Q1 2023 Flux Power Holdings Inc Earnings Call
Greetings and welcome to the Flex power Holdings first quarter fiscal 'twenty 'twenty financial results Conference call.
At this time all participants are in a listen only mode.
Question and answer session, a little follow the formal presentation.
As a reminder, this conference is being recorded.
I would like to turn the conference over to Peter Gintel director of product development and marketing Peter.
Hello, everyone.
Your host today, Ron <unk>, Chief Executive Officer, and charter Shirey, Chief Financial Officer will present results of operations for our first quarter of fiscal year 2023 ended September 32022, a press release detailing these results crossed the wires. This afternoon at four O one pm.
Eastern time and is available in the Investor Relations section of our company's website flex power Dot com.
Before we begin the formal presentation I would like to remind everyone that the statements made on the call and webcast may include predictions estimates or other information that might be considered forward looking while 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 that we are not obligating ourselves to revise or publicly release the results of any revision to these forward.
We're 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 at this.
Time, I will turn the call over to Flex power Chief Executive Officer, Ron <unk>.
Thank you Peter and good afternoon, everyone.
I am pleased to welcome you to today's first quarter fiscal 2023 financial results Conference call.
Firstly.
Note for a moment.
<unk> three here following the deck. There is a short reminder of what we do.
That is.
Electrifying commerce.
We are powering material handling airport ground.
Supported.
Energy storage Port authority equipment, and other applications with new and clean technology.
Now onto our Q1 results.
Our first quarter reflected our cadence of strong revenue growth.
As we continue to focus on fulfilling orders.
In Q1, 'twenty three revenues were $17 8 million up 184% from $6 3 million in the prior year.
Marking our 17th consecutive quarter of year over year revenue growth.
Sequentially.
The quarter revenues were up 17% from $15 2 million in the fourth quarter of fiscal 'twenty two.
In the first quarter fiscal 'twenty, three we received $9 7 million in customer purchase orders from existing and new Fortune 500 customers.
Reflecting the timing of deliveries with customer new forklift orders.
To highlight the importance of building strong relationships with our existing customers.
Over 90% of revenue during the quarter was contributed from customers with whom we have long term relationships.
Our strategic focus is on relationship business with an emphasis on price service and quality and meeting ongoing new purchase needs.
Service requirements.
We believe business from our installed base.
To help drive new customers.
To our technology and developing our technology internally.
<unk> ensures our customers at the most up to date products and services.
For the first quarter are cut.
Customer order backlog decreased from 35 million to $26 9 million.
As of September 30th and was helped by ongoing efforts to fulfill timely shipment of our orders and improvement in sourcing actions to mitigate part charities as we've experienced this bodes well for increased confidence in future supplier performance.
Our strategic initiatives, including accelerating backlog conversion of orders to shipment.
And also our increased inventory turns.
<unk> recovery actions from the supply chain disruption.
These initiatives are also increasing gross margins that will lead to profitability.
New orders for.
For Q1, 'twenty three decreased 17% to $9 seven compared to 11 6 million in Q4 'twenty to.
Due to the Lumpiness from timing of deliveries of customer new forklift orders.
Though.
Not reflecting slowing of customer demand.
We were pleased to see that our supply chain disruptions continue to abate during the first quarter. While at the same time, we continue to pursue strategic supply chain and profitability improvement initiatives.
Also and importantly.
<unk> with new account to a substantial in the first quarter with two new Fortune 500 customers added each having seven figure revenue potential.
For the past 12 months, we have taken aggressive efforts to mitigate supply chain issues.
We recently launched a project for in house automated cell module production.
They manage module skills and accommodate secondary suppliers.
We also leverage increased sales volumes to resource steel and board components to low cost regions and higher volume suppliers.
During the September ending quarter, but again, achieving lower shipping costs as carriers became more competitive.
And we are utilizing lower cost more reliable and secondary suppliers of key components that need required specs.
Although our supply chain disruptions.
Have improved we have increased our inventory of raw materials and component parts to $18 9 million as of September 30.
In order to mitigate supply chain disruptions that we do have and support timely deliveries.
Inventory turns during the quarter increased from three four turns to.
Three six turns as improved manufacturing capacity and production processes, including progress implementing lean manufacturing.
Health increased throughput, reducing the time to fulfill customer orders.
We have introduced new product designs.
Based on the new modular platform for our battery packs.
<unk> customer needs.
Some of the improvements include higher capacity for it.
More demanding shift.
These year servicing.
Lower total cost of ownership and.
And other features to solve a variety of existing performance challenges.
Diverse customer operations.
At the same time.
Our new designs provide margin enhancement.
Commonality.
And improve service ability.
We're now building the first few models of our new platform.
Scheduling UL listing.
Also forklift OEM approval.
And you and $38 three certification.
We also saw the development of an in house.
Vibration table and temperature control unit for battery testing enable lower cost and expedited UL and UN 38, three testing.
While supply chain disruption is abating.
Although challenging our profitability improvement initiatives have shown positive results and continue to improve margin of ship packs.
Our rate of cash burn fell again this quarter.
And decreased 87% compared to the quarter a year ago.
This is helped by higher revenue.
<unk> cost actions to lower material cost and assembly and.
And other improvements in gross margins.
Improved production processes.
<unk> progress implementing lean manufacturing as mentioned previously.
As resulted in increased efficiency and inventory turns.
Our efforts on increasing revenue and margin improvement.
Typically for adjusted EBITDA are reflected on site slide seven.
Showing the upward trend over the past fiscal year.
We are executing our specific supply chain and cost reduction initiatives.
To continue this momentum.
We implemented a $5 million line of credit facility on May 11, 2022 that included $4 million of signed committed credit availability.
As of November seven our availability.
Our available working capital facility was supported by a third amendment just filed today.
Typically continuing our $8 million revolving line of credit with Silicon Valley Bank.
Current availability.
SBB line is $1 4 million.
Along with a four point million subordinated line of credit which is unused.
They both total provide total cash available availability of $5 4 million.
Yes.
Our current and potential pipeline of customers continue to expand with two new fortune 500 customers this past quarter.
Full product line that caters to large fleets, who seek a relationship partner to meet their ongoing needs.
These customers represent a diverse base of multiple sectors.
All of whom are seeking lower cost and yet higher performance lithium ion battery packs.
Our experience has been receiving orders to install our pak on new forklift deliveries.
And we anticipate a more meaningful trend of orders to replace lead acid batteries at the end.
<unk> life as customers expand demand for lithium ion packs.
We have taken actions to restore our gross margin improvement path as highlighted on slide nine our gross margin improved sequentially to 22% in the first quarter of.
2023 from 20% in the fourth quarter of fiscal 'twenty two.
And 15% from the third quarter of 2022.
All reflecting progress in restoring our gross margin trajectory.
As shown on slide nine.
Our improvement initiatives include a number of actions that have begun to impact gross margin price increases on new orders flowing through increased back volumes.
More competitive shipping costs.
Lower material costs.
More reliable reliability and secondary suppliers of key components improved manufacturing capacity and production processes as well.
New product designs to lower costs.
And finally transition of product lines to a new modular platform.
All of these are part of our plan to accelerate gross margin improvement.
As supply chain disruptions.
As mentioned earlier.
We have also achieved production process improvements and better supply chain management during the quarter ending Tory increased to $18 nine from $16 three at June 30.
To mitigate supply chain disruptions and support time deliveries.
As I mentioned previously.
And inventory turns as mentioned as well have continued to improve from three four to six.
Three from three four to three six turns during the quarter.
Reflecting the sourcing and production improvement.
Highlighting.
On the technology front.
We continue to see customer interest in our proprietary sky BMS telematics product.
Which provides for remote fleet management and monitoring.
Deliveries battery pack data to optimize performance and customer fleet tracking.
I am happy to report that customer feedback remains very positive with floods power as the leader of the technology.
These applications.
Looking beyond reaching profitability and building on our success in the material handling industry, we're focused on broadening our reach into related verticals such as robotics.
Which utilized which leverage our infrastructure.
But our operational strategy.
Including our six assembly lines.
We are well positioned to continue to leverage our capabilities as the adoption of lithium energy solutions just continues to accelerate.
With that I will turn it over to Chuck <unk>, Our Chief Financial Officer to review the financial results for the quarter ended September 32022, Jeff Yes. Thanks.
Thanks, Ron.
Now turning to review our financial results in the quarter ending September 30.
As Ron mentioned revenue for the fiscal first quarter of 2023.
Increased by 184%.
$17 8 million compared to $6 3 million in the fiscal first quarter of 2022.
This was driven by increased sales volume and models with higher selling prices.
Gross profit for the first fiscal quarter of 2023 increased to $3 9 million.
Paired to a gross profit of $1 3 million in the fiscal first quarter of 2022.
Gross margin was 22% in the fiscal first quarter of 2023.
As compared to 21% in the fiscal first quarter of 2022.
This again is reflecting higher volume of units sold.
Higher gross margins.
Selling and administrative expenses increased to $4 5 million in the fiscal first quarter of 'twenty three.
$3 $5 million in the fiscal first quarter of 'twenty two.
This was reflecting increases in outbound shipping costs and certain personnel expenses temporary labor.
And an increase in insurance premiums.
Research and development expenses decreased to $1 2 million in the fiscal first quarter of 2013 compared to $2 million.
In the fiscal first quarter of 'twenty two.
Was primarily due to timing of expenses related to our development and testing of new products.
Adjusted EBITDA loss was $1 $5 million for the fiscal first quarter of 'twenty three.
An improvement from an adjusted EBITDA loss of $3 8 million for the fiscal first quarter of 'twenty two.
A 61%.
Net loss for the fiscal first quarter of 2000, <unk> decreased to $2 1 million from a net loss of $4 1 million.
In the fiscal first quarter of 'twenty two.
It was principally reflecting the gross margin profit from higher revenue and partly offset by increases in operating expenses and interest expense.
Yes.
The cash used in operations.
Fiscal 'twenty three in the first quarter declined by 87% compared to Q1 a year ago.
We ended the fiscal quarter of 2003 with 300000 in the cat in cash and have our $8 million working capital line of credit with Silicon Valley Bank.
With $1 4 million was currently available.
And our 5 million LLC facility of which there is $4 million of signed committed debt availability.
These are bolstering resources to manage working capital needs.
We believe that our existing cash and additional funding available under the credit facility from the STB and our subordinated LLC will.
Will it be sufficient to meet our anticipated capital resources to fund planned operations for the next 12 months.
We fully intend to avoid raising equity capital prior to reaching profitability.
We are on track executing to our gross margin improvement and our cost control initiatives.
We're also exploring increases to our working capital availability.
Now I'd like to pass it back to Ron Paul for some closing remarks.
Thanks Chuck.
Chuck mentioned.
I want to reemphasize, we fully intend to avoid raising equity capital prior to reaching profitability.
And profitability is our currently our top priority.
Looking ahead, we believe the combination of the existing customer orders and acquisition of new customers, who want the benefits of lithium ion technology.
<unk> business.
Can drive continued revenue growth.
Price service and quality are key factors as to why we continue to win business and ensure our goal to continue our growth trajectory.
Our current production facility should support annual revenue well beyond $100 million given our facility footprint.
Second chip build out.
And lean manufacturing implementation.
In summary.
We are well positioned to execute our strategy of electrifying commerce.
As we create long term value for our shareholders.
Im encouraged by strong purchase orders.
Proving backlog continued expansion of margins through improved sourcing and supply chain management.
Continued process improvement and.
And pricing.
We continue to execute actions to improve adjusted EBITDA as shown on slide seven which is a key indicator to achieving profitability.
And further.
We anticipate expanding into new markets, having strong demand for our value proposition of high performance and service at a lower product lifecycle cost.
I look forward to providing shareholders with further updates in the near term as we continue to leverage our leadership position in lithium ion technology solutions, and our growing list of new and diverse large customers.
I. Thank you all for attending and now I would like to hand, the call over to the operator to begin our question and answer session operator.
And then.
Thank you we will now begin the question and answer session to ask a question you May press star one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press star two.
At this time, we will pause momentarily to assemble our roster.
Thank you. Our first question comes from Chip Moore with Es.
Thanks, Good evening Ron Thanks.
Thanks for taking my question congrats on the very strong growth.
Yes.
Wanted to ask.
On your comments on demand not slowing.
Given the macro.
And just the order flow in the quarter, maybe you could expand on some of that lumpiness quarter to quarter on order flow and then I think last quarter, you talked about a fortune 100 customer LOI any any material orders in backlog there yet.
Think about order flow there and then of course, the two two new Fortune 500 customers you disclosed today.
How should we think about potential ramp.
Those type of customers.
Yes, yes, thanks, Jeff Thanks for the question, it's a good question.
Yes, we did mentioned Lumpiness you know we've had a lot in the past that.
Smoothing out somewhat in the past year or so but.
It does happen all of our orders are virtually all of our orders are tied to deliveries of forklifts, new forklifts, they've put our facts on these new forklifts in the timing of that timing of that has been very very lumpy and thats one of the principal things driving this.
And.
We are.
Like everybody else with the supply chain disruption are dealing with that trying to support it without inventory going through the roof. So that is happening.
You mentioned the LOI, we mentioned an LOI one of our largest customers David's letters of intent for 'twenty, three and 'twenty for it so they could reserve position because they know.
Lead times for everything Forklifts everything else you can think of is a lot longer.
And they want to get their place in line to ensure when they get when they do get to delivery of forklifts that battery packs that you put on them. So that's very understandable.
It's all within the context of.
Our primary exposure here is material handling and airport ground support equipment.
And.
Particularly.
Particularly material handling.
There is a constant need to for batteries because of forklifts flat only so long the batteries they need new batteries.
For the new forklifts.
And all because.
I talked about electrifying commerce well.
All of these goods in the country still have to move.
<unk>.
Unless we enter the great depression again, whether it would be more of a dip I don't want to say recession.
Debt.
We can avoid a recession in this business, but these sectors are recession resistant we think.
And we read a lot about that so I think I think we need to put that in the context of this demand. The other context is that the adoption of lithium with these large fleets, particularly with multiple shifts is in great demand, we can't deliver packs fast enough and and <unk>.
<unk> on new customers.
Again that puts puts added stress now the other context here is we are very determined to reach the profitability. We've got a game plan forecast very detailed initiatives.
And you talked a lot about here today to do that.
In the very near future and that will position us well for before our next phase of our growth, which is which is really.
Exploiting this rapidly growing demand for lithium around the country.
And providing that because we spent a lot of time and money building infrastructure to do that.
So kind of a long winded answer, but there is very good chip.
Great Ron Berlin, Yes.
Yes, so if I summarize sort of.
Quarterly you could see some lumpiness, but but medium term your visibility is getting much better.
What I would take away.
Okay.
So and then to your point on sort of profitability.
Profitability is the.
The focus but.
In terms of expanding into new markets, you mentioned robotics.
Updates on what what it would take there, but you also talked about maybe being able to get some more working capital availability.
Would that be part of it and then just existing sort of adjacent markets.
Ground support equipment and things like that any update there thanks guys.
Yeah, Yes, good question.
We're in a warehouse of all these large these large companies I mean, you saw our customer let's figure out warehouses, all other country high demand typically.
At least two usually three shift operation they need the performance.
To achieve their performance it caused goldman and.
I think they are finding lithium lithium is a.
Is a great answer.
We expand.
Our assembly lines I mentioned, we are working with a customer to deliver packs for warehouse robotics and that is really gaining a lot of traction out there. So.
So being in the warehouse already it's kind of a natural I always talk about.
Product Adjacencies or this is very much a product adjacency that can utilize our assembly lines, our new products are very modular so.
I don't want to say, it's as easy as legos that does that.
That's what that's the picture that comes to mind doing that there are other adjacent markets that we set.
Projects on.
Which include.
Autonomous vehicles shuttle vehicles solar storage and solar backup and the other area. That's really beginning to get traction now as people people are even more hungry for lithium in the heavy duty applications as big forklifts that typically operate outside.
And require more power and specifically, we're finding the ones that require 80 volts.
Which is the next layer up.
<unk>.
Are interested in heavy duty forklifts, and we had the Abel.
Packs that go with them and we've had a lot of experience because all of our airport ground support equipment. Our 80 volt. So that now is really starting to develop its really encouraging it certainly plays to our sweet spot of <unk>.
Offering the kind of energy and power.
That our battery management system and our.
Mechanicals support.
Interesting, yeah, and higher margin too right.
Okay.
And offline congratulations Jim.
Yes, it's like cars.
Chip the bigger the bigger cars to Suvs the luxury cars have have higher margins.
<unk>.
Same very similar case here so no we're very very keen on it.
People are saying look lithium.
<unk> technology and cost are all becoming more favorable these big companies see it.
And.
They don't like the disadvantage that lead acid and we can provide.
<unk> energy solution for that so I think that's the exciting area of growth.
We've been seeing this past year, particularly.
Alright, Thanks again.
Thanks Chip.
Thank you as a reminder, if you wish to ask a question. Please press star one.
Our next question comes from Amit Dayal with H C Wainwright.
Hi, guys. Thanks for taking my questions.
Just to begin with.
The two new customers.
Industrial these guys from material handling or something else.
Wanted to.
Fifth largest can manufacturer in the world for beverages, so various types of cans and bottles and one is.
Okay.
<unk>.
I guess retail.
We have tumor from consumer product consumer product. So it really fits into our customers slide there with the categories of the of the different sectors. So we're finding yet these to fit in those categories, but.
Our salespeople are working on a number of other company the long lead it takes a while and we're finding.
Potential customers that we're working on in all of those categories.
Yes.
Understood. Thank you thank you for that.
I know, you're talking about product adjacency and new opportunities coming up but we're also seeing sort of.
The R&D spending has gone down I'm, just trying to get a sense of how.
How much more mileage you can get from the existing portfolio.
With their ambitions to move into sort of other offerings and obligations.
Maybe we should think about R&D spend going forward.
Yes, yes, no. The R&D is an interesting area.
We have.
Most importantly.
We've been doing this for eight years and we've learned a lot and we're into another another generation of impacts that really brings.
Better features for the customers and lower cost.
And.
However at the same time, even the industries. We're in there are.
This continues to be a number of opportunities to expand offerings, maybe fill in fill in some gaps I mean, there is something like 400 different types of forklifts or fill in some of those gaps is a few gaps to fill in.
As well.
And the timing of our R&D, we don't see R&D expense declining over time, we can have a little again I hate to use the word lumpiness, but a lot of it's driven by well how much are we testing how much do we have some expensive product development costs in the quarter versus another quarter.
Yeah.
And.
As we plan to grow <unk>.
You go back to our our strategy and has to be a leader to be a leader.
We do need to be built scale, we're billing it.
We have first mover positioning.
Positioning and growing as fast or faster than anybody I know in this sector and we want to continue to do that to continue to service those customers on that slide those are fortune 500 customers with that.
Hundreds of thousands of pack and we have to be able to provide to address all their needs from cost to service serviceability ease of doing business in.
And on and on to the telemetry and so forth.
And the.
Our strategy.
To do that is to grow insensible factors that satisfy our business cases that that.
Hopefully leverage the infrastructure, we have Chad.
Channels to market and as we grow beyond that.
We will do that at the pace that we can be successful the demand is there we have had more.
Requests to go into this in that whether it's golf cart you name it.
Hockey.
Rina equipment Zamboni <unk>, you could go on and on.
And our our challenge and given the experiences to choose those that are going to be.
Makes sense.
Leveraging the resources, we have in building that scale.
Chuck do you have anything to add on the R&D expense because it's a good it's got a good question there yes, great question.
We mentioned in the script here, we brought in house.
Vibration table and it brings in some of the equipment, we would in the past we would ship our packs out for.
To the southwest research, mainly down in San Antonio to do testing and it's very expensive shipping a number of packs it's expensive to do it we brought that in house.
So some of the <unk>.
R&D expenses, we had in the past is going to go away long term by doing that in house and we're also speeding it up and expediting it for <unk> certification.
And the.
This equipment.
Brought it and financed it and it's within six months you are paying for it. It's very quick payoffs on some of this stuff. So that's going to be a long term lowering of R&D expense to some degree.
Understood.
Helpful. Thank you guys and just one last one.
If you've already addressed it.
Backlog was lower.
This quarter.
How should we think about you know order activity and maybe backlog building up again going forward.
Yeah I think.
The backlog is one of those things, we see surge domain and we noticed that more and more orders coming in so whenever you whenever you take a mark to market if you own backlog it it does move around.
We are have been very focused on on our full fiscal year.
And.
Have some of the benefit of having quite a pretty large backlog. So we know we have much higher confidence of what we have what is expected what we have to deliver and we can coordinate the efforts of salespeople.
And the production scheme and mix.
To adjust so that we can hit our our budgeted goals for the year end.
We have a good degree of confidence of that.
Of course, we're in a very volatile.
Period in terms of the market but.
At the same time, we work very closely with those very large customers and in terms of.
Sure.
Forecasting of what they need we may not get the order. So you look at the backlog already go Oh God, you guys or are you going to get the orders.
That's not that's not the.
That's an indicator, but but it does not tell the whole story.
They get the forklifts first and then they get them then they put a battery orders to us.
So we do have those letters of intent out there.
But we are working with the key people at both those in customers and in some cases, the national account salespeople two to identify and flag the need for many months out.
So it's not like because there is no <unk>.
Back order does not show the whole story of all of the anticipated.
Orders to come in and its in the context of our relationship with those customers on that slide is the relationship so they've chosen not.
Not the bid every time they need in order in a month and see who wins the bid.
But an ongoing as we perform our ongoing ability to meet those needs does that help.
Yes. Thank you.
I'll take my other questions all right I appreciate it. Thank you so much.
Okay. Thanks, Thanks, Amit calculator.
Okay.
Yes.
Thank you our next.
Question comes from Matthew <unk> with Maxim.
Hey, good afternoon, and congrats on the solid quarter.
I guess apologies if you touched on this thank.
Thank you did but.
With respect to the inventory build.
But what specifically are you.
Yeah.
Concerned with.
With an offset.
You are building additional inventory in.
What sorts of components or do you see as risky that you need.
Stockpile.
Yes.
The latest stuff, we're seeing is contractors who use us.
We've got some policy.
You know used for a lot of electronic type stuff is still there we're still tight on board.
And to get ahead on board and a lot of it is still chasing down a little.
Components to make the board. So those are the ones that we're most concerned about right now.
Yeah.
It sells were doing fine, we're getting sells at a timely pace and doing well with that steel's.
Coming down in pricing, we're not pushing and trying to get ahead of that where kind of.
That even to take advantage of lower prices as it comes down, but it's mainly those electronic pumps.
1990.
And a lot of the stuff you hear 50 to reach out and you get nervous and you say well, we'll just by what we can get well get it in the door.
Yes.
Yeah, that's great and then just on the.
SG&A line kind of a high.
Watermark, Okay I think we.
We're running around $4 million through most of fiscal 'twenty. Two I think it was about $4 5 million.
<unk> here.
Anything.
Unusual in the quarter or.
That's sort of the run rate, we should be thinking about.
For this fiscal year.
Okay.
I think that is the runway to be thinking about the stuff. That's happened recently is more based on.
Significant increases in insurance premiums for D&O and property is really hitting everybody.
From talking with the insurance brokers.
We're very comfortable with the personnel in hand, we're not adding bodies.
<unk> I think that's a very good place to be.
The only difference there was.
Some internal allocations between.
A few bodies as we reorganized one department of some expense got moved to G&A from.
Namely R&D. So there has been a little bit of that but.
Should be a good run rate going forward.
Great. Thank you.
Mhm.
Yeah.
Thank you ladies and gentlemen. This concludes today's question and answer session I would now like to turn the call back over to Mr. Doug for his closing remarks.
Yes.
Thank you.
I would like to thank each of you on the call for joining our financial results conference call today, and look forward to continuing to update you on our ongoing progress and growth.
We were unable to answer any of your questions. Please reach out to our IR firm MZ group, who would be more than happy to assist.
Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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