Koil Energy Solutions, Inc.
For the period ended Dec 31, 2024. Filed Apr 15, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Apr 15, 2025
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-27.
0001683168-24-001768
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-04-15.
0001683168-25-002554
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 70 previous paragraphs and 68 current paragraphs.
46 unchanged; 15 reworded; 7 added; 9 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
The current consensus among our customers is that the demand for energy is increasing. Our clients are indicating that the world’s energy demand will require supply growth within oil and natural gas as well as for renewables. Oil and natural gas supply from existing wells naturally declines over time, making sustained investments more important over the coming years. The years of underinvestment in offshore production appear to have triggered a general shift and returning focus on increasing production. As a result, several key subsea basins, particularly Gulf of America, the North Sea, and off the coasts of Brazil, are being prepared to contribute significantly to this production output. Our strengthened positioning in these markets is therefore essential to achieve a sustained level of growth. A leading indicator for our main products is the number of subsea trees purchased by operators. Our product lines include vital support systems for subsea trees. According to Westwood Global Energy Group, a market analyst firm, the global annual subsea tree awards included 284 and 279 awards in 2023 and 2024, respectively. This healthy market presents good opportunities for KOIL Energy going forward, as our offering, such as subsea distribution equipment and services, are typically awarded 1 to 1 ½ years after the subsea tree awards. During the first quarter of this year, we have seen a significant increase in bidding activity. We therefore anticipate experiencing the benefits of this positive momentum throughout this year and into next year.
Current report
As part of our growth strategy, we have also been focusing on expanding our service and product offerings to better address the operating expenditures of our energy customers. We also expect this expenditure to increase due to aging infrastructure. Re-termination of an umbilical cable on an existing installation is an example of our success in the maintenance market.
Current report
The 48% year-over-year increase in our revenues for 2024 is exceptional and beyond the industry benchmark. This outstanding growth in revenue in a fairly flat market was the result of an assertive strategy and excellent work effort by our teams.
Current report
We are one year into an ambitious 3-year strategy where continued profitable revenue growth is the objective. The strategy has been concentrated on further developing the systems that address the critical needs of our customers, while upselling more product and associated services. In April 2024 we announced the award of a major contract for a Subsea Safety Control System from a major international energy company. In August last year we announced the award of a significant contract for delivering Bend Stiffener Latchers (BSL®) to an operator in a new region. In October we secured a significant contract to provide umbilical re-termination (maintenance and repair) on an offshore production platform for an international oil and gas company. In December we were awarded a significant contract to supply Electrical and Hydraulic Distribution Manifolds for a project in West Africa. Although we secure numerous smaller contracts on a weekly basis, it is the major and significant awards that drive our growth.
Current report
Results of Operations
Current report
The 48 percent increase in revenues was primarily driven by an increase in fixed price contracts for the manufacture of subsea distribution equipment, such as flying leads and hydraulic distribution manifolds, partially offset by a decrease in service contract activity.
Current report
The reduction in selling, general, and administrative expenses (“SG&A”) was driven by lower administrative payroll expense, advertising expense, research and development expense, and rental expense related to the Company’s short-term lease for furniture at the Company’s operating facility.
Removed paragraphs (9)
Previous report
Global oil prices began to ease toward the end of 2023 due to higher-than-expected OPEC supply and lower demand from the Middle East, Russia, India, and Europe, which was partially offset by stronger demand from the US and China. However, per the International Energy Agency’s February 2024 Oil Market Report, demand is still expected to increase by 1.2 million barrels per day in 2024. Additionally, we believe a convergence of economic, geopolitical, trade and policy factors have exacerbated the issue of years of underinvestment in upstream hydrocarbon production and appear to have triggered a general shift returning focus on 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 as evidenced by increased utilization rates (80%+) for offshore drilling rigs/vessels. We believe that several key regions, including the Gulf of Mexico, the North Sea, and areas off the coasts of Brazil and West Africa, will contribute significantly to this production output. Despite the recent emphasis on alternative energy sources, we expect the offshore extraction of hydrocarbons will continue to provide a vital component of the global energy mix, and we believe 2024 is poised to see continued steady growth in the sector. Our participation in this supply-driven cycle is essential for our business to achieve a sustained level of growth.
Previous report
The 18% year-over-year increase in our revenues for 2023 is characteristic of the recovery in the industry, especially in the deepwater segments. We continued to experience the effects of price pressures we faced during the recent downturn. These pressures led us to strategically price some projects at lower than ideal margins, which is reflected in our bottom-line results for 2023. These results fell short of our expectations, but we maintain a positive outlook for 2024 as these lower margins projects are anticipated to conclude in the first half of the year.
Previous report
Our growth efforts have been concentrated on further developing the systems, technology, and techniques that address the critical needs of our customers, and we have started to realize success with this strategy. Earlier this year, we announced the receipt of an award for the provision of 70+ multi quick connect plates, which are critical pieces of subsea infrastructure used to enable the transfer of different fluids between subsea systems that will be qualified for 20,000 psi applications. We also made several announcements in the second half of 2023 regarding the receipt of several contract awards involving the design, engineering, and manufacturing of hose and steel tube flying leads and electrical and hydraulic distribution manifolds for various locations in the Gulf of Mexico. We are dedicated to capitalizing on our recent achievements and systematically exploring further opportunities, fueled by the continued strength in bidding activity.
Previous report
During 2023, we also entered into a factoring agreement with Amegy Bank, which provides us the ability from time to time to sell our accounts receivable to the bank. This agreement is expected to provide us with additional access to capital, should the need arise, as some of these fixed-price contracts may require significant lead time and investment.
Previous report
The 18 percent increase in revenues was primarily driven by an increase in product oriented, fixed price contracts as well as a slight increase in projects utilizing our support services and rental solutions.
Previous report
The reduction in selling, general, and administrative expenses (“SG&A”) primarily resulted from the expenses incurred for relocating the Company to a new facility and rebranding it from Deep Down, Inc. to Koil Energy Solutions, Inc. during the year ended December 31, 2022, which were not incurred again during the year ended December 31, 2023. This reduction was partially offset by increased research and development expenses and rental expenses related to the Company’s furniture lease.
Previous report
Asset impairment
Previous report
For the year ended December 31, 2023, no charges were recorded for the impairment of long-lived assets.
Previous report
For the year ended December 31, 2022, the Company recorded impairment charges of $820 for the impairment of its right-of-use operating lease asset (“ROU asset”) related to the lease for its prior operating facility (the “Beaumont Hwy facility”). The impairment was the result of relocating from the Beaumont Hwy facility to the Company’s new Rankin Rd. facility in October 2022.
Reworded paragraphs (15)
Previous wording
The energy services industry is dependent on the capital and operating expenditure programs of energy companies. The decision for operators to cut back or accelerate 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.
Current wording
The energy services industry relies heavily on the capital and operating expenditure programs of energy companies. Operators’ decisions to scale back or accelerate their exploration, drilling, and production activities are significantly influenced by the overall state of the energy sector. Notably, the oil and gas industry has historically experienced fluctuations in commodity prices, driven by various global market forces.
Previous wording
We continue progressing towards achieving our goal of becoming the premier provider of integrated subsea distribution systems. We look forward to sharing additional details in due course as we work with our team to accomplish our vision of having the most experienced, professional, and dependable team, who seek to develop the most innovative solutions, including the most efficient and reliable equipment, with the ultimate goal of increasing profitability and providing best-in-class returns for our stockholders.
Current wording
We continue progressing towards achieving our goal of becoming the premier provider of integrated subsea distribution systems.
Previous wording
The increase in gross profit was primarily driven by increased revenues. The decrease in gross profit as a percentage of sales was due to incurring higher materials costs related to certain projects that were strategically priced at lower margins.
Current wording
The increase in gross profit was primarily driven by increased revenues. Gross profit percentage increased 6% when compared to the previous year.
Previous wording
The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $497 and $496 for the years ended December 31, 2023 and 2022, respectively.
Current wording
The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $459 and $497 for the years ended December 31, 2024 and 2023, respectively.
Previous wording
The Company records depreciation and amortization expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $108 and $186 for the years ended December 31, 2023 and 2022, respectively.
Current wording
The Company records depreciation and amortization expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $112 and $108 for the years ended December 31, 2024 and 2023, respectively.
Previous wording
Net interest income for the year ended December 31, 2023 was $7 compared to net interest expense of $15 for the year ended December 31, 2022. The increase of $22 is mainly due to an increase in interest received on the Company’s interest bearing financial instruments during the year ended December 31, 2023.
Current wording
Net interest income for the year ended December 31, 2024 was $47 compared to net interest income of $7 for the year ended December 31, 2023. The increase of $40 is mainly due to an increase in interest received on the Company’s interest bearing financial instruments during the year ended December 31, 2024.
Previous wording
The Company recorded net other income of $50 and $55 for the years ended December 31, 2023 and December 31, 2022, respectively, which primarily consists of insurance policyholder dividends.
Current wording
The Company recorded net other income of $33 and $50 for the years ended December 31, 2024 and December 31, 2023, respectively, which primarily consists of insurance policyholder dividends.
Previous wording
The Company recorded gains of $4 and $40 related to equipment sold by the Company during the years ended December 31, 2023 and December 31, 2022, respectively.
Current wording
The Company recorded loss of $1 and gain of $4 related to equipment sold by the Company during the years ended December 31, 2024 and December 31, 2023, respectively.
Previous wording
The following is a reconciliation of net loss to Modified EBITDA for the years ended December 31, 2023 and 2022:
Current wording
The following is a reconciliation of net income (loss) to Modified EBITDA for the years ended December 31, 2024 and 2023:
Previous wording
The $75 increase in Modified EBITDA primarily resulted from revenue and gross profit growth stemming from an uptick in both fixed-price and service projects during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Current wording
The $4,419 increase in Modified EBITDA primarily resulted from revenue and gross profit improvement associated with the increase in fixed price contracts and lower SG&A during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
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. At December 31, 2023, the Company had no outstanding sales of accounts receivable to Amegy.
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. 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. At December 31, 2024 and 2023, respectively, the Company had no outstanding sales of accounts receivable to Amegy.
Previous wording
During the year ended December 31, 2022, the Company generated $1,242 of net cash from operating activities, primarily driven by changes in operating assets and liabilities of $2,229 and other adjustments to reconcile net loss to net cash provided by operating activities of $1,941, partially offset by a net loss of $2,928. The Company used $2,262 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $303 of net cash in financing activities for the repurchase of common stock and principal payments made under its finance lease obligation, which resulted in a $1,323 decrease in cash for the period.
Current wording
The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the year ended December 31, 2024, the Company reported a $1,392 increase in cash. The Company generated $1,726 of net cash provided by operating activities, primarily driven by cash used by changes in operating assets and liabilities of $1,824 and other adjustments to reconcile net income to net cash provided by operating activities of $930, which includes items such as non-cash lease expense, loss on sale of property, plant and equipment, share-based compensation, bad debt expense, and depreciation and amortization. This was partially offset by net income of $2,620. The Company used $373 of net cash for investing activities, primarily to fund capital expenditures. The Company also provided by $39 of net cash in financing activities for principal payments made under its finance lease obligations, proceeds from stock options exercised, and proceeds and principal payments on short-term borrowings.
Previous wording
The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the year ended December 31, 2023, the Company reported a $323 decrease in cash. The Company generated $203 of net cash from operating activities, primarily driven by changes in operating assets and liabilities of $1,234 and other adjustments to reconcile net loss to net cash provided by operating activities of $523, which includes items such as non-cash lease expense, gain on sale of property, plant and equipment, share-based compensation, bad debt expense (recovery), and depreciation and amortization. This was partially offset by a net loss of $1,554. The Company used $226 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $300 of net cash in financing activities for principal payments made under its finance lease obligations.
Current wording
During the year ended December 31, 2023, the Company reported a $323 decrease in cash. The Company generated $203 of net cash from operating activities, primarily driven by changes in operating assets and liabilities of $1,234 and other adjustments to reconcile net loss to net cash provided by operating activities of $523, which includes items such as non-cash lease expense, gain on sale of property, plant and equipment, share-based compensation, bad debt expense (recovery), and depreciation and amortization. This was partially offset by a net loss of $1,554. The Company used $226 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $300 of net cash in financing activities for principal payments made under its finance lease obligations.
Previous wording
The Company maintains a positive outlook on current tender volume and views this as an opportunity to capitalize on its product, service, and rental offerings to address the subsea distribution and cable management needs of its customers. The reasons for this expected increase are set forth in the “Industry and Executive Outlook” section above. As such, the Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, and potential sales of PP&E. Given the inherent volatility in oil prices and global economic activity, the Company cannot predict this with certainty. To mitigate this uncertainty and preserve liquidity, the Company will concentrate capital investments on key growth needs and pursue opportunistic cost containment initiatives, which can include workforce alignment, restricting overhead spending and limiting research and development efforts to only critical items.
Current wording
The Company maintains a positive outlook on customer inquiries and views this as an opportunity to capitalize on its product, service, and rental offerings to address the subsea distribution and cable management needs of its customers. The reasons for this expected increase are set forth in the “Industry and Executive Outlook” section above. As such, the Company believes it will have adequate liquidity to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, and potential sales of PP&E. Given the inherent volatility in oil prices and global economic activity, the Company cannot predict this with certainty. To mitigate this uncertainty and preserve liquidity, the Company will concentrate capital investments on key growth needs and pursue opportunistic cost containment initiatives, which can include workforce alignment, restricting overhead spending and limiting research and development efforts to only critical items.
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 December 31, 2023 and 2022, we estimated the allowance for credit losses requirement to be $0. Bad debt expense (recovery) totaled $1 and $(9) for the years ended December 31, 2023 and 2022, respectively. 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 creditworthiness, if needed, to determine that collectability is reasonably assured. We provide an allowance for credit losses based upon a review of each accounts receivable balance with respect to a customer’s ability to make payments. We also evaluate historical loss rates as well as consider forward-looking factors specific to the customers, 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 December 31, 2024 and 2023, we estimated the allowance for credit losses requirement to be $0. Bad debt expense totaled $0 and $1 for the years ended December 31, 2024 and 2023, respectively. 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.