Q4 2023 Dragonfly Energy Holdings Corp Earnings Call
23 earnings call.
The call can be accessed along with the earnings press release and SEC filings.
Speaker Change: Mr Section of the Dragonfly energy website found at Www Dot Dragonfly energy Dot com.
Speaker Change: 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.
Speaker Change: Actual results may differ due to factors noted in our press release and periodic SEC filings.
Speaker Change: Management will reference some non-GAAP financial measures.
Constellation: Constellation that any corresponding GAAP measure can be found in today's release on the company's website.
Speaker Change: I will now turn the call over to Dr. Dennis Bears. Please go ahead.
Speaker Change: Thank you and thank you to everyone joining us today.
Speaker Change: 2023 was a difficult year for our core markets, which are highly dependent on consumer discretionary spending the RV market in particular, which accounted for the majority of our revenue in 2023 continued its steady decline which began in late 2022.
Importantly, we believe that this market has bottomed and we are finally, beginning to see a recovery not only in RV shipments, but in the reincorporation of lithium as the preferred energy storage solution for the industry.
And as we noted last quarter, we continue to gain share in the market with both new customer wins, and new program and model wins with existing customers.
Speaker Change: So as the industry begins to recover in 2024, we expect the RV market will return as an important growth driver for the company.
Speaker Change: Our diversification into the heavy duty trucking market continues with an expanded pipeline of fleets that have either initiated pilot projects using our electric auxiliary power unit or that have committed to its incorporation.
Speaker Change: The significant return on investment combined with the resulting compliance with anti idling regulations has made our solution highly visible in the industry.
The product was even recognized as one of the top 20 products of 2024 by the trade publication heavy duty trucking.
Speaker Change: We expect that the deployment of our E. Apu in long haul trucking fleets combined with the application of our mobile storage solutions in liftgate applications in refrigerated trucks will result in the heavy duty trucking market, providing a significant contribution to our revenue.
Speaker Change: We have begun to take purchase orders and expect continued growth in this sector throughout the year.
Speaker Change: Okay.
Speaker Change: In the last quarter of 2023, we began shipping batteries equipped with our proprietary dragonfly intelligence feature which represents a significant advancement in wireless monitoring and communication and storage systems.
Speaker Change: The stability associated with wireless mesh networking is well documented in other industries and its application to storage far supersedes the existing Bluetooth standard that is typically applied for wireless battery monitoring.
Speaker Change: We are working closely with our OEM partners to further specify the information to be transmitted over the vehicle communication network. So that the storage system will be stable and robust for consumers and technicians. We expect that dragonfly intelligence will be included in RV models in the new model year.
Speaker Change: New and existing customers.
Speaker Change: Our direct to consumer or DTC business has been flattish yet trending towards our more differentiated products such as our larger capacity G. C. Three battery, which have higher average sales prices.
Speaker Change: We expect that when we release the intelligent systems for consumers the product differentiation will allow us to expand our DTC business, primarily on larger stationary systems and marine systems, We're monitoring and system health are critical to the user.
What has set dragonfly energy apart from our inception is our dual focus on product development for consumer and OEM markets and fundamental research and development.
Speaker Change: Our primary R&D focus is our proprietary dry electrode cell manufacturing process and a unique cells in chemistries that can be applied using the process such as the solid state. So we have previously discussed.
Speaker Change: Last year, we announced that we completed our pilot line for anode and cathode production. We have since received inbound interest from large customers in the consumer electronics datacenter backup and automotive markets.
Speaker Change: The greatest inbound interest we have had in terms of potential scale has been from automotive as a result of that interest we calibrated our deposition and subsequent manufacturing processes, such as formation and aging to meet customer requirements in the EV propulsion sector.
Speaker Change: Notably our discussions with both a large consumer electronics company and large automotive companies has revealed some unique benefits of our process that had alluded our focus to date more.
Speaker Change: More specifically it turns out that our dry deposition process is capable of producing both anode and cathode films that are P fast free.
Speaker Change: <unk> chemicals pair and poly fluoro alkyl substances, often referred as forever chemicals.
Speaker Change: Are commonplace in lithium ion batteries today.
Speaker Change: The European Union has begun taking steps to ban the substances altogether.
Speaker Change: Current flurry based processes and dry extrusion based processes rely on these chemicals to bind the electrodes. We have demonstrated the app scale production of electrodes that our P. Fast free. Moreover, we have produced coin cells and pouch cells. Using these electrodes that have matched the performance characteristics of conventional electrodes containing P fast chemicals.
Speaker Change: Concurrently we commissioned a third party study to evaluate the benefits of our manufacturing process in terms of cost and sustainability as we continue to scale.
Speaker Change: We have therefore begun evaluating processing technology four gigawatt hour annual production.
Speaker Change: The study has demonstrated that even with domestic manufacturing, we will be cost competitive with Asian manufacturers without the need of government subsidies.
Speaker Change: The study showed a 25% reduction in energy usage of 22% reduction in factory area, and most notably a 5% reduction in overall manufacturing cost for full production in Nevada, and this is before the effects of tariffs and the inflation reduction Act.
Speaker Change: As the EV industry continues to look to dry deposition is 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.
Speaker Change: I will now turn the call over to John to provide a review of our fourth quarter and full year 2023 financial results as well as a more detailed outlook for the first quarter of 2024.
John: Thank you Dennis.
John: Please note that all figures presented are GAAP unless otherwise noted.
Dragonfly generated net sales of $10 4 million in the fourth quarter of 2023.
Speaker Change: <unk> from $20 2 million in the fourth quarter of 2022.
Speaker Change: As a reminder, the fourth quarter of 2022 included standard install revenue from Keystone, which was not the case in the fourth quarter of 2023.
Speaker Change: Revenue of $10 4 million in the quarter was at the low end of our 10 to 14 million guidance range as overall demand from RV customers remained sluggish.
Speaker Change: For fiscal 2023, dragonfly generated approximately $64 4 million of net sales compared to $86 3 million in 2022.
The decrease was primarily driven by lower battery in accessory sales due to demand declines in our core RV markets.
Speaker Change: Significant cuts to overall unit sales from RV Oems combined with higher financing costs for retail RV customers were the primary drivers of the year over year decline in revenue.
Speaker Change: As Dennis mentioned despite these challenges we continued to gain share in the overall RV market and believe we are well positioned to return to growth as the industry begins to recover.
Speaker Change: Our direct to consumer or DTC segment.
Speaker Change: Generated net sales of $6 6 million in the fourth quarter of 2023.
Speaker Change: Down from $10 7 million in the fourth quarter of 2022.
Speaker Change: For the full year 2023, our DTC segment generated net sales of $36 9 million down from $52 4 million in 2022.
Speaker Change: DTC net sales represented 57, 3% of total 2023 revenue.
Speaker Change: Down from 68% in 2022.
Speaker Change: OEM net sales in the fourth quarter of 2023 were $3 9 million down from $9 $2 million during the fourth quarter of 2022.
Speaker Change: As previously mentioned our fourth quarter 2022 revenue includes standard install revenue from Keystone.
Speaker Change: Which was not the case in the fourth quarter of 2023.
Speaker Change: For the full year 2023, OEM net sales totaled $27 5 million down from $33 8 million in 2022.
Speaker Change: The year over year decline in OEM revenue was driven by overall weaker demand and cuts within the RV market, partially offset by new customer wins.
Speaker Change: OEM sales contributed 42, 7% of total net sales in 2023.
Speaker Change: Up from 39, 2% in 2022.
Speaker Change: With the growing base of RV Oems combined with our revenue diversification efforts into adjacent markets. We expect that OEM revenue will continue to increase as a percentage of overall sales throughout 2024.
Speaker Change: Hi.
Speaker Change: Dragonflies gross profit in the fourth quarter was approximately 2.0 million compared to 4.0 million in the fourth quarter of 2022.
Speaker Change: Our full year 2023, gross profit was $15 4 million down from $23 6 million in 2023.
Speaker Change: The year over year decline in 2023 gross profit was primarily driven by lower unit volume sales of change in revenue mix that included a larger percentage of lower margin OEM sales as well as higher material costs.
Speaker Change: Operating expenses in the fourth quarter of 2023 were $5 4 million down from $32 9 million in the fourth quarter of 2022.
Speaker Change: As a reminder, operating expenses in the fourth quarter of 2022 included approximately $21 3 million in business combination expenses associated with our going public in October of 2022.
Operating expenses for the full year 2023 were $42 9 million down from $58.0 million in 2022.
Speaker Change: This decrease was primarily driven by the absence of expenses associated with the business combination in 2022 and lower overall employee related costs.
Speaker Change: Partially offset by an increase in stock based compensation costs as well as higher compliance insurance and professional fees related to public company expenses.
Speaker Change: Total other income in the fourth quarter of 2023 was approximately $6 3 million compared to an expense of $2 7 million in the fourth quarter of 2022.
Speaker Change: Other income for fiscal 2023 was approximately $13 6 million compared to an other expense of $6 3 million in 2022.
Speaker Change: Income contribution in 2023 was primarily due to a change in fair market value of our warrant liability in the amount of $29 6 million, partially offset by interest expense of 16.0 million.
Speaker Change: Net income in the fourth quarter of 2023 was 3.0 million or <unk> <unk> per diluted share compared to a net loss of $32 5 million or negative <unk> 76 per diluted share in the fourth quarter of 2022.
Speaker Change: Our net loss for the full year 2023 was $13 8 million or negative 26 per share.
Speaker Change: <unk> to a net loss of 40.0 million or negative $1 <unk> per share in 2022.
Speaker Change: As discussed the change in our 2023 net loss was driven by lower sales due to reduced demand in the RV market, partially offset by lower cost of goods sold lower operating expenses and increased other income.
Speaker Change: EBITDA in the fourth quarter of 2023 was $7 4 million compared to a negative 28.0 million in the fourth quarter of 2022.
Speaker Change: Full year 2023, EBITDA totaled $3 4 million compared to a negative $32 8 million in 2022.
Speaker Change: In the fourth quarter of 2023, adjusted EBITDA, excluding stock based compensation changes in the fair market value of our warrants and other one time expenses was a negative $2 1 million compared to a negative $4 7 million for the fourth quarter of 2022.
Speaker Change: For the full year 2023.
Speaker Change: <unk> EBITDA, excluding stock based compensation changes in the fair market value of our warrants and other one time expenses was a negative $17 1 million compared to a negative $7 9 million for the full year of 2022.
Speaker Change: For a reconciliation of EBITDA to adjusted EBITDA. Please refer to our earnings press release.
Speaker Change: Before I turn to our guidance for the first quarter of 2024.
Speaker Change: I wanted to take a moment to discuss our cash position and expectations.
Speaker Change: Dragging probably ended the year with approximately $12 7 million in cash down modestly from $13 2 million at the end of the third quarter of 2023.
Speaker Change: We continue to use our inventory of the source of working capital and expect this will and expect that this will continue through at least the first half of 2024.
Speaker Change: We believe that this reduced cash burn combined with access to a largely untapped $150 million equity line of credit.
Speaker Change: Just the necessary liquidity and resources to execute on our operational plans.
Speaker Change: Now I'd like to turn our attention to our expectations for the first quarter of 2024.
Speaker Change: As Dennis mentioned earlier, we believe that the RV market appears to have stabilized and are showing early signs of recovery.
Dennis: In addition, our entry into the heavy duty trucking market, while still in its early stages is gaining traction and has the potential to be a more meaningful revenue contributor in the second half of 2024.
Speaker Change: Okay.
Speaker Change: We expect first quarter 2020 for revenue to be in the range of $12 million to $13 million, representing approximately 20% sequential growth at the midpoint of the range.
Speaker Change: We expect gross margin in the first quarter to be in the range of 24% to 26%.
Speaker Change: Operating expenses in the first quarter of 2024 expected to be in the range of $8 million to $9 million. We expect other income and expense to be an expense in the range of $3 5 million to $4 5 million.
Speaker Change: We expect to report a net loss in the first quarter of 2024 in the range of a negative $8 million to a negative $10 5 million.
Speaker Change: Or a negative <unk> 13 per share to a negative <unk> 17 per share based on approximately 61 million shares outstanding.
Speaker Change: Let me now turn the call back over to Dennis to provide some summary comments before turning the call over to Q&A.
Speaker Change: Yeah.
Dennis: Thank you John.
Dennis: Before opening the call up for questions I want to take a moment to highlight that despite the near term growth and market headwinds, we have continued to execute and achieve our stated targets and milestones.
Dennis: In 2023, we completed the pilot line for our patented chemistry agnostic dry deposition process proved that we could produce anode and cathode materials at scale and are now in the process of delivering sample battery cells to customers across several different industries and markets.
Speaker Change: We are extremely excited about 2024.
Speaker Change: As the convergence of the new cell manufacturing expansion of our customer base and market segments, and the stabilization and return to growth of the RV markets sets the stage for an expected return to growth.
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 ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on you touched on sound you will hear a tweet on pump technology, you'll request questions will be taken in the order received should you wish to cancel your request.
Please press star followed by the town.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any case one moment. Please for your first question.
Speaker Change: Your first question is from George <unk> from Canaccord Genuity. Please ask your question.
George <unk>: Hi, everyone. Thank you for taking my questions.
George <unk>: Maybe to start just on the momentum of the business.
Speaker Change: I know you only give guidance for one quarter, but you use terms like bottoming.
Speaker Change: And you seem to have a lot of momentum on that.
Speaker Change: Heavy duty trucking side. So can you just kind of may.
Speaker Change: Maybe <unk>.
Qualify for us whether or not this first quarter of 'twenty four.
Speaker Change: This is likely to be the bottom for your business for the rest of the year. Thank.
Speaker Change: Thank you.
Speaker Change: Sure George Thanks for the question, maybe I'll start and then Dennis can add a little bit of color around some of the customer stuff. If he if he thinks so I would say that we certainly do expect that George.
Speaker Change: As Dennis mentioned.
Dennis: We saw some improvement in the RV market, particularly.
Dennis: Particularly in the in the first quarter here that gives us some confidence to at least call. The bottom I think there still is a little bit of uncertainty as to what the the pace of the recovery looks like in the overall RV market.
Speaker Change: I think the industry right now is calling for something on the order of 10% to 15% growth in calendar year 'twenty four if that proves to be accurate and then we would certainly expect it to.
Speaker Change: At least as well of that but probably a little bit better given some.
Speaker Change: Some of the new market wins are in some of the new customer programs that we've won throughout the course of 2022.
Speaker Change: As it relates to the trucking and even the RV market I think the second half of the year is likely to be stronger the RV market starts its calendar year or excuse me its model year.
Speaker Change: In the July and the month of July so it's sort of a mid year upgrades to all the models. So we expect some of the new programs that we wanted to really start them and with the trucking. We continue I think to gain quite a bit of traction in the overall marketplace, particularly with the fleets.
Those trials begin to turn into.
Speaker Change: More steady orders, we would expect that to be in the second half of the year. So feel very good about where we are right. Now there still is I think a little bit of uncertainty what the the actual recovery looks like and what the full growth for the year will be but I think we feel pretty confident that this first quarter is likely to be the low point of the year, Dennis I don't know if.
Dennis: If there's anything else there that you'd like to add on the on the customer side.
I concur that we feel very confident that that we've hit bottom primarily because of the.
Dennis: The increase in shipments in in Rvs in general, but also there appears to be an increased.
Speaker Change: Returned to an increase in incorporation of lithium as the as the.
Speaker Change: Preferred mode of storage and Rvs, so that all bodes very well for us combined with the fact that we are taking now from fleets in the heavy duty trucking market and.
Speaker Change: So the combination of those things bodes very well for us this year.
Speaker Change: So this D content in trend that you saw in the second half of 'twenty three seems to be.
Speaker Change: Over for now.
Speaker Change: Well I wouldn't say it has returned to the way it was as we continue to be an option at Keystone for example, rather than a standard but there that part I think is bottomed in terms of the percentage that are going out without lithium.
Speaker Change: Right.
Speaker Change: And can you maybe just give a little more color on some of the.
Speaker Change: I won't call them deals of discussions you've had with auto Oems and consumer electronics companies and what is the pace of those discussions what do they look like are you just looking for customers or are you looking for partners beyond just customers may be more of a intimate relationship with some of these partners any additional details would be appreciated.
Speaker Change: Yeah.
Speaker Change: Yes, well I think notably here is these are in bounds. So we were not actively seeking things that were outside of our realm of storage.
Speaker Change: But it was compelling enough that we actually decided to start tuning the process for some of those metrics that are more suited to.
Speaker Change: Consumer electronics or automotive for example, the the energy density is more important there the actual power.
Speaker Change: Power is more important to charge rates and the discharge rates.
Speaker Change: So yes they are.
Speaker Change: Relationships that we do expect to become very important to us.
Speaker Change: And I would say at this point there there beyond the early stages and that we are actively taking parameters and meet and using our process to meet those parameters for these customers.
Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question is from Ryan Thompson from Chardan capital markets. Please ask your question.
Ryan Thompson: Hey, Thanks, so much for taking my question. So I just wanted to follow up a little bit on those on those customer requirements and your I guess your recent discovery that your production process can produce.
Speaker Change: T fast free battery technology.
Speaker Change: That seems to be a topic of discussion because theres likely going to be government regulation regarding PFS particles and wastewater streams.
Speaker Change: So do you see that as a call it manufacturing advantage and did that come down as a requirement from a large scale customer.
Speaker Change: It is most definitely a manufacturing advantage.
Speaker Change: It did not come in as a requirement it was something that we were actually.
Speaker Change: Playing around with anyway, and when we had a site visit.
Speaker Change: That was identified as something that was more significant than we thought.
Speaker Change: Yes, that's right we were recently speaking with over the company that mitigates.
Speaker Change: The best protocols and it seems like this is going to be call it like that.
Speaker Change: Next topic dish or or or environmental politicians. So it certainly its very encouraging to hear.
Speaker Change #100: He thinks as chemicals from their production.
Speaker Change #100: So I guess.
Speaker Change #100: Speaking speaking about trucking real quick and I know that I know that we did.
Speaker Change #100: We did touch upon it in the Q&A.
Speaker Change #101: Is there a potential to use some of your wire wireless battery monitoring technology within long haul trucking and have you received any type of feedback from long haul trucking potential clients.
Speaker Change #102: Regarding either the batteries or or that wireless monitoring technology.
Speaker Change #103: We have a lot of data and a lot of feedback regarding the performance of the batteries and the EAP new system in general and it is all very good in terms of the wireless networking or at least the communications part of it it is not something that had been.
Speaker Change #103: Required or requested but as we continue to roll it out we would not be surprised if it becomes.
Speaker Change #104: More important the heavy duty trucking market because it is a great way to monitor state of charge in state of health and other aspects of the of the store system.
Speaker Change #105: Would you say of call it.
Speaker Change #106: If you were going to think about the market, but could you utilize those being like marine RV and trucking I guess, where would you expect to see the quickest kind of adoption where does it yield the most performance benefit.
Speaker Change #107: We developed the technology initially for marine and it really stemmed from the new <unk> requirements or recommendations that came out that required more visibility into what was happening in the storage system.
Speaker Change #108: But I do think that it is going to become very important in larger stationary storage installations, because you have.
Speaker Change #108: Many batteries that are in series parallel can configuration, and so to be able to monitor the health of each individual one down to the cell level and aggregate that data so that it makes sense.
Speaker Change #108: Either to the user or two to some sort of monitoring system I think it becomes that much more important as the systems become larger.
Yeah very good thanks very much.
Thank you.
Speaker Change #108: Okay.
Speaker Change #108: Thank you. Your next question is from Chip Moore from Roth. Please ask your question.
Speaker Change #109: Hey, good evening everybody. Thanks.
Speaker Change #110: I wanted to.
Speaker Change #111: Ask on dry electrode.
Yeah.
Speaker Change #112: Just given the capital constraints currently how are you thinking about opportunities to accelerate.
Speaker Change #112: Those efforts.
Speaker Change #112: <unk>.
Speaker Change #112: Potential just just give us an update there.
Speaker Change #113: We have been seeking opportunities.
Speaker Change #113: And in Ah and different government scenarios as well.
Speaker Change #114: Not really prepared to say anything at this point other than we expect that that will be an important part of our scale up.
Dennis: Understood. Thanks Dennis.
Speaker Change #115: And I guess back to the.
Speaker Change #116: The heavy duty trucking side.
Speaker Change #117: Sounds like you've got.
Speaker Change #118: Some fleets already committed maybe just expand on that pipeline and then can you talk a little bit about margin potential there I assume sort of first fleet rollouts.
Speaker Change #118: Slightly lower.
Speaker Change #119: But eventually you get maybe the aftermarket and higher margins, just just walk us through that.
Speaker Change #119: Maybe I'll turn the the margin question over to John.
Speaker Change #119: Yeah sure I can take that Dennis and then maybe you can just you know.
John: Update a little bit on where we stand with some of those fleets I think overall chip, we're expecting that the margins there will be pretty consistent with our overall OEM margin profile I don't think that the trucking market is showing any undue strain on the pricing side and the margin equation there.
Speaker Change #120: I mean thankfully is we're we're talking with a number of fleets are this is a straight ROI proposal.
Speaker Change #121: RV, sometimes it is a little bit more of this is what consumers want this is what consumers expect.
Speaker Change #121: Then Dennis mentioned last year, when they went through the content in it.
Speaker Change #121: Somewhat easier for them to.
Dennis: Cut what they considered features or nice to haves as opposed to real needs and now we're seeing that move back to lithium as the preferred storage method, but in trucking.
Speaker Change #122: Coming at this from a.
Our fuel savings perspective coming at it from a maintenance engine maintenance perspective, there really are advantages there from a from an ROI that don't really put a lot of pressure on the margins. So I think as that business.
Speaker Change #122: Scales to whatever size, it's ultimately going to be we would expect that to be very much in line with our sort of traditional OEM.
Speaker Change #122: Margin profile.
Speaker Change #123: And in terms of the customer's chip.
Speaker Change #124: There is a wide range. So you've got the the very very large fleets that have tens of thousands of trucks on the road you've got the smaller ones that are in the hundreds.
Speaker Change #125: And then you've got the owner operators and I would say, we've been making traction gaining traction on all fronts.
Speaker Change #125: However, the very large fleets.
Speaker Change #125: Are slower to move and they take longer pilots and they they assess things a little bit longer than the owner operators, which you present a system you present the data.
Speaker Change #125: And there they are ready to move pretty quickly so.
Speaker Change #126: What I will say about it is we've been at it far longer with the much larger fleets.
Speaker Change #126: But now we're having the smaller fleet sizes commit and really turnover and we expect that the the larger fleets.
Speaker Change #127: We'll begin to follow suit soon.
Speaker Change #128: Got it very helpful. Thank.
Speaker Change #129: Thank you and maybe just one last one.
Speaker Change #130: Operating expenses.
Speaker Change #130: A very good control in Q4.
Speaker Change #131: I guess the step up in Q1 and anything in particular in <unk>.
Speaker Change #132: RV market takes a little longer to recover.
Speaker Change #133: What kind of levers do you have to pull there. Thanks.
Speaker Change #133: Sure.
Speaker Change #133: In Q1, we typically do have some.
Speaker Change #134: <unk> that are associated with the start of the calendar year, particularly on the stock.
Speaker Change #135: Stock based compensation side for.
Speaker Change #136: Bonus payments and the board.
Speaker Change #137: There's things along those lines that we don't necessarily expect to continue as we go through the remainder of the calendar year. So I would expect that from a sequential basis to <unk>, which would certainly be down.
Speaker Change #137: More in that.
Speaker Change #137: <unk> range, while <unk> like I said, there's a little bit higher because of some initial year end expenses.
Speaker Change #138: Perfect. Okay. Thanks, very much I appreciate it.
Speaker Change #139: Thank you.
Speaker Change #140: Thank you. Your next question is from.
Speaker Change #140: I'll turn off from Raymond James Please ask your question.
Speaker Change #141: Yes, thanks for taking the question I don't think anyone's asked about beam.
Speaker Change #142: Off grid.
Raymond James: <unk> market I know, that's a smaller slice of the revenue pie, but can we get an update on that.
Raymond James: Okay.
Speaker Change #144: Sure absolutely.
Speaker Change #145: And off grid storage perspective, we continue to see I would say pretty good momentum within the direct to consumer segment.
Speaker Change #145: That has always been a small but pretty consistent piece of the revenue pie and it was certainly in 'twenty three and even in <unk>.
Speaker Change #146: We've seen that market consistently move towards our larger battery sizes. So we tend to get pretty good margin out of that market just given the higher asps on those products.
Speaker Change #147: But again, our advantage I think there tends to be the ability to help customers design. The full system and then resell everything that they need as opposed to just shifting batteries out the door to customers.
Speaker Change #148: I think given some of the recent.
Recent developments that we've had it continues to be a focus for us on the on the OEM side as well and we're continuing to do.
Speaker Change #148: Work with potential customers on.
Speaker Change #148: How we scale that up to the.
Yeah.
Speaker Change #149: OEM level, we do have relationships with connected with.
Speaker Change #150: And folks like that that are helping on that storage side. So we would expect that that continues to grow for us as we're looking out through 2024.
Speaker Change #150: Understood.
Speaker Change #151: And then on the R&D front.
Speaker Change #151: Later on.
On the solid state.
Speaker Change #151: Efforts.
Okay.
Speaker Change #151: Planning along those lines.
Speaker Change #152: Well the solid state effort has not really been progressing because we are holding off on spending the capital and we pivoted I would say before.
Speaker Change #152: Before mid year last year or two to conventional cells using the dry deposition.
Speaker Change #152: Process. It Hasnt stopped completely we are certainly working at the lab scale, we're developing a new types of electrolyte, making coin cells, we continue to cycle coin cells.
Speaker Change #153: We have already reported that we were able to cycle.
Speaker Change #153: Coin cells over a thousand times using in all solid state.
Speaker Change #153:
And all solid state chemistry, so it hasnt stopped but in terms of scale up in terms of providing samples we really have been focusing on on.
Speaker Change #153: On the pilot line that we made that can produce.
Speaker Change #154: Conventional self.
Speaker Change #155: Yeah, and I would just add and importantly that that.
Speaker Change #156: The manufacturing lines themselves are the processes that we've been working on.
Speaker Change #156: Pretty aggressively here over the last nine months or so those same manufacturing processes will be used for solid state. So when we made that decision to sort of focus more on the conventional cells in the near term given some of the opportunities there.
Moving those lines out and scale is still a very important step for the overall.
Speaker Change #157: Delivery of those non flammable cells in the future.
Speaker Change #158: Got it thanks very much.
Speaker Change #159: Thank you. Thank you.
Speaker Change #160: Thank you once again that is star one should you wish to ask a question.
Speaker Change #160: Your next question is from Jeff Grant come early and Global partners. Please ask your question.
Speaker Change #161: Good afternoon.
Speaker Change #162: The three deposition process.
Speaker Change #163: Im curious if you guys can kind of maybe paint a timeline for what are some materials.
Speaker Change #164: Guys might be in a position to communicate.
Externally on progress there maybe goals that you guys have for 2024, just hoping to kind of level set for what might be some reasonable benchmarks to kind of gauge progress there. Thanks.
Speaker Change #164: Yeah.
Speaker Change #165: Thank you for that question.
Speaker Change #166: In that regard, we sort of rely on the customers that we are working with in terms of what our what we divulge.
Speaker Change #166: Because a lot of what we're doing is very specific to the parameters that we are given.
Speaker Change #167: And I would love to be able to come out and announce these sorts of partnerships and we hope to be able to do that.
But we we need to work through these are the specifics of the parameters and sort of tuning the technology the process to those specific cells.
Speaker Change #167: So in terms of what we're divulging I think it really is based on how our relationships are progressing with these customers.
Speaker Change #167: Understood that makes sense.
Speaker Change #167: Maybe for John on the working capital inventory side of things I know you mentioned that will be a.
John: A tailwind for you guys at least in the first half of the year any kind of I guess ballpark estimate for how much excess inventory you guys think you are carrying it just I guess trying to get a sense of materiality of that for you guys.
John: Sure I mean, we worked through some of that through the second half of last year to be fair.
John: And I think we've got another sort of similar.
Speaker Change #168: That revenue or excuse me to that inventory revenue.
Speaker Change #168: Levels over the next like I said through the margin and then shortly.
Speaker Change #169: I think when all is said and done.
Speaker Change #170: Looking at from where we sort of ended the year in 2023, we can probably take another.
$7 million to $8 million off of that number maybe a little bit more as we go through the first half of 2024.
Speaker Change #171: We continue to be pretty aggressive in working back cutting back on some of the safety stock levels that we had built up.
Speaker Change #172: And particularly in front of the.
Speaker Change #173: Keystone relationship, where we were on being installed as a standard installed. So we really were trying to protect ourselves from any shortages. There I think overall the supply chain that we've been working with for a number of years has gotten very very predictable. So we feel comfortable working that down to where we're only really holding say a quarter.
Speaker Change #173: It is worth of inventory of key goods, where in the past that was certainly six months and in some cases, even as high as nine.
Speaker Change #174: As we were coming through the effects of Covid. So I think we're in a position now to work that down to much more reasonable levels, and then kind of maintain that on a more steady state basis, certainly as we look through 2024.
Speaker Change #175: Okay. Great. Appreciate those details with you guys for the time.
Speaker Change #175: Yeah.
Speaker Change #175: Thank you. Your next question is from Brian Dobson from Chardan capital markets. Please ask your question.
Brian Dobson: Thanks, very much just a just a quick follow up on the RV market you mentioned that that it is bottoming and you called out a couple of factors as to why that is.
Brian Dobson: Do you think that can be described as a back half catalysts for 2020 or is it too soon at this point.
Brian Dobson: Yeah.
Brian Dobson: I would say, Brian I think it can be a catalyst I'm just not sure yet of the magnitude of that catalyst is I guess, the best way that I could describe that.
DĂȘnis: Denis mentioned, we feel very very comfortable certainly calling the bottom here, but I think the.
DĂȘnis: The slope of the recovery if you will is still a little bit.
Speaker Change #178: Too early I think to where we're comfortable calling that I do feel good about the fact that we will have some new programs that come on in the second half of the year as I mentioned, the RV model year starts in July so some of those programs that we have one wont start until we get to the second half of the year. So.
Speaker Change #179: I do feel pretty good that we should see that half on half growth, but how large that growth is I think it's still a little too early for us to call.
Yes, very good it's certainly a step in the right direction, though.
Speaker Change #179: Yes, we were encouraged by what we've seen early on here.
Speaker Change #180: Thank you there are no further questions at this time.
Speaker Change #181: Please proceed.
Speaker Change #182: 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 #182: Thank you.
Speaker Change #182: Thank you.
Speaker Change #183: Ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.