Koil Energy’s Earnings Call: Challenges and Future Prospects

Koil Energy Solutions Inc ((KLNG)) has held its Q2 earnings call. Read on for the main highlights of the call.

Koil Energy Solutions Inc. recently held its earnings call, revealing a challenging second quarter marked by a decrease in overall revenue and gross margin. Despite these setbacks, the company expressed optimism for future growth, having secured significant new projects and maintaining a robust sales pipeline that suggests potential for improved financial performance.

Significant Subsea Tie-Back Project Award

Koil Energy announced a major achievement with the award of a significant subsea tie-back project in the Gulf of America. This project includes providing subsea distribution equipment and commissioning services for a major international oil company, highlighting Koil’s capabilities in delivering complex offshore solutions.

Largest Greenfield Project in a Decade

The company secured its largest greenfield project in nearly a decade, involving the design and manufacture of over 20 proprietary subsea flying leads. This international project underscores Koil Energy’s expertise in handling large-scale projects and its commitment to innovation in subsea technology.

Increase in Service Contract Revenue

Koil Energy reported a 66% year-over-year increase in revenue from service contracts, showcasing strong performance in this business segment. This growth reflects the company’s successful efforts to expand its service offerings and capitalize on increasing demand for subsea services.

Robust Sales Pipeline and Growth Outlook

Despite the challenges faced in the second quarter, Koil Energy remains optimistic about its growth prospects. The company reported a solid backlog and a strong sales pipeline, with expectations of improved financial performance in the latter half of the year. This outlook is supported by large project wins and a rise in global demand for subsea equipment and services.

Overall Revenue Decline

Koil Energy experienced a 10% decline in revenue compared to the second quarter of the previous year, totaling $5.2 million. This decrease highlights the challenges faced by the company in maintaining its revenue streams amid a competitive market environment.

Decrease in Gross Margin

The company’s gross margin fell to 33% from 39% in the same quarter last year. This decline was primarily due to reduced throughput and lower labor utilization, which impacted the company’s profitability.

Fixed Price Projects Revenue Drop

Revenue from fixed price projects saw a significant drop of 36%, attributed to lower order intake in previous quarters. This decline underscores the volatility in the fixed price project segment and the need for strategic adjustments.

Increased SG&A Expenses

Koil Energy reported an increase in selling, general, and administrative expenses by $696,000 compared to the prior year. This rise was largely due to investments in additional personnel and restructuring efforts, aimed at supporting future growth initiatives.

Net Income Decline

Net income for the quarter was $61,000, a steep decline from $984,000 in the second quarter of 2024. This drop reflects the impact of lower margins from fixed-price contracts on the company’s bottom line.

Forward-Looking Guidance

Looking ahead, Koil Energy anticipates an improvement in financial performance in the second half of the year. Despite a challenging quarter, the company has increased its headcount and secured significant new projects, including a subsea tie-back project and a cable management services project for a renewable energy initiative. With a focus on executing its strategic plan and leveraging a robust sales pipeline, Koil Energy is poised for potential growth.

In summary, Koil Energy Solutions Inc.’s earnings call highlighted a challenging quarter with declines in revenue and gross margin. However, the company’s strategic project wins and robust sales pipeline provide a promising outlook for the future. Investors and stakeholders will be keenly watching how Koil Energy navigates these challenges and capitalizes on its growth opportunities in the coming months.