Flux Power Holdings, Inc.

Greetings and welcome to the FlexPower Holding Second Quarter Fiscal 2023 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 Shawn Stewart, Financial Planning and Analysis Manager. Shawn?

Your hosts today, Ron Dutt, Chief Executive Officer, and Chuck Shiley, Chief Financial Officer, will present results of operations for our second quarter of fiscal year 2023 and December 31st, 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 at 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 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 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, Rhonda.

Thank you, Sean, and good afternoon, everyone. I'm pleased to welcome you to today's second quarter fiscal 2023 financial results conference call. Firstly, please note that on slide three, for those of you who have the presentation, there is a short reminder of what we do. That is electrifying commerce. We are powering material handling, air support, airport ground support, solar energy storage, Port Authority equipment, and other applications with new and clean technology. Now on to our Q2 results. Our second quarter reflected our cadence of strong revenue growth as we continue to focus on fulfilling orders. In Q2 23, revenues were $17.2 million, up 123% from $7.7 million in the prior year, marking our 18th consecutive quarter of year-over-year revenue growth. In the second quarter fiscal 23, we received $20.7 million in customer purchase orders from existing and new Fortune 500 customers, reflecting the alignment of timing of deliveries with customer new forklift orders. To highlight the importance of building strong relationships with our existing customers, Over 95% of revenue during the quarter was contributed from customers with whom we have long-term relationships. Our commitment, consistent performance, and trustworthiness are the foundation for long-term, sustainable relationships with our customers. Our emphasis on product, service, and quality continues to support ongoing new purchase needs and service requirements. We have experience that business from our installed base will help drive new customers to our technology. And developing our technology internally also ensures our customers have the most up-to-date products and services on a sustainable basis. For the second quarter, our customer order backlog increased from 26.9 million to to 30.4 million as of December 31st, 2022. Our strategic initiatives to improve sourcing actions, to mitigate part shortages, accelerate backlog conversion to shipments, and increase inventory turns have helped to mitigate backlog expansion. These initiatives are also increasing gross margin that would lead to profitability. New orders in Q2 23 increased to 20.7 million compared with 19.8 million in Q2 2022 and was 113% higher compared to 9.7 million in Q1 2023 due to the timing of deliveries of customer new forklift orders arising from supply chain disruptions. We were pleased to see that our supply chain disruptions continued to abate during the second quarter, while at the same time, we continued to pursue strategic supply chain and profitability improvement initiatives. Also, and importantly, Progress with new accounts was substantial in the second 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 automated cell module production to manage SKUs and accommodate secondary cell suppliers. We also leveraged increased sales volumes to resource steel and board components to lower cost regions and to higher volume suppliers. Recently, we expanded our in-house testing and product validation capabilities with all equipment needed on site to satisfy UL 2530 that's UL Underwriters Laboratory, and UN 38.3 compliance testing, which included an on-site vibration table being added to the other equipment and eliminating the need to outsource testing for either UL or UN certifications, and of course, expediting the process. During the December ending quarter, We began achieving lower shipping costs as supply chain disruption eased, and we are utilizing lower cost, more reliable, and secondary suppliers of key components that meet required specifications. Although our supply chain disruptions have improved, we increased our inventory of raw materials, finished goods, and component parts to $19.5 million. as of December 31, 2022, to mitigate supply chain disruptions that were occurring and protect our customers for timely deliveries. We are introducing, over the next 12 months, new product designs based on a new modular platform for our 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 of diverse customer operations. At the same time, our new designs provide reduction of number of parts, part commonality across models, and improved serviceability. We're now building and shipping the first few models of our new platform and scheduling UL listing, forklift OEM approvals, and UN 38.3 certification. As the supply chain disruption is abating, as I mentioned, our profitability improvement initiatives have shown positive results and continue to improve margin of shift packs. Our adjusted EBITDA loss fell again this quarter and decreased by $700,000 to a loss of $900,000, compared to a loss of $1.5 million in Q1 23, and a loss of $4.7 million in Q2 2022. This was helped by higher revenue, design cost reductions to lower material cost and assembly, and other improvements in gross margin. Improved production processes, including progress implementing lean manufacturing, have resulted in increased efficiency and higher throughput as well. Our efforts on increasing revenue and margin improvement, specifically for adjusted EBITDA, are reflected on slide 7, showing the upward trend over the past fiscal year. We're executing our specific supply chain and cost reduction initiatives to continue this momentum. We implemented a $5 million subordinated line of credit facility on May 11th of 2022. That included $4 million of signed committed credit availability. We recently announced an amended agreement to increase the available capacity of our Silicon Valley Bank working capital line of credit by $6 million to a total of $14 million to support our higher working capital requirements related to increased customer demand. The current availability on the SBB line, along with the $4 million of subordinated line of credit, provides the working capital needed to meet our goals. Our current potential pipeline of customers continues to expand with two new Fortune 500 customers this past quarter and a full product line that caters to large fleets who seek a relationship partner to meet their ongoing needs. These customers represent a diverse base in multiple sectors, all of whom are seeking lower cost and higher performance lithium ion solutions. Our primary revenue has come from orders for our packs for new forklift and GSE, that's ground support equipment, deliveries. As customer adoption of lithium ion, Tax increase across fleets, we anticipate adoption to increase orders to replace lead acid batteries that are at the end of their life. We have taken actions to restore our gross margin improvement path. As highlighted on slide nine, our gross margin improved sequentially to 24% in the second quarter of 2023, from 22% in the first quarter of fiscal 2023, and from 20% in the fiscal fourth quarter of 2022. All this reflects the progress in restoring our gross margin trajectory. Our improvement initiatives include a number of actions that have begun to impact gross margins. Price increases on new orders. Increased pack volumes. More competitive shipping costs. Lower costs, more reliable. And secondary, suppliers of key components. Improved manufacturing capacity and production processes. 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 have improved, as mentioned earlier, we have also achieved production process improvements and better supply chain management. During the quarter, inventory increased to 19.5 million from 18.9 million at September 30, 2022, reflecting a trend toward normalization of backlog and inventory levels. 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 and delivers battery pack data to optimize performance and customer fleet tracking. I'm happy to report that customer feedback remains very positive with FlexPower as the leader of the technology for these applications. We intend to place a high priority on continued development of features and capabilities for warehouse managers to increase their productivity and reduce their operating costs. 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 our capabilities as the adoption of lithium energy solutions continues to accelerate. With that, I will now turn it over to Chuck Shiawe, our Chief Financial Officer, to review the financial results for the quarter ended December 31st, 2022. Chuck.