Q2 2026 Flux Power Holdings Inc Earnings Call

February 12, 2026

Operator: Good afternoon, and welcome to Flux Power's Fiscal Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, 12 February 2026. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Operator: Good afternoon, and welcome to Flux Power's Fiscal Q2 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, 12 February 2026. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Speaker #1: Good afternoon and welcome to Flux Power's Fiscal Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session.

Speaker #1: 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.

Speaker #1: Joel, please go ahead.

Speaker #2: 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.

Joel Achramowicz: Good afternoon, and welcome to Flux Power's fiscal Q2 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.

Speaker #2: Joining me today are Krishna Vanka, Flux Power 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.

Speaker #2: 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.

Speaker #2: 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.

Joel Achramowicz: 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.flexpower.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.

Speaker #2: 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.

Speaker #2: And now it's my great pleasure to turn the call over to Flux Power's CEO, Krishna Vanka. Krishna, please go ahead.

Speaker #3: Thank you, and welcome everyone to our second quarter conference call. As we announced in our press release earlier today, we achieved profitability for the first time in the company's history.

Krishna Vanka: 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 roadmap. I will walk you through these recent developments as I deliver updates to the five strategic initiatives that we have established to guide our execution and performance here at Flux.

Krishna Vanka: Thank you, and welcome everyone to our Q2 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 roadmap. I will walk you through these recent developments as I deliver updates to the five strategic initiatives that we have established to guide our execution and performance here at Flux.

Speaker #3: 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.

Speaker #3: 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 the roadmap.

Speaker #3: I will walk you through these recent developments as I deliver updates to the five strategic initiatives that we have established to guide our execution and performance here at Flux.

Speaker #3: 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.

Krishna Vanka: 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 right sizing 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 right-sizing process has led to a solid financial structure, offering high operating leverage.

Speaker #3: 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.

Speaker #3: The results also demonstrate benefits from the multi-quarter restructuring decisions we made to improve our operational efficiencies. These efforts included right-sizing our headcount, as well as all other cost optimizations we took to streamline the organization.

Speaker #3: I can say that we looked carefully at all levels of the company to find and optimize spending where possible. This right-sizing process has led to a solid financial structure offering high operating leverage.

Speaker #3: Today, we have a much lower cost structure, higher margins, and a lower break-even 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.

Krishna Vanka: Today, we have a much lower cost structure, higher margins, and a lower break-even 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Krishna Vanka: 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 SkyLink telematics device with significant advancements to complement our own Flux-designed battery management system. SkyLink delivers a competitive advantage in high-performance processing and sensing.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Moving on, our focus to build the right products for our customers continues to bear fruit. We released our next-generation SkyLink telematics device with significant advancements to complement our own Flux-designed battery management system.

Speaker #3: SkyLink delivers a competitive advantage in high-performance processing and sensing. It is powered by a quad-core 64-bit processor enabling onboard analytics and machine learning directly within each battery system.

Krishna Vanka: It is powered by a quad-core 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 Wi-Fi, Bluetooth, worldwide cellular, and GPS, a 3-axis accelerometer, gyroscope, and temperature sensing to provide continuous visibility and control. That means we will have 4 times the sensors compared to the current generation. This is a big achievement. These new capabilities align with our intelligence roadmap to provide our customers with powerful real-time features. These real-time features include user-defined geo-fencing with advanced health and performance analytics that can be automated via AI. Using the machine learning locally on the device helps predict fault detection, usage and trend analysis, energy optimization, and life cycle forecasting.

Speaker #3: The algorithms can be run locally, which helps to build AI-driven features in the near future. It also includes integrated Wi-Fi, Bluetooth, worldwide cellular, and GPS; a three-axis accelerometer; gyroscope; and temperature sensing to provide continuous visibility and control.

Speaker #3: That means we will have four times the sensors compared to the current generation. This is a big achievement. These new capabilities align with our intelligence roadmap to provide our customers with powerful real-time features.

Speaker #3: These real-time features include user-defined geofencing with advanced health and performance analytics that can be automated via AI. Using

Speaker #1: Using the machine learning locally on the device helps predict fault detection , usage and trend analysis Energy optimization and life cycle forecasting . This Skylink telematics units are currently in beta test at multiple customer sites , and we are receiving great feedback .

Krishna Vanka: These SkyLink telematics units are currently in beta test at multiple customer sites, and we are receiving great feedback. We plan to make SkyLink 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 four 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.

Speaker #1: We plan to make Skylink telematics available to all customers in a couple of months. Also, during this quarter, we released a new G83 15 battery in response to the GSC customer demand.

Speaker #1: will help us continue to dominate this key market for us . We now have four product lines with multiple configurations that support the GSC segment Our last key initiative is integrating value added software across our battery portfolio .

Speaker #1: 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 than a battery .

Speaker #1: They are looking for an energy management system to manage their assets , improve productivity , and reduce costs . Our Sky EMS software addresses all these needs and was recently upgraded to include multiple new features First , Intelligent alerting .

Krishna Vanka: Our Sky EMS 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 Sky EMS 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.

Speaker #1: 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.

Speaker #1: 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 Sky EMS platform .

Speaker #1: 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 .

Speaker #1: 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% .

Krishna Vanka: 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 Q3. 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.

Speaker #1: 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 .

Speaker #1: Before turning the call over to Kevin , I want to summarize our progress and provide more color around our outlook for the third quarter .

Speaker #1: First , through our product and operating cost reduction efforts , we have reported net income for the first time in the company's history .

Speaker #1: We are extremely happy with the 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.

Speaker #1: 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 .

Krishna Vanka: 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 Q3. 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.

Speaker #1: The business is performing well, and we have set the stage for continued profitable growth. However, recently our most significant customer has conveyed to us that they are implementing a capital freeze.

Speaker #1: We are not certain how long this freeze will be in effect, but anticipate it may impact a significant portion of calendar year 2026.

Speaker #1: 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 .

Speaker #1: 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.

Speaker #1: 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 .

Krishna Vanka: 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 Q2 financial results in more detail. Kevin, please go ahead.

Speaker #1: 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 .

Speaker #2: 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.

Kevin Royal: 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.

Kevin Royal: 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 Q2 of 2026 were $4.1 million, compared to $5.9 million in the prior quarter, and $6.9 million in the Q2 of 2025.

Speaker #2: 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 .

Speaker #2: 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 .

Speaker #2: 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 .

Kevin Royal: 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 Q2 was $0.6 million, or 3 cents per share, compared to a net loss of $2.6 million, or 15 cents per share in the prior quarter, and a net loss of $1.9 million, or 11 cents per share in Q2 of 2025.

Speaker #2: Excluding legal costs associated with the multi-year restatement of previously issued financial statements and stock based compensation Second quarter non-GAAP net income was 1 million , or $0.04 per 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 .

Kevin Royal: Excluding legal costs associated with the multi-year restatement of previously issued financial statements and stock-based compensation, Q2 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 Q2 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.

Speaker #2: In 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 30th , 2025 .

Speaker #2: 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 .

Kevin Royal: 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?

Speaker #2: 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 .

Speaker #2: I will now turn the call back to Krishna for his final remarks , and then we will open it up for questions . Krishna .

Speaker #1: 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 a lithium ion battery market that continues to offer great opportunities .

Krishna Vanka: 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. 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?

Speaker #1: 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 .

Speaker #1: We remain focused on making continued progress across our business while managing through these current business conditions, in order to return to growth.

Speaker #1: With that, let's open the call to questions. Operator.

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone .

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. Our first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Speaker #3: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw the question , please press star then two .

Speaker #3: Our first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown: Congrats on all the progress. 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, industry vertical, or is this unique to the customer?

Speaker #4: And congrats on all the progress on the first of 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 and vertical , or is this unique to the customer ?

Speaker #1: 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 .

Krishna Vanka: 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.

Speaker #1: This is one individual customer

Speaker #4: Okay . Got it , got it Then in general , how is the demand environment looking in in the market ? Are you seeing sort of stable , stable demand or how would you characterize the overall demand environment ?

Rob Brown: Okay, got it. Got it. And then in general, how is the demand environment looking in the market? Are you seeing sort of stable, stable demand, or how would you characterize the overall demand environment? I think has been a little bit mixed, but how would you characterize the broader environment?

Speaker #4: I think it has been a little bit mixed. But how would you characterize the broader environment?

Speaker #1: Yeah . 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 .

Krishna Vanka: Yeah. 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 first 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, you know, that they, they need this equipment to continue their business operations.

Speaker #1: 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 , you that .

Speaker #1: They need these equipment to continue their business operations

Speaker #4: Okay . Thank you . And then the Skylink product , I think you said it's a pretty good customer feedback and you're rolling it out more broadly .

Rob Brown: Okay, thank you. Then, in the SkyLink product, I think you said some pretty good customer feedback, and you're rolling it out more broadly. You know, could you give us a sense of, sort of as you roll that out, how, you know, do you, 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?

Speaker #4: Could you give us a sense of, as you roll that out, do you go to certain verticals or do you just offer it kind of across the customer base?

Speaker #4: And what are the opportunities there in terms of driving some new business?

Speaker #1: Sure . The Skylink telematics , which is really our next generation product , as I mentioned , it's significantly powerful , comes with , you know , the chip for machine learning and even implementing some AI .

Krishna Vanka: Sure. The SkyLink telematics, which is really our next generation product, as I mentioned, it's significantly powerful. Comes with, you know, 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 geo-fence, right? Can we be alerted proactively for, you know, our operators to take some action?" So the SkyLink 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, this will be offered across our product line for all of our batteries, in couple of months.

Speaker #1: 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 ?

Speaker #1: Right . Can we be alerted proactively for , you know , our operators to take some action ? So the Skylink telematics will solve these problems .

Speaker #1: 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.

Speaker #1: The initial feedback has been pretty positive , and this will also honestly open doors for us to be able to offer more telematics solution based solutions to our customers in the future .

Krishna Vanka: 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.

Speaker #1: So, we are really looking forward to deploying this with every battery we sell.

Speaker #4: Okay , great . Thank you . I'll turn it over

Joel Achramowicz: ... Okay, great. Thank you. I'll turn it over.

Speaker #3: Our next question comes from Sameer Joshi with H.C. Wainwright . Please go ahead .

Operator: Our next question comes from Samir Joshi with H.C. Wainwright. Please go ahead.

Speaker #5: Hey . Good afternoon , Krishna . Kevin , congrats on the good performance and positive net income . Despite the headwinds . So getting into that , the gross margins 610 basis point improvement .

Sameer Joshi: Hey, good afternoon, Krishna, Kevin. 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 and have a better gross margin profile going forward?

Speaker #5: 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

Speaker #2: Yeah , we're taking steps , continued steps to lower our product cost . We continue to experience , you know , a positive trends as it relates to warranty and the repair costs associated with our warranty obligations .

Kevin Royal: Yeah, we're taking steps, continued steps to lower our product cost. We continue to experience, you know, positive trends as it relates to warranty and repair costs associated with our warranty obligations. So, you know, quarter to quarter, depending on the mix, you know, we will -- we would expect to see... You know, if the mix were to stay the same, I'd put it that way, you'll see improvements quarter to quarter. But there will be, you know, times when you have a decline, times when you have an increase, and that's solely related to mix.

Kevin Royal: Yeah, we're taking steps, continued steps to lower our product cost. We continue to experience, you know, positive trends as it relates to warranty and repair costs associated with our warranty obligations. So, you know, quarter-to-quarter, depending on the mix, you know, we will -- we would expect to see... You know, if the mix were to stay the same, I'd put it that way, you'll see improvements quarter-to-quarter. But there will be, you know, times when you have a decline, times when you have an increase, and that's solely related to mix.

Speaker #2: So , you know , quarter to quarter depending on the the mix . You know , we will we would expect to see if the mix were to say the same .

Speaker #2: I put it that way . You'll see improvements quarter to quarter . But there will be , you know , times when you have a decline , times when you have an increase .

Speaker #2: And that's solely related to the mix.

Speaker #5: And I guess spreading of costs, overheads over different revenue profiles as well, I guess.

Sameer Joshi: And I guess spreading of the costs overheads over different revenue profile as well, I guess.

Speaker #2: That is correct . Leverage . Leverage will also have an impact

Kevin Royal: That is correct.

Sameer Joshi: Uh.

Kevin Royal: The leverage will also-

Sameer Joshi: Yeah

Kevin Royal: have an impact.

Speaker #5: Right , right . And then just following up on a couple of things that Rob From where you said and where you have your pipeline at , is it more from any one particular say , material handling or some other sector and how does the prospects look over the next 6 to 12 months , I mean , this one customer you .

Sameer Joshi: Right. Right. And then, just following up on a couple of things that Rob raised. 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 six to 12 months? I mean, this one customer, you, I think you have to sort of replace, or get additional customers to make up that revenues, so.

Speaker #5: I think you would have to sort of replace or get additional customers to make up that revenue. So,

Speaker #1: Yeah , 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 .

Krishna Vanka: Yeah. 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 yeah, that's our focus. We are doing every effort. We are seeing, you know, some definitely an increase in the adoption of Lithium, I would say.

Speaker #1: 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 .

Speaker #1: 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 .

Speaker #1: So yeah , that's our focus . We are doing every effort . We are seeing , you know , some definitely an increase in the adoption of lithium .

Speaker #1: 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 .

Krishna Vanka: 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, you know, one and two years. So we are getting ready for that.

Speaker #1: Literally, short term, you know, one and two years. So we are getting ready for that.

Speaker #5: Understood . And then just the last one , these new sort of the Skylink features right . Are these going to be sold at a premium pricing or rather I should say incremental pricing .

Sameer Joshi: Understood. And then just the last one, these new sort of SkyLink features, right? Are these going to be sold at a premium pricing or, 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.

Speaker #5: And how does that in turn improve your gross margin profile ? Because I guess these will have really high gross margins .

Speaker #1: That is the plan . We just tiered our software into , you know , 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 Skylink and it creates an option for us to sell these premium package , which comes with some AI based functionality .

Krishna Vanka: That is the plan. We just tiered our software into, you know, 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 SkyLink, and it creates an option for us to sell these, you know, 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, you know, software-based sales will be significantly higher. The key is that, you know, we have 30,000 plus batteries in the market. How do we go back to existing customer base and get some extra, you know, from the existing customer base versus moving forward, right?

Speaker #1: 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 , you know , software based sales will be significantly higher .

Speaker #1: The key is that , you know , we have 30,000 plus batteries in the market . How do we go back to existing customer base and get some extra , you know , from the existing customer base versus moving forward ?

Speaker #1: 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.

Krishna Vanka: 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.

Speaker #5: Got it . May I squeeze in one more on the state of health patent ? Can you can you elaborate on it and like what is the revenue potential from this ?

Sameer Joshi: Got it. 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.

Speaker #5: I guess this is also going to be sort of a incremental feature that users can . Customers can pay you for

Speaker #1: Thank you . Yes . You 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 Skylink , but also , you know , how how to write that algorithm , right ?

Krishna Vanka: 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 SkyLink, but also you know, how, 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, you know, the next stage of the batteries, right? I have, when do I need to repurchase the batteries? How long life do I have?

Speaker #1: The scope of the algorithm . So the patent is pretty extensive . We already took that The algorithm , and we implemented it on the software side .

Speaker #1: This will be included in that premium package . I mentioned . The real advantages of that state of health is customers are getting insights into , you know , the the next stage of the batteries , right .

Speaker #1: 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 ?

Krishna Vanka: 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 Sky EMS software, which can derive some, you know, forward-looking knowledge based on the State of Health algorithm. So, yeah, 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 gonna be able to do that, as part of the process here.

Speaker #1: 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 sky EMS software , which can derive some , you know , forward looking , knowledge based on the state of health algorithm .

Speaker #1: So yeah , really , it's one thing for companies to get the patents is the other thing to actually put them into use .

Speaker #1: And generate revenue. I think we are going to be able to do that as part of the process here.

Speaker #5: Sounds good . Thanks a lot for taking my questions .

Sameer Joshi: Sounds good. Thank you a lot for taking my question.

Speaker #1: Welcome .

Krishna Vanka: You're welcome.

Speaker #3: Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Operator: Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Speaker #6: Hi . Good evening and thanks for taking my questions . So the only question I have at this point is the accounting for your half dollar reversal of incentive comp in the quarter .

Craig Irwin: Hi, good evening, and thanks for taking my questions. 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, you know, in the near term?

Speaker #6: 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?

Speaker #6: You know , in the near term ?

Speaker #2: Yeah , sure . Craig . So that amount was the the incentive compensation that we had accrued through our first quarter . When we got into the second quarter and we neared the end and we evaluated the objectives for the incentive compensation against our forecast and realized that there wouldn't be achieved , especially given the significant customer announcement and disclosure that we've made it .

Kevin Royal: Yeah, sure, Craig. So that amount was the incentive compensation that we had accrued through Q1. When we got into Q2, and we neared 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, it, you know, 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.

Speaker #2: You know , GAAP required that that we reverse that estimate . And so we did that was amount again , that had been accrued through Q1 and was reversed in Q2 .

Speaker #2: And will not impact on the upcoming quarters .

Speaker #6: Okay . So so my question is , was that recognized in cost of revenue or SG&A or in a combined , you know , combined places on the PNL ?

Craig Irwin: Okay, so my question is: Was that recognized in cost of revenue or SG&A or in a combined, you know, combined places on the P&L?

Speaker #2: So in all three , but primarily in SGA and R&D , with a slight amount , say , around 50,000 in Cogs .

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

Speaker #6: Understood . Thank you very much . Congrats on the on the profitable quarter .

Craig Irwin: Understood. Thank you very much, and congrats on the profitable quarter.

Speaker #2: Thank you .

Kevin Royal: Thank you.

Speaker #1: Thank you

Krishna Vanka: Thank you.

Speaker #3: Again , if you have a question , please press star then one . This concludes our question and answer session . I would like to turn the conference back over to Krishna Vanka for any closing remarks .

Operator: Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks.

Speaker #1: 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.

Krishna Vanka: 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.

Speaker #1: You may now disconnect

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

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