Good day and thank you for standing by. Welcome to the Flux Power Fiscal Year 2021 Financial Results and Company Update Call. At this time, all participants are in a listen only mode. After the speaker's Presentation. There will be a question and answer session.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Justin Forbes. Please go ahead.
Thank you. Good afternoon and welcome to Flux Power's financial results call. This is Justin Forbes, Director of Marketing and Investor Relations for Flux Power Ron Dutt, CEO And Chuck Shieh, CFO will present the results of operations for our fiscal year 2021 ended June 30, 2021. Now I'd like to read our Safe Harbor statement. Our discussion may include predictions, estimates or other information that might be considered forward
booking.
While these forward looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release results Your revision to these forward looking statements in light of new information or future events. Throughout today's discussion, We'll attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10 ks and Form 10 Q for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors.
A copy of our press release and financial tables can be viewed and downloaded on the Flux Power Investor Relations website at fluxpower.com/investors. And with that, I'll now turn it over to Roger. Good afternoon and thanks Justin for the introduction. As you may know, We issued our press release on fiscal year 2021 financial results on Wednesday, September 22nd to support executing Direct offering which closed earlier today. We announced on Thursday, September 23, Our entering into a security purchase agreement with institutional investors with 8C Wainwright acting as exclusive placement Earlier today, we closed on 2,142,860 shares of common stock With 50% market coverage at a purchase price of $7 even per market Sure.
And associated warrant, which generated gross proceeds of $15,000,000 The securities were issued pursuant to our shelf registration, which had been effective on October 26, 2020. We plan to use these proceeds to support our current rapid business growth To provide capability to accelerate our path to profitability and to exploit market opportunities. As our key customers are typically Fortune 500 companies with large material handling fleets, They require suppliers who have financial underpinnings and have the capability to deliver quality product on time. After all, it's disruptive to change suppliers, especially given complexities in purchasing service And at the same time support expansion of lithium adoption across their fleets, which happens over a multiyear period. And if you recall from last year, we uplisted on the NASDAQ Capital Market in August 2020, including raising $12,400,000 in equity capital.
Turning to our financial results for fiscal year 2021. We increased revenue by 56% from the prior year to a record $26,300,000 This growth reflects continued momentum from the prior year Despite the headwinds of supply chain disruption and the continued impact of COVID-nineteen, We launched our next generation battery packs with a high volume Class 3 in rider product line And there has been a very positive response to the quality and performance of these new packs. Deliveries of several of our product lines were initiated with the world's largest meat processor Along with several major customers and industries including paper products, chemical manufacturing and packaging, We made good progress acquiring these and other new major customers and are currently working on bringing on more. We are experiencing the impact of growing awareness and acceptance of the lithium value proposition And the reputation of Flux Power to satisfy Fortune 500 customers. We've resumed deliveries to a global airline that were transferred during the disruptions caused by COVID And a partnership agreement was signed with Parts Material Handling adding another sales channel.
And we initiated deliveries of a new proprietary high voltage battery pack to a prior Provider of autonomous electric shuttle vehicles. All of this revenue expansion resulted in surpassing 10,000 battery packs in the field as of this past July. We believe This is an indicator of our market leadership in the lithium powered material handling and ground support equipment sectors. The widely reported supply chain disruption has caused us slower deliveries from vendors, Especially lithium ion battery cells and scarcity of electronic components. Pricing has skyrocketed For steel and shipping costs, we have experienced delays in meeting some customer delivery dates, but have not lost any orders Only at deferred delivery timing.
This is evident in our current backlog of open sales orders, which now totaled over $18,000,000 Fortunately, our packs and company orders for new forklifts, Which are also experiencing delays mitigating misalignment of delivery timing to customers. Increased pricing, steel, shipping and some other components have put pressure on us, causing us to recently announce price increases. Material handling sector has seen price increases announced broadly In response to the widespread raw material increases. This component Pricing pressure has had some adverse effect on our gross margins, especially since last June. And while it is unlikely that supply Chain delays and increased pricing will abate suddenly, we are seeing indications that recovery will be coming.
And finally, COVID-nineteen continues on with the Delta variant. However, we follow California Department of Health and CDC guidance and have had no production We made substantial progress on our gross margins during fiscal 21 increasing from 13% last year to 22.1% this year. We continue implementing specific plans to achieve 30% gross margins with intent to target 40% after that. Jack will provide more detail on gross margin and operating expense shortly. We also made progress on technology with the introduction of our telemetry product, which offers real time reports on battery pack state of health for access by customers located anywhere at any time.
Our telemetry has been enthusiastically received by customers to embrace the added value to managing their fleets. We do have 3 patents in process that support our state of the art DMS or battery management system. Our new feature capability with that is expanding and represent a platform for offering power by the month In a bundled package of energy for fleets. And we added Eve as a supplier, a highly regarded Chinese battery cell manufacturer to ensure timeliness and quality of We continually research and assess emerging cell technologies and potential cell suppliers. Our fiscal 2021 Q4 revenue of 8,300,000 increased 33% from $6,300,000 last year, representing our 12th consecutive quarter of year over year revenue increases.
We made progress during the quarter on initiating Shipments of recently developed 400 volt battery packs for autonomous electric shuttle vehicles as I mentioned earlier. We believe there's an opportunity for applications for high voltage equipment, including larger capacity forklifts and material handling, especially those located at ports of entry, which supports our goal of offering a full line of energy storage solutions. At airports and ports of entry are reporting goals of carbon reduction, Which favored lithium adoption. We believe that achieving our goal of leading lithium ion adoption We'll be enabled by our ongoing efforts to expand technology leadership and synergistic partnerships with customers and suppliers. As I had mentioned, our telemetry products are currently leading the way with Real time reports via the cloud.
And examples of our partnerships include Dean Global And their solar powered EV charging stations, our material handling and their forklifts, Our private label with the top 5 forklift OEM and e battery cell manufacturer. We continue to leverage our reputation to expand relationships and build scale. I'll now turn it over to Chuck Scheibe, our Chief Financial Officer. Thank you, Ron. As Ron mentioned, we as you guys know, we uplifted on Navtech last year, which elevated our ability to raise capital, Increased shareholder base, expand our messaging and exposure.
We raised over $12,000,000 in capital and Secured a $50,000,000 shelf registration, including a $20,000,000 ATM at the market Facility, which we've utilized to raise smaller and lower cost equity capital minerals on a very opportunistic basis. We converted $5,200,000 of debt to equity, which eliminated all debt On our balance sheet, we further strengthened our capital structure and positioned for continuing our strong business growth. Additionally, we secured a working capital line by Silicon Valley Bank and that they're available to Sports services and purchasing from large orders. Turning to gross margin, it improved in fiscal year 2021 from 13 to 22.1 percent reflecting benefit of our sourcing initiatives, Lower prices from higher volume purchasing and rolling out some design cost reductions. The supply Chain disruption that we talked about and price increases in the past months have put pressure on margin.
And we're working I'm passing some of those on the price increases as mentioned earlier. While it's difficult to predict when the supply chain issues will abate, We do see indications of some mitigation in the coming months. Our ongoing gross margin improvement Efforts including a major platform we designed that is already underway that will benefit most all of our products lineup. We believe our specific margin initiatives will drive us to 30% margins in the coming year. We will then continue to pursue 40% margins implementing further actions under review.
Our working capital needs, especially supporting inventory management is currently a challenge. These pressure points from market conditions are accelerating the maturity of our processes as we expand our business. We are focused on improving inventory turns to lessen working capital demands. Operating expenses increased for fiscal year 2021, but decreased as a percentage of revenue from 87% to 73%, reflecting productivity gains as part of our long term strategy. Our operating Expenses reflects an infrastructure not for our current $26,000,000 revenue business, Built to deliver Fortune 500 customer quality, timeliness and responsiveness that is leading us to $100,000,000 plus annual revenue and beyond.
To build scale, some expenses need to proceed revenue. Our growth momentum continues off of our recent 50% to 60% annual revenue growth rates. We do not give guidance yet as it is Difficult to forecast the pace of growth when we're growing as quick as we are. Our cash flow breakeven target is a major priority As we are committed to profitability, yet aggressively growth to exploit the current lithium iron opportunities. We believe the growth opportunities for lithium ion batteries and material handling and adjacent energy Stores' sectors continues to represent ever increasing momentum, enabling building scale and just further improvement margins as we continue.
Now I turn it back to Ron. Thanks, Chuck. To conclude our remarks, I would like to say I'm proud of our grit and persistence in facing the headwinds of the supply chain disruption and COVID that we've seen. These pressure points while aggravating are making us a stronger company, Increasing the pace of maturing our processes company wide, finding By necessity, new and innovative solutions. Such fallout includes for working capital efficiency, sharper focus on design cost opportunities and operating cost reductions.
We believe we have leadership in lithium PAC sales in the United States for material handling and ground support equipment. And we are relentless in our strategy and execution to keep that leadership As the lithium ion battery segment continues its double digit growth. And that concludes our prepared remarks. Now I will turn it over to questions.
Thank you, sir. We have your first question from Alan Klee. Your line is open.
Yes. Good afternoon. You mentioned that you're implementing price increases. Can you tell me When that's going to go into effect roughly and to what extent all else being equal that The impact that would have on gross margins. And then you also had mentioned that you saw Some signs that the I forget the wording that margins could maybe alleviate, but there could be some abbreviation.
Could you talk about what that is? Thank you.
Yeah. Sure, Alan. Thanks for the question. Yes. We have an increased price for a couple of years.
And what's going on overall everywhere you turn their price increases We've seen them many others in this sector we see the same thing. We're finally catching up. We announced some price increases earlier this month. Of course, as is customary, Any of our purchase orders we have are held harmless from that, but our bidding and New sales we're going after will include those price increases, which cover most of For product lineup. So given there is a lead time in the sales, so we don't expect to see a significant impact of that Beginning of the calendar year.
And we think that That is being well received generally and is important To maintaining our position and also competitiveness in the marketplace. Your other question gross margin alleviation, I'm not sure what you meant by that. Could you clarify that, Alan?
I'm sorry. You mentioned something that some of the pressures you were seeing on Costs and maybe supply chain might be alleviating in the somewhat near term. That's what I was Referring to if you could go into some detail on that.
Yes. Yes. Steel prices have doubled, tripled. And While all of that isn't passed through to us, a big chunk of it is. We don't see steel prices plummeting.
We think it's going to happen slowly or at least Not quickly put it that way. I don't think anybody has a crystal ball in steel prices. We talked to a lot of people, our sourcing Our folks talked to a lot of people and we're just going to have to grit through it. The other one is electronic components. A lot of those components are smaller dollar components, but You've got to have them.
Our sourcing people continue to chase sourcing of components all over the world like Many other companies are doing so. So that's going on. Another one is the shipping. If you Read The Wall Street Journal this morning as they talked to the front line front page article, 60 ships backed up out of ports of Long Beach and LA. Transit times going from What had been under normal times 40 day transit to now up to 80 days.
So That back up there at the ports certainly backs up delivery times increases inventory level. All of this increased the cash demands on working capital management. We see this getting through. We've seen that pressure on gross margin really beginning Last in particular last June as our suppliers had That's George, a lot of that up until that point, but it's that became too much and passed on to us. So it is a bit of a crystal ball as to the extent When and how much that gets alleviated, but we feel our pricing has covered us in a reasonable manner, in a judicious manner.
And we will certainly do our very best To continue to manage that.
Thank you. I had a few financial questions and then I'll jump back in the queue to ask A couple more after, but I was wondering when the 10 ks would come out and some numbers that I would like from there that maybe you could share What the stock based compensation was expense for the quarter? Where do you see the share count now? What CapEx was for the quarter? And any view on with CapEx and stock based comp of Maybe directionally how they may go next year relative to where they were in your prior fiscal year?
Thank you.
Yeah. Chuck just I'm going to turn this over to Chuck to give some more color, but just released the K shortly before this call started. So that's out there. The decay should be out there, Alan, and we can talk about that later in terms of getting into super details if you want In terms of what decay is what you're not finding on decay.
Thank you.
Yes.
We have your next question from Craig Irwin. Your line is open. Hi, yes. Thanks for taking my questions. So Chuck, can you give us the cash and debt at June 30 just for our models As we're waiting for the 10 ks.
No. I'm sorry. The cash and debt of June 30. The cash indebted? No, the cash and debt.
Debt. As of January, there was 0 cash and $4,700,000 in cash.
Okay. Excellent. So then one of the items I wanted to talk about was research and development It was up by about a third sequentially. You guys hadn't signaled big increase in sort of the number of packs you're sort of buying Or anything out there. Can you maybe talk us through the programs that you're funding?
Are A good portion of these items sort of one time in nature where you're using external consultants Like you do sometimes for your pack qualification etcetera. How can we think about R and D spending over the next couple of quarters?
Yes. Jerry during this past year, we did use external source to help design our In new in rider pack that was a full new redesign. There were there was really there were a lot of synergies in that whole effort As well, we had to spend money on UL listing of most of our lines Because we've converted from CAL cells to E cells, so there's a minor amount of engineering modification along with UL listing. So that has we've experienced that for quite a few number of months. We have a little bit more I have a lot to do.
We will always be Focused with R and D expense on leading being a leader in technology And also the performance of our products, so it may involve Bringing on some new products either in some few of the sectors we haven't covered in forklifts Or in related matters such as that 400 volt high voltage product we have as well. So we see continued effort in R and D in the coming Quarters, as you know, we typically don't give guidance on that, but I'd say We those are reflect an ongoing effort to continue To be a leader of product in this sector, which our Fortune 500 companies expect us to do.
Excellent, excellent. Thank you for that. So another question that I had that maybe we can discuss a little bit more detail is, the airport ground equipment market seems like it might be Position to take off given that airline traffic is rebounding out there. This has been an area where you've had some really exciting activity over the last Couple of years. Can you maybe update us on your customer conversations?
Are some of the customers where you were actively engaged previously maybe coming back? And is there a possibility for a broader swath of customers to execute orders with Flux over the next few quarters?
Yeah. Yeah. We're just happy to see orders coming back. Our largest customer in GSE is one of the largest airlines in the world and they're back ordering, We're building. We're shipping.
They're continuing on their quest to convert to lithium, which is exciting. And Without giving names, they're certainly one of the leaders known as one of the leaders in technology in the airline business. We work Through a distributor who is very knowledgeable in the airline business. They have been Having our packs demoed by a number of the airlines over the past couple of years, of course, COVID had Slow down really to really turned off the spigot with that so to speak. But the indications are There are going to be more airlines again adopting lithium.
We don't can't give out any guidance on that. And but we see that. It's I don't want to say it's inevitable. Nothing's inevitable. All these airlines and airports are all faced with clean tech sustainable mandates and Lithium really does provide an answer to that.
Carbon reduction and Emissions and avoiding lead asset issues at airports so and diesel and others. So It's coming and we are certainly ready to take that on.
Excellent. Last question if I may. Inventory was up a couple of $1,000,000 sequentially. I can understand if you're maybe doing something intentional there Given supply chains are stretching out. But can you talk us through inventory?
Do you expect this to stay high for the next few quarters? And is there maybe a large finished goods component? Or is this mostly raw material work in process?
Most of it is raw. We are building up more finished goods than we have in the past. But we're We're becoming ourselves. That's our job as a company is to buy inventory because we don't know what's happening right now. So we're going to run a little Larger on inventory.
Hope to drop that down in the next couple of quarters. But yes, it's going to be there for a little bit because That's our job is to protect our customers.
I would agree with that. Congratulations on that strong revenue result Despite this challenging environment, it's pretty impressive. Thanks.
Yeah. Thanks,
We have your next question from Adam Eagleston. Your line is open. Thank you. Hello, gentlemen.
Hey, how are you doing?
Good, doing well. Hey, a few questions on the capital raise. Can you share Who the investors were? Strictly Financial, any of these strategic partners? Maybe any color you can provide there would be helpful.
Yes. Hi, Adam. This is Ron. It was all institutional players, half a dozen or so. And we no, we don't share their names as it's customary, but it was nice to get continue to get more players which provide a lot of stability and credibility.
So we had Really new ones this time, so it's good to add to that. But we did that raise fairly quickly. The institutional players were there ready and able and we actually raised a little more than we thought. Terms were good. Interest was strong.
Okay. That helps.
That helps. Why this size at this time? And how did you think about the cost of fiscal
year. Yes. No good question. You had a lot of talk about that. That's it.
We didn't think actually we'd have to raise money at this point as we started working our way through the summer. But as we talked about the supply chain disruption has caused us to require More cash, more in inventory, a number of other uses of cash. And we looked at that as We felt let's go ahead and get something less than $10,000,000 And upon further reflection, Not only we're considered our own operating, efficient and outlook, But certainly the image we present to our large Fortune 500 company that as I mentioned in my words, As we're getting new customers and even the existing customers, they're banking a lot on that, Because this is the transactional business. They're banking on us being their supplier 1,000,000 of dollars of assets Each month, each quarter that get added and for many years. And I think we're well served by having a little more cash than we thought we needed.
The markets have been soft, probably oversold, But we didn't want to be jumping in and out of the market over the coming months because we're growing very rapidly. Our kind of growth Can need capital and we don't want to slow the train down. So it was part of Several of those concerns and strategies, because we are very confident in Continuing this aggressive growth. We're adding large Fortune 500 companies all the time. We need to present to them that we're just not doing some transactions here.
We're somebody that has the bandwidth, the foundation To be a major supplier to them as adoption of lithium ion Battery packs continues to expand and gain momentum. Hope that helps.
I agree. And we are we continue to be impressed with the strong top line growth and understand the need to have certain level of gravitas for these Fortune 500 companies. That still didn't quite answer the question about what Cost of capital was at this point. Also I would ask given that a lot of this was related to the supply chain and we understand those challenges and commend you for navigating those. There is if I recall a line of credit that's available for those purposes as well that might have been less painful.
We can all weigh those all day long. You've got 8 ks out there. You've got the 10 ks. You can figure out what the cost of capital was. It's all disclosed.
And as a company, we make our choices as to what the best thing was So, along with our Board, I don't know what else I don't know what you're looking for in terms of what the cost of capital was specifically. Yes. There's another element of this that comes to mind. Adam, this is we as we sit here and talk about it. Cost of debt is cheaper than cost of equity, of course.
We could have gone with debt. But I think One of my concerns, particularly after my days at Ford Motor and Ford Credit, we need to ensure that we have some Strengthen our capital position. And I think for us right now at this phase of our development That equity really represented a better positioning of this company going forward.
Again, perhaps at 7% which you said reflected strong interest, clearly the reaction of the market based on the structure With the warrants invested immediately, the market is telling us a different story, respectively.
Well, I think we went out at 7 with more recovery to do Black Scholes and stuff. That really gets value in the market about 6. It's trading a little less than that. A lot of the input we get from bankers is that when you're going out for capital, there's the optics of dilution and there's some softness in that. So the bankers we talked to feel that this was a successful race not just bankers that did the deal for So I'm sure there's several sides of A perspective on this, I appreciate that.
Okay. We have your next question from Allen Klee. Your line is open.
Yes. Hi. So the sequential growth in your backlog was quite good. It went from I think in July it was around $13,700,000 now $18,000,000 plus. I'd be interested in if there's if you can talk about it, there's What's in that of is there certain areas that are over weighted?
And then just bigger picture, how you think about The adoption of lithium ion over the next year of The ability of it to continue to gain mind share and to gain market share and where you think you stand competitively and how competitive it is? Thank you.
Yes. Good, Alan. Yes, a couple of items in there. 1, The backlog the strength of that backlog is built on the larger packs not the smaller walkie pallet jack We're getting we've been getting very significant orders with our tax for the larger Class 1 and Class 2 forklifts And also with the reemergence of the GSE packs as well has also added significantly To that, which we're glad to see, because as we move towards increasingly An increasing mix of larger packs, there's typically a bit higher margin on those. And The large companies that we're dealing with have strong demand for those.
So I think you'd see that shift. In terms of the overall demand for lithium, I said it before a few years ago, we were trying to Explain the companies why they would want to move from lead acid or propane to lithium. Now You don't have to do that. It's pretty self evident out there. There's enough larger companies.
Everybody's watching this. They understand it. The literature is out there. Collados are out there. Experience of customers they know is out there.
We see it continue to increase the PSD and CleanTech Momentum coming out of the federal government certainly adds Fuel to the fire with that. And so we see it abundantly clear in material handling and of course in our Other adjacent segments as well. I don't know that anybody has a particularly good forecast of that Except that you can see how we've been growing. We have all really half a dozen or more Companies that are offering similar products to us, about half of them are more focused on regional activity. We're Getting UL listing 3rd party certifications and building scale as their focus.
We have a few competitors that have more of a similar focus to us. We pride ourselves and our reputation Being one that these large companies can trust and just not to ship a pack that might work, Someone they can trust to deliver on time, service on time, ease of doing business And work with to in the multi month, multi year effort ongoing effort To convert their fleets to lithium, get straight answers with and people who are responsive. So that's our goal in filling this increasing demand and a little bit on the competition As well, I talked to nearly every head of our competitive group. I always wish them well. I wish them to Good products out there.
We want to continue to give lithium a reputation that it deserves. It's got a computer. It's It's got chemistry that the other sources just can't match. Lithium can run circles around them from performance, Allowing costs and safety as well. Does that help?
Thank you.
Thank you very much. One last question. Telematics, could you give us an update? And Since I know that this line of business is much higher margin, so I'm curious if we should think about this becoming kind of a material impact of your business at some point in the near term future? Thank you.
Yes. Telematics, we're very excited about that. Telematics is Everywhere in the economy. We had a version that our engineers use when they were initially rolling out new packs over the past 3 or 4 years and we decided to commercialize it and offer it as an option. And we're very, very excited about it.
We're the only competitor out there that we know of that offers real time reports that transmit data from our chips, from our computer in our battery pack via Wi Fi or cellular to the cloud. And from there we can provide any customized array of real time info to our customers also to our engineers. We've had cases where we download a fix to some issues before the customer even knew about it. So it's great. And because we're using software and Transmission anytime, anywhere with GPS capability.
We see the Potential use of this is a benefit of what we can give the customer and the different types of customers and our issues just unlimited opportunity. So we see it as the platform to be able to Expanded the different billing arrangements as they made service arrangements, which is particularly interesting because The big fleets we deal with have a premium concern on keeping their equipment going constantly, Which is kind of code for they need white glove service. And these tools we have here Really provide that and really represent a source of it's not something you give away for free mainly because there's such terrific value there. So we Yes. We want to offer that value and software based and Also to more fully enhanced customer satisfaction as well.
So we see Increased proliferation of that and evolution of that as well. Okay.
That's great. Thank you so much.
Sure, Alan. Thanks.
I'm showing no further questions at this time. Presenters, please continue.
Okay. If there are no further questions, thanks everybody for listening in. It's an exciting time here at Flux, Exciting time in the economy as you all know. But for us here at Flux, very excited about the growth we have, the customers we're bringing on and the future we have. So Chuck and I thank you once again.
Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Presenters, please stay on the line.