Flux Power Holdings, Inc. — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended March 31, 2023. The filing is for 2023, notwithstanding the request metadata’s “2022 Q3.” Flux designs, manufactures, and sells lithium-ion energy storage solutions, principally for material handling and airport ground support equipment.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Nine months ended March 31, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $15.1 million | $13.2 million | $50.1 million | $27.1 million |
| Gross profit / margin | $4.7 million / 31% | $1.9 million / 15% | $12.8 million / 26% | $4.3 million / 16% |
| Operating loss | $1.2 million | $3.7 million | $4.3 million | $12.9 million |
| Net loss | $1.4 million | $3.7 million | $5.3 million | $13.0 million |
| Adjusted EBITDA loss | Not stated for quarter | Not stated for quarter | $3.1 million | $11.9 million |
Quarterly diluted and basic loss per share was $0.09, versus $0.23. Nine-month loss per share was $0.33, versus $0.85.
- Cash flow: Nine-month operating cash use was $5.2 million, compared with $19.3 million in the prior-year period. Investing cash use was $0.7 million; financing provided $6.2 million. Cash increased by $0.3 million to $0.8 million at March 31, 2023.
- Liquidity and debt: Current assets were $32.4 million and current liabilities $24.8 million. The company had $10.5 million outstanding on its revolving credit line at March 31; total liabilities were $27.4 million. Accumulated deficit was $87.1 million. The filing reports $1.4 million cash as of May 10, with $3.8 million available under the $14 million SVB facility and up to $4.0 million available under the subordinated line.
- Balance sheet changes: From June 30, 2022, inventory rose to $21.0 million from $16.3 million, accounts payable to $10.8 million from $6.6 million, and revolving credit borrowings to $10.5 million from $4.9 million. Stockholders’ equity declined to $9.9 million from $13.9 million.
Material changes and management commentary
- Quarterly revenue rose 14%; nine-month revenue rose 85%. Management attributed growth to higher unit volumes and average selling prices, growth in material handling sales, and increased ground support equipment sales.
- Gross margin improved 16 percentage points for the quarter and 10 points for the nine-month period. Management cited product/design and sourcing initiatives, improved pricing, and a more favorable sales mix. Nine-month cost of sales also reflected higher steel and electronic component costs.
- Quarterly selling and administrative expense increased 21%, while research and development expense decreased 31%. Nine-month selling and administrative expense increased 18%, while R&D expense decreased 38%. Interest expense increased materially, primarily due to higher borrowing balances and rates; nine-month expense also included $0.4 million of debt issuance cost amortization.
- Backlog was $25.0 million at March 31 and approximately $31.4 million at May 8. New orders totaled approximately $51.7 million in the 12 months ended March 31. Backlog is not guaranteed revenue and depends on customer orders, component availability, and timely production and shipment.
- Management expects higher revenue and improved gross margins over the next 12 months and believes available cash, credit facilities, and planned margin improvements can fund operations for at least that period. This outlook is conditional on execution, continued access to credit, and working-capital and supply-chain assumptions; the company has historically not generated enough cash to fund operations.
Risks, contingencies, and unusual items
- The SVB facility maturity was extended after quarter-end from May 7 to December 31, 2023. SVB also waived compliance with the former EBITDA covenant for March 31. The facility remains subject to covenants and renewal or replacement after its current maturity.
- Management identifies possible additional financing needs. If financing is unavailable on acceptable terms, the company may need to reduce investment or issue equity or convertible debt, potentially diluting shareholders.
- Three customers represented 69% of quarterly revenue and 65% of nine-month revenue. One supplier represented 37% of quarterly purchases and 32% of nine-month purchases.
- Supply-chain disruptions had eased, but extended lead times for certain customer equipment continued to defer shipments and delay expected orders. Inflation and component availability may hinder planned margin improvements.
- The filing reports no material pending legal proceedings. Disclosure controls were considered effective as of March 31, 2023. Management stated that it believed the material weaknesses in internal control reported at June 30, 2022 had been remediated.
- After quarter-end, Flux sold 82,369 shares through its ATM offering for approximately $336,000 gross, and granted non-executive directors RSUs covering 67,532 shares.
Important facts for investors to verify
- Whether the company can maintain or replace the SVB credit facility before its December 31, 2023 maturity, satisfy applicable covenants, and access the stated borrowing availability.
- Whether backlog converts to timely, profitable shipments, especially given customer concentration and supplier dependence.
- Whether gross-margin improvements and working-capital management produce better operating cash flow, given low cash and continuing operating cash use.
- The potential need for further equity or debt financing and resulting dilution or financing restrictions.
- Whether reported remediation of prior internal-control weaknesses is sustained.