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Pioneer Reports Second Quarter 2018 Financial Results

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Pioneer Reports Second Quarter 2018 Financial Results

Revenues Increase 4.7% sequentially, Net Loss from Continuing Operations Narrows by $503,000; Company Finishes Q2 2018 With Record Backlog

PR Newswire

FORT LEE, N.J., Aug. 9, 2018 /PRNewswire/ -- Pioneer Power Solutions, Inc. (NASDAQ: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 second quarter and year-to-date periods ended June 30, 2018.

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

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

  • Second quarter revenue of $24.6 million, down 9.9% compared to $27.3 million in Q2 2017 and up 4.7% sequentially compared to $23.5 million in Q1 2018
  • Second quarter gross margin of 21.2% down one basis point compared to 21.3% in Q2 2017 and up 230 basis points compared to 18.9% in Q1 2018
  • Net loss from continuing operations in the second quarter of $78,000, down $1.8 million compared to net income from continuing operations of $1.7 million in Q2 2017 and a narrowing of $503,000 (86.6%) compared to a net loss from continuing operations of $581,000 in Q1 2018
  • Second quarter adjusted EBITDA* of $1.8 million, down 40% compared to $3.0 million in Q2 2017 and up 38.5% compared to $1.3 million in Q1 2018
  • Backlog from continuing operations as of June 30, 2018 was approximately $36.3 million, the highest in company history, up 20.6% compared to $30.1 million at March 31, 2018 and up 16.7% compared to $31.1 million at June 30, 2017

Nathan Mazurek, Pioneer's Chairman and Chief Executive Officer, said, "The second quarter represented a significant improvement on a sequential basis, with notable improvements in revenue, gross margin and EBITDA and a narrowing of our net loss by more than half a million dollars, from $581,000 in the first quarter to just $78,000 in the second quarter. We ended the quarter with the highest backlog in our history, up 20% in just three months, and while we do not intend to regularly provide mid-quarter backlog figures, our backlog at July 31 was over $39 million, up an additional 7% from the end of June. Demand for our solutions, especially from data centers and cryptocurrency mining operations, is strong and growing, and our service business is up 6.5% year-to-date compared to the first half of last year. Today, we have a stable, efficient, cost-controlled platform for profitable growth."

"In addition, the second quarter was also impacted by unfavorable foreign currency exchange rates, which represented an approximate $544,000 drag on our earnings, when compared to Q2 2017," added Mr. Mazurek. "Finally, the second quarter last year was unusually strong with higher revenues and an ideal mix, especially for our liquid filled operation, creating a challenging comparison.  Our liquid filled business is at full capacity for the balance of the year, giving us clear visibility into the second half of the year, and our dry type business is building on its strong position in the general construction and data center markets. In particular, our backlog for medium voltage dry type power units is at an all-time high and growing. Combined with accelerating service related sales, we are confident that revenue in both the third and fourth quarter should exceed that of the second quarter, driving further sequential improvements in our profitability."

Second Quarter Financial Results

Revenue from Continuing Operations

Total revenue from continuing operations for the three-month period ended June 30, 2018 was $24.6 million, down 9.9% compared to $27.3 million for the second quarter of 2017. The decrease was driven by lower sales of the Company's liquid filled transformer products and lower equipment sales resulting from a reduced focus on the Company's unprofitable Critical Power segment, which were partially offset by increased service revenues. On a sequential basis, revenues increased 4.7% compared to $23.5 million in the first quarter of 2018. For the six months ended June 30, 2018, total revenue from continuing operations was $48.1 million compared to $52.3 million for the six months ended June 30, 2017, a decrease of 8.2%. For the three months ended June 30, 2018, service revenue increased by $326,000, or 14.4%, as compared to the same period in the prior year due to an increase in service revenue. For the six months ended June 30, 2018, service revenue increased by $292,000, or 6.5%, compared to the same period in 2017.

Gross Margin from continuing operations

For the three months ended June 30, 2018, Pioneer's gross profit was $5.2 million, or 21.2% of revenues, compared to $5.8 million, or 21.3% of revenues, for the year-ago period. The decrease in gross profit was driven primarily by lower sales and an unfavorable product mix in the Company's 'dry type' transformers. On a sequential basis, gross profit increased 230 basis points compared to the 18.9% in the first quarter of 2018. For the six months ended June 30, 2018, Pioneer's gross profit was $9.6 million, or 20.0% of revenues, down 15.4% compared to $11.4 million, or 21.8% gross margin, for the year-ago period.

Operating Income / (Loss) from Continuing Operations

For the three months ended June 30, 2018, income from continuing operations was $857,000 compared to $1.8 million for the same period last year. On a sequential basis, the income from continuing operations represented a positive swing of $701,000 compared to the income from continuing operations of $156,000 in the first quarter of 2018. For the six months ended June 30, 2018, operating income from continuing operations was $1.0 million compared to $3.0 million for the prior year.

Income Taxes from Continuing Operations

Pioneer's effective income tax rate on income from continuing operations for the second quarter of 2018 was 191.8% of earnings before income tax compared to 32.3% for the same quarter last year. For the six months ended June 30, 2018, the effective income tax rate was 25.7% of earnings before tax compared to 7.5% for the same period last year. The increase in the income tax rate for the three and six-month periods ended June 30, 2018 was primarily due to changes made to taxation of foreign earned income pursuant to the US tax code changes enabled in December 2017.

Net Income (Loss) from Continuing Operations

The Company generated a net loss from continuing operations of $78,000 or $(0.01) per basic and diluted share, for the three months ended June 30, 2018 compared to net income from continuing operations of $1.7 million, or $0.19 per basic and diluted share, during the three months ended June 30, 2017. On a sequential basis, the net loss from continuing operations narrowed by $503,000, or 86.6%, compared to the $581,000 net loss from continuing operations in the first quarter of 2018. Net loss from continuing operations for the six months ended June 30, 2018 was $660,000, or $(0.08) per basic and diluted share, compared to net income from continuing operations of $1.9 million, or $0.22 per basic and diluted share, for the six months ended June 30, 2017. The decrease in net income from continuing operations for the three and six-month periods ended June 30, 2018 was primarily driven by product mix and foreign currency exchange rates when compared to the same periods in 2017.

Net loss from discontinued operations per basic and diluted share for the three months ended June 30, 2018 was $(0.08) compared to $(0.04) per basic and diluted share for the three months ended June 30, 2017.  Net loss from discontinued operations per basic and diluted share for the six months ended June 30, 2018 was $(0.08) compared to $(0.05) per basic and diluted share for the six months ended June 30, 2017.

Net Income

The Company generated a net loss of $796,000, or ($0.09) per basic and diluted share, for the three months ended June 30, 2018 compared to net income of $1.3 million, or $0.15 per basic and diluted share, for the three months ended June 30, 2017. On a sequential basis, the net loss increased by $222,000, or 38.7%, compared to the net loss of $574,000 in the first quarter of 2018. Net loss for the six months ended June 30, 2018 was $1.4 million, or $(0.16) per basic and diluted share, compared to net income of $1.39 million, or $0.17 per basic and diluted share, for the six months ended June 30, 2017.

Adjusted EBITDA*

The second 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 $712,000 and $926,000, respectively.

The Company's Adjusted EBITDA for the quarter ended June 30, 2018 was $1.8 million compared to $3.0 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 June 30, 2018 was a record of approximately $36.3 million compared to $30.1 million at March 31, 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 August 9, 2018, to discuss the results with the investment community. Details are as follows:

A replay will be available until August 16, 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 8283495 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

 





PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands, except share data)






June 30,


December 31,


2018


2017


(Unaudited)



ASSETS






Current assets






Cash and cash equivalents

$

315


$

218

Accounts receivable, net


15,319



13,432

Inventories, net


27,173



23,192

Income taxes receivable


421



743

Prepaid expenses and other current assets


3,914



2,803

Current assets of discontinued operations


6,096



7,073

Total current assets


53,238



47,461

Property, plant and equipment, net


5,915



6,335

Deferred income taxes


2,983



2,729

Other assets


4,501



4,281

Intangible assets, net


4,233



4,922

Goodwill


8,527



8,527

Total assets

$

79,397


$

74,255







LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities






Bank overdrafts

$

2,377


$

833

Revolving credit facilities


20,392



17,814

Short term borrowings


3,710



5,430

Accounts payable and accrued liabilities


22,852



16,873

Current maturities of long-term debt and capital lease obligations


1,289



782

Income taxes payable


712



1,164

Current liabilities of discontinued operations


3,064



3,856

Total current liabilities


54,396



46,752

Long-term debt, net of current maturities


3,449



4,153

Pension deficit


284



283

Other long-term liabilities


3,512



3,853

Deferred income taxes


1,614



1,665

Total liabilities


63,255



56,706

Stockholders' equity






Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued


-



-

Common stock, $0.001 par value, 30,000,000 shares authorized;
8,726,045 shares issued and outstanding on June 30, 2018 and December 31, 2017


9



9

Additional paid-in capital


23,947



23,801

Accumulated other comprehensive loss


(5,981)



(5,798)

Accumulated deficit


(1,833)



(463)

Total stockholders' equity


16,142



17,549

Total liabilities and stockholders' equity

$

79,397


$

74,255







 

 

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,


June 30,


2018


2017


2018


2017

Revenues

$

24,593


$

27,284


$

48,068


$

52,340

Cost of goods sold


19,390



21,461



38,437



40,951

  Gross profit


5,203



5,823



9,631



11,389

Operating expenses












  Selling, general and administrative


4,149



4,184



8,346



8,525

  Restructuring and integration


-



1



-



156

  Foreign exchange loss (gain)


197



(210)



273



(271)

    Total operating expenses


4,346



3,975



8,619



8,410

Income from continuing operations


857



1,848



1,012



2,979

  Interest expense


750



611



1,399



1,160

  Other expense (income)


22



(44)



138



53

Income (loss) before taxes


85



1,281



(525)



1,766

  Income tax expense (benefit)


163



(414)



135



(133)

Net (loss) income from continuing operations


(78)



1,695



(660)



1,899

Loss from discontinued operations, net of income taxes


(718)



(410)



(710)



(507)

Net (loss) income 

$

(796)


$

1,285


$

(1,370)


$

1,392













(Loss) earnings per share:












Basic and diluted












  (Loss) income from continuing operations

$

(0.01)


$

0.19


$

(0.08)


$

0.22

  Loss from discontinued operations


(0.08)



(0.04)



(0.08)



(0.05)

Net (loss) income

$

(0.09)


$

0.15


$

(0.16)


$

0.17













Diluted












  (Loss) income from continuing operations

$

(0.01)


$

0.19


$

(0.08)


$

0.22

  Loss from discontinued operations


(0.08)



(0.04)



(0.08)



(0.05)

Net (loss) income

$

(0.09)


$

0.15


$

(0.16)


$

0.17













Weighted average common shares outstanding:












  Basic


8,726



8,713



8,726



8,707

  Diluted


8,726



8,743



8,726



8,737













 

 

Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except per share data)




Three Months Ended


Six Months Ended



June 30,


June 30,



2018

2017


2018


2017

Reconciliation to Adjusted EBITDA and EPS












Net (loss) / earnings (GAAP measure)


$

(796)

$

1,285


$

(1,370)


$

1,392













Addbacks:












Loss from discontinued operations, net of income taxes



718


410



710



507

Interest expense



750


611



1,399



1,160

Income tax expense (benefit)



163


(414)



135



(133)

Depreciation and amortization



714


785



1,452



1,541

Restructuring and integration



-


1



-



156

Corp OH allocated to discontinued operations



208


270



479



572

Stock-based compensation



(2)


141



146



171

Other non-operating expenses



22


(44)



138



53

Adjusted EBITDA (Non-GAAP measure)



1,777


3,045



3,089



5,419

Tax effects - 21% rate



(373)


(639)



(649)



(1,138)

Non-GAAP net earnings


$

1,404

$

2,406


$

2,440


$

4,281

Non-GAAP net earnings per diluted share


$

0.16

$

0.28


$

0.28


$

0.49

Weighted average diluted shares outstanding



8,726


8,743



8,726



8,737













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.

Pioneer Power Solutions, Inc. (PRNewsFoto/Pioneer Power Solutions, Inc.)

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SOURCE Pioneer Power Solutions, Inc.

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