Q2 2024 Dragonfly Energy Holdings Corp Earnings Call

Marissa: Good afternoon. My name is Marissa and I'll be your operator today for Dragonfly Energy's second quarter 2024 earnings call.

Unknown Executive: 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 listen-only mode at this time.

Unknown Executive: 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.

Marissa: 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.

Unknown Executive: All attendees are in listen-only mode at this time. During this call, the company will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in the press release and in periodic SEC filings. Management will reference some non-GAAP financial measures. Reconciliation to the nearest corresponding gap measure can be found in today's press release on the company's website.

Speaker Change: As a reminder, this conference call is being webcast and recorded. All attendees are in listen-only mode at this time.

Unknown Executive: 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. Management will reference some non-GAAP financial measures.

Speaker Change: 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.

Unknown Executive: Reconciliations to the nearest corresponding gap measure can be found in today's press release on the company's website. I'll now turn the call over to Dragonfly Energy CEO, Dr. Denis Phares. Thank you, and thank you to everyone joining us today.

Speaker Change: 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 CEO Dr. Denis Phares.

Dr. Dennis Ferris: I'll now turn the call over to Dragonfly Energy CEO, Dr. Dennis Ferris. 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 strengths to whether 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.

Speaker Change: i

Speaker Change: Thank you, and thank you to everyone joining us today.

Denis Phares: 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 strengths to weather the realities of how higher interest rates affect consumer discretionary spending and consequently our core markets.

Speaker Change: 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.

Speaker Change: 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 strengths to weather the realities of how higher interest rates affect consumer discretionary spending and, consequently, our core markets.

Denis Phares: 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 market. 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, Strident Energy. We were thrilled to be able to announce the closing of this deal at the end of July.

Speaker Change: 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.

Dr. Dennis Ferris: 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-borne batteries brand with one of the largest American energy storage companies, Stritten 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-Borne Batteries brand through B2B channels and into markets that were previously not even on our product roadmap.

Speaker Change: 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, Strident Energy.

Denis Phares: 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 roadmap. Striton's vast distribution channels allow for mass brand proliferation, with their reach extending to major retailers like Tractor Supply Company, Interstate, AutoZone, and Continental Batteries.

Speaker Change: 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 roadmap.

Dr. Dennis Ferris: Stritten's vast distribution channels allow for mass brand proliferation, with the 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-Borne 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-borne batteries that are sold through Stritten. This collaboration with Stritten Energy exemplifies a strong reputation and value we have built in the battle-borne brand, but it also is a testament to the quality of our technology.

Speaker Change: Stryton'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.

Denis Phares: 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 marks. 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 Stryton. This collaboration with Straton Energy exemplifies the strong reputation and value we have built for the Battle Born brand, but it is also a testament to the quality of our technology. In addition to our licensing agreement, both we and Stryton anticipate an expanded collaboration, whereby we will produce cells for Stryton using our dry electric process.

Speaker Change: 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.

Speaker Change: We believe this exposure should build considerable brand value, including in our core markets.

Speaker Change: 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 Stryton.

Speaker Change: This collaboration with Straighten 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.

Dr. Dennis Ferris: In addition to our licensing agreement, both we and Stritten anticipate an expanded collaboration whereby we will produce cells for Stritten using our dry electric process. We believe this is truly a win-win arrangement, and one we anticipate expanding in the future.

Speaker Change: In addition to our licensing agreement, both we and Stryton anticipate an expanded collaboration whereby we will produce cells for Stryton using our dry electric process. We believe this is truly a win-win arrangement, and one we anticipate expanding in the future.

Denis Phares: 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-diluted ways to fund the first half-gigawatt hour of production through downstream partnerships, such as willing customers, and upstream component and material suppliers.

Dr. Dennis Ferris: Nature. 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-deleted ways to fund the first half 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.

Speaker Change: 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.

Speaker Change: We have been actively seeking non-diluted ways to fund the first half gigawatt hour of production through downstream partnerships such as willing customers and upstream component and material suppliers.

Denis Phares: 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 electric process to non-flammable 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 conductivity and voltage stability of the composite electrolyte itself to allow for improved cyclability and expanded operation beyond our core storage application. 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. Thank you, Denis, and thank you to everyone joining us today.

Speaker Change: 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.

Dr. Dennis Ferris: 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 non-flammable, 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.

Speaker Change: 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.

Speaker Change: And since the extension of our dry electrode process to non-flammable 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 conductivity and voltage stability of the composite electrolyte itself to allow for improved cyclability and expanded operation beyond our core storage applications.

Wade C. Burke: I will now turn the call over to our Chief Revenue Officer, Wade C. Burke, to discuss our progress with on our core markets and our revenue diversification efforts. Thank you, Dennis, 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.

Wade Seberg: I will now turn the call over to our Chief Revenue Officer, Wade Seberg, to discuss our progress within our core markets and our revenue diversification efforts.

Wade Seaburg: 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. 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.

Wade Seberg: Thank you, Denis, and thank you to everyone joining us today.

Wade Seberg: 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.

Speaker Change: We continue to expand our reach and solidify our position in the energy storage industry, even as we face ongoing challenges.

Wade C. Burke: 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.

Wade Seberg: We are excited to report progress in our heavy-duty trucking market initiative.

Wade Seberg: while a full transition to our All Electric Auxiliary Power Unit or EAPU.

Wade Seberg: 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.

Wade Seaburg: 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 and all other, Importantly, our ongoing trials have yielded significant improvements in idle power. In most cases, we completely eliminate idling during the mandatory 10-hour rest period.

Wade Seberg: These trials are critical to market adoption.

Wade Seberg: as they demonstrate the real-world benefits of our eAPU and liftgate power systems.

Wade Seberg: 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.

Wade Seberg: Importantly, our ongoing trials have yielded significant improvements in idle times.

Wade Seberg: 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.

Wade C. Burke: 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 adoption of our lithium batteries into trucking fleets without the need for government.

Wade Seaburg: 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.

Wade Seberg: This represents real savings for fleets in both fuel and maintenance costs and greatly increases driver comfort through uninterrupted rest.

Wade Seberg: Another point of differentiation for our solution, affirmed by the fleets, is that there is no green premium.

Wade Seaburg: Our solution offers rapid and profitable decarbonization without additional costs, which is especially important for companies with state-of-the-SG goals. This extends not just to our costs 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 in trucking fleets without the need for government money.

Wade Seberg: Our solution offers rapid and profitable decarbonization without additional costs, which is especially important for companies with stated ESG goals.

Wade Seberg: 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.

Wade C. Burke: Mandates.

Wade C. Burke: 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.

Wade Seaburg: I'd like to take a moment to share the significant progress we have made in developing our distribution. Our batteries are now approved for installation at Daimler Trucks CTS, Rush Enterprises, CVS, and Fontaine Modification, which are all PDI or Modification and Upfits. 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.

Wade Seberg: I'd like to take a moment to share the significant progress we have made in developing our distribution channels.

Wade Seberg: 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.

Wade Seberg: 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.

Wade C. Burke: 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 require 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 Bobbler, refreshment services Pepsi, enhancing their sustainability and reliability. The ability to turn the engine off during deliveries and while parked and customer parking lots has been particularly beneficial, reducing both emissions and operating costs.

Wade Seberg: It's important to note that lithium batteries represent a disruptive technology with transformative potential in the trucking market and beyond.

Wade Seaburg: Traditional distribution channels for battery sales are not currently suitable for our products, which require specialized system integration and offer extended lifespans, 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 Refreshment Services Pets, 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 exists.

Wade Seberg: Traditional distribution channels for battery sales are not currently suitable for our products, which require specialized system integration and offer extended lifespans, often exceeding the ownership term of the initial buyer.

Wade Seberg: This industry shift underscores the critical role of our Daimler CTS and other truck modification centers in driving widespread adoption and accelerating market growth.

Wade Seberg: Additionally, we have recently powered liftgate operations for an independent Pepsi bottler, Refreshment Services Pepsi.

Wade Seberg: 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.

Wade C. Burke: 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 Trest 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.

Wade Seberg: 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.

Wade Seaburg: 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 transportation. We believe this partnership will encourage additional fleets to also make the switch to experience the same cost, sustainability, and driver retention benefits. 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 272,900 units ordered in the past 12 months, the market is robust.

Wade Seberg: 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.

Speaker Change: We believe this partnership will encourage additional fleets to also make the switch to experience the same cost, sustainability, and driver retention benefits.

Speaker Change: The heavy-duty trucking market presents exciting growth opportunities due to the substantial potential for reducing diesel fuel costs and emissions.

Wade C. Burke: With a typical Class A truck replacement cycle of four to five years and over 272,900 units ordered in the past 12 months, the market is robust. Our focus on sleeper cab installations, representing approximately 40% of Class A production, positions us strategically within this growing segment.

Speaker Change: With a typical Class VIII truck replacement cycle of four to five years and over 272,900 units ordered in the past 12 months, the market is robust.

Wade Seaburg: Our focus on sleeper cab installations, representing approximately 40% of Class VIII production, positions us strategically within this growing sector. We also continue to advance our efforts in the oil and gas industry. We're preparing for the deployment of our certified power systems with a legacy equipment and Agnes system.

Speaker Change: Our focus on sleeper cab installations, representing approximately 40% of Class VIII production, positions us strategically within this growing segment.

Wade C. Burke: 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 a legacy 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.

Speaker Change: We also continue to advance our efforts in the oil and gas industry. We're preparing for the deployment of our certified power systems with a legacy equipment and Agnes systems, addressing the growing need to mitigate methane leakage.

Wade Seaburg: Addressing the Growing Need to Mitigate Methane, 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 eight years.

Speaker Change: We believe this partnership opens a significant new market for us, driven by the new EPA mandates through the Methane Emissions Reduction Program.

Speaker Change: 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.

Wade C. Burke: The first deployment is expected in September, focusing on reducing methane sphere. 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.

Speaker Change: The first deployment is expected in September , focusing on reducing methane leakage into the atmosphere.

Speaker Change: 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.

Wade Seaburg: 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 load.

Speaker Change: 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.

Speaker Change: This work ensures that our solutions meet industry standards while providing cost-effective and efficient operations for our customers.

Speaker Change: 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.

Wade C. Burke: 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.

Wade Seaburg: 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 quarter. 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.

Speaker Change: We believe this market represents a significant opportunity for Dragonfly Energy.

Speaker Change: 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.

Wade C. Burke: We look forward to sharing more details and results from these deployments in the coming quarters.

Wade C. Burke: Regarding our core RV market, the latest RV Industry Association report forecasts a median annual growth rate of 13.8 percent. RV shipments were about 7.8 percent in the second quarter of 2024 compared to the first quarter. Tollable RVs led by conventional travel trailers ended June up 11.4 percent, while motor homes finished down 33.2 percent 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 air streams touring coast production facility and pre-immentory chassis. This incident paused air streams production from months, with one line returning to work last month and the other expected to come back online in Q3.

Speaker Change: Regarding our core RV market, the latest RV Industry Association report forecasts a median annual growth rate of 13.8 percent.

Speaker Change: 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 motorhomes finished down 33.2% compared to the same month in 2023.

Wade Seaburg: Towable RVs, led by conventional travel trailers, ended June up 11.4%, while motorhomes 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.

Speaker Change: 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.

Speaker Change: 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.

Wade C. Burke: 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.

Wade Seaburg: 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.

Speaker Change: 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.

Speaker Change: 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.

Wade Seaburg: 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 Tradewinds model, following the success of the initial model that included three of our batteries.

Wade C. Burke: A bright spot among our OEMs is a recent announcement from Airstream. They have launched a shorter floor plan for their Trade Winds 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 solidify in 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.

Speaker Change: A bright spot among our OEMs is a recent announcement from Airstream. They have launched a shorter floor plan for their Tradewinds model, following the success of the initial model that included three of our batteries.

Wade Seaburg: 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 the content per solution that we are able to offer on OEM View. 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.

Speaker Change: 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.

Speaker Change: Another bright spot is our 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.

Wade C. Burke: Our focus remains on expanding our RV market share, particularly as we approach the new model year in Q3 and the release of our. 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.

Speaker Change: 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.

Wade Seaburg: 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. Thank you, Wade.

Speaker Change: We are committed to maintaining strong relationships with our OEM partners and continuously innovating to meet their needs.

Denis Phares: 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: I will now turn the call back over to Denis Phares to discuss our second quarter, 2024 financial results. 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 gap and less, 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.

Denis Phares: 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.

Denis Phares: As a reminder, the second quarter of 2023 included standard installation 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 $14.15 million. This can be attributed to weakness in our key customer's orders, primarily due to a weather event at our largest customer's production facility, combined with some lingering weakness in the motorized RV market.

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.

Speaker Change: Please note that all figures presented are GAP unless otherwise noted.

Speaker Change: 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.

Denis Phares: 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 $14.50 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.

Speaker Change: 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.

Speaker Change: Revenue of $13.2 million in the quarter was 5.7 percent lower than the low end of our 14 to 15 million dollar guidance range.

Speaker Change: This can be attributed to weakness in our key customer's orders, primarily due to a weather event at our largest customer's production facility, combined with some lingering weakness in the motorized RV market.

Denis Phares: 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 in 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.

Speaker Change: 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.

Denis Phares: 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.

Speaker Change: OEM sales in the second quarter of 2024 were $6.7 million, down from $9.3 million during the second 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.

Speaker Change: Dragonfly's gross profit in the second quarter was approximately 3.2 million dollars, compared to 3.9 million dollars in the second quarter of 2023.

Speaker Change: Operating expenses in the second quarter of 2024 were $9.9 million, down from $12.5 million in the second quarter of 2023.

Speaker Change: The decrease was primarily driven by lower employee-related costs and stock-based compensation in the prior year.

Denis Phares: Professional services were also lower, which is in part due to the prior year public offer. 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 for the quarter ended June 30th, 2024, was comprised primarily of interest expense, $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.

Speaker Change: Professional services were also lower, which is in part due to the prior year public offering.

Denis Phares: 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 30th, 2024 was comprised primarily of interest expense, a $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 cents loss per share, compared to net loss of $11.9 million, or $0.25 net loss per share in the second quarter of 2023.

Speaker Change: Total other expense in the second quarter of 2024 was 6.9 million dollars compared to 3.3 million dollars in the prior year quarter.

Speaker Change: Other expense of $6.9 million in quarter ended June 30th, 2024 was comprised primarily of interest expense.

Speaker Change: A $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.

Denis Phares: Net loss in the second quarter of 2024 was $13.6 million, or $0.22 loss per share compared to a 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 2020. 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 2020.

Speaker Change: Net loss in the second quarter of 2024 was $13.6 million.

Speaker Change: 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.

Denis Phares: EBITDA in the second quarter of 2024 was negative $8.4 million compared to negative $7.5 million in the second quarter of 2020.

Speaker Change: EBITDA in the second quarter of 2024 was negative $8.4 million compared to negative $7.5 million in the second quarter of 2023.

Denis Phares: III. 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.

Speaker Change: 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.

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

Denis Phares: 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 Striking 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.

Denis Phares: For 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.

Speaker Change: 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.

Speaker Change: Dragonfly ended the second quarter with approximately 4.7 million dollars in cash down from 8.5 million dollars at the end of the first quarter of 2024.

Denis Phares: 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 Strident 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 plan.

Speaker Change: 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.

Speaker Change: As such, we believe that levers we have to control our cash burn, including the $5 million up-front fee which was part of the licensing deal with Strident Energy,

Speaker Change: 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.

Denis Phares: 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 Striton, 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 Striton immediately, even though the cash is paid upfront and is non-refundable.

Denis Phares: 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 Strident, will contribute meaningful revenue in the second half of 2024. However, as all of those efforts are ramping up, we expect that the majority of those revenues will be realized in the fourth quarter.

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

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 and oil and gas markets, as well as our licensing and contract manufacturing deal with Strident, will contribute meaningful revenue in the second half of 2024.

Speaker Change: However, as all of those efforts are ramping, we expect that the majority of those revenues will be realized in the fourth quarter.

Denis Phares: Also, we do not expect to be able to realize the initial $5 million licensing fee from Strident immediately, even though the cash is paid upfront and is non-refundable. The nature of trademark licensing requires that even an upfront fee must be recognized over a period of time.

Speaker Change: Also, we do not expect to be able to realize the initial $5 million licensing fee from Strident immediately, even though the cash is paid up front and is non-refundable. The nature of trademark licensing requires that even an up-front fee must be recognized over a period of time.

Denis Phares: 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 of 2024, with revenues in the range of $13.5 million to $50 million, not including recognition of any of the Striton licensing fee, representing approximately 8% sequential growth at the midpoint of the range. We expect growth 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.

Denis Phares: Nevertheless, we still expect growth in third quarter 2024 with revenues in the range of $13.5 million to $15 million, not including recognition of any of the Stritten 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%.

Speaker Change: 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 Stritten licensing fee, representing approximately 8% sequential growth at the midpoint of the range.

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

Speaker Change: Operating expenses in the third quarter of 2024 are expected to be in the range of 10 million dollars to 10.5 million dollars.

Denis Phares: 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 Battleborn brand and adjacent downstream markets are expected to supplement the growth of our core battery business. Meanwhile, we are continuing our efforts in scaling chemistry-agnostic domestic cell production, which we view as the most significant differentiator for us.

Denis Phares: 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-packed business. Meanwhile, we are continuing our efforts in scaling chemistry-agnostic domestic cell production, which we view as the most significant differentiator for us.

Speaker Change: 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.

Speaker Change: In closing, we continue to address and successfully navigate difficult market headwinds through revenue and market diversification.

Speaker Change: Significant new opportunities through our Battle Born brand and adjacent downstream markets are expected to supplement the growth of our core battery-packed business.

Speaker Change: Meanwhile, we are continuing our efforts in scaling chemistry agnostic domestic cell production, which we view as the most significant differentiator for us.

Unknown Executive: With that, I will turn the call back over to the operator, who can open the line for questions. Thank you, ladies and gentlemen. We'll now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a prompt that your hand has been raised. Should you wish to decline from this polling process, please press star followed by two. If you're using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question.

Unknown Executive: With that, I will turn the call back over to the operator, who can open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a prompt that your hand has been raised. Should you wish to decline this polling process, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any key.

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

Speaker Change: i

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 1 on your touchtone phone. You'll hear a prompt that your hand has been raised.

Speaker Change: Should you wish to decline from this polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys.

Unknown Executive: One moment, please, for your first question. Your first question comes from George Gianarikas with Canaccord Genuity. Please go ahead. Hi, good afternoon, and thank you for taking my question. 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 on Q3? I didn't pick that up in your comments.

Speaker Change: One moment, please, for your first question.

George Gianarikas: Your first question comes from George Gianarikas. With Canacore Genuity, please go ahead. 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 air stream issue having an impact also on Q3? I didn't pick that up in your comments. Thank you.

Speaker Change: Your first question comes from George Gianarikas with Canaccord Genuity. Please go ahead.

George Jennericus: Hi, good afternoon and thank you for

George Jennericus: Maybe just to start with regard to your Q3 guidance, you sort of talked about some things impacting...

George Jennericus: 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 on Q3? I didn't pick that up in your comments. Thank you.

Wade Seberg: Thanks, George.

Wade Seaburg: Thank you. Thanks, George. This is Wade Seabird.

Wade Seberg: This is Wade Seberg. As far as the impact of the air stream 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.

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.

George Jennericus: Thanks, George. This is Wade Seaberg.

Speaker Change: 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,

Speaker Change: 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.

Wade Seberg: 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, bleeds are wanting to see the system not only perform in the summertime, 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.

Wade Seaburg: 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 summertime, 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.

Speaker Change: the other part that's

Speaker Change: Delaying that adoption is the need to be able to see a three-season test out of the system.

Speaker Change: Pleats are wanting to see the system not only perform in the summertime, 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.

Denis Phares: And we are more than confident based on, data that we've gotten from fleets that it will absolutely pan out. 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 Cybertruck to use dry cathode 4680 cells. Any thoughts there? That would be appreciated. I mean, I can't speak too much about that. It's it's a different drive process than ours. It's a it's an extrusion process and it is.

Speaker Change: We are more than confident based on...

Speaker Change: data that we've gotten from fleets that it will absolutely pan out.

George Gianarikas: Thank you.

Dr. Dennis Ferris: Maybe for Dennis, I'm curious as to whether you can share any thoughts on the recent Tesla unveiling of the first Cybertruck to use dry cathode 4680 sales. Any thoughts there? That would be appreciated. Thanks. I mean, I can't speak too much about that. It's a different dry process than ours. It's an extrusion process, and it is different chemistries, different polymers, and there's certainly challenges associated with that one that I think are 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.

Speaker Change: Thank you. And maybe for Dennis, I'm curious as to whether you can share any thoughts on the recent Tesla unveiling of the first Cybertruck to use dry cathode 4680 cells. Any thoughts there? That would be appreciated.

Dennis: I mean, I can't speak too much about that. It's it's a different drive process than ours. It's a it's an extrusion process.

Speaker Change: and it is...

Dennis: and different chemistries, different polymers, and there's certainly challenges associated with that one that I think are process alleviates.

Speaker Change: But at the same time, you know, I can't I can't really comment on, you know, the efficacy of that of that process and how it's being implemented on a mass scale in those trucks.

Unknown Executive: Thank you.

Chip Moore: You're next.

Speaker Change: Thank you.

Denis Phares: Different chemistries, different polymers, and there are certainly challenges associated with that one that I think our process alleviates, but at the same time, you know, I can't really comment on the efficacy of that process and how it's being implemented on a mass scale in those trucks. Thank you. Thank you. Thank you, George. Your next question comes from Chip Moore with Roth Capital Partners. Please go ahead.

Chip Moore: Your next question comes from Chip Moore with Roth Capital Partners. Please go ahead. Good evening. Hey, everybody. Thanks for taking the question. I wanted to ask another on dry electrode. Dennis, I guess. Having straightened 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 call her on those efforts.

Speaker Change: Thank you.

Speaker Change: You are next.

Speaker Change: Your next question comes from Chip Moore with Roth Capital Partners. Please go ahead.

Denis Phares: Thanks for taking the question. I wanted to ask another on dry electrode, Denis, I guess, Having Stryton 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 to follow on those efforts. Uh, yeah. Certainly, one of the reasons that I think the Strayton partnership is, is interested in domestic self-supply, so there's, you know, there's no, you know, There's definitely interest on their end for us to be applying the dry electric process to make cells for them, so that's unambiguous. Regarding the government funding, you know, there have been opportunities, I will say, throughout North America for government funding, and we've been pretty successful in a number of instances.

Chip Moore: Good evening. Hey, everybody. Thanks for taking the question. I wanted to ask another on dry electrode. Dennis, I guess.

Chip Moore: Having Stryton 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 to follow up on those efforts?

Dr. Dennis Ferris: Yeah, certainly one of the reasons that I think that strightened partnership is those synergistic is they are interested in domestic self-supply. 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, you know, 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 you know, we'll be able to speak more to that as things continue to progress.

Speaker Change: Yeah

Dennis: You know, there's definitely interest on their end for us to be applying the dry electric process to make cells for them. So, so that's an unambiguous.

Unknown Executive: 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 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-gap financial measures. Reconciliation to the nearest corresponding gap measure can be found in today's press release on the company's website.

Dennis: Um

Speaker Change: Regarding the government funding, you know, 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.

Denis Phares: And I think we're, 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. That's helpful. We'll stay tuned, Denis.

Speaker Change: As I said, we're in the middle of site selection and, you know, we'll be able to speak more to that as things continue to progress.

Chip Moore: That's helpful.

Unknown Executive: We'll stay tuned, Dennis. And if I could ask one more, maybe just around the methane leakage opportunity.

Denis Phares: 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 to develop. Yeah, well, that that is certainly ongoing as we speak. So we are, you know, in terms of system deployment, we're getting the components assembled and put into place and, 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 leakage can be detected from space and there are now mandates to fine methane leakers, since it is such a potent greenhouse gas.

Speaker Change: That's helpful. We'll stay tuned, Denis.

Dr. Dennis Ferris: First deployment in September, right around the corner. Just just any update there on how things are progressing and how you know how closely you'll watch that one and maybe timelines before. You know, we potentially see. Fall on orders and the larger opportunity to build. Yeah, well that 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, you know, the system reclaiming methane in an uninterruptible fashion; that is certainly what is needed.

Denis Phares: And if I could ask one more, maybe just around the methane leakage opportunity, first deployment in September , right around the corner.

Denis Phares: So, it is something we expect to take off pretty rapidly. Okay. Okay, I'll hop back in.

Dr. Dennis Ferris: I'll now turn the call over to Dragonfly Energy CEO, Dr. Dennis Ferris. 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 strengths to whether the realities of how higher interest rates affect consumer discretionary spending and consequently our core markets.

Speaker Change: 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 to develop.

Speaker Change: Yeah, well, that is certainly ongoing as we speak, so we are, you know, in terms of system deployment, we're getting the components assembled and put into place, and

Speaker Change: 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.

Dr. Dennis Ferris: 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-borne batteries brand with one of the largest American energy storage companies, Stritten Energy. We were thrilled to be able to announce the closing of this deal at the end of July.

Dr. Dennis Ferris: 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.

Speaker Change: That is certainly what is needed. Methane leakage can be detected from space, and there are now mandates to fine methane leakers since it is such a potent greenhouse gas. And so it is something that we expect to take off pretty rapidly.

Unknown Executive: Okay, I'll hop back in.

Unknown Executive: Appreciate it. Thank you, Jeff.

Speaker Change: Understood. Okay, I'll hop back in. Appreciate it.

Jeff Grant: Thank you. Your next question comes from Jeff Grant with Alliance Global Partners.

Unknown Executive: Appreciate it. Thank you, Jeff. Thank you. Your next question comes from Jeff Grampp with Alliance Global Partners. Please go ahead. Afternoon.

Jeff: Thank you, Chip.

Dr. Dennis Ferris: We are extremely happy with the mutual benefits this collaboration is expected to bring. For Dragonfly Energy, it means broad exposure for our battle-borne batteries brand through B2B channels and into markets that were previously not even on our product roadmap. Stritten's vast distribution channels allow for mass brand proliferation with the 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-borne batteries products available for consumers to purchase in the future.

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

Jeff Grant: Please go ahead. Afternoon.

Unknown Executive: 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, you know, maybe thousands of deployments with a successful trial. How should we think about a successful trial?

Jeff Grant: Hey Dennis, 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, you know, maybe thousands of deployments with a successful trial. How should we think about a successful trial? How are you guys defining that?

Jeff: Afternoon.

Jeff Gramp: 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

Speaker Change: you know, maybe thousands of deployments.

Speaker Change: with a successful trial. How should we think about a successful trial? How are you guys defining that and give a sense of what prospective customers

Denis Phares: 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 decisions? Is this something they need, you know, quarters, months, years of data?

Dr. Dennis Ferris: And do you have a sense of what perspective customers would need to see in terms of duration of data, I suppose, before purchasing decisions? Is something they need, you know, quarters, months, years of data, or do you have any sense of that? Thank you. No, no, it's a very rapid, it's a very rapid test because ultimately what the batteries are providing is. Is continuous operation of the vapor recovery unit while the compressor is down. So that's the importance of a leakage instance: 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, you know, for the four or five hour downtime until they ramp back up.

Speaker Change: would need to see in terms of duration of data, I suppose, before purchasing decisions. Is this something they need, you know, quarters, months, years of data, or do you have any sense of that? Thank you.

Dr. Dennis Ferris: 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-borne batteries that are sold through Stritten. This collaboration with Stritten Energy exemplifies a strong reputation and value we have built in the battle-borne brand, but it also is a testament to the quality of our technology.

Denis Phares: Or do you have any sense of that? Thank you. No, no, it's a very rapid test because ultimately what the batteries are providing is the continuous operation of the vapor recovery unit while the compressor is down.

Speaker Change: No, no, it's a very rapid it's a very rapid test because ultimately what what the batteries are providing is

Speaker Change: Continuous operation of the vapor recovery unit while the compressor is down.

Denis Phares: So that's the importance of a leakage instance is 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, you know, for the four or 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 it with an engine that is and that when the engine goes down or is turned off, the batteries kick in to run the elixir.

Speaker Change: So that's the importance of a leakage instance is 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.

Dr. Dennis Ferris: In addition to our licensing agreement, both we and Stritten anticipate an expanded collaboration whereby we will produce cells for Stritten using our dry electric process. We believe this is truly a win-win arrangement, and one we anticipate expanding in the future.

Speaker Change: and are expected to run, you know, for the four or five hour downtime until they ramp back up.

Dr. Dennis Ferris: 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, and that when the engine goes down or is turned off, the batteries take in to run the electricity. Got it, understood.

Speaker Change: So, what the nice thing about this project is...

Speaker Change: 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 it.

Dr. Dennis Ferris: Nature. 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-deleted ways to fund the first half 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.

Speaker Change: with an engine that when the engine goes down or is turned off, the batteries kick in to run the electricity.

Denis Phares: And for my follow-up on this trucking deal that you guys just announced. You mentioned that, you know, 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 fall within the normal conversion cycle that you guys mentioned?

Unknown Executive: That's very helpful.

Jeff Grant: And for my follow-up on the this trucking deal that you guys just announced. So you mentioned that, you know, 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 fall 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?

Speaker Change: Got it, understood. That's very helpful. And for my follow-up, on 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.

Speaker Change: 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?

Dr. Dennis Ferris: 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 non-flammable, 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.

Dr. Dennis Ferris: Yeah, a little bit bold. They're going to thanks to 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 a decent percentage that we'll see converted as aftermarket, but then the rest of the fleet will follow the normal trade cycle. Understood.

Wade Seaburg: Or could this be on a more accelerated timeline, perhaps? Yeah, a little bit of both. They're going to, thanks to the question, transition under their normal trade cycle of a four to five year trade cycle, but 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 into the aftermarket.

Speaker Change: Yeah, a little bit of both.

Speaker Change: 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

Speaker Change: 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.

Wade Seaburg: So there is a decent percentage that we'll see converted as an aftermarket, but then the rest of the fleet will follow the normal traits. Thank you guys for the time. Thank you, Jeff. There are no further questions at this time. I would like to turn the call back over to Dr. Denis Phares. Thank you for everyone joining us today. We look forward to sharing additional details with all of you in the coming quarters.

Speaker Change: So, there is a decent percentage that we'll see converted as aftermarket, but then the rest of the fleet will...

Unknown Executive: Thank you guys for the time. Thank you, Jeff.

Speaker Change: follow the normal trade cycle.

Speaker Change: Understood. Thank you guys for the time.

Wade C. Burke: I will now turn the call over to our chief revenue officer, Wade C. Burke, to discuss our progress with on our core markets and our revenue diversification efforts. Thank you, Dennis, and thank you to everyone joining us today.

Unknown Executive: There are no further questions at this time.

Jeff Gramp: Thank you, Jeff.

Dr. Dennis Ferris: I would like to turn the call back over to Dr. Dennis Harris. Thank you for everyone joining us today. We look forward to sharing additional details with all of you in the coming quarters.

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

Denis Phares: Have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Wade C. Burke: 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.

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.

Unknown Executive: Have a great day.

Unknown Executive: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

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

Unknown Executive: .. .. .. ...

Wade C. Burke: 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.

Wade C. Burke: 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 adoption of our lithium batteries into trucking fleets without the need for government. Mandates.

Wade C. Burke: 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.

Wade C. Burke: 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 require 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.

Wade C. Burke: Additionally, we have recently powered liftgate operations for an independent Pepsi Bobbler, refreshment services Pepsi, enhancing their sustainability and reliability. The ability to turn the engine off during deliveries and while parked and customer parking lots has been particularly beneficial, reducing both emissions and operating costs.

Wade C. Burke: 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 trest 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.

Wade C. Burke: 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 A truck replacement cycle of four to five years and over 272,900 units ordered in the past 12 months, the market is robust. Our focus on sleeper cab installations, representing approximately 40% of class A production, positions us strategically within this growing segment.

Wade C. Burke: 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 a legacy 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.

Wade C. Burke: 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 Sphere. 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.

Wade C. Burke: 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.

Wade C. Burke: We look forward to sharing more details and results from these deployments in the coming quarters.

Wade C. Burke: Regarding our core RV market, the latest RV industry association report forecasts a median annual growth rate of 13.8 percent. RV shipments were about 7.8 percent in the second quarter of 2024 compared to the first quarter. Tollable RVs led by conventional travel trailers ended June up 11.4 percent while motor homes finished down 33.2 percent 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 air streams touring coast production facility and pre-immentory chassis.

Wade C. Burke: This incident paused air streams production from 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.

Wade C. Burke: A bright spot among our OEMs is a recent announcement from AirStream. They have launched a shorter floor plan for their trade winds 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 solidify in our partnership and expanding our market presence. Another bright spot is our system integration within these OEMs.

Wade C. Burke: 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 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.

Denis Phares: I will now turn the call back over to Denis Phares to discuss our second quarter, 2024 financial results. 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.

Denis Phares: Please note that all figures presented are gap and less 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 $14.50 million guidance range.

Denis Phares: This can be attributed to weakness in our key customers orders, primarily due to a weather event at our largest customers 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.

Denis Phares: 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.

Denis Phares: 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 30th, 2024 was comprised primarily of interest expense, a $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.

Denis Phares: Net loss in the second quarter of 2024 was $13.6 million, or $22 cents 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 2020.

Denis Phares: III. 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.

Denis Phares: 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.

Denis Phares: 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 striking 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.

Denis Phares: 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 Striton, 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.

Denis Phares: Also, we do not expect to be able to realize the initial $5 million licensing fee from Striton immediately, even though the cash is paid upfront and is non-refundable. 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 of 2024, with revenues in the range of $13.5 million to $50 million, not including recognition of any of the Striton licensing fee, representing approximately 8% sequential growth at the midpoint of the range.

Denis Phares: We expect growth 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.

Denis Phares: In closing, we continue to address and successfully navigate difficult market headwinds through revenue and market diversification. Significant new opportunities through our Battleborn brand and adjacent downstream markets are expected to supplement the growth of our core battery Business. Meanwhile, we are continuing our efforts in scaling chemistry-agnostic domestic cell production, which we view as the most significant differentiator for us.

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

Unknown Executive: Thank you, ladies and gentlemen. We'll now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a prompt that your hand has been raised. Should you wish to decline from this polling process, please press star followed by two. If you're using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question.

Wade Seberg: Your first question comes from George Gianarikas. With Canacore Genuity, please go ahead. 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 air stream issue having an impact also on Q3?

Wade Seberg: I didn't pick that up in your comments. Thank you. Thanks, George. This is Wade Seberg. As far as the impact of the air stream 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.

Wade Seberg: 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, bleeds are wanting to see the system not only perform in the summertime, 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 pen out. And we have we are more than confident based on data that we've gotten from fleets that it will absolutely pen out. Thank you.

Dr. Dennis Ferris: Maybe for Dennis, I'm curious as to whether you can share any thoughts on the recent Tesla unveiling of the first cyber truck to use dry cathode 4680 sales. Any thoughts there? That would be appreciated. Thanks. I mean, I can't speak too much about that. It's a different dry process than ours. It's an extrusion process and it is different chemistries, different polymers, and there's certainly challenges associated with that one that I think are 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.

Unknown Executive: Thank you.

Chip Moore: You're next. Your next question comes from Chip Moore with Roth Capital Partners. Please go ahead.

Dr. Dennis Ferris: Good evening. Hey, everybody. Thanks for taking the question. I wanted to ask another on dry electrode. Dennis, I guess. Having strightened 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 call her on those efforts. Yeah, certainly one of the reasons that I think that strightened partnership is those synergistic is they are interested in domestic self-supply. There's definitely interest on their end for us to be applying the dry electrode process to make cells for them.

Dr. Dennis Ferris: So that's unambiguous. Regarding the government funding, you know, 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 we're honing in on a couple in particular. And as I said, we're in the middle of site selection, and you know, we'll be able to speak more to that as things continue to progress. That's helpful. We'll stay tuned, Dennis.

Unknown Executive: And if I could ask one more, maybe just around the methane leakage opportunity.

Dr. Dennis Ferris: First deployment in September, right around the corner. Just just any update there on on how things are progressing and how you know how closely you'll watch that one and maybe timelines before. You know, we potentially see. Fall on orders and the larger opportunity to build. Yeah, well that 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, you know, the system reclaiming methane in an uninterruptible fashion that is certainly what is needed.

Dr. Dennis Ferris: 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.

Unknown Executive: Okay, I'll hop back in. Appreciate it.

Unknown Executive: Thank you, Jeff.

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

Dr. Dennis Ferris: Afternoon. Hey Dennis, 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, you know, 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 perspective customers would need to see in terms of duration of data, I suppose, before purchasing decisions is something they need, you know, quarters months years of data, or do you have any sense of that?

Dr. Dennis Ferris: Thank you. No, no, it's a very rapid, it's a very rapid test because ultimately what what the batteries are providing is, is continuous operation of the vapor recovery unit while the compressor is down. So that's the importance of a leakage instance is 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, you know, for the four or five hour downtime until they ramp back up.

Dr. Dennis Ferris: 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 and that when the engine goes down or is turned off, the batteries take in to run the electricity. Got it, understood. That's very helpful.

Dr. Dennis Ferris: And for my follow up on the this trucking deal that you guys just announced. So you mentioned that, you know, 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 fall 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?

Dr. Dennis Ferris: Yeah, a little bit bold. They're going to thanks to 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.

Unknown Executive: Understood. Thank you guys for the time. Thank you, Jeff.

Unknown Executive: There are no further questions at this time.

Dr. Dennis Ferris: I would like to turn the call back over to Dr. Dennis Harris.

Dr. Dennis Ferris: Thank you for everyone joining us today. We look forward to sharing additional details with all of you in the coming quarters.

Unknown Executive: Have a great day.

Unknown Executive: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.