Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021 (fiscal 2022 first quarter). Comparisons are with the three months ended September 30, 2020 unless otherwise noted. Flux designs, manufactures, and sells lithium-ion energy storage solutions, primarily for material handling equipment.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $6.271 million | $4.499 million | Up 39% |
| Gross profit / margin | $1.338 million / 21% | $0.873 million / 19% | Up $0.465 million; margin up 2 percentage points |
| Operating expenses | $5.465 million | $4.427 million | Up 23% |
| Operating loss | $(4.127) million | $(3.554) million | Loss widened |
| Net loss | $(4.130) million | $(3.984) million | Loss widened 4% |
| Net loss per share, basic and diluted | $(0.30) | $(0.42) | Improved |
| Cash used in operating activities | $(4.416) million | $(5.670) million | Use decreased |
Revenue growth reflected higher unit volume, higher selling prices, and sales to new and existing customers. Gross margin improved with volume and cost efficiencies, but was pressured by higher steel and parts costs. Selling and administrative expenses rose 20% to $3.498 million, and research and development rose 31% to $1.967 million, including costs for product development, UL certifications, and additional personnel.
At September 30, 2021, cash was $15.737 million, compared with $4.713 million at June 30, 2021; current assets were $35.120 million and current liabilities $12.110 million. Total liabilities were $14.855 million, including $3.197 million in lease liabilities. The company reported no outstanding related-party debt. It had a $4 million SVB revolving facility; the filing does not clearly state an outstanding borrowing balance at quarter-end. Cash increased mainly from equity financing, while operating activities used $4.416 million and investing activities used $0.238 million.
Material changes and financing
- Flux raised approximately $14.1 million net in a September 27 registered direct offering of 2,142,860 shares and warrants to buy up to 1,071,430 additional shares. The warrants have a $7.00 exercise price and a five-year term. The quarter also included net proceeds from ATM share sales.
- Shares outstanding rose from 13,652,164 at June 30 to 15,987,502 at September 30. The offering warrants create additional potential dilution.
- Orders for the quarter were $13.122 million, shipments were $6.313 million, and ending backlog was $19.433 million. Backlog was approximately $28.4 million as of November 10, 2021.
- Four customers each accounted for more than 10% of quarterly revenue and together represented 57%, versus three customers and 66% in the prior-year quarter.
Outlook, risks, and contingencies
Management believes cash and available revolving credit will fund planned operations for the next 12 months. Subsequent to quarter-end, on October 29, 2021, Flux amended its SVB facility, increasing the commitment from $4 million to $6 million and extending maturity to November 7, 2022. The facility is secured by substantially all company assets, including intellectual property.
Management cited growth in orders, revenue, and backlog, supported by an expanded product line, OEM relationships, supply contracts, production capacity, and service footprint. Its strategy includes investment in research and development, sales and marketing, customer support, and production capability. It also reported three recently filed patent applications concerning battery life, battery-health monitoring, and predictive cell balancing. The filing provides no numeric revenue or earnings guidance.
Key risks include dependence on timely delivery of parts and components, rising input costs, customer and supplier concentration, competition, the ability to convert backlog into profitable sales, and the need for continued funding. Backlog may be cancelled or changed and is not assurance of future revenue or profitability. Flux said COVID-19 had not materially disrupted manufacturing through the quarter, but future effects remained uncertain. No material legal proceedings were reported. The SBA may audit the previously forgiven PPP loan.
Important facts for investors to verify
- Whether the $28.4 million November backlog can be fulfilled on schedule despite parts and supply-chain constraints, and at what margins.
- Cash burn and liquidity needs relative to the company’s stated 12-month funding outlook; confirm any SVB borrowings and availability under the amended facility.
- The effects of the September equity offering and outstanding warrants on share count and future dilution.
- Whether gross-margin improvement can continue as steel and component costs, operating expenses, and production scale change.
- The continuing impact of major customers and suppliers on revenue, purchasing, and business continuity.