Pioneer Power Solutions Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 9 speakers on the call.

Operator

Greetings and welcome to Pioneer's 2023 Third Quarter Financial Results. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Moss from Hayden IR.

Operator

Thank you, Mr. Moss. You may begin.

Speaker 1

Thank you, and welcome. The call today is being hosted by Nathan Masaryk, Chairman and Chief Executive Officer and Walter McCalick, Chief Financial Officer. Following this discussion, there will be a formal Q and A session over the participants on the call. We appreciate the opportunity to review the Q3 financial results and discuss recent business highlights. And assumptions and are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker 1

Please refer to the cautionary text regarding forward looking statements

Speaker 2

I would like to now turn

Speaker 1

the call over to Nathan Maszrich, Chairman and CEO. Nathan, please go ahead.

Speaker 2

Thank you, Brett. Good morning and thank you all for joining us today. We also have Gio Morikin, President of Pioneer's eMobility business, essentially our e Boost business on the call as well. The quarter's financial results included a doubling of revenue and Strong profitability demonstrating the value of Pioneer's products and services as well as a reflection of the underlying strength of our target markets. Revenue of $12,400,000 for the 3rd quarter is a record Since divesting our transformer business in 2019, higher sales, lower input costs and a favorable product mix drove net earnings to $0.10 a share, up from a loss of $0.13 a share a year ago in the Q3 of 2022.

Speaker 2

We expect to achieve our full year revenue guidance as well as positive net income for the full year 2023. We also expect to enter 2024 with accelerating momentum and a record backlog And plan to announce more formal guidance for 2024 early in the New Year. Our outdoor compact e block Power solution for the distributed generation market and our e Boost high speed mobile electric charging suite of products Continue to penetrate new markets and gain additional traction in currently served markets. 1st, eBlock continues to benefit from the rapid growth of the distributor generation market. Raw demand for electricity continues to grow And the grid's ability to satisfy this growth continues to decline.

Speaker 2

The result is accelerating power usage, higher power costs And reduce reliability and supply of power. The e block product platform at its core Integrates an automatic transfer switch, circuit protection scheme and programmable controls into a compact outdoor unit. This allows the user to protect and control 2 or more sources of power concurrently, potentially even in parallel, Located in one unitized piece of equipment. This limits the user's installation cost, Avoids expensive and disruptive indoor upgrades and directs them to one point of responsibility for the seamless flow of power. To date, Pioneer has provided e block solutions to a multitude of Fortune 500 Companies across verticals Such as retail, data centers, electric vehicle charging station, automotive and aerospace.

Speaker 2

In addition, Pioneer has provided dozens of e block units to electric and water utilities as they supplement their operations with alternative sources These long term trends will continue to support our growth for the next 3 to 5 years with clear annual visibility. Next, our 2nd major product growth driver is e Boost, which provides mobile high speed electric charging. We deliver this mobility via truck, skid, trailer or pod type physical platform. To date, we have provided units ranging From 30 kilowatts to 400 kilowatts with up to 4 power dispensers per unit. We believe our recent commercial Successes, for example, the city of Fairfield, California to support their municipal fleet of electric buses or a big three automaker to support the rollout Of their autonomous taxi business foreshadows a massive energy transition market intended to be implemented over a long period of time.

Speaker 2

Customers in addition, customers who ordered Single units early on in our commercialization have already placed follow on orders. Additionally, the market for e Boost keeps Expanding, municipalities are electrifying street sweepers, garbage trucks, police and fire vehicles. Airlines are going electric, Transitioning their ground service equipment to all electric and mining and construction companies are demanding electric options for the equipment they use as well. All these users require mobile, powerful, rapid, non grid connected charging solutions. And e Boost is perfectly positioned to support these electric transitions.

Speaker 2

Year to date, e Boost has charged over 12,000 vehicles And provided more than 200 megawatts of charging to electric vehicles. Additionally, At a major East Coast airport authority, they have been charging on average 3 electric busescars a day for the last 9 months. As the revenue and backlog for e Boost continues to grow, it is clear that e Boost has come a long way from Truck mounted prototype we unveiled exactly 24 months ago. E Boost is no longer a concept, but rather a proven solution for a growing need. All this positive momentum will carry us into 2024 and more specifically, We fully expect to quadruple e Boost revenue in 2024.

Speaker 2

With that, let me turn the call over to Walter, our CFO, to discuss our financial results.

Speaker 3

Thank you, Nathan, and good morning, everyone. Pioneer's revenue during the Q3 It was a record since divesting its transformer business in August of 2019. 3rd quarter revenues were $12,400,000 up $6,200,000 or 99% when compared to the same period last year. Revenue from the T and D Solutions segment, which manufactures our e block power systems and related equipment increased 156 percent to 9,700,000 And revenue from the Critical Power segment, which manufactures our mobile high speed electric charging solution, e Boost, It was up nearly 13% to $2,800,000 in the comparable period. Gross profit For the Q3 was $3,700,000 or nearly 30 percent of revenues compared to a gross profit of $861,000 or approximately 14% of revenues during the Q3 of last year.

Speaker 3

This significant improvement to gross profit This is primarily due to the increase in sales of our e block power systems and related equipment, lower input costs and improved productivity. Total operating expenses or SG and A overhead was $2,700,000 or 22% of revenues during the Q3 of this year, An increase of 20% would compare to $2,300,000 in the year ago quarter. It's important to note that SG and A expense Includes approximately $600,000 in incremental investments in sales, marketing, product development And personnel expense for our e Boost solution, a drag of about $0.06 per share on EPS. This is intentional and targeted spending designed to drive demand for this new solution. We expect these investments to continue through the remainder of the year as we build and scale this new business line.

Speaker 3

Finally, higher wage costs, including salaries, benefits And stock based compensation caused SG and A expense to increase during the Q3 of this year when compared to the same period of last year. Operating income for the Q3 of this year was $953,000 a positive swing of nearly 2,400,000 when compared to an operating loss of $1,400,000 during the Q3 of last year. Our T and D Solutions segment, which manufactures e block is delivering consistent positive operating income to the tune of $2,700,000 during the Q3 of this year, An increase of $2,500,000 when compared to the Q3 of last year. Net income for the Q3 of 20 23 was over $1,000,000 or $0.10 per basic and diluted share compared to a net loss of $1,300,000 or negative $0.13 per basic and diluted share during Q3 of 2022, A $2,300,000 increase to the bottom line or $0.23 per basic and diluted share in the comparable periods. Excluding non cash stock based compensation expense of approximately $285,000 net income per basic and diluted share during the 3rd was $33,100,000 an increase of approximately $15,600,000 or 89% when compared to $17,500,000 during the 1st 9 months of last year.

Speaker 3

Revenue from the T and D Solutions segment Increased approximately 145 percent and revenue from the Critical Power segment increased approximately 14% in the comparative periods. Gross profit for the 1st 9 months of the year was $8,600,000 or 26 percent of revenues, compared to a gross profit of $1,800,000 or 15.5 percent of revenues during the 1st 9 months of last year. We generated net income of $827,000 during the 1st 9 months of 2023, At the positive swing of $5,400,000 or $0.54 per basic and diluted share when compared to a net loss of $4,600,000 during the 1st 9 months of 2022. Again, excluding non cash stock based compensation expense Of $1,200,000 during the 1st 9 months of the year, Pioneer generated net income of $0.20 per basic and diluted share. Including stock based comp, our net income per basic and diluted share for the 1st 9 months of the year was 0 point 0 $8 This is compared to a net loss per basic and diluted share of $0.47 for the 1st 9 months of 2022.

Speaker 3

Turning to the balance sheet, we had cash of $7,600,000 0 bank debt as of September 30, 2023, compared to $10,300,000 of cash as of December 31, 2022. Our cash balance at the end of the 3rd quarter represents Cash per share of approximately $0.76 Accordingly, we are confident that we are sufficiently capitalized to address Our near term investments and cash needs. This concludes my remarks. I'd like to now turn the call back over to Nathan.

Speaker 2

Thank you, Walter. Our addressable markets are massive and almost every day new use cases from current and potential customers emerge. The energy transition era is real and Pioneer is at the forefront of it, offering proven and competitive solutions. With that, I'll now turn the call over to the operator for any questions from investors.

Operator

Thank you. We will now be conducting a question and answer The first question comes from the line of Amit Dayal with H. C. Painebleid. Please go ahead.

Speaker 4

Thank you. Good morning, everyone. Thank you for taking my questions.

Speaker 2

Good morning, Amit.

Speaker 4

The available capacity, Congrats on the strong quarter, by the way. You did $12,100,000 last quarter, dollars 12,400,000 this quarter. Is this indicative of you guys potentially at these revenue levels?

Speaker 2

You know what the guidance we gave for the balance of the year. It's going to be, I think, somewhere in the $9,000,000 to $12,000,000 range. It really depends. We're not deep enough in the quarter yet. It depends Who's taking, who's not, some stuff that we move up that we constantly are in flux with certain customers, especially electrical utilities.

Speaker 2

But That's a decent range. We haven't come out with guidance for 2024 yet. And that I think will give it more Our Q4 will be done by then and we'll also be looking early in 2024 out for the whole year. So we'll get a little bit Of a better look, we're still a small company. So, 1 or 2 jobs at $2,000,000 plus each Slipping or accelerating make a difference.

Speaker 2

Short answer is I wouldn't read that much into it. We kind of try to do our best job on an annual basis And the quarters are going to be a little bit uneven still.

Speaker 4

Understood. I appreciate that. And on the e Boost side, Nathan, you said you potentially could quadruple revenues for this segment. Will that potentially come on the sacrifice of any e block capacity or revenues? Or is this Basically on a standalone basis, you could quadruple from these levels on the e Boost?

Speaker 2

Yes. Good question. I mean, they're made in 2 different So the e Boost is done in our facility in Minneapolis and that can be done without any additional space Or without any additional capital investment, that would probably take us to the max There for calendar 2024 and during the course of 2024, even now, we're trying to figure out what happens afterwards. But that doesn't do it that doesn't affect the e block business. The e block business this year or its related product Out of the facility in Los Angeles, let's say, by the end of the year, we'll have shipped, in product, I don't know, 35 ish 1,000,000 give or take.

Speaker 2

That's pushing the capacity to almost statistical 100 And we get asked all the time, what are we going to do for 2024? So we're already in the process of Really subcontracting the lowest value processes that we do, basic sheet metal or standardized Cheap metal, even busbar, without making a large capital investment so that we can use the facility and the personnel in its Highest and best use, which is really to engineer, wire and assemble and test, e block type product.

Speaker 4

Understood. Okay. Thank you. And then just last one again on maybe the EVO side. These customers and the folks who are coming back to you for repeat orders, Is there a larger runway within these existing customers before you would need to maybe find new Buyers for these products?

Speaker 2

Yes. I mean, the again, we're going to do more formal guidance at the beginning of 2024. But on the e Boost side, it's really From 3 big buckets, it's customers that are repeating. So and those are typically Truck and electric bus manufacturers, they have a long way to go. Their runways are very large.

Speaker 2

You're talking about With most of the ones that we deal with, they'll have anywhere upwards 100 to 250 dealers Around the United States and Canada, so there's a long way to go with units just with them. It's coming from new use cases that we really don't That's the other bucket, whether it be an electrical utility that's got the rural remote issues and they're being tasked with charging or In the case that we've announced earlier, VinFast that's bringing in thousands and thousands of vehicles From Vietnam and need mobile charging at the various ports that they bring them in. We started with them in the port of San Francisco. It's moved to the Port of Los Angeles. They expect to be bringing in material into the Port of Jacksonville and other ports as well and continue to love and need the solution.

Speaker 2

And then it really comes from fleets, Fleet management companies to a large extent and they made orders of initial sizes and so forth of what they thought and That's getting traction among the fleets that they are managing or hoping to manage. So that's also a long runway For follow on orders.

Speaker 4

Thank you, Nathan. That's all I have.

Speaker 5

I'll get back in queue.

Speaker 2

Okay. Pleasure, Amit.

Operator

Thank you. Next question comes from the line of Manish Topakas with GeoInvestor. Please go ahead.

Speaker 5

Hey, I'm sorry, I jumped on a little late, maybe you already addressed it, but back to the guidance for the rest of the year. I know I think you touched on the revenue side, But I believe the way the guidance is given, EPS could still be a loss for Q4. Is that what you're expecting? Or Do we expect to be positive on the EPS side?

Speaker 2

Right. So the short answer is we expect it to be positive. How positive? I really don't know until the with the revenue and the mix Plays itself out. And of course, you are technically correct.

Speaker 2

We guided towards positive EPS for the year. So theoretically, at this We could lose $0.07 and still be positive for the year, which is a great position to be in. But thank you for bringing this up And teasing this out, we don't have any intention of being negative in the Q4.

Speaker 5

Okay. All right. Thank you. And with your 2024 guidance that you talked about, will you be giving EPS guidance when you guys give out?

Speaker 2

That's the plan, yes.

Speaker 5

Okay. All right. Thank you very much.

Speaker 2

You're very welcome.

Operator

Thank you. Next question comes from the line of Scott DeVeis with Sempoca Capital. Please go ahead.

Speaker 6

Thanks for taking the call. Great quarter.

Speaker 2

Thank you, Scott.

Speaker 6

I have a question on the gross margins. 29% was terrific and I think it's the best you've ever done. Is that number sustainable going forward?

Speaker 2

That's a great question, Scott. It's definitely something once we've it's like tasting forbidden waters. Once we've tasted it, we don't want to move backwards. We shoot for 25. That's how we base a lot of the analysis and guidance going forward for 2025.

Speaker 2

But we definitely see that we have the ability to stretch in certain cases. It's really going to depend on the continued Spend on the e Boost and when e Boost stops being a drag on earnings and breakeven and then hopefully be a contributor. So That's a long winded answer to your question.

Speaker 6

Okay. Well, that's a good segue into my next question. At what point do you expect e Boost To stop being a drag and start to contribute, can you give us some color on the timeline?

Speaker 2

Yes. So I think it should Stop being a drag is what's a drag. But I think it should mitigate a lot Of the loss and the spend somewhere in the Q2 of 2024 and start contributing in the second half of the year. I think the Q1 will be some advance in that area, not enough to say that it's close to breakeven Until a little bit later.

Speaker 6

Okay. And then my last question is, after the Q2 call, You called out water utilities and data center as highlights of your end markets. And can you comment on your end market growth that you saw in the Q3 and how those 2 end markets specifically did? And then any surprises to the upside or the negative side?

Speaker 2

Yes. I mean, it's only to the positive side. They continue to I Probably didn't do a good job in the comments I made earlier. But at this point, we're across so many When we call them out, then everybody's thinking, okay, what about this one, that one and so forth. It's everywhere.

Speaker 2

Data continues to be strong. EV charging stations are super strong. Water utility, that is the heart. I mean, water utility and the large automotive Projects that we did were the heart of the Q3. And we fully expect that, especially on the water side, we expect that to continue.

Speaker 2

That's a That's a large, large untapped market with a customer that is ready to Spend and is not sort of bound by they have different spend considerations than a more commercial customer.

Speaker 6

Great. Thank you very much.

Speaker 2

You're very welcome, Scott. Can't wait to see you again soon.

Operator

Thank you. Next question comes from the line of Albert Jones with Jones Capital Management. Please go ahead.

Speaker 7

Thanks. Very nice quarter. Quickly on the gross profit 29.8 percent of revenue. I imagine that was a lot of it was Going by sales mix, can you tell me if the sales mix for the Q4 is trending different than the 3rd quarter?

Speaker 2

It's trending sort of the same. Part of it as far as the type of product, Every day, we live in a dynamic human world. So how well did we execute? Did we hit the hours? Did we make A mistake on some components from a material point of view.

Speaker 2

So I don't have all that data. The product mix is Still beneficial, is a good product mix, something I would hope overall continues through 2024 as far as product mix, but I don't have a more drilled down view on the profitability of the jobs yet. And the Q4 is not over. Yes.

Speaker 7

Yes. Okay. Thanks. One more quick one as far as The revenues were quite good. Did all orders get shipped out or did any possibly Move into a slight delay to being shipped 4th quarter or Q1 that you could talk about?

Speaker 2

Yes. I mean, that's every quarter for us. So if you ask me every quarter, the things get shipped out, the things get pushed out, some things get set and pulled in, Happens all the time. So I'm not sure where you want to go with it. That's the nature of the business.

Speaker 2

The quarter customers, Especially the larger one not interested that September 30 is the end of our quarter or whatever that means. So I'm not sure what you're trying to uncover.

Speaker 7

Just, well, The talk on the macro side of some of the U. S. Car companies are making delays to their orders on the EV side because of The slow uptake supposedly, you hear this every day on the business news. So My question was kind of related to that, as far as a macro thing on that side.

Speaker 2

Yes. So I understand your question better now, sorry. Yes, we are not seeing in our space and the markets that we're after, for the most part, we're not seeing any slowdown whatsoever. Doesn't mean it won't happen and doesn't mean that we're immune from anything that's happening, but even, I mean, even orders that we took From the autonomous vehicle division of a certain automaker and so forth and despite what we read that some of those Businesses are incurring bumps in the road. The opposite, they all call to make sure that we're full steam ahead and that they have They've invested a lot of money into these businesses and they have every intention of giving it their all for the next several years.

Speaker 7

Hey, thanks for clearing that up for me. I appreciate it. One quick one. In the prepared remarks, You mentioned some larger solutions. I know you had a huge install in Las Vegas that you've talked about in the past As far as that goes, are we talking even larger or something on that size scale?

Speaker 7

What are the newer customers Talking about as far as larger solutions from you.

Speaker 2

Yes. Again, I'm not sure specifically. I don't remember anything in Las Vegas. We have shipped A couple of jobs there if I try to rack my brain, but I'm not sure specifically what you're referring to. The order mix has been going, especially on the e block side.

Speaker 2

The ticket Sizes get bigger and bigger. The projects get bigger and bigger. We announced earlier when we received the order from the large automotive Business of $9,000,000 I mean, that's the largest that we've ever taken post The selling of the transformer business probably even before that. So the year this year has been anchored by some large orders like that And then a lot of orders more in the, I guess, dollars 200,000 range and everything in between. So I don't know if that helps at all or if there's something more specific.

Speaker 2

And we expect the same in 2024. It's going to be anchored By some very large projects and then a lot of the smaller ones or repeats of certain units if You're a retailer or somebody else with multi locations.

Speaker 7

All right. That's all I got. Thanks, guys. Have a great day.

Speaker 2

All right. You too.

Operator

Thank you. Next question comes from the line of Bruce Galloway with Galloway Capital. Please go ahead.

Speaker 8

Hey, congratulations on a good quarter. I'm just trying to delve into the Numbers a little more. It looks like e Boost is probably going to do about 8 ish million this year, 8 to 10, and you said it quadrupling next year. So does that imply about 30,000,000 to 40,000,000 And also, on your capacity issues for e block, Looks like maybe $35,000,000 to $40,000,000 is full capacity and how much more can you squeeze out from that plant? And I guess the demand is way more than that for next year.

Speaker 8

What do you think you could You don't increase those sales by like 30%, 40%? Yes. And also my second question is the share count went up by like 400,000 500 1,000, is that mostly compensation for the executives?

Speaker 2

Okay. I mean, we'll I'll answer the first two and then I'll let Walter go through The third, the options, but I think that you are correct on stock based compensation and some other awards that we gave to employees. But I'll go backwards then. From a capacity point of view, I think we talked about a little earlier on Ebus, yes, we'll do about $35,000,000 more or less This year, out of the Los Angeles facility, and that's what I call statistical 100%. We've said several times, But I will say it more formally now.

Speaker 2

We're in the process of subcontracting out certain, I guess, lower value added processes That we perform there, like some of the metal bending, some of the copper bending that we do. We traditionally grew up just doing everything. We expect that to probably increase the capacity there more than 50%. I don't know exactly how much. If it works out amazingly well, it'd be closer to 100%.

Speaker 2

If it doesn't work out so well, maybe it'll be A little bit below 50%. We'll see as 2024 unfold, even though we're sort of at the beginning of that Right now. Yes, and e Boost, yes, the little trick there with e Boost. So the e Boost sales, I'm doing it by units. A lot of what you see in Critical Power is some of it's not related to e Boost, a lot of it's not, a lot of it is pure service work that we still do.

Speaker 2

So let's use I'm glad you raised it because we should have actually had it in the remarks and been more formal and maybe next call And next release will be more formal, but e Boost sales this year will be Somewhere over $1,000,000 Now that includes rental income as well. So there's a more expensive unit behind A longer term lease. When we say quadruple, quadruple is easy, frankly, that would be 4,000,000 Again, we haven't done the formal guidance, but we're kind of using rental income and product sales of about 10,000,000 additional sales next year related to e Boost. So maybe that helps A little, at least be more clear to you. All right.

Speaker 8

Yes, yes, that's good.

Speaker 2

Okay. Thank you, Bruce.

Operator

Thank you. There are no further questions At this time, I would now like to turn the floor over to Nathan Mazurek for closing comments.

Speaker 2

All right. Thank you all for your time and support. We look forward to updating you as we win additional projects and more formally update you on our next earnings call.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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