Pioneer Announces First Quarter 2011 Results

Pioneer Announces First Quarter 2011 Results

Quarterly revenue increases 91% to $15.7 million, net earnings increase 147%;

Company announces strategic acquisition

Fort Lee, NJ – May 16, 2011 – Pioneer Power Solutions, Inc. (OTCBB: PPSI) (“Pioneer” or the “Company”), an owner and operator of specialty electrical equipment manufacturing and service businesses for the utility, industrial, commercial and wind energy markets announced its results for the quarter ended March 31, 2011.

Earnings Highlights

  •             Revenue of $15.7 million, up 91% from $8.3 million in Q1 2010
  •             Gross margin was 27.5% of revenue, up 560 basis points from 21.9% in Q1 2010
  •             Operating income of $1.5 million, compared to $0.6 million in the comparable prior year period
  •             Non-GAAP diluted EPS of $0.03, compared to $0.01 in Q1 2010

Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, said, “Pioneer’s first quarter of 2011 was marked by significant achievements in increasing revenue and net earnings. Our revenue growth was due to robust customer demand, particularly for transformers used in wind energy projects which accounted for 15% of our consolidated quarterly sales figure. Moreover, our total revenue and net earnings came in above internal expectations and we are optimistic that we will meet our previously issued guidance for the year, excluding the anticipated benefit of future acquisitions.”

Acquisition of Bemag and Vermont Transformer

Pioneer announced that it has entered into a definitive agreement to acquire Transformateur Bemag Inc., and will soon enter into a similar agreement with Vermont Transformer, Inc., related businesses located in Canada and the U.S. that design and manufacture low and medium voltage dry-type transformers and custom magnetics for the commercial and industrial segments of the North American electrical equipment market. The aggregate cash consideration to be paid for the acquisitions is approximately $6.5 million, excluding the assumption of debt. The transactions are subject to the satisfaction of customary closing conditions and are expected to close at the start of Pioneer’s third quarter in July 2011.

Nathan Mazurek commented, “We see a tremendous strategic fit between Bemag and Vermont Transfomer with both our existing transformer businesses, but particularly with our Jefferson Electric business. The transaction enables Jefferson Electric to begin selling medium voltage transformers through its U.S. distribution network much more quickly and cost-effectively than our prior plan to develop the product line internally. Jefferson Electric will also begin supplying Bemag with several products it does not currently manufacture for sale into the Canadian marketplace where Jefferson currently has little presence. Additionally, Bemag has developed and implemented proprietary automation equipment into its production process that we expect will make Jefferson even more cost-competitive when deployed at its manufacturing location.”

Andrew Minkow, Pioneer’s Chief Financial officer added, “On their own, Bemag and Vermont Transformer should add approximately $15 million to our annual revenue and are expected to be immediately accretive to non-GAAP earnings per share. To account for the anticipated contribution of the acquisition, we have revised our 2011 revenue guidance up $8 million, to between $74 and $85 million, and our non-GAAP diluted EPS guidance to between $0.16 and $0.19. These adjustments do not reflect any anticipated incremental revenue or cost savings expected from the acquisitions.” Mr. Minkow continued, “As we develop the business integration plan further, we are likely to adjust our guidance based on the revenue and cost savings opportunities, both of which should begin manifesting themselves in 2011 but will be more significant in 2012 and 2013.”

Results for Quarter Ended March 31, 2011

Revenue

Revenue for the quarter ended March 31, 2011 was $15.7 million, approximately 91% higher than $8.3 million in the comparable year period. The increase was due primarily to the inclusion of $5.2 million of revenue from Jefferson Electric during the current year period. During the three month period ended March 31, 2010, which was prior to the acquisition, Jefferson Electric generated revenue of $4.4 million. Pioneer Transformers Ltd., our Canada-based, liquid-filled transformer business, experienced an increase in revenue of $2.2 million or 27% for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010. This increase was a result of higher average selling prices due to the mix of products sold, as well as to strengthened demand from industrial and renewable energy customers. Our wind energy business, Pioneer Wind Energy Systems Inc., which was established in June 2010, did not contribute to consolidated revenue in either the three months ended March 31, 2011 or March 31, 2010.

Gross Margins

For the three months ended March 31, 2011 our gross margin percentage increased to 27.5% of revenue, compared to 21.9% during the three months ended March 31, 2010. This 5.6% gross margin increase was due to a more favorable product mix on higher sales experienced by Pioneer Transformers Ltd. during the quarter, as compared to the first quarter of 2010. Jefferson Electric also experienced a gross margin improvement during the three months ended March 31, 2011, as compared to the three months ended March 31, 2010 which was prior to our acquisition of the business.

Net Earnings and Earnings Per Diluted Share

Net earnings for the quarter ended March 31, 2011 were $963,000, an increase of 147% from $390,000 generated in the comparable prior year period. Our net earnings benefitted from significantly stronger sales and earnings from our liquid-filled transformer business. Earnings per basic and diluted share was $0.03 for the first quarter of 2011 as compared to $0.01 per basic and diluted share during the first quarter of 2010. On a non-GAAP basis, Pioneer reported net earnings of $1,033,000, or $0.03 per basic and diluted share for the quarter ended March 31, 2011, as compared to $405,000, or $0.01 per basic and diluted share during the first quarter of 2010. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results and guidance.

About Pioneer Power Solutions, Inc. 

Pioneer Power Solutions, Inc. is an owner and operator of specialty electrical equipment manufacturing and service businesses. Through its subsidiaries, Pioneer provides a range of highly-engineered solutions for applications in the utility, industrial, commercial and wind energy market segments of the electrical transmission and distribution industry. Pioneer is headquartered in Fort Lee, New Jersey and presently operates from five locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales and administration. To learn more about Pioneer, please visit our website at www.pioneerpowersolutions.com.

For more information regarding Pioneer's financial performance during the quarter ended March 31, 2011, please refer to the Form 10-Q filed with the Securities and Exchange Commission on May 16, 2011.

Forward-looking Statements: 

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’s ability to expand its business through strategic acquisitions, (ii) the Company’s ability to integrate acquisitions and related businesses, (iii) 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, (iv) 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, (v) the potential loss or departure of key personnel, including Nathan J. Mazurek, the Company’s Chairman, President and Chief Executive Officer, (vi) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company;s revenues, (vii) the Company’s  ability to generate internal growth, (viii) market acceptance of existing and new products, (ix) 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, (x) 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, (xi) the Company’s ability to develop and grow its wind energy business, (xii) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xiii) 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, (xiv) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company’s profitability, (xv) 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 and (xvi) 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 Form 10-K filed with the SEC on March 31, 2011. 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 assumed no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

Howard Gostfrand

American Capital Ventures

305.918.7000

This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Earnings
 (In thousands, except per share data)
(unaudited)

 

Three Months Ended March 31,

 

2011

 

2010

 

 

 

 

Revenue

          $15,726

 

           $8,250

Cost of goods sold

11,405


 

6,444


    Gross profit

4,321

 

1,806

Operating expenses

 

 

 

    Selling, general and administrative

2,790

 

1,150

    Foreign exchange (gain) loss

(17)


 

92


 

        Total operating expenses

2,773


 

 

1,242


 

Operating income

1,548

 

564

    Interest and bank charges

122


 

 

13


 

Earnings before income taxes

1,426

 

551

    Provision for income taxes

463


 

161


 

Net earnings

             $963

 

           $390

 

 

 

 

Earnings per common share

 

 

 

    Basic

$0.03

 

$0.01

    Diluted

$0.03

 

$0.01

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

    Basic

29,536

 

29,000

    Diluted

29,750

 

29,066

 

 

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets
(In thousands)
 

 

March 31,

 

December 31,

 

2011

 

2010

ASSETS

(unaudited)

 

 

Current Assets

 

 

 

    Cash and cash equivalents

              $140

 

             $516

    Accounts receivable

7,496

 

5,358

    Inventories

9,478

 

7,814

    Income taxes receivable

1,341

 

             1,191

    Deferred income taxes

245

 

                245

    Prepaid expenses and other current assets

620


 

 

575


 

          Total current assets

19,320

 

15,699

Property, plant and equipment

5,130

 

5,123

Noncurrent deferred income taxes

1,418

 

1,311

Intangible assets

4,383

 

             4,436

Goodwill

5,534


 

             5,534


    Total assets

             $35,785

 

         $32,103

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Current Liabilities

 

 

 

    Bank overdrafts

             $618

 

                  $-

    Accounts payable and accrued liabilities

9,115

 

7,442

    Current maturities of long-term debt and capital lease obligations

6,224

 

6,063

    Income taxes payable

                165


 

 

161


 

          Total current liabilities

16,122

 

13,666

Long-term debt and capital lease obligations, net of current maturities

13

 

                  17

Pension deficit

293

 

                308

Noncurrent deferred income taxes

2,313

 

             2,320

Deferred credit

700


 

 

                700


 

    Total liabilities

19,441

 

17,011

 

 

 

 

Shareholders' Equity

 

 

 

    Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued

                    -  

 

                    -  

    Common stock, par value $0.001; 75,000,000 shares authorized; 29,536,275

 

 

 

          and 29,536,275 shares issued and outstanding, respectively

30

 

30

    Additional paid-in capital

7,578

 

7,517

    Accumulated other comprehensive income (loss)

(77)

 

(305)

    Accumulated retained earnings

8,813


 

 

7,850


 

          Total shareholders' equity

16,344


 

15,092


 

Total liabilities and shareholders' equity

       $35,785

 

        $32,103

 

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)

 

Three Months Ended
March 31,

 

2010

 

2011

Reconciliation to Non-GAAP Net Earnings and Diluted EPS

 

 

 

Net Earnings Per Share (GAAP Measure)

$0.01

 

$0.03

Net Earnings (GAAP Measure)

$390

 

$963

Amortization of Acquisition Intangibles

-

 

53

Stock-Based Compensation Expense

4

 

61

Stock and Warrant Issuance Expense for Services

21

 

-

Tax Adjustments

(10)


 

(44)


Non-GAAP Net Earnings

$405


 

$1,033


 

Non-GAAP Net Earnings Per Diluted Share

$0.01

 

$0.03

Weighted Average Diluted Shares Outstanding

29,066

 

29,750

 

 

 

 

Reconciliation to Adjusted EBITDA:

 

 

 

Net Earnings (GAAP Measure)

$390

 

$963

Interest and Bank Charges

13

 

122

Provision for Income Taxes

161

 

463

Depreciation and Amortization

90


 

 

221


 

EBITDA

654

 

1,769

Adjustments to EBITDA:

 

 

 

Stock-Based Compensation Expense

4

 

61

Stock and Warrant Issuance Expense for Services

21


 

 

-


 

Adjusted EBITDA (Non-GAAP Measure)

$679

 

$1,830

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 as 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.