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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of May 15, 2023 was .
PIONEER POWER SOLUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2023
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Interest income | ( | ) | ( | ) | ||||
| Other (income) expense, net | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Income (loss) per share: | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
PIONEER POWER SOLUTIONS, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Financing lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of financing lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Financing lease liabilities, non-current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding on March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of right-of-use financing leases | ||||||||
| Amortization of imputed interest | ( | ) | ||||||
| Amortization of right-of-use operating leases | ||||||||
| Change in receivable reserves | ||||||||
| Stock-based compensation | ||||||||
| Other | ( | ) | ||||||
| Changes in current operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Net proceeds from the exercise of options for common stock | ||||||||
| Principal repayments of financing leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition of right-of-use assets and lease liabilities | ||||||||
The
accompanying notes are an integral part of these consolidated financial statements.
| 3 |
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional paid-in | other compre- hensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
| Balance - January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Balance - March 31, 2022 (revised) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance - January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Other | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
PIONEER POWER SOLUTIONS, INC.
Notes to Consolidated Financial Statements
March 31, 2023 (Unaudited)
1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES
Pioneer
Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “we,” “our” and “us”) design, manufacture, integrate, refurbish, service, distribute
and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”)
charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets.
Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure
developers and owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three
(
We
have
Presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of March 31, 2023. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet.
All
dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are
stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated
annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period
computation method to calculate taxes for the fiscal three-month period ended March 31, 2023. The Company anticipates that its annual
effective tax rate will be
These unaudited interim consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in conjunction with the risk factors under the heading “Part II - Item 1A. Risk Factors” and the risk factors and the audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Liquidity
The
accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying financial statements, as of March 31, 2023, the
Company had $
We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, proceeds from insurance, sale of common stock under the ATM Program, funding from the Payroll Protection Program and collecting all unpaid principal and interest from the Seller Notes. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months.
| 5 |
On
December 13, 2021, we filed a prospectus supplement, which forms a part of our registration statement on Form S-3 (File No. 333-249569),
that was declared effective by the SEC on October 27, 2020, in connection with the offer and sale of up to an aggregate offering amount
of $
Risks and Uncertainties
The worldwide spread of the novel coronavirus (“COVID-19”), including the emergence of variants and subvariants, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments (including the war in Ukraine) have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, the Company is unable to predict the size and duration of the impact on its revenue and its results of operations. The extent of the impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including the duration and spread of COVID-19 and its variants and the duration and the extent of geopolitical disruption and their respective impacts on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate to limit the impact on its business. During the three months ended March 31, 2023, the Company was able to operate substantially at capacity.
The World Health Organization recently determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government has announced that the declaration of a public health emergency associated with COVID-19 expired on May 11, 2023. However, COVID-19 is expected to remain a serious endemic threat for an indefinite future period. The economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for the Company to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. The Company has committed, and the Company plans to continue to commit, resources to grow its business, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, and if the Company is not able to respond to and manage the impact of such events effectively, its business may be harmed.
There can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in the Company’s accounting policies during the first quarter of 2023.
Recent Accounting Pronouncements
The Company did not adopt any new material accounting pronouncements during the three months ended March 31, 2023, except as disclosed below. There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements.
Accounts Receivable
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses (“CECL”) model. The cumulative effect of adoption did not result in an adjustment to the allowance for credit loss, and accordingly, the Company’s accumulated deficit as of January 1, 2023.
The
Company accounts for trade receivables at original invoice amount less an estimate made for expected credit losses. The Company’s
allowance for expected credit losses on accounts receivable reflects management’s estimate of credit losses over the remaining
expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect
the collectability of the reported amount. There were
| 6 |
3. REVENUES
Nature of our products and services
Our principal products and services include electric power systems, distributed energy resources, power generation equipment and mobile EV charging solutions.
Products
Our T&D Solutions business provides electric power systems and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements.
Our Critical Power business provides customers with our suite of mobile e-Boost electric vehicle charging solutions and power generation equipment.
Services
Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. Our power maintenance programs provide preventative maintenance, repair and support service for our customers’ power generation systems.
Our principal source of revenue is derived from sales of products and fees for services. We measure revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our products when the risk of loss or control for the product transfers to the customer and for services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve this core principal, the Company applies the following five steps:
1) Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days.
| 7 |
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
5) Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
Revenue from the sale of our electric power systems is recognized either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized electrical power systems are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete the project. Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
During
the three months ended March 31, 2023, the Company recognized $
Service
revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized
as services are delivered. The Company recognized $
During
the three months ended March 31, 2023, the Company recognized approximately $
The Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable.
As of
March 31, 2023, two customers represented approximately
For
the three months ended March 31, 2023, two customers represented approximately
Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three months ended March 31, 2023 and 2022 were insignificant.
The following table presents our revenues disaggregated by revenue discipline:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Products | $ | $ | ||||||
| Services | ||||||||
| Total revenue | $ | $ | ||||||
See “Note 12 - Business Segment and Geographic Information”.
| 8 |
4. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
In
connection with the preparation of our consolidated interim financial statements for the quarter ended September 30, 2022, we completed
an analysis of one of our customer contracts under ASC 606 and, as a result, we determined that the performance obligations are satisfied
over time. See “Note 3 – Revenues in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report
on Form 10-Q. As a result of the analysis, we identified additional revenues to be recognized of $
The following tables reconcile the balances as previously reported in the Quarterly Reports on Form 10-Q as of and for the three months ended March 31, 2022 to the as revised balances:
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of goods sold | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Loss per share - basic and diluted | $ | ( | ) | - | $ | ) | ||||||
| Weighted average common shares outstanding - basic and diluted | - | |||||||||||
| March 31, 2022 | ||||||||||||
| Condensed Consolidated Balance Sheet (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Total current assets | $ | $ | ( | ) | $ | |||||||
| Total assets | ( | ) | ||||||||||
| Total current liabilities | ( | ) | ||||||||||
| Total liabilities | ( | ) | ||||||||||
| Total stockholders’ equity | ||||||||||||
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Cash Flows From Operating Activities (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Changes in current operating assets and liabilities: | ||||||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Deferred revenue | ( | ) | ||||||||||
| Net cash provided by operating activities | ||||||||||||
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Consolidated Statement of Stockholders’ Equity (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Accumulated deficit | $ | ( | ) | $ | $ | ( | ) | |||||
| Total stockholders’ equity | ||||||||||||
In accordance with SEC Staff Accounting Bulletin No. 108, we evaluated this revision based on an analysis of quantitative and qualitative factors as to whether it was material to the consolidated statements of operations for the three months ended March 31, 2022 and if amendments of previously filed financial statements with the SEC are required. We determined that the adjustment is neither quantitatively nor qualitatively material and, therefore, the revision does not have a material impact to the consolidated statements of operations for the three months ended March 31, 2022 or other prior periods.
| 9 |
5. OTHER (INCOME) EXPENSE
Other
(income) expense in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities
not directly related to our core operations. For the three months ended March 31, 2023, other income was $
6. INVENTORIES
The components of inventories are summarized below:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Total inventories | $ | $ | ||||||
Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method.
7. PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized below:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Machinery, vehicles and equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computer hardware and software | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are summarized below:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
Accrued
liabilities primarily consist of accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued
insurance. At March 31, 2023 and December 31, 2022, accrued sales commissions were $
At
March 31, 2023, one supplier represented approximately
| 10 |
9. STOCKHOLDERS’ EQUITY
Common Stock
The Company had and shares of common stock, $ par value per share, outstanding as of March 31, 2023 and December 31, 2022, respectively.
Preferred Stock
The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders, to issue from time to time up to shares of preferred stock, $ par value, in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.
Stock-based compensation expense recorded for the three months ended March 31, 2023 and 2022 was approximately $ and $, respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At March 31, 2023, there was $ of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of years.
Basic and diluted income (loss) per common share is calculated based on the weighted average number of vested shares outstanding during the period. The Company’s employee and director equity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share data):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average basic shares outstanding | ||||||||
| Effect of dilutive securities - equity based compensation plans | ||||||||
| Weighted average diluted shares outstanding | ||||||||
| Net income (loss) per common share: | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
As of March 31, 2023 and 2022, diluted income (loss) per share excludes potentially dilutive common shares related to and shares underlying stock options, respectively, and and shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive.
| 11 |
12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The
Company follows ASC 280 - Segment Reporting in determining its reportable segments. The Company considered the way its management team,
most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which components of
the Company’s enterprise have discrete financial information available. As the Company makes decisions using a manufactured products
vs. distributed products and services group focus, its analysis resulted in
The T&D Solutions segment is involved in the design, manufacture and sale of circuit protection and controls equipment used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides mobile high capacity charging equipment, power generation equipment and aftermarket field-services in order to help customers secure fast vehicle charging where fixed charging infrastructure does not exist, and additionally to ensure smooth, uninterrupted power to operations during times of emergency.
The following tables present information about segment income and loss:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Revenues | ||||||||
| T&D Solutions | ||||||||
| Power Systems | $ | $ | ||||||
| Service | ||||||||
| Critical Power Solutions | ||||||||
| Equipment | ||||||||
| Service | ||||||||
| Consolidated | $ | $ | ||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Depreciation and amortization | ||||||||
| T&D Solutions | $ | $ | ||||||
| Critical Power Solutions | ||||||||
| Unallocated corporate overhead expenses | ||||||||
| Consolidated | $ | $ | ||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Operating income (loss) | ||||||||
| T&D Solutions | $ | $ | ||||||
| Critical Power Solutions | ( | ) | ( | ) | ||||
| Unallocated corporate overhead expenses | ( | ) | ( | ) | ||||
| Consolidated | $ | $ | ( | ) | ||||
Revenues are attributable to countries based on the location of the Company’s customers:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Revenues | ||||||||
| United States | $ | $ | ||||||
| 12 |
13. LEASES
The
Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms ranging
from less than
As
of March 31, 2023 and December 31, 2022, assets recorded under operating leases were $
Components of the lease expense:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Financing lease cost | ||||||||
| Amortization of right-of-use asset | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total financing lease cost | $ | $ | ||||||
Supplemental cash flows information:
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flow payments for operating leases | $ | $ | ||||||
| Operating cash flow payments for financing leases | ||||||||
| Financing cash flow payments for financing leases | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||
| Operating lease liabilities arising from obtaining right of use assets | ||||||||
| Financing lease obligations | ( | ) | ||||||
Weighted average remaining lease term:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating leases | ||||||||
| Financing leases | ||||||||
Weighted average discount rate:
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating leases | % | % | ||||||
| Financing leases | % | % | ||||||
Future minimum lease payments under non-cancellable leases as of March 31, 2023 were as follows:
| Operating | Financing | |||||||
| Leases | Leases | |||||||
| 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total future minimum lease payments | $ | $ | ||||||
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on April 11, 2023.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
| ● | General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries. | |
| ● | The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability. | |
| ● | Many of our 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 us to attract and retain customers. | |
| ● | The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer. | |
| ● | Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products. | |
| ● | Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability. | |
| ● | Our ability to realize revenue reported in our backlog. | |
| ● | 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. | |
| ● | Strikes or labor disputes with our employees may adversely affect our ability to conduct our business. | |
| ● | 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 our markets and our ability to access capital markets. | |
| ● | Material weaknesses in internal controls. | |
| ● | Future sales of large blocks of our common stock may adversely impact our stock price. | |
| ● | The liquidity and trading volume of our common stock. | |
| ● | Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.
| 14 |
Business Overview
We design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operate from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, and sales and administration.
Description of Business Segments
We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).
| ● | Our T&D Solutions business provides equipment solutions that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements. These solutions are marketed principally through our Pioneer Custom Electrical Products Corp. (“PCEP”) brand name. | |
| ● | Our Critical Power business provides customers with our suite of mobile e-Boost© EV charging solutions, power generation equipment and all forms of service and maintenance on our customers’ power generation equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under both the Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names. |
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on April 11, 2023. There were no material changes to our accounting policies during the three months ended March 31, 2023.
| 15 |
RESULTS OF OPERATIONS
Overview of the Three-Month Results
Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 12 - Business Segment and Geographic Information” and in our unaudited Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below.
Our summary of operating results during the three months ended March 31, 2023 and 2022 are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 (Revised) | |||||||
| Revenues | ||||||||
| T&D Solutions | $ | 5,761 | $ | 3,723 | ||||
| Critical Power Solutions | 2,746 | 2,639 | ||||||
| Consolidated | 8,507 | 6,362 | ||||||
| Cost of goods sold | ||||||||
| T&D Solutions | 4,238 | 3,299 | ||||||
| Critical Power Solutions | 2,056 | 2,140 | ||||||
| Consolidated | 6,294 | 5,439 | ||||||
| Gross profit | 2,213 | 923 | ||||||
| Selling, general and administrative expenses | 2,033 | 1,719 | ||||||
| Depreciation and amortization expense | 125 | 27 | ||||||
| Total operating expenses | 2,158 | 1,746 | ||||||
| Operating income (loss) from continuing operations | 55 | (823 | ) | |||||
| Interest income | (54 | ) | (101 | ) | ||||
| Other (income) expense | (13 | ) | 11 | |||||
| Income (loss) before income taxes | 122 | (733 | ) | |||||
| Income tax expense | - | 7 | ||||||
| Net income (loss) | $ | 122 | $ | (740 | ) | |||
Backlog
Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. Backlog reflects the amount of revenue we expect to realize upon the shipment of customer orders for our products that are not yet complete or for which work has not yet begun. At March 31, 2023, backlog from our E-Bloc power systems solutions was approximately $24.4 million, or 66% of the total backlog.
The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| 2023 | 2022 | 2022 | 2022 (Revised) | 2022 (Revised) | ||||||||||||||||
| T&D Solutions | $ | 29,198 | $ | 30,871 | $ | 22,689 | $ | 19,118 | $ | 18,406 | ||||||||||
| Critical Power Solutions | 7,845 | 6,284 | 5,207 | 5,141 | 5,222 | |||||||||||||||
| Total order backlog | $ | 37,043 | $ | 37,155 | $ | 27,896 | $ | 24,259 | $ | 23,628 | ||||||||||
| 16 |
Revenue
The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 (Revised) | Variance | % | |||||||||||||
| T&D Solutions | ||||||||||||||||
| Power Systems | $ | 5,761 | $ | 3,713 | $ | 2,048 | 55.2 | |||||||||
| Service | - | 10 | (10 | ) | (100.0 | ) | ||||||||||
| 5,761 | 3,723 | 2,038 | 54.7 | |||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Equipment | 684 | 1,115 | (431 | ) | (38.7 | ) | ||||||||||
| Service | 2,062 | 1,524 | 538 | 35.3 | ||||||||||||
| 2,746 | 2,639 | 107 | 4.1 | |||||||||||||
| Total revenue | $ | 8,507 | $ | 6,362 | $ | 2,145 | 33.7 | |||||||||
For the three months ended March 31, 2023, our consolidated revenue increased by $2.1 million, or 33.7%, to $8.5 million, up from $6.4 million during the three months ended March 31, 2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment.
T&D Solutions. During the three months ended March 31, 2023, revenue from our power systems product lines increased by $2.0 million, or 55.2%, as compared to the three months ended March 31, 2022, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches and a decrease in sales of our medium and low voltage power systems.
Critical Power. For the three months ended March 31, 2023, revenue for our Critical Power segment increased by $107, or 4.1%, as compared to the three months ended March 31, 2022, primarily due to a reduction in sales of our equipment and an increase in service sales.
Gross Profit and Margin
The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 (Revised) | Variance | % | |||||||||||||
| T&D Solutions | ||||||||||||||||
| Gross profit | $ | 1,523 | $ | 424 | $ | 1,099 | 259.2 | |||||||||
| Gross margin % | 26.4 | 11.4 | 15.0 | |||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Gross profit | 690 | 499 | 191 | 38.3 | ||||||||||||
| Gross margin % | 25.1 | 18.9 | 6.2 | |||||||||||||
| Consolidated gross profit | $ | 2,213 | $ | 923 | $ | 1,290 | 139.8 | |||||||||
| Consolidated gross margin % | 26.0 | 14.5 | 11.5 | |||||||||||||
For the three months ended March 31, 2023, our consolidated gross margin increased to 26.0% of revenues, as compared to 14.5% during three months ended March 31, 2022.
T&D Solutions. For the three months ended March 31, 2023, our gross margin percentage increased by 15.0%, from 11.4% to 26.4%, as compared to the three months ended March 31, 2022. The increase was primarily due to increased sales our E-Bloc power systems and automatic transfer switches, a favorable sales mix and improved productivity from our manufacturing facility.
Critical Power Solutions. For the three months ended March 31, 2023, our gross margin increased by 6.2%, to 25.1%, from 18.9% for the three months ended March 31, 2022. The increase was predominately due to a favorable sales mix and the acceptance of price increases from our customers.
| 17 |
Operating Expenses
The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 (Revised) | Variance | % | |||||||||||||
| T&D Solutions | ||||||||||||||||
| Selling, general and administrative expense | $ | 273 | $ | 333 | $ | (60 | ) | (18.0 | ) | |||||||
| Depreciation and amortization expense | 8 | 1 | 7 | 700.0 | ||||||||||||
| Segment operating expense | $ | 281 | $ | 334 | $ | (53 | ) | (15.9 | ) | |||||||
| Critical Power Solutions | ||||||||||||||||
| Selling, general and administrative expense | $ | 1,012 | $ | 635 | $ | 377 | 59.4 | |||||||||
| Depreciation and amortization expense | 115 | 19 | 96 | 505.3 | ||||||||||||
| Segment operating expense | $ | 1,127 | $ | 654 | $ | 473 | 72.3 | |||||||||
| Unallocated Corporate Overhead Expenses | ||||||||||||||||
| Selling, general and administrative expense | $ | 748 | $ | 751 | $ | (3 | ) | (0.4 | ) | |||||||
| Depreciation and amortization expense | 2 | 7 | (5 | ) | (71.4 | ) | ||||||||||
| Segment operating expense | $ | 750 | $ | 758 | $ | (8 | ) | (1.1 | ) | |||||||
| Consolidated | ||||||||||||||||
| Selling, general and administrative expense | $ | 2,033 | $ | 1,719 | $ | 314 | 18.3 | |||||||||
| Depreciation and amortization expense | 125 | 27 | 98 | 363.0 | ||||||||||||
| Consolidated operating expense | $ | 2,158 | $ | 1,746 | $ | 412 | 23.6 | |||||||||
Selling, General and Administrative Expense. For the three months ended March 31, 2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $314, or 18.3%, to $2.0 million, due to an increase in payroll related costs, including stock-based compensation, professional fees, depreciation expense and product development costs related to our e-Boost initiative, as compared to $1.7 million during the three months ended March 31, 2022. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, decreased to 23.9% during the three months ended March 31, 2023, as compared to 27.0% in the three months ended March 31, 2022.
Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three months ended March 31, 2023, consolidated depreciation and amortization expense increased by $98, or 363.0%, as compared to the three months ended March 31, 2022.
Operating Income (Loss)
The following table represents our operating income (loss) by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 (Revised) | Variance | % | |||||||||||||
| T&D Solutions | $ | 1,242 | $ | 90 | $ | 1,152 | 1,280.0 | |||||||||
| Critical Power Solutions | (437 | ) | (155 | ) | (282 | ) | (181.9 | ) | ||||||||
| Unallocated corporate overhead expenses | (750 | ) | (758 | ) | 8 | 1.1 | ||||||||||
| Total operating income (loss) | $ | 55 | $ | (823 | ) | $ | 878 | 106.7 | ||||||||
T&D Solutions. Operating income from our T&D Solutions segment increased by $1.2 million, or 1,280.0%, during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility the three months ended March 31, 2023.
| 18 |
Critical Power Solutions. Operating loss for the Critical Power segment increased by $282, or 181.9% during the three months ended March 31, 2023, primarily due to an increase in consulting, marketing and promotion fees related to our e-Boost initiative during the three months ended March 31, 2023.
General Corporate Expense. Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments.
During the three months ended March 31, 2023, our unallocated corporate overhead expense decreased by $8, or 1.1%, as compared to the three months ended March 31, 2022.
Non-Operating (Income) Expense
Interest Income. For the three months ended March 31, 2023, we had interest income of approximately $54, as compared to interest income of approximately $101 during the three months ended March 31, 2022. We generated the majority of our interest income from our cash on hand. During the three months ended March 31, 2022, we generated the majority of our interest income from the Seller Notes we received from the sale of the transformer business units and our cash on hand.
Other (Income) Expense. Other (income) expense in the consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations.
For the three months ended March 31, 2023, other non-operating income was $13, as compared to other non-operating expense of $11 during the three months ended March 31, 2022.
Provision for Income Taxes. Our provision reflects an effective tax rate on income before taxes of 0.0% for the three months ended March 31, 2023, as compared to (1.0)% for the three months ended March 31, 2022, as set forth below:
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2023 | 2022 (Revised) | Variance | ||||||||||
| Income (loss) before income taxes | $ | 122 | $ | (733 | ) | $ | 855 | |||||
| Income tax expense | - | 7 | (7 | ) | ||||||||
| Effective income tax rate % | - | (1.0 | ) | 1.0 | ||||||||
Net Income (Loss) per Share
We generated a net income of $122 during the three months ended March 31, 2023, as compared to a net loss of $740 during the three months ended March 31, 2022.
Our net income per basic and diluted share for the three months ended March 31, 2023 was $0.01, as compared to a net loss per basic and diluted share of $0.08 for the three months ended March 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
General. On October 20, 2020, we entered into an At the Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell our shares of common stock, preferred stock, warrants and/or units of up to $25.0 million from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). As of March 31, 2023, we had $11.6 million of cash on hand generated primarily from the sale of common stock under the ATM Program during the year ended December 31, 2021, payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2022 and cash flows from operating activities. We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance, the sale of common stock under the ATM Program, funding from the Payroll Protection Program and collecting all unpaid principal and interest from the Seller Notes. Our cash requirements historically were generally for operating activities, capital improvements and acquisitions.
| 19 |
On December 13, 2021, we filed a prospectus supplement, which forms a part of our registration statement on Form S-3 (File No. 333-249569), that was declared effective by the SEC on October 27, 2020, in connection with the offer and sale of up to an aggregate offering amount of $8.6 million of common stock that may be issued and sold under the ATM Program. We did not sell any shares of common stock under the ATM Program during the three months ended March 31, 2023. As of March 31, 2023, $8.6 million of common stock remained available for issuance under the ATM Program.
The worldwide spread of the novel coronavirus (“COVID-19”), including the emergence of variants and subvariants, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments (including the war in Ukraine) have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, the Company is unable to predict the size and duration of the impact on its revenue and its results of operations. The extent of the impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including the duration and spread of COVID-19 and its variants and the duration and the extent of geopolitical disruption and their respective impacts on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate to limit the impact on its business. During the three months ended March 31, 2023, the Company was able to operate substantially at capacity.
The World Health Organization recently determined that COVID-19 no longer fit the definition of a public health emergency, and the U.S. government has announced that the declaration of a public health emergency associated with COVID-19 expired on May 11, 2023. However, COVID-19 is expected to remain a serious endemic threat for an indefinite future period. The economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for the Company to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. The Company has committed, and the Company plans to continue to commit, resources to grow its business, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, and if the Company is not able to respond to and manage the impact of such events effectively, its business may be harmed.
There can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and results of operations.
Cash Provided by Operating Activities. Cash provided by our operating activities was $1.5 million during the three months ended March 31, 2023, as compared to $2.1 million during the three months ended March 31, 2022. The decrease in cash provided by operating activities is primarily due to working capital fluctuations.
Cash Used in Investing Activities. Cash used in investing activities during the three months ended March 31, 2023 was $194, as compared to cash used in our investing activities of $112 during the three months ended March 31, 2022. Additions to property and equipment during the three months ended March 31, 2023 were $194, as compared to $112 additions during the three months ended March 31, 2022.
Cash Used in Financing Activities. Cash used in our financing activities was $71 during the three months ended March 31, 2023, as compared to $31 during the three months ended March 31, 2022. The primary use of cash in financing activities for the three months ended March 31, 2023 and 2022 was repayments of financing leases.
Working Capital. As of March 31, 2023, we had working capital of $14.3 million, including $11.6 million of cash on hand, compared to working capital of $14.1 million, including $10.3 million of cash on hand at December 31, 2022.
Assessment of Liquidity. At March 31, 2023, we had $11.6 million of cash on hand generated primarily from the sale of common stock under the ATM Program during the year ended December 31, 2021, payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2022 and cash flows from operating activities. We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance, sale of common stock under the ATM Program, funding from the Payroll Protection Program and collecting all unpaid principal and interest from the Seller Notes. Our cash requirements historically were generally for operating activities, capital improvements and acquisitions.
| 20 |
We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, capital improvements and product development. We expect that product development and promotional activities related to our new initiatives will continue in the near future and we expect to continue to incur costs related to such activities. We expect that our cash balance is sufficient to fund operations for the next twelve months.
As of March 31, 2023, we had no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that had, or that may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Capital Expenditures
The Company had $194 of additions to property and equipment during the three months ended March 31, 2023, as compared to $112 of additions to property and equipment during the three months ended March 31, 2022.
Known Trends, Events, Uncertainties and Factors That May Affect Future Operations
We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the electrical equipment industry and the markets for our products and services. Our operating results could also be impacted by changing customer requirements and exposure to fluctuations in prices of important raw supplies, such as copper, steel and aluminum. We have various insurance policies, including cybersecurity, covering risks in amounts that we consider adequate. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing efficiency and through increases in prices where competitively feasible. Lastly, other economic conditions we cannot foresee may affect customer demand. The impact of the COVID-19 pandemic, including the Omicron variant of COVID-19 and the subvariant, BA.2, and the ongoing effects of COVID-19, are currently indeterminable and rapidly evolving, and has affected and may continue to affect our operations and the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, and the effects of rising global inflation, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. We predominately sell to customers in the industrial production and commercial construction markets. Accordingly, changes in the condition of any of our customers may have a greater impact than if our sales were more evenly distributed between different end markets. For a further discussion of factors that may affect future operating results see the sections entitled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, and as a result of the material weakness described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of March 31, 2023. In light of this determination, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Material Weakness
As of December 31, 2022, we identified a material weakness in our internal control over financial reporting due to not having the appropriate controls in place over our revenue recognition process for nonroutine and complex revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers”, which continued to exist as of March 31, 2023.
In order to remediate this material weakness, management has expanded and improved our process for reviewing customer contracts and revenue recognition inputs, including through the engagement of third-party accounting professionals with expertise in evaluating customer contracts to obtain guidance on large and/or unique contracts in order to ensure that ASC 606 is accurately applied and documented.
Although we have begun implementing the enhancements described above at the end of 2022 and have been continuing our remediation efforts through the first quarter of 2023, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above, there were no changes in our internal control over financial reporting during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in lawsuits, investigations and claims that arise in the ordinary course of business.
As of the date hereof, we are not aware of or a party to any legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities that we believe could have a material adverse effect on our business, financial condition or operating results.
We can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results.
We are not aware of any material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
A description of the risks associated with our business, financial condition and results of operations is set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on April 11, 2023. There have been no material changes to these risks during the three months ended March 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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EXHIBIT INDEX
Exhibit No. |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PIONEER POWER SOLUTIONS, INC. | ||
| Date: May 15, 2023 | By: | /s/ Nathan J. Mazurek |
| Name: Nathan J. Mazurek | ||
| Title: Chief Executive Officer |
| Date: May 15, 2023 | /s/ Walter Michalec |
| Name: Walter Michalec | |
Title: Chief Financial Officer (Principal Financial Officer duly authorized to sign on behalf of Registrant) |
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