Post on 07-Aug-2015
transcript
MII S
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Power Solutions International (NASDAQ: PSIX)
Connor Cross • Connor Rehm • Zach Riedy • Mike Sabeiha
October 18, 2014
T H E O H I O S T A T E U N I V E R S I T Y AG
EN
DA
Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
1
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$83 $101
$155
$202 $238
$349
2009 2010 2011 2012 2013 2014E
Company Overview
Business Description
Power Systems International is the largest alternative
fuel engine supplier in the world, with clean-running
products powered by natural gas, propane, flare and
wellhead gas, and biofuels. The company designs,
manufactures, distributes, and supports power system
solutions for original equipment manufacturers of
industrial vehicles and equipment.
Sales2
Market Data1
(in millions)
Key Operating Statistics
2011 2012 2013 2014E
Sales $155.0 $202.3 $237.8 $349.9
Growth 30.6% 17.5% 47.1%
EBIT $9.8 $11.9 $15.0 $25.2
Growth 21.0% 26.1% 68.1%
Margin 6.3% 5.9% 6.3% 7.2%
Adj. EBITDA $10.6 $13.0 $16.5 $27.5
Growth 22.1% 27.5% 66.1%
Margin 6.9% 6.4% 7.0% 7.9%
Current Price: $56.27 per share
Market Cap: $625.1M
Current FY EPS: $1.40
52 week range: $52.30 – $88.96
(1) As of 10/17/2014 market close
(2) 2014E based on analyst consensus; see appendix for 5 year projections
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Competitive Landscape
• Wide range of innovative, unique products
offered to a multitude of end markets
• Superior technology allows for highly
customizable solutions for all customer needs
• Flexibility of engines to run on many fuel
sources including natural gas, propane, flare
and wellhead gas, as well as biofuels
• Pre-approval and certification of all engines by
the EPA; significant cost barrier for competitors
• First-mover advantage in smaller markets and
flare / wellhead gas power generation
“We are the world’s largest manufacturer of engines that run on natural gas
and alternative fuels”
– Eric Cohen, Chief Operating Officer1
3
Industry and Competitors Power Solution’s Competitive Advantage
• Alternative fuel system manufacturing industry is
rapidly growing
• Systematic tailwinds from regulation and macro-
economic factors are driving industry growth
• Primary competitors:
• Motorcar Parts of America
• Capstone Turbine
• Woodward Innovations, Inc.
• Clean Energy Fuels
• Fuel Systems Solutions
(1) Q2 2014 Earnings conference call
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• Off-Road
• Agriculture, construction, and other
industrial engines
• On-Road
• Buses and industrial vehicles
• Materials Handling
• Forklift contracts in Asia and North
America
Business Segments Overview
• Generators / Compression
• Certified 1-22 Liter power generators
• Oil and fuel pumps
• U.S. energy expansion
• Natural gas compression
• Aerial work platforms
• Arbor products
• Power take-off clutch assemblies
• Customizable OEM subsystems, kits, and
components
Power Systems
Power Generation
Other
4
Power
Systems
Other Power
Generation
T H E O H I O S T A T E U N I V E R S I T Y OV
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Growth Catalysts
Economics
Environment
Regulation
Oil & Gas
Materials
Handling
On-Road
• O&G producers are switching
to power generation rather than
flaring excess capacity
• Large vehicles such as trucks
and buses adopting alternative
fuel powered engines
• Partnership with Mattel and
increased penetration of
alternative fuel engines in
materials handling markets
Macro Trend Toward Alternative Fuels… …Increasing Customer Demand
• With rising prices for natural
gas, it is becoming more
costly for producers to flare
excess capacity
• Restrictions on emissions
and fuel efficiency standards
are driving widespread
adoption of alternative fuel
systems
• EPA mandates and
increasing global
environmental
consciousness
Power Solutions is well-positioned to solidify itself as the industry leader in
the rapidly growing alternative fuel systems market
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T H E O H I O S T A T E U N I V E R S I T Y AG
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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Investment Thesis
Power Solutions is well-positioned to capitalize on increasing regulations
and changing environmental policies across various markets
Rapid
Growth
PPPI
Acquisition
Increasing
Regulation
Under-
Valued
Acquisition of PPPI gives Power Solutions a strong presence in the
growing O&G power generation market
Entrance into the on-road market and strong performance of off-road
OEM business are additional catalysts for continued, rapid growth
Market is not currently reflecting the intrinsic value of Power Solutions
Our price target range of $100 - $110 represents an upside of 77% - 95%1
7
(1) As of 10/17/2014 market close
T H E O H I O S T A T E U N I V E R S I T Y AG
EN
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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Regulation and Policy Impact All Business Segments
Restriction: Diesel Engines
• Short / intermediate / long distance cargo
• Transit, recreation, and utility vehicles
Growing Segment: School buses / logistics
• Manufacturers moving to adopt ecologically
efficient energy systems
• Technological advancements make the
implementation of high-powered fuel-flex engines
an attractive option
Restriction: Carbon Emissions
• Power Generation
• Industrial Support Systems
• Materials Handling
Growing Segment: Forklifts
• Long ignored industrial support equipment
transferring to alternative fuel engine platforms
Restriction: Flaring
• Crude oil extraction
• Natural gas extraction
Growing Segment: O&G Compression Systems
• New regulations require extraction sites to cease
the long practiced act of flaring
• Rapidly expanding US energy market underpins
this burgeoning market
Materials Handling On-Road
Oil & Gas
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Expanding Markets: Materials Handling Segment
• Purchases engines from GM and Mitsubishi and utilizes IP and technology to customize engines for customers
• PSI currently has contracts to provide forklifts to eight of the top ten Chinese OEM’s for forklifts
• Joint venture with Mattel in China to target the Asian forklift market which currently manufactures 364,000
units/year compared to the U.S. 220,000 units/year
• New agreement with NACCO to provide the 2.0-liter and 2.4-liter alternatively-fueled power systems which has
been in production for two years
220
364
US China
Annual Forklift Sales1 PSI Forklift Revenue1
$34.9
$72.7
2014E 2015E
(in thousands of units) (in millions)
Operations
10 (1) See appendix for breakdown of projections
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Expanding Markets: On-Road Segment
• Recent certification of wholly owned 8.8-liter
engine for on-road use allows OEM customers to
avoid emissions testing or other expensive
solutions
• Well-funded grant programs towards research for
natural gas fueled engines which cuts PSI R&D
Product and Customers Shift to Alternative Fuel Fleets
• Many on-road customers are switching to
alternative fuel fleets given environmental
constraints and current fuel economics
• Deal with Capacity Trucks, which supplies trucks
to UPS, will begin shipping the 8.8-liter engine in
December
0.5M
1.0M
3.0M
2009 2012 2015E
(in millions of units)
Natural Gas Vehicle Market in China1
• First on-road OEM program with IC Bus, a
division of Navistar, which has roughly 40% of the
25,000 unit/year bus market
• With stable volume of sales from Navistar, this
could bring in an increase of about $70 million in
revenue for PSI
Navistar Contract
11 (1) Source: International Association for Natural Gas Vehicles, ClimateWire
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Flaring Regulation in the Oil & Gas Market
• Regulations effective January 1, 2015 restrict
flaring
• Currently 290,000 wells are flared or vented2
• Imposition of royalty included
• Natural gas flared will cost producers the
equivalent of concurrent prices per MMBtu
• Inadequate infrastructure prevents sale or storage
• Rapid solution necessary for producers wishing to
avoid royalty fee
• Flaring is a process by which oil extraction
platforms burn off unusable natural gas
• Due to lack of infrastructure nearly 30% natural
gas produced in Bakken is burned off
• Equivalent to 2.3% of oil output in region
EPA Regulations
Power Solutions Strategy What is Flaring?
• Flare / Wellhead gas fueled power generation
• Saves O&G producers money
• Compliant with federal regulations
• Acquisition of Professional Power Products
(PPPI)
$48 $65 $74 $104
$140 $31
$90
$126
$170
2013 2014E 2015E 2016E 2017E
O&G PPPI
Oil & Gas Sales1
(in millions)
(1) See appendix for segmented revenue projections
(2) Source: 2014 Investor Relations presentation
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Cost of Flaring
• Based on historic prices, savings on
royalty costs make fuel-flex engines
feasible
• Natural gas prices expected to increase
with harsh winter 2014-2015
• Projections of natural gas prices based on
commodities curve make implementation
evermore attractive
• Cost covered within 12-18 months
• Producers forced to utilize natural gas
output immediately
Projections
$20
$25
$30
$35
$40
$45
2012 2013 2014 2015 2016 2017 2018 2019 2020
Historic Cost per Well
Projected Cost per Well
Options
• Sell Excess
• Impractical due to infrastructure
• Flare Excess
• Governmental restrictions
• Conform to Regulations
• Cheap and quick
13
70%
increase
in cost
Cost of Flaring per Well per Year1
($ in thousands)
(1) Source: Short-Term Energy Outlook, September 2014 with modifications
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Professional Power Products (PPPI) Acquisition
• Closed acquisition of Professional Power
Products (PPPI) on April 1, 2014 for $46 million in
cash
• PPPI is a leading designer and manufacturer of
large, custom-engineered, integrated electrical
power generation systems
• PPPI’s assets give Power Solutions a strong
foothold in the diesel and natural gas power
generation market
• Ability to leverage existing supply chain provides
$1M in cost savings
2014E 2015E 2016E 2017E 2018E 2019E
Power Systems PPPI
Growth Catalysts Overview
Products and Markets Served
14
Projected Results1
• Large engine platforms for power generation and
other industrial / commercial uses
• Extensive customer support and field engineering
team
• Strong traction with growing client base
particularly in oil and gas markets
$349 $507
$684
$890
$1,112
$1,335
(1) See appendix for base case segmented projections
T H E O H I O S T A T E U N I V E R S I T Y AG
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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11.4x
9.5x
7.4x
27.0x
10.5x
22.8x
0.0x 10.0x 20.0x 30.0x
EV / 2013A EBITDA
EV / 2014E EBITDA
EV / 2015E EBITDA
(1) See appendix for list of public comparables
(2) Based on 2015E EV / Sales; base case projections
(3) Based on 2015E EV / EBITDA; base case projections
(4) Narrow range due to non-recurring expense for Capstone Turbine
1.86x
1.75x
1.51x
2.76x
2.51x
2.05x
1.00x 1.50x 2.00x 2.50x 3.00x
EV / 2013A Sales
EV / 2014E Sales
EV / 2015E Sales
EV / Sales EV / EBITDA
16
15.6x 3 1.16x 2
Comparable Companies Valuation Analysis1
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(1) LTM revenue; source: CapitalQ
Revenue Growth1
25%
7%
5%
-2%
-10%
28%
-20% -10% 0% 10% 20% 30% 40%
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Commentary
• Power Solutions’ topline growth is
outpacing competitors
• 70% of LTM growth was organic;
remainder due to PPPI acquisition
• PSI is poised for continued, rapid
growth as they continue to lead the
nascent alternative fuel power solution
market
Market is not currently pricing in PSI’s
revenue growth trajectory
Comparable Companies Operating Analysis
T H E O H I O S T A T E U N I V E R S I T Y VA
LU
AT
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Discounted Cash Flow Analysis: Output (Base Case)
Assumptions
• Valuation as of 12/31/2014E1
• WACC: 10.00% - 11.00%
• EBITDA Exit Multiple: 11.0x –
13.0x
• Change in NWC decreasing 0.5%
of sales each year
• CapEx equivalent to D&A over
projection period
• Other Income/(Expense) assumed
to be zero over projection period
• Gross margin held constant at
18%; Operating margin constant
at 7%
Operating Projections
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $507 $685 $890 $1,113 $1,336
% Growth - 45.0% 35.0% 30.0% 25.0% 20.0%
EBITDA $33.9 $48.2 $65.1 $84.6 $105.7 $126.9
% Margin 9.7% 9.5% 9.5% 9.5% 9.5% 9.5%
% Growth - 42.1% 35.0% 30.0% 25.0% 20.0%
EBIT $25.2 $35.5 $47.9 $62.3 $77.9 $93.5
% Margin 7.2% 7.0% 7.0% 7.0% 7.0% 7.0%
% Growth - 41.1% 35.0% 30.0% 25.0% 20.0%
Share Price
EBITDA Exit Multiple
11.0x 11.5x 12.0x 12.5x 13.0x
10.01% $77.43 $80.99 $84.54 $88.10 $91.65
10.26% $76.50 $80.02 $83.53 $87.05 $90.56
WACC 10.51% $75.59 $79.06 $82.54 $86.01 $89.49
10.76% $74.68 $78.12 $81.55 $84.99 $88.43
11.01% $73.79 $77.19 $80.58 $83.98 $87.38
($ in millions)
18
(1) 2014E based on analyst consensus estimates
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Discounted Cash Flow Analysis: Output (Bull Case)
EBITDA Exit Multiple
11.0x 11.5x 12.0x 12.5x 13.0x
10.01% $105.57 $110.31 $115.05 $119.79 $124.54
10.26% $104.32 $109.01 $113.70 $118.39 $123.08
WACC 10.51% $103.10 $107.73 $112.37 $117.01 $121.64
10.76% $101.89 $106.47 $111.05 $115.64 $120.22
11.01% $100.69 $105.22 $109.76 $114.29 $118.82
Share Price Assumptions
• Valuation as of 12/31/2014E1
• WACC: 10.00% - 11.00%
• EBITDA Exit Multiple: 11.0x –
13.0x
• Change in NWC decreasing 0.5%
of sales each year
• CapEx equivalent to D&A over
projection period
• Other Income/(Expense) assumed
to be zero over projection period
• Gross margin projected to expand
0.25% per year; 19.0% in 2019E
• Operating margin projected to
expand 0.25% per year; 8.0% in
2019E
Operating Projections
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $525 $735 $992 $1,290 $1,612
% Growth - 50.0% 40.0% 35.0% 30.0% 25.0%
EBITDA $33.9 $49.9 $71.6 $99.2 $132.2 $169.2
% Margin 9.7% 9.5% 9.8% 10.0% 10.3% 10.5%
% Growth - 47.0% 43.7% 38.5% 33.3% 28.0%
EBIT $25.2 $36.7 $53.3 $74.4 $99.9 $129.0
% Margin 7.2% 7.0% 7.3% 7.5% 7.8% 8.0%
% Growth - 46.0% 45.0% 39.7% 34.3% 29.0%
($ in millions)
19
(1) 2014E based on analyst consensus estimates
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Valuation Summary
$52.30
$73.92
$100.69
$52.50
$74.24
$87.24
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$110.00
$120.00
$130.00
52 Week TradingRange
DCF Bull Case DCF Bear Case DCF EV / 14ERevenues
EV / 15ERevenues
($ per share)
1 1
(1) Based on public comparable company data
(2) As of 10/17/2014 market close
$88.96 $91.82
$124.54
$65.54
$108.77
$120.93
Current Price 2: $56.27
Target High: $110.00
Target Low: $100.00
20
T H E O H I O S T A T E U N I V E R S I T Y AG
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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Risks and Other Considerations
• Regulatory and Environmental Policies • Market opportunity is largely driven by regulatory and environmental policies that incentivize
alternative fuel system adoption
• Less restrictive regulations would negatively impact traction in the alternative fuel market
• Commodity Price Fluctuations • Relative advantage of natural gas over diesel could decline in the future if crude oil prices fall
• Integration of PPPI • Failure of integration could lead to negative financial results
• Customer and Supplier Concentration • Relationships with Perkins and Caterpillar make up the bulk of diesel power systems revenue
• Loss of one major customer or supplier would have a sizable impact on revenue / earnings
• End-Market Economic Cyclicality • Customers demand for PSIX’s products is highly dependent on economic climate
22
T H E O H I O S T A T E U N I V E R S I T Y AG
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 16
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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Conclusion
• A price target range of $100.00 - $110.00 is appropriate given:
• Expansion in both the on-road and materials handling segments
• Improving macro backdrop for alternative fuel system adoption
• Strong, defensible market position created by the acquisition of PPPI, Inc.
• Current market valuation suggests significant potential upside of 77% - 95%1
24
(1) As of 10/17/2014 market close
T H E O H I O S T A T E U N I V E R S I T Y AG
EN
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Agenda
Investment Thesis 7
Value Drivers 9
Valuation 6
Risks and Other Considerations 22
Appendix 26
Company Overview 2
Conclusion 24
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Growth of Bakken
10
11
11
12
12
13
13
14
5
10
15
20
25
30
35
40
Th
ou
san
ds
Wells
Bbls/Well
Well Count Increasing:
• +156% 2012 - 14
• +33% Y/y 4Q 2014
Rate of Growth:
• CAGR: 8.15%
Expectation:
• +40% Y/y 4Q 2015
Potential for PSIX
Client Base:
• Every active and newly developed well
represents a potential client for PSIX
Organic Market Expansion:
• Annual increase of 8.15%
• ~10,000 potential clients
2015 Estimates:
• Sale of 140 - 150 61L units
Projections
26
Oil Output by Well
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Global Industrial Engine Market Growth1
2013 2019E
Diesel
Units
5.2M Diesel
Units
4.8M
224K
890K
Alternative Units
Alternative Units
27
(1) Source: Second Quarter Investor Presentation
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Weighted Average Cost of Capital Calculation
Current Capital Structure
Value Weight Cost Tax Rate
Total Debt 74.9 9.7% 6.0% 40.00%
Total Market Value of Equity1 625.1 90.3% 11.3%
Total Capital 700.3
Cost of Debt
Cost of Debt to Firm 6.0%
Cost of Equity
Risk-Free Rate2 2.20%
Historical Market Return 10.00%
Market Risk Premium 7.40%
Observed Beta (Levered) 1.17
WACC 10.51%
28
(1) As of 10/17/2014 market close
(2) 10 year treasury rate as of 10/17/14
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Comparable Companies Analysis1
Ticker
Company
Price as of
10/17/2014
% of 52-
week high
Enterprise
Value
($mm)
EV / Revenue EV / EBITDA
2014E 2015E 2014E 2015E
MPAA Motorcar Parts of
America $24.56 84.7% $529.8 1.84x 1.57x 9.52x 7.45x
CPST Capstone Turbine Corp. $0.81 39.6% $305.3 2.18x 1.51x NA 22.78x
WWD Woodward Innovations $46.60 84.2% $3,645.2 1.75x 1.65x 10.54x 9.55x
CLNE Clean Energy Fuels
Corp. $6.35 51.0% $997.4 2.51x 2.05x NA NA
FSYS Fuel Systems Solutions $8.75 45.1% $93.4 0.27x 0.26x 32.89x 6.73x
PSIX $56.27 73.0% $766.0 1.51x 1.12x 22.59x 15.89x
High 84.7% $3,645.2 2.51x 2.05x 32.89x 22.78x
Mean 64.9% $1,369.4 1.71x 1.41x 17.65x 11.63x
Median 67.6% $763.6 1.84x 1.57x 10.54x 8.50x
Low 39.6% $305.3 1.8x 1.5x 9.52x 6.73x
29
(1) Market data as of 10/17/2014 close
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Discounted Cash Flow Analysis: Operating Projections
(Base Case)
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $507 $685 $890 $1,113 $1,336
% Growth - 45.0% 35.0% 30.0% 25.0% 20.0%
EBITDA $33.9 $48.2 $65.1 $84.6 $105.7 $126.9
% Margin 9.7% 9.5% 9.5% 9.5% 9.5% 9.5%
% Growth - 42.1% 35.0% 30.0% 25.0% 20.0%
EBIT $25.2 $35.5 $47.9 $62.3 $77.9 $93.5
% Margin 7.2% 7.0% 7.0% 7.0% 7.0% 7.0%
% Growth - 41.1% 35.0% 30.0% 25.0% 20.0%
Unlevered Free Cash Flow $3.6 $8.2 $15.1 $24.5 $36.1
% Margin - 0.7% 1.2% 1.7% 2.2% 2.7%
% Growth - - 131.4% 84.2% 61.8% 47.3%
D&A $8.7 $12.7 $17.1 $22.3 $27.8 $33.4
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
CapEx $8.8 $12.7 $17.1 $22.3 $27.8 $33.4
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
(Increase/Decrease) in NWC $14.4 $17.8 $20.5 $22.3 $22.3 $20.0
% Sales 4.1% 3.5% 3.0% 2.5% 2.0% 1.5%
EV / EBITDA1 22.59x 15.89x 11.77x 9.06x 7.24x 6.04x
EV / Sales1 2.19x 1.51x 1.12x 0.86x 0.69x 0.57x
30
(1) EV as of 10/17/2014 market close
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Projected Segmented Revenues (Base Case)
2014E 2015E 2016E 2017E 2018E 2019E
Power Generation $106.99 $143.12 $193.34 $251.34 $314.17 $377.00
Oil & Gas $64.84 $86.74 $117.17 $152.32 $190.41 $228.49
Materials $81.05 $110.38 $149.12 $193.85 $242.31 $290.78
Power Systems Int’l. Total $252.87 $340.24 $459.63 $597.51 $746.89 $896.27
Other $65.43 $106.76 $144.23 $187.50 $234.37 $281.24
PPPI $30.70 $60.00 $81.05 $105.37 $131.71 $158.06
Total Revenue $349.00 $507.00 $684.91 $890.38 $1,112.98 $1,335.57
31
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Discounted Cash Flow Analysis: Operating Projections
(Bear Case)
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $490 $637 $796 $955 $1,098
% Growth - 40.0% 30.0% 25.0% 20.0% 15.0%
EBITDA $33.9 $46.5 $58.9 $71.6 $83.6 $93.4
% Margin 9.7% 9.5% 9.2% 9.0% 8.8% 8.5%
% Growth - 37.2% 26.6% 21.6% 16.7% 11.7%
EBIT $25.2 $34.3 $43.0 $51.7 $59.7 $65.9
% Margin 7.2% 7.0% 6.7% 6.5% 6.3% 6.0%
% Growth - 36.3% 25.4% 20.4% 15.4% 10.4%
Unlevered Free Cash Flow $3.4 $6.7 $11.1 $16.7 $23.1
% Margin - 0.7% 1.0% 1.4% 1.8% 2.1%
% Growth - - 95.0% 66.7% 50.0% 38.0%
D&A $8.7 $12.2 $15.9 $19.9 $23.9 $27.5
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
CapEx $8.8 $12.2 $15.9 $19.9 $23.9 $27.5
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
(Increase/Decrease) in NWC $14.4 $17.1 $19.1 $19.9 $19.1 $16.5
% Sales 4.1% 3.5% 3.0% 2.5% 2.0% 1.5%
EV / EBITDA1 22.59x 16.46x 13.00x 10.69x 9.16x 8.20x
EV / Sales1 2.19x 1.56x 1.20x 0.96x 0.80x 0.70x
32
(1) EV as of 10/17/2014 market close
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Projected Segmented Revenues (Bear Case)
2014E 2015E 2016E 2017E 2018E 2019E
Power Generation $106.99 $167.42 $218.03 $272.53 $327.04 $376.09
Oil & Gas $64.84 $101.47 $132.14 $165.17 $198.20 $227.94
Materials $81.05 $95.84 $124.81 $156.02 $187.22 $215.30
Power Systems Int’l. Total $252.87 $364.74 $474.98 $593.72 $712.46 $819.33
Other $65.43 $94.26 $122.76 $153.44 $184.13 $211.75
PPPI $30.70 $30.00 $39.07 $48.83 $58.60 $67.39
Total Revenue $349.00 $489.00 $636.80 $796.00 $955.20 $1,098.48
33
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Discounted Cash Flow Analysis: Output (Bear Case)
34
EBITDA Exit Multiple
11.0x 11.5x 12.0x 12.5x 13.0x
10.01% $55.17 $57.79 $60.40 $63.02 $65.64
10.26% $54.49 $57.08 $59.66 $62.25 $64.84
WACC 10.51% $53.82 $56.38 $58.93 $61.49 $64.05
10.76% $53.15 $55.68 $58.21 $60.74 $63.27
11.01% $52.50 $55.00 $57.50 $60.00 $62.50
Share Price Assumptions
• Valuation as of 12/31/2014E1
• WACC: 10.00% - 11.00%
• EBITDA Exit Multiple: 11.0x –
13.0x
• Change in NWC decreasing 0.5%
of sales each year
• CapEx equivalent to D&A over
projection period
• Other Income/(Expense) assumed
to be zero over projection period
• Gross margin projected to
decrease 0.25% per year; 17.0%
in 2019E
• Operating margin projected to
decrease 0.25% per year; 6.0% in
2019E
Operating Projections
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $490 $637 $796 $955 $1,098
% Growth - 40.0% 30.0% 25.0% 20.0% 15.0%
EBITDA $33.9 $46.5 $58.9 $71.6 $83.6 $93.4
% Margin 9.7% 9.5% 9.2% 9.0% 8.8% 8.5%
% Growth - 37.2% 26.6% 21.6% 16.7% 11.7%
EBIT $25.2 $34.3 $43.0 $51.7 $59.7 $65.9
% Margin 7.2% 7.0% 6.7% 6.5% 6.3% 6.0%
% Growth - 36.3% 25.4% 20.4% 15.4% 10.4%
($ in millions)
(1) 2014E based on analyst consensus estimates
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Discounted Cash Flow Analysis: Operating Projections
(Bull Case)
2014E 2015E 2016E 2017E 2018E 2019E
Sales $350 $525 $735 $992 $1,290 $1,612
% Growth - 50.0% 40.0% 35.0% 30.0% 25.0%
EBITDA $33.9 $49.9 $71.6 $99.2 $132.2 $169.2
% Margin 9.7% 9.5% 9.8% 10.0% 10.3% 10.5%
% Growth - 47.0% 43.7% 38.5% 33.3% 28.0%
EBIT $25.2 $36.7 $53.3 $74.4 $99.9 $129.0
% Margin 7.2% 7.0% 7.3% 7.5% 7.8% 8.0%
% Growth - 46.0% 45.0% 39.7% 34.3% 29.0%
Unlevered Free Cash Flow $3.7 $9.9 $19.8 $34.2 $53.2
% Margin - 0.7% 1.4% 2.0% 2.7% 3.3%
% Growth - - 170.0% 100.0% 72.3% 55.7%
D&A $8.7 $13.1 $18.4 $24.8 $32.2 $40.3
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
CapEx $8.8 $13.1 $18.4 $24.8 $32.2 $40.3
% Sales 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
(Increase/Decrease) in NWC $14.4 $18.4 $22.0 $24.8 $25.8 $24.2
% Sales 4.1% 3.5% 3.0% 2.5% 2.0% 1.5%
EV / EBITDA1 22.59x 15.36x 10.69x 7.72x 5.80x 4.53x
EV / Sales1 2.19x 1.46x 1.04x 0.77x 0.59x 0.48x
35
(1) EV as of 10/17/2014 market close
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Projected Segmented Revenues (Bull Case)
2014E 2015E 2016E 2017E 2018E 2019E
Power Generation $106.99 $122.08 $171.18 $231.09 $300.42 $375.53
Oil & Gas $64.84 $73.99 $103.75 $140.06 $182.07 $227.59
Materials $81.05 $124.92 $175.17 $236.48 $307.42 $384.27
Power Systems Int’l. Total $252.87 $320.99 $450.09 $607.63 $789.92 $987.40
Other $65.43 $113.01 $158.47 $213.94 $278.12 $347.65
PPPI $30.70 $90.00 $126.20 $170.37 $221.48 $276.85
Total Revenue $349.00 $524.00 $734.77 $991.94 $1,289.52 $1,611.89
36
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Key Members of Management
• Gary Winemaster – President & Chief Executive Officer • Founder of PSI, developed an organization and management group capable of providing
superior technology and product offerings to the marketplace
• Ken Winemaster – Senior Vice President • Co-founder of PSI, brings operations expertise and oversees raw material procurement,
assembly, and shipping
• Eric Cohen – Chief Operating Officer • Held senior management positions at General Electric, Ampere Automotive, Midwest Air
Technologies and Power Plant Services
• Managed a private equity firm and worked extensively with the investment community at
William Harris Investors, a SEC registered investment advise
• Daniel Gorey – Chief Financial Officer • Previously Senior Vice President of Finance for PSI
• Before joining PSI, was Chief Financial Officer and a board member of Quixote Corporation, a
publicly-traded provider of highway crash safety systems. Daniel joined Quixote in 1985, and
assumed the CFO role in 1995
37
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Insider Trading
Transaction Type / Date
Current Average Shares /
Price Range Total Holdings 6 Month Return Market Value
Greenawalt Henry Samuel
Purchase
--
1.0K
$66.18 - $66.30 7,800 8/25/14 $66.2K
Purchase
-- $69.50 - $69.50 6,800 5/20/14 $20.9K
Winemaster Gary S
Purchase
-- $75.76 - $75.76 3,872,700 6/13/14
Purchase
--
1.0K
$69.29 - $69.29 3,872,300 12/16/13 $69.3K
Purchase
--
3.3K
$67.42 - $67.42 3,871,300 12/13/13 $222.5K
Cohen Eric A
Sale
--
21.7K
$73.78 - $75.82 -- 6/16/14 $1.6M
Sale
--
21.1K
$75.82 - $75.82 21,750 6/12/14 $1.6M
Sale
--
21.1K
$75.82 - $75.82 21,728 6/12/14 $1.6M
Exercise of Stock Options
--
60.0K
$22.07 - $22.07 21,750 6/11/14 $1.3M
Exercise of Stock Options
--
60.0K
$22.07 - $22.07 21,728 6/11/14 $1.3M
Sale
--
43.1K
$75.74 - $78.54 -- 6/10/14 $3.3M
Exercise of Stock Options
--
60.0K
$22.07 - $22.07 -- 6/6/14 $1.3M
Sale
--
54.2K
$52.95 - $54.43 -- 10/11/13 $2.9M
Planned Sale
--
54.2K
-- - -- -- 10/11/13 $3.0M
Landini Kenneth W
Sale -- 4.2K $70.19 - $70.32 19,000
11/15/13 $292.8K
38
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Ownership
39
Insider - Based on Last 6 Months 10/12/2014 10/16/2014
21 56.7 56.7
22 0.02 0.02
23 6 6
24 2 2
25 1 1
26 1696 1696
27 85903 85903
28 69.04 69.04
29 75.92 75.92
Top Ownership Type 10/12/2014 10/16/2014
Individual 54.83 54.74
Investment Advisor 38.48 38.57
Hedge Fund Manager 4.53 4.52
Pension Fund 2.04 2.03
Insurance Company 0.06 0.06
Government 0.04 0.04
Holding Company 0.04 0.04
Bank 0 0
43%
57%
Institutional Holdings
Insider Holdings
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
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Projected 2015 Forklift Revenues
40
US
Sales $349,000,000
Materials Handling 20%
Forklifts 10%
Forklift Revenue $34,900,000
OEM 10%
Units/yr US 350,000
PSIX Share of US 35,000
ASP/unit $997
China
Sales $349,000,000
Materials Handling 20%
Forklifts 10%
Forklift Revenue $34,900,000
OEM 10%
Units/yr China 364,000
PSIX Share of China 36,400
ASP/unit $1,018
Total
Revenue China 37,058,216
Revenue US 35,632,900
Total Revenue $72,691,116
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Oil and Gas 61-Liter Engine and Navistar Revenue
Projections
O&G Engines
Growth 10,000
Penetration 1%
Clients 100
61L Cost $300,000
Revenue $30,000,000
8.8L Bus Engines
Engine to Navistar
8.8L 25,000
Start Summer 2015 40%
ASP $12,500
NAV Total
Units 10,000
Percent 10%
Revenue $12,500,000
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Gas Production and Flaring per Barrel1
42
(1) Bakken Fact Sheet: Energy and Environment Research Center
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Crude Oil Prices vs. Natural Gas
43
(1) Source: Bloomberg as of 10/16/2014
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Comparable Companies: Gross Margin
44
31%
30%
29%
21%
17%
19%
0% 10% 20% 30% 40%
Gross Margin1
(1) LTM gross margin; source: CapitalQ
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Income Statement1,2
45
FY 2011 FY 2012 FY 2013 Q1 2014 Q2 2014
Revenues 154.969 202.342 237.842 66.735 83.378
Cost of Revenue 128.541 168.425 193.316 54.805 67.982
Gross Profit 26.428 33.917 44.526 11.93 15.396
Selling, General & Admin Expense 16.623 21.601 29.559 8.409 9.503
Operating Income 9.805 12.316 14.967 3.521 5.893
Interest Expense 1.34 1.023 0.657 0.099 0.381
Foreign Exchange Losses (Gains) 0 0 0 0 0
Net Non-Operating Losses (Gains) 1.631 0.448 28.311 -0.21 -0.947
Pretax Income 6.834 10.845 -14.001 3.632 6.459
Income Tax Expense 2.773 4.143 4.759 1.258 2.021
Income Before XO Items 4.061 6.702 -18.76 2.374 4.438
Extraordinary Loss Net of Tax 0 0 0 0 0
Minority Interests 0 0 0 0 0
Net Income 4.061 6.702 -18.76 2.374 4.438
Total Cash Preferred Dividends 0 0 0 0 0
Other Adjustments 2.513 0 0 0 0
Net Inc Avail to Common
Shareholders 1.548 6.702 -18.76 2.374 4.438
Abnormal Loss -19.515 0.509 0.27 0.811 -0.9
Tax Effect on Abnormal Items 6.83025 -0.204 -0.108 -0.324 0.315
Normalized Income -11.13675 7.007 -18.598 2.861 3.853
Comprehensive Income 4.061 6.702 -18.76 2.374 4.438
Comprehensive Income per Share 0.440707 0.739014 -1.918307 0.2252 0.4176
Basic EPS 0.44 0.74 -1.92 0.23 0.42
Diluted EPS 0.44 0.74 -1.92 0.19 0.39
(1) Fiscal year ending 12/31
(2) All data from most recent 10-Q SEC filing
($ in millions)
T H E O H I O S T A T E U N I V E R S I T Y AP
PE
ND
IX
Balance Sheet1,2
46
FY 2011 FY 2012 FY 2013 6/30/2014
Assets
Cash & Near Cash Items 0 0.543 6.306 5.706
Short-Term Investments 0 0 0 0
Accounts & Notes Receivable 29.523 37.48 42.73 56.299
Inventories 33.393 39.968 55.986 78.598
Other Current Assets 3.105 4.086 4.984 8.493
Total Current Assets 66.021 82.077 110.006 149.096
Long-Term Investments 0 0 0 0
Gross Fixed Assets 9.739 12.636 19.75 25.841
Less: Accumulated Depreciation 6.128 5.491 6.646 7.302
Net Fixed Assets 3.611 7.145 13.104 18.539
Other Long-Term Assets 1.451 1.543 3.509 49.564
Total Long-Term Assets 5.062 8.688 16.613 68.103
Total Assets 71.083 90.765 126.619 217.199
Liabilities & Shareholders' Equity
Accounts Payable 27.574 26.579 24.444 38.636
Short-Term Borrowings 19.689 1.667
Other Short-Term Liabilities 4.579 6.085 7.941 16.812
Total Current Liabilities 51.842 32.664 32.385 57.115
Long-Term Borrowings 0.041 30.942 17.933 73.276
Other Long-Term Liabilities 3.876 4.425 25.88 18.045
Total Long-Term Liabilities 3.917 35.367 43.813 91.321
Total Liabilities 55.759 68.031 76.198 148.436
Total Preferred Equity 0 0 0 0
Minority Interest 0 0 0 0
Share Capital & APIC 10.164 10.872 57.319 68.849
Retained Earnings & Other Equity 5.16 11.862 -6.898 -0.086
Total Shareholders' Equity 15.324 22.734 50.421 68.763
Total Liabilities & Equity 71.083 90.765 126.619 217.199
(1) Fiscal year ending 12/31
(2) All data from most recent 10-Q SEC filing
($ in millions)
T H E O H I O S T A T E U N I V E R S I T Y AP
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Cash Flow Statement1,2
47
FY 2011 FY 2012 FY 2013 LTM 6/30/2014
Cash From Operating Activities
+ Net Income 4.1 6.7 -18.8 -6.9
+ Depreciation & Amortization 0.8 1.1 1.6 1.0
% sales 0.5% 0.5% 0.7%
+ Other Non-Cash Adjustments 0.1 0.5 29.2 19.9
+ Changes in Non-Cash Capital -6.0 -11.2 -24.5 -25.7
Cash From Operations -1.0 -2.9 -12.4 -10.2
Cash From Investing Activities
+ Disposal of Fixed Assets 0.0 0.0 0.0 0.0
+ Capital Expenditures -1.6 -3.9 -6.0 -4.1
+ Increase in Investments 0.0 0.0 0.0 0.0
+ Decrease in Investments 0.0 0.0 0.0 0.0
+ Other Investing Activities 0.0 0.0 -0.5 -45.0
Cash From Investing Activities -1.6 -3.9 -6.5 -48.2
Cash from Financing Activities
+ Dividends Paid 0.0 0.0 0.0 0.0
+ Change in Short-Term Borrowings 1.3 -3.8 0.0 -0.1
+ Increase in Long-Term Borrowings 0.0 4.2 150.6 153.8
+ Decrease In Long-Term Borrowings -7.9 -0.1 -126.8 -79.3
+ Increase in Capital Stocks 18.0 0.2 6.1 7.2
+ Decrease in Capital Stocks -4.3 0.0 -- 0.0
+ Other Financing Activities -4.7 6.8 -5.1 -5.3
Cash from Financing Activities 2.5 7.4 24.7 76.4
Net Changes in Cash 0.0 0.5 5.8 18.0
(1) Fiscal year ending 12/31
(2) All data from most recent 10-Q SEC filing
($ in millions)