PIONEER POWER SOLUTIONS, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Overview We design, manufacture, integrate, service and sell distributed energy resources, on site power generation equipment and mobile 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, Federal and State government entities, package delivery businesses, school bus fleet operators, EV charging infrastructure developers and owners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operate from two (2) additional locations in the United States for manufacturing, service and maintenance, engineering, and sales and administration. We intend to grow our business through continued internal investments in product development and expansion of our manufacturing, engineering, sales and marketing personnel. Following the sale of our PCEP business unit in October 2024, we currently have one reportable segment: Critical Power. Our Critical Power business provides customers with our suite of mobile e-Boost© EV charging solutions, power generation equipment and all forms of preventative maintenance, repairs, remote monitoring and other service on our customers’ equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under the Titan, Pioneer eMobility and Pioneer Critical Power brand names. U.S. dollars are reported in thousands, except for share and per share amounts (unless otherwise noted). 18 Critical Accounting Estimates The preparation of consolidated financial statements and related disclosures are in conformity with U.S. GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonable based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Lessor Accounting — Sales-Type Leases We enter into lease and rental arrangements with customers for our mobile EV charging equipment and related power generation equipment. At lease commencement, we evaluate each arrangement under ASC 842, Leases, to determine the appropriate lease classification. Leases that meet any one of the five classification criteria under ASC 842-10-25-2 are classified as sales-type leases, for which we derecognize the underlying asset, recognize a net investment in the lease (comprised of the lease receivable and the unguaranteed residual asset), and recognize any selling profit or loss at commencement. Interest income on the net investment is recognized over the lease term using the effective interest method. This accounting requires judgment in several areas. Lease classification depends on management’s estimates of the economic life and fair value of the underlying equipment, which we determine based on historical experience, expected technological obsolescence, and anticipated usage. Changes in these estimates can shift a classification, significantly altering the timing of revenue recognition. We also estimate unguaranteed residual values based on expected equipment fair value at lease expiration, considering anticipated market demand, remaining useful life, and technological changes in the mobile EV charging market. Because this market is still developing, limited historical resale data is available and residual value estimates are subject to greater uncertainty than for more established equipment categories. In addition, the rate implicit in the lease, which incorporates the credit standing of the lessee, fair value of the asset, and expected residual value, affects the measurement of the net investment and the allocation of income over the lease term. Changes in the above estimates could materially affect revenue, cost of revenue, and the carrying value of our net investment in sales-type leases. A decrease in fair values of the underlying asset would reduce the net investment and selling profit recognized at commencement. A reclassification from sales-type to operating would shift revenue from the commencement period to recognition ratably over the lease term. In addition, there are other items within our consolidated financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our consolidated financial statements. Our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 19 RESULTS OF OPERATIONS Overview of December 31, 2025, and 2024, Operating Results Selected financial and operating data for our reportable business segment for the most recent two years is summarized below. This information, as well as the selected financial data provided in Note 13 to our Consolidated Financial Statements and related notes included in this Annual Report on Form 10-K, should be referred to when reading our discussion and analysis of results of operations below. Our summary of operating results during the years ended December 31, 2025, and 2024, are as follows (in thousands): For the Year Ended December 31, 2025 2024 Revenues $ 27,627 $ 22,879 Cost of goods sold 24,201 17,365 Gross profit 3,426 5,514 Selling, general and administrative 9,146 9,712 Research and development 875 1,050 Total operating expenses 10,021 10,762 Operating loss from continuing operations (6,595 ) (5,248 ) Interest income, net 739 431 Other (expense) income, net (518 ) 50 Loss before income taxes (6,374 ) (4,767 ) Income tax expense (benefit) 74 (1,418 ) Net loss from continuing operations (6,448 ) (3,349 ) Income from discontinued operations, net of income taxes 449 35,204 Net (loss) income $ (5,999 ) $ 31,855 Backlog . Revenue backlog, which consists of purchase orders and contracts from customers that we believe to be firm, reflects the amount of revenue that we expect to realize in the future upon the satisfaction of customer orders for our products or services that are not yet complete or for which work has not yet begun. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. Our revenue backlog as of December 31, 2025, from our Critical Power business was $12,617, a decrease of $7,145, or 36.2%, when compared to $19,762 as of December 31, 2024. The following table represents the progression of our backlog as of December 31, 2025, and 2024 (in thousands): December 31, 2025 2024 Critical Power Solutions $ 12,617 $ 19,762 Total order backlog $ 12,617 $ 19,762 20 Revenue The following table represents our revenues by major product category for the periods indicated (in thousands, except percentages): For the Year Ended December 31, 2025 2024 Variance % Critical Power Solutions Equipment $ 18,185 $ 12,262 $ 5,923 48.3 Service 9,442 10,617 (1,175 ) (11.1 ) Total revenue $ 27,627 $ 22,879 $ 4,748 20.8 For the year ended December 31, 2025, our revenue from our Critical Power segment increased by $4,748, or 20.8% to $27,627, up from $22,879 during the year ended December 31, 2024, primarily due to an increase in sales and rentals of our suite of mobile EV charging solutions, e-Boost, partially offset by a decrease in service sales. Gross Profit and Margin The following table represents our gross profit for the periods indicated (in thousands, except percentages): For the Year Ended December 31, 2025 2024 Variance % Critical Power Solutions Gross profit $ 3,426 $ 5,514 $ (2,088 ) (37.9 ) Gross margin % 12.4 24.1 (11.7 ) For the year ended December 31, 2025, our gross margin from our Critical Power segment decreased to 12.4% of revenues, as compared to 24.1% during the year ended December 31, 2024. The decrease was primarily attributable to an unfavorable sales mix, in addition to a contract with a customer in our Pioneer eMobility business which generated lower margins on the initial units due to higher costs incurred during the early stages of production as we refined our manufacturing processes and optimized build efficiency. Operating Expenses The following table represents our operating expenses for the periods indicated (in thousands, except percentages): For the Year Ended December 31, 2025 2024 Variance % Selling, general and administrative $ 9,146 $ 9,712 $ (566 ) (5.8 ) Research and development 875 1,050 (175 ) (16.7 ) Total operating expense $ 10,021 $ 10,762 $ (741 ) (6.9 ) Selling, General and Administrative Expense . For the year ended December 31, 2025, consolidated selling, general and administrative expense decreased by approximately $566, or 5.8%, to $9,146, as compared to $9,712 during the year ended December 31, 2024, primarily due to a decrease in stock-based compensation expense and professional fees, partially offset by an increase in information technology costs and insurance expense. As a percentage of our consolidated revenue, selling, general and administrative expense decreased to 33.1% during the year ended December 31, 2025, as compared to 42.4% during the year ended December 31, 2024, primarily due to the increase in total revenue during the year ended December 31, 2025. R&D Expenses. Research and development expenses in our Critical Power segment consists of costs incurred in performing research and development activities, including salaries, benefits, overhead costs, contract services and other related costs. During the year ended December 31, 2025, we incurred $875 of R&D expenses related to developing our mobile e-Boost EV charging solutions as compared to $1,050 during the year ended December 31, 2024. 21 Operating Loss from Continuing Operations The following table represents our operating loss for the periods indicated (in thousands): For the Year Ended December 31, 2025 2024 Variance % Operating loss from continuing operations $ (6,595 ) $ (5,248 ) $ (1,347 ) (25.7 ) During the year ended December 31, 2025, our operating loss from continuing operations increased by approximately $1,347, or 25.7%, to $6,595, as compared to $5,248 during the year ended December 31, 2024, primarily due to an increase in cost of goods sold resulting in a lower gross profit. Non-Operating Income (Expense) from Continuing Operations Interest Income . For the year ended December 31, 2025, we had interest income of approximately $739, as compared to interest income of approximately $431 during the year ended December 31, 2024. We generated most of our interest income from our cash on hand during the year ended December 31, 2025. Other (Expense) Income . Other (expense) income in the consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the year ended December 31, 2025, other non-operating expense was $518, as compared to other non-operating income of $50 during the year ended December 31, 2024, primarily due to the loss on our equity method investment. Provision for Income Taxes . Our provision for income taxes reflects an effective tax rate on loss before taxes of (1.2)% for the year ended December 31, 2025, as compared to 29.7% for the year ended December 31, 2024, as set forth below (in thousands): For the Year Ended December 31, 2025 2024 Variance Loss before income taxes $ (6,374 ) $ (4,767 ) $ (1,607 ) Income tax expense (benefit) 74 (1,418 ) 1,492 Effective income tax rate % (1.2 ) 29.7 (30.9 ) Net (Loss) Earnings per Share from Continuing Operations We generated a net loss from continuing operations of $6,448 for the year ended December 31, 2025, as compared to $3,349 during the year ended December 31, 2024. Our net loss from continuing operations per basic and diluted share for the year ended December 31, 2025, was $0.58, compared to a net loss from continuing operations per basic and diluted share of $0.31 for the year ended December 31, 2024. Income from Discontinued Operations, Net of Income Taxes Income from discontinued operations, net of tax was $449 during the year ended December 31, 2025, as compared to $35,204 during the year ended December 31, 2024. The decrease was primarily attributable to the completion of the PCEP Sale on October 29, 2024. Income from discontinued operations during 2024 included a $35,044 gain recognized on the sale of PCEP as well as the operating results of PCEP through the closing date. Income from discontinued operations during 2025 was primarily attributable to a net working capital adjustment with the buyer of the PCEP sale, net of tax. 22 LIQUIDITY AND CAPITAL RESOURCES General . As of December 31, 2025, we had $14,959 of cash on hand generated primarily from the PCEP Sale. On October 29, 2024, we closed on the PCEP Sale for gross cash proceeds of $48,000 and $2,000 in equity. On January 7, 2025, we paid a one-time special cash dividend of an aggregate of $16,665. As of December 31, 2024, we recorded a consideration due to the buyer of the PCEP Sale of $3,347 related to a net working capital adjustment. On April 16, 2025, we and the buyer from the PCEP Sale finalized the net working capital adjustment and as a result, we recorded a $1,147 adjustment to the consideration due to the buyer of the PCEP Sale. During the year ended December 31, 2025, we paid the $2,200 consideration to the buyer of the PCEP Sale. The continuing impacts of the rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict in the Middle East, 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 our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time. Additionally, the shutdown of the U.S. federal government, recent changes to U.S. policy implemented by the U.S. Congress, the Trump administration or any new administration have impacted and may in the future impact, among other things, the U.S. and global economy, tariff policies and regulations, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. As a result of the current uncertainty in economic activity, we are unable to predict the potential size and duration of the impact on our revenue and our results of operations, if any. The extent of the potential impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, including the extent of geopolitical disruption and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. We continue to monitor the effects of these macroeconomic factors and intend to take steps deemed appropriate to limit the impact on our business. During the year ended December 31, 2025, we were able to operate substantially at capacity. There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm our business and results of operations. The cash flows related to the discontinued operations have not been segregated and are included in the consolidated statements of cash flows. Cash Used in Operating Activities . Cash used in our operating activities was $5,818 during the year ended December 31, 2025, as compared to cash used in our operating activities of $6,212 during the year ended December 31, 2024. The decrease in cash used in operating activities is primarily due to working capital fluctuations and the payment of federal and state income taxes. Cash Used in/ Provided by Investing Activities. Cash used in investing activities during the year ended December 31, 2025, was $3,896, as compared to cash provided by our investing activities of $38,876 during the year ended December 31, 2024. The increase in cash used in investing activities is primarily due to the payment of the $2,200 consideration to the buyer of the PCEP Sale during the year ended December 31, 2025. During the year ended December 31, 2025, and 2024, additions to our property and equipment were $2,677 and $3,759, respectively. During the year ended December 31, 2025, we received a cash dividend of $981 from our equity method investee. We elected to apply the cumulative earnings approach to classify distributions received from equity method investments in our consolidated statements of cash flows. Under this method, distributions received from equity method investees are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our share of cumulative equity in the investee’s net income (loss). In such cases, the excess distributions are considered returns of investment and are classified as investing activities. As of December 31, 2025, our cumulative distributions were $981, and our share of cumulative equity in the investee’s net loss was $601. As such, the cash distribution received during the year ended December 31, 2025, was classified as investing activity in the consolidated statements of cash flows. Cash Used in/ Provided by Financing Activities. Cash used in our financing activities was $16,949 during the year ended December 31, 2025, as compared to cash provided by our financing activities $5,376 during the year ended December 31, 2024. The increase in cash used in financing activities is primarily due to the payment of a one-time special cash dividend. Working Capital . As of December 31, 2025, we had working capital of $20,659, including $14,959 of cash, compared to working capital of $26,679, including $41,622 of cash on hand as of December 31, 2024. Assessment of Liquidity . As of December 31, 2025, we had $14,959 of cash on hand generated primarily from the PCEP Sale. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the sale of the transformer business units in August 2019, the completion of the PCEP Sale in October 2024 and the sale of common stock. Historically, our cash requirements were generally for operating activities, debt repayment, capital improvements and acquisitions. 23 We expect to meet our cash needs with our working capital and cash flows from operating activities in the long-term. 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 from the date our consolidated financial statements are issued. As of December 31, 2025, 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 Our additions to property and equipment were $2,677 during the year ended December 31, 2025, as compared to $3,759 of additions during the year ended December 31, 2024. 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. In addition, the consequences of the ongoing geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict in the Middle East, 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. Additionally, recent changes to U.S. policy implemented by the U.S. Congress, the Trump administration or any new administration have impacted and may in the future impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, the U.S. regulatory environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business. We predominately sell to customers in the industrial production 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 “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” New Accounting Pronouncements The information required by this Item is provided in “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements for the year ended December 31, 2025, included in this Annual Report on Form 10-K. Recent Accounting Pronouncements There have been no recent accounting pronouncements not yet adopted by us which would have a material impact on our consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 24