Q3 2024 Dragonfly Energy Holdings Corp Earnings Call
Ina: Good afternoon, my name is Ina and I'll be your operator today for Dragonfly Energies
3rd Quarter 2024 Earnings Call
Ina: As a reminder, this conference call is being webcast and recorded. All attendees are in listen-only mode at this time.
Ina: During this call, the company will be making forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 based on current expectations.
Ina: Forward-looking statements include all statements that are not historical statements of fact.
Ina: and statements regarding the company's intent, belief, or expectations, including but not limited to statements regarding the company's guidance for 2024.
Ina: Results of Operations and Financial Position, Planned Products and Services, Business Strategy and Plans, Market Size and Growth Opportunities, Competitive Position and Technological and Market Trends.
Ina: Some of these forward-looking statements can be identified by the use of forward-looking words including may, should, expect, intend, will, estimate, anticipate, believe, predict,
Ina: Plan, Targets, Projects, Could, Would, Continue, Forecast or the negatives of these terms or variations of them or similar expressions.
Ina: These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
Ina: Actual results may differ due to factors noted in the press release and in periodic SEC filings.
Speaker Change: Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release on the company's website. I'll now turn the call over to Dragonfly's Energy CEO, Dr. Dennis Phares, please go ahead.
Thank you and welcome to everyone joining us today.
Speaker Change: At Dragonfly Energy, our commitment to pioneering innovative lithium-ion battery technology remains unwavering.
Speaker Change: Despite macroeconomic headwinds, we believe we have made considerable strides in expanding our footprint beyond the RV market and into the heavy-duty trucking, oil and gas, and other high-impact sectors.
Speaker Change: Our strategic initiatives have focused on diversifying revenue streams, enhancing our technology, and positioning ourselves for long-term growth through partnerships and targeted research and development investments.
Speaker Change: The broader economic environment continues to pose challenges impacting consumer discretionary spending and extending economic pressure to sectors such as retail and trucking. However, our adaptability has been key to navigating these uncertainties.
Speaker Change: By reinforcing our partnerships, advancing our product innovation, and strategically focusing on high potential verticals, we believe we are laying a robust foundation for sustained growth.
Speaker Change: Our move into the trucking and oil and gas sectors is part of our strategy to leverage our experience in transitioning traditional lead acid application to lithium solutions.
Speaker Change: A shift we demonstrated in the RV market. Although initial adoption in these newer markets has faced delays due to numerous economic conditions, we remain confident in these sectors potential to become significant revenue drivers as conditions improve.
Speaker Change: The continued success of our pilot programs within the trucking industry has led to the conversion of these initial trial customers into a revenue generating segment.
Speaker Change: With that, we're proud to report that we recognized our first meaningful trucking revenue in the third quarter, and we anticipate continued quarterly growth within the trucking market. We believe positioning it as a significant revenue driver for Dragonfly Energy in 2025.
Speaker Change: In terms of technology, we believe that we are at the forefront of introducing intelligent connected solutions that enhance energy storage efficiency and user experience.
Speaker Change: Our new Dragonfly Intelligence technology exemplifies this approach, offering real-time monitoring and advanced diagnostics.
Speaker Change: We believe this technology will enhance our current offerings and also positions us for deeper market penetration as we introduce it across various segments.
Speaker Change: This technology, integrated with our new Smart Battle Born battery packs, will also be released to the general public during the fourth quarter 2024, which we believe has the potential to rejuvenate our direct-to-consumer markets.
Speaker Change: We have also entered into strategic partnerships to further develop and enhance our battery technology.
Speaker Change: We have also made positive strides in our partnership with Stryton Energy, one of the largest battery manufacturers in North America.
Speaker Change: The existing licensing agreement we announced in July 2024 plays a pivotal role in our strategy of expanding the reach of our Battle Born product line.
Speaker Change: That was kicked off this November as battery products were prominently showcased at Stryton's booths during the Specialty Equipment Market Association or SEMA and Automotive Aftermarket Products Expo or APEX events.
Speaker Change: Two major automotive industry gatherings. These showcases attracted substantial attention from a diverse and engaged audience, including many of Stryton's key business-to-business customers. The initial response has been positive, with strong interest and enthusiasm for our product offerings.
Speaker Change: In parallel, we have been collaborating with Stryton on developing multiple new battery models. These models are slated for production under our contract manufacturing agreement in 2025.
Speaker Change: Additionally, I would like to highlight our existing offtake agreement for lithium sourced from Nevada through eye and ear and the Riley Ridge project.
India recently received approval by the federal government of its Riley Ridge lithium mine.
Speaker Change: We believe this development is an important step as we work towards vertical integration, ensuring a reliable domestic supply of lithium that will support our long term manufacturing and expansion goals.
Speaker Change: The progress at Riley Ridge helps to strengthen our supply chain and continue our commitment to leveraging U S based resources to enhance the sustainability and scalability of our battery solutions.
Speaker Change: To discuss third quarter results operational specifics and detailed revenue insights I'll now turn it over to our Chief revenue Officer Wade Seaberg.
Wade Seaberg: Thank you Dennis and thank you to everyone for joining us today.
Wade Seaberg: Before we dive into the details I want to acknowledge that our revenues for the third quarter were negatively impacted by challenges in our direct to consumer markets, which were affected by broader macroeconomic factors impacting discretionary spending.
Wade Seaberg: While we are disappointed by this outcome. We are encouraged by several bright spots that are driving long term momentum across our business.
Wade Seaberg: Starting with the original equipment manufacturers or our OEM revenue, we experienced sequential growth and our increasing portion of the sales continues to be derived from the RV OEM market. Our OEM revenue increased from $5 $6 million in the second quarter of 2020.
Wade Seaberg: Four to seven $4 million in the third quarter of 2024. This represents a 10% increase that we believe may be attributable to a recovery in RV market the implementation of our smart battery product line.
Wade Seaberg: And us beginning to penetrate the heavy duty trucking market.
Wade Seaberg: A significant driver of this revenue increase was the introduction of our new Smart battery product line implemented by one of our OEM partners.
Wade Seaberg: New battle borne products, featuring our patent pending dragonfly intelligence communication technology.
Not only have been adopted by this OEM, but have also expanded their energy storage capacity demonstrating the value of this technology, we believe that the dragonfly intelligence ecosystem, whether its feature rich design will gain further market traction as additional Oems test and experienced its potential to enter.
Hans customer satisfaction.
Wade Seaberg: The RV industry Association or RV I E is forecasting continued recovery in the overall RV market with unit production, reaching the mid 300 thousands per year range. We believe this broader market recovery will benefit our OEM partners and further support dragonfly energy's growth trajectory.
Wade Seaberg: And the heavy duty trucking market.
Wade Seaberg: Solutions provide the benefit of a restful night's sleep during the 10 hour rest period, reducing the risk factors associated with driver fatigue expanded trials are underway several fleets, who are experiencing firsthand, how our electric auxiliary power units can eliminate idling and contribute to more sustainable.
Wade Seaberg: Stable and driver focused fleet operations without imposing a green premium.
Wade Seaberg: We've recently introduced our dragonfly intelligence technology to the heavy duty trucking market as well.
Wade Seaberg: This advanced technology, which seamlessly integrates into our <unk> product line offers real time insights into each trucks energy system.
Wade Seaberg: This increased visibility drivers can now monitor battery health via an app, while fleet managers gain access to historical performance data and in depth diagnostics.
Wade Seaberg: This connectivity not only ensures peace of mind, but also positions our systems as a superior alternative to traditional lead acid batteries in an increasingly connected world.
Wade Seaberg: Additionally, we believe the revenue will increase in fourth quarter revenue.
Wade Seaberg: The heavy duty trucking industry in part due to our trailer solution for lift gates with large beverage distribution chains, we look forward to sharing more specifics as these solutions are installed and announcements are approved.
Wade Seaberg: Turning to oil and gas.
Wade Seaberg: Leveraging our uniquely certified lithium power solutions, we've achieved a significant milestone by demonstrating our first off grid methane reclamation power system in collaboration with our legacy equipment and its subsidiary Agnes systems. This initial deployment, serving as a demonstration unit.
Our legacy customers, including both fleet equipment providers and end users in October garnered strong positive feedback.
Wade Seaberg: During these demonstrations our clients identified additional unexpected benefits of our solutions for instance, our energy storage systems can supply grid level power from natural gas compressor packages and replace outdated lead acid battery systems that are currently being replaced annually.
Wade Seaberg: Due to poor maintenance.
Wade Seaberg: Our class one division two certified lithium battery packs present, a compelling alternative and we are now actively working the formalized partnerships within the oil and gas sector to capitalize on this and other opportunities.
Wade Seaberg: Our distribution network has expanded through agreements with Meyer distribution and Keystone automotive a subsidiary of LKQ Corporation, serving over 18000 customers.
Wade Seaberg: These partnerships extend our reach to thousands of RV and marine dealers nationwide and are expected to drive additional revenue growth as they increase our market access and product availability.
Wade Seaberg: We believe that the strategic initiatives discussed paired with upcoming product releases and partnerships position dragonfly energy for sustained growth.
Wade Seaberg: We remain committed to navigating economic challenges with a proactive solution oriented mindset and are excited for what lies ahead as we expand our reach and capabilities. Thank.
Wade Seaberg: Thank you all for joining us today, and we look forward to continuing our journey towards sustainable and diversified growth.
Speaker Change: I will now turn the call back over to Dennis first to discuss our third quarter 2024 financial results.
Speaker Change: Thank you Wade.
Dennis Phares: I will now provide a review of our third quarter 2024 financial results as well as a more detailed outlook for the fourth quarter of 2024.
Dennis Phares: Please note that all figures presented are GAAP, unless otherwise noted drag.
Dennis Phares: Dragonfly energy generated net sales of $12 $7 million in the third quarter of 2024 down from $15 $9 million in the third quarter of 2023.
We believe that the decrease can be attributed to lingering weakness in our direct to consumer or DTC battery sales.
Dennis Phares: Our DTC segment generated net sales of $5 $2 million in the third quarter of 2024 down from $10 $3 million in the third quarter of 2023.
Dennis Phares: OEM sales in the third quarter of 2024 were $7 $4 million up from $5 $6 million during the third quarter of 2023, which we believe is indicative of some recovery in the RV market.
Dennis Phares: Dragonfly energies gross profit in the third quarter of 2024 was approximately $2 $9 million compared to $4 $6 million in the third quarter of 2023.
Dennis Phares: The decrease in gross profit was primarily due to a lower unit volume of sales and a six 4% decrease in gross margin from 28, 9% to 22, 5%. The overall decrease is a result of higher lower margin OEM sales and lower higher margin DTC sales.
Operating expenses in the third quarter of 2024 were $8 $9 million down from $10 $5 million in the third quarter of 2023. The decrease was primarily driven by lower employee related costs and stock based compensation in the prior year.
Dennis Phares: Total other expense in the third quarter of 2024 was zero point $8 million compared to $4 $1 million in the third quarter of 2023.
Dennis Phares: Other expense of zero point $8 million encourage you when the quarter ended September 32024 was comprised primarily of interest expense of $5 $6 million related to our debt securities offset by a change in fair market value of warrant liability in the amount of positive $4 9 million.
Dennis Phares: <unk>.
Dennis Phares: Net loss in the third quarter of 2024 was $6 $8 million or <unk> 11 loss per share compared to net loss of $10 million or 17 cent loss per share in the third quarter of 2023.
Dennis Phares: EBITDA in the third quarter of 2024 was negative zero point $8 million.
Dennis Phares: Compared to negative $5 $7 million in the third quarter of 2023.
Dennis Phares: In the third 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 $5 $5 million compared to negative $4 $6 million for the third quarter of 2023.
Dennis Phares: For a reconciliation of EBITDA to adjusted EBITDA. Please refer to our earnings press release.
Dennis Phares: Dragonfly energy ended the third quarter with approximately $8.0 million in cash up from $4 $7 million at the end of the second quarter of 2024.
Dennis Phares: We believe that the levers we have in place to control, our cash burn, including our equity line of credit provide us the necessary liquidity and resources to execute on our operational plans.
Dennis Phares: Now I would like to turn your attention to our expectations for the fourth quarter of 2024.
Dennis Phares: We expect the fourth quarter to be our strongest of the year with revenues in the range of $13 5 million to $14.0 million, representing approximately 8% sequential growth at the midpoint of the range.
Dennis Phares: We expect slightly lower RV OEM revenue due to seasonality, but a return to growth in direct to consumer markets, especially with the release of our new Dragonfly intelligence batteries. Moreover, we expect notable growth in our trucking revenue.
Dennis Phares: We expect gross margin in the fourth quarter to be in the range of 22% to 25%.
Dennis Phares: Operating expenses in the fourth quarter of 2024 are expected to be in the range of $5 5 million to $6 $5 million.
Dennis Phares: As we think about the next few quarters. We are excited about the prospect of increasing our major revenue streams from 1% to four against the backdrop of a recovering RV market. We believe the addition of trucking oil and gas and brand licensing can provide the core business growth required for execution of our.
Dennis Phares: <unk> cell manufacturing initiatives.
Dennis Phares: The concurrent onset of increased tariffs and the establishment of domestic lithium mining and other infrastructure puts dragonfly energy in a truly unique position within the lithium ion battery landscape.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: She has a question. Please press star followed by the one on your telephone keypad.
Speaker Change: Do you want to hear your April then Johanna Speedway East.
Speaker Change: And should you wish to cancel your request. Please press star followed it to if you're using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: Your first question comes from the line of George <unk> from Canaccord. Please go ahead.
Hi, good afternoon. Thank you for taking my questions.
Speaker Change: <unk>.
Speaker Change: Maybe to start does theres been a lot of press over the last couple of few months around try electrode.
Speaker Change: Batteries in the marketplace, particularly from Tesla and others.
Speaker Change: Could you share your thoughts as to how you've assessed those technologies relative to yours.
Speaker Change: And your thoughts on bringing your technology in the market. Thank you.
Speaker Change: Sure. Thank you George.
Speaker Change: Well first of all my thoughts on dry electrode go back.
Speaker Change: A lot of years, we've been working on this for well over a decade.
Speaker Change: And that the overall push to dry electrode is really driven by a desire to lower the manufacturing cost and I think the ability for a domestic manufacturer to really compete on the world stage is.
Speaker Change: Nate made available by some sort of step function drop in manufacturing cost and that's why.
Speaker Change: Dry electrode in particular is of such interest today.
Speaker Change: The ability to eliminate the MMP solvent and the entire drawing step to produce the electrode.
Speaker Change: Is the obvious first step I think in really reducing the cost of manufacturing. So that was our motivation and really trying to develop these these dry electrode processes.
Speaker Change: There are other dry electrode processes different than ours. So what we do is very specific in terms of.
Speaker Change: Powder coating a layer one grain at a time on a.
Speaker Change: Conducting substrate, what Tesla has done through their Maxwell acquisition, along with some others is a dry electrode process known as extrusion, where powders and a specific type of polymer are mixed together and then extruded into a freestanding film and our view.
That is that it's more difficult to scale and the reason I say that is because there's an extra lamination step where you have to take that film and precedent and adherence to the current collect collecting foil, whereas we're growing the film directly on the foil so in my view.
Speaker Change: In our view, we've developed a dry electrode process that not only demonstrates the cost reductions, but also applies technologies that actually scale very well. So we're very excited to be.
Speaker Change: Working on a topic that is now at least garnering some interest and we think we're really well positioned.
Speaker Change: To deploy this technology and actually be in a position to mass produce tell us domestic domestically.
Speaker Change: Thank you and maybe to follow up on something you've mentioned now a couple of times.
Speaker Change: On your earnings calls as this non dilutive capital that could fund half gigawatt hour production.
Speaker Change: Could you just sort of give any more detail around what that involves and how close you are to secure that financing. Thank you.
Yeah, well, we are in the process of setting up a subsidiary in Canada and obtaining the financing through the subsidiary so in that way, we're going to be able to deploy the technology through the subsidiary to begin with.
Speaker Change: And that will allow us to raise the capital.
Speaker Change: Through.
Speaker Change: Alright that and that would allow us to too.
Speaker Change: <unk>.
Speaker Change: Raise the capital through the subsidiary instead of through the parent company.
And which can you give us any more details on the program specifically.
Speaker Change: Well I will say we are in advanced negotiations with a couple of the provinces in Canada, and I guess, we'll be able to speak.
Speaker Change: In more detail as we.
So like which direction, which path we're going to take.
Speaker Change: Thank you.
George: Thank you George.
George: Thank you.
Speaker Change: And your next question comes from the line of Chip Moore from Roth Capital Partners. Please go ahead.
Speaker Change: Hey, Dennis Thanks for taking the question.
Speaker Change: Wanted to ask Hey, Dennis I wanted to ask on connectivity power nice job.
Speaker Change: Getting some some revenues this quarter.
Speaker Change: Particularly in a market thats.
Speaker Change: Not particularly doing great right now so so hats off I guess.
Speaker Change: I thought I heard you say.
Speaker Change: You're looking for more growth next quarter, but then did I hear you right on.
Speaker Change: Significant revenue potential next year is there.
Speaker Change: Is there any way to sort of frame that is that.
Speaker Change: Independent of the market or are you thinking.
Market recovers and as some of these fleet wins start to ramp or just how are you thinking about that opportunity.
Wade Seaberg: Thanks Chip this is Wade I'll I'll take that one.
Wade Seaberg: They were looking at it is kind of threefold right. It's it's.
Wade Seaberg: <unk>.
Wade Seaberg: Market a market acceptance. So the fleets are the trials that we put in place. This year are proving themselves out and its the expansion of those programs through the.
Wade Seaberg: The new trucks that the fleets are going to be getting but then it also be assisted by the market. The overall transportation market recovery and then lastly.
Wade Seaberg: Third lever there is we're seeing more applications.
Wade Seaberg: For our our product within the transportation market adjusts the peers that we.
Wade Seaberg: Initially identified so there's there's a real need for the solutions that we're offering and multiple fleets are really.
Wade Seaberg: Engaging at a much higher level now than.
Wade Seaberg: What they were even even last year when it was still fairly high.
Got it appreciate it that way.
Speaker Change: Maybe a second question.
Speaker Change: On methane reduction so first pilot completed it sounds like things are going well just update us there on.
Speaker Change: Yeah.
Speaker Change: Market potential and then any concerns that you know we get a new EPA administration and then.
Speaker Change: That could have impact or how are you thinking about that.
Speaker Change: Sure the conversations that we've had with <unk>.
Speaker Change: Fleet operators and the end users themselves have been very positive over our solution regardless.
Speaker Change: Of what administration was was too.
Speaker Change: Take control.
Speaker Change: And they've already identified that the Merck.
Speaker Change: It was kind of the ball is rolling down the hill and Theres No real way to stop it is just the speed at which it is.
Speaker Change: The packaging companies that we're working with are really.
Speaker Change: Oh really.
Speaker Change: Okay.
Speaker Change: They're getting an influx of.
Speaker Change: Orders right now for their packages from the.
Speaker Change: From the natural gas providers.
Speaker Change: And they are in.
Speaker Change: They are in sales negotiations right now over our solution.
Speaker Change: They're working through that right now.
Speaker Change: Did I answer that Paul Yeah.
Speaker Change: No that's helpful. I appreciate it.
Speaker Change: And if I could just sneak one more in just just modeling.
Speaker Change: The Q4 guide I guess.
Speaker Change: The opex sequential step down it looks pretty notable any any timing issues, there or anything to keep in mind or or maybe how do we think about the.
Speaker Change: Next few quarters on Opex.
Speaker Change: Well I mean as you know we've been in in cash conservation mode for quite some time now.
And we've been pulling every lever that we can so I wouldn't say there's anything notable.
Speaker Change: To report other than our continued.
Speaker Change: Focus on.
Being frugal and cash management.
Speaker Change: Got it understood.
Speaker Change: Thank you both.
The address myself my offline. Thanks.
Thank you chip.
Speaker Change: Thank you once again should you have a question. Please press star followed by one on your telephone keypad.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: No further questions at this time I will now hand, the call back to Mr. Dennis <unk> for any closing remarks.
Dennis 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.
Dennis Phares: Thank you and that concludes our conference for today. Thank you all for participating you may now disconnect.
Dennis Phares: Okay.
Okay.
Dennis Phares: Sure.
Dennis Phares: Yes.
Dennis Phares: Okay.
Dennis Phares: Yeah.