Q1 2024 Flux Power Holdings Inc Earnings Call
Mhm.
Greetings and welcome to the Flex power Holdings first quarter fiscal year, 'twenty 'twenty four financial results conference call.
At this time all participants are in a listen only mode.
I didn't answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to hand, the call over to Maria Rico marketing manager Maria.
Your host today, Ron <unk>, Chief Executive Officer, and Chuck <unk>, Chief Financial Officer will present, the results of operations for the fiscal first quarter ended September 30th 2023.
A press release detailing these results crossed the wire this afternoon.
Oral one P M Eastern time and is available in the Investor Relations section of our company's website lots tower Dot com.
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 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.
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 looking statements.
In light of new information or future events.
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 for a more complete discussion of these factors and other risks, particularly.
And under the heading risk factors.
This time I will turn the call over to a clock tower, Chief Executive Officer Rhonda.
Thank you Maria and good afternoon, everyone.
I'm pleased to welcome you to todays fiscal first quarter 'twenty 'twenty four financial results conference call.
Firstly it. Please note on slide three if you're following the deck.
For those of you new to our story here is a short reminder of what we do electrifying commerce.
We are powering material handling airport ground support.
All of our energy storage Port authority quite met in other applications with new and clean technology.
Our products and services are focused on the growing demand from large nationwide fleet.
That are pursuing a better return on investment.
In a positive environmental impact compared to lead acid batteries.
We are the leading lithium ion supplier, providing full service.
Due to the nationwide large fleet.
It required a best both now and with future deliveries and product technology.
Service and ease of doing business.
Our reputation and brand are critical as we target household names, which I'll point out shortly.
We must have a strong reputation and solid track record to reliably satisfy these large fleets that have hundreds of facilities.
And need their batteries for new equipment or existing equipment delivered on time without difficulty.
Fortune 100 companies demand suppliers that are transparent.
Experienced and accountable as they transition their fleets to new and clean technologies.
Which puts us in a very strong position in the electrification market.
And we have a trend it was on average, adding two large new customers per quarter.
And without losing any of our installed base customers.
Now onto our first quarter result.
Our business priority this past fiscal year focused on progress to cash flow breakeven, while continuing to capture increasing demand for lithium ion batteries.
During the first quarter of fiscal 'twenty 'twenty four.
And including this past October we remained encouraged by the underlying growth.
During the entire year past year of our products and also by the momentum toward cash flow breakeven and profitability.
Revenue for the first quarter of 'twenty 'twenty, four decreased 17% to $14 8 million compared to $17 8 million in the first fiscal quarter at 2023.
Due to fewer units of lithium ion pack sold during the current quarter as a result of ongoing shipment deferrals.
Related to Oakland Oak, OEM forklifts delivery delays, along with some seasonal reduction in orders.
We continue to improve gross profit, which increased 9% to $4 3 million compared to a gross profit of $3 9 million in the first fiscal quarter of 2023.
Gross margin improvement initiatives contributed to a 700 basis point increase in the first quarter.
At 29% up from 22% in the prior year quarter.
This very notable increase reflects the operational efficiencies, we have been achieving in sourcing design costs lean manufacturing and improved pricing.
Adjusted EBITDA loss improved to $1 2 million in the fiscal first quarter 'twenty 'twenty four as compared to a loss of $1.5 million in the fiscal first quarter 2023 driven by the improved gross margins.
And holding operating expenses in check.
For the first quarter.
Customer order backlog decline from $28 5 million at June 30th 221.8 million as of September 30th 2023.
Reflecting timing delays in receiving purchase orders.
As of November 2nd, though backlog had increased to $31 million, reflecting continued and expanded ordering from the airport GSE market and some additional pick up in forklifts delivery timing.
We made progress on a number of our growth initiatives that will have near term and long term impact.
Our new series of heavy duty duty models will be added to most of our product segments.
And along with a new OEM private label program with both the address strong market demand.
And watched beginning in early 'twenty 'twenty four calendar year.
And our automated assembly and cell modules is tracking similarly in timing.
We plan to launch the industry's first integrated telematics fleet wide program with a fortune 100 customer.
Later in 'twenty 'twenty four calendar year, we believe that our leadership in telematics will serve as a continuing platform to introduce new features for our operating performance and asset management.
They are highly desired by our customers.
Also we are exploring with partners opportunities on fast charging technology.
And internal international sales opportunities.
Well I like focused on achieving cash flow breakeven during this fiscal year 'twenty 'twenty four.
The drivers of the improvement include gross margin expansion and supported by steady operating leverage from slow growth of operating expense over the year.
Our cost and price initiatives mentioned earlier contributed to gross margin improvement to 29% in Q1 24 compared to 27% in Q4 of 23.
Also our inventory balances had been stable, reflecting higher inventory turns from improved operational processes and lean manufacturing.
Mentation.
Taken together for those two we are executing operational efficiencies on our strategy for cash flow breakeven and sustained profitability.
As we continue to drive expansion of our product lineup and service network.
We estimate our manufacturing capacity in our current facility could support a doubling of our current annual revenue.
In the long term our strategy revolves around building scale to sell our products to large fleets.
Building on our momentum in revenue gross margin and operating leverage.
Currently.
Currently we are growing organically.
Within our capital resources, but have begun to explore and develop strategies, including those already mentioned to build partnerships that can leverage revenue growth.
Technology and profitability and achieve our goal of building scale to meet the needs of our top tier customers.
Our efforts on increasing revenue and margin improvement.
Specifically for adjusted EBITDA are reflected on slide seven showing the upward trend over the past.
Fiscal year and momentum toward breakeven.
That decline in Q1 'twenty four is directly attributed to the quarterly revenue decline tied to seasonality.
Historically in that quarter.
And along with shipment deferrals.
We believe our historical trajectory to profitability is continuing given our installed base of customers and consistent acquisition of new customers.
Additional and enablers include expansion of high demand models, and continued operational and volume related supply chain cost reductions.
Yeah.
Our current and potential pipeline.
Customers continues to expand with two new customers this past quarter and six new customers total in the calendar year 2023 year to date.
Our full product line caters to large fleets, who seek an ongoing relationship partner ship to meet current and future needs.
It's just one time transactional purchases.
These customers represent well known household names, having large fleets who require high performing suppliers.
Well the forklift growth rate has historically been single digit the adoption of lithium ion reflects a double digit rate goods and materials need to be transported in all economic conditions.
And this speaks nothing of opportunities in adjacent product sectors.
The trajectories of our revenue and gross margin on slide nine.
Speak for themselves.
We have taken actions to restore our gross margin trajectory.
Interrupted by the pandemic.
But our highest priority now of achieving sustained profitability this fiscal year.
Our ongoing improvement initiatives include a number of actions that are now impacting gross margin.
They are price increases to offset commodity increases.
Increased pack volumes.
More competitive shipping costs.
Lower cost more reliable and secondary suppliers of key components.
Expanded manufacturing capacity and production processes.
And transition our product lines.
New modular platform, which has more efficient design.
Both assembly and service.
All of these initiatives are part of our plan to accelerate gross margins as our target is to reach 40% gross margin.
Slide 10 highlights our backlog and inventory level trends, which are reflecting a more predictable pattern in recent periods, especially.
Especially compared to the strong upward revenue trend of our revenue and gross margin mentioned earlier.
As of November 2nd our backlog increased to 31.
And as I mentioned with two new customers contributing to this increase.
Our run rate of backlog does vary at any point in time, but as a pattern running.
Running ranging from 20 million to $38 million, depending on timing of orders.
Beyond our backlog of open orders, we're working on a pipeline of high probability orders of well over $100 million.
Which does stress stretch beyond the current fiscal year ending June 30th.
We monitor monitor that multi billion addressable market material handling market for economic trends, new entrants and customer demand trends.
And we believe this market to provide a very positive growth environment with a strong stable undercurrent.
Especially given the recognized double digit growth of lithium ion solutions in that sector.
Our strategic initiatives also include <unk>.
So we're seeing actions to mitigate part shortages.
Accelerating back log conversion to shipments.
An increasing inventory.
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With that.
I will turn it over to Chuck <unk>, our Chief Financial Officer.
To review the financial results for the quarter ended September 32023, Chuck Thanks, Ron.
Now turning to review our financial results in the quarter ended September 32023.
As Ron mentioned revenue for the fiscal first quarter of 2024 decreased by 17% to $14 8 million compared to $17 8 million in the fiscal first quarter of 2023.
Due to fewer units of Sta.
<unk> sold during the current quarter.
And this is also the result of ongoing deferrals related to OEM forklift timing delays and some seasonal reduction with certain customers.
Gross profit for fiscal Q1 of 'twenty 'twenty four increased to $4 3 million.
Compared to a gross profit of $3 9 million in fiscal Q1 of 2023.
Gross margin was 29% in fiscal Q1 of 'twenty 'twenty four.
As compared to 22% in fiscal Q1 of 2023.
This is reflecting greater gross profit and lower cost of sales as a result of the gross margin improvement initiatives.
It will help us achieve profitability.
Was also partially offset by lower number of units sold.
Selling and administrative expenses were $4 7 million in fiscal Q1 of 2024.
Up slightly from $4 5 million in the previous year quarter.
And this is showing the contributions to operating leverage we see.
Research and development expenses increased slightly to $1 3 million in fiscal Q1 of 'twenty 'twenty four.
Compared to $1 2 million in fiscal Q1 of 2023, and this was primarily due to staff related expenses.
Adjusted EBITDA loss improved to $1 2 million in fiscal Q1 of 'twenty 'twenty four.
From $1 5 million in fiscal Q1 of 2023.
And as we talk this was mostly driven by the improved gross margins for seating.
Our continued initiatives business growth and operating leverage all contribute to drive this trajectory.
Net loss for fiscal Q1 of 'twenty 'twenty four was $2 1 million.
Very similar to a net loss of $2 1 million in the fiscal Q1 of 2023.
The nominal improvement.
Principally reflected increased gross profit offset by increased operating expenses and interest expense.
Cash on the balance sheet was $1 1 million at September 32023.
As compared to $2 4 million at June 30 of 2023.
Please note that the cash balance will vary depending on timing of payables receivables and our borrowing on the working capital line.
Net cash used in operating activities increased to one $3 1 million for the three months ended September 32023.
Compared to 600000 for the three months ended September 32022.
And this is primarily due to growing the business the timing of receivables and other working capital timing.
We recently announced a new $15 million credit facility from Gibraltar business capital.
This is to fund working capital and to refinance our existing credit facility with Silicon Valley Bank.
This facility is intended to help meet our anticipated working capital needs to fund planned operations.
To meet the demands of our growth trajectory for the foreseeable future.
The facility is structured to expand to 20 million if needed for additional growth.
Our available funds include our line of credit as of November 2nd 2023 under the $15 million credit facility.
From Gibraltar business capital.
Is it remaining available balance of $2 9 million.
And that has the additional 5 million if needed under the expandable provision.
We also have the $2 million available under the new subordinated line of credit.
Now I'd like to pass it back to Ron to offer some closing remarks.
Thanks, Chuck <unk> looking at the positive momentum of our existing customer base and new customer acquisitions.
We're confident that we're on a strong trajectory toward reaching sustainable profitability. During this current fiscal year.
Steady ongoing gross margin improvement reflects our goal to reach 40% gross margin leveraging our cost.
Operational and pricing initiatives.
Our long term plans include the focus on the strong demand in the market for sustainable energy, especially in our industrial sector, where theres no reliance on incentives, but only on R. O Y we.
We believe the combination of existing customer orders and the acquisition of new customers, who want the benefits of lithium ion technology can drive continued revenue growth.
We're seeing strong progress with our growth strategy, including the introduction of new heavy duty models to be launched in 2024.
A new private label program to be launched with a major forklift OEM.
And a potential partnership on fast growing fast charging proprietary technology.
Along with the automation of battery cells into modules.
Partnering with a fortune 100 company on the industry's first telematics integration for an entire fleet.
And and lastly, developing partnerships for international sales channels.
And our current productions that Sally should support annual revenues up to 150 million given our facility footprint second ship build out and fully manufacturing implementation.
As I mentioned previously we announced.
Recently, an improved capital structure that includes your working capital line of credit of $15 million with Gibraltar business capital to support current and planned growth.
The provisions to increase to $20 million.
And a new 2 million subordinated credit facility with Cleveland capital with an extended maturity to August 15th 2025.
In summary.
We are well positioned to execute our strategy of electrifying Commerce is we offered customers deep experience as first movers in this sector.
And validation by Fortune 100 customers to entrust their migration to lithium solutions to us.
I look forward to providing our shareholders with further updates in the near future as we strengthen our leadership position in lithium ion technology solutions.
With our growing list of new and diverse large customers.
I think all of you 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 be conducting a question and answer session.
He would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that.
Your line is in the question can you.
You May press star two if you'd 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.
Our first question comes from the line of Rob Brown with Lake Street Capital markets. Please proceed with your question.
Yeah.
Hi, good afternoon.
Hi, Rob.
I'll talk a little bit about the orders something like the run rate picked up after after quarter end.
How is that kind of looking going into the next quarter here and.
You know, what what's sort of the dynamics in the market at this point.
You know.
The shorter answer is it looks good you could see some of the Lumpiness I mean in the Q1 and most court except for last year. It was always a slow slow season due to some of our bigger customers who are busy in the summer with their operations and not ordering or installing new.
The equipment or thinking about new orders.
So you know we we we do experience that we're.
We're seeing just continued underlying demand are in.
And the market.
There are two model lines that have some extended of forklifts that have extended timing that has that has caused some of these delays.
For us or our competitors or the Oems frankly, but.
Hum.
We see that that's more than offset by the growing growing demand.
That we have and then the near term initiatives. We have in terms of new product lines that we couldn't offer before are going to start impacting that in the spring as we proceed then.
Yes.
Okay.
Yeah.
Great. Thank you and then.
And the new private label program.
Kind of what who's that you know hows that working in and how does it incrementally from what you've been doing.
Yeah sure No you know we've had one private label a program in place for.
You know a number of years of the top five OEM and it's proven to be very successful in that class III space, those forklifts or the smaller forklifts are lower a lower price, but that class III space.
The equipment, which is called a walkie pallet Jack.
But they're the they're the most numerous by unit volume with any of the product lines number one.
So they're lower priced, but there's a lot of and number two.
These large fortune 500 fleets would go out after that have.
Tens and hundreds of offices across the country most of them use these and these large fleets like to.
Bye bye packs.
From a variety of for a variety of product line models.
So the private label one is one for in that smaller class, it's viewed a little a little differently than the large pork less and we're seeing that our private label, where the OEM is out there selling and distributing it through their equipment dealerships across the country isn't effective.
Way to go to market with that particularly with that particular line and it also as with car dealers they'll sell the smart call out small cars, but the customers come in and buy by the Suvs and large cards as well there there's a little bit of that going on as well. So I'd say, it's a way to efficiently.
Cover the market help us build scale.
Yeah, Robyn I'll add to ron's comments at that product.
And the White label. We currently have that's been there for quite a while it's very predictable.
Terms of month by month, ordering which is really nice for us.
Something we one of the areas. We can latch onto is very consistent ordering a quarter to quarter, which is great.
Yeah.
Yes.
Great. Thanks for the color.
Turn it over.
Thanks, Rob.
Thank you.
Next question comes from the line of Matthew <unk> with Maxim Group. Please proceed with your question.
Hey, Thank you for taking my questions.
Ron I think you might have mentioned two new customers in the quarter did I understand that correctly.
Yes, Yes, you did we we've got actually a few more than that we try to when we talk about this.
Target our target market are very large customers and add new locations across the country and.
The other there's a couple of elements to this even even the larger customers will start out with one or two locations and then feed they're at other locations to the to the point that are we now.
A couple of our largest customers, which are household names at the point, where they're comfortable to come.
Completely migrate their entire fleet to lithium. So so we are always glad to bring on new customers that our customers typically resist us than anybody else in industry mentioning there their names, but if you look at our we we track.
<unk> got a list in front of me, but we've done this past year and into this quarter.
There's quite a few names more than the two per quarter, but.
We do that to really really message this impact that they that they have so and they come from all different parts of the country as well.
And in different sectors.
That does that does that help you Matt.
It does that that's terrific I guess my follow up.
On the the fast charging partnership that you referenced.
There.
Is that coming from demand from existing customers or is that.
Something that could be you know I should just talk about what the.
What the incentive is there to to move in that direction.
Yeah sure you know I think all of US we think a fast charging we think of you know you think of your Tesla and other electric cars and you didn't want him to charge fast it's the Holy Grill in the automotive sector. It's not so much the Holy Grail in the industrial sector aside from the.
The Amazon and Walmart and a few plants that are these massive plants.
And they actually use fuel cell cars fuel cell charges in five minutes and they run three shifts hot swap drivers and and and don't and don't have an hour or two or more and more to charge but.
But the rest of the industry isn't necessarily.
Keen on that but that fast charging does have its place its represents operational efficiency. It does have a.
A distinct advantage in any very cold weather.
Situations given the nature of its thermal its thermal management.
Hmm.
Fast charging also is a way to provide the kilowatts of energy given that if you can charge a lot during the breaks in the lunch you can get by with a pack for the whole.
Day with with less Lucky a minute.
So there's some advantages were looking at.
There are many in.
Technology innovations as the market as you know you can pick up any literature without reading.
Solid state, our sodium and so on and so forth I would say just to reiterate one of our points, we're agnostic with that we.
Why the latest technology, we're exploring this one it's a proprietary technology and I think if there's an application there that could make sense from a business case, you know we will we will jump on it.
We continually look at at at ways to provide leading technology to our large customers because they demanded when they choose a supplier or they don't want to know you are as good or better technology anybody else and for their future otherwise they don't.
You lose confidence in a long term relationship. So so that element of our business is very important from that contact but.
Well keep you apprised on this as it develops.
As well Matt.
Great. Thank you.
Thank you.
If you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Jeff Grant with Alliance Global Partners. Please proceed with your question.
Yeah, good afternoon guys.
Hey, good yeah. The PR mentioned you know some.
Some high confidence orders totaling I think it was over $100 million, obviously, well in excess of any backlog that you guys have had is are you guys seeing a change in terms of a buyer behavior whereby they they may be feel the pressure.
To place larger orders ahead of time or is this just kind of more of a an indication you guys wanted to give to the market that these are kind of.
Recurring orders that kind of present themselves in the backlog on a you know a periodic basis, just trying to I guess understand how we should interpret that figure a little bit more clearly.
Yeah. Yeah, you know there had been some of that is particularly related to the supply chain shortage of some of our big customers gave us letters of intent I think get through call we've mentioned that before.
Before this.
This is this is different.
It's related to that.
It goes to what I, just said a minute ago actually it was nice set up Jeff for this question.
We've got some some of our largest customers are fortune 50 type customers.
And 100.
Who are getting comfortable enough with the whole lithium experience because it's just not hey, well the battery well the battery drive the equipment in and my operation. It's the entire end to end ordering them delivering are you training. Our people are like is there served is what happens what happens at end of life.
Happens Oh, all along the way can you are you reliable are you going to be around.
What's the delivery experience and Ken.
Is there Isa business doing with these companies run very complex operations and what we're seeing now.
There's 100 million is referring to one of our.
Largest customers.
Who are looking to convert their entire fleet in a shorter amount of time you know they these companies have 30 40000 forklifts crusty.
North America.
And they they implement they buy new forklifts over time, they don't want it all at once it would be too disruptive to the operations. So it's already a period over a period of a number of months.
To do this kind of thing so there's 100 million really reflects that.
And in beginning in the.
March quarter, we believe we will start to see that it is still a little premature I'm not going to give out numbers, but they're very intent on it.
Timing of the scale of that as you can imagine requires.
Requires a good deal of settling down on their on their scheduling and plans, but we're delighted we're delighted to hear this kind of thing and.
It's it's been part of our vision and we say that with this one big customer and we see that we used to be just as the kind of thing that can happen with many more customers.
Great. That's that's really exciting thank you for that and my other question is on on this telematics integration with the Fortune 100.
I know you guys in the past I've talked about some different kind of recurring revenue opportunities as it relates to to BMS in telematics and things of that nature.
Is that kind of progressing towards that type of opportunity with this specific application or is this just more of a kind of value add to engender better repeat business and things of that nature.
Well, it's really it's really everything you mentioned I'd say the big driver on it you know we talked about we introduced a telematics on and this material handling sector, a three or four years ago and.
This sector was used to telematics for their equipment and it was all around planned maintenance.
And so.
We've had two.
Go up the curve of these customers getting familiar with it are they really going to use it. There's a lot of things have been sold to these people and forklifts that they say they don't ever use include some of that telematics on equipment and they have to see they had to see the real impactful value of this.
So our sales of telematics you know have been have been it's a slow I would say slowly building, but we're seeing that accelerate now and we have one of our largest customers here. They have finally gotten to the point that we believe it is resonating well they want to put it.
It on all of their packs, there's always some reason to know the health of it is there a problem coming if you can tell a problems coming.
Either we monitoring it or the customer monitoring it they can go in and address a service issue before a pack goes down.
Remember that the biggest single sensitive point in this world is downtime of equipment. So there's telematics is really providing the intelligence to.
To.
Addressed.
Those issues it is really the fundamental tool to improve.
Asset management.
To provide product product support and we see the opportunity.
To.
Integrate real artificial intelligence in this because.
We have the sensors, we have the data to direct.
Very timely.
<unk> response to issues with their equipment. So this one customer we're talking about is finally all over this.
Believers.
And where we're excited about it again. This is this is a similar comment to it before we're now Rick we're now seeing the kind of traction that was always part of our vision.
And great job.
Kind of leading to everything we're doing with telemetry right now to new customers does include a monthly service fee of some sort.
That's how we're approaching it as well so just so you're aware of that but that's definitely an all new offerings.
Great understood Alright, Thank you guys for the details and the time.
Yep.
Thank you I will now turn the call back over to Mr. Doug for his closing remarks. Thank you.
Thank you operator.
I would like to thank each of you for joining our financial results conference call today, and look forward to continuing to update you on our ongoing progress and growth.
We're unable to answer any of your questions. Please reach out to our IR firm MZ group.
It will be more than happy to assist you.
This concludes our call. Thank you.
Okay.
Thank you you may now disconnect your lines at this time, thank you for your participation.
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