Koil Energy Solutions Inc

Previous wording

The energy services industry is dependent on the capital and operating expenditure programs of energy companies. The decision for operators to either progress or cut back their exploration, drilling, and production operations is substantially driven by the overall condition of the energy industry. Particularly, the oil and gas industry has historically been characterized by fluctuations in commodity prices, which are driven by a variety of market forces. Per the International Energy Agency’s March 2024 Oil Market Report, demand is expected to increase by 1.3 million barrels per day in 2024. Additionally, we believe a convergence of economic, geopolitical, trade and policy factors has exacerbated the issue of years of underinvestment in upstream hydrocarbon production and appears to have returned the focus to increasing production. As a result, the Company anticipates global offshore oil production to continue its pivotal role in meeting the world’s energy demands this year.

Current wording

The energy services industry is dependent on the capital and operating expenditure programs of energy companies. The decision for operators to either advance or cut back their exploration, drilling, and production operations is largely determined by the overall condition of the energy industry. The oil and gas industry in particular has historically been characterized by fluctuations in commodity prices, which are driven by a variety of market forces affecting supply and demand. We believe a convergence of economic, geopolitical, trade, and policy factors has highlighted the issue of years of underinvestment in upstream hydrocarbon production and appears to have driven operators to focus on optimizing production volumes. Per the International Energy Agency’s July 2024 Oil Market Report, the global demand for oil is expected to increase by approximately one million barrels per day in 2024. As a result, we anticipate global offshore oil production to continue its pivotal role in meeting the world’s energy demands this year.

Previous wording

The 56% increase in revenues was primarily driven by an overall increase in fixed price contracts partially offset by a decrease in service contract activity when compared to revenues for the three months ended March 31, 2023.

Current wording

The 65% increase in revenues was primarily driven by an increase in fixed price contracts for the manufacture of flying leads and hydraulic distribution manifolds, partially offset by a decline in service contract activity when compared to revenues for the three months ended June 30, 2023.

Previous wording

The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $116 and $126 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $122 and $127 for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

The $644 increase in Adjusted EBITDA was primarily driven by gross profit improvement associated with the increase in fixed price contracts during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

The $1,425 increase in Adjusted EBITDA was primarily driven by gross profit improvement associated with the increase in fixed price contracts during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Previous wording

The increase in gross profit was primarily driven by increased revenues. The decrease in gross profit as a percentage of sales was mainly due to incurring higher materials costs associated with the increase in fixed price contracts.

Current wording

The growth in gross profit was primarily driven by increased revenues, and the decrease in gross profit as a percentage of sales was mainly due to incurring higher materials costs associated with the increase in fixed price contracts when compared to the six months ended June 30, 2023.

Previous wording

The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $28 and $26 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $55 and $53 for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The Company believes it will have adequate liquidity to meet its future operating requirements. We are generally dependent on our cash flows from operations to fund our working capital requirements, and the uncertainties noted above create risks that we may not achieve our planned earnings or cash flow from operations. On May 24, 2023, the Company entered into a Purchase and Sale Agreement/Security Agreement with Zions Bancorporation, N.A., d/b/a Amegy Bank Business Credit (“Amegy”), which provides for Koil Energy from time to time to sell its accounts receivable and other rights to payment to Amegy, subject to Amegy’s right to approve or reject future accounts receivable and other rights proposed for sale, in its sole discretion. The balance of accounts receivable sold to Amegy as of March 31, 2024 was $332.

Current wording

The Company believes it will have adequate liquidity to meet its future operating requirements. We are generally dependent on our cash flows from operations to fund our working capital requirements, and the uncertainties noted above create risks that we may not achieve our planned earnings or cash flow from operations. In 2023, the Company entered into a Purchase and Sale Agreement/Security Agreement with Zions Bancorporation, N.A., d/b/a Amegy Bank Business Credit (“Amegy”), which provides for Koil Energy from time to time to sell its accounts receivable and other rights to payment to Amegy, subject to Amegy’s right to approve or reject future accounts receivable and other rights proposed for sale, in its sole discretion. The total value of accounts receivable sold to Amegy as of June 30, 2024 was $579.

Previous wording

The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the three months ended March 31, 2024, the Company reported a $52 decrease in cash. The Company used $307 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $1,067. This was partially offset by net income of $576 and other adjustments of $184 to reconcile net income to net cash used in operating activities, which includes items such as non-cash lease expense, share-based compensation, and depreciation and amortization. The Company used $10 of net cash for investing activities, primarily to fund capital expenditures. The Company also generated $265 of net cash from financing activities, primarily driven by proceeds received from short-term borrowings.

Current wording

The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the six months ended June 30, 2024, the Company reported a $571 decrease in cash. The Company used $756 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $2,706. This was partially offset by net income of $1,560 and other adjustments of $390 to reconcile net income to net cash used in operating activities, which mainly includes items such as non-cash lease expense, share-based compensation, and depreciation and amortization. The Company used $62 of net cash for investing activities, primarily to fund capital expenditures. The Company also generated $247 of net cash from financing activities, primarily driven by proceeds received from short-term borrowings.

Previous wording

During the three months ended March 31, 2023, the Company reported a $834 decrease in cash. The Company used $674 of net cash from operating activities, primarily driven by changes in operating assets and liabilities of $1,015 and a net loss of $97. This was partially offset by other adjustments of $438 to reconcile net loss to net cash provided by operating activities. The Company used $78 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $82 of net cash in financing activities for principal payments made under its finance lease obligations.

Current wording

During the six months ended June 30, 2023, the Company reported a $6 decrease in cash. The Company generated $238 of net cash from operating activities, primarily driven by offsetting a net loss of $530 with $830 of non-cash adjustments to reconcile net loss to net cash provided by operating activities, which mainly includes items such as non-cash lease expense, share-based compensation, and depreciation and amortization. This was partially offset by changes in operating assets and liabilities of $62. The Company used $80 in net cash for investing activities, primarily to fund capital expenditures. The Company also used $164 in net cash for financing activities, primarily for principal payments made under its finance lease obligations.

Previous wording

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers’ ability to pay amounts due. We monitor our customers’ payment history and current credit worthiness, if needed, to determine that collectability is reasonably assured. We provide an allowance for credit losses based by reviewing each accounts receivable balance with respect to a debtor’s ability to make payments. We also evaluate historical loss rates as well as consider forward-looking factors specific to the debtors, the overall economic environment, and management expectations to determine expected losses. When certain accounts are determined to require an allowance, they are expensed by a provision for bad debts in that period. At March 31, 2024 and 2023, we estimated the allowance for credit losses requirement to be $0, and there were no charges to bad debt expense for the three months ended March 31, 2024 and 2023. We believe that our allowance for credit losses is adequate to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

Current wording

The estimation of anticipated credit losses that may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding our customers’ ability to pay amounts due. We monitor our customers’ payment history and current credit worthiness, if needed, to determine that collectability is reasonably assured. We provide an allowance for credit losses based by reviewing each accounts receivable balance with respect to a debtor’s ability to make payments. We also evaluate historical loss rates as well as consider forward-looking factors specific to the debtors, the overall economic environment, and management expectations to determine expected losses. When certain accounts are determined to require an allowance, they are expensed by a provision for bad debts in that period. At June 30, 2024 and 2023, we estimated the allowance for credit losses requirement to be $0. There were no charges to bad debt expense for the three and six months ended June 30, 2024. The Company recorded no charges and a $1 charge to bad debt expense during the three and six months ended June 30, 2023, respectively. We believe that no allowance for credit losses is necessary under current conditions; however, uncertainties regarding changes in the financial condition of our customers could impact the amount and timing of any additional credit losses that may be required.