Pioneer Power Solutions, Inc.Pioneer Power Solutions, Inc.Investor Presentation
November 2012©2012 Pioneer Power Solutions, Inc.
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 k i k d i i f hi h b d h ' l d b di d ifi d d lunknown 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 with (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 , y p y , ( ) p y p y QUtility 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) 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 (x) restrictive loan covenants or thesupply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk, (x) 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, (xi) general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries, (xii) 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, (xiii) the fact that unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect the Company's profitability (xiv) the fact thatraw material prices or disruptions in supply could increase production costs and adversely affect the Company s profitability, (xiv) 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 and (xv) 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.
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Snapshot of Pioneer Power Solutions, Inc.
Manufacturer of specialty electrical equipment headquartered in Fort Lee, NJ, operating through 3 businessunits located in the U.S., Canada and Mexico
id f hi hl i d l i f li
Electrical Transmission & Distribution Equipment
Liquid‐Filled Transformers
Provides a range of highly‐engineered solutions for applica‐tions in the utility, industrial and commercial segments of the electrical transmission and distribution industry
Owner of Pioneer Transformers since 1995. Acquired Jefferson in April 2010 and Bemag in July 2011 DisconJefferson in April 2010 and Bemag in July 2011. Discon‐tinued former wind energy business (AAER Inc.)
2011A revenue of $68.8M
– 2012 revenue guidance of $80 to $85M
Dry‐Type Transformers
2011A non‐GAAP EPS from continuing operations of $0.56
– 2012 guidance is for EPS between $0.70 and $0.75
Market Information
Ticker Symbol (OTCBB): PPSI– Ticker Symbol (OTCBB): PPSI
– Recent Closing Price: $5.55
– Shares Outstanding: 5,907,255
– Market Capitalization: $32.8 million
– Freely Traded Float: 1,240,000
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Investment Highlights
Stable and Profitable Core Businesses
Recurring Blue Chip Customer Base
High Long‐Term Growth Potential
Aging North American Electrical Infrastructure Needing Replacement
Growth of Renewable Energy Sources Needing Connection to the Power Grid
Increasing Demands and Requirements for Grid System Stability & Efficiency
Management Track Record of Growth, Particularly Through AcquisitionManagement Track Record of Growth, Particularly Through Acquisition
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Pioneer History and Evolution
History Original business acquired by Pioneer’s CEO from Schneider Electric S.A. in 1995
d d i l l d f C di ili i ( 80% )– Produced a single, low‐power product for Canadian utilities (one ~80% customer)– 1995 sales of ~$12 million with approximately 50 employees
Implemented an organic growth strategy. By the time Pioneer went public in late 2009:– It had become a diversified producer of highly‐engineered, higher‐power products– Sales grew to ~$40 million among over 60 customers, while employing the same
number of people at two locations in CanadaToday Through acquisition‐driven expansion in the last two years, Pioneer is now a full‐line
manufacturer of liquid‐filled, encapsulated and ventilated electrical transformers– 2012 sales expected between $80 and $85 million – Specializes in customized products, particularly for substations and for commercial
and industrial users– 3 manufacturing plants, one centralized distribution center, 376 employees– Full‐coverage distribution network in the U.S. and Canada for standard products
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Pioneer’s Position in the Electrical Grid
GENERATION TRANSMISSION DISTRIBUTION
Power Transformers
PowerStation
Transmission Substation Distribution
Substation
Transformers
Distribution / Control Equipment
Solar
Wind Farm
Commercial & Industrial Users
ResidentialCustomers
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Pioneer’s focus is on niche markets and customized applications within the electrical grid
Liquid‐Filled Transformer ProductsPioneer Transformers Ltd.
Major Product Categories
➲ PowerTransformers
From 300kVA single phase transformers through to
Transformer Basics Reduces or increases voltage of
electricity traveling through a wire Transformers f g30MVA three phase with top voltage in 69kV class
➲ NetworkTransformers
Subway and vault‐type network transformers from 300kVA up to 3750 kVA
electricity traveling through a wire– “steps‐up” for travelling long distances more efficiently“ t d ” f di t ib ti i 300kVA up to 3750 kVA
➲ Pad‐MountTransformers
Three phase, fully tamper proof in the range of 75kVA to 10MVA with top voltages in 44kV voltage class
– “steps‐down” for distribution in local network or to equipment
Pioneer Models44kV voltage class
➲ Unitized Pad‐Mounts
Mini‐substations up to 5MVA, primarily for facilities buying power at the primary voltage level and for wind projects
Wide range of voltages, phases, fre‐quencies and ratings up to 30MVA
Typical applications➲Mini‐PadTransformers
➲ Platform‐
Single phase, low profile in range of 25kVA to 167kVA for residential and underground distribution
Single phase units from
– Utility & industrial substations– Commercial power centers for factories, apartment complexes
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➲ Platform‐MountTransformers
Single phase units from 250kVA to 1000kVA, also supplied for sub‐station installation up to 2500kVA
shopping centers, airports, others– Network failsafe planning
Dry‐Type Transformer ProductsJefferson Electric, Inc. and Bemag Transformer Inc.
Major Product CategoriesDry‐Type Models Low and medium voltage, distribution
and power transformers for indoor or➲Medium Voltage
Size ranges from 30kVA to 10MVA and up to 35,000 volts,
and power transformers for indoor or outdoor use in size ranges from 3 kVathrough 10,000 kVAT i l li ti
➲ Ventilated Transformers
Size ranges from 25 to 100kVA (single phase) and 15kVA to 10MVA (three phase)
gstandard and custom designs
Typical applications– Industrial and commercial power
applicationsOriginal equipment manufacturer
➲ Encapsulated Transformers
Size ranges from 50VA to 50kVA in single phase, and from 3kVA to 112kVA in three phase models
➲ Floor Mount From 30kVA to 112kVA– Original equipment manufacturer applications (e.g., elevators)
– Power centers for mining, drilling, refineries factories chemical
➲ Buck Boost Transformers
Single phase transformers from 50VA to 10kVA for
➲ Floor Mount EncapsulatedTransformers
From 30kVA to 112kVA transformers for general loads and in rugged environments
refineries, factories, chemical plants, marine duty and ship docks
– Office environments, including server rooms
fcorrecting voltage
➲ Non‐linear Transformers
From 15 to 300kVA, designed to meet load demands of com‐puters & electrical equipment
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server rooms– Landscape, pool and spa lighting– Custom solutions
➲ Other Specialty Products
Various size ranges, available in customized designs
Transformer Customers
Revenue Distribution by End Market Representative Customers
2011A Revenue: $68.8 Million2011A Revenue: $68.8 Million
Utilities32%
Distributors, E&C Firms
34%
Industrial18%
Commercial16%
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Industry Size and Dynamics
$7.7 billion U.S. market for transformers, forecast to grow to $10.1 billion by 2015 (a)
Transformers represented 16% of electrical
Value of Annual U.S. Transformer Demand ($Bn)
2010: $7.7 Billionp
equipment industry shipments in 2010, up from 13.1% in 2002 (b)
Growth DriversAging po er grid o er 70% of all po er Power
Other transformers
& parts
Nonutility8%
– Aging power grid, over 70% of all power transformers are over 25 years old (c)
– U.S. electricity demand to grow 30% from 2008 to 2035 (d), increasing utility
i d k i d
42%
Specialty11%
p12%
expansion and network maintenance needs– Clean energy capacity additions to grow
fastest to meet demand, requiring new transmission & distribution infrastructure Distribution
27%– Higher energy costs, stricter environmental
regulations and efficiency standards leading to upgrades, retrofits and equipment replacement
27%
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(a) The Freedonia Group(b) IBIS World Inc.(c) The Brattle Group (d) U.S. Energy Information Administration
Growth Strategy
Acquisitions
– Profitable companies with strengths in complementary market niches
– Potential for operating efficiencies through integration
– Broaden Pioneer’s range of power solutions through more technically‐advanced products (not limited to transformers) new distribution channelsadvanced products (not limited to transformers), new distribution channels and geographic reach
Organic Growth
– Continued migration towards new, more highly‐engineered products
– Shared product portfolio and cross‐selling among Pioneer business units
– Address increasing demand driven by renewable energy projects
– Additional engineering expertise for more specialized applications
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Executive Leadership
Nathan J. MazurekChairman and Chief Executive Officer
20+ years of experience in the electrical equipment and components industry Extensive track record of consolidating companies, factories and product lines
– Over 20 consummated acquisition divestiture joint venture and investment– Over 20 consummated acquisition, divestiture, joint venture and investment transactions in the industry
Three major platform companies during career:
100% focus today is on Pioneer BA from Yeshiva College and JD from Georgetown University Law Center
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Financial Overview
Summary Operating Statements($ millions, except per share data)
FYE December 31, 2010 2011 9M 2011 9M 2012
R $47 2 $68 8 $50 1 $61 4Revenue $47.2 $68.8 $50.1 $61.4
% Growth +16.3% +45.6% +45.5% +22.6%
Gross Profit $11.6 $16.0 $11.7 $13.6$ $ $ $
% Margin 24.6% 23.2% 23.3% 22.2%
Adjusted EBITDA (a) $5.3 $6.1 $4.6 $5.4
% Margin 11.1% 8.8% 9.2% 8.8%
Net Earnings (a) $2.9 $3.3 $2.5 $2.7
% Margin 6.2% 4.8% 5.0% 4.4%
Diluted EPS (a) $0.50 $0.56 $0.42 $0.46
Average Diluted Shares 5 9 5 9 6 0 5 9
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gOutstanding 5.9 5.9 6.0 5.9
(a) Non‐GAAP measure, from continuing operations. See supplemental financial schedule attached for a reconciliation of GAAP to non‐GAAP measures
Financial Position($ millions)
09/30/12
LiquidityCapital Structure
09/30/1209/30/12
Revolving Bank Debt $7.4
Term Loan Bank Debt 10.9
Equipment Term Debt 1.4
09/30/12
Current Assets $28.7
Current Liabilities (22.5)
Net Working Capital $6.2Equipment Term Debt 1.4
Capital Lease Obligations 0.0
Cash and Equivalents (0.1)
Total Net Debt 19.7
Current Ratio 1.3x
Operating Net Working Capital (a) $15.4
O ti W ki C it l R ti (a) 2 2Total Net Debt 19.7
Shareholders’ Equity 16.8
Total Capitalization $36.5
Operating Working Capital Ratio (a) 2.2x
Current Maturities of Debt:
Revolving Bank Debt $7.4
Net Debt / Total Capitalization 54%
Net Debt / Adjusted EBITDA 2.9x
Term Loan Bank Debt 1.7
Equipment Term Debt 0.3
Capital Lease Obligations 0.0
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Cash and Equivalents (0.1)
Net Debt (Cash), Current $9.3(a) Excluding cash and equivalents and current maturities of debt
Revised 2012 Outlook (a)Company Revenue and Earnings Guidance
Full Year Assumptions
R h f 20% id i f
2012E Guidance
2011A 2012E ∆%
Revenue growth of ~20% at mid‐point of range
– Targeting 10%+ growth on an organic basis
Stable gross margins
Revenue $69 $80 ‐ 85 16 ‐ 23%
Diluted EPS(non‐GAAP)
$0.56 $0.70 ‐ 0.75 25 ‐ 34%
Stable gross margins
Higher effective tax rate expected in 2012
Excludes any non‐recurring costs and income Excludes any non‐recurring costs and income
Excludes future acquisitions
FX assumption for last 3 months of 2012: FX assumption for last 3 months of 2012:
– $CAD to 1.00 USD = 1.00
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(a) Updated as of November14th, 2012. Originally issued guidance was for revenue of $76 to $84 million and non‐GAAP EPS of between $0.65 and $0.75 per share
Investment Highlights
Stable and Profitable Core Businesses
Recurring Blue Chip Customer Base
High Long‐Term Growth Potential
Aging North American Electrical Infrastructure Needing Replacement
Growth of Renewable Energy Sources Needing Connection to the Power Grid
Increasing Demands and Requirements for Grid System Stability & Efficiency
Management Track Record of Growth, Particularly Through AcquisitionManagement Track Record of Growth, Particularly Through Acquisition
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Contact Us
Investor Relations:Corporate Headquarters:
Howard Gostfrand, PresidentAmerican Capital Ventures(T) 305.918.7000( )
Pioneer Power Solutions, Inc.400 Kelby Street, 9th FloorFort Lee, NJ 07024( ) (F) 305.466.1747
(T) 212.867.0700(F) 212.867.1325www.pioneerpowersolutions.com
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Questions & Answers
Supplemental Financial Schedules
Reconciliation of Non‐GAAP Measures(In thousands, except per share data)
Year Ended December 31, Three Months Ended September 30, Nine Months Ended September 30,2010 2011 2011 2012 2011 2012
Reconciliation to Non‐GAAP Net Earnings and Diluted EPS:Earnings per share from continuing operations (GAAP measure) 0.55$ 0.42$ 0.05$ 0.04$ 0.32$ 0.33$ g p g pEarnings from continuing operations (GAAP measure) 3,234$ 2,471$ 283$ 213$ 1,883$ 1,944$ Amortization of acquisition intangibles 144 252 67 71 175 214 Stock‐based compensation expense 161 254 64 69 190 202 Stock and warrant issuance expense for services 232 ‐ ‐ ‐ ‐ ‐ Non‐recurring acquisition and reorganization costs 353 334 258 ‐ 282 32 (Gain) loss on sale of assets ‐ ‐ ‐ (6) ‐ (8) Withd fi i t ti t 487 70 45 487 45Withdrawn financing transaction costs ‐ 487 70 45 487 45 Non‐recurring tax (recoveries) non‐cash charges, net (831) (26) ‐ 411 (130) 411 Tax effects (347) (464) (155) (38) (394) (122)
Non‐GAAP net earnings 2,945$ 3,307$ 588$ 765$ 2,493$ 2,718$ Non‐GAAP net earnings per diluted share 0.50$ 0.56$ 0.10$ 0.13$ 0.42$ 0.46$ Weighted average diluted shares outstanding 5,931 5,949 5,982 5,915 5,973 5,910
Reconciliation to Adjusted EBITDA:Earnings from continuing operations (GAAP measure) 3,234$ 2,471$ 283$ 213$ 1,883$ 1,944$ Interest and bank charges 182 646 207 270 428 699 Provision for income taxes 327 773 56 640 583 1,337 Depreciation and amortization 763 1,086 305 394 746 1,124 Non‐recurring acquisition and reorganization costs 353 334 258 ‐ 282 32 (Gain) loss on sale of assets (6) (8)(Gain) loss on sale of assets ‐ ‐ ‐ (6) ‐ (8) Withdrawn financing transaction costs ‐ 487 70 45 487 45 Impairment charges ‐ ‐ ‐ ‐ ‐ ‐
EBITDA 4,859 5,797 1,178 1,556 4,410 5,174 Adjustments to EBITDA:Stock‐based compensation expense 161 254 64 69 190 202 Stock and warrant issuance expense for services 232 ‐ ‐ ‐ ‐ ‐
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Adjusted EBITDA (Non‐GAAP measure) 5,251$ 6,050$ 1,243$ 1,625$ 4,600$ 5,376$
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