Pioneer Announces Third Quarter 2011 Financial Results

Pioneer Announces Third Quarter 2011 Financial Results

Quarterly revenue increases 29.8% to $17.9 million

 

Fort Lee, NJ – November 14, 2011 – Pioneer Power Solutions, Inc. (OTCBB: PPSI) (“Pioneer” or the “Company”), a manufacturer of specialty electrical equipment for the utility, industrial and commercial markets, announced its results for the quarter and nine months ended September 30, 2011.

Third Quarter 2011 Highlights

  • Revenue of $17.9 million, up 29.8% from $13.8 million in Q3 2010
  • Gross margin was 21.3% of revenue, compared to 22.0% for the same period in the prior year
  • Adjusted EBITDA of $1.2 million, compared to $1.4 million in Q3 2010
  • Non-GAAP diluted EPS from continuing operations of $0.09, compared to $0.13 in the comparable prior year period

Nine Months Ended September 30, 2011 Highlights

  • Revenue of $50.1 million, up 45.5% from $34.4 million during the first three quarters of 2010
  • Gross margin of 23.3%, compared to 22.8% for the same period in the prior year
  • Adjusted EBITDA of $4.6 million, compared to $3.8 million in the first three quarters of 2010
  • Non-GAAP diluted EPS from continuing operations of $0.44, compared to $0.35 in the comparable prior year period

Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, addressing Pioneer’s recent decision to divest or wind down Pioneer Wind Energy Systems Inc., noted that “It was a difficult decision driven by weak wind energy market conditions and the conclusion that the achievement of our goals would require significantly more time, capital and risk than we were willing to endure. We hope to put the business unit on firm footing with a new owner and will instead focus our attention on creating shareholder value within our core electrical equipment businesses.”

Mr. Mazurek continued, “We continue to pace well ahead of last year in terms of revenue and operating income growth. Our order backlog grew by approximately $7 million this quarter, reaching $23.4 million, a level we have not seen since mid-2009 which was an exceptionally strong year. We were also very aggressive in our integration of Bemag this quarter which caused some disruption in the supply of its product to market and impacted our operating results. Nonetheless, we expect our strategy will yield significant manufacturing efficiencies over the long-term. At the same time, other aspects of our plan, such as new sales of Bemag equipment in the U.S. through our Jefferson unit, have borne fruit much faster than expected.”

Andrew Minkow, Pioneer’s Chief Financial Officer added, “Our Adjusted EBITDA and non-GAAP net earnings per share, which exclude certain non-cash and non-recurring items, grew 22.3% and 24.0%, respectively, in the first three quarters of 2011 versus the same period last year. We expect to finish the year with approximately $70 million of revenue and continuing our momentum into 2012 for which we are expecting $80 to $90 million of revenue from existing operations.”

Results for Three Months and Nine Months Ended September 30, 2011

Revenue

For the three months ended September 30, 2011, revenues increased 29.8% to $17.9 million, up from $13.8 million during the three months ended September 30, 2010. For the nine months ended September 30, 2011, revenues increased $15.7 million, or 45.5%, to $50.1 million as compared to $34.4 million during the nine months ended September 30, 2010. Our revenue growth so far this year stems from an 11.2% year-over-year gain in sales of liquid-filled transformers, combined with a 49.7% increase in dry-type transformer sales. In our dry-type businesses, the increase was due primarily to 31.2% organic revenue growth achieved by Jefferson Electric, Inc. (“Jefferson”), with the remainder being attributable to favorable comparisons versus last year due to the effects of acquisition timing (four additional months of Jefferson and three additional months of Bemag Transformer Inc. (“Bemag”) during 2011, as compared to last year).

Gross Margins

For the three and nine month periods ended September 30, 2011, our gross margin percentage was 21.3% and 23.3% of revenues, respectively, as compared to 22.0% and 22.8% during the three and nine month periods ended September 30, 2010. The 0.5% gross margin increase during the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, reflects the net effect of a highly favorable product mix in our liquid-filled transformer business, which improved our gross margin by 2.4%, offset by weaker margins in our dry-type transformer businesses.  During 2011, our revenues and gross margin from dry-type transformer sales were more heavily weighted towards the distribution sales channel as compared to the prior year period, and were also negatively impacted in the most recent quarter by the implementation of management’s integration plan of Bemag.

Earnings from Continuing Operations and Earnings Per Diluted Share

Including non-recurring expenses related to our acquisition and financing activities, we generated net earnings from continuing operations of $0.2 million and $1.9 million for the three and nine month periods ended September 30, 2011, as compared to $0.7 million and $1.6 million during the three and nine month periods ended September 30, 2010. Our earnings benefited from higher revenues and increased gross margins that were sufficient to overcome interest and one-time expenses that were $0.7 million higher during nine month period ended September 30, 2011, as compared to the prior year. Earnings from continuing operations per diluted share were recorded at $0.03 and $0.32 for the three and nine month periods ended September 30, 2011, respectively, as compared to $0.11 and $0.28 per diluted share during the same periods of 2010.

Earnings on a non-GAAP basis, which is defined by us as net earnings from continuing operations before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs, and other unusual gains or charges, were $0.5 million and $2.6 million during the three and nine month periods ended September 30, 2011, respectively, as compared to $0.8 million and $2.1 million reported in the comparable prior year periods. Non-GAAP earnings per diluted share were $0.09 and $0.44 for the three and nine month periods ended September 30, 2011, respectively, as compared to $0.13 and $0.35 per diluted share during the same periods of 2010. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results.

About Pioneer Power Solutions, Inc.

Pioneer Power Solutions, Inc. is a manufacturer of specialty electrical equipment through its three operating subsidiaries which include: Pioneer Transformers Ltd., Jefferson Electric, Inc. and Bemag Transformer Inc. Pioneer provides a range of highly-engineered solutions for applications in the utility, industrial and commercial segments of the electrical transmission and distribution industry. Pioneer is headquartered in Fort Lee, New Jersey and presently operates from six 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 September 30, 2011, please refer to the Form 10-Q filed with the Securities and Exchange Commission on November 14, 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 discontinue its wind energy business at the cost expected, (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 Form 10-Q filed with the SEC on November 14, 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

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PIONEER POWER SOLUTIONS, INC.

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

 

 

Three Months Ended September 30,


 

Nine Months Ended September 30,


 

 

2011


 

 

 

2010


 

 

 

2011


 

 

 

2010


 

 

 

 

 

 

 

 

 

 

Revenues

$      17,927

 

$      13,807

 

$      50,065

 

$      34,408

Cost of goods sold

14,110

 

10,765

 

38,376

 

26,576

Gross profit

3,817


 

 

3,042


 

 

11,689


 

 

7,832


 

Operating expenses

 

 

 

 

 

 

 

Selling, general and administrative

2,895

 

1,951

 

7,991

 

4,998

Foreign exchange (gain) loss

48


 

 

(38)


 

 

36


 

 

(95)


 

Total operating expenses

2,943


 

 

1,913


 

 

8,027


 

 

4,903


 

Operating income

874

 

1,129

 

3,664

 

2,929

Interest and bank charges

271

 

116

 

428

 

210

Other expense (income)

352

 

135

 

769

 

315

Earnings from continuing operations before income taxes

251


 

 

878


 

 

2,467


 

 

2,404


 

Provision for income taxes

48


 

 

220


 

 

584


 

 

775


 

Earnings from continuing operations

203

 

658

 

1,883

 

1,629

Earnings (loss) from discontinued                    operations, net of income taxes

(2,029)


 

 

(270)


 

 

(2,440)


 

 

522


 

Net earnings (loss)

$      (1,826)


 

 

$           388


 

 

$         (557)


 

 

$        2,151


 

 

 

 

 

 

 

 

 

Earnings from continuing operations per share

 

 

 

 

 

 

 

Basic

$          0.03

 

$          0.11

 

$          0.32

 

$          0.28

Diluted

$          0.03

 

$          0.11

 

$          0.32

 

$          0.28

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

Basic

$       (0.31)

 

$          0.07

 

$       (0.09)

 

$          0.37

Diluted

$       (0.31)

 

$          0.06

 

$       (0.09)

 

$          0.36

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

Basic

5,907

 

5,907

 

5,907

 

5,861

Diluted

5,982

 

5,974

 

5,973

 

5,915

                 

 

 

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets
(In thousands)

 

September 30,

December 31,

 

2011


 

2010


 

ASSETS

(unaudited)

 

Current Assets

 

 

 

Cash and cash equivalents

$             624

 

$             516

Accounts receivable

8,967

 

5,263

Inventories

11,985

 

7,193

Income taxes receivable

166

 

1,191

Deferred income taxes

249

 

245

Prepaid expenses and other current assets

1,260

 

333

Current assets of discontinued operations

461


 

 

2,193


 

Total current assets

23,712

 

16,934

Property, plant and equipment

9,561

 

4,588

Noncurrent deferred income taxes

1,037

 

611

Intangible assets

5,995

 

4,436

Goodwill

6,800


 

 

5,534


 

Total assets

$        47,105


 

 

$        32,103


 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Current Liabilities

 

 

 

Bank overdrafts

$          1,050

 

$                  -

Accounts payable and accrued liabilities

10,605

 

7,328

Current maturities of long-term debt and capital lease obligations

8,269

 

6,063

Income taxes payable

77

 

161

Current liabilities of discontinued operations

772


 

 

824


 

Total current liabilities

20,773

 

14,376

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

8,351

 

17

Pension deficit

426

 

308

Noncurrent deferred income taxes

3,540

 

2,310

Total liabilities

33,090


 

 

17,011


 

 

 

 

 

Shareholders' 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; 5,907,255

 

 

shares issued and outstanding

6

 

6

Additional paid-in capital

7,730

 

7,541

Accumulated other comprehensive income (loss)

(1,015)

 

(305)

Retained earnings

7,294


 

 

7,850


 

Total shareholders' equity

14,015


 

 

15,092


 

Total liabilities and shareholders' equity

$        47,105


 

 

$        32,103


 

         

 

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

 

 

Three Months Ended September 30,


 

 

Nine Months Ended September 30,


 

 

2011


 

 

2010


 

 

2011


 

 

2010


 

Reconciliation to Non-GAAP Net Earnings and Diluted EPS:

 

 

 

 

 

 

Earnings per share from continuing operations (GAAP Measure)

$     0.03

 

$     0.11

 

$       0.32

 

$       0.28

Earnings from continuing operations (GAAP Measure)

$      203

 

$      658

 

$     1,883

 

$     1,629

Amortization of acquisition intangibles

67

 

51

 

174

 

85

Stock-based compensation expense

64

 

53

 

190

 

100

Stock and warrant issuance expense for services

-

 

-

 

-

 

232

Non-recurring acquisition and reorganization costs

282

 

135

 

282

 

315

Uncompleted equity offering costs

70

 

-

 

487

 

-

Tax adjustments

(141)


 

 

(93)


 

 

(416)


 

 

(285)


 

Non-GAAP net earnings

$      546


 

 

$     804


 

 

$    2,600


 

 

$    2,076


 

Non-GAAP net earnings per diluted share

$     0.09


 

 

$    0.13


 

 

$      0.44


 

 

$      0.35


 

Weighted average diluted shares outstanding

5,982

 

5,974

 

5,973

 

5,915

 

 

 

 

 

 

 

 

Reconciliation to Adjusted EBITDA:

 

 

 

 

 

 

 

Net earnings from continuing operations (GAAP Measure)

$      203

 

$      658

 

$    1,883

 

$    1,629

Interest and bank charges

271

 

116

 

428

 

210

Provision for income taxes

48

 

220

 

584

 

775

Depreciation and amortization

305

 

235

 

746

 

501

Non-recurring acquisition and reorganization costs

282

 

135

 

282

 

315

Uncompleted equity offering costs

70


 

 

-


 

 

487


 

 

-


 

EBITDA

1,180

 

1,364

 

4,410

 

3,430

Adjustments to EBITDA:

 

 

 

 

 

 

 

Stock-based compensation expense

64

 

53

 

190

 

100

Stock and warrant issuance expense for services

-


 

 

-


 

 

-


 

 

232


 

Adjusted EBITDA (Non-GAAP Measure)

$  1,244


 

 

$  1,417


 

 

$   4,600


 

 

$   3,762


 

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.