Pioneer Power Solutions, Inc.

Good day, ladies and gentlemen, and welcome to the Pioneer Power Solutions 2022 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. Following this discussion, the call will be open for questions. If you have a question, please press the star followed by the one. And if you're using a speaker equipment, please lift the handset before making your selection. I would now like to turn the conference over to Mr. Brett Moss of Hayden ILR. Please go ahead.

Thank you and welcome. The call today will be hosted by Nathan Masaryk, Chairman and Chief Executive Officer, Walter Michalik, Chief Financial Officer, and also on the call today is Gio Morican, President of the company's recently launched Pioneer Power Mobility, I'm sorry, Mobility Business Unit. Following this discussion, there will be a Q&A session open to the participants on the call. We appreciate the opportunity to review the first quarter of 2022 financial results, as well as discuss recent business highlights. Before we get started, let me remind you this call is being recorded in webcast. During this call, management will make forward-looking statements. These statements are based on 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 and the posted version of these prepared remarks, both of which apply to the content of the call. I would now like to turn the call over to Nathan Mazurick, Chairman and CEO. Nathan, please go ahead.

Thank you, Brett. Good afternoon, and thank you all for joining us today for our conference call. 2022 is off to an excellent start. Following the sale of our transformer business in August of 2019, we shifted our strategy to focus on two significant durable secular tailwinds, distributed generation and electric vehicle charging infrastructure. This shift was deliberate and calculated, designed to leverage our engineering, technical, and marketing capabilities most profitably, within the electrical equipment landscape. This business shift has indeed unfolded as we had anticipated. The opportunities related to distributed generation and electric vehicle charging are both significantly manifesting themselves as reflected by our vastly improved financial results for the first quarter of 2022. Our revenue for the quarter was up more than 70% year over year, and sequentially as well. In addition, our backlog increased sequentially and year over year to the highest level in more than 30 months, even as we grew our top line by over 70%. This growth reflects only the initial phase for our new solutions. We believe that as demand continues to grow and combine with our current backlog, we are confident that we will increase our revenue by at least 50%. in 2022, with e-boost and e-block becoming increasingly relevant to our consolidated results as the year progresses. In addition, in the first quarter, the increased volume combined with improved manufacturing productivity resulted in gross margins expanding to over 14% from 4.5% last year. Finally, the increases in revenue and margin were achieved despite continued supply chain challenges in both pricing and availability. These headwinds compressed our ability to achieve even higher sales and margins in the first quarter. As I mentioned earlier, our strategic shift was predicated on two durable secular catalysts. The first trend is the exponential growth in the last 10 years of distributed generation resources. Our customers want to add secondary power sources like natural gas engines and fuel cells, utilize green energy resources like wind and solar, all combined with continued access to the utility grid, battery backup, all in order to create better control over their energy infrastructure, control costs, and reduce their carbon footprint. Our e-block power system makes this possible. enabling customers to efficiently engage in power peak shaving and peak skimming, improve resilience through battery storage, and afford the optionality to use renewable energy sources to address ESG goals. Our e-block can be deployed quickly, often with little or no permitting or interconnect requirements, and usually with no interruption to the current operations. And we can and indeed have done easily add EV charging infrastructure to this solution. Sales of EVs continue to increase, but there has been a serious lag in building out the necessary charging infrastructure, creating opportunity for us. Retailers, restaurants, hotels, casinos, concerts, trade shows, sports venues, workplaces all want to move quickly to add charging solution. The biggest hurdle in this process is often the grid capacity and or the necessary power infrastructure to handle new large electrical loads generated by the EV charging. Our e-block solution addresses these two opportunities. During the fourth quarter of last year, we were awarded our largest e-block order to date, valued at approximately $12 million for 62 e-block units to be installed at 62 separate store locations of one of the nation's largest mass retailers. This retailer has approximately 5,000 total locations in the United States. These units will improve the electrical resiliency, redundancy, and power capacity at these locations and also potentially provide EV charging capabilities for employees and customers. We expect to begin shipping the first of these 62 units towards the end of the current quarter, the second quarter. Please note that this is just one single retailer and just the first phase of deployment, so we see this as an area of significant growth potential for us at Pioneer. Our focus now is to leverage this initial success to bring eBlock to a much wider group of energy developers and users, such as senior living centers, supermarket chains, warehouse fulfillment centers, and many others. The other secular trend I mentioned earlier is EV charging and specifically anytime, anywhere EV type charging. To address the need for EV charging on a temporary basis, like at concerts or festivals or any off-grid mobile type requirement, we created a new business unit, Pioneer Power Mobility, last November 2021. and launched a new suite of solutions for this market called eBoost. eBoost is a self-contained, high-capacity, sustainably powered mobile charging solution. We have created three delivery platforms for eBoost. First, eBoost GOAT, G-O-A-T, which stands for generator on a truck. This is a truck-mounted EV charging solution, which is fully mobile. indeed provides the highest form of mobility and can provide high speed charging anywhere. Second, eBoost Mobile is a trailer mounted or skid mounted portable solution that provides multiple options for towing or forklift relocation and can be available at specific businesses, large sports and cultural events, and can be relocated with minimal effort and on short notice. Third, eBoost Pod is primarily a stationary EV charging solution with as-needed mobility that can provide EV charging to multiple vehicles. This is the ideal solution for gas stations, hotels, and other retail locations that utilize or are thinking about installing EV charging to increase customer traffic and retention or as a brand differentiator. Or for any customer hesitant to to invest and commit long-term capital and pure physical space to a more permanent EV solution. All three eBoost platforms are designed to provide on-demand power needs in addition to its primary task of high-speed charging. So in emergency situations like a power outage and the like, eBoost can serve as a backup power source with convenient power connectors and outlets available on board. We have already booked and shipped our first sale, a significant order of nearly $800,000 being deployed at hotel and casino. In addition, we received and delivered this order in the first quarter. We also won a second order for two units from Navistar, a leading manufacturer and solutions provider of trucks and buses. These two e-buskid-mounted solutions are to be used for recharging Navistar's electric trucks and buses and have already been delivered in the current second quarter. In fact, these units were displayed by Navistar only last week at the 2022 Advanced Clean Transportation Expo, the largest advanced transportation technology and clean fleet event in North America. Market reception for eBoost is strong and growing rapidly. We enjoyed significant interest and attention at the ACT expos, and many attendees, like electric truck and bus manufacturers and others, found the eBoost suite of solutions quite compelling. We believe we are the only company offering a high-capacity, fast-charging mobile solution powered by transportable and available propane. allowing greater charging capacity and faster charging than any other mobile solution. We expect eBoost to represent as much as 10% of our annual revenue in 2022, and we expect eBoost revenue to double in 2023 from 2022 levels. We are reiterating our outlook for full-year revenue growth of at least 50% in 2022 compared to 2021 levels, We are indeed ahead of that pace through Q1. We expect the second quarter results to be similar to the first quarter, including significant year-over-year revenue growth and improved margins, and expect the second half of the year to result in even stronger results as we benefit from our continued investments to support e-boost and the revenue from our new solutions. With that, let me turn the call over to Walter Mihalik, Chief Financial Officer to discuss our financial results.

Thank you, Nathan, and good afternoon, everyone. Revenues were $6 million in the first quarter of 2022, up 72.4% year-over-year and up approximately 72% sequentially compared to the fourth quarter of 2021. As Nathan indicated, The first quarter results benefited from the significant contribution of e-block sales, as well as our first e-boost sale. Continued supply chain disruptions are having an impact on our results, but we were successful in mitigating the impact during the first quarter. Gross profit for the first quarter of 2022 was $875,000, or a 14.5% gross margin, compared to $159,000 or a 4.5% gross margin for the year-ago period. The increase in gross profit and improvement in gross margin was primarily due to higher volume, enabling greater capacity utilization, overall improvements in productivity, and the delivery of our first eBoost unit. This was partially offset by higher input costs as a result of global supply chain challenges, a tighter labor market, and inflationary pressures. Selling general and administrative expenses of $1.7 million were 21-29% of revenues for the first quarter of 2022, an increase of $481,000 when compared to $1.3 million in the year-ago quarter. Operating loss during the first quarter of 2022 narrowed by $235,000 to $871,000 as compared to an operating loss of $1.1 million during the same period in 2021, even as the company increased selling general and administrative expenses to support its expected continued growth. Net loss for the first quarter of 2022 was $788,000, or negative $0.08 per share, compared to net income of $351,000, or 4% or per share during the first quarter of 2021. Please note, during the first quarter of last year, we recognized a $1.4 million gain in other income on the forgiveness of our PPP loan. Adjusting for this one-time gain in a small amount of other expense, our net loss would have been approximately $1 million in the year-ago period. Turning to the balance sheet and statement of cash flow. We have cash, including restricted cash, of $13.6 million and zero debt at March 31, 2022, compared to cash of $11.7 million at December 31, 2021. This represents cash and restricted cash per share of approximately $1.41 per share at March 31, 2022. As a reminder, we expect to receive approximately $6.5 million in cash by the end of 2022 from the maturity of two promissory notes which relate to the sale of our transformer business in August of 2019. For the first quarter of 2022, our cash provided by operating activities was $2.1 million compared to cash used in operating activities of $941,000 during the first quarter of last year. As Nathan said, we view 2022 as a year of growth and margin expansion. 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 2022 when compared to 2021. And further, we expect meaningful margin expansion. This concludes my remarks. I now turn the call back to the operator for any questions from investors.

We will now begin the question and answer session at this time. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause the inventory to assemble our roster. Our first question comes from Amit Dial of HC Wainwright. Please go ahead. Thank you. Good afternoon, everyone.

Thank you for taking my question.

Good afternoon, Amit.

Hi, Nathan. So with respect to the 62 eBlocks, what's the deployment timeline? Can you remind us, please? And has there been any change to this? I know you're starting maybe this quarter. Are you looking to complete this by the end of the year, or will that go into maybe early 2023?

So our plan is to, I don't want to say 100%, but pretty much 100% complete it this year. The user, the ultimate destination was a little slower receiving or being ready to receive the product than they had originally anticipated. Probably the bulk of them will go in the third quarter. There'll be maybe some hangover into the fourth quarter, but I would be very surprised if if there was anything for 2023.

Understood. And then sort of with this timeline, you know, how should we think about quarterly revenue performance? I guess from a sequential perspective, it looks like 3Q could be stronger for you compared to maybe 2Q or even 4Q. Yeah.

Go ahead. I'm sorry.

Yeah, I was just trying to get sort of a sense of the cadence for the rest of the year.

Yeah, I think the cadence is going to be that, you know, as best as I can tell, second quarter will be similar, you know, up somewhat over the first quarter, but it's similar performance of the first quarter. And with the third and the fourth quarter, with more outsized type performance.

Okay, good. And then just from a preparedness perspective, you know, given all these supply chain issues, are you comfortable with how you have your sort of inventory, et cetera, to deliver these 62 units?

Yeah. I mean, we secured, you know, all the prime materials in advance, especially for the large contracts that we have. And the users there were extremely helpful in advancing funds so they were able to – we were able to, you know, whether by deposit or by outright purchase, have almost everything. But like everybody's complaining about, you know, it's a $300, you know, current transformer or some sort of push button that delays the larger jobs. But we've been managing through it. And I think it compressed us a little bit in the first quarter and will compress us a little bit in the second quarter. But I don't see, you know, any other big changes for the rest of 2022.

And then just the last one, Nathan.

Please.

As you get some of your deliveries into the end of the year, should we expect gross margin improvements to also start coming through?

You know, you should expect it because we expect it. So, yes.

Okay. Perfect. That's all I have for now, Nathan. Thank you so much.

All right, Amit. Take care.

As a reminder, if you have a question, please press star, then one. At this time, it appears that we have no further questions. Oh, now I have to turn it back. Excuse me, back over to Mr. Masaryk for any closing remarks.

All right. Thank you, Ian. Thank you all for your time and support. This was an exciting start to the year, and we believe we have significant opportunities to further grow in 2022. We look forward to updating you again on our next call.

The conference is now concluded. Thank you for attending today's presentation.