Flux Power Holdings, Inc.

Good afternoon and welcome to the Flux Powers Fiscal First Quarter 2026 Earnings Conference Call. At this time, all participants are in the listen-only mode. As a conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, November 13, 2025. I would now like to turn the conference over to Joelle Akramovic of Sheldon Group Investor Relations. Joelle, thank you and over to you.

Good afternoon and welcome to Flex Power's fiscal first quarter 2026 earnings conference call. I'm Joel Akramowitz, Managing Director of Shelton Group, Flex Power's investor relations firm. Joining me on the call today are Krishna Vanka, Flex Power's CEO, and Kevin Arroyo, Chief Financial Officer. Now, before I turn the call over to Krishna, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments, and other forward-looking statements regarding future market developments, the future financial performance of the company, new products, or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause action results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAF financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8K, which can be found in the investor relations section of FlexPower's website at www.flexpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. And now it's my great pleasure to turn the call over to FlexPower's CEO, Krishna Vanka. Krishna? Please go ahead.

Thank you and welcome everyone to our Q1 2026 conference call. As we announced in our press release earlier today, revenue in the quarter reflected a temporary pause in the customer orders. This was mainly due to the uncertainty surrounding the tariff situation during the quarter and also due to the near-term caution regarding the macroeconomic situation with the uncertainty that tariffs had on pricing customers held back on placing orders until there was more clarity this dynamic also temporarily impacted our gross margins during the quarter lately however we have begun to see order activity rebound in our second fiscal quarter and this is highlighted by multi-million dollar orders from top material handling customers, totaling $2.4 million. In addition to these repeat orders, we also recently secured a large order with another major airline for ground service equipment. With this new customer, we now supply to eight major North American airlines, and this represents doubling of our airline customer base compared to last year. As I have shared with you on the prior earnings calls, the leadership here has established five strategic initiatives to guide our execution and performance. As a reminder, these initiatives include profitable growth, operational efficiencies, solution selling, building the right products, and integrating value added software across our battery portfolio to generate recurring revenue streams. Let me provide you with update on these initiatives. During the quarter, we made additional progress on the operational efficiencies. We achieved this by implementing another limited workforce reduction. Since my arrival, we have reduced our headcount costs by a total of 20% while maintaining consistent production levels. In October, We were also pleased to receive confirmation that we retained our listing on the NASDAQ capital markets, so this is now behind us. We remain committed to maintaining the integrity of our listing for broad access to our common stock. I'm also thrilled to announce that we have completed two capital raises totaling $13.8 million in proceeds, net of underwriters, discount fees, and expense. These funds will be efficiently used for working capital needs and to accelerate our product development roadmap. We believe this product acceleration will create more opportunities and ultimately lead to better margins. We are excited that we recently received UEL EE listing across our entire material handling portfolio of products. This will also open new market segments representing around a billion dollars in total addressable market, and these new market segments include chemical, agriculture processing, oil and gas, and pharma industries. During the quarter, we also achieved UL 1973 listing for our 80-volt intelligent batteries. This marks our first global recognized certification for a mobile battery energy storage system best, in the GSC industry and also unlocks new opportunities in AGVs and AMRs. Overall, these key safety standards provide assurance to customers that our products are reliable and safe. Our batteries were also certified recently by a world-leading multinational industrial equipment OEM for use in their new lift truck models. This showcases our commitment to working closely with OEMs and our partners as we continue to build the right products and solutions to meet our customers' needs. Another key initiative is to expand our software offerings to improve recurring revenue. During the quarter, we graduated our SkyMS 2.0 SaaS platform and converted a major airline from beta testing to a paying customer. We now have multiple paying customers on this software platform and continue to receive strong interest. We also started working on adding new AI-driven operational features to Sky EMS that you'll hear about on future calls. It is our goal that every battery shipped be cloud-connected, and we are working hard towards this goal. With that, let me now hand the call over to our CFO, Kevin Royal, to discuss our first quarter financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the fiscal first quarter of 2026 was $13.2 million compared to $16.1 million in the same quarter last year. As Krishna outlined earlier, the decrease in revenue was driven mainly due to a pause in customer orders as a result of the tariff uncertainty and macroeconomic concerns. Gross margin in the first quarter was 28.6%. compared to 32.4% in the prior year period. The decrease in gross margin resulted mainly from lower sales combined with a shift in mix to our lower energy capacity products, which have lower gross margins. Operating expenses in the first quarter of 2026 were 5.9 million compared to 6.4 million in the first quarter of 2025. The decrease in operating expenses reflects the benefits of our cost reduction initiatives, including right-sizing the workforce to match current operating levels. The net loss for the first quarter was 2.6 million, or 15 cents per share, compared to a net loss of 1.7 million, or 10 cents per share, in the first quarter of 2025. Excluding costs associated with stock-based compensation, first quarter non-GAAP net loss was 2.4 million or 14 cents per share compared to a non-GAAP net loss of 1.1 million or 6 cents per share in the prior year period. Adjusted EBITDA for the first quarter was negative 1.7 million compared to negative 0.4 million in the same quarter a year ago. reflecting the lower revenue and margins in the quarter. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $1.6 million compared to $0.6 million a year ago and $1.3 million in the prior quarter. Subsequent to quarter end, as Krishna highlighted earlier, we raised $9.2 million in proceeds, net of fees and underwriters discount, from a secondary offering of common stock. And we also raised $4.6 million in proceeds net of fees from a private placement of pre-funded warrants and common stock warrants. Proceeds will primarily be used for working capital and to accelerate the redesign of our product portfolio in order to lower costs and improve gross profits. I will now turn the call back over to Krishna for his final remarks. And then we will open it up for questions. Krishna?

Thank you, Kevin. In closing, despite the challenges we faced during the quarter, I'm really proud of the progress we have made. This includes streamlining our cost structure, completing the capital raises that we need to support our business, regaining compliance with NASDAQ listing requirements, accelerating our product roadmaps, receiving key certifications with UL and an important OEM, delivering Sky EMS 2.0 with paying customers. With these actions and the new leadership in place, we are well positioned to achieve profitable growth in the coming quarters.

With that, let's open the call to questions. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star and then 2. We will pause for a moment as the callers join the queue. We have the first question on the line of Rob Brown from Lake Street Capitals Market. Please go ahead. Good afternoon.

On the first question, on kind of the order trends sort of post-coder, you talked about some recovery in orders, I guess, and you've announced some bigger orders, but how are the order trends coming through, and are you seeing that strength continue into the fourth quarter?

Yeah, so, well, we are seeing some evidence of a rebound. You know, we highlighted $2.4 million in in orders for material handling industry, as well as significant airline order, we really are still seeing some headwinds, which we continue to attribute to recent tariffs, as well as some impact in the quarter from the government shutdown. However, we are seeing more promising trends in the second half of the year, and in particular, seeing some strengthening in our third fiscal quarter, which is the first calendar quarter of 2026. Okay, great.

And then in the ground support equipment market, you've had good progress there in terms of adding customers and expanding penetration into customers. How is that market sort of looking from a an investment standpoint on their part in terms of rolling out product and what sort of further penetration can you get there?

Yeah, they continue to adopt the clean energy solutions in the GFC. So I'm not seeing any pushback from the overall goal and how the airlines are thinking about going lithium. So that trend is very supportive. It was really this short-term, you know, tariff that paused some of the progress, but as Kevin mentioned, early next year, calendar-wise, we'll start seeing more activity. As you noticed, we doubled the airlines we now serve, and some of the airlines are just getting started, like the first order, literally, in the case, as I mentioned on the call. So we look forward to them taking more and more orders as they start deploying lithium.

All right, great, thank you, I'll turn it over.

Thank you. Participants who wish to ask a question may press star and one on your telephone keypad. Participants who wish to ask a question may press star and one on your telephone keypad. As there are no further questions, I would like to hand the conference over back to Mr. Krishna for closing remarks.

Sure. Thank you again for joining us on the call today. We look forward to reporting our continued progress throughout the quarter and on our next earnings call in mid-February. Operator, you may now disconnect.

Thank you. This brings us a close to today's conference. You may now disconnect your lines. Thank you for participating and have a pleasant day.