prior year period, decreasing primarily as a result of lower revenues as discussed above.

Previous wording

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, debt service obligations, investments and acquisitions. Our primary sources of liquidity to date have been capital contributions from our equity and noteholders, borrowings under the Company’s asset-based revolving credit facility, as amended by the ABL Amendment (as defined below) and other amendments (the “ABL Facility”) and cash flows from operations. At June 30, 2024, we had $86.9 of cash and cash equivalents and $34.1 available on the June 2024 ABL Facility Borrowing Base Certificate, which resulted in an available liquidity position of $121.0.

Current wording

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, debt service obligations, investments and acquisitions. Our primary sources of liquidity to date have been capital contributions from our equity and noteholders, borrowings under the Company’s asset-based revolving credit facility, as amended by the ABL Amendment (as defined below) and other amendments (the “ABL Facility”) and cash flows from operations. At September 30, 2024, we had $82.7 of cash and cash equivalents and $43.6 available on the September 2024 ABL Facility Borrowing Base Certificate, which resulted in a liquidity position of $126.3.

Previous wording

We have taken several actions to continue to improve our liquidity position, including closing our Florida legacy headquarters and relocating all key functions to Houston, eliminating redundancies and duplicative functions throughout our operations following the QES Merger, issuing equity under our ATM Offering, executing debt-for-equity exchanges that have reduced our interest burden and monetizing non-core and obsolete assets. We actively manage our capital spending and are focused primarily on required maintenance spending. Additionally, ongoing volatility in commodity prices and increased inflation continue to affect our financial results. We believe that based on our current forecasts, our cash on hand, together with our operating cash flows, will provide us with the ability to fund our operations, including planned capital expenditures, for at least the next twelve months. Based on current trends, we believe that our liquidity beyond the next twelve months will increase as our operational results continue to improve. However, we are unable to quantify or guarantee this increase, and there can be no certainty that current trends will continue and that our liquidity and financial position will continue to improve.

Current wording

We have taken several actions to continue to improve our liquidity position, including closing our Florida legacy headquarters and relocating all key functions to Houston, eliminating redundancies and duplicative functions throughout our operations following the QES Merger, issuing equity under our ATM Offering, executing debt-for-equity exchanges that have reduced our interest burden and monetizing non-core and obsolete assets. We actively manage our capital spending and are focused primarily on required maintenance spending. Additionally, ongoing volatility in commodity prices and increased inflation continue to affect our financial results. We believe that based on our current forecasts, our cash on hand, together with our operating cash flows, will provide us with the ability to fund our operations, including planned capital expenditures, for the next twelve months.

Previous wording

We have substantial indebtedness. As of June 30, 2024, we had total outstanding long-term indebtedness of $284.9 under our ABL Facility and 11.5% senior secured notes due 2025 (the “Senior Secured Notes”) as described in greater detail under “—ABL Facility” and “—Senior Secured Notes” below. Our ability to pay the principal and interest on our long-term debt and to satisfy our other liabilities will depend on our future operating performance and ability to refinance our debt as it becomes due. Our future operating performance and ability to satisfy our liquidity requirements and refinance such indebtedness will be 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 and related pricing for our services, increasing inflation and government efforts to reduce inflation, the willingness of capital providers to lend to our industry, and other financial and business factors, many of which are beyond our control.

Current wording

We have substantial indebtedness. As of September 30, 2024, we had total outstanding long-term indebtedness of $285.2 under our ABL Facility and 11.5% senior secured notes due 2025 (the “Senior Secured Notes”) as described in greater detail under “—ABL Facility” and “—Senior Secured Notes” below, including $50.0 in current portion of long-term indebtedness. Our ABL Facility matures on the ABL Maturity Date (as defined below) and our Senior Secured Notes mature on November 1, 2025. Our ability to pay the principal and interest on our long-term debt and to satisfy our other liabilities will depend on our financial condition and future operating performance and our ability to refinance our debt as it becomes due, which in turn will be 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 and related pricing for our services, increasing inflation and government efforts to reduce inflation, the condition of the public and private debt markets and the willingness of capital providers to lend to our industry, and other financial and business factors, many of which are beyond our control.

Previous wording

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 on the ABL Maturity Date (as defined below) in 2025. Borrowings under the ABL Facility bear interest at a rate equal to Term SOFR (as defined in the ABL Facility) plus the Applicable Margin (as defined in the ABL Facility). The ABL Facility is tied to a borrowing base formula and the ABL Facility 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 our accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants. $50.0 was outstanding under the ABL Facility as of June 30, 2024. The effective interest rate under the ABL Facility was approximately 8.4% on June 30, 2024.

Current wording

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 on the ABL Maturity Date in 2025. Borrowings under the ABL Facility bear interest at a rate equal to Term SOFR (as defined in the ABL Facility) plus the Applicable Margin (as defined in the ABL Facility). The ABL Facility is tied to a borrowing base formula and the ABL Facility 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 our accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants. $50.0 was outstanding under the ABL Facility as of September 30, 2024 and classified as a current liability given the current maturity date. The effective interest rate under the ABL Facility was approximately 7.9% on September 30, 2024.

Previous wording

The ABL Amendment, among other things, (i) extended the maturity date of the ABL Facility from September 15, 2024 to the earlier of (A) September 15, 2025 or (B) August 1, 2025, if the Company's Senior Secured Notes are still outstanding as of such date (the earlier of the foregoing item (A) or item (B), the “ABL Maturity Date”) and (ii) increased the revolving credit commitment from $100.0 to $120.0.

Current wording

The ABL Amendment, among other things, (i) extended the maturity date of the ABL Facility from September 15, 2024 to the earlier of (A) September 15, 2025 or (B) August 1, 2025, if the Company's Senior Secured Notes are still outstanding as of such date (the earlier of the foregoing item (A) or item (B), the “ABL Maturity Date”) and (ii) increased the revolving credit commitment from $100.0 to $120.0. As of September 30, 2024, the balance outstanding under the ABL Facility has been classified as a current liability.

Previous wording

The ABL Facility includes a springing financial covenant which requires the Company’s FCCR to be at least 1.0 to 1.0 if availability falls below the greater of $15.0 or 20.0% of the borrowing base. At all times during the three months ended June 30, 2024, availability exceeded this threshold, and the Company was not subject to this financial covenant. As of June 30, 2024, the FCCR was at least 1.0 to 1.0, and the Company was in full compliance with the ABL Facility.

Current wording

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 $15.0 or 20.0% of the line cap. At all times during the three months ended September 30, 2024, availability exceeded this threshold, and the Company was not subject to this financial covenant. As of September 30, 2024, the FCCR was below 1.0 to 1.0, and the Company was in full compliance with the ABL Facility.

Previous wording

In conjunction with the acquisition of Motley in 2018, we issued $250.0 principal amount of the Senior Secured Notes offered pursuant to Rule 144A under the Securities Act of 1933 (as amended, the “Securities Act”) and to certain non-U.S. persons outside the United States in compliance with Regulation S under the Securities Act. On a net basis, after taking into consideration the debt issuance costs for the Senior Secured Notes, total debt related to the Senior Secured Notes as of June 30, 2024 was $234.9. The Senior Secured Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1 and mature in 2025. Accrued interest related to the Senior Secured Notes was $4.6 as of June 30, 2024.

Current wording

In conjunction with the acquisition of Motley in 2018, we issued $250.0 principal amount of the Senior Secured Notes offered pursuant to Rule 144A under the Securities Act of 1933 (as amended, the “Securities Act”) and to certain non-U.S. persons outside the United States in compliance with Regulation S under the Securities Act. On a net basis, after taking into consideration the debt issuance costs for the Senior Secured Notes, total debt related to the Senior Secured Notes as of September 30, 2024 was $235.2. The Senior Secured Notes bear interest at an annual rate of 11.5%, payable semi-annually in arrears on May 1 and November 1 and mature in 2025. Accrued interest related to the Senior Secured Notes was $11.4 as of September 30, 2024.

Previous wording

Our capital expenditures were $28.8 during the six months ended June 30, 2024, compared to $26.5 in the six months ended June 30, 2023. Based on current industry conditions and our significant investments in capital expenditures over the past several years, we expect to incur between $50.0 and $55.0 in total capital expenditures for the year ending December 31, 2024, out of which approximately 80% is budgeted for maintenance capital spending. 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 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.

Current wording

Our capital expenditures were $49.8 during the nine months ended September 30, 2024, compared to $44.3 in the nine months ended September 30, 2023. Based on current industry conditions and our significant investments in capital expenditures over the past several years, we expect to incur between $55.0 and $60.0 in total capital expenditures for the year ending December 31, 2024, out of which approximately 80% is budgeted for maintenance capital spending. 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 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.

Previous wording

On June 14, 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. as sales agent (the “Agent”). Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Agent (the “ATM Offering”) the Company’s Common Stock, having an aggregate offering price of up to $50.0. On November 16, 2022, the Company entered into Amendment No. 1 to the Equity Distribution Agreement (the “EDA Amendment”). Among other things, the EDA Amendment allows for debt-for-equity exchanges in accordance with Section 3(a)(9) of the Securities Act. 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.

Current wording

On June 14, 2021, the Company entered into an Equity Distribution Agreement (as amended from time to time, the “Equity Distribution Agreement”) with Piper Sandler & Co. as sales agent (the “Agent”). Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Agent (the “ATM Offering”) the Company’s Common Stock, having an aggregate offering price of up to $50.0. On November 16, 2022, the Company entered into Amendment No. 1 to the Equity Distribution Agreement (the “EDA Amendment”). Among other things, the EDA Amendment allows for debt-for-equity exchanges in accordance with Section 3(a)(9) of the Securities Act. 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.

Previous wording

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

Current wording

The Company used the net proceeds from the ATM Offering, after deducting the Agent’s commissions and the Company’s offering expenses, for general corporate purposes, which included funding acquisitions, capital expenditures and working capital.

Previous wording

During the three and six months ended June 30, 2024, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $0.1 and $0.2, respectively.

Current wording

During the three and nine months ended September 30, 2024, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $— and $0.2, respectively.

Previous wording

During the three and six months ended June 30, 2023, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $— and $0.1, respectively.

Current wording

During the three and nine months ended September 30, 2023, the Company did not sell any shares of Common Stock and incurred legal and administrative fees of $0.3 and $0.4, respectively.

Previous wording

Our cash flows provided by operating activities for the six months ended June 30, 2024 were approximately $11.4 as compared to approximately $51.4 provided by operating activities for the six months ended June 30, 2023. Our operating cash flows are 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 available cash. Additionally, should our customers experience financial distress for any reason, they could default on their payments owed to us, which would affect our cash flows and liquidity.

Current wording

Our cash flows provided by operating activities for the nine months ended September 30, 2024 were approximately $28.2 as compared to approximately $77.0 provided by operating activities for the nine months ended September 30, 2023. Our operating cash flows are 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 available cash. Additionally, should our customers experience financial distress for any reason, they could default on their payments owed to us, which would affect our cash flows and liquidity.

Previous wording

At June 30, 2024, we had $86.9 of cash and cash equivalents. Cash on hand at June 30, 2024 decreased by $25.6, as a result of $11.4 of cash flows provided by operating activities, $22.2 of cash flows used in investing activities and $14.8 used in 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.

Current wording

At September 30, 2024, we had $82.7 of cash and cash equivalents. Cash on hand at September 30, 2024 decreased by $29.8, as a result of $28.2 of cash flows provided by operating activities, $40.6 of cash flows used in investing activities and $17.4 used in 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.

Previous wording

Net cash provided by operating activities was $11.4 for the six months ended June 30, 2024, as compared to net cash provided by operating activities of $51.4 for the six months ended June 30, 2023. The lower operating cash flows were attributable to the change from a net income to a net loss position, partially offset by higher depreciation and amortization in 2024.

Current wording

Net cash provided by operating activities was $28.2 for the nine months ended September 30, 2024, as compared to net cash provided by operating activities of $77.0 for the nine months ended September 30, 2023. The lower operating cash flows were attributable to the change from a net income to a net loss position, partially offset by higher depreciation and amortization in 2024.

Previous wording

Net cash used in investing activities was $22.2 for the six months ended June 30, 2024, as compared to net cash used in investing activities of $16.9 for the six months ended June 30, 2023. The cash flows used in investing activities for the six months ended June 30, 2024 were primarily driven by maintenance capital spending tied to the operation of our existing asset base offset by sales of property and equipment.

Current wording

Net cash used in investing activities was $40.6 for the nine months ended September 30, 2024, as compared to net cash used in investing activities of $29.9 for the nine months ended September 30, 2023. The cash flows used in investing activities for the nine months ended September 30, 2024 were primarily driven by maintenance capital spending tied to the operation of our existing asset base offset by sales of property and equipment.

Previous wording

Net cash used in financing activities was $14.8 for the six months ended June 30, 2024, compared to net cash used in financing activities of $9.8 for the six months ended June 30, 2023. During the six months ended June 30, 2024, there were no additional borrowings under our ABL Facility and no sales under our ATM program.

Current wording

Net cash used in financing activities was $17.4 for the nine months ended September 30, 2024, compared to net cash used in financing activities of $14.1 for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, there were no additional borrowings under our ABL Facility and no sales under our ATM program.

Previous wording

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 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. Other than the critical accounting policy included below, we believe that our critical accounting policies are limited to those described in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report on Form 10-K filed with the SEC on March 8, 2024.

Current wording

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. We believe that our critical accounting policies are limited to those described in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report on Form 10-K filed with the SEC on March 8, 2024.