Pioneer Power Solutions, Inc.

Greetings and welcome to the Pioneer Solutions Conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Maas, with Hayden Investor Relations. Thank you. You may begin.

Thank you, operator. The call today will be hosted by Nathan Masaryk, chairman and chief executive officer, Walter McAlec, chief financial officer, and Gio Marican, president and CEO of Pioneer Power Mobility. Following this discussion, there'll be a Q&A session open to participants on the call. We appreciate the opportunity to discuss the recent sale of the company's TCEP business unit, as well as our enthusiasm for the remaining critical power and e-mobility business. Before we get started, let me remind you this call will be recorded in webcast. During this call, management will make four looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results materially. Please refer to the cautionary text regarding four looking statements contained in the earnings release contained in our 10-K or 10-Q in our filings, which applies to the context of the call. I'd like to announce on the call for Nathan Masaryk, chairman and CEO. Nathan, please go ahead.

Thank you, Brett. Good afternoon, and thank you all for joining us today. As we disclosed in a press release this morning, we sold our Pioneer Custom Electrical Products core business, PCEP, to Millpoint Capital, a private equity firm located in New York City, for essentially $50 million in cash and the assumption of certain liabilities. We will talk more about the transaction during this call, our rationale for the sale, what it means for our business going forward, and provide investors with an opportunity to ask questions about the transaction. For some time now, Pioneer has been on the forefront of the energy transition in North America with two fast-growing divisions, PCEP, primarily E-Block, an integrated power and control system originally developed for the distributed generation market, and Critical Power, primarily our E-Boost, mobile power and charging system we initially unveiled in November of 2021. Both these businesses are enjoying similar secular tailwinds, and the opportunities for continued growth for each are robust and varied. Importantly, though, the products in each of these lines of business are different in terms of product scope and the markets they serve. And as a result, in our opinion, value for each has been somewhat constrained. We determined that divesting PCEP, primarily the E-Block will enable each entity to operate more nimbly and unlock additional value for their shareholders. Consequently, we sold our E-Block business yesterday, which had already achieved significant scale earlier and had matured earlier than our E-Boost business for $50 million in cash to Millpoint. This sale enables us to, one, focus on our e-mobility which we believe has a significantly higher ceiling than the E-Block business. Two, finance the growth of that business without any near or medium-term shareholder dilution or the assumption of any external debt or bank financing. Three, return, potentially return capital slash value to shareholders in the near term via a share buyback and or a special dividend. And finally, four, concurrently engage in an acquisition and or business combination that we believe will be accretive to earnings and continue to enhance shareholder value. As detailed in the press release issued this morning, the terms of the agreement are simple and clear. Pioneer sold its PCEP subsidiary base in Los Angeles for $50 million. In addition, Pioneer invested $2 million in Millpoint's new Volterra's power equipment platform in exchange for about 6% of the new entity. The $2 million equity investment allows us to participate in the future value and appreciation of the PCEP business. Pursuant to a separate press release issued by Millpoint this morning, Volterra's has already added another business to this platform the Jefferson Transformer business sold to it from Bermco, the larger utility transformer manufacturer. As we noted earlier, what remains in Pioneer Power Solutions is one, zero debt. Since August of 2019, we have self-funded all our R&D, capital expenditures and increased working capital needs essentially via our own cash generation. Two, it leaves us with cash, both the cash that we had on hand and the additional cash we received from the PCEP sale. Today, this is a little bit north of $50 million. And three, the critical power business, which is essentially our legacy engine generator service business. And since 2021, the eBoost high performance mobile charging business. Quick review of the genesis of the eBoost platform. We introduced our first eBoost prototype in November of 2021. It was one truck mounted, 60kW fast charging solution powered by 150 kilowatt propane fueled engine mounted on the same truck. This product line, which has grown significantly since then in sales and installation base has been scaled on four main platforms. eBoost Mini, a skid-based fast charging solution that could be moved utilizing a forklift. eBoost Mobile, a trailer-based fast charging solution that can be pulled by a truck or tractor depending on size. eBoost Goat, -A-T, a truck integrated TC fast charging solution that invokes the AAA type model. And finally, for eBoost Pod, a high capacity charging system integrated into a shipping container for rural and extreme weather regions. To date, the vast majority of the eBoost units delivered and ordered have been skid or trailer-based units. In the last three years, these grid gap solutions have helped catapult the sales and rental of eBoost units across the US and have made eBoost an industry synonym for reliable and sustainably powered off-grid mobile EV charging solutions. To date, eBoost has delivered more than 19,000 unique vehicle charging sessions and more than 600 megawatts of sustainable off-grid power. We have delivered eBoost units to electric truck and bus manufacturers, transit authorities, municipalities, charging as a service providers, the gaming industry, robo taxi providers, and many, many others. We expect the critical power division to generate a bid over $20 million in revenue this year and look forward to sharing more specific financial information with you on our third quarter earnings call coming up in just about two weeks. Since 2021, Pioneer has also been consistently investing in the eBoost business to broaden its suite of solutions and allow us to penetrate even wider markets. In the last year, we have introduced Home eBoost, the first residential market-focused solution that runs on existing natural gas lines to homes. Unlike the majority of backup generators in the market, which are designed to run for minimal hours per day and constricted hours per year, the Home eBoost is powered by an EPA-rated prime generator, which can operate 24-7 and comes with all the major components required to build a backup system for a home, including options for a level two or level three charger with simple, all-inclusive delivery and installation that any local contractor can install. The Home eBoost owner unit allows the user to generate their own electric power using their own natural gas connection. As I noted, Pioneer has designed Home eBoost with options for level two or level three fast charging. And this complete backup and level three EV charging option can also address the emerging demand from the mini-mall segment, commonly referred to as neighborhood mini-marts or corner retail centers. These small businesses can utilize the same solution to meet business uptime needs and at the same time with one unit and one installation, provide EV charging for their customers. Pioneer eMobility is deploying additional resources to focus on and capitalize on this growing market. We expect our initial market entry with the Home eBoost product will be made through targeted regional distributors and dealers early in 2025. In 2024, we also introduced our eBoost Pure Power units with the growth of large battery energy storage systems and deployment of on-site hydrogen fueling stations. There is an increasing demand for mobile flexible power to recharge these battery energy storage systems and power the hydrogen refuelers where reliable and powerful grid connections are not available today or expected to be available in the near future. eBoost Pure Power offers quickly deployable, more sustainably powered large power units to support the on-site power needs for the battery energy storage systems and hydrogen customers. Indeed, we expect to deliver over 50 of these units in 2025 up from five or six in 2024. Finally, in 2024, we unveiled our ZEB unit, a zero emissions eBoost, a variation that provides an eBoost variation that provides up to one megawatt of zero emission battery-based mobile power for customers and or locations that absolutely must have a zero emission solution for their mobile charging needs. Finally, backlog. In our business, backlog is a key indicator of future performance. To wit, on December 31, 2023, our critical power division backlog was $16.7 million. On September 30, 2024, total backlog for critical power alone was $24 million, an increase of about 45%. We look forward to discussing eBoost's financial performance in 2024 and more specific revenue and profit guidance for 2025 on our third quarter call in only a couple of weeks. With that, we will open the call to questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Rob Brown from Lake Street Capital Markets. Please go ahead.

Good afternoon. Hey, Rob. Thank

you. I want to get a little sense of what you see in terms of your M&A strategy, and maybe it's too early to sort of detail it, but what are some of the opportunities you see and how do you think M&A can improve the eBoost sort of segment?

Yeah, I mean, I think the first question financially it allows us to get bigger faster and really carry the burden, spread the burden of the overhead among more, a larger scale. With that said, it would have to be something, we've done a lot of work to take eBoost from a real money losing business to something that's close to breaking even to hopefully making significant net profit within the next 12 months. So with that in mind, it would have to be sizable, at least $25 million in revenue a year. It would have to not be bleeding, and of course it would have to be related, enhance what we've already built up here. So it may be a very narrow group of candidates, but that's what we'd be looking for.

Okay, good. Thank you for the color there. And then obviously you're sort of making this decision now as eBoost is ramping, but could you give us a sense of some of the demand drivers that drove that 50% plus increase in backlog and maybe some of the opportunities that out there in that market?

Yeah, that would be great. I'm gonna let Gio Morrican, who really lives and breathes eBoost since its inception, I'm gonna let him give probably better color than I would as to what's driving the last year specifically.

Thank you, Nathan. Yes, from a growth standpoint, we have seen a consistent growth in the transit bus fleet electrification market, consistent adoption and growth in the electric bus school districts and adjacent markets. Additionally, we're starting to see the ports or airports adopt electrification and requiring our services because of the grid gap that they're facing. One of the major sectors that we have seen growth in and we expect to see much higher growth in are municipalities in general, meaning towns and cities that are starting the electrification process of their fleets, whether it be at their trash truck, whether it be their delivery service fleets. And for all of these, including utilities who are utilizing and electrifying their service trucks, what they initially utilize for service outages, when they try to electrify those in more remote areas, they need power for those electric vehicles. So we're seeing a large movement in cities and municipalities move ahead. And finally, one of the ones that we opened up was the clean energy markets and the need for technologies like hydrogen dispensing and also battery energy storage, which require a high amount of energy and power. And we're able to provide that in a very clean and sustainable way and a mobile way so that they can reach out into remote

areas as well. Okay, great. Thank you for the overview there. And

I guess last question on the HomeBoost product. You talked about that sort of launching in early 25. What's sort of the market opportunity there you see and I guess what's the working capital need that that will drive?

Yeah, I mean, like eBoost itself, I'm sure that the market will go in a way that then will be sort of channeled in a different way than we initially conceived. But we're gonna be attacking sort of the high end housing market, you know, I don't wanna call it the McMansion, but you know, you've gotta have a house of a certain size and a budget of a certain size that the homeowners, there's a value to that homeowner of being able to generate their own level three type charging. They can charge two vehicles quickly at the same time giving them 24 seven super resiliency for their home or a portion of their home. You know, we've kind of test marketed it. We haven't launched it officially yet into the market. And the interesting thing is that the most, I guess, the most interested potential users not just the high end home, but as we said in the script, it's sort of the small, the mini mart or the radiology center that really want 24 seven. They want more than a backup generator. They also want the ability to save money on demand charges when they're charging their own electric vehicles. So that's kind of the user and the market for that. We're gonna initially be working with electrical distributors and wholesalers and the engine generator dealers and contractors. And that's in 2025. I hope I'll be consistent with this, but in a couple of weeks when we give specific guidance for 2025, we'll probably giving guidance with zero baked in for home boost. So home boost is the gravy to

that extent for 2025. Okay, thank you. I'll turn it over.

The next question is from Ahmed dial from HC Wainwright. Please go ahead.

Thank you. Congrats, Nathan. Thank you. Good to see some value being unlocked here. With respect to sort of your targeting, what kind of margins you're targeting for the E boost business, could you give us any color on what the overheads for this segment

may look like? So, yeah. So,

yeah.

Yeah, so I really would like to do that really in the call in a couple of weeks when they actually disclose the third quarter. So we'll have three quarters of the year and sort of what we'll be able to pick apart each quarter, especially the third where the E boost sales have been more robust. What margins did we achieve? What did we try to achieve? And what does the model look like at different revenue levels? So I prefer to do that on the next call, if that's okay,

Ahmed. Yeah, no problem. And then maybe adjacent to that, you were sort of hitting some level of ceiling, I guess, around capacity or available capacity when you have both these businesses or these business segments. Do you think just now focusing on E boost, do you have enough capacity, at least initially to ramp to your targets for 2025 at least?

Yeah, so we've been successful on the E boost side, maybe because we basically started it from nothing. We've been successful in working and it gets better every few months working with different outsource partners. We do the more complicated ones, we do the one-offs, we do all the prototypes ourselves in Minneapolis, but we've established a relationship with one person on the West Coast looking to do that on the East Coast as well, where they are ready, of course, after they do a few units, they become more expert. And the more subcontracting, frankly, the better we do in capacity. We're basically keeping the capacity fixed in Minneapolis. It will be able to do X every year and it's sized for that. Everything else we're working with partners on. Okay, I understand.

And just maybe last one for me, Nathan. How did you sort of portion out the team, I guess, especially on the sales side, was there any overlap for the sales force in terms of selling the eBoost product versus the eBlock product? How are you situated now, I guess? Any comment on that would be helpful.

Yeah, I mean, we were all one company, so of course there was some cross-selling and the salespeople, there were those dedicated to eBoost and those dedicated to eBlock. And sometimes somebody would come up with an opportunity that had both and that person would be incentivized, of course, to pass that along and hopefully a positive and profitable sale emerged from it. It wasn't that much though, really, really wasn't. It's a different solution. It's usually a different group within a big user. You think of any hypothetical user that you wanna talk about, from Amazon to DHL to whomever. And it wasn't very hard to separate them. And frankly, we've run from the beginning of Pioneer, we've run always the divisions as self-contained entities. If we ever had to sell one, they're treated very separately and that was not an issue. There was no separation problem here.

Good to know that. Yeah, that's all I have Nathan. I'll take my other questions when you post your next call, thank you.

Perfect, thank you Amit.

The next question is from Rob Romano from FirstSourceBank, please go ahead.

Thank you for taking my questions. My first question is on eBlock. I know over the past couple of years, you've had some pretty big wins with eBlock, Walmart, I know it was a big one. Did the demand at eBlock just tail off and you felt that was a good time to sell or why was eBlock not the growth engine you thought it was?

That eBlock continues to be the growth engine. We sold a very successful business to Millpoint, their sophisticated buyers. We kinda have to make a choice. We wanted to avoid serious dilution. We can't continue to fund exponential growth ourselves. So is it gonna be dilution, is it gonna be debt? And we made a choice. The eBlock business had matured faster. It was more saleable, it was more appealing to a market. We feel we got an excellent price for it. It's got a lot more growth to go. It's gonna be packaged now with other businesses, making it a much more formidable competitor on a broader scale and we're gonna be participating in that growth and value. So I think we kind of, we did it on all ends. I think this was a good result for us.

Okay, understandable. Question on the home eBoost. I know you've had some relationships with -fil-A. Is this a type of solution that could be possible for like a public or a large enterprise like -fil-A for preventing them to go down during some type of weather event?

Yes, it would be well suited. More to a -fil-A, their footprint is much smaller. The large, even a big box retailer, the footprint's much larger. And you're talking about a lot more gas flowing through much, much larger units required for that that becomes a much more involved process. That's not what home boost is about. Home boost is really, really targeting that big home, that big mansion or that big extreme home. And by nature, that's the sort of, same sort of electrical footprint as these smaller locations. So -fil-A would be a good example. It's a type of central radiology in those type of centers, MRI type places.

Okay, great. That's helpful. And on eBoost, just trying to get an idea of what this market looks like and the opportunities out there in your pipeline. Is this something you could grow 20, 25% per year? I mean, is that the type of demand that's

out there? That's the kind of, the demand is much higher, I think, that if we were to grow at 25% a year, we'd be in extremely profitable and solid business. We're trying to not go crazy on the growth and lose profitability, but the demand, every month, the use cases and demand and users never cease to amaze me. And in many cases, some of the users are logical, but have spent the last two years trying all kinds of other solutions and now have come back, recognizing that this is now a very proven solution, much more than it was two years ago. Or as Gio pointed out earlier, you have airports, actual ports, sea ports, and so forth, all electrifying, whether it's their equipment and other things, and the demand for mobile, simple, non-permitted electrification is super strong. So we're very excited. Gio mentioned almost all of it. I think I mentioned in my script, but only since about this summer, we started dealing with the larger charging as a service provider, whatever their particular business model is, and they have become a source of demand for us, very, very fast demand, and it keeps going. The more they grow, the more we're growing. So we're very, very excited.

Thanks, Nathan, appreciate it. Sure, Rob.

As a reminder, to ask a question, please press star one. The next question is from Tripp Rui from RIM Investments. Please go ahead.

Gentlemen, thanks for taking my call, and congratulations on what looks like a very good sale. A couple questions on corporate expense. How quickly can you address that? How much can that come down? And is it safe to say that in the meantime, maybe you could pick up short-term money market yield on the 50 million, which would kind of cover it. So is that kind of a wash near term, or is there still gonna be some drag? And then secondly, you touched on the backlog for CP, which is good year over year, it might be a little bit down quarter to quarter. So maybe you could address at this point the still lumpiness in orders. And then will that translate into lumpy sales as well, or do you think you can level load and consistently grow sales?

Yeah, so that's a lot. I'm not sure I could be able to address it. I can remember everything, but we'll go backwards. So it's still a small business, even if let's say hypothetically we projected, I don't know, call it 32 million for 2025, I'm not saying that. But if it were, it's still a small business and there's gonna be some lumpiness to that. We've been pretty good about making it by the end of the year, it all falls in. So you are gonna have that. As far as corporate overhead, I think what we issue the guidance or we unveiled the guidance in a couple of weeks for 2025, we'll deal with that more specifically, what the components of the corporate overhead have been, what's cash, what's not cash, like stock-based compensation has been a big part of corporate overhead. What was it in 2023? What will it be in 2024? What do we see it being in 2025? And I guess you're right, yes, $50 million today in the bank, even in a morning market account, you can play with whatever rates you wanna use. I'm sure you're aware about where they are. Yeah, short term before any kind of a dividend or anything like that, that's generating yield. I wouldn't call it a wash with the corporate overhead yet, but it's gonna be a significant piece of earnings even next year.

Got it, and then I see the use cases, but one thing you didn't talk about is competition or perhaps barriers to the market. And wondering if you could touch on that, is it really just first to market and first to execution, or is there something proprietary about what you're doing that helps a little bit of a barrier to the market? And that'll be my last question, thank you.

Right, no, there's no problem. It's a little bit of both. Gio, do you wanna address this a little bit?

Sure, I'd be happy to. So like any market, I think competition validates the market robustness, but what we've seen over the last few years is that we've been able to take a lead among the competitors that exist. We are a publicly traded company. Most of the competitors are smaller startups or businesses that don't have the same type of edge in the market. Additionally, we have really put in a lot more into the R&D side and customized a lot more solutions in a way that it economically fits the solution that they're looking for, as well as functionally fits better into the solution the market is looking for. So while there will continue to be competition, we've been able to cultivate that edge in the market because of the technology we've put in. One example of it is that we have melded a lot of technology from monitoring to proactive servicing and other things that we have built into the product early on that are paying dividends now because they are becoming of more value and insight for the customers. For instance, a large utility customer we've been working with, their sole reason was that we by far had data that we could provide them that integrated into their overall monitoring system that allowed them to enhance it and integrate it into their charging system.

So those

are some of the things that

has allowed us to grow. Great, thank you very much.

The next question is from Dane Coyles, a private investor. Please go ahead.

Oh, hi, if you can hear me, thanks for taking my question and all the information so far, it sounds very promising. I think my question and it might be better in two weeks but maybe you could touch on it now. In the execution, I heard the numbers on the pipeline that sounds very promising, but I recall back in April that one of the things that was commented on is orders that have been taken by utilities or other customers where it's kind of external to you, it's out of your hands that they had been delaying on taking the orders. And so how you guys are looking at that and managing that in any development since then, and I'll take my question on mute, thank you.

Yeah, thank you for the question. Yeah, I think you're referring to actually the business that we sold, the PSEP business, that's a constant battle. It also ends up, given enough time, those things always happen. But yes, there was only slippage because there's a lot of customers. And this year was the bad party was a particular utility, they're a great customer, but not so good at meeting their own deadlines. On the eBoost side, it's frankly the opposite. We can't give it to the market as fast as a lot of them want. And we're already holding, the reason we hold so many millions of dollars of inventory and engines and alternators and trailers and so forth, because even with that, usually takes us three to six months to do some of these bespoke type units for very discriminating users. If we wouldn't be stocking that much in components, it would be a year, a year is too long. By the time, typically, by the time the user decides on this solution, they want it as quickly as possible. So that's good, so not so good sometimes. Initially, in 2022 and 2023, when we were first starting the business, we would do anything to try to meet those requirements because we were launching a new business that definitely compressed our margins or in some cases evaporated them, vaporized them. We got much better as the business got bigger. And I think when we do the third quarter call, we'll see the units that were pushed out in the third quarter and the margins they came in on. It's a very, it's more than a promising outlook. It's

very validating. So thank you. Thank you again, thank you so much. No problem.

Next question is from Ray Foss, a private investor. Please go ahead.

Congratulations, Nathan, good work. Thank you, Ray. Yeah, thank you. Nathan, I was just thinking about a broad topic. I've read in some of the available outside information that I'd like you to maybe comment on the prospects in general for distributed energy production. I've read somewhere and I can't even remember where, but they thought they made a point that distributed electrical generation could compete with some of the high tech alternatives such as small nuclear reactors. In other words, my grandfather went through the rural electrification back in the 30s and it was something done on a national scale. Do you have any general comments on the prospects for distributed electrical generation in general? Hope that doesn't put you on the spot, but it's of concern to me and I appreciate everything you do, Nathan, amen.

Thank you, Ray, and I appreciate your support all these years. I'll give it to you in two minutes and then we can talk at length. You broached a massive topic and everything I'm gonna say is just my opinion. There are many, many experts in this. Distributed generation has been talked about since I'm in the industry, which is over 30 years. In the last five to 10 years, distributed generation has finally come of age. What form that takes is still kind of evolving. Initially, I would say it was almost all natural gas based whether it be a mini turbine or engines or however you do it, that's what it was. In the last few years as the prices, the cost really for battery-based solutions and I think in the future for hydrogen-based solutions as those price points come down, that's gonna eventually shift in their favor because they are totally zero emissions. Do they have other drawbacks? They have other drawbacks. Small nuclear is something that's been talked about for a very, very, very long time until somebody figures out what to do with even on a small nuclear level, what to do with the waste. That's just, it's just talk really now. So I think for the next 10 years, it's still gonna be natural gas based. That's what allows the user to save money, have resilience away from the electrical grid. It's a fuel that we have plenty of in the United States, that we're lucky that we have a lot of natural gas. That's gonna eventually shift. We're trying to be ahead of that curve and that's why we've already introduced battery-only type units. We haven't done anything with hydrogen because it is still not just logistically difficult but it's still price prohibitive outside of somebody wanting to do a showpiece. We did on the other side of the business, we did a job with Southern California, I'm sorry, Southern California Gas, their H2 project. I know what we sold the switchgear for, what they paid for the fuel cells and the electrolyzer. I can't even imagine how much was spent to generate electricity for 22 homes. So it's not there yet on any kind of a scale. Does this help you at all or?

Yes, indeed, Nathan. I'm just looking for your valuable perspectives on the topic in general. Thank you and best wishes. You as well, Ray. Thank you for calling.

There are no further questions at this time. I would like to turn the floor back over to Nathan Mazurk for closing comments.

Well, thank you. Thank you all for calling in. Thank you for the questions and thank you for the support and thank you for the engagement. We look forward to in two weeks, as we've pointed out, discussing the results in more detail and more specifically and issuing new guidance for 2025 and the rationale behind that guidance. Thank you.

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