Koil Energy Solutions, Inc. (KLNG)·Q3 2024 Earnings Summary

Executive Summary

• Q3 2024 revenue of $5.223M grew 27% year over year, with gross margin expanding to 40% and adjusted EBITDA at $0.675M (13% margin). Diluted EPS was $0.04; sequential revenue declined ~10% due to percent-of-completion timing from supplier delays, expected to shift into Q4 .
• Year-to-date free cash flow was approximately $1.0M, with working capital of $4.9M and cash of $3.1M at quarter end, reflecting improved collections and liquidity .
• No formal quantitative guidance was provided; management indicated deferred Q3 revenue recognition moving into Q4 and that portions of a Gulf of Mexico flying leads project will extend into 2025, tempering 2024 timing expectations .
• Wall Street consensus estimates (EPS and revenue) from S&P Global were unavailable; therefore, an estimates beat/miss comparison cannot be provided. Any estimate-driven model updates should await data availability [functions.GetEstimates error].

What Went Well and What Went Wrong

What Went Well

• Strong YOY growth: Revenue +27% to $5.223M, gross margin +700 bps to 40%, and net income of $0.523M vs. a loss in Q3 2023, driven by increased fixed-price product contracts and improved project margins .
• Execution and innovation: Management highlighted rapid engineering turnarounds (e.g., 24-hour design/build/test of an Intervention Logic Cap) and new product wins (1,000 ft gas lift steel tube flying lead; Drift Frame; Bend Stiffener Latchers) as client-recognized differentiators .
• Liquidity strengthened: Working capital reached $4.9M, cash $3.1M, and approximately $1.0M YTD free cash flow; SG&A remained steady YOY in Q3 despite growth investments .
  • Quote: “We delivered another quarter of robust performance… revenue grew 27%, gross margin increased to 40% and adjusted EBITDA improved from a loss to a margin of 13%” .

What Went Wrong

• Sequential revenue decline: Q3 revenue fell ~10% sequentially due to lower percent-of-completion recognition, driven by delayed machining supplier deliveries; management restructured project and supply chain organizations .
• SG&A uptick sequentially: Q3 SG&A increased vs. Q2, tied to growth initiatives (Brazil expansion) and cybersecurity risk assessment; some costs are one-time/annual, others ongoing .
• Limited visibility on backlog: Management stated backlog disclosure is not currently meaningful given the mix of products/services and intra-quarter order-to-execution dynamics; investors must rely on qualitative pipeline commentary .

Financial Results

KPIs and balance sheet/cash flow

Note: Adjusted EBITDA margins disclosed at 13% in Q3 2024 and 20% in Q2 2024; Q1 2024 adjusted EBITDA margin referenced at 13% in Q2 remarks .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategic positioning: “During the first 9 months of 2024, we have grown revenue by approximately 50% year-over-year… We’re experiencing an exceptional share price development… no long-term debt” .
• Operational readiness: “We have… restructured our projects and supply chain management organizations… deferred percent of completion revenue is forecasted to be recognized in Q4” .
• Market expansion: “We have hired a managing director… in Brazil… pipeline of prospects… participating in the first deepwater subsea development in Mexico” .
• Client feedback and innovation: Rapid turnaround solutions and bespoke engineered products garnered enthusiastic client feedback, reinforcing KOIL’s technology positioning .
• CEO quote (press release): “Revenue grew 27%, gross margin increased to 40%, and adjusted EBITDA improved… driven by our proactive growth strategy. These efforts have produced an earnings per share of $0.17, year-to-date” .

Q&A Highlights

• Project timing: Portions of the Gulf of Mexico flying leads project will be recognized in Q4 2024 and extend into 2025, contrary to prior expectations of full 2024 completion, clarifying revenue timing .
• Sequential product revenue: Q1 and Q2 revenue each at $5.8M; Q3 sequential decline tied to supply chain delays pushing POC into Q4; management working to maintain revenue and profitability in Q4/Q1 .
• SG&A dynamics: Sequential SG&A increase due to Brazil growth efforts and cybersecurity risk assessment; mix of one-time/annual and ongoing service costs .
• Backlog disclosure: Not currently meaningful due to mix/flow; may consider in future once metrics improve .
• Pipeline scale: Pursuing ~80 projects worldwide, supported by better marketing, standardized solutions, and new client introductions in South America .

Estimates Context

• Wall Street consensus (S&P Global) for Q3 2024 EPS and revenue was unavailable due to request limits; as such, an estimates-based beat/miss comparison cannot be provided at this time [functions.GetEstimates error].
• Given micro-cap coverage dynamics and recent OTC status, investors should monitor for consensus publication before making estimate-driven adjustments.

Key Takeaways for Investors

• KOIL delivered solid YOY growth and margin expansion, but sequential revenue softness was timing-related (supplier delays/POC) with Q4 catch-up expected; watch for supply chain execution normalization in Q4 print and early 2025 .
• Balance sheet/liquidity improved meaningfully, with cash at $3.1M, working capital at $4.9M, and ~$1.0M YTD free cash flow; supports continued growth investments and service capability build-out .
• International expansion is gaining traction (Brazil leadership hire, Mexico deepwater engagement), expanding TAM and diversifying revenue sources; monitor contract conversions and cross-border execution .
• Product innovation and bespoke engineering remain differentiators driving client wins (gas lift flying leads, Drift Frame, Bend Stiffener Latchers); supports sustained gross margin resilience .
• SG&A increases tied to strategic initiatives (Brazil, cybersecurity) should be assessed for ROI; expect some normalization as one-time items roll off, with ongoing spend aligned to expansion .
• Lack of formal guidance and backlog disclosure necessitates reliance on qualitative pipeline and execution updates; near-term narrative hinges on Q4 POC recognition and 2025 project timing clarity .
• Trading implication: Potential near-term catalyst if Q4 recognizes deferred revenue and maintains margin profile; conversely, extended timing shifts into 2025 could cap momentum until visibility improves .

Citations: Earnings call transcript Q3 2024 ; 8-K earnings press release Q3 2024 ; Q2 2024 transcript ; Q2 2024 8-K ; Q1 2024 8-K .