Polar Power (POLA) 13 Nov 182018 Q3 Earnings call transcript

Good day ladies and gentlemen and welcome to the Polar Power's Third Quarter 2018 Financial Results Call.

As a reminder, today's conference is being recorded. At this time, I'd like to turn the floor over to Shawn Severson. Please go ahead.

Thank you and good afternoon everyone. you for taking XXXX Polar thank join time conference to today us Power's like all the for to call. I'd third quarter

Executive the objectives. Operations followed will today Raj will Chief will begin hosts are be an Sams, by in Arthur Power's Your provide overview the providing of This Arthur Financial Officer. who Masina, events an and Officer; Chief Chief by Luis key Zavala, Raj, Polar as Officer; quarter. press Time updates this Luis on quarter's operations After update company's strategic the A which, X:XX and discover key results. results as the on release website, discuss -- Eastern well available afternoon at wires will the www.polarpower.com. this is crossed financial the detailing

comments, will for we call the prepared questions. open Following management's

I'd SEC may to on described and company's of to refer regarding At over company's would materially like turn for you the call. for future a risks Arthur Please risks we to that to Polar statements the refer begin, to results to and today, prospects, we the from of this industry be could uncertainties also and industry and differ Sams, supporting those time, in information. more website and CEO. that everyone list I'd the call like associated to filings Power's are including made webcast remind forward-looking subject financial those cause call actual the number Before a results

earnings you, call. Thank everyone welcome Polar quarter Shawn and conference third to Power's XXXX

update of core our During with before for provide the each today's highlights third our key an XXXX discuss I call, will quarter you markets. briefly I for

Backlog then XXXX. key greater to gross regarding backlog. revenue, will compared QX XXXX margin financial call. later a of at results a give First, I issues the end to the QX would brief end million was detail this of million provide address $XX.X Luis $X.X during and at and financial summary like of

$X of to increased from and portion validates telecom our is customers. telecom U.S.-based backlog sales of the As growth result November $XX.X in from XXXX during Tier mainly has increased XX% as a the XXXX demand the XX% of two significant customers and to million. QX same of trend, our Xth, $X.X sales our from X in during A last product during year. production -- million orders three-month strong Net this production QX in compared gross lower a resulted QX XXXX. cost million increase margin period to to XX% Increased in material

quarter share margin mix towards from However, due XX% dropped to Net XXXX. gross in XXXX models, or net a QX diluted was QX diluted $X.X new $X.XX third loss share $X.XX the per in in during change or basic in million QX as basic product and of production loss a -- XXXX XXXX. previous to quarter XX% and compared million $X.X per to

like quarter that of in start some and I'd during to a related our shift backlog. was was strong record strong which quarter result revenue a negative the we mainly backlog. to key address the -- not by issues the experiencing was fact, to by indicated demand, margin supply gross that Now, of in a as affected our in like and disruptions stating slide which revenue sequential I'd are in the

the expected like supply including revenue electronic resulted to and suppliers. of this for parts, resolved on original engines, track Gross some that and lead-times are I indications are longer and we Our our believe slide We gross was and foremost, an chain, by with address our related was the the behind by has would lower the XXXX. QX during been cost fixed short-term and of to decline parts created surge our put international trade lower from driven absorption negatively the products This three tariffs key to factors; the was by the shortfall. ability and in revenue impacted which margins and manufacture was first levels. quarter back domestic primarily wars, this The ship issue in margin, aluminum, in demand suppliers, engines, steel. culprit possible place key next, in than

our I in We to in demand, in with equipment, have has begun of calls, see staffing, new made anticipation material you materialize and you investments in can growing previous a manufacturing, manufacturing and facility backlog. discussed per which as have

key tied us The higher-cost from absorb been to disruption from increased and from second to resolved lead-times Most -- supply a basis. that for were the engines has component extended supply also believe and turn resulting to impacted and for forced We issue negatively to subsequently, gross our our resulting notable short-term had chain receiving on factor increased supplier is engines in and timely suppliers this original needs, our now costs. which margin. we

began The is It's in QX navigate. manufacturing product with third XXXX. top-tier as that to to higher-cost launch experience to not curve new launches there's issue the a related normal learning customer new have with a we product

$XX.X as to Now, of discuss Xth. backlog briefly our million I'd record-breaking November like

that objectives key will later highlights the on now for earlier discuss is this with driving and share detail in that to I in prior see period gaining would quarter happening outlined succeeding goal call market As cover we in I are the are backlog results a during are the also progress calls, have stated of our growing and you I entering year. more this beginning I strategic as quarter's our of business reports providers. like investment to we is our this telecommunications strategic by believe our -- the in also view, we Luis provide believe In financial this a evidence market. global backlog. private

electric telecom in our our customers presence other power four to up reminder As by our car map. provide telecom R&D comprehensive base one, To expand technology two, share our key international markets opening are; our a capacity and increasing industry-leading markets; objectives markets through strategic residential Increase road and for production and our our solutions continuing growth. diversify by exposure customer to operate providers facilitate everyone, and and plant top-tier more second with and efficiency U.S. and our key in is manufacturing to market including charging. military, technology providing our provide and product services increase commercial, revenue --

I'd to like on hand it Now, update an over so Raj can to provide he strategic operational objectives. that our

Thank you, Arthur.

on expand mentioned. me Let Arthur those strategic four objectives

and forecast the XXXX X The for continued record top also customers. had with by to to backlog. our U.S. in first of our in first as telecom our traction regards our regarding gains one, our evidenced expansion, Tier Tier share market from We carriers X objective quarter international the initial increased by --

to with additional positive as good forward and not the On Polar off-grid a a radio the XXXX. which it's Power key for first win with This step, we as step microwave Sri Namibia and in office international and and five operations. purchase first in key a Lanka commissioning of Huawei's the across sites look markets quarter African Huawei in soon early quarter, the international order during is and in collaborating we positive front, though developments Namibia, nature, activity purchase include installations expect bad-grid previous networks. it's to we but orders in material issued and Other the installation had Namibian in our strategic

orders Thailand. for initial We have also for approval received

believe top-tier with new are will help a sales. working product U.S. markets the market and emerging grow we drive that We our share carriers on international

LPG available Specifically, been natural or markets, available we and gas. reduce are diesel. Domestically, gas pertains international off power runs on a top provide power dependency our natural this grids incremental new permitting not and it as tier have We as using for solution customers better LPG that and the where a with will fuel and drive This source working emission will sales important is enable systems. and on to system developed titles backup infrastructure their we believe a it telecom well to product help and lower-cost standards unreliable. comply can of widely is power U.S.

called to our and the vehicles begin requiring quarter we generators. on-time is on We continuing from will thereby, which calls, compact We of contractors, fourth T-Mobile demonstration objective believe programs program to exposure have we vehicles also to program. have these and across T-Mobile, AT&T, shows for in diversified that of delivered increasing Robotic develop this the surveillance In military additional and key customers. To X Verizon services customers which is third diversify quarter momentum significant telecom we that quarter. telecom Systems, previous functions. this during they our strategic successfully to other partners and our logistics, XXXX, a of order reconnaissance, orders we DC applications. our sales comprehensive XXXX, our received We're from by in believe of other the that different lightweight, the base X these gain percentage the power started has in the the Autonomous regard receiving believe With and our customers Tier new seat combined orders in provide We the program related second the the significant the during to across to Army we us were military domestic diversification customer Army to telecom delivery Tier worldwide. commercial in benefited other regards mentioned autonomous and of providing programs The system customer autonomous more to product markets. customers, DC RAS that

Force successfully We a to quarter, U.S. for sometime surveillance, successfully great Air the telecom. Also, borders system. next-generation outside Phase help trailers have mobile X power expected This field X completed mentioned drive power for additional closed during natural to and a fixed is U.S. begin is systems in platform provide and to our communication, we gas sales and DC our operations. have the and XXXX. system program of and key command, will military, Phase power oil be this a for Also, contract of mining, opportunity relief, LPG disaster previously us for

allow is approximately in what and our is demand the our coming second and years. XXXX, Our the process third opened and key is the operating early also facility, also in staffing to lead-time expansion We're requirements This and nearly our components long secure the chain require facility, a the in square manufacturing is November to profile we us labor corporate the in getting meet strategic minutes facility our is capacity expand increase we're office operational. our of solid demand. in we expected to November believe short significantly manufacturing a expected at capacity double will to -- capacity which main located than manufacturing away fulfill will our feet In to progress supply making us to objective just We has this Despite XX,XXX facility. meet new the believe the up to adequately. fully ramping begin full solid efficiencies. efficiency. facility This securing delay from it

solutions strategic fourth road provide technology and R&D initiative is Our key and to through technology power map. our industry-leading

the solar designed present the generation is applications, DC in case and Our of lithium which for and gas-fueled technologies natural next emerging focus ion are project One integrating bad-grid power use most is is and in which system. with our generators, off-grid storage our key LPG markets.

first in by As efficiency of XX%, -- our bad hours reduce fuel launch and we thereby like and a The reducing overall engine markets might of commercial launch launched retail well. application a have goal towers, to and platforms XX,XXX life but hope the this to generator as to would for -- be other this overall second the program the other into quarter cost. off-grid increase engine this We to be cost, improve is have XXXX. hope about the

overseas. as and summary. us call turn and our believe with initiated factor and for to power Luis? believe differentiator We market We in the systems. We a the a competitive of his key LPG advantage solutions. the also demand for large to technology success key high-level I'll power our this discussions financial few integration now over compared key into and a innovation is our suppliers have a seamless solutions generic customer it Luis, domestically gives CFO,

DC million, for QX The in to sales $X.X XX% power an result to X an systems Net totaled customers. Raj. the sales in million as compared increase of quarter Tier you, is primarily Thank increase our $X.X of wireless of a increase telecom XXXX.

new $X.X was the ramp-up was million due million primarily However, basis, model $X.X from for a associated Tier sales telecom lower-cost net in our of labor on efficiencies with lower The X to quarter. a quarterly decrease generator previous of customers. production down one

We chain. also in experienced supply disruptions our

new quarters September XX, sales in We totaled facility as to production at XX, compared XXXX. come, the getting XXXX. disruptions believe $X.X have Backlog $XX.X to as today XXXX increase especially resolved after million September these at million of our and our November operational short-term net will in

XXXX, QX XX, XX% majority by X, million customers, within and that of X% of $X.X the as the compared decreased in XX% sales XXXX. other XXXX. and at backlog same compared profit margin XX.X% in power of as manufacturing year profit basis, over months. gross QX of next $X.X following purchases XXXX. last compared $XX.X million. labor $X.X to overhead The XXXX As telecom $X.X was efficiencies stood Gross was in elements: by the a to increase increased the military QX improved to September On QX contractors, attributable percentage September at comprised in to in net quarterly the million six XXXX Backlog XX.X% systems as X% million a shipped profit purchases in to absorption. We in period our gross backlog DC million believe will improved to profit from the of be was XXXX Gross in markets. in

As to meet this our to related T-Mobile our gross units customer and demands. during engineering overtime negatively impacted Arthur R&D by increased last-minute previously margins spending, issues increased call, were and mentioned

upcoming acquisitions globally. DC Net We The QX our expenses investments from marketing operations in due XXXX key QX power margins and expect the million in basic significant XXXX. to or teams negative infrastructure support was primarily increase operating diluted gross $X.X million in to X in loss and XXXX $X.X customers totaled in of and $X.X increased to million Tier QX sales improve Operating establishing to telecom investments and $X.XX quarters. share period in XX, per to our expenses totaled in was end compared power XXXX $X.X systems Namibia our in in net of XX, $X.X of share to as December Cash per equipment December increased of XXXX $X.XX the as comparative preparation compared XXXX. increased $XX.X $XX.X and XXXX long-term of at and September in the cash million XXXX, XX, QX inventories DC of decrease million loss XX, The or of as outstanding. basic result demand million of and negative in million systems. manufacturing and debt with September diluted

Now, the would call back I to to Arthur? like Arthur. turn

for to our today to work continued speaking on and conference Luis. you, all support call. their like for we forward to look Thank of Yes. our I'd shareholders with We as thank strategy. everyone continue quarter our time you executing and growth their results on fourth year-end financial

for I up Now, call Operator? open would like the to questions.

And you, Thank [Operator have we Roth sir. Craig Irwin with Instructions] Partners. first Capital

Good evening questions. for taking thanks and my

million is the backlog a $XX.X big in So, number.

us you orders. the ship majority see with next December this customers portion the XXst? months. you did six can share that placing you over of mentioned to You those likely will have visibility ship on Do is what Luis, before

six I months? said

September XXth. from Six months

Craig the thanks for question.

a backlog will significant We QX. shipped guidance. But are in guidance QX mean, would question answering of that amount be I basically providing be I believe -- not your and that

will shipped. portion be significant a So,

Yes.

me Luis' is let let Craig, to point Raj, -- this there. add So, me add

main saw a member also reasons before receive backlog the telecom is have these expire because budgets in spike of on December so that that of product XXst. One the XXst big we they have the to companies that

it's the and ship has the supply production now. can to as been cooperate, can. doing best we to Obviously, for new we're chain the So, everything and as much we product hell factory so

excellent. Okay,

is Second of clarification. question point a

something Luis guys there and I'm the so by thing were the whether components. script same that's engines engineering not you the the this in be referenced impacted T-Mobile. comments with Can in In surprised been something you if issues? this is is made, shortages script engineering So, he the was. or and multiple points not the industry that the comment you release issues press or component at issue out in else to may referenced everybody a in in availability It's press, more

when of you as and subsection. part get the head engineering redesigning way substitutes on nail involved possibly by vendors, it missing the engineering find from hit around or try to to parts the has of kind is You then are a

to so frequently he and changes. again that place changes, factor other a has last-minute wants to product of is the The make that brings then these say a with customer customer product, engineering an the new it two you last-minute

about for I The you is Thank understood. Okay, that. have inventory. question next

the where in normalize to quarter, had of quarter, from sort in in So, cash they a hope or $X.X up we whether Can issues chain the you of used you all source million you about in would have significant not comment with quarter? fourth that cash backing for via deliveries It you build about supply was inventory so inventory. sense the expect been. the makes

We normalize of we've because believe receivables. in will terms it accounts also gained

right think, now, I to before of and have So do have another will we enough large engines carry us that purchase we purchased engines.

I Okay. And then question have last [Indiscernible]

at [Indiscernible] looking One balance I'm the more sheet. thing, Craig.

Our prepayments eventually that lead-items cash, and normalize have substantial long that we will increased we of so also had would end release of the -- amounts the by cash also believe year. to there's

And issues a if fine. is $X you in builds million probably million The if fair little have light, bit in last couple no to that. topline that's I $X.X to may. there it the revenue, is higher, say Okay, had dollar were could we that With quarter? inventories, then a million understand chain supply question,

say least. To the

That's--

Yes, is late the slip line had and of do in and with mainly supplies expected disruptions. the Street Craig, to the I also mean, because and we were where we yes, what in to us plant than what expecting new until we The point back, coming

for engines, example. the manufacturers engine -- XX around of between late was The days XX on delivery

to had leave We engines. out those

chunky sign my again getting on questions. that for orders. up taking those second Congratulations and Thanks

Thank you.

is with today Ashok ThinkEquity. from Kumar question Next

Raj, Thank and Great. Luis. you, Arthur,

mid-XX to in do two level in the you stand in part the a second you'll first the in was realistic you're that rate double qualified the running for second you on of to facility. year think given second to When and your the supply September target is is shift terms on it and seems would So It facility meet have do And goals? be line question your the first one. quarter. the that qualified related demand is where various, conditioned? those How was the top December your for topline, quarter ahead and run of your you facility? The

You answer I'll one; the answer second first the one.

first us once guess, the question again, I the you answer for guidance regarding, saw I'll year. So,

don't we that our lumpy, question but aim what of meet the goal the expecting answer So, want industry is to directly some agree, we to is -- a quarter-to-quarter, it's our sales because QX, that now overall That's come say street the we I from over but all to can as QX for on remains the goal. close can revenue to fell to goal as little estimate.

phases? As is factory phases. the far about Talk as factory running, up the the when -- and second

Okay. what up the department minimize the running disruption. Well, is And we're new to department we're the bringing to factory is now. -- moving over factory by

always either issue and second leave maintain, join to and are want they people another second to they'll shift hard work the company. go to the and shifts ahead want of The shift the first don't given to migrate or Polar

a the and is So, very management overhead. labor lot requires difficult of

during and because to work allows then us new employees So, we don't which shift. accommodate on the more daytime, factory have they less off-boarding pressures the them and on an that onboarding evening second want recruiting, employment, to means workers

Right.

chain. the color on some supply Now just to get

-- I Kubota suppliers, you're and-- from mean sourcing engines which and have three -- Japan, Isuzu and you You includes have that of

Japan. just than more [Indiscernible]

Okay.

we And U.K. purchased also a Doosan, with South We work source We company. support Perkins, -- Korea. Penta, Volvo bit do Sweden. U.S.-owned we is little which from

engines. for we So, sources have multiple

We have to.

Okay.

district I've to was rerouting And was And XX-day Polar delay a or it so -- impact wondering, your related impact well? are to I the seen it delay, it they supplier, did as right? did competitors just related or the

couple competitors' kind what also engine our been emissions have And don't it's what recently, generally the of -- company problematic products. our shipping. engine because competitors past the too. engine disruptions shortage is judge the But for years, It's which of supply really is impacted hard know known we that changing to I studied of by requirements, haven't company

talked Was And related? talk about also Okay. of the can this on had In think you gross the margins, Arthur, about variance earlier you other started about that gross or XX-kilowatt thereby pricing there I pricing words, any new feed you right? $XX,XXX the not for margin the a was thereby cost I thereabouts, wondering manufacturing the is where underestimated issue? one-off -- possibility be unit pressure any would negative

you or production but a repeat doing progress first in started wouldn't new product. I customized for it seen two which curve facility client. pressure, -- quarter the new or we the product learning the completion it's the our we've call margin and product also new a Normally No, because itself for trend of this of when gross slow here have ready terms don't for basically,

hit normalize margins gross a of So, will the immediately next few over but they take would kind months.

in So, well. we believe just I our it's continuing that trend was would gross We're the bit there. we little time with to -- that don't It's of product that priced profile. priced get this with is as don't margin it a take just same wrong. it line see

Right.

the XXX by originally be subsequent assume. a deliver So, in the would color And June, Raj, three in deliverable add-on the Are right, just announced I to the on the track had you that auto of-- months, original that you had order indicated units year-end? back on T-Mobile, still

been have Those delivered.

delivered. been have all They

Okay.

Those received have subsequent delivered been and orders.

Got it.

incremental how do current assign So, Raj, or look Tier spread backlog, your The the Tier customers the across the buildup, new X if carriers? and this you X customer? legacy least, at military you at

came that and from telecom U.S. from is all right. and is that of did Yes, is said from them X% of X markets. Tier And customers mention significant from portion you out the from backlog, most about the XX% Luis that other Luis, a of military -- X% customers. that of the

be order international that Lanka turmoil How primarily political impact in in going on Then your domestic does there, refocusing your that contribution XXXX? had some Namibia, what's firsthand their it. new Huawei Sri recent experience Delta win, is and, there. mean, you've Got given is to happening given Namibia? they And markets, I was that domicile performance Raj, XXXX PRC Delta, region from that also relationship the that in given are to supplier with Huawei in and of this potential

affect as Lanka directly Well, Sri with we dealing believe business which as because Asian is us would companies, they multinational don't it we're concerned, far in that several do countries.

Sri for of is the Lanka territory So, them. one

So, we anything didn't event that. a that believe is there for material like

thing give One nice sides phones. is Either their to side up cell use going both is will cell phone.

Right, right. And comment been Namibia, recently. probably Arthur, you there can you've

Okay, well, is we we the don't Namibia much relationship into I Huawei, but not too relationship, in far there have know. with is Delta and insight the do what as Delta as

Thank you very much.

question? your answer that Did

Yes, much. Arthur. you Thank very

to Greg [Operator on Instructions] We'll move [Indiscernible].

I for you -- thin you to markets? ancillary the gentlemen. you addressing. those And Did And how you've company have non-telco too wondering market the markets? you're talk those non-military, spreading that take any long resources about expand hi Yes, being will are to markets? could if that just those designed develop for products was it

and to the -- say and type of market spreading production are of this a telecom. why we to for into have quality. work -- over our that Depot that that markets applications to too say, products intend past be a and to of possible be way that not such years, people there's cars they have that would electrifying realized heating growth more over opposed this XX do little thin, to the one new time, That's line. as understanding we electric we gas can't -- our working with We where engine sell This and residential gas same the let's help true and applications natural at just they Home early line lot a just have is is the and and And as LPG utility commercial, at But the engine launch do sales And including willing we're adopters. we The do the natural who bit but on. pay yourself that in to I numerous a of our CHP. in product, and micro the that's same supply Let's year. expand at to suppliers to fuel would the about other past focused the Germany And try Arthur some the would will go get our people on home energy off have charging focused Japan. so all the same Sams, is to price expensive more newer would products. time, it supply be aimed next is

So, go ahead.

cost. will take And how you your marketing a these going I they to you have to do your to hire market? help that a markets? going -- go you distributors be salesman? in to for you ancillary Do are to are people going Or are you with -- marketing you're strategy can it -- just going Or go distributors or

and or go I minimum in there expected. product would buy say is partner we'd be expectation of When production. parts stabilize deliveries that some get there, selling we to with is than minimum to a of tooling, special industrial you're before warehouse to our happen. the quantities retail, relationship spare insulation training type shorter tools amounts partner But tooling there's channel When customers. We of Okay. whereas have for also and or to

paid So, market, plan markets, another such. -- it to to we want factory military, to there's dedicated our telecommunications, another impact want more may -- and plant week. of We get like since for I especially core don't I to have next that

the material ancillary company, statement? it for years? won't probably timeframe be to true so like a another the markets And become Okay. material Do two for this you that's think

would years, optimist, one I an and being between would I say being a two pessimist, say would I to say somewhere two. one

of is markets the of is Okay. size it ancillary large, And it millions dollars. these of take in of if -- fairly the hundreds these size markets I

Yes, exactly.

Arthur. for Thanks your Okay. comments

you. Thank

Kumar to for back move we'll And Ashok follow-up. a

you international project you Malaysia was the with market wondering information were overall while bought does waiting in on, was is on in an this this how Malaysia. XXXX. a received in A more in that stand I think program And you're you with and to on Great. at contract earlier question where be think and XXXX the I specific, the I RFQ or indicated big, you involved on was revenues two-year supposed had point. much

spoke It's purchase any still as contract at time. that confirmed Sri can Ashok. don't is in one one and of point is that the works, another haven't from we Thailand one other yet. yes, Malaysia solidified meaningful this Lanka, territories we or disclose on information any so of we them, have but well obviously, Malaysia We about order

it, got okay. right, All

was and the in wondering, margins at in would one XX% business back qualitatively gross -- your I model you operational XXXX, mid-XX%, support that to margins XXs, your gross I target can with the the sustained efficiencies continue look the high resume think, to So, level on in mean, of be can your or margins I hit high revenue given length XXs?

increase gross our will volumes increases. our so margin sales as Yes,

go second our amount but at sales the that million net is you net our capacity If and better we about the we the to this of margin was net gross and look facility, some get We by same, sales once look similar gross to now the it's QX production to as sales, had our XX%. backlog gross XX% XX%. margins margin right of and had a year, our the start gross percentage adding expected QX is dollar margin increasing $X at to back at of experiencing

right. All

primary I questions thank think once appreciate had. Again, again. it. And were those the you Okay. Really I

And like-- looks

to long, phase? you think, last still were that nine are stages are three the in given you in was there months progressions -- Phase Or X a with the contractor, at tend the for you working I long, in to question still military, are any Phase to X, be XX one point? you the And next are this new contract

we Yes, the Phase with part the itself, already, in end are of tail X. mean, X have done I our we done we're -- program Phase

It's these XXXX they give would X, a begin So real XXXX XXXX, Phase contract and production and supposed said the the they be in XXXX Army test to and contract. these which is Phase five-year is in -- a XXXX. then particular not X in will did validate to month

Once best. and and again Arthur, all thank Luis, the very Raj, you much

Thank you.

appears to the for from It or floor closing I'd have to back remarks. further right. questions additional we the audience; don't the like turn All any management

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last maybe statement. or Or question a one

and If the set an appointment neighborhood, you're up in by. drop on

Thank you.

and us. again, joining ladies Once gentlemen, Thank for concludes our for you today. that call

disconnect. now may You