Flux Power Holdings inc Aktie

Good afternoon and welcome to Flux Power's Fiscal Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, August 20, 2026. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon and welcome to Flux Power's fiscal fourth quarter and full year 2026 earnings conference call. I'm Leanne Sievers, President of Shelton Group, Flux Power's investor relations firm. Joining me today from Flux Power are [ Krishna Vanka ], CEO, Kevin Royal, Chief Financial Officer, and Stu Jakover, Vice President of Sales for Material Handling.

Before I turn the call over to [ Krishna ], I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments, and other forward-looking statements regarding future market developments, the future financial performance of the company, new products, or other matters. These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-K, which can be found in the investor relations section of Flux Power's website at www.fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website.

And now it's my pleasure to turn the call over to Flux Power CEO, [ Krishna Vanka ]. [ Krishna ], please go ahead.

Thank you, Leanne, and thank you, everyone, for joining us on today's conference call. I am very pleased to report fourth quarter revenue increased 25% sequentially and even slightly better than the expectations conveyed on last quarter's call. We are encouraged by the improving order patterns we saw throughout the quarter across both our ground support equipment and material handling business. On a year-over-year basis, the quarter was below our historic revenue level due to our most significant material handling customer continuing to navigate its capital freeze as we conveyed previously. Our business has also been impacted by the broader economic disruptions related to tariffs and higher fuel prices. I want to reiterate that our partnership with our significant customer remains strong, and we expect business with this valued customer to resume in the future. As mentioned on prior calls, we have been taking decisive actions over the past year to lower product and operating costs as well as improve operating efficiencies.

We reduced operating expenses by 33% over the fourth quarter of fiscal 2025, and a decrease of 28% when comparing full year 2026 versus 2025. These actions have included headcount reductions, cost containment, and broader efficiency measures. We also continue to work aggressively to improve margins through near-term supply chain optimization, vendor pricing negotiations, and product redesign efforts. Additionally, we have been closely evaluating all of our component costs and meeting with vendor partners in low-cost regions. Although this initiative will take time to implement, it should have a meaningful benefit to overall product costs over time. Another initiative I mentioned last quarter was optimizing our sales team and launching aggressive new marketing programs.

These programs are aimed at diversifying our customer base, so we are less dependent on any one customer. We are beginning to see positive results from new lead generation programs that have increased our customer activity. As a result of these marketing programs, we are also very excited to announce we entered a new and growing vertical, robotics, in the last quarter. We are doing this in close collaboration with a very large global technology platform company. They already deployed more than 70 of our batteries for their robotics testing and are looking at full-scale production starting in 1 quarter or 2. I can't wait to share more details soon. We also successfully added senior sales veterans to the team, including a new VP of Sales for Material Handling, Stu Jakover.

Stu has more than three decades of dealer network, OEM, and national account leadership experience. I would now like to turn the call over to Stu to tell you more about himself and his initiatives aimed at accelerating growth across North America. Stu, please go ahead.

Thank you, [ Krishna ], and thank you for the opportunity to introduce myself and talk about my primary objectives and our go-forward strategy. I'm certainly excited to be part of the Flux Power team. As [ Krishna ] mentioned, I've spent the last 25 years in the material handling industry, most recently as General Manager at Mitsubishi Logisnext, and previously in various sales leadership roles, including Toyota Material Handling. Over that time, I've built and led sales organizations across the industry, and I've done it with a consistent focus on profitable market share growth. Whether it was managing dealer networks or building out enterprise account strategies, my track record has been about identifying where the real growth opportunities are and building the right team and process to capture them. That's exactly the lens I'm bringing to Flux Power. Flux has built its business on a strong dealer sales network, and that foundation will be further enhanced.

Our dealer partners remain central to our go-to-market strategy. That said, I believe there's a significant opportunity to build a business that's to add a second growth engine. Throughout my career, I've spent a substantial amount of time calling directly on large enterprise and national accounts. These are the big fleet operators who run hundreds or thousands of forklifts across multiple sites. I know how these organizations make purchasing decisions. I know the stakeholders involved, and I have existing relationships with many of them. My plan is to leverage that experience and build a direct enterprise sales engine that runs alongside and complements our dealer channel.

This will not be in competition, but complementary to. That gives us a hybrid strategy with two ways to win business instead of one. It positions Flux Power to go after large fleet opportunities directly with a tailored approach. I wouldn't be as confident in this strategy if I didn't believe in what we're selling. And Flux Power's products give us a real edge. One differentiator I'm especially excited about is our end-of-life recycling program. This matters as a lot of our corporate customers have significant green and sustainability initiatives.

This is an area where Flux is ahead of the industry and not just working toward it. Flux has a documented robust program that utilizes a named, certified recycling partner specializing in lithium-ion battery processing, and a written take-back guarantee. This provides our customers a formal end-of-life agreement, not just a verbal promise, so our customers know exactly what happens to their batteries at end of life. We offer our customers multiple paths to being environmentally responsible. Depending on the condition, battery modules can go into second-life uses like grid storage or emergency power. Components can also be refurbished to be utilized again, or the unit goes to certified material recovery. Being able to walk a large enterprise fleet operator through an actual documented program with real paths to recovery rather than an industry that's still figuring this out is a genuine differentiator in the conversation.

In addition to recycling, we back our product with best-in-class customer support during the life of the battery. When you're asking a large fleet operator to trust their operation to us, they need to know we'll be there after the sale, not just at the point of purchase. The combination of a strong sustainability program and dependable, responsive support is exactly what gives me confidence in our ability to win and retain these larger accounts. As you can tell, I'm very excited about Flux Power's product differentiation, reputation in the industry, and the opportunities that lie ahead for what we believe will be a very promising future. We look forward to providing you with more updates in the coming quarters. And now I'll turn the call back over to [ Krishna ].

Thank you, Stu. Once again, it's great having you on the team. Let me turn back to the other notable progress made during the last quarter. I'll start with the positive developments made on our OEM partnership programs that our Director, Brian McKinney, discussed last quarter. First, one of our OEM white-label customers increased their yearly order commitment by 50%. This is the first time we were able to get that commitment from a white-label customer and serves as a strong validation of our OEM program success. I'm also very pleased today to announce that during the last quarter, Flux received official certification from Hyster-Yale Materials Handling, Inc., a key OEM partner who is a global leader in lift truck manufacturing. This important certification is for all of Hyster-Yale's Class 1, 2, and 3 forklifts.

These three classes of forklifts represented $3.5 billion in Hyster-Yale's revenue during their fiscal year 2025. This is a major growth opportunity for Flux Power as it significantly expands our market share across the largest segments of the electric material handling industry. The certification not only validates our technology but also strengthens our credibility with OEMs and dealers, while also reducing adoption barriers for large enterprise fleets. We are now selling to the top four OEMs, which account for more than 60% of the North American market. When combined with the direct enterprise sales strategies Stu outlined, this gives us multiple avenues to grow. Also, on June 30th, we made one of our most significant platform leaps in company history with the launch of AI-driven SkyBMS 3.0. This wasn't a minor update, but rather a fundamental redesign of how our customers manage and optimize their energy assets. This plays a key role in shaping Flux Power's competitive position.

As many of you know, Flux has historically competed as a battery hardware manufacturer. SkyBMS 3.0 enhances that equation. It layers AI-powered intelligence, predictive analytics, and a fully customizable dashboard experience on top of every battery we deploy. It turns fleet data into a personalized command center. This software-driven differentiation is difficult for hardware-only vendors to replicate quickly and also strengthens our moat in the market. As I mentioned previously, 100% of our GSE batteries now come with SkyBMS access, and airline customers are actively using it. We look forward to making it part of every material handling battery sale as well.

Why does all this matter for Flux Power? First, it deepens our engagements with customers and increases customer retention. Once a fleet operates on SkyBMS, the platform becomes embedded in their daily operations. Next, it also expands our value delivered beyond the battery sale, which is a foundation for future recurring software attached revenue. And finally, it positions Flux Power as a technology company, not just as a lithium battery manufacturer. And also for our customers, it provides [ visibility ] of the total battery, 15% to 40% faster time to awareness on battery issues. So operators catch problems before they become downtime issues. Fleet uptime is improved 10% to 30%, a direct measurable productivity gain.

And it's built on more than 90 platform enhancements delivered in just the past six months, showing sustained execution velocity, not just a one-off release. Overall reception in the market has been strong since the launch, reinforcing this platform meets a real market need. As we look to fiscal 2027, the Flux team remains intently focused on driving future growth and executing on our five strategic initiatives that include profitable growth, operational efficiencies, solution selling, building the right products, and integrating value-added software to generate recurring revenue streams. With that, I'll now turn the call over to our CFO, Kevin Royal, who will review our fourth quarter and full year financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the fourth fiscal quarter of 2026 was $8.2 million, up from $6.6 million in the prior quarter, and compared to $16.7 million in the same quarter a year ago. Revenue for the full year of 2026 was $42.1 million, compared to $66.4 million in 2025. Gross margin for the fourth fiscal quarter of 2026 was 27.4% compared to 27.3% in the prior quarter and 34.5% in the fourth quarter of 2025. The gross margin for the full year 2026 was 30.2% compared to 32.7% in 2025. The year-over-year decline in gross profit as a percentage of revenue was largely due to changes in product mix, a full-year impact from tariffs, and a loss in operating leverage due to lower volumes resulting in higher unabsorbed labor and overhead.

Operating expenses for the fourth quarter were $4.4 million, a decrease from $4.8 million in the prior quarter, and $6.5 million in the same quarter a year ago. Full-year 2026 operating expenses were $19.2 million compared to $26.8 million in the prior year. The year-over-year decrease in operating expenses primarily reflects the benefit of our previous actions to reduce headcount and streamline the operating model, as well as the fiscal year 2025 included costs of $2.9 million associated with the restatement of previously issued financial statements.

The net loss for the fourth quarter was $2.3 million, or $0.11 per share, compared to a net loss of $3.2 million, or $0.15 per share, in the prior quarter, and a net loss of $1.2 million, or $0.07 per share, in the fourth fiscal quarter of 2025. Net loss for the full year of 2026 was $7.4 million or $0.38 per share compared to a net loss of $6.7 million or $0.40 per share in the prior year. On a non-GAAP basis, excluding the above-referenced stock-based compensation cost, the fourth-quarter net loss was $2.1 million, or $0.10 per share, compared to a net loss of $2.9 million, or $0.14 per share, in the same quarter, and a net loss of $0.1 million, or $0.01 per share, in the same quarter a year ago, which also excluded the above-referenced restatement cost.

The full-year 2026 non-GAAP net loss was $6.5 million, or $0.33 per share, compared to a net loss of $2.8 million, or $0.17 per share, in 2025, which also excluded restatement cost. Adjusted EBITDA for the fourth quarter was negative $1.6 million compared to negative $2.5 million in the prior quarter and a positive adjusted EBITDA of $0.5 million in the prior year period. Adjusted EBITDA for the full year 2026 was negative $4.5 million compared to negative $0.1 million in 2025.

According to the balance sheet, we ended the quarter with cash and cash equivalents of $0.3 million compared to $0.4 million in the prior quarter. Before turning the call back over to [ Krishna ], I want to provide some insight around our near-term revenue expectations. For the first quarter of 2027, we are currently expecting revenue to be down in the range of $6 million to $7 million. However, we expect the second fiscal quarter revenue to rebound and be in the range of $8 million to $9 million. I'll now hand the call over to [ Krishna ] for closing comments before opening it up to your questions.

Thank you, Kevin. In conclusion, the company has faced a number of headwinds during my first 18 months as CEO. This, in turn, led us to reassess our business priorities and implement changes that we expect to benefit us in the fiscal year 2027 and beyond. We have the right team in place to execute on our sales and marketing initiatives with multiple growth engines to drive a more diversified customer base and a new vertical. With our lower cost base, we are well positioned to achieve renewed growth and profitability in the future as broader economic conditions improve. We look forward to the opportunities that lie ahead and remain confident in our ability to deliver long-term value for our shareholders. With that, let's open the call to questions. Operator?

[Operator Instructions] The first question today is from Sameer Joshi with H.C. Wainwright. Please go ahead.

Good afternoon, everyone, [ Krishna ], Kevin, Stu. My first question is about, first congratulations on the nice quarter and the SkyBMS launch as well. The question is about the SkyBMS 3.0 launch. Do you have sort of a targeted pipeline for this already that you are targeting? Do you have existing customers that would deploy this alongside your already installed base? How should we look at it from a revenue standpoint over the next two, three, four quarters?

Sameer, thanks for the great question and thanks for your compliments. Yes, the SkyBMS 3.0, as I mentioned, is built from ground up with AI embedded in it. And it's not just managing the battery analytics, it's also managing the entire energy matrix. So this includes some charger data that can potentially come through OCPP-type protocols. So it's really gathering all the data that the fleet needs for managing their energy efficiently. So this is the first time we actually did this type of connection. At this point, it is being deployed, as I mentioned, again, with the airline customers.

All of our batteries since a quarter or quarter and a half are going with SkyBMS as a default option for airlines. And we have also reached out to our material handling customers, a few significant ones, and having them start using this new SkyBMS platform. So as it stands today, our intent is to obviously deploy this 100% with both the verticals. And as we explore these new verticals, including the robotics, we see a potential of having something like this for our customers to embed and work through the SkyBMS for their energy decisions. At this point, that's our plan. So this is adding on top of our hardware sales, not a standalone software product yet.

Understood, got it. Thanks for that. And you did mention robotics. My next question is about that. Do you have a plan or at least in terms of the size of the market that you could access for robotics, how should we see it shaping as a component of your revenues in fiscal 2027 and beyond?

Yes, so the opportunity we are working on is a very significant one. It's with one big technology company that is on the forefront of using robotics. So we are very thrilled about it. And as I mentioned, we deployed, or we are deploying and testing, as we speak, about 70 batteries with them to start with. They are, if everything goes well and the testing goes well and it goes into production, this is going to be one of our marquee customers and there's a good potential that they'll have significant revenue coming up in the next couple of years. You know, not just for 1 quarter or 2 quarters. So we are looking holistically, you know, for multiple year contracts and deployments.

I would love to speak more with you as soon as the testing is done. And we know that we are deploying at scale. Yes, no, that's a big emerging market and a big...

I'm sure you're all excited about it, for it. Just shifting, I just have two more questions. I think there was a Global Cargo Airliner that you mentioned last call, you had received around a $1.2 million order from it. Is there a follow-on, or like have those been delivered, and is there going to be a follow-on order, or how do you see that customer contributing? Thank you.

They have been delivered, and Stu, yes, why don't you talk about the follow-on order?

Yes. Yes, sure. Thank you. Thank you for the question. Yes, we have delivered the initial order and installment of product. We are actively involved in several other open projects. However, at this time, those are not secure, but we are looking very favorably on those additional opportunities.

Understood. And the last question, I think I should start with, again, complimenting the team on the cost cuts over the last year. It's really good to see the nice tightening of the belt there. In terms of gross margins, though, sequentially the revenues were up almost 25%, 20-plus percent, but the gross margin improvement was just like a 10 basis point improvement sequentially. So when and at what revenue levels should we see meaningful movement?

Yes, I think, you know, we'll see improvement when we're above the $12 million quarterly run rate. So between, you know, $12 million and $14 million, we would expect to get up above 30% once again.

Understood. That's all I have. I will step back in queue. Thanks for answering my questions.

The next question is from Rob Brown with Lake Street Capital Markets. Please go ahead.

Good afternoon. First on your largest customer, the pause, I know you gave some order cadence or some revenue cadence outlook. How's your visibility with that large customer in terms of the recovery of order activity?

Rob, thanks for the question. We are in close communication as I mentioned, constant communication, trying to get updates. As far as we heard, they are now working on planning for the next fiscal or the calendar year, I would say. So it's in good progress. And we are literally awaiting. We are seeing the positive signs, and we are awaiting to hear some good news very soon.

Okay, excellent. And then on entering the robotics market, are these battery systems a standard product, or are you designing a new configuration for that market?

Yes, the batteries we deployed are one of our UL-certified standard offerings. So it was a great use case for us to be able to find new vehicles for our existing products. That said, we are very open to find new opportunities in this industry and we may be able to accelerate product roadmap as needed.

Okay. Okay, great.

Thank you very much. I'll turn it over. The next question is from Craig Irwin with Roth Capital Partners. Please go ahead.

Good evening. So [ Krishna ], we've been hearing good things about potential demand from the airport ground equipment market. Can you maybe update us on your conversations with customers there? I know you have a very wide sales funnel and when they do start buying again, you know, we'd expect an uptick. Is this something fair for us to expect at Flux maybe in the next couple quarters?

So the airline industry particularly as we mentioned has been hit a little bit because of the fuel costs, right, in the last few quarters again because of the wars and whatnot. But we have just started seeing through our partner some good progress, some, you know, renewed interest to start buying the equipment again, which we see it as a positive sign. And yes, I would say we would, you know, all the signals are pointing to, you know, more airline business in the next two, three quarters to pick up.

Understood. Understood. So, then the next question I have is around gross margins. So, you know, are there any changes to the long-term target? Do you still think you can get well above 30%? And, you know, with the revenue contraction in the September quarter and just modest recovery in the December quarter, should we expect similar margins to what you had in the fourth quarter, or is it possible we see, you know, modest margin depreciation from that level before the revenue starts to tick back up in the back end of the year, the September and December quarters?

Yes, I think the latter part of your observation is what we'll see is a little bit of a degradation before the revenues pick back up and we get up above 30% and into that mid-30s range.

Okay, excellent. And then for us to understand the materiality of the robotics revenue, you said you're working on delivery of 70 packs. I think you said you'd already delivered 30. Can you remind us which product, which UL-certified product you're supplying in there? And roughly, what a fair or MSRP, a fair price to use sort of as we do back of the envelope math to look at the materiality for the product?

Yes, Craig, so the model is our C48. And a good ASP to use, a good round ASP would be $10,000 per battery.

Excellent. And then if you were to scope out the long-term potential with this customer, 70 is not a bad number to start with. It's a great number. Do they have the opportunity to buy in the hundreds, thousands, many thousands, tens of thousands? I mean, how would you scope out this individual customer?

Yes, I would say that these are batteries that we've provided for prototype build and testing so that when they go to scale, it'll be hundreds per year.

Understood. Well, congratulations on the progress. I'll hop back in the queue.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to [ Krishna Vanka ] for any closing remarks.

Thank you again for joining today's call. One final note, we will be in New York on September 10th, 11th, 14th, and 15th with opportunities to meet with investors at the Lake Street and H.C. Wainwright conferences, as well as an additional day of non-conference meetings. If you are interested in meeting with us while we are in the city, please reach out to Leanne Sievers at Shelton Group to schedule a time. I really look forward to some good discussions. Operator, you may now disconnect.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to Flux Power's Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, May 7, 2026. [Operator Instructions] I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Good afternoon, and welcome to Flux Power's Fiscal Third Quarter 2026 Earnings Conference Call. I'm Joel Achramowicz of Shelton Group, Flux Power's Investor Relations firm. Joining me on today's call are Krishna Vanka, Flux Power's CEO; Kevin Royal, Flux Power's Chief Financial Officer; and Brian McKenzie, Flux Power's new Director of OEM Sales.

Before I turn the call over to Krishna, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-K, which can be found in the Investor Relations section of Flux Power's website at www.fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. And now it's my great pleasure to turn the call over to Flux Power's CEO, Krishna Vanka. Krishna, please go ahead.

Thank you, Joel, and welcome, everyone, to our third quarter conference call. As we anticipated and signaled last quarter, third quarter revenue was impacted by two factors: our largest material handling customer implementing a capital freeze and the dynamic ordering patterns across the business. Late in the quarter, rising geopolitical tensions in the Middle East drove fuel prices higher, which further delayed some customer spending. Together, these headwinds pulled consolidated revenue below our expectations entering the quarter.

Importantly, however, in both the ground service equipment business and with our material handling customer navigating their capital freeze, customer commitment to Flux remains strong. We expect order activity to return to prior levels once these near-term headwinds subside. Given these headwinds, we moved decisively on cost. With our targeted headcount reductions and broader efficiency actions, operating expenses are down 30% versus the prior year period.

We continue to optimize our sales team, launching aggressive new marketing programs and expanding our OEM partner engagements. We have been successful in adding senior industry sales professionals to the team, and we are in process of replacing our sales leader, and we are anxious to have this position filled soon. Further, under new marketing leadership, we launched a comprehensive digital strategy spanning social media, lead generation and brand awareness initiatives.

We also had a strong showing at the MODEX Show in Atlanta last month, one of the most important industry events on our calendar. The highlight was winning the Innovation in Sustainability award. After a rigorous vetting process, including multiple booth visits from an elite panel of industry judges, Flux Power was recognized for delivering an innovative sustainability solution not currently offered by any other company in our space. This award reflects our commitment to cleaner, more efficient and holistic energy life cycle management from design through deployment to recycling.

We believe no one in the lithium-ion battery industry does this better than Flux Power. Beyond the award, MODEX delivered on several fronts. Booth traffic was strong with meaningful engagement from both new prospects and existing customers. We showcased recent advancements to our SkyEMS fleet intelligence platform, including mobile dashboards, real-time notifications, expanded data integration and API connectivity and advanced reporting and analytics.

And we also featured our newly patented state of health technology, which we believe represents a significant advancement in battery life cycle management. I want to highlight another development driving new business activity. You may recall that we announced last quarter that we hired a new director to work with our existing OEM partners to identify and cultivate new OEM partnerships. He has more than 20 years of experience working for material handling OEM and their dealer networks. Brian McKenzie is here with us today and will provide an overview of his efforts. Brian?

Thank you, Krishna. I first wanted to say I'm very happy to be with Flux Power. I'm thoroughly enjoying working with our existing OEM partners and also working with other OEMs to introduce them to Flux and identify how we can work together. Also, I wanted to highlight a few data points related to the global forklift market and the status of the electrification of the forklift industry. The global forklift market was approximately $87 billion in calendar year 2025. The electric share of new purchases in the North American market was 65% for the same period.

Lithium-ion penetration stands at 32% at the end of the calendar year 2024 and is projected to exceed 70% by 2034 with the calendar year 2027 being the year that lithium-ion overtakes lead acid as the preferred power source for electric forklifts. In addition, the North American forklift market is projected to grow at a compound annual growth rate of 17.2% through calendar 2031. These factors, along with Flux's strong product portfolio are the same primary reasons I'm excited to be part of the Flux team.

I've already been in contact with several OEMs. I'm pleased with the responses I've received and looking forward to securing new OEM partners. Now I'd like to turn it back over to Krishna. Krishna?

Thank you, Brian. The company has also been working closely with the existing OEM partners to optimize our pricing structure for our white label products. We believe this initiative increased our competitiveness in the market, and it has resulted in increased volume commitments from our existing OEM partners. As a result of these developments, along with proactive efforts I have outlined above, we are seeing positive indications of increased order activity going into the fourth quarter and expect sequential revenue growth of approximately 20% in the fourth quarter, going into the fourth quarter and expect a sequential revenue growth of approximately 30% in the fourth quarter.

Additionally, we are aggressively working to improve margins through near-term supply chain optimizations, vendor renegotiations and through product redesign efforts. We believe that these initiatives will have a significant impact on our operating model and will improve our profitability. I look forward to providing additional details of these new efforts and our results on the next earnings call.

Let me be clear. While I'm excited with our new initiatives, and we believe we will be positioned positively in the market, I'm not satisfied with the results. We are taking every step we believe is necessary to meet and ultimately exceed historic revenue levels, achieve profitability and build a stable recurring revenue stream business. We have proven our potential to get there based on our Q2 performance.

To achieve this profitability goal back, the Flux team remains intensively focused on the five strategic initiatives that continue to guide us, which include: number one, profitable growth; number two, operational efficiencies; number three, solution selling; number four, building the right products; and number five, integrating value-added software. We continue to make progress on these initiatives each quarter as they remain a top priority for the company. With that, let me now hand the call over to our CFO, Kevin Royal, to discuss our third quarter financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the fiscal third quarter of 2026 was $6.6 million compared to $16.7 million in the same quarter last year. Gross margin in the third quarter was 27.3% compared to 32% in the prior year period. The year-over-year decline in gross margin was largely due to changes in product mix and lower volumes resulting in higher unabsorbed labor and overhead. Operating expenses in the third quarter of 2026 were $4.8 million compared to $6.9 million in the third quarter of 2025.

The year-over-year decrease in operating expenses primarily reflects cost reduction actions taken to reduce headcount and streamline the operating model. Net loss for the third quarter was $3.2 million or $0.15 per share compared to a net loss of $1.9 million or $0.12 per share in the third quarter of 2025. Excluding stock-based compensation, third quarter non-GAAP net loss was $2.9 million or $0.14 per share compared to a non-GAAP net loss of $1.1 million or $0.07 per share in the prior year period, which also excluded costs associated with the multiyear restatement of previously issued financial statements.

Adjusted EBITDA for the third quarter was negative $2.5 million compared to negative adjusted EBITDA of $0.5 million in the same quarter a year ago. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $400,000 compared to $1.3 million at the end of our 2025 fiscal year. Now I'll hand the call back to Krishna for closing comments before we open it up to your questions. Krishna?

Thank you, Kevin. In summary, I want to emphasize that the entire Flux team remains fully focused on executing our key strategic initiatives as we navigate these short-term challenges. We believe the markets we are targeting in the global lithium ion industry continue to offer expanding growth opportunities. In addition, our leaner cost structure, margin improvement initiatives, new product development and enhanced sales and marketing efforts are designed to position us for a return to growth and profitability as our revenue recovers. Thank you for your continuing interest and support of Flux Power. Operator, you may now poll for questions.

We will now begin the question-and-answer session. [Operator Instructions] And Mr. Vanka, I believe you have something to announce.

Yes, I just want to clarify the sequential revenue growth. It will be approximately 20% in the fourth quarter. Just want to make sure that came out clearly. There was some double connection on the line.

The first question comes from Sameer Joshi with H.C.

Wainwright.

Good afternoon Krishna, Kevin and welcome Brian to the team. So maybe the first question would go to Brian. You obviously have a good exposure or experience in the OEM field here. And you've highlighted in your comments that this industry is growing at around 17.2% CAGR through 2031, like, what is the strategy? What is the approach that you're taking to grow faster than this 17.2% for Flux to grow faster than the 17.2%?

This is Krishna. I will start the answer, and then we'll have Brian fill it up here. Definitely, our approach is to continue working with the existing OEMs to further get the share of the wallet as well as work with the new OEMs that are in the market for us to be able to be not only certified but eventually work more closer with them. Brian?

Thank you, Krishna. That's a really good question. We're working with OEMs. We have some that are on nondisclosure agreements, but their path forward in the market is to go with the majority of their product line being electrification, electric lift truck models. So it aligns with what our goals are to grow not only with them, but ahead of them so that we're ready for the market as they continue to phase lead acid out of their operations.

Understood. So, and then just stepping back in terms of -- Krishna, you mentioned 20% sequential growth. Do you have any further visibility beyond that for 2027 in terms of the pipeline that you may be looking at and maybe orders that are already on the books and will be executed in the fiscal first quarter or second quarter of next year?

Yes, we are definitely seeing increased activity, I can say that. And we believe we are coming back up from this quarter, picking up 20% this existing quarter and then hopefully continue that trend forward. The whole geopolitical situation, obviously, is not helping as much. So we are hoping that will subside soon as well. But I can see positive trends. We are investing significantly into marketing. We have done the price adjustment, as we mentioned on the call. We are working closely with Brian, getting more OEMs. We are looking at a new sales leader. So all the above activity should let us continue grow beyond this Q4 and into Q1.

Understood. And actually, sort of that answer segues into my last question. You mentioned that you have a comprehensive social media strategy. Should we expect -- well, first -- can you just give us a little bit more insight into what that entails? And then part two of that question is, does it incrementally sort of add to the operating costs a little bit here going forward?

Sure. Good question. So our strategy is on the entire digital marketing with a focus on ability to create more leads for our salespeople to be able to follow up and get closer with the end customer, especially as we target the top fleets in the market. And this includes -- the digital strategy includes collecting information through social media. We are working on a few good initiatives. We just got started. We are doing significant account-based marketing campaigns. We are seeing some good feedback.

Our MODEX show has proven to us that we are not only getting good leads, but also quality leads as we start following up with them. And Sameer, all of this, we are doing it with the existing budget, and it's just making the team focused on what is important. And with Michele, who is our Director of Marketing, who joined us almost five, six months ago, she was able to put this program together and start executing since January. So we are just starting to see the fruits of it, but we are positive this will help us get more into the pipeline and into the backlog.

Understood. Congratulations on the success at MODEX and good luck for the rest of the year.

The next question comes from Rob Brown with Lake Street Capital Markets.

Just wanted to clarify on the outlook. 20% growth off of what you reported here in Q3. Is that right? That's the sort of baseline?

Yes, that's correct, sequential.

Okay. Just want more color on the visibility on the lessening the freeze. Do you see sort of that coming? Or is that still to be determined?

We do see indications of an eventual lift, but not this calendar year.

Mr. Brown, did you have a follow-up?

No, thank you.

[Operator Instructions] The next question comes from Craig Irwin with ROTH Capital Partners.

So I wanted to ask about the relative levels of activity that you're seeing in the electric forklift market versus the airport ground equipment market. You've done a lot of things to introduce new products and bring new technology to these different customer groups over the last few years with specific product introductions that maybe we were optimistic about just a few months ago. Can you help us unpack sort of the relative activity in these two different markets and whether or not some of these product changes have been helping you specifically as far as generating leads that will be revenue in the next couple of quarters?

Sure. Craig, thanks for the good question here. So the GSE market has been pretty steady, I would say, in a sense, we did introduce a couple of new products during the last few quarters, right? For example, the Ampcard, the G96 solution. They are all being very positively taken by the market. We still lead the GSE space with respect to the lithium-ion solutions through our partner. And any lag we are seeing here has to do just with the nature of the market, the broader business dynamics, not necessarily anything related to our product portfolio or the GSE in particular.

That said, the forklift market has been, as you all know, more than us, going up and down a little bit with respect to the tariffs and the sensitivity to capital spending as well as recently, we are particularly affected by one particular customer's capital freeze, which was beyond our control in any way. So other than that, overall, we are seeing increased activity. So there was this a little bit of increased activity during the tariffs when they came down and then the war started adding a little bit of stress again to the market. This is really a broader observation from my side.

But in both the cases, we are looking at growth. Definitely, the forklift market is something that we are working closely with OEMs, more dealership activity, more OEMs, more certifications is our approach. And with GSE, we are committed to working with our partner as they start bringing new airlines into the mix.

So then given the sequential progression in revenue, I was actually pleasantly surprised that the margins were as strong as they were. Can you maybe talk a little bit about what went right on the gross margin side? I know it's a little bit of an effort over the next couple of quarters to climb back to where you were and get towards your longer-term targets of 40%. But can you talk about what's been working for you and how this should impact progress off this last quarter over the next couple of quarters?

Yes. Craig, I would say what has gone right for us is that we've had a focus on improving our product costs, working with existing vendors in some cases, in other cases, creating competition by putting certain subassemblies out for bid and thereby lowering the cost. That work is ongoing and will continue. And we have seen a fair amount of progress that has not rolled through cost of sales yet just because we hold inventory of the older higher-priced components. We have other additional plans to do product redesigns, which, of course, take longer. So we won't be realizing those improvements for probably 12 to 15 months. But we are happy with the progress that we've made thus far, solely working the supply chain side of the equation.

Understood. And then last question, if I may, also is a balance sheet question. So Kevin, everybody is going to understand the inventory, right? It's actually pretty good management, just $1 million quarter-to-quarter on the sequential decline you had. That's, in my view, healthy. But what was extraordinarily healthy was $4.6 million in cash out from receivables. Did you change terms in there? Or was there any maybe discounting you offered or any specific items in there that allowed you to basically cut your receivables better than 50% in the quarter?

We really didn't change the terms. We've been fortunate that even with deteriorating conditions in some cases, we've been able to hold the line with payment terms. But we did have good, I would say, good strong collections from last quarter's shipments, which I think helped reduce the receivables by the March 31 balance sheet date.

This concludes our question-and-answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks.

Thank you again for joining today's call. We look forward to speaking with you all again in Q4 call during September time frame. Operator, you may now disconnect.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to Flux Power's Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, February 12, 2026.

I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Good afternoon, and welcome to Flux Power's Fiscal Second Quarter 2026 Earnings Conference Call. I'm Joel Achramowicz, Managing Director of Shelton Group, Flux Power's Investor Relations firm.

Joining me today are Krishna Vanka, Flux Power's CEO; and Kevin Royal, Chief Financial Officer.

Before I turn the call over to Krishna, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-K, which can be found in the Investor Relations section of Flux Power's website at www.fluxpower.com.

For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website.

And now it's my great pleasure to turn the call over to Flux Power's CEO, Krishna Vanka. Krishna, please go ahead.

Thank you, and welcome, everyone, to our second quarter conference call. As we announced on our press release earlier today, we achieved profitability for the first time in the company's history. I am very pleased that we have been able to achieve this milestone within a year since I joined Flux. The discipline we built internally to optimize our expenses, along with the sequential increase in revenue made this happen. I do want to thank all our employees, partners and customers for contributing to this achievement.

Also during the quarter, our product development team made significant progress on innovations and road map. I will walk you through these recent developments as I deliver updates to the 5 strategic initiatives that we have established to guide our execution and performance here at Flux.

As a reminder, these initiatives include profitable growth, operational efficiencies, solution selling, building the right products and integrating value-added software to generate recurring revenue streams.

Let me provide you with an update on our recent efforts as they relate to these key initiatives. To begin, as I mentioned, we have achieved net profitability. I can now say we achieved the first goal of this key initiative. Our focus will be to continue this trend, while growing the business.

The results also demonstrate benefits from the multi-quarter restructuring decisions we made to improve our operational efficiencies. These efforts included rightsizing our headcount, as well as all other cost optimizations we took to streamline the organization.

I can say that we looked carefully at all levels of the company to find and optimize spending where possible. This rightsizing process has led to a solid financial structure, offering high operating leverage. Today, we have a much lower cost structure, higher margins and a lower breakeven point than we had a year ago.

Also, we have started using AI-driven tools in our engineering design, software development and day-to-day operations to further improve operational efficiencies and productivity. We hope to see benefits from these internal AI initiatives, as we deploy them across the organization.

Before I talk about our new products, I do want to touch on our third strategic initiative, which is solution selling. Our ongoing product development tool efforts reflect our close engagement with customers and partners to gain greater insights into the evolving product needs. These partnerships enable Flux Power to provide complete solutions to our customers. We refer to this powerful collaboration process as solutions-based selling.

As I have said in the past, we are not just selling batteries, we are selling energy management solutions. Our customers are using these solutions to manage their fleets for greater operational results. The quality and depth of our sales team have to be superb to work so closely with customers on their key internal goals.

In this regard, we recently hired an experienced OEM director with more than 20 years of experience working for a material handling OEM and their dealer networks. We believe his experience can help us reach new customers and provide additional opportunities for the company's products. We are also expanding our executive sales leadership by hiring a Vice President of Sales for Material Handling.

Moving on, our focus to build the right products for our customers continues to bear fruit. We released our next-generation SkyLNK telematics device with significant advancements to complement our own Flux designed battery management system.

SkyLNK delivers a competitive advantage in high-performance processing and sensing. It is powered by a quadcore 64-bit processor, enabling onboard analytics and machine learning directly within each battery system. The algorithms can be run locally, which helps to build AI-driven features in the near future.

It also includes integrated WiFi, Bluetooth, worldwide cellular and GPS, a 3-axis accelerometer, gyroscope and temperature sensing to provide continuous visibility and control. That means we will have 4x the sensors compared to the current generation. This is a big achievement.

These new capabilities align with our intelligence road map to provide our customers with powerful real-time features. These real-time features include user-defined geofencing with advanced health and performance analytics that can be automated via AI. Using the machine learning locally on the device helps predict fall detection, usage and trend analysis, energy optimization and life cycle forecasting.

This SkyLNK telematics units are currently in beta tests at multiple customer sites, and we are receiving great feedback. We plan to make SkyLNK telematics available to all customers in a couple of months.

Also during this quarter, we released a new GAT 315 battery in response to the GSE customer demand. This will help us continue to dominate this key market for us. We now have 4 product lines with multiple configurations that support the GSE segment.

Our last key initiative is integrating value-added software across our battery portfolio. For Flux, this creates the opportunity to generate high-margin recurring revenue streams from sales of advanced software features and applications.

As I mentioned earlier, our customers want more than a battery. They are looking for an energy management system to manage their assets, improve productivity and reduce cost.

Our SkyEMS software addresses all these needs and was recently upgraded to include multiple new features. First, intelligent alerting. This is a new feature that uses AI to fundamentally shift fleet management from being reactive to proactive.

These new intelligent AI alerts proactively notify customers of potential battery issues and recommend the appropriate corrective action right on the screen. They also give fleet managers full visibility into their dynamic fleet conditions, enabling faster response. Our initial observations lead us to believe that our customers can gain 10% to 30% uptime by using intelligent alerts with corrective actions.

Second, to further improve our customers' productivity, we also released a new mobile interface to our SkyEMS platform. This gives customers on-the-go monitoring for faster decision-making. For example, they can know when to charge their fleets and how long charging sessions can take right from their handheld devices. With data always in hand, equipment operators and supervisors now have what they need in real time.

Mobile access can reduce the time it takes to recognize an issue by 15% to 40% by putting key battery and alert data in users' hands during operations. This also helps them charge their batteries on time with minimal downtime in their operations.

Before turning the call over to Kevin, I want to summarize our progress and provide more color around our outlook for the third quarter.

First, through our product and operating cost reduction efforts, we have reported net income for the first time in the company's history. We are extremely happy with this progress that we have made in all areas of the business.

We have demonstrated that we have the discipline to make changes that allow the company to be profitable and generate cash. We were able to do this even in the face of increasing costs from tariffs, which are completely out of our control.

In nearly all respects, the business is performing well, and we have set stage for continued profitable growth. However, recently, our most significant customer has conveyed to us that they are implementing a capital freeze. We are not certain how long this freeze will be in effect, but anticipate it may impact a significant portion of calendar year 2026.

That said, our partnership remains strong, and we expect our business with this valued customer to resume in the future. As a result, we expect materially lower revenue in our third quarter.

We continue to believe in the markets we serve and that we are well positioned to work through this slowdown and restore the company to profitable growth. We have proactively moved to further decrease our expense run rate and completed an additional cost reduction action during the current quarter.

Despite this short-term market pressure, the lithium-ion forklift battery segment is projected to grow at an 8.8% CAGR through 2035, demonstrating the strong long-term market opportunity we have ahead of us.

With our capable management team, strong relationships in the market and additional resources targeting OEMs, along with a focused effort on what we can control, we are prepared to respond to customer needs.

With that, let me now hand the call over to our CFO, Kevin Royal, to discuss our second quarter financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the second fiscal quarter of 2026 was $14.1 million, up from $13.2 million in the prior quarter and down from $16.8 million in the same quarter last year.

Gross margin in the second quarter was 34.7% compared to 28.6% in the prior quarter and 32.5% in the prior year period. The 610 basis point sequential increase in gross margin is largely due to improved product mix, our recent cost-saving initiatives and lower warranty costs.

Operating expenses in the second quarter of 2026 were $4.1 million compared to $5.9 million in the prior quarter and $6.9 million in the second quarter of 2025. The approximately 31% sequential decrease in operating expenses primarily reflects the benefits from our cost reduction initiatives. Also during the quarter, we recorded an approximately $0.5 million reversal of previously accrued employee bonus awards.

Net income for the second quarter was $0.6 million or $0.03 per share compared to a net loss of $2.6 million or $0.15 per share in the prior quarter and a net loss of $1.9 million or $0.11 per share in the second quarter of 2025.

Excluding legal costs associated with the multiyear restatement of previously issued financial statements and stock-based compensation, second quarter non-GAAP net income was $1 million or $0.04 per fully diluted share compared to a net loss of $2 million or $0.12 per share in the prior quarter and a net loss of $1.9 million or $0.11 per share in the prior year period.

Adjusted EBITDA for the second quarter was positive $1.5 million compared to an adjusted EBITDA loss of $1.4 million in the prior quarter and positive adjusted EBITDA of $130,000 in the same quarter a year ago.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $0.9 million compared to $1.3 million on June 30, 2025. The significant capital we raised recently has been used to reduce outstanding balances on our line of credit and to a lesser extent, to reduce our accounts payable balances.

Our current borrowing capacity under the Gibraltar line of credit is $16 million, subject to available collateral as defined by the credit agreement and satisfaction of certain financial covenants.

I will now turn the call back to Krishna for his final remarks, and then we will open it up for questions. Krishna?

Thank you, Kevin. We have made a great deal of progress this past quarter across all of our strategic initiatives. Our battery product line and energy system software have been enhanced measurably using AI, and the company is now operating much more efficiently. And with the lithium-ion battery market that continues to offer great opportunities, I believe we remain well positioned to capitalize on them in the long term.

Flux has made the necessary investments to remain in a leadership position in this industry by serving our customers for years to come. We remain focused on making continued progress across our business, while managing through these current business conditions in order to return to growth.

With that, let's open the call to questions. Operator?

[Operator Instructions] Our first question comes from Rob Brown with Lake Street Capital Markets.

Congrats on all the progress. On the -- first on the capital freeze and the customer commentary, is this unique to this customer? Or are you seeing maybe signs of this sort of across this industry segment through vertical? Or is this unique to the customer?

It is one -- Rob, this is Krishna. Thanks for the question. We lost you for a quick second, but you're asking about the customer on the capital freeze. This is one individual customer.

And then in general, how is the demand environment looking in the market? Are you seeing sort of stable demand? Or how would you characterize the overall demand environment has been a little bit mixed, but how would you characterize the broader environment?

Yes. The tariff effects, I would say, are still lingering to a little bit extent. There was some change in the percentages of the tariffs, for example, starting January 1st and so on. So a lot of key customers are still cautiously watching what does it mean for tariffs and whatnot.

All that said, we know that customers need to buy these batteries to run their businesses. So they are, in certain ways, moving forward on that they need this equipment to continue their business operations.

Okay. And then the SkyLNK product, I think you said some pretty good customer feedback and you're rolling it out more broadly. Can you give us a sense of sort of as you roll that out, how -- do you go certain verticals? Or do you just offer kind of across the customer base? And what's the opportunity there in terms of driving some new business?

Sure. The SkyLNK telematics, which is really our next-generation product, as I mentioned, it's significantly powerful, comes with the chip for machine learning and even implementing some AI, and it is nicely connected to our battery management system.

The customers are now asking us greater questions like, hey, can we know when the battery leaves certain geofence, right? Can we be alerted proactively for our operators to take some action? So the SkyLNK telematics will solve these problems either there is connectivity or not because it's a powerful system and it can make decisions literally along with the battery management system.

So we are -- this will be offered across our product line for all of our batteries in a couple of months. The initial feedback has been pretty positive. And this will also honestly open doors for us to be able to offer more telematics-based solutions to our customers in the future. So we are really looking forward to deploying this with every battery we sell.

Our next question comes from Sameer Joshi with H.C. Wainwright.

Congrats on the good performance and positive net income despite the headwinds. So getting into that, the gross margins, 610 basis point improvement, really good. I think you mentioned product mix, cost saving effort initiatives as well as lower warranty costs. So going forward, maybe the product mix may vary, but the cost savings and the warranty costs, are those expected to stay low and sort of have a better gross margin profile going forward?

Yes. We're taking steps -- continued steps to lower our product cost. We continue to experience positive trends as it relates to warranty and repair costs associated with our warranty obligations.

So quarter-to-quarter, depending on the mix, we would expect to see -- if the mix were to stay the same, I put it that way, you'll see improvements quarter-to-quarter. But there will be times when you have a decline, times when you have an increase, and that's solely related to mix.

And I guess, spreading of cost overheads over a different revenue profile as well, I guess?

That is correct. Leverage will also have an impact.

And then just following up on a couple of things that Rob is -- from where you sit and where you have your pipeline at, is it more from any one particular, say, material handling or some other sector? And how do the prospects look over the next 6 to 12 months? I mean, this one customer you -- I think you would have to sort of replace or get additional customers to make up that revenues?

Yes. You answered my -- you answered the question towards the end. We are putting every effort possible to fill the gap. That's our first focus. As I mentioned, we hired a new OEM Director, very happy with the progress that he's doing here. We are hiring a couple more salespeople, one in California and one in Texas. These were advertised and these are already on the LinkedIn boards.

We are also putting more focus on the material handling. We are looking for a VP sales level position as well. So yes, that's our focus. We are doing every effort. We are seeing some -- definitely an increase in the adoption of lithium, I would say.

We are seeing some trends when we speak with OEMs, where they're saying, hey, we are expecting some greater adoption of lithium in the coming years, literally short term, 1 and 2 years. So we are getting ready for that.

Understood. And then just the last one. These new sort of the SkyLNK features, right, are these going to be sold at a premium pricing or rather, I should say, incremental pricing? And how does that, in turn, improve your gross margin profile? Because I guess, these will have really high gross margins.

That is the plan. We just tiered our software into a standard and a professional version, I would say. We are yet to provide all the details and the naming of it. But our expectation is the standard package comes standard with the SkyLNK, and it creates an option for us to sell these premium package, which comes with some AI-based functionality. So we are literally wrapping up all the packaging and we'll bring the software solutions together.

And you are spot on. The gross margin on some of this software-based sales will be significantly higher. The key is that we have 30,000-plus batteries in the market. How do we go back to existing customer base and get some extra from the existing customer base versus moving forward, right? So that's the puzzle we would love to solve. We have solved it a few times. We would love to figure out how to solve it with the existing battery base as well.

May I squeeze in one more. On the State of Health patent, can you elaborate on it? And like what is the revenue potential from this? I guess, this is also going to be sort of an incremental feature that users can -- customers can pay you for?

Thank you. Yes. We got the full patent last quarter on the State of Health. I am pretty impressed when I looked at the scope of the patent, what it does. It includes not only how to do it locally on the battery with the BMS and the SkyLNK, but also how to write that algorithm, right, the scope of the algorithm.

So the patent is pretty extensive. We already took that patent the algorithm and we implemented it on the software side. This will be included in the premium package I mentioned.

The real advantages of that State of Health is customers are getting insights into the next stage of the batteries, right? When do I need to repurchase the batteries? How long life do I have? What is the right time to start thinking about my capacity planning? Can I actually reduce some capacity? So we will start answering these high-level business decisions.

And we are putting an AI engine, as we speak into the SkyEMS software, which can derive some forward-looking knowledge based on the State of Health algorithm. So yes, really, it's one thing for companies to get the patents. It's the other thing to actually put them into use and generate revenue. I think we are going to be able to do that as part of the process here.

Our next question comes from Craig Irwin with ROTH Capital Partners.

So the only question I have at this point is the accounting for your $0.5 million reversal of incentive comp in the quarter. Can you maybe clarify for us how much of that was included in cost of sales versus SG&A? And is there anything else you can share to clarify whether or not this could impact the current quarter or if you'll be restoring those incentive bonuses in the near term?

Yes. Sure, Craig. So that amount was the incentive compensation that we had accrued through our first quarter. When we got into the second quarter and we near the end and we evaluated the objectives for the incentive compensation against our forecast and realized that they wouldn't be achieved, especially given the significant customer announcement and disclosure that we've made, GAAP required that we reverse that estimate. And so we did. That was the amount, again, that had been accrued through Q1 and was reversed in Q2 and will not have an impact on the upcoming quarters.

So my question is, was that recognized in cost of revenue or SG&A or in a combined places on the P&L?

So in all 3, but primarily in SG&A and R&D with a slight amount, say, around $50,000 in COGS.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks.

Thank you again for joining us on the call today. We look forward to reporting our continued progress throughout the quarter on our next earnings call in mid-May. Operator, you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the IAccess Alpha Virtual Best Ideas Winter Investment Conference 2025. The next presenting company is Flux Power Holdings Inc. [Operator Instructions]

I'd now like to turn the floor over to today's host, Krishna Vanka, CEO, Flux Power Holdings, Inc. Sir, the floor is yours.

Thank you. Welcome, everyone. Good afternoon, and we are thrilled to be part of this conference and give you some updates on the Flux Power. I'm going to present this section, and then we'll have Kevin Royal join me towards the end to talk about financials.

So moving on to the safe harbor, the standard slide here. I'm going to skip this. And let me tell you a little bit about Flux. We are based here in Vista, California. We design and manufacture lithium ion-based battery packs and energy management system which is really the firmware that controls the battery, and then we also have a cloud-based software, a SaaS platform through which you can monitor and control the batteries remotely. And today, our advanced lithium-ion packs are used in two industries. One is the material handling, literally the forklifts which we see across all the warehouses. And the second one is the airport ground service equipment so whenever you are at an airport, the tug that brings your suit cases to the airplane or the vehicle that actually pushes the airplane back, all of them can be powered with lithium-ion batteries.

Our vision is really to work with our customers and partners in taking them to this transition as they move away from the lead acid and adopt lithium-ion for better productivity and a greater ROI, which I'll explain it to you in a couple of minutes here.

So talking a little bit more about our company. We have produced more than 29,000 now. So the slide shows 28,000. So we produced more than 29,000 and we are, as I mentioned, based in Vista, California, with a facility that can support up to $150 million of annual production. And as you can see on the right side of the slide, you can see the company having a very good trajectory with respect to getting better margins year-over-year, but there was a little bit of stagnation on the revenue side. This is when the Board decided to bring a new leadership team really to take this company to the next level.

So on this slide, you can see the new leadership team that formed within the last 12 months. Again, my name is Krishna Vanka, I'm the Chief Executive Officer here. I came from another publicly-traded -- a battery company that's called Fluence Energy. And prior to that, I was one of the founding team members at a charging company called InCharge, which was acquired by ABB. Both the experience literally building batteries to scale and also the charger infrastructure, which is the core part of making these batteries work is the experience I bring in here and Kevin, do you want to quickly introduce yourself?

Kevin Royal, I'm the Chief Financial Officer of Flux. I've been with the company for a little bit over a year now. And my experience is that I've been CFO of various publicly-traded companies for the past 23 years.

Thanks, Kevin. And we also have Kelly Frey, who joined the company recently earlier this year, a few months before I joined. And both myself and Kelly, we worked together at Fluent where he ran the sales organization for me. So Kelly is bringing a new solutions-based approach to talk to our customers about the lithium-ion adoption. We also have Mark Barmettler, who is our VP of Engineering that joined last December.

So together, this new team, leadership and some director level changes we did recently, we are all focused on the strategic objectives that you are seeing on the screen. The most important one being, let's get to the profitability and build a profitable growth story for this company. And how are we planning to do this is? Number one, getting operational efficiencies.

Ever since I came on board, we were able to renegotiate with the supply chain. We actually use tariffs to our advantage. And we also did a couple of internal reduction in forces for us to get to the right size that we need for this company at this moment. As I mentioned, the solution selling is something that this company never really had that sales momentum and Kelly Frey coming from similar background is looking into how to talk directly to customers and how do we look really beyond the existing two verticals that we are supporting today. With Mark as the engineering lead, we are also looking at building modular products that can be scaled faster and taking into consideration the customer feedback and how they are going through the transition.

Last but not least, as I mentioned, these are intelligent battery. So along with the chemistry on top of it, there is a firmware that there are really electronics that control the battery, and there's a lot of patents that we have that control the BMS, the battery management system, and then we also have the software SaaS platform where it sends the data to the cloud, where you can look at holistically across your battery line and see how they are performing. So we are very eager in promoting this software as a part of the battery when they purchase this as a package together, and we are also seeing some significant adoption coming in the last few months from some of our key customers using this software and integrating it into their back-end systems.

So with that said, you may be asking, hey, why lithium, why right now, right? So the beauty of a lithium pack is it can replace lead acid almost as a plug and play. The only thing is lithium is a little bit lighter than lead acid. So you've got to literally add a little bit of extra weight for counterbalancing on forklifts and stuff. Otherwise, it's almost a plug and play. That said, lithium has a very good lower cost of ownership, it needs minimum infrastructure changes, as I mentioned, and more than anything else, these are smart batteries so you can control them remotely, update the firmware, and you don't need, unlike lead acid like battery rooms, you can charge the lithium-ion between the shifts, that's what we call the opportunity charging. So there are immense benefits for our customers to operate and adopt lithium-ion, especially when they're using lead acid today.

So if you look at the cost analysis and try to understand, hey, how does this work? This particular graph on the right side here shows you that within 6 years, which is literally a life cycle of any battery like lithium-ion, whereas a lead acid only run 3 to 4 years within 6 years for a 50-lift truck deployment, we are seeing about $4.6 million of savings by adoption of the lithium. The life cycles, as I mentioned, is almost double. You can run it more often. You can have a better warranty coverage, you can ultimately do more work because the customers buy these batteries as part of their vehicle and mind that in both these industries, when you buy the vehicle today, energy is a separate equation, energy is a separate line item. This is where some of our key customers, no matter which OEM they procure the vehicles, they always say we want them with the Flux batteries.

So this is a story that's getting developed. And during the last 5 to 6 years, at Flux Power we were able to build a portfolio of products that meets various classes. So this slide that you are seeing here is actually showing you that. We have the small, medium and large-sized batteries that fit in different vehicle classes of the forklift. And on the right side, you can see the G-Series batteries that grow in the ground service equipment, and also a much bigger battery for a different class of the vehicle.

We are also looking into taking these two verticals, the battery form factors we have and then try to find adjacency markets. So we are looking into industrial applications using autonomous robots, AMR, AGVs, et cetera. And some of our batteries are UL-certified, which is a big deal for some of these customers, especially airlines as they start thinking about using these batteries as a mobile best solution that you can also see on the right side that we recently announced with our partner.

So I spoke a little bit about it. So our forte and our area of focus is definitely on how to bring this chemistry together with them and make it efficiently work. So in the last 6 months, we were awarded about 3 patents literally after I came on board. Of course, patent takes a lot of time to get the accrued, but these are final approvals where we have AI-driven energy optimization algorithm now that we are deploying into the software. We can remotely and quantum balance these batteries for better light and also, we have an advanced state of health technology that we have a proprietary algorithm that we are planning to deploy as well. So we are taking advantage of these patents and putting them into production.

As I mentioned, the telematics platform, which is really what you have on the SaaS side, it sends the data. Moving forward, we want every battery to be an intelligent battery. So we are deploying the telematics very aggressively, and we want to put it with every battery starting next quarter. So the data goes to the cloud. You'll have a visibility across your -- the fleet of the vehicles you want, you can remotely monitor, see how the batteries are performing, diagnose the issues remotely either through our support or the customer can get notifications and alerts. And this data, which is a critical part of running the fleet can be integrated to their back-end fleet telematics units. And last but not least, the patents that I mentioned, we are taking them and putting them into the platform. So we, again, not only have a hardware which we sell as a key differentiator with all this technology, but we have a recurring revenue stream that we are just getting started and tapping into.

So how big is the market, right? So if you look at the material handling space, it's already about just the lithium battery, which is replacing the lead acid, the battery self is about $2.5 billion of industry in 2025 and growing at 9%. So we are literally getting started, and adoption is still in infancy, about 15% to 20% of all the batteries out there in production if you look across the forklift industry across all different industries. So there is about an 80% of uptake that can happen in the next 5 years as these lead acid batteries need to be replaced. And moving forward, whenever they're also replacing these vehicles, which are typically a 10-year life cycle give or take, they are ordering the new vehicles with lithium-ion batteries, especially the bigger enterprises, which is the focus of our company, they're all proactively trying to just get the new vehicles built with lithium-ions, as I mentioned, energy is a separate equation and they're asking for it.

It's a very similar story in the ground service equipment. What you are seeing here on the right side, I don't have the TAM for the battery by I have the TAM for the entire GSE equipment, which is, again, almost a $5 billion business next year, growing around 7.8%. And I can say that when you look at these ground service equipment that airlines buy, you can make a very good assumption that 1/4 of the cost, about 20% to 25% of the cost of the vehicle is really the energy management, which includes buying the battery and then putting everything together. We are very proud to also say that we have top 8 fleets of airlines in North America that uses our batteries today. So we are very proud of our deployment and our ability to dominate in the GSE space through our partners.

The next slide here showing our customers based on how they use these intelligent batteries, so we put them in these 5 verticals. The food and beverage industry is very constant usage throughout the year with some Super Bowl and Christmas time and so on, you'll see an uptake. But they use these products on a regular basis.

The retail and grocery, they get pretty busy during holiday time, so they run more shifts with it. If you have a lead acid today, it needs 8 hours of charge to run it for 8 hours and it have to cool for 8 hours. So they literally have to buy 3 lead acid batteries to run a 24-hour shift. Whereas if you have a lithium-ion pack, you can literally charge between the shifts, opportunity charging for those 20 minutes, right? So those are the very good use cases for us where the customers deploy this and they're able to run their shift 24/7.

We are also very actively used in the manufacturing industry like Electrolux, Caterpillar, when they produce these lift trucks in their manufacturing facilities, they use our batteries.

The distribution you can see like Amazon Prime Air is literally an airline that's distributing goods and services. So some of these customers, as you can see on the screen, they use our batteries.

And last but not least, as I mentioned, the airport GSE where we have a pretty significant footprint. They use our batteries to not only run their equipment, down service equipment, but also the heavy equipment that push the actual airplane back when it's ready to take off.

With that said, I'm going to stop on this last slide, a quote that was given by our customers in the 3 -- the airlines, food and beverage and also the manufacturing here. And after you take a look at it for a second, I'm going to quickly pass on to the next slide to have Kevin talk a little bit about our financials.

So Kevin, if you're ready, please let me know. I'm going to do the next slide.

Yes, go right ahead. Thanks, Krishna. I want to provide a quick overview of our financial information. This includes the last 3 fiscal years, plus our first quarter for our fiscal 2026 fiscal year. We are a June 30 year-end. And if you look, and this is by quarter, but if you summarize it, and we did earlier summarize by year, we've essentially been in the $60 million to $67 million range. So essentially flat over the last 3 years. We've got a new team and the new team is working aggressively to increase our revenues. We estimate that our breakeven is $16 million. So above that will be positive on a net income basis.

As was mentioned earlier, we've hired a new Chief Revenue Officer, Kelly Fry. He's taking steps to expand our customer base. We've got a new VP of Engineering, and he's taking steps to expand and improve our product lines. If you noticed, in Q1, we were down about $13.2 million in revenues. That's solely a result of the tariffs that were implemented in our fourth fiscal quarter, which is the second calendar quarter of FY 2026. And we're starting to see some signs that the pressure associated with that may be abating a little bit. Even though we've not grown, we have taken steps to improve our cost structure, both from a product cost structure as well as operating expenses and we continue to work on expanding our product portfolio and our customer base.

And so with that, I will turn it back over to Krishna.

Thank you, Kevin. That sort of brings us to the last slide of the presentation. So we will now flip forward to the question-and-answer session. We will take some questions for the next 1, 2 minutes and then try to address them in the 10 minutes we have here. So we'll take a minute to see all the questions that are just popping in.

Okay. Let me start with the first one. How should we think about the order cadence over the next few quarters as the demand normalizes?

So I can take this. So yes, as Kevin mentioned, the tariffs had a native impact on customers' ability to continue ordering normally like how they would do and they were in this wait mode early this year as the tariffs started providing an impact on what's going to happen, how is this going to change the way I order and so on. But we are now seeing signs where it's normalizing to your point, and we are seeing some interest coming from the customers and they start planning for the next fiscal year or the next calendar year. So we will see some pull because they did not order in the last quarter and so on. So we'll see some pull early in 2026. We just don't know which exact quarter it's going to be but we will see some pull-in and then the demand should normalize and continue on the regular path.

So the next question for you, Kevin. What are the key drivers for gross margin improvement and is 30% plus achievable?

Yes. So there's two areas of kind of -- as you put it in the question, key drivers, the first being supply chain. So looking with our supply chain to reduce our costs, a number of ways you can do that, you can do that through bringing in additional vendors and creating competition. You can look at the component parts from an engineering standpoint and are there lower cost components that exist in the market that we can replace existing components. And with that exercise, 30% plus is definitely achievable. We are somewhat mix dependent, but we do believe with that exercise alone, the supply chain vendor focus that we can get into the high 30s.

The second activity is more of a deeper product redesign, looking at modular concept where the larger cost products are based on building blocks from smaller products. So the smallest energy yielding product would be a component of all of the larger products. That will allow us to increase our volumes for -- to take advantage of higher volumes and lower cost.

Thanks, Kevin. That also addresses another question we got here, which was literally about what are you prioritizing to use the recent capital raises to support growth and margin.

As Kevin mentioned, we are looking at modularity as an engineering project with a very high priority for us to be able to get to better margins and have more control over the supply chain and the volume levels that we can order. So that's the answer for that question.

Looking at the question pipeline here, are you seeing any shift towards larger multisite customer deployments?

Yes. The way I say this is the customers are going through a big transformation. They built a little bit of infrastructure for these lead acid. So they build these battery rooms and they created this infrastructure where you need 3 batteries to run a 24-hour shift and whatnot. So lithium-ion is literally liberating them from this type of thinking and really giving more value. And like you can see that there will be a battery room that can be used to produce more on the floor, right? So they are understanding this.

So especially the bigger customers, as you asked in the question, when they think about deploying lithium, the first is the greenfield, right? So when they're thinking of putting a new warehouse at a new location or building the factory with autonomous vehicles and all those types of new technologies, they're definitely looking at lithium. And it's just not at one site. It's really across their site. And they also do quite a bit of comparisons between different locations for them to understand which our operating situation can get more value from lithium. So they do a little bit of studies, energy studies, which we help the bigger customers.

So yes, so definitely, we are seeing a shift towards multisite deployment, but they still do pick the priorities based on where they need more operational efficiency slots.

Now the next question here, which markets or verticals do you expect to ramp first following recent certifications?

So if you're just asking us about the U.S. certifications, we have significant coverage of UL both in the material handling, and we also got the recent certification as you saw in the press release on the GSE equipment side, which is literally taking our batteries and creating a mobile charging unit because these airlines can't wait for that infrastructure to be built up at airports. So they are even using a mobile charging unit where they take lots of our batteries put together on a cart and take it to the vehicles and charge them. So yes, that's where we are seeing quite a bit of ramp and UL is, again, the highest level of standard that some of these customers expect. And with the certifications coming, we are proven as the best product out there.

So that answers your question. And the last question here for you, Kevin, what additional cost efficiency opportunities remain after recent reductions?

Yes. So we have had a number of expense reductions as well as reductions in workforce in order to match the revenue levels. So if our revenue stay flat at the Q1 level or declined, then we would need to look at our overall cost structure once again. We are variable to the large [ economy ] so to the extent that we need to reduce costs, additional costs. We just have to roll up our sleeves and put together a plan to become more efficient.

Thank you. We just got one more question. The last question I'll take here. Should -- what level of sales gets you to the net income? I think, which you answered, but maybe you can repeat the answer. And does your recent funding get you there? How many shapes are outstanding if you count warrants and options and converts?

Yes. So let me just answer. It's not 20 million shares if you count everything. The level of sales I mentioned to get to GAAP net income breakeven of $16 million. And that at the gross margin levels of around 34%, 35%, just to be clear on that.

And then as far as the question on OpEx, should we expect OpEx to remain stable? Or will investments increase as growth returns? There will be some investment, but not significant amounts in developing our next-generation product portfolio. So it will be -- I talked about the modular concept in order to kind of standardize the component parts across our entire product portfolio doing that improve margins and take advantage of volumes. There will be some increase there once we resume growth once again but by and large, we won't need to increase our operating cost base as we grow.

Thanks, Kevin. Looks like we answered all the questions that came in. I'm not -- I'm doing one more big refresh. We're almost also on the clock here. So I want to thank you all again for joining this call and listening to our story.

As both Kevin and myself explained, we are at that point where we are very close to profitability. The new leadership is heavily focused on turning this ship and then building a profitable growth story. The opportunity is immense ahead of us as you can see with the market data and the whole lithium-ion transition is just getting started. So thanks again for your time today, and we look forward to talking to you soon. Operator?

Thank you. That concludes Flux Power Holdings, Inc. presentation. Thank you for joining us for the presentation portion of the IAccess Alpha Virtual Best Ideas Winter Investment Conference 2025. We'd also like to thank the investors and partners who help make these events possible by sharing ideas and supporting our vision. We hope to see you at our next virtual event, the IAccess Alpha Virtual Best Ideas Spring Investment Conference 2026, scheduled for March 10 through 11, 2026.

Thank you very much for attending today's presentations. On behalf of all of us at IAccess Alpha, we wish you and your families a healthy enjoyable holiday season and a prosperous New Year.

Good afternoon, and welcome to the Flux Power's Fiscal First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference call is being recorded today, November 13, 2025. I would now like to turn the conference over to Joel Achramowicz of Shelton Group Investor Relations. Joel, thank you, and over to you.

Good afternoon, and welcome to Flux Power's Fiscal First Quarter 2026 Earnings Conference Call. I'm Joel Achramowicz, Managing Director of Shelton Group, Flux Power's Investor Relations firm. Joining me on the call today are Krishna Vanka, Flux Power's CEO; and Kevin Royal, Chief Financial Officer.

Now before I turn the call over to Christian, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-K which can be found in the Investor Relations section of Flux Power's website at www.fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website.

And now it's my great pleasure to turn the call over to Flux Power's CEO, Krishna Vanka. Krishna, please go ahead.

Thank you, and welcome, everyone, to our Q1 2026 conference call. As we announced in our press release earlier today, revenue in the quarter reflected a temporary pause in the customer orders. This was mainly due to the uncertainty surrounding the tariff situation during the quarter and also due to the near-term caution regarding the macroeconomic situation. With the uncertainty that tariffs had on pricing, customers held back on placing orders until there was more clarity. This dynamic also temporarily impacted our gross margins during the quarter. Lately, however, we have begun to see order activity rebound in our second fiscal quarter, and this is highlighted by multimillion dollar orders from top material handling customers totaling $2.4 million.

In addition to these repeat orders, we also recently secured a large order with another major airline for ground service equipment. With this new customer, we now supply to 8 major North American airlines, and this represents doubling of our airline customer base compared to last year.

As I have shared with you on the prior earnings calls, the leadership here has established 5 strategic initiatives to guide our execution and performance. As a reminder, these initiatives include profitable growth, operational efficiencies, solution selling, building the right products and integrating value-added software across our battery portfolio to generate recurring revenue streams.

Let me provide you with update on these initiatives. During the quarter, we made additional progress on the operational efficiencies. We achieved this by implementing another limited workforce reduction. Since my arrival, we have reduced our headcount costs by a total of 20% while maintaining consistent production levels. In October, we were also pleased to receive confirmation that we retained our listing on the NASDAQ Capital Markets, so this is now behind us. We remain committed to maintaining the integrity of our listing for broad access to our common stock.

I'm also thrilled to announce that we have completed 2 capital raises totaling $13.8 million in proceeds, net of underwriter's discount fees and expense. These funds will be efficiently used for working capital needs and to accelerate our product development road map. We believe this product acceleration will create more opportunities and ultimately lead to better margins. We are excited that we recently received UL EE listing across our entire material handling portfolio of products. This will also open new market segments, representing around $1 billion in total addressable market, and these new market segments include chemical, agriculture processing, oil and gas and pharma industries.

During the quarter, we also achieved UL 1973 listing for our 80-volt intelligent batteries. This marks our first global recognized certification for a mobile battery energy storage system, BESS in the GSE industry and also unlocks new opportunities in AGVs and AMRs. Overall, these key safety standards provide assurance to customers that our products are reliable and safe. Our batteries were also certified recently by a world-leading multinational industrial equipment OEM for use in their new lift truck models. This showcases our commitment to working closely with OEMs and our partners as we continue to build the right products and solutions to meet our customers' needs.

Another key initiative is to expand our software offerings to improve recurring revenue. During the quarter, we graduated our SkyEMS 2.0 SaaS platform and converted a major airline from beta testing to a paying customer. We now have multiple paying customers on this software platform and continue to receive strong interest. We also started working on adding new AI-driven operational features to SkyEMS that you'll hear about on future calls. It is our goal that every battery shipped be cloud connected, and we are working hard towards this goal.

With that, let me now hand the call over to our CFO, Kevin Royal, to discuss our first quarter financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the fiscal first quarter of 2026 was $13.2 million compared to $16.1 million in the same quarter last year. As Krishna outlined earlier, the decrease in revenue was driven mainly due to a pause in customer orders as a result of the tariff uncertainty and macroeconomic concerns. Gross margin in the first quarter was 28.6% compared to 32.4% in the prior year period. The decrease in gross margin resulted mainly from lower sales, combined with a shift in mix to our lower energy capacity products, which have lower gross margins.

Operating expenses in the first quarter of 2026 were $5.9 million compared to $6.4 million in the first quarter of 2025. The decrease in operating expenses reflects the benefits of our cost reduction initiatives, including rightsizing the workforce to match current operating levels. The net loss for the first quarter was $2.6 million or $0.15 per share compared to a net loss of $1.7 million or $0.10 per share in the first quarter of 2025. Excluding costs associated with stock-based compensation, first quarter non-GAAP net loss was $2.4 million or $0.14 per share compared to a non-GAAP net loss of $1.1 million or $0.06 per share in the prior year period. Adjusted EBITDA for the first quarter was negative $1.7 million compared to negative $0.4 million in the same quarter a year ago, reflecting the lower revenue and margins in the quarter.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1.6 million compared to $0.6 million a year ago and $1.3 million in the prior quarter. Subsequent to quarter end, as Krishna highlighted earlier, we raised $9.2 million in proceeds, net of fees and underwriters discount from a secondary offering of common stock. And we also raised $4.6 million in proceeds net of fees from a private placement of pre-funded warrants and common stock warrants. Proceeds will primarily be used for working capital and to accelerate the redesign of our product portfolio in order to lower costs and improve gross profits.

I will now turn the call back over to Krishna for his final remarks, and then we will open it up for questions. Krishna?

Thank you, Kevin. In closing, despite the challenges we faced during the quarter, I'm really proud of the progress we have made. This includes streamlining our cost structure, completing the capital raises that we need to support our business, regaining compliance with NASDAQ listing requirements, accelerating our product road maps, receiving key certifications with UL and an important OEM, delivering SkyEMS 2.0 with paying customers. With these actions and the new leadership in place, we are well positioned to achieve profitable growth in the coming quarters.

With that, let's open the call to questions. Operator?

[Operator Instructions]

We have the first question from the line of Rob Brown from Lake Street Capital Markets.

First question on kind of the order trends sort of post quarter. I think you talked about some recovery in orders, I guess, and you've announced some bigger orders. But how are the order trends coming through? And are you seeing that strength continue into the fourth quarter?

Yes. So while we are seeing some evidence of a rebound, we highlighted $2.4 million in orders from material handling industry as well as a significant airline order. We really are still seeing some headwinds, which we continue to attribute to recent tariffs as well as some impact in the quarter from the government shutdown. However, we are seeing more promising trends in the second half of the year and in particular, seeing some strengthening in our third fiscal quarter, which is the first calendar quarter of 2026.

Okay. Great. And then on the ground support equipment market, you've had good progress there in terms of adding customers and expanding penetration in the customers. How is that market sort of looking from an investment standpoint on their part in terms of rolling out product? And what sort of further penetration can you get there?

Yes. They continue to adopt the clean energy solutions in the GSE. So I'm not seeing any pushback from the overall goal and how the airlines are thinking about going lithium. So that trend is very supportive. It was really this short-term tariff that paused some of the progress. But as Kevin mentioned, early next year, calendar-wise, we'll start seeing more activity.

As you noticed, we doubled the airlines we now serve and some of the airlines are just getting started, like the first order literally in the case, as I mentioned on the call. So we look forward to them taking more and more orders as they start deploying lithium.

[Operator Instructions]

As there are no further questions, I would like to hand the conference over back to Mr. Krishna for closing remarks.

Sure. Thank you again for joining us on the call today. We look forward to reporting our continued progress throughout the quarter and on our next earnings call in mid-February.

Operator, you may now disconnect.

Thank you. This brings us a close to today's conference. You may now disconnect your lines. Thank you for participating, and have a pleasant day.

Good afternoon, and welcome to the Flux Power Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joel Achramowicz, Managing Director. Please go ahead.

Good afternoon, and welcome to Flux Power's Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call. I'm Joel Achramowicz, Managing Director of Shelton Group, Flux Power's Investor Relations firm. And joining me today are Krishna Vanka, Flux Power's CEO; Kevin Royal, Chief Financial Officer; and Kelly Frey, Chief Revenue Officer.

Before I turn the call over to Krishna, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments and other forward-looking statements regarding future market developments, the future financial performance of the company, new products or other matters.

These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures.

These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-K, which can be found in the Investor Relations section of Flux Power's website at www.fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. And now it's my great pleasure to turn the call over to Flux Power's CEO, Krishna Vanka. Krishna, please go ahead.

Thank you, and welcome to everyone as we review our fourth quarter and fiscal year 2025 results and business update. I have been at Flux Power now for 6 months as CEO and have had the opportunity to meet more extensively with our customers and partners. This gave me a better understanding of their business, the product requirements and how Flux Power can offer added value through our battery solutions. These discussions have made me very excited about the company's future and the opportunities that lie ahead of us.

Flux Power is at the forefront of shaping the future for intelligent energy solutions where every lithium-ion battery functions as part of a connected self-optimizing network. This vision is part of a mandate shared across the members of our newly established management team, and we are all fully committed to achieving our long-term objectives, both operationally and financially. In our last earnings call, I shared with you the 5 strategic initiatives that will be guiding our execution and performance in the upcoming quarters and years.

These initiatives include: number one, achieving profitable growth; number two, executing on operational efficiencies; number three, implementing a solution selling approach; number four, building the right products for customer needs; and number five, integrating value-added software across our battery portfolio to generate recurring revenue streams.

As highlighted in our press release issued earlier today, we finished 2025 with a solid year-over-year growth both on a quarterly and annualized basis. We also significantly improved our gross profit and margin performance, contributing to meaningful improvement in our bottom line results. Acknowledging that we still have some work to do to achieve our goals of profitability and cash flow break-even, we are demonstrating initial progress.

In support of these goals, we have implemented various operational efficiencies to further reduce costs. First, I spent time in China meeting with existing partners in order to strengthen the vendor relationships. We discussed the macroeconomic situation and determined ways to work together to help offset the impact of the current tariffs. More broadly, we also engaged with our domestic vendors to mitigate the international tariff exposure by renegotiating contract terms where possible.

We are also evaluating additional product engineering work to reduce costs by simplifying our design. This work is ongoing, and we'll have more details to share with you on future calls. Finally, in June, we took action to reduce our headcount by about 15% across all segments of the company, except for sales and marketing. This will help to reduce our ongoing operating expenses and ultimately our cash burn. As part of our initiative to grow our software offerings and provide high-value solutions to customers, we have made good progress on our SkyEMS AI platform during this quarter.

I'm pleased to inform you that we have provided beta testing access of our SkyEMS version 2.0 to one of our airline customers, and we will be rolling it out soon to additional customers in the coming months. By embedding our solution into a connected ecosystem of vehicles, chargers and software, Flux will eventually create an integrated services and solutions that will generate recurring revenue and predictable replacement cycles.

We believe these initiatives will position Flux to accelerate product adoption among our customers, thus expanding our market share and driving our growth of sustained profitable growth. Now I would like to review some of our recent customer successes, recent orders. In early July, we received a significant purchase order through our GSE distributor for a major North American airline for 120 units of our newly announced and redesigned G80-420 lithium-ion battery pack.

This $2 million-plus order will be delivered throughout the calendar year 2025, reinforcing this airline's commitment to operational efficiency, sustainability and next-generation fleet readiness. In mid-August, we received an additional $1.2 million plus purchase order through our GSE distributor from another airline for a G80 lithium-ion energy solution, along with the SkyEMS software platform.

This is a great example of success of our new solution selling strategy. We offer the customer a powerful combination of both hardware and software designed specifically to transform their fleet of ground service equipment. In addition to our progress on the new business development, it is also important to note that we have now shipped more than 28,000 battery packs. This represents a tremendous opportunity to add intelligence to the customer's existing equipment and IT infrastructure with our SkyEMS software and telemetry systems.

Now I would like to hand over the call to Kelly Frey, our Chief Revenue Officer, to discuss our partnerships and solution selling initiatives, which are transforming the way we sell by aligning our product offerings to each customer specific needs. Kelly, please go ahead.

Thank you, Krishna, and thanks, everyone, for joining us today. I'm now in my third quarter at Flux Power. And like Krishna, over the past several months, I've immersed myself in the outbound business development activities across the company. I'd like to spend just a few minutes walking you through how we're thinking about the business today and where we see opportunities and momentum building. At Flux, our top focus is on building long-term partnerships with customers, dealers and OEM sales teams.

Over the last couple of quarters, we've shifted our sales approach to engage more directly with end customer users while continuing to fulfill business through OEMs, dealers and distribution partners. This is giving us better visibility into their needs and how we can deliver more value along with our dealer and OEM partners. We're not just selling a battery, we're also selling the accompany telematics software, which can be a critical component for customers to design their charging and energy management infrastructure.

In fact, our SkyEMS telemetry and energy management systems for monitoring and optimizing battery performance are becoming a bigger piece of the conversation. In addition to the potential new revenue streams from our software, we're also excited about our growth opportunities in new market verticals and geographies. We're leveraging our strong foothold in the United States and targeting expanded opportunities in North and Central America, where we think Flux can play an important role. These efforts are expected to open up significant market potential to help drive future growth.

Partnerships are another key driver of our growth strategy. Currently, we're engaged in more OEM discussions than at any other point in our history. We are working to remove barriers to adoption by expanding certifications, pursuing private label opportunities and investing in marketing. The goal is to turn first-time buyers into long-term repeat customers.

We are also looking at partnerships beyond OEMs with telematics providers as well as energy and charging infrastructure players. We see a real opportunity to strengthen the ecosystem around our solutions and add more value for our customers.

Finally, in terms of our sales pipeline, Flux has been involved in more opportunities this year and quoting activity is up significantly. And even though it may take a couple more quarters for that activity to materialize into backlog, the recent trend is very encouraging. So with that, let me now hand the call over to our CFO, Kevin Royal, to discuss our results for the quarter and year. Kevin?

Good afternoon, everyone. Revenue for the fourth quarter of 2025 was $16.7 million compared to $13.4 million during the same quarter of the prior year. Full year 2025 revenue increased to $66.4 million from $60.8 million in the prior year. Increased sales for the full year 2025 was driven by higher volume in both material handling and ground support equipment markets, higher average selling prices in the GSE market, while slightly offset by lower average selling prices in the material handling market.

Gross margin in the fourth quarter was 34.5% compared to 26.8% during the same quarter of the prior year. Full year 2025 gross margin increased to 32.7% from 28.3% in the prior year. The improvement in gross margin was driven by sales of higher-margin products, the benefit of cost savings initiatives and lower warranty-related expense. Operating expenses in the fourth quarter of 2025 were $6.5 million compared to $5.4 million in the fourth quarter of 2024. Full year 2025 operating expenses increased to $26.8 million from $23.8 million in the prior year.

Higher operating expenses were driven by $2.9 million of onetime costs associated with the multiyear restatement of previously issued financial statements. The net loss for the fourth quarter was $1.2 million or $0.07 per share compared to a net loss of $2.2 million or $0.13 in the fourth quarter of 2024. Net loss for the full year was $6.7 million or $0.40 per share, which includes approximately $3 million in onetime costs. This compares to a net loss of $8.3 million or $0.50 per share in 2024. Excluding onetime costs associated with the multiyear restatement of previously issued financial statements and stock-based compensation, the fourth quarter non-GAAP net loss was $30,000 or $0.00 per share compared to a non-GAAP net loss of $1.9 million or $0.11 per share in the prior period.

For the full year, non-GAAP net loss was $2.8 million or $0.17 per share, which excludes onetime costs associated with the multiyear restatement of previously issued financial statements and stock-based compensation. This compares to a net loss of $6.8 million or $0.41 per share in the prior year. Adjusted EBITDA for the fourth quarter was positive $600,000 compared to negative $1.2 million in the same quarter a year ago. Full year 2025 adjusted EBITDA was a negative $0.1 million compared to a negative $4 million in the prior year.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1.3 million compared to $600,000 a year ago. I will now turn it over to Krishna for his final remarks prior to the question-and-answer session.

Thank you, Kevin. As we highlighted today, we finished fiscal 2025 with solid year-over-year growth on both a quarterly and as well as on annualized basis. We have a refreshed leadership team here that's fully focused on executing our strategic initiatives, including implementing our solutions-based sales approach with partners and customers to increase the value we provide.

Although the current tariff and macroeconomic environment create uncertainty and near-term caution to certain customers, the growth of our sales opportunities, combined with the expected benefits from our strategic initiatives gives us a reason to be increasingly optimistic for the later part of our fiscal year. With that said, I will now turn the call back over to the operator for Q&A session. Operator?

[Operator Instructions] Our first question is from Craig Irwin with ROTH Capital Partners.

It's Andrew on for Craig. First question for me. It was really nice to see the strong gross margin expansion in the quarter. Can you guys just kind of talk a little bit more about what went right in the quarter there? And you guys have also talked about near-term visibility to 40% gross margin. So kind of additional color on kind of where we are in that journey would be great.

Yes. So we've had some initiatives to improve the cost of our product input. So the components and raw materials that go into our products. Really, that's what you're seeing flow through the quarter that contribute to probably about 60% of the improvement. The other being lower warranty costs. As we continue to improve the quality of our products, we're really starting to see the number of repair incidents decline both for the full year, but especially in the fourth quarter. So both of those items contributed to the improvement that we saw in the gross profit in the quarter.

Great. Now it was great to see the progress. And second one for me before I jump back in the queue. Congrats on getting the beta rollout of SkyEMS 2.0. Can you just kind of talk about how that's -- the customers received the product so far? And maybe just remind us kind of what the upgraded product provides versus the initial rollout of SkyEMS.

Yes. So this new version, SkyEMS 2.0 is really designed with customer in mind. We work closely with both the airline industry and the material handling to understand their pain points. These are specifically related to, "Hey, let us know when it's time to charge your battery. Can you increase the efficiency of the battery charging? Can we know when [ are we ] overusing the battery when it's discharging just to warm up the vehicle," for example, in colder environments. So we took all the feedback and we improved the product. We also made it pretty light and sleek that can almost work on a mobile environment like in a browser.

So this is a new product. We are very proud, as I mentioned, that we gave this to an existing airline who is testing this, gave us good feedback so far. We are also giving it to a material handling customer this week as we speak. And pretty soon, we will roll this out. And as you heard me saying, we are packaging this together when we sell the battery. That's one of the things we did earlier with the airline for $1.2 million. That solution included SkyEMS software.

Congrats on the continued progress and the strong quarter.

The next question is from Amit Dayal with H.C. Wainwright.

Congrats on all the progress. Just trying to see what the pipeline is looking like for you guys? And if you maybe have shared the backlog number, I didn't see it in the press release, I think. So any color on that would be helpful.

Yes. So specifically related to the outlook, while we don't provide guidance, we have seen kind of a bit of a slowdown and a pause from some of our customers in the quarter that we're currently in, which would be our first fiscal quarter. We've also started to see an increase in quoting activity, which we think bodes very well for the second fiscal quarter, which is the fourth calendar quarter. As it specifically relates to backlog, our current number is right at $9 million as we end the quarter.

Okay. And as you sort of look to now maybe moving from beta to actual sort of product rollout for the SkyEMS, how should we think about what the plan is on that side? And what are your expectations for the attach rate? Are you selling this independently as well? Or will this exclusively initially be sold along with the battery solutions? Just trying to get a sense of what the sort of -- at least the initial sales strategy is going to be for this offering?

Sure. I'll answer this, and then I'll have Kelly add any more color. So yes, our strategy is to package and sell the SkyEMS software along with the battery. That's why we are calling it intelligent battery. And we are seeing some good success with it as we roll this out. Beta is the name we gave it to make sure customers are happy and they will gladly use the product, but the product is literally ready with their live data. So as I mentioned, in a month or 2, we will remove the name beta from the product and call it SkyEMS 2.0, which we are already selling, as I mentioned, with every battery possible.

You also probably noticed we have 28,000 units that are already in the field. Our intentions are to go back and get them on the platform as much as we can. We do have a few thousands of the batteries in the field that are already online. It's literally working with these customers, giving them access and having them pay for it, which gives us a very good upsell opportunity. With that said, Kelly, do you want to add any other color?

Sure. I think, Krishna, you nailed it, but it's really 3 motions. The first is telematics on every battery to make sure that we're positioning in it, including at least a base level of telemetry, SkyEMS with each battery. Then is going back to the installed base of customers who are maybe in their first, second, third, fourth year of having a Flux battery even longer and saying, "Hey, there could be value in you putting telemetry on this battery so you can get better visibility, which allows for better capital planning, better optimization." That's kind of the second motion.

And then the third motion is once somebody takes perhaps their first version of SkyEMS, as we move [Technical Difficulty] we have upsell opportunities, perhaps advanced reporting, advanced optimization capability, integrations with other software they may be using. So it's kind of an upsell on top of the additional -- sorry, the original purchase of that telemetry.

The next question is from Rob Brown with Lake Street Capital Markets.

First question is on the airline orders that you received. I think there were 2 pretty sizable orders there. Could you give us a sense of sort of what's driving that? Is it an expansion into the fleet or really kind of the new product offerings that you've got?

So the G80-420, the $2 million is a redesigned battery. It was redesigned to be more efficient, more gross margin-driven design. So I would say it is as a new product almost that we sold to an existing airline. And the second order we mentioned is for the G lithium-ion, which is sold as a package with SkyEMS. So that's an existing product that we sold with the software added to it as a package.

Could I add something, Krishna? The other thing is -- so Krishna is accurate in that. The other thing is just to remind everybody, we're still at a very early adoption phase of lithium within the ground support equipment market. So even our existing customers who have purchased several hundred or even a couple of -- thousand of batteries from us or low thousands of batteries from us, still have a lot of migration to do from lead acid to lithium or from internal combustion to lithium.

So it's not only just upselling the existing customers to get further adoption throughout their fleets, they typically roll out airport by airport by airport or sometimes by region or by country. So it's the existing increased adoption and then it's new airport acquisition is the other -- sorry, new airline acquisition is the other key focus in that market.

Great. And then on the quoting activity, I think you talked about an uptick after a bit of a lull. What's the -- is that both material handling and ground support equipment? Or what's sort of the dynamics of that improving order quoting?

Kelly, do you want to take it?

Yes, I can. So really, I think everybody on this call is aware, we service 2 main markets. There's the ground support equipment market and the material handling market. The ground support equipment market, we didn't see as much of a pullback in capital expenditures. There was a little where there was related to uncertainty with the economy, we think driven mostly by the tariffs and what was going to happen, perhaps a little downturn in passenger traffic.

So there was some impact on the ground support equipment market. However, in the material handling market, we did see in particularly Q1 calendar year, there was a little bit of advanced purchasing. Let's get it before the tariffs hit. And then there was a pullback on capital expenditures. I think everybody is aware, our batteries go into lift trucks. Lift trucks are a fairly heavy capital expenditure.

We saw customers kind of holding their capital tied to chest in kind of late Q1, Q2. And now that increased quoting activity is really people saying, "Okay, I think I understand what's going on with tariffs. I understand the impact on my supply chain. Okay, I'm now going to release that capital to purchase the lift trucks, purchase the batteries," et cetera. So that's really what's driving it in the material handling market.

This concludes our question-and-answer section. I'd like to turn the conference back over to Krishna Vanka for any closing remarks.

Thank you all again for joining us on the call today. We really look forward to speaking with you again during our first quarter call in November time frame. Operator, you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.