Pioneer Power Solutions, Inc. (NASDAQ:PPSI) Q3 2023 Earnings Call Transcript

Pioneer Power Solutions, Inc. (NASDAQ:PPSI) Q3 2023 Earnings Call Transcript November 15, 2023

Operator: Greetings and welcome to the Pioneer’s 2023 Third Quarter Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Brett Maas from Hayden IR. Thank you Mr. Moss. You may begin.

Brett Maas: Thank you and welcome. The call today is being hosted by Nathan Mazurek, Chairman and Chief Executive Officer, and Walter Michalec, Chief Financial Officer. Following this discussion, there will be a formal Q&A session over the participants on the call. We appreciate the opportunity to review the third quarter financial results and discuss recent business highlights. Before we get started, let me remind you this call is being recorded and webcast. During the call, management may make forward-looking statements. These statements will be 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 the call. I would like to now turn the call over to Nathan Mazurek, Chairman and CEO. Nathan, please go ahead.

Nathan Mazurek: Thank you, Brett. Good morning and thank you all for joining us today. We also have Geo Murickan, President of Pioneer’s eMobility business, essentially our eBoost 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 $12.4 million for the third 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 third quarter of 2022. 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-Bloc 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. First, E-Bloc continues to benefit from the rapid growth of the distributed generation market. Raw demand for electricity continues to grow and the grid’s ability to satisfy this growth continues to decline. The result is accelerating power usage, higher power costs, and reduced reliability and supply of power. The E-Bloc 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 two 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-Bloc solutions to a multitude of Fortune 500 companies across verticals such as retail, data centers, electric vehicle charging station, automotive, and aerospace. In addition, Pioneer has provided dozens of E-Bloc units to electric and water utilities as they supplement their operations with alternative sources of power. These long-term trends will continue to support our growth for the next three to five years with clear annual visibility.

Next, our second major product growth driver is e-Boost, which provides mobile high-speed electric charging. We deliver this mobility by a truck, skid, trailer, or pod-type physical platform. To date, we have provided units ranging from 30 kilowatts to 400 kilowatts with up to four 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. 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. 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 three electric buses/cars a day for the last nine months.

As the revenue and backlog for e-Boost continues to grow, it is clear that e-Boost has come a long way from the 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. With that, let me turn the call over to Walter, our CFO, to discuss our financial results.

Workers in hard hats installing a transformer in a power plant.

Walter Michalec: Thank you, Nathan, and good morning, everyone. Pioneer’s revenue during the third quarter was a record since divesting its transformer business in August of 2019. Third quarter revenues were $12.4 million, up $6.2 million or 99% when compared to the same period of last year. Revenue from the T&D solution segment, which manufactures our E-Bloc power systems and related equipment, increased 156% to $9.7 million. And revenue from the critical power segment, which manufactures our mobile high-speed electric charging solution e-Boost, was up nearly 13% to $2.8 million in the comparable period. Gross profit for the third quarter was $3.7 million or nearly 30% of revenues compared to a gross profit of $861,000 or approximately 14% of revenues during the third quarter of last year.

This significant improvement to gross profit was primarily due to the increase in sales of our E-Bloc power systems and related equipment, lower input costs, and improved productivity. Total operating expenses or SG&A overhead was $2.7 million or 22% of revenues during the third quarter of this year, an increase of 20% when compared to $2.3 million in the year-ago quarter. It’s important to note that SG&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.

Finally, higher wage costs including salaries, benefits, and stock-based compensation caused SG&A expense to increase during the third quarter of this year when compared to the same period of last year. Operating income for the third quarter of this year was $953,000, a positive swing of nearly $2.4 million when compared to an operating loss of $1.4 million during the third quarter of last year. Our T&D solution segment, which manufactures E-Bloc, is delivering consistent positive operating income to the tune of $2.7 million during the third quarter of this year, an increase of $2.5 million when compared to the third quarter of last year. Net income for the third quarter of 2023 was over $1 million or $0.10 per basic and diluted share compared to a net loss of 1.3 million or negative $0.13 per basic and diluted share during third quarter of 2022, a $2.3 million increase to the bottom line or $0.23 per basic and diluted share in comparable periods.

Excluding non-cash stock-based compensation expense of approximately $285,000, net income for basic and diluted share during the third quarter of this year was $0.13. Looking briefly at the year-to-date results, total revenue during the first nine months of the year was $33.1 million, an increase of approximately $15.6 million or 89% when compared to $17.5 million during the first nine months of last year. Revenue from the T&D solution segment increased approximately 145% and revenue from the critical power segment increased approximately 14% in the comparable periods. Gross profit for the first nine months of the year was $8.6 million or 26% of revenues compared to a gross profit of $1.8 million or 15.5% of revenues during the first nine months of last year.

We generated net income of $827,000 during the first nine months of 2023. That’s a positive swing of $5.4 million or $0.54 for basic and diluted share when compared to a net loss of $4.6 million during the first nine months of 2022. Again, excluding non-cash stock-based compensation expense of $1.2 million during the first nine 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 first nine months of the year was $0.08. This is compared to a net loss per basic and diluted share of $0.47 for the first nine months of 2022. Turning to the balance sheet, we had cash of $7.6 million and zero bank debt as of September 30, 2023, compared to $10.3 million of cash as of December 31, 2022.

Our cash balance at the end of the third 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 would like to now turn the call back over to Nathan.

Nathan Mazurek: 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 will now turn the call over to the operator for any questions from investors.

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Q&A Session

Operator: Thank you. [Operator Instructions] The first question comes from the line of Amit Dayal with H.C. Wainwright. Please go ahead.

Amit Dayal: Thank you. Good morning, everyone. Thank you for taking my questions.

Nathan Mazurek: Good morning, Amit.

Amit Dayal: The available capacity — congrats on the strong quarter, by the way. We did $12.1 million last quarter, $12.4 million this quarter. Is this indicative of you guys potentially, at these revenue levels?

Nathan Mazurek: You know what the guidance we gave for the balance of the year. It’s going to be, I think, somewhere in the $9 to $12 million range. It really depends. We’re not deep enough in the quarter yet. 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. 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 fourth quarter 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, one or two jobs at $2 million plus each, slipping or accelerating, make a difference. I wouldn’t — 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.

Amit Dayal: 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-Bloc capacity or revenues? Or is this basically on a standalone basis you could quadruple from these levels on the e-Boost side?

Nathan Mazurek: Yes. Good question. I mean, they’re made in two different facilities. 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-Bloc business. The E-Bloc business this year, or its related product, out of the facility in Los Angeles, let’s say by the end of the year, will have shipped in product, I don’t know, $35-ish million, give or take. 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 sheet 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-Bloc-type product.

Amit Dayal: Understood. Okay. Thank you. And there’s this last one, again, on maybe the e-Boost side. These customers and folks who are coming back to you for repeat orders, is there a larger runway within these existing customers before you even need to maybe find new buyers for these products?

Nathan Mazurek: Yes. I mean, again, we’re going to do more formal guidance at the beginning of 2024. But on the e-Boost side, it’s really from three big buckets. It’s customers that are repeating. And those are typically truck and electric bus manufacturers. They have a long way to go. Their runways are very large. 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 anticipate. 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. 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.

Amit Dayal: Thank you, Nathan. That’s all I have. I’ll get back in queue.

Nathan Mazurek: Okay. Pleasure, Amit.

Operator: Thank you. Next question comes from the line of Manish [Indiscernible]. Please go ahead.

Unidentified Analyst: 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 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?

Nathan Mazurek: Right. So the short answer is we expect it to be positive. How positive? I really don’t know until the revenue and the mix plays itself out. And of course you are technically correct. We guided towards positive EPS for the year. So theoretically at this point 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 fourth quarter.

Unidentified Analyst: 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?

Nathan Mazurek: That’s the plan, yes.

Unidentified Analyst: Okay. All right. Thank you very much.

Nathan Mazurek: You’re very welcome.