Pioneer Announces Profitable First Quarter 2016 Results, Reaffirms Full-Year Guidance

Company Generates $1.1 Million in Operating Income and $2.0 Million of Adjusted EBITDA; Backlog Increases 22.9% Sequentially to $35.2 Million

Fort Lee, NJ, May 12, 2016 / PRNewswire / – Pioneer Power Solutions, Inc. (Nasdaq: PPSI) (“Pioneer” or the “Company”), a company engaged in the manufacture, sale and service of electrical transmission, distribution and on-site power generation equipment, today announced its financial results for the first quarter ended March 31, 2016.

First Quarter Results:

  • Revenue of $26.6 million, up 1.2% sequentially and down 8.0% year-over-year
  • Gross margin percentage of 22.3%, down 0.9% sequentially and up compared to 19.3% in Q1 2015
  • Operating income of $1.1 million compared sequentially to an operating loss of $(1.2) million in Q4 2015 and $(84,000) in Q1 2015
  • Net income of $569,000 compared sequentially to a net loss of $(1.3) million in Q4 2015 and $(225,000) for Q1 2015
  • Adjusted EBITDA* of $2.0 million, up 8.3% sequentially compared to Q4 2015 and a $1.2 million improvement compared to Q1 2015
  • Backlog increased 22.9% sequentially and 11.2% year-over-year to $35.2 million

Nathan Mazurek, Pioneer's Chairman and Chief Executive Officer, said, "The first quarter results were consistent with our strategic plan for 2016 and reflect the benefit of the assertive actions taken in the latter half of 2015 to eliminate drags on our earnings and reposition Pioneer for profitable growth. We delivered positive operating income and net income, expanding our operating income by $2.3 million sequentially and $1.2 million year-over-year as we saw most of the benefit of the cost reduction initiatives, including the consolidation of six manufacturing facilities to three and the rationalization of our Canadian dry-type transformer operations. We continue to expect further improvements in our bottom line as the year progresses, taking advantage of economies of scale and operational efficiencies, and we expect incremental improvements in our Adjusted EBITDA over the rest of this year."

"We expanded our backlog by approximately $7.0 million from December 31 to March 31, with further bookings during April, setting the stage for growth in 2016 and 2017," continued Mr. Mazurek. "Demand for our solutions remains strong and is growing, as businesses look for innovative ways to more effectively and efficiently manage electricity. We have exited certain low margin market segments, impacting revenue in the short term but significantly helping our profitability. With a more stable and sustainable cost structure, and a more efficient operation, we are positioned for predictable and profitable growth going forward."

Revenue

Total revenue for the three month period ended March 31, 2016 decreased to $26.6 million, down 8.0% compared to the $28.9 million for the first quarter of 2015. The decrease was the result of planned reductions in the sales of certain lower margin equipment and off-the-shelf transformers.

Gross Margin

For the first quarter, gross margin was 22.3% of revenues, as compared to 19.3% during the first quarter of 2015.

Operating Income and Adjusted EBITDA*

The first quarter operating income was $1.1 million compared to an operating loss of $(84,000) for the same period past year.

Approximately $889,000 and $874,000 for the quarters ended March 31, 2016 and 2015 of the Company's operating expenses consisted of non-cash expenses including depreciation, amortization of acquisition intangibles, restructuring, integration and impairment charges, and stock-based compensation for employee and director stock options plus non-recurring (income) expenses consisted of penalties and interest on the delinquent payroll tax obligations and acquisition transactions and other expenses. Without the effect of these (income) expenses, the Company's Adjusted EBITDA for the quarter ended March 31, 2016 was approximately $2.0 million compared to $834,000 in the same quarter last year. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results and guidance.

* Note: Pioneer has presented non-GAAP measures such as Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor the Company's performance. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the Company's operating performance.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this release, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results.

Net Earnings and Per Diluted Share

The Company generated net earnings of $569,000 for the three months ended March 31, 2016 compared to a net loss of $(225,000) during the three months ended March 31, 2015. Net income included a non-recurring benefit of $369,000 related to the Company receiving abatement for certain penalties and interest on the delinquent payroll tax liabilities. Net income per basic and diluted share for the three months ended March 31, 2016 was $0.07 compared to a net loss of $(0.03) per basic and diluted share for the three months ended March 31, 2015.

On a non-GAAP basis, the Company reported adjusted net earnings of approximately $1.0 million in the first quarter of 2016, or $0.11 per diluted share, as compared $239,000, or $0.03 per diluted share for the quarter ended March 31, 2015. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results and guidance.

Credit Facilities and Other Matters

The Company entered into an Amended and Restated Credit Agreement to extend its credit facilities with the Bank of Montreal until July 31, 2017. This agreement supersedes the waiver that was set to expire on April 30, 2016. This agreement contains revised covenants and funding amounts that finance the Company's cash requirements for anticipated operating activities, restructuring and integration plans, capital improvements and scheduled principal repayments of long-term debt, typical in agreements of this type. Management believes this extension will provide sufficient liquidity to meet growth and profitability objectives for 2016 and 2017 and working capital obligations. With the execution of this agreement, portions of the credit facilities were classified as long-term indebtedness as of March 31, 2016.

On April 20, 2016, two divisions of the Company entered into installment payment agreements with the Internal Revenue Service for the payment of delinquent payroll tax liabilities. These agreements encompass approximately 84% of the amounts owed by the Company for delinquent payroll tax liabilities. With the execution of these installment payment agreements, the Company reclassified $2.8 million of this liability as long-term indebtedness as of March 31, 2016.

The Company continues to pursue installment payment agreements for two other divisions, Jefferson Electric, Inc. and Pioneer Critical Power Inc., as well as abatement of all penalties assessed by the Internal Revenue Service on the delinquent payroll taxes.

Backlog

Order backlog at March 31, 2016 was $35.2 million compared to $31.7 million at March 31, 2015 and $28.7 million at December 31, 2015. Backlog is based on orders expected to be delivered in the future, most of which is expected to occur during the next twelve months.

2016 Outlook

The Company reaffirmed its full-year 2016 guidance which is based on expected business trends and the current composition of the order backlog. The guidance excludes the impact of any potential acquisitions, as their timing and investment levels cannot be known with certainty. In addition, this outlook excludes any significant fluctuations in foreign currency exchange rates. In 2016, the Company expects:

  • Revenue between $117 and $127 million
  • Adjusted EBITDA between $8.0 and $9.5 million
  • Non-GAAP diluted EPS between $0.55 and $0.66 based on 8.7 million shares

Conference Call Information

Management will host a conference call at 10 a.m. Eastern Time Friday, May 13, 2016, to discuss the results with the investment community. Details are as follows:

A replay will be available until May 20, 2016 which can be accessed by dialing 1-877-870-5176 if calling within the United States or 1-858-384-5517 if calling internationally. Please use passcode 2346665 to access the replay.

About Pioneer Power Solutions, Inc.

Pioneer Power Solutions, Inc. manufactures, sells and services a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company's principal products and services include custom-engineered electrical transformers, low and medium voltage switchgear and engine-generator sets and controls, complemented by a national field-service organization to maintain and repair power generation assets. Pioneer is headquartered in Fort Lee, New Jersey and operates from 13 additional locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales, service and administration. To learn more about Pioneer, please visit its website at www.pioneerpowersolutions.com.

Safe Harbor Statement:

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) the Company has been delinquent in payment of its federal payroll tax obligations and may not be successful in its requests for the abatement of penalties and payment of past due amounts over an extended period, (ii) the Company's ability to expand its business through strategic acquisitions, (iii) the Company's ability to integrate acquisitions and related businesses, (iv) the fact that many of the Company's competitors are better established and have significantly greater resources, and may subsidize their competitive offerings with other products and services, which may make it difficult for the Company to attract and retain customers, (v) the Company's dependence on Hydro-Quebec Utility Company and Siemens Industry, Inc. for a large portion of its business, and the fact that any change in the level of orders from Hydro-Quebec Utility Company or Siemens Industry, Inc. could have a significant impact on the Company's results of operations, (vi) the potential loss or departure of key personnel, including Nathan J. Mazurek, the Company's Chairman, President and Chief Executive Officer, (vii) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company's revenues, (viii) the Company's ability to generate internal growth, (ix) market acceptance of existing and new products, (x) the Company's dependence on a distributor agreement with Generac Power Systems through which it derives a significant portion of its revenues, (xi) operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk, (xii) restrictive loan covenants or the Company's ability to repay or refinance debt under its credit facilities that could limit the Company's future financing options and liquidity position and may limit the Company's ability to grow its business, (xiii) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xiv) the impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in the Company's markets and the Company's ability to access capital markets, (xv) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company's profitability, (xvi) the fact that the Company's Chairman controls a majority of the Company's combined voting power, and may have, or may develop in the future, interests that may diverge from yours, (xvii) material weaknesses in the Company's internal control over financial reporting that could have an adverse effect on the Company's business and common stock price, and (xviii) the fact that future sales of large blocks of the Company's common stock may adversely impact the Company's stock price. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission, including the Company's Annual and Quarterly Reports on Form 10-K and Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's web site at www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

Contact:
Brett Maas, Managing Partner
Hayden IR
(646) 536-7331
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PIONEER POWER SOLUTIONS, INC.
Consolidated Balance Sheet
(In thousands, except share data)

March
31,
2016
December
31,
2015
ASSETS

Current assets:
Cash and cash equivalents $159 $648
Accounts receivable, net 15,412 14,223
Inventories, net 20,624 17,663
Income taxes receivable 688 576
Prepaid expenses and other current assets 2,382 1,759
Total current assets 39,265 34,869
Property, plant and equipment, net 7,494 7,349
Deferred income taxes 5,033 3,642
Other assets 1,029 1,055
Intangible assets, net 9,510 9,956
Goodwill 10,068 10,068
Total assets $72,399 $66,939
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Bank overdrafts $2,591 $1,923
Revolving credit facilities 14,191 9,874
Accounts payable and accrued liabilities 15,226 20,030
Current maturities of long-term debt and capital lease obligations 795 6,244
Income taxes payable 481 237
Total current liabilities 33,284 38,308
Long-term debt, net of current maturities 5249 21
Pension deficit 147 63
Other long-term liability 3,137 372
Noncurrent deferred income taxes 2,193 781
Total liabilities 44,010 39,545
Stockholders’ Equity
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued - -
Common stock, par value $0.001; 30,000,000 shares authorized; 9 9
8,699,712 shares issued and outstanding
Additional paid-in capital 23,207 23,153
Accumulated other comprehensive loss (5,297) (5,669)
Retained earnings 10,470 9,901
Total stockholders’ equity 28,389 27,394
Total liabilities and shareholders’ equity $72,399 $66,939

 

PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)

(Unaudited)

Three Months
Ended
March 31,
2016 2015
Revenues $26,570 $28,887
Cost of goods sold 20,656 23,320
Gross profit 5,914 5,567
Operating expenses
Selling, general and administrative 4,748 5,822
Restructuring, integration and impairment 119 -
Foreign exchange gain (47) (171)
Total operating expenses 4,820 5,651
Operating income (loss) 1,094 (84)
Interest expense 285 154
Other expense 16 77
Income (loss) before income taxes 793 (315)
Income tax expense (benefit) 224 (90)
Net income (loss) $569 $(225)
Net income (loss) per common share:
Basic $(0.07) $(0.03)
Diluted $(0.07) $(0.03)
Weighted average common shares outstanding:
Basic 8,700 7,406
Diluted 8,709 7,406

 

PIONEER POWER SOLUTIONS, INC.
Reconciliation of GAAP Measures to Non-GAAP Measures

(In thousands, except per share data)
(Unaudited)
Three Months
Ended
March 31,
2016 2015
Reconciliation to Non-GAAP Net Earnings and EPS:
Net earnings (loss) per share (GAAP measure) $0.07 $(0.03)
Net earnings (loss) (GAAP measure) $569 $(225)
Amortization of acquisition intangibles 454 434
Stock-based compensation expense 54 60
Restructuring, integration and impairment charges 119 -
Acquisition and related costs 41 47
Titan Northeast discontinuation - 73
Other non-recurring expenses (25) 30
Tax effects (238) (180)
Non-GAAP net earnings $974 $239
Non-GAAP net earnings per diluted share $0.11 $0.03
Weighted average diluted shares outstanding 8,709 7,406
Reconciliation to Adjusted EBITDA:
Net earnings (loss) (GAAP measure) $569 $(225)
Interest expense 285 154
Income tax expense (benefit) 224 (90)
Depreciation and amortization expenses 741 784
Restructuring, integration and impairment charge 119 -
Acquisition and related costs 41 47
Titan Northeast discontinuation - 73
Other non-recurring (income) expenses (25) 30
Stock-based compensation expense 54 60
Adjusted EBITDA (Non-GAAP measure) $2,008 $834

 

Note: Pioneer has presented non-GAAP measures such as non-GAAP net earnings and Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor the Company's performance. These non-GAAP measures should not be considered an alternative to GAAP measures as an indicator of the Company's operating performance.

Non-GAAP net earnings is defined by the Company as net earnings before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs and reorganization expense, impairments, other unusual gains or charges and any tax effects related to these items. The Company defines Adjusted EBITDA as net earnings before interest, income tax expense, depreciation and amortization, non-cash compensation and non-recurring acquisition costs and reorganization expenses and other non-recurring or non-cash items.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this release, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of non-GAAP to GAAP net income is set forth in the table above.

Amounts may not foot due to rounding.