Digital Power, Growth Through Acquisition and Innovation in Bitcoin Mining, Q1 Financial Review

Overview

Digital Power Corporation (NYSEMKT: DPW) is a power supply company that designs, manufactures and markets power supply solutions for the telecom, industrial, medical and military markets.  The company currently operates in both North America and Europe, offering a suite of standard and custom power supply products (adapters, front end, open frame, compact PCI, etc.).  Digital Power Corporation was founded in 1969 and went public in 1996.  It is headquartered in Freemont, California and incorporated in California.

Recent News

The company’s wholly owned subsidiary, Coolisys Technologies, Inc. (“Coolisys”) entered a definitive agreement to purchase all outstanding membership interest in Power-Plus Technical Distributors, LLC (“Power-Plus”), a company that sells customized power supply solutions. Coolisys is purchasing Power-Plus for $850,000 of which $198,000 will pay off outstanding debt and the remaining will be paid in cash over time. The anticipated transaction closing date is on or around September 1, 2017.

On July 10, 2017, DPW announced the appointment of William D. Corbett as CEO of Digital Power Lending (“DPL”), a wholly-owned subsidiary of the company.  DPL was founded on November 30, 2016 to assist small businesses with capital financing through innovative products and services.

On May 25, 2017, DPW announced that it has received regulatory approval for the acquisition of the controlling interest in Microphase Corporation, a company that designs, develops and manufactures OEM electronic components, devices and subsystems for the defense, aerospace and telecom sectors.  Additionally DPW announced the execution of a new corporate structure in which it will transition to a holding company with all operations at the subsidiary level.

Markets Served

Telecom – Offers quick to market tailored high density and efficient power supply solutions

Industrial – Offers rugged power supply solutions to withstand extreme conditions and electrical surges/sags

Medical – Offers power supply solutions that meet stringent medical requirements for patient vicinity applications

Military – Offers a suite of rugged power supply products that can withstand harsh combat conditions and are also compliant with MIL-SPEC requirements. Products are compliant with the regulations of International Traffic in Arms Regulations (“ITAR”). Currently, the company is an approved vendor for the US Navy, Army and Air Force

Products

Custom – Advanced custom solutions that meet almost all AC or DC power requirements

Open Frame – Offers the smallest open frame AC/DC switchers that deliver up to 800 W of continuous power

Compact PCI (Compact Peripheral Component Interface) – Product offering is fully compliant with PICMG® 2.11 power interface specification. It delivers up to 500 W of continuous power and incorporates active power factor correction

Micro TCA – Offers high-power modules designed for use in MicroTCA systems. The product supports shelves, cubes, MicroTCA enclosures and other implementations. It also complies with the PICMG MicroTCA Revision 1.0 specification

Adapters – Offers a suite of power adapters for multiple purposes

POE (Power over Ethernet) – Supplies 1 Amp of 48V or 55V DC power utilized by 10/100 Base-T transformers for connection to an IEEE 802.3 (10/100 Base-T) compatible device. This product supplies feature impact resistant enclosures and are designed to support indoor, outdoor and DC input applications

AC to DC – Offers standard DC input versions for most of our standard AC input products

Military – The power supplies listed here are ruggedized designs for Military and COTS Applications and are compliant with MIL-STD 810 and MIL-STD 461 with external filters

Front End – Product offering is built with hot-swappable and N+N redundancy features. It is used for critical applications in the telecom market

Capacitor Chargers – Designed to meet the requirements of medical, aesthetic, and industrial pulsed energy systems. These systems include flashlamp pumped laser systems, excimer laser systems, irradiation devices, inspection devices, diagnostic and therapeutic equipment, laser aesthetic systems, medical holmium YAG lasers, pulsed UV curing systems and sterilization systems

High Density Modular Products – Offers the NEVO and VCCM series devices which are used for applications that go through the harshest conditions. Standard features include fully adjustable output voltage, externally controllable voltage and current and series or parallel outputs. Each device can accommodate up to four isolated DC output modules and each module uses SMT components to ensure reliability

Stock Influences and Risk Factors

With a new corporate structure, the holding company must make sound strategic acquisitions to drive incremental revenue growth

Given its continuous losses, maintain its ability to obtain funding to fund growth;

Power supply solution demand from the four markets it serves: Telecom, Industrial, Medical, Military;

Continuously maintain or increase its customer order backlog of $65m while maintaining customer experience and product quality

Financials

The company’s debt/equity ratio was at 0.145 and its current ratio was at 1.83 at the end of Q1 2017. The net loss was $0.99m on $1.63m revenue in Q1 2017. The company’s change in cash position was $0.14m in Q1 2017 with all of the inflow coming from Cash from Financing Activities.

DPW will be announcing its Q2 2017 earnings on or about August 14, 2017.

Stock Performance

On August 16, 2017, in intraday trading, DPW shares were at $0.61, down 6.89% from the previous day.  DPW shares have an average daily trading volume of 586K shares. The current RSI (14) is 47.75. At $0.61, DPW shares are trading above their 50-day and below their 200-day moving averages at $0.58 and $0.63 respectively.

Summary

DPW has recently transitioned to a holding company model that focuses on increasing revenues through strategic acquisitions. With this change in corporate structure, the company has to maintain its strong balance sheet position and its ability to obtain financing in order to execute on new acquisitions.

 

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