Pioneer Reports Second Quarter 2017 Financial Results
Delivers Record Quarterly Revenue of $30.9 Million; Reiterates Full-Year Guidance
Fort Lee, NJ, August 10, 2017 / 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 second quarter and year-to-date periods ended June 30, 2017.
Second Quarter 2017 Results and Business Highlights:
- Record quarterly revenue of $30.9 million, an increase of 3.2% over the prior year quarter
- Gross margin of 19.3% compared to 20.9% in Q2 2016
- Operating income of $1.6 million, up 17.6% from $1.4 million in Q2 2016
- Net income of $1.3 million compared to $194,000 in Q2 2016
- Adjusted EBITDA* of $2.5 million, up 16.4% compared to $2.2 million in Q2 2016
- Subsequent to the end of the quarter, secured new supply agreements to supply liquid-filled network transformers that is expected to generate annualized revenue of $3 million in the aggregate
- Subsequent to the end of the quarter, launched an all-new line of power generation equipment to be marketed exclusively in eight states, and otherwise non-exclusively nationally
Year-to-Date 2017 Results:
- Record first six-month revenue of $58.2 million, an increase of 2.9% over the prior year period
- Gross margin of 20.8% compared to 21.5% in the prior year period
- Operating income of $2.8 million compared to $2.5 million in the prior year period
- Net income of $1.4 million compared to $763,000 in the prior year period
- Cash provided by operations of $2.1 million compared to cash used in operations of $12.0 million in the prior year period
- Adjusted EBITDA* of $4.6 million compared to $4.2 million in the prior year period
Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, said, “Pioneer delivered record quarterly revenue and ended the quarter with a near-record backlog. Specifically, service revenue grew by 28% compared to the second quarter last year, reflecting our focused efforts to expand this higher-margin business. Our switchgear business increased by 32.9% year-over-year and 64% sequentially. The significant changes we have made in this business to rationalize expenses and refocus on higher margin opportunities have enabled us to reach a revenue level that should support consistent profitability, a significant change from last year.”
“Company-wide, we achieved this growth even though our new service contract with a national drugstore chain and the two liquid-filled contracts with major North American utilities are not yet reflected in our results, helping drive a near-record backlog of $39.6 million, up more than 7.9% sequentially, at June 30, 2017,” added Mr. Mazurek. “Our Critical Power segment had a record backlog as a direct result of our new engine generator line. Our focus on profitable growth has driven a $14 million improvement in operating cash flows for the first half of 2017 compared to the first half last year. In addition, as a result of the record revenue, as well as our careful expense management and cost-reduction efforts, we delivered $2.5 million in Adjusted EBITDA. This improved profitability and the near-record backlog bolster our confidence in achieving our full-year outlook.”
“Finally, subsequent to the end of the quarter, we launched a new line of power generation equipment to be sold exclusively in eight states and non-exclusively in the rest of the country,” concluded Mazurek. “This exciting launch significantly broadens our opportunities for generator sales and expands our margins on these products. We expect this to be a material contributor to our 2018 results.”
Total revenue for the three-month period ended June 30, 2017 increased to a quarterly record high of $30.9 million, up 3.2% compared to $29.9 million for the second quarter of 2016. The increase was driven by increased sales of Canadian transformer products as well as custom switchgear products, which was partially offset by a decrease in medium voltage switchgear products. For the six months ended June 30, 2017, total consolidated revenue increased by $1.7 million, or 2.9%, to a first six-months record high of $58.2 million, up from $56.5 million for the six months ended June 30, 2016. For the three months ended June 30, 2017, service revenue increased by $495,000 or 28.0%, as compared to the same period in the prior year due to an increase in service business with multi-location customers. For the six months ended June 30, 2017, service revenue increased by $921,000 or 26.0% compared to the same period in 2016.
For the second quarter of 2017, gross margin was 19.3% of revenues, as compared to 20.9% for the second quarter of 2016. This decrease was driven primarily by lower margins in the company’s dry type transformers and switchgear business, which was partially offset by a shift towards higher margin service sales in the Critical Power segment. For the six months ended June 30, 2017, Pioneer’s gross profit was $12.1 million, or 20.8% of revenues, down 0.3% compared to the $12.1 million, or 21.5% gross margin, for the year-ago period.
Second quarter operating income was $1.6 million, up from the $1.4 million for the same period last year. For the six months ended June 30, 2017, operating income was $2.8 million compared to $2.5 million for the prior year.
Pioneer’s effective income tax rate for the second quarter of 2017 was (46.3%) of earnings before income tax, as compared to 75.7% for the same quarter last year. For the six months ended June 30, 2017, the effective income tax rate was (10.2%) of earnings before tax, as compared to 52.1% for the same period last year. The decrease in the tax rates was primarily due to the utilization of foreign tax credits and the reconciliation of 2016 actual income tax expense to the provisions previously recorded.
Net Earnings and Earnings Per Diluted Share
The Company generated net income of $1.3 million, or $0.15 per basic and diluted share, for the three months ended June 30, 2017 compared to $194,000, or $0.02 per basic and diluted share, during the three months ended June 30, 2016. Net income for the six months ended June 30, 2017 was $1.4 million, or $0.17 per basic and diluted share, compared to $763,000, or $0.09 per basic and diluted share, for the six months ended June 30, 2016.
On a non-GAAP basis, the Company reported net earnings of approximately $1.8 million in the second quarter of 2017, or $0.21 per diluted share, as compared to $1.5 million, or $0.18 per diluted share for the quarter ended June 30, 2016. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP measures.
For the quarter ended June 30, 2017, there were approximately $172,000 of non-recurring expenses, including $5,000 in restructuring and integration charges. For the quarter ended June 30, 2016, there were approximately $337,000 of non-recurring expenses, including $62,000 in restructuring and integration charges. The second quarter of 2017 and 2016 included non-cash expenses consisting of depreciation, amortization of acquisition intangibles, and stock-based compensation for employee and director stock options of $1.1 million and $1.0 million, respectively.
The Company’s Adjusted EBITDA for the quarter ended June 30, 2017 was $2.5 million compared to $2.2 million in the same quarter last year. For the six months ended June 30, 2017, the Company’s Adjusted EBITDA was $4.6 million, as compared to $4.2 million last year. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP measures.
* 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 quantitative assessment 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 measures.
Order backlog at June 30, 2017 was $39.6 million compared to $38.6 million at December 31, 2016. Backlog is based on orders expected to be delivered in the future, most of which is expected to occur during the next 12 months.
The Company reaffirmed its full-year 2017 guidance which is based on expected business trends and the current composition of the order backlog, excluding 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. Pioneer’s 2017 full-year guidance is based on a foreign currency exchange rate of 74 cents U.S. per Canadian Dollar, an effective tax rate at 28% and a share count of approximately 8.7 million shares. In addition, the impact of any restructuring and non-cash charges arising out of Pioneer’s cost-optimization plans is excluded.
For the full year 2017, the Company expects:
- Revenue between $120 and $127 million
- Net income between $3.5 and $4.1 million
- Diluted EPS between $0.40 and $0.47 based on 8.7 million shares
This reflects non-GAAP results of:
- Adjusted EBITDA of $10.0 million to $11.0 million
- Non-GAAP EPS between $0.83 to $0.93
Conference Call Information
Management will host a conference call at 10 a.m. Eastern Time Friday, August 11, 2017, to discuss the results with the investment community. Details are as follows:
- Confirmation code 7395451
- Dial-in number (toll-free): 1-877-604-9668
- Dial-in number (toll/international): 1-719-325-4857
- Webcast link: http://public.viavid.com/index.php?id=125728
A replay will be available until August 18, 2017 which can be accessed by dialing 1-844-512-2921 if calling within the United States or 1-412-317-6671 if calling internationally. Please use passcode 7395451 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’s ability to expand its business through strategic acquisitions, (ii) the fact that many of the Company’s competitors are better established and have significantly greater resources, and may subsidize their competitive offerings, (iii) the Company’s dependence on a few large customers for a material portion of its sales, (iv) the potential loss or departure of key personnel (v) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company’s results, (vi) market acceptance of existing and new products, (vii) 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, (viii) general economic and market conditions, (ix) unanticipated increases in raw material prices or disruptions in supply, (x) 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, (xi) reported material weaknesses in the Company’s internal control over financial reporting, and (xii) 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.
Brett Maas, Managing Partner