Yahoo Finance Flux Power Holdings, Inc. (NASDAQ:FLUX) Q3 2024 Earnings Call Transcript
Flux Power Holdings, Inc. (NASDAQ:FLUX) Q3 2024 Earnings Call Transcript May 11, 2024
Flux Power Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Flux Power Holdings Third Quarter Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call over to Maria Rico, Marketing Manager. Maria?
Maria Rico: Thank you, Operator. Your hosts today Ron Dutt, Chief Executive Officer; and Kevin Royal, Chief Financial Officer, will present results of operations for fiscal third quarter ended March 31, 2024. A press release detailing these results crossed the wire this afternoon at 4:01 p.m. Eastern Time and is available in the Investor Relations section of our company's website, fluxpower.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.
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 revisions 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 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 Flux Power Chief Executive Officer, Ron Dutt.
Ron Dutt: Thank you, Maria, and good afternoon, everyone. I'm pleased to welcome you to today's Fiscal Third Quarter 2024 Financial Results Conference Call. To begin, I would first like to call out our headline themes and then go on to step through supporting context and color. We have experienced delays in new orders since this past January, driven by revised timing of forklift deliveries, which impact timing of our orders and shipments. We see indications in our market sector of the impact of higher interest rates and economic uncertainty during this calendar year. While we don't give specific guidance, we are aware of signs of potential abatement of the headwinds later this calendar year. We have been undertaking specific initiatives to increase revenue growth, reduce costs, launch new high-demand products and ensure our pricing is appropriate for all our models.
Put simply, our 2 high priorities are revenue growth and reaching profitability. Our reputation in the market and with sustaining Fortune 100 customers we have provide evidence of our value proposition, along with over 22,000 Flux Power lithium-ion packs operating in North America. Turning to fiscal third quarter of 2024 results, we did experience reduced revenue of $14.5 million, versus $15.1 million in the year ago quarter. This reduction in revenue comes following our highest quarterly revenue ever of $18.3 million in the fiscal second quarter of 2024 this year. Regarding our gross margin, the fiscal third quarter of 2024 decreased slightly to 30%, and our adjusted EBITDA was a loss of $1.4 million, compared with a loss of $700,000 in the year ago quarter.
Our backlog has seen a similar impact, with reduction to $18.5 million from $25 million a year ago. Regarding our customer base, we have no known lost customers and no lost orders to competition. Furthermore, we have not seen any pullback from interest in migrating to lithium-ion solutions. Despite our current higher interest rate environment, we believe the trend of fleet-wide migration to lithium-ion solution is still advancing, and micro capital spending trends remained intact, as evidenced by the Institute of Supply Management survey released this month showing that manufacturing grew for the first time in 1.5 years in this past March. To support revenue growth, we're expanding our sales force and implementing marketing initiatives to expand awareness of both the value proposition to customers and capabilities of Flux Power to impact their fleet operations.
Our solutions provide increased performance of forklifts, product life cycle cost savings, asset management improvements from our leading telemetry and carbon dioxide reductions to the environment. We also provide integration of most brands of charging equipment to our packs, to our lithium battery packs, and provide an integrated solution for the customers. I would like to reiterate that we are highly focused on expanding sales and marketing initiatives to secure new customer relationships and support our customers' continued migration to lithium with their typical very large fleets. Additionally, we're working with our distribution partners to acquire new customers, which includes sales and marketing resources and materials and getting our salespeople closer to end customers and their needs as we collaborate with our dealers and distributors.
Also, we're taking several actions in support of our targeted sales trajectory. These include new product launches of heavy-duty models addressing customer demand, adding salespeople to support new customer acquisition and increasing our marketing resources and initiatives. Importantly, we are launching a new private label program this quarter with another top-tier forklift OEM. As mentioned earlier, we are also taking actions to increase our gross margins, including cost reductions company-wide and selected pricing increases reflecting our total value-add to products and services for our customers. We are pleased to report on our continued progress in expanding technology and partnerships. Prototype testing of our fast-charging technology is scheduled to take place this summer.
Separately, we are launching the automation of modularization of battery cells, which should improve our working capital management. We are working with new potential customers to implement second-life use of our packs that are reaching the end of their initial application. This would include stationary storage opportunities for those packs. We have an initiative with one of our Fortune 50 long-term customers to implement a nationwide installation of telemetry, which we call our SkyBMS. And this is all to improve customer asset management. Our software and cloud accessibility includes the development of an application of machine learning and AI features for product support tailored to large fleets. Now I do want to mention 2 of our recent appointments, and I'm also pleased to highlight our new CFO, Kevin Royal, who joined in early March this year and also our newly elected board director, Mark Leposky.
They both bring impressive depth of experience, successfully building high-growth businesses and are key resources to achieve our strategy of scaling our business with top-tier customers. In the longer term, our strategy revolves around building scale to sell our pack products to large fleets, building on our momentum in revenue, gross margin and operating leverage. 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 customers. As I mentioned earlier, adjusted EBITDA loss of $1.4 million during the fiscal third quarter resulted primarily from the impact of lower revenue and a onetime warranty-related expense.
As presented in the previous slides, we are experiencing a pause, you would call it, due to the higher interest rate environment, yet we do see signs of a gradual return to our growth rate in the second half of calendar 2024. Our current customer base continues to reflect large fleets of well-known companies seeking the value proposition of higher performance, lower lifetime costs and asset management tools and services. Our full product line caters to large fleets who seek ongoing relationship partnerships to meet current and future needs, not just onetime transactional purchases. These customers represent well-known household names, having large fleets who require high-performing suppliers who provide best-in-class products and, especially, services.
While the forklift growth rate has historically been single-digit, the adoption of lithium-ion batteries is growing at a much higher rate, driven by the compelling value proposition of lithium compared to lead acid, and propane, for that matter, and especially in larger multi-shift operations. The material handling sector is not unaffected by economic downturns, but it is critical to transport goods and provide services throughout the business cycle. Our strategy includes adjacent verticals such as airport ground support equipment, referred to as GSE, and we continue to explore additional adjacencies to leverage our core competencies and capabilities. Gross margin initiatives have dramatically improved over the last 2 years, and we expect continued improvement.
Gross profit was down slightly during this third quarter to $4.4 million, and gross margin held steady at 30% compared to the year ago. With strategic supply chain and profitability improvement initiatives, achieving lower costs and higher volume purchasing, we are targeting gross margin improvement to continue, with a long-term goal of exceeding 40%. All these initiatives are part of our plan to accelerate gross margin and reach our target goal. As of May 6, 2024, our open order backlog was $18.5 million. Our backlog reflects longer lead times of incoming purchase orders from major OEMs to align with their schedule of new forklift deliveries and extended delivery times for certain model lines for new GSE equipment. Beyond our backlog of open orders, the future continues to look bright, with growth of current customer adoption and new customer potential acquisition.
With that, I will now turn it over to Kevin Royal, our newly appointed Chief Financial Officer, to review the financial results. Kevin?
Kevin Royal: Thank you, Ron. Now turning to review our financial results for the quarter ended March 31, 2024. Revenue for the first fiscal quarter of 2024 decreased 4% to $14.5 million, compared to $15.1 million in the fiscal third quarter of 2023, due to lower capital spending in the market sectors that we serve, resulting in shipments of fewer units during the quarter. Gross profit for the fiscal third quarter of 2024 decreased 7% to $4.4 million, compared to a gross profit of $4.7 million in the fiscal third quarter of 2023. Gross margin decreased to 30% in the fiscal third quarter of 2024, as compared to 31% in the fiscal third quarter of 2023. Gross profit margin decreased slightly, by 100 basis points, as a result of higher warranty expense during the current quarter, partially offset by lower average cost of sales per unit achieved as a result of our product cost improvement initiatives.
Selling and administrative expenses increased to $5.3 million in the fiscal third quarter of 2024, as compared to $4.7 million in fiscal third quarter of 2023, primarily attributable to higher staff-related expenses, including certain severance expenses and increases in stock-based compensation, recruiting expenses, outbound shipping costs and professional service fees, partially offset by decreases in sales commissions, E&O insurance expenses, travel expenses and depreciation expense. Research and development expenses increased to $1.3 million in the fiscal third quarter of 2024, compared to $1.2 million in the fiscal third quarter of 2023, primarily due to higher staff-related expenses, including severance expenses, stock-based compensation and general research and development costs.
Adjusted EBITDA loss was $1.4 million in the fiscal third quarter of 2024, as compared to a loss of $0.7 million in the fiscal third quarter of 2023, primarily attributable to the impact of lower revenue. Net loss for the fiscal third quarter of 2024 was $2.6 million, compared to a loss of $1.4 million in the fiscal third quarter of 2023, primarily attributable to decreased gross profit and increases in operating expenses and interest expense to support our planned growth. Cash was $1.3 million on March 31, 2024, as compared to $2.4 million at June 30, 2023, based on timing of utilizing our credit line. Net cash used in operating activities decreased by $0.9 million to $4.3 million in the 9 months ended March 31, 2024, compared to $5.2 million in the 9 months ended March 31, 2023.
Available working capital includes our line of credit as of May 6, 2024, under our $16 million credit facility from Gibraltar Business Capital, with a remaining available balance of $3.2 million, and $2 million available under the subordinated line of credit with Cleveland Capital. The credit line with Gibraltar, subject to eligible accounts receivables and the inventory borrowing base, provides for expansion up to $20 million. Now looking at capital allocation, we have been impacted by slowing revenue this calendar year, which is extending the time frame to reach cash flow breakeven. We are working with Gibraltar, our lender for our working capital line, to revise our financial covenant requirements to support our current trajectory. As a result, we needed to include a going concern clause in our 10-Q filing, which we anticipate to file on Monday, May 13, 2024.
I'd now like to pass it back to Ron to offer some closing remarks.
Ron Dutt: Thank you, Kevin. To summarize our comments so far, the fiscal third quarter of 2024 saw lumpiness from timing of deliveries and customer new forklift orders and interest rate variability. We do, however, remain confident in our recovery and are highly focused on additional selling strategies to support our historical sales trajectory. Gross margin initiatives have dramatically improved margins over the last 2 years. With strategic supply chain and profitability improvement initiatives, lower costs and higher volume pricing, we continue to experience gross margin improvements. We are highly focused on expanding sales and marketing initiatives to secure new customer relationships and support continued migration to lithium of current customers.
We're very excited to add another tier one OEM private label program to supplement our strong OEM relationships and approvals. We are also working with our distribution network to expand customer acquisition. We're leveraging our position with growth-oriented projects and developing partnerships with vendors, technology partners and opportunities to further drive growth. We are working to expand product lines for multiple customer segments and adjacent markets with new products and filling gaps in our energy storage offerings. Recently, we introduced our new second-generation lithium-ion battery pack for Class II narrow-aisle forklifts and Class I 4-wheel counterbalanced forklifts, and we'll be adding heavy-duty models to most of our product lines in coming months.
Our telemetry, which includes asset management features, is in the pilot stage with a Fortune 50 company for implementation nationwide. Finally, be assured, our top priorities are revenue growth and reaching profitability. Fortunately, underlying interest for migration to lithium-ion solutions has never been greater. I look forward to providing our shareholders with further updates in the near term as we strengthen 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 would like to hand the call over to the operator to begin our question-and-answer session. Operator?
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