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 November 23, 2015 - 4:16 PM EST
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Pioneer Announces Third Quarter 2015 Financial Results

Management Reaffirms Preliminary Outlook for Strong 2016 Growth

FORT LEE, N.J., Nov. 23, 2015 /PRNewswire/ -- Pioneer Power Solutions, Inc. (Nasdaq: PPSI) ("Pioneer" or the "Company"), a company engaged in the manufacture, sale and service of electrical transmission, distribution and on-site power generation equipment, today announced its financial results for the third quarter and year-to-date periods ended September 30, 2015.

Nathan Mazurek, Pioneer's Chairman and Chief Executive Officer, said, "I am very encouraged by the nearly $1 million sequential improvement in our quarterly Adjusted EBITDA. We are also seeing tangible results from our ongoing restructuring initiatives, which are proceeding ahead of schedule, have improved our operations and have positioned us to meet our growth and profitability outlook for 2016. As previously announced, we are taking decisive action to return the Company to an acceptable level of profitability, including consolidating six manufacturing facilities to three, right-sizing our Canadian dry-type transformer operations, the largest phase of which occurred on October 31, and outsourcing certain lower margin, less value-added activities to lower cost facilities."

"These efforts are proceeding ahead of schedule with no loss in order rates as originally budgeted, though this progress is masked in our results by non-cash charges related to our restructuring and integration, as well as by a recently discovered payroll tax compliance issue that resulted in a $1.2 million charge for accrued interest and penalties during the quarter," continued Mr. Mazurek. "The expense reductions at Bemag created a solid foundation for profitable growth, and we have now experienced two consecutive quarters of increased orders and the backlog today for this element of our business is the highest it has been in nine months. We are proceeding with the transfer of certain manufacturing operations to Reynosa, Mexico, where we will benefit from a lower cost structure in 2016 and beyond. These changes not only reduce our on-going cost structure, but also should enable us to compete more effectively."

"Further bolstering our long-term confidence in profitable growth is the strong performance of our recent acquisitions," added Mr. Mazurek. "Titan is on pace for its highest annual revenue in its entire history of operations, and this acquisition continues to add a steady, growing base of recurring service revenue and adjusted EBITDA. Our most-recent acquisition, Pacific Power Systems Integration, is exceeding expectations. The backlog for this business has grown to $2.4 million, based on $1.7 million in new orders since the acquisition in August of 2015. As expected, this acquisition has significantly enhanced our competitive advantages. We can now leverage our full suite of engineered product solutions, enabling us to capitalize on new production and internal supply chain synergies and benefit from higher gross margins due to the fact that we will be more involved in the integration of custom, purpose-built solutions."

"While our long-term outlook is improving due to the concrete steps we have taken to improve our profitability and competitiveness, our 2015 results are impacted by order delays, as well as unfortunate and unexpected non-operational charges," continued Mr. Mazurek. "These challenges have not impacted our confidence in 2016, and in fact the order delays should provide incremental benefit to our 2016 revenue and profitability. We expect to provide more clarity on our 2016 outlook when we announce our fourth quarter results in March, when we will also have more information on the cost reduction initiatives and the payroll tax issue."

Third Quarter 2015 Financial Highlights

  • Revenue of $24.9 million, down 4.5% vs. $26.1 million in Q3 2014
  • Gross margin percentage of 19.4% vs. 25.7% in Q3 2014
  • Adjusted EBITDA of $1.1 million, vs. $3.2 million in Q3 2014, and up $1.0 million sequentially from $0.1 million in the second quarter of 2015
  • Non-GAAP earnings per diluted share of $0.03 vs. $0.28 in Q3 2014

Nine Months Ended September 30, 2015 Highlights

  • Revenue of $80.3 million, up 17.9% vs. $68.1 million during the first nine months of 2014
  • Gross margin percentage of 18.9% vs. 23.2% during the first nine months of 2014
  • Adjusted EBITDA of $2.0 million vs. $5.7 million in the first nine months of 2014
  • Non-GAAP earnings per diluted share of $0.01 vs. $0.43 in the first nine months of 2014

Revenue

Total revenue for the three month period ended September 30, 2015 decreased to $24.9 million, down 4.5%, or $1.2 million, from $26.1 million during the same period last year. The decrease was driven by the $4.6 million decrease in revenue from the Company's transformer product lines in its T&D Solutions segment which was partially offset by an increase in revenue from the Company's Critical Power Solutions segment, led by the acquisition of Titan.

For the nine months ended September 30, 2015, total revenue increased by $12.2 million, or 17.9%, to $80.3 million, up from $68.1 million during the nine months ended September 30, 2014. The increase was primarily driven by an increase in revenue in the Critical Power Solutions segment as a result of the Titan acquisition, which was partially offset by a decrease in transformer sales in the T&D Solutions segment. The T&D Solutions segment was impacted by continued weakness in Canadian market conditions, unexpected customer delivery delays and the effect of foreign currency translation. Sales to U.S. customers were robust, driven mostly by demand for custom magnetics in the Company's OEM sales channel, together with increased brand label sales and commercial construction activity.

Service revenue, most of which originates from recurring preventative maintenance contracts for backup power systems, grew to 8.4% of total revenue during the nine months ended September 30, 2015, as compared to 0.1% of total revenue during the same period last year.

Gross Margin

For the third quarter, the gross margin percentage was 19.4% of revenues, as compared to 25.7% during the third quarter of 2014. The 6.3% decrease in consolidated gross margin percentage is explained mostly by lower sales of liquid-filled transformers within the Company's larger T&D Solutions segment, and was also driven by the Critical Power Solutions segment, which included lower sales of paralleling switchgear in 2015, as compared to the same quarter of 2014.

For the nine months ended September 30, 2015, the gross margin percentage was 18.9% of revenues, compared to 23.2% during the nine months ended September 30, 2014. The decrease in gross margin percentage is primarily the result of an unfavorable sales mix shift within the T&D Solutions segment due to challenging demand and sales mix factors in Canada, affecting all transformer categories. Higher throughput and sales by U.S. T&D operations offset nearly half of the decline in gross profit dollars from Canada, but at a lower average gross margin. On the Critical Power side of the business, the decrease in gross margin percentage was due mostly to the timing of the Titan acquisition, together with a lack of major projects completed in 2015 by the original Critical Power business focused on paralleling switchgear.

Operating Income and Adjusted EBITDA

Operating loss for the third quarter was down from operating income of $2.8 million during the third quarter of 2014. The decrease in operating income in the third quarter of 2015, before restructuring charges, was primarily a result of lower sales and gross profit from the Company's Canadian businesses, particularly in the utility sales channel, as well as in the Company's short-cycle, distribution transformer product lines where the economic downturn and adverse effect of a stronger U.S. dollar has been felt hardest. Operating loss was also negatively impacted by $0.4 million in a non-cash amortization expense related to intangible assets arising from the Titan acquisition.

For the nine months ended September 30, 2015, the operating loss was down from operating income of $4.4 million during the nine months ended September 30, 2014. The decrease in operating income was the result of lower sales and gross profit from the Company's Canadian business, but was driven mostly by restructuring, integration and impairment expenses related to the Company's improvement initiatives.

Approximately $5.2 million of the Company's expense during the nine months ended September 30, 2015, consisted of non-cash expenses including impairments of assets, depreciation and amortization, as compared to $1.5 million during the same period of 2014. Without the effect of these non-cash expenses, the Company's Adjusted EBITDA for the quarter and nine months ended September 30, 2015 was approximately $1.1 million and $2.0 million, respectively, as compared to $3.2 million and $5.7 million in the year ago periods.

During the quarter, Pioneer recognized a charge of approximately $1.2 million representing estimated accrued interest and potential penalties for failure to timely file payroll tax returns and make payments. The Company intends to pay the interest portion of the assessment when an account statement is received from the IRS. Due to the circumstances that led to the failure to file and make payments, the Company has submitted a request for the penalties to be abated. To the extent its request may be accepted, any penalties recognized this quarter that are subsequently overturned will be reflected as a gain in the Company's consolidated statements of operations in future periods.

"Understandably, our bank has taken precautionary measures due to this development and our recent financial performance, but they have also responded by making up to $3 million in financing available from our Canadian facilities for working capital, including to pay down our payroll tax obligation. Although we do not expect to have a long-term resolution with our bank until we have additional information from the IRS and improvement in our financial performance, we believe we have sufficient liquidity to navigate this unfortunate situation," added Mr. Mazurek.

Net Earnings (Loss) and Per Diluted Share

Inclusive of the $1.2 million accrual for interest and potential penalties related to federal payroll taxes and the $3.4 million of restructuring expenses, the Company generated a net loss of $3.6 million and $4.6 million during the three and nine months ended September 30, 2015, respectively, as compared to net earnings of $1.8 million and $2.7 million during the three and nine months ended September 30, 2014. Net loss per basic and diluted share for the three and nine months ended September 30, 2015 was ($0.48) and ($0.62), respectively, compared to net earnings per basic and diluted share of $0.25 and $0.37 for the three and nine month periods ended September 30, 2014.

"In the aggregate, the restructuring charges and the payroll tax charges impacted our earnings by $4.7 million," commented Andrew Minkow, Pioneer's Chief Financial Officer. "These charges represent a swing of $5.4 million compared to the year-ago quarter, exceeding the change in our net loss. These charges mask the progress we have made in the last 120 days in our efforts to meaningfully improve operations. We expect there to be up to $1 million more in restructuring and integration expense in the fourth and first quarters, but look forward to cleaner quarters in 2016."

On a non-GAAP basis, the Company reported net earnings of approximately $0.2 million in the third quarter of 2015, or $0.03 per diluted share, as compared to non-GAAP net earnings of $2.0 million, or $0.28 per diluted share, for the quarter ended September 30, 2014. For the nine month period ended September 30, 2015, non-GAAP earnings were approximately $0.1 million, or $0.01 per diluted share, down from $3.1 million, or $0.43 per diluted share, for the nine month period ended September 30, 2014. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results and guidance.

Backlog

Order backlog at September 30, 2015 was $30.0 million, up 9.3% as compared to $27.5 million at September 30, 2014, and down 8.4% as compared to $32.8 million at June 30, 2015. Backlog is based on orders expected to be delivered in the future, most of which is expected to occur during the next twelve months.

Outlook

The Company adjusted its full-year 2015 guidance based on business trends and the current composition of the order backlog. In 2015, the Company expects:

  • Revenue between $105 and $110 million, of which:
    • $85 to $87 million is expected to be derived from the T&D Solutions segment, and
    • $20 to $23 million from the Critical Power Solutions reporting segment
  • Adjusted EBITDA between $3.0 and $3.5 million
  • Non-GAAP diluted EPS between $0.07 and $0.09

For full year 2016, the Company's preliminary guidance is:

  • Revenue between $130 and $140 million, representing growth in the mid-to-high teens compared to 2015 guidance
  • Adjusted EBITDA between $7.0 and $9.0 million
  • Non-GAAP diluted EPS between $0.55 and $0.65

Mr. Mazurek added, "While still preliminary, we remain confident in our ability to meet or exceed full-year 2016 guidance, due to the success of our restructuring efforts and better than expected contribution from the acquisition of Pacific Power Systems Integration. We expect to provide more clarity when we report full-year 2015 results in March of 2016."

Conference Call Information
Pioneer will host a conference call today at 4:30 p.m. ET. The call will be webcast live and accessed at http://public.viavid.com/player/index.php?id=117070. The call can also be accessed by dialing 1-888-256-1014 if calling within the United States or 1-913-312-0379 (international). When asked, please reference confirmation code 404340. A replay of the call will be available until November 30, 2015 by dialing 1-877-870-5176 if calling within the United States or 1-858-384-5517 (international), passcode 404340.

About Pioneer Power Solutions, Inc.
Pioneer Power Solutions, Inc. manufactures, sells and services a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company's principal products and services include custom-engineered electrical transformers, low and medium voltage switchgear and engine-generator sets and controls, complemented by a national field-service organization to maintain and repair power generation assets. Pioneer is headquartered in Fort Lee, New Jersey and operates from 14 additional locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales, service and administration. To learn more about Pioneer, please visit its website at www.pioneerpowersolutions.com

Safe Harbor Statement:
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) the Company has secured a waiver of defaults under its credit facilities and may not be able to maintain such waiver in effect or otherwise achieve compliance with the terms of its credit facilities, (ii) the Company has been delinquent in payment of its federal payroll tax obligations and may not be successful in its requests for the abatement of penalties and payment of past due amounts over an extended period, (iii) the Company's ability to expand its business through strategic acquisitions, (iv) the Company's ability to integrate acquisitions and related businesses, (v) 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, (vi) 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, (vii) the potential loss or departure of key personnel, including Nathan J. Mazurek, the Company's Chairman, President and Chief Executive Officer, (viii) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company's revenues, (ix) the Company's ability to generate internal growth, (x) market acceptance of existing and new products, (xi) the Company's dependence on a distributor agreement with Generac Power Systems through which it derives a significant portion of its revenues, (xii) 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, (xiii) 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, (xiv) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xv) 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, (xvi) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company's profitability, (xvii) 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, (xviii) material weaknesses in the Company's internal control over financial reporting that could have an adverse effect on the Company's business and common stock price, and (xix) the fact that future sales of large blocks of the Company's common stock may adversely impact the Company's stock price. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission, including the Company's Annual and Quarterly Reports on Form 10-K and Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's web site at www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

CONTACT:
Brett Maas, Managing Partner
Hayden IR
(646) 536-7331
brett@haydenir.com

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2015


2014


2015


2014

Revenues

$

24,924


$

26,111


$

80,272


$

68,068

Cost of goods sold


20,083



19,403



65,105



52,251

  Gross profit


4,841



6,708



15,167



15,817

Operating expenses












  Selling, general and administrative


4,968



4,071



16,156



11,549

  Restructuring, integration and impairment


3,439



-



3,439



-

  Foreign exchange (gain)


(234)



(172)



(326)



(108)

    Total operating expenses


8,173



3,899



19,269



11,441

Operating (loss) income


(3,332)



2,809



(4,102)



4,376

  Interest expense


173



141



506



406

  Other expense


1,270



169



1,533



171

Earnings (loss) before income taxes


(4,775)



2,499



(6,141)



3,799

Income tax (benefit) expense


(1,224)



717



(1,548)



1,125

Net (loss) earnings

$

(3,551)


$

1,782


$

(4,593)


$

2,674













Net (loss) earnings per common share:












  Basic

$

(0.48)


$

0.25


$

(0.62)


$

0.37

  Diluted

$

(0.48)


$

0.25


$

(0.62)


$

0.37













Weighted average common shares outstanding:












  Basic


7,468



7,172



7,427



7,172

  Diluted


7,468



7,226



7,427



7,238













 

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands)






September 30,


December 31,


2015


2014


(Unaudited)



ASSETS






Current Assets






Cash and cash equivalents

$

-


$

3,832

Accounts receivable, net


15,371



13,101

Inventories, net


15,941



14,429

Income taxes receivable


466



474

Deferred income taxes


2,081



472

Prepaid expenses and other current assets


1,291



1,671

Total current assets


35,150



33,979

Property, plant and equipment, net


7,795



11,195

Noncurrent deferred income taxes


7,687



7,124

Other assets


1,048



1,143

Intangible assets, net


8,251



9,791

Goodwill


12,646



9,606

Total assets

$

72,577


$

72,838







LIABILITIES AND SHAREHOLDERS' EQUITY






Current Liabilities






Bank overdrafts

$

1,160


$

-

Revolving credit facilities


9,500



6,860

Accounts payable and accrued liabilities


17,914



14,396

Current maturities of long-term debt and capital lease obligations


6,461



2,483

Income taxes payable


1,396



523

Total current liabilities


36,431



24,262

Long-term debt, net of current maturities


96



9,539

Pension deficit


242



351

Other long-term liability


500



-

Noncurrent deferred income taxes


7,318



7,852

Total liabilities


44,587



42,004

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; 8,530,962 and 7,405,962
shares issued and outstanding


9



7

Additional paid-in capital


22,489



18,370

Accumulated other comprehensive loss


(5,697)



(3,325)

Retained earnings


11,189



15,782

Total shareholders' equity


27,990



30,834

Total liabilities and shareholders' equity

$

72,577


$

72,838







 

PIONEER POWER SOLUTIONS, INC.

Reconciliation of GAAP Measures to Non-GAAP Measures

(In thousands, except per share data)

(Unaudited)







Three Months Ended


Nine Months Ended


September 30,


September 30,


2015


2014


2015


2014

Reconciliation to Non-GAAP Net Earnings (Loss) and EPS:












Net earnings (loss) per share (GAAP measure)

$

(0.48)


$

0.25


$

(0.62)


$

0.37

Net earnings (loss) (GAAP measure)

$

(3,551)


$

1,782


$

(4,593)


$

2,674

Amortization of acquisition intangibles


432



80



1,301



239

Stock-based compensation expense


57



63



175



162

Restructuring, integration and impairment charges


3,439



-



3,439



-

Acquisition and related costs


77



169



310



171

Titan Northeast discontinuation


117



-



122



-

Other non-recurring expenses


1,186



-



1,186



-

Loss on asset sales


6



-



36



-

Tax effects


(1,559)



(73)



(1,909)



(102)

Non-GAAP net earnings

$

204


$

2,021


$

67


$

3,144

Non-GAAP net earnings per diluted share

$

0.03


$

0.28


$

0.01


$

0.43

Weighted average diluted shares outstanding


7,468



7,226



7,427



7,238













Reconciliation to Adjusted EBITDA:












Net earnings (loss) (GAAP measure)

$

(3,551)


$

1,782


$

(4,593)


$

2,674

Interest expense


173



141



506



406

Income tax (benefit) expense


(1,224)



717



(1,548)



1,125

Depreciation and amortization


777



373



2,355



1,198

Restructuring, integration and impairment charges


3,439



-



3,439



-

Acquisition and related costs


77



169



310



171

Titan Northeast discontinuation


117



-



122



-

Other non-recurring expenses


1,186



-



1,186



-

Loss on asset sales


6



-



36



-

Stock-based compensation expense


57



63



175



162

Adjusted EBITDA (Non-GAAP measure)

$

1,057


$

3,245


$

1,988


$

5,736













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 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, restructuring, integration and impairment expense, 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, non-recurring acquisition costs and reorganization expense, restructuring, integration and impairment expense, 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.

Pioneer Power Solutions, Inc.

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SOURCE Pioneer Power Solutions, Inc.


Source: PR Newswire (November 23, 2015 - 4:16 PM EST)

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