Item 2. Management’s Discussion and Analysis
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 unaudited condensed interim consolidated 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, 2024, which was filed with the Securities and Exchange Commission on April 14, 2025.
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 subsidiary.
U.S. dollars are reported in thousands except for
share and per share amounts .
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 market, but also in the power generation, industrial production 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.
●
Our ability to remediate the ongoing material weakness identified in our internal control over financial reporting, or inability to otherwise maintain an effective system of internal control.
●
The effect that the identified material weakness and failure to establish and maintain effective internal control over financial reporting could have on investor confidence in us and raise reputational risk.
●
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.
●
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.
●
Our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market.
●
Risks associated with litigation and claims, which could impact our financial results and condition.
13
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, 2024, for a discussion of the foregoing and
other risks that relate to our business and investing in shares of our common stock.
Business 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 business’, 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.
U.S. dollars are reported
in thousands, except for share and per share amounts (unless otherwise noted).
Description of Business Segment
In October 2024, we sold our Pioneer Custom Electrical
Products Corp. (“PCEP”) business unit to a buyer (the “PCEP Sale”) as a result of a strategic change to the operations
of our business. Following the PCEP Sale, we currently have one reportable segment - Critical Power Solutions (“Critical Power”).
●
Our Critical Power business provides customers with our suite of mobile EV charging solutions, power generation equipment and all forms services, including but not limited to, preventative maintenance, repairs, fuel polishing, and remote monitoring. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under our Pioneer eMobility (“e-Boost”) and Pioneer Critical Power (“Titan”) brand names.
Our Critical Power business designs, manufactures
and sells mobile EV charging solutions under our e-Boost suite of products, in addition to distributing new power generation equipment
and performing service and maintenance on our customers’ existing equipment. Many of these systems are used to maintain reliable,
primary, peak shaving or emergency standby power at facilities where it is required or where the potential consequences of a power outage
make it necessary, such as, but not limited to, major national retailers, hospitals, data centers, communications facilities, factories,
military sites, office complexes and other critical operations.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements
have been prepared in accordance with U.S. GAAP. The preparation of our unaudited condensed consolidated financial statements requires
us to make estimates and assumptions that affect the amounts and disclosures in the unaudited condensed consolidated 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 Securities and Exchange Commission (the “SEC”) on April 14, 2025. There were
no material changes to our critical accounting estimates during the three months ended March 31, 2025.
14
RESULTS OF OPERATIONS
Overview of March 31, 2025, and 2024, Operating
Results
Selected financial and operating data for our reportable
business segment for the most recent reporting period is summarized below. This information, as well as the selected financial data provided
in “Note 11 - Business Segment and Geographic Information” and in our unaudited condensed 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,
2025, and 2024, are as follows:
For the Three Months Ended
March 31,
2025
2024
Revenues
Critical Power Solutions
$ 6,740
$ 3,315
Cost of goods sold
Critical Power Solutions
6,592
2,780
Gross profit
148
535
Selling, general and administrative
2,399
2,048
Depreciation and amortization
15
2
Research and development
80
211
Total operating expenses
2,494
2,261
Operating loss from continuing operations
(2,346 )
(1,726 )
Interest income
247
31
Other income, net
23
40
Loss before income taxes
(2,076 )
(1,655 )
Income tax expense
-
-
Net loss from continuing operations
(2,076 )
(1,655 )
Income from discontinued operations, net of income taxes
1,147
620
Net loss
$ (929 )
$ (1,035 )
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 March 31, 2025, from our
Critical Power business was $23,231, an increase of $8,209, or 54.6%, when compared to $15,022 as of March 31, 2024.
The following table represents the progression of
our backlog as of the end of the last five quarters:
March 31,
December 31,
September 30,
June 30,
March 31,
2025
2024
2024
2024
2024
Critical Power Solutions
$ 23,231
$ 19,762
$ 24,038
$ 27,251
$ 15,022
Order backlog
23,231
19,762
24,038
27,251
15,022
Discontinued operation
-
-
42,112
39,670
30,889
Total order backlog
$ 23,231
$ 19,762
$ 66,150
$ 66,921
$ 45,911
15
Revenue
The following table represents our revenues by major product category for
the periods indicated (in thousands, except percentages):
For the Three Months Ended
March 31,
2025
2024
Variance
%
Critical Power Solutions
Equipment
$ 4,296
$ 1,434
$ 2,862
199.6
Service
2,444
1,881
563
29.9
Total revenue
$ 6,740
$ 3,315
$ 3,425
103.3
For the three months ended March 31, 2025, our revenue
from our Critical Power segment increased by $3,425, or 103.3% to $6,740, up from $3,315 during the three months ended March 31, 2024,
primarily due to an increase in sales and rentals of our suite of mobile EV charging solutions, e-Boost.
Gross Profit and Margin
The following table represents our gross profit for
the periods indicated (in thousands, except percentages):
For the Three Months Ended
March 31,
2025
2024
Variance
%
Critical Power Solutions
Gross profit
$ 148
$ 535
$ (387 )
(72.3 )
Gross margin %
2.2
16.1
(13.9 )
For the three months ended March 31, 2025, our gross
margin from our Critical Power segment decreased to 2.2% of revenues, as compared to 16.1% during the three months ended March 31, 2024.
The decrease was primarily attributable 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.
16
Operating Expenses
The following table represents our operating expenses
for the periods indicated (in thousands, except percentages):
For the Three Months Ended
March 31,
2025
2024
Variance
%
Selling, general and administrative
$ 2,414
$ 2,050
$ 364
17.8
Research and development
80
211
(131 )
(62.1 )
Total operating expense
$ 2,494
$ 2,261
$ 233
10.3
Selling, General and Administrative Expense .
For the three months ended March 31, 2025, consolidated selling, general and administrative expense increased by approximately $364, or
17.8%, to $2,414, as compared to $2,050 during the three months ended March 31, 2024, primarily due to an increase in professional fees.
As a percentage of our consolidated revenue, selling, general and administrative expense decreased to 35.8% during the three months ended
March 31, 2025, as compared to 61.8% during the three months ended March 31, 2024, primarily due to the increase in total revenue during
the three-month period ended March 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 three months ended March 31, 2025, we incurred $80 of
R&D expenses related to developing our mobile e-Boost EV charging solutions as compared to $211 during the three months ended March
31, 2024.
Operating Loss from Continuing Operations
The following table represents our operating loss
from continuing operations for the periods indicated (in thousands):
For the Three Months Ended
March 31,
2025
2024
Variance
%
Operating loss from continuing operations
$ (2,346 )
$ (1,726 )
$ (620 )
(35.9 )
During the three months ended March 31, 2025, our
operating loss from continuing operations increased by approximately $620, or 35.9%, to $2,346, as compared to $1,726 during the three
months ended March 31, 2024, primarily due to the decrease in our gross profit and an increase in selling, general and administrative
expense.
17
Non-Operating Income from Continuing Operations
Interest Income . For the three months ended
March 31, 2025, we had interest income of approximately $247, as compared to interest income of approximately $31 during the three months
ended March 31, 2024. We generated the majority of our interest income from our cash on hand during the three-month periods ended March
31, 2025, and 2024.
Other Income . Other income in the consolidated
statements of operations reports certain gains and losses associated with activities not directly related to our core operations.
For the three-month period ended March 31, 2025, other
non-operating income was $23, as compared to $40 during the three-month period ended March 31, 2024.
Provision
for Income Taxes . For the three months ended March 31, 2025 and 2024, the Company recorded no income tax provision, resulting in an
effective tax rate (ETR) of 0%.
The
current quarter’s 0% effective tax rate primarily reflects:
(i) The
continued application of a full valuation allowance on the Company’s federal, state,
and foreign deferred tax assets;
(ii) The
absence of any discrete income-generating events or significant attribute utilization;
(iii) The
impact of non-deductible permanent items, including meals & entertainment, officer compensation
subject to §162(m), and penalties;
(iv) No
recognition of return-to-provision (RTP) or foreign tax credit (FTC) benefits during the
period;
(v) The
absence of any tax rate changes or deferred remeasurement activity.
Due
to continued volatility in operating results and the non-reliability of full-year forecasted income, management determined that it was not practicable to
compute a reliable annual effective tax rate. As such, the Company applied the discrete method under ASC 740-270-30-18 to determine the
tax provision for the quarter.
The
Company expects to continue applying the discrete method until a reliable forecast of annual
taxable income can be established.
Net Loss per Share from Continuing Operations
We generated a net loss from continuing operations
of $2,076 during the three months ended March 31, 2025, as compared to $1,655 during the three months ended March 31, 2024.
Our net loss from continuing operations per basic
and diluted share during the three months ended March 31, 2025, was $0.19, compared to a net loss from continuing operations per basic
and diluted share of $0.16 during the three months ended March 31, 2024.
Income
from Discontinued Operations
Income
from discontinued operations, net of tax was $1,147, during the three months ended March 31, 2025, as compared to $620 during the three
months ended March 31, 2024. The $1,147 of income recognized during the three months ended March 31, 2025, was due to finalizing the
net working capital adjustment with the buyer of the PCEP Sale.
18
LIQUIDITY AND CAPITAL RESOURCES
General .
As of March 31, 2025, we had $25,840 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, the Company 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. Subsequent to March 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 between Israel and Hamas, 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, 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. 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 three months ended March 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 unaudited condensed consolidated statements of cash flows.
Cash Provided by/ Used in Operating Activities .
Cash provided by our operating activities was $1,502 during the three months ended March 31, 2025, as compared to cash used in our operating
activities of $1,950 during the three months ended March 31, 2024. The decrease in cash used in 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, 2025, was $595, as compared to cash used in our investing activities of
$213 during the three months ended March 31, 2024. During the three-month periods ended March 31, 2025, and 2024, additions to our property
and equipment were $595 and $213, respectively.
Cash Used in/ Provided by Financing Activities.
Cash used in our financing activities was $16,689 during the three months ended March 31, 2025, as compared to cash provided by our financing
activities $4,808 during the three months ended March 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 March 31, 2025, we had
working capital of $26,151, including $25,840 of cash on hand, compared to working capital of $26,679, including $41,622 of cash on hand
as of December 31, 2024.
19
Assessment of Liquidity . As of March 31, 2025,
we had $25,840 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.
We expect to meet our cash needs with our working
capital and cash flows from 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 from the date our unaudited condensed consolidated financial statements are issued.
As of March 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 $595
during the three months ended March 31, 2025, as compared to $213 of additions during the three months ended March 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 between Israel and Hamas, 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. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
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