Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2020 (the company’s fiscal second quarter). Interim financial statements are unaudited. Flux designs, manufactures and sells lithium-ion battery systems, primarily for lift trucks, with additional applications including airport ground support equipment and stationary storage.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $6.469 million; up 79% year over year | $10.968 million; up 98% |
| Gross profit / margin | $1.489 million / 23%, versus $0.326 million / 9% | $2.362 million / 22%, versus $0.443 million / 8% |
| Operating loss | $3.240 million | $6.794 million |
| Net loss | $3.364 million, versus $3.307 million | $7.348 million, versus $7.121 million |
| Net loss per share, basic and diluted | $0.29 | $0.69 |
For the quarter, selling and administrative expense rose 41% to $3.135 million and research and development rose 56% to $1.594 million. For the six months, those expenses increased 35% to $6.055 million and 31% to $3.101 million, respectively. Management attributed improved gross margin to higher sales, purchasing and design efficiencies, lower warranty costs, and a stronger mix of higher-margin products. Higher operating expenses largely offset the gross-profit improvement; interest expense declined year over year.
Cash, liquidity and financing
- Cash was $4.653 million at December 31, 2020, compared with $0.726 million at June 30, 2020. Current assets were $16.399 million and current liabilities were $10.875 million.
- Six-month operating cash use was $10.290 million, compared with $3.987 million in the prior-year period; investing cash use was $0.417 million. Financing provided $14.634 million, principally from equity offerings.
- At December 31, related-party line-of-credit debt was $2.403 million, with $9.597 million available under that facility. The $1.297 million PPP loan remained outstanding. The company had not drawn on its new SVB revolving facility of up to $4 million, which matures November 8, 2021. Office lease liability totaled $3.493 million.
- Public offering, private placement and ATM sales increased equity funding, while debt conversions reduced borrowings. Common shares outstanding rose from 7.42 million at June 30 to 12.19 million at December 31; 12.59 million were outstanding February 7, 2021.
Changes, outlook and risks
Growth reflected increased sales of several battery product lines and gains from existing and new customers. Customer concentration remained significant: four customers represented 74% of quarterly revenue. Management said it expects revenue growth to exceed infrastructure expense growth and believes available cash, credit facilities and potential ATM sales can fund planned operations for the next 12 months. This is management’s assessment, not a quantified earnings or revenue forecast.
The company reported reduced demand for airport ground support batteries amid lower air travel, while stating it had not observed material supply impacts from COVID-19 as of the filing. It cited continuing uncertainty around the pandemic, supply-chain availability, customer demand, competition, growth execution and access to capital. Management plans continued investment in product development and sales infrastructure; it noted three recently filed patent applications. The PPP forgiveness application was submitted in January 2021 and was under review; forgiveness was not assured. No material pending legal proceedings were reported.
After quarter-end, holders converted about $1.588 million of line-of-credit debt into shares in January 2021; the company reported approximately $0.884 million still outstanding and $11.116 million available under that facility as of February 7. Additional equity or convertible-debt financing could dilute shareholders or impose restrictive covenants.
Important facts for investors to verify
- Whether revenue growth and gross-margin improvement continue, and whether operating costs can be controlled enough to reduce losses.
- Working-capital needs and the sustainability of cash resources given $10.290 million of operating cash use in six months.
- Availability and terms of the related-party facility and SVB line, and the outcome of the PPP forgiveness review.
- Customer and supplier concentration, including the effect of any major customer demand change or supply disruption.
- Share-count dilution from equity offerings, debt conversions, ATM sales and equity awards.
- COVID-19 effects on airport-related demand, operations and the supply chain, and progress toward management’s stated growth and profitability objectives.