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Operator: Good afternoon. My name is Marissa, and I will be your operator today for Dragonfly Energy’s Second Quarter 2024 Earnings Call. The call can be accessed, along with the earnings press release, and SEC filings on the Investors section of the Dragonfly Energy website found at www.dragonflyenergy.com. As a reminder, this conference call is being webcast and recorded. All attendees are in a 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 SEC filings. Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today’s press release on the company’s website. I’ll now turn the call over to Dragonfly Energy’s CEO Dr. Denis Phares.

Denis Phares: Thank you, and thank you, to everyone, joining us today. With another quarter of growth under our belts, Dragonfly Energy continues to demonstrate our ability to diversify and progress our business in the face of difficult though slowly improving market conditions. We have historically leveraged our cutting-edge technology development with strong sales and marketing. And this quarter is no exception as we continue to lean into our strength to weather the realities of how higher interest rates affect consumer discretionary spending and consequently, our core markets. We have worked hard to diversify our downstream markets in preparation for more stable growth and a rapid path back to profitability. This has included our entrance into the heavy-duty trucking and oil and gas markets.

Over the course of the second quarter, we also negotiated and finalized a brand licensing deal for our Battle Born Batteries brand with one of the largest American energy storage companies, Stryten Energy. We were thrilled to be able to announce the closing of this deal at the end of July. We are extremely happy with the mutual benefits this collaboration is expected to bring. For Dragonfly Energy, it means broad exposure for our Battle Born Batteries brand through B2B channels and into markets that were previously not even on our product road map. Stryten’s vast distribution channels allow for mass brand proliferation with their reach extending to major retailers like Tractor Supply Company, Interstate, AutoZone and Continental Battery. These are the types of big box stores where we expect to see Battle Born Batteries products available for consumers to purchase in the future.

We believe this exposure should build considerable brand value, including in our core markets. In addition to the increased liquidity through licensing royalties, revenue will also come in the form of contract manufacturing as Dragonfly Energy will produce and support the Battle Born Batteries that are sold through Stryten. This collaboration with Stryten Energy exemplifies a strong reputation and value we have built in the Battle Born brand, but it also is a testament to the quality of our technology. In addition to our licensing agreement, both we and Stryten anticipate an expanded collaboration, whereby we will produce cells for Stryten using our dry electrode process. We believe this is truly a win-win arrangement and one we anticipate expanding in the future.

Moving to our R&D efforts. Apart from continuing to produce battery cell test samples for potential OEM partners, the focus of our research and development program has been the design of a scaled-up dry electrode cell production plant. We have been actively seeking non-dilutive ways to fund the first 0.5 gigawatt-hour of production through downstream partnerships such as willing customers and upstream component and material suppliers. At the same time, we are in advanced negotiations for our first government funding commitment for the construction of a dry electrode battery manufacturing facility, and we are currently evaluating numerous sites in North America. The desire for affordable domestic cell supply is enormous today. During the scale-up design process, we have identified further cost reductions that we believe will result in even more competitive pricing than what was previously presented in a third-party cost study of our dry electrode process.

And since the extension of our dry electrode process to nonflammable all-solid-state cells having a composite electrolyte does not require significant modifications from our conventional cell line, we have been continuing work to further optimize the ionic connectivity and voltage stability of the composite electrolyte itself to allow for improved cyclability and expanded operation beyond our core storage applications. I will now turn the call over to our Chief Revenue Officer, Wade Seaburg, to discuss our progress within our core markets and our revenue diversification efforts.

Wade Seaburg: Thank you, Denis, and thank you to everyone joining us today. Our focus today is on building momentum for sustainable and diversified growth. Over the past quarter, Dragonfly Energy has made significant strides in laying the groundwork for long-term sustainable growth across multiple key markets. We continue to expand our reach and solidify our position in the energy storage industry even as we face ongoing challenges. We are excited to report progress in our heavy-duty trucking market initiatives. While a full transition to our all-electric auxiliary power unit, or EAPU, has been slower than we anticipated. This can be attributed to the longer-than-normal freight recession and the multiple season trials some of our larger partners are requesting.

These trials are critical to market adoption, as they demonstrate the real-world benefits of our EAPU and liftgate power systems. Our general theme when discussing our solutions with fleets is, let’s use the diesel engine to move freight, but let’s turn it off in all other instances. Importantly, our ongoing trials have yielded significant improvements in idle times. In most cases, we completely eliminate idling during the mandatory 10-hour rest period. In other cases, we have reduced idling from the mid-30% range to low single digits. This represents real savings for fleets in both fuel and maintenance costs and greatly increases driver comfort through uninterrupted rest. Another point of differentiation for our solution affirmed by the fleets is that there is no green premium.

Our solution offers rapid and profitable decarbonization without additional costs, which is especially important for companies with stated ESG goals. This extends not just to our customers, but also to their clients, the shippers who are often larger corporations with ESG requirements. Importantly, this allows for the adoption of our lithium batteries into trucking fleets without the need for government mandates. I’d like to take a moment to share the significant progress we have made in developing our distribution channels. Our batteries are now approved for installation at Daimler Trucks CTS, Rush Enterprises, CVS and Fontaine Modification, which are all PDI or modification and upfit centers. This ensures our batteries are readily available to ship on brand-new trucks and can be included in the purchase price of the tractor, transitioning them from an operating expense to a capital asset.

It’s important to note that lithium batteries represent a disruptive technology with transformative potential in the trucking market and beyond. Traditional distribution channels for battery sales are not currently suitable for our products, which requires specialized system integration and offer extended life spans, often exceeding the ownership term of the initial buyer. This industry shift underscores the critical role of our Daimler CTS and other truck modification centers, in driving widespread adoption and accelerating market growth. Additionally, we have recently powered liftgate operations for an independent Pepsi bottler, Refreshment Services Pepsi, enhancing their sustainability and reliability. The ability to turn the engine off during deliveries and while parked in customer parking lots has been particularly beneficial, reducing both emissions and operating costs.

And lastly, we were excited to announce earlier this week that highway transport, a fleet of over 500 trucks plans to make a full switch to our all-electric APU products, including for both new trucks and retrofitting existing ones. Working with highway transport, which has been a leader in sustainability within the industry, through their Green Treads program represents a major milestone in our mission to reshape the transportation industry. We believe this partnership will encourage additional fleets to also make the switch to experience the same cost, sustainability and driver retention benefit. The heavy-duty trucking market presents exciting growth opportunities due to the substantial potential for reducing diesel fuel costs and emissions.

With a typical Class 8 truck replacement cycle of 4 to 5 years and over 272.9k units ordered in the past 12 months, the market is robust. Our focus on sleeper cab installations, representing approximately 40% of Class 8 production positions us strategically within this growing segment. We also continue to advance our efforts in the oil and gas industry. We are preparing for the deployment of our certified power systems with Alegacy Equipment and Agnes Systems, addressing the growing need to mitigate methane leakage. We believe this partnership opens a significant new market for us driven by the new EPA mandates through the methane emissions reduction program. In the first quarter of 2024, we achieved the necessary certifications for our products to be deployed throughout the oil and gas industry.

These certifications allow us to offer solutions that are both reliable and compliant with stringent industry standards. The first deployment is expected in September, focusing on reducing methane leakage into the atmosphere. This market holds particular significance due to the new EPA mandate, which funds methane mitigation equipment and imposes fines for methane leakage. We believe a successful deployment could potentially lead to thousands of installations over the next 18 months. Over the last quarter, we have been working diligently to qualify and source ancillary equipment for the first system deployment as well as driving efficiencies in the design. This work ensures that our solutions meet industry standards while providing cost-effective and efficient operations for our customers.

Additionally, our existing integrators who were using our batteries in non-certified applications can now use our certified batteries to access more hazardous vapor locations. We believe this market represents a significant opportunity for Dragonfly Energy with increasing regulatory pressure and the need for more sustainable operations, our technology is positioned to make a substantial impact. We look forward to sharing more details and results from these deployments in the coming quarters. Regarding our core RV market, the latest RV Industry Association report forecasts a median annual growth rate of 13.8%. RV shipments were up 7.8% in the second quarter of 2024 compared to the first quarter. Towable RVs led by conventional travel trailers ended June up 11.4%, while Motor Homes finished down 33.2% compared to the same month in 2023.

In the second quarter of 2024, our OEM revenue was $6.7 million, a decrease influenced largely by a severe hailstorm in mid-March that significantly damaged Airstream’s touring coach production facility and pre-inventory chassis. This incident paused Airstream’s production for months with one line returning to work last month and the other expected to come back online in Q3. The estimated impact on our sales for Q2 is approximately $450,000. One challenge we face in this price-sensitive consumer market is that less expensive and entry-level towable units typically do not come equipped with higher-priced items, which can be added in the aftermarket. Meanwhile, the motorized market where our batteries are often provided has experienced a decline.

This dynamic creates both opportunities and challenges as we navigate these market shifts. A bright spot among our OEMs is a recent announcement from Airstream. They have launched a shorter floor plan for their trade wins model following the success of the initial model that included three of our batteries. Airstream continues to explore ways to incorporate the innovative design of our batteries and systems into their offerings, further solidifying our partnership and expanding our market presence. Another bright spot is our system integration within these OEMs. Our complete system solutions, which include power conversion, charging and energy storage are growing our content per solution that we are able to offer on OEM vehicles. Our focus remains on expanding our RV market share, particularly as we approach the new model year in Q3 and the release of our Dragonfly Intelligence line of batteries.

We anticipate continued growth in this sector throughout the year. We are committed to maintaining strong relationships with our OEM partners and continuously innovating to meet their needs. Our efforts have positioned us well to capitalize on growing demand in the RV market and beyond. I will now turn the call back over to Denis Phares to discuss our second quarter 2024 financial results.

Denis Phares: Thank you, Wade. I will now provide a review of our second quarter 2024 financial results as well as a more detailed outlook for the third quarter of 2024. Please note that all figures presented are GAAP unless otherwise noted. Dragonfly generated net sales of $13.2 million in the second quarter of 2024, down from $19.3 million in the second quarter of 2023. As a reminder, the second quarter of 2023 included standard install revenue from Keystone, which was not the case in the second quarter of 2024. Revenue of $13.2 million in the quarter was 5.7% lower than the low end of our $14 million to $15 million guidance range. This can be attributed to weakness in our key customers’ orders, primarily due to a weather event at our largest customer’s production facility, combined with some lingering weakness in the motorized RV market.

Our direct-to-consumer or DTC segment generated net sales of $6.5 million in the second quarter of 2024, down from $10 million in the second quarter of 2023. OEM sales in the second quarter of 2024 were $6.7 million, down from $9.3 million during the second quarter of 2023. As previously mentioned, we expect that OEM revenue will continue to increase as a percentage of overall sales throughout 2024. Dragonfly’s gross profit in the second quarter was approximately $3.2 million compared to $3.9 million in the second quarter of 2023. Operating expenses in the second quarter of 2024 were $9.9 million, down from $12.5 million in the second quarter of 2023. The decrease was primarily driven by lower employee-related costs and stock-based compensation in the prior year.

Professional services were also lower, which is in part due to the prior year public offering. Total other expense in the second quarter of 2024 was $6.9 million compared to $3.3 million in the prior year quarter. Other expense of $6.9 million in quarter ended June 30, 2024, was comprised primarily of interest expense of $4.9 million related to our debt securities and a change in fair market value of warrant liability in the amount of negative $2 million. Net loss in the second quarter of 2024 was $13.6 million or $0.22 loss per share compared to net loss of $11.9 million or $0.25 net loss per share in the second quarter of 2023. EBITDA in the second quarter of 2024 was negative $8.4 million compared to negative $7.5 million in the second quarter of 2023.

In the second quarter of 2024, adjusted EBITDA, excluding stock-based compensation, changes in the fair market value of our warrants and other one-time expenses was negative $6.2 million compared to negative $5.7 million for the second quarter of 2023. For a reconciliation of EBITDA to adjusted EBITDA, please refer to our earnings press release. Before I turn to our guidance for the third quarter of 2024, I wanted to take a moment to discuss our cash position and expectations. Dragonfly ended the second quarter with approximately $4.7 million in cash, down from $8.5 million at the end of the first quarter of 2024. Although we continue to use our inventory as a source of working capital and expect this will continue into the second half of 2024, we also accelerated our AP payments and moved some cash into other assets.

As such, we believe that levers we have to control our cash burn, including the $5 million upfront fee, which was part of the licensing deal with Stryten Energy combined with continued access to our largely untapped $150 million equity line of credit provides us the necessary liquidity and resources to execute on our operational plans. Now, I would like to turn our attention to our expectations for the third quarter of 2024. As mentioned earlier, we believe that the RV market continues to show signs of recovery and our entry into the heavy-duty trucking and oil and gas markets as well as our licensing and contract manufacturing deal with Stryten will contribute meaningful revenue in the second half of 2024. However, as all of those efforts are ramping, we expect that the majority of those revenues will be realized in the fourth quarter.

Also, we do not expect to be able to realize the initial $5 million licensing fee from Stryten immediately even though the cash is paid upfront and is nonrefundable. The nature of trademark licensing requires that even an upfront fee must be recognized over a period of time. Nevertheless, we still expect growth third quarter 2024 with revenues in the range of $13.5 million to $15 million, not including recognition of any of the Stryten licensing fee representing approximately 8% sequential growth at the midpoint of the range. We expect gross margin in the third quarter to remain in a range of 24% to 26%. Operating expenses in the third quarter of 2024 are expected to be in the range of $10 million to $10.5 million. Since other income and net income are impacted by the fair market revaluation of outstanding warrants each quarter, which is dependent on our future stock price on a given day and not reflective of operating results, we do not believe it is prudent to continue to provide guidance on other income and net income.

In closing, we continue to address and successfully navigate difficult market headwinds through revenue and market diversification. Significant new opportunities through our Battle Born brand and adjacent downstream markets are expected to supplement the growth of our core battery pack business. Meanwhile, we are continuing our efforts in scaling chemistry-agnostic domestic cell production, which we view as the most significant differentiator for us. With that, I will turn the call back over to the operator, who can open the line for questions.

Operator: Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Your first question comes from George Gianarikas with Canaccord Genuity. Please go ahead.

George Gianarikas: Hi, good afternoon and thank you for taking my questions. Maybe just to start with regard to your Q3 guidance, you sort of talked about some things impacting the robustness of the recovery relative to Q4. But can you just sort of go over some of the heavy-duty trucking delays that you mentioned? And also, is that Airstream issue having an impact also in Q3? I didn’t pick that up in your comments. Thank you.

Wade Seaburg: Thanks, George. This is Wade Seaburg. As far as the impact of the Airstream weather event, it is impacting a little bit our revenue in Q3, although with those production lines coming back online, both last month and then later on this quarter, we do expect that to definitely normalize in Q4 and have some bit of recovery in Q3. As to speak to the delays in heavy-duty trucking, those are largely driven by the longer than normal recession that’s happening in the freight market as is indicative by the spot rates and other public company filings that you’ve seen from the freight and transportation sector. The other part that’s delaying that adoption is the need to be able to see a three-season test out of the system.

So fleets are wanting to see the system not only perform in the summer time, which is the high energy season of running the air conditioner, but they also want to see what that return on investment will be for that cost of the system during more milder climate months to make sure that the ROI is still going to pan out. And we have – we are more than confident based on data that we’ve gotten from fleets that it will absolutely pan out.

George Gianarikas: Thank you. And maybe for Denis, I’m curious as to whether you can share any thoughts on the recent Tesla unveiling of their first cyber truck to use dry-cathode 4680 cells, any thoughts there? That would be appreciated. Thanks.

Denis Phares: I mean, I can’t speak too much about that. It’s a different drive process than ours. It’s an extrusion process, and it is different chemistries, different polymers, and there are certainly challenges associated with that one that I think our process alleviates, but at the same time, I can’t really comment on the efficacy of that process and how it’s being implemented on a mass scale in those trucks.

George Gianarikas: Thank you.

Denis Phares: Thank you, George.

Operator: Thank you. Your next question comes from Chip Moore with ROTH Capital Partners. Please go ahead.

Chip Moore: Good evening. Hey, everybody. Thanks for taking the question. I wanted to ask another on dry electrode, Denis, I guess, having Stryten on board, does that change some of the conversations around non-dilutive funding. And then I think you mentioned advancing some potential government funding, just color on those efforts?

Denis Phares: Yes. Certainly, one of the reasons that I think the Stryten partnership is so synergistic is they are interested in domestic cell supply. So there’s no – there’s definitely interest on their end for us to be applying the dry electrode process to make cells for them. So that’s unambiguous. Regarding the government funding, there have been opportunities, I will say, throughout North America for government funding, and we’ve been pretty successful in a number of instances. And I think we’re honing in on a couple in particular. And as I said, we’re in the middle of site selection, and we’ll be able to speak more to that as things continue to progress.

Chip Moore: That’s helpful. We’ll stay tuned, Denis. And if I could ask one more, maybe just around the methane leakage opportunity, first deployment in September right around the corner. Just any update there on how things are progressing? How closely you’ll watch that one and maybe timelines before we potentially see follow-on orders and the larger opportunity develop?

Denis Phares: Yes. Well, that is certainly ongoing as we speak. So we are – in terms of system deployment, we’re getting the components assembled and put into place. And what happens in – what’s expected to happen in September is that the actual customers will be coming in and observing the system reclaiming methane in an uninterruptible fashion. That is certainly what is needed. Methane is – methane leakage can be detected from space, and there are now mandates to find methane leakers since it is such a potent greenhouse gas. And so it is something that we expect to take off pretty rapidly.

Chip Moore: Understood. Okay. I’ll hop back in. Appreciate it.

Denis Phares: Thank you, Chip.

Operator: Thank you. Your next question comes from Jeff Grampp with Alliance Global Partners. Please go ahead.

Jeff Grampp: Good afternoon. Hey, Denis. Maybe if we can start on that last topic and pull that thread a little bit more in oil and gas. So first deployment next month, and I think you guys indicated maybe thousands of deployments with a successful trial. How should we think about a successful trial? How are you guys defining that? And do you have a sense of what prospective customers would need to see in terms of duration of data, I suppose, before purchasing decision? Is this something they need quarters, months, years of data? Or do you have any sense of that? Thank you.

Denis Phares: No, no. It’s a very rapid test because ultimately, what the batteries are providing is continuous operation of the vapor recovery unit while the compressor is down. So that’s – the importance of a leakage instances that it can happen when the compressors go down. So the compressors can run the vapor recovery units in normal operation. But when they go down, the batteries kick in, and are expected to run for the four, five-hour downtime until they ramp back up. So what – the nice thing about this project is it’s very much in tune with what we’ve done in our typical RV or heavy-duty trucking applications where you are charging batteries or keeping batteries charged with an engine that is – that when the engine goes down or is turned off, the batteries kick in to run the electricity.

Jeff Grampp: Got it. Understood. That’s very helpful. And for my follow-up, on the – this trucking deal that you guys just announced. So you mentioned that basically, these guys are going to be turning over their entire fleet of 500-plus trucks. Any sense of what that conversion timeline looks like? Should that just kind of follow kind of a normal conversion cycle that you guys mentioned that’s typically a handful of years? Or could this be on a more accelerated timeline perhaps?

Wade Seaburg: Yes, a little bit of both. They’re going to – thanks for the question. They’re going to transition under their normal trade cycle of a four to five-year trade cycle, but then they are also evaluating the existing age of units that they have in the field and units that are under a year to 15 months are in the process of being converted in the aftermarket. So there are – there is a decent percentage that we’ll see converted as aftermarket, but then the rest of the fleet will follow the normal trade cycle.

Jeff Grampp: Understood. Thank you, guys for the time.

Denis Phares: Thank you, Jeff.

Operator: There are no further questions at this time. I would like to turn the call back over to Dr. Denis Phares.

Denis Phares: Thank you for everyone joining us today. We look forward to sharing additional details with all of you in the coming quarters. Have a great day.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.