Pioneer Power Solutions Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to the Pioneer Power Solutions 2023 2nd Quarter Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your question. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Kim Rogers with Hayden IR. Please go ahead.

Speaker 1

Thank you, and welcome. Joining us on today's call will be Nathan Mazurek, Chairman and Chief Executive Officer Walter Mihalits, Chief Financial Officer and Gio Murukan, President of Pioneer Power E Mobility. Following management's prepared comments, a Q and A session will be open to the call participants. We appreciate the opportunity to review Q2 2023 financial results and discuss our recent business highlights. Before we get started, let me remind you that this call is being recorded and webcast.

Speaker 1

During the call, management will make forward looking statements. These statements are based on the current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward looking statements contained in the earnings release issued earlier today, which applies to the content of today's call as well. I would now like to turn the call over to Nathan Mazorach, Chairman and CEO. Nathan, please go ahead.

Speaker 2

Thank you, Kim. Good afternoon, and thank you all for joining us today. This was a great quarter for us with both divisions delivering strong performance resulting in record revenue that was up nearly 150% year over year for the 2nd quarter and a bottom line that was solidly profitable excluding non cash one time charges relating to stock based compensation. The revenue growth reflects growing demand across both our business segments and the profitability reflects better operating leverage, manufacturing efficiencies and a more optimal product mix. Notably, we are delivering better profitability even as we continue to invest significant monies primarily in our e Boost business.

Speaker 2

Even with these large investments, we essentially generated approximately $0.05 per share in GAAP net income, is not for non cash stock based compensation charges and we still expect to generate positive net income for the full year 20 23. Both our segments are executing to plan so far. Our T and D Solutions unit, which includes our e block power System and Related Products grew revenue 263 percent to $9,200,000 compared to $2,500,000 for the Q2 of last year. Indeed, year to date T and D revenue was up 140 percent to $15,000,000 versus last year's $6,300,000 Our Critical Power segment, which includes our e Boost mobile charging platform, form grew quarterly revenue 25% and year to date revenue 14% compared to last year. In addition, 100 percent of Pioneer's revenue growth has been entirely organic.

Speaker 2

Gross margins in both segments have improved exponentially since a year ago. Notably, our T and D segment is now delivering consistent positive GAAP EBITDA, specifically $1,800,000 in the 2nd quarter, up from a loss of $432,000 in the Q2 of last year and positive EBITDA of $3,100,000 year to date compared to a loss of $332,000 in the 1st 6 months of last year. In addition, our Critical Power segment has narrowed its losses and is moving towards positive operating margin, which we fully expect to achieve for the full year of 2024. Our innovative and highly flexible e block solution has been and will continue to be a key driver in our strong performance. We now have 100 of e block installations around the country ranging from retail locations, health and hospital, manufacturing facilities, EV charging and solar based microgrids.

Speaker 2

We continue to see new and large use cases for e block. These include water utilities like the one we are delivering this year in California where e block systems are being deployed as part of a sophisticated distributed energy system, enabling the water utility to better manage its power utilization, improve resiliency, better control costs and reduce its carbon footprint. Another growing market for us is data centers, where power consumption and resiliency are critical issues. This is a massive market that is just beginning to embrace distributed generation and turn away from traditional diesel powered solutions. The emergence of AI has not only increased the demand for data centers, but more relevant to Pioneer's substantial increase in the raw power required by each data center.

Speaker 2

We secured our 1st e block data center order last year and expect to deliver on that project towards the end of 2024 carrying over to the beginning of 2025. We expect that a successful flagship type installation of this particular project will serve as a model and leading to additional data center deployments with this particular customer, their construction partners and hopefully other data center owners and developers as well. In addition, prior customers are returning, especially in the retail market and ordering additional units for additional stores because eBlocWorks is providing the specific and is providing the specific benefits that they had all bargained for. The distributed generation market continues to grow as potential customers seek to utilize solar and other renewable sources combined with battery storage to make energy resources more reliable, cost effective and environmentally friendly. As it stands today, the U.

Speaker 2

S. Cannot expect to produce enough power over the next 10 years to satisfy anticipated demand, making distributed generation a requirement, not an option for many enterprises. We're also delivering growth from our e Boost mobile charging platform and we continue to significantly invest in this business with expectations of further revenue acceleration. What started as a concept 2 years ago and a prototype only first only in November of 2021 has become a rapidly growing product platform that is addressing a market that indeed did not even exist several years ago. To date, our e Boost wins include Most recently, the City of Fairfield, California ordered an e Boost trailer mounted unit to service the electric portion of Fairfield's public bus fleet.

Speaker 2

This is our first award addressing the municipal transportation market. With government grants supporting the bus fleet electrification and the growing environmental concerns, we fully expect this market to continue to grow for e Boost. The autonomous driving division of a major global automaker ordered multiple e Boost units to support the initial rollout of their autonomous electric vehicles in several cities. More and more cities are approving autonomous vehicles, including driverless taxis. This geographic expansion will lead to more demand for e Boost to support these rollouts.

Speaker 2

Merchants Fleet, a large fleet management business took delivery of 2 trailer mounted e Boost solutions to be integrated into Merchants Fleet's electric vehicle charging offering. We expect other fleet management companies to embrace e Boost as well in order to facilitate the electrification of their fleet. A major Northeastern Transportation Agency acquired a 75 KW E Boost mobile trailer for their fleet of their internal fleet of buses and cars. We have provided 2 propane powered mobile charging e Boost systems to be deployed at a port in the state of California to fast charge electric vehicles imported from overseas manufacturing facilities. While the market for electric cars, trucks and buses in many ways was the first and most obvious application of our EVOO system.

Speaker 2

Well, we have learned from the experience of the last 2 years that the opportunities don't stop there. For example, almost airlines almost all airlines have internal mandates to convert their ground service equipment from diesel to electric over the next several years. This could mean that each airline needs on demand mobile charging capabilities at almost every airport that they serve. Additionally, construction, mining equipment are transitioning to all electric as well as watercraft and electric vertical takeoff and landing offerings, where mobile charging option is particularly important. Each of these trends require flexible charging solutions.

Speaker 2

Each of these areas represent meaningful additional opportunities for us to fill the gap in the EV charging infrastructure over the next several years. We also continue to innovate with e Boost with the goal of supercharging, pun intended, our revenue and expanding our addressable market. This includes developing new variations of e Boost, specifically we are building smaller units for emergencytow truck type applications. We are designing less expensive lower powered options the concierge charging and similar deployments. And for certain users that absolutely demand a 0 emission mobile charging solution, we are working on battery only configurations of e Boost.

Speaker 2

We expect to unveil most of these product extensions before the end of 2023. Ultimately, we believe these additional offerings all based on the successful on prior successful versions we have already built will give us access to more use cases and many more potential customers. Based on our pipeline of e Boost opportunities, we believe we will generate incremental growth in the second half compared to first half of this year. And in addition, we expect e Boost to begin contributing positive EBITDA to the full year of 2024. Our addressable markets are massive and almost every day new use cases from current and new customers emerge.

Speaker 2

The energy transition era is real and Pioneer is at the edge of it, offering proven competitive solutions. With that, let me turn the call over to Walter, our Chief Financial Officer, to discuss our financial results for the Q2.

Speaker 3

Thank you, Nathan, and good afternoon, everyone. As Nathan mentioned, this was a great quarter for Pioneer with both divisions delivering strong performances. Pioneer's 2nd quarter consolidated revenue was 12,100,000 up $7,300,000 or approximately 150 percent when compared to $4,900,000 of revenue during the same period last year. Revenue from our T and D Solutions segment, which manufactures and integrates our e block power systems increased 263 percent to $9,200,000 during the Q2 as compared to revenue of $2,500,000 during the same period last year. Revenue from our Critical Power segment, which manufactures and integrates our e Boost mobile charging solutions was up 25 percent to $2,900,000 during the comparable periods.

Speaker 3

Consolidated gross profit for the 2nd quarter was $2,700,000 or a 22% gross margin compared to gross profit of $63,000 We're essentially breaking even during the Q2 of last year. The significant improvement to our gross profit and margin was due to higher revenue driving improved manufacturing utilization, a favorable sales mix of higher margin e block power systems and ATS equipment and margin expansion in both segments as we continue to scale revenue. Selling, general and administrative expenses of 3,100,000 were 25% of revenue for the Q2 of 2023, an increase of 20% when compared to $2,600,000 in the year ago quarter. Approximately $819,000 of the quarterly SG and A expense was related to onetime non cash stock based compensation. SG and A also includes approximately $750,000 in incremental investments in sales, marketing, personnel and prototypes for our e Boost solutions.

Speaker 3

This is intentional and targeted spending designed to drive demand for these new solutions. We expect these investments to continue through 2023 as we build these new business lines and as they grow. Finally, higher wage costs including salaries and benefits contributed to the increase in SG and A expense. Our operating loss, which again includes one time non cash stock based compensation expense of 819,000 was $319,000 for the Q2 of 2023, a positive swing of more than $2,100,000 compared to an operating loss of $2,500,000 in the Q2 of last year. If we back out the one time non cash stock based compensation, Pioneer generated operating income of approximately $440,000 during the 2nd quarter, compared to an operating loss of approximately $2,000,000 in the same period last year.

Speaker 3

Net loss for the Q2 of 2023 was $319,000 or negative $0.03 per basic and diluted share compared to a net loss of $2,500,000 or negative $0.26 per basic and diluted share during the Q2 of 2022. It's important to note that the company has $14,200,000 and NOL carry forwards as of June 30, 2023, sheltering future income from federal income taxes. Also backing out the one time non cash stock based compensation expense of 819,000 Pioneer generated net income of approximately $500,000 or $0.05 per share during the 2nd quarter, compared to a net loss of approximately $2,000,000 or negative $0.20 per share during the Q2 of last year. Looking briefly at the year to date results. Total consolidated revenue for the 6 months ended June 30, 2023 was $20,600,000 an increase of 84% compared to $11,200,000 during the 1st 6 months of last year.

Speaker 3

Revenue from the T and D Solutions segment increased approximately 140% and revenue from the Critical Power segment increased 14% during the first half of twenty twenty three as compared to the same period last year. Total gross profit for the 1st 6 months of the year was $4,900,000 or a 24% gross margin compared to gross profit of $986,000 or approximately 9% of revenues for the same period in 2022. Loss from operations for the 1st 6 months of the year was $322,000 as compared to a loss from operations of more than $3,300,000 during the first half of twenty twenty two. Onetime non cash stock based compensation for the 1st 6 months of the year and for the 1st 6 months last year was $962,000 $716,000 respectively. Excluding stock based compensation, Pioneer generated income from operations of approximately $640,000 during the first half of twenty twenty three compared to a loss from operations of $2,600,000 during the first half of twenty twenty two, a positive swing of more than $3,000,000 Our net loss for the 1st 6 months was $197,000 or negative $0.02 per basic and diluted share, compared to a net loss of $3,300,000 or negative $0.34 per basic and diluted share during the same period of 2022.

Speaker 3

Once again, backing out the stock based compensation expense, Pioneer generated approximately dollars 0.08 in positive EPS were $765,000 during the 1st 6 months of this year. Turning to the balance sheet. We had cash on hand of approximately $9,600,000 and 0 bank debt at June 30, 2023, compared to cash of $10,300,000 and 0 bank debt at December 31, 2022. This represents cash per share of approximately $0.98 at June 30, 2023. Accordingly, we are confident that we are sufficiently capitalized to address our near term investments and cash needs.

Speaker 3

We expect to deliver continued growth in the second half of twenty twenty three with margin expansion and positive net income. Based primarily on our backlog as well as the significant and accelerating demand for our new solutions, we believe we can grow revenue by at least 50% in the current year. Additionally, we expect to generate positive full year net income and earnings per share. This concludes my remarks. I now turn the call back over to the operator for any questions.

Operator

We will now begin the question and answer session. The first question comes from Sameer Joshi with H. C. Wainwright. Please go ahead.

Speaker 4

Thank you. Good afternoon, Nathan, Walter. Congratulations on the excellent quarter. Was there any surprises on the positive side on the top line in terms of some deliveries getting expedited? Also just wanted to understand what made this quarter so great?

Speaker 2

Yes, I mean this was thank you Sameer for your comments. It has kind of unfolded the way we thought it would. The quarter Thankfully, there were no real surprises. There was a little bit of hangover from the Q1. If you remember, there was one larger We're not really so large, but there was one job that kind of couldn't ship the last day of the Q1 and that hung over into the Q2 of this year.

Speaker 2

But we stand by the guidance that we gave for the year. So I mean, you can all do the math. You can the second half of the year will come in. And what it will come in and we fully expect to meet or hopefully even exceed a little bit guidance for the year.

Speaker 4

Yes. That's what it looks like. But specifically on the backlog and your guidance recently this second half, what proportion of this The expected revenues would come from eBloc and e Boost?

Speaker 2

Yes. So the vast majority is coming from e blocks, especially the second half of this year. As we said in the prepared remarks, incrementally, e Boost will have a better second half than it had the first half. So that's sort of a little bit of a wildcard contribution that we generally don't have such good visibility as to when those things end up shipping And realizing the revenue. So that should be make even the second half a little bit stronger.

Speaker 2

But that's the mix. E block is driving it very hard here for 2023. We expect it to drive it hard 2024, but we expect then where it's too early to talk about 2024. But I hope that in the prepared remarks that came across that we're Effecting substantially stronger year on the e Boost side in 2024.

Speaker 4

Yes, yes. And will you remind us if e Boost is going to be a better margin product And maybe as revenues increase, profitability may improve?

Speaker 2

Yes. I mean, it should track that way. We definitely get better. The issue with e Boost, it's all new. So there's some on our part, there's some missteps.

Speaker 2

Every single one is custom. There is no model for how to price a lot of these things. And so far, it's been all over the place. Good better than sometimes expected and then sometimes worse. We don't I really we just don't have enough units under our belts yet to project the margin.

Speaker 2

We go in with great expectations, But we've never for the plus or the minus hit exactly what we thought.

Speaker 4

Yes, yes. No, that's fair. On the e Boost, you identified these new markets In airlines, mining, construction, EV toll. Are you already do you have leads into this? Are you already receiving orders from these sectors?

Speaker 2

We haven't received any orders from those segments, but we're in serious Discussions with all of them. And these are segments that I didn't know anything about months ago. These emerged. And through the hard work of Gio and his team and through getting the proper word out and trying to make e Boost synonymous with the mobile charging solution, that's how these opportunities are coming our way.

Speaker 4

Understood. In terms of capacity and also some of the product development for e Boost. Is there any additional incremental CapEx and OpEx R and D dollars expected in the second half?

Speaker 2

No, we're hopefully spending less in R and D on e Boost and more towards capital expenditures that expand the actual capacity for EPOOS, because we're coming to the limits. This year, we'll test the limits of what we need to deliver in Minneapolis. So in order for that business to really grow, we just physically can't do it. I don't think it's going to be we're not doing heavy work. So it's not I don't think that we don't have a budget for it, but it should not be outside our reach.

Speaker 2

And in the case of e block, Each year we think we're at statistical 100. We're trying to do everything possible to enhance and be more efficient in the current facility in Los Angeles because the operating we're getting the benefit now of the fixed overhead and so forth Just to expand physically and lose some of that advantage from a profitability, I'm the low to do that right away.

Speaker 4

Understood. And then just last one on the SG and A expense, GAAP expense Saiid, in the last in 2022, we saw this stock based comp in 2Q being higher and then 3Q, 4Q were again normalized. Should we expect the same cadence of stock based comp for the next No, for the second half, as in second

Speaker 2

half of twenty twenty. I'm not expecting it. So I guess the answer is no, yes. It was Again, it's all fully disclosed. Last year was an arrangement we made to keep our CFO incentivized to stay with us for the long term.

Speaker 2

And I was granted a stock grant by the Board a couple of months ago and that manifested itself in the Q2. So we don't know of any other awards.

Speaker 4

Yes, yes. So OpEx on a GAAP basis will be coming down in the second half,

Speaker 2

correct?

Speaker 4

Got it. Okay. Thanks a lot for taking my questions and congrats once again.

Speaker 2

Good luck. Thank you, Sameer.

Operator

The next question is from Scott Weiss with Simulco Capital, excuse me if I mispronounced.

Speaker 5

Hey guys, congrats on the great quarter. Well done. Thank you, Scott. I have one question on the demand side. You talk about all these newer opportunities and new verticals.

Speaker 5

Is there something that's happened in the last quarter, 2 quarters that has caused this inflection that you're seeing in demand? And then related to that, which vertical are you most excited about as you look out over the next 12, 18 months?

Speaker 2

Yes. So I mean, we still think of the business in 2 parts, both are experiencing strong demand. So On the e block side, the demand the big markets, I think I flagged them that we expect to get greater volume and profit from our water and data centers. That's where we see a match to what's going on with distributor generation and people that are taking their power needs extremely seriously on every level. On the e Boost side, what's really going to drive it in the next year or so is still going to be the traditional mobile chart.

Speaker 2

I think it's traditional, it's not traditional, but the initial thought, the reasons we launched e Boost, which is going to be cars, buses and trucks, Those electric offerings. But there is a push. I don't think we'll get one order From an airline in 2023 or maybe not even for most of 2024 as their transition to electric is going to definitely take them longer, but it's pushing against the fence And they're taking it very seriously. They won't make that move as quickly as the vehicle market yet, but we see this kind of is a long tailwind. I wouldn't believe that construction equipment is going to go this way, but it is.

Speaker 2

Is it going to do it next It's not going to do it next year, but it is going to make this transition over the next several years.

Speaker 5

Can you dig into the data center side on eBlock for a second? Going back, say, a couple of years, were data centers using this kind of technology? And what inning are we in, in penetrating the data centers and who else is providing this technology into data center market besides you?

Speaker 2

Yes. The technology exists, who's doing it in a compact simple structure that is proven to work in critical applications where there is no There's no room for error. That I can't answer. As they get away from thinking of just regular power from the grid and backup power from diesel sets as they start integrating other power sources into what they're doing for a variety of reasons. We're hoping that this first project really serves As our planting the flag in that beach, here it is.

Speaker 2

And it works. Everybody wants to see, so what's going to happen? They went away from diesel. They're using gas, they're using natural whatever this particular user, they're using combination of several sources. Did everything switch in nanoseconds?

Speaker 2

Was there any failure? Was there any this? What was the service? I think that's then they don't have a choice after They don't want to be people that are using diesel when they don't have to.

Speaker 5

Okay, great. Thank you. Appreciate it.

Speaker 2

All right, Scott. See you in a few weeks in Chicago.

Speaker 5

Yes, very good.

Operator

The next Question is from David Kreindberg with Globus Capital. Please go ahead.

Speaker 6

Hi, good afternoon. Congratulations on the fantastic quarter. Just a quick question. The large retailer that you had last year, I think it was $12,000,000 Revenues. Is any revenues expected from them in the guidance this year?

Speaker 2

No. No. So we went out right. We went out without any expected revenue from them.

Speaker 6

Right. So if I look at last year, I think 12 out of your $27,000,000 was from that one customer. So if I back that out to without them, you're actually going from 15%, you're almost tripling the business, ex that one customer this year. Is that right?

Speaker 2

Almost 100%, right. Some of it hungover into the Q1 this year.

Speaker 6

Okay. So there is a little bit of revenues in that.

Speaker 2

Yes. There is a little bit of this year, correct. The potential is, we've said they've targeted almost 500 stores. We've delivered 63. I can't speak if anything else is going on, but I'm expecting hopefully some more good news from them sometime this year, which would mean that we would deliver it sometime in 2024.

Speaker 2

But I don't have anything in my hand today to announce.

Speaker 6

Okay, great. Congratulations again.

Speaker 2

Thank you, David.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to Nathan Mazurek for any closing remarks.

Speaker 2

Thank you, operator. Thank you all for your time and support, and we look forward to updating you again on our next call.

Operator

The conference has now concluded. You may and thank you for attending today's presentation. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Pioneer Power Solutions Q2 2023
00:00 / 00:00