Pioneer Announces Second Quarter 2012 Results

Quarterly revenue grows 32.9% and non-GAAP EPS increases 54.5% versus 2Q 2011

Fort Lee, NJ – August 14, 2012 – Pioneer Power Solutions, Inc. (OTCBB: PPSI) (“Pioneer” or the “Company”), a manufacturer of specialty electrical equipment for applications in the utility, industrial and commercial segments of the electrical transmission and distribution industry, announced its results for the second quarter and six months ended June 30, 2012.

Second Quarter 2012 Highlights

  • Revenue of $21.8 million, up 32.9% from $16.4 million in Q2 2011
  • Gross margin was 21.8% of revenue, compared to 21.6% for the same period in the prior year
  • Adjusted EBITDA of $1.9 million, compared to $1.3 million in Q2 2011
  • Non-GAAP diluted EPS from continuing operations of $0.17, up from $0.11 in the comparable prior year period

Six Months Ended June 30, 2012 Highlights

  • Revenue of $42.1 million, up 31.1% from $32.1 million during the first six month of 2011
  • Gross margin of 22.2%, compared to 24.5% for the same period in the prior year
  • Adjusted EBITDA of $3.8 million, compared to $3.4 million in the first two quarters of 2011
  • Non-GAAP diluted EPS from continuing operations of $0.33, compared to $0.32 in the comparable prior year period

Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, commented, “Through a balanced combination of internal and acquisition-driven growth, Pioneer extended its record of increasing year-over-year revenue during every period since we became public in late 2009.”

Mr. Mazurek continued, “Regarding our markets, we are seeing strong activity in several of our industrial sub-sectors, including oil and gas and the mining industry. We believe this trend has helped set the stage for a very strong finish to our fiscal year ending in December. When compared to this same point last year, our order backlog is now better-weighted towards high margin production and is also approximately 47% larger.”

Andrew Minkow, Pioneer’s Chief Financial Officer, added, “Our Adjusted EBITDA and non-GAAP net earnings per share grew 43.0% and 54.5%, respectively, in the second quarter of 2012 versus the same period last year. We expect to finish the year with approximately $80 to $85 million of revenue and non-GAAP earnings per share of $0.70 to $0.75, both at the high end of our guidance range.”

Results for Three Months and Six Months Ended June 30, 2012

Revenue

For the three months ended June 30, 2012, consolidated revenue increased by $5.4 million, or 32.9%, to $21.8 million, up from $16.4 million during the three months ended June 30, 2011. Approximately $1.6 million of the revenue increase reflects organic growth of businesses owned by us for more than one year. The remaining $3.8 million increase resulted from an additional six months of operations for the dry-type transformer business that we acquired in July 2011. Excluding the effect of this acquisition, revenue from our dry-type transformer products increased $1.5 million and was led by our distribution sales channel. Revenue from our liquid-filled transformer products increased by 0.5% during the three months ended June 30, 2012 (or up 4.9% on a constant currency basis) on stable demand from key utility and industrial customers.

For the six months ended June 30, 2012, consolidated revenue increased by $10.0 million, or 31.1%, to $42.1 million, up from $32.1 million during the six months ended June 30, 2011. Approximately $2.9 million of the revenue increase reflects organic growth of businesses we have owned for more than one year. The remaining $7.1 million increase in revenue resulted from an additional six months of operations for the dry-type transformer business that we acquired in July 2011. Excluding the effect of this acquisition, revenue from our dry-type transformer products increased $4.1 million, or 36.6% on a year-over-year basis, while revenue from our liquid-filled transformer products decreased 6.0% (3.3% in constant currency), during the six months ended June 30, 2012.

Gross Margins

For the three months ended June 30, 2012, our gross margin percentage increased to 21.8% of revenues, compared to 21.6% during the three months ended June 30, 2011. The 0.2% increase in gross margin was attributable to product mix, driven in particular by higher margins on our liquid-filled transformer products. Offsetting this increase was the continuing shift in our sales mix towards lower-margin, dry-type transformers sold primarily through our distribution channel. Additionally, organic and acquisition growth of this product line has increased it to approximately 52% of our total revenue during the three months ended June 30, 2012, as compared to only 37% during the same period of 2011.

For the six months ended June 30, 2012, our gross margin percentage decreased to 22.2% of revenues, compared to 24.5% during the six months ended June 30, 2011. The 2.3% decrease in gross margin was due to growth in dry-type transformer sales, which represented 53% of our consolidated revenue during the six months ended June 30, 2012, as compared to only 35% during the same period of 2011. Our gross margin percentage for liquid-filled products remained stable during the first six months of 2012, as compared to 2011, while our average gross margin on dry-type products declined by 3.1%. The decline in dry-type margins in 2012 resulted from significantly higher sales of less profitable designs, principally catalogue-type products sold through our distribution network to commercial construction customers.

Earnings from Continuing Operations and Earnings Per Diluted Share

Earnings from continuing operations were $0.9 million and $1.7 million during the three and six month periods ended June 30, 2012, respectively, as compared to $0.4 million and $1.6 million during the three and six month periods ended June 30, 2011. During 2012 as compared to 2011, earnings from continuing operations benefitted from a higher consolidated operating margin on increased sales, for the reasons described above, partially offset by increased interest expense and the effect of a higher effective income tax rate. Earnings from continuing operations per basic and diluted share were $0.15 and $0.29 for the three month and six month periods ended June 30, 2012, respectively, as compared to $0.07 and $0.27 for the three and six month periods ended June 30, 2011.

Earnings on a non-GAAP basis, which we define 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 $1.0 million and $1.9 million during the three and six month periods ended June 30, 2012, respectively, as compared to $0.6 million and $1.9 million in the comparable prior year periods. Non-GAAP earnings per diluted share were $0.17 and $0.33 for the three and six month periods ended June 30, 2012, respectively, as compared to $0.11 and $0.32 per diluted share during the same periods of 2011. 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 and provides through its three operating subsidiaries, Pioneer Transformers Ltd., Jefferson Electric, Inc. and Bemag Transformer Inc., a broad range of custom-engineered and general purpose electrical transformers for applications in the utility, industrial and commercial segments of the electrical transmission and distribution industry. The Company is headquartered in Fort Lee, New Jersey and operates from six additional 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 second quarter ended June 30, 2012, please refer to the Form 10-Q filed with the Securities and Exchange Commission on August 14, 2012.

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) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xii) 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, (xiii) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company’s profitability, (xiv) 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 (xv) 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 30, 2012. 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:

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
June 30, 2012

 

Six Months Ended
June 30, 2012

 

2012


 

 

2011


 

 

2012


 

 

2011


 

 

 

 

 

 

 

 

 

Revenues

$     21,820

 

$   16,412

 

$   42,137

 

$  32,138

Cost of goods sold

17,056


 

12,860


 

32,783


 

24,265


Gross profit

4,764

 

3,552

 

9,354

 

7,873

Operating expenses

 

 

 

 

 

 

 

Selling, general and administrative

3,310

 

2,507

 

6,551

 

5,095

Foreign exchange (gain) loss

(14)


 

5


 

(86)


 

(12)


Total operating expenses

3,296


 

2,512


 

6,465


 

5,083


Operating income

1,468

 

1,040

 

2,889

 

2,790

Interest and bank charges

249

 

99

 

443

 

221

Other expense (income)

1


 

441


 

30


 

441


Earnings from continuing operations before

1,218

 

500

 

2,416

 

2,128

Provision for income taxes

358


 

65


 

697


 

528


Earnings from continuing operations

860

 

435

 

1,719

 

1,600

Loss from discontinued operations, net of income taxes

(78)


 

 

(210)


 

 

(161)


 

(412)


Net earnings (loss)

$         782


 

 

$      225


 

 

$     1,558


 

 

$    1,188


 

 

 

 

 

 

 

 

 

Earnings from continuing operations per share

 

 

 

 

 

 

 

Basic

$        0.15

 

$       0.07

 

$       0.29

 

$      0.27

Diluted

$        0.15

 

$       0.07

 

$       0.29

 

$      0.27

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

Basic

$        0.13

 

$       0.04

 

$       0.26

 

$      0.20

Diluted

$        0.13

 

$       0.04

 

$       0.26

 

$      0.20

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

Basic

5,907

 

5,907

 

5,907

 

5,907

Diluted

5,908

 

5,985

 

5,907

 

5,969

 

 

 

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets
(In thousands)

 

June 30,

December 31,

 

2012

 

 


2011

 

 


ASSETS

(Unaudited)

 

Current Assets

 

 

 

Cash and cash equivalents

$             150

 

$          1,398

Accounts receivable

10,305

 

8,172

Inventories

15,235

 

13,711

Income taxes receivable

171

 

517

Deferred income taxes

600

 

753

Prepaid expenses and other current assets

701

 

421

Current assets of discontinued operations

240


 

 

457


 

Total current assets

27,402

 

25,429

Property, plant and equipment

10,798

 

9,983

Noncurrent deferred income taxes

1,096

 

679

Notes receivable

600

 

300

Intangible assets

5,441

 

5,585

Goodwill

6,861


 

 

6,862


 

Total assets

$        52,198


 

 

$        48,838


 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Current Liabilities

 

 

 

Bank overdrafts

$          1,049

 

$                  -

Accounts payable and accrued liabilities

11,974

 

11,316

Current maturities of long-term debt and capital lease obligations

9,010

 

8,870

Income taxes payable

318

 

445

Current liabilities of discontinued operations

333


 

 

554


 

Total current liabilities

22,684

 

21,185

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

9,342

 

9,015

Pension deficit

581

 

569

Noncurrent deferred income taxes

3,244


 

 

3,301


 

Total liabilities

35,851

 

34,070

 

 

 

 

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

7,928

 

7,795

Accumulated other comprehensive income (loss)

(935)

 

(823)

Retained earnings

9,348


 

 

7,790


 

Total shareholders' equity

16,347


 

14,768


 

Total liabilities and shareholders' equity

$        52,198


 

 

$        48,838


 

 

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

 

 

Three Months Ended June 30, 2012


 

Six Months Ended

June 30, 2012


 

2012


 

2011

 

 


 

2012

 

 


 

2011


Reconciliation to Non-GAAP Net Earnings and Diluted EPS:

 

 

 

 

 

 

Earnings per share from continuing operations (GAAP Measure)

$     0.15

 

$     0.07

 

$       0.29

 

$       0.27

Earnings from continuing operations (GAAP Measure)

$      860

 

$      436

 

$     1,719

 

$     1,600

Amortization of acquisition intangibles

71

 

54

 

143

 

108

Stock-based compensation expense

69

 

64

 

133

 

126

Non-recurring acquisition and reorganization costs

3

 

24

 

32

 

24

(Gain) loss on sale of assets

(2)

 

-

 

(2)

 

-

Withdrawn equity offering costs

-

 

416

 

-

 

416

Tax recoveries from prior year assessments, net

-

 

(130)

 

-

 

(130)

Tax effects

(24)


 

 

(216)


 

 

(85)


 

 

(261)


 

Non-GAAP net earnings

$      977


 

 

$     649


 

 

$    1,940


 

 

$    1,883


Non-GAAP net earnings per diluted share

$     0.17


 

 

$    0.11


 

 

$      0.33


 

 

$      0.32


 

Weighted average diluted shares outstanding

5,908

 

5,985

 

5,907

 

5,969

 

 

 

 

 

 

 

 

Reconciliation to Adjusted EBITDA:

 

 

 

 

 

 

 

Earnings from continuing operations (GAAP Measure)

$      860

 

$      436

 

$    1,719

 

$    1,600

Interest and bank charges

249

 

99

 

443

 

221

Provision for income taxes

358

 

65

 

697

 

528

Depreciation and amortization

361

 

222

 

730

 

442

Non-recurring acquisition and reorganization costs

3

 

24

 

32

 

24

(Gain) loss on sale of assets

(2)

 

-

 

(2)

 

-

Withdrawn equity offering costs

-


 

 

416


 

 

-


 

 

416


 

EBITDA

1,829

 

1,262

 

3,618

 

3,232

Adjustments to EBITDA:

 

 

 

 

 

 

 

Stock-based compensation expense

69

 

64

 

133

 

126

Stock and warrant issuance expense for services

-

 

-

 

-

 

-

Adjusted EBITDA (Non-GAAP Measure)

$  1,898


 

 

$  1,327


 

 

$   3,751


 

 

$   3,358


 

 

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.