Koil Energy Solutions, Inc.

Previous wording

Global energy demand continues to grow, requiring increased oil and natural gas production alongside growth in renewable energy sources. Years of underinvestment in offshore exploration and development are now fueling a resurgence in subsea activity. Deepwater fields naturally decline at an average rate of 7% per year, underscoring the urgency for new development just to maintain current output. From our perspective, we are seeing global operators allocate more capital toward deepwater and ultra-deepwater developments, particularly in Brazil, the US. and West Africa.

Current wording

Global energy demand continues to rise. Meeting this demand requires incremental oil and natural gas production alongside growth in renewable energy sources. Years of underinvestment in offshore exploration and development are now fueling a resurgence in subsea activity. Deepwater fields naturally decline at an average rate of 7% per year per IHS, underscoring the urgency for new development just to maintain current output. From our perspective, we are seeing global operators allocate more capital toward deepwater and ultra-deepwater developments, particularly in Brazil, the US. and West Africa.

Previous wording

There are three primary ways to maintain and grow subsea production:

Current wording

There are three primary methods to maintain or expand subsea production:

Previous wording

Koil Energy supports all three sub-segments, with a particular strength in subsea tie-back projects.

Current wording

Koil Energy provides products and services across all three areas, with a particular focus on subsea tie-back projects.

Previous wording

One of the key advantages of a subsea tie-back development is shorter payback periods than traditional greenfield projects. Leveraging existing assets, these projects frequently have the potential to achieve first oil within two years of final investment decision. However, success hinges on meticulous planning and swift execution. Integrating new equipment into an aging infrastructure presents both technical challenges and opportunities, making adaptability and foresight essential. Proven, practical design, backed by a deep team experienced in subsea installation and commissioning, plays a critical role in ensuring reliability and staying on schedule.

Current wording

A key advantage of subsea tie-back developments is the potential for shorter payback periods than traditional greenfield projects. Leveraging existing assets, these projects frequently have the potential to achieve first oil within two years of final investment decision. However, success hinges on meticulous planning and swift execution. Integrating new equipment into an aging infrastructure presents both technical challenges and opportunities, making adaptability and foresight essential. Proven, practical design, backed by a deep team experienced in subsea installation and commissioning, plays a critical role in ensuring reliability and staying on schedule.

Previous wording

Order intake from subsea tie-back and maintenance has increased significantly since the beginning of the year. While second-quarter earnings were impacted by lower labor utilization early in the quarter, this was driven by the intentional buildout of our team. These hires align with our long-term growth strategy. We remain disciplined in balancing profitability with investment and are confident that our expanded capabilities position us well to execute on our growing backlog.

Current wording

Order intake for subsea tie-back and maintenance projects has increased significantly since the beginning of the year. During this period, we have made a deliberate investment in expanding our team to support our long-term growth strategy. We remain disciplined in balancing profitability with investment and are confident that our expanded capabilities position us well to execute on our growing backlog.

Previous wording

We continue progressing towards achieving our goal of becoming the premier provider of integrated subsea distribution systems.

Current wording

We remain focused on our strategic objective of becoming the leading provider of integrated subsea distribution systems.

Previous wording

The 10% decrease in revenues was primarily driven by a decrease in fixed price contract sales and backlog for the manufacture of flying leads and hydraulic distribution manifolds, partially offset by an increase in the sales and delivery of service contract work when compared to revenues for the three months ended June 30, 2024.

Current wording

The 22% increase in revenues was primarily driven by both growth in fixed price contract sales for the manufacture of flying leads and hydraulic distribution manifolds and by an increase in the sales and delivery of service contract work when compared to revenues for the three months ended September 30, 2024.

Previous wording

The decline in gross profit was driven by reduced direct employee utilization and the lower gross profit percentage resulted from an increase in direct overhead costs including employee benefits and rent expense for the Brazilian office when compared to the three months ended June 30, 2024.

Current wording

The decline in gross profit was driven by a lower-margin product mix and an increase in direct overhead costs including employee benefits and rent expense for the Brazilian office when compared to the three months ended September 30, 2024.

Previous wording

The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $127 and $122 for the three months ended June 30, 2025 and 2024, respectively.

Current wording

The Company records depreciation expense related to revenue-generating PP&E as cost of sales, which totaled $124 and $115 for the three months ended September 30, 2025, and 2024, respectively.

Previous wording

The increase in selling, general, and administrative expenses (“SG&A”) was primarily due to higher administrative payroll due to increased hiring of key business support functions, the timing of accounting fees associated with the annual audit, legal fees related to the settlement of a lawsuit and general corporate needs, and expenses for outside consultants to strengthen and restructure administrative functions.

Current wording

The increase in selling, general, and administrative expenses (“SG&A”) was due to bad debt expense from the write-off of the OMSi receivable, higher administrative payroll due to increased hiring of key business support functions, and legal fees related to patents, master service agreements, and general corporate needs.

Previous wording

The Company records depreciation and amortization expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $29 and $27 for the three months ended June 30, 2025 and 2024, respectively.

Current wording

The Company records depreciation and amortization expense related to administrative PP&E and intellectual property as SG&A, which totaled $22 and $29 for the three months ended September 30, 2025, and 2024, respectively.

Previous wording

The increase other (income), net was driven by a $250 gain upon the successful resolution of the WW Champion lawsuit. In addition, the Company received a $34 dividend from its insurance company.

Current wording

The increase in other (income), net was driven by an additional $83 gain recognized from the successful resolution of the WW Champion lawsuit.

Previous wording

Management evaluates Company performance based on a measure that is not in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which consists of earnings (net income or loss) available to common stockholders before net interest income, income taxes, depreciation and amortization, non-cash share-based compensation expense, non-cash impairments, non-cash gains or losses on the sale of property, plant and equipment (“PP&E”), other non-cash items and one-time charges (“Adjusted EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing, or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Adjusted EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.

Current wording

Management evaluates Company performance based on a measure that is not in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which consists of earnings (net income or loss) available to common stockholders before net interest income, income taxes, depreciation and amortization, non-cash share-based compensation expense, non-cash impairments, non-cash gains or losses on the sale of PP&E, other non-cash items and one-time charges (“Adjusted EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing, or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Adjusted EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.

Previous wording

The following is a reconciliation of net income to Adjusted EBITDA for the six months ended June 30, 2025 and 2024:

Current wording

The following is a reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2025, and 2024:

Previous wording

The $1,004 decrease in Adjusted EBITDA was primarily driven by lower labor utilization on projects and increased SG&A expenses during the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

Current wording

The $920 decrease in Adjusted EBITDA was primarily driven by the write-off of the OMSi contract and higher direct and administrative overhead during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.

Previous wording

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Current wording

Nine Months Ended September 30, 2025, Compared to Nine Months Ended September 30, 2024

Previous wording

The decline in gross profit was primarily driven by lower revenues from reduced direct employee utilization, and the decrease in gross profit as a percentage of sales resulted from an increase in direct overhead costs including employee benefits and Brazil office rent expenses when compared to the six months ended June 30, 2024.

Current wording

The decline in gross profit was primarily driven by a product mix that included more lower-margin service contract work and an increase in direct overhead costs including employee benefits and Brazil office rent expenses when compared to the nine months ended September 30, 2024.

Previous wording

The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $245 and $238 for the six months ended June 30, 2025 and 2024, respectively.

Current wording

The Company records depreciation expense related to revenue-generating PP&E as cost of sales, which totaled $368 and $354 for the nine months ended September 30, 2025, and 2024, respectively.

Previous wording

The increase in SG&A was primarily due to higher administrative payroll due to increased hiring of key business support functions, greater spending on industry conferences, legal fees related to the settlement of a lawsuit and general corporate needs, and expenses for outside consultants to strengthen and restructure administrative functions.

Current wording

The increase in SG&A was primarily due to bad debt expense from the write-off of the OMSi receivable, higher administrative payroll due to increased hiring of key business support functions, greater spending on industry conferences, legal fees related to the settlement of a lawsuit and general corporate needs, and expenses for outside consultants to strengthen and restructure administrative functions.

Previous wording

The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $58 and $55 for the six months ended June 30, 2025 and 2024, respectively.

Current wording

The Company records depreciation and amortization expense related to administrative PP&E and intellectual property as SG&A, which totaled $81 and $83 for the nine months ended September 30, 2025, and 2024, respectively.

Previous wording

The increase other (income), net was driven by a $250 gain upon the successful resolution of the WW Champion lawsuit. In addition, the Company received a $34 dividend from its insurance company and a $42 Employee Retention Tax Credit from the federal government.

Current wording

The increase in other (income), net was driven by a $333 gain upon the successful resolution of the WW Champion lawsuit. In addition, the Company received a $34 dividend from its insurance company and a $42 Employee Retention Tax Credit from the federal government.

Previous wording

The following is a reconciliation of net income to Adjusted EBITDA for the six months ended June 30, 2025 and 2024:

Current wording

The following is a reconciliation of net income to Adjusted EBITDA for the nine months ended September 30, 2025, and 2024:

Previous wording

The $1,401 decrease in Adjusted EBITDA was driven by lower labor utilization on projects, a project mix containing lower gross margin contracts, increased employee benefit costs, administrative hiring to support future growth, and investment in building our Brazil operations during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Current wording

The $2,327 decrease in Adjusted EBITDA was driven by an increase in bad debt expense, a project mix containing lower gross margin contracts, increased employee benefit costs, investment in building our Brazil operations, and expenses for outside consultants to strengthen and restructure administrative functions during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.

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. 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. On June 30, 2025 and December 31, 2024, the Company had no factored invoices outstanding with 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. 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. On September 30, 2025, the Company had factored invoices outstanding with Amegy recorded as short-term borrowings in the aggregate amount of $703 on its condensed consolidated balance sheet. As of December 31, 2024, the Company had no factored invoices outstanding with Amegy.

Previous 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, 2025, the Company reported a $1,229 decrease in cash. The Company used $406 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $943. This was partially offset by net income and other adjustments of $537 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 $820 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $3 of net cash from financing activities.

Current wording

The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the nine months ended September 30, 2025, the Company reported a $1,474 decrease in cash. The Company used $1,038 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $1,962. This was partially offset by net income and other adjustments of $925 to reconcile net income to net cash used in operating activities, which mainly includes items such as bad debt expense, share-based compensation, and depreciation and amortization. The Company used $1,152 of net cash for investing activities, primarily to fund capital expenditures. The Company also generated $715 of net cash from financing activities including $703 from short-term borrowings.

Previous wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates used in the financial statements relate to revenue recognition where the Company measures progress towards completion on a cost-to-cost basis for fixed-price contracts, the allowance for doubtful accounts, and the valuation allowance for deferred income tax assets. These estimates require judgments, which are based on historical experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional information becomes available or operating environments change.

Current wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates used in the financial statements relate to revenue recognition where the Company measures progress towards completion on a cost-to-cost basis for fixed-price contracts, the allowance for credit losses, and the valuation allowance for deferred income tax assets. These estimates require judgments, which are based on historical experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional information becomes available or operating environments change.