Exchange: NASDAQ | Sector: Industrials | Industry: Electrical Equipment Parts
Q3 2024
Published: May 13, 2024
Earnings Highlights
Revenue of $14.46M down 4.2% year-over-year
EPS of $-0.18 decreased by 50% from previous year
Gross margin of 27.8%
Net income of -3.01M
"“The private, we have another OEM private label and we've had for 4 or 5 years. This is going to be equal to or bigger than that. So it really provides very consistent, almost monthly, definitely quarterly, orders.”" - Ron Dutt
Flux Power Holdings Inc (FLUX) QQ3 2024 Results Analysis: Margin Expansion, OEM Private-Label Momentum, and Path to Scale in Lithium-Ion Power
Executive Summary
Flux Power reported a mixed QQ3 2024 performance characterized by a modest sequential revenue decline and a continued negative bottom line, underscored by a 30% gross margin and a -$3.0 million net loss. Revenue for the quarter was $14.57 million, down 4% YoY and 21% QoQ, with gross profit of $4.03 million and a gross margin of 30.0%. The company posted an EBITDA loss of $1.94 million and a net loss of $3.01 million (EPS -0.18). Backlog stood at $18.5 million as of May 6, 2024, signaling a level of demand visibility even as near-term revenue prints remained lumpy due to seasonality and higher interest rate headwinds affecting order timing. Cash burn persisted, with net cash used in operating activities of $0.23 million for the quarter and a nine-month cash burn of $4.3 million, leaving cash on hand of $1.25 million at quarter-end and relying on revolver availability under Gibraltar’s credit facility (remaining $3.2 million on the line) and a $2 million subordinated facility. Management emphasizes revenue growth and profitability as primary priorities and points to a string of catalysts designed to lift margin and growth, including private-label OEM programs, heavy-duty product introductions, expanded field sales, and the roll-out of SkyBMS telemetry and second-life deployments. The management commentary also signals a potential improvement in the macro backdrop in the second half of 2024, though the company maintains no formal guidance.
Key thematic takeaways include (1) ongoing margin normalization driven by cost-out initiatives (notably lower battery-pack costs and lean manufacturing) with a long-term target of >40% gross margin, (2) multi-channel topline expansion via a larger direct and partner sales force, private-label OEM programs, and new product launches (80V high-power packs for larger fleets, heavy-duty variants, and Class II/Class I offerings), and (3) strategic bets on adjacencies (DoD opportunities, second-life deployments, and nationwide telemetry rollouts) to build scale and customer loyalty. While the near-term financials remain cash-flow negative, Flux emphasizes that the underlying demand for lithium-ion migration is intact and that the revenue trajectory should improve in H2 2024 as these initiatives scale.
Investment implication: Flux is at a critical transition point where gross margin leverage and operating leverage could unlock a path to cash-flow breakeven if the planned sales expansion, OEM partnerships, and cost-out programs translate into higher volumes and improved mix. However, investors should monitor liquidity, covenant flexibility with lenders, and the pace of backlog conversion as real near-term liquidity and profitability take shape.
Key Performance Indicators
Revenue
14.46M
QoQ: -21.19% | YoY:-4.18%
Gross Profit
4.03M
27.84% margin
QoQ: -25.55% | YoY:-14.71%
Operating Income
-2.57M
QoQ: -475.39% | YoY:-116.68%
Net Income
-3.01M
QoQ: -235.38% | YoY:-107.96%
EPS
-0.18
QoQ: -200.00% | YoY:-50.00%
Revenue Trend
Margin Analysis
Key Insights
Revenue: 14.57; YoY change: -4.18%; QoQ change: -21.19% (revenue softness amid slower capital spend in target markets).
Gross Profit: 4.03; YoY change: -14.71%; QoQ change: -25.55%; Gross Margin: 30.0% (stable vs year-ago, supported by cost-out initiatives).
EBITDA: -1.94; YoY change: -in line with operating performance; Adjusted EBITDA: -1.40 (as cited during call as the onetime warranty impact previously discussed).
Net Income / EPS: -3.01 / -0.18; YoY change: -107.96%; QoQ change: -235.38% (reflects operating losses and higher interest/expenses).
Financial Highlights
Key QQ3 2024 metrics and context (USD millions unless noted):
- Revenue: 14.57; YoY change: -4.18%; QoQ change: -21.19% (revenue softness amid slower capital spend in target markets).
- Gross Profit: 4.03; YoY change: -14.71%; QoQ change: -25.55%; Gross Margin: 30.0% (stable vs year-ago, supported by cost-out initiatives).
- Operating Income: -2.57; YoY change: -116.68%; QoQ change: -475.39%; Operating Margin: -17.79% (reflects scale-up investments and top-line pressure).
- EBITDA: -1.94; YoY change: -in line with operating performance; Adjusted EBITDA: -1.40 (as cited during call as the onetime warranty impact previously discussed).
- Net Income / EPS: -3.01 / -0.18; YoY change: -107.96%; QoQ change: -235.38% (reflects operating losses and higher interest/expenses).
- Backlog: 18.5; May 6, 2024 (timing delays from OEMs and higher lead times for new lines).
- Cash/Liquidity: cash and equivalents 1.25; net cash used in operating activities -0.23 for the quarter; nine months ended Mar 31, 2024 net cash from operations -4.30; revolver availability: $3.2m on Gibraltar facility; $2.0m on Cleveland subordinated line; total debt: 16.17; net debt: 14.92. Note the company filed a going-concern note in the 10-Q due to covenant considerations and projected liquidity needs.
- Backlog quality and mix: backlog channels include OEM private-labels and high-demand heavy-duty product lines; management anticipates ongoing demand supported by fleet migration to lithium.
- Cash flow cadence: Free cash flow -0.479 (per quarter/period data provided); cash burn remains a key metric to monitor over the next several quarters as sales expansion progresses.
- Notable operational metrics (from ratios): gross margin 30.4% (rounded); operating cash flow per share -0.014; price-to-sales multiple 4.98; debt-to-capitalization 0.749; cash conversion cycle is elongated given DIO (180 days) and DSO (65 days).
YoY and QoQ analysis indicates a consistent margin opportunity (cost-out initiatives and pack-cost reductions) but weaker revenue prints this quarter. Management’s commentary emphasizes that the drag is more from order timing and macro headwinds than fundamental demand erosion, with a back-half recovery implied by management and macro indicators cited on the earnings call.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
14.46M
-4.18%
-21.19%
Gross Profit
4.03M
-14.71%
-25.55%
Operating Income
-2.57M
-116.68%
-475.39%
Net Income
-3.01M
-107.96%
-235.38%
EPS
-0.18
-50.00%
-200.00%
Key Financial Ratios
currentRatio
1.1
grossProfitMargin
30.4%
operatingProfitMargin
-15.3%
netProfitMargin
-18.3%
returnOnAssets
-7.18%
returnOnEquity
-48.7%
debtEquityRatio
2.99
operatingCashFlowPerShare
$-0.01
freeCashFlowPerShare
$-0.03
priceToBookRatio
13.28
priceEarningsRatio
-6.81
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ3 2024 earnings call:
- Strategy and growth focus: Ron Dutt emphasized that Flux’s two priorities are revenue growth and profitability, noting ongoing initiatives to expand sales, marketing presence, and new product launches to drive a higher-growth trajectory (as stated: “our 2 high priorities are revenue growth and reaching profitability”).
- OEM partnerships and private-label program: The company disclosed the launch of a private-label program with another top-tier forklift OEM and indicated the program could be “equal to or bigger than” their existing private-labels, highlighting the continuity and scale of monthly/quarterly orders from Top-5 OEMs. This is a core driver for recurring revenue with a predictable cadence.
- Expanded product and technology roadmap: Flux outlined heavy-duty product introductions, 80-volt applications, second-life battery deployments, SkyBMS telemetry nationwide rollout with a Fortune 50 customer, fast-charging prototype testing, and AI-enabled product support tools. These initiatives are designed to improve margin, working capital, and stickiness with large fleet customers.
- Sales expansion as a near-term catalyst: The company plans to double or triple its sales force over the coming year, stressing that the new hires come with industry networks and capabilities. The management commentary suggested meaningful contribution could begin within 3-6 months for select hires, with longer-term ramp expected.
- Margin trajectory and cost-out: Management maintained a long-term gross-margin target above 40% and cited benefits from lower battery-pack costs (China pack cost reductions) and lean manufacturing initiatives as key drivers to close the gap to the target. They expect margins to improve as volumes rise and cost structures normalize.
“The private, we have another OEM private label and we've had for 4 or 5 years. This is going to be equal to or bigger than that. So it really provides very consistent, almost monthly, definitely quarterly, orders.”
— Ron Dutt
“I fully expect to at least double, possibly triple, that over the coming year.”
— Ron Dutt
Forward Guidance
Assessment of Flux Power’s forward outlook based on management commentary and industry dynamics:
- No formal numeric guidance provided; management signaled a potential improvement in the back-half of calendar 2024 amid an improving manufacturing ISM backdrop and forecasted end-market demand for lithium-ion solutions. The phrase “signs of potential abatement of the headwinds later this calendar year” suggests a recovery trajectory as higher interest rates subside and capital expenditure budgets normalize.
- Key catalysts and milestones to watch:
- OEM private-label sales ramp and diversification into large fleets (recurring revenue, improved visibility).
- Rollout and monetization of heavy-duty 80-volt platforms across more product lines with higher gross margins.
- SkyBMS telemetry expansion and second-life initiatives unlocking longer customer lifecycles and potential incremental monetization (subscription/services).
- DoD opportunities and adjacencies as testing and bids proceed (military battery opportunities could open material-scale addressable markets).
- Ongoing cost-out: further reductions in pack costs from Chinese suppliers and lean manufacturing improvements to push gross margins toward or beyond the 40% target.
- Investment risks to monitor: continued macro headwinds and higher-for-longer interest rates delaying capital equipment decisions; liquidity constraints, covenant compliance with lenders; and the pace at which backlog converts to realized revenue in a less certain macro backdrop.
- Judgement: The likelihood of a meaningful near-term improvement depends on the speed of sales-force ramp, execution of the OEM private-label program, and the stated gross-margin improvement framework. If Flux can convert backlog into recurring revenue while maintaining cost discipline, the long-term margin target (>40%) is plausible, supporting a more favorable investor risk-reward profile.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FLUX Focus
27.84%
-15.30%
-48.70%
-6.81%
AEIS
35.80%
-2.95%
-1.28%
-66.25%
EOSE
-30.08%
21.85%
-11.60%
4.97%
ESP
25.00%
13.20%
2.62%
15.33%
HAYW
49.70%
14.70%
1.20%
49.76%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Flux Power stands at a pivotal inflection point. Near-term results reflect a continued macro-driven revenue cadence with a meaningful operating loss and cash burn, but the company has several clearly defined catalysts that could drive a higher-visibility revenue trajectory and margin expansion in 2H2024 and into 2025. The OEM/private-label program, expansion into heavier-duty, higher-margin platforms (including 80V applications), and the SkyBMS/Ther telemetry ecosystem position Flux to deepen customer relationships and improve lifetime value. Management’s long-run margin target (>40% gross margin) appears plausible if cost-outs materialize and volume expands, aided by cheaper battery packs and lean manufacturing improvements. The lack of formal near-term guidance adds execution risk, but the company’s backlog and pipeline, alongside DoD adjacencies and adjacent market exploration, offer a credible growth runway.
Investment thesis: BUY or HOLD (depending on risk tolerance) given the following balance of risks and catalysts. If Flux can demonstrate sustained backlog-to-revenue conversion, improve gross margins toward the 40%+ target, and steadily delever while maintaining flexible financing arrangements, the stock could re-rate toward higher multiples driven by improved profitability and scale. Key near-term milestones include: (1) clearance and execution of the private-label OEM program, (2) rapid ramp of new sales hires and conversion of larger fleet opportunities, (3) acceleration of heavy-duty and 80V product introductions, (4) progress on DoD opportunities and pilot programs, and (5) evidence of improving working capital efficiency through SkyBMS and second-life initiatives. Watch liquidity, covenant relief progress, and the pace of backlog conversion as primary risk factors.
Key Investment Factors
Growth Potential
- OEM private-label program with top-tier global OEMs to generate steady, higher-visibility revenue and reduce customer concentration risk.
- Heavier-duty, higher-margin product launches (80V platforms) expanding addressable markets within large fleets and multi-shift operations.
- Second-life and stationary storage applications creating incremental revenue streams and improved asset utilization.
- SkyBMS telemetry rollout and AI-enabled support services enabling higher switching costs and recurring revenue through software and services.
Profitability Risk
- Near-term liquidity risk given operating loss, negative free cash flow, and covenant negotiations; going-concern note in the 10-Q.
- Revenue volatility driven by OEM production schedules and macro headwinds impacting order timing and backlog conversions.
- Dependence on lithium-pack pricing and supplier costs; potential pressure if pack pricing rebounds or supply chain disruptions occur.
- Competitive landscape and potential delays in OEM partnerships could dampen the pace of gross-margin expansion and revenue growth.
Financial Position
- Cash balance of $1.25 million and a nine-month net cash burn of $4.3 million; reliance on revolver facilities (Gibraltar line with $3.2 million remaining) and a $2 million subordinated line.
- Total debt $16.17 million; net debt approximately $14.92 million; debt-to-capitalization and interest-coverage metrics indicate leverage exposure in a cyclical end-market.
- Backlog of $18.5 million provides near-term revenue visibility but requires execution to convert into cash flows; covenant considerations may constrain near-term liquidity until revenue recovers.
- Balance sheet highlights include total assets $36.78 million and total liabilities $31.37 million; stockholders’ equity around $5.42 million (fragile balance sheet for a growth-stage industrials tech-enabled company).
SWOT Analysis
Strengths
Open-backlog of $18.5 million as of May 6, 2024 provides near-term visibility.
Strong gross-margin trajectory and ongoing cost-outs (target >40% long-term).
Private-label OEM programs with top-tier forklift OEMs enable recurring revenue and higher ASP stability.
Large, multi-fleet customer base with intent to migrate to lithium-ion solutions; perceived value in performance, lifetime cost, and asset management.
Technology and data capabilities (SkyBMS telemetry, AI-enabled support) support stickiness and fleet optimization.
Weaknesses
Near-term profitability under pressure with quarterly net loss and cash burn; liquidity dependency on lender facilities and covenant relief.
Revenue softness in QQ3 2024 with YoY and QoQ declines; reliance on OEM lead times for order timing and backlog realization.
Limited near-term cash reserves and working capital constraints could limit aggressive growth initiatives.
Backlog quality is sensitive to customer delivery schedules and external macro factors.
Opportunities
Expansion into heavy-duty, high-voltage (80V) applications and adjacent verticals (airport GSE, military DoD) to broaden addressable market.
Scale of private-label OEM arrangements and broader distribution partnerships to accelerate revenue growth.
Second-life battery use and stationary storage deployments to monetize end-of-life packs and extend product lifecycles.
Nationwide telemetry rollouts (SkyBMS) and AI-enabled product support as recurring revenue streams.
Threats
Macroeconomic headwinds and higher interest rates continue to pressure capex cycles for fleet updates.
Competition and potential supplier cost volatility (battery packs) impacting margins and pricing power.
Covenant risk and liquidity constraints requiring renegotiation or earnings volatility could affect strategic execution.
Backlog-to-cash conversion risk if lead times and OEM delivery schedules remain elongated.
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