Good afternoon, and welcome to Flux Power Holdings, Inc.'s fifth 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, 02/12/2026. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal second quarter 2026 earnings conference call. I am Joel Achramowicz, Managing Director of Shelton Group, Flux Power Holdings, Inc.'s investor relations firm. Joining me today are Krishna Vanka, Flux Power Holdings, Inc.'s CEO, and Kevin Royal, Chief Financial Officer. Before I turn the call over to Krishna, I would 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, 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 identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-Ks, which can be found in the Investor Relations section of Flux Power Holdings, Inc.'s website 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. I will now turn the call over to Flux Power Holdings, Inc.'s CEO, Krishna Vanka. Krishna, please go ahead.

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. I am very pleased that we have been able to achieve this milestone within a year since I joined Flux Power Holdings, Inc. 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 Power Holdings, Inc. As a reminder, these initiatives include profitable growth, operational efficiencies, solution selling, building the right products, and integrating value-added software to generate recurring revenue streams. Let me provide you with an update on our recent efforts as they relate to these key initiatives. To begin, as I mentioned, we have achieved net profitability. I can now say we achieved the first goal of this key initiative. Our focus will be to continue this trend while growing the business. The results also demonstrate benefits from the multi-quarter restructuring decisions we made to improve our operational efficiencies. These efforts included rightsizing our headcount as well as all other cost optimizations we took to streamline the organization. I can say that we looked carefully at all levels of the company to find and optimize spending where possible. This right-sizing process has led to a solid financial structure offering high operating leverage. Today, we have a much lower cost structure, higher margins, and a lower breakeven point than we had a year ago. Also, we have started using AI-driven tools in our engineering design, software development, and day-to-day operations to further improve operational efficiencies and productivity. We hope to see benefits from these internal AI initiatives as we deploy them across the organization. Before I talk about our new products, I do want to touch on our third strategic initiative, which is solution selling. Our ongoing product development efforts reflect our close engagement with customers and partners to gain greater insights into the evolving product needs. These partnerships enable Flux Power Holdings, Inc. to provide complete solutions to our customers. We refer to this powerful collaboration process as solutions-based selling. As I have said in the past, we are not just selling batteries. We are selling energy management solutions. Our customers are using these solutions to manage their fleets for greater operational results. The quality and depth of our sales team have to be superb to work so closely with customers on their key internal goals. In this regard, we recently hired an experienced OEM Director with more than 20 years of experience working for a material handling OEM and their dealer networks. We believe his experience can help us reach new customers and provide additional opportunities for the company's products. We are also expanding our executive sales leadership by hiring a Vice President of Sales for material handling. Moving on, our focus to build the right products for our customers continues to bear fruit. We released our next-generation SkyLink telematics device with significant advancements to complement our own Flux-designed battery management system. SkyLink delivers a competitive advantage in high performance and sensing. 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 three-axis accelerometer, gyroscope, and temperature sensing to provide continuous visibility and control. 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 and provide our customers with powerful real-time features. These real-time features include user-defined geofencing with advanced health and performance analytics that can be automated via AI. Using the machine learning locally on the device helps predict fall detection, usage and trend analysis, energy optimization, and lifecycle forecasting. The SkyLink telematics units are currently in beta 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 GA315 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 Power Holdings, Inc., this creates the opportunity to generate high-margin recurring revenue streams from sales of advanced software features and applications. As I mentioned earlier, our customers want more than a battery. They are looking for an energy management system to manage their assets, improve productivity, and reduce cost. Our 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 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. 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 operation. This also helps them charge their batteries on time with minimal downtime in their operation. Before turning the call over to Kevin, I want to summarize our progress and provide more color around our outlook for the third quarter. Through our product and operating cost reduction efforts, we have reported net income for the first time in the company's history. We are extremely happy with this progress that we have made in all areas of the business. We have demonstrated that we have the discipline to make changes that allow the company to be profitable and generate cash. We were able to do this even in the face of increasing costs from tariffs which are completely out of our control. In nearly all respects, the business is performing well, and we have set the stage for continued profitable growth. However, recently, our most significant customer has conveyed to us that they are implementing a capital freeze. We are not certain how long this freeze will be in effect but anticipate it may impact a significant portion of calendar year 2026. That said, our partnership remains strong, and we expect our business with this valued customer to resume in the future. As a result, we expect materially lower revenue in our third quarter. We continue to believe in the markets we serve, that we are well positioned to work through this slowdown and restore the company to profitable growth. We have proactively moved to further decrease our expense run rate and completed an additional cost reduction action during the current quarter. Despite this short-term market pressure, the lithium-ion forklift battery segment is projected to grow at an 8.8% CAGR through 2035 demonstrating the strong long-term market 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. I will now turn the call over to our CFO, Kevin Royal, to discuss our second quarter financial results in more detail. Kevin, please go ahead.

Good afternoon, everyone. Revenue for the 2026 fiscal second quarter was $14,100,000, up from $13,200,000 in the prior quarter and down from $16,800,000 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 2026 fiscal second quarter were $4,100,000 compared to $5,900,000 in the prior quarter and $900,000 in the 2025 fiscal second quarter. 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 $500,000 reversal of previously accrued employee bonus awards. Net income for the second quarter was $600,000, or $0.03 per share, compared to a net loss of $2,600,000 or $0.15 per share in the prior quarter. Excluding legal costs associated with the multiyear restatement of previously issued financial statements and stock-based compensation, second quarter non-GAAP net income was $1,000,000 or $0.04 per fully diluted share compared to a net loss of $2,000,000 or $0.12 per share in the prior quarter and a net loss of $1,900,000 or $0.11 per share in the prior year period. Adjusted EBITDA for the second quarter was positive $1,500,000 compared to an adjusted EBITDA loss of $1,400,000 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 $900,000 compared to $1,300,000 on 06/30/2025. The significant capital we raised recently has been used to reduce outstanding balances on our line of credit and to a lesser extent to reduce our accounts payable balances. Our current borrowing capacity under the Gibraltar line of credit is $16,000,000, subject to available collateral as defined by the credit agreement and satisfaction of certain financial covenants. I will now turn the call back to Krishna for his final remarks and then we will open it up for questions. Krishna?

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

We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. Our first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

And congrats on all the progress. First, on the capital freeze and the customer commentary, is this unique to this customer, or are you seeing maybe signs of this across this industry segment or vertical, or is this unique to the customer?

This is one individual customer.

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

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 1 and so on. So a lot of key customers are still cautiously watching what it means 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, in that they need this equipment to continue their business operations.

Thank you. And then in the SkyLink product, I think you said some pretty good customer feedback, and you are rolling it out more broadly. Could you give us a sense of, as you roll that out, do you go in certain verticals, or do you just offer across the customer base, and what is the in terms of driving some new business?

Sure. The SkyLink Telematics, which is really our next-generation product, as I mentioned, is significantly powerful; it comes with the chip for machine learning and even implementing some AI. It is nicely connected to our battery management system. The customers are now asking us greater questions like can we know when the battery leaves certain geofence? Can we be alerted proactively for our operators to take some actions? The SkyLink Telematics will solve these problems whether there is connectivity or not because it is 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 a couple of months. The initial feedback has been pretty positive. This will also honestly open doors for us to be able to offer more telematics solution-based solutions to our customers in the future. We are really looking forward to deploying this with every battery we sell.

Okay. Great. Thank you. I will turn it over.

Hey. Good afternoon, Krishna and 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 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 support a better gross margin profile going forward?

Yes. We are taking continued steps to lower our product cost. We continue to experience positive trends as it relates to warranty and the repair costs associated with our warranty obligations. So, quarter to quarter, depending on the mix, if the mix were to stay the same, you will see improvements quarter to quarter. But there will be times when you have a decline, times when you have an increase, and that is solely related to mix.

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

That is correct. Leverage will also have an impact.

Understood. And then just following up on a couple of things that Rob asked, 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 twelve months? I mean, this one customer, I think you would have to sort of replace or get additional customers to make up that revenue.

You answered the question towards the end. We are putting every effort possible to fill the gap. That is our first focus. As I mentioned, we hired a new OEM Director. Very happy with the progress that he is making here. We are adding a couple more salespeople, one in California and one in Texas. These were advertised; 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 that is our focus. We are making every effort. We are seeing some definitely an increase in the adoption of lithium. I would say we are seeing some trends when we speak with OEMs where they are saying they are expecting some greater adoption of lithium in the coming years, literally short term, one to two years. So we are getting ready for that.

Got it. May I squeeze in one more? On the state of health patent, can you elaborate on it, and what is the revenue potential from this? I guess this is also going to be an incremental feature that customers can pay you for.

Thank you. Yes. We got the full patent last quarter on the state of health. I am pretty impressed when I looked at the scope of the patent, what it does. It includes not only how to do it locally on the battery with the BMS and the SkyLink, but also how to write that algorithm, the scope of the algorithm. So the patent is pretty broad. We already took that patent, the algorithm, and we implemented it on the software side. This will be included in that premium package I mentioned. The real advantages of that state of health is customers are getting insights into the next stage of the batteries. When do I need to repurchase the battery? How long life do I have? What is the right time to start thinking about my capacity planning? Can I actually reduce some capacity? So we will start answering these high-level business decisions. We are putting an AI engine as we speak into the Sky EMS software, which can derive some forward-looking knowledge based on the state of health algorithm. So it is one thing for companies to get the patents; it is another thing to actually put them into use and generate revenue. I think we are going to be able to do that as part of the process here.

Sounds good. Thanks a lot for taking my question.

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

Hi, good evening, and thanks for taking my questions.

The only question I have at this point is the accounting for your half-million-dollar 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 will be restoring those incentive bonuses in the near term?

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

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

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

Understood. Thank you very much. Congrats on the profitable quarter.

Thank you.

Please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks.

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

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