Q1 2024 Dragonfly Energy Holdings Corp Earnings Call

Good afternoon.

Operator: Good afternoon, my name is Jenny, and I will be your operator today for Track & Fly Energy's first quarter 2024 earnings call. The call can be accessed along with the earnings press release, earnings presentation, 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.

This is Jenny.

Operator: During this call, the company will be making forward-looking statements based on current expectations, but actual results may differ due to factors noted in the press release and in periodic SEC filings. manage well to reference some non-gap phenazoolmas. Reconciliations to the nearest corresponding gap measure can be found in today's release on the company's website. I will now turn the call over to Dr. Dennis Farris, Chief Executive Officer of Dragonfly Energy.

And I will be your operator today or check in flight Energy's first quarter 2024 earnings call.

The call can be accessed along with the earnings press release.

Speaker Change: <unk> presentation and SEC filings.

Investors section that can play energy website found at www dot that can fly energy dotcom.

Speaker Change: As a reminder, this conference call is being webcast and recorded.

Speaker Change: All attendees are in a listen only mode at this time.

Speaker Change: During this call.

The company won't 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.

Speaker Change: Management will reference some non-GAAP financial measures.

Speaker Change: The consultation to the nearest corresponding GAAP measure can be found in today's release on the company's appetite.

Hello, now I'll turn the call over to Dr. Dennis.

Dr. Dennis: She's the executive officer of checking flight energy.

Speaker Change: Thank you.

Dr. Dennis Farris: Thank you, and thank you to everyone joining us today. Ladies and gentlemen, the theme for today is a return to growth. There is no doubt that this company faced many challenges in addition to market headwinds that consumed our core markets throughout last year, but our strengths make us uniquely capable as a technology company with both revenue and large upside potential to weather historically bad economic conditions. We have demonstrated our ability to revolutionize an industry with the broad adoption of our lithium batteries in RVs, and we are poised to repeat the same success in other adjacent downstream markets, including the heavy-duty trucking market.

Speaker Change: And thank you to everyone joining us today.

Dr. Dennis: Ladies and gentlemen, the theme for today is returned to growth.

Dr. Dennis: There is no doubt that this company faced many challenges in addition to market headwinds that consumed our core markets throughout last year.

Dr. Dennis: But our strengths make us uniquely capable as a technology company with both revenue and large upside potential to weather historically bad economic conditions.

Dr. Dennis: We have demonstrated our ability to revolutionize an industry with broad adoption of our lithium batteries in Rds and we are poised to repeat the same success in other adjacent downstream markets, including the heavy duty trucking market.

Dr. Dennis Farris: To update on that effort, during the first quarter of 2024, we have begun to take orders for our all-electric auxiliary power unit. In addition, we have launched our new liftgate power system. Both of these leverage our expertise in mobile alternator charging, demonstrated by our WakeSpeed technology. Our liftgate system has now been implemented in the trucking operations of bottling companies through Rush Enterprises, and we are looking to expand this application to the OEM level.

Dr. Dennis: To update on that effort during the first quarter of 2024, we have begun to take orders for our all electric auxiliary power unit.

Dr. Dennis: In addition, we have launched our new liftgate power system. Both of these leverage our expertise in mobile alternator charging demonstrated by our <unk> technology.

Dr. Dennis: I'll Liftgate system has now been implemented in the trucking operations, a bottling companies through rush enterprises, and we are looking to expand this application to the OEM level.

Dr. Dennis Farris: Regarding the all-electric APU, we are pleased to announce that since the beginning of the year, we have begun taking purchase orders from fleets, including dry van fleet operator CRST, a tanker fleet operator, Oakley, as well as Ploger, SNS, Wooster, Twin City, among others. The fleets are diverse in size and in application, demonstrating the versatility of the system. The previously announced pilot systems deployed within larger fleets proved the concept for these customers, consistently demonstrating reduced idling and enhanced ROI.

Dr. Dennis: Regarding the all electric Apu, we are pleased to announce that since the beginning of the year, we have begun taking purchase orders from fleets, including dry van fleet operators see our S. T. A tanker fleet, operator, Oakley as well as Ploeger SNS Wooster twin city among others.

Dr. Dennis: The fleets are diverse in size and in application demonstrating the versatility of the system.

Dr. Dennis: The previously announced pilot systems deployed within the larger fleets proved out the concept for these customers consistently demonstrating reduced idling and enhanced ROI dub.

Dr. Dennis Farris: Double-digit percentage improvements in miles per gallon have been commonly observed in the pilots, and we expect those improvements to only increase as we enter the warmer summer months. As some of these pilots are in their final stages, we expect to announce the transitioning of these fleets to our products throughout the summer. Moreover, the number of large fleets implementing pilot systems continues to grow. Regarding our core RV market, the latest RV Industry Association report forecasts a medium annual growth rate of 13.8%. RV shipments for the industry were up 9% in Q1 compared to the previous quarter.

Dr. Dennis: Double digit percentage improvements in miles per gallon have been commonly observed in the pilots and we expect those improvements to only increase as we enter the warmer summer months.

Dr. Dennis: Some of these pilots are in their final stages, we expect to announce the transitioning of these fleets to our products throughout the summer.

Dr. Dennis: Moreover, the number of large fleets implementing pilot systems continues to grow.

Dr. Dennis: Regarding our core RV market the latest RV industry Association report forecast medium annual growth rate of 13, 8%.

Dr. Dennis: RV shipments for the industry were up 9% for Q1 compared to the previous quarter.

Dr. Dennis: In Q1, our OEM revenue was $7 $3 million. Although this represents a $1 5 million dropped from the previous year's quarter. It is important to note that our batteries where standard on every Keystone trailer a year ago exclude.

Dr. Dennis Farris: In Q1, our OEM revenue was $7.3 million. Although this represents a $1.5 million drop from the previous year's quarter, it is important to note that our batteries were standard on every Keystone trailer a year ago. Excluding Keystone, our OEM revenue grew year over year by 70% thanks to new partnerships such as the previously announced deal with Forest River, as well as expansion of standardization across legacy customers, Airstream, and New Keystone. This rapid growth is more demonstrative of our increased market penetration than growth in the RV market.

Dr. Dennis: Excluding Keystone, our OEM revenue grew year over year by 70%, thanks to new partnerships such as the previously announced deal with Forest River as well as expansion of standardization across legacy customers are streaming new camp. This rapid growth is more demonstrative of our increased market penetration than growth of the RV market.

Dr. Dennis: We expect continued growth in this business line throughout the year, especially with the onset of the new model year in Q3, and the release of our intelligence line of batteries.

Dr. Dennis Farris: We expect continued growth in this business line throughout the year, especially with the onset of the new model year in Q3 and the release of our intelligent line of batteries. In addition to these significant near-term growth drivers, I am pleased today to announce that we are poised to enter an entirely new downstream market, resulting from our efforts and relationships within the industrial, solar, and stationary storage markets. Over the last year, we have been quietly working on getting our products certified for deployment throughout the oil and gas industry.

Dr. Dennis: In addition to these significant near term growth drivers I am pleased today to announce that we are poised to enter an entirely new adjacent downstream market, resulting from our efforts in relationships within the industrial solar in stationary storage markets.

Dr. Dennis: Over the last year, we have been quietly working on getting our products certified for deployment throughout the oil and gas industry.

Dr. Dennis Farris: And in Q1, we achieved the necessary certification. At the same time, we have identified a large new customer in this space and are working with our previously announced integration partners at Kinexa to deliver a unique power system that is fully certified to operate in the vicinity of oil and gas pipelines. The first of these power systems is expected to be deployed over the summer as an integral part of equipment that helps respond to the growing need to mitigate methane leakage into the atmosphere.

Dr. Dennis: And in Q1, we have achieved the necessary certifications.

Dr. Dennis: At the same time, we have identified a large new customer in this space and work with our previously announced integration partners that connects us to deliver a unique power system that is fully certified it to operate in the vicinity of oil and gas pipelines.

Dr. Dennis: The first is the power systems is expected to be deployed over the summer as an integral part of equipment that helps respond to the growing need to mitigate methane leakage into the atmosphere.

Dr. Dennis: This market is a new insignificant given the new EPA mandate through the methane emissions reduction program to both fund methane mitigation equipment and fine each instance of methane leakage.

Dr. Dennis Farris: This market is new and significant, given the new EPA mandate through the Methane Emissions Reduction Program to both fund methane mitigation equipment and fine each instance of methane leakage. Success for these power systems, defined by successful technical performance in the field during the initial deployment, could potentially yield thousands of deployments over the next 18 months. The customer we are working with on this project is Legacy Equipment, a market-leading natural gas compressor packager, and their dedicated affiliate, Agnes Systems.

Dr. Dennis: Success for these power systems defined by successful technical performance in the field during the initial deployment could potentially yield thousands of deployments over the next 18 months.

Dr. Dennis: The customer we are working with on this project is a legacy equipment, our market, leading natural gas compressor packager and they're dedicated affiliate agonist systems.

Dr. Dennis Farris: We are very excited about this partnership and the new application of our technology, and we will share more details as this project progresses. Concurrent with our expanding potential market set, the development of our cell manufacturing technologies has continued as we push towards domestic cell production. The quality and scalability of our dry electrode process have garnered significant interest from large customers in sectors such as automotive, consumer electronics, and data centers. With the dry electrode process at pilot scale, we are now focusing our efforts on optimizing all other unit operations associated with cell manufacturing, especially optimizing aging, formation, and end-of-line testing. These tend to be very chemistry and application specific.

Dr. Dennis: We are very excited about this partnership and the new application of our technology and we will share more details as this project progresses.

Dr. Dennis: Concurrent with our expanding potential market set the development of our cell manufacturing technologies has continued as we push towards domestic cell production.

Dr. Dennis: The quality and scalability of our dry electrode process has garnered significant interest from large customers in sectors, such as automotive consumer electronics and data centers.

Dr. Dennis: With the dry electrode process at pilot scale, we are now focusing our efforts on optimizing all other unit operations associated with cell manufacturing, especially optimizing aging formation and end of line testing.

Dr. Dennis: These tend to be very chemistry and application specific.

Dr. Dennis Farris: Although we have historically focused on storage, which requires longevity and cyclability, propulsion and consumer electronics applications require higher electrode mass loadings and higher charge and discharge rates. We have demonstrated the ability of our dry electric process to meet these metrics, and we are now becoming uniquely versatile in developing application-specific aging and formation protocols in-house. We have also demonstrated the ability of our dry electrode process to meet these metrics using PFAS-free electrodes, thereby eliminating the forever chemicals that are ubiquitous in conventional lithium-ion batteries. This is a critical step in addressing the coming regulations to control the widespread use of these chemicals, especially within the European Union.

Dr. Dennis: Although we have historically focused on storage, which requires longevity and cycle ability propulsion and consumer electronics applications require higher electrode mass loadings and higher charge and discharge rates.

Dr. Dennis: We have demonstrated the ability of our dry electrode process to meet these metrics and we are now becoming uniquely versatile and developing application specific aging information protocols in house. We have also demonstrated the ability of our dry electrode process to meet these metrics using P fast free electrodes, thereby.

Dr. Dennis: The forever chemicals that are ubiquitous in conventional lithium ion batteries.

Dr. Dennis: This is a critical step in addressing the coming regulations to control the widespread use of these chemicals, especially within the European Union.

Dr. Dennis: We have provided some data demonstrating the results of our aging information protocols as well as PFS re electro data in a quarterly earnings presentation posted to our website.

Dr. Dennis Farris: We have provided some data demonstrating the results of our aging information protocols, as well as PFAS-free electrode data, in our quarterly earnings presentation posted to our website. We are also at this time qualifying IRA-compliant suppliers, active material, binders, carbon conductors, current collectors, electrolytes, separators, etc., to support the scaling process of our products across new markets. I will now provide a review of our first quarter 2024 financial results, as well as a more detailed outlook for the second quarter of 2024.

Dr. Dennis: We are also at this time qualifying IRR compliance suppliers active material binders carbon conductors current collectors electrolyte separators et cetera to support the scaling process of our products across new markets.

Dr. Dennis: I will now provide a review of our first quarter 2024 financial results as well as a more detailed outlook for the second quarter of 2024.

Dr. Dennis: Please note that the following figures presented are GAAP unless otherwise noted.

Dr. Dennis Farris: Please note that the following figures presented are GAAP unless otherwise noted. Dragonfly generated net sales of $12.5 million in the first quarter of 2024, down from $18.8 million in the first quarter of 2023. As a reminder, the first quarter of 2023 included standard installation revenue from Keystone, which was not the case in the first quarter of 2024. Net sales of $12.5 million in the quarter were in line with our $12 to $13 million guidance range.

Dr. Dennis: Dragonfly generated net sales of $12 $5 million in the first quarter of 2024 down from $18 $8 million in the first quarter of 2023.

Speaker Change: As a reminder, the first quarter of 2023 included standard install revenue from Keystone, which was not the case in the first quarter of 2024.

Speaker Change: Net sales of $12 5 million in the quarter was in line with our $12 million to $13 million guidance range.

Dr. Dennis Farris: Our direct-to-consumer, or DTC, segment generated net sales of $5.2 million in the first quarter of 2024, down from $10.0 million in the first quarter of 2020. This segment has seen flat sales over the last several quarters despite continued pressure on consumer discretionary spending, and we would expect a similar trajectory for this portion of the business at least through the second quarter of 2024. OEM sales in the first quarter of 2024 were $7.3 million, down from $8.8 million during the first quarter of 2023. As previously mentioned, we expect that OEM revenue will continue to increase as a percentage of overall sales throughout 2024.

Speaker Change: Our direct to consumer or DTC segment generated net sales of $5 2 million in the first quarter of 2024 down from 10.0 million in the first quarter of 2023.

Speaker Change: This segment has seen flat sales over the last several quarters. Despite continued pressure on consumer discretionary spending and we would expect a similar trajectory for this portion of the business at least through the second quarter of 2024.

Speaker Change: OEM sales in the first quarter of 2024 were $7 $3 million down from $8 8 million during the first quarter of 2023.

Speaker Change: As previously mentioned, we expect that OEM revenue will continue to increase as a percentage of overall sales throughout 2024.

Dr. Dennis Farris: Dragonfly's gross profit in the first quarter of 2024 was approximately $3.1 million, compared to $4.7 million in the first quarter of 2023. Operating expenses in the first quarter of 2024 were $8.9 million, down from $14.6 million in the first quarter of 2023. The decrease was primarily driven by reduced headcount, lower shipping costs, lower legal costs, and lower overall stock-based compensation costs.

Speaker Change: Dragging slides gross profit in the first quarter of 2024 was approximately $3 1 million compared to $4 $7 million in the first quarter of 2023.

Speaker Change: Operating expenses in the first quarter of 2024 were $8 9 million down from $14 6 million in the first quarter of 2023.

Speaker Change: The decrease was primarily driven by reduced head count lower shipping costs, lower legal costs and lower overall stock based compensation costs.

Speaker Change: Total other expense in the first quarter of 2024 was $4 5 million compared to total other income of $14 7 million in the first quarter of 2023.

Dr. Dennis Farris: Total other expense in the first quarter of 2024 was $4.5 million compared to total other income of $14.7 million in the first quarter of 2023. Other expense of $4.5 million for the quarter ended March 31, 2024 is comprised primarily of interest expense of $4.8 million related to our debt securities offset by a change in fair market value of warrant liability in the amount of $0.2 million. The net loss in the first quarter of 2024 was $10.4 million, or negative 17 cents per diluted share, compared to net income of 4.8 million, or 10 cents per diluted share, in the first quarter of 2023.

Speaker Change: Other expense of $4 5 million in quarter ended March 31, 2024 is comprised primarily of interest expense of $4 8 million related to our debt securities offset by a change in fair market value of warrant liability in the amount of zero point $2 million.

Speaker Change: Net loss in the first quarter of 2024 was $10 4 million or negative <unk> 17 per diluted share compared to net income of $4 8 million or 10 cents per diluted share in the first quarter of 2023.

Speaker Change: EBITDA in the first quarter of 2024 was negative $5 $3 million compared to positive $8 $9 million in the first quarter of 2023.

Dr. Dennis Farris: EBITDA in the first quarter of 2024 was negative $5.3 million, compared to positive $8.9 million in the first quarter of 2023. In the first quarter of 2024, adjusted EBITDA, excluding stock-based compensation, offset by changes in the fair market value of our warrants, was negative $5.2 million, compared to negative $5.1 million for the first quarter of 2023. For a reconciliation of our EBITDA to adjusted EBITDA, please refer to our earnings press release.

Speaker Change: In the first quarter of 2024, adjusted EBITDA, excluding stock based compensation offset by changes in the fair market value of our warrants was negative $5 $2 million compared to negative $5 1 million for the first quarter of 2023.

Speaker Change: For a reconciliation of our EBITDA to adjusted EBITDA. Please refer to our earnings press release.

Dr. Dennis Farris: Before I turn to our guidance for the second quarter of 2024, I wanted to take a moment to discuss our cash position and expectations. Dragonfly ended the first quarter with approximately $8.5 million in cash, down from $12.7 million at the end of 2020. Our uses of cash in the first quarter of 2024 included payment for critical cell manufacturing equipment along with acceleration of payments to vendors who we see as crucial partners as we expand into new markets. Our $150 million equity line of credit remains effectively unutilized, and we will continue to be prudent and opportunistic about its use going forward.

Speaker Change: Before I turn to our guidance for the second quarter of 2024, I wanted to take a moment to discuss our cash position and expectations.

Dragonfly CEO: Dragonfly ended the first quarter with approximately $8 $5 million in cash down from $12 7 million at the end of 2023.

Dragonfly CEO: Our uses of cash in the first quarter of 2024 included payment for critical cell manufacturing equipment, along with acceleration of payments to vendors, who we see as crucial partners as we expand into new markets.

Speaker Change: Our $150 million equity line of credit remains effectively unutilized and we will continue to be prudent and opportunistic about its use going forward.

Dr. Dennis Farris: As such, we believe that the levers we have to manage our cash spend provide us with the necessary liquidity and resources to continue our R&D efforts, execute on our plans to enter new markets, and expand our market footprint. Now, I would like to turn our attention to our expectations for the second 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 market is now gaining traction and will be a more meaningful revenue contributor in the second half of 2024.

Speaker Change: As such we believe that the levers we have to manage our cash spend provide us the necessary liquidity and resources to continue our R&D efforts execute on our plans to enter new markets and expand our market footprint.

Speaker Change: Now I would like to turn our attention to our expectations for the second quarter of 2024.

Dr. Dennis Farris: We expect second quarter 2024 revenue to be in a range of $14.0 million to $15.0 million, representing approximately 16% sequential growth at the midpoint of the range. We expect gross margin in the second quarter to remain in the range of 24% to 26%. Operating expenses in the second quarter of 2024 are expected to be in the range of $8.5 million to $9.5 million, and we expect other income and expense to be an expense in the range of $3.0 million to $4.0 million.

Speaker Change: As mentioned earlier, we believe that the RV market continues to show signs of recovery and our entry into the heavy duty trucking market is now gaining traction and will be a more meaningful revenue contributor in the second half of 2024.

Speaker Change: We expect second quarter 2020 for revenue to be in a range of 14.0 million to 15.0 million representing.

Speaker Change: Representing approximately 16% sequential growth at the midpoint of the range.

Speaker Change: We expect gross margin in the second quarter to remain in the range of 24% to 26% opt.

Speaker Change: Operating expenses in the second quarter of 2024 are expected to be in the range of $8 5 million to $9 5 million and we.

Speaker Change: <unk> other income and expense to be an expense in the range of 3.0 million to $4 1 million.

Speaker Change: We expect to report a net loss in the second quarter of 2024 in the range of $8 million to $10 million or negative <unk> 13 per share to negative <unk> 16 per share based on approximately 61 million shares outstanding.

Dr. Dennis Farris: We expect to report a net loss in the second quarter of 2024 in the range of $8 million to $10 million, or negative $0.13 per share to negative $0.16 per share, based on approximately 61 million shares outstanding.

Speaker Change: For dragonfly energy and expected two consecutive quarters of growth and an expansion of our RV market share, especially through partnerships with customers like Forest River Air stream of New camp provides evidence that we are comfortably passed the bottom and that the most difficult days are now behind us.

Dr. Dennis Farris: For Dragonfly Energy, an expected two consecutive quarters of growth and an expansion of our RV market share, especially through partnerships with customers like Forest River Airstream and New Camp, provide evidence that we are comfortably past the bottom and that the most difficult days are now behind us. Significant new opportunities through our Battle Born Batteries brand and adjacent downstream markets, such as oil and gas, are expected to supplement the growth of our core battery pack business.

Speaker Change: <unk> new opportunities through our battle born batteries brands and adjacent downstream markets such as oil and gas are expected to supplement the growth of our core battery pack business.

Dr. Dennis Farris: Meanwhile, our continued efforts in scaling chemistry-agnostic cell production and establishing an IRA-compliant supply chain ensure that we are prepared to act rapidly when the opportunity presents itself. We are pursuing all of these opportunities with a keen eye toward managing our liquidity from our effectively undrawn equity line of credit, as well as cash on hand. With that, I will turn the call back over to the operator, who can open the line for questions.

Speaker Change: Meanwhile, our continued efforts in scaling chemistry agnostic self production and establishing an IRR compliance supply chain ensure that we are prepared to act rapidly when the opportunity presents itself.

Speaker Change: We are pursuing all of these opportunities with a keen eye towards managing our liquidity from our effectively undrawn equity line of credit as well as cash on hand.

Speaker Change: With that I will turn the call back over to the operator, who can open the line for questions.

Speaker Change: Thank you.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. If you wish to cancel your request, please press the star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one any touchtone phone.

Speaker Change: Will your comps that you had has been raised.

Speaker Change: Chance will be taken in the order received.

Speaker Change: Should you wish to cancel your request. Please press the star followed by the tail.

Speaker Change: If you are using a speaker phone please lift the handset before pressing any case once again that is star one should you wish to ask a question.

Operator: Once again, that is Star 1 Sugar Rush to ask a question. Your first question is from George Gianiaricas from Canaccord. Please ask your question.

Speaker Change: Your first question is from George <unk> from Canaccord. Please ask your question.

George Gianiaricas: Dennis, thank you for taking our questions. I'd like to ask your opinion on today's news around the Section 301 tariffs and how that may impact both your core business and your growing cell production business. Thank you.

Speaker Change: Hi, Dennis.

Speaker Change: Thanks for taking our questions.

George: I'd like to ask your opinion on the today's news on the section 301 tariffs and how that May impact both your core business and you're growing so of production.

Dennis: Thank you.

Dennis: Hey, Thanks for your question George Ah, Yeah happy to answer that so from what I could read this is news it looks like the tariffs on cells and batteries in general are going to be increased from seven 5% to 25%.

Dr. Dennis Farris: Hey, thanks for your question, George. Yeah, happy to answer that.

Dr. Dennis Farris: So from what I could read, this is news, it looks like the tariffs on cells and batteries in general are gonna be increased from 7.5% to 25%. For EV batteries, that happens this year. So that is not going to affect us. For non-EV batteries, that will happen in 2026. So that doesn't affect the immediate business at all, but in terms of the longer term, that is fantastically positive for us because, ultimately, what we are trying to do is onshore the production of the cells, and the increase in tariffs combined with the IRA certainly makes it very attractive to continue our domestic sales and manufacturing developments, and certainly it should make it more attractive to prospective customers as well.

Dennis: For EV batteries that happens this year.

Dennis: So that is not going to affect us.

Speaker Change: For non EV batteries that happens in 2026.

Speaker Change: So that doesn't affect the immediate business at all but in terms of the longer term that is.

Speaker Change: Fantastically positive for us because ultimately what we are trying to do is onshore the production of the cells.

Speaker Change: And the increase in tariffs combined with the I R. A certainly makes it.

Speaker Change: Very attractive to continue our domestic sell them.

Speaker Change: Manufacturing developments and certainly it should make it more attractive to prospective customers as well.

Speaker Change: Hey, Matt.

Dr. Dennis Farris: And would you say that most of your competitors in the marketplace are using? sells from China currently.

Matt: Would you say that most of your competitors in the marketplace we're using.

Speaker Change: Sales from China currently.

Dr. Dennis Farris: In terms of LFP, yes, that is absolutely the truth.

Speaker Change: In terms of L. L. P. S. A that that is absolutely in fact.

George Gianiaricas: Maybe just a follow-up to focus on your cash position at the end of the quarter. I remember last quarter you talked about inventory on hand helping as a source of cash in Q1. I'm not sure if that impacted your Q1 cash balance or if you still see that as a potential lever for as a cash source in the second quarter. And maybe you can help us understand what you expect. You're ending the second quarter with cash to finish it up. Thank you. Yeah, George.

Speaker Change: Maybe just a follow up to focus on your cash position at the end of the quarter I remember last quarter, you talked about inventory on hand, helping.

Speaker Change: As a source of cash.

Speaker Change: In Q1, I'm not sure that that impacted your Q1.

Speaker Change: Cash balance or if you still see that as a potential lever for.

Speaker Change: From a cash source in the second quarter and then maybe if you can help us understand what you expect.

Speaker Change: Your your ending second quarter cash to finish up thank you.

Yeah, George It we certainly do expect to continue using the inventory as a source of working capital and we have and there were increased uses of cash in the first quarter as I mentioned, we did follow up on some cell manufacturing opportunities that we needed to.

Dr. Dennis Farris: Yeah, George, we certainly do expect to continue using inventory as a source of working capital, and we have, and there were increased uses of cash in the first quarter. As I mentioned, we did follow up on some cell manufacturing opportunities that we needed to, we needed to execute on. And that has to do with our current relationships that we have in terms of prospective cell customers. But moving forward, we do expect to be able to access the chef.

Speaker Change: <unk>.

Speaker Change: We needed to execute on and that has to do with our current relationships that we have in terms of perspective sell customers, but moving forward, we do expect to be able to to access the chef we did not access the chef at all in Q1, and so it is something that as I mentioned.

Dr. Dennis Farris: We did not access a chef at all in Q1. And so it is something that, as I mentioned, we certainly have at our disposal to use opportunistically. And so I think that the cash burn is expected to be less moving forward compared to Q1.

George Gianiaricas: Great. Thank you. I'll step back into the queue.

Speaker Change: We certainly have at our disposal to use opportunistically and so I think that the cash burn is expected to be less moving forward.

Speaker Change: Compared to Q1.

Speaker Change: Great. Thank you I'll get back in queue.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question is from.

Operator: Thank you. Your next question is from Tip Moore from RAW. Please ask your question.

Speaker Change: <unk> from Roth. Please ask your question.

Tip Moore: Good evening. Thanks for taking the time to answer the question. I wanted to ask maybe about, nice to be talking about growth, I guess, first of all, and Dennis, your comments just around the RV market sounded a bit more, I'd say, optimistic than back in March with the Q4 call. Can you just expand on what you're seeing there? You know, I think you'll have better visibility when we get new models in a couple months here, but anyway, to think about sort of the cadence of the rest of the year with some of the share gains you've had, and obviously, you're looking for a step up in Q2. Thanks. Sure.

Speaker Change: Good evening, thanks for taking the question.

Speaker Change: I wanted to ask maybe about nicely, we're talking about growth I guess first of all in.

Speaker Change: To your comments just around the RV market sounded a bit more but I'd say optimistic.

Speaker Change: Back in March with the Q4 call can you just expand on.

Speaker Change: What youre seeing there.

Speaker Change: Thank you, we'll have better visibility when we get new models and a couple of months here, but any way to think about sort of cadence of the rest of the year with some of the share gains you've had and.

Speaker Change: Obviously youre looking for a step up in Q2. Thanks.

Dr. Dennis Farris: Sure. Well, despite the fact that we did appear flat, and we have been flat with our direct-to-consumer business, RV business, which is not a bad thing. We're not dropping anymore, and we hope to see a recovery there soon. Our OEM RV business was pleasantly surprising, I would say.

Speaker Change: Sure well despite the fact that we we did appear flat and we have been flat with our direct to consumer business RV business.

Speaker Change: Which is not a bad thing, we're not we're not dropping anymore and we hope to see a recovery there soon.

Our OEM RV business was was pleasantly surprising I would say so that is why we're a little bit more bullish here, we've observed more uptake in terms of the lithium options we've been you.

Dr. Dennis Farris: So that is why we're a little bit more bullish here. We've observed more uptake in terms of the lithium option. We've been taking some more orders from Keystone. Even though it is an option, it is an option that is being selected.

Speaker Change: You know, taking some more orders from Keystone as even though it is an option. It is an option that's being selected where increasing standardization and those.

Dr. Dennis Farris: We're increasing standardization, and those coaches that have lithium on them, and the trailers that have lithium on them, are actually becoming the more popular coaches. So it does appear that the industry continues to move in the direction of lithium. That is, lithium uptake is happening faster than the recovery in terms of RV shipments. That's a good thing.

Speaker Change: Those coaches that have lithium onto the trailers that have lithium on them are actually becoming the more popular coach. So it does appear that the industry continues to move in the direction of lithium that is lithium uptake is happening faster than the recovery in terms of our RV ship.

Speaker Change: That's a good thing and that's why we do appear.

Dr. Dennis Farris: And that's why we do appear... We are pretty bullish on the recovery of at least the lithium portion of the RV market. And then, of course, there's the new model year. And we focus... Every year, we're focused on the new model year and getting in more and more models. And it certainly helps to have the new Intelligence product line to be able to solidify our place there.

Speaker Change: We are pretty bullish on the recovery of at least the lithium portion of the RV market and then of course, there's the new model year and we focus every year, we're focused on the new model year and getting in more and more models and it certainly helps to have a new intelligence product line to be able to solidify our place there.

Tip Moore: Great, that's very helpful. I appreciate it, Dennis.

Speaker Change: Great. That's very helpful. I appreciate it Dennis if I could ask another.

Speaker Change: This new adjacent opportunity in the oil and gas market very interesting can you.

Speaker Change: Talk a bit more about I think I heard you say you know potential for I think it was maybe a thousand deployments over 18 months or something like that is there a way to think about.

Tip Moore: And if I could ask another question, this new adjacent opportunity in the oil and gas market, very interesting. Can you talk a bit more about, I think I heard you say, the potential for, I think it was maybe 1000 deployments over 18 months or something like that. Is there a way to think about revenue opportunity per se and how long these systems might need to be piloted and, competitively, what you're displacing or going up against?

Speaker Change: Revenue opportunity per seat and how long. These these systems might need to be piloted and.

Speaker Change: Just competitively what's your what's your displacing or going up against.

Dr. Dennis Farris: It's a relatively new product in terms of methane, and methane scrubbing. But it is a collaboration with a legacy. So we are providing the entire power system, which comprises – is comprised of about 70 kilowatt hours of batteries plus associated inversion, the wake speed technology for charging. It's a pretty large system. And I did say potentially thousands of deployments, and that certainly is coming from the customer as to what the new MERP requirements will require moving forward.

Speaker Change: It's a relatively new product in terms of methane a methane scrubbing.

Speaker Change: So it is a collaboration with a legacy so we are providing the entire power system, which comprises is comprised of about 70 kilowatt hours of batteries plus associated inversion. The wakes bead technology for charging it it's a it's a pretty large system.

Speaker Change: And I did say a potentially thousands of deployments and that certainly is coming from the customer end and their customers and what they expect the.

Speaker Change: The new Merck.

Speaker Change: Yeah.

Speaker Change: The new Merck requirements will recur.

Speaker Change: Require moving forward. So we are pretty excited about the opportunity we are deploying the first system. This summer.

Dr. Dennis Farris: So we are pretty excited about the opportunity. We are deploying the first system this summer, and we expect that, towards the end of the summer, we'll have a little bit more visibility as to what those first POs might look like.

Speaker Change: And we expect that towards the end of the summer, we'll have a little bit more visibility as to what those first P. O S might look like.

Speaker Change: Great well stay tuned and if I could sneak one last one and maybe just on the CPU side, you called out a number of fleets.

Tip Moore: Great. Well, stay tuned. And if I could sneak one last one in, maybe just on the APU side, you called out a number of fleets in your remarks, and I think you're seeing traction with larger fleets. Just any update on how we should think about timing, particularly for those larger fleet orders, you know, maybe more for next year, but just remind us. Thank you.

Speaker Change: In the remarks.

Speaker Change: You are seeing traction with larger fleets.

Speaker Change: Any update on how we should think about timing, particularly for those larger fleet orders.

Speaker Change: Maybe more for next year, but just remind us thank you.

Dr. Dennis Farris: Yeah, I would say that we'll be able to start showing movement in this regard, particularly for the larger fleets, over the summertime here. So as the summer progresses and we start getting, you know, the final data sets associated with some of the warmer summer months, we're going to be able to announce some of these fleets turning over, the larger fleets, I should say.

Speaker Change: Yeah, I would I would say that we'll be able to start showing movement. In this regard, particularly for the larger fleets over the summertime here so as the summer progresses, and we start getting the.

Speaker Change: The final data sets associated with some of the warmer summer summer months, we're gonna be able to announce some of these fleet fleets turning over.

Speaker Change: The larger fleets I should say.

Speaker Change: Understood. Thank you.

Chip: Thank you chip.

Speaker Change: Thank you. Your next question is from Brian Dobson from Chardan capital markets. Please ask your question.

Operator: Thank you. Your next question is from Brian Dobson from Chordad Capital Markets. Please ask your question.

Brian Dobson: Yes, thanks very much for taking my question.

Brian Dobson: Yeah, thanks very much for taking my question and thanks for the additional color on the positive benefit of these tariffs on your business. I guess I wanted to chat a little bit about the elimination of PFAS chemicals in your production. You mentioned that this gives you a competitive advantage, both in the United States and in Europe. Do you think you could delve into that a little bit further and speak a little bit about how you plan to take advantage of that?

Brian Dobson: And thanks for the additional color on the positive benefit of these tariffs on your on your business I guess I wanted to chat a little bit about the elimination of chemicals in your production you had mentioned that this gives you a competitive advantage.

Brian Dobson: Both in the United States and in Europe, What do you think you could delve into that a little bit further and speak a little bit about how you plan to take advantage of that.

Speaker Change: Well this revolves around a potential regulations coming down the Pike first of all but just in general that the benefit of not having forever chemicals.

Dr. Dennis Farris: Well, this revolves around potential regulations coming down the pike, first of all, but just in general, the benefit of not having chemicals forever is something that is becoming more and more important as we see the effects of these chemicals in wastewater, and in stream water. So I mean, it's an environmental issue.

Speaker Change: It is something that is becoming more and more important as we see the effects of these chemicals in in wastewater and stream water. So I mean this is it's an environmental issue I'm not saying that the.

Dr. Dennis Farris: I'm not saying that the batteries necessarily are better batteries, but they are more environmentally friendly, and more environmentally safe. But interestingly, what we've shown, and what you can see in some of the data that we've put up, is that the batteries are just as good, on par with the performance of the typical PFAS binders that we see. And as it turns out, because of the process, it actually has an environmental benefit in the manufacturing process as well, because we can apply these chemicals without the need for as much power, and it helps streamline the process even a little bit more as we apply the dry electrode process. So it really is an environmental problem, but it allows us to produce batteries that are

Speaker Change: The batteries necessarily are better batteries, but they are more environmentally friendly more environment environmentally safe, but interestingly, what we've shown and what you can see in some of the data that we've put up is that the batteries are just as good we can actually make the electrodes stick just as well and the performance of the batteries are.

Speaker Change: On par with the performance of the typical P fast binders that we see and as it turns out because of the process. It actually has a an environmental benefit in the manufacturing as well because you can we can apply these these chemicals without the need for as much power and it helps streamline the.

Speaker Change: Process, even a little bit more as we apply the dry electrode process. So it really is an environmental issue, but it allows us to produce batteries that are just as good as the batteries that are out there.

Speaker Change: Great. Thank you very much.

Brian Dobson: Great. Thank you very much.

Speaker Change: Thank you.

Operator: Once again, please press star 1 should you wish to ask a question. And your next question is from Jeff Cramp from OLEON's Global Partners. Please ask your question.

Speaker Change: So once again, please press star one should you wish to ask a question.

Speaker Change: And your next question is from Jeff Gramm Symposiums Global partners. Please ask your question.

Jeff Cramp: Afternoon Dennis, I was curious on the trucking front. Do you have any sense with these fleets that you're talking to that sound a little bit closer to purchase decisions? What those order patterns may look like, or do you get the sense these companies are looking to, you know, perhaps convert their fleet as part of just a normal replacement cycle or maybe just a subset as kind of some of the early adopters or just any kind of insight as far as what the adoption curve may look like when fleets ultimately decide to go forward with your option.

Afternoon Dennis.

Jeff Gramm: Was curious on the the trucking front do you have any sense with these fleets that you're talking to that sounds a little bit closer to purchase decisions.

Speaker Change: Those order patterns may look like or do you get the sense. These companies are looking to perhaps convert their fleet as part of this normal replacement cycle or maybe just a subset as kind of a.

Speaker Change: Some of the early adopters or just any any kind of insight as far as what the adoption curve may look like when fleets ultimately decide to go forward with your options.

Dr. Dennis Farris: Sure, well, ultimately, the rate of adoption is up to each individual fleet, but what we expect is that... The APU will be applied in terms of the turnover of their fleets annually. So, you know, typically they're in the range of 20, 25 percent of the fleet, which is a relatively easy decision once you're comfortable with the technology.

Speaker Change: Sure well will ultimately the the rate of adoption is is up to each individual fleet, but what we expect is that.

Speaker Change: The Apu will be applied in terms of the turnover of their fleets annually. So you know typically they're in the range of 20% to 25% of the fleet is turned over annually and so our expectation would be that at least eventually will be in that cycle and in those new orders, but it really is.

Speaker Change: Up to the fleets to decide how how quickly they want to move in that direction and you know our our optimism has to do with the fact that this is this is a quick ROI I mean this is a relatively easy decision once you're comfortable with the technology.

Speaker Change: Great I appreciate that color and then in the existing RV market I appreciate highlighting that ex Keystone number which is really impressive.

Jeff Cramp: Great. I appreciate that color. And in the existing RV market, I appreciate highlighting that X Keystone number, which is really impressive. Can you kind of contextualize how you guys are thinking about the rest of the year, especially taking into account the fact that as you guys kind of lap the legacy Keystone revenue, obviously, that could imply some pretty healthy growth numbers at kind of the corporate level.

Speaker Change: Can you kind of contextualize, how how you guys are thinking about the rest of the year.

Speaker Change: Especially taking into account the fact that as you guys kind of lap the the legacy Keystone revenue, obviously that could imply some pretty healthy growth numbers.

Speaker Change: I've kind of corporate our corporate level. Thanks.

Jeff Gramm: Yeah sure. Thanks, Jeff well, we do expect to see a step function in Q3 because of the new model year, but we do expect to Ah Ah.

Dr. Dennis Farris: Sure. Thanks, Jeff.

Jeff Cramp: Well, we do expect to see a step function in Q3 because of the new model year, but we do expect a pretty monotonic increase throughout the year anyway because, as I mentioned, there is an increased desire for the lithium option in those particular coaches where it is an option. So, you mentioned Keystone, and we are an option on the Keystone trailers, and we certainly saw a pretty significant increase in Keystone orders in Q1 compared to Q4, although those were not included in our 70% growth. understood. I appreciate it.

Speaker Change: A pretty monotonic increase throughout the year anyway, because as I mentioned, there is an increased desire for the lithium option in in those particular coaches where lithium is an option. So I did you you mentioned Keystone and we are an option on on the Keystone trailers, and we certainly saw a pretty significant increase.

Speaker Change: In Keystone orders in Q1 compared to Q4, although those were not included in our in our 70% growth numbers.

Speaker Change: Understood I appreciate the details thank you.

Jeff Cramp: I understand. I appreciate the details, Dennis. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: There are no further questions at this time. I will now hand the call back to Dr. Dennis Darius for his closing remarks.

Speaker Change: There are no further questions at this time I will now hand, the call back to Dr. Dennis <unk> for any closing remarks.

Speaker Change: Okay.

Speaker Change: 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.

Dr. Dennis Farris: 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.

Speaker Change: Thank you ladies and gentlemen, this concludes the call. Thank you for participating and ask you. Please disconnect your lines.

Operator: Thank you. Ladies and gentlemen, this concludes the call. We thank you for participating and ask that you please disconnect your lines.