Flux Power Holdings, Inc.

Greetings, and welcome to the Flux Power Holdings Second 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 Rica, Marketing Manager. Maria?

Thank you, Operator. Your hosts today, Ron Dutt, Chief Executive Officer, and Chuck Shiley. Chief Financial Officer will present results of operations for the fiscal second quarter ended December 31st, 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, 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 judgments 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 of 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.

Thank you, Maria, and good afternoon, everyone. I'm pleased to welcome you to today's fiscal second quarter 2004 financial results conference call. Firstly, please note that on slide three, if you're following the deck, for those of you new to our story, there's a short reminder of what we do. We are powering your transition to sustainable lithium ion battery technology. 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 for 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 supplier to the large material handling 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 top-tier customer and OEM 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 and existing equipment delivered on time without difficulty. Fortune 100 companies demand suppliers that are transparent, experienced, and trustworthy as they transition their fleets to new and clean technologies, which puts us in a very strong position in the clean energy market. And we have a trend of, on average, adding two large new customers per quarter, and at the same time without losing any of our installed base of customers. Our business priority this past year focused on progress to cash flow break-even. while continuing to capture market share for the increasing demand for lithium batteries. We continue to be highly encouraged by our momentum toward cash flow breakeven and profitability, given the underlying demand of our products. We have made progress on a number of our growth initiatives that 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 that, a new top five forklift OEM private label program, both of which will address the strong market demand beginning in early 2024 calendar year. And our automated assembly of cell modules is tracking well. We plan to launch the industry's first integrated telematics fleet-wide program with a Fortune 100 customer later in 2024, this year, that combines the telemetry data of both the forklift and the battery. 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 are exploring with partners opportunities for fast charging technology and international sales opportunities. The second fiscal quarter of 2024 also saw ongoing momentum to both the top and bottom lines as we continue to move steadily towards profitability. While reaching record quarter revenue of $18.3 million during the quarter, we do continue to see lumpiness due to the timing of deliveries of customer new forklift orders and higher interest rate impacts. We improved gross profit up 38 percent in the second quarter to 5.7 million, and gross margin expansion of 700 basis points to 31 percent compared to the year-ago period, and also up from our fiscal first quarter of 4.3 million and 29 percent respectively. With ongoing initiatives, focused on strategic supply chain and profitability improvement, lower costs and higher volume purchasing, we are targeting gross margin improvement to continue toward 35% in the short term. We are highly focused on achieving cash flow breakeven during this fiscal year 2024. We made good progress during the second fiscal quarter delivering positive adjusted EBITDA of $300,000, an improvement of $1.2 million from an adjusted EBITDA loss of $900,000 in the second fiscal quarter of 2023, and sequential improvement from a loss of $1.2 million in the first fiscal quarter of 2024. Key drivers of the improvement include gross margin expansion and steady operating leverage from modest growth in operating expenses over the year. Our cost and pricing initiatives contributed to gross margin improvements that I just mentioned to 31% in Q2 24. Also, our inventory balances have been stable. reflecting better management of supply chain sourcing and higher inventory turns from improved operational processes and lean manufacturing implementation. Taken together, we are executing operational efficiencies on our strategy for cash flow breakeven beginning in this fiscal year 2024 and increasing profitability beyond as we continue to drive expansion of our product lineup, operational efficiencies, and service network. In the longer term, our strategy revolves around building scale to sell our products to large fleets, building on our momentum and revenue, gross margin, and operating leverage. Currently, we are growing organically within our capital resources. But I've begun to explore and develop strategies, including those already mentioned, to build partnerships that can leverage our revenue growth, our technology, and our profitability, and achieve our goal of building scale to meet the needs of our top-tier customers. Our efforts on increasing revenue and margin improvement, specifically for adjusted EBITDA, are shown on slide 7, reflecting the upward trend over the past two fiscal years and our momentum towards sustained break-even. The increase in Q2 fiscal 24 is directly attributed to the improved gross profit from gross revenue margin expansion, and revenue growth. We believe our trajectory to profitability is built on a strong foundation of lean implementation and ISO 9001 processes. 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 four new customers this past quarter and eight new customers in the calendar year 2023. Our full product line caters to large fleets who seek an ongoing long-term relationship partner to meet current and future needs, not just a one-time transactional purchase 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 batteries is growing at a much higher rate, driven by the compelling value proposition of lithium compared to lead acid. especially for the 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 has included adjacent verticals, such as airport ground support equipment, and we continue to expand assess other possible adjacencies to leverage our core competencies and capabilities. 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, and 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 and will continue to do so. First, price increases to offset commodity prices. Increased pack volumes. More competitive shipping costs. Lower costs, more reliable, and secondary suppliers of key components. Expanded manufacturing capacity and production process. And finally, transition of product lines to a new modular platform which has more efficient design for assembly and service. All these initiatives are part of our plan to accelerate gross margins as our target is to reach a gross margin of 40%. Slide 10 highlights our backlog and inventory level trends, which are reflecting a more predictable pattern in recent periods, reflecting the growth of the business. As of February 1st, our backlog was $30 million. We had four new customers during the quarter, including a winery that is the largest wine producer in the world. Our run rate backlog does vary at any point in time that has a pattern of running from $20 million to $38 million, depending on the time of the orders received. Beyond our backlog of open orders, we're working on a pipeline of high-probability orders well over $100 million, which does stretch beyond our current fiscal year ending June 30th. We monitor the multibillion-dollar addressable material handling market for economic trends, new entrants, and customer demand trends, and we believe this market to provide a very positive growth environment for a strong, stable undercurrent, especially given the recognized double-digit growth of lithium-ion solutions in the sector. Our strategic initiatives also include improving sourcing actions to mitigate part shortages, supply chain efficiencies, and increasing inventory terms. With that, I will now turn it over to Chuck Chiwe, our Chief Financial Officer, to review the financial results for the quarter ended December 31st, 2023. Chuck. Thanks, Ron.