Flux Power Holdings, Inc.

Greetings and welcome to the Flux Power Holdings fourth quarter and fiscal year 2022 financial results conference call. At this time, all participants are in a listen-only mode. A question and 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 Peter Janty, Director of Product Development and Marketing. Peter.

Thank you. Hello, everyone. Your hosts today are Ron Dutt, our Chief Executive Officer, and Chuck Shywee, our Chief Financial Officer. They will be presenting results of operations for our fourth quarter in fiscal year 2022, which ended June 30th, 2022. A press release detailing these results crossed the wires 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 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-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 the 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.

Thank you, Peter, and good afternoon, everyone. I'm pleased to welcome you to today's fourth quarter and fiscal year 2022 financial results conference call. Our fourth quarter reflected our trend of strong revenue growth from customer demand for lithium ion battery packs and the addition of new customers along with product improvements. Revenue increased 61% to $42.3 million in fiscal year 22 compared to revenue of $26.3 million in the prior year, fiscal year 21. In the fourth quarter of fiscal year 22, revenues were $15.2 million, up 83% from $8.3 million in the prior year, marking our 16th consecutive quarter of year-over-year revenue growth. In the fourth quarter, we received 11.6 million in customer purchase orders from existing Fortune 500 and new customers. To highlight a few of our successes, we received multiple orders for GSE ground support equipment, battery packs from an existing large global airline customer, We have moved beyond the pandemic constraint on air travel we all experienced. And further, we began receiving initial orders from new customers acquired during the fiscal year. For the fourth quarter, our customer order backlog decreased to 35 million as of June 30, 2022, helped by improvement in sourcing actions to mitigate part shortages. which bodes well for increased confidence in future supplier performance. Our strategic initiatives include accelerating backlog conversion of orders to shipments and also increased inventory turns are also driving lower working capital needs. These initiatives are also increasing gross margins that will lead toward profitability. To that end, shipments increased to $15.2 million as of June 30, 2022, compared to $8.3 million as of June 30, 2021, and $13.3 million as of March 31, 2022. New orders in fiscal year 22 increased 83% to $65 million compared to $35.5 million in the prior year, fiscal year 21. That was on continued strong customer demand, reflecting not only order flow from our relationships with our installed base, but new customer acquisitions. In March, we introduced three new products at the annual MODEX 2022 Material Handling Trade Show. First, the L-36 lithium-ion battery pack at 36-volt model for the popular three-wheel forklifts. Secondly, the C-48 lithium-ion pack of ours for designed for automated guided vehicles and autonomous mobile robots. And lastly, the S-24 lithium-ion battery pack that provides twice the capacity or 210 amp hours for the high-volume Waukee pallet jacks. We were pleased to see that the global supply chain disruptions improved during the fourth quarter, while at the same time, we continued to pursue strategic supply chain and profitability improvement initiatives. With lithium cell production expanding in the U.S., We believe unshoring in the future could serve as a potential alternative to reduce reliance in offshore sourcing. Throughout 2022, we have taken aggressive efforts to mitigate supply chain issues. We launched a project to bring in-house assembly of cell modules using automated modular assembly. We also leveraged increased pack sales volumes resource steel and board components to low cost regions and to high volume suppliers. During the year, in response to shipping cost increases, we found more competitive carriers to reduce shipping costs and are utilizing lower cost steel suppliers that meet required specs. We have introduced new product designs, based on a new modular platform for our battery packs to address customer needs. And in response, as well, some of the improvements included higher capacities for extra long and demanding shifts, easier servicing, lower total cost of ownership, and other features to solve a variety of existing performance challenges of customer operations. At the same time, our new designs provided margin enhancement, part commonality, and improved serviceability. And we're now producing and moving the first few models of our new platform through UL listing and forklift OEM approvals, which is part of our certification process and requirements for our packs to be sold with the new forklifts. And inventory decreased to 16.3 million at June 30, 2022, as shipments increased to 15.2 million. And, in fact, our inventory turns during the quarter increased from 2.6 to 3.4. While supply chain issues are still challenging, our strategic supply chain and profitability improvement initiatives has shown positive results. Improved production processes, including implementing lean manufacturing, have resulted in increased efficiency, which has seen inventory terms approved, as I just mentioned. Inventory levels have declined as we continue shipping backlog and our strategic initiatives continue to gain traction. In turn, we expect to see a continued sequential reduction in our rate of cash burn and improvement in gross margins. This will be helped by design cost reductions to lower material costs in assembly, in addition to those I just mentioned. We recently implemented a $5 million credit facility on March 11th that included $4 million of signed, committed credit availability we believe this credit facility along with our working capital line with silicon valley bank of eight million dollars of which two million is currently unused will provide availability for our ongoing needs finally we are seeing an improvement in supply chain issues from an internal standpoint due to our intense focus on manufacturing processes procurement and cost efficiencies achieved so far as we execute our top priority of reaching cash flow breakeven and profitability. Our current and potential pipeline of customers continues to expand with a full product line that caters to large fleets who seek a relationship partner to provide battery packs on an ongoing basis. These customers represent a diverse base in multiple segments, all of whom are seeking lower cost and higher performance lithium battery packs. Approximately 90% of our forecasted revenue for this fiscal year 2023 we're in is now identified, and it reflects shipments we've already made, a letter of intent we've received, and customer input to order packs for their scheduling with their new forklift purchases. Our experience has been receiving orders from our customers that are needed for their new forklift orders, which often precede battery orders. We have taken actions to restore our gross margin improvement path. As highlighted on slide nine, our gross margin improved substantially to 20% in the fourth quarter of fiscal 2022 from 14.6 in the third quarter of 2022, reflecting recent progress in restoring our gross margin trajectory as shown on the slide that was impacted by the supply chain disruption. Our improvement initiatives include a number of elements, including Our price increases on new orders coming through now, the utilization of alternate vendors and lower-cost suppliers, and new product designs to lower cost, reducing part count and complexity, and improving serviceability of packs, all of which are part of our plan to accelerate our gross margin improvement. Part of our supply chain strategy has been sourcing new suppliers for key components. To that end, we have recently sourced a new supplier for Kia Electronics, a supplier in Mexico for harnesses, and an offshore Asian steel supplier. We continue to qualify alternate suppliers for critical resources, including electronics, sales, contractors, and fuses, in response to the supply chain disruption that's been happening and to give us a margin of safety to ensure we deliver our packs on time. As supply chain disruptions have improved, as I mentioned earlier, customer backlog in the fourth quarter declined to 35 million from a record at 38.6 million as of March 31st, 2022, and is due to improvement in sourcing actions to mitigate parts shortages. Our part shortages have declined by 50% over the past two months. As well, production process improvements and better supply chain management contributed to the improvement. During the quarter, inventory decreased to 16.3 million, as I mentioned earlier, from 20.9 million at March 31st due to more efficient purchasing processes. Inventory turns have continued to improve. Also, as I mentioned earlier, from 2.6 to 3.4 during the quarter, reflecting our supply chain and production improvement I have mentioned. We are targeting continued improvements in inventory turns in the quarters ahead. Looking beyond reaching profitability and building our success in the material handling industry, We are also focused on broadening our reach into related verticals, including warehouse robotics. With our operational strategy, which includes six assembly lines, we are well positioned to continue to leverage our capabilities as the adoption of lithium energy solutions continues to accelerate, including demand from numerous related verticals. 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, which delivers battery-packed data to optimize performance and customer fleet tracking. I'm happy to report that customer feedback remains very positive with FluxPower as a leader of the technology for these applications. With that, I will now turn it over to Chuck Shiley, our Chief Financial Officer, to review the financial results for the quarter and year ended June 30th, 2022. Chuck. Thanks, Ron.