Greetings, and welcome to the Pioneer Solutions Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Maas, with Hayden Investor Relations. Thank you. You may begin.

Thank you, operator. The call today will be hosted by Nathan Mazurek, Chairman and Chief Executive Officer; Walter Michalec, Chief Financial Officer; and Geo Murickan, President and CEO of Pioneer Power Mobility. Following this discussion, there will be a Q&A session open to participants on the call. We appreciate the opportunity to discuss the recent sale of the company's PCEP business unit as well as our enthusiasm for the remaining Critical Power and eMobility business. 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 contained in our 10-K or 10-Q in our filings, which applies to the context of the call. I'd like to now turn the call over to Nathan Mazurek, Chairman and CEO. Nathan, please go ahead.

Thank you, Brett. Good afternoon, and thank you all for joining us today. As we disclosed in the press release this morning, we sold our Pioneer Custom Electrical Products Corp. business, PCEP, to Mill Point Capital, a private equity firm located in New York City for essentially $50 million in cash and the assumption of certain liabilities. We will talk more about the transaction during this call, our rationale for the sale, what it means for our business going forward and provide investors with an opportunity to ask questions about the transaction. For some time now, Pioneer has been on the forefront of the energy transition in North America with 2 fast-growing divisions: PCEP, primarily E-Bloc, an integrated power and control system originally developed for the distributed generation market and Critical Power, primarily our E-BOOST, mobile power and charging system we initially unveiled in November of 2021. Both these businesses are enjoying similar secular tailwinds and the opportunities for continued growth for each are robust and varied. Importantly, though, the products in each of these lines of business are different in terms of product scope and the markets they serve. And as a result, in our opinion, value for each has been somewhat constrained. We determined that divesting PCEP, primarily the E-Bloc business, will enable each entity to operate more nimbly and unlock additional value for their shareholders. Consequently, we sold our E-Bloc business yesterday, which had already achieved significant scale earlier and had matured earlier than our E-BOOST business for $50 million in cash to Mill Point. This sale enables us to, one, focus on our eMobility business, which we believe has a significantly higher ceiling than the E-Bloc business; 2, finance the growth of that business without any near or medium-term shareholder dilution or the assumption of any…

[Operator instructions] The first question is from Rob Brown from Lake Street Capital Markets.

I want to get a little sense of what you see in terms of your M&A strategy and maybe it's too early to sort of detail it, but what are some of the opportunities you see? And how do you think M&A can improve the E-BOOST sort of segment?

Yes. I mean, financially, it allows us to get bigger faster and really carry the burden, spread the burden of the overhead among more -- a larger scale. With that said, it would have to be something we've done a lot of work to take E-BOOST from a real money-losing business to something that's close to breaking even to hopefully making significant net profit within the next 12 months. So with that in mind, it would have to be sizable at least $25 million of revenue a year. It would have to not be bleeding. And of course, it would have to be related and enhance what we've already built up here. So it may be a very narrow group of candidates, but that's what we'd be looking for.

Okay. And then obviously, you're sort of making this decision now as E-BOOST is ramping. But could you give us a sense of some of the demand drivers that drove that 50% plus increase in backlog and maybe some of the opportunity set out there in that market?

Yes, that would be great. I'm going to let Geo Murickan, who really lives and breathes E-BOOST since its inception. I'm going to let him give probably better color than I would as to what's driving the last year specifically.

Thank you, Nathan. Yes, from a growth standpoint, we have seen a consistent growth in the transit bus fleet electrification market, consistent adoption and growth in the electric bus school districts and adjacent markets. Additionally, we're starting to see the ports or airports adopt electrification and requiring our services because of the grid gap that they're facing. One of the major sectors that we have seen growth in and we expect to see much higher growth in are municipalities in general, meaning towns and cities that are starting the electrification process of their fleets, whether be it their trash truck, whether it be their delivery service fleets. And for all of these, including utilities who are utilizing and electrifying their service trucks, what they initially utilize for service outages. When they try to electrify those in more remote areas, they need power for those electric vehicles. So we're seeing a large movement in cities and municipalities move ahead. And finally, one of the ones that we opened up was the clean energy markets and the need for technologies like hydrogen dispensing and also battery energy storage, which require a high amount of energy and power, and we're able to provide that in a very clean and sustainable way, in a mobile way so that they can reach out into remote areas as well.

Okay. Great. And I guess just last question on the HOMe-Boost product. You talked about that sort of launching in early '25. What's sort of the market opportunity there you see? And I guess, what's the working capital need that you -- that will drive?

Yes. I mean, like E-BOOST itself, I'm sure that the market will go in a way that will be sort of channeled in a different way than we initially conceived. But we're going to be attacking sort of the high-end housing market. I don't want to call it the McMansion, but you've got to have a house of a certain size and a budget of a certain size that the homeowners, there's a value to that homeowner of being able to generate their own Level 3 type charging. They can charge 2 vehicles quickly at the same time, giving them 24/7 super resiliency for their home or a portion of their home. We've kind of test marketed it. We haven't launched it officially yet into the market. The interesting thing is that the most interested potential users is not just a high-end home, but as we said in the script, it's sort of the small, the minimart or the kind of the user. The market for that, we're going to initially be working with electrical distributors and wholesalers and the engine generator dealers and contractors. And that's in 2025. I hope I'll be consistent with this, but in a couple of weeks when we give specific guidance for 2025, we're probably giving guidance with 0 baked in for HOMe-Boost. So HOMe-Boost is the gravy to that extent for 2025.

The next question is from Amit Dayal from H.C. Wainwright.

Congrats, Nathan. Good to see some value being unlocked here. With respect to sort of your targeting, what kind of margins you're targeting for the E-BOOST business? Could you give us any color on what the overheads for this segment may look like?

Yes. So I really -- I would like to do that really in the call in a couple of weeks when we actually disclose the third quarter. So we'll have 3 quarters of the year and sort of what we'll be able to pick apart each quarter, especially the third where the E-BOOST sales have been more robust. What margins did we achieve? What did we try to achieve? And what does the model look like at different revenue levels? So, I prefer to do that on the next call, if that's okay, Amit.

And then maybe adjacent to that, you were sort of hitting some level of ceiling, I guess, around capacity or available capacity when you have both these businesses or these business segments. Do you think just now focusing on E-BOOST, you have enough capacity at least initially to ramp to your targets for 2025 at least?

Yes. So, we've been successful on the E-BOOST side, maybe because we basically started it from nothing. We've been successful in working and it gets better every few months, working with different outsourced partners. We do the more complicated ones. We do the one-offs. We do all the prototypes ourselves in Minneapolis, but we've established a relationship with one person on the West Coast, looking to do that on the East Coast as well, where they are ready, of course, after they do a few units, they become more expert. And the more subcontracting, frankly, the better we do in capacity. We're basically keeping the capacity fixed in Minneapolis. It will be able to do X every year, and it's sized for that. Everything else, we're working with partners on.

And just maybe last one for me, Nathan. How did you sort of portion out the team, especially on the sales side? Was there any overlap for sales force in terms of selling the E-BOOST product versus the E-Bloc product? And how are you situated now, I guess? Any color on that would be helpful?

Yes. I mean we were all one company. So of course, there was some cross-selling and the salespeople, there were those dedicated to E-BOOST and those dedicated to E-Bloc and sometimes somebody would come up with an opportunity that had both. And that person would be incentivized, of course, to pass that along and hopefully, a positive and profitable sale emerge from it. It wasn't that much though, really, really wasn't. It's a different solution. It's usually a different group within a big user. You think of any hypothetical user that we want to talk about from Amazon to DHL to whomever. And it wasn't very hard to separate them. And frankly we've run from the beginning of Pioneer, we've run only the divisions as self-contained entities. If we ever had to sell one, they're treated very separately, and that was not an issue. There was no separation problem here.

The next question is from Rob Romano from 1st Source Bank.

My first question is on E-Bloc. I know over the past couple of years, you've had some pretty big wins with E-Bloc, Walmart. I know it was a big one. Did the demand at E-Bloc just tail off and you felt that was a good time to sell? Or why was E-Bloc not the growth engine you thought it was?

The E-Bloc continues to be the growth engine. We sold a very successful business to Mill Point, their sophisticated buyers. We kind of had to make a choice. We wanted to avoid serious dilution. We can't continue to fund exponential growth ourselves. So, is it going to be dilution? Is it going to be debt? And we made a choice. The E-Bloc business had matured faster. It was more salable. It was more appealing to a market. We feel we got an excellent price for it. It's got a lot more growth to go. It's going to be packaged now with other businesses, making it a much more formidable competitor on a broader scale, and we're going to be participating in that growth in value. So, I think we did it on all ends. I think this was a good result for us.

Question on the HOMe-Boost. I know you've had some relationships with Chick-fil-A. Is this a type of solution that could be possible for like a Publix or a large enterprise like Chick-fil-A for preventing them to go down during some type of weather event?

Yes. It would be well suited more to a Chick-fil-A, their footprint is much smaller. The large -- even a big box retailer, the footprint is much larger. And you're talking about a lot more gas flowing through much, much larger units required for that, that becomes a much more involved process. That's not what HOMe-Boost is about. HOMe-Boost is really targeting that big home, that big mansion or that big extreme home. And by nature, that's the sort of same sort of electrical footprint as these smaller locations. So, Chick-fil-A would be a good example, radiology and those type of centers, MRI type places.

And on E-BOOST, just trying to get an idea of what this market looks like and the opportunities out there in your pipeline. Is this something you could grow 20%, 25% per year? I mean, is that the type of demand that's out there?

The demand is much higher. I think that if we were to grow at 25% a year, we'd be an extremely profitable and solid business. We're trying to not go crazy on the growth and lose profitability, but the demand every month, the use cases and demand and users never cease to amaze me. And in many cases, some of the users are logical, but have spent the last 2 years trying all kinds of other solutions and now have come back recognizing that this is now a very proven solution, much more than it was 2 years ago. Or as Geo pointed out earlier, you have airports, actual ports, seaports and so forth, all electrifying, whether it's their equipment and other things and the demand for mobile, simple, non-permitted electrification is super strong. So we're very excited. Geo mentioned almost all of it. I think I mentioned in my script, but only since about the summer, we started dealing with the larger charging as a service providers, whatever their particular business model is, and they have become a source of demand for us, very, very fast demand. And it keeps going. The more they grow, the more we're growing. So, we're very, very excited.

[Operator Instructions] The next question is from [indiscernible] from RAM Investments.

A couple of questions on corporate expense. How quickly can you address that? How much can that come down? And is it safe to say that in the meantime, maybe you could pick up short-term money market yield on the $50 million, which would kind of cover it. So, is that kind of a wash near term? Or is there still going to be some drag? And then secondly, you touched on the backlog for CP, which is good year-over-year, might be a little bit down quarter-to-quarter. So maybe you could address at this point, will that translate into lumpy sales as well? Or do you think you can level load and consistently grow sales?

Yes. So that's a lot. I'm not sure I'd be able to address. I can't remember everything. But we'll go backwards. So it's still a small business. Even if, let's say, hypothetically, we projected, I don't know, call it, $32 million for 2025. I'm not saying that. But if it were, it's still a small business, and there's going to be some lumpiness to that. We've been pretty good about making it by the end of the year. It all falls in. So, you are going to have that. As far as corporate overhead, I think when we issue the guidance or we unveiled the guidance in a couple of weeks for 2025, we'll deal with that more specifically, what the components of the corporate overhead have been, what's cash, what's not cash, like stock-based compensation has been a big part of corporate overhead. What was it in 2023? What will it be in 2024? What do we see it being in 2025? And I guess you're right, yes, $50 million today in the bank, even in a money market account, you can play with whatever rates you want to use. I'm sure you're aware about where they are. Yes, short term before any kind of a dividend or anything like that, that's generating yield. I wouldn't call it a wash with the corporate overhead yet, but it's going to be a significant piece of earnings even next year.

Got it. And then I see the use cases. But one thing you didn't talk about is competition or perhaps barriers to the market. And wondering if you could touch on that. Is it really just first to market and first to execution? Or is there something proprietary about what you're doing that helps a little bit of a barrier to the market? And that would be my last question.

Right, there's no problem. It's a little bit of both. Geo, do you want to address this a little bit?

Sure. I'd be happy to. So like any market, I think competition validates the market robustness. But what we've seen over the last few years is that we've been able to take a lead in -- among the competitors that exist. We are a publicly traded company. Most of the competitors are smaller start-ups or businesses that don't have the same type of edge in the market. Additionally, we have really put in a lot more into the R&D side and customized a lot more solutions in a way that it economically fits the solution that they're looking for as well as functionally fits better into the solution the market is looking for. So while there will continue to be competition, we've been able to cultivate that edge in the market because of the technology we've put in. One example of it is that we have melded a lot of technology from monitoring to proactive servicing and other things that we have built into the product early on that are paying dividends now because they are becoming of more value and insight for the customers. For instance, a large utility customer we've been working with, their sole reason was that we by far had data that we could provide them that integrated into their overall monitoring system that allowed them to enhance it and integrate it into their charging system. So those are some of the things that has allowed us to grow.

The next question is from [indiscernible] a private investor.

I think my question, and it might be better in 2 weeks, but maybe you could touch on it now is in the execution. I heard the numbers on the pipeline that sounds very promising. But I recall back in April that one of the things that was commented on is orders that have been taken by utilities or other customers where it's kind of external to you, it's out of your hands that they had been delaying on taking the orders. And so how you guys are looking at that and managing that? And any development since then?

Yes. Thank you for the question. Yes, I think you're referring to actually the business that we sold, the PCEP business. That's a constant battle. It also ends up -- given enough time, those things always happen. But yes, there was only a slippage because there's a lot of customers in this year was -- the bad party was a particular utility. They're a great customer, but not so good at meeting their own deadlines. On the E-BOOST side, it's frankly the opposite. We can't give it to the market as fast as a lot of them want. And we're already holding the reason we hold so many millions of dollars of inventory in engines and alternators and trailers and so forth because even with that, it usually takes us 3 to 6 months to do some of these bespoke type units for very discriminating users. If we wouldn't be stocking that much in components, it will be a year, a year is too long. By the time -- and typically, by the time the user decides on this solution, they want it as quickly as possible. So that's good. It's also not so good sometimes. Initially, in 2022 and 2023, when we were first starting the business, we would do anything to try to meet those requirements because we were launching a new business that definitely compressed our margins or in some cases, evaporated them, vaporized them. We got much better as the business got bigger. And I think when we do the third quarter call, we'll see the units that were pushed out in the third quarter and the margins they came in on. It's a very -- it's more than a promising outlook. It's very validating.

Next question is from Ray Foss, a private investor.

Congratulations, Nathan. Good work.

Thank you, Ray.

Nathan, I was just thinking about a broad topic. I've read in some of the available outside information that I'd like you to maybe comment on the prospects in general for distributed energy production. I've read somewhere, and it's -- I can't even remember where, but they made a point that distributed electrical generation could compete with some of the high-tech alternatives such as small nuclear reactors. In other words, my grandfather went through the rural electrification back in the '30s, and it was something done on a national scale. Do you have any general comments on the prospects for distributed electrical generation in general? I hope that doesn't put you on the spot, but it's of concern to me, and I appreciate everything you do, Nathan, Amen.

Thank you, Ray, and I appreciate your support all these years. I'll give it to you in 2 minutes, and then we can talk at length. You broached a massive topic and everything I'm going to say is just my opinion. There are many, many experts in this. Distributed generation has been talked about since I'm in the industry, which is over 30 years. In the last 5 to 10 years, distributed generation has finally come of age. What form that takes is still kind of evolving. Initially, I would say it was almost all natural gas based, whether it would be a mini turbine or engines or however you do it, that's what it was. In the last few years, as the prices, the cost really for battery-based solutions, and I think in the future for hydrogen-based solutions as those price points come down, that's going to eventually shift in their favor because they are totally zero emissions. Do they have other drawbacks? They have other drawbacks. Small nuclear is something that's been talked about for a very, very, very long time. Until somebody figures out what to do with -- even on a small nuclear level, what to do with the waste, that's just -- it's just talk really now. So I think for the next 10 years, it's still going to be natural gas-based. That's what allows the user to save money, have resilience away from the electrical grid. It's a fuel that we have plenty of in the United States that we're lucky that we have a lot of natural gas. That's going to eventually shift. We are trying to be ahead of that curve, and that's why we've already introduced battery-only type units. We haven't done anything with hydrogen because it is still not just logistically difficult, but it's still price-prohibitive outside of somebody wanting to do a showpiece. We did on the other side of the business, we did a job with Southern California -- I'm sorry, Southern California Gas their H2 project. I know what we sold the switchgear for, what they paid for the fuel cells and the electrolyzer. I can't even imagine how much was spent to generate electricity for 22 homes. So it's not there yet on any kind of a scale. Does this help you at all or?

Yes, indeed, Nathan. I'm just looking for your valuable perspectives on the topic in general. Best wishes.

You as well, Ray.

There are no further questions at this time. I would like to turn the floor back over to Nathan Mazurek for closing comments.

Well, thank you. Thank you all for calling in. Thank you for the questions, and thank you for the support, and thank you for the engagement. We look forward to in 2 weeks, as we've pointed out, discussing the results in more detail and more specifically and issuing new guidance for 2025 and the rationale behind that guidance. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.