pioneer power solutions, inc. · investor presentation ©2016 pioneer power solutions, inc....
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Pioneer Power Solutions, Inc.Investor Presentation
©2016 Pioneer Power Solutions, Inc. November 2016
Forward-Looking Statements
This presentation contains certain "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 (i) the Company's ability to expand its business through strategic acquisitions, (ii) the Company's ability to integrate acquisitions and related businesses, (iii) the fact that many of the Company's competitors are better established and have significantly greater resources, and may subsidize their competitive offerings with other products and services, which may make it difficult for the Company to attract and retain customers, (iv) the Company's dependence on Hydro-Quebec Utility Company and Siemens Industry, Inc. for a large portion of its business, and the fact that any change in the level of orders from Hydro-Quebec Utility Company or Siemens Industry, Inc. could have a significant impact on the Company's results of operations, (v) the potential loss or departure of key personnel, including Nathan J. Mazurek, the Company's Chairman, President and Chief Executive Officer, (vi) the fact that fluctuations between the U.S. dollar and the Canadian dollar will impact the Company's revenues, (vii) the Company's ability to generate internal growth, (viii) market acceptance of existing and new products, (ix) the Company's dependence on a distributor agreement with Generac Power Systems through which it derives a significant portion of its revenues, (x) 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, (xi) 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, (xii) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xiii) the impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in the Company's markets and the Company's ability to access capital markets, (xiv) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company's profitability, (xv) the fact that the Company's Chairman controls a majority of the Company's combined voting power, and may have, or may develop in the future, interests that may diverge from yours, (xvi) 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 (xvii) 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. Investors and security holders are urged to read these filings free of charge on the SEC's web site at www.sec.gov. The company does not undertake to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.
- 2 -
Company Snapshot
A diversified electrical equipment manufacturer, sales and service company
– Headquartered in Fort Lee, NJ
– ~500 employees in U.S., Canada and Mexico
Focus on niche applications and service within large, growing market segments for power equipment
– Utility, Industrial, Commercial
– Backup power and distributed generation
Balanced mix of revenue streams
– Project-based, custom engineered equipment
– Standard products, sold to distributors
– Generac Industrial Power Systems franchise
– Recurring annual service contracts
Financial
– $47.0M market cap (Nasdaq: PPSI) (a)
– $29.4M in Q3 2016 revenue (99% North America)
Transmission & Distribution Solutions
Liquid-Filled Transformers
Dry-Type Transformers
- 3 -
Paralleling Switchgear, Generators, Controls & Service
Custom Switchgear Solutions
1995
Acquired2010
Acquired2011
Acquired2013
Acquired2013 & August 2015
(a) Based on recent closing price of $5.40 and 8,699,712 shares outstanding
Acquired2014
Critical Power Solutions
Pacific Power Systems
Large and Diverse End Markets
- 4 -
Alternative Energy
Wind, solar, biomass
Commercial Construction
Office buildings, shopping centers, airports, hospitals, government/municipal
Outdoor lighting
Industrial Manufacturing
Agribusiness Automobile Avionics Distribution Food processing Paper & pulp Petrochemical Printing Semiconductors Shipbuilding/marine power Steel/aluminum smelting Traction duty, rolling stock
OEMs
Battery charging Data centers Drive systems Elevators HVAC Industrial automation Medical equipment Power quality/conditioning Spa, pool and tanning Switchgear UPS systems
Natural Resources
Mining Drilling and sands extraction Pipelines
Utilities
Transmission & distribution Network protection and
reliability
Backup Power
Data centers Hospitals Prisons Retailers Hotels Grocery chains Industrial manufacturing Casinos Schools Nursing/assisted living Office buildings Government buildings Apartment buildings Institutional Medical practices Service stations Telecom / cell towers Wastewater treatment
Primary Power
Independent power plants Remote power Military
Emerging Applications
Co-generation (CHP) Tri-generation (CCHP) Distributed generation Microgrids
14%
86%
T&DCritical Power
Our Business Segments
- 5 -
Critical Power SolutionsTransmission & Distribution Solutions
Q3 2016 Revenue:$29.4 million
43%
57%17%
83%
Equipment that distributes, controls, conditions and monitors the flow of electrical energy while protecting critical equipment such as transformers, motors and other machinery
Onsite power generation systems, control equipment and services that ensure uninterrupted power to operations in times of emergency and in primary power applications
Field ServiceEngine-Generators
Paralleling Switchgear
Equipment
Recurring Service
Transformers
Switchgear
Based on results as of September 30, 2016 Based on results as of September 30, 2016
Power Dry Transformers
Distribution Transformers
Substation Transformers
Utility Transformers
Low & MediumVoltage Switchgear
Switchboard/Panelboard
OEM Solutions(not pictured)
Products & Services Profile
- 6 -
Segment/Product Category
Low Voltage Distribution
Transformers
Medium Voltage & OEM
Transformers
Liquid-Filled
Transformers
Low & Medium Voltage Switchgear
Switchgear & GeneratorControls
Generator Sales & Service
Gross Margin % Low High High Medium High Low (equipment)High (service
BusinessProcessVariables
Consultative/Longest Sales
Cycle
Straightforward(equipment)
Logistical(service)
Primary End Markets
Office, commercial& manufacturing
facilities
Industrial,large commercial,
data centers
Utilities,oil & gas, heavy manufacturing
Industrial,commercial
Data centers,hospitals, distributed
generation
Diverse: retail, telecom, health &
elder care
Key Customer Types
Distributors, Contractors, Brand Label
EPCs, OEMs,End-users
End-users,EPCs
End-users,EPCs, Distributors
End-users, EPCsGenerator Dealers
End-users,National/Regional
Accounts
Competitive Differentiators
Price,Availability
Engineering,Lead time
Engineering,Lead time
Engineering,Lead time,
Track Record
EngineeringTrack record
Price,Service
Customers / Year > 1,000/year Dozens/year Dozens/year Dozens/year Dozens/year 100s/year
Demand Drivers Commercial construction
Industrial expansion and commercial
construction
Replacement/expansion/retrofit
Industrial expansion and commercial
construction
Digital economy growth
Need for reliable power
Need for reliable power
OrderValue $Sales Cycle
Production Turnaround TimeCustomer Interaction
Application Complexity
Made toStock
Made to OrderBacklog
SalesVelocity
Engineering /Customization
Pioneer’s Position in the Electrical Grid
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GENERATION
PowerStation
TRANSMISSION
Transmission Substation Distribution
Substation
Distribution / Control Equipment
DISTRIBUTION
Power Transformers
Commercial & Industrial Users
ResidentialCustomers
Solar
Wind Farm
Pioneer’s focus is on niche markets and customized applications within the electrical grid
ON-SITE POWER GENERATION
Liquid Filled Transformers
Industrial/Utility Switchgear
Medium and Low VoltageDry-type Transformers
Light Commercial Switchgear
T&D Segment
Critical Power SegmentField Services
Engine-GeneratorsSwitchgear/Transfer Switches
Customers
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Revenue Distribution
Q3 2016 Revenue: $29.4 Million
Utilities
EPC Firms and Distributors
Commercial
21%
45%
34%
Distributors and EPC Firms
Utilities
Commercial and Industrial
Revenue distribution based on YTD results as of September 30, 2016
Industrial
Investment Highlights
- 9 -
Management track record of growth Successful acquisition strategy &
integration
2% organic growth (a)
– Recurring blue chip customer base– Historically, >80% of revenue originated
from repeat customers Engineered-to-order solutions
– Higher value-added opportunities, sustainable 10%+ EBITDA margins
Recurring backup power service business – Strong secular growth, technology-
enabled scalability Large addressable market
– Aging North American electrical infrastructure needing replacement
Experienced management team – Proven track record of growth
Stable, Profitable Business
Evolving grid requirements– Increasing demands and requirements for
grid system stability & efficiency– Growing market for critical power
applications and reliable power
Business Integration– Sales: cross-selling, product development– Costs: scale economies, load balancing,
internal sourcing, shared services
M&A strategy– Higher growth/higher margin end markets– Tangible cost savings opportunities– Complimentary products and services– Capitalize on fragmented market structure
Growth Opportunities
(a) 9 months ended September 30, 2016, in constant currency
Profitable core business poised for accelerated growth
Industry Size and Structure
Large and Growing North American Market
Aging Power Grid
– Built more than a half century ago
– Nearly a majority of T&D infrastructure is near or past its useful service life
Demand for reliable power
– Rising number of TLR events demonstrates power grid’s inadequate capacity and lack of redundancy
– Growing number of mission critical facilities, data center investment expected up 14.5% in 2013 (c)
Growing Electricity Consumption
– U.S. electricity demand to grow 28% from 2011 to 2040 (d), increasing utility expansion and network maintenance needs
– Significant new generation capacity additions needed to meet demand (with renewables to grow fastest), requiring new T&D infrastructure
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Value of U.S. T&D Equipment Demand ($Bn) (b)
2009 2014 2019Pole/line hardware MetersTransformers Switchgear/board apparatus
$25.5$33.4
$20.3
Service Life of the U.S. Electrical Infrastructure (a)
58% 50%
42% 50%
Transmission Distribution
Within Service Life Near or Past Service Life
(a) Black & Veatch’s 2009/2010 Third Annual Strategic Directions in the Electric Utility Industry Survey(b) Freedonia Group study, February 2015(c) 2012 DatacenterDynamics Industry Census(d) U.S. Energy Information Administration, Annual Energy Outlook 2013
Higher energy costs, stricter environmental regulations and efficiency standards leading to upgrades, retrofits and equipment replacement
Growth Strategy
- 11 -
FINANCIAL PROFILEProfitable companies and turnaround candidates
whose performance can be improved through inclusion within the Pioneer group
OPERATING EFFICIENCIESPotential for meaningful operating
efficiencies through integration with existing business units
STRATEGIC FITBroaden range of solutions by augmentation of
technical expertise, new and existing sales channels, greater market penetration
ADDRESSING ATTRACTIVE MARKETS Long-term favorable trends in utility distribution,
oil & gas, data centers, backup power, distributed generation and renewable energy
OPERATING EFFICIENCIESContinued integration of formerly disparate business units for additional cost savings −
shared resources, capacity optimization
EXPAND PRODUCT/SERVICE OFFERINGSContinued migration towards more
highly engineered power distribution solutions. Maximize sales productivity across portfolio
Organic Acquisitions
GOAL: 10%+ annual revenue growth GOAL: >10% EBITDA margins
GOAL: Incremental 10%+ revenue growth GOAL: ~15% long-term EBITDA margin
Acquisition and Integration History
Original business acquired from Schneider Electric S.A. in 1994 (Pioneer Transformers Ltd.)– Cornerstone for future expansion– $30MM of acquisitions completed
Enhancement strategies applied– Market repositioning: repurpose core
technical competencies towards higher value added applications
– New product development– Add new, high-caliber personnel– Facility consolidations and expansions– Group sourcing & economies– Working capital infusion
Strategy– Create a cohesive organization that is
diverse in its product/service capabilities– Expand addressable market, opportunity to
compete for more and better opportunities- 12 -
Pioneer Transformers Ltd.Revenue: $12 million
Jefferson Electric, Inc.Revenue: $19 million
1994
2010
Pioneer Critical Power Inc.(f/k/a Power Systems Solutions, Inc.)Revenue: $1.4 million
2013
Pioneer CEP(f/k/a Pico Electrical Products, Inc.)Revenue: $2.3 million
2013
Titan Energy Worldwide, Inc.Revenue: $18 million
2014(Dec)
(Aug)
(Mar)
(Apr)
Seven Acquisitions Completed Since 2010
Harmonics Holdings, Inc.Revenue: <$1.0 million
2015(Jan)
Pacific Power Systems IntegrationRevenue: $5 million
2015(Aug)
Summary Financial Position($ millions)
- 14 -
Summary Balance Sheet ($M)
(a) Excluding cash and equivalents, current maturities of debt (b) Demand facilities, subject to annual review for renewal (always classified as due < 1 year)
9/30/2016 12/31/2015
Cash & cash equivalents $0.8 $0.6
Current Assets $48.0 $34.9
Long-term Assets $31.9 $32.1
Total Assets $79.9 $66.9
Current liabilities $42.3 $38.3
Long-term debt, net of current maturities $8.8 $0.02
Total liabilities $51.1 $39.5
Total shareholders’ equity $28.8 $27.4
Total Liabilities & Shareholders’ equity $79.9 $66.9
Liquidity Measures ($M)
9/30/2016
Net working capital $6.5
Current ratio 1.15
Trade net working capital (a) $30.2
Trade net working capital ratio (a) 2.7x
Trade net working capital as a % of Q3 revenue 103%
Debt / total capitalization 48%
Net debt / Adjusted EBITDA 3.1x
Summary Operating Statement Data($ millions, except per share data)
- 15 -(a) Non-GAAP measures, from continuing operations. See appendix for a reconciliation of GAAP to non-GAAP measures.
Revenue ($M) Gross Profit ($M)
$84.0 $88.2 $92.2$106.5
$80.3 $85.9
2012 2013 2014 2015 YTDQ15 YTDQ16
+22% +5% +5% +16%
$7.8$8.9
$5.0$3.7
$1.9
$6.29.2%
10.1%
5.4%
3.5% 2.3%
7.3%
2012 2013 2014 2015 YTDQ15 YTDQ16
$18.9$21.8
$18.2$21.1
$15.7$18.9
22.6%24.7%
19.7%
19.8%
22.0%19.5%
2012 2013 2014 2015 YTDQ15 YTDQ16
Adjusted EBITDA ($M) (a) Non-GAAP EPS ($M) (a)
$0.70 $0.80
$0.25 $0.23
$0.01
$0.29
2012 2013 2014 2015 YTDQ15 YTDQ16
2016 Revenue & Profit Growth Drivers
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T&D Solutions Segment Siemens renewal and expansion
– DOE 2016 requirements, higher pricing (a)
– 80% volume share going to 100% Pacific acquisition: ~$5M of annual revenue
Critical Power Segment Expanding Titan’s service region; large new cell tower
service customer, addition of others New ATS product line launched
Expected Revenue Growth Factors Expected Profit Growth Factors
T&D Solutions Segment Facility Consolidations (6 facilities into 3) Increased offshoring and outsourcing Additional operational savings expected in
purchasing, distribution channel efficiencies, design harmonization
Critical Power Segment Facility Consolidation: Titan moved to Pioneer Critical
Power’s location
Expected growth significantly outpacing industry growth rate At least $2.5M of savings expected in 2016 just from redundancies
(a) DOE 2016, higher pricing also applies to >1,000 existing electrical equipment distributor customers
9 month 2016 results suggest company is ahead of pace to meet 2016 profitability guidance
Investment Summary
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Stable & profitable core businesses Recurring blue chip customer base Aging North American electrical infrastructure needing replacement Increasing demands and requirements for grid system stability & efficiency Rising investment in on-site backup power & distributed generation
projects Growth of renewable energy sources needing
connection to the power grid Deep management team with track record of growth,
particularly through acquisition
Contact Us
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Investor Relations:
Brett MaasManaging PartnerHayden IR, LLC(T) [email protected]
Corporate Headquarters:
Pioneer Power Solutions, Inc.400 Kelby Street, 12th FloorFort Lee, NJ 07024(T) 212.867.0700(F) 212.867.1325www.pioneerpowersolutions.com
Reconciliation of Non-GAAP Measures(In thousands, except per share data)
- 21 -
Nine Months EndedYears Ended December 31, September 30,
2011 2012 2013 2014 2015 2015 2016Reconciliation to Non-GAAP Net Earnings (Loss) and EPS:Net earnings (loss) per share (GAAP measure) 0.42$ 0.54$ 0.84$ (0.04)$ (0.71)$ (0.62)$ 0.12$ Net earnings (loss) (GAAP measure) 2,471$ 3,189$ 5,270$ (268)$ (5,485)$ (4,593)$ 1,084$
Amortization of acquisition intangibles 252 285 330 318 1,690 1,301 1,308 Stock-based compensation expense 254 270 217 226 231 174 35 Restructuring and integration charges - - - 1,402 5,577 3,439 200 Acquisition and related costs 334 55 430 913 323 310 110 Titan Northeast discontinuation - - - - 168 122 - Other non-recurring expenses - (8) (2) - 2,212 1,222 445 Withdrawn financing transaction costs 487 45 - - - - - Non-recurring tax (recoveries) non-cash charges, net (26) 411 (1,018) - - - - Tax effects (464) (126) (191) (768) (2,949) (1,909) (656)
Non-GAAP net earnings (loss) 3,307$ 4,121$ 5,036$ 1,823$ 1,767$ 66$ 2,526$ Non-GAAP net earnings per diluted share 0.56$ 0.70$ 0.80$ 0.25$ 0.23$ 0.01$ 0.29$ Weighted average diluted shares outstanding 5,949 5,913 6,298 7,185 7,746 7,427 8,708
Reconciliation to Adjusted EBITDA:Net earnings (loss) (GAAP measure) 2,471$ 3,189$ 5,270$ (268)$ (5,485)$ (4,593)$ 1,084$
Interest expense 646 933 755 582 718 506 1,150 Income tax (benefit) expense 773 1,733 682 524 (2,702) (1,548) 900 Depreciation and amortization 1,086 1,536 1,556 1,600 3,035 2,354 2,317 Restructuring and integration charges - - - 1,402 5,577 3,439 200 Acquisition and related costs 334 55 430 913 323 310 110 Titan Northeast discontinuation - - - - 168 122 - Other non-recurring expenses - (8) (2) - 2,212 1,222 445 Withdrawn financing transaction costs 487 45 - - - - -
EBITDA 5,797 7,483 8,690 4,753 3,845 1,811 6,206 Adjustments to EBITDA:Stock-based compensation expense 254 270 217 226 231 174 35 Stock and warrant issuance expense for services - - - - - - -
Adjusted EBITDA (Non-GAAP measure) 6,050$ 7,753$ 8,907$ 4,979$ 4,076$ 1,985$ 6,241$
Key Market & Ownership Statistics
Ticker Symbol (NASDAQ): PPSIRecent Closing Price (11/30/2016): $5.40Shares Outstanding (M): 8.7Market Capitalization ($M): $47.0 Freely Traded Float (M): 3.4
- 22 -(a) Based on mid-point of Company’s guidance
Market Information
Valuation Measures Major Shareholder Ownership Information
Stock Trading History
Employees and Directors 52.4%Lawrence Carroll Trust 7.5%Heartland Advisors, Inc. 5.7%North Star Investment Management Corp. 5.0%First Wilshire Securities 4.2%Perritt Capital Management Inc. 1.9%Vanguard Group, Inc. 0.3%
Enterprise Value ($M): $70.6Forward P/E Ratio (Dec-2016): 7.5xForward EBITDA Multiple (Dec-2016) (a): 5.0xPrice to Book Ratio (mrq) 1.5x