Dragonfly Energy Holdings Corp

Good afternoon. My name is Lesser, and I will be your operator today for Dragonfly Energy's third quarter earnings call. A call can be accessed along with the earnings press release and SEC filings on investor section of the Dragonfly Energy's website found at www.dragonflyenergy.com. As a reminder, this conference call is being webcast and recorded. All attendees are in listen-only mode at this time. During this call, the company will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in the press release and in periodic SAC filings. Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measures could be found in today's release on the company's website. I will now turn over the call to Dr. Dennis Farris.

Thank you. And thank you to everyone joining us today. Before handing the call over to John to review our third quarter financial results, I wanted to spend a few minutes providing an update on our core markets, our progress in our revenue diversification efforts, and to highlight the important milestones that we have achieved in our domestic battery cell manufacturing operation. As many of you know, the majority of our revenue today comes from the recreational vehicle market. either through aftermarket sales or through OEMs when they place our storage solutions on their RVs during the manufacturing process. The RV industry, which is dependent on consumer discretionary spending, continues to face significant challenges with unit shipments down over 50% year over year, well below the industry's expectations just a few quarters ago. As discussed during our last earnings call, This steeper than expected decline in the RV industry has had a negative impact on our revenue. This is particularly the case with our largest OEM customer who informed us in July that they would no longer be installing our storage solutions as standard equipment and have returned to offering our solutions as an optional feature. The loss of this revenue combined with overall RV weakness was the primary driver behind the year-over-year decline in our third quarter revenue. While we expect this weakness to continue in the near term, demand in the RV market does appear to be stabilizing, and it is important to note that despite weaker sales, our customers are not moving to competitor products. In fact, we continue to gain market share with both new customer wins and new programs and models with existing customers. So as the industry begins to recover in 2024, we expect the RV market will return as an important growth driver for the company. This continued increase in market share is largely driven by our in-house production, product quality, and innovation. For example, we have just shipped the first of our new batteries featuring Dragonfly Intelligence to OEM customers. The production of these batteries was not trivial and required the construction of a new assembly line having full traceability throughout the assembly process. Each individual battery has unique firmware loaded onto the battery management system along with data that is specific to the cells and components inside the battery. This is an industry first and we believe sets a new standard for storage batteries in general. It also becomes our platform for larger stationary storage installations in which accurate remote monitoring and determination of battery state of charge and state of health are critical. On the revenue diversification front, we continue to make progress, particularly in transportation, where our pipeline of pilot programs and customer engagement continues to grow. We have expanded our active pilot and prototype programs to include more than 15 blue chip fleet customers. And in October, we launched our new all-electric auxiliary power unit for the heavy-duty truck market. This new APU is a comprehensive solution that enables compliance with increasing anti-idling regulations, while at the same time potentially saving billions of dollars for operators and fuel costs, and increases uptime and payload capacity while reducing harmful emissions during idle periods. Along with the launch of this new product, we have secured pilot programs with fleets representing roughly 15% of the North American heavy-duty trucking market. Importantly, all of these transportation opportunities encompass large lead acid replacement requirements, where our experience in the RV market has provided us with the proven expertise to engineer full system solutions that are unique and differentiated. We are excited about the growing momentum in this new area of our business and believe these opportunities set the stage for additional growth in 2024 and beyond. Finally, we continue to make progress with our patented dry deposition battery cell manufacturing technology. In July, we announced that we completed our pilot line for domestic cell manufacturing using our patented dry electrode process. We have since deposited LFP cathodes and graphite anodes at scale. The process itself is chemistry agnostic, meaning we can make any type of conventional lithium battery cell and we have begun to receive inbound interest from additional large customers in the consumer electronics, data center backup, and even electric vehicle markets. We are producing and testing cells in-house and remain on track to deliver sample cells to prospective customers by year end. The importance of these accomplishments cannot be overstated. The EV industry in particular is increasingly looking to dry deposition as a potential solution to a host of environmental issues associated with current cell manufacturing processes. The fact that we are also deploying American innovation on American soil is becoming an increasingly attractive proposition for prospective customers and partners. Let me now turn the call over to John to provide a review of our third quarter financial results. as well as a more detailed outlook for the fourth quarter of 2023.

Thank you, Dennis. Please note that all figures are GAAP, unless otherwise noted. Dragonfly generated net sales of 15.9 million in the third quarter of 2023, down from 26.1 million in the third quarter of 2022, and at the low end of our guidance range, as we saw year-over-year declines in both our OEM and DTC businesses, due to RV market weakness. OEM revenue of 5.6 million in the third quarter declined by 8.3 million compared to the same quarter a year ago, primarily as a result of the previously disclosed decision by our largest RV OEM customer that, due to weaker demand for its products and their need to focus on reducing costs, it is no longer installing our storage solutions as standard equipment but instead has returned to offering our solutions as an option to dealers and consumers. To reiterate, this customer is not moving to a different solution or competitor, but as expected, its decision has had a material adverse impact on our OEM sales in the third quarter. And we expect this change to continue to have a material living effect on our revenue through the remainder of 2023. Our direct to consumer or DTC revenue was 10.3 million in the third quarter of 2023, down 1.9 million compared to the third quarter of 2022. The decrease was in line with our expectations and is a result of decreased customer demand giving ongoing macroeconomic factors such as higher interest rates and inflation. While we continue to see signs of stability, we do not expect this segment of the market to materially improve through the remainder of 2023. Dragonfly's gross profit in the quarter was approximately 4.6 million compared to 7.0 million in the third quarter of 2022. The decrease in gross profit was due to lower overall sales and unit volumes. Despite the lower gross profit, gross margin improved to 29.1% from 26.9% in the same quarter a year ago due to a sales mix that included a larger contribution from higher margin VPC sales. Operating expenses in the third quarter of 2023 were 10.5 million at the lower end of our guidance range and essentially flat year over year as higher research and development costs were largely offset by decreased general administrative and sales and marketing expenses. The company posted a net loss of $10 million in the quarter or a negative 17 cents per diluted share compared to a net loss of 3.7 million or a negative 10 cents per diluted share in the third quarter of 2022. The larger net loss compared to the same quarter a year ago was driven by lower sales, lower gross profit, and higher interest expense. Third quarter 2023 EBITDA was a negative 5.7 million compared to a negative 3.2 million in the third quarter of 2022. Adjusted EBITDA, excluding stock-based compensation and changes in the fair market value of our warrants, was a negative 4.6 million in the third quarter compared to a negative 2.7 million in the same quarter a year ago. For a reconciliation of EBITDA to adjusted EBITDA, please refer to our earnings press release. DragonFi ended the quarter with approximately 13.2 million in cash, and combined with access to our largely untapped $150 million equity line of credit, we believe we have the resources needed to execute on our operational plans. Now I'd like to turn our attention to our expectations for the fourth quarter of 2023. While we have a number of exciting revenue diversification opportunities ahead of us, we continue to be negatively impacted in the near term by weaker demand in the RV market, particularly with OEM customers. We expect fourth quarter revenue to be in the range of $10.0 to $14.0 million. We expect gross margin in the fourth quarter to be in the range of 21% to 26%. Operating expenses in the December quarter are expected to be in the range of $9 million to $12 million, and we expect other income and expense to be an expense in the range of $3.5 million to $4.5 million. We expect to report a net loss in the fourth quarter in the range of negative $9 million to negative $14.5 million, or a negative $0.15 per share to a negative $0.24 per share, based on approximately 60 million shares outstanding. Let me now turn the call back over to Dennis to provide some summary comments before turning the call over to Q&A.