Flux Power Holdings, Inc.

and also to build scale with our business. We have leveraged increased sales volumes to resource steel and board components to low-cost regions and to higher volumes suppliers. We have also implemented inventory kitting process improvements that have provided sustainable productivity enhancements. We are progressing on 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 the diverse customer operations we serve. At the same time, Our new designs provide a reduction in the number of parts, achieving commonality across models. We're now building and shipping the first few models of our new platform, having recently received UL certification on models of the new platform. We're now pursuing forklift approvals and UN 38.3 certification which is required for shipping compliance. We also expanded our in-house testing and production validation capabilities, but all the equipment needed to satisfy the UL requirements and UN 38.3 compliance testing, including an onsite vibration table, therefore eliminating the need to outsource any aspect of the testing for either UL or UN certifications, which all expedites the process. 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 lean manufacturing process, enabling us to more quickly monetize backlog and increase output with existing resources. On May 1st, we opened a new facility in Atlanta to supplement our customer support services and help support our 18,000 PACs we have in the field. 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, while also, and importantly, resulting in lower service logistics costs associated with personnel travel and shipping the batteries to and from our California facility. The Atlanta facility augments our current partnership with Archon Equipment, located in Cleveland, 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, cash used by operations declined by $14.1 million, or 73% from fiscal 2022 to a level of $5.2 million. In the third quarter, we also saw sequential and year-over-year improvement in gross margins from cost and price initiatives. This was helped by design cost actions to lower material costs and assembly and reduce inventory requirements. Improved production processes, including progress in implementing lean manufacturing, as I mentioned previously, have resulted in increased efficiency and higher throughput. Availability, as of May 10th this year, under our New, our two credit facilities total $7.8 million, which includes $3.8 million remaining balance under our renewed revolving line of credit with First Citizens Bank. And secondly, $4 million available under our subordinated line of credit. 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. We are executing our specific supply chain and cost reduction initiatives to continue this momentum. Further, our realized successes are being applied across various customer applications. Our current and potential pipeline of customers 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, all of whom are seeking lower costs during the life of the product and higher performance from lithium-ion battery packs. Our primary revenue has come from orders of our packs on new forklift deliveries. As customer adoption of lithium solutions increases across fleets, We anticipate increasing orders to replace lead acid batteries reaching into life prior to forklift into life, given the generally longer life of lithium versus lead acid. We have taken actions to restore our gross margin trajectory. 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 of 2023. Our improvement initiatives include a number of actions that have begun to impact our gross margin. Price increases to offset pandemic-related commodity increases continue. to impact the results. Other drivers for margin include increased pack volumes, 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 of forklifts and GSD equipment. Normalization of global supply chains, as I mentioned previously, and ongoing adoption of lean manufacturing principles are driving throughput and capacity improvements as we continue to monetize a healthy customer backlog. Our strategic initiatives are also improving sourcing actions to mitigate part shortages, accelerating our backlog conversion to shipments, and increasing inventory turns to help mitigate inventory expansion. These initiatives are key drivers of gross margins along with operating leverage discussed previously. Although our supply chain disruptions have improved, we have increased our inventory raw materials, finished goods, and component parts to $21 million. as of March 31st, 2023, in order to mitigate supply chain disruptions and accommodate delays of forklift deliveries as previously mentioned. 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 31st, 2023. Chuck? Thanks, Ron.

Now turning to review the financial results in the quarter ended March 31st, 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. 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. Gross margin was 31% in the fiscal third quarter of 2023 as compared to 15% in the fiscal third quarter of 2022. This reflected a higher percentage of units sold at new increased prices and lower cost of sales as a result of our gross margin improvement initiatives. Selling and administrative expenses increased to 4.7 million in the fiscal third quarter of 2023 from 3.9 million in the fiscal third quarter of 2022. This reflected increases in marketing expenses, commissions, insurance premiums, 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 31st, 2023, adjusted EBITDA loss decreased 74% to 3.1 million compared to 11.9 million in the nine months ended March 31st, 2022. Our continued initiatives, business growth and operating leverage all contribute to drive this trajectory. Net loss for the quarter So the fiscal third quarter of 2023 decreased to $1.4 million for 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 in Q3 of 2023. This is compared to $3.9 million in Q3 of 2022. and to $5.2 million for the nine months ended March 31st, 2023, compared to $19.3 million for the nine months ended March 31st, 2022. The net cash decreases were primarily due to a decrease in net loss and increase in accounts payable. We recently announced a renewal of the available credit on our existing facility with Silicon Valley Bank, which is now a division of First Citizens Bank. That renewal of $14 million to support the working capital requirements related to our customer demand. First Citizens Bank is a top-tier 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 growth. 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. Product quality. Leading technology and service are key factors as to why we continue to win and maintain business relationships. And we 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. With our operational strategy, including fixed assembly lines, we are well positioned to continue to leverage our 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 positioned 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 seven, 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?