Pioneer Power Solutions Inc. Q1 2023 Earnings Call
Speaker 1: "...explosion noises..."
Speaker 2: Good afternoon and welcome to the Pioneer Power first quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialists by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question, request Starling on your telephone keypad.
Speaker 2: To withdraw your question, please press star then 2.
Speaker 2: Please note this event is being recorded. I would now like to turn the concert to Brett Mast with Hayden I.R. Please go ahead.
Speaker 3: Thank you and welcome. The call today will be hosted by Nathan Masaryk, Chairman and Chief Executive Officer, Walter Michalik, Chief Financial Officer, and Gio Moriccan, President of Pioneer Mobility. Following this discussion, there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the first quarter financial results as well asought your questions or our team members to Welch? penis
Speaker 3: Discuss recent business highlights. Before we get started, let me remind you this call is being recorded in webcast. During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release issued earlier today.
Speaker 3: which applies to the content of the call. I'd like to now turn the call over to Nathan Masaryk, Chairman and CEO . Nathan, please.
Speaker 3: Go ahead. Thank you, Brett. And good afternoon, and thank you all for joining us today. We carried the strong momentum from last year's fourth quarter into the first quarter of 2023. And this year is shaping up to be a record year for us both in terms of revenue and profit.
Speaker 4: The man for our unique solutions continues to grow in an outsized paste.
Speaker 4: We are adding new dynamic customers, existing customers are providing us with new purchase orders and opportunities, and we continue to evolve our solutions to better serve the needs of our customers and expand the vertical markets for our solutions.
Speaker 2: on-hand and zero bank debt at March 31, 2023, compared to 10.3 million of cash on-hand at December 31, 2022. This represents cash per share of approximately $1.18 at March 31, 2023. Accordingly, we are confident that we are sufficiently capitalized to address our near-term investments in cash needs. As Nathan said, we expect to deliver continued growth in 2023 with margin extension and positive net income. Based primarily on our backlog, as well as the significant and exhilarating demand for our new solutions, we believe we can grow revenue by at least 50 percent in 2023, compared to 2022. We also expect to generate positive, full-year net income and earnings per share. This concludes my remarks. I now turn the call back to the operator for any questions. We will now begin the question and answer session. Class of question question, if our staff are starting on your telephone keypad.
Speaker 2: If you're using a speaker phone, please took up your hand so that before pressing the keys. To withdraw your question, please press start and two. At this time, we'll pause while I'm in charge with a symbol or ruster. Our first question will come from Amit. They all with HC Wayne Wright. You may now go ahead. Thank you guys. Good afternoon. I'm from Rats under the corner.
Speaker 5: You know with respect to the guidance Nathan can we now expect sequentially stronger quarters through the rest of 2023?
Speaker 4: That's the expectation, correct? Both in terms of revenue and in terms of EPS.
Speaker 5: So thank you Nathan and then can you give us maybe some granularity on what's in the backlog right now?
Speaker 4: Most of it, most of the backlog itself is comprised of the E-block product. Several large, I mean, we don't detail the customers and so forth, but I'd say the large project, there's one is a large EV campus.
Speaker 4: Slash manufacturing facility for one of the large car manufacturers in the south of the United States To our water utility is one in California one elsewhere some of these things we've we've detailed out separately One is for a large project for a an aircraft manufacturer
Speaker 4: And the projects, I guess the trend is that they're getting larger and larger as opposed to sort of one-off. So that's what the backlog is about this year.
Speaker 5: I'll just repent you and then you know as you get to these you know 45 50 million level revenues
Speaker 5: Are we close to getting at full capacity now, you know, how do we sort of go from these levels in terms of capacity availability?
Speaker 4: Right, so that's been kind of what we've been dealing with the last month in earnest because from our point of view, 2023 is done. The facility in Los Angeles, especially, is booked at Statistical 100. So the issue is how do we do more out of the same facility?
Speaker 4: next year. And, you know, the only way we're gonna do it is, you know, some of it's gonna be product mix, which helps. Some of it is gonna be by maybe us not doing everything that we do today, you know, the value for us is mostly the engineering, the wiring, testing, and, you know, the assembly itself.
Speaker 4: maybe taking out, subcontracting out some less critical operations that, you know, from a legacy point of view we still do today. We think that could probably, and we're actively engaged in getting that done, that can add probably about 30, 40 percent capacity still on one shift.
Speaker 4: So that's the first order of business. How do we increase the volume and the profits in 2024 out of that facility without making sort of cross the Rubicon type capital expenditures?
Speaker 5: And this last one for me, the supply chain side are you comfortable with, you know, how everything is set up for you to deliver against this outlook.
Speaker 4: So I would say that we're relatively comfortable on the E-block side. It's not as great as it used to be. It's not terrible anymore. And we're kind of all living with it. We're not into the crazy price increases anymore. It's very stable from that point of view.
Speaker 4: the lead times are manageable, obviously, unless you're ordering exotic types of components of which you still have that. On the e-boost side, engines are still a problem. If they say 40 weeks, that means 52. So most engines are a year out. So we've been getting ahead of that.
Speaker 4: by really ordering and holding inventory that we think we're going to use as the eBus product continues to take root. And frankly, without the inventory that we invested in already last year.
Speaker 4: We wouldn't be able to deliver anything this year. So we've been constantly re-upping ahead a little bit. We have the cash and we were able to use it. And obviously we don't want to just keep inventory that doesn't do us any good either. But we tried to be...
Speaker 4: judicious about it and with all that and with all the spending that we're doing you know below the line for for primarily ebous you know you know i think the greatest testimonial test that the cash went up in the first quarter from the fourth quarter so something's going right
Speaker 5: Thank you, Netsun. That's all I have. Congrats again on that. Thank you, Ahmed.
Speaker 5: Thank you, Nathan, that's all I have. I'm going to come right ahead and say it on the... Thank you, Ahmed. Thank you, Ahmed.
Speaker 2: Again, if you have a question, please press star then one.
Speaker 2: Our next question will come from Sean Boyd with next March capital. You may now go ahead.
Speaker 6: Good afternoon. Can you hear me, sir? We can, Sean.
Speaker 6: Good afternoon. Can you hear me a second? We can, Sean. Great. Just one...
Speaker 6: One two.
Speaker 6: I want to go back to that comment regarding the capacity expansion. If I heard correctly the optimization and the potential outsourcing of certain...
Speaker 6: certain processes would add 30 to 50 percent.
Speaker 4: The first part of your statement is correct. The second part is a little inaccurate because that business doesn't represent the 100% of our revenues.
Speaker 4: I don't know, 65% of our revenues. So however, that's an increase of that. On the eBOOS side, the Minneapolis-based business, we're not really facing a capacity constraint right now. We hope that we do. That would be great to deal with that challenge on the eBOOS side. But right now we're able to service, and for the balance of 20%.
Speaker 6: and that just to be clear that was a couple million last year and is hopefully 3 to 4 million this year. Correct. Correct.
Speaker 6: That clarifies, so now if I could lessen it then, gross margin.
Speaker 6: 26% is substantial. So, and I know that they give a little bit of clarity in the script, but can you elaborate a little bit more on the biggest drivers to keep an aggres margin at that level?
Speaker 4: Yeah, I mean, it's product mix. I mean, that's what it is. You know, the, you know, and I don't want to get too detailed on it. But, you know, the more, I don't know, the more classic, you know, e-block product that we do, the better the margin is. Sometimes that's lumped together with...
Speaker 4: kind of other pieces of equipment or the things that we need to furnish and that that slows down the That slows down the margin expansion. We just can't get enough. We're not adding enough value to get the margin that We're shooting for but yeah, it's it's almost a hundred percent mix
Speaker 6: And then also on...
Speaker 6: Well, so be remiss to not go ahead and throw this out.
Speaker 6: If you can keep, how does that backlog, you've got 37 main and backlog. You've made the comment that 2023 is largely booked. So you've pretty much got this scheduled list of how you can get it out the door is most of the remetior rest of that business at this kind of margin. Can we hold that 26%?
Speaker 4: Yeah, in the fall, that's the process. Yeah, I mean, we would love to shoot for that. It's never works out exactly what we want, but those are the gross margins that we've gone for. We were able to give them what the right mix we achieve it. Given the right scale, we achieve it. The higher volumes help.
Speaker 4: in every respect, you know, from a productivity point of view, from a purchase price point of view. So that's what we're doing, you know, that's what we're expecting to do going forward. Got it. Okay. Just last thing for me for now is the order cadence. So, and this is why I just made an experience with the company.
Speaker 6: If I'm looking at this correctly, kind of implied orders were 8 to 9 million in the quarter, down after a great big quarter and fourth quarter, but can you just talk about, is that typically the way it works? You kind of ramp throughout the year and then we drop off in a march and then it starts ramping again or just anything you can give me on.
Speaker 4: general order cadets for your business. Yeah, the cadets is, you know, the projects and the jobs are getting bigger and bigger. So, you know, from a timing point of view, and you know, we've also stopped, maybe it's maybe it's good and maybe it's bad. We sort of stopped like in this second quarter. We don't announce.
Speaker 4: You know large orders that have come in you kind of have to wait to the end of the second quarter and then you know You'll see did the backlog go up or down and you know what was the book to bill and what were the revenues? I would say that the dynamic is you know unbelievably active
Speaker 4: But given their size, so if something comes in on April 15th, so that dramatically changes, but the cadence of the orders is still very strong.
Speaker 6: Okay, great. Thank you so much.
Speaker 6: Great, thank you so much. Pleasure.
Speaker 2: Our next question will come from Jonathan and Gruber, a private investor. You may now go ahead.
Speaker 7: Good afternoon.
Speaker 7: My question has to do with the SGNA expenses from the first quarter 2022 to 2023 to 1
Speaker 7: What were the factors or what contributed to the increase from the 1.7 million to the 2.
Speaker 2: 2 million for the over quarter. Sure. I can take that one. Jonathan. Thank you. Great question there. I'm sorry.
Speaker 8: Yeah.
Speaker 2: So the $2.2 million increase, the majority of that really was our continued investment, incremental investments in our eBoost and eBlock initiatives.
Speaker 2: Roughly 600,000 or so in the quarter was attributable to that. So if you were to remove those investments which are, you know, are going to continue throughout 2023, but as we scale and ramp up, you're going to, you know, kind of normalize there. But without those in the first quarter, SNA would actually be down.
Speaker 7: You also said in your...
Speaker 7: remarks earlier that in 2022 you had employee stock based.
Speaker 7: Compensation that was expense in 2022.
Speaker 7: Do we see that kind of expense is going to take place in 2023 and is that part of the Q1?
Speaker 7: We see that kind of expense is going to take place in 2023 and is that part of the Q1 SG&A number.
Speaker 2: Yes, so I'm sorry that my comment was that about 150,000 of the current quarter SGNA is related to stock based compensation. So both quarters did have roughly a Q1 of 2023, had about 150,000 and Q1 of 2022 had roughly 60,000. Gouib.
Speaker 7: see the SGNA expenses going forward in 2023 to be
Speaker 2: comparable to the quarters in 2022? For the most part, you know, I would say yes, but our goal is to take control over SG&A, do more of a scrub and see where we can save on costs as well. But relatively speaking, we don't expect any
Speaker 7: Hello and congratulations of a great quarter in continuing to do out. My question is about the
Speaker 7: the fact that your Los Angeles factory that makes the block is fully booked for the year and your e-block sales seem to be the fastest growing. After you go through the process,
Speaker 7: and the plants you have to kind of outsource some simpler tasks.
Speaker 7: Are you planning to increase production or to build another factory? Do you have those plans yet or is it the case that you just...
Speaker 7: You just take only the others you can build in Los Angeles.
Speaker 4: Yeah, so that's we struggle with this every day, Chris, you know, that's really it's a great challenge to have. So the first goal is how do we meet growth, you know, continued growth in 2024. It's not just the manufacturing, but you know, we have to be able to engineer it, we have to be able to shepherd these through complicated, you know, project management, you know, stories that these kinds of customers demand.
Speaker 4: Yeah, that's the first. The first step is how do we continue to have a reasonable and exciting growth in 2024? You're right. And then the situation becomes, you know, do we expand? Is it assembly only? Is it more? You know, of course, we want to do the best solution.
Speaker 4: So off the cuff, you know, we think of the terms that we look at it, so that I hope this informs your view, is that, you know, the big value that we have is engineering, the value that we have is custom bus dock work, the big value that we have is the very complicated.
Speaker 4: wiring and testing that goes into a lot of these units. So those are things that we're not doing them. We're kind of, I'm not sure what we're doing exactly for the customer. Other functions are less critical or more vanilla type functions that we continue to make.
Speaker 4: Do we have to make backpins? Do we have to make wall, you know, end walls? Do we have to make corner posts all the time? We do them all right now.
Speaker 4: So that would be any kind of expansion would focus again on a facility that does the value-added parts of our process that we think that we need to have in order to move forward.
Speaker 4: And it doesn't necessarily, and I'm sorry, it doesn't, that expansion doesn't necessarily have to be in Los Angeles as well.
Speaker 7: I'm sorry, I cut you off Chris. No, no worries. So is the block custom engineered for each piece?
Speaker 4: So, I mean, that's a longer answer. I mean, every use case is different. Every customer is different. If you're a, I don't know, if you're a supermarket chain, many of yours will be similar, but even there, you can have variations based on the size of the store and what kind of service there.
Speaker 4: things that are very, very similar, especially among the same customer. Every warder utility is gonna be different. Every hospital is gonna be different. Every senior living center is gonna be different. So in that respect, there's very little to glum off.
Speaker 7: Okay, well, good to see you have some kind of technological mode there. Well, congratulations again, and that's it for me, thanks.
Speaker 7: Thank you, Chris. Our next question will come from David Kleinberg with Globis Capital.
Speaker 2: Our next question will come from David Kleinberg with global capital. You may not go ahead.
Speaker 7: Congratulations on the quarter and the continued progress. My question is about the large retailer that you announced a while back. Can you talk about what the potential is with them following the initial orders that they have placed with you?
Speaker 4: Yeah, thank you David. Yeah, they've placed them, you know, the initial order as we announced was for 63 stores, all of which we've delivered at this point. They internally, at least what they revealed to me, is that they've designated about a thousand stores for this program. 400 or so, or close to 500 sort of in a more immediate way.
Speaker 4: Our backlog right now reflects zero additional stores. They haven't come out with any yet. We expect as they, you know, they've received all the units, but as they monitor the data and as they get comfortable, you know, this was a big move for them. 63. We hope.
Speaker 4: You know, we don't hear from them, which is great. You know, I mean, everything's working perfectly. We only hear, you know, normally we only hear complaints. So we definitely expect more units to be released. You know, they're rumors and whispers among, you know, them and their engineers and so forth. There's certain things.
Speaker 4: None of that's in 2023, even if they released something tomorrow with all expectations and given their internal submittal process, all of that would be in 2024.
Speaker 4: So, a thousand stores, if I take the average that you sold on the initial order, it's just about 200,000 per unit per store. So a thousand stores, you talk about a $200 million opportunity? Correct. And obviously, those prices would be higher over time, you know, as things tend to go up. I mean, they don't typically...
Speaker 7: Thank you, David.
Speaker 2: Our last question will come from Ray Foss, a private investor. You may now go ahead. You may now go ahead.
Speaker 9: Yes, Nathan, thank you for the good quarter. We, my congratulations on that.
Speaker 9: Thank you for the good quarter. My congratulations on that. Thank you, Ray.
Speaker 9: I heard that you mentioned some things about the supply of engines, the propane engines that you need for generation. Is there an interaction between e-block and e-boost with respect to the engines?
Speaker 9: and any comments on further comments on the availability thereof. Thanks again for a good quarter and congratulations.
Speaker 4: Yeah, thank you, Ray. And I'll thank you, you know, on the call here, I'll thank you separately for only sending me, you know, interesting information and, you know, making me stay on my technological toes as far as, you know, what other technologies and processes might be out there that might help pioneer. So thank you for that, Ray. Thank you.
Speaker 4: Yeah, there's not a lot of interaction. I always expect it to be more. There's not a lot of interaction between or cross-selling or cross-technological pollination between e-block and e-boost. On the e-block side, we don't furnish the engines on the particular job. We're kind of agnostic as to what the
Speaker 4: and mechanically, you know, doing it in a way, fitting it in a way for the customer's application. So the engines do affect us there. You know, that's the heart of what's going on. Everything else is frankly passive or dumb on the eBoost. The engine is the one generating the power. Thanks. And again, congratulations.