Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the company’s fiscal first quarter. Flux designs and sells lithium-ion energy storage solutions, primarily for material handling, airport ground support equipment, and other commercial and industrial uses.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $17.84 million | $6.27 million |
| Gross profit / margin | $3.95 million / 22% | $1.34 million / 21% |
| Operating expenses | $5.76 million | $5.47 million |
| Operating loss | $1.81 million | $4.13 million |
| Interest expense | $328,000 | $3,000 |
| Net loss | $2.14 million; $0.13 per share | $4.13 million; $0.30 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $1.54 million | Loss of $3.80 million |
Revenue rose 184% year over year, reflecting higher unit volume, higher average selling prices, increased sales to existing customers, and initial sales to new customers. Gross margin improved by one percentage point. Selling and administrative expense increased 30%, while research and development expense decreased 38%. Management attributed the lower net loss primarily to higher gross profit.
Operating cash use was $589,000, compared with $4.42 million in the prior-year quarter. Investing cash use was $352,000; financing provided $762,000, primarily from net revolving-credit borrowings. Cash declined by $179,000 to $306,000. At September 30, current assets were $32.09 million, current liabilities $22.28 million, and total liabilities $24.56 million. The balance-sheet line of credit was $5.65 million; office and vehicle lease liabilities were also reported. Accumulated deficit was $83.95 million.
Changes, outlook, and risks
- Compared with June 30, 2022, cash fell from $485,000 to $306,000; accounts receivable rose to $11.60 million and inventory to $18.88 million. Accounts payable increased to $13.51 million, and the line of credit rose to $5.65 million.
- Quarter-end backlog was $26.86 million, down from $35.02 million at June 30. New orders were $9.68 million and shipments were $17.84 million during the quarter. Backlog was approximately $21.5 million as of November 1; the company cautions that orders can change or be cancelled and fulfillment depends on parts availability.
- Management’s priority is cash-flow breakeven. It is pursuing lower-cost and alternate suppliers, product and manufacturing efficiencies, price recovery, and cost reductions. It reported approximately $61.6 million of new orders in the twelve months ended September 30 and expects continued order growth, higher revenue, and improved gross margins. No specific revenue or profitability guidance was provided.
- Management said available cash, expected operating improvements, and available credit were expected to fund planned operations for at least twelve months. As of November 4, cash was $248,000, with $1.4 million available on the SVB facility, $4.0 million available under the subordinated line, and $5.7 million remaining under the ATM offering. The SVB facility maturity was extended on November 7, after quarter-end, to May 7, 2023. The company also said it intended to seek additional capital as needed.
- The filing highlights going-concern uncertainty, historically insufficient operating cash generation, supply-chain delays and higher procurement and shipping costs, reliance on credit availability and financing, and dependence on a small group of customers and suppliers. Four customers accounted for 73% of quarterly revenue; two suppliers accounted for 36% of purchases.
- Disclosure controls were not effective as of September 30 because of material weaknesses in internal controls over financial reporting, including oversight and review of data used in warranty-reserve calculations. Management described additional review and approval procedures implemented during the quarter. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether cash flow and gross margins improve as planned, and whether operations can reach cash-flow breakeven.
- Availability and terms of SVB and subordinated credit, including covenant compliance, maturity dates, and the need for further capital or equity issuance.
- Whether backlog converts to shipments and revenue despite component delays, and how cancellations or order changes affect results.
- Whether customer and supplier concentration, inventory levels, and rising procurement costs affect margins and liquidity.
- Progress in remediating the disclosed material weaknesses and restoring effective financial-reporting controls.