Pioneer Power Solutions, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in thousands unless otherwise noted. Pioneer manufactures and services electrical distribution and power-generation equipment through its T&D Solutions and Critical Power segments.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $5,625 | $5,087 | $9,127 | $10,088 |
| Gross profit (loss) | $495 | $(297) | $654 | $(120) |
| Gross margin | 8.8% | (5.8)% | 7.2% | (1.2)% |
| Operating loss | $(745) | $(1,184) | $(1,852) | $(2,932) |
| Net loss | $(686) | $(660) | $(335) | $(3,581) |
| Loss per share, basic and diluted | $(0.08) | $(0.08) | $(0.04) | $(0.41) |
Q2 revenue rose 10.6%, led by 20.4% growth in switchgear sales; first-half revenue fell 9.5%, primarily because of lower switchgear sales. First-half net loss improved substantially, in part because Pioneer recorded a $1.4 million gain from forgiveness of its PPP loan. Q2 2021 other expense was $36, compared with $449 of other income in Q2 2020, which included a CleanSpark investment fair-value gain.
Q2 gross margin improvement reflected the absence of the $546 inventory write-down recorded in Q2 2020. Critical Power margins also improved, mainly due to lower overhead. T&D Solutions remained slightly below break-even on a gross-profit basis for the first half.
Cash, liquidity and debt
- At June 30, cash was $5.134 million and restricted cash was $1.775 million, for $6.909 million combined. Restricted cash secured obligations related to a $1.8 million standby letter of credit.
- Working capital was $6.5 million, down from $8.4 million at December 31, 2020. Current assets were $14.995 million and current liabilities were $8.457 million.
- Operating activities provided $1.236 million in the first half, versus $1.207 million used in the prior-year period. Investing activities used $62, and financing activities used $1.832 million. Cash and restricted cash declined $658 from year-end.
- No debt remained at June 30; the $1.4 million PPP loan was fully forgiven in Q1. Pioneer also held $5.564 million in seller notes receivable, due at the end of 2022 and accruing interest at 4%.
Material developments, outlook and risks
- The board declared a special dividend of $0.12 per share, approximately $1.0 million in total, paid July 7, 2021. It was recorded as a dividend payable at quarter-end and funded as a return of capital from additional paid-in capital.
- A May 31, 2021 Distribution Agreement makes CleanSpark Pioneer’s exclusive distributor for specified products in regions where CleanSpark operates through December 31, 2023, subject to possible mutual extension. Pioneer is the sole source for those products in the channel; pricing is set job by job, with CleanSpark paying Pioneer 97% of the end-customer contract price. The filing identifies CleanSpark order levels as a significant business risk.
- Order backlog was $12.726 million at June 30, down from $17.144 million at March 31 and approximately level with $12.673 million at December 31, 2020. Management cautions that backlog varies with order timing and is not a guarantee of revenue.
- Management stated that existing cash was expected to fund operations for the next 12 months. COVID-19 had affected productivity, although the company said it operated substantially at capacity; management could not estimate the pandemic’s full future effects.
- Other risks cited include demand and competitive pressures, customer and supplier concentration, raw-material and labor cost increases, supply disruption, backlog conversion, key-person dependence, and the chairman’s majority voting control.
- The Myers Power litigation was settled in November 2020, with the claims and related injunctions dismissed and the settlement payment made in 2020. The filing reports no known current legal proceedings believed to have a material adverse effect.
Most important facts for investors to verify
- Whether the improved gross margins and operating results persist without relying on the prior-year inventory write-down comparison or PPP forgiveness.
- Backlog conversion, new orders and customer concentration, particularly CleanSpark-related demand under the new distribution arrangement.
- Cash availability after the dividend, including the restricted status of $1.775 million, and the collection and timing of the $5.564 million seller notes.
- Whether COVID-19, supply costs, labor availability or competitive pricing materially affect production, margins or liquidity.
- The filing states management expects cash to cover the next 12 months; actual operating cash flow and working-capital requirements should be monitored against that assessment.