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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.

Research from Water Tower Research

Equity Research Firm

Equity Bottom-Up

<h2>KEY POINTS</h2>
<div></div>
<ul>
<li>Polar Power reported 1Q22 revenue of $3.7 million, up 12.7% Y/Y from $3.3 million in 1Q21. Higher sales of DC power systems to Tier 1 US telecom clients in support of 5G infrastructure and an uptick in demand to export these systems for rural broadband projects fueled the growth. Complete results can be accessed&nbsp;<a href="https://ir.polarpower.com/press-releases/detail/54/polar-power-reports-first-quarter-2022-financial-results" target="_blank" rel="noopener">here</a>.</li>
<li>At the end of the first quarter, Polar’s revenue backlog stood at $9.0 million, of which 66% and 31% were attributed to the US and international telecom clients, 1% to the marine market, and 2% to other markets.</li>
<li>Gross profit increased to $0.9 million (24.4% of revenue) compared with -$0.06 million in 1Q21 due to increased DC power system shipments to Tier-1 telecom customers and improved labor efficiency manufacturing these systems.</li>
<li>Operating expenses rose to $2.0 million from $1.8 million in 1Q21, owing to increased marketing expenses in the US and overseas markets as COVID travel restrictions eased. Polar added more staff in the general and administrative divisions of the company.</li>
<li>Net loss decreased by $0.8 million to $1.1 million from a net loss of $1.9 million in 1Q21, mainly from higher revenue and economies of scale. Basic &amp; Diluted EPS improved to -$0.10 from -$0.15 in 1Q21.</li>
<li>Cash stood at $4.2 million, while debt outstanding was $0.5 million. The company used cash to increase its inventory levels by $1.5 million Q/Q and had $20.7 million in working capital at the end of the quarter.</li>
<li>In March 2022, Polar received EPA certification on its 4Y Toyota (non-diesel) engine project aimed at expanding the power range to 35 kW from exisiting 10 kW on natural gas and LPG.</li>
<li>In April 2022, the company received a $4.0 million PO from a telecom customer in the South Pacific Islands, which it expects to fulfill by the end of 2022.</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, in addition to 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;<a href="https://www.frost.com/news/press-releases/5g-deployment-to-drive-global-expansion-for-data-center-power-systems-by-2025/" target="_blank" rel="noopener">$5.5 billion in 2025</a>&nbsp;from $4.2 billion in 2019. The telecom market is expected to post higher growth rates in 2021 as it recovers from lower 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 &amp; 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 line of 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<br>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>
<div></div>
<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


Polar Power reported 1Q22 revenue of $3.7 million, up 12.7% Y/Y from $3.3 million in 1Q21. Higher sales of DC power systems to Tier 1 US telecom clients in support of 5G infrastructure and an uptick in demand to export these systems for rural broadband projects fueled the growth. Complete results can be accessed&nbsp;here.
At the end of the first quarter, Polar’s revenue backlog stood at $9.0 million, of which 66% and 31% were attributed to the US and international telecom clients, 1% to the marine market, and 2% to other markets.
Gross profit increased to $0.9 million (24.4% of revenue) compared with -$0.06 million in 1Q21 due to increased DC power system shipments to Tier-1 telecom customers and improved labor efficiency manufacturing these systems.
Operating expenses rose to $2.0 million from $1.8 million in 1Q21, owing to increased marketing expenses in the US and overseas markets as COVID travel restrictions eased. Polar added more staff in the general and administrative divisions of the company.
Net loss decreased by $0.8 million to $1.1 million from a net loss of $1.9 million in 1Q21, mainly from higher revenue and economies of scale. Basic &amp; Diluted EPS improved to -$0.10 from -$0.15 in 1Q21.
Cash stood at $4.2 million, while debt outstanding was $0.5 million. The company used cash to increase its inventory levels by $1.5 million Q/Q and had $20.7 million in working capital at the end of the quarter.
In March 2022, Polar received EPA certification on its 4Y Toyota (non-diesel) engine project aimed at expanding the power range to 35 kW from exisiting 10 kW on natural gas and LPG.
In April 2022, the company received a $4.0 million PO from a telecom customer in the South Pacific Islands, which it expects to fulfill by the end of 2022.
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, in addition to 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 lower 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 &amp; 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 line of 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.

1Q22 Results: Revenue Grows 12.7% Y/Y Amidst Interest in Overseas Market; Labor Efficiency Improves