Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2021. The filing is for the quarter ended March 31, 2021, notwithstanding the “2020 Q3” request metadata. Financial statements are unaudited.
Business context
Flux designs, manufactures, and sells lithium-ion energy storage solutions, principally battery packs for lift trucks, as well as airport ground-support equipment and other industrial and commercial uses. It operates as one reportable segment. Management’s strategy is to expand products, OEM relationships, production capacity, and service coverage while improving margins.
Key financial metrics
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2021: $6.964 million; 2020: $5.051 million | 2021: $17.932 million; 2020: $10.585 million |
| Gross profit / margin | 2021: $1.677 million / 24%; 2020: $0.649 million / 13% | 2021: $4.039 million / 23%; 2020: $1.091 million / 10% |
| Operating expenses | 2021: $4.645 million; 2020: $4.111 million | 2021: $13.801 million; 2020: $10.963 million |
| Operating loss | 2021: $2.968 million; 2020: $3.462 million | 2021: $9.762 million; 2020: $9.872 million |
| Net loss | 2021: $1.725 million; 2020: $3.965 million | 2021: $9.073 million; 2020: $11.086 million |
| Net loss per share, basic and diluted | 2021: $0.14; 2020: $0.78 | 2021: $0.80; 2020: $2.17 |
| Operating cash flow | Nine months 2021: cash used of $14.000 million; 2020: cash used of $5.744 million | |
| Cash and total assets | At March 31, 2021: cash $2.432 million; total assets $21.001 million |
At March 31, 2021, current assets were $16.687 million and current liabilities $8.492 million. Total liabilities were $11.471 million, including $3.398 million of office lease liabilities. Related-party debt and the PPP loan had been repaid, converted, or forgiven; no balance was outstanding under either the $12 million related-party credit facility or the $4 million Silicon Valley Bank facility. The SVB facility was available but unused.
Material changes versus the prior comparable periods
- Third-quarter revenue rose 38%; nine-month revenue rose 69%. Management attributed growth to higher battery-pack sales, notably M36 and X Series in the quarter, and M36, X, G, and C Series over nine months, along with existing-customer growth and new customers.
- Gross margin improved to 24% for the quarter and 23% for nine months, versus 13% and 10%, respectively. Management cited simplified component designs, lower material and personnel costs, and—over nine months—reduced warranty expense.
- Operating expenses increased 13% for the quarter and 26% for nine months. Selling and administrative costs rose with hiring, commissions, insurance, and other costs; nine-month R&D spending also increased, including product development and UL-certification work.
- Net loss narrowed, but the quarter’s improvement included $1.307 million of PPP loan forgiveness recorded as other income. Lower interest expense also reflected reduced average debt after lender conversions to equity.
- Nine-month operating cash use increased substantially. Inventory and accounts receivable rose, and customer deposits declined, contributing to the working-capital cash outflow. Financing activities provided $16.398 million, mainly from equity issuance.
Outlook, risks, and unusual items
- Management believes cash, available borrowing capacity, and potential ATM share sales should fund planned operations for the next 12 months. It also intends to seek additional capital. There is no assurance that funding will be available on favorable terms; equity or convertible financing could dilute shareholders or include restrictive covenants.
- Management reported no material supply impact from COVID-19 as of May 10, 2021, but warned that supplier delays or higher costs could impair production and sales. Reduced air travel had already weakened demand for airport ground-support battery packs.
- Customer concentration is significant: four customers represented 77% of quarterly revenue; three represented 59% over nine months. Two suppliers accounted for 26% of quarterly component and supply purchases.
- Introducing new cells may require UL and/or OEM approval and could delay sales. Other stated risks include competition, dependence on demand and major customers, access to capital, and the ability to scale while improving margins.
- The PPP loan’s approximately $1.307 million principal and accrued interest forgiveness was recognized as other income. The SBA may audit forgiven loans. The filing reported no material pending legal proceedings and no off-balance-sheet arrangements.
- Equity financing increased common shares outstanding from 7.42 million at June 30, 2020 to 13.00 million at March 31, 2021; 13.25 million shares were outstanding as of May 10, 2021. Subsequent to quarter-end, April ATM sales raised approximately $1.8 million gross.
- Management reported disclosure controls were effective as of March 31, 2021 and no material change in internal control over financial reporting during the nine-month period.
Important facts for investors to verify
- Whether revenue growth and gross-margin gains persist, and whether the company can progress toward operating profitability.
- Cash burn, working-capital trends, and the assumptions supporting management’s 12-month liquidity assessment; confirm availability and terms of the $12 million related-party facility and $4 million SVB facility.
- ATM proceeds and remaining capacity, subsequent share issuance, and the potential dilution from future equity financing, incentive awards, and outstanding options and warrants.
- Customer and supplier concentration, supply-chain resilience, and any effects of COVID-19 or UL/OEM approvals on production and demand.
- The recurring versus one-time components of reported earnings, particularly PPP forgiveness and debt-related interest effects.