Polar Power, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless otherwise noted, financial amounts are in thousands of dollars. Polar Power designs, manufactures and sells DC power systems for telecommunications, backup and off-grid power, military, mobility, EV-charging and other uses. Telecommunications remained its primary market.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $4,136 | $2,501 | $12,273 | $6,488 |
| Gross profit (loss) | $966 | ($2,699) | $1,875 | ($3,570) |
| Gross margin | 23.4% | (107.9%) | 15.3% | (55.0%) |
| Operating loss | ($762) | ($4,713) | ($3,525) | ($9,329) |
| Net income (loss) | $942 | ($4,723) | ($1,827) | ($7,222) |
| Net income (loss) per share, basic | $0.07 | ($0.42) | ($0.14) | ($0.68) |
- Revenue and margins: Sales rose 65% in Q3 and 89% for the nine-month period, primarily from higher DC power-system sales to U.S. telecommunications customers. Management attributed improved margins to higher production volume, better factory overhead absorption and labor efficiencies. The 2020 comparison includes a $2,400 inventory write-down; management said Q3 2020 gross margin excluding that write-down was 11.9%, versus 23.3% in Q3 2021.
- Profit: Q3 net income included a $1,715 non-cash gain from PPP-loan forgiveness; the company still reported an operating loss. The nine-month period remained loss-making despite the forgiveness gain.
- Cash flow: Nine-month cash used in operations was $6,890, compared with $6,152 used in 2020. Cash used in investing was $14. Financing provided $12,964, principally from a February share offering ($12,466 net) and warrant exercises ($707). Cash increased by $6,060 to $7,706.
- Liquidity and debt: Current assets were $24,727 and current liabilities $3,371, resulting in reported working capital of $21,356. Equipment notes payable totaled $569; operating lease liabilities totaled $1,162. No revolving-credit balance was outstanding, with $2,612 available under the facility. The company stated it believed liquidity was sufficient for anticipated needs over the next 12 months.
- Balance-sheet movements: Accounts receivable rose to $3,520 from $1,190; prepaid expenses rose to $4,116 from $358. Inventory was $8,598, down from $9,094. Stockholders’ equity was $22,837.
Changes, outlook and material considerations
- Backlog was reported at $11,470 at September 30, up $4,800, or 72%, from $6,670 at June 30. The company expected most backlog to ship within 12 months but cautioned that orders may be delayed, unfulfilled or not recognized as revenue. The filing provides different customer-mix descriptions in different passages (including 63% versus 66% telecommunications and 32% versus 28% advanced mobility); investors should verify the intended breakdown.
- Management cited 5G network expansion, improving business activity and growing advanced-mobility demand as potential sales drivers. It described a $3.0 million order for vehicle power systems and reported $4,209 of year-to-date advanced-mobility sales, including shipped products and orders in backlog. These are not presented as a specific revenue forecast.
- The company was developing higher-capacity natural-gas DC systems and a 20–30 kW generator using a larger Toyota engine; EPA certification was in process. Management planned to broaden sales beyond telecommunications and anticipated higher sales and marketing spending as travel and promotional activity resumed. No quantified earnings or revenue guidance was provided.
- COVID-19, supplier delays and commodity shortages remained material uncertainties. The company said component delays had extended standard delivery time from eight to fourteen weeks and warned of possible impacts on sales, manufacturing, collections, costs and liquidity.
- Customer and supplier concentration are notable: one customer represented 62% of Q3 sales and 67% of nine-month sales; telecommunications represented 85% and 90%, respectively. The filing also identifies dependence on key engine suppliers and limited long-term purchase commitments.
- The PPP loan forgiveness was approved for $1,714, with the filing noting approximately $500 remained to be paid. Management recorded the forgiveness as a non-cash gain. The company reported no material pending legal proceedings and stated disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether backlog converts to shipments and revenue on the expected schedule, especially given supply constraints and customer concentration.
- The exact backlog customer mix, which is described inconsistently in the filing.
- The remaining PPP balance and final repayment, given the reported $1,714 forgiveness and approximately $500 still payable.
- Whether operating cash use, receivables and prepaid-engine purchases remain manageable as production and sales grow.
- Progress on customer diversification, advanced-mobility orders and EPA certification, and whether these opportunities produce recurring revenue and improved operating profitability.
- The impact of component availability and pricing, COVID-19 developments, and the company’s reliance on telecommunications customers and key suppliers.