Dragonfly Energy (DFLI) 21 Aug 232023 Q2 Earnings call transcript

Good afternoon. My name is J.P. and I'll be your operator today for Dragonfly Energy's Second Quarter Earnings Call. This call can be accessed along with the earnings press release and SEC filings on the Investor section of the Dragonfly Energy website found at www.dragonflyenergy.com.

As a reminder, this conference call is being webcast and recorded. Instructions] [Operator

and the Actual making to company's some results in found press release call, on statements factors today's non-GAAP will SEC in GAAP the expectations. periodic measure consolidations website. current may release nearest financial company measures. this will the to forward-looking be based noted filings. The During Management the the reference corresponding in on differ be due can

Officer Dr. now of the Executive over Phares, I'll Dragonfly. to Denis turn Chief call

and you, everyone us Thank you thank joining today. to

For founded those company. who lithium-ion is Energy are new to technology our in a story, Dragonfly battery today was XXXX and comprehensive

integration energy We have other ancillary these battery and patented storage industrial the packs consumer operations of and design We span vehicle, marine the solar systems. that wide assembly sell and of including recreational market of and as of proprietary a into these the into manufacturing off-grid components packs processes, development and full systems cell battery range market's the as well uses, end and sectors.

have relied for storage. batteries energy on acid lead markets these Traditionally,

remains X widespread power, over However, better toxic, charges weight, and no XXx storage is requires and safer, maintenance. customers also Dragonfly's with technology more a lead a cleaner environment. problem in that performing X/X the solution to lithium-ion is Xx battery provides our provides longer, lasts faster, and

portfolio, patent date. to growth of and proud innovations, are our We

reach expand are new core We to while adjacencies. our into our achieving growth within market continuing markets,

unit expected, expected particular, to has not spending a The RV in challenging. well more seen remain markets, fall are severe documented The continue which dominated by headwinds face are to declines consumer with discretionary in decade. to volumes core previously our industry, in deliveries than experienced and

dealer our a premium a changed As de-contenting standard of that storage strategy this instituted ultimately a install energy offering our to weakness, option. a largest RV from has industry customer result

year. customer removed of for of light this previously from revenue the this the In all forecasted remainder change, we have

Although it customer has just we matter within whole. win as materially do believe any as this year not have importantly, as this competitive to and current continued has to a expectations, industry ultimately the timing is share market a moved reduced we our of product,

a or our and XXXX, Association, new expect RVIA, customer we Industry through the it is even to more forecasting RV recovers. slow wins, recovery The with industry as of command

adjacent We are transportation emerging in also of a customers growth. traction promising as markets gaining large with future source with

that in programs long-haul We prototype work before underway truck have rail to we several will new announce contracts XX is fleet, able trucking, more than pilot markets. and year or the be our end. expectation across markets And these

for large future markets stage are has experience market growth that the these to believe are engineer unique these our system We quarters opportunities RV opportunities the set Importantly, in and years. full where solutions differentiated. us enabled replacement and in lead-acid additional

for the importantly, more More cell that Energy known are of number expansion we to This widely at Dragonfly Briefly, far the be impactful. significant our begun of but company the manufacturing. is a expect has to execute we start include aspect is to on of less reasons.

proprietary our decade. represents it the over dry innovative the deployment perfected process last and of have we manufacturing First, that electrode

to scale application our of pilot anodes. recent our our of of through to demonstrated have announcement line graphite We ability the production the

company. diversification has infrastructure domestic for key the the manufacturing the as as such Second, manufacturing energy for future. American crucial storage. development is been government domestic by our production innovation finally, deployed and grant to our cell U.S. this is manufacturing support. are And activity of to the energy opportunities cell identified an IRA, the Such ultimate for Incentives,

as chemistry-agnostic our grid historically developing for opportunities faster enables large continue grow and Although to scalable such growth into manufacturing in we core markets will markets, storage. cell

to John the provide I financial will to quarter more third now look operational of a as of a call our as detailed second and for well quarter review turn XXXX. results the over

In Denis. you, XXXX. unless net my the the compare from sales figures quarter, otherwise our are noted. All of line will to million to guidance. I million today, Dragonfly quarter Thank $XX GAAP quarter results revenue in second remarks of with of the XXXX $XX generated million in second $XX.X second

Our declines million the as of from $XX.X in million customers by revenue our $X.X quarter declined by offset direct-to-consumer in was year growth from second OEM our business. last

begun compared year-over-year of XXXX. increased have XX% as sales in of XX% of second OEM accounted by adoption purchases in original design products safer, our customer $X.X customers increased revenue result efficient end Our batteries as equipment of whom and in quarter our for to batteries. new by response or RV of a several million as have replacement traditional for in a revenue of various to in batteries customers, for quarter approximately the lead OEM the existing demand increased and to models acid more

in mentioned, but longer than overall RV storage solutions those as offering RV solutions downturn beginning to to OEM us rather However, our has quarter, current return install standard steeper and largest would customers. the the it our as as no given expected the customer an that Denis informed option dealers market, in equipment,

timing or the we visibility orders. customer have a size this is moving into future a While do not competitor, to or of solution different not

will from move result, revenue we expected and conservative from million forecast approximately through be our of $XX a of decided remainder the As XXXX. this have to customer

with represented has in the down approximately in the demand from Our inflation and sales million impacted been year of of interest XX% expectations year-over-year approximately in or of negatively products by ago. XX% as sales rising our DTC, quarter quarter, a rates. The decline same was direct-to-consumer line for business $X.X

this through to XXXX. segment signs stability, of continue market materially expect of of we While not do see we remainder improve the to the

as increase in a an that larger of DTC approximately margin material of percentage a was of in Dragonfly's mix sales sales we million as as in higher-priced quarter inventory, costs some imported The battery included revenue the gross quarter OEM to second absorb and the lower to change higher-margin in $X.X continue million primarily decrease to well gross was compared profit the in XXXX. on cells. $X lower profit particularly percentage due

Operating guidance of the expenses and our million, to million second compared quarter $X.X in XXXX. $XX.X an increase were quarter line second the in in with

included quarter roughly Second expenses compliance to and $X.X increases $X million sales marketing higher million as operating as of costs well professional insurance personnel costs. services, of and

a materials expenses severance, addition, stock-based the higher compensation, were supply In to ago. relative and quarter in year and

result the diluted net second other increased in goods higher share and to quarter the sold, $X.XX due cost negatively of higher lower loss a the partially increased -- million impacted $XX.X XQ $X.X loss costs, by interest was offset or expenses in for the the of guidance diluted per second to The other within in expenses was XXXX. primarily Earnings by warrants. compared a fair million net quarter negative DTC adjustment per operating sales, with share value a of of $X.XX or

Second and quarter quarter offering ago. compared XXXX a the market $X.X costs XXXX. $X.X million EBITDA second year quarter compared Adjusted company's the the the $X.X changes June, was with associated a EBITDA, in negative was a in to separation of positive the agreements to fair same our the of in negative quarter million of a value and million million impact excluding in a in $X.X negative warrants in stock-based compensation,

release. ended in credit. adjusted to quarter $XX.X approximately including and please EBITDA, refer cash Dragonfly to access reconciliation earnings strong a our of the For equity retains financial with to $XXX of EBITDA a million press flexibility, million line

quarter the attention to Now our our turn third for to I'd of expectations like XXXX.

drive As discussed on new calls, wins, second growth customers of the we to program OEM among previous half revenue RV expected XXXX. in particularly

storage we wins been have the are nuCamp of a decision not rather announcements than a in new our back as option solutions offering an RV While to customer customers and examples. install. as to These enough to these like winning by successful largest couple with standard revert OEM new Airstream offset our

Our DTC headwinds interest such macroeconomic rising stable, face inflation. continues business, while as and on customers rates challenges with focused to

the dynamics, third be to quarter to $XX we Given of expect $XX those million million. revenue in range

in the on expense modestly basis we expect more higher-priced sequential buffer a and costs to expect the following as income return the range and range [to of of the $X million of of Operating We a to we we normalized utilization be to expense material other favorable expected in are more $XX $XX and million, expect to million. total margin gross $X.X in mix, inventory. million improve some to September be the quarter an] expense

to per share We expect the a negative based net a outstanding. of the share million quarter shares million in million $XX on $XX a or $X.XX in approximately to $X.XX report XX negative to per range third loss

million to range to $XX expecting XXXX revenue We be our outlook $XX of million. prior $XXX are from now of down our million million, in also $XXX the to

half mentioned from of million earlier, in moving to we are customer. expected second largest the due $XX year change the revenue As approximately from our the

also million deeper are prior customer expecting cuts now forecasted. industry we running $XX new given of previously expected awards below and the program to than expectations these volumes as wins And new the new units from previously less approximately are than

turn remainder to Denis calendar now on call provide me of to operational the Let back the for some over goals year. the and highlights additional color

John. you, Thank

systems. components mentioned those and integration other Dragonfly packs cell ranging integrated of activities comprehensive assembly with design processes energy battery earlier, the technology to fully of of into company and As storage from a the is development ancillary battery manufacturing lithium-ion and packs

have Dragonfly top-tier announced customer customer in to dealers Battle provide internal we provide batteries a technical to access Born seeks service. trusted installers addition, team. who our order certified by June, In with to new program our dealer In and vetted been base

to continues development make other company operational progress The areas. several in and

design installation informed In patent the provides a its more the granted be GCX for would flexible which was battery of custom July, pack that company solutions. for

this enable production the to battery for offtake manufacturing, quarter, a lithium. Ioneer, supply domestic investing the while integrate and our will chain, U.S. in a cell strengthen longer-term and our announced second Also lithium-boron manufacturing part planning agreement Dragonfly Nevada-sourced agreement producer, in commercial of of with as us

storage, affordable longer-term enable and drive Our grid research goal to and remains safe, our that development continues goal to micro work.

frame in patent pre-coated reduce and batteries deposition market an storage was informed lithium-ion a bringing granted time achievement to pertaining was our pleased manner it footprint, a phosphate As being to cost. smaller at report scalable to powder in a such, non-flammable lower a in we of new film important preparation that within are representing Dragonfly manufacturing and June, powders

And I'm of that program. lithium we to achieved happy our battery in cell U.S.-based pilot report completion July,

of anode customers to a of large-scale by up cells deploying anticipate be to year-end is We depositing able addition electrodes production us. hours dry line, of In production, the remain which annually cell XXX-megawatt across manufacturing deliver about full using phosphate then cells This as front variety have summary, process. of with chemistries date lithium-ion we to patented lines. pilot excited to a we remain battery in capacity well opportunities X we progress have prospective the made domestic our critical and to is the the step of very battery to first of as achievement scalable with begun that off domestic

the over open will Operator? I to that, operator, line turn With can for who questions. the the call

[Operator Instructions] from comes from of Anderson Vincent Your line first the Stifel. question

could we minute. if margin go a just John, through gross for

Is that guidance like it as just end 'XX we maybe down into components into an year-on-year. we move keeping inventories down be other all that on basically work the eye XQ there Or of year slower XXXX? to So being is lower and that, revenue implies the higher-cost cell under the guidance? looks should a of bit

No.

buffer I Vince. fair, obviously, on up and I that's that question. part last inventory things we do margin it that. of as little really bit that use basis mean that were gross portion into going I significant now of smoothly, And some the with a is chains indicated. we and running sequential thanks some through as in more a of some we this just those for supply the increased finishing of a -- increase of And a think like expect year year-over-year

We've real the that made and inventory effort a buffer of that's to there. reduce some of streamline some

this a expect having are be finish level future, would cells, into that I would up bit we next. not-too-distant using of and impact, here through the to we the to of then as continue we negative a those as in So expect a back particular, more remainder year those normalized in

down, can maybe it's with OEM That's Maybe prices has, start eased or also the is there I cell put has Okay. getting they'll still so whereby that pricing If those an pretty too on come an with still quite a supply and contracts, but pass customers, volatility volatile of that costs in components about of cells. more costs these bit you industry add is helpful. key early, nature general the like to in working established, cell the something in their are cell Those but have some the discussions now through opportunity something your this but into along side. think OEMs, how of elevated. lines of

around markets the was everyone. on and Ukraine spikes going sort say, like whether would things I what Vince, did as has particularly when big mean, particularly cell happened response or like in historically of to -- material as what or that year, really for cell I we've the and been on year, -- we I side, not on us, seen the other Sure. commodities midyear say, last some some of see that what sideways the the that, on variability kind the of should that in last really was -- cost

a to actually able on to And OEM been in a work have to ability at those like it's of to we've we our I that discussions for been cells -- sure cost as still margins basis us. negotiations we have our issue year. to we're XXXX. we've year-over-year We don't on our see and do we a customers get least anticipate down pricing If saw make get big for the on that that with next spike going Historically, customers. importing. in bring with reasonable as those early able products were be

to turn to second Denis And I Okay. if it here. That's know. could good a for then over just

electrode, the of maybe thoroughly before meters single at congrats able anodes on trending the volume this ramp-up what produced how right square And don't cell have of of your estimating been have terms since to quick full and then a a I you testing. test those yields stage, far? room curious I'm just manufacturing start-up. how so very in of are dry with kind the know First, pilot you just measurement. you've if is

Vince. question, that for Thanks Sure.

it of conventional to meant pilot is that First room all, to a it's we dry I clarify, not that cells. a have completed, is want and line produce electrodes

using have have at we not deposit. the What were done we not film to which which solid the able for that the is estimate able room we're So built, so yet. -- XXX-megawatt until been is it we to rate dry is produce hours state annually, we on anode based

porosity And making of the fact industry uniformity, -- in the out to was of the line of and the ability cut for terms line, we about been So not then something in a it we've with and point, continuously centimeters that. of the that a of all coin it. a at that announcement are XX produce full standard. to of basically film, where X/X because we're depositing analysis adhesion typical cells basically the And kinds like of with at thickness, comfortable everything felt cells run our meter anodes -- we of rate we in a that pouch per position were we're second able the since actually making off

part anode, one of is the the step The course, of next So it. cathode. is

little types Cathode those really cells cathode we than trivial, producing able complete binders, talking processes. electro about done is different I innovation. application after to at different have cells particle Once then of have some doesn't it's pouch different we point -- quarter, it anode. require won't the and to move say We're known this do and expect on new but then is to right produced that is tapes of being a sizes,

Okay. No, it's helpful. very

but that. I'll to and quick -- quick a it a over, just pass just So follow-on

or to produced to coin move factor commercially form cell more like sounds pouch So a you're But [rate] been both relevant out ready has now. a level once, a all electrodes it you're at once testing pouch successfully?

correct. that's Yes,

Your Gianarikas next Canaccord. question comes from George from the line of

the Just can here for year. so clarify I guidance on your

You've where million were Keystone kind assume million in and assume million that $XX reducing is talked relative -- $XX and $XX customer $XX about guidance I'm that to a is we in the is Is -- that's to to to that the million of new from a Airstream? going revenue, going I'm that past? from customer

So George, segment, is one much customer $XX X across that We're operating customer, say much had I other very just than the $XX expected. with million overall at the any from would all -- in really right? it really that just million, RV but the But largest isn't camp. really we are volumes market originally lower still we

we've haven't the of to So others that announced. a expected we won announced win customers handful those. new of a we we've and There's couple lot even a that of

win return the programs industry which have we I a somewhere is lower customers been And to XXX,XXX let's of to much came predicting would much in the but XXX,XXX mean industry. in, volumes than those year it And predicting something that this call have XXX,XXX in are -- industry terms an range]. it's maybe levels, expected. XXXX us awarding into sort industry to expected just as to originally of overall come closer the [trailer the now

we've gone industry get worst uptick behind the to until continue down. into in as RV Association, Industry of those declines, be expecting really it year, year-over-year So probably the an The be of it revisions we but through that worked much seems is the isn't early to body, expecting XXXX. terms RVIA, this

moved install. about us to thoughtful X So that we're rather a with to being customer the a option we back an -- biggest driver of lot is a standard far trying has but putting these are on as where to be move largest with by customers, who than

Now customer? of also there strictly X demand? is large is weaker in inventory a Or reflection this this

this customer. there basis consistent get I inventory from POs we on of to was lot mean fair, No, fairly -- the be there's not a a George.

they down or This the of come an work that a situation to through as to it's to are as be the dealer from where place either bit has option, now on that OEM. fair So to then a inventory our order have to with holding that us, customer need have is really they not and if the then end fair. we batteries

to like a perspective, from make that might go than better as in that to those And be be hopefully, to into earlier just a seems from visibility us struggles So the -- 'XX we I at in where as try quarter rather we a add-on together. where request. a might of now, on of we'll of had call, back remove maybe bit an guidance it least an and estimate bit mentioned are some industry little prudent have what just levels coming through thought that with given the better what demand orders of those to of how all little a right to, position, the now, be dealer sort a sense

Okay. Maybe burn. next on just to cash the the and focus

had You have about in $X then talked quarter for I assuming mean, EBITDA understand of and if guidance about which loss is just to interest going your I'm about to a you there. adjusted I'm some -- quarter, on this you -- be trying million last same and EBITDA, based the expense

ahead, trajectory and -- So you how at had about the through the we I'm go how quarter [indiscernible] $XX-something where that should of end your cash, think million sorry. -- of the

Sure. Sure.

rightly anticipated $XXX We million are them up had burning So have we credit. equity out, to revenue point where do we being back until at. cash line here we of can that as get levels you

that we on to where certainly to as needs a tap way up until can intermediate be. to supplement term revenue So this back cash it as over get the needed, we

just that to think, also diversification do manufacturing but starting initiatives strong traction, of, highlighted, that fair of transportation I side, he But number we as front, on Denis generate have within sort on the revenue particularly market growth broader really some highlighted. the cell not very are that a

a even bit be think event. announce I year-end, is a 'XX revenue we'll we're if little that able of couple certainly hopeful to more here those a maybe of before

cash. need burn over be, to once back can X, I we we of position do revenue next this a much that I in that there. we get we be said, credit like we think comfortable augment it then, have that we do or equity to quarter where feel But we that to to. And expect like up So continue to to should more into it then line tap we if need

Was that trucking. I there markets? And broadly, that. may those X think you mentioned a have more there long-haul missed repeat -- You can was I transportation within also

yes, in broader of we the So throw into that rail market. sense, kind

have fleets. We

things We for like along you X the have category. But in long-haul equipment lines. those lump transportation. categories, together we all utility ambulances companies, all work trucking, and broad truck we lump those have things We trucks, will, or those if work under

year, in be pilot you maybe the last full sample your question, the and cells -- should end this calendar to end And should or you year. line to customers' by then working hands customers' of -- cells, hands prospective the making at have this cells of

George. right, cells cathode. can Conventional anode or That's any of with electrolytes, type conventional deposit we liquid basically

to exclusively pilot So lithium-ion we're phosphate of line. not tied off the

that potential for us. more opens diverse So some up

sort what you cells them on production? -- get you work hands as have And up their seen for and people to of ramp you it test with interest those Excellent. and have

pleasantly markets, can We've necessarily I say to interest not our was core us. had that surprising was in pleasant -- some for that it which interest was pertaining what

from Chardan. next Your line the comes Instructions] Dobson question [Operator of from Brian

think looking call perhaps you're do around of put some ballpark out you you market. the, trucking the market, it, as could type of TAM So trucking replacement battery

we announce see from revenue to expect agreement in meaningful later -- do do agreement you If from XXXX? this revenue year, an that

Sure. Thanks, Brian.

year-end, would short the growth market, year. to be we contributors real question those expect us for is that in do to certainly X we're And a meaningful expect win next if announce then from XXXX. or able think I that, second to revenue your transportation before answer we to

what term. hold those So and they in the for opportunities here on intermediate we us are very then bullish

for to very, break example, at fleet, In mean, TAM, it's because are lot how some right, in it vehicles very for as or terms cases, there's that these trucks things overall different in lines for or out. in those a opportunities do look mean, of the back lighting you delivery of I of even large, allowed depending like the want we things cabin on these I along AC, exactly to to and new looking powered retrofit a location lines, a those that solutions at do even things they're perspective. or or delivery a build In idle long from from battery haul, along increasingly to at either you have opportunities a in the a the to market we're powering RV the market. side terms the cab doing way, already house side long-haul do, what in in or of trucking of of aren't lot

as wasting lines, drivers do crew not to or rest that So have don't they either along things trucks. idle those fuel. They're

-- meant not a into and the but equipment yard of also situations lot And the of that, are. door that. signaling forced they're how performing side of then dependent some the rail, to it of They're in to getting some not to a running the trucks way just they're lead and those use where ROI certainly as in-cabin the benefits to you a the trucks trucks, to power the certainly that do you're knocks, lot about of in, of home the kind well. lot driver they're today, they in but depends is getting category there's a typically battery in having trains where lot idle that. equipment are engine don't of if batteries and not things, which it's batteries increasingly, not because wear able or fleets acid, fuel have opportunities, associated with to power is are for and being it a you're obviously you of of cases, of savings the idle themselves, big on have in And lot a vehicle opportunity the to Work tear

So a very replacement very methodical ourselves as, of again, be are within see opportunities, the big it TAM markets. where because opportunity majority but lead-acid we we we're these are to, again, looking these targeting in

the for helpful. Yes, in or that's gives that term here? to the potential is else? guess, I out them within sale look you industry, flattening Or near And Is going a industry much that going contacts sales plateau pace recovery something very in with levels? the what of than there higher RV rates volumes associations your mentioned that is the -- interest sales be confidence not it the 'XX. current to

No.

a really it's pull boils brand that They order They obviously community of the down what Brian, to dealer sense a get seeing as think you, all work lot sense end right? it what OEMs as out. for are shaping those a the how whole, are to things have whether the getting books level lines. to, a do the way itself what from of I along is they customers within right, down they're

To they be clear, official yet. out don't have forecast 'XX an

a So is. what it the been But RV see we'll industry industry. has cyclical

can there's think history they pull as of data I plenty So from that well.

they it's were this said, I As than originally severe forecasting. clear that this contraction year has more been

that with growth here feel they levels to a but always with some a likely they now are do salt, year. seem is to next So to be grain that take of year like of try do to the we cutting

thing is, of go things lot to it a out it, of it's of cyclicality lot dismantled. how a that to curve an or industry I in much point. add that is cyclicality that they way has But looks growth its And there. for think of now that feel do at important be still because comfortable capacity of Now what the slope new I of of terms the very I be historic way that debate up or may the much or other this think like, the think, of didn't

really just way. that and function rightsizing So back cutting units, of itself it is back a on hours, cutting on

of downturn. other the again side up on quickly think other the can relatively So is of it it I scale this side

Yes, good. question. And final very just a

government and user continue to production Do the demand has in will cell funding months. segment to that begin in the United to meaningful you partner of set growth think a you're over DOE that the serve been XX that in States, As segment. next XX course the

didn't a DOE the I'm sorry, asking partner? if hear that. Were Brian, was you I

meaningful a was and DOE supportive within segment the partner as industry it's If a that -- identified

in have I of participate. we mean, of we that some hopeful able call a but future, DOE the say certainly will There's cells. we production of the to the are moment. there. to can are the something claim about it's are And and they this question are preparing obviously, to not solicitations, storage to that going at point, goal supporter right a partner no I be round in new now, contact certainly been We are with at we that. domestic that folks we awaiting have And

turn time. call continue. questions now There Denis. I Please to this are no further back Dr. the will at

Well, of today, to a everyone, we Have thank forward the you you, quarters. coming sharing details joining all day. us in with for additional great look and

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

now may disconnect. You