Pioneer Power Solutions, Inc. (PPSI) Earnings Call Transcript & Summary

Good day, and welcome to the Pioneer Power Solutions Inc. Second Quarter 2022 Earnings Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Maas, Investor Relations of Hayden IR. Please go ahead.

Thank you, and welcome. Today -- the call today will be hosted by Nathan Mazurek, Chairman and Chief Executive Officer; and Walter Michalec, Chief Financial Officer. Also on the call today is Geo Murickan, President of the company's recently launched Pioneer Power Mobility business unit. Following this discussion, there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the second quarter 2022 financial results as well as discuss recent business highlights. Before we get started this, let me remind you this call is being recorded and webcast. During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release issued earlier today and the posted version of these prepared remarks, both of which apply to the content of the call. I'd 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 for our conference call. Market demand for our new solutions, e-Bloc and E-Boost continues to grow quite rapidly. As a reminder, both of these solutions were only introduced in the second half of last year. And over the past few quarters, we have continued developing additional prototypes and first commercial units, expanding our internal sales team, broadening our third-party sales channels and investing in marketing support. This growing market demand, including customer provided timelines and expectations have reinforced our confidence that 2022 and 2023 will be significant growth years for Pioneer. Indeed, we are today reiterating our guidance of full year revenue growth for 2022 of at least 50% over prior year levels. We are reaffirming this goal even as the revenue in the second quarter was severely impacted by customer-driven delays. More specifically, in December of 2021, we announced a $12 million order for our e-Bloc distributed generation solution from a major retailer. As often happens working with 1 very large customer, delivering timing can change. And during the quarter, approximately $3 million in systems were completed, validated and scheduled for delivery, but delayed by the customer due to site readiness issues. The customer remains fully committed to this project and has already made progress payments of about 50% of the project value. If the original schedule had left -- have been left unchanged, we would have delivered revenue growth of approximately 30% in the quarter. Nevertheless, we are highly confident that we will ultimately ship the majority of these orders, along with additional units scheduled for delivery during the second half of 2022. We believe and continue to believe Pioneer is well positioned to benefit from 2 powerful secular catalysts, distributed energy generation and electrical vehicle charging. Specifically regarding distributed generation, grocery stores, office building, factories, universities and other large enterprises are seeking to take advantage of secondary power sources, such as natural gas, fuel cells as well as green sources like wind and solar. Our e-Bloc solution enables them to easily and efficiently combine and control these sources in tandem with direct utility power and energy storage driving down costs, adding resilience and reducing their carbon footprint. e-Bloc can be deployed often with little or no permitting or interconnect requirements and usually with no interruption to their current operations. And we can and indeed have done so easily add electrical vehicle charging infrastructure to this solution. Our $12 million order from a large retailer was a prime example of e-Bloc in action. Our focus now is to leverage this initial success to bring e-Bloc to a much wider group of energy developers and users. To that end, during the second quarter, we booked an initial purchase order part of a larger ultimate deployment for an e-Bloc solution, a hyperscale data center in San Jose, California. This data center is owned and operated by 1 of the largest cloud Internet companies in the world and indeed will be the first repowering of a hyperscale data center supported by renewable natural gas, ensuring that operations continue even during brownouts or blackouts. In addition, by using renewable natural gas rather than traditional diesel, we will be able to help this particular company accelerate delivering on its carbon negative objectives. The initial order to be shipped in the first half of 2023 is for just under $1 million for 4 units with expectations of 22 units total once the project is complete. Turning to our e-Boost product. The mobile charging solutions that we unveiled last year, we continue to see growing interest in our anytime anywhere, mobile charging equipment. The need is clear. Sales of electrical vehicles have outpaced the charging infrastructure retailers, restaurants, hotels, casinos, concert trade shows, sports venues, all workplaces want to move quickly to add charging solutions. As we have stated in prior calls, we have created an entirely new business unit, Pioneer Power Mobility to support the E-Boost product line. E-Boost is a self-contained high-capacity, sustainably powered mobile charging solution. We have created 3 delivery platforms for this solution. First, e-Boost G.O.A.T., G-O-A-T, which stands for a generator and a truck. This is a truck-mounted EV charging solution, which is fully mobile and can provide high-speed charging anywhere. Second, e-Boost Mobile is a trailer mounted or skid-mounted portable solution that provides multiple options for towing a forklift relocation and can be available at specific businesses large sports and cultural events and can be relocated with minimal effort and on short notice. And Finally, e-Boost Pod is primarily a stationary EV charging solution with as-needed mobility that can provide EV charging to multiple vehicles. This is the ideal solution for gas stations hotels and other retail locations that utilize EV charging to increase customer traffic and retention or as a brand differentiator. All 3 e-Boost platforms are designed to provide on-demand power needs in addition to the primary task of high-speed charging. In emergency situations such as a power outage e-Boost can serve as a backup power sources with many convenient power connectors and outlets available on board. In the near term, we see manufacturers of trucks and buses moving most quickly towards e-Boost adoption. During the quarter, indeed, we shipped 2 e-Boost skid-mounted systems to be used by the nation's largest school bus manufacturer in connection with its electric school bus offering. We recognized $129,000 in e-Boost revenue from this quarter -- from this order in the quarter. Mobile charging solutions are required at truck and bus dealerships and manufacturers are reselling and/or leasing our e-Boost solution to their dealers and customers, paired with purchases of their new electric offerings. As a result, we are in discussions with multiple potential customers and our addressable market continues to grow. New opportunities beyond this, including electric aviation, marine craft, automotive dealerships as well as many military applications have presented themselves as well. We expect e-Boost to represent this much as 10% of our annual revenue in 2022, a significant achievement considering we only introduced e-Boost in November of last year. In addition, we fully expect e-Boost revenue to double in 2023 from its 2022 levels. As I noted earlier in the call that the late shipments, which impacted our second quarter have not deterred us from reiterating our outlook on full year revenue growth of at least 50% in 2022 compared to 2021 levels. We expect the second half of the year to be stronger, both the top and bottom line as compared to the first half of the year, even as we invest in sales, marketing, facility and product development to support e-Boost and e-Bloc. In addition, we are extremely encouraged by the recent passage of the inflation Reduction Act. We believe that this act bolsters incentives for electric vehicles and provides a myriad of financial support for electric vehicle charging, renewable energy and energy storage. Each of these initiatives provide important support indeed accelerators for Pioneer's targeted markets. In addition, the goal of converting federal and many state and local government vehicle fleets to electric vehicles also will help grow exponentially the size and the velocity of this changing landscape and create near-term demand for fixed and mobile charging. Finally, the favorable tax implications of the act will contribute to a faster transition to electric transportation, driving higher demand for electrical -- electric vehicle charging infrastructure. With that, let me turn the call over to Walter, our CFO, to discuss our financial results.

Thank you, Nathan, and good afternoon, everyone. Revenues were $4.3 million in the second quarter of 2022, down 24% year-over-year. As Nathan indicated, approximately $3 million and expected shipments were delayed into the second half of the year. Gross profit for the second quarter of 2022 was $81,000 or approximately 2% of revenues compared to $495,000 or approximately 9% of revenues for the same period in 2021. The lower margin was due to lower revenue during the quarter as a result of the delayed shipments mentioned earlier, resulting in reduced absorption of fixed overhead costs. In addition, we sold certain stock inventory out of loss during the second quarter due to the need to reallocate capacity or manufacturing facility to meet demand for our e-Bloc power systems and to store e-Bloc equipment that cannot be received by the customer. Selling, general and administrative expenses of $2.5 million were 60% of revenues during the second quarter of 2022, an increase of $1.3 million when compared to $1.2 million in the year ago quarter. Approximately $658,000 or 25% of the total SG&A expense in the quarter was related to noncash stock-based compensation expense, reflecting incentive options and grants issued to employees and consultants during the quarter. SG&A also includes $607,000 in incremental investments in sales, marketing, personnel and product development costs for our e-Bloc and e-Boost solutions. This is intentional and targeted spending designed to drive demand for these new solutions. Operating loss during the second quarter of 2022 was $2.5 million compared to an operating loss of $745,000 in the year ago quarter. Net loss for the second quarter of 2022 was $2.5 million, where a net loss per basic and diluted share of $0.26 as compared to a net loss of $686,000 or a net loss per basic and diluted share of $0.08 during the second quarter of 2021. Now turning to the 6-month financial results. Revenues during the first 6 months of the year increased to $10.3 million or 13% as compared to $9.1 million in the comparable period of 2021, primarily due to an increase in equipment sales from both our T&D solutions and critical power segments. Our gross profit during the first 6 months of 2022 was $956,000 or approximately 9% of revenue compared to $654,000 or a 7% gross margin in the year ago period. SG&A expense of $4.3 million was 42% of revenues during the first 6 months of 2022, an increase of $1.8 million when compared to $2.5 million of SG&A expense in the year ago period. Approximately $716,000 or 17% of the total SG&A expense during the first 6 months of the year was related to, again, noncash stock-based compensation expense. SG&A also includes approximately $900,000 in incremental investments in product development costs for our e-Bloc and e-Boost solutions. Operating loss was $3.4 million during the 6-month period ended June 30, 2022, compared to an operating loss of $1.9 million in the year ago period. Net loss for the first 6 months of the year was $3.3 million, where a net loss per basic and diluted share of $0.34 as compared to a net loss of $335,000, where a net loss per basic and diluted share of $0.04 during the first 6 months of 2021. It's important to note that during the 6-month period ended June 30, 2021, we recognized the $1.4 million gain on the forgiveness of our PPP loan. Adjusting for this onetime gain and a small amount of other expense, our net loss would have been approximately $1.7 million in the year ago period. Turning to our balance sheet. As of June 30, 2022, we had $9.8 million in cash and no restricted cash compared to $11.7 million in cash including restricted cash of $1.8 million at December 31, 2021. Our accounts receivable balance increased to approximately $5.2 million at June 30, 2022, up from $2.4 million at the end of fiscal 2021. We believe most of this receivable balance will convert to cash before the end of the year with much of it converting to cash in the next 3 to 4 months. Additionally, we expect to receive approximately $6.2 million in cash by the end of this year from the maturity of 2 subordinated promissory notes related to the sale of the transformer business units 3 years ago. Accordingly, we are confident that we are sufficiently capitalized to address our near-term incentives and strategic initiatives. As Nathan reiterated, we continue to believe that we can grow revenue by at least 50% in 2022 when compared to 2021. This concludes my remarks. I'll now turn the call back over to the operator for any questions.

[Operator Instructions] We'll hear first from Amit Dayal of H.C. Wainwright.

Just to begin with the timeline for the 2 units for this retailer customer, is it still intact? Or can we assume that this has been pushed out a little bit?

So internally, we're still, as you heard, we're reiterating the revenue guidance that's assuming that they're going to take about half the units this year. The other half, in my own -- for our own purposes are kind of into next year. And even with that, we expect to achieve the revenue growth from other customers and other jobs.

Okay. Understood. And the -- can you give us some color on what the inventory comprises of as of the end of 2Q?

I mean a lot of it is for this particular job. I mean we ordered with their financial health, as I did say on the call, they paid for half of it in advance. So we ordered a lot of long-lead items, a lot of the components ahead of time, and really, we were all ready to go. I mean that's the increase in the inventory. And that's why we expect -- the increase in the receivables that, too. That's the 50%. That's the big increase, and that's why we expect a lot of that to convert cash before the end of the year.

Understood. As sort of deliveries to this customer pick up in the second half, can we expect sort of gross margins to once again trend around the mid-20% levels for you guys?

Yes. That is how we bid the jobs and that's how we ship them. I mean the big hit was below revenue for us, obviously, that decimated our gross margins for the second quarter.

Okay. Understood. And then any color on sort of the impact from this IRA legislation that is in play on your pipeline? And just the broader opportunity, is there anything directly that you could benefit by in the near term? Obviously, there are maybe a lot of indirect positives for you guys, given your new suite of offerings. But is there anything direct around this for you guys?

Yes, it's a little too early for us to tell. We still have the -- our confidence for 2022 and 2023 is separate and apart from any legislation. But this is -- no question it's going to help drive demand and it drives charging and it drives the money available for whomever ultimately gets it, whether it's going to be companies or different state and local governments to increase the charging infrastructure and get ready for charging, all that is good for us. So if anything, it's a benefit that we weren't anticipating for 2022 and 2023. But nothing specific. We -- I don't even know how they treat mobile or if it's even been thought of in this legislation. So that's something for us to work on.

Okay. Understood. And just going back to the guidance for '22. 3Q versus 4Q, how should we think about cadence? Is it going to be...

I think it's going to be heavier. Q3 should be extremely much heavier and really more in line with expectations with the fourth quarter being a little bit even heavier than that. That's how we're thinking about it.

Okay. All right. And SG&A, I know it should also probably trend a little bit higher in the second half. Any color on how much higher SG&A could be from 2Q levels for the third and fourth quarters?

Actually, we're kind of in -- with our own thinking, the way we're modeling out, it's pretty much -- we're hoping -- listen, I hope to reduce it a little, but really, I'd assume the same cadence through most of 2023, not higher.

[Operator Instructions] And at this time, there are no other questions in the queue. I will now turn the call back to our presenters.

Thank you, and thank you all for your time and support. Our confidence in significant growth for the year has only improved, and we work to meet growing demand for our new solutions. We look forward to updating you again on our next call. Thank you, operator.

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