SOURCE: Pioneer Power Solutions, Inc.

Pioneer Power Solutions, Inc.

November 14, 2011 16:52 ET

Pioneer Announces Third Quarter 2011 Financial Results

Quarterly Revenue Increases 29.8% to $17.9 Million

FORT LEE, NJ--(Marketwire - Nov 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.

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.

Contact Information

  • Contact:
    Howard Gostfrand
    American Capital Ventures
    305.918.7000
    Email Contact