Pioneer Power Solutions(PPSI) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2021, and 2020, including statements of operations, balance sheets, cash flows, and accompanying notes Consolidated Statements of Operations For Q2 2021, revenues increased to $5.6 million and gross profit turned positive, while the net loss remained stable; for the six-month period, net loss significantly narrowed due to a PPP loan forgiveness gain Consolidated Statements of Operations (in thousands) | Financial Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $5,625 | $5,087 | $9,127 | $10,088 | | Gross Profit (Loss) | $495 | $(297) | $654 | $(120) | | Loss from continuing operations | $(745) | $(1,184) | $(1,852) | $(2,932) | | Net Loss | $(686) | $(660) | $(335) | $(3,581) | | Basic and Diluted Loss Per Share | $(0.08) | $(0.08) | $(0.04) | $(0.41) | Consolidated Balance Sheets As of June 30, 2021, total assets increased to $22.1 million while total liabilities rose to $9.5 million, leading to a decrease in total stockholders' equity to $12.5 million Consolidated Balance Sheets (in thousands) | Balance Sheet Item | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Cash | $5,134 | $7,567 | | Restricted cash | $1,775 | $0 | | Total current assets | $14,995 | $13,956 | | Total assets | $22,078 | $21,287 | | Total current liabilities | $8,457 | $5,538 | | Total liabilities | $9,530 | $7,428 | | Total stockholders' equity | $12,548 | $13,859 | Consolidated Statements of Cash Flows For the first six months of 2021, operating activities generated $1.2 million in cash, a significant improvement, while financing activities used $1.8 million, resulting in a net decrease in cash and restricted cash Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (Six Months Ended June 30) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by / (used in) operating activities | $1,236 | $(1,207) | | Net cash (used in) / provided by investing activities | $(62) | $194 | | Net cash (used in) / provided by financing activities | $(1,832) | $337 | | Decrease in cash and restricted cash | $(658) | $(676) | Notes to Unaudited Consolidated Financial Statements These notes detail the company's two business segments, the $1.4 million PPP loan forgiveness, the declaration of a $0.12 per share special cash dividend, and disaggregated revenue by products and services - The company operates through two reportable segments: Transmission and Distribution Solutions ("T&D Solutions") and Critical Power Solutions ("Critical Power")[21][74] - In Q1 2021, the company received full forgiveness of its $1.4 million Paycheck Protection Program (PPP) loan, recognizing a corresponding gain on extinguishment of debt as other income[35][58][66] - On June 1, 2021, the board declared a special cash dividend of $0.12 per share, totaling approximately $1.0 million, which was paid in July 2021[27][72] Revenue by Discipline (in thousands) | Revenue by Discipline | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Products | $3,755 | $3,212 | $5,668 | $6,344 | | Services | $1,870 | $1,875 | $3,459 | $3,744 | | Total revenue | $5,625 | $5,087 | $9,127 | $10,088 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 10.6% revenue increase in Q2 2021, improved gross margins due to the absence of a prior-year inventory write-down, and a sufficient liquidity position Business Overview and Recent Events The company operates in T&D Solutions and Critical Power segments, recently declaring a $0.12 per share special cash dividend and entering an exclusive distribution agreement with CleanSpark, Inc - The company entered into a Distribution Agreement with CleanSpark, Inc. on May 31, 2021, making CleanSpark its exclusive distributor for certain products within its sales channel, with the agreement terminating on December 31, 2023[86] - A special cash dividend of $0.12 per common share, totaling approximately $1.0 million, was declared on June 1, 2021, and paid on July 7, 2021[84] Results of Operations Consolidated revenue for Q2 2021 increased 10.6% YoY, gross margin improved significantly due to the absence of a prior-year inventory write-down, and the six-month net loss narrowed substantially, boosted by a $1.4 million PPP loan forgiveness gain Order Backlog by Segment (in thousands) | Order Backlog by Segment (in thousands) | June 30, 2021 | March 31, 2021 | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | T&D Solutions | $6,501 | $10,210 | $5,881 | $4,725 | | Critical Power Solutions | $6,225 | $6,934 | $6,792 | $7,420 | | Total order backlog | $12,726 | $17,144 | $12,673 | $12,145 | - Q2 2021 consolidated revenue increased by 10.6% YoY, driven by a 20.4% increase in the T&D Solutions segment, while for the six-month period, consolidated revenue decreased by 9.5% YoY, primarily due to a 15% reduction in the T&D Solutions segment[95][96][97][98] - Consolidated gross margin for Q2 2021 improved to 4.3% from -16.1% YoY for the T&D Solutions segment, mainly due to a $546k inventory write-down in Q2 2020 that did not recur[104] - For the six months ended June 30, 2021, other income was $1.3 million, which included a $1.4 million gain from the forgiveness of the PPP Loan, compared to an other expense of $832k in the prior year period[118] Liquidity and Capital Resources As of June 30, 2021, the company had $6.5 million in working capital and generated $1.2 million in cash from operations, with management asserting sufficient cash to fund operations for the next twelve months Cash and Working Capital (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash | $5,134 | $7,567 | | Restricted Cash | $1,775 | $0 | | Total Cash and Restricted Cash | $6,909 | $7,567 | | Working Capital | $6,500 | $8,400 | - The company believes its current cash balance is sufficient to fund operations for the next twelve months[133] Quantitative and Qualitative Disclosures About Market Risk This section is marked as 'Not applicable', indicating the company does not believe it has material exposure to market risks requiring quantitative and qualitative disclosures - The company has determined that this disclosure is not applicable[136] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021[137] - There were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2021[139] PART II. OTHER INFORMATION Legal Proceedings The company settled its long-standing litigation with Myers Power Products, Inc. on November 20, 2020, with the payment not materially differing from the $1.2 million accrued contingency, and no other material pending legal proceedings are known - On November 20, 2020, the company settled its litigation with Myers Power Products, Inc., resulting in the dissolution of all injunctions and dismissal of all litigation with prejudice[146] - The settlement payment did not differ significantly from the $1.2 million of expected costs the company had previously recognized as a legal contingency[146] - As of the report date, the company is not a party to any other legal proceedings expected to have a material adverse effect on its business[148] Risk Factors The company reports no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[150] Other Part II Items This section confirms no unregistered sales of equity securities, no defaults upon senior securities, and no other material information to report for the period, with mine safety disclosures being not applicable - Item 2: No unregistered sales of equity securities or use of proceeds[151] - Item 3: No defaults upon senior securities[152] - Item 5: No other information to disclose[154]