10-K: Koil Energy Solutions Reports Strong Revenue Growth in 2024, Despite Internal Control Weaknesses

Koil Energy Solutions, Inc. reports a 48% increase in revenue for 2024, driven by fixed price contracts, but identifies material weaknesses in internal control over financial reporting.

Summary

• Koil Energy Solutions, Inc. filed its annual report on Form 10-K for the fiscal year ended December 31, 2024.
• The company reported a 48% increase in revenues, from $15.34 million in 2023 to $22.73 million in 2024, primarily driven by an increase in fixed price contracts.
• Gross profit increased by 80%, from $4.85 million in 2023 to $8.75 million in 2024, with a gross profit margin of 38% compared to 32% in the previous year.
• Selling, general, and administrative expenses decreased by 4%, from $6.46 million in 2023 to $6.19 million in 2024.
• The company reported net income of $2.62 million for 2024, compared to a net loss of $1.55 million in 2023.
• Modified EBITDA increased by $4.42 million, from $(0.88) million in 2023 to $3.54 million in 2024.
• The company identified material weaknesses in its internal control over financial reporting related to share-based payments and the COSO framework.
• Koil Energy intends to engage outside consultants and assess the need for additional internal accounting and financial reporting resources to remediate these weaknesses.
• The company's common stock is quoted on the QB Tier of the OTC Markets Group under the symbol KLNG.
• As of March 27, 2025, there were 12,388,202 outstanding shares of common stock.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While the company shows strong financial performance with significant revenue and profit growth, the identified material weaknesses in internal control and ongoing litigation introduce uncertainty and risk. The positive outlook and strategic initiatives contribute to a moderately positive sentiment.

Positives

• Significant revenue growth of 48% year-over-year.
• Substantial increase in gross profit and gross profit margin.
• Return to profitability with a net income of $2.62 million.
• Improved Modified EBITDA, indicating better operational performance.
• Securing major contracts, driving growth and market presence.
• Expansion into new markets, such as Brazil.
• Strategic alliance formed to enhance technological capabilities.
• Reduction in selling, general, and administrative expenses.

Negatives

• Material weaknesses identified in internal control over financial reporting.
• Remediation plan required to address internal control deficiencies.
• Lawsuit filed by WW Champion Developments, Inc. alleging breach of contract.
• Dependence on the condition of the global oil and gas industry.

Risks

• Economic uncertainty and financial market conditions may impact the customer base, suppliers, and backlog.
• Volatility of oil and natural gas prices.
• Use of percentage-of-completion accounting could result in volatility in results of operations.
• Contracts may contain terms with penalty provisions.
• Fluctuations in the price and supply of raw materials may reduce profits.
• Operations could be adversely impacted by government regulations.
• International and political events may adversely affect operations.
• Operating results may vary significantly from quarter to quarter.
• Potential inability to generate profitable internal growth.
• Departure of key personnel could disrupt business.
• Difficulty attracting and retaining qualified employees.
• Unfavorable legal outcomes could have a negative impact on business.
• Impact of global health crises, including epidemics and pandemics.

Future Outlook

The company anticipates experiencing the benefits of positive momentum in bidding activity throughout this year and into next year, and expects increased expenditure due to aging infrastructure. 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.

Management Comments

• The current consensus among our customers is that the demand for energy is increasing.
• Our clients are indicating that the worlds energy demand will require supply growth within oil and natural gas as well as for renewables.
• The years of underinvestment in offshore production appear to have triggered a general shift and returning focus on increasing production.
• Our strengthened positioning in these markets is therefore essential to achieve a sustained level of growth.
• The 48% year-over-year increase in our revenues for 2024 is exceptional and beyond the industry benchmark.
• We are one year into an ambitious 3-year strategy where continued profitable revenue growth is the objective.
• We continue progressing towards achieving our goal of becoming the premier provider of integrated subsea distribution systems.

Industry Context

The energy services industry relies heavily on the capital and operating expenditure programs of energy companies, and the current consensus among Koil Energy's customers is that the demand for energy is increasing, requiring supply growth within oil and natural gas as well as for renewables. The company's strengthened positioning in key subsea basins is essential to achieve a sustained level of growth.

Comparison to Industry Standards

• The 48% year-over-year increase in revenues for 2024 is exceptional and beyond the industry benchmark.
• According to Westwood Global Energy Group, the global annual subsea tree awards included 284 and 279 awards in 2023 and 2024, respectively, which presents good opportunities for Koil Energy going forward.

Management Changes

Legal Proceedings

• WW Champion Developments, Inc. sued the Company alleging breach of contract and seeking money damages of $1,229.

Stakeholder Impact

• Shareholders: Positive impact due to improved financial performance and return to profitability, but concerns remain regarding internal control weaknesses.
• Employees: Potential impact from workforce alignment and cost containment initiatives.
• Customers: Continued focus on providing superior services and products in a safe, cost-effective, and timely manner.
• Suppliers: Potential impact from economic uncertainty and financial market conditions.
• Creditors: Improved financial performance enhances the company's ability to meet its obligations.

Next Steps

• Engage outside consultants to assist with accounting and financial reporting matters.
• Assess the need for hiring additional internal accounting and third-party financial reporting resources, including additional training.
• Implement a more efficient ERP system to streamline and automate certain processes.
• Continue to implement measures designed to improve internal control over financial reporting to remediate the identified material weaknesses.
• Continue progressing towards achieving the goal of becoming the premier provider of integrated subsea distribution systems.

Key Dates

Keywords

subsea, energy, Koil Energy Solutions, financial results, revenue, contracts, internal control, oil and gas, offshore, equipment, services