Q3 2024 Pioneer Power Solutions Inc Earnings Call
Music by David Guetta
[music]
Speaker Change: Greetings and welcome to the Pioneer Power third quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce our host, Brett Maas of Hayden Investor Relations. Thank you. You may begin.
Brett Maas: Thank you, Operator. The call today will be hosted by Nathan Mazurek, Chairman and Chief Executive Officer, Walter Michalec, Chief Financial Officer, and Gio Morrican, President of Pioneer Power eMobility.
Brett Maas: Following this discussion there will be a Q&A session open to participants on the call. We appreciate the opportunity to review the third quarter financial results and recent business highlights.
Brett Maas: Before we get started, let me remind you this call is being recorded and webcast. During this call, management may 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.
Speaker Change: Please refer to the cautionary text regarding four legal statements containing the earnings release issued earlier today, which applies to the content of the call. I'd like to now turn the call over to Nathan Mazurek, Chairman and CEO. Nathan, please go ahead.
Nathan Mazurek: Thank you, Brett. Good afternoon, and thank you all for joining us today.
Nathan Mazurek: As you are likely aware by now, on October 29th, we sold our Pioneer Custom Electrical Products.
Nathan Mazurek: PSEP business unit, whose primary product line is the e-block integrated power system, to Millpoint Capital, a New York-based private equity group, for $50 million in a cash and equity transaction.
Nathan Mazurek: More specifically, Pioneer received approximately $48 million in cash proceeds from the sale and in addition received an approximately 6% equity stake in MillPoint's new Voltaris electrical products platform.
Nathan Mazurek: Concurrently with the purchase of our e-block business, Millpoint also purchased the Jefferson Electric dry-type transformer business.
Nathan Mazurek: from ERMCO as part of its efforts to build Voltaires into a significant provider of power solutions supporting the generational energy transition going on in the United States right now.
Nathan Mazurek: We expect the eBlock business to continue to grow rapidly and profitably as part of Volterra's And we are pleased to be original equity owners of this platform
Speaker Change: Finally, on November 14th we announced that Pioneer's Board of Directors declared a one-time special cash dividend of $1.50 per share.
Speaker Change: to be paid on January 7th, 2025 to shareholders of record as of December 17th, 2024.
Speaker Change: Our critical power business is the sole operating business unit that remains in Pioneer after the sale to Millpoint and will indeed be the focus of our prepared remarks.
Speaker Change: This business is anchored by our eBoost mobile charging platform, first introduced in November 2021.
Speaker Change: In addition, related service revenue and some traditional on-site and mobile power sales.
Speaker Change: During the third quarter of 2024, this business delivered outstanding year-over-year revenue growth of 130 percent.
Speaker Change: and generated positive operating income for the first time since the introduction of the eBoost platform in November of 2021.
Speaker Change: As of the end of the third quarter, our critical power segment, inclusive of eBoost, had a total backlog of approximately $24 million.
compared to the year-end 2023.
Speaker Change: And in fact, this backlog provides the basis for our revenue guidance for 2025.
Speaker Change: What began with one truck-mounted fast-charging solution in November 2021 has evolved into a 2024 revenue projected at $20 million plus for this year, a high-growth business unit.
Product scope expansion over the last
Speaker Change: and spawned eBoost Mini, a SCID-based DC fast-charging solution that can be moved utilizing usually a forklift. eBoost Mobile
Speaker Change: The most prominent and the most active of the e-boost platform are trailer-based.
DC fast-charging solution.
that can be pulled by a truck or tractor.
Speaker Change: E-Boost GOAT, a truck-integrated DC fast-charging EV charging solution that invokes the AAA model. And finally, E-Boost POD, a DC fast-charging system integrated into a shipping container.
for Rural Extreme Weather Regions and or Semi-Permanent Applications.
Speaker Change: With each of these solutions, we have proven our ability to innovate and address a rapidly evolving market and to customize our units electrically and or mechanically to suit the needs of our diverse base of users.
Speaker Change: eBoost has become synonymous in the industry for reliable and sustainably powered off-grid mobile EV charging solutions.
Speaker Change: To date, eBoost has delivered over 20,000 unique vehicle charging sessions and over 400 megawatts of sustainable off-grid power.
Speaker Change: Innovation has not been limited to product design either. In August this year we announced a groundbreaking collaboration with SparkCharge, the original and to date the largest charging as a service provider in the United States.
Speaker Change: Through this collaboration, we aim to drive wider adoption of mobile EV charging, integrating battery energy storage with our eBoost system and SparkCharge's mobile battery energy storage systems.
Speaker Change: Together we believe we can unlock new value in the mobile EV charging market and accelerate technological advancements as we work towards economical and scalable net zero charging solutions.
Speaker Change: Since August, we have delivered two eBoost units to SparkCharge and expect to deliver approximately 10 more eBoost units in 2025.
Speaker Change: In addition, we have identified tremendous opportunities for growth across a variety of vertical markets and diverse use cases, including
Speaker Change: bus fleets, ports, airports, municipalities and utilities that are proceeding with the electrification of their vehicle fleets.
Speaker Change: We continue to believe the opportunities for growing our e-mobility business are massive and with proceeds from the sale of PSEP and zero debt we have the capital necessary to fund our growth plans over the next several years.
Speaker Change: We are initiating guidance for 2025 of revenue between $27 and $29 million.
Speaker Change: As a result of the PCEP sale, we are a smaller business and will likely see some variability quarter to quarter. However, looking across the full year of 2025, we are confident in our ability to meet this guidance.
Speaker Change: We expect our revenue for 2025 to be primarily derived from sales and rental of our eBoost product line, as well as service and maintenance of said equipment.
Speaker Change: Breaking it down a bit further, we expect to generate approximately 17 million dollars in revenue from the sale and rental of our equipment and approximately 10 million plus from our service and maintenance business.
Speaker Change: Of the approximately $17 million, we expect about $2.5 million to be the subject or be produced by longer-term lease-slash-rental type agreements.
Speaker Change: We remain committed to continually innovating to bring new products to the market and expand our streams of revenue for consistent, longer-term growth.
Speaker Change: To that point, we plan on launching our Home eBoost product in early 2025 through targeted regional distributors and dealers.
Speaker Change: This product is our first solution focused on the residential and smaller commercial markets.
Speaker Change: Home E-Boost addresses the resiliency needs of millions of homeowners across the United States during adverse climate events, which are now too common and frequent, and simultaneously addresses the growing need for EV charging at home, especially fast charging, and especially during power outages.
Speaker Change: It was developed to run on existing natural gas lines, and unlike the majority of backup generators currently on the market that are designed to run for minimal or constricted hours per day and per year, it is powered by an EPA-rated prime engine that can operate 24-7.
Speaker Change: This product line also includes a fast-charging option that can address the emerging demand for small businesses, mini-mall segment of the market, retail centers,
Speaker Change: that can utilize the same solution to meet their business uptime needs and additionally provide EV charging to their customers.
Speaker Change: We are deploying additional commercial resources to focus on and capitalize on this growing market.
Speaker Change: Another dynamic market that has developed for us is the sale and rental of our e-boost pure power units.
Speaker Change: and deployment of on-site hydrogen fueling station, there has been increasing demand for power, raw power, to recharge the battery units and to power the hydrogen reformers, where reliable and powerful grid connections are not available today or will in the near future.
Speaker Change: eBooth Pure Power offers large, quickly deployable, more sustainably powered units to support the on-site power needs for BESS and hydrogen customers.
Speaker Change: We will be exploring additional application opportunities for our units as commercial enterprises, particularly businesses that do not have a massive electrical footprint, look to diversify away from a single, usually expensive, utility connection.
Speaker Change: Specifically, we are marketing those power solutions to medical-slash-dental-type offices and facilities, small surgery centers, restaurants, and the like.
Speaker Change: Finally, in terms of strategic transactions, while there is nothing imminent, we plan to be opportunistic with any acquisitions that we might pursue.
Speaker Change: We are looking primarily for sizable businesses with at least $25 million in revenue that are indeed complementary to our current eBoost platform and would be immediately accretive to our earnings.
With that, I will turn the call over to Walter.
Thank you, Nathan, and good afternoon, everyone.
As Nathan mentioned earlier, on October 29th,
Speaker Change: We successfully closed on the sale of our L.A. business, PSEP, for $50 million in a cash and equity transaction, primarily cash, as we received total gross cash proceeds of $48 million, leaving our balance sheet in a very strong position.
Speaker Change: Our critical power business, which includes the e-boost solutions, is the sole operating business unit that remains after the sale. So my prepared remarks only consider the continuing operations, excluding the results of the recently sold PSAP business.
Speaker Change: Third quarter revenue for the critical power business segment was $6.4 million compared to $2.8 million in the year ago quarter, an increase of approximately 130%.
Speaker Change: The increase was primarily due to the growth in our e-boost business.
Speaker Change: Our pioneer eMobility team was successful at delivering multiple eBoost charging solutions to a customer in Canada, recognizing approximately three million dollars in revenue during the third quarter from that contract alone.
Speaker Change: To put this in perspective, revenue from our eBoost business was approximately $1 million in total for all of 2023.
Speaker Change: Third quarter gross profit for the critical power segment was 1.5 million, or a gross margin of approximately 24%. Compared to gross profit of $439,000, or approximately 16% of revenue in the third quarter of last year.
Speaker Change: The increase was, once again, due to the growth in our e-boost business.
Speaker Change: just mentioned the three million dollar eBoost job that shipped during the third quarter. Well the extremely dedicated and hard-working team at Pioneer eMobility was successful at generating a blended gross margin of approximately 35% on that job.
Speaker Change: This is roughly 10 percentage points higher than our historical target.
Speaker Change: We continue to improve as a team both in our sales and manufacturing efforts, and we expect that our margins will follow suit.
Speaker Change: During the third quarter of 2024, our critical power segment generated operating income of $211,000 compared to generating and operating loss of $621,000 in the third quarter of last year.
Speaker Change: The $832,000 improvement was primarily due to the large increase in revenue from the sale of our e-boost solutions and the higher margins we are seeing from that business.
Lastly...
Speaker Change: Given the sale of our PSAP business in October, we are updating our revenue guidance for 2024. Now expect to recognize between $21 and $23 million in revenue from continuing operations. And indeed, also expect to generate significant operating income from the critical power segment during the fourth quarter of 2024.
Speaker Change: As Nathan mentioned, in 2025, we expect to deliver a revenue of $27 to $29 million for the full year.
Speaker Change: This concludes my remarks. I will now turn the call back over to the operator for any questions.
Speaker Change: Great, thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
One moment, please, for a report for questions.
Speaker Change: Our first question is from Rob Brown from Lake Street Capital. Please go ahead.
Good afternoon. Congratulations on all the progress. Thank you, Rob.
You lead up to some...
Speaker Change: Good color on the overall market, but I just want to get a little more detail on the demand drivers you're seeing. Are there areas in 2025 that are starting to ramp? Are these customers sort of expanding their operations and these are refill orders at your current customer base? Or are there, you know, how much is new customer wins and just how do you sort of see the pipeline of activity and what we should watch for in terms of new activity coming through?
Speaker Change: Yeah, I didn't break 2025 down in my own head, you know, percentage-wise, who's new, who's repeat and by segment.
Speaker Change: and Gio can chime in as well, maybe just if I finish the overall. It's really all of it. Some are repeats.
Speaker Change: electric buses moving, you know, the city buses, as we call them, or school bus related, however that particular purchase order comes to us. Those are the big drivers.
Speaker Change: And I guess the group that's been very active, but, you know, very active in trying to determine what they do going forward, but not so active in making final decisions on charging.
Speaker Change: is the package carriers. So the big alphas, the Amazons, FedEx, DHL, Postal Service, they've taken in a lot of electrical vehicles, vans, truck, every form really have been a big appetite for that.
Speaker Change: haven't made so many charging solutions choices and we see that unfolding stronger for us in 2025, indeed going into 2026.
Speaker Change: Gio, do you want to add or edit anything that I said?
more robust business coming from the municipality segment.
Speaker Change: and some related to utilities as they are starting to ramp up the numerous different fleets that are electrifying within a city.
Speaker Change: There's also a movement in the electrification of farm equipment and off-highway equipment, especially related to construction.
Speaker Change: So all of these movements we expect to start seeing as newer movements as well as we shore up more transit and electric school bus orders.
Thank you for watching!
Speaker Change: Okay, great. Thank you for the color there. And then on the kind of business model, I know you mentioned a couple of different ways you're going about it to the market. Do you have sort of a preference, or do you see one developing? This is in terms of rental versus sort of a product sale. Do you see that developing in one particular way or another, or what's your sort of view on what you'd like the business to be?
Speaker Change: yeah we'd like we'd like more more lease rental whatever whatever you want to call it you know we're budgeting two and a half
Speaker Change: for 2025. I'd really like to see that go up in 2026 to four plus.
Speaker Change: that's very lucrative for us. It's got to be with the right credit-worthy type customers. Otherwise...
Speaker Change: you know, we're better off on the sales side. You know, many municipalities...
everything that they can lease on that basis.
Speaker Change: We see it going both ways, you know, what's the right move? So if you use a hypothetical, you know, would we engage in long-term leasing with Amazon? Of course.
Speaker Change: You know, would we do that with somebody who's, you know, starting, you know, as a startup trying some sort of service charging business? You know, maybe not.
Speaker Change: Okay, got it. And then, kind of last questions on your production capacity for the eBoost business.
Speaker Change: With all the changes, where are you at in terms of production capacity? Do you need to add more?
We'll see you later.
Speaker Change: Yeah, so, I mean, you're one of the few on the call, you've been to Champlain.
Speaker Change: So you have an idea. So we're trying to keep that size, you know on a steady basis
all the prototyping, all the first articles on jobs, truly...
Speaker Change: to expand that particular site. Outside of that, we've been working with a couple of subcontractors.
Speaker Change: to expand capacity without really investing and having it as a fixed cost for ourselves.
Speaker Change: So, we'll be getting the first ones with one gentleman in Southern California. The West, California, and even Washington, Oregon, and those states are representing an outsized portion of projected 2025 revenue, so that's a huge pressure relief device.
Speaker Change: for what we need to do in Champlin. And hopefully over the course of 25, I'd love to develop a similarly well-suited and valuable economical partner on the eastern part of the United States.
Speaker Change: So, we don't have any plans to expand or take on any more facility than we do right now in Minneapolis.
Okay, great. Thank you. I'll turn it over.
Thank you.
Speaker Change: Once again, as a reminder, if you would like to ask a question, it is star 1.
Speaker Change: Next question here is from Samir Joshi from HC Wainwright. Please go ahead.
Samir Joshi: Yes. Thanks, Walter, Nathan. Thanks for taking my questions and congrats on all the progress.
Samir Joshi: was that because of any particular, like, was it a rental or a sale, was there a service component to it, and should we expect similar levels of gross margins in the quarter?
Samir Joshi: Yeah, so that was a sale, and frankly I expected lower gross margins. It was a very complicated set of units, very, very complicated, rated for 40 below zero, all kinds of other features that they needed to have that we maybe didn't price.
Samir Joshi: so well at the beginning, but the team did an amazing job. They also did an amazing job working with certain subcontractors, especially on the mechanical portion.
Samir Joshi: And those guys not only did it faster, but faster and more economically than we might have been able to do it. And we were able to really do the final wiring and electrification of it, which is really where we have more valuable expertise and takes less time.
Samir Joshi: that we actually came in better than I expected. Should we see that all the time? We shoot for that on the e-boost sales all the time.
Samir Joshi: I think to the extent that the big variable to us has not been the material, we've probably been doing a little bit better on the material.
Samir Joshi: all the other special things that we do for all the units. As we've gotten more experience, so we've gotten better at that too. And finally, when we had, you know, this was by far the largest quarter we've ever had, probably the largest single.
Samir Joshi: It's been, from a sales point of view, for the last three plus years. The fourth quarter and the first quarter of 2025 will probably be a little higher than that.
Samir Joshi: Just the way things are laid out and I think it's going to be instructive to us as well as to where those gross margins come out before we really start modeling out, you know, too far out into the future.
Thanks for that color.
Samir Joshi: and just sticking to sort of the customer diversity here and you laid out the demand drivers based on Rob's question.
But in terms of the backlog of $24 million,
Speaker Change: How many customers are represented in it, and what is the cadence? Most of this, I think 17 million of this is sales or rental, I think you mentioned. But the service and maintenance of 10 million, how long is that? Are there two, three, four-year contracts?
Speaker Change: Four is, I don't think we have anything like that, that's way, way too out. You know, it's going to be one to three year type agreements, depends on the customer and so forth.
Speaker Change: The cadence is super strong, but if you ask for what's comprising the backlog without giving out the names, I'd say the biggest single portion of the backlog is probably school bus related.
Speaker Change: electric fleet, which includes anything and everything sometimes, or it's going to be a private fleet related, but that would be the single largest.
Thank you.
Speaker Change: And then just one last one, of course, you probably will be sitting on $25 to $30 million after January, I think, whenever you distribute your dividend. Yes, January 7th.
Speaker Change: Yeah, and you did mention your intention to, your opportunistic on the M&A front. Have you already identified potential customers, sorry, potential targets to acquire?
Speaker Change: In a general way, yes. I've done a little work on that. We're not in a big rush. We are and we aren't. It has to be super compelling for us. We can't, after everything that we've gone through, it can't be a cash drain on us.
Speaker Change: It's got to be somewhat accretive, it's got to be some redundancies, and it's got to somehow enhance or we're getting more advanced technology that enhances what we're doing in a quicker way. So we're open, Sameer, we're open to suggestions.
Understood.
Speaker Change: May I squeeze one more on the FG&A front? Sure. It seems that, like...
Speaker Change: Your segment, SG&A, was around a million dollars for the business that you retain currently. But I'm sure there must be some overhead that gets added onto it from the corporate overhead after the vestiture. Do you have any outlook on what level of SG&A or as a percent of revenue we should expect
Speaker Change: Yeah, for overall for the business, you know, going into 2025, how we budgeted it.
Speaker Change: Yeah, because in the queue you have labeled it out for corporate, for the divested business, and for the continuing business, yeah. Right. So, we do. I'll let Walter answer, so.
Speaker Change: Hello, Samir. Thank you for your question. Overall, we are going to seek to
cut costs to incorporate.
Speaker Change: We're expecting, as a percentage of revenue at corporate, for the overhead expenses to come in roughly 12% or so.
of Revenue.
and as we scale and grow the critical power business.
Speaker Change: you know you mentioned that there might be some corporate overhead layered in there it actually isn't we separate the two so you know that the SG&A expense over at the critical power business will be somewhere around that million dollar mark and then it all really just depends on you know how much R&D work we do
Speaker Change: Got it, understood, thanks for that clarification and thanks for taking my questions.
Of course.
For more information, visit www.fema.gov
Speaker Change: Our next question is from Rob Romano, a private investor. Please go ahead.
Speaker Change: Yes, thank you for taking my call. Do you think you could be profitable on the revenue guidance next year?
Yes, we do.
Speaker Change: Okay, great. I noticed the backlog was down sequentially in critical power, and there may be some lumpiness there. Can you grow the backlog into 2025, you think, in a pretty significant manner?
Speaker Change: That's that's our goal every single day and based on on what we're seeing and and you know where we are on on various proposals and negotiations we're pretty we're pretty confident you know for the next for the next two years.
Thank you.
Speaker Change: Okay. And I know you had a filing last week regarding some large bonuses that were paid. I wonder if you could just comment on that.
Speaker Change: Yeah, I mean the largest bonus was to me, that was $2 million, the rest was much less.
Speaker Change: Legal fees were very, very low in this case because we have prior experience with Millpoint from five years ago.
Speaker Change: and that shortened that as well, and the board decided that they felt that we had gotten a very, very high price for the business, or a very fair price, and rewarded me as such.
Okay, thank you.
You're welcome
Thank you.
Speaker Change: If there are no further questions, I'd like to turn the floor back to management for any closing comments.
Speaker Change: Thank you all for your time and support, and we look forward to updating you again on our next call.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
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