Flux Power Holdings, Inc. (NASDAQ:FLUX) is a leading developer of advanced lithium-ion energy storage solutions for the electrification of commercial and industrial equipment. With over a decade of experience in the industry, the company has established itself as a reliable supplier, providing innovative products and services to a diverse customer base across various sectors.
Business Overview and History Flux Power Holdings, Inc. was incorporated in 2008 in the State of Nevada, with its operations conducted through its wholly owned subsidiary, Flux Power, Inc., a California corporation. The company's journey in the energy storage sector began in 2010 when it started developing lithium-ion applications for the advanced energy storage market, initially focusing on products for automotive electric vehicle manufacturers.
Over the years, Flux Power has successfully leveraged its experience in lithium-ion technology to expand its portfolio of industrial and commercial energy storage packs. The company's engineering expertise has enabled it to develop competitive solutions that meet the evolving needs of its customers across various sectors, including material handling equipment, airport ground support equipment (GSE), and other specialized applications.
A significant milestone in Flux Power's history was obtaining UL Listing for its energy storage packs, which the company believes provides it with a substantial competitive advantage. This certification assures customers that Flux Power's technology has undergone rigorous testing by an independent third party, further solidifying its position in the market.
Flux Power has also made significant strides in gaining industry recognition and approvals. The company has secured original equipment manufacturer (OEM) approvals from top global lift truck manufacturers, including Toyota Material Handling USA, Crown Equipment Corporation, and The Raymond Corporation. These approvals have been instrumental in expanding Flux Power's market presence and customer base.
Despite its achievements, Flux Power has faced challenges in recent years. In 2023 and 2024, the company had to restate previously issued financial statements due to material accounting errors related to inventory management and revenue recognition. This situation led to increased costs, loss of investor confidence, and potential legal and regulatory issues. Additionally, the company experienced delays in new orders due to corresponding deferrals of new forklift purchases, which were attributed to lower capital spending in its target market sectors and interest rate variability affecting selected large customer fleets.
In response to these headwinds, Flux Power has implemented various cost-saving and profitability improvement initiatives to strengthen its financial position and operational efficiency. The company's modular and scalable design approach allows it to tailor its products to meet the specific needs of its customers, providing them with reliable, high-performing, and cost-effective alternatives to traditional lead-acid and propane-based solutions.
Financial Performance and Ratios Flux Power's financial performance has been a mixed bag in recent years, with the company navigating various challenges and market conditions.
For the fiscal year ended June 30, 2024, the company reported total revenue of $60.82 million, a decrease of 9% compared to the previous fiscal year's revenue of $66.49 million (restated). The decline in revenue was primarily attributed to delays in shipments to a large GSE customer, as well as declines in material handling revenue as the company's OEM customers experienced lower sales volumes. However, the decline in sales volume was partially offset by shifts towards higher-priced products and certain pricing increases.
Despite the revenue decline, Flux Power's gross profit margin improved to 28% in fiscal 2024, compared to 24% in the prior year (restated). This improvement was driven by the company's strategic initiatives to reduce product costs and optimize its pricing strategies. Cost of sales for fiscal 2024 decreased 14% to $43.59 million, compared to $50.60 million in the prior year. This decrease was directly associated with the lower sales volumes, partially offset by lower average cost of sales per unit achieved through the company's gross margin improvement initiatives, including design enhancements, supply chain optimizations, and other cost-saving measures.
The company's net loss for fiscal 2024 was $8.33 million, compared to a net loss of $7.74 million in the previous year (restated). The increase in net loss was primarily due to higher operating expenses, including selling and administrative costs, as well as increased interest expense.
In the most recent quarter (Q3 FY 2024), Flux Power reported revenue of $14.46 million, a decrease of 4% year-over-year. This decline was primarily due to lower capital spending in the market sectors that Flux Power serves, resulting in shipments of fewer units during the quarter. The net loss for the quarter was $3 million, with operating cash flow of -$4.27 million and free cash flow of -$4.92 million.
Liquidity Flux Power's liquidity position remains a concern, with a current ratio of 0.92 and a quick ratio of 0.37 as of June 30, 2024. The company's working capital was negative $2.33 million, reflecting the need to manage its cash flows and funding requirements more effectively.
One of the key financial ratios worth noting is the company's debt-to-equity ratio, which stood at 82.9 as of June 30, 2024. This high leverage reflects the company's reliance on debt financing to support its operations and growth, which could potentially limit its financial flexibility and increase its exposure to interest rate fluctuations.
As of June 30, 2024, Flux Power had $643,000 in cash and $2.2 million remaining available under its $16 million revolving credit facility with Gibraltar Business Capital, subject to borrowing base limitations. The company also had $2 million available under a subordinated line of credit.
Operational Highlights and Initiatives Flux Power has been actively addressing the challenges it faced in fiscal 2024 by implementing various initiatives to drive revenue growth, improve profitability, and enhance its operational efficiency.
To support revenue growth, the company has been expanding its sales force and implementing targeted marketing campaigns to increase awareness of its product offerings and value proposition among both existing and potential customers. The company has also been focused on diversifying its customer base and exploring new market opportunities, such as the medical supply and defense sectors, to supplement its core material handling business.
In terms of profitability, Flux Power has been diligently working to optimize its supply chain, reduce product costs, and implement pricing strategies that better reflect the value of its advanced lithium-ion solutions. The company has also been investing in the development of new, higher-margin products, such as its heavy-duty battery packs for larger forklift and GSE applications, to capture a larger share of the market.
To enhance its operational efficiency, Flux Power has been automating its manufacturing processes and implementing lean manufacturing principles to improve production quality, reduce lead times, and increase overall productivity. The company has also been leveraging its proprietary battery management system (BMS) and telemetry technology, branded as SkyBMS, to provide customers with advanced fleet management capabilities and improved asset utilization.
Product Portfolio and Market Focus Flux Power designs, develops, manufactures, and sells a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial and commercial sectors, with a primary focus on material handling equipment and airport ground support equipment (GSE). The company's product offerings include a mix of walkie pallet jacks and higher capacity packs for Class 1, 2, and 3 forklifts.
The company's energy storage solutions are designed to be modular and scalable, with three core design modules used in its entire family of small, medium, and large pack forklift products. This scalable approach allows Flux Power to configure its solutions to address a variety of unique power and space requirements across different applications. The company's proprietary battery management system (BMS) works with several battery configurations, providing the flexibility to use battery cells developed and manufactured by different suppliers.
In addition to forklift and GSE products, Flux Power also offers 24-volt onboard chargers for its Class 3 Walkie Pallet Packs, as well as smart wall-mounted chargers for larger applications. These charging solutions are designed to interface with the company's BMS and integrate easily with major chargers in the market.
Risks and Challenges Despite the company's efforts to navigate the evolving market landscape, Flux Power faces several risks and challenges that could impact its future performance.
One of the primary concerns is the company's reliance on a limited number of key customers, with three customers accounting for approximately 78% of its total revenue in fiscal 2024. The loss of any of these major customers or a significant reduction in their order volumes could have a material adverse effect on Flux Power's financial results.
Additionally, the company's heavy reliance on debt financing, as evidenced by its high debt-to-equity ratio, exposes it to interest rate fluctuations and potential covenant violations, which could further strain its liquidity and financial flexibility.
Flux Power also faces supply chain risks, particularly with its single-source supplier for lithium-ion battery cells. Any disruptions or quality issues from this supplier could disrupt the company's production and negatively impact its ability to meet customer demand.
Furthermore, the highly competitive nature of the material handling and industrial equipment markets, coupled with the potential for technological advancements by competitors, could erode Flux Power's market share and pricing power, leading to margin compression and reduced profitability.
Recent Developments and Leadership Changes In November 2024, Flux Power's Chairman and CEO, Ronald F. Dutt, notified the Board of Directors of his intention to retire from his positions upon the appointment of a new CEO. The Board has commenced a search for a new CEO, and Mr. Dutt will remain with the company through the search and transition period.
In September 2024, Flux Power announced that it had identified approximately $1.7 million of excess and obsolete inventory, primarily related to product innovation and design. As a result, the company will restate its previously issued financial statements for fiscal year 2023 and the interim periods of fiscal year 2024.
Industry Trends and Market Outlook The material handling equipment market, which is a key focus for Flux Power, is expected to grow at a CAGR of 6.4% from 2020 to 2024, driven by growth in global manufacturing, e-commerce, and construction. This trend bodes well for Flux Power's core business and growth prospects.
Flux Power primarily sells its products in North America, with the majority of its customers located in the United States. The company does not currently break out financial results by geographic region but may consider expanding its geographical reach in the future to tap into new markets and diversify its customer base.
Recent Performance and Future Outlook In the fiscal third quarter of 2024, Flux Power experienced reduced revenue of $14.5 million, compared to $15.1 million in the year-ago quarter. This reduction in revenue came after their highest quarterly revenue ever of $18.3 million in the fiscal second quarter of 2024. The company's gross margin decreased slightly to 30% in the fiscal third quarter of 2024, compared to 31% in the fiscal third quarter of 2023.
Flux Power's adjusted EBITDA was a loss of $1.4 million in the fiscal third quarter of 2024, compared to a loss of $0.7 million in the year-ago quarter. The company's backlog decreased to $18.5 million as of May 6, 2024, from $25 million a year ago.
While Flux Power did not provide specific guidance, they stated that they see indications of potential abatement of the current headwinds later in the calendar year 2024. The company is focusing on expanding sales and marketing initiatives to secure new customer relationships and support their customers' continued migration to lithium-ion solutions. Additionally, Flux Power is launching new high-demand product models, including heavy-duty models, to address customer demand.
Outlook and Conclusion Flux Power's performance in fiscal 2024 was hindered by the broader macroeconomic headwinds and market conditions, which resulted in delayed customer orders and reduced revenue. However, the company has demonstrated its resilience and adaptability by implementing various initiatives to drive growth, improve profitability, and enhance its operational efficiency.
As the company navigates the evolving material handling landscape, it will need to continue to focus on diversifying its customer base, expanding its product offerings, and optimizing its supply chain and manufacturing processes to maintain its competitive edge. Additionally, Flux Power will need to address its liquidity concerns and high debt levels to strengthen its financial position and provide the necessary resources to execute its strategic objectives.
The company is working to continue improving gross margins, with a long-term goal of exceeding 40%, through strategic supply chain and profitability improvement initiatives, cost reductions, and higher volume purchasing. This focus on margin improvement, coupled with the expected growth in the material handling equipment market, could position Flux Power for improved financial performance in the coming years.
Despite the challenges, Flux Power's deep industry expertise, strong customer relationships, and innovative product portfolio position it well to capitalize on the growing demand for sustainable energy solutions in the commercial and industrial equipment sectors. As the company continues to execute its strategic roadmap, it will be crucial for Flux Power to demonstrate its ability to adapt to market changes, deliver consistent financial performance, and generate long-term value for its shareholders.
The upcoming leadership transition with the retirement of Chairman and CEO Ronald F. Dutt presents both a challenge and an opportunity for Flux Power. The new CEO will play a critical role in steering the company through its current challenges and positioning it for future growth. Investors and stakeholders will be closely watching how this transition unfolds and its impact on the company's strategic direction and operational execution.
In conclusion, while Flux Power faces significant challenges in the near term, its focus on product innovation, operational efficiency, and market expansion provides a foundation for potential long-term success in the rapidly evolving energy storage solutions market. The company's ability to navigate its current financial constraints, capitalize on market opportunities, and successfully manage its leadership transition will be key factors in determining its future trajectory and value creation for shareholders.