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8-K - 8-K - POWER SOLUTIONS INTERNATIONAL, INC.d71788d8k.htm

Exhibit 99.1

 

LOGO

POWER SOLUTIONS INTERNATIONAL, INC. REPORTS FOURTH

QUARTER AND FULL YEAR 2015 RESULTS

Fourth Quarter Net sales of $96,670,000

Net income of $1,704,000 or $0.04 per diluted common share

Wood Dale, IL – February 22, 2016—Power Solutions International, Inc. (Nasdaq: PSIX), a leader in the design, engineer and manufacture of emissions-certified alternative-fuel and conventional power systems, today announced its financial results for the fourth quarter and full year ended December 31, 2015.

Fourth Quarter 2015 Results

Net sales for the fourth quarter of 2015 were $96,670,000 compared to $103,910,000 in the fourth quarter of 2014 and $112,008,000 in the third quarter of 2015. The sales decline in the current quarter was driven by a reduction of approximately $38.8 million from the oil and gas end market. This decline was partially offset by increased revenue in the quarter of approximately $21.7 million in the Company’s on-road end market, including sales from Powertrain Integration, LLC, acquired on May 19, 2015.

Operating loss of $738,000 in the current quarter compares to operating income of $9,111,000 in the fourth quarter of 2014 and $1,388,000 in the third quarter of 2015. Operating expense in the fourth quarter of 2015 includes transaction costs of approximately $393,000 ($236,000 after tax or $0.02 per diluted common share) incurred in connection with the acquisitions made in the second quarter. Excluding transaction costs related to acquisitions, operating loss was $345,000 in the fourth quarter of 2015. Operating expense in the fourth quarter of 2014 did not include any such transaction costs.

Other (income) expense for the fourth quarter of 2015 includes non-cash income of $1,259,000 resulting from a decrease in the estimated fair value of the liability associated with the warrants issued in the Company’s April 2011 private placement.

The Company recognized an income tax benefit in the fourth quarter of 2015 which includes an estimated benefit of $1,200,000 resulting from the recognition of a federal research tax credit for


the full year ended 2015. The credit resulted from the reinstatement of the research tax credit with the passage of the Protecting Americans from Tax Hikes of 2015 on December 18, 2015. Under GAAP, the entirety of the 2015 credit was recognized during the Company’s fourth quarter. If normalized across the quarters, approximately $900,000 of the total federal research tax credit recognized in the fourth quarter of 2015 would have been recognized ratably during the first three quarterly periods preceding the fourth quarter of 2015.

Net income for the fourth quarter of 2015, which includes the warrant revaluation adjustment, federal research tax credit, contingent consideration revaluation and transaction costs, was $1,704,000, or $0.04 per diluted common share. This compares to net income of $10,321,000 or $0.48 per diluted common share for the fourth quarter of 2014, which included a warrant revaluation adjustment and contingent consideration revaluation.

Net income for the fourth quarter of 2015, adjusted to remove the warrant revaluation impact, federal research tax credits, contingent consideration revaluation and transaction costs, was a loss of $160,000, or $0.01 per diluted common share. This compares to adjusted net income for the fourth quarter of 2014 of $5,307,000, or $0.48 per diluted common share, which has been adjusted to remove the warrant revaluation impact and contingent consideration revaluation.

Summary of Diluted EPS Attributable to Common Stockholders

“Adjusted” removes the Q4 2015 impact of transaction costs,

federal research tax credits and contingent consideration

revaluation and the Q4 2014 impact of contingent consideration

revaluation

 

     Q4 2015    Q4 2014

Diluted EPS

   $0.04    $0.48

Adjusted diluted EPS

   $(0.01)    $0.48

Diluted shares

   10,932,427    11,151,120

Adjusted diluted shares

   10,932,427    11,151,120

Full Year 2015 Results

Net sales for 2015 were $389,446,000, an increase of 12%, from $347,995,000 for 2014. Net income for 2015 was $14,278,000, or $0.45 per diluted common share, compared to net income for 2014 of $23,726,000, or $1.58 per diluted common share. Acquisition costs in 2015 include after tax transaction costs of approximately $662,000 and after tax inventory step up amortization costs of approximately $323,000. Similar acquisition costs in 2014 include after tax transaction costs of approximately $487,000 and after tax inventory step up amortization costs of approximately $289,000. Adjusted net income for 2015 was $5,670,000 or $0.51 per diluted common share, compared to $15,739,000, or $1.41 per diluted common share, in 2014.


“The second half of 2015 was challenging, but we consider our performance in 2015 to be a sound basis to move forward,” said Gary Winemaster, Chief Executive Officer. “We set a record high in sales, including meaningful revenue diversification from our on-road product as it moves from development into commercialization. We achieved this record while integrating three acquisitions, and facing head winds in some of our larger end-markets. While we experienced some margin compression due to a change in mix and operating inefficiencies, we developed plans to address these inefficiencies and are confident the execution of these plans will improve our business. Moving forward, we are very excited about our shift to full engine manufacturing, as it secures our supply to our customers and enables the introduction of proprietary engines, the first of which is our 8.8 liter.”

2016 Outlook

The Company now expects 2016 revenue to be in the range of $350 million to $375 million. The reduced guidance reflects continued challenging market conditions in the oil and gas end market.

The Company cautions that its 2016 outlook reflects its current assessment of a number of factors, including, but not limited to, the timing of new product ramps, oil and gas pricing and the impact of global economic conditions on demand growth in its current markets. Please see the “Cautionary Note Regarding Forward-Looking Statements” below for additional risk factors.

Earnings Results Conference Call

The Company will discuss financial results and outlook on a conference call scheduled for today, February 22, 2016, at 4:30 p.m. ET/3:30 p.m. CT. The call will be hosted by Gary Winemaster, Chief Executive Officer, Eric Cohen, Chief Operating Officer, and Michael Lewis, Chief Financial Officer.

Investors in the U.S. interested in participating in the call should dial +1 (800) 289-0726 and reference passcode 9023145. Those calling from outside the U.S. should dial +1 (913) 312-0389 and reference the same passcode 9023145. A telephone replay will be available approximately two hours after the call concludes through March 7, 2016 by dialing +1 (877) 870-5176 from the U.S. or +1 (858) 384-5517 from international locations, with passcode 9023145.

A simultaneous live webcast will be available on the Investor Relations section of the Company’s website at www.psiengines.com. A presentation will accompany the live webcast. For those listening on the webcast, the slides will download automatically. For those dialing in, the presentation can be downloaded from the Investor Relations section of our website. The webcast will be archived on the website for one year.

About Power Solutions International, Inc.

Power Solutions International, Inc. (PSI or the Company) is a leader in the design, engineer and manufacture of emissions-certified, alternative-fuel power systems. PSI provides integrated turnkey solutions to leading global original equipment manufacturers in the industrial and on-road markets. The Company’s unique in-house design, prototyping, engineering and testing capacities allow PSI to customize clean, high-performance engines that run on a wide variety of fuels, including natural gas, propane, biogas, gasoline and diesel.


PSI develops and delivers complete industrial power systems that are used worldwide in stationary and mobile power generation applications supporting standby, prime, and Co-generation power (CHP) applications; mobile industrial applications that include forklifts, aerial lifts, industrial sweepers, aircraft ground support, arbor, agricultural and construction equipment. In addition, PSI develops and delivers power systems purpose built for the Class 3 through Class 7 medium duty trucks and buses for the North American and Asian markets.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, regarding the current expectations of the Company about its prospects and opportunities, including expectations for sales as set forth under “2016 Outlook.” These forward-looking statements are covered by the “Safe Harbor for Forward-Looking Statements” provided by the Private Securities Litigation Reform Act of 1995. The Company has tried to identify these forward looking statements by using words such as “expect,” “contemplate,” “anticipate,” “estimate,” “plan,” “will,” “would,” “should,” “forecast,” “believe,” “outlook, “ “guidance,” “projection,” “target” or similar expressions, but these words are not the exclusive means for identifying such statements. The Company cautions that a number of risks, uncertainties and other factors could cause the Company’s actual results to differ materially from those expressed in, or implied by, the forward-looking statements, including, without limitation, the continued development and expansion of the market for alternative-fuel power systems; technological and other risks relating to the Company’s development of its 8.8 and 4.3 liter engines, introduction of other new products and entry into on-road markets (including the risk that these initiatives may not be successful); the timing of new products; the Company’s ability to integrate recent acquisitions into the business of the Company successfully and the amount of time and expense spent and incurred in connection with the integration; the risk that the economic benefits, cost savings and other synergies that the Company originally anticipated as a result of recent acquisitions are not fully realized or take longer to realize than expected; the significant strain on the Company’s senior management team, support teams, manufacturing lines, information technology platforms and other resources resulting from rapid expansion of the Company’s operations (including as a result of recent acquisitions); volatility in oil and gas prices; changes in environmental and regulatory policies; significant competition; global economic conditions (including their impact on demand growth); and the Company’s dependence on key suppliers. For a detailed discussion of factors that could affect the Company’s future operating results, please see the Company’s filings with the Securities and Exchange Commission, including the disclosures under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in those filings. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances or future events or for any other reason.


Non-GAAP Financial Measures and Reconciliations

As used herein, “GAAP” refers to generally accepted accounting principles in the United States. The Company uses certain numerical measures in this press release which are or may be considered “Non-GAAP financial measures” under Regulation G. The Company has provided below for your reference supplemental financial disclosure for these measures, including the most directly comparable GAAP measures and associated reconciliations.

Reconciliation of Net Income to Adjusted Net (Loss) Income

(Dollar amounts in thousands)

 

     Three months
ended
December 31, 2015
    Three months
ended
December 31, 2014
 

Net income

   $ 1,704      $ 10,321   

Non-cash (income) expense from warrant revaluation

     (1,259     (4,979

Non-cash (income) expense from contingent consideration revaluation, net of tax

     59        (35

Federal research tax credit

     (900     —     

Transaction costs, net of tax

     236        —     

Adjusted net (loss) income

   $ (160   $ 5,307   


Reconciliation of Diluted EPS to Adjusted Diluted EPS

 

  

     Three months
ended
December 31, 2015
    Three months
ended
December 31, 2014
 

Earnings per diluted common share

   $ 0.04      $ 0.48   

Non-cash (income) expense from warrant revaluation

     —          —     

Non-cash (income) expense from contingent consideration revaluation, net of tax

     0.01        —     

Federal research tax credit

     (0.08     —     

Transaction costs, net of tax

     0.02        —     

Adjusted earnings (loss) per diluted common share

   $ (0.01   $ 0.48   

Reconciliation of Net Income to Adjusted Net Income

(Dollar amounts in thousands)

 

     Twelve months
ended
December 31, 2015
    Twelve months
ended
December 31, 2014
 

Net income

   $ 14,278      $ 23,726   

Non-cash (income) expense from warrant revaluation

     (9,299     (6,169

Non-cash (income) expense from contingent consideration revaluation, net of tax

     29        (2,305

Federal research tax credits

     —          —     

Transaction costs, net of tax

     662        487   

Adjusted net income

   $ 5,670      $ 15,739   

Reconciliation of Diluted EPS to Adjusted Diluted EPS

 

     Twelve months
ended
December 31, 2015
     Twelve months
ended
December 31, 2014
 

Earnings per diluted common share

   $ 0.45       $ 1.58   

Non-cash (income) expense from warrant revaluation

     —           —     

Non-cash (income) expense from contingent consideration revaluation, net of tax

     —           (0.22

Federal research tax credits

     —           —     

Transaction costs, net of tax

     0.06         0.05   

Adjusted earnings per diluted common share

   $ 0.51       $ 1.41   


The Company believes supplementing its consolidated financial statements presented in accordance with GAAP with non-GAAP measures provides investors with useful information regarding the Company’s short-term and long-term trends. Adjusted net income (loss) is derived from GAAP results by excluding the non-cash impact related to the change in the estimated fair value of the liability associated with the warrants issued in the Company’s April 2011 private placement. The Company excludes this non-operating, non-cash impact, as the Company believes it is not indicative of its core operating results or future performance. The warrant revaluation results from facts and circumstances that fluctuate in impact and is excluded by management in its forecast and evaluation of the Company’s operational performance. Adjusted earnings (loss) per diluted common share is also derived from GAAP results by excluding the non-cash impact, even when antidilutive, related to the change in the estimated fair value of the liability associated with the warrants. Adjusted net income (loss) and adjusted earnings (loss) per diluted common share also include an adjustment to remove transaction related costs and the revaluation of contingent consideration in 2015 and 2014, both recorded in association with acquisition activity. In the three months ended December 31, 2015, adjusted net income (loss) and adjusted earnings (loss) per diluted common share also include an adjustment to normalize the federal research tax credit recognized for the full year of 2015. Other than the federal research tax credit for which an adjustment is presented in a comparison of quarterly results and is principally attributable to the timing of the passage of the legislation re-enacting this credit for 2015, the Company believes that these costs are not indicative of the Company’s core operating results or future performance. These costs, other than the federal research tax credit, are excluded by management in its forecast and evaluation of the Company’s operational performance.

Adjusted net income (loss), adjusted earnings (loss) per diluted common share and other non-GAAP financial measures used and presented by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or as superior to, financial performance measures prepared in accordance with GAAP.

Contact:

Power Solutions International, Inc.

Michael P. Lewis

Chief Financial Officer

+1 (630) 451-2290

Michael.Lewis@psiengines.com

The Blueshirt Group

Gary T. Dvorchak, CFA

Managing Director

+1 (323) 240-5796

gary@blueshirtgroup.com


Power Solutions International, Inc.

Consolidated Balance Sheets (Unaudited)

(Dollar amounts in thousands, except per share amounts)

 

     December 31, 2015     December 31, 2014  

ASSETS

    

Current assets

    

Cash

   $ 8,445      $ 6,561   

Accounts receivable, net

     104,365        81,740   

Income tax receivable

     5,230        —     

Inventories, net

     130,347        93,903   

Prepaid expenses and other current assets

     4,288        4,801   

Deferred income taxes

     —          3,998   
  

 

 

   

 

 

 

Total current assets

     252,675        191,003   

Property, plant & equipment, net

     26,001        20,892   

Intangible assets, net

     31,745        21,392   

Goodwill

     41,466        23,546   

Deferred income tax asset

     819        —     

Other noncurrent assets

     7,230        5,804   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 359,936      $ 262,637   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities

    

Accounts payable

   $ 76,078      $ 60,877   

Income taxes payable

     —          779   

Accrued compensation and benefits

     4,009        5,983   

Current maturities of long-term debt

     —          1,667   

Other accrued liabilities

     19,175        6,742   
  

 

 

   

 

 

 

Total current liabilities

     99,262        76,048   

Long-term obligations

    

Revolving line of credit

     97,299        78,030   

Deferred income taxes

     —          3,241   

Private placement warrants

     1,482        11,036   

Long-term debt, less current maturities, net

     53,820        2,361   

Other noncurrent liabilities

     1,776        1,122   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     253,639        171,838   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY

    

Series A convertible preferred stock—$0.001 par value. Authorized: 114,000 shares. Issued and outstanding: -0- shares at December 31, 2015 and December 31, 2014.

     —          —     

Common stock—$0.001 par value. Authorized: 50,000,000 shares. Issued: 11,583,831 and 11,562,209 shares at December 31, 2015 and December 31, 2014, respectively. Outstanding: 10,752,906 and 10,731,284 shares at December 31, 2015 and December 31, 2014, respectively.

     12        12   

Additional paid-in-capital

     75,179        73,959   

Retained earnings

     35,356        21,078   

Treasury stock, at cost, 830,925 shares at December 31, 2015 and December 31, 2014.

     (4,250     (4,250
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     106,297        90,799   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 359,936      $ 262,637   
  

 

 

   

 

 

 


Power Solutions International, Inc.

Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands, except per share amounts)

 

     Three months
ended
December 31,
2015
    Three months
ended
December 31,
2014
    Twelve months
ended
December 31,
2015
    Twelve months
ended
December 31,
2014
 

Net sales

   $ 96,670      $ 103,910      $ 389,446      $ 347,995   

Cost of sales

     82,975        82,819        326,612        280,950   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     13,695        21,091        62,834        67,045   

Operating expenses:

        

Research & development and engineering

     4,708        5,056        21,681        16,900   

Selling and service

     3,133        2,815        11,658        9,686   

General and administrative

     4,765        3,588        15,718        13,402   

Amortization of intangible assets

     1,827        521        4,582        1,013   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,433        11,980        53,639        41,001   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (738     9,111        9,195        26,044   

Other (income) expense:

        

Interest expense

     1,341        444        4,327        1,331   

Contingent consideration

     98        (58     48        (3,840

Private placement warrant (income) expense

     (1,259     (4,979     (9,299     (6,169

Other (income) expense, net

     (31     74        229        183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense (income)

     149        (4,519     (4,695     (8,495
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (887     13,630        13,890        34,539   

Income tax (benefit) provision

     (2,591     3,309        (388     10,813   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,704      $ 10,321      $ 14,278      $ 23,726   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     10,817,859        10,796,744        10,808,005        10,706,780   

Diluted

     10,932,427        11,151,120        11,073,647        11,131,617   

Earnings per common share:

        

Basic

   $ 0.16      $ 0.96      $ 1.32      $ 2.22   

Diluted

   $ 0.04      $ 0.48      $ 0.45      $ 1.58   


Power Solutions International, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)

 

     Twelve
months
ended
December 31,
2015
    Twelve
months
ended
December 31,
2014
 

Cash flows from operating activities

    

Net income

   $ 14,278      $ 23,726   

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

    

Depreciation

     4,347        2,562   

Amortization

     5,324        2,147   

Deferred income taxes

     (62     1,011   

Non-cash interest expense

     454        87   

Share-based compensation expense

     1,186        1,254   

Increase in accounts receivable allowances

     641        204   

Increase in inventory reserves

     945        679   

Amortization of inventory step up to fair value

     538        482   

Decrease in valuation of private placement warrants liability

     (9,299     (6,169

Increase (decrease) in valuation of contingent consideration liability

     48        (3,840

Loss on investment in joint ventures

     229        209   

Loss on disposal of assets

     267        284   

(Increase) decrease in operating assets, net of effects of business combinations:

    

Accounts receivable

     (18,123     (35,225

Income tax receivable

     (5,230     —     

Inventories

     (27,336     (34,125

Prepaid expenses and other assets

     (83     (4,492

Increase (decrease) in operating liabilities, net of effects of business combinations:

    

Accounts payable

     8,160        34,140   

Accrued compensation and benefits and other accrued liabilities

     792        667   

Income taxes payable

     (779     585   

Other noncurrent liabilities

     654        129   
  

 

 

   

 

 

 

Net cash used in operating activities

     (23,049     (15,685
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property, plant & equipment

     (8,174     (7,239

Business combinations, net of cash acquired

     (34,396     (44,122

Investment in joint ventures

     (1,000     (350

Increase in cash surrender value of life insurance

     —          (2
  

 

 

   

 

 

 

Net cash used in investing activities

     (43,570     (51,713
  

 

 

   

 

 

 

Cash flows from financing activities

    

Advances from revolving line of credit - noncurrent obligation

     93,628        82,402   

Repayments of revolving line of credit - noncurrent obligation

     (74,359     (22,305

Proceeds from exercise of private placement warrants

     65        1,425   

Proceeds from long-term debt

     55,000        5,000   

Payments on long-term debt

     (4,028     (972

Payment of withholding taxes from net settlement of share-based awards

     (351     (430

Excess tax benefit from exercise of share-based awards

     65        2,704   

Cash paid for financing and transaction fees

     (1,517     (171
  

 

 

   

 

 

 

Net cash provided by financing activities

     68,503        67,653   
  

 

 

   

 

 

 

Increase in cash

     1,884        255   

Cash at beginning of period

     6,561        6,306   
  

 

 

   

 

 

 

Cash at end of period

   $ 8,445      $ 6,561