Good afternoon. My name is Lester, and I will be your operator today for Dragonfly Energy's Third Quarter Earnings Call. The call can be accessed along with the earnings press release and SEC filings on the Investors section of the Dragonfly Energy's website found at www.dragonflyenergy.com. 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 periodic SEC filings. Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measures could be found in today's release on the company's website. I will now turn over the call to Dr. Denis Phares.

Thank you, and thank you to everyone joining us today. Before handing the call over to John to review our third quarter financial results, I wanted to spend a few minutes providing an update on our core markets, our progress and our revenue diversification efforts and to highlight the important milestones that we have achieved in our domestic battery cell manufacturing operation. As many of you know, the majority of our revenue today comes from the recreational vehicle market, either through aftermarket sales or through OEMs, when they place our storage solutions on their RVs during the manufacturing process. The RV industry, which is dependent on consumer discretionary spending, continues to face significant challenges with unit shipments down over 50% year-over-year, well below the industry's expectations just a few quarters ago. As discussed during our last earnings call, this steeper-than-expected decline in the RV industry has had a negative impact on our revenue. This is particularly the case with our largest OEM customer, who informed us in July that they would no longer be installing our storage solutions as standard equipment and have returned to offering our solutions as an optional feature. The loss of this revenue combined with overall RV weakness was the primary driver behind the year-over-year decline in our third quarter revenue. While we expect this weakness to continue in the near term, demand in the RV market does appear to be stabilizing. And it is important to note that despite weaker sales, our customers are not moving to competitor products. In fact, we continue to gain market share with both new customer wins and new programs and models with existing customers. So as the industry begins to recover in 2024, we expect the RV market will return as an important growth driver for the company. This continued increase in market share is largely driven by our in-house production, product quality and innovation. For example, we have just shipped the first of our new batteries featuring Dragonfly IntelLigence to OEM customers. The production of these batteries was not trivial and required the construction of a new assembly line having full traceability throughout the assembly process. Each individual battery has unique firmware loaded onto the battery management system, along with data that is specific to the cells and components inside the battery. This is an industry first, and we believe sets a new standard for storage batteries in general. It also becomes our platform for larger stationary storage installations, in which accurate remote monitoring and determination of battery state of charge and state of health are critical. On the revenue diversification front, we continue to make progress, particularly in transportation, where our pipeline of pilot programs and customer engagement continues to grow. We have expanded our active pilot and prototype programs to include more than 15 blue-chip fleet customers. And in October, we launched our new all-electric auxiliary power unit for the heavy-duty truck market. This new APU is a comprehensive solution that enables compliance with increasing anti-idling regulations, while at the same time, potentially saving billions of dollars for operators in fuel costs and increasing uptime and payload capacity while reducing harmful emissions during idle periods. Along with the launch of this new product, we have secured pilot programs with fleets representing roughly 15% of the North American heavy-duty trucking market. Importantly, all of these transportation opportunities encompass large lead-acid replacement requirements, where our experience in the RV market has provided us with the proven expertise to engineer full system solutions that are unique and differentiated. We are excited about the growing momentum in this new area of our business and believe these opportunities set the stage for additional growth in 2024 and beyond. Finally, we continue to make progress with our patented dry deposition battery cell manufacturing technology. In July, we announced that we completed our pilot line for domestic cell manufacturing using our patented dry electrode process. We have since deposited LFP cathodes and graphite anodes at scale. The process itself is chemistry agnostic, meaning we can make any type of conventional lithium battery cell, and we have begun to receive inbound interest from additional large customers in the consumer electronics, data center backup and even electric vehicle markets. We are producing and testing cells in-house and remain on track to deliver sample cells to prospective customers by year-end. The importance of these accomplishments cannot be overstated. The EV industry, in particular, is increasingly looking to dry deposition as a potential solution to a host of environmental issues associated with current cell manufacturing processes. The fact that we are also deploying American innovation on American soil is becoming an increasingly attractive proposition for prospective customers and partners. Let me now turn the call over to John to provide a review of our third quarter financial results as well as a more detailed outlook for the fourth quarter of 2023.

Thank you, Denis. Please note that all figures are GAAP unless otherwise noted. Dragonfly generated net sales of $15.9 million in the third quarter of 2023, down from $26.1 million in the third quarter of 2022 and at the low end of our guidance range as we saw year-over-year declines in both our OEM and DTC businesses due to RV market weakness. OEM revenue of $5.6 million in the third quarter declined by $8.3 million compared to the same quarter a year ago, primarily as a result of the previously disclosed decision by our largest RV OEM customer that due to weaker demand for its products and their need to focus on reducing costs, it is no longer installing our storage solutions as standard equipment, but instead has returned to offering our solutions as an option to dealers and consumers. To reiterate, this customer is not moving to a different solution or a competitor. But as expected, its decision has had a material adverse impact on our OEM sales in the third quarter, and we expect this change to continue to have a material limiting effect on our revenue through the remainder of 2023. Our direct-to-consumer, or DTC, revenue was $10.3 million in the third quarter of 2023, down $1.9 million compared to the third quarter of 2022. The decrease was in line with our expectations and is a result of decreased customer demand, given ongoing macroeconomic factors, such as higher interest rates and inflation. 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 $4.6 million compared to $7.0 million in the third quarter of 2022. The decrease in gross profit was due to lower overall sales and unit volumes. Despite the lower gross profit, gross margin improved to 29.1% from 26.9% in the same quarter a year ago due to a sales mix that included a larger contribution from higher-margin DTC sales. Operating expenses in the third quarter of 2023 were $10.5 million, at the lower end of our guidance range, and essentially flat year-over-year as higher research and development costs were largely offset by decreased general administrative and sales and marketing expenses. The company posted a net loss of $10 million in the quarter or a negative $0.17 per diluted share compared to a net loss of $3.7 million or a negative $0.10 per diluted share in the third quarter of 2022. The larger net loss compared to the same quarter a year ago was driven by lower sales, lower gross profit and higher interest expense. Third quarter 2023 EBITDA was a negative $5.7 million compared to a negative $3.2 million in the third quarter of 2022. Adjusted EBITDA, excluding stock-based compensation and changes in the fair market value of our warrants, was a negative $4.6 million in the third quarter compared to a negative $2.7 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 $13.2 million in cash. And combined with access to our largely untapped $150 million equity line of credit, we believe we have the resources needed to execute on our operational plans. Now I'd like to turn our attention to our expectations for the fourth quarter of 2023. While we have a number of exciting revenue diversification opportunities ahead of us, we continue to be negatively impacted in the near term by weaker demand in the RV market, particularly with OEM customers. We expect fourth quarter revenue to be in the range of $10.0 million to $14.0 million. We expect gross margin in the fourth quarter to be in the range of 21% to 26%. Operating expenses in the December quarter are expected to be in the range of $9 million to $12 million, and we expect other income and expense to be an expense in the range of $3.5 million to $4.5 million. We expect to report a net loss in the fourth quarter in the range of negative $9 million to negative $14.5 million or a negative $0.15 per share to a negative $0.24 per share based on approximately 60 million shares outstanding. Let me now turn the call back over to Denis to provide some summary comments before turning the call over to Q&A.

Thank you, John. Before moving to questions, I just want to take a moment to emphasize that we continue to execute and achieve our stated milestones, despite market headwinds. We have developed, patented and deployed an entirely new cell manufacturing process that reduces the cost, energy usage and footprint of conventional cell manufacturing. Despite an RV industry contraction, we have rapidly expanded into larger downstream vertical markets. We are extremely excited about 2024 and beyond as the convergence of the new cell manufacturing, the new Dragonfly IntelLigence technology and the expansion of customer base and market segments sets the stage for an expected return to growth and profitability. With that, I will turn the call back over to the operator, who can open the line for questions.

Your first question comes from George Gianarikas from Canaccord Genuity.

John, when we review the capital raise we completed, a significant motivation behind it was to finalize the pilot line and begin producing the anode and cathode material, which will allow us to deliver sample cells by the end of the calendar year, as Denis pointed out. We invested a considerable amount in this effort, particularly in aspects that we do not foresee needing to replicate on a regular basis regarding capital intensity. In terms of ongoing operations and working capital requirements, with revenue experiencing a slight decline due to weaker demand, we are primarily able to draw from our current inventory levels. We are actively working to reduce those inventory levels and anticipate that this trend will continue in the short term. Overall, we feel confident about our current cash position, recognizing that we are still operating at a net loss and expect to do so for at least the next two quarters. However, with our current balance sheet and the unused equity line of credit, we believe we have access to the necessary resources to execute our plans and ultimately bring these cells to market, which should improve as we progress through the next calendar year.

Sure. Thanks, George. It's John. When we reflect on the capital raise we conducted, a significant motivation behind that was to complete the pilot line and start producing the anode and cathode materials, enabling us to deliver sample cells by the end of the calendar year, as Denis mentioned. A considerable amount of spending was invested in that initiative, particularly in ways we don't anticipate will be necessary on an ongoing basis regarding capital intensity and other factors. From an operational perspective and working capital needs, with revenue slightly down due to weaker demand, we are mainly able to draw from our existing inventory levels. We are working to reduce those inventory levels, and we expect that trend to continue in the short term. Overall, we feel confident about our current cash position, knowing we are still facing a net loss and expect to do so for at least the next two quarters. However, considering our balance sheet and the availability of the equity line of credit, which we haven't utilized much, we believe we have the necessary resources to carry on with our plan and aim to bring these cells to market, which should improve as we progress into the next calendar year.

And so just with regard to the $150 million, the equity line of credit, may I ask why haven't you used that yet? And what's been the stumbling block? Because it seems like it's there, it's available, why not do a little investment?

A lot of it was related to the registration statements, George, and our position. We were restricted at the beginning of the year while exiting the SPAC process. As we looked to raise capital, we faced limitations due to the equity raise we completed in June. Now that those restrictions are lifted, we anticipate becoming S-3 eligible in the near future. Our intention is to be more actively engaged with this moving forward.

And when do you expect that to happen? I would assume in the next few weeks or...

I think that’s accurate, George.

Your next question comes from Vincent Anderson from Stifel.

So the RVIA wholesale data showed shipments kind of decelerate or, I guess, the decline slowing in the third quarter. I think it was down about 20% year-over-year. Your OEM revenues fell disproportionate to that, but we're running well ahead of the market in the first half of the year. Can you just speak to how much of the first half of the year were orders that maybe had been more or less committed to? And what we're seeing now maybe just reflects inventory management? Or is there some kind of deselection of the battery options on the units being offered by sellers kind of regardless of whether they are spec-ed in by that major customer or issued as an option?

The short answer to your question is the lack of Keystone contribution in the third quarter, particularly compared to the previous year. In the third quarter of 2022, we saw peak revenue for Keystone, as the program had transitioned to standard on that model year starting in July. Therefore, it's a challenging comparison, especially with the decline in units. Additionally, as we mentioned in the last earnings call, Keystone has opted to list us as an option instead of a standard on the units they are producing in order to cut costs. Given that they are working through some remaining inventory, we had minimal Keystone revenue in the third quarter, which is why we adjusted our guidance when we discussed it during the second quarter earnings call.

Okay. Okay. Yes, that makes sense. That ties out. Switching over for Denis here. I was just kind of curious if there were inquiries to begin replicating your technology in an established cell manufacturing plant for further testing, thinking along lines like a joint development agreement that could lead to licensing. Is your process kind of dialed in? Obviously, the testing isn't done, but dialed into the point where you could efficiently transfer that knowledge and training to a partner if one showed up at your doorstep?

Yes. The positive aspect is that we are altering the front end related to the deposition of the anode and cathode. The rest of the line can remain quite similar. It might be difficult to convince companies heavily invested in their current lines, as the slurry coating process requires scaling up fairly quickly to achieve profitability. However, if a company approached us expressing interest in using this technique for the front end, we would be prepared to demonstrate it.

Got you. I mean I ask specifically because we have seen quite a few cell capacity expansions. Maybe getting a little bit more time to plan, I think, is the nice spin on that. But I'm not sure what level of commitment they've made on, particularly, that front end of their engineering if they wanted to maybe think about going with something different. I guess switching over to the announcement on the Class 8 auxiliary power supply units. I'm just kind of curious if you could help me visualize what a retrofit would look like in that, particularly to get a sense of like how large of a commitment we're thinking about in terms of having vehicles out of service versus the simple economics on the battery itself.

The installation itself is pretty easy. So we've developed the product so it's more or less a drop-in from what they're used to having in there in terms of a conventional APU. But the fact that we have so many pilots out there when you have to take trucks off the road is indicative of the interest because these are trucks that are not making revenue during those changeovers. So now that we've got a lot out there and we've got some very good data coming in, it bodes very well in terms of their ability to use this to save money on diesel fuel and to comply with anti-idling regulations. So we're excited about the prospects for this new market because it's no longer a luxury. Oh, here, have lithium batteries, and you can do things you couldn't before. This is truly a cost-saving measure for the fleet, and it's resonating quite well.

Excellent. And I don't believe there's a ton of precedent for a retrofit quite like this in the trucking industry. But have you received any indication about how long their test cycle would likely last?

We've conducted tests for nearly eight months. There is definitely interest in trying out both summer and winter conditions. However, I should mention that we are collaborating with standard bearing-type fleets, and changes in one part may impact the others as well.

Excellent. And then last one on that point. The supply chain for the components around kind of the BMS and the broader system, how comfortable are you with that, that your suppliers that you have now could scale quickly, if necessary?

We’re very comfortable.

Your next question comes from Brian Dobson from Chardan.

So you mentioned the potential for a 2024 recovery in the RV market. I guess, what are you seeing that would drive that recovery? And what are you hearing from your contacts in the RV industry?

Sure, Brian. Part of this involves examining the RVIA forecast data for the industry, including feedback from dealers to OEMs and the current inventory levels. There is ongoing discussion about the pace of the recovery and when it may begin in 2024. We have noticed a reduction in year-over-year declines in unit shipments, indicating we are returning to a level of normalcy that the industry had anticipated. Additionally, even though we face some challenges and have acknowledged the overall industry weakness, we are still gaining market share with other customers. Therefore, I believe that as the recovery begins, we will emerge with a larger market share than we had going in.

And then just to ask another follow-up question on the trucking industry. It seems like there's a significant opportunity there to reduce idle times. Could you maybe speak to the, call it, cost benefit for these truckers to transition to lithium-ion? And maybe give us a little bit of color on the conversations you've been having with some of those key players?

The conversations have been very positive, as demonstrated by their readiness to act quickly, especially given the industry's timeline. It's really about analyzing how much fuel is consumed during idling. The entire industry could save billions of dollars by switching to the electric APU option and effectively eliminating idling. While driving, some energy is used from the alternator to charge the battery, allowing trucks to power appliances like air conditioners and other devices while in standby mode overnight. This transition offers quick returns on investment, and in addition to the financial benefits, there are increasing regulations on air quality and fuel consumption that restrict idling in many areas.

Yes, excellent. And then just this one final question. In terms of the dry electrolyte, you had mentioned that you've been receiving indications of interest. Do you think you can just tell us which sectors of the economy those indications are coming from? I know it's still very, very early.

Yes. The interest has come from the consumer electronics sector, the vehicle sector and the data center backup sector. So we’ve gotten quite a bit of interest here. These are end customers. In relation to the last question, these are not cell suppliers, but rather cell end users or pack end users that have expressed interest.

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

I have a question on the Dragonfly IntelLigence. I think you mentioned in the prepared remarks that you shipped your first batteries there recently. I'm curious. What kind of capacity do you guys have to manufacture those? Maybe it's a proportion of overall capacity, if that's the easiest way to look at it. And if you could just kind of characterize the overall demand for batteries with that feature set?

That's a great question. We have essentially set up a production line capable of manufacturing batteries with the IntelLigence feature. This allows us to double our current production, with half of that being equipped with the IntelLigence feature. Regarding the market, we see promising opportunities, especially in the marine sector. One of the main barriers to adopting lithium in the marine industry has been insurance issues, as insurers have hesitated to cover boats with lithium-ion batteries. The American Boat & Yacht Consortium has developed standards to tackle this problem and help define what lithium systems should entail. Our IntelLigence system addresses this concern. The marine market itself is substantial, with the aftermarket being comparable to RVs and likely worth billions. We anticipate significant potential in this area. Additionally, there's the stationary storage market where remote monitoring and accurate state of health and state of charge assessment are crucial. We currently have limited presence in that market but hope that this feature will help us make progress there as well.

Great. And my follow-up, right, is to the guide for Q4. It looks like you guys are projecting some sequential deterioration on the gross margin side. Is that a volume factor just with the lower sequential revenue? Or maybe some reversion mix away from DTC? Just wondering kind of the main driving forces there relative to the strong margins you guys had in Q3.

Sure. Yes. I mean, part of that, I think, is very much just the lower overall volumes that we’re trying to account for there. There’s a couple of year-end inventory items that will get folded into that as well, but it’s primarily because of the lower unit volumes that are expected.

There are no further questions at this time. Denis Phares, please proceed with your closing remarks.

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

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