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. As a reminder, this conference call is being webcast and recorded. 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 the periodic SEC filings. Management will reference some non-GAAP financial measures. The consolidations 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 Dr. Denis Phares, Chief Executive Officer of Dragonfly.

Thank you, and thank you to everyone joining us today. For those who are new to our story, Dragonfly Energy was founded in 2012 and today is a comprehensive lithium-ion battery technology company. We have operations that span the development of proprietary and patented battery cell manufacturing processes, the design and assembly of battery packs as well as the integration of these packs and other ancillary components into full energy storage systems. We market and sell these systems into a wide range of consumer and industrial market end uses, including the recreational vehicle, marine, and off-grid solar sectors. Traditionally, these markets have relied on lead acid batteries for energy storage. However, lead is toxic and remains a widespread problem in our environment. Dragonfly's lithium-ion battery technology provides customers with a safer, cleaner, and better performing storage solution that also provides 2 to 3 times more power, lasts over 10 times longer, is one-fifth the weight, charges faster, and requires no maintenance. We are proud of our patent portfolio, innovations, and growth to date. We are achieving growth within our core markets while continuing to expand our reach into new market adjacencies. The headwinds we continue to face in our core markets, which are dominated by consumer discretionary spending, are well documented and remain challenging. The RV industry, in particular, has experienced more severe unit declines than previously expected, with deliveries expected to fall to volumes not seen in a decade. As a result of this industry weakness, our largest RV customer has instituted a de-contenting strategy that ultimately changed our premium energy storage offering from a standard install to a dealer option. In light of this change, we have removed all previously forecasted revenue from this customer for the remainder of the year. Although this has materially reduced our current year expectations, we do believe it is ultimately a matter of timing as this customer has not moved to any competitive product, and just as importantly, we have continued to win market share within the industry as a whole. The RV Industry Association, or RVIA, is forecasting a slow recovery through 2024, and with our new customer wins, we expect to command even more of the industry as it recovers. We are also gaining traction with large customers in adjacent markets, with transportation emerging as a promising source of future growth. We have more than ten pilot or prototype programs underway across the fleet, long-haul trucking, rail, and work truck markets. Our expectation is that we will be able to announce several new contracts in these markets before year-end. Importantly, these are large lead-acid replacement market opportunities where our experience in the RV markets has enabled us to engineer full system solutions that are unique and differentiated. We believe these opportunities set the stage for additional growth in future quarters and years. More importantly, Dragonfly Energy has begun to execute on the aspect of the company that is less widely known but we expect to be far more impactful. Briefly, we are at the start of our expansion to include cell manufacturing. This is significant for a number of reasons. First, it represents the deployment of our innovative and proprietary dry electrode manufacturing process that we have perfected over the last decade. We have demonstrated our ability to scale through our recent announcement of the application of our pilot line to the production of graphite anodes. Second, our cell manufacturing is an American innovation deployed for domestic production energy storage. Such activity has been identified by the U.S. government as crucial to our energy future. Incentives, such as the IRA, and grant opportunities for the development of domestic manufacturing infrastructure are key to this support. Finally, cell manufacturing is the ultimate diversification for the company. Although we will continue to grow in our historically core markets, chemistry-agnostic and scalable cell manufacturing enables opportunities for faster growth into large developing markets such as grid storage. I will now turn the call over to John to provide a review of our second quarter financial and operational results as well as a more detailed look for the third quarter of 2023.

Thank you, Denis. In my remarks today, I will compare results from the second quarter of 2023 to the second quarter of 2022. All figures are GAAP unless otherwise noted. Dragonfly generated net sales of $19.3 million in the second quarter, in line with our $18 million to $22 million revenue guidance. Our revenue declined by $2.3 million from $21.6 million in the second quarter of last year as growth from our OEM customers was offset by declines in our direct-to-consumer business. Our OEM customers accounted for approximately 48% of sales in the quarter compared to 34% of revenue in the second quarter of 2022. OEM revenue increased by $2.1 million year-over-year as a result of increased adoption of our products by new and existing customers, several of whom have begun to design in our batteries in various RV models as original equipment or have increased purchases in response to end customer demand for safer, more efficient batteries and as a replacement for traditional lead acid batteries. However, as Denis mentioned, given the steeper than expected downturn in the overall RV market, our largest RV OEM customer has informed us that beginning in the current quarter, it would no longer install our storage solutions as standard equipment but rather return to offering those solutions as an option to dealers and customers. While this customer is not moving to a different solution or a competitor, we do not have visibility into the timing or size of future orders. As a result, we have decided to be conservative and will move approximately $30 million of expected revenue from our forecast from this customer through the remainder of 2023. Our direct-to-consumer business or DTC represented approximately 52% of sales in the quarter, down from 67% of sales in the same quarter a year ago. The year-over-year decline of approximately $4.4 million was in line with expectations as demand for our products has been negatively impacted by inflation and rising interest rates. While we continue to see signs of stability, we do not expect this segment of the market to materially improve through the remainder of 2023. Dragonfly's gross profit in the quarter was approximately $4.1 million compared to $7 million in the second quarter of 2022. The decrease in gross profit was primarily due to the change in revenue mix that included a larger percentage of lower margin OEM sales and a lower percentage of higher-margin DTC sales as well as an increase in material costs as we continue to absorb some higher-priced inventory, particularly on imported battery cells. Operating expenses in the second quarter were $12.5 million, in line with our guidance and an increase compared to $7.6 million in the second quarter of 2022. Second quarter operating expenses included increases of roughly $2 million to professional services, compliance and insurance costs as well as $1.1 million of higher sales and marketing personnel costs. Additionally, severance, stock-based compensation, and materials and supply expenses were higher in the quarter relative to a year ago. Earnings in the second quarter were within guidance with a net loss of $11.7 million or $0.25 per diluted share compared to a net loss of $1.5 million or a negative $0.04 per diluted share in the second quarter of 2022. The result in 2Q was negatively impacted primarily by the lower DTC sales, increased cost of goods sold, higher operating expenses, and other expenses due to higher interest costs, partially offset by the fair value adjustment for warrants. Second quarter EBITDA was a negative $7.3 million in 2023 compared to a negative $0.3 million in the second quarter of 2022. Adjusted EBITDA, excluding stock-based compensation, costs associated with our offering in June, and the impact of separation agreements and changes in the fair market value of the company's warrants, was a negative $5.5 million in the quarter compared to a positive $0.2 million in the same quarter a year ago. For a reconciliation of EBITDA to adjusted EBITDA, please refer to our earnings press release. Dragonfly ended the quarter with approximately $33.0 million in cash and retains a strong financial flexibility, including access to a $150 million equity line of credit. Now I'd like to turn our attention to our expectations for the third quarter of 2023. As discussed on previous calls, we expected new OEM program wins, particularly among RV customers, to drive revenue growth in the second half of 2023. While we have been successful in winning these new customers with announcements like Airstream and nuCamp as a couple of examples, these new wins are not enough to offset the decision by our largest RV OEM customer to revert back to offering our storage solutions as an option rather than a standard install. Our DTC business, while stable, continues to face headwinds with customers focused on macroeconomic challenges such as rising interest rates and inflation. Given those dynamics, we expect third quarter revenue to be in the range of $16 million to $20 million. We expect gross margin to improve modestly on a sequential basis as we expect a more favorable mix, and we return to more normalized material costs following the utilization of some of the higher-priced buffer inventory. Operating expenses in the September quarter are expected to be in the range of $10 million to $13 million, and we expect total other income and expense to be an expense in the range of $4 million to $4.5 million. We expect to report a net loss in the third quarter in the range of $10 million to $13 million or a negative $0.21 per share to a negative $0.27 per share based on approximately 48 million shares outstanding. We are also now expecting our 2023 revenue to be in the range of $70 million to $90 million, down from our prior outlook of $112 million to $122 million. As mentioned earlier, we are moving approximately $30 million in expected revenue from the second half of the year due to the change from our largest customer. We are also now expecting approximately $10 million less than previously expected from new customer and new program wins as the volumes of these new awards are running below prior expectations given the deeper cuts to industry units than previously forecasted. Let me now turn the call back over to Denis to provide some additional color on operational highlights and goals for the remainder of the calendar year.

Thank you, John. As mentioned earlier, Dragonfly is a comprehensive lithium-ion battery technology company with activities ranging from the development of cell manufacturing processes to the design and assembly of battery packs and integration of those packs and other ancillary components into fully integrated energy storage systems. In addition, Dragonfly seeks to provide top-tier customer service. In June, we announced a new certified dealer program in order to provide our Battle Born batteries customer base with access to trusted dealers and installers who have been vetted by our internal technical team. The company continues to make progress in several other development and operational areas. In July, the company was informed that it would be granted a patent for the design of its GC3 battery pack which provides for more flexible custom installation solutions. Also in the second quarter, as part of our longer-term planning for domestic cell manufacturing, Dragonfly announced a commercial offtake agreement with Ioneer, a lithium-boron producer. This agreement will enable us to strengthen and integrate our U.S. battery supply chain while investing in the production and manufacture of Nevada-sourced lithium. Our longer-term goal remains to enable safe, affordable micro grid storage, and that goal continues to drive our research and development work. As such, we are pleased to report that in June, Dragonfly was informed it was being granted a new patent pertaining to our preparation and powder film deposition of pre-coated powders representing an important achievement in bringing non-flammable lithium-ion phosphate storage batteries to market in a scalable manner within a smaller manufacturing footprint, reduced time frame, and at a lower cost. I'm happy to report that in July, we achieved completion of our U.S.-based lithium battery cell pilot program. We have begun deploying dry depositing anode electrodes using our patented manufacturing process. This achievement is a critical first step to large-scale domestic battery cell production, and we anticipate being able to deliver full cells across a variety of chemistries to prospective customers by year-end with domestic capacity of up to 150-megawatt hours of lithium-ion phosphate battery cells annually off of the one pilot line, which is then scalable with the addition of production lines. In summary, we remain very excited about the progress we have made to date as well as the opportunities that remain in front of us. With that, I will turn the call over to the operator, who can open the line for questions.

Your first question comes from the line of Vincent Anderson from Stifel.

John, if we could just go through gross margin for a minute. So it looks like 3Q '23 guidance implies maybe being down a bit year-on-year. Is that basically all just slower work down of higher-cost cell inventories under the lower revenue guidance? Or are there other components to that, that we should be keeping an eye on as we move into the end of the year and into 2024?

No. I think that's fair, Vince. And thanks for the question. I mean we do expect obviously, a sequential increase in that gross margin as I indicated. And part of it on a year-over-year basis is really just finishing up the use of some of that buffer inventory that we increased as we were going through a significant portion of last year and into this and now with supply chains running a little bit more smoothly, some things like that. We've made a real effort to streamline some of that and reduce some of the buffer inventory that's there. So as we finish using up those cells, I would expect here in the not-too-distant future, those in particular, are having a bit of a negative impact, then we would expect that to be back to a more normalized level as we continue through the remainder of this year and into next.

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

Sure. I would say, Vince, I mean, for us, that variability historically has not been as significant on the cell cost side, I should say, as what we've seen or what we did see last year, particularly around the spikes that happened really sort of mid-year last year, whether that was in response to what was going on in Ukraine and some other things like that, when some of the commodities and material markets really kind of sideways on everyone. Historically, we've actually been able to bring down on a year-over-year basis the cost of our cells as we've been importing. And at least in our early negotiations for pricing on next year, I don't anticipate that it's going to be a big issue for us. If we were to see a spike like we saw in 2022, we do have that ability to have those discussions with customers and make sure that we're still able to get reasonable margins on those products as we work with our OEM customers.

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

Sure, thanks for the question, Vince. First of all, I want to clarify that we have completed a pilot line intended for producing conventional electrodes and cells, not a dry room. We won't be using it for solid state until the dry room is finished, which isn't complete yet. We have produced anode film, estimating about 150 megawatt hours annually based on our deposition rate. We have been continuously depositing anodes at approximately 20 centimeters per second for a typical one-third of a meter. Since we are not producing full pouch cells from that line, we can conduct various analyses on the film such as adhesion, thickness, uniformity, and porosity, as well as our capacity to cut and produce coin cells from it. We felt confident announcing this because everything aligns with industry standards. The anode is just one part of the process. The next step involves the cathode, which is somewhat different due to variations in particle sizes and types of binders. We expect to have the cathode completed this quarter and then move on to producing complete cells shortly thereafter. While this process isn't trivial, it doesn't require new innovations. Once we produce those electrode tapes, creating pouch cells will essentially be applying established methods.

Okay, that's helpful. Just a quick follow-up to that. You're currently testing a pouch rate at the coin cell level, but it seems you're ready to transition to a more commercially relevant pouch form factor once both electrodes have been successfully produced.

Yes, that's correct.

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

Can you clarify your guidance for the year? You've mentioned revenue of $70 million to $80 million, which reflects a reduction of $30 million from a customer that I assume is Keystone and $10 million from a customer that I assume is Airstream. Is that the updated guidance compared to what was previously stated?

So George, I would say that the $30 million from the largest customer is concentrated in one area. In contrast, the other $10 million comes from various customers across the overall RV market segment. We are still operating at significantly lower volumes than we initially anticipated. We've successfully acquired many new customers that we expected to gain, and we have announced several of them, with a few others yet to be disclosed. These customers have awarded us programs that we anticipated winning, but the overall industry volumes are falling short of our expectations. The industry had predicted a return to 2019 levels, which would have been around 415,000 to 420,000 trailers. Now, the forecast has adjusted to approximately 300,000 trailers for the industry. Throughout this year, those projections have continued to decline. The RV Industry Association, the RVIA, seems to believe that the worst is over regarding year-over-year declines but does not expect a significant increase until early 2024. We are being cautious about our situation with many of these customers, but the primary driver remains with that largest customer, who has reverted to an option instead of being a standard install.

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

No, there's not a lot of inventory to be fair, George. We receive purchase orders from the customer quite consistently, so they aren't holding a significant amount of inventory that needs to be reduced. Currently, we need either the end customer or the dealer to place an order for our batteries as an option, which then has to come through us from the OEM. As I mentioned during the call, we decided it was better to avoid estimating where demand might be by looking back at earlier 2022 levels, as we had better visibility then. Given the current challenges in the industry, we felt it was prudent to remove that guidance altogether. Hopefully, in a quarter, we will be in a better position to better understand how some of those dealer orders are coming through to us.

Okay. Maybe just to focus next on the cash and the burn. You had about a loss of $6 million in EBITDA last quarter, and I’m assuming it will be about the same for this quarter based on your guidance and adjusted EBITDA. I’m trying to understand if you have some interest expense there. So how should we think about the trajectory of your cash? You had around $30 million at the end of the quarter, and where will that go? Go ahead, I’m sorry.

Sure. Sure. So as you rightly point out, we are burning cash here until we can get revenue levels back up to where we had anticipated them being at. We do have that $150 million equity line of credit. So as needed, we can certainly tap on to that as a way to supplement the cash over this intermediate term until we get revenue back up where it needs to be. But as Denis sort of highlighted, we do have a fair number of, I think, very strong growth initiatives that are starting to really generate some traction, not just on the cell manufacturing side, but also on the revenue diversification front, particularly within that broader transportation market that he highlighted. I think we're certainly hopeful that we'll be able to announce a couple of those here before year-end, even if maybe revenue is a little bit more of a '24 event. So I think that once we get that revenue back up to where we need it to be, then we should be in a much more comfortable position there. But over this next quarter or two, we do expect to continue to burn cash. Like I said, we do have that equity line of credit that we can tap into to augment it if we feel like we need to.

Can you repeat those markets? You mentioned transportation broadly and long-haul trucking, and I think there was one more that I may have missed within that.

So yes, in the broader sense, we kind of throw rail into that market. We have fleets. We have long-haul trucking, and we have work trucks, things like ambulances or equipment for utility companies, things along those lines. We lump all those together in the work truck category. But those four broad categories, if you will, we lump all under transportation.

And regarding the last question, your pilot line is operational and should be producing full cells by the end of this year. You will also have cells available for customers or potential customers to sample by the end of the calendar year.

That's right, George. Conventional cells with conventional liquid electrolytes, we can deposit basically any type of anode or cathode. So we're not exclusively tied to lithium-ion phosphate off of the pilot line. So that opens up some more diverse potential for us.

Excellent. What kind of interest have you observed from people wanting to test and work with those cells as you increase production?

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

Your next question comes from the line of Brian Dobson from Chardan.

So as you're looking out at the trucking market, do you think you could perhaps put some type of ballpark TAM around the, call it, trucking battery replacement market? If you do announce an agreement later this year, do we expect to see meaningful revenue from that agreement in 2024?

Sure. Thanks, Brian. I think the short answer to your second question is we do expect meaningful revenue from that transportation market, certainly in 2024. If we're able to announce a win or two before year-end, we would expect those to be real contributors to growth for us next year. So we are very bullish on those opportunities and what they hold for us here in the intermediate term. In terms of the overall TAM, I mean, it's very, very large, depending on exactly how you want to break it out. I mean, as we look at things like fleet, for example, right, there's opportunities to do a lot of different in cabin or even in some cases, in the back of these delivery vehicles for AC, for lighting or things along those lines because these are trucks that aren't allowed to idle at a delivery location or things along those lines, and they're increasingly looking at battery powered solutions to do that either from a retrofit or even from a new build perspective. In long haul, you have opportunities to do, in a way, a lot of what we're already doing in the RV market in terms of powering the house side or the cab side of the long-haul trucking market. That as drivers either do crew rest or things along those lines, they don't have to idle trucks; they're not wasting fuel; they're certainly getting the benefits of being able to use batteries to power the in-cabin home side of things, where today, a lot of that, if it is lead acid, those batteries typically are not performing as they should or in a lot of cases, you're running into situations where the driver is forced to idle the vehicle to power a lot of that. Increasingly, they're getting door knocks, but it's also obviously a big ROI opportunity for fleets and trucks because you don't have some of the engine wear and tear and you certainly have fuel savings that are associated with not having to idle the trucks to do that. Work trucks, it depends on kind of which category you're in, about how battery dependent they are. In rail, there are a lot of opportunities not just in the trains themselves but in yard equipment and some of the signaling equipment as well. These are very big TAM opportunities, but we're looking to, again, be very methodical in where we are targeting ourselves because we see it as a lead-acid replacement opportunity within the majority of these markets.

Yes, that's very helpful. You mentioned that industry associations or your contacts within the RV industry see sales volumes flattening out in the near term with the potential for a recovery in 2024. What gives them the confidence that the pace of sales will plateau? Is it because interest rates seem unlikely to rise much higher than current levels, or is there another reason?

No. I think that really what it boils down to, Brian, is as they pull the OEMs as a whole, right, whether it's all the way down to the brand level, what have you, right? They are getting a sense for how order books are shaping out. They obviously do a lot of work within the dealer community itself to get a sense of what they're seeing from end customers and things along those lines. To be clear, they don't have an official '24 forecast out yet, so we'll see what it is. But the RV industry has been a cyclical industry. So there's plenty of history that I think they can pull data from as well. As I said, it's clear that this contraction this year has been more severe than they were originally forecasting. So we always do try to take some of that with a grain of salt, but they do seem to feel like with the levels they are now cutting to here that next year is likely to be a growth year. Now what the slope of that curve looks like, I think, is still very much up for debate in terms of how much growth may be there. But I do think that they feel comfortable or at this point. And I think the other important thing is, it's an industry that because of the cyclicality of it or the historic cyclicality of it, didn't go out of its way to add a lot of new capacity or a lot of things that way that now has to be dismantled. So it really is just a function of cutting back on hours, cutting back on units, and rightsizing itself that way. I think the other side of it is it can scale up relatively quickly again on the other side of this downturn.

Yes, very good. And just a final question. As you're set to begin cell production in the United States, has the DOE been a meaningful partner in that segment? Do you think that government funding will continue to support growth and user demand in that segment over the course of the next 12 to 18 months?

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

If the DOE was a supportive partner in its identified segment as a meaningful industry within.

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

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

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

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