Pioneer Power Solutions, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Dollar amounts are in U.S. dollars; financial figures are rounded. Pioneer manufactures, sells and services specialty electrical distribution and power-generation equipment. Its segments are Transmission & Distribution Solutions (T&D) and Critical Power Solutions.
Financial performance
- Revenue: $3.50 million, down 30.0% from $5.00 million in Q1 2020. T&D switchgear revenue fell 51.8% to $1.39 million; Critical Power revenue was nearly flat at $2.12 million, as higher equipment sales were offset by lower service revenue.
- Profitability: Gross profit was $159,000 versus $177,000; gross margin improved to 4.5% from 3.5%. T&D recorded a $169,000 gross loss, while Critical Power gross profit rose to $328,000. Operating loss narrowed to $1.11 million from $1.75 million, with lower selling, general and administrative expenses contributing.
- Net income: $351,000, or $0.04 per diluted share, compared with a $2.92 million net loss, or $0.33 per share, a year earlier. Results included a $1.4 million gain from forgiveness of the PPP loan. Excluding that gain, net income would have been a loss of approximately $1.07 million, all else equal.
- Cash flow: Operating activities provided $590,000, compared with $1.04 million used in Q1 2020. Financing activities used $1.65 million, primarily for financing-lease repayments; investing activities had no net cash flow. Cash and restricted cash totaled $6.51 million at quarter-end, down from $7.57 million at year-end.
- Liquidity and debt: Cash was $4.73 million, with another $1.78 million restricted as collateral for a standby letter of credit. Working capital was $8.3 million. The $1.4 million PPP loan was fully forgiven; no long-term debt remained on the balance sheet. The company had no revolving credit facility.
- Other balance-sheet items: Total assets were $22.29 million and stockholders’ equity was $14.24 million. Notes receivable, net, were $5.46 million; the seller notes bear 4% interest and are due in full by December 31, 2022.
Changes versus the prior comparable period
- Revenue declined mainly because of lower T&D switchgear sales. Critical Power equipment revenue more than doubled, but service revenue declined 15.0%.
- Operating loss narrowed by $641,000, primarily reflecting reduced professional fees after settlement of the Myers Power litigation, as well as lower corporate and segment expenses.
- Other results swung from $1.28 million of expense to $1.34 million of income. The main drivers were the 2021 PPP forgiveness gain and a 2020 mark-to-market loss on CleanSpark shares and warrants.
- Order backlog increased to $17.14 million at March 31, 2021 from $12.67 million at December 31, 2020, including T&D backlog of $10.21 million versus $5.88 million. Backlog is not a guarantee of future revenue.
Outlook, commentary and risks
- Management said existing cash was expected to fund operations for the next 12 months, with cash needs generally for operations and capital improvements. No revenue or earnings forecast was provided.
- The company reported operating substantially at capacity during the COVID-19 pandemic but noted productivity effects from safety measures and said the pandemic’s full financial and operational impact remained uncertain.
- Management identified risks including dependence on CleanSpark for a large portion of business, demand and competition, raw-material prices and supply disruptions, converting backlog into revenue, key-person dependence, and the effects of COVID-19. It also noted that its chairman controls a majority of voting power.
- The Myers Power litigation and related appeals were settled and dismissed with prejudice in November 2020; the settlement payment was made in Q4 2020. The filing reported no other known legal proceedings believed likely to have a material adverse effect.
- Disclosure controls and procedures were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the $17.14 million backlog converts to sales on expected timing and margins, particularly in T&D.
- How much of reported profitability depends on the one-time PPP forgiveness gain; core operations remained loss-making.
- Availability of liquidity after accounting for the $1.78 million restricted cash and the company’s operating cash needs.
- Collection of the $5.46 million seller-note receivable by its December 2022 maturity.
- The scale and stability of CleanSpark-related orders and any continuing COVID-19 or supply-chain effects.