Pioneer Reports Third Quarter 2018 Financial Results

FORT LEE, N.J., Nov. 8, 2018 /PRNewswire/ -- Pioneer Power Solutions, Inc. PPSI ("Pioneer" or the "Company"), a company engaged in the manufacture, sale and service of electrical transmission, distribution and on-site power generation equipment, today announced its financial results for the third quarter and year-to-date periods ended September 30, 2018.

On May 2, 2018, Pioneer signed a definitive agreement to sell its switchgear business, and as a result this business unit has been reclassified as discontinued operations. Accordingly, the results presented in this press release reflect continuing operations.

Third Quarter 2018 Results and Recent Business Highlights from Continuing Operations:

• Third quarter revenue of $26.0 million, up 1.8% compared to $25.5 million in Q3 2017 and up 5.5% sequentially compared to $24.6 million in Q2 2018
• Third quarter gross margin of 19.8% up 14 basis points compared to 19.7% in Q3 2017 and down 135 basis points sequentially compared to 21.2% in Q2 2018
• Net income from continuing operations in the third quarter of $788,000, up $1.0 million compared to a net loss from continuing operations of $219,000 in Q3 2017 and an improvement of $866,000 compared sequentially to a net loss from continuing operations of $78,000 in Q2 2018
• Adjusted EBITDA* of $3.0 million, down 11.0% compared to $3.3 million in Q3 2017 and up 66.5% compared sequentially to $1.8 million in Q2 2018
• Backlog from continuing operations as of September 30, 2018 was approximately $41.0 million, the highest in company history, up 13.0% compared to $36.3 million at June 30, 2018 and up 33.7% compared to $30.6 million at September 30, 2017

Nathan Mazurek, Pioneer's Chairman and Chief Executive Officer, said, "This quarter clearly demonstrates the progress we have made in rationalizing costs, focusing on profitable projects and effectively managing our product mix. The third quarter benefited from a more typical mix of projects and product types, driving Adjusted EBITDA* well in-line with our annual guidance. In particular, our Critical Power segment contributed $510,000 to EBITDA compared to $140,000 in the second quarter, completing a turnaround for an important strategic component of our business."   

"Our backlog and profit continue to grow, and a rebound in the oil, gas and mining sectors, as well as long-awaited infrastructure spending, would be incremental to this progress," added Mr. Mazurek. "Our results also overcame foreign currency headwinds related to the strength of the U.S. dollar relative to other currencies. We continue to enjoy broad-based demand for our solutions, resulting from favorable economic conditions in the United States and Canada. In particular, the recent legislation legalizing cannabis in Canada has spurred significant demand for sophisticated power solutions to help the burgeoning industry meet newfound demand. Data center business, cryptocurrency mining and general construction are all contributing to continued demand for our equipment and services."

"We have scheduled to close the sale of our switchgear business for January 1, 2019, enabling us to book the one-time gain and payment of the resulting tax implications in a single tax year," added Mr. Mazurek. "Based on CleanSpark's stock price at the close of business yesterday, the totality of the transaction would result in more than $16 million in value being immediately added to our balance sheet. Clearly, this value is not reflected in Pioneer's current share price. We continue to believe CleanSpark can more effectively grow this business, creating additional long-term value for all its shareholders, including Pioneer. Once the six-month lockup expires, it remains our intent to distribute these shares to our shareholders in an appropriate manner, taking into account tax obligations and market conditions."

Third Quarter Financial Results

Revenue from Continuing Operations

Total revenue for the three-month period ended September 30, 2018 was $26.0 million, up 1.8% compared to $25.5 million for the third quarter of 2017. The increase was driven by higher sales of the Company's liquid filled transformer products and increased service revenues, which were partially offset by lower equipment sales resulting from a reduced focus on this revenue stream. On a sequential basis, revenues increased 5.5% compared to $24.6 million in the second quarter of 2018. For the nine months ended September 30, 2018, total revenue was $74.0 million compared to $77.8 million for the nine months ended September 30, 2017, a decrease of 4.9%. For the three months ended September 30, 2018, service revenue increased by $219,000, or 8.2%, as compared to the same period in the prior year. For the nine months ended September 30, 2018, service revenue increased by $511,000, or 7.2%, compared to the same period in 2017.

Gross Margin from Continuing Operations

For the three months ended September 30, 2018, Pioneer's gross profit was $5.1 million, or 19.8% of revenues, compared to $5.0 million, or 19.7% of revenues, for the year-ago period. The increase in gross profit was driven primarily by the unfavorable impact of a write-off of raw materials inventory not relocated from Canada for the three months ended September 30, 2017. On a sequential basis, gross margin decreased 135 basis points compared to 21.2% in the second quarter of 2018. For the nine months ended September 30, 2018, Pioneer's gross profit was $14.8 million, or 20.0% of revenues, down 9.9% compared to $16.4 million, or 21.1% of revenues, for the year-ago period.

Operating Income / (Loss) from Continuing Operations

For the three months ended September 30, 2018, income from operations was $1.9 million compared to $1.1 million for the same period last year. On a sequential basis, income from operations represented an improvement of $1.1 million compared to $857,000 in the second quarter of 2018. For the nine months ended September 30, 2018, operating income was $3.0 million compared to $4.0 million for the prior year.

Income Taxes from Continuing Operations

Pioneer's effective income tax rate on income from operations for the third quarter of 2018 was 34.5% of earnings before income tax compared to 170.4% for the same quarter last year. For the nine months ended September 30, 2018, the effective income tax rate was 81.1% of earnings before income tax compared to 19.0% for the same period last year. The decrease in the income tax rate for the three-month period ended September 30, 2018 and the increase in the income tax for the nine-month period ended September 30, 2018 was primarily due to changes made to taxation of foreign earned income pursuant to the U.S. tax code changes enabled in December 2017.

Net Income (Loss) from Continuing Operations

The Company generated net income of $788,000, or $0.09 per basic and diluted share, for the three months ended September 30, 2018 compared to a net loss of $219,000, or $(0.03) per basic and diluted share, during the three months ended September 30, 2017. On a sequential basis, net income improved by $866,000 compared to a net loss of $78,000 in the second quarter of 2018. Net income for the nine months ended September 30, 2018 was $128,000, or $0.01 per basic and diluted share, compared to net income of $1.7 million, or $0.19 per basic and diluted share, for the nine months ended September 30, 2017.

Net Income (Loss)

The Company generated net income of $58,000, or $0.01 per basic and diluted share, for the three months ended September 30, 2018 compared to a net loss of $795,000, or $(0.09) per basic and diluted share, for the three months ended September 30, 2017. On a sequential basis, net income improved by $854,000 compared to a net loss of $796,000 in the second quarter of 2018. Net loss for the nine months ended September 30, 2018 was $1.3 million, or $(0.16) per basic and diluted share, compared to net income of $599,000, or $0.08 per basic and diluted share, for the nine months ended September 30, 2017.

Adjusted EBITDA*

Among other add backs for this calculation, the third quarters of 2018 and 2017 included non-cash expenses consisting of depreciation, amortization of acquisition intangibles, and stock-based compensation for employee and director stock options of $713,000 and $1.1 million, respectively.

The Company's Adjusted EBITDA* for the quarter ended September 30, 2018 was $3.0 million compared to $3.3 million in the same quarter last year. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP measures.

* Note: Pioneer has presented non-GAAP measures such as Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor the Company's performance. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the Company's operating performance.

Generally, a non-GAAP financial measure is a quantitative assessment of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this release, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP measures.

Backlog

Sales backlog (reflecting continuing operations) at September 30, 2018 was a record $41.0 million compared to $36.3 million at June 30, 2018. Backlog is based on orders expected to be delivered in the future, most of which is expected to be delivered during the next 12 months and excludes the backlog from discontinued operations.

2018 Outlook

Management reaffirms its expectations for the Company to generate high-single-digit growth in revenues from continuing operations and to increase Adjusted EBITDA for the full year of 2018 compared to 2017. 

Conference Call Information

Management will host a conference call at 4:30 p.m. ET on November 8, 2018, to discuss the results with the investment community. Details are as follows:

• Confirmation code: 2572152
• Dial-in number (toll-free): 1-800-289-0438
• Dial-in number (toll/international): 1-323-794-2423
• Webcast link: http://public.viavid.com/index.php?id=131838

A replay will be available until November 15, 2018 which can be accessed by dialing 1-844-512-2921 if calling within the United States or 1-412-317-6671 if calling internationally. Please use passcode 2572152 to access the replay.

About Pioneer Power Solutions, Inc.

Pioneer Power Solutions, Inc. manufactures, sells and services a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company's principal products and services include custom-engineered electrical transformers, low and medium voltage switchgear and engine-generator sets and controls, complemented by a national field-service organization to maintain and repair power generation assets. Pioneer is headquartered in Fort Lee, New Jersey and operates from 12 additional locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales, service and administration. To learn more about Pioneer, please visit its website at www.pioneerpowersolutions.com.

Safe Harbor Statement:

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) the Company's ability to expand its business through strategic acquisitions, (ii) the fact that many of the Company's competitors are better established and have significantly greater resources, and may subsidize their competitive offerings, (iii) the Company's dependence on a few large customers for a material portion of its sales, (iv) the potential loss or departure of key personnel, (v) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company's results, (vi) market acceptance of existing and new products, (vii) restrictive loan covenants or the Company's ability to repay or refinance debt under its credit facilities that could limit the Company's future financing options and liquidity position and may limit the Company's ability to grow its business, (viii) general economic and market conditions, (ix) unanticipated increases in raw material prices or disruptions in supply, (x) the fact that the Company's Chairman controls a majority of the Company's combined voting power, and may have, or may develop in the future, interests that may diverge from yours, (xi) reported material weaknesses in the Company's internal control over financial reporting, and (xii) the fact that future sales of large blocks of the Company's common stock may adversely impact the Company's stock price. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission, including the Company's Annual and Quarterly Reports on Form 10-K and Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's web site at www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

Contact: 
Brett Maas, Managing Partner 
Hayden IR 
(646) 536-7331 
brett@haydenir.com

Tables Follow

Tax Rate changed to 21% pursuant to US Tax Reform enacted in December 2017

Note: Pioneer has presented non-GAAP measures such as non-GAAP net earnings and Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor the Company's performance. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the Company's operating performance.

Non-GAAP net earnings is defined by the Company as net earnings before interest, income tax expense, depreciation and amortization, non-cash compensation and non-recurring acquisition costs and reorganization expenses and other non-recurring or non-cash items and any tax effects related to these items. The Company defines Adjusted EBITDA as net earnings before interest, income tax expense, depreciation and amortization, non-cash compensation and non-recurring acquisition costs and reorganization expenses and other non-recurring or non-cash items.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this release, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of non-GAAP to GAAP net earnings is set forth in the table above.

Amounts may not foot due to rounding.

SOURCE Pioneer Power Solutions, Inc.