By Serge Khairallah

Since it’s IPO a year ago , Polar power “ POLA “ is down almost 45% mainly due to a fall in revenue over the course of 2017 , but this is about to change . For more information ,  Polar Power design, manufacture and sell direct current (DC), power systems for applications primarily in the telecommunications market and, to a lesser extent, in other markets, including parts military, electric vehicle charging, cogeneration, distributed power and uninterruptable power supply . I will divide this article into three main parts , starting with Products & competition , then moving to weaknesses , markets & opportunities & finally revenue.

Product & competition :

Polar power offers three DC power supply : DC base power system for prime or backup energy (main revenue source ) , DC hybrid power system ( using lithium – ion battery ) and DC solar hybrid power system (combine DC hybrid with solar power ) .

It competes with major well established global manufacturers  AC generators like Caterpillar , Ascot and battery backup manufacturers like Samsung & Tesla .

The products offered by Polar power have clear competitive advantage over its competitors by offering products with no need for maintenance , higher efficiency charging , longer life cycle , light weight & using a proprietary super capacitor instead of a normal battery . As mentioned in the 10-k form :

 “ we believe that the number one reliability issue with a generator set is the failure to start. To improve the reliability of our generators, we remove the engine’s starting battery and replace it with a super capacitor. The super capacitor has a 15- to 20-year service life, greater cold cranking amps and withstands greater temperature extremes than conventional starting batteries.

“ To reduce maintenance and help ensure that there is always adequate oil, we increase the engine’s oil capacity to provide for a 3,000 hour (natural gas / propane) or 1,500 hour (diesel) maintenance interval. Standard oil intervals for typical generators range from 200 to 500 hours. “

Its external shape made from aluminum & stainless steel makes it hard and corrosion resistant . Those qualities are essential in telecommunication , especially for the off-grid sites or sites with potential natural disaster like in Puerto Rico.

Weakness , markets & opportunities  :

Since it’s IPO , Polar power had one main problem : the majority of sales were derived from one customer “ Verizon “ , but fortunately the company’s efforts to diversify its revenue stream is finally working  with the decline in Verizon contribution of revenue from 91% for the 3 month ended September 2016 to 74 % for the three months ended September 2017  .

While this happened , the international sales force expanded the company customer base by expanding into international markets like Australia , Asia & Africa where they received approval from 32 carriers vendors with a RFP of 100 Million dollar ( a rise from 75 million in Q2 )  , and expecting another additional 41 carriers to join them by next year . Also , Polar is anticipating some of the purchase orders to start materializing in the first half of 2018 .

Source : Q3 2017 investor presentation

Source : Q3 2017 investor presentation .

Another factor that scared away investors is the decrease in revenue by 59% for the months ended September 2017 , 2016 . The reason behind this decline is mainly hurricane Harvey , a one time problem which led to a delay in orders . Fortunately for the company , this turned to be an opportunity for new orders to come , since many communication sites were destroyed .

Also gross margin declined to 27%  , mainly due to a negative change in volume discounts as a result of a decrease in raw material purchases, and the R&D of 3 new products which ended successfully .

Moving forward , it is expected to increase to a  range of 40 to 45 % in the fourth quarter .

Regarding the first reason , the upcoming purchase orders in the next quarters will increase positively the change in volume discount thus lower price for raw material . Moving to  the R&D , it is expected to increase only slightly since no more  is needed for the lunch of the products. As the company stated :

“ Polar Power’s belief that it is positioned for substantial revenue growth in 2018; Polar Power’s expectation that sales to its customers will increase over the course of the next several months; the expectation that Polar Power’s gross profit as a percentage of net sales will return to within a range of 40%-45% during the fourth quarter of 2017; Polar Power’s belief that customers will make major purchases in the coming quarters “   Company Q3 conference call 

 

 

And from a macro perspective the need for better data coverage and a higher internet speed is increasing which increase the need to build new cell towers  :

 “The GSMA 2016 Report also noted that the growing number of smartphones and other advanced mobile network devices (e.g., tablets, computers and automobiles) is expected to increase the use of data traffic at a compounded annual growth rate of 49% until 2020. As a result of this increase in data growth, it is estimated that mobile telecommunications tower operators worldwide will invest over $1.4 trillion in the construction of new cell towers and equipment upgrades by 2020, according to the Mobile Economy 2015 report published by GSM Association, or the GSMA 2015 Report. “ 10-k form .

 

Revenue :

Polar Power management is expecting Q4 2017  to be much better than Q3 . This expectation is based on a couple of  reasons : First , hurricane Harvey created new opportunities for Polar power  which received a 57-unit purchase orders of DC power systems from new tier-1 wireless carrier customer for hurricane-affected telecom sites in Puerto Rico  . Second , signing new deals with all four tier 1 wireless carriers for domestic projects in the US :

“ Since the beginning of 2017, we have been granted approved supplier status from two additional Tier 1 telecommunications customers and reestablished our relationship with one other customer, making us vendor approved to all four of the Tier-1 wireless carriers in the U.S., one of which purchased its initial set of DC power systems during the second quarter of 2017 and has submitted its first significant order worth $1.2 million in October 2017. “ Q3 10-Q .

For next year starting Q1 , orders from the 32 carries will start ( RFP of 100 million ) and 41 new carriers are expected to join them .

“ Our international sales force continues to execute our global growth strategy by presenting our power systems to their business contacts in four continents. We have successfully obtained vendor approval from 32 overseas carriers and are working with them on RFP’s exceeding well over $100 million as of September 30, 2017. Although no assurances can be given that any of these RFPs will result in purchase iorders for our products, we believe these initiatives have laid the necessary foundation for long term financial performance and we expect to receive purchase orders from many of these regions during the first half of 2018. “

Conclusion :        

While investors dumped Polar Power due to its sluggish earnings , gross margin and EPS , the company was diversifying its customer base by expending to overseas , offering new products & receiving new opportunities in Australia , Africa & Asia along while straightening its relationship with domestic carriers .

As CEO Arthur Sams said “the company is in a inflection point “ . It is reaching its goals with new products that have clear competitive advantage and a leader in DC power supply for prime and backup energy while diversifying its customer base & increasing it’s revenue with the increase in orders .

We want you to join our community

Benefits of signing up for a FREE membership now:

-No more costly delays in waiting for material

-Dozens of publications per week, including news coverage, earnings commentary, analysis, politics, and more

-Access to special guest contributions, including from WSJ, CNBC, and prolific SA authors

Ability to comment on articles

Access to our weekly newsletter

-Publish your own opinion/analysis

CLICK HERE: All you have to do is register, and join the community today. 

Thank you for your readership, and for your loyalty.

Regards,

Quad7Capital

Please Like And Share Our Content!