Q2 2024 Flux Power Holdings Inc Earnings Call
Participants
Maria Rico; Marketing Manager; Flux Power Holdings, Inc.
Ron Dutt; CEO; Flux Power Holdings, Inc.
Chuck Scheiwe; CFO; Flux Power Holdings, Inc.
Rob Brown; Analyst; Lake Street Capital Markets, LLC
Sameer Joshi; Analyst; H. C. Wainwright & Co., LLC
Presentation
Operator
Greetings, and welcome to the Flux Power Holdings second quarter fiscal year 2024 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to hand the call over to Maria Rica, Marketing Manager.
Maria Rico
Thank you, operator. Your host today Ron Dutt, Chief Executive Officer, and Chuck Scheiwe, Chief Financial Officer, will present results of operations for the fiscal second quarter ended December 31, 2023. A press release detailing these results crossed the wires this afternoon at 4:01 PM Eastern. It is available in the Investor Relations section of our company's website, fluxpower.com.
Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation, please keep in mind that we are not obligated or we are not obligating ourselves to revise or publicly release the results of any revision. These forward-looking statements in light of new information or future events.
Throughout today's discussion, we'll attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-K for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. At this time, I will turn the call over to Flux Power's Chief Executive Officer, Ron Dutt.
Ron Dutt
Thank you, Maria, and good afternoon, everyone. I'm pleased to welcome you to today's fiscal second quarter 24 financial results conference call. Firstly, please note that on slide 3, if you're following the deck for those of you new to our story, there is a short reminder of what we do. We are powering your transition to sustainable lithium ion battery technology. We are powering material handling, airport, ground support, solar energy storage, Port Authority equipment and other applications with new and clean technology. Our products and services are focused on the growing demand for large nationwide fleets that are pursuing a better return on investment and a positive environmental impact compared to lead acid batteries. We are the leading supplier to the large material handling fleets who required the best, both now and with future deliveries and product technology, service and ease of doing business. Our reputation and brand are critical as we target top-tier customer and OEM. names, which I'll point out shortly. We must have a strong reputation and solid track record to reliably satisfy these large fleets that have hundreds of facilities and need their batteries for new equipment and existing equipment delivered on time without difficulty Fortune 100 companies demand suppliers that are transparent, experienced and trustworthy as they transition their fleets to new and clean technologies, which puts us in a very strong position in the clean energy market. And we have the trend note on average, adding two large new customers per quarter and at the same time without losing any of our installed base of customers.
Our business priority this past year focused on progress to cash flow breakeven while continuing to capture market share for the increasing demand for lithium batteries. We continue to be highly encouraged by our momentum towards cash flow breakeven and profitability. Given the underlying demand of our products we have made progress on a number of our growth initiatives that have near term and long-term impacts. Our new series of heavy duty models will be added to most of our product set by segment. And along with that, a new top five forklift OEM private label program, both of which will address the strong market demand beginning in early 2020 calendar year and our automated assembly of cell modules tracking well, we plan to launch the first the industry's first integrated telematics fleet wide program for the Fortune 100 customer later in 2024 this year that combines the telemetry data of both the forklift and the battery. We believe that our leadership in telematics will serve as a continuing platform to introduce new features for operating performance and asset management that are highly desired by our customers. Also, we are exploring with partners opportunities for fast charging technology and international sales opportunities. Its second fiscal quarter of 2024 also saw ongoing momentum momentum to both the top and bottom lines as we continue to move steadily towards profitability, while reaching record quarter revenue of $18.3 million during the quarter. We do continue to see lumpiness due to the timing of deliveries of customer new forklift orders and higher interest rate impacts. We improved gross profit up 38% in the second quarter to $5.7 million and gross margin expansion of 700 basis points to 31% compared to the year ago period and also up from our fiscal first quarter of $4.3 million and 29%, respectively, with ongoing initiatives focused on strategic supply chain and profitability improvement, lower costs and higher volume purchasing. We are targeting gross margin improvement to continue toward 35% in the short term, we are highly focused on achieving cash flow breakeven during this fiscal year 2024, we made good progress during the second fiscal quarter, delivering positive adjusted EBITDA of $300,000, an improvement of 1.2 million from an adjusted EBITDA loss of $900,000 in the second fiscal quarter of 2023 and a sequential improvement from a loss of $1.2 million in the first fiscal quarter of 2024. Key drivers of the improvement include gross margin expansion and steady operating leverage from modest growth in operating expenses over the year. Our cost and pricing initiatives contributed to gross margin improvements that I just mentioned to 31% in Q2 '24. Also, while our inventory balances have been stable, reflecting better management of supply chain sourcing and higher inventory turns from improved operational processes and lean manufacturing implementation. Taken together, we are executing operational efficiencies on our strategy for cash flow breakeven beginning in this fiscal year 2024 and increasing profitability beyond as we continue to drive expansion of our product lineup, operational efficiencies and service network. In the longer term, our strategy revolves around building scale to sell our products to large fleets, building on our momentum in revenue, gross margin and operating leverage. Currently, we are growing organically within our capital resources, but have begun to explore and develop strategies, including those already mentioned to build partnerships that can leverage our revenue growth, our technology and our profitability and achieve our goal of building scale to meet the needs of our top tier customers. Our efforts on increasing revenue and margin improvement, specifically for adjusted EBITDA are shown on slide 7, reflecting the upward trend over the past two fiscal years and our momentum towards sustained breakeven. The increase in Q2 fiscal 24 is directly attributed to the improved gross margin.
Gross profit sorry, from gross margin expansion and revenue growth. We believe our trajectory to profitability is built on a strong foundation of lean implementation and ISO 9,001 processes. Additional enablers include expansion of high demand models and continued operational and volume-related supply chain cost reductions. Our current and potential pipeline of customers continues to expand with more new customers this past quarter and eight new customers in the calendar year 2023. Our full product line caters to large fleets to seek an ongoing long-term relationship partner to meet current and future needs, not just a onetime transactional purchase engagement. These customers represent well known household names, adding large fleets who require high performing suppliers. Our forklift growth rate has historically been single digit. The adoption of lithium ion batteries is growing at a much higher rate driven by the compelling value proposition of lithium compared to lead acid, especially for the larger multi shift operations. The material handling sector is not unaffected by economic downturns, but it is critical too transport goods and provide services throughout the business cycle. Our strategy has included adjacent verticals such as airport ground support equipment, and we continue to assess other possible adjacencies to leverage our core competencies and capabilities. The trajectories of our revenue and gross margin.
On slide 9 speak for themselves. We have taken actions to restore our gross margin trajectory that was interrupted by the pandemic, our highest priority now of achieving sustained profitability this fiscal year. Our ongoing improvement initiatives include a number of actions that are now impacting gross margin, and we'll continue to do so. First, price increases to offset commodity pieces, increase pack clients, more competitive shipping costs, lower cost, more reliable and secondary suppliers have key components, expanded manufacturing capacity and production processes, and finally, transition of product lines to a new modular platform, which has more efficient design for assembly and service. All these initiatives are part of our plan to accelerate gross margins as our target is to reach a gross margin at 40%.
Slide 10 highlights our backlog and inventory level trends, which are reflecting a more predictable pattern in recent periods, reflecting the growth of the business as of February first, our backlog was $30 million for new customers during the quarter, including a winery that is the largest wine producer in the world. Our run rate of backlog does vary at any point in time. That has a pattern of running from 20 million to 38 million depending on the time of the orders received beyond our backlog of open orders, we're working on a pipeline of high probability orders well over 100 million, which does stretch. Beyond our current fiscal year ending June 30th, we monitor the multibillion dollar addressable material handling market for economic trends, new entrants and customer demand trends. And we believe this market to provide a very positive growth environment for a strong, stable undercurrent, especially given the recognize it double digit growth of lithium-ion solutions in the sector.
Our strategic initiatives also include improving sourcing actions to mitigate parts shortages, supply chain efficiencies and increasing inventory churn.
With that, I will now turn it over to Chuck Scheiwe, our Chief Financial Officer, to review the financial results for the quarter ended December 31, 2023.
Chuck Scheiwe
Thanks, Ron. Now turning to review our financial results in the quarter ended December 31st, 2023, as Ron mentioned, revenue for the fiscal second quarter of 2024 increased by 7% to $18.3 million compared to $17.2 million in the fiscal second quarter of 2023. This was due to a higher number of packs sold during the quarter as well as price increases for certain packs sold. Gross profit for fiscal Q2 of 2024 increased to 5.7 million compared to a gross profit of $4.1 million in fiscal Q2 of 2023. Gross margin was 30.9% in fiscal Q2 of 2024 as compared to 23.9 in fiscal Q2 of 2023. So it's reflected higher gross profit and lower cost of sales as a result of the gross margin improvement initiatives we've talked about, and this will help us achieve our profitability.
Selling and administrative expenses were $4.6 million in fiscal Q2 2024, up slightly from $4.3 million in the previous year quarter is primarily attributable staff related expenses, some higher professional service fees and stock-based comp was also partially offset by decreases in outbound shipping costs, recruiting costs and consulting fees.
Research and development expenses increased slightly to $4.3 million in fiscal Q2 of 2024 as compared to $1.2 million in fiscal Q2 of 2023 was primarily due to additional engineering projects to support our new products adjusted EBITDA improved to a positive $300,000 in fiscal Q2 of 2024 from a loss of 900,000 in fiscal Q2 of 2023 and this was mostly driven by the improved gross margins. Our continued initiatives with our continued initiatives, business growth and operating leverage all contribute to drive this trajectory. Net loss for fiscal Q2 of 2024 was 800,000 compared to a net loss of $1.7 million in fiscal Q2 of 2023. The improvement principally reflected increased gross profit, and that was offset by increased operating expenses and interest expense.
Cash was $1.6 million at December 31, 2023 as compared to $2.4 million at June 30th of 2023. And this is mostly based on just timing of utilizing our credit line. And when we borrow net cash used in operating activities decreased by $2.1 million to $1 million in the three months ended December 31st, 2023, as compared to $3.1 million in the three months ended September 30th, 2023, and available working capital includes our line of credit as of January 31st, 2024. That's under our 60 million credit facility from Gibraltar business capital that has a remaining available balance of $6 million. And we also have our $2 million available under the subordinated line of credit with Cleveland capital our credit line with Gibraltar provides for expansion for up to 20 million. Now I'd like to pass it back to Ron to offer some closing remarks.
Ron Dutt
Thanks, Chuck. Looking at the positive momentum of our existing customer base and new customer acquisitions. We are confident that we are on a trajectory toward reaching sustained profitability during the current fiscal year. Our steady ongoing gross margin improvement reflects our goal to reach 40% gross margin, leveraging our operating and pricing, operational and pricing initiatives as we establish consistent and increasing profitability this year, we look to implement revenue growth initiatives that we are currently exploring and developing. Our strategy continues to focus on the strong demand in the market for sustainable energy, especially in our industrial sector. We do not rely on government incentives, but only a compelling value proposition and ROI. We believe the combination of existing customer orders and the acquisition of new customers who want the benefits of lithium-ion technology can drive continued revenue growth. We are seeing strong progress with our growth strategy, including the introduction of new heavy duty models to be launched. This year and a second private label program expected to launch with a major forklift OEM may also have a exit, but we are exploring a partnership with a fast charging proprietary technology firm, and we look to additional revenue potential from establishing the industry's first telematics integration for an entire nationwide fleet with a Fortune 100 company and our current production facility should support annual revenue up to $150 million given our facility footprint, a second chip build-out and or an implementation of lean manufacturing. As I mentioned previously, we have an improved capital structure. That includes increased working capital line of credit of $16 million, with Gibraltar business capital to support planned growth with provisions to increase to 20 million and a 2 million subordinated credit facility with Cleveland capital as an extended maturity to August 15th, 2025.
In summary, we are well positioned to execute our growth strategy as we offer customers deep experience as first movers in the sector and validation by Fortune 100 customers through and trust migration of their fleets to lithium-ion solutions. I look forward to providing our shareholders with further updates in the near term as we strengthen our leadership position in lithium-ion technology solutions with our growing list of new and very large customers.
I thank you all for attending. And now I'd like to hand the call over to the operator to begin our question and answer session. Operator?
Question and Answer Session
Operator
(Operator Instructions) Rob Brown, Lake Street Capital Markets.
Rob Brown
Good afternoon and congratulations on a strong quarter.
Thanks, Rob.
I guess first question here is on the order environment there very strong orders in the quarter. I know the business can be a bit lumpy, but what are you seeing in terms of customer activity? And how do you see the order environment for that couple quarters?
Ron Dutt
Yes, Rob, that's really a good question. You know, we spent a lot of time looking at that are particularly our salespeople are working with our industry and customers and the OEMs on that. The industry is has largely recovered from the pandemic, but there's still some lumpiness out there. And orders. We have not seen any backing off or reduction of orders for many of our customers, but we have seen some deferral out toward the end of the year and in some cases beyond as they just manage the timing of replacing forklifts. And and then there must be some effect on highest this release because we see that happening a lot in other sectors, and we haven't lost any customers. So we see no back off in the managing of our installed base and adding new customers. But we are dealing with that lumpiness up to lead times, you know, in a normal stable times could be two months or so. And you can kind of see that reflected somewhat in our open sales orders, but there are a couple of lines with one of our largest OEM customers of forklifts delay. So a large percentage of our business over 90 is for put on new forklifts, although the growing our business on replacing lead acid batteries at the end of life is certainly beginning to grow on that that can affect our timing. So we have an ongoing strategy as a growth company and talk about it all the time and the initiatives to accelerate growth there currently is a strong is in our part to reduce the concentration in our biggest customers and stake as a public company. So we can have a more predictable trajectory on our orders.
I'd just add, though, that like a lot of companies, I think a lot of customers are going after a look at how deep and broad It began with some of these Fortune 51 hundred customers because that really does provide the validation to others that are looking at this adoption and migration.
So on in your response to the orders that that's a that's going around from the wagons pretty well. Does that help?
Rob Brown
Excellent?
Yes.
Ron Dutt
Thank you.
Rob Brown
That was a great overview and answer some of my other questions along the way so that's fantastic. And then on the margin trends, obviously good progress there. How come how much further to go is there in terms of some of these initiatives you put in place. Are there other initiatives in place that that really matter set to show through in the numbers? I think you mentioned a 35% gross margin. That's a near term target, but a sense of how confident you are in achieving the margin improvement that you've worked?
Ron Dutt
Yes. You know, you hit on another hot topic here. We we work with on a on a constant basis for the last well, three or four years from when we had negative margin depends in large part because of low low volumes. But we have established an infrastructure at Cadence, a war room mentality on margins going up after them in all the high-potential areas, supply chain sourcing getting better pricing from higher, higher volumes on the design side of improving our designs for quality and reducing warranty. And then also from the pandemic with the price increases we had to catch up on on pricing because we had to honor long-lead purchase orders with some of these customers. So the benefit of the aggravation of that supply chain was it forced us to really build a stronger, robust infrastructure and to reduce cost, make all of our processes more efficient and also be taking a hard look at products we have and making sure the pricing is right. I mean, after all, we in a dozen or so. Others that are in this sector are really buying new ground and learning more all the time about that. So I think those are that is a net those areas of initiatives that have momentum with. So when we target cash flow breakeven and a big part of that is margin, it's helped by growing volume. But the efforts on those are ongoing. Our goal is not just to breakeven. And our goal is to achieve the margin that a manufacturing company like us should achieved, which we've talked about. And we have a lot of confidence that we have in place and you know what I could loosely call the infrastructure too continue that momentum.
Rob Brown
Okay, great. And then my last question is around kind of the working capital cash flows. Do you have some seasonality there and you expect the working capital kind of, I guess, use of cash flow to diminish?
Ron Dutt
Yes.
Chuck Scheiwe
Well, a lot of the changes right now since you're right on that edge of zero adjusted EBITDA, Frank, a known close to that level, a lot of the changes in capital is just it's working capital, inventory purchases and customer payments. So for us, it can bounce around a lot when you have payments coming, whether they come in this week or the next week, you're going to see that bounce around a little bit. So I think our focus really on the cash side is holding inventory down and utilizing the balance sheet to keep us close to zero.
Okay.
In the big picture, guys, I'll turn it over.
Ron Dutt
Thanks, Rob.
Operator
Sameer Joshi, H.C. Wainwright.
Sameer Joshi
Thanks, Ron. Congratulations on the positive adjusted EBITDA. Now that you have the math here on the and heavy-duty models that are expected to be launched later this year. Have you received the UL listing for that? And part two of that question is, have you already sort of scope of prospective customers and is there a pipeline behind that?
Those ones?
Ron Dutt
You know, our heavy duty model that we have planned to roll out or have UL certification achieved and material handling sectors. One, our customers almost always want that UL listing to top tier customers. They know it's there and they want it in this platform. We've been rolling out. So we do have a ground support equipment that customers who don't require the UL listing. So we have sent some of those evil packs out to them. But what we're what we are working on right now is getting the <unk> top tier OEN.s to approve these new packs in their trucks and the <unk>, our scenario has shifted over the past few years from them doing the proven themselves, which can be a fairly quick turnaround, having third parties do that, which is a longer turnaround. And so that's why the rollout of our US sales of our heavy duty, our models have have taken a little bit longer than expected. We have a project in now with our largest OEM partner, and it will be forthcoming through approval in May in the coming several months. And so our salespeople are certainly eager for these packs to be able to sell because for some time we've seen we've learned and come across much more app of many more applications where the heavy duty pack is just just the right answer. So it does matter whether, you know, we offer the 24, 36, 48 volts. It doesn't matter whether you're moving potato chips or engine bond as well. So we want to cater to that entire line.
Sameer Joshi
Understood.
Thanks.
Thanks for that color. On the integrated telematics, I know you said you will launch it later again in this later in calendar 2024. Do we know what kind of revenues or cash flows we can expect from that.
And do you expect the several of your customers to adopt it are and just a few?
Ron Dutt
Well, the telematics we've offered telematics for several years and is I would characterize it as the first generation is really born out of our engineers having a tool to assess this data, help troubleshoot our models and we start, we start selling that is selected our customers know buy over the past year or two. And what we found is that many of the operations in both material handling and GSC. had operated for many, many years without telematics on the battery and just didn't think if they didn't understand the real benefit of it for asset management state health managing their packs and what they found as as they pilot and tried these, they're very, very excited. So worse rate, I think we're going to see a continuing more rapid growth and rollout of this. Now we we charge an amount to install the telematics, and we're also recently beginning to charge a monthly fee to provide services to support those people with customized reports and our other other support services. So we've got the initial fixed fee and the monthly fee, and we see that evolving to the point of being a huge leverage point to offer new features and capability the needs for our customers to manage their fleet. They have locations all over the country. They have lots of forklifts, lots, lots of battery packs, of course, with that and managing the live forklifts do different jobs with telemetry, they can they can swap the batteries to extend the life. Everyone is into extending asset life because that's that's USD cents. The other thing and probably the more important or into reducing downtime. So with telemetry, which is channeled through the cloud to the customers and us we can provide downloads and repair for fax our local tax to do repair work where a hands on approach is needed, all of which can reduce the amount of downtime, which is critical for these high performance operations. And what we're seeing as we introduce these into the steel plants and others, it has been very, very well received.
Lastly, I'd say look this is software and data. It's kind of like RI. phone zone where you get downloads over time, improving this new versions and iPhone 14, 15 and so forth. And that's the path I see for this U.S. telemetry. And we're very, very excited about it because it's a source not only of some income, but I think it's even even larger than that it's a source of new business and a differentiation for our company for a first mover in this. There are others doing it, but it represents a source for us to get new business, it's also a beneficial beneficial for for pricing.
Yes, simply put this value creation value. We see that the customer wants that something that our engineers think it's slick and clever, it's what the customers want. So it's very exciting.
Sameer Joshi
Yes, no, certainly it is a high gross margin revenue stream as well. So we're looking forward to progress on And my last question is just I know you mentioned the EUR150 million capacity cut, but in terms of on the operating side, with current operating level expense levels how much revenue can be supported? Or should we see some scaling off of a sales on expenses as revenues increased?
Ron Dutt
Well, if I if I understand the question right, that our capacity at this site is to be able to increase our production line. We ship out of here 100 million, $150 million of lithium battery packs per year and the operating infrastructure is set to do that. We're not capital intensive as we double the size of that revenue. We expect a modest amount of additional tools and some testing equipment and a few more people, but we're very confident of that rollout. And particularly because we are two great enablers, as I said, 9,000 processes embedded here for the last four years. And we're very close to wrapping up lean manufacturing with this to make it efficient from the standpoint of expenses to support it, given the low capital expense. That's required for that. Our expertise in that we can we believe we have good good line of sight on that and selling out a second shift, I mean, a real function of second shift as well. I'll give that a lot of positive understanding of it.
Chuck Scheiwe
Yes, we do have a lot of operating leverage here that we can capitalize on because a lot of the bodies we've had at our production based, which is already in the COGS line forecast going forward. So those bodies are already part of the cost of goods sold in terms of production. And we could definitely have a lot of leverage here to grow the business without adding a lot of OpEx because right.
Sameer Joshi
So cash flows and net margins were not only going to be improved as gross margin improved, but you will find this operating leverage as well.
Chuck Scheiwe
And further program curriculum, sorry, it's really kick it's going to kick in from here on very well, what I'm saying on.
Sameer Joshi
Truly exciting.
Ron Dutt
Thanks.
Sameer Joshi
Thanks for taking my questions.
Ron Dutt
Thanks, Amiram.
Operator
Our next question comes from the line of Craig Irwin with Roth. Please proceed with your question.
And good evening, gentlemen, and congratulations on the nice growth and progress of your margin.
Ron Dutt
Thanks, Greg.
So Ron, can you maybe comment for us or give us some color on your competitiveness in the airport ground equipment markets. And, you know, with the environmental commitments of the airlines looking to reduce their carbon footprint and commit to these advanced technologies, how active do you expect that market to potentially be this year?
Well, it's certainly come back to life from the pandemic, as you know, and that particularly in the top five airlines, that stuff really shut down, everything battened down the hatches. And so for the past year, we've seen really a very strong revenue growth. I would say our largest customer does Delta Airlines is known as a technology leader in the sector and of our distributor that we have a risk because it is a very long term season. Our supplier of batteries to the airlines. So we have a great leverage, a great enabler there with the airline. So we see them some other airlines. We've brought on top five, including air and then also Air Canada. We have others from pipe piling the packs and we see the growing interest. And I think part of it is yes, it is interesting. I mean, as I was referencing before they're looking at lithium and gone well with lead acid or diesel. We have telemetry. What are the real leverage points embedded and benefits of this? And I think when you see somebody like Delta who has brought this on and others with the very positive experiences they have and what they're getting out of it for cost management on emissions. And I think it's just my opinion. And I think that's going to continue to grow. Credibility is everything in there and the current players are giving credibility. We claim leadership particularly in the US on supplying IGSC. And the market, of course, is not nearly as big as the material handling market in North America, but it's very sizable it represents on market where our core competencies can be exploited for them. And we're seeing that. We're very excited about that and working with them because all their equipment virtually all their equipment uses 80 volt battery packs. And what we're seeing is that I'm having spent time with that, it has has allowed some bases for continued expansion of products in GSC and also the adoption of Abel lithium batteries for the very heavy duty forklift. So there's that tangential benefit to the GSE market in that you have the GSE market. You mentioned you mentioned the competitiveness and there are other competitors out there. And but but I think we offer some of the reputation with some of these large customers and the lot of the airlines. Top five, as you know, are very large in themselves. And what we're finding it resonating with them is that we're somebody that can handle operations with many sites and meet their quality, not quality and service needs sales. Now that Azure.
That's excellent.
That's really helpful from. My next question is about pack certifications this year and then spending on new product development. Can you maybe update us on any plans certifications this year that we should look at the financial model? You know, how would you discuss the expenses and for these for these packs and, you know, R&D, do you do have any specific new initiatives that will alter the trajectory from where you've been? I mean, I know you guys have been really tight on the spending side, but you're smart about where you are where you spend your money so that if you could maybe just give us a little granularity.
Yes, in the UL certification is one where historically our best is seven, eight years of really requires of money and time to go through that. And we will continue to incur that the current heavy duty models have UL. But as we add more models, we're working on a 96 HOLT model. We believe that all those models going into ground support equipment and at some point will likely require UL certification. And we use that. We view that UL certification really as a good thing, even though it's time and money used to be an aggravation, but it's also a point of differentiation. It's also a point of building confidence with our with our customers and you take the airlines if they have anything go wrong, any thermal or vent or something, they get extremely nervous and their safety officers up immediately to wherever they're going. So they are particularly excited as our other customers on that UL certification so we'll continue to that. The good news is that given our many years with you well, we are able to do all the testing here. We used to have to send it out to expensive third party groups that took time and money and we can do it now with the UL oversight, either virtually or in person, depending on the test that they think is important. So that's an important that's been an important leverage point in mitigating that expense that the other thing is there's a there's some testing there that we honestly we need to do anyway, they're covering safety and ruggedness test, which of course, we will want to do as well.
The other piece of certification, Craig, is it getting the OEMs whether they're forklifts and particularly, we're putting a battery in their forklift, the put a car engine in a car. It's you know, it's integrated and it's very it's very important for warranty when the customer has problems, they just go to probably the forklift dealer. So they're they're very keenly aware that there's a process, as I mentioned earlier, and that does cost us some money. I packs. It's not a major expense, but it's an expense. And actually the real pain point is this time for them to get it done. There's some other testing self-certification for transport of lithium batteries. We do all that here, self-certification occasionally, we might ship something out if for some for some reason.
Chuck Scheiwe
And I think over the next six to 12 months. We're going to spend a lot more money on telemetry in terms of that's a key product here. So we're going to spend some money on the goodwill for the users looking at how that looks, we're going to create an app for phones, spend some money on that because I think it's a big point that we need to start a precedent as well. And that's not R&D development there.
And just say, I think open, I think congratulations on the progress guys.
Ron Dutt
Okay. Thanks, Greg.
Operator
Our next question comes from the line of Matthew Galinko with Maxim Group. Please proceed with your question.
Ron Dutt
Hey, thanks for taking my question. And Bill, you may have covered this already, but I was hoping you could talk, I guess a little bit more about the $100 million pipeline you referenced that that extends beyond on this fiscal year, Tom?
Yes, I get ahead and any changes to the composition of that pipeline in the last quarter or any changes in confidence level level of capturing on a portion of that pipeline?
You know, it's our head of sales and those guys are all over that. There's a number the lead time on on a lot of these on sales orders for quite some time, particularly quite quite long, particularly for a new, a new company, the other again, it kind of going back to the same old message, you may be tired of hearing, but the timing of the new forklifts going out is moving around as well on the forecasting on their side of when forklifts are going out is to pick is the big question mark.