Flux Power Holdings, Inc. (FLUX) Earnings Call Transcript & Summary

My name is Ron Dutt, CEO of Flux Power. We develop and sell lithium-ion solutions for industrial and commercial applications. Being on the show is really a pleasure and privilege for me. It really gets out our word. Martyn has very good distribution on this. One of the challenges for companies like ours is to get the exposure and get the highlights and particularly in a crisp way that will resonate with people and they can remember. So it's great alternative to having people crawl through SEC documents or possibly even our website. Martyn has done -- I've done a lot of these. Martyn has done a fantastic job with the energy he brings, the tone. I love the fact that he doesn't give me the questions ahead of time. It sets -- it really provides, I think, a closer -- more insightful look into myself and the company. So I would heartily recommend that. And so thanks a lot, Martyn.

Good morning, good afternoon, good evening, and welcome to Martyn Lucas Investor. It's a double exciting day today. Of course, you all know it's my birthday, but before the whiskey can be brought out and we've been holding it off all day because we have a special guest. And I don't think it'd be quite right if my guest turned up and I've been drinking all day. That happens after this interview. But today, we are talking of Flux Power. And I'm very excited to bring our next guest on to the Meet the CEO series. I think this is going to be a very interesting meeting today and a chat with the CEO of Flux Power. And I think you're going to really, really like this one today. There's a lot of interest in this particular technology today. So we're going all the way over to California in a few seconds to introduce to you a Ronald F. Dutt today on the show who is the CEO of Flux Power. We're talking the lithium batteries, of course, lithium is very, very important. And now Elon Musk is always talking about we need people to refine lithium, lithium batteries, electric power, and we're talking, I mean around the airports, when you see the handling devices going around, that's what Flux Power does. So you might like this one. We already ranked #1 for it on YouTube just by talking about this interview and analyzing the stock last week, and it's going to ramp up more. So we're going to look into this. Remember, as always, I'm not here to pump and dump stock. I am only investing in the S&P 500. So I'm completely impartial and unbiased to bring you the facts to make investing simple because investing is simple. You look at the balance sheet, you find out what the company does? Does it make money? Does it serve the world in a great innovation? And can you invest in this company and grow -- help grow the company so they can employ people, they can make money and you can make money? That's the purpose of my channel, as you know, with the most honest real-life channel on YouTube TV. That's what this show is all about. So without further ado, let's get into it. If you'd like to ask a question today to Ronald Dutt, you can. Please go into the live chat and leave me your thoughts and comments, and you can share and you can ask Ronald anything you like. His -- one of his people at his office contacted me, Maria and Adam who I want to give a big shout out to, said do you have a preset list of questions. And I said, I don't and poor Ron was thinking, "Oh my gosh, what's going to happen." But that's how we do our shows. We like it to be real unscripted and get to know the man and all the women behind the business because after all, that's who you're investing in. So it's a nice informed chat. That's what this show is all about. So first of all, what is Flux Power. Let me share some information on the screen to show you a little bit about Flux, and you can get an idea before we bring our CEO in. This is Flux Power's website and as you can see here, we have one of these machines that you might see around the airport or you'll see around factories, lithium-ion batteries are revolutionizing material handling industry, of course. You've seen the airports, let me zoom in, you've seen these things going around. I wonder if they have anything to do with the little carts that go beep, beep, beep, you know those things? Maybe they have something to do with that. We'll find out today. This is the company here that's based over there in California, so a nice sunny state. And these are some of the businesses we are involved with Delta, PepsiCo, Caterpillar, some very good businesses, very well-known businesses here is some of their partners and customers.

So there we go. So without further ado, it gives me a great pleasure to introduce today the CEO of the company, Ronald Dutt live on my show to give him a great welcome. Ronald Dutt. Lovely to have you here. How are you, sir?

Very good for a Friday. And thank you, and thank you for having you on the show.

It's my absolute pleasure. So Ronald, you are over in California today. Is that right? Is that where I'm speaking to you from?

Yes. Actually, San Diego County. So, yes.

Lovely. You may notice I'm not American. I'm actually from England, but my studio where I broadcast from is in Dallas, Texas, which is a bit odd, isn't it? I live in England, but a broadcast from Dallas. There you go. Now then you are the CEO of Flux Power. Tell us a bit about you first of all because it's always interesting how a business starts and why you'd want to be the CEO of this company, how did it all begin? So Ron, tell us a bit about you, where you come from and how you ended up becoming the CEO of this company?

Thanks, Martyn. Yes. Yes, quite a story. I grew up in Ohio and my -- I got my start at Ford Motor Company up in Dearborn in Michigan at their headquarters for a number of years in automotive and financial services. Went on via the finance throughout to a number of other public companies after that. And stumbled into this opportunity. I knew the founder of Flux Power who had started the company back in late 2009, and I was actually between jobs. He asked me to come in and help one day a week and low and behold, a few months later, I was the CEO. And it was a situation where there was an initial foray into the automotive EV space in terms of providing lithium batteries there. Commercially, that didn't work out. Coming from automotive, like the rest of you, we're very familiar with Elon Musk and the automotive sector, what people aren't familiar with is material handling. You don't realize how large the material handling sector is. In fact, for Toyota Motor, the material handling sector is about the same size as automotive and actually slightly more profitable. So I thought that helps with perspective. And in 2013, when I took over as CEO and so, look, let's pivot. Let's restart the company, 8 other people and myself, we started out to introduce lithium ion battery packs to the material handling sector because nobody else was. So coming from the crowded automotive sector, this is a great opportunity. And so it took us a while, not long into it, we realized the real impactful value proposition with the very large fleets who are looking for the next little bit of productivity performance for moving more packs during their shifts and as importantly, lower product life cycle costs. So off we went realizing we didn't need government incentives. Our investors thought that was a good idea that and certainly indicated the sustainability of what we're doing. So off we go, started building the company, and here we are today.

Fantastic. That's a great story how you got there. Thank you for sharing that with us. So as we all know, electric power is definitely the future. And it's interesting because we always think about EVs and cars, like you say, but we don't think about all the other machines that require battery. So what is the competition like? If I'm an investor, why am I going to buy Flux? Is there other companies doing this? How do you compare to the competition? Give me some thoughts there?

Sure. We look at that a lot. We were the first ones to offer UL-listed lithium-ion battery packs in the sector. And since then, there've been a group by certain people's counts about 13, various companies, all with their kind of own focus and strengths and what they do, we found that most of the companies are either very small companies who have started out kind of like ourselves, possibly some heard divisions in a few larger companies. We have a couple of European companies trying to get into the United States. However, it's early stages. There's no dominant player in our sector right now with 13. I know most of the CEOs, I wish him very well and said, "Give lithium a good name because the market is a lot bigger than we are, and we can be very friendly at this point." And so...

Yes. But they haven't been on this show and they're not going to rank #1 on Google and YouTube today. They're not but Flux Power is. How about that?

Yes. Yes. Yes. Good, good. And so there are some on the lead acid side, who we are providing the opportunity to the lead acid solution. There are several dominant players there looking at introducing lithium. However, having spent most of my life with large companies like Ford, DHL, Visa and others, I realized that when you're migrating from a pure commodity to some other product, that's disruptive to the entire infrastructure of the company. So we're waiting to see at what point they may decide to put more resources toward it. But right now, it's -- I'd like to describe it in general as open playing field, open running field for their competition.

What is the -- if you were going to, I don't know, Delta Airlines or Caterpillar, and they were saying, "We don't need lithium batteries. We've got our lead acid batteries. We've got the old school." What would you say to them? What are the advantages with lithium, how can they benefit by switching over to your technology?

We love to have those conversations, particularly with the large fleets and particularly ones with more than one shift because we'll go in, typically will look at their operation. And let them know that if they have 2 or 3 shifts with lead acid, they had -- the lead acid battery is only good for 1 shift because then it has to be charged for another 8 hours and cooled for another 8 hours. With lithium because of the chemistry, you can opportunity charge it between the operator breaks and lunches and run the one pack for all 3 shifts. And so that really represents a big cost advantage. The other thing is because of lithium chemistry, you don't have to water it. And with lead acid, watering is something that must be done to maintain the life of the pack often isn't is another complication. Also, the lithium batteries do not require battery room. So all of a sudden, you're freeing up a large square foot in facilities, which is extremely important to those warehouse operations. Lithium batteries use -- are much more efficient using electricity from the grid. We use the government calculation that's based on how many kilowatt hours of energy you can save and which we can measure exactly. And consequently, we save tons of carbon dioxide for all of our customers, which really resonates in the environment we're in now.

Brilliant. And I would imagine as well that they have the opportunity that I'm just thinking now of like Caterpillar and Delta, particularly airlines, a lot of outside space, roof space, could have solar panels, which would then charge up -- charge the batteries up for free technically. I suppose that's another advantage, right? They can save money doing that. So that's great. The -- when I spoke to Adam to set up this interview, and today, this was great because most of our interviews with our CEOs, by the way, if you just tuned in, and I'm talking to Ron here, and he doesn't know what I'm going to ask him. This is completely 2 guys down the pub having a chat, and that's how we like to do things. We don't do it like Mad Money and Bloomberg and CNBC, and this is why CEOs tell me they prefer. They said to me, Ron, they like being on the show because it's just so much easier and more relaxed. And people like -- the investors want -- they don't want all the nonsense and the complicatedness of what you get on the mainstream channels. We're going to be bigger than them in about 7 years' time because they just want to talk to the CEO, talk to the business, find out what it's about, and that's whatever. And Adam contacted me, well, normally, it's one of our investors go an e-mail you and say, "Hey, Martyn Lucas is covering your stock, can you be on the show?," Adam found us because we were on YouTube. And he reached out to me, which was the first time it's ever happened. So that was nice. So thanks, Adam and Maria for setting up this wonderful chat today. Now we all love lithium, and this business obviously sounds very exciting because we've got a lot of investors here in Tesla and AI -- sorry, Tesla and electric vehicles. This is another way you can get into electric powered vehicles, if you like. Let's talk about the business now, how we can make money. Now I'm looking -- been reviewing the stock. And there's some good -- there's some good and always like any stock, some good and some not so good news. First of all, if we look at Wall Street analysis on your stock, Ron, there's some good positivity here, some really, really good staff. At the worst case scenario, we calculated, we use a very advanced algorithmic software, 108% upside in the next 12 months, worst-case, best-case scenario, we're looking at a 260% upside, which is very, very nice. And what is quite surprising as well, and I'm really pleased to see it for a stock that's currently running at $4.32 in this sector with these sort of numbers, we would normally have quite a large -- quite a large short interest. And as you can see, we are showing 1.55%. So 20% would be excessive, and then with volume, we're looking for a short squeeze. But here, we have hardly any short interest at all, which means the sentiment around the stock is good despite the price being $4.32, it has actually got very, very little short interest. So that's always a very bullish sign. I do want to ask you about this, though. When the price is where it is today and if we just go back over the last 3 months, the year-to-date, we're just going sideways at $1.26. Over the last year, it's down 33%. Why -- what thoughts have you got behind here? We've got some inside company selling. We've got Johnson Michael, who sold back in September, 38,000. With the stock being so low right now, what would it take for the company to start buying back? Because, of course, when we start seeing the company themselves buying the stock, it always attracts the investor when they start seeing insiders buying. We show this a lot. What's your thoughts on that? The price is down 33% over the last year, wouldn't this be a good time for people to continue buying the stock?

Well, I think so. If you look at our market capital revenue, our ratios -- we've been hovering around 1. And we're a high-growth stock, big future, big proven validated by Fortune 100 companies, I think we have a very bright future. I do think, though, as a company like ours is emerging and growing, we've been building an infrastructure, which has taken capital. And I think there's some concern -- we've never really been exactly what you call overly capitalized. And I think there's certainly some sentiment that I hear that, geez, you guys are going to have to raise some capital. I think I'll wait. I don't want to get diluted. And I kind of understand that. I see that real robust growth does take some capital. So I think there's a sentiment out there despite what I've been saying is, look, well, wait, I'm going to wait, you show me. So my message to them is look at the graphs that we have in our quarter end results are very strong, consistently increasing gross margins. We're now over 30%. We've had weekly war rooms addressing that for the past 2 years, doing all the things you'd expect, supply chain, purchasing, cost reductions. And to increase that, we have a very disciplined, rigorous effort with that, have a very good line of sight to the mid-30s and then to get to the 40%, which is our plan requires that phase of effort, which is always challenging but doable. When I say doable because we track our gross margins by product line, and we know we have some over 40%. So that's doable. So we do -- we are confident in that and growing the business. We are -- the sales cycle is fairly long. So -- but we have a whole string of other companies like the ones you see and that you talked about to bring on as they buy new forklifts, they buy new lithium batteries, which is where we come in as well. We also, by the way, coordinate chargers as well and particularly telemetry in terms of a holistic package for our customers.

I was just sharing on the screen, the gross margin, and you've got -- I noticed how that is increasing consistently, as you say. We were back here -- if we look back here in 2017, you can see when we really start to get into EVs and Tesla and everything else, people start to look at the electric market, you can see how you consistently increase 15% to 18% in 2020. Like you say, you're now showing 30%. That's a very impressive number. Do you see that continuing? Or do you think you've reached your peak now of gross margin?

No. No. As I mentioned earlier, that may have been cut off, but we have weekly war room meetings for really almost 2 years now. We have a good handle as we grow as a company and our volume grows, we can get lower cost. We've forecasted that out. Our supply chain continues to improve all the time as we're being able to get bigger, better, more reliable suppliers with better terms and as we grow. So we see that gross margin going to 35% this year. We don't give out guidance, but certainly, we're projecting that. We have belief in that. And then as to go to our long-term strategy of 40%, we believe it is doable, particularly with our products such as telemetry, which really provides a full asset management capability via the battery for these big fleets and as represents software. And as a matter of fact, their software and firmware on our battery pack as well. So we're really using a computer in the cloud here in an entire package that is really going to provide that gateway to get to those high 30s margins, which will enhance where we are today, where today, we just reported in December, positive adjusted EBITDA, which is a good proxy for cash flow. So we're continuing to improve that. And related to what I mentioned earlier that we suspect investors are thinking we need to raise capital to fund losses. We have a $20 million working capital facility. We are always probably going to need some kind of working capital facility because we have to buy materials a couple of months before we can actually collect from the customers. But we're using that. We don't anticipate having to raise any capital in the foreseeable future that given our gross margin growth rate, we have great leverage on our operating costs. We have great operating leverage. So when you look at that, that's easy to see that we don't -- that we have a very strong, sustainable path here at Flux.

I'm really glad you said that because that was going to be my question, do you need to raise funds and go to the shareholder? The solvency number, when we run it through our AI, it does give a low score of 22 which is a red score. We like to see it obviously towards the 50s. And you were just addressing that fact about going to the shareholder, and you just said you don't think for a good period of time, you'll need to do that because that's one thing people look at. They look at the solvency score and think, "Oh, this stock is going to be diluted, that shareholders going to be diluted." But as you talked about, you've got cash to sustain you. And with the gross margin improving, that will take care of that. So that's a very good news. And people always ask me that. Someone asked me -- one of our viewers called Yann and just before we lost him. He said, "Please tell us about your team." And I've been speaking with Maria and Adam and they're very excited about your company. Just tell us a bit about the people that work at the company. And because the end of the day, so you're investing, right? When you invest in the company, the people work there, what do they do for the company, how do they grow the business? And can we believe in them? So tell us a bit about your star players perhaps, maybe even the person who makes the Tea, I don't know, at the Flux Power, please.

Like a lot of companies, when you're starting out with 9 people, as I did, I had the actually pleasure, benefit of really having a hand in hiring the people as we've gone up to the present 130 people. And as you grow from no revenue to very small revenue to where we are today listed on Nasdaq Exchange, there's a lot of growth. There's a lot of expansion. There's positions become more demanding. Some people can be the person to grow in that position. Other times, you have to bring a new generation on it. If any of you know anything about Silicon Valley, I lived up in that area before the teams of management just roll through as the company grows through different stages. So it's not that we're that large yet that we've gone through some of those permutations or evolutions of people. And the thing -- one of my top 3 goals has been the culture and the culture gets reflected in the team, which the caller was calling about. So I have a great Vice President of Operations. He has very extensive experience and he is just a bang-up job, very pleased with. I have a fairly recent hire over the past year, Vice President of Engineering. We're always developing new products. We're expanding our product line all the time, not only in material handling, but in the airport ground support equipment and particularly moving towards heavier applications. So that whole life cycle product development area is keen as well. And not to mention by the way, with operations, we have the ability, given we're 3 quarters the way through lean manufacturing Jeff, our VP of Operations, has brought on ISO 9000. We have UL-listed products. So we have all those elements that these large companies are looking for. And we have capacity in this facility to go up to $150 million, which is about double where we are today. So we feel like we're really well positioned, particularly kind of tying back to the capital question to leverage. We have great operating leverage now. We have a new CFO. We just hired on, on Monday as a matter of fact, Kevin Royal, who's been CFO of 4 public companies in the past. And I think it brings a lot of what we need as we enter this next stage of Flux Power of growth and continuing to build out and expand the product areas we're in now, bring on new technology. We have proprietary technology partnerships for breaking technology that we're working on right now, along with the expansion as well. So when I got a good CTO, we have to have as good or better technology than anybody else. Our customers demand it. So I'm really excited to have a CTO that's on the cutting edge of technology, who has been here actually a little longer than I have. So has the full spectrum of the history and where we've been and where we are going.

That was going to be my final question. Where do you see the company going? What's next for the -- we talked about growth. We've talked about the company. We talked about the products, the efficiency that you don't think you'll need to go to the shareholder, the gross margins increasing. What's next? Now we're living in a bullish market at the moment. We're expecting interest rates to come down. You've got some debt but not too much, more short-term debt. That's going to be a catalyst for you, I would imagine, if rates suddenly start coming down, it's going be a big plus as it is for anyone who borrows money. Where do you see Flux Power in 5 years?

Well, an interesting question. We've been working on that as we speak for the past month for the next couple of months, we got to do a budget because we're a fiscal year June 30. But our current focus is penciling out developing we call it double flocks. Double our roughly $70 million annual revenue to about $150 million. And we believe that really involves just expanding the path we're on now growing it, growing our sales force and marketing and leveraging the partnerships that we have to double Flux. That's part of -- that's the next step of our long-term strategy that I've had very consistent. Our goal is to be a leading supplier to the Fortune 50, 100, 500 very large fleets to provide all the infrastructure, to provide the holistic solution to them, to come to them with a new advanced energy solution that they are going to just jump all over and see that it improves the performance for the constituencies in these large companies that got to move more pallets and for the financial people and general management people they go. We can save more money, we can take on more and for that value proposition. So to do that, our focus now is growing organically, leveraging partnerships. At some point in the consolidation of this, when you're looking out over 5 years, I fully expect there to be consolidation. I think we have a path at least a vision in our way of thinking of going 10x on our revenue. And I don't know if we could do that in 5 years, but I think it's conceptually putting in place all those leverage points, capabilities, management team to make that happen.

Ron, thank you for such an insight today into your company, yourself, your team, where you see it going, how the investor can potentially do well with this stock. Ron, stay right where you are as I close up this video, and I'll come back to you just to finish up the video. So thank you ever so much, Ron, for your time. So there we go, there was Ronald Dutt on the show today. Very, very interesting chat, really enjoyed talking to him. Fantastic. So what do you think of that? Flux Power, right now, the stock is down, but you heard what Ron said, plenty of opportunity here, an increasing margin position, looking good as an investment for you. Well, as always, please do tap the light button, subscribe to the channel, and I'll give you all the links above and below. Above my head down below in the description, I'll give you more links to Flux and you can go and check it out. And over here, more of Meet the CEO and the series and all the analysis I do on stocks. What a great conversation. I look forward to hearing more from the company. We'll cover the earnings -- if we get lots of views to this video, I'm sure we will, we'll cover the earnings and hopefully have Ron or members of his team back on the show again sooner than later. I love this technology. This is something I would love to see do well. Until next time, as always, take care of ourselves and each other.