Pioneer Power Solutions, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. Dollar amounts below are in millions unless stated otherwise. Pioneer designs and supplies electrical power systems, switchgear, power-generation equipment, services, and mobile EV-charging solutions through its T&D Solutions and Critical Power segments.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $18.311 | $19.490 | Down 6.0% |
| Gross profit / margin | $1.393 / 7.6% | $0.881 / 4.5% | Margin up 3.1 percentage points |
| Operating loss | $(3.862) | $(4.284) | Loss narrowed $0.422 |
| Net loss | $(2.167) | $(2.986) | Loss narrowed $0.819 |
| Basic and diluted loss per share | $(0.24) | $(0.34) | Improved |
| Cash used in operating activities | $(2.341) | $(3.613) | Use decreased |
| Cash and restricted cash at year-end | $11.699 | $7.567 | Up $4.132 |
| Working capital | $18.6 | $8.4 | Up $10.2 |
| Funded debt | $0 | $1.413 PPP loan | PPP loan forgiven in 2021 |
- Segment results: T&D revenue was $9.484 million, down 7.5%; operating loss improved to $1.060 million from $1.934 million. Critical Power revenue was $8.827 million, down 4.4%; operating loss improved to $0.385 million from $0.430 million.
- Critical Power equipment revenue rose 20.1% to $1.891 million, while service revenue fell 9.4% to $6.936 million, partly reflecting the loss of Verizon preventive-maintenance work and service-cycle timing.
- Gross-margin improvement reflected the absence of a $0.546 million T&D inventory write-down recorded in 2020, as well as better Critical Power margins from lower overhead and customer price increases. Higher material and labor costs weighed on margins.
- Other income was $1.292 million and included a $1.4 million gain from forgiveness of the PPP loan. The 2021 net loss therefore includes a significant nonrecurring benefit.
Liquidity, capital and balance sheet
- Year-end cash was $9.924 million, including $1.775 million of restricted cash pledged as collateral for a $1.8 million standby letter of credit. Working capital was $18.6 million.
- Cash from operations remained negative at $2.341 million; capital expenditures were $0.237 million. Financing cash flow of $6.710 million was driven primarily by $8.663 million in net ATM equity proceeds, partly offset by a $1.047 million dividend and lease payments.
- The company reported no bank or PPP debt at year-end. It has continuing operating and finance lease obligations; disclosed future minimum lease payments total $2.326 million before imputed interest.
- The $5.778 million carrying value of seller notes receivable from the 2019 transformer-business sale is due in full at December 31, 2022 and bears 4% stated interest.
Changes, outlook and risks
- Backlog increased 80% to $22.848 million from $12.673 million, primarily due to nearly $13 million of e-Bloc orders. A $12 million order received in December 2021 is expected to ship during 2022. Management cautions that backlog can be canceled and may not convert into revenue at its stated value.
- Management expects existing cash to fund operations for the next 12 months and anticipates cash needs for operations, product development and capital improvements. The filing gives no quantified revenue or earnings guidance.
- CleanSpark accounted for 22% of FY2021 sales; a large Hawaii-based container-shipping customer accounted for approximately 19%. The top 20 customers represented about 68% of revenue. CleanSpark’s distribution agreement runs through December 31, 2023.
- Management cited pandemic-related productivity effects and supply-chain disruption, difficulty securing materials on time, inflation in material and labor costs, and geopolitical pressure on some commodity prices. Other risks include customer concentration, competitive pricing, operating losses and negative operating cash flow, skilled-labor availability, cyclical demand, and backlog conversion.
- The Myers Power Products litigation was settled in 2020; the company reported no known pending legal proceeding it believed could have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and identified inventory-reserve valuation as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the $22.8 million backlog, including the large e-Bloc orders, ships on schedule and generates adequate margins.
- Whether revenue and customer concentration decline, particularly reliance on CleanSpark and the Hawaii shipping customer.
- Whether the business can reduce operating cash burn and progress from segment operating losses toward sustained profitability without further equity issuance.
- Whether supply-chain, material-cost and labor pressures ease, and whether price increases and efficiencies offset them.
- Whether the seller notes are repaid in full at maturity and whether restricted cash and lease commitments constrain available liquidity.