Flux Power Holdings, Inc.

Greetings and welcome to the Flux Power Holdings first quarter fiscal year 2024 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 Maria Rico, Marketing Manager. Maria?

Your hosts today, Ron Dutt, Chief Executive Officer, and Chuck Shiley, Chief Financial Officer, will present results of operations for the fiscal first quarter ended September 30, 2023. 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, 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, 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, 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 Dutch.

Ron Dutch Thank you, Maria, and good afternoon, everyone. I'm pleased to welcome you to today's fiscal first quarter 2024 financial results conference call. Firstly, please note on slide three, if you're following the deck, for those of you new to our story, here's a short reminder of what we do in electrifying commerce. We are powering material handling, airport ground support, solar energy storage, port authority equipment, and other applications. with new and clean technology. Our products and services are focused on the growing demand from large nationwide fleets that are pursuing a better return on investment and a positive environmental impact compared to lead-acid batteries. We are the leading lithium-ion supplier providing full service to the nationwide large fleets who require the best both now and with future deliveries in 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 of, on average, adding two large new customers per quarter and without losing any of our installed base customers. Now, on to our first quarter results. 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 2024, 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, break-even, and profitability. Revenue for the first quarter of 2024 decreased 17% to $14.8 million compared to $17.8 million in the first fiscal quarter of 2023. Due to fewer units of lithium-ion packs sold during the current quarter as a result of ongoing shipment deferrals related to oak OEM forklift delivery delays, along with some seasonal reduction in orders. We continued to improve gross profit, which increased 9 percent 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 to 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 of 2024, as compared to a loss of $1.5 million in the fiscal first quarter of 2023, driven by the improved gross margins and holding operating expenses in check. For the first quarter, our customer order backlog declined from $28.5 million at June 30 to $21.8 million as of September 30, 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 pickup in forklift delivery timing. We've made progress on a number of our growth initiatives that will have near-term and long-term impacts. Our new series of heavy-duty models will be added to most of our product segments, and along with a new OEM private label program, will both address strong market demand and launch beginning in early 2024 calendar year. And our automated assembly of 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 2024 calendar year. We believe that our leadership in telematics will serve as a continuing platform to introduce new features for operating performance and asset management that are highly desired by our customers. Also, we're exploring with partners opportunities on fast charging technology and internal international sales opportunities. We're highly focused on achieving cash flow breakeven during this fiscal year 2024. Key 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 improvements to 29 percent in Q1-24 compared to 27 percent in Q4-23. Also, our inventory balances have been stable, reflecting higher inventory turns from improved operational processes and lean manufacturing implementation. Taken together for those two, we are executing operational efficiencies on our strategy for cash flow break-even and sustained profitability as we continue to drive expansion of our product lineup and service networks. And 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. Concurrently, 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, 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 24 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 enablers include expansion of high demand models and continued operational and volume related supply chain cost reductions. Our current and potential pipeline of 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 partnership to meet current and future needs. not just one-time transactional purchases. These customers represent well-known household names, having large fleets who require high-performing suppliers. While 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 that was 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 costs, more reliable and secondary suppliers of key components, expanded manufacturing capacity and production processes, and transition of product lines to a new modular platform which has more efficient design for both assembly and service. All 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 compared to the strong upward revenue trend of our revenue and gross margin mentioned earlier. As of November 2nd, our backlog increased to 31 million, 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 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 stretch beyond the current fiscal year ending June 30th. We monitor the 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 the sector. Our strategic initiatives also include sourcing actions to mitigate part shortages, accelerating backlog conversion to shipments, and increasing inventory returns. With that, I will turn it over to Chuck Shiawe, our Chief Financial Officer, to review the financial results for the quarter ended September 30, 2023. Chuck. Thanks, Ron.