Pioneer Power Solutions, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Dollar amounts are in millions unless otherwise stated. Pioneer manufactures and services specialty electrical infrastructure and on-site power generation equipment. Its reportable segments are Transmission and Distribution Solutions (T&D) and Critical Power Solutions.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5.685 | $4.051 | $14.813 | $14.138 |
| Gross profit | $0.713 | $0.739 | $1.368 | $0.618 |
| Gross margin | 12.5% | 18.2% | 9.2% | 4.4% |
| Operating loss | $(0.518) | $(0.451) | $(2.370) | $(3.383) |
| Net income (loss) | $(0.434) | $1.339 | $(0.769) | $(2.242) |
| Basic and diluted EPS | $(0.05) | $0.15 | $(0.09) | $(0.26) |
- Quarterly revenue rose 40.3%, mainly from higher switchgear sales; nine-month revenue increased 4.8%. T&D revenue grew 8.3% over nine months, while Critical Power revenue increased 1.0%; service revenue declined 7.2%.
- Quarterly gross margin fell to 12.5%. T&D margin dropped to 6.2% from 20.4%, reflecting higher manufacturing supply and labor costs and a greater mix of lower-margin low-voltage switchgear. Critical Power margin improved to 19.6% from 16.9%, supported by lower overhead and customer price increases.
- Nine-month gross profit improved partly because 2020 included a $0.546 inventory write-down. The nine-month 2021 net loss was narrower than in 2020; however, 2021 included a $1.4 gain from PPP loan forgiveness, while 2020 included gains related to CleanSpark securities. Q3 2020 net income likewise included a $1.7 gain from CleanSpark securities.
Cash, liquidity and capital
- At September 30, cash was $3.372 and restricted cash was $1.775, totaling $5.147 for cash-flow reporting. Restricted cash secures obligations under a $1.8 standby letter of credit.
- Working capital was $5.7, down from $8.4 at December 31, 2020. The company reported no outstanding debt at quarter-end; its revolving credit facility had previously been terminated.
- Nine-month operating cash flow was positive $0.839, investing cash flow was negative $0.156, and financing cash flow was negative $3.103. Financing outflows included a $1.047 special dividend and $0.639 of finance-lease principal repayments. Cash and restricted cash decreased by $2.420.
- Capital expenditures were $0.156 for the nine months. Notes receivable of $5.671 are seller notes bearing 4% interest, with remaining principal and interest due by December 31, 2022.
- Management stated that available cash was expected to fund operations for the next twelve months. Subsequent to quarter-end, on November 8, the company sold 888,500 shares through its ATM program for approximately $9.0 gross and $8.7 net proceeds. This is a post-period equity issuance and dilutes existing shareholders.
Outlook, developments and risks
- No quantified revenue or earnings guidance was provided. Backlog was $10.855 at September 30, down from $12.726 at June 30 and $11.344 a year earlier; management cautions that backlog can fluctuate and may not convert to revenue as expected.
- A May 2021 Distribution Agreement makes CleanSpark the exclusive distributor, and Pioneer the sole source, for specified products in CleanSpark’s sales channel through December 31, 2023, subject to possible mutual extension. Pricing is determined job by job; CleanSpark pays Pioneer 97% of contract sales price. The filing identifies dependence on CleanSpark and changes in its order levels as a risk.
- COVID-19 measures affected productivity, although the company said it operated substantially at capacity. Management could not estimate the pandemic’s full effects and warned of potential adverse impact on operations, financial condition and liquidity. Other stated risks include raw-material and labor cost increases, supply disruptions, competitive pricing, margin pressure, demand fluctuations, backlog conversion and stock trading volatility.
- The Myers Power Products litigation was settled in November 2020, with related proceedings dismissed and injunctions dissolved; the settlement payment was made in 2020. The company reported no other known legal proceedings believed likely to have a material adverse effect.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether improved sales and Critical Power margins can offset T&D cost pressure and the quarterly gross-margin decline.
- Backlog quality, timing of conversion, and the actual concentration and order outlook associated with CleanSpark.
- Cash availability after the restricted-cash requirement, operating cash generation, and collection of the seller notes due in 2022.
- The impact of the November ATM issuance on the share count and per-share value.
- Whether material, labor, supply-chain and pandemic-related risks affect future profitability or management’s stated twelve-month liquidity expectation.