Q1 2022 Flux Power Holdings Inc Earnings Call
Okay.
Yeah.
Good day, and thank you for standing by and welcome to the Fox Tower first quarter 2022 financial results and company update conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one.
One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Justin Forbes. Thank you. Please go ahead.
Hi, good afternoon, and welcome to Flex power its financial results call. This is Justin Forbes director of marketing and Investor Relations for Flex power draw.
And by Ron that CEO, and Chuck shy, we CFO, who will present the results of operations for fiscal year 2022 quarter. One ended September 30th two.
'twenty one.
Following I'd like to read our Safe Harbor statement.
Our discussion may include predictions estimates or other information that might be considered forward looking.
These forward looking statements represent our current judgment on what the future holds they are subject to risks and uncertainties that could cause actual results to differ materially.
You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation.
Please keep in mind, we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
Throughout today's discussion we will attempt to present some important factors relating to our business that may affect our predictions you should also review our most recent Form 10-K and Form 10-Q for a more complete discussion of these factors and other risks.
Particularly under the heading risk factors.
A copy of our press release and financial tables can be viewed and downloaded on the flex power Investor Relations website at <unk> Dot com plush investors.
And with that I will now turn it over to Rhonda.
Good afternoon, and thanks destined for the introduction.
Our headline story this quarter is Ken.
Continued revenue growth yet again.
And along with a $28 million current order backlog.
That's more than all of last year's total revenue.
For the year, which ended June 30th.
So there's $28 million our backlog is as of November 10.
And it's about $2 million.
Less than $2 million due to the supply chain disruption.
That's been affecting everybody.
The backlog reflects orders.
Principally in material handling sector.
Which is a multibillion dollar addressable market.
And then along with the remainder primarily from the airport GSE market.
Which is now back in gear.
This represents our 13th consecutive quarter of year over year growth.
We're growing current customers, we added new customers in the quarter.
In material handling.
And material handling industry.
It has a typically a single digit growth.
But the adoption of lithium in our lithium and double digit and increasing its Pete.
Yeah as I mentioned, there is a renewal of the airport GSE activity in our packs for them, particularly to.
Key customer who is one of the largest global carriers in the world.
They are so pleased with our packs there also.
Purchasing our pack.
Pak for their warehouses.
We're expanding.
Our relationship with beam.
Being global where an exclusive provider.
And they have the mobile charging station platform for vehicles.
For all of this growth we do have.
<unk> capability for over $100 million in revenue annually and will be ready to add a second shift and this coming spring.
With multiple assembly lines.
And then our service our service capability is expanding that server partners, a new call center added training videos.
All of which to ensure.
Maximum uptime for customers.
Okay.
Turning to profitability.
We have begun a new a broad based initiative to develop a more efficient platform for our pack.
We're targeting cost reductions fewer parts.
Driving lower inventory.
First our assembly.
Easier to service.
And more.
The ability to introduce other new related products.
We begin rolling this out.
Later on in next year and that will be.
Rolled out in phases going going well into 2023.
A big element of our cost is.
Our battery cells that we source from China, we continue to look at at suppliers on a regular basis.
Their costs their reliability their quality their risk.
China is producing a lot higher.
Vendor sourcing than in the past.
In the process of this past year, adding a new supplier, we do not want a single source something that ranges from.
30% to 50% of the bond with their pack.
All of this is driving towards building scale in this business our target market the fortune 500 companies.
<unk>.
Being a vendor that can play at their level.
They had many requirements to me.
Not only billing scale, we've got to get profitability.
Marketing margins over 30% in the near term in fact, we have a path.
With some of the things I mentioned.
Along with some other projects.
Get over 40%, we believe we've got a target that.
To ensure that we have healthy profitability.
In the near future.
We now are beginning to see operating leverage with our infrastructure. We built it for a number of years now and infrastructure our production service.
ISO 9000.
Hum.
There are elements to ensure that we can not only sell pack to these fortune 500 company, but we can be their vendor of choice as they order packs.
Each year and every year.
We also want to leverage technology for the benefit of our customers, we want to be a leader in this.
Our recently rolled out product last year Sky, Vms, which is the telemetry product offers real time reports.
We understand from our customers.
They advised that ours is.
Better than anybody else's, although there's a lot of telemetry out there.
This is a platform for the future and being able to offer a new or more.
One or more new features each year.
It's based in the cloud.
And can serve many interests for the customer to help them manage their business.
We're also.
Engaged in building high voltage capability.
Packs a lineup that we've had they range from 24% to 80 volts and cover that the industry sector. We're in.
There are also applications.
Where.
That require a higher voltage. So we have developed a 400 volt battery pack.
And we're now beginning deliveries to an electric autonomous shuttle provider.
These high voltage products will open the door to many other other.
Opportunity as we build scale.
As part of building scale, we got to have the quality. We have ISO 9001 certification had that for several years and we're now aggressively implementing lean manufacturing to achieve these efficiencies for scale and back to the customers for timely deliveries to them.
The other item I wanted to talk about is how we're doing in building our brand and reputation.
Our target audience of these fortune 500 companies really do their due diligence on who they're going to have as vendor because they are committing millions of dollars of business to managing these very large fleet and they have just regular a regular cadence of ordering.
New packs pack for new Forklifts, and also replacement and our packs do just dropped in for replacement.
We've won business with Fortune 50, another fortune 500 companies.
Who are our very disciplined and the demands from vendors and one to migrate to lithium most of the new customers. We talked with are convinced of the value of lithium over.
<unk> other sources and and are planning to convert their fleet on an ongoing basis into the future.
Another element.
That we are.
Deal with is <unk>.
We've all heard a lot about it it's in the news environmental social and governance related to sustainability Green.
Environmental this is a hot topic and a high priority for groups like SEC, NASDAQ and many fortune 500 companies and institutional investors and funds.
Our products kind of hit the sweet spot.
Of this concern and allows our customers to address many of the environmental concerns.
Specifically, we have a paradigm shift.
That includes.
No required osha reporting for Azure this asset spillage.
Much higher efficiency.
Tax.
Drawing draw.
Drawing power from the grid, which saves tons of carbon dioxide for our customers.
And this is often at a lifecycle cost hard hard cost savings.
And we do not.
Rely on government incentives.
Finally.
Another element, that's extremely important to our brand and reputation because that drives our ability to.
To continue at these large customers and it is building very seriously.
Zero trust not only ourselves but.
This really is offered to the customers is the value that we provide product quality service ease of doing business for the complex requirements from large fleets, including.
Their timeliness.
With that I will now turn it over to Chuck.
Shai <unk>, our CFO, who will provide some more color on the numbers. Thank you Ron.
Ron mentioned.
Another quarter of year over year growth.
No we didn't.
$5 million a year ago in Q1, 2021, and we just closed on a $6 3 million in Q1 of 2022.
As we have increased the sales of our larger battery packs those taxes being higher per unit pricing.
Adding revenue from our recently launched larger battery packs.
For class, one two forklifts and airport ground support equipment.
Our customer base continues to increase along with new customers added each quarter.
As Ron mentioned, our order backlog was 28 million bodes very well to support our sales trajectory.
You know as you guys know our focus is on large fleet order new forklifts throughout the year.
And we're seeing.
Continuing ordering to your problem.
Our gross margins increased from 19, 4% Q1 or.
2021 to 21, 3% in Q1 of 2022.
Our ongoing cost reduction actions that included the larger battery packs with higher margin.
Got design cost reductions and vendor volume pricing.
But those were largely offset by the supply chain the supply chain disruption we are seeing.
Higher cost on steel electronic parts and just common off the shelf parts.
As well as inbound shipping costs.
In response to that we've increased prices in early October.
But we got to take a number of months before we see that more than a limited benefit as we work through our backlog.
Our selling and administrative costs increased from two 9 million in Q1 of 2021 to $3 5 million.
In Q1 of two.
That was primarily reflecting higher outbound shipping costs.
With nearly doubled over the past year.
And we've had some significant increases in insurance costs for D&O and others.
R&D expense increased from one 5 billion last year to $2 million this year due to new product development efforts.
Our UL certification expense.
Thanks.
We're working with second source battery cells.
Our anticipated improvement in net loss was offset by the supply chain. The latest price increases you mentioned earlier.
Earlier.
Some of you know.
We executed a registered direct capital range of $14 1 million in net proceeds in September.
That raises an important element to support our business plan and to reach cash flow breakeven.
And you know we also protect us from any unknown supply chain issues that might come up.
Also our Silicon Valley Bank line, we went ahead and increase that 4 million to $6 million.
That'll be our backhaul for resources to support working capital needs.
At this point, we have not drawn anything on that facility.
In addition, we continue to have availability on our ATM line of $5 7 million.
Now I'll turn it back to Ron.
Thanks Chuck.
While we continue to track in our business plan.
His leadership.
And the adoption of lithium ion battery.
Battery packs in our market sectors.
The pressures from COVID-19, and supply chain disruption that are so widespread we all know about them, we read and hear about them every day.
And challenging for us as well.
But they serve.
To make us perform better.
Supply processes and vendor selections have been improved to keep pace with our growth along with a number of other.
Elements of our operation.
And then this current there.
Very competitive market for good people.
Again, which seems to be another widespread.
Impact across the country.
We have been affected by it but we've also taken steps to insure floods power.
Great place to work with an exciting future.
And a culture valuing competence hi.
High engagement.
And trust.
We continue to expand our reputation in the marketplace building scale.
Exploring partnerships.
Building partnerships and leveraging relationships with the Oems.
And our customers.
Okay.
We're very optimistic that flux is on track for.
You had another record year of growth.
Our $28 million of order backlog speaks pretty loudly with that regard.
We are pushing for even more.
While material handling, it's a millionth multibillion dollar addressable market.
Remember material handling those single digit growth sector.
But this has double digit adoption of lithium which is increasing each year.
And it's not only that but we have a growing presence in adjacent high growth markets, including.
The vehicle charging, which I mentioned and autonomous shuttles and and we continue to to study adjacent market.
And that concludes our prepared remarks.
Now I'll turn it over to questions.
Yeah.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand.
The Q&A roster.
Okay.
Yeah.
Your first question comes from the line of Chip Moore with Es.
Okay.
Hi, good evening, thanks for taking the question.
Hi chip.
So great to see the record backlog.
Could you talk a bit about how fast you think you can get through those orders just given some of the supply chain constraints currently.
And then maybe you could give us some insight as to compensate the composition of the backlog.
Particularly as it relates to pack size and margins.
Yeah no good question.
Mentioned that during.
Q1.
It didnt affect our numbers.
Dramatically from what we were expecting.
But the whole supply chain disruption.
Is something that is impacting us.
It is.
60 ships at long Beach, I'm, just stating I think what you all know.
Trying to find an electronic components paying $50 for five dollar component that that is difficult to find.
And.
We also by the way I don't think we mentioned that.
In migrating to a new cell supplier, we had we've had to run.
A number of the models through a certain limited number of UL certification.
Exercises, so all of that to come when everybody the UL P equal our vendors are.
Being impacted by the supply chain. So it's like everything is slowing down.
Our two two of our major forklift manufacturers have lead times, one has 80 weeks the other add 60 weeks.
Everything is kind of moving at a slower pace and so are we so the backlog that we now have a COO.
<unk> is a record it represents delivery to a core this month next month.
Through March.
And I think a couple months beyond that.
That stage, that's based on the orders we have in hand, we continue to get new orders each day.
Bulk of that backlog is in the bigger pack.
GSE packs, which are 80 volt.
And our class, one and two packs as well.
We have a new customer that's put in an order on that and for material handling class one.
And we have our other other installed base.
Customers.
Who are continuing to order as well.
So the margin the margin should be helped by that.
We've put out pricing.
With to offset as much as we could.
Hopefully temporary.
Doubling of steel doubling of.
Shipping costs and other components. So you got a lot that still.
<unk> in that part.
Right.
We will we will start we will start shipping that backlog. This month and then then on end and the exact timing of that for this quarter I'm glad we don't give forward guidance because I think its tough for anybody to give a high certainty number of how much we're going to be able to.
But in this quarter.
It's principally again dependent on getting parts sitting here, we have the production capability.
Yes.
So I think that backlog will definitely be done.
Target is FY 'twenty two for sure I was.
Just gonna be matter of art more than likely we do have.
Quite a few sales coming in right now we're getting ahead of the supply chain fairly well at this point.
Just looking at it.
Got it makes sense and that's helpful. I appreciate the color.
And maybe just if I could sneak in one more.
You talked about adding a second shift in the spring.
And some of the.
The initiatives you're doing in terms of.
Imagine a platform.
We think about any sort of opex ramp.
<unk>.
For some of those initiatives as we move forward.
No not at all I mean.
Shifted same equivalent we got on site here, there really isn't anything to add.
Capex or opex other than just production volumes, which is getting hit Cogs.
That process, yes.
Are there margin so.
We don't see a lot that we need to add any.
Okay great.
I'll hop back in queue, thanks, very much and good weekend.
Yeah. Thanks chip thanks for the question.
Your next question comes from the line of Amit Dayal with H C. Wainwright.
Thank you good afternoon, everyone. Thank you for taking my questions.
Ron in the pipeline.
Well it'll be airlines.
Are there any other end markets that you assume.
Decent traction.
Well you know.
Just.
Remind everybody in our material handling has been our primary focus because it's so big in and there's a lot of low hanging fruit there.
And we're making hay there.
Up our assembly lines due to the GSE.
The.
The vehicle charging stations the shuttles.
The one that we've talked about before and that we've.
We're continuing to look at and I think there's I think there's a real future there is robotics as well.
<unk> is really starting to catch on.
Part of the issue there is making sure that.
The business case in terms of how that's gone to market.
The margins.
We've got to be very.
We want to be very attentive to margin, we're not just going to buy revenue because we can get into robotics.
So I think it's the right the right applications.
And that we need to select but there is so much on the scene that we say more say no to probably 10 times more things than we say, yes to.
But.
That's all part of our part of our strategy. So to me everybody here is really jazzed about what's going on in the market because there.
A number of opportunities to continue to turn up and Theres. Some with too early to talk about and that's what makes us exciting.
So that's all part of our strategy.
Okay. Thank you and then.
The relationship with beam has that translated into revenues, yet or is that something that you might see come through this fiscal year.
Starting with <unk>.
Yes, we do.
Shipping packs to them.
Or year, and a half Chuck about a year and a half and it's been a steady flow.
Number of packs each month.
But not huge.
They are very good on press releases announcing contracts they are getting with municipalities and cities and governments all over the country.
<unk>.
We have a great relationship with Desmond weekly CEO over there and you know part of their it just takes a little time to get a lot of those government entities are spun up and going and revenue, but we shipped to them. We've been shipping every single month for 18 months here.
And as they start there.
Real.
Install work.
Installment work.
We will we will see our packs to them increase because we are the exclusive provider for them.
Okay understood.
With respect to sort of you know the supply chain.
Related pressures right now that everybody is going through.
I mean would it be fair to maybe assume lower margins over the next few quarters.
Potential new bid margins recovering towards the later half of the fiscal.
Fiscal year.
Yes, that's exactly what we're forecasting.
Quarter, we're in right now is going to be tough.
But we think that.
See some traction with steel coming back in the line.
People's topic toilet paper and everybody is doing their part out there.
I think we'll start to see that come back in the.
The last two quarters of our fiscal year.
And the infection in a lot of different pockets like expedited shipping shipping okay, we don't get a certain.
Type of cell module on time, we got to ship it by plane.
It just goes on and on like that so.
Yeah.
Chuck spot on here.
Okay. That's all I have great. Thank you. So much appreciate your time, thanks, Tom and thanks for the question. Thank you.
Your next question comes from the line of Allen keel with Maxim Group.
Good afternoon following up on the margin question, you mentioned that you're charging margins over 30% now and you have a path to over <unk>.
40% when you say youre charging.
Over 30, now does that mean.
On a couple of things to do where overall and how do you think about the timing to that over 40% comment.
Yeah, Yeah, no Alan Alan Hey, Thanks for the question, Yes, I'm glad you mentioned that because I don't want anybody to take that the wrong way, we're not at 30% margins now we're <unk>.
Like anybody with that.
Small to large lineup of product a smaller product margins.
Well well below 30%.
And then as we as we build out but we have some of our products above 30%, but the average as you've seen from our reported results, particularly once a week.
Include all the cost is is well below that.
As I mentioned, we have a redesign of our platform, which we're really looking to provide a.
Very.
Impactful increase to our margins we've got some other projects that are in the queue and Chuck.
And as forecast as well.
Certainly putting in plans that would get us to 40% over time now we don't we don't want to get into.
Giving guidance on the timing of that.
But it's before your kids.
Before.
And in the near in the near future. Chuck can you add some color to that I think to add to that is.
Even in this last quarter had it not been for.
Steel increases none of this would have happened in the supply chain issues, we were back to our normal pricing from.
Six months a year ago.
Were certainly be closer to that 30% today, but we can't control that so is there is a lot of this stuff is out of our hands as well on the supply.
He will go through the roof that type of stuff.
So.
I don't think it's.
Huge leap for us to get to 30 things would kind of level back out on the supply chain side with what we've got out there today.
That makes sense.
Okay. Thank you very much.
Sure.
And your next question comes from the line of Allen Klee with Maxim Group.
Yes, My question I'm not sure why I got it okay.
Okay.
You can ask a second question now.
Alright, well you know what.
I did.
One thing that stood out when.
Heard you talking which you just mentioned was the new initiatives are more efficient platforms.
<unk> and lower inventory and all that could you maybe just go into a little more.
Detail, explaining that because that seems pretty important.
You know that.
It's very important to us.
And I don't want to get carried away and say transformational, but that's kind of out there. That's the excitement we have around it.
And recall, we've been doing this.
2013.
Just wanted to put tax out there, but honestly, we didn't know much about what we're really doing because we were the first pioneer and.
And we've learned a lot of lessons over the years and a lot of experience from.
Packs in the field, we've got over 10000 packs in the field with different customers and believe me you get all kinds of feedback and.
Also our UL certification exercises a very extensive each one of those cost over $100000. So it involves so much.
Assessment and very detailed understanding of what's going on in the pack. So our engineers I mean, we've got I don't know 25 engineered some number like that and we've developed the expertise over the years and we.
We believe that it's time to take some of these things and and make that.
At Ford, we call it an all new all new product. It wasn't just freshening, making two cost reduction changes and get that quantum jump. So it involves designing the packs.
Based on our experience because we got to satisfy durability and safety. So we got to be careful what we do we've got to have packed that are going to work for the customers, but there are ways to have fewer beds in this steel it lowers the steel costs, how we do our harnesses first of all we want to outsource.
It's just to people that have high efficiency processes for that but how that is done the components on our board.
Electronic components.
Get cheaper every year, we get smarter on how we can do.
Design.
Different modules for different types of packs.
With that as well.
So we.
We put all that together and particularly with an eye to have.
Fewer parts.
We hate complexity fewer part mean lower inventory being less working capital.
Also the designed to make it more serviceable.
Popular in this industry, so while theres no maintenance with let's say well, there's no water maintenance in there they really are but they still need theres still some things that could go wrong.
That can happen and there is nothing that I know of in the world that doesn't need some level of service. So we want to we want to make these pack.
Sure.
And theres accidents that happened two packs need to be fixed.
And so that they can be serviced easily and timely and this is really for the benefit of the customer our customers do not want any downtime associated with our packs. So our job is to consider all of these elements and we think this new platform.
Really going to take us a huge step up with that and we're going to have.
A much more attractive cost profile as well.
We're talking about inventory and stuff like that where this is big enough that it would probably we think we can get rid of 60% of our curve items out there is inventory items and reduce the number of partially finance significant amount, which is which is huge.
And then also translates into rather than having multiple lines down there we focus more on a single line of trading them soon.
Certainly were module package that can garner multiple battery packs. So it's pretty substantial change there from what we're currently doing.
And the assembly time will be very significantly reduced.
This translates to faster throughput and as we grow I mean, you know, we're growing 50%, 60% each year and and we think our momentum is still there so.
We are consciously.
Preparing for that continual greater throughput.
Yes.
That's great.
I did think of one other thing.
Last quarter, you mentioned, how you have some issues.
<unk> finished inventory.
Trying to find that one part in <unk>.
You increased your people to try to do more sourcing how do you think think about that issue today.
We've got I think three.
Three buyers on hand now.
We're catching up with you.
A lot.
As to who the people that are reliable to go get that a lot of time he talked to something else. Yeah. We got those will call back an hour later.
You learn what vendors to work with so we've got a lot of tribal knowledge there normally is getting much better.
So I think the only thing.
We've got some finished goods sitting there right now.
That are that are wrapped up and ready to go just waiting on a couple of things from you all would be the only holding that at this point, which is happening next week.
It starts to free stuff up.
But but.
<unk> noted that.
The obvious here our inventory levels are much higher because of the supply chain disruption.
We have internal targets on inventory turns as working capital turns.
And we're doing a lot of work now to.
To get there.
Okay.
Great. Thank you so much.
Thanks Alan.
And again that is star one if you would like to ask a question at this time. Your next question comes from the line of Scott <unk> with Walrus partners.
Hey, guys. Most of my questions have been answered I was just going to.
Kind of dig in a little bit on the supply chain issue is there.
A particular.
Module.
Piece of the Bom that.
That you are having trouble with nor is it one two or three things or is it.
G. We just shipping on four things and can't get another thing maybe if you could give us a little.
A little idea on that that'd be great. Thanks.
Well, let me start off and Chuck can probably give you the real answer.
We got three or 400 parts typically on these packs but.
It's five or 10 that really occupy most of the spotlight and COO.
Of course getting cells, China. The electronic components are the ones that are more recently like everybody else chips capacitors isolator.
The parts getting those in theirs.
Everybody noticed is toilet paper runs on those components of the boards.
The vendor that manufacturers are board if they are missing a part we don't have a board we don't ship a pack. So those are probably some of the more exasperating loans, we're working hard with them. We've actually moved beyond some of our suppliers from several years ago, because we've outgrown them and so we've stepped up business.
Normal this is what happens with companies and believe me we've been doing it as well.
I think Ron hit most of them and it is a lot of electronic stuff.
We've had to spend a lot of time with our buyers actually buying parts for our vendors for the board so vendor Michael Thanks, If we can't find it so will our buyers in New York.
Yeah on the funnel will find parts to keep these boards.
So we've got a lot of that going forward, we're actually helping vendors people like yourself to build forward.
But I think the other thing you got to get creative So we had some clips for example that we couldn't find what we we've got a three D printing are truly proud of our own.
So you've got to get creative sometimes too so it's kind of interesting and just as a.
A further example, we've had a buyer and one of our electrical engineers spent an enormous amount of time together trying to find part Jim.
Both their disciplines to make that yep yep.
Alright, great guys, So I guess, they're both ways.
Okay. Thanks, Scott.
And there are no further questions at this time I will turn the call back over to management for closing remarks.
Okay well.
Thanks, everybody for listening to us.
Thank you for your time.
Hmm.
<unk>.
Everybody here flux is just very jazzed about whats going despite all the headaches in our supply chain, it's a great time to be in that sector.
We're fortunate to be at the as I've said, probably too many times people hear me, telling us where the right place at the right time and in our.
Gross sector like this.
Absolutely a pleasure for us to be here. So thanks for your support.
Chuck and I are always available if you want to add any follow up questions so with that.
Thank you yeah. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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