KLX Energy Services Holdings, Inc.KLXE
KLX Energy Services Holdings, Inc. Leases Disclosure
Leases
The Company, as part of its normal business operations, leases certain equipment, vehicles, manufacturing facilities, and office space under various operating and finance leases. We determine if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits and has the ability to direct the use of the underlying asset. Leases with an initial term of twelve months or less meet the definition of a short-term lease and are not recorded on the balance sheet.
At the lease commencement date, the Company recognized a lease liability and an ROU asset representing its right to use the underlying asset over the lease term. The initial measurement of the lease liability is calculated on the basis of the present value of the remaining lease payments and the ROU asset is measured on the basis of this liability, adjusted by prepaid and accrued rent, lease incentives, and initial direct costs. The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease. Operating lease cost is recognized on a straight-line basis over the lease term, with the cost presented as a component of the Selling, general and administrative expenses line item in the Consolidated Statement of Operations. Finance lease cost is comprised of a separate interest component and amortization component and is presented as a component of the Interest expense, net and Depreciation and amortization line items, respectively, in the Consolidated Statement of Operations.
ASU 2016-02, Leases (Topic 842), requires that a lessee use the rate implicit in the lease when measuring the lease liability and ROU asset, when available. Alternatively, the Company is permitted to use its incremental borrowing rate which is defined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate when measuring its leases. We estimate our incremental borrowing rate to discount the lease payments at the lease commencement date based on credit adjusted interest rates available to us over the lease term.
The Company does not have any material leases that have not yet commenced that would create significant rights and obligations, nor does it have any material leases with related parties. Additionally, the Company’s leases do not impose any restrictions or covenants on us. Short-term lease expense is not material for the Company.
The components of lease expense were as follows:
| Year Ended | |||||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||
| Operating lease fixed cost | $ | 9.2 | $ | 16.9 | |||||||
| Finance lease fixed cost | 24.0 | 14.5 | |||||||||
| Interest on finance lease liabilities | 4.8 | 3.2 | |||||||||
| Lease variable cost | 5.5 | 5.9 | |||||||||
| Total lease cost | $ | 43.5 | $ | 40.5 | |||||||
Supplemental cash flow information related to leases was as follows:
| Year Ended | |||||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases | $ | 8.7 | $ | 16.4 | |||||||
| Operating cash flows for finance leases | 4.8 | 3.2 | |||||||||
| Financing cash flows for finance leases | 21.6 | 14.6 | |||||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | 4.9 | $ | 7.2 | |||||||
| Finance leases | 3.9 | 44.0 | |||||||||
Supplemental balance sheet information related to leases was as follows:
| Year Ended | |||||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||
| Operating Leases | |||||||||||
| Operating lease assets | $ | 19.6 | $ | 22.3 | |||||||
| Current portion of operating lease liabilities | $ | 6.9 | $ | 6.9 | |||||||
| Long-term operating lease liabilities | 13.5 | 16.0 | |||||||||
| Total operating lease liabilities | $ | 20.4 | $ | 22.9 | |||||||
| Finance leases | |||||||||||
| Property and equipment, net | $ | 38.9 | $ | 59.9 | |||||||
| Total finance lease assets | $ | 38.9 | $ | 59.9 | |||||||
| Current portion of finance lease liabilities | $ | 13.0 | $ | 22.0 | |||||||
| Long-term finance lease liabilities | 26.4 | 36.2 | |||||||||
| Total finance lease liabilities | $ | 39.4 | $ | 58.2 | |||||||
| Weighted Average Remaining Lease Term | |||||||||||
Operating leases (in years) | 3.1 | 3.6 | |||||||||
Finance leases (in years) | 2.2 | 2.7 | |||||||||
| Weighted Average Discount Rate | |||||||||||
| Operating leases | 9.0 | % | 6.7 | % | |||||||
| Finance leases | 10.3 | % | 9.8 | % | |||||||
Maturities of lease liabilities were as follows:
| Years ending December 31, | Operating Leases | Finance Leases | |||||||||
| 2025 | $ | 8.5 | $ | 24.2 | |||||||
| 2026 | 7.0 | 16.5 | |||||||||
| 2027 | 5.1 | 1.8 | |||||||||
| 2028 | 2.4 | 0.6 | |||||||||
| 2029 | 0.5 | 0.3 | |||||||||
| Thereafter | 0.1 | — | |||||||||
| Total lease payments | 23.6 | 43.4 | |||||||||
| Less: imputed interest | (3.2) | (4.0) | |||||||||
| Total | $ | 20.4 | $ | 39.4 | |||||||
As of December 29, 2023, the Company has entered into an agreement to modify the leases for its five coiled tubing units. As a result, these are now classified as finance leases on the balance sheet as of December 31, 2023. The lease cost up to December 29, 2023, is included in the operating lease cost disclosure in this footnote, and the lease cash flows up to December 29, 2023, are included in the operating cash flows for operating leases disclosure in this footnote.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.