Dragonfly Energy (DFLI) 15 Apr 242023 Q4 Earnings call transcript

Good afternoon. My name is Jenny, and I will be your operator today for Dragonfly Energy's Fourth Quarter and Full Year 2023 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. [Operator Instructions].

company making the on statements call, expectations. current this will forward-looking be based During differ factors due press may results Actual to in SEC release noted periodic filings. and the in

the found in release some measures. non-GAAP Management company's today's GAAP will be Reconciliation on reference to can measure nearest website. financial the corresponding

call to Denis now Please Phares. will I over go turn the Dr. ahead.

spending. joining core Thank late you, on The for was our markets, a which the are XXXX market accounted consumer and began continued thank revenue majority RV discretionary steady us you particular, in of in difficult today. decline, which to in dependent which everyone a highly for XXXX. year XXXX, our

has lithium Importantly, energy shipments in are we and for RV we customers. to as new storage with last in noted not quarter, And we this we wins market finally model customer reincorporation with the industry. the only and believe but and solution market to the preferred both of share bottomed, program see wins the that beginning in as a gain continue new existing recovery,

begins the important the to growth for in expect the XXXX, industry RV as market driver as So company. an we will return recover

Trucking. solution an the significant return as our of initiated the Duty highly combined on investment, with one in our Products trade Top Our the market diversification even to have The resulting incorporation. unit committed the its XX the XXXX publication visible made auxiliary expanded anti-idling heavy-duty pipeline compliance or that continues The has of product with industry. power pilot by into regulations, Heavy was recognized fleets with electric of using trucking either projects that have

will application storage EAPU the with result deployment significant in trucking trucking our providing our heavy-duty trucks, applications a of contribution solutions mobile We of long-haul market revenue. and combined in refrigerated to liftgate expect the that our fleets, in the

year. sector in purchase have and We growth the begun expect orders throughout continued this to take

XXXX, wireless supersedes of our feature, associated for quarter and typically far in standard equipped to existing in battery wireless In we storage IntelLigence the began and networking wireless with represents systems. well-documented that stability proprietary is monitoring and with last storage application Dragonfly its advancement batteries the other industries, which Bluetooth communication significant is monitoring. mesh shipping a The applied

closely specify We vehicle are OEM the be information communication over the consumers working technicians. to network storage for that so our be with will partners further transmitted system and the robust and stable to

Dragonfly included new in RV IntelLigence expect year We be among and existing in customers. will models that new model the

our prices. flattish, DTC, Direct-To-Consumer, has been as have higher more which or Our trending such average yet our business sales GCX towards differentiated larger-capacity products battery,

and that We systems us for allow health systems systems and we primarily when system expect on expand business, marine the larger will the stationary DTC monitoring the product our where critical are to to IntelLigence consumers, release differentiation user.

What fundamental Energy has is consumer our dual and and apart markets research our for from development. product on and OEM set development inception Dragonfly focus

the dry Our and cells process, previously chemistries we be have such cell and can process R&D our using unique the the is cell that proprietary applied focus primary state as solid electrode manufacturing discussed.

announced we for year, production. cathode Last we pilot anode completed our and that line

terms automotive from large backup electronics, interest automotive. greatest center have scale from have We markets. we potential data been customers of had in inbound the interest received in since and inbound consumer The has

such our aging, manufacturing propulsion interest, and deposition formation As EV in requirements processes, as meet to subsequent of a sector. the we calibrated result that and and customer

out focus chemicals, forever dry producing chemicals, processes and PFAS PFAS-free. capable Union rely the specifically, slurry-based electronics these and as lithium-ion large batteries is Current both large commonplace to with that has altogether. process are begun electrodes. anode these of find dry it to often polyfluoroalkyl More referred processes had ban deposition a revealed films steps The are our substances taking that that to in automotive per- company our consumer extrusion-based discussions turns Notably, cathode company unique today. European and on benefits our substances our both some chemicals as and of alluded date. process

have of that of performance PFAS have cells demonstrated have are we these pouch produced PFAS-free. chemicals. We electrodes Moreover, the coin matched production at-scale containing the and that using cells characteristics electrodes electrodes conventional

sustainability of as Concurrently, manufacturing we to evaluate the scale. cost of to terms a third-party our in we benefits commissioned study process continue and

X% with XX% full effects the a and, for area study we reduction this showed energy in begun competitive technology therefore, for study government in gigawatt of a have, has be costs and manufacturers domestic annual is most evaluating demonstrated The the will of processing reduction without need usage, reduction production. a notably, with hour manufacturing, manufacturing We Asian overall cost production factory the before Nevada, XX% in Inflation even and Act. in The Reduction that, tariffs subsidies.

as also becoming industry deposition EV potential innovation prospective for customers proposition on host cell of attractive the with an American issues fact a increasingly the soil deploying a we dry look to that to American to are continues processes, environmental and As current associated partners. solution manufacturing is

quarter XXXX. outlook turn full financial of results a first will as for now well to I detailed the a more quarter provide John review over year call of fourth as to and the our XXXX

GAAP you, otherwise figures presented Thank unless that note are Please all Denis. noted.

generated million the sales Dragonfly quarter of fourth XXXX. fourth XXXX, net of $XX.X in down $XX.X the quarter in from of million

million quarter standard our of remained sluggish. the low which million guidance end reminder, $XX overall to from demand the in included customers of RV quarter XXXX. install fourth Keystone, at case XXXX a not $XX revenue As was million from the of as was Revenue the of the in range fourth $XX.X quarter

decrease decline costs battery for our retail RV net in financing overall For year-over-year demand fiscal higher generated cuts primarily RV to due core drivers XXXX, Dragonfly RV primary markets. accessory $XX.X sales the driven million with by sales million to OEMs, declines to lower customers, revenue. in in was from Significant $XX.X were approximately of the The unit sales and in XXXX. combined compared

overall Denis are begins continued challenges, growth recover. market As in believe these well-positioned to industry share RV to and the to gain the as return despite we mentioned, we to

Direct-To-Consumer, segment net XXXX, Our million million the sales from quarter of of XXXX. the $XX.X in generated of quarter fourth in or down $X.X fourth DTC,

XXXX. For revenue, sales the XXXX full year down of our XXXX, from segment of XXXX. $XX.X million, in of XX.X% represented generated $XX.X XX.X% net DTC million sales net total from in down DTC

OEM net during the sales of from $X.X were XXXX. down quarter million XXXX fourth quarter of million, the in $X.X fourth

the the fourth standard included As quarter revenue quarter revenue which case from XXXX. fourth of previously in our install Keystone, XXXX was mentioned, not

demand up full of $XX.X The cuts million RV sales XXXX, down OEM OEM year-over-year totaled sales total For by XXXX, offset from year net driven in partially the market, $XX.X XXXX. by the contributed overall in customer net in weaker decline million, was within XX.X% wins. from new sales in and revenue XX.X% OEM XXXX.

the RV into With OEMs, increase expect efforts adjacent continue as revenue we OEM base growing will sales a of revenue to our percentage markets, combined that throughout XXXX. with overall diversification of

of the $X.X the million in in compared fourth to million profit gross was approximately XXXX. quarter quarter fourth $X.X Dragonfly's

as driven year-over-year $XX.X OEM Our material XXXX. larger $XX.X volume XXXX decline included a primarily sales, by down in change as million, profit lower costs. was full well was revenue percentage gross from of in sales, unit mix a The lower-margin in higher year XXXX gross profit that million

of the fourth quarter XXXX Operating $XX.X of expenses $X.X million, in in XXXX. million were the from quarter down fourth

company $XX.X October public As the associated in down This combination was million, business offset a with and by reminder, compensation overall by in the full business costs an $XX.X going with costs, million well higher were expenses expenses. fees included to partially expenses related insurance the operating decrease approximately $XX.X associated primarily expenses our and increase expenses absence of the in Operating driven in XXXX of in quarter employee-related as as fourth for million XXXX from combination XXXX in professional year compliance, lower XXXX. of stock-based XXXX. public

primarily liability expense Total fiscal warrant of an value in partially approximately in of XXXX of compared $X.X approximately $X.X of of to other XXXX expense an million was quarter XXXX. million, compared expense fourth quarter $XX.X $XX.X Other of market XXXX. million income was due the XXXX a million amount other in interest contribution was income $XX.X million. in for the income of our by in to million the to fair in offset $X.X change The fourth

share Net compared share in the of $X.X XXXX diluted fourth was fourth to the a of $XX.X million diluted income of in $X.XX quarter quarter negative XXXX. million per $X.XX per loss or a net or

Our for the a or in net XXXX. $X.XX million negative $XX.X per loss share $XX.X million or XXXX of negative share year to full compared $X.XX per net was loss

demand in lower goods RV operating increased our driven offset in As expenses by sales was partially lower income. due lower reduced net XXXX cost discussed, loss to change other by market, of sold, and the the

XXXX a the XXXX, market compared other negative negative negative totaled million for value compared In warrants was million million EBITDA XXXX to million the fourth the EBITDA, changes XXXX. fair fourth in compared in and of EBITDA to the $X.X $X.X $X.X quarter adjusted quarter fourth a in the a year a XXXX. of of compensation, stock-based excluding $XX.X to XXXX. quarter quarter $XX.X our $X.X fourth Full onetime of million negative million of in was expenses,

negative warrants value in XXXX, compared million $XX.X the stock-based our to full negative compensation, million year For a changes full and onetime $X.X adjusted market excluding for XXXX. was other of EBITDA, year the the expenses, fair a of

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

to end to XXXX, cash third in expectations. our first year with the moment turn our take position from of million Dragonfly $XX.X modestly I discuss wanted at down guidance million of $XX.X quarter approximately the the of the to quarter ended cash, Before a XXXX. for I and

We the of at We resources half liquidity burn, largely our to equity necessary plans. untapped believe million will source cash first execute working our operational combined line $XXX that this as on with inventory provides expect use capital least and our and to of continue this continue reduced access us of the credit, XXXX. the that to through

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

mentioned earlier, RV is to As we signs recovery. that and appears of the early market have Denis showing stabilized believe

second our entry be to into traction addition, has more while revenue the of In is market, in contributor XXXX. early gaining trucking potential stages, still and the in a the meaningful half heavy-duty its

be to $XX revenue quarter We $XX the midpoint of XXXX approximately to the range. in growth sequential at expect XX% the range representing million million, first of

quarter Operating quarter the We XX%. $X be expect gross in range $X to are expected margin range to the of of XX% the first be first million. to expenses the XXXX in in in million to of

range expense million. We and of other $X.X million expense be income expect an in to to $X.X the

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

before provide now the Let to comments over Denis back me Q&A. call some to turning to call the turn over summary

you, Thank John.

pilot and the stated at and scale achieve could for in different chemistry-agnostic In dry line despite process, call and the questions, of and opening process market that take produce deposition want we markets. proved Before several the materials and to sample customers XXXX, to headwinds, moment the continued we our execute are battery anode we for across that cells now to delivering have patented industries and cathode near-term growth highlight I completed a to milestones. our targets

customer and XXXX sets new segments for are to excited of to our the return stabilization base of the convergence stage We the cell as RV of extremely and market expected an markets the the the manufacturing, and about return growth growth. expansion

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

Canaccord from from first Gianarikas Your is question [Operator Genuity. Instructions] George

have Maybe X bottoming to of you seem business. guidance the momentum trucking start you quarter, just a side. but of used on the gave and terms heavy-duty on to I lot for know you the momentum only like

of can of your first So or the maybe of just the this for kind for business you rest year? the 'XX be not us for bottom whether is quarter qualify to likely

some little bit George. then for Thanks a so. color start around can Maybe of you question. if of think the the Denis customer stuff, and I'll Sure, add

say I would certainly George. that, do that we expect

gives some As the particularly us to that Denis at least here, RV call mentioned, the first improvement we some in in bottom. saw confidence market, the quarter

over I of the the of there bit recovery to like is the a what in as think little uncertainty looks market. pace RV still

XX% customer market better, at least of that, industry the order the expect growth the as a to programs the think some something some course calling XXXX. probably calendar 'XX. accurate, proves on If new new to for now of the of year well do XX% little right be to we've that I we is that as of would wins then throughout but bit or certainly in given won

even to relates The of or the As year trucking and second excuse market, starts the I model of to think the half be month calendar likely year year it stronger. me, market July. it's RV its is July, in -- the the the RV

upgrade So it's all midyear models. to sort of a the

year. So the really of those to some with of steady that I to into in the to, the gain turn we orders, programs quite more in traction the continue half expect we've be a to trucking, And expect the would with particularly marketplace, think, new of And start to fleets. that bit we then. won overall as the trials second begin we

a where looks we growth and the of little the confident very I that of about the for first good low quarter now. this will I full to the be be, the feel but actual recovery we I year still pretty There feel year. right think, what likely think what uncertainty is like point bit are So is,

Denis, else I if anything don't side. there add that on customer the like to know you'd there's

return I RVs because also the increase storage general, -- shipments primarily we mode appears to be there of of an in the bottom, in incorporation as in concur feel lithium but we've preferred hit RV. an confident in that that very of in increase increased to

bodes fact the for are that combined POs in all very fleets that So trucking with from now market. well taking we heavy-duty the us,

bodes very this for combination of us year. And so the things those well

the 'XX to of seems decontenting second least now. over trend saw half you for be at in this that So

lithium. there the Well, I going to an returned that part, I be was the But wouldn't it are -- for continue to at Keystone, has say it as rather example, without way has a percentage in that we think, terms option out than bottomed of standard.

electronics a discussions? them those beyond looking additional with the details for more auto and Right. intimate And looking what won't OEMs color I can discussions you give appreciated. Are just an would partners? -- of you some just little of of just but What of consumer some maybe with these Are So on is pace be the had you they deals do call you've more like? look customers? for customers, maybe relationship Any partners companies?

Well, Yes. is notably are these think inbounds. I here

the but some that to decided outside it compelling of we our that are more of So to we process things were enough or for not of metrics consumer realm suited actively that seeking were was actually storage, automotive. those start tuning electronics

rates. important, For example, the energy charge the density is more important there. The actual rates power the discharge is more and

So customers. we and expect become parameters at I these -- using yes, that do parameters to they us. are the they're relationships process actively early important in point, this are those beyond to to for taking would say stages that meet very they our we And

Your next question Brian Dobson is Chardan Capital from from Markets.

PFAS-free process government there's wastewater requirements seems because want to those your to of likely just to PFAS can particles be a regulation that customer recent production I discovery produce your and on topic little going I So discussion follow technology. be battery regarding bit and streams. -- guess your a That up

come see did advantage? So you a manufacturing customer? from call as as do And down that a a, it, large-scale requirement that

was we It identified is It something advantage. that did site as And thought. playing had significant anyway. we a manufacturing come when a visit, was most a not in with definitely were more around It that that we requirement. actually as something than was

topic with Yes. the for That's environmentalists And du this seems and that like to right. going politicians. mitigates call particles. We it, is a like be, jour PFAS were it recently speaking company next

dangerous encouraging production. chemicals remove very hear your from can these So that it's certainly, to you

did monitoring any use know there potential technology? clients that the long-haul the within we Is trucking I just received that wireless about a your in of wireless or real So batteries upon monitoring feedback of have trucking? it trucking And potential Q&A. to quick, some and speaking touch regarding I long-haul from guess battery type technology you either

lot the a and data the very and it of performance feedback lot and the good. system, is in regarding general, EAPU a have We batteries of of all

in it In something part we had not it or or networking not as least requested. roll we terms But continue at would out, been it, of that the of to is communications the wireless health required be and of surprised of system. storage monitor it state because market way charge heavy-duty aspects the if is it the to becomes a and more trucking of important great state other

see I benefit? Would if being quickest about you it to most yield say, guess, you the call expect could -- performance it going think you markets and RV of to would that trucking, Where adoption? were those, the marine, kind like the utilize where does

or that from initially new storage was technology it requirements what recommendations system. the visibility happening developed for the marine. into out And that the stemmed really more ABYC came in required We

But going very that have configuration. stationary to is I you important do are think in that batteries because become installations many series in parallel it larger

so of And the to aggregate to the cell systems be I important monitor each becomes data so larger. to monitoring or system, sense, sort some either of able user the down to it more to level health it think makes that become that as much the and individual that one

is next ROTH. Your from question Moore Chip from

Wanted to electrodes. ask on dry

Just are potential? least accelerate those there. an opportunities currently, same update you given thinking efforts, capital Just at give the constraints DOE about us in how to

been be expect that, opportunities say in as scenarios -- I'm anything our point government and and of at to seeking different important part than not well. that DOE other at We an really have this will prepared we scale-up.

seat back margins. get you on you've you aftermarket committed. eventually, And bit slightly might rollouts little trucking the got assume about higher potential some can to expand maybe pipeline. side, lower, Maybe first and heavy-duty I margin to then there? like fleets a sounds sort And that talk already but guess it Understood. of just be I

Just walk us through that.

over to margin the turn question John. I'll Maybe

maybe and can just bit of update can I fleets. that, then you on Denis, stand Sure. take with some where we a little those Yes.

we're with mean, RV pretty overall, the proposal straight thankfully, profile. market the somewhat fleets, to is is equation OEM where expecting think as needs. overall this talking of a a the I real I this margin and side that through our to opposed margin method. that more. I ROI Denis Chip, And there showing be don't easier on number as there. or want. lithium undue storage we're back what will the is considered is strain with when as pricing trucking any as This -- margins features for consistent consumers think they year, we're it them And mentioned, expect. it now consumers went little sometimes they This is was to bit what nice-to-haves last cut move the preferred what decontenting, seeing a

But a an in this put a that on are trucking, coming there coming from from lot the ROI pressure it perspective, there advantages of at maintenance savings really engine margin. at from don't perspective, fuel a maintenance, really

that line OEM as ultimately think business I we going whatever very to much expect to that would scales with margin So profile. sort it's to our of traditional be size be, in

customers, of there's the terms range. wide In Chip, a

You've making fronts. very large road, traction you've thousands ones would the all been the of trucks of And in and are then traction the tens got -- operators. have that gaining we've you've got got on the hundreds owner say on very, fleets I that the smaller

ready operators, longer you large are they data they fleets system, a than and the quickly. pilots. you a However, move, move present to pretty assess present little take bit to which owner things longer slower very the they're and And the

fleet now fleets these larger think we what fleets, turn commit sizes over. begin we've longer but soon. the is far the And that suit larger much to will it will been I expect I about really with smaller say at having we're and So follow it

just QX. QX, expenses, it. you guess Very And do very takes Operating anything a longer good to to one. recover, in of RV kind have up one control step last the in maybe I in to little what levers particular? if pull just market there? helpful. Got And

Chip. Sure,

along on expect go typically have are of we associated we to some do board for the with the things QX, that compensation the the year. that calendar bonus we in payments expenses expenses, lines particularly continue side calendar those through year, think start I as remainder necessarily and don't the the stock-based of

in of a expect that certainly range be XQ, XQ would while down because expenses. bit said, higher is sequential some initial I So XQ from like little would more year-end that a I basis,

question Pavel is next Raymond Your from from Molchanov James.

a can think the slice that's of asked the update we But don't that? anyone's about know storage revenue Yes. I off-grid market. I smaller on get pie. an

see, the an Sure. Absolutely. market certainly customers. pie, pretty within just that of but help design the pretty the get off-grid has those revenue margin say, be towards to tends move resell again, to From XQ. it advantage, seen think, small as the 'XX that to our products. good out there We've I door always consistent even everything storage ability I and tend our segment. ASPs piece sizes, we customers continue then and they consistently been perspective, of need pretty battery market, we that good Direct-To-Consumer on in a momentum opposed so That to was to would out in the the batteries But given and to higher just shipping system full larger

side. as to level. customers had, work folks to on a that, relationships how think do developments of the continuing the we're that are like We on I with with that Connexa, some OEM have OEM be side up we've helping it -- us potential and the we and storage focus for continues well, with to that given on scale recent that

that expect we're grow So that, would we to for through us as out continues XXXX. looking

the latest then on solid-state on the And the Understood. R&D what's efforts? front,

[Audio Gap]

along kind of planning those lines?

last midyear to really solid-state deposition are has the progressing effort dry off stopped hasn't cells completely. not capital, year we and because process. It spending using holding would say, on been pivoted, the the we I conventional Well, before

types cells. electrolytes, certainly developing We're coin working of making scale. are We lab at new the

all to We've continue cycle to using an were that already times we cells. chemistry. cycle able solid-state coin coin cells reported X,XXX We over

have pilot terms we can really So been that of conventional that the in it on we terms line in hasn't scale-up, focusing cells. providing produce But made samples, of stopped.

or that the I just add, here X will would we've aggressively those state. be for that, months importantly, manufacturing that been And lines pretty themselves, the processes used so, on processes last same the Yes. manufacturing solid working -- over

cells the those when opportunities of made scale of proving the sort out a So the nonflammable focus decision given in step on future. near to overall lines there, the we more cells term, the is those at of that very some important for delivery conventional in still

Instructions]. [Operator

Your is Grampp from Global Partners. next Alliance question from Jeff

process, the line guys On deposition kind what I'm if for can curious you dry of are maybe time paint the material some

[Audio Gap]

might kind where Just communicate what externally some position XXXX? on to in you that kind guys benchmarks gauge progress for set of goals might to there, reasonable there. you guys be to have progress maybe be of level hoping for

you what the the to hope are come tuning we these be And and that on of regard, need specific able to work doing announce process partnerships, we and to in these are specific I but we those would do be divulge parameters we we that that Thank the sort of to lot given. specifics able of love of cells. to sort technology, rely customers with to that and of out very to question. we In because the a parameters of sorts the through that, working terms for we're what is

it think progressing with what customers. our relationships we're So really are how on these based I in is divulging, of terms

estimate Any you year. you I excess that of the to things, in side guys, the for least half of much mentioned for guess, guys be think a ballpark of you first that tailwind at inventory I of of, for That John, kind materiality how trying Understood. Just, the maybe guess, you capital know makes you I And guys. get carrying? a working sense. will were for on inventory sense

we similar through mean, and to March last the like year, I sort excuse half over some I I inventory second revenue got next -- the of another the -- levels through to through the be that think or cut certainly that quarter. we've worked revenue said, June fair, Jeff, me, of of Sure. through that and to

year we number, when $X I where that million, XXXX. can more ended little take done, a and looking the sort $X off bit we we think at first all XXXX, half of as the million another said is of probably of from in go through maybe

some we a be continue that in were front back where back and We on install. -- being standard the built had pretty up working Keystone to as the on we of of stock in cutting installed aggressive levels safety relationship particularly

we trying any shortages So from were protect ourselves really to there.

I the supply we've number years has think overall, very that for with chain very, working gotten been of predictable. a

of the that So to holding, comfortable quarter's we effects coming high goods key say, as through inventory working a down feel of X where we're we certainly where, of worth only that as cases, really in past, some months in even the was COVID. as X were and

steady-state basis, as through then maintain that on So I more kind down certainly we're now think and levels look we position in a to that a XXXX. work to reasonable much more of

Brian Capital Your Chardan next from from question is Markets. Dobson

market. follow-up Just on RV the quick a

too be You couple it Do described mentioned that at is. to back this called half that a you for you Or is soon why it of point? think is could out and factors catalyst bottoming as a XXXX? as that

say, the of think magnitude catalyst. that be yet is I I would catalyst a just I'm it that. best Brian, I of can could not describe the way I sure guess that

of As the bottom very, that. feel Denis we're the slope still recovery, but will, the little here, bit you I comfortable, if comfortable where too a very I certainly, think to think, mentioned, calling is we early, calling

that the of new about good have some that we come feel will do the fact in on I second year. half the programs

mentioned, the I RV As model year starts July. in

won't get to the until So second start have we some we the programs that half year. of won those of

should we feel think call. large how is, I that little early see too do for that good But I half-on-half still growth pretty us to So that a it's growth.

direction certainly very now. Yes, good. in a It the right step

what encouraged were We by here. early we've Yes. on seen

this at proceed. time. questions Please further no are There

Thank you today. details forward great joining in coming quarters. you for look We additional a us everyone to sharing Have day. all the of with

you. Thank

you the now and you. ended. joining. gentlemen, for has Ladies Thank Thank all conference

You may all disconnect.