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POLA: Its Expansion Plans and Recent Investments in Growth

IN FOCUS: Polar Power and Its Expansion Plans and Recent Investments in Growth

The alphaDIRECT Insight

Since Polar Power’s IPO, the company has been focused on three key strategic initiatives: diversify their customer base domestically and overseas, increase production to meet new opportunities, and increase the diversity of their products and services. Polar’s business can be separated into two primary categories. The first is Telecom, which can be further separated into Domestic Tier-1, Domestic Last Mile and International. The second is Emerging Growth, which includes four key areas of focus: Specialty Hybrid EVs, Propane and NatGas DC generators, Solar Hybrid and Distributed Power for residential, rural and EV Charging. Since the IPO the Tier-1 telecom customers have been absorbing most of the Company’s resources and as such we believe Polar has been limited in its ability to pursue other growth opportunities in the other categories noted above. Over the last 12 months the Company has made several investments that we view as critical steps towards new business development and diversification. In this alphaDIRECT Management Series we focus on exactly what those investments have been, why they were implemented and how the Company expects to leverage them going forward.

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Shawn Severson: First, I would like to thank you, Arthur for taking the time to speak with us again today. Last time we spoke, we covered an overview of Polar Power’s corporate organization and structure and a brief review of your market strategy. Today, our focus will be on your recent expenditures and investments. So, let’s get started. You have made a number of investments in the business over the past year. Can you explain what the catalysts are that drove this to occur?

Arthur Sams: Thank you, Shawn. Let me begin by saying that since the launch of our IPO it has always been our plan to diversify our customer base domestically and overseas, increase production to meet opportunities, and increase the diversity our products and services. Everything we are doing is centered around those strategic objectives. In regard to the specifics, there is not just one catalyst at play here as there are a number of factors that have been driving our investments. To start with, on the international telecom front, there is a heightened interest resulting from our marketing activity over the past two years. As a reminder, the international market represents over 90% of the global market and it is critical that we build our position in high- growth regions. Domestically, there is also another untapped opportunity outside of our US Tier-1 Carriers and that is found in the last- mile rural telecom providers. In fact, we estimate there are over 500 of them for us to target. We are attacking that opportunity by leveraging our visits to Tier-1 regional offices and then following on with visits to an increasing number of local and regional carriers and of course this demands additional resources to execute.

Our technology road map is also a key driver. We are preparing for new product launches in the June/July time frame which requires additional engineering resources and time to develop. Innovation is not a one-time event, but rather a continuous effort and we must maintain our competitive edge over the legacy domestic providers of AC systems and overseas against other DC systems providers.

We believe that we are still in the early stages of a multi-year cycle and require investments across the organization ranging from sales and engineering to manufacturing. With this expectation, it is critical to reduce our production lead times to meet our customer expectations. It’s noteworthy to mention that new customers want to start their programs ASAP and we have to be able to accommodate this or their procurement process delays the contract award and there are expectation for Polar to deliver sooner to make up for their lost time. At the same time, I want to drive our sales staff to seek contracts on projects that can commit to long range deliveries (example Military).

I guess if I were to simply summarize what is driving our investments, it is that we have a significant growth opportunity in a trillion-dollar market for power and cooling systems. I believe we have a technology advantage over our competitors, and we need to move ahead aggressively to capture our share.

Shawn Severson: About how much additional expense was incurred on a quarterly basis? Can you compare the first quarter of 2018 with the first quarter of 2019?

Arthur Sams: One of the key pillars of our growth strategy outlined in our IPO included international expansion and diversification of our sales through the addition of Tier-1 telecom providers to our existing customer base. During the past two years we established sales and service offices in Australia, Namibia, Romania, Dubai, Singapore, Dominican Republic, and Poland to build relationships with local telecom providers through product demonstrations and development of new product configurations better suited for local markets. These facilities also provide regional technical support for our sales personnel located in Singapore, Sri Lanka, Dubai, Poland and Dominican Republic.

Unlike the majority of our U.S. and European competitors, our strategy remains to develop direct sales and service infrastructure that greatly reduces the need for distributors and importers. During 2018, we invested $1,5 million in infrastructure, product demonstrations and salaries in development of international sales infrastructure, which resulted in initial orders from Africa, South East Asia and Australia totaling 6% of our sales.  During 2019 we anticipate our international sales will follow a similar growth pattern as our U.S. Tier-1 customers.

Our U.S. sales during Q1 2019 grew by 55 when compared to Q1 2018. In the U.S. markets we are faced with large competitors who offer lower cost legacy AC technology products with short delivery times as an alternative to our higher quality and more efficient power systems. In 2018, we reached historic order bookings resulting from signing national agreements with Tier-1 telecom providers. In 2018, we invested into new plants and facilities to increase production output, shorten lead times and improve production efficiencies.