Polar Power, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Dollar figures are in thousands, except per-share data. Polar Power designs and sells DC power systems for telecom, military, EV-charging, marine and other applications.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $1,775 | $4,190 |
| Gross profit (loss) | $(402) | $755 |
| Gross margin | (22.6)% | 18.0% |
| Operating expenses | $1,577 | $1,790 |
| Operating loss | $(1,979) | $(1,035) |
| Interest and finance costs | $163 | $78 |
| Net loss | $(2,142) | $(1,113) |
| Loss per share, basic and diluted | $(0.12) | $(0.09) |
| Cash used in operating activities | $(989) | $(1,156) |
Sales fell 58% year over year. Management attributed the decline primarily to delayed shipments to a large international customer; it also said 69% of Q1 sales related to orders previously put on hold by a Tier-1 U.S. telecom customer. Lower volume left factory overhead under-absorbed, contributing to the gross loss. Operating expenses declined 12%, but the larger gross loss and higher interest costs drove the net loss higher.
Q1 sales were concentrated in telecom (71% of revenue) and two customers (49% and 25%). Military sales rose to 26% of revenue from 5% in Q1 2023, while international sales fell to 6% from 27%. DC power systems generated $1,567 of sales; engineering and support contributed $86, and accessories $122.
Financial position and liquidity
- At March 31, cash was $212, down from $549 at year-end 2023. Working capital was $9,668, compared with $11,775 at year-end.
- Total assets were $23,862; total liabilities were $12,815; stockholders’ equity was $11,047. Accumulated deficit was $27,801.
- Inventory was $16,221, including $14,205 of raw materials. The $2,000 employee retention credit (ERC) receivable remained on the balance sheet at quarter-end; the company reported receiving $700 after March 31.
- Operating cash use of $989 was partly offset by $652 of financing cash flow, principally $676 of additional Pinnacle Bank credit-facility advances. Cash declined by $337; there were no investing cash flows.
- The Pinnacle facility had $4,914 outstanding and only $216 available at March 31. Interest rates were 9.75% on receivables-based advances and 10.75% on inventory-based advances. The facility expires September 30, 2024.
- Other borrowings included $257 in unsecured related-party notes from the CEO, bearing 1% interest, and $40 in equipment notes. The filing says $180 of the related-party notes was due in May 2024 and that, as of May 15, the company was seeking an extension. Operating lease liabilities totaled $2,734.
Outlook, risks and notable items
- Going concern: Management said the Q1 net loss and operating cash use raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance. The 2023 audit report had also expressed substantial doubt. Management said continued operations depend on generating sufficient revenue and, if needed, obtaining funding; absent sufficient cash flow or financing, it may have to reduce or delay discretionary spending.
- Orders and backlog: The company reported $5.7 million of new purchase orders in Q1 and a $7.7 million backlog at March 31. Management expected most backlog to ship within six to twelve months. In April, it reported $2.0 million of telecom orders. Management described four consecutive months of sales growth versus prior-year levels, but gave no quantified full-year revenue or earnings guidance.
- Business plans: Management planned to hire additional personnel to reduce lead times, recruit engineers, increase sales and marketing activity, and introduce upgraded mobile EV chargers with CCS compatibility in the second half of 2024. These are plans, not assurances of results.
- Key risks: High customer and telecom concentration; shipment timing and long customer sales cycles; low cash and limited remaining credit availability; dependence on future financing; inventory and supplier risks; and exposure to cost, interest-rate and geopolitical changes. The company cited standard delivery times extending from eight to fourteen weeks in its risk discussion.
- Nasdaq matters: The filing described a bid-price deficiency with a May 22, 2024 deadline to regain compliance, and a separate board-independence/committee deficiency following a director’s resignation. The company said it intended to address the listing issues, but offered no assurance of compliance.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the company regained Nasdaq bid-price and board-independence compliance, and the status of any cure periods or delisting proceedings.
- Whether the May 2024 related-party note payment was extended or repaid, and whether Pinnacle renewed or replaced its facility before its September 30, 2024 expiration.
- Subsequent cash collections on the remaining ERC receivable and the timing and reliability of backlog conversion into shipments and cash.
- Whether revenue recovery improves production absorption and gross margins, and whether customer concentration and delayed orders remain material.
- How the company expects to fund operations given the going-concern warning, low cash balance and limited facility availability.