Good afternoon and welcome to the Pioneer Power Solutions 2023 Second Quarter Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kim Rogers with Hayden IR. Please go ahead.

Thank you, and welcome. Joining us on today's call will be Nathan Mazurek, Chairman, and Chief Executive Officer; Walter Michalec, Chief Financial Officer, and Geo Murickan, President of Pioneer eMobility. Following management prepare comments a Q&A session will be open to the call participant. We appreciate the opportunity to review the second quarter 2023 financial results as well as discuss recent business highlights. Before we get started, let me remind you this call is being recorded and webcast. During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release issued earlier today, which applies to the content of today’s call as well. I'd now like to turn the call over to Nathan Mazurek, Chairman and CEO. Nathan, please go ahead.

Thank you, Kim. Good afternoon, and thank you all for joining us today. This was a great quarter for us with both divisions delivering strong performance resulting in record revenue that was up nearly 150% year-over-year for the second quarter, and a bottom line that was solidly profitable, excluding non-cash 1-time charges relating to stock-based compensation. The revenue growth reflects growing demand across both our business segments, and the profitability reflects better operating leverage, manufacturing efficiencies, and a more optimal product mix. Notably, we are delivering better profitability even as we continue to invest significant monies primarily in our e-Boost business. Even with these large investments, we essentially generated approximately $0.05 per share in GAAP net income, if not for non-cash stock-based compensation charges, and we still expect to generate positive net income for the full year 2023. Both our segments are executing to plan so far. Our T&D solutions unit, which includes our e-Bloc power system and related products, grew revenue 263% to $9.2 million compared to $2.5 million for the second quarter of last year. Indeed, year-to-date, T&D revenue was up 140% to $15 million versus last year's $6.3 million. Our critical power segment, which includes our e-Boost mobile charging platform, grew quarterly revenue 25% and year-to-date revenue 14% compared to last year. In addition, 100% of pioneer's revenue growth has been entirely organic. Gross margins in both segments have improved exponentially since a year ago. Notably, our T&D segment is now delivering consistent positive GAAP EBITDA, specifically $1.8 million in the second quarter up from a loss of $432,000 in the second quarter of last year, and positive EBITDA of $3.1 million year-to-date compared to a loss of $332,000 in the first six months of last year. In addition, our critical power segment has narrowed its losses…

Thank you, Nathan, and good afternoon everyone. As Nathan mentioned, this was a great quarter for Pioneer with both divisions delivering strong performances. Pioneer's second quarter consolidated revenue was $12.1 million, up $7.3 million or approximately 150% when compared to $4.9 million of revenue during the same period last year. Revenue from our T&D solution segment, which manufactures and integrates our e-block power systems increased 263% to $9.2 million during the second quarter. As compared to revenue of $2.5 million during the same period last year. Revenue from our critical power segment, which manufacture and integrates our e-Boost mobile charging solutions was up 25% to $2.9 million during the comparable periods. Consolidated gross profit for the second quarter was $2.7 million, or a 22% gross margin, compared to gross profit of $63,000 were essentially breaking even during the second quarter of last year. The significant improvement to our gross profit and margin was due to higher revenue driving, improved manufacturing utilization of favorable sales mix of higher margin, e-Bloc power systems, and ATS equipment, and margin expansion in both segments as we continue to scale revenue. Selling general and administrative expenses up $3.1 million were 25% of revenue for the second quarter of 2023, an increase of 20% when compared to $2.6 million in the year-ago quarter. Approximately $819,000 of the quarterly SG&A expense was related to 1-time non-cash stock-based compensation SG&A also includes approximately 750,000 in incremental investments in sales, marketing, personnel, and prototypes for our e-Boost solutions. This is intentional and targeted spending designed to drive demand for these new solutions. We expect these investments to continue through 2023 as we build these new business lines and as they grow. Finally, higher wage costs, including salaries and benefits, contributed to the increase in SG&A expense. Our operating loss,…

[Operator Instructions]. The first question comes from Sameer Joshi with H. C. Wainwright. Please go ahead.

Great. Thank you. Good afternoon. Nathan, and Walter, congratulations on the excellent quarter. Was there any surprises on the positive side on the top-line in terms of some deliveries getting expedited? Also, just wanted to understand, what made this quarter so great.

Yeah. I mean, this was -- thank you, Sameer, for your comments. It is kind of unfolded the way we thought it would. The quarter thankfully, there were no real surprises. There was a little bit of a hangover from the first quarter if you remember. There was one larger, or not really so large, but there was one job that kind of couldn't shift the last day of the first quarter, and that hungover into the second quarter of this year. But we stand by the guidance that we gave for the years. So, I mean, you can all do the math, you can -- the second half of the year will come in and what will come in and we fully expect to meet or hopefully even exceed a little bit the guidance for the year.

That's what it looks like. But specifically, on the backlog and your guidance the second half, what proportion of this expected revenues would come from E-Block and e-Boost?

Yeah, so the vast majority is coming from E-block, especially the second half of this year. As we said in the prepared remarks or incrementally, e-Boost will have a better second half than it had the first half. So that's sort of a little bit of a wild card contribution that we generally don't have such good visibility as to when those things end up shipping and realizing the revenue. So that should be make even the second half a little bit stronger. But, that's the mix. E-block is driving it very hard here for 2023. We expect it to drive it hard for 2024, but we expect, and where it's too early to talk about 2024. But I hope that in the prepared remarks that came across that we're expecting a substantially stronger year on the e-Boost side in 2024.

And will you remind us if e-Boost is going to be a better margin product? And maybe as revenues increase profitability may improve.

Yeah, I mean, it should track that way. We definitely get better. The issue with e-Boost, it's all new, so there's some on our part, there's some missteps. Every single one is custom. There is no model for how to price a lot of these things. And so far, it's been all over the place, you know? Better than sometimes expected and then sometimes worse. So, we don't -- we just don't have enough -- we don't have enough units under our belts yet to project the margin. We go in with great expectations, but we've never for the plus or the minus hit exactly what we thought.

On the e-Boost, you identified these new markets and airlines, mining, construction -- are you already -- do you have leads into this or are you already receiving orders from these sectors?

We haven't received any orders from those segments, but we are in serious discussions with all of them. And these are segments that, I didn't know anything about months ago. These emerged, and through the hard work of Geo and his team and through getting the proper word out and trying to make e-Boost synonymous with the mobile charging solution, that's how these opportunities are coming our way.

Understood. In terms of capacity and also some of the product development for e-Boost, is there any additional incremental CapEx and OpEx, R&D dollars expected in the second half?

No, we're hopefully spending less on R&D on e-Boost and more towards capital expenditures that expand the actual capacity for e-Boost. Because we're coming to the limits, this year we'll test the limits of what we need to deliver in Minneapolis. So, in order for that business to really grow, we just physically can't do it. I don't think it's going to be -- we're not doing heavy work. So, it's not I don't think that, we don't have a budget for it, but it should not be outside our reach. And in the case of e-Bloc, each year we think we're at statistical 100. We're trying to do everything possible to enhance and be more efficient in the current facility in Los Angeles because the operating -- we're getting the benefit now of the fixed overhead and so forth, and just to expand physically and lose some of that advantage from a profitability. I'm a load to do that right away.

Understood. And then this last one on the SG&A expense, GAAP expense side. In the last 2022, we saw this stock-based comp in 2Q being higher, and then 3Q, 4Q were again normalized, should we expect the same cadence of stock-based comp for the next second half, as the second half…

I'm not expecting it. So, I guess the answer is no. It was done, again, it's all fully disclosed. Last year was an arrangement we made to keep our CFO incentivized to stay with us for the long term. And I was granted a stock grant by the board, a couple of months ago, and that manifested itself in the second quarter. So, I don't -- we don't know of any other awards.

Yes. So OpEx on the GAAP basis will be coming down in the second half.

Correct.

[Operator Instructions]. The next question is from Scott Weiss with Semical Capital. Excuse me if I mispronounced.

Congrats on the great quarter. I have one question on the demand side, you talk about all these newer opportunities and new verticals. Is there something that's happened in the last quarter, two quarters that has caused this inflection that you are seeing in demand? And then related to that, which vertical are you most excited about as you look out over the next 12 months to 18 months?

Yes, so I mean, we still think of the business in two parts. Both are experiencing strong demand. So, on the e-Bloc side that the demand, the big markets, I think I flagged them, that we expect to get greater volume and profit from our water and data centers. That's where we see a match to what's going on with distributed generation, and people that are taking their power needs extremely seriously on every level. On the e-Boost side, what's really going to drive it in the next year or so, is still going to be the traditional mobile chart. It's traditional, it's not traditional, but the initial thought the reasons we launched e-Boost, which is going to be cars, buses, and trucks, those electric offerings. But there is a push, and I don't think we will get one order from an airline in 2023 or maybe not even for most of 2024, as their transition to electric is going to definitely take them longer. But it's pushing against the fence. And they're taking it very seriously. They won't make that move as quickly as the vehicle market yet, but we see this kind of as a long tailwind. I want to believe that construction equipment's gonna go this way, but it is. Is it going to do it next year? It's not going to do it next year, but it is going to make the transition over the next several years.

Can you dig into the data center side on e-Bloc for a second? Going back, say, a couple of years, were data centers using this kind of technology? And what inning are we in penetrating the data centers and who else is providing this technology into data center market besides you?

I you know, the date -- technology exists who's doing it in a compact, simple structure that is proven to work in critical applications where there is no there is no room for error that I can't answer. As they get away from thinking of just regular power from the grid and backup power from diesel sets as they start integrating other power sources into what they are doing for a variety of reasons, we are hoping that this first project really serves as our planting the flag in that beach, and here it is. And it works. Everybody wants a seat. So, what's gonna happen? They went away from diesel they are using natural gas and they are using natural or whatever they are whatever this particular user. They're using a combination of several sources that everything switched in nanoseconds. Was there any failure? Was there any this? What was the service? I think that's -- then they don't have a choice after that. They don't want to be they don't wanna be people that are using diesel when they don't have to.

Okay. Great. Thank you. Appreciate it.

Alright, Scott. See you in a few weeks in Chicago.

The next question is from David Kreinberg with Globus Capital. Please go ahead.

Hi. Good afternoon. Congratulations on the fantastic quarter. Just a quick question. The locked retailer that you had last year, I think it was $12 million of revenues. Is any revenues expected from them in the guidance this year?

No. We went out without any expected revenue from them.

Right. So, if I look at last year, I think $12 million out of your $27 million was from that one customer. So, if I back that out, through without them, you were actually going from 15. you are almost tripling the business, X that one customer this year. Is that right?

Almost 100%, right? Some of it hung over into the first quarter, over the year.

Okay. So, there is, a little bit of revenues in that.

There is a little bit of this year. Correct. But then, we did the...

Go ahead.

The potential is, as we have said, they have targeted almost 500 stores. You know, we've delivered 63. I can't speak if anything else is going on, but I'm expecting hopefully some more good news from them sometime this year, which would mean that we would deliver it sometime in 2024. But, I don't have anything in my hand today to announce.

Okay, great. Congratulations again.

Thank you, David.

This concludes the question and answer session. I'd like to turn the conference back over to Nathan Mazurek for any closing remarks.

Thank you, operator. Thank you all for your time and support and we look forward to updating you again on our next call.

The conference is now concluded. And thank you for attending today's presentation. You may now disconnect.