Q3 2023 Flux Power Holdings Inc Earnings Call
Speaker 1: The.
Speaker 1: you
Speaker 2: Greetings and welcome to the flux power holding third quarter fiscal 2023 financial results conference call. At this time our participants already listen only mode. A question at the session will follow the former presentation as a reminder this concert has been recorded.
Speaker 2: I would now like to hand the call over to Sean Stewart, Financial Planning and Analyst Manager. Sean, you may proceed.
Speaker 3: Your host today, Ron Dutt, Chief Executive Officer, and Chuck Shirey, Chief Financial Officer, will present results of operations for our third quarter of fiscal year 2023 and March 31, 2023.
Speaker 3: A press release detailing these results crossed the wires this afternoon at 4.01 PM Eastern Time and is available in the investor relations section of our company's website at fluxpower.com.
Speaker 3: Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that may be considered forward-looking. Thank you for listening.
Speaker 3: 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.
Speaker 3: You are cautioned not to place undue reliance on these following looking statements, which reflect our opinions only as of the date of this presentation.
Speaker 3: Please keep in mind that 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.
Speaker 3: Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions.
Speaker 3: You should also review our most recent form 10K and form 10Q for a more complete discussion of these factors and other risks, particularly under the heading risk factors.
Speaker 3: At this time, I will turn the call over to Flux Power Chief Executive Officer, Rhonda.
Speaker 4: Thank you, Sean, and good afternoon everyone.
Speaker 4: I'm pleased to welcome you to today's third quarter fiscal 2023 to an angel-resolved conference call.
Speaker 4: Firstly, please note that on slide three, if you're following the deck, there's a short reminder of what we do, going out electrifying commerce.
Speaker 4: We are powering material handling, airport ground support equipment, solar energy storage, port authority equipment, and other applications with new and clean technology.
Speaker 4: and our products and services are focused on very large fleet.
Speaker 4: including those located nationwide.
Speaker 4: Now, onto our Q3 results. Our third quarter reflected our cadence of strong revenue growth as we continue to focus on fulfilling orders. In Q3 23 revenues were 15.1 million, up 14% from 13.2 million in the process.
Speaker 4: $9.
Speaker 4: And with growth expansion, growth margin expansion of 16 percentage points to 31 percent compared to the prior.
Speaker 4: growth expansion, growth margin expansion of 16 percentage points to 31 percent compared to the prior to the year.
Speaker 4: to the year go period. Our revenue growth and gross margin expansion provides continued operating leverage.
Speaker 4: Given our modest increase in operating expense.
Speaker 4: of only 5% for that period. Adjusted EBITDA on loss with $700,000 in 3.1 million for the three and nine months ended March 31, 2023. An improvement.
Speaker 4: from AdjustedEva.Lots.
Speaker 4: of 3.4 million and 11.9 million for the three and nine months in that March 31, 2020-22, respectively.
Speaker 4: Adjusted EBITDA losses declined 24% on a sequential basis from the three months ended December 31. To the third quarter, our customer order backlog decreased from 30.4 million to 25 million.
Speaker 4: as of March 31st, 2023.
Speaker 4: Reflecting continued lithium adoption, although partially impacted by timing delays of production of some port-flip models.
Speaker 4: In the third quarter fiscal 23, we received $9.8 million in customer purchase orders from existing and new Fortune 500 customers.
Speaker 4: New orders were down for the quarter due to supply chain issues, increasing lead times on some new worklists, and ground support equipment product lines.
Speaker 4: which all cause delays in anticipated orders and existing orders to be pushed out. We anticipate these extended late times continuing, although diminishing in the coming months, as supply factors normalize. To highlight the importance of building strong partnerships with our existing customers, over 95 percent.
Speaker 4: of revenue during the quarter was contributed from customers with whom we had long-term relationships.
Speaker 4: Our commitment, consistent performance and trustworthiness are the foundation for long-term, sustainable relationships with our customers.
Speaker 4: Our emphasis on product quality, technology and service.
Speaker 4: continues to support ongoing new purchase needs and service requirements.
Speaker 4: and to higher volumes suppliers. We have also implemented inventory kidding process improvements that have provided sustainable productivity enhancements. We are progressing on new product designs based on a new modular platform for battery packs to address customer needs. Some of the improvements include higher capacities for more demanding shifts, easier servicing and other features to solve a variety of existing performance challenges.
Speaker 4: of the diverse customer operations we serve. At the same time,
Speaker 4: Our new designs provide a reduction in a number of parts, achieving commonality across models.
Speaker 4: on models of the new platform.
Speaker 4: and UN 38.3 certification.
Speaker 4: which is required for shipping compliance.
Speaker 4: We also expanded our in-house testing and production validation capabilities.
Speaker 4: with all the equipment needed to satisfy the UL requirements and UN 38.3 compliance testing.
Speaker 4: including an on-site vibration table, therefore eliminating the need to outsource any aspect of the testing for either UL or UN certifications, which all expedites the process.
Speaker 4: Achieving in-house testing under UL oversight reflects successful building of both our technical experience and recognized confidence by UL. Our efforts to scale our business have included implementing lead manufacturing process and enabling us to more.
Speaker 4: quickly monetize backlog and increase output with existing resources.
Speaker 4: On May 1st, we opened a new facility in Atlanta to supplement our customer support services and help support our 18,000 packs we have in the field.
Speaker 4: Investment in the Atlanta office broadens our geographic footprint to bring comprehensive and responsive services to customers in the eastern half of the United States.
Speaker 4: while also and importantly resulting in lower service logistics costs.
Speaker 4: The Atlanta facility augments our current partnership with Archon Equipment, located in Kileen, Ohio, which operates a service facility which includes use and repair of our packs. As supply chain disruption is declining, our profitability improvement initiatives have continued to gain momentum. For the first nine months of fiscal 23,
Speaker 4: Cash used by operations declined by $14.1 million, or 73%.
Speaker 4: from fiscal 2022 to a level of 5.2 million.
Speaker 4: In the third quarter, we also saw sequential and year-over-year improvement in gross margins from Q cried.
Speaker 4: quarter, we also saw sequential and year-over-year improvement in gross margins from cost and price initiatives.
Speaker 4: This was helped by design cost actions to lower material cost and assembly.
Speaker 4: by design cost actions to lower material cost and assembly and reduce inventory requirements.
Speaker 4: Improve production processes, including progress in implementing lead manufacturing. As I mentioned previously, I have resulted in increased efficiency and higher throughput.
Speaker 4: Availability has at May 10th this year under our new, our two credit facilities, total 7.8.
Speaker 4: million dollars, which includes 3.8 million dollars remaining balance under our renewed revolving line of credit with First Citizens Bank. And secondly, 4 million dollars available under our subordinated line of credit.
Speaker 4: Our efforts on increasing revenue and margin improvement.
Speaker 4: specifically for Adjusted Edadah are reflected on slide 7.
Speaker 4: showing the upward trend over the past fiscal year.
Speaker 4: We are executing our specific supply chain and cost reduction initiatives to continue this momentum.
Speaker 4: Further, our realized successes are being applied across various customer applications.
Speaker 4: Our current and potential pipeline of customers.
Speaker 4: continues to expand this past quarter with two new customers having large fleets. Our full product line caters to large fleets who seek a relationship partner to meet current and future needs. These customers represent a diverse base in multiple sectors.
Speaker 4: All of whom are seeking lower costs during the life of the product and higher performance.
Speaker 4: from lithium ion battery packs. Our primary revenue has come from orders of our packs on new four-clips of deliveries.
Speaker 4: As customer adoption of lithium solutions increases across fleas,
Speaker 4: We anticipate increasing orders to replace lead-acid batteries reaching into life.
Speaker 4: prior to forklift in the vice.
Speaker 4: given that generally longer life of lithium versus lead acid.
Speaker 4: We have taken actions to restore our gross margin trajectory.
Speaker 4: As highlighted on slide 9, our gross margin improved sequentially to 31% in the past third quarter, from 24% in the second quarter of fiscal 2023, and from 22% in the first quarter.
Speaker 4: of 2023.
Speaker 4: Our improvement initiatives include a number of actions that have begun to impact our gross margin. Drives increases to offset pandemic-related commodity increases.
Speaker 4: continue to impact the results.
Speaker 4: more competitive shipping costs, lower unit costs, more reliable and secondary suppliers of key components, improved manufacturing capacity and production processes, and transition of product lines to a new modular platform, all of which are part of our plan to accelerate margins, both now and moving forward. During the third quarter, our backlog was reduced to 25 million, partially reflecting extended delivery times for some models.
Speaker 4: to help me get into the inventory expansion.
Speaker 4: These initiatives are key drivers of gross margins, along with operating leverage discussed previously.
Speaker 4: Although our supply chain destruction has improved, we have increased our inventory raw materials, finished goods and component parts to $21 million, as have March 31, 2023.
Speaker 4: With that, I will now turn it over to Chuck Shiley, our Chief Financial Officer, to review the financial results for the quarter ended March 31, 2023. Chuck? Thanks, Ron. Now turning to review the financial results in the quarter ended March 31, 2023. As Ron mentioned, revenue for the fiscal third quarter of 2023 increased by 14% to $15.1 million compared to $13.2 million in the fiscal third quarter of 2022.
Speaker 4: This was driven by increased sales volumes and models with higher selling prices. Gross profit for the fiscal third quarter of 2023 increased to 4.7 million compared to a gross profit of 1.9 million in the fiscal third quarter of 2022.
Speaker 4: depreciation and outbound shipping costs. Research and development expenses decreased to 1.2 million in the fiscal third quarter of 2023. This is compared to 1.7 million in the fiscal third quarter of 2022. Primarily due to lower staff related expenses and lower expenses related to the timing of development of new products. Adjusted EBITDA loss decreased to 700,000 in the fiscal third quarter of 2023 from 3.4 million in the fiscal third quarter of 2022. For the nine months ended March 31, 2023. Adjusted EBITDA loss decreased 74%.
Speaker 4: to 3.1 million compared to 11.9 million and the nine months ended March 31, 2022.
Speaker 4: Our continued initiatives, business growth and operating leverage all contribute to drive this trajectory. And that lasts.
Speaker 4: for the fiscal third quarter of 2023 decreased to $1.4 million, or a net loss of $3.7 million in the fiscal third quarter of 2022. This principally reflected the increased gross profit. Net cash used in operating activities decreased to $3.3 million.
Speaker 4: in Q3 of 2023, which is compared to 3.9 million in Q3 of 2022, and to 5.2 million for the nine months ended March 31, 2023, compared to 19.3 million for the nine months ended March 31, 2022.
Speaker 4: The net cash decreases, we're primarily due to a decrease in net loss and increase in accounts payable. We recently announced a renewal of the available credit under our existing facility with Silicon Valley Bank, which is now a division of first citizens bank.
Speaker 4: at renewal of $14 million to support the working capital requirements related to our customer demand.
First, citizens, thank you....thought to your financial institution...
and we are pleased to now be partnering with them on our revolving credit line. This renewal, along with our existing cash, will continue to meet our anticipated capital resources to fund planned operations.
On a longer-term basis, we also continue to explore alternative capital opportunities to enable us to meet the demands of our aggressive group. Now I'd like to pass it back to Ron to offer some closing remarks.
Thank you Chuck. While we're on track executing our gross margin improvement and cost control initiatives, we are exploring increases to our working capital availability. Looking ahead, we believe a combination of existing customer orders and acquisition of new customers, we want the benefits of lithium-ion technology business can drive...
continued revenue growth.
continued revenue growth.
Product quality, leading technology, and service are key factors as to why we continue to win and maintain business relationships. And we want to ensure our goal to continue our growth trajectory.
And our current production facility also should support annual revenue up to $150 million given our current facility footprint, second shift build-out, and lean manufacturing implementation. Looking beyond reaching profitability and building on our success in the material handling industry, we are also focused on broadening our reach into related verticals such as warehouse robotics.
And our current production facility also should support annual revenue up to $150 million, given our current facility footprint, second shift build-out, and lean manufacturing implementation. Looking beyond reaching profitability and building on our success in the material handling industry, we are also focused on broadening our reach into related verticals such as warehouse robotics. With our operational strategy...
including six assembly lines, we are well positioned to continue to leverage their capabilities as the adoption of lithium energy solutions continues to accelerate.
Initiatives to ensure leadership in technology that expands product and service value to our customers. In summary, we are well-tization to execute our strategy of electrifying commerce as we offer customers stored energy solutions.
to increase productivity at lower cost during our product's life.
We are encouraged by strong purchase orders, improving backlog, and continued expansion of margins through improved sourcing and supply chain management. Continual process improvement and pricing.
We continue to execute actions to improve adjusted EBITDA as shown on slide 7, which is a key indicator to achieve profitability.
And further, we anticipate expanding into new markets having strong demand for our value proposition of high performance and lower cost of ownership. I look forward to providing our shareholders with further updates in the near future.
As we continue to leverage our leadership position in lithium-ion technology solutions,
with our growing list of new and diverse large customers.
I thank you all for attending and now I'd like to hand the call over to the operator to begin our question and answer session.
Operator? Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star-2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we pose our first question.
evening. Thanks for taking the questions. Ron and Chuck, I wanted to ask on margins, congrats on getting to 30. That's a great milestone. I guess is there anything with regard to mix in the quarter to sort of help you there and then help us think about moving forward? You've got another number of initiatives underway that are for just ramping and then of course volume levels.
than what we actually even forecasted a little bit, but not much. There's a little bit of that. Right now, if you kind of look at the margins...
We've done a lot in terms of what we've done internally. As you know, we're creating the Gruber product, which is a different product. It's going to have different margins or not.
fully vetted on those yet. So, you know, in the short term, I think that we're going to stay in that range as we continue to move forward for a little while here. We're also seeing a little bit of pressure on steel prices again, which is if you watch the commodities markets, that can affect us on the steel side, and that's a big part of our product as well.
Okay, so it sounds like it helps you. Yeah, sort of sustainable here right now, right? Some puts and takes, but longer term, clearly you've got, yeah, upside from here. That's very helpful. And a follow up there on margins, I guess, specifically to the new Atlanta facility that just opened, that should give you some benefits as well. So, that's up to me.
expand on what that brings in terms of profitability potential? Yeah, Chuck, let me jump in here. That does, that does, with reducing, ultimately, reduce warranty costs. And another way to think about it, Chuck, in addition, that Chuck said, as think about it, we have an ongoing
margin improvement strategy. And as you've seen, we've done a lot of work in our initiatives. They are weekly war room items we've mentioned. But we want to continue value engineering. We're roughly 30% now.
And we realize that we need to move higher and we will. And one of the enablers of that is going to be our operating leverage we have with our fixed operating costs which are largely fixed and with the growth and revenue that we have as well.
we realize that we need to move higher and we will. And one of the enablers of that is going to be our operating leverage we have with our fixed operating costs, which are largely fixed, and with the growth and revenue that we have as well. So, I hope that helps Chip.
Yeah, no, that's great, Ron. And if I could ask another, I guess, specifically, you know, on the pipeline, it sounds like it's
Still very strong you talked about adding some some some new potentially large accounts Maybe talk about the size and scope potential there And then in terms of timing obviously you know backlog. I think you talked about the forklift lead times You know being an issue there, and I you know I've heard that welding in particular has been a real constraint for some of the OEMs, but
scale. They're big. The bigger we are, the better we can address and support deliveries and service all over the country, Canada, Mexico, and some of these want to take us internationally at some point in the future, not in the near term. But the point is...
They want us to build scale. That's fortunately, that's been our strategy for eight years. So we're on that track. I will mention that just yesterday we got a big order for our next new big customer, which is not part of the two I mentioned. Some of these companies really don't like you mentioning their name, but I thought I'd mention this, Procter & Gamble. We just got the first big order for that. And they're an example of some of our other suppliers that you see on our website.
the sector we're in. It's how good were you each month.
Frankly, I'm used to that having been in a lot of other industries. However, I really like the idea that our customers even want a long-term relationship.
So we're working on another of other customers in the pipeline. That one took over 10 months, but others can take six weeks. So we have a variety of others. I'm not going to mention them. I just wanted to throw out an example to give you some sense of that.
Turning to the lead times. Yeah, you know, we haven't mentioned a couple times here We were just a pro-mat at the at the largest trade show the annual trade show in Chicago in March and Everybody was talking about the the late lead times on on forklift
delivery and that has impacted us. Now it's not on every line, every truck line, it's some of them, some of the bigger ones. And we don't get any assurance of when that, exactly when that's going to be, but we believe it's a residual hangover from the...
pandemic and supply chain disruptions, but we're working through that. We're adding new business trying to fill in any gaps and I think that's good. It's impacted us a bit this quarter. It could impact us a bit next quarter. We're not giving guidance, but I'm just explaining that.
to the future, particularly as we get past a few months ahead and that supply situation begins to normalize.
That is great to hear. Appreciate all the color. I will hop back to you. Thank you very much. Thank you. Once again, ladies and gentlemen, to ask a question at this time, please press star 1 on your telephone keypad. One moment while we hold for more questions. Okay.
Thanks for taking my question and apologies if this is already answered. I think I heard you mention that you've passed through some price increases. You also mentioned that steel prices have been somewhat or will be somewhat of a limiter to your gross margin upside based on recent trends. Can you...
Maybe talk about as we move forward a little bit and if material prices remain high, do you have the ability to continue pushing price increases to your current customers or what does that look like going forward? So you're going to be able to continue pushing price increases to your current customers or what does that look like going forward?
As we move forward a little bit, and if material prices remain high, do you have the ability to continue pushing price increases to your current customers, or what does that look like going forward? Yeah, Chuck, do you want to field that one?
Yeah, Matt, we've got the, you know, we can of course push some pricing and we continue to look at that and we will and it's more product by product instead of overall at this point, so we're looking at specific products that make sense to the pricing increases and there are numerous gross margin initiatives we continue to have going on harnesses and boards and all the other components so steel was just as you know a piece of it.
which you know it's not it's a significant part but you know it's there's plenty of other stuff we're working on that will continue to increase the margins so it's not like that is stopping anything at this point I think it's more of a you know we've got
Yeah, you know, another element, Matt, is if you look up on Google, the price of cobalt steel, it just really went up like a mountain during the pandemic, and it's really, really largely come down. And it's interesting, as Chuck pointed out, we have seen some recent upward adjustment to that, but I think that's the world we live in, and all of us are getting used to dealing with that. Thanks, that's helpful. And then I guess as a follow-up, with respect to your in-house questions, those seemed like they suspicion some of the things that we can look at, like what we'd said last time.
you know, how that all...
How that benefits your processes and ability to deliver product timely? Yeah, you know, it's a good question. You know, it's a two-fold answer. There's two points to make here. We started this UL testing back in early 2015 and went through it for the first time with our initial product. And...
There's a lot involved. There's just more than you believe. You know, on the surface, it's really testing for durability and safety of the packs. So we felt that was really important with lithium and being new and it actually took us forever because we had to go out and get all this third parties testing. So you had to reserve space and time and facilities and dexas and elsewhere and UL had to come in and out all the time. So over, you know, the past six years, we've, we've ULed all our packs our first generation. Now we just went through this new platform. So we developed a lot of experience.
durability and so forth. So we bought that equipment and that's an enabler to accelerating the timeline it takes to develop products internally and any of the elements of that. Then secondly, UL testing is not cheap. We spent hundreds of thousands of dollars on that and being able to do that test internally where they just, they have to monitor certain tests as part of their requirement and compliance. So they can do it either onsite, on Zoom, or we can tape it.
So we really and we were not sending anything to Texas and other places for third party testing. So it has a
or joining our financial results conference call today and look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions or if you have further questions please please reach out to our IR firm MC Group who would be more than happy to assist. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Con C pro time pro.
I I.
The me.