Polar Power, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in thousands unless otherwise indicated. Polar Power designs and manufactures DC power systems, primarily for telecommunications, with products for military, mobility, renewable-energy and other applications.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $4,847 | $1,126 | $8,137 | $3,987 |
| Gross profit (loss) | $967 | $(711) | $909 | $(871) |
| Gross margin | 19.9% | (63.1)% | 11.2% | (21.8)% |
| Operating loss | $(865) | $(2,295) | $(2,763) | $(4,616) |
| Net loss | $(866) | $(2,298) | $(2,769) | $(2,499) |
| Net loss per share, basic and diluted | $(0.07) | $(0.23) | $(0.22) | $(0.25) |
- Q2 sales rose 330% year over year; first-half sales rose 104%. Management attributed the increase mainly to U.S. Tier-1 telecom demand supporting 5G deployment. Sequentially, Q2 sales were 47% above Q1 2021.
- Improved factory utilization and labor efficiency lifted gross margin from negative to positive. First-half operating loss narrowed, but first-half net loss increased year over year because 2020 included a $2,139 income tax benefit; 2021 had none.
- Six-month operating cash use was $6,131, versus $3,672 in 2020. Cash and equivalents were $8,538 at June 30, up from $1,646 at year-end; working capital was $20,374, up from $10,123.
- Financing cash inflow was $13,023, including $12,466 net proceeds from a February public offering of 750,000 shares and $707 from warrant exercises. Share count increased from 11,750,681 outstanding at December 31 to 12,788,203 at June 30.
- Equipment notes payable totaled $627; the PPP loan balance was $1,715. No revolving credit was drawn, with $2,481 available under the Pinnacle Bank facility. Operating lease liabilities totaled $1,330. Management said liquidity should meet anticipated needs for the next 12 months.
Business developments and outlook
- Backlog at June 30 was $6,670, up from $5,563 at March 31. Management expected most backlog to ship within six months, but cautioned that orders may not be fulfilled on time or recognized as revenue.
- The filing describes backlog composition inconsistently: the outlook section gives 37% telecom, 47% commercial advanced mobility, 12% military mobility and 4% other; the backlog discussion gives 38%, 47%, 12% and 3%, respectively.
- A $3.0 million advanced-mobility order received near the end of June was a major contributor to the backlog increase. Management also cited demand related to 5G network expansion and development of a 20–30 kW generator.
- Management expects sales to benefit from economic normalization, 5G investment and customer diversification, while planning to expand in advanced mobility and military markets. This is directional commentary, not quantified financial guidance.
- COVID-19, supply-chain constraints, and raw-material price increases remain material risks. The company reported component sourcing delays and an increase in standard delivery time from eight to fourteen weeks; it also warned that pandemic effects could continue to hurt results beyond 2021.
Concentration, contingencies and other notable items
- Customer concentration remains high: the largest customer represented 77% of Q2 sales and 70% of first-half sales. Telecommunications accounted for 92% of sales in both 2021 periods. At June 30, the largest customer represented 77% of receivables.
- The company filed for full forgiveness of its $1,715 PPP loan on July 30, 2021; the application was under review. Management expected full forgiveness but stated that it was not assured.
- Inventory was $8,217, including raw materials of $5,116 and finished goods of $3,101. Cumulative inventory write-downs were $3,745 at June 30. The filing identifies inventory obsolescence and further write-downs as risks.
- No material legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the independent auditor did not attest to internal controls.
Key facts for investors to verify
- Whether the $6,670 backlog converts to shipments and cash on the expected schedule, and which backlog mix figures are correct.
- Whether major telecom customers sustain orders and whether customer concentration declines as mobility and military sales grow.
- Whether operating cash burn, receivables growth and prepaid engine purchases remain manageable against available cash and credit.
- Whether the PPP loan is forgiven and whether supply delays, component costs and COVID-related disruptions affect margins or delivery commitments.
- Whether improved gross margins persist as production volume changes, given continued operating losses and the company’s history of losses.