Polar Power Inc (POLA) 2018 Q1 法說會逐字稿

Good day, and welcome to the Polar Power First Quarter 2018 Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Tyson, Managing Director of MZ North America. Sir, please go ahead, sir.

Thank you, and good afternoon. I'd like to thank you all for taking time to join us for Polar Power's first quarter 2018 conference call. Your host today are Mr. Luis Zavala, the company's Chief Financial Officer; and Raj Masina, the company's Chief Operating Officer. Raj will provide a business update, which will cover customer announcements, product updates and operational milestones; while Luis will discuss the financial results. Due to unexpected changes in international travel plans, Arthur Sams, Chief Executive Officer, will be only available for the Q&A portion of today's call.

A press release detailing these results crossed the wires this afternoon at 4:00 p.m. Eastern today, and is available today on the company's website, polarpower.com. Following management's prepared comments, we will open the floor to the questions for those of you who are dialing in for today's call.

Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we also would refer you to the company's website for more supporting industry information.

At this time, I'd like to turn the call over to Raj Masina. Raj, the floor is yours.

Thank you, Chris, and welcome, everyone, to Polar Power's first quarter 2018 earnings conference call. For today's call, I'll provide a brief summary on Polar's Q1 highlights, and then, I'll provide an in-depth summary in each of our core markets.

The first quarter of 2018 was characterized by increasing shipments of our DC power systems, both domestically and abroad, including strong shipments to one of our new Tier 1 wireless telecommunications customer as well as to military contractors, and a continued focus on technology leadership through continued R&D initiatives. Our sales team made good progress in the quarter, as revenues grew 22% quarter-on-quarter, and our backlog as of last Friday, May 11, now stands at $4.3 million, which is a 72% improvement in less than 45 days since Q1 closed. This impressive growth has come as a result of significant orders by our new Tier 1 U.S. carrier customer, which has now overtaken Verizon as our largest customer, as well as our increasingly robust military customer base. As a reminder, we're now an approved vendor to the top 4 U.S. wireless carriers, or 3 if the pending T-Mobile and Sprint merger goes through. And we're also an approved vendor for 35 overseas carriers.

On the international front, our global sales force is beginning to receive initial purchase orders in key markets such as Namibia and Sri Lanka, which we expect to lead to continually larger purchase orders over time. Additionally, we've successfully completed field trials in Malaysia and Japan, while adding multiple new customers in Indonesia, Poland, Australia, Myanmar, to name a few, to our field trial roster. We're starting to execute on our international sales pipeline, and we believe we are on the cusp of realizing significant value in this front in 2018. We look forward to providing further announcements on this front.

Outside of our core focus on telecom, we're seeing macro tailwinds from the Trump administration that is both accelerating the pace of progress with our military customers, while opening discussions with additional branches of the military and the federal government. This is evidenced by continued orders with Oshkosh Defense as well as our 20-unit recent purchase order for the U.S. Army's robotic mule product with a key military vendor.

Based on our discussions, we believe that the U.S. military and federal government may represent a material revenue growth driver for Polar Power on a go-forward basis. In all, we have never been more excited about the progress our team has made and the immense sales opportunities facing us today on several fronts.

I'd now like to drill down in each market segment or products addressed in greater detail. Let's begin with the domestic telecommunications market. In the U.S. market, we continue to diversify our revenue base to the point where Verizon Wireless is no longer our largest customer. We're an approved vendor, as I said, to the top 4 carriers in the U.S. and continue to see diversified interest across an increasingly broad customer base spanning multiple end markets.

In the first quarter of 2018, a new U.S. Tier 1 wireless carrier, our largest customer, made up 64% of our revenues. The commencement of orders for this new Tier 1 carrier began in the fourth quarter of 2017 after we received a multiunit purchase order for our 15-kilowatt backup DC generator. The initial 57 units were shipped to hurricane-affected telecom sites on the island of Puerto Rico. Hurricane Maria, which lingered over Puerto Rico for 10 days in last September, has caused extensive destruction and a humanitarian crisis in the region. We believe our rapid response and delivery aided in the redevelopment of Puerto Rico's wireless networks, while solidifying a strong working relationship with our new Tier 1 wireless carrier. In fact, all our units are now deployed in the field and they have been performing exceedingly well, given the recent power outages, even after the hurricane. We started to see consistent purchase orders from this new customer since then.

To date, in 2018, we've seen acceleration in their ordering patterns. And most recently, in the first quarter, we signed a 3-year commercial agreement with this customer, which will allow us to fast track orders to the subregions nationally, simplifying the ordering process and making our products competitively more attractive for buyers. We shipped over 100 units to this customer in 2017. And as reported last time, we already have orders in hand for several times at quantity, many of which will hit in early to mid-2018. This customer has provided us with a healthy forecast for the full year, and further evidence of this is reflected in our growing backlog.

In the fourth quarter of 2017 and into the beginning of 2018, we commenced and completed a 6-month test and evaluation with another Tier 1 wireless carrier in the U.S. for a customized, more economical DC power system. This solution was built to the customer's specifications, and we were recently added to their national ordering system and anticipate initial purchase orders in the second quarter of 2018. This product is sticker price compared to legacy AC generators, while not sacrificing our target gross margin structure. We anticipate wide-scale implementation of this product across this customer's network over the next years.

The recently announced merger between T-Mobile and Sprint, assuming it is approved by regulatory bodies and finalized, is expected to be a net positive for Polar Power. We are an approved vendor at both firms, though we have more significant discussions regarding DC power systems with the former. And we believe the merger could lead to a notably increase in interest in our DC power systems due to the strong push to be a leader in developing 5G infrastructure.

Also during the first quarter of 2018, we maintained progress with our legacy Tier 1 wireless carrier, which is Verizon, after completing their internal sales personnel changes. The result of these changes have been well-received, and we have recently been invited to enter into a national RFP for backup generators. This customer remained our second largest customer, generating 27% of our net sales during Q1 of 2018.

During 2017, we established and assembled a strong international sales group covering major telecom carriers and tower operators throughout the world. Full-time sales executives and support were established during 2017 in Singapore, Dubai, Australia, the Dominican Republic, Romania, Poland and South Africa. I'm pleased to announce that as of today, we are an approved vendor to 35 overseas carriers, and we are in the process of adding another 40. Our international sales force continues to execute up on our global growth strategy, and we believe we're close to realizing the international revenue ramp that we've been anticipating. We're pleased to report initial purchase orders in both Sri Lanka and Namibia as well as the successful completion of field trials in other parts of the world. We have several customers conducting field trials as of now, and we believe many of them will lead to sales in the latter half of the year.

The recent win in Namibia positions the company as a complete turnkey solutions provider. In Sri Lanka, our initial 2 sites covered the bad grid and off-grid applications, and this customer's indicated future sites are being procured for the next 12 months.

As our new international sales hires begin to secure major contract wins and continue to win purchase orders from current clients, we anticipate increased purchase order activity from select international customers and foresee the beginning of a meaningful backlog in the second half of the year and it could be as early as Q2 of 2018. These efforts are evidenced by the significant increase in backlog since the close of the first quarter.

Outside of the initial purchase orders we received in Namibia and Sri Lanka, we were also anticipating other large bids in both Asia and Africa. As you may recall, the Australian market was one of our largest revenue drivers for the company back in 2012 and 2013. But due to the immense opportunity in our backyard and limited bandwidth that we had, we refocused our efforts to the lucrative U.S. market. Now since we are armed with good capital resources, we have renewed our efforts in Australia. And as I mentioned earlier in the call, we established a sales and administrative presence in Australia to provide a reasonable footprint there that will allow us to better compete with small local firms, and believe that as sales relationships mature, Australia will again become a notable revenue driver for Polar Power.

Outside of telecom, we continue to see some material progress with orders and new discussions in the military sector. We have seen some notable sales to date and have even more substantial sales forecasts with Oshkosh, a Fortune 500 leading manufacturer of specialty vehicles and vehicle bodies for military applications. Additionally, we also completed the testing phase of a lightweight DC power system for the U.S. Army robotic mule project, which received Phase 2 approval. The product will supply power to the Army Robotic and Autonomous Systems, which is a global military strategy to remotely provide surveillance, transportation and reconnaissance over wide areas, thereby, increasing the standoff distances, survivability and reaction times in battlefield. The Army has indicated that it wanted to buy anywhere between 2,700 to 5,500 robotic mules for brigade combat teams, depending on affordability and budgets, and is in the middle of selecting contractors after bringing in several vendors with 8 different vehicles in 2017 for performing their operational tests. I'm happy to report that in Q1, we received a PO for 20 generators for this program, and this is reflected in our current backlog.

On the R&D front, we continue to drive forward technology and invest heavily in R&D, which we believe will continue to solidify Polar Power's absolute technology leadership and drive growth for years to come. Specifically, during the first quarter, we commenced marketing of our lower cost Summit Series Hybrid DC power system for off-grid and bad grid applications in the international markets. We have commenced marketing for the lower cost compact 15-kilowatt horizontal system to compete with the AC generators in the telecom replacement in the domestic market.

On the operational front and to support the expected ramp in 2018, we expanded our manufacturing infrastructure with the addition of a new 29,000 square feet production facility, while simultaneously increasing production staff. This is expected to reduce lead times and create notable operation efficiencies.

We're also currently entering into long-term contracts with vendors for favorable pricing and starting to buy direct from manufacturers as opposed to distributors. This would reduce our overall cost of goods. We've started to bring certain processes in-house as well as to reduce the cost and improve the quality. In fact, Arthur right now is in Japan, and that's further evidence that we're aggressively positioning to shore up our engine supply chain. We believe these investments we have made in our production infrastructure will allow us to rapidly scale as we begin to realize new purchase orders throughout the remainder of 2018.

In all, I believe the first quarter of 2018 signals the beginning of the revenue ramp that we have been preparing for over the last couple of quarters. We're well positioned for robust growth over the next several quarters.

Now I'll turn -- I'll now turn the call over to our Chief Financial Officer, Luis Zavala, for his financial summary. Luis?

Thank you, Raj. Net sales totaled $4.9 million in Q1 2018, which is a decrease of 2% as compared to $5.0 million in Q1 2017. The decrease in net sales was primarily a result of a price reduction in our DC power systems. Of note, the number of DC power systems sold in the first quarter was 15% greater than the same period in 2017. On a sequential basis, net sales increased 22% in Q1 2018 as compared to $4.0 million in Q4 2017.

Backlog totaled $2.5 million at March 31, 2018, as compared to $1.8 million at December 31, 2017, and $1 million at March 31, 2017. As of May 11, 2018, backlog totaled $4.3 million, a 72% increase as compared to March 31, 2018. The increase in backlog at the end of the first quarter of 2018 as compared to the end of 2017 was attributable to increasing sales to our largest Tier 1 wireless telecommunication carrier customer as well as increasing sales to military customers.

Gross profit decreased 23% to $1.5 million in the first quarter of 2018 as compared to $1.9 million in the first quarter of 2017. Gross profit as a percentage of net sales declined to 30% in the first quarter of '18 as compared to 39% in the first quarter of 2017. The gross profit in the first quarter of 2018 was negatively affected due to the price reduction in our DC power systems that took effect in March 2017, coupled with an increase in cost of materials as a result of volatility in the steel market and other raw materials markets. We made substantial improvements in the production in its -- we made substantial improvements in our production facility and product line during 2017 and continue to believe that gross profit margin will improve to above 35%, particularly as the volume of sales increases.

Operating expenses increased to $1.8 million in Q1 2018 from $1 million in Q1 2017. The increase in operating expenses was primarily due to an increase in sales and marketing as well as research and development expenses.

Net loss in the first quarter of 2018 totaled $0.3 million or negative $0.03 per basic and diluted share compared to net income of $0.6 million or $0.06 per basic and diluted share in the first quarter of 2017.

Cash at March 31, 2018 totaled $11.7 million as compared to $14.2 million at December 31, 2017. The decrease in cash as of the comparative periods ended March 31, 2018 and December 31, 2017 largely resulted from a $1.8 million quarter-over-quarter increase to our accounts receivable. This is mainly a timing issue caused by the delivery of a large order late in the quarter. We expect accounts receivable and cash flow to normalize as we move through 2018.

In summary, we remain in a strong financial position and have made investments necessary to support future growth. The first quarter of 2018 represents a new era for growth for Polar Power, as initial international purchase orders begin to materialize, alongside our strengthening relationship with our new Tier 1 wireless carrier customer. We continue to win new supplier approvals and successfully conduct field trials in key international markets. There are strong macro tailwinds supporting us on a go-forward basis from both the capital expenditure requirements for 5G in the United States and increased infrastructure investment by international carriers. Assuming regulatory approval, we view the T-Mobile's acquisition of Sprint as a strong net positive well -- as well. We continue to diversify our revenues across our growing customer base, both in the telecommunications and military markets.

I have never been more optimistic regarding Polar Power's future as I am today. As we manage -- as a member of management team, we believe we have the potential to create significant long-term value for our shareholders. We look forward to sharing more on developing story as soon as to be announced upcoming investor conferences and road shows in key cities across the United States.

At this time, I'd like to open up the call to questions from our listeners. Operator?

(Operator Instructions) We'll go first to Craig Irwin with Roth Capital.

So Raj and Luis, my first question is about the gross margin target. Obviously, that was the widest delta versus my financial model. Revenue ahead is a really nice thing, but we do need margins to kind of hang in there. You mentioned that you're optimistic about achieving a 35% gross margin run rate. What do we need to see that -- I mean, what's the revenue run rate we need to see that? And is there a positive mix shift needed to push out as well?

Yes. Hey, Craig, this is Raj, a few things in here. One is we are -- we do have some inefficiencies with regards to the buying part of it because we're still using some of the distributors in order to meet the short lead times that our customers want. So gross margin is impacted with that one. While we're establishing direct relationship with manufacturers, it has a lead time associated with it. And all said and done, it might take 3 to 4 months. So between now and then, we'll have to buy from distributors to keep the line moving. So that's one thing. And also, we are expediting the cost and we are putting some overtime into play here in order to meet the high demand. So our gross margins are also affected by that one. And in the future, since we are planning for that kind of demand with better forecasts and more communication with the customer, we believe that we will address those concerns and we'll bring it back up to that 35% or more that Luis mentioned.

Great. So my second question is about the lease for the new manufacturing space. First, can you remind us what the approximate capacity is today with the shift in pricing for the first facility? And can you maybe describe for us what sort of a commitment you needed from prospective customers to make the decision to go out there and start paying rent on a monthly basis to bring online additional capacity for later in the year?

I guess, I can answer that one. This is Arthur Sams. Okay. I'm speaking from a hotel room in Japan. And I work closely with the sales crew international. And the amount of orders that we see coming our way and the amount of time it takes to schedule additional manufacturing facilities, we didn't want the 2 to cross negatively. We've got very high confidence that the orders would come in, therefore, justifying our spending in the next 3 months, 4 months commissioning additional production facilities. Craig, did I answer your question?

Yes, that does. And could you also talk about the approximate capacity at the existing facility, either on a quarterly or annual run rate if we were to talk roughly in revenue production capacity?

Let me defer that one to Raj or Luis.

Sure. So our current production facility is 40,000 square feet, and we are running about 50% to 55% of production capacity currently on one shift. And the new facility that we mentioned is 29,000 square feet. So you could kind of put that into perspective there.

Excellent. That's really good to hear. So then, in order for you to be fully utilized on your first facility and pushing into your second facility, you would need to ramp your purchase volumes quite dramatically. Can you maybe describe the process that you're going through and the potential efficiencies that you would see from a several-fold increase in your purchasing? And as a public company, are you seeing the vendors and distributors of your various parts be a little bit more flexible and a little bit more accommodating as you work with a little uncertainty around the timing of some of your customer contracts?

Let me address that. In the new facility, one of the first things that we're currently installing is a robotic spray booth. Our current spray, our current painting vendors are not able to keep up with our volumes right now, with our increasing volumes. So to reduce our production cost, we're putting again in a robotic spray booth into the -- into our new facility. Currently, I'm in Japan, and our first direct shipment of engines will be leaving in June. Things are going well with direct negotiations with our engine suppliers, and we're able to achieve very significant price reduction. We have a clear understanding of the -- our engine manufacturers' production rates and limitations. And I would say, so far, my trip here is going very well. Engines and painting is our major...

(technical Difficulties]

Arthur? Call is dropping.

I think you might have lost the line.

Yes, I'm back.

Oh, great. Sorry, we missed about the last 10 seconds, Arthur.

Okay. Where did I leave off?

Paint booths and engines are your major issue.

Yes. And that's been our focus with the new facility. All the other components, or most of the other components, we've done pretty good at securing additional volumes. And we don't see too much risk there.

That's really good to hear. The next question I wanted to ask is about your major Tier 1 carrier that's driving revenue right now. The revenue from this carrier was up about 75% in the first quarter over the fourth quarter. Can we expect this to ramp based on your current delivery schedule? Is this something where you're scheduled out through the rest of the year? Or do you expect them to release orders on a weekly or monthly basis for you to deliver to?

Raj, do you want to take up that one?

Yes, I can take that. So the answer, Craig, is that it's a combination. One is we do have some good forecasts by the U.S. Tier 1 clients here. And so we will be -- we are expecting purchase orders on a weekly basis. And on top of that, we're also expecting some purchase orders, some bulk purchase orders coming from the new carriers that would be -- that could be considered as a blanket PO sort of, and they'll have some release schedules based on that one. So it's a combination of both.

And the new blanket order, what is the approximate timing for you to receive that from the customer? Is this something you would expect in the next couple of weeks or a couple months? What should we think about that from the investor side?

Yes, I mean, I can't basically comment on the timing of that one because, once again, you're working with these large carriers that have their own schedules to deal with and a lot of things are going on, on their end. So we've been told that it's imminent, it's coming. And at this point of time, we'll not be able to effectively say a particular date on that one.

Let me add to that, too. Let me add to that, too, is that some of our predictions in the past haven't -- may have fallen short. If a carrier says that they're going to issue a purchase order next week, they could actually mean next month or next quarter. So they're not that accurate in delivering their POs. There's a lot of bureaucracy there that creates delays. But we're confident that the orders would come. And again, we're preparing for the onrush. One thing I forgot to mention earlier, besides the paint booth and the new facility, is we're adding about $600,000 worth of automated processes for punching the machines, stamping the machines and fold -- I mean, punching the sheet metal, folding it. So we're buying some more robotic equipment to do the sheet metal and the cabinet fabrication.

Excellent. So the next question I wanted to ask is about the military, your Oshkosh order. It's really nice to see shipments against that. There were 2 things you called out in the press release, the 20-unit purchase order for DC power systems for robotic mule for the Army, and then the U.S. defense manufacture of military vehicles. I think you said that was $0.8 million. Can you give us an idea on the diversity of military programs that you're competing for? Do you see a lot of competition in this niche? When we walked around DSEI in London last year, I know this is one of the largest shows in the world for military equipment, I didn't see any other generator manufacturers really focused on meeting the needs of some of these emerging applications. How do you expect this to evolve for Polar?

Good question. I appreciate that. First of all, there isn't too much competition in DC generators. Even though the Army has been -- or the U.S. military has been our longest customer, and DC generators dating back to 1980, 1989, the relative number of quantities is relatively small but growing. They still are heavily based with the AC generator legacy. It takes a while to turn them around. As they get more and more dependent on the need of power and energy in the field, the transition to DC is going to speed up, and of course, we'll get more competition. Now our competition out there is typically companies that will take a product, any product, and build it against a contract. Those companies, no matter how large they are, are not as competitive as a company that has this product off the shelf. Now to gain more military business, we have to increase the size and power of our units. And we literally have to cover the range of 3 kilowatts to 200 kilowatts. And when we fully develop that range, we'll be the strongest supplier in the military for DC product.

(Operator Instructions) We'll go next to Ashok Kumar with ThinkEquity.

On the business model, just some clarification, would you say, in terms of quantifying the top line, would the 5 million be the watermark at which point you'll begin to realize efficiencies, both internal from labor as well as the supply chain procurement, and thereby hit your target margin level?

Luis or Raj, do you want to take that one?

Yes, I'll hop on that one. Thanks, Arthur. Ashok, this is Raj. Yes, on a 5 million level, it's probably a good point for us to get some good buying power with materials going to manufacturers and things like that. But in terms of gaining the manufacturing efficiencies that we're referring to, it's more on the 7 million and above where you could realize those efficiencies in terms of the labor efficiencies. Plus, Arthur also mentioned the new machines that they're planning to commission in Q3 of this year, which would also enhance efficiencies.

And on the telco vertical, Raj, given your renewed momentum in penetrating new accounts, are you seeing better order visibility around it, because historically, you're seeing spending forecasts in the September, October time frame for the following fiscal year, so are you seeing the domestic carriers releasing more information to their supply chain partners, and thereby giving you better visibility there as well? And a related question...

The answer is yes.

Got it. Okay. And then, specific to the Southeast, I think, the regional positioning was the carriers are focusing more on hardening. Are you seeing more capacity expansion plans in place over your forecast, Raj?

Okay. Your question is regarding the Southeast United States? Is that what it is?

Yes. I mean, I'm talking about the hurricane-affected areas, right? I think the regional focus, the functional focus of the carriers was hardening. Are you seeing more capacity expansion programs over your budget forecast (inaudible)

Yes, it's like all these areas are fighting against each other within these telecoms for budgets. Southeast and Northeast are probably -- we've been told that they've been getting the bigger pie -- a bigger piece of the pie, rather, because they are more prone to hurricanes and other calamities. So we've been told once again by the new carriers that we've been receiving orders, or we're expecting orders in the future, that most of these systems would be deployed in the northeast or the southeast areas of the country.

Got it. And then, Arthur, you've been talking about this international opportunity. I think, you earlier highlighted Malaysia, and Raj as well, right, in terms of one of the key opportunities for this year. Are you willing to give granularity in terms of both the timing and the revenue opportunity, which should start this year with a 2-year program? And could you update us on that front, please?

I didn't get all of that, so it's difficult to -- for me to respond to that.

Right. Maybe -- okay, Arthur, I'll take that. So Ashok, so your question was regarding the international opportunities that we're chasing in Africa and Asia and Australia. And as I said in my script recently, we believe that this order in Namibia is a good, healthy opportunity because they're building a lot of new sites there. Now that is critical -- that is actually a stepping stone, I would say, into 4 angles into a turnkey solutions provider as opposed to just a generator or a power systems provider. So that's one large contract which we're excited about. Also, we've been -- we've received a couple of initial purchase orders from one of the largest tower operator in the world for a couple of sites in Sri Lanka as part of a large rollout program that they have. They're collecting all the requirements for the rest of the year. So it would be a similar relationship like what we have with U.S. carriers here. It would be on a drawdown basis every time they need a generator, a battery bank or as a solar site, they'll be reaching out to us. So we're very excited about the contracts we have in the pipeline.

Raj, in terms of one of the opportunities, I just wanted additional color, with the RFPs that you're approved for in Malaysia, right. And I think, overall contract is big, and you're making -- or you are waiting for more information in terms of how much you're involved with the project, right, a 2-year program, '18 and '19. I was wondering if you have additional color on that.

Yes, Ashok, at this point of time, we're not releasing information on outstanding RFPs for known reasons.

Competitive reasons.

Yes, competitive reasons. Yes, at this point of time, we can't answer that question. But yes, our -- the number of RFPs we can say comfortably that the number of RFPs, the number of projects that we're participating in has increased multifold and has been increasing steadily quarter-over-quarter.

And on the military opportunity, Raj, Arthur and Luis, the -- so historical legacy relationship has been with Oshkosh and in terms of you've indicated that you are approved to go to phase 2 with an additional military contractor. And in terms of reaching phase 4 of the qualification cycle, at which point you'll have visibility on the order floor, and is this still a '19 and a '20 opportunity from a timing perspective?

I would say that, that '19 and '20 would be fairly correct. But again, when you're dealing with government bureaucracy, you never know when exactly you're going to get the contract until after you've received it.

Okay. But Arthur, in terms of competitive positioning, I think, earlier statement was this particular contractor who's using your generator outbid your competition by a landmark, right? From a technical perspective, is it safe to assume that you're the lead dog for this opportunity?

I don't think that we can really speak to the competitiveness of our prime contractor on that. I guess, we're proud of our equipment and we may have a rosier outlook on it. But I think that would be more or less for more independent analysts to review the competitiveness between the various 4 suppliers into that program.

(Operator Instructions) We'll go next to [Matt Hlavacek] with MicroCapClub.

My first question is regarding the T-Mobile-Sprint merger, the proposed merger that you mentioned before as being a net positive in terms of outlook to the company if that merger is to close. T-Mobile recently mentioned post-merger synergies that they're expecting from decommissioning a large number of sites and from a large number of sites that will no longer have to be built. So that's, on the face of it, that kind of stands a little bit at odds with what you had mentioned before. So I thought it would be great if you guys could provide a little bit of color about why you expect it to be a net positive and what the drivers are?

I can go ahead and address that. It's quite simple, most of T-Mobile sites and Sprint sites, as far as our knowledge are not well hardened, they don't have generator sets there. The advantage to us that we see is that Sprint gets more funding to harden their site and T-Mobile continues hardening their sites. It's not like we're going to be really losing market share, even though we supplied generator sets to T-Mobile a few years back. They simply didn't have the budgets -- or the priority rather to purchase more equipment from us. That wasn't their priority. Now we expect that to change with revenues coming in or investment dollars. Did I answer your question?

It does. That's very helpful. Would you be able to provide us an update on the 200-kilowatt unit? I believe, in the past, you've mentioned that being a significant driver in R&D expenses. And that would be helpful if you might be able to provide us an update on the progress there?

We're slowing down on that a little bit because of the need to increase our production rate. So -- and also, the demand for customization from our new tier carriers. So that diverted us a bit and slowed us down. We expect to pick up pace on that again in June.

Are you seeing -- have you been working with customers on specifications for that unit? Is it something you're seeing a lot of demand for?

Actually, in terms of specifications, customers have very little specification. It's a situation that if it's there, they'll buy it and adapt to it.

Okay. Can you help us understand a little bit the time line that you would expect to transpire between moving from completion of field trials that you mentioned, on to actual booking of orders? I think you mentioned completing a number of field trials in Japan and Malaysia. And I know you can't get too specific in terms of timing, but it'd be helpful if you could quantify that in terms of quarters, months. What are we -- how should we think about that?

Well, the thing is, as I tried to explain a little bit earlier in the call, is that you complete a field trial, customer's happy. We usually typically see the expectations. But being able to predict when he's going to give you the signed purchase order is something that I don't see us being able to predict, or any of our competition. It happens when it happens. What I've actually experienced is you complete field trials, and either you wait, maybe the soonest is 3 months and maybe the longest is 3 years before they purchase. We've implemented a little bit stronger programs saying, "Look, if we complete the field trial, can we commit to a contract delivery date?" And so that's kind of like a new approach for us.

Great. And the final question, you mentioned not seeing much in the way of competition in the DC space. Yet, in some of the prepared comments in today's release, there's a number of pricing pressures that you're experiencing. And no doubt, you've discussed working with suppliers to mitigate that, but how do you best address the mentioned competition to mitigate these effects moving forward?

By increasingly delivering more complete systems and services. For example, being competitive in battery delivery. In other words, when we ship a generator on an off-grid site or on a bad grid site, we supply the generator, we supply the rectifiers, we supply the batteries. So the customer has a more turnkey solution. A long time ago -- or last year, really, that's not a long time ago, we would define a turnkey system as being able to provide the solar controller, batteries and generator. Now the customers are wanting us to take that a step further by providing rectifiers, by providing installation. In Namibia, they're asking us to provide the towers themselves, which we are in the process of doing. So it's what I would call climbing higher and higher on the food chain and being able to meet more of the customer's requirement. I mean, the customer, what he would like to do is, I guess, sit on a golf course and have someone else build his sites and take care of his requirements.

And that does conclude today's question-and-answer session. At this time, I'll turn the conference back to the speakers for any additional or closing remarks.

Okay. Thanks, everyone for joining us on the call today. We have many dedicated and hardworking people throughout the company, from our sales, marketing, international and business developments folks, to our engineering team who keep our DC power solutions constantly evolving. A sincere thanks from all of management to all of you. We could not do it without you.

Lastly, if we weren't able to address all of your questions in today's call, please feel free to contact us at our Investor Relations firm, MZ Group, who would be happy to answer them. We look forward to speaking with you on our second quarter financial results conference call. Operator?

This concludes today's call. Thank you for your participation. You may now disconnect.

Thank you.