Koil Energy Solutions Inc

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Coil Energy's first quarter 2025 conference call. During the presentation, all participants will be in listen-only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. As a reminder, this call is being recorded today, Tuesday, May 20th, 2025. A detailed disclaimer related to Coil Energy's forward-looking statements is included in the press release issued Monday 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 V. Please go ahead.

Good morning, ladies and gentlemen. Thank you for joining us today. I would like to start by introducing Kurt Keller, our new Chief Financial Officer. Kurt started in Coil Energy on April 22nd and is joining me here today. He has two decades of financial leadership experience from middle market companies where he has successfully scaled operations, growing revenues from $20 million to $100 million. We're excited to welcome Kurt to the Coil Energy team. His extensive experience will prove to be incredibly valuable. Before I hand over to Kurt, I'll provide an overview of our first quarter performance and update you on our ongoing strategic initiatives. Following my overview, Kurt will deliver a detailed analysis of our financial performance. Next, I'll provide an update to our growth roadmap and how we're making progress in the market. Finally, we'll be happy to answer any questions you may have. We had a disappointing start to this year. This quarter, Coil Energy generated revenues of $5.3 million. The gross margin was 31%. The lower gross margin was driven by growth-related expenses and underutilization of capacity. Adjusted EBITDA was 6% or $339,000. Compared to the first quarter of last year, revenue decreased 9%, and adjusted EBITDA margin fell from 13% to 6% of revenue. Despite a significant increase in revenue from service contracts, Our overall revenue decreased by 11% sequentially due to the lower percent of completion on our fixed price project, caused by lower order intake in the prior quarter and during January and February. Our increased sales effort did deliver increased service volume, but did not secure enough projects needed to effectively utilize the increased capacity. We increased our direct label force by eight employees last year. However, the reduced number of projects this quarter left our crews with limited opportunities to work efficiently. Balancing expansion costs with order intake is vital to our growth strategy. However, we felt short in mitigating this risk during the quarter. We always knew our growth journey would have its ups and downs. And while this quarter presented a challenge, it reinforces our commitment to carefully building sustainable long-term momentum and delivering consistent value to our shareholders. Our clients continue to give me excellent feedback on the work we perform. For instance, during Q1, we completed the installation of a fiber optic telecommunication cable in the Caribbean. This is an example of where our oil and gas expertise comes in handy when other industries need more powerful tools and unique expertise. Another example is the completion and testing of two umbilical systems, a milestone achievement with the highest visibility within the client's organization. The client representative commented that, Out of all the contractors performing work on that project, Coal Energy is the best team to work with. During the first quarter, we were awarded a significant contract to supply multi-quick connector plates for a project in the Gulf of America. This award encompasses equipment designed to control the high-pressure systems of a subsea field operated by a US independent oil company. The MQC plates will play a critical role in the subsidy infrastructure by distributing hydraulic control fluid in order to regulate oil and gas production and chemical injections to support flow assurance requirements. This award is particularly exciting for several reasons. Firstly, it represents a repeat order from a valued client, showcasing their continued trust in our capabilities. Secondly, It features our advanced 20,000 PSI technology, highlighting our commitment to innovation. Lastly, as the MQC is a cornerstone product within the subsea control segment, and this achievement paves the way for further growth. The project has started successfully and is being carried out at Coil Energy's facility in Houston, Texas. Final delivery is scheduled for the last quarter of this year. And with that overview, I will now turn the call over to our Chief Financial Officer, Kurt Keller. Thank you, Eric.

Before joining Coil Energy, I served as a financial executive at several private equity-backed companies, including PerchRite, SunGrid, and Mantis Innovation Group. Earlier in my career, I served as CFO at Crescent Directional Drilling Services and Navasota Energy Services. I also spent time as manager in transaction advisory services at Deloitte. I'm excited to have joined Coil Energy. This is a company with a strong foundation and a compelling opportunity for growth. My initial experiences with the organization have been highly encouraging, and I'm pleased to embark on this promising journey with such a great team. My focus here will be to further enhance controls, solidify our financial strategy, and drive performance in a disciplined, transparent way. I believe that financial discipline is crucial to our ability to meet our commitments to customers, shareholders, and to employees. Let me now walk through our first quarter's results in more detail. For the three months ended March 31, 2025, Coil Energy generated revenues of $5.3 million. a 9% decrease compared to revenues of $5.8 million for the same period last year. While service contract revenue nearly doubled year over year, this growth was offset by a 40% decline in product-oriented fixed-price contracts, which drove the overall reduction. Gross profit for the quarter totaled $1.7 million. 31% of revenues, representing a 19% decrease in gross margin compared to $2.0 million for 35% of revenues in the first quarter of 2024. The decline reflects the shift in revenue mix and volume, particularly in fixed-price product work. Selling general and administrative expenses equaled $1.7 million, up $267,000 from the prior year. The increase was largely due to the addition of key personnel and one-time investments to restructure and strengthen our administrative functions. Moving to net income, we reported a loss of $30,000 for the first quarter, which translates to break-even earnings for diluted share. This compares to net income of $576,000, or 5 cents per diluted share, recorded in the first quarter of 2024. This reduction in earnings reflected lower contribution margins from fixed-price contracts, which were insufficient to absorb our fixed cost base. Turning to our balance sheet, as of March 31, 2025, we reported $5.1 million in working capital, including $2.2 million in cash, and $4.9 million in net receivables. This compares to $5.7 million in working capital at year-end 2024 with $3.4 million in cash and $3.1 million in net receivables. This shift is primarily due to the timing of billing and collections tied to fixed-price contract milestones. Before I hand the call back over to Eric, I want to briefly acknowledge that while this was not the quarter we had hoped for, the fundamentals that attracted me to Coil Energy, customer satisfaction, industry know-how, and a strong technical team, are firmly intact. In the coming quarters, we will focus on sharpening our financial execution. This means driving higher utilization across our workforce, managing working capital with discipline, and ensuring that our growth investments are appropriately scaled and timed. Thank you for your time.