Pioneer Power Solutions Inc (PPSI) 2022 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pioneer Power Solutions 2022 fourth-quarter and full-year financial results conference call. (Operator Instructions) I would now like to turn the call over to Brett Maas of Hayden IR. Please go ahead, sir.

Thank you, and welcome. The call today will be hosted by Nathan Mazurek, Chairman and Chief Executive Officer; Walter Michalec, Chief Financial Officer; and Geo Murickan, President and CEO of Pioneer Power Mobility. Following this discussion, there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the fourth-quarter and full-year financial results as well as discuss recent business highlights.

Before we get started, let me remind you that this call is being recorded and webcast. During this call, management may 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 releases issued earlier today, which applies to the content of the call.

I would now like to turn the call over to Nathan Mazurek, Chairman and CEO. Nathan, please go ahead.

Thank you, Brett. Good afternoon, and thank you, all, for joining us today.

Throughout 2022, we have been highlighting our new products and solutions, specifically conceived and produced for the rapidly growing distributed generation and electric vehicle markets. We laid out an aggressive growth target for 2022 and talked about strong demand, increased orders, and widespread customer interest. These elements came together in the fourth quarter of 2022, as our revenue in the quarter nearly tripled to $9.5 million. We reported net income and earnings of $0.10 a share, and backlog increased 33% in the last three months of the year to $37.2 million.

The result was as we expected: a strong end to a solid year of growth as full-year revenue increased 48% to $27 million. While the fourth quarter did indeed benefit from the favorable product mix and higher-than-expected operating efficiencies, we are projecting that we expect to extend 2022's fourth-quarter performance and generate positive EPS for the full year of 2023 ahead of the timetable we referenced last year and inclusive of continued cash investments in our E-Bloc and e-Boost product platforms.

We have essentially reached a point where our projected annual volume enables us to achieve improved operating leverage and sustainable EPS on an annual basis. While we still expect some quarter-to-quarter volatility to influence both our top and bottom lines in 2023, for full-year 2023, we are projecting between $42 million and $45 million in revenue, representing a growth rate of at least 50%, continued margin expansion, and full-year positive net income.

It is also important to note that as of December 31, 2022, we have approximately $14.3 million in net operating loss carryforwards, available to shelter taxable net income in the near future. As I noted earlier, our backlog at December 31, 2022, was $37.2 million, a record level for us since we divested our transformer business over three years ago.

From a production planning perspective, our facility in Los Angeles is essentially a capacity for 2023. And we are actively planning and expanding our manufacturing capacity for 2024 at this point. As we have noted, our E-Bloc and e-Boost solutions directly address two durable secular catalysts.

E-Bloc is an integrated, compact, and outdoor transfer switch scheme, circuit protection and power control system, specifically designed for users of more than one source of electrical power. E-Bloc allows facilities to add additional energy sources, like solar battery storage, fuel cells, or natural gas engines, without doing any internal upgrades to their existing electrical system. E-Bloc allows the user to effectively manage, control, and protect all these inputs, facilitating peak shaving, peak skimming, and general resilience.

Finally, E-Bloc presents all these benefits in a compact, outdoor, competitive skid-mounted package. To date, our primary markets for E-Bloc have been multi-location businesses with a large physical and power footprint, such as retailers and supermarkets as well as power intents and uptime-sensitive facilities like data centers, water utilities, hospitals, senior living facilities, and prisons. The distributed generation initiative is really just getting started for all these verticals, and E-Bloc squarely addresses their expected demand.

In December of 2021, we announced a $12 million order for our E-Bloc power system from a major big-box retailer. Other retailers as well as data centers and manufacturing facilities, among others, are evaluating the E-Bloc solution as well.

During 2022, we won our first order from the data center market. And we believe this represents a significant market opportunity for us over the next several years as data center developers and owners continue to push for a more diversified resilient package and a lower carbon footprint.

In October of last year, we announced that one of the largest automakers in the world awarded us an $8 million order to integrate E-Bloc as part of their innovative power delivery infrastructure for a new massive manufacturing campus in the United States, which will focus on their electric vehicle and battery production.

Finally, we won an order for a US water utility of more than $5 million during the fourth quarter of 2022. This order is our first for a water utility, significantly expanding our backlog and representing an exciting new use case. We will be providing multiple E-Bloc units to the water utility authority to be deployed as part of the sophisticated distributed energy system, enabling the water utility to avoid a water delivery disruption, better manage its power utilization, control costs, and reduce its carbon footprint. We expect to deliver these E-Bloc systems in the second and third quarters of 2023 to three different locations in central California.

Turning to our e-Boost mobile charging platform, we continue to see increasing interest in our anytime-anywhere mobile easy charging solution. This solution is now nearly 1.5 years old, having been introduced formally in November of 2021. As a reminder, the e-Boost portfolio is comprised of several platforms.

e-Boost Mini is a skid-mounted version that provides high-capacity EV charging in our smallest footprint. It brings on-demand charging of electric vehicles to any location within a facility with just a forklift and anywhere else onboard a trailer. This gives an easy and convenient way for dealerships and depots to charge their first EVs.

e-Boost GOAT, G-O-A-T, generator on a truck, is a truck-mounted option that brings ultimate mobility with high-capacity EV charging and enables on-demand charging of EV vehicles at any convenient location, providing EV truck and car owners the convenience of dispatchable charging services and thereby, helping eliminate range anxiety.

e-Boost Mobile is a trailer-mounted solution that balances the need for mobility and higher capacity of EV charging such as -- that the solution can be relocated with minimal effort and on short notice. e-Boost Mobile provides multiple options for towing and can be available in specific businesses, large sports and cultural events, or other gatherings to fulfill the elevated demand for high-speed charging.

e-Boost Pod is a mostly stationary EV charging solution, customizable higher capacity, and can be moved if necessary. The pod can provide high-speed DC fast charging to four or more vehicles simultaneously. Like all e-Boost solutions, it can also service other power needs especially in emergency situations, such as a power outage, serving as a backup power source with convenient power connectors and outlets available onboard.

To date, target customers for e-Boost have included electric trucks, truck and bus manufacturers, their associated dealers, fleet management companies, package delivery providers, school bus operators, and the like. Other active e-Boost markets include electric vertical takeoff and landing aircraft or eVTOL, primarily the future of air taxis; e-sports and off-road vehicles; e-boats; e-jet skis; snowmobiles; even off-highway agricultural and mining equipment like e-tractors and sprayers.

Beyond the obvious environmental and economic tailwinds, state and federal policies are accelerating demand and ultimate adoption. The National Electric Vehicle Infrastructure or NEVI program is the latest example, providing incentives and federal grant funding to US companies that provide charging stations domestically in order to unfold a national charging network along our interstate highways.

We expect the NEVI program to be a serious catalyst for us in 2024 as we work with businesses and business associations that are bidding to provide this charging infrastructure. Our e-Boost solution is an especially appealing solution in rural and underserved parts of our nation's highways, where permanent infrastructure solutions are just uneconomical.

Demand and excitement regarding the e-Boost has -- e-Boost platform has continued to grow in 2023. In January, we announced that Merchants Fleet, the nation's fastest-growing fleet management company, ordered two trailer-mounted e-Boost solutions to serve as benchmark products for Merchants Fleet's larger EV charging offering. Merchants Fleet selected e-Boost because it delivers an off-grid, mobile direct-current fast charger with built-in resiliency. Our e-Boost system is sustainably powered using a propane fuel generator and a solar-powered battery storage system.

This order is yet more evidence that those on the leading edge of the EV adoption movement represent ideal customers for us, as they have unique and regular EV charging needs, and the existing infrastructure simply is not sufficient. We fill that void.

In February, we also announced additional purchases by a leading electric school bus manufacturer. These units are skid mounted, and joint units -- we have already built and sold to this particular bus manufacturer in 2022.

The need is clear. Sales of EVs have significantly outpaced the charging infrastructure. This is particularly true in the industrial and commercial sectors, where electrification has reached warehouses and delivery options as a way to reduce the environmental impact as well as fuel costs. Many organizations are moving quickly to add charging solutions for customers, employees, and company fleets.

As we move through 2022, we continue to add new use cases, including the ability to recharge EVs as they are disembarked from overseas shipments as well as airport authorities that invested in EV passenger shuttles and buses, but are waiting for permanent EV infrastructure to arrive. To wit, we delivered two large e-Boost units to the Port of San Francisco in January on behalf of -- January this year -- on behalf of a Vietnamese electric vehicle manufacturer so that they may fast-charge their passenger vehicles as they are unloaded in the shipping terminal. Their continued reliance on our e-Boost product is further affirmation of the market need and our ability to fulfill it.

As fleets are electrified, mobile and on-demand charging will become increasingly important, and e-Boost fills this unique niche. As a result, we expect e-Boost to continue to drive significant growth and profit generation for us in 2023.

With that, let me turn the call over to Walter Michalec, our CFO, to discuss our financial results.

Thank you, Nathan, and good afternoon, everyone. First, before we dive into the numbers, I'd like to note that these financial results, along with the earnings release that was issued earlier today, discloses unaudited financial results.

Pioneer's fourth-quarter revenues were $9.5 million, up $6 million or 172% year over year. Sequentially, fourth-quarter revenue increased 52%. Revenue from our T&D solutions segment, which manufactures our E-Bloc solution, increased nearly 400% to 7.4 million. And our critical power segment, which manufactures e-Boost, was up marginally 9% to 2.2 million.

Gross profit for the fourth quarter was $2.8 million or a 29% gross margin compared to a gross profit of $25,000 or a 0.7% gross margin in the fourth quarter of last year. Sequentially, gross margin more than doubled compared to a gross margin of 13.8% during the third quarter. The increase in our gross margin was due to higher revenue, driving improved manufacturing utilization and a favorable sales mix of high-margin E-Bloc power systems and ATS equipment.

Selling, general, and administrative expenses of 2 million or 21% of revenues for the fourth quarter of 2022, a decrease of 32% when compared to 1.5 million in the year-ago quarter. Approximately 150,000 of the quarterly SG&A was related to stock-based compensation. SG&A also includes approximately 500,000 in incremental investments in sales, marketing, personnel, and prototypes for our E-Bloc and e-Boost solutions.

This is intentional and targeted spending designed to drive demand for these new solutions. We expect investments in 2022 to continue through 2023, as we build these two new business lines and as they grow. Finally, higher wage costs, including salaries and benefits, played a key role in SG&A.

Turning to the full-year results, revenue was $27 million, up 48% from $18.3 million in 2021. Revenue from our T&D solutions segment increased 83% for the year to 17.4 million, while revenue from our critical power segment increased 9% to 9.6 million.

Gross profit was $4.6 million or 17.1% of sales, compared to gross profit of $1.4 million or a 7.6% gross margin. Our operating loss was $4 million in 2022 compared to $3.9 million last year. Net loss was $3.6 million or $0.37 per share compared to a net loss of $2.2 million or $0.24 per share last year.

Turning to the balance sheet, we had cash of $10.3 million and zero bank debt at December 31, 2022, compared to cash including restricted cash of $11.7 million at December 31, 2021. This represents cash per share of approximately $1.06 at December 31, 2022. This balance reflects the receipt of $6.2 million in cash from the maturity of two notes related to the sale of our transformer business units in 2019.

Accordingly, we are confident that we are sufficiently capitalized to address our near-term investments and cash needs. As Nathan said, we expect to deliver continued growth in 2023, with margin expansion and positive net income. Based primarily on our backlog as well as the significant and accelerating demand of our new solutions, we believe we can grow revenue by at least 50% in 2023 when compared to 2022. We also expect to generate positive full-year net income and earnings per share.

This concludes my remarks. I now turn the call back to the operator for any questions from investors.

(Operator Instructions) Sameer Joshi, H.C. Wainwright.

Hey, guys. Thanks for taking my questions, and congratulations on a strong quarter. My first question is related to the E-Bloc orders and order flow. The major retailer that you mentioned in your prepared remarks -- should we expect additional orders from that customer during 2023?

We expect additional orders in 2023. They have -- the units that we produce for them -- they're monitoring, they're seeing how it goes. They've targeted hundreds of stores. We did 63. They're targeting almost 1,000 inclusive of the 63 over the next several years.

So yes, we expect more orders. Frankly, I don't expect any of those orders before midyear, which would -- depending on their schedule and so forth, which would make these a 2024 shipping -- delivery revenue item for us. We're not including any of that in our projections for 2023.

Got it. Understood. And on the e-Boost front -- I know you are seeing a lot of traction -- but in terms of -- or at least in the pipeline -- in terms of orders, how do you look at it? Like, should we expect 2Q, 3Q deliveries against these orders, or what should we be expecting for e-Boost?

Right. So most of the deliveries for e-Boost are going to be third and fourth quarter. Really, for e-Boost itself, it's going to be -- I'd say, the majority of it is going to be in the fourth quarter. We should be announcing some very exciting orders soon. But if we're going to announce it in April or May, the third quarter is almost not doable for us for most units.

Understood. And in general, cadence during the four quarters -- I think you mentioned there will be lumpiness during the four quarters, but I also heard the comment about sequential growth. Just wanted to understand how these quarters will look during the year.

Yeah. I think that we're going to have some volatility. The problem is even if -- and especially on the E-Bloc side, these jobs are getting larger and larger. Even if we think something is going to leave on March 31, it doesn't always happen exactly that way, sometimes through nobody's fault. I don't know -- the highway police were not available to escort that they -- for whatever reason, it gets pushed, so that changes the quarter.

Nowhere near the lumpiness that we had in 2022. So if I'm looking out, I would say that, probably, the first quarter will be the lightest, again, not anywhere close to the light quarters that we had in 2022. And then almost stable for the second, third, and fourth quarter.

Got it. And I guess, this also may -- the lumpiness may also explain the accounts receivable, which is quite high sequentially. I guess, it's just because of timing of delivery and now, receivables are due in the next quarter.

Correct. Yes. So it's all about timing.

Got it.

And also -- and I would say, also, with the receivable -- most of -- I don't want to say most -- but a large portion, if not more, on the E-Bloc side, we're dealing with large projects. There's a lot of progress billings that go on with them. So it's -- it doesn't even tell the tale of the full job.

Got it. And gross margins came in really impressive. Was there any special one-time boost here, or was it just better utilization and just the sales mix that you talked about? The question is, should we expect these levels going forward or maybe slightly muted from here?

Yeah. I would say -- thank you for picking up on that -- yeah. It was super efficient product mix for smaller units that went fast, less labor hours than some of the larger jobs that tend to sometimes just accumulate more hours because they're sitting for so long. So it was super, super favorable.

That being said, yes, it'd probably be a bit muted at least for the first few quarters. But it's definitely not far away from what we did in the fourth quarter.

Okay, got it. And (multiple speakers) --

And I'm going to borrow your word; muted is the right way to think about it. Thank you.

Got it. And just the last one on operating expense trend. SG&A was actually lower sequentially. Of course, year over year, it was higher.

Right.

So when you say you are going to continue to invest, should we expect like just about 2 million or north of $2 million in T&D during the next four quarters? Or should we expect even (technical difficulty) make more pronounced than previous?

Yeah. And thank you for noting that, too. So internally, as we are looking through everything, we're assuming about 2 million a quarter, more or less.

Okay. So that should -- that's actually good to know because that provides you quite a good operating leverage to -- and that probably explains your bottom-line-positive EPS guidance. Good luck on that. Well, just one --

Thank you.

I just had one more question.

Sameer, you could have -- for a second.

(multiple speakers) Yeah, I'm sorry. I think then -- can you hear me?

Yes.

Maybe this is related to accounts receivables, but the deferred revenue item also has increased. It's accounting question, but just was curious about that.

Okay. Walter, I think you should --

Sure. Thank you, Sameer. Great question. You're absolutely right. It's all really due to the progress billings that we issue out for these large orders on the E-Bloc side.

Got it. Okay. That's all for me. Good luck, and thanks for taking my questions.

You're welcome, Sameer.

Thank you.

(Operator Instructions) There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you, all, for your time and support. And as always, we look forward to updating you, all, again on our next call. Have a great evening.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.