Koil Energy Solutions, Inc. (KLNG) Earnings Call Transcript & Summary

Thank you. Good day and welcome to the Coil Energy Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. After the speaker's remarks, you will be invited to participate in this question and answer session. A detailed disclaimer related to Coil Energy's forward-looking statements is included in the press release issued this morning and filed with the SEC. It is also available on the company's website, CoilEnergy.com, or upon request. A reconciliation of non-GAAP financial measures used in the press release and on today's call is included in the press release and on the website. listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date made Coil Energy also undertakes no obligation to revise any of its forward-looking statements to reflect events or circumstances after the date made. At this time, I'd like to turn the call over to CEO Eric Wieck. Please go ahead. Ladies and gentlemen, thank you for joining us today. In this briefing, I'll be presenting an overview of our financial performance for the second quarter of 2026. Finally, I'll be happy to answer any questions you may have.

Kurt Keller, Chief Financial Officer of Coil Energy, is joining me, and he will provide more details on the numbers. With strong momentum across the subsea industry, COIL's team remains sharply focused on execution and growth, delivering record financial performance quarter after quarter. For the three months ending June 30, 2026, COIL Energy generated revenues of $9.2 million with a 12% increase in revenue. percent EBTA margin. This is 78 percent higher revenue than the second quarter of 2025, highlighting the impact of our strategic investments and operational excellence. Our second quarter results reflect the strength of a top tier sales team and outstanding project execution as product sales increased 49% year over year. Bold investment in rental equipment and the flawless work of our service technicians fueled record-setting growth in our service business. This performance includes an impressive 115% year-over-year increase in service revenue. EBITDA was approximately 1.1 million, which is 955,000 higher year over year. This improvement was driven by increased volume as the quarter reflected very high project activity, including significant milestone achievements on major system projects. All milestones were achieved on time or ahead of schedule. I'll now turn the call over to our Chief Financial Officer, Kurt Keller.

Thank you, Eric. Oil energy delivered another strong quarter driven by solid demand and disciplined execution. In the three months ending June 30, 2026, we generated revenues of $9.2 million, a 78% increase compared to revenues of $5.2 million for the same period last year. In addition to solid gains across both our fixed price and services product lines, we continue to see solid revenue growth from customers acquired over the last 12 months. These new customers contributed 32% of revenue for the period. Gross profit for the quarter totaled $3 million, or 32% of revenues, representing a one percentage point decrease in gross margin compared to $2.4 million, or 33% revenues, in the second quarter of 2025. On a sequential basis, gross profit was maintained at approximately the same level. While large, longer-term projects can carry slightly lower gross margins, the difference is largely offset by growth in higher-margin rental equipment contracts. Selling general and administrative expenses during the quarter equaled $2.3 million, up $339,000 from the prior year, mainly due to increased headcount from 74 at the end of the second quarter of 2025 to 90 full-time equipment. employees and contractors this quarter with selective additions to key overhead roles in sales administration and finance On a sequential basis, SG&A expenses fell by $34,000 as a reduction in audit expense was partially offset by an increase in contract legal expenses and sales commission. Moving to net income, we reported a gain of $652,000 in the second quarter, which translates to 5 cents earnings for fully-delivered share. This compares to net income of $61,000 in the second quarter of 2025 and earnings of one cent for fully diluted share. EVA DAW for the current quarter rose to $1.1 million, which was $955,000 higher than the prior year period, demonstrating the earnings power of our organization as we optimized employee utilization and leveraged overhead functions. Turning to our balance sheet, as of June 30, 2026, we reported $3.8 million in working capital, including $922,000 in cash and $7.3 million in net receivables. This compares to $4.8 million in working capital at year-end 2025, with $1.5 million in cash and $4.8 million in net receivables. The shift is primarily due to work on a large carousel award and the timing of associated project buildings and collections. During the second quarter, we entered into an asset-based lending facility with a maximum borrowing capacity of $5 million. At the end of the period, borrowings under the facility equaled $2.4 million. We continue to evaluate additional financing sources in the normal course of business to help support the purchase of additional rental equipment and other growth initiatives while maintaining a strong balance sheet. I would like to acknowledge that this quarter's record financial performance reflects strong collaboration across the entire organization and the teamwork that continues to fuel our growth.

Thank you, Kurt. In June 2026, COIL announced the award of a major project for subsea umbilical handling, spooling and storage services. This project requires two large carousels, including a large mobile offshore carousel and a stationary land-based carousel to execute the work. This award was a pivotal moment for COIL and further validates our strategy to expand the rental equipment and services platform. The project is being executed by COIL's experienced service team and contributed to the second quarter results due to rapid completion of construction activities and early mobilization of the assets. Most of the project work is expected to be performed during the second half of 2026, followed by the long-term storage of the customer's umbilical system. To support execution of the project, COIL secured financing and acquired a new mobile carousel while also redeploying an underutilized carousel from its existing fleet. The newly acquired 3,500 metric ton modular offshore carousel is designed to be assembled on board a vessel, enabling rapid mobilization and redeployment to projects locations in the United States and internationally. This carousel is essentially a new asset and is now ready for mobilization for its first project. Subsequent to June 30th, COIL announced that we secured a significant contract in Brazil, marking the company's first subsymbilical maintenance campaign in the world's largest deepwater market. project represents an important milestone in establishing COIL as the preferred provider of subsidy services in Brazil. The global subsea market remains highly attractive, with growth in greenfield developments complemented by even faster expansion in subsea tieback projects, creating a compelling near-term and long-term global opportunity. Subsea tiebacks represent the core area of Coil Energy's expertise. One metric used for subsea market activity is the number of subsea trees awarded and later installed. Westwood Global Energy Group is reporting planned subsea trees expected to, over the next four years, to be 1,380 installations. This reflects a robust volume of work, especially in light of the industry consolidation and manufacturing retraction seen over the last 10 years. Our roadmap to 2030 will focus on three growth pillars. One, distribution systems. two, Brazilian expansion, and three, rental equipment. We are advancing quickly on all three pillars, reflecting the momentum behind our strategy. Thank you. Shareholders can find a more detailed overview of our strategy by visiting our investors' webpage. That concludes our prepared remarks today, so I will turn the call back to the operator to take investor questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We'll pause for just a moment to assemble our roster. And once again, as a reminder, if you'd like to ask a question, please press star then one. Our next question today comes from Mike Trabios, a private investor. Please go ahead.

Yes, hi. One quick housekeeping item. I noticed on the press release you didn't show the 5% of five cents on the earnings per share. Did I miss that?.

I think we showed the year to date. I'm trying to remember specifically. I'm just looking at the quick one page, you know. bullet points and summary. It may have been, it should be in the table.

Oh, I see. I'm sorry. I didn't come down. I was talking about the wording up top. Okay. Okay. Got you. No worries. Okay. Okay, so first question, I guess in a broad sense, do you feel that the inflection point or the growth strategy is upon us, you get investments made, you're getting operating leverage from the fixed costs, et cetera, et cetera.

Yes, absolutely. And thank you for the question. And what we are set out to do this year is to deliver on the initiatives that we have been working on for almost two years. And last year particularly where we expanded internationally and many of those customers have given us additional work just for this period. 32% of the revenue is from new customers we acquired last year. And most of those are international customers. So absolutely, we're seeing a point of delivery on our initiatives, and hopefully we'll continue to see that going forward.

Okay, thank you. Another question, the rental equipment business, following the company for many years, I always had a little bit of a rental business or on the cusp of doing something, but now we've jumped into it. Has it always been there and it's a great opportunity, we just weren't taking advantage of it?.

So, Coil Energy initially was a service company. So that's how it started. And that has continued to be with us. What we saw a few years ago was that the service business was smaller than the manufacturing aspect or the fixed price contracts. I think two years ago it was like 70-30, 70% was fixed price and then 30% was service. and the service included rental equipment. What we saw over the last year, was that when we invested in rental equipment, not only did we benefit from the rental income as revenue, but also additional service. So then we, particularly on mechanical equipment, we insist on using our own service technicians. So then you get the revenue from the the personnel as well. So it's a double growth effect that we have here. And so this has been with us from the beginning. There are many customers out there that see us as a service company. But of course now we have been growing the product business and over the last quarter I think it's pretty much 15% 50-50 or actually with slightly higher revenue from service and a large portion of that was rental equipment. So, yes, this is our core business. Was that a little bit of a surprise that it turned out to be better than you thought it was? No, I think it slowly grew on us. We did adjust our strategy last year to focus more on service and focus more on rental equipment. So, yes, we did have some learning in the beginning that, yes, we maximized manufacturing. Those project was up and down. so it's a little bit lumpy, but service is really a good part of the business, and we did adjust our strategy last year to go after that more aggressively.

Okay, thank you. The Brazil business sounds like it's getting to be exciting.

Do you think the trajectory is there? Yes, so actually I would give the same comments to that. What we learned over the last year in Brazil as we started up and got qualified for work into that market, we've been bidding product products and we've been bidding service projects, and we see that we actually have a better chance of growing the service also in Brazil, and that was the award we recently announced is actually a service job. So it is interesting when you get into a new market and you're doing both, and one happened to be growing faster than the other. And that's the case in Brazil as well. So service is probably where over the next couple of quarters we'll see more growth in service than in manufacturing. But we're going after both there as well.

Okay, well last question, you mentioned the sub-seat tiebacks, Marketplace has got a, a robustness to it and a good future, is that the resurgence of the technology the deep water exploration coming back, oil prices, et cetera?.

Yes, so the subset tieback is when the operator adds one or two wells, sometimes even more, to an existing field that he's been working on for maybe 10, 15 years. So it is, for the operator, it's an advantage.