Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023, the first quarter of fiscal 2024. Unaudited results are compared with the three months ended September 30, 2022 unless otherwise noted.
Business context
Flux designs, manufactures and sells lithium-ion energy storage solutions, primarily for material handling and airport ground support equipment. It operates as one reportable segment.
Financial performance and position
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $14.797 million | $17.840 million |
| Gross profit / margin | $4.311 million / 29% | $3.948 million / 22% |
| Operating loss | $1.709 million | $1.811 million |
| Net loss | $2.112 million | $2.139 million |
| Adjusted EBITDA loss (non-GAAP) | $1.172 million | $1.544 million |
| Operating cash flow | $(3.093) million | $(0.579) million |
- Revenue fell 17%, attributed to fewer energy-storage packs shipped, forklift timing deferrals and a greater mix of lower-capacity models. Gross profit increased 9%; gross margin improved 7 percentage points, which management attributed to lower per-unit costs and margin initiatives.
- Operating expenses rose 5% to $6.020 million. Interest expense, net, increased 23% to $403,000, reflecting higher borrowings and rates.
- Cash declined to $1.139 million at September 30, from $2.379 million at June 30, 2023. Current assets were $32.386 million and current liabilities $27.102 million at quarter-end.
- Inventory was $19.495 million and accounts receivable $10.699 million at September 30. Operating cash use increased mainly with working-capital needs, including receivables and inventory.
- The company reported $11.986 million outstanding on its GBC revolving credit line at quarter-end, within a facility of up to $15 million, subject to its borrowing base and other terms. Lease liabilities totaled approximately $2.923 million, including operating and finance leases.
- Accumulated deficit was $90.667 million and stockholders’ equity was $7.711 million at September 30.
Changes, outlook and risks
- Quarter-end backlog was $21.849 million, down from $28.544 million at June 30, 2023. New orders in the quarter were $8.102 million; shipments were $14.797 million. Backlog was approximately $31.1 million as of November 2. The filing cautions that orders can change or be cancelled and fulfillment depends on component availability and manufacturing.
- Management reported approximately $58.3 million of new orders over the twelve months ended September 30. It expects revenue growth and improved gross margins to move the business closer to profitability, and described cost reduction, sourcing, pricing recovery, sales and R&D efforts. No specific full-year revenue or profit guidance is provided.
- Management believed cash, forecast operating results and available credit would fund planned operations for at least twelve months from the filing’s assessment. As of November 2, cash was $1.4 million, GBC availability was $2.9 million, and a new subordinated line had up to $2.0 million available. This assessment depends on credit access, margin improvement and order fulfillment; failure to meet facility conditions, supply delays or economic pressures could require additional financing or spending cuts. Additional equity financing could dilute shareholders.
- On July 28, 2023, Flux entered the $15 million GBC senior secured facility and repaid and terminated its SVB facility. GBC debt bears interest at SOFR plus 5.5% and is secured by substantially all company assets. On November 2, after quarter-end, Flux entered a subordinated line of up to $2 million bearing interest at SOFR plus 9%, with warrants for 41,196 shares at $3.24; it also terminated the prior, undrawn subordinated facility.
- Supply-chain conditions had improved, but extended lead times for some OEM forklift and GSE models caused shipment deferrals. Four customers accounted for 81% of quarterly revenue, and two suppliers accounted for 30% of purchases.
- Management reported an ineffective internal control over financial reporting due to insufficient personnel with technical accounting expertise. Remediation plans include third-party consultants and accounting experts. The company reported no material legal proceedings pending or expected.
- Subsequent events include termination of the ATM sales agreement on October 5, executive bonus approvals and stock-option grants, and a $60,000 financial advisory agreement entered November 2.
Important facts for investors to verify
- Whether gross-margin gains persist and translate into lower operating and cash losses.
- Whether backlog converts to shipments and revenue on schedule, given customer concentration and OEM lead times.
- Actual cash use, borrowing-base availability, covenant compliance and access to the GBC and subordinated facilities.
- Progress remediating the material weakness in financial reporting controls.
- Potential dilution from outstanding warrants, options, future equity financing and the new subordinated-facility warrants.