Earnings Call Transcript - PPSI Q1 2022

Operator, Operator

Good day, ladies and gentlemen and welcome to the Pioneer Power Solutions 2022 First Quarter Financial Results Conference Call. I would now like to turn the conference over to Mr. Brett Maas of Hayden IR. Please go ahead. Thank you and welcome. The call today will be hosted by Nathan Mazurek, Chairman and Chief Executive Officer; Walter Michalec, Chief Financial Officer; and 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 the participants on the call. We appreciate the opportunity to review the first quarter of 2022 financial results as well as discuss recent business highlights. Before we get started, 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 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 and in the posted version of these prepared remarks, both of which apply 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.

Nathan Mazurek, Chairman and CEO

Thank you, Brett. Good afternoon and thank you all for joining us today for our conference call. 2022 is off to an excellent start. Following the sale of our transformer business in August of 2019, we shifted our strategy to focus on two significant, durable trends: Distributed generation and electric vehicle charging infrastructure. This shift was deliberate and calculated, designed to leverage our engineering, technical, and marketing capabilities most profitably within the electrical equipment landscape. This business change has indeed unfolded as we had anticipated. The opportunities related to distributed generation and electric vehicle charging are becoming evident, as shown by our vastly improved financial results for the first quarter of 2022. Our revenue for the quarter was up more than 70% year-over-year and sequentially as well. Additionally, our backlog increased sequentially and year-over-year to the highest level in over 30 months, even as we grew our top line by over 70%. This growth represents only the initial phase for our new solutions. We believe that as demand continues to grow, combined with our current backlog, we are confident we will increase our revenue by at least 50% in 2022, with E-Boost and e-Bloc becoming increasingly significant to our consolidated results as the year progresses. Furthermore, in the first quarter, increased volume and improved manufacturing productivity led to gross margins expanding to over 14% from 4.5% last year. The increases in revenue and margin were achieved despite ongoing supply chain challenges in both pricing and availability. These obstacles limited our ability to achieve even higher sales and margins in the first quarter. Our strategic shift was based on two durable trends. The first is the exponential growth in the last decade of distributed generation resources. Our customers seek to add secondary power sources like natural gas engines and fuel cells, utilize green energy resources like wind and solar, all while maintaining access to the utility grid and battery backup, to gain better control over their energy infrastructure, manage costs, and reduce their carbon footprint. Our e-Bloc power system enables this, allowing customers to efficiently engage in power peak shaving and peak skimming, enhance resilience through battery storage, and flexibly use renewable energy sources to meet ESG goals. Our e-Bloc can be deployed quickly, often with little or no permitting or interconnection requirements and usually without interrupting current operations. We can easily add EV charging infrastructure to this solution. While sales of EVs continue to rise, there has been a significant delay in building the necessary charging infrastructure, presenting an opportunity for us. Retailers, restaurants, hotels, casinos, concert venues, trade shows, sports venues, and workplaces are all eager to add charging solutions quickly. The major challenge in this process often lies in the grid capacity and/or the requisite power infrastructure to accommodate the new large electrical loads from EV charging. Our e-Bloc solution tackles these two challenges. During the fourth quarter of last year, we received our largest e-Bloc order to date, valued at approximately $12 million for 62 e-Bloc units to be installed at 62 different locations of one of the country’s largest mass retailers, which operates around 5,000 locations across the U.S. These units will enhance electrical resiliency, redundancy, and power capacity at these locations and potentially provide EV charging options for both employees and customers. We anticipate starting to ship the first of these 62 units toward the end of the second quarter. This is just one single retailer and the first phase of deployment, so we view it as a significant growth opportunity for Pioneer. Our current focus is to leverage this initial success to extend e-Bloc to a broader range of energy developers and users such as senior living centers, supermarket chains, warehouse fulfillment centers, and more. The other trend I mentioned is EV charging, particularly the need for on-demand, flexible EV charging. To meet the temporary need for EV charging, such as at concerts or off-grid events, we launched a new business unit, Pioneer Power Mobility, in November 2021, introducing a suite of solutions for this market named E-Boost. E-Boost is a self-contained, high-capacity, sustainably powered mobile charging solution. We have developed three delivery platforms for E-Boost. First, E-Boost G.O.A.T., which stands for a generator on a truck, is a truck-mounted mobile EV charging solution that allows for high-speed charging anywhere. Second, E-Boost Mobile is a portable solution that can be trailer-mounted or skid-mounted, providing multiple towing options and easy relocation for various events. Third, E-Boost Pod is primarily a stationary EV charging solution with mobile capabilities that can service multiple vehicles. This solution is ideal for gas stations, hotels, and other retail locations looking to enhance customer traffic, brand differentiation, or who are hesitant to commit to a more permanent EV solution. All three E-Boost platforms are designed to address on-demand power needs beyond just EV charging. In emergencies, such as power outages, E-Boost can serve as a backup power source with convenient connectors available on board. We have already booked and shipped our first substantial order of nearly $800,000, deployed at a hotel and casino. Additionally, we secured a second order for two units from Navistar, a leading truck and bus manufacturer, intended for recharging their electric vehicles, which have also been delivered in the current second quarter. These units were showcased by Navistar at the 2022 Advanced Clean Transportation Expo, the largest event for advanced transportation technology in North America. The market response for E-Boost is strong and rapidly increasing. We attracted significant interest at the ACT Expo, with many attendees, including electric truck and bus manufacturers, finding our E-Boost solutions highly appealing. We believe we are the only company providing a high-capacity, fast-charging mobile solution powered by portable propane, enabling greater charging capacity and quicker charging than any other solution available. We expect E-Boost to generate as much as 10% of our total annual revenue in 2022, with expectations to double in 2023 compared to 2022 levels. We are maintaining our forecast for full-year revenue growth of at least 50% in 2022, compared to 2021. We are currently ahead of that pace through Q1, and we expect Q2 results to mirror Q1, including significant year-over-year revenue growth and enhanced margins. We also anticipate the second half of the year will yield even stronger results as we continue benefiting from our investments in E-Boost and new revenue from our solutions. With that, I’ll hand the call over to Walter Michalec, our Chief Financial Officer, to review our financial results.

Walter Michalec, Chief Financial Officer

Thank you, Nathan and good afternoon, everyone. Revenues were $6 million in the first quarter of 2022, up 72.4% year-over-year and up approximately 72% sequentially compared to the fourth quarter of 2021. As Nathan indicated, the first quarter results benefited from the significant contribution of e-Bloc sales as well as our first E-Boost sale. Continued supply chain disruptions are having an impact on our results but we were successful in mitigating the impact during the first quarter. Gross profit for the first quarter of 2022 was $875,000 or a 14.5% gross margin compared to $159,000 or a 4.5% gross margin for the year ago period. The increase in gross profit and improvement in gross margin was primarily due to higher volume, enabling greater capacity utilization, overall improvements in productivity and the delivery of our first E-Boost unit. This was partially offset by higher input costs as a result of global supply chain challenges, a tighter labor market and inflationary pressures. Selling, general and administrative expenses of $1.7 million were 29% of revenues for the first quarter of 2022, an increase of $481,000 when compared to $1.3 million in the year ago quarter. Operating loss during the first quarter of 2022 narrowed by $235,000 to $871,000 as compared to an operating loss of $1.1 million during the same period in 2021, even as the company increased selling, general and administrative expenses to support its expected continued growth. Net loss for the first quarter of 2022 was $788,000 or negative $0.08 per share compared to net income of $351,000 or $0.04 per share during the first quarter of 2021. Please note, during the first quarter of last year, we recognized a $1.4 million gain in other income on the forgiveness of our PPP loan. Adjusting for this one-time gain and a small amount of other expense, our net loss would have been approximately $1 million in the year ago period. Turning to the balance sheet and statement of cash flows. We had cash, including restricted cash, of $13.6 million and zero debt at March 31, 2022, compared to cash of $11.7 million at December 31, 2021. This represents cash and restricted cash per share of approximately $1.41 per share at March 31, 2022. As a reminder, we expect to receive approximately $6.5 million in cash by the end of 2022 from the maturity of two promissory notes which relate to the sale of our transformer business in August of 2019. For the first quarter of 2022, our cash provided by operating activities was $2.1 million compared to cash used in operating activities of $941,000 during the first quarter of last year. As Nathan said, we view 2022 as a year of growth and margin expansion. Based primarily on our backlog as well as the significant and accelerating demand for our new solutions, we believe we can grow revenue by at least 50% in 2022 when compared to 2021. And further, we expect meaningful margin expansion. This concludes my remarks. I now turn the call back to the operator for any questions from investors.

Amit Dayal, Analyst

Nathan, so with respect to the 62 e-Blocs, what's the deployment timeline? Can you remind us, please? And has there been any change to this? I know you started in maybe this quarter. Are you looking to complete this by the end of the year? Or will that go into maybe early 2023?

Nathan Mazurek, Chairman and CEO

Our plan is to aim for nearly full completion this year. The user, who is the final destination, is a bit slower to receive the product than initially expected. Most of the deliveries are likely to occur in the third quarter, with a possibility of some extending into the fourth quarter, but I would be very surprised if anything pushed into 2023.

Amit Dayal, Analyst

Understood. And then sort of with this timeline, how should we think about quarterly revenue performance? I guess from a sequential perspective, it looks like Q3 could be stronger for you compared to maybe Q2 or even Q4. Any...

Nathan Mazurek, Chairman and CEO

Yes. Go ahead. I'm sorry.

Amit Dayal, Analyst

Yes, I was just trying to get sort of a sense of the cadence for the rest of the year.

Nathan Mazurek, Chairman and CEO

Yes. I think the cadence is going to be that, as best as I can tell, the second quarter would be similar, up somewhat over the first quarter but at similar performance to the first quarter and with the third and the fourth quarter with more outsized type performance.

Amit Dayal, Analyst

Okay. And then just from a preparedness perspective, given all the supply chain issues, are you comfortable with how you have your sort of inventory, etc., to deliver these 62 units?

Nathan Mazurek, Chairman and CEO

Yes. I mean we secured all the prime materials in advance, especially for the large contracts that we have and the users there were extremely helpful in advancing funds, so that we were able to, whether by deposit or by outright purchase, have almost everything. But like everybody is complaining about, it's a $300 current transformer or some sort of push button that delays the larger jobs. But we've been managing through it. And I think it compressed us a little bit in the first quarter and will compress us a little bit in the second quarter. But I don't see any other big changes for the rest of 2022.

Amit Dayal, Analyst

And then just last one, Nathan. As some of your deliveries into the end of the year, should we expect gross margin improvements to also start coming through?

Nathan Mazurek, Chairman and CEO

You should expect it because we expect it. So yes.

Operator, Operator

And this time, it appears that we have no further questions. I'll now turn it back over to Mr. Mazurek for any closing remarks.

Nathan Mazurek, Chairman and CEO

Alright. Thank you, Ian. Thank you all for your time and support. This was an exciting start to the year and we believe we have significant opportunities to further grow in 2022. We look forward to updating you again on our next call.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.