$FLUX is to forklift batteries as $TSLA is to cars - and $ENS should be nervous!
Today $FLUX Power reported Q2 results demonstrating that the game is on in the wholesale replacement of lead acid batteries used in forklifts and other industrial equipment. This market opportunity is estimated at over $8B, yet lead-acid has owned the space for decades simply because no-one had attempted to launch a better solution - and frankly why would the lead-acid industry bother when they were doing just fine owning 100% of the market.
Here's today's $FLUX Release
Flux Q2 Revenues rise over 500% to $1.2M
Flux's rapid sales ramp is being fueled by a few household name clients that after a few years of review and testing of the product and the tiny company Flux - have determined the solution has a compelling ROI and have begun to deploy it across their material handling operations. Getting back the Tesla analogy - Flux actually faces an easier path of growth - for they merely need to get customers to switch the type of battery they are already using - to lithium; they don't need the customer to buy an entirely new car, nor do they need to invest in recharging infrastructure. Switching to lithium is a plug and play affair.
Lithium performs better, lasts longer, is more efficient in its uses of electricity for charging and it delivers a total cost of ownership that is well below the comparable cost of several lead-acid batteries required to power a forklift over its useful life. The downside is that it is new and it does cost roughly twice as much as the first lead-acid battery - but over time it saves money, improves productivity and makes forklift drivers and managers very happy!
I really do think that Flux Power
is the clear leader in the U.S. market for lithium-ion forklift batteries. Its leadership is measured by the sophistication and refinement of its solutions, its time in the market, scope of Fortune 500 companies that have piloted and/or bought packs and its technical approvals from the likes of UL, ISO9001 and the top three forklift OEMS.
They are not yet out of the woods as they must now cope with the demand they have stoked - and continue to deliver a great product at a compelling price at increasing scale. Flux's biggest challenge remains the sourcing of large scale capital required to fund the huge ramp we think is possible. Flux has been supported by the very shareholder friendly balance sheet of its major stockholder, who has provided a $10M line of credit to the com any at an attractive interest rate and the line is convertible into Flux equity at $0.60 per share - which is well above where the stock has been trading there past few years. This shareholder has done right by the company and the shareholders in keeping flux afloat and in the game with financial support that is well beyond great given Flux's size.
The market opportunity in forklifts and airport ground service equipment alone - is over $8b - just replacing what's out there with lithium.
Of course, there is also the Fuel cell market with players like $PLUG and $FCEL that offer a great solution - but the infrastructure required and the cost currently price Fuel cells out of most potential opportunities. You really need a large base of vehicles in one location to justify the infrastructure investment for fuel cells and their hydrogen charging requirements - and the economics of that energy source seem still far away from making sense for the smaller Class 3 equipment where Flux has first focused.
In my view this is not lithium vs. fuel cells at all as they both offer far better power solutions but with different cap ex requirements. With Flux you can drop in one or two packs as you need replacements - whereas fuel cells require a big picture deployment plan and investment.
The real battle will be lithium + fuel cells vs. lead-acid, with dominant players like East Penn, Enersys $ENS and Excide owning the entire market. But let's not pretend that a superior solution has an easy time unseating the incumbent technology that is sitting comfortably at the top of the hill in a deeply fortified castle. Breaking down their relationships, distribution channels and their customers risk aversion and concern about the "new" are huge challenges that Flux has only started to address. But the customers where Flux has gotten a seat at the table - have steadily moved toward the light.
Finally - the forklift OEMs also play a huge role in the market - and fortunately for Flux they have long dealt with the performance challenges of lead acid - which reflect on the quality of their machines. Slowly they have come to see that lithium offers an exciting new opportunity for them to deliver even greater value and satisfaction to their customers - and so they are embracing lithium in a slow and prudent fashion. We believe Flux's courting of these key players is starting to bear fruit and we look for more progress. Much of Flux's revenue this fiscal year has been developed for one household beverage brand - and sold to them via the sales arms of two of the largest forklift OEMs.
Bottom line (#2 ; ) - at $0.50 per share Flux's market cap is $12.5M. Yet today's release provides visibility on near certain revenue of $2.25M so far in FY 2018 ending June 30 + a pipeline of orders through its fiscal year end totaling $3M.
This of course compares to revenue of just $0.9M last year while Flux was still engaged in solidifying is product line, manufacturing and initiating commercial sales ramp.
Given Flux's first mover position, its major customer and OEM relationships, the clear ROI of switching to lithium, the scope of the $8B market and the pace of its accelerating revenue streams - we believe it's very likely that Flux could prove to be a once in a lifetime opportunity to invest in technology revolution at the early stages. Really much of the risk is behind Flux - that of technology development, market development and building credibility and customer demand they have proven that.
Now the risks they face are in sourcing capital to take advantage of their position, continue execution in the business on technology, production and customer service, and implementing their multi facet plan to grow to what should be a 30% gross profit margin in the next year or two.
As for the negatives - they are normal and apparent and I leave them to you to consider. Really the point of this post is to encourage you to take a look yourself - and see what you think of the Flux story. I also encourage you to contact us should you have any questions about Flux or should you wish to schedule a demo of their product for your Company. We can be reached at firstname.lastname@example.org or at 212 924 9800 - ask for Chris or David - and I promise we'll provide candid and balanced answers to any of our questions. Thanks for reading! David
Our firm has worked as IR counsel for Flux over the past four years and despite the risks outlined, we think Flux has a great shot and our confidence has never been higher (and yes, it's been a little scary along the way). Because we believe in Flux and in particular its smart, hardworking and honorable CEO Ron Dutt - and to address their capital limitations - we structured our compensation to be roughly 75% in the form of restricted stock - every single share of which we still own and sits in certificate form in our files. Show me IR consultants who eat their own cooking and haven't sold a share and you'll probably have an investment well worth a closer look.