On this page of StockholderLetter.com we present the latest annual shareholder letter from PIONEER POWER SOLUTIONS, INC. — ticker symbol PPSI. Reading current and past PPSI letters to shareholders can bring important insights into the investment thesis.

 •  10/18/2024 Letter Continued (Full PDF)
 •  9/25/2023 PPSI Stockholder Letter
 •  More "Electronic Equipment & Products" Category Stockholder Letters
 •  PPSI Benford's Law Stock Score = 84

PPSI Shareholder/Stockholder Letter Transcript:

P       P     S           I    
2023

PIONEER POWER SOLUTIONS, INC.
Form 10-K
For the Fiscal Year Ended December 31, 2023
TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements....................................................................................................
1
PART I
Item 1.
Business ........................................................................................................................................................
2
Item 1A.
Risk Factors...................................................................................................................................................
6
Item 1B.
Unresolved Staff Comments .........................................................................................................................
19
Item 1C.
Cybersecurity ................................................................................................................................................
19
Item 2.
Properties ......................................................................................................................................................
20
Item 3.
Legal Proceedings .........................................................................................................................................
20
Item 4.
Mine Safety Disclosures................................................................................................................................
20
Market for Registrant   s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .......................................................................................................................................................
21
Item 6.
[Reserved] .....................................................................................................................................................
21
Item 7.
Management   s Discussion and Analysis of Financial Condition and Results of Operations ........................
21
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ......................................................................
29
Item 8.
Financial Statements and Supplementary Data .............................................................................................
30
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .......................
62
Item 9A.
Controls and Procedures ...............................................................................................................................
62
Item 9B.
Other Information..........................................................................................................................................
63
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections...........................................................
63
Item 10.
Directors, Executive Officers and Corporate Governance ............................................................................
64
Item 11.
Executive Compensation ...............................................................................................................................
67
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......
73
Item 13.
Certain Relationships and Related Transactions, and Director Independence ..............................................
74
Item 14.
Principal Accountant Fees and Services .......................................................................................................
75
Item 15.
Exhibits and Financial Statement Schedules .................................................................................................
77
Item 16.
Form 10-K Summary ....................................................................................................................................
77
PART II
Item 5.
PART III
PART IV

EXPLANATORY NOTE
We are filing this comprehensive Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022
(   Comprehensive Form 10-K   ). This Comprehensive Form 10-K contains our audited financial statements for the fiscal year
ended December 31, 2023, as well as restatements of the following previously filed periods: (i) audited consolidated financial
statements as of and for the fiscal year ended December 31, 2022, originally included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2022 (the    2022 10-K   ), and (ii) unaudited condensed consolidated financial statements
for the quarterly periods ended March 31, 2022 through September 30, 2023, originally included in our Quarterly Reports on
Form 10-Q for the periods ended March 31, 2023, June 30, 2023 and September 30, 2023 (collectively, the    Form 10-Qs    and
together with the 2022 10-K, the    Prior Financial Statements   ).
Restatement Background
As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the    SEC   )
on June 6, 2024, in connection with the preparation of our consolidated financial statements for the fiscal year ended December
31, 2023, we, in consultation with the Audit Committee (the    Committee   ) of our Board of Directors, concluded that the Prior
Financial Statements should no longer be relied upon due to errors in such consolidated financial statements and should be
restated to correct the misstatements therein.
During 2022 and 2023, we recognized revenues associated with customer contracts with performance obligations satisfied over
time (   Over Time Contracts   ) using labor hours as the measure of progress. Our underlying estimates of total labor hours
required to complete Over Time Contracts were materially different from the actual labor hours required, which was determined
to represent an error, and, as a result, the percentage of completion used to recognize revenue in the Prior Financial Statements
is materially different from the percentage of completion using actual labor hours incurred. As a result, we have restated
revenues during the Prior Financial Statements to adjust the percentage of completion based upon the actual labor hours
incurred to complete each Over Time Contract (the    Revenues Adjustment   ).
Additionally, we have determined that costs from Over Time Contracts should be recognized as incurred and, as a result, we
have recorded an adjustment to our consolidated financial statements during the Prior Financial Statements (together with the
Revenues Adjustment, the    Restatement Adjustments   ). As a result of this error, the Restatement Adjustments result in the
recognition of cost of revenues in the Prior Financial Statements for which the recognition of a portion of the corresponding
revenues have been deferred to future periods. For those Over Time Contracts that have been completed by us during the Prior
Financial Statements, the Restatement Adjustments have the effect of derecognizing amounts in one period and recognizing
corresponding amounts in another period within the Prior Financial Statements. Cumulatively, these adjustments will net to
zero over time.
Restatement Overview
Other sections impacted by the restatement of the Prior Financial Statements are:


Part I, Item 1A. Risk Factors
Part II, Item 7. Management   s Discussion and Analysis of Financial Condition and Results of Operations
Part II, Item 8. Financial Statements and Supplementary Data
Part II, Item 9A. Controls and Procedures
We have not filed, and do not intend to file, amendments to the previously filed Form 10-Qs, nor the previously filed 2022 10K. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated periods in
this Comprehensive Form 10-K or in future filings with the SEC (as applicable), and not on any previously issued or filed
reports, earnings releases or similar communications relating to these periods.
Refer to Note 2     Restatement of Previously Issued Consolidated Financial Statements and Note 4     Restatement of Previously
Issued Unaudited Interim Condensed Consolidated Financial Statements in the accompanying consolidated financial statements
included in Part II, Item 8 for additional information.

Internal Control Considerations
In connection with the Restatement Adjustments, management has evaluated its disclosure controls and procedures and internal
control over financial reporting as of December 31, 2023. As a result of that assessment, management has concluded that an
additional material weakness existed as of December 31, 2023 as follows:
The Company did not maintain effective controls over the revenue recognition of over-time contracts and associated costs. The
Company   s underlying estimates of total labor hours required to complete over time contracts were materially different from
the actual labor hours required, which was determined to represent an error, and, as a result, the percentage of completion used
to recognize revenue was materially different from the percentage of completion using actual labor hours incurred.
Additionally, the Company did not properly account for recognition of costs incurred by contract. This material weakness
resulted in the restatement of the Company   s consolidated financial statements for the year ended December 31, 2022, as well
as its interim consolidated financial statements for the three months ended March 31, 2022 and 2023, the three and six months
ended June 30, 2022 and 2023 and the three and nine months ended September 30, 2022 and 2023.
For a discussion of management   s consideration of disclosure controls and procedures, internal controls over financial
reporting, and the material weaknesses identified, see Part II, Item 9A.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains    forward-looking statements,    which include information relating to future events,
future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words
such as    may,       should,       could,       would,       predicts,       potential,       continue,       expects,       anticipates,       future,       intends,   
   plans,       believes,       estimates,    and similar expressions, as well as statements in future tense, identify forward-looking
statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be
accurate indications of when such performance or results will be achieved. Forward-looking statements are based on
information we have when those statements are made or management   s good faith belief as of that time with respect to future
events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those
expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but
are not limited to:

General economic conditions and their effect on demand for electrical equipment, particularly in the commercial
construction market, but also in the power generation, industrial production and infrastructure industries.

The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share,
margins and profitability.

Many of our competitors are better established and have significantly greater resources and may subsidize their
competitive offerings with other products and services, which may make it difficult for us to attract and retain
customers.

The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief
executive officer.

Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for
our new products.

Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely
affect our profitability.

Our ability to realize revenue reported in our backlog.

Our ability to remediate the material weaknesses identified in our internal control over financial reporting as of
December 31, 2023, or inability to otherwise maintain an effective system of internal control.

The effect that the restatement of the Prior Financial Statements could have on investor confidence in us and raise
reputational risk.

Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or
overhead cost increases, interest rate risk and commodity risk.

Strikes or labor disputes with our employees may adversely affect our ability to conduct our business.

The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate
control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital
markets.

Material weaknesses in internal controls.

Future sales of large blocks of our common stock may adversely impact our stock price.

The liquidity and trading volume of our common stock.

Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global
coronavirus pandemic, or similar public threat, or fear of such an event.

Risks associated with litigation and claims, which could impact our financial results and condition.
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained
herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forwardlooking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face,
nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause
actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable
laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. You should review carefully the risks and uncertainties described under the
heading    Item 1A. Risk Factors    in this Annual Report on Form 10-K for a discussion of the foregoing and other risks that
relate to our business and investing in shares of our common stock.
1



 10/18/2024 Letter Continued (Full PDF)