[What if the "bridge" that society needs to proliferate the use of alternative, next-evolution power is already here and is already being used by industry giants? I think it might be.]
We Can See the Other Side, But We're Looking for a Bridge:
Two years ago I invested in a startup that was attempting to monetize what it believed was "truly wireless charging" technology. This particular startup, back then and still today, believed that it could use RF technology to charge devices as large as smartphones from a distance of "15 feet". You can imagine, if successful, this would be revolutionary [READ: a hugely profitable investment considering the stage of development at which I invested]. To be clear, I'm stillinvested in this name.
Not to distract you, but I wanted to lead with this short anecdote in that I think the idea of "truly wireless charging" - for all its regulatory, health, and execution risk - is polarizing and probably borderline controversial. You may or may not subscribe to the idea that this is or ever will be feasible. I get that. I also get that my investment may or may not go to zero, ultimately [unless I decide to take an exit at some point - and at this point that exit would be somewhere in the range of 7X].
But what I don't think is polarizing or controversial is the idea that power, power distribution, and power management is evolving. In fact, I'd go as far as to say that all three are undergoing a revolution - albeit the revolution is in its earliest of stages. The facts are, we now have the ancillary technologies to evolve the way that we view and execute upon all three. Maybe wireless charging is still some distance away [or something that we never achieve], but inductive charging and/or short-range RF charging [among other mechanisms] are closer than most think. At least this is my belief [which is shaped by some of the amazing startups that I get to talk to on a daily basis].
For instance, I chatted with a startup a few weeks ago that can execute on short range RF charging in a regulatory approved way. Now, we're not talking great distances [reiterating "short range"]. But you don't need to reach great distances to be revolutionary.
Consider this: what if a major US airport could secure primary/backup power reliable enough to slowly reconstruct major traffic areas to be drive-worthy charging pads themselves? Put another way, what if a major US airport could turn the arrivals/departures terminal-loading/unloading zones into inductive charging pads for EVs? How revolutionary would that be? How disruptive would that allow EVs to be [together with what are sure to be other infrastructural advancements]. Of course, this is just one idea [triggered by one conversation with one particularly disruptive but not yet public startup].
But, generally speaking, I think the idea of a power evolution/revolution is 1) realistic enough and 2) interesting/potentially disruptive enough to begin considering how to maximize investment allocation to the thesis. If you follow me on Medium, that's likely the reason you follow me - for actionable capital market deployment ideas. So, let's get to it.
Polar Power Might be the Bridge: Polar Power's Competitive Advantages:
[The hurdles in the way of the next power evolution are clear: safety, reliability, scalability. Polar Power, at scale, might be able to address all of these.]
As I see it, there are three major hurdles to the proliferation of alternative, evolved power. Specifically, I'm speculating as to the hurdles to major infrastructural investment [and really, with this bullet point, I'm talking about government-tethered infrastructural investment]. These are: safety, reliability, and scalability [i.e. the ability to take the solution(s) to scale].
If we're going to have "smart airports", "smart grids", and/or "smart cities" - all three of these have to be absolute certainties [or near certainties]. While early days, I think a newly public direct-current [i.e. "DC"] power systems manufacturer can help with all three. Polar Power, which trades under the symbol "POLA", provides reliable and low-cost DC power to service applications in 1) prime power, off-grid applications [i.e. those which do NOT have access to the utility grid] and 2) back-up power applications [i.e. those which have critical power needs and cannot be without power in the event of utility grid failure].
Polar Power as an enterprise is a pretty simple story in both concept and in execution. It does, essentially, one thing; and it does it really, really well. By the way, if you've followed me for any amount of time you know that I love simple, straight-forward enterprises in that I believe them to be easier to risk manage as an investor.
Polar Power designs and manufactures purpose-built DC generators. That's it folks. It provides modular "power boxes" that are purpose-built on a situational basis. These "power boxes" help provide power, manage power, and in some capacities store/distribute power.
To be clear, before going any further, I don't think Polar Power is going to be the only winner in the power evolution per se; I just think it's going to be oneof them. That Polar Power is publicly traded allows me to take part in its winning. I like that last part. I also like, again, that the enterprise model is simple.
Now, getting back to the core focus of this note, Polar Power's core technologies are: DC power generation, energy storage, digital control systems, system integration, and manufacturing. Polar Power is literally able to provide a turn-key solution to its customers [and to the space in general] in that it has optimized all facets of the DC power arena. This hasn't come without trial and error and/or without a step-by-step optimization.
Polar Power has been in business [and evolving] since 1979. I've personally chatted with [and vetted] management and I can tell you, this is an "oatmeal for breakfast" team. This team is not interested in a $7 latte and Soylent. This team, for better or worse, is engineering led and engineering run. It arrived at this optimized model through a systematic, methodical, cost-focused, impossibly precise step-by-step evolution. The technological advantages of Polar Power [READ: the investment thesis] didn't come by accident. They're [the technological advantages as well as the management team] the real deal, folks; and this is coming from somebody who is really, really hard on managers.
Effectively, Polar Power has leveraged its technological advantages across the spectrum listed [power generation, energy storage, digital control systems, cooling systems…] to secure major customers in Verizon, AT&T, Telstra, etc. These are major enterprises that need execution. These are enterprises that need safety, reliability, and scale. That list of needs should sound familiar.
Why would these massive enterprises, who can engage globally with any partner of their choosing, choose to engage with Polar Power? Simple: Polar Power offers [outside of safety, reliability, and scalability] a smaller, lighter, and more efficient DC power generation technology/product. It also does this in a completely vertical fashion. That's right; Polar Power manufacturers its own product. It should go without saying but for those new to business/investing - manufacturing expertise enables 1) greater quality control and 2) the ability to provide a turnkey, fully integrated system with greater quality control. Both contribute greatly to an investment thesis.
Now, at this point you might be intrigued but still asking, "what exactly does Polar Power do though? I get that it might have better tech than competitors but what exactly is its tech and how is this relevant to how you sucked me into reading this far into this note - the power evolution/revolution?". Polar Power designs and manufactures purpose-built DC generators. That's it folks. It provides modular "power boxes" that are purpose-built on a situational basis. These "power boxes" help provide power, manage power, and in some capacities store/distribute power. Again, that's it. We're not talking about rocket science here.
Definitively though, I do see Polar Power becoming a larger and larger force/presence in 1) the general power-dependent physical infrastructure buildout of the US [SEE: telecoms like Verizon are using Polar Power's modularly deployed power boxes to expand their network capacity - using Polar Power to power tower expansion] and 2) the evolved power infrastructure buildout of the US [as Polar Power can be used on a modular and/or grid/micro-grid basis to provide primary and/or backup power to this infrastructure].
But: Polar Power does this better than its competitors and it does this with certain advantages; advantages that are also advantageous to the power evolution/revolution that I believe is coming. What are these?
- Polar Power eliminated the starting battery: Per Polar Power, this is the #1 reason why generators fail to start. Polar Power uses a "supercapacitor" to start its telecom generators [its currently most widely sold product as well as its product with the most data points collected]. Polar Power's "supercapacitor" provides the highest amount of "cranking amps" during the coldest weather. Over 20 years [and some of this had stage-by-stage evolution/optimization], Polar Power has been able to provide reliable service in the hottest and coldest weather extremes as a result of this differentiation. That matter, folks. It just does.
- Polar Power holds its products to the standard of "IP65" when it comes to sealed electronics: To ensure reliability during storms or flooding, all electrical connections and components within Polar Power generators [the "power boxes"] are sealed and water tight. More reliable = better investment thesis.
- Polar Power's generators have no transfer switches: Polar Power's DC generators connect directly to the battery (through fuses or circuit breakers). Less moving pieces = more reliable. More reliable = better investment thesis. You should begin to note a theme forming.
- Polar Power has NEMA 4 Storm Resistant enclosures: We're getting into some industry/technical jargon here, but put simply this means that Polar Power's generators were designed to minimize the intrusion of rain and snow. Why does this matter? SEE: reliability formula above.
- Polar Power's generators are corrosion resistant: The all-aluminum frame of a Polar Power generator is made with a unitized, welded and powder coated enclosure with stainless hardware for corrosion resistance and durability. And while durability definitely factors into the reliability equation above, it also factors into ROI and CAPEX equations for CIOs tasked with determining if they should do business with Polar Power or not do business with Polar Power. For me, this ventures into the "scalability" requirement. That's a good thing if you're investing in Polar Power's ability to meet all three of the hurdles/requirements I outlined at the introduction of this note.
- Polar Power helps facilitate remote monitoring and control: Polar Power, by design, provides its customers real time access to operational status, fuel level, fault diagnosis, maintenance schedule, among other items which are critical to product reliability and which make more efficient use of its assets. I don't think I need to get into why having 1) data and 2) remote monitoring and control of these assets is a huge deal. That much should be obvious. Polar Power offers the capability of off-loading management of power producing assets to out of state personnel or Polar Power.
- No maintenance, high reliability: no bearings, no exciters, no rotating diodes, electrical components, wire, and laminations
- Long life with no parts to wear: 100,000+Hours
- Very compact: reduces footprint of generator
- Magnets increase efficiency: reduces fuel consumption and reduces the amount of fuel stored on site
- Light weight: reduces cost to replace generator on site, less reinforcing of roof installations, very easy to service generator set
- Etc.: so on and so on
There are others, but this isn't the forum to be wholly comprehensive. I think from the list above, an idea of just how competitive Polar Power is and just how nicely Polar Power can fit into my aforementioned macro theme is obvious. That said, full review of Polar Power's competitive advantages and its "fit" into the general Power-ecosystem can be had by visiting its website and by reviewing its public filings with the Securities and Exchange Commission.
Definitively though, I do see Polar Power becoming a larger and larger force/presence in 1) the general power-dependent physical infrastructure buildout of the US [SEE: telecoms like Verizon are using Polar Power's modularly deployed power boxes to expand their network capacity - using Polar Power to power tower expansion] and 2) the evolved power infrastructure buildout of the US [as Polar Power can be used on a modular and/or grid/micro-grid basis to provide primary and/or backup power to this infrastructure]. For me, on a modular, grid/microgrid basis - Polar Power provides one of the most reliable, cost effective solutions for addressing current needs. Again, this is based on my review of the Power space and my knowledge of new technology that is coming [or presumably coming via the next wave of startups] to the Power space. Maybe, over time, Polar Power becomes less competitive or obsolete altogether [although based on its history and based on what I know of management I seriously doubt this ever happens]; but right now it sure isn't. I can invest in a story like that.
Polar Power's IPO Changes Things, It Brings the Ability to Grow Quickly:
[What good is a technological advantage and/or being in the right place at the right time without maximized utility? Polar Power is finally in a position to reach for responsible growth - and it is.]
Realizing that this note is getting a bit long and wanting to be respectful of your time, I'll choose to abbreviate my discussion of Polar Power's financials. That' said, I fully intend to provide a full financial breakout - inclusive of comparable company analysis [to provide some valuation base/bull/and bear cases] - within the next few weeks. I'll lead with that. I'll also lead with stating that Polar Power, as is pretty predictable and pretty par for the course, has pulled back from peak IPO pricing. This is what happens in the presence of lower volume and as market players begin to jockey into position for more "normalized" buying. That is to say, you're never going to see feverish, stepping-over-each-other type buying like you see at an IPO [or, I should say that to see this is incredibly rare]. I like Polar Power where it trades today and so do, apparently, the few analysts there are that cover the company.
Further though, and in abbreviation to be sure, Polar Power's financials are worth a look. Especially if you're an investor that likes fundamental stories. CEO Arthur Sams has built himself a cash-flowing, deep-value story.
Polar Power's revenues, thanks in large part to its Verizon contract [which does add an element of risk in that Polar Power has been so focused on servicing this contract that it's become quite customer/revenue concentrated], are sequential and are accelerating. Regarding the Verizon contract/focus/concentration risk, in my opinion this is a large reason for the IPO; that Sams wanted to diversify the customer base and revenue vertical concentration - even if it meant being diluted as an owner. At IPO, Sams told me that he had an acute focus on 1) scaling Polar Power [across customers and across verticals] and 2) on product/regionally expansion. Polar Power raised money, directly at Sams' expense [as he was a large shareholder prior the IPO and continues to be after the IPO], to be able to do just that. I just thought that worth noting. Through the first nine months of 2016 [the last quarter reported] Polar Power's revenues are up 254% compared to one year ago. That's just the tip of the iceberg, however, as Polar Power also claims a $6.9 million backlog [as of the same reporting].
The margin and drop-down story [i.e. net income] is one that deserves telling, if you can believe that. I know, this is a technology company we're talking about - so you'd probably expect that Sams is running Polar Power at steep losses to aggregate market share. Not the case. Polar Power last printed $0.37 per share in earnings [as of the first nine months of 2016] on a whopping 41% gross margin. That's incredible, considering that Polar Power has zeroeconomies of scale and hasn't really optimized itself from a sales productivity standpoint [at least not yet]. I'm telling you, Polar Power is leading a unique financial story here. I mean, I think you're really, really going to be wowed when I present the financials via data-visuals [as is my normal presentation].
To be perfectly clear, this wasn't a one year "let's print a profitable few quarters to pump our IPO valuation" story. Historically, and I know this sounds too good to be true, Polar Power has been a profitable enterprise. Every time I note this for an investor [or for the general public], I shake my head. The story here really is impressive.
Finally, at least for now, I think it's worth noting that historically "more CAPEX/fixed assets" has meant better financials. Polar Power already has a 22% return on fixed assets as well as a 96% return on capital invested. Those are "video game numbers", to use a sports analogy.
Why is this important to note? These types of numbers keep shareholder dilution at a minimum. As I noted above that management isn't a "$7 latte and Soylent" type of team, it should also be noted that Sams isn't a "let's dilute shareholders and make the shareholders pay for everything and/or take on all the risk of expansion" kind of guy. He himself being a large shareholder, he's incredibly dilution conscious. Now, I could just be saying that - to pretty up this story even more. But the audited financials don't lie; and those can be pulled via the Securities and Exchange Commission.
Polar Power takes care of its shareholders. Primarily, this is done by running a fundamentally sound business and growing from the inside out [i.e. from cash flows]. Guys, I can't make this stuff up. If I could, I'd make it sound a little more believable.
So, while I'll leave the discussion of and breakout of the financials there [for now] I do think that there's more than a compelling case to look into Polar Power. I fully intend to present the Polar Power financial story, ex. the macro and/or company narrative breakout, in a follow on note. So, if you hadn't read this as a prelude you'd have to read this anyways for the financial note to make sense. You're better off having done it in the right order. That said, definitely stay tuned for the data-visual led note to follow.
I like Polar Power. I look at it as a technology story masquerading as a manufacturing story. I also don't think most of our capital market brethren who primarily invest in manufacturing names will see Polar Power as a tech name fast enough to price those that do out of the market. We're going to have time to build position. Still, I think on fundamentals alone Polar Power is worth higher [much higher] than where it trades today. Of course, that's for everybody to decide on their own [and in their own time]. I just think that if you're an asset manager looking for a mid-term/long-term runner or if you're a retail investor looking to own a name that you can easily follow and understand while watching it unlock value, Polar Power presents a compelling case. I hope all those reading this look into it and/or try to reach out to management.
Stay tuned for my financial follow on note. Thanks for reading.