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Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<h2>KEY POINTS</h2>
<ul>
<li>On March 31, 2022, Polar Power filed its&nbsp;annual report, disclosing its performance data for the year 2021.</li>
<li>Revenue grew 87.1% Y/Y to $16.9 million in 2021 compared to $9.0 million in 2020. Higher sales of DC power systems to Tier 1 US telecom customers in support of their 5G infrastructure buildouts, and recovery from the pandemic, propelled the growth.</li>
<li>Telecommunications customers constituted 89% of sales compared to 96% in 2020. The company intends to diversify away from the highly concentrated telecom industry and expand its presence in other markets, such as the military, whose share in revenue increased to 6% from 1% in 2020.</li>
<li>As of December 31, 2021, the company's revenue backlog stood at $11.8 million, with 72% attributable to Tier 1 US telecom customers, 27% to advanced mobility applications, and 1% to other markets.</li>
<li>Gross profit turned positive to $3.4 million or 20.4% of revenue, compared to -$5.6 million in 2020. Higher sales volumes coupled with improved labor efficiencies and better production facility utilization led to this change.</li>
<li>Net loss decreased to $1.4 million from a net loss of $10.9 million in 2020, mainly from higher revenue and economies of scale. Basic and diluted EPS improved to -$0.11 per share from -$1.01 in 2020.</li>
<li>As of December 31, 2021, cash stood at $5.1 million, and the debt outstanding was $1.5 million, including leases. The company had working capital of $21.7 million, an increase of $11.6 million from 2020 as a function of cash from a public offering (~$12.5 million) and an increase in accounts receivable.</li>
<li>Polar plans to complete the development of natural gas and propane-fueled CHP generators. However, no timetable for further launches has been provided by the management.</li>
<li>Our prior content on POLA can be accessed&nbsp;HERE.</li>
</ul>
<h2>EARNINGS SNAPSHOT</h2>
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<h2>COMPANY OVERVIEW</h2>
<p>Polar Power, Inc. (POLA) designs, manufactures, and sells direct current (DC) power systems, power generators, battery storage, renewable energy, and cooling systems for backup power and off-grid power generation applications, including telecom (the largest vertical at &gt;90% of sales), auxiliary power generation for military vehicles, power generation for autonomous vehicles, electric vehicle rapid charging, marine and RV, and power for industrial and residential applications. Through its DC power systems, Polar provides energy service to applications that do not have access to the utility grid (prime power applications) or have critical power needs and cannot be without power in the event of utility grid failure (backup power applications).</p>
<h2>The Technology</h2>
<p>DC power offers some unique advantages over alternating current (AC) power solutions. DC power is significantly more energy-efficient than AC power, and DC motors and appliances have higher efficiency and power-to-size characteristics. DC power eliminates the inherent loss of 5% to 20% when AC power is converted to DC power. DC power is naturally compatible with battery storage and renewable energy sources such as solar and wind. Solar PV is inherently a DC energy supply, as are batteries, telecom radios, and LED lighting, making DC a more compatible interface. According to Frost &amp; Sullivan, the DC power systems market size is expected to reach&nbsp;$5.5 billion in 2025&nbsp;from $4.2 billion in 2019. The telecom market is expected to post higher growth rates in 2021 as it recovers from reduced infrastructure construction during 2020 caused by the pandemic. During 2021, increased investments in upgrading existing 4G sites combined with growth in 5G infrastructure development in the US are anticipated to be a key growth driver for the company.</p>
<h2>End-Markets and Applications</h2>
<p>The telecom sector currently dominates the company's revenue. The primary exposure is US wireless telecommunications carriers, although the company has an international growth strategy.</p>
<p>Telecom:&nbsp;5G networks demand higher network reliability, which continues to drive demand for backup generators. Polar's backup power generators are available in various fuel types and are designed to be 40% more compact than equivalent AC generators. Polar works with all major carriers.</p>
<p>EV Charging:&nbsp;With the rapid growth of EVs and anticipated investments by federal governments into EV charging infrastructure, the next few years may see increased demand for DC power systems for fast charge applications in residential and public sector charging stations. The company's DC power systems configured for rapid charge can also be used for emergency roadside assistance applications and support charging stations located along remote stretches of the highway. As the adoption of EVs reaches a critical mass, requirements for EV charging should proliferate. Additionally, Polar's chargers can run on natural gas or propane in weak- or no-grid areas and enable peak shaving. The waste heat can also be used in CHP solutions, increasing the energy efficiency further.</p>
<p>Nano/Microgrids:&nbsp;Distributed energy resources (DERs) are seeing rapid growth worldwide. A key component of such a system is a generator that easily integrates into renewable and energy storage resources. Polar's DC technology platform offers some distinct advantages in this area, including footprint, reliability, and efficiency. This is a natural application for Polar, and the company's products have already been used in this market. However, Polar needs a more formalized go-to-market strategy and is exploring a variety of options to leverage this immense commercial opportunity. Polar is also developing a 50kW and 200kW product to better compete in this market.</p>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

On March 31, 2022, Polar Power filed its&nbsp;annual report, disclosing its performance data for the year 2021.
Revenue grew 87.1% Y/Y to $16.9 million in 2021 compared to $9.0 million in 2020. Higher sales of DC power systems to Tier 1 US telecom customers in support of their 5G infrastructure buildouts, and recovery from the pandemic, propelled the growth.
Telecommunications customers constituted 89% of sales compared to 96% in 2020. The company intends to diversify away from the highly concentrated telecom industry and expand its presence in other markets, such as the military, whose share in revenue increased to 6% from 1% in 2020.
As of December 31, 2021, the company's revenue backlog stood at $11.8 million, with 72% attributable to Tier 1 US telecom customers, 27% to advanced mobility applications, and 1% to other markets.
Gross profit turned positive to $3.4 million or 20.4% of revenue, compared to -$5.6 million in 2020. Higher sales volumes coupled with improved labor efficiencies and better production facility utilization led to this change.
Net loss decreased to $1.4 million from a net loss of $10.9 million in 2020, mainly from higher revenue and economies of scale. Basic and diluted EPS improved to -$0.11 per share from -$1.01 in 2020.
As of December 31, 2021, cash stood at $5.1 million, and the debt outstanding was $1.5 million, including leases. The company had working capital of $21.7 million, an increase of $11.6 million from 2020 as a function of cash from a public offering (~$12.5 million) and an increase in accounts receivable.
Polar plans to complete the development of natural gas and propane-fueled CHP generators. However, no timetable for further launches has been provided by the management.
Our prior content on POLA can be accessed&nbsp;HERE.

EARNINGS SNAPSHOT


COMPANY OVERVIEW
Polar Power, Inc. (POLA) designs, manufactures, and sells direct current (DC) power systems, power generators, battery storage, renewable energy, and cooling systems for backup power and off-grid power generation applications, including telecom (the largest vertical at &gt;90% of sales), auxiliary power generation for military vehicles, power generation for autonomous vehicles, electric vehicle rapid charging, marine and RV, and power for industrial and residential applications. Through its DC power systems, Polar provides energy service to applications that do not have access to the utility grid (prime power applications) or have critical power needs and cannot be without power in the event of utility grid failure (backup power applications).
The Technology
DC power offers some unique advantages over alternating current (AC) power solutions. DC power is significantly more energy-efficient than AC power, and DC motors and appliances have higher efficiency and power-to-size characteristics. DC power eliminates the inherent loss of 5% to 20% when AC power is converted to DC power. DC power is naturally compatible with battery storage and renewable energy sources such as solar and wind. Solar PV is inherently a DC energy supply, as are batteries, telecom radios, and LED lighting, making DC a more compatible interface. According to Frost &amp; Sullivan, the DC power systems market size is expected to reach&nbsp;$5.5 billion in 2025&nbsp;from $4.2 billion in 2019. The telecom market is expected to post higher growth rates in 2021 as it recovers from reduced infrastructure construction during 2020 caused by the pandemic. During 2021, increased investments in upgrading existing 4G sites combined with growth in 5G infrastructure development in the US are anticipated to be a key growth driver for the company.
End-Markets and Applications
The telecom sector currently dominates the company's revenue. The primary exposure is US wireless telecommunications carriers, although the company has an international growth strategy.
Telecom:&nbsp;5G networks demand higher network reliability, which continues to drive demand for backup generators. Polar's backup power generators are available in various fuel types and are designed to be 40% more compact than equivalent AC generators. Polar works with all major carriers.
EV Charging:&nbsp;With the rapid growth of EVs and anticipated investments by federal governments into EV charging infrastructure, the next few years may see increased demand for DC power systems for fast charge applications in residential and public sector charging stations. The company's DC power systems configured for rapid charge can also be used for emergency roadside assistance applications and support charging stations located along remote stretches of the highway. As the adoption of EVs reaches a critical mass, requirements for EV charging should proliferate. Additionally, Polar's chargers can run on natural gas or propane in weak- or no-grid areas and enable peak shaving. The waste heat can also be used in CHP solutions, increasing the energy efficiency further.
Nano/Microgrids:&nbsp;Distributed energy resources (DERs) are seeing rapid growth worldwide. A key component of such a system is a generator that easily integrates into renewable and energy storage resources. Polar's DC technology platform offers some distinct advantages in this area, including footprint, reliability, and efficiency. This is a natural application for Polar, and the company's products have already been used in this market. However, Polar needs a more formalized go-to-market strategy and is exploring a variety of options to leverage this immense commercial opportunity. Polar is also developing a 50kW and 200kW product to better compete in this market.
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

FY21 Results: Revenue Surges 87.1% Y/Y as 5G Interest Grows and POLA Penetrates More Markets to Leverage Its DC Technology

United States

Polar Power, Inc. designs and manufactures power and cooling systems. The Company offers direct-current (DC) generators, DC alternators, batteries, and generator accessories. Polar Power serves telecommunications, military, hybrid power systems, and marine sectors globally.

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Polar Power (POLA US)

FY21 Results: Revenue Surges 87.1% Y/Y as 5G Interest Grows and POLA Penetrates More Markets to Leverage Its DC Technology

KEY POINTS On March 31, 2022, Polar Power filed its annual report, disclosing its performance data for the year 2021. Revenue grew 87.1% Y/Y to...

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