Dragonfly Energy Holdings Corp. Q4 FY2024 earnings call

• Successfully negotiated debt restructuring with lenders, enhancing financial flexibility with eliminated covenants (except monthly liquidity) through June 30, 2026, and extended debt maturity to October 2027, reclassifying debt as long-term. • Raised additional capital via preferred stock offering to strengthen balance sheet. • Launched corporate optimization program led by Province to focus on near-term revenue generating opportunities, shifting investments from longer-term R&D to new product development. • Promoted Dr. Vick Singh to Chief Operating Officer to oversee optimization program. • Fourth quarter revenue grew 17% driven by OEM sales growth; expanded distribution network via partnerships with Keystone Automotive, NTP-STAG, SeaWide, and Meyer Distributing. • Encouraging signs of increased RV market adoption with manufacturers reintegrating add-on and premium products. • Significant progress in trucking industry with partnerships like Stevens Transport and Highway Transport, moving into commercial rollouts; brand licensing and contract manufacturing agreement with Stryten Energy diversifies customer base and revenue opportunities.

Net sales increased 17% to $12.2 million. OEM sales grew 61% to $6.2 million from $3.9 million, driven by increased adoption of current products and new offerings. DTC segment generated net sales of $5.7 million, down from $6.6 million due to macroeconomic pressures. Gross profit rose 12.5% to $2.5 million with a gross profit margin of 20.8%, though gross margin declined 80 basis points year-over-year due to higher material costs and a mix shift to lower-margin OEM customers.

• For the first quarter of 2025, expects net sales to be approximately $13.3 million and adjusted EBITDA to be approximately negative $3.8 million. • Full year expects to achieve positive adjusted EBITDA by the fourth quarter, led by revenue growth from corporate optimization program.

• Tariff impact was considered in projections, though the company has non-tariffable costs and ways to work around it. • General market uncertainties, including macroeconomic pressures affecting DTC sales.

Q: I'd like to focus on your target of EBITDA profitability by the fourth quarter? Just to be clear, does that include the entire fourth quarter at some point in the fourth quarter?

A: We expect the fourth quarter to be the entire fourth quarter to be adjusted EBITDA positive.

Q: And assuming that implies some revenue growth -- sequential revenue growth from the first quarter to the fourth quarter what are the contingency plans in case the market doesn't pick up as you expect and some of the programs get pushed out? Wondering if you could give us some sort of confidence interval around getting to that number regardless of the macro A: It's not sort of a -- we have to hit that number. We're just looking at our projections given the new opportunities we have in the trucking and industrial markets as well as the growth that we see in the RV market, especially within our existing customer base and it's not something that we said, well, we need contingency plans. It's something that we're expecting is going to happen because of the pipeline that we see.

Q: Maybe to switch gears to the dry manufacturing business. I'm curious if you can give us any update or any progress there, customer -- potential customer discussion, strategic discussions, et cetera?

A: Yes. Thanks for that question, George. It's obviously something that is always front of mind. This is obviously something that we believe to be a significant value driver for this company. And so it's something that we continue to spend a lot of our efforts on. But what we have done is really focus on the electro tapes themselves that is the anode and the cathode. So the pivot that we've been making lately is from trying to produce these cells in-house to really focusing on customers that can take the electrodes and produce the cells themselves. We've got a lot of data in-house on the mechanical properties of the cells and actually the chemical properties and electrochemical properties at the coin cell and single air power cell level. But because we don't have the in-house capabilities to produce the larger scale format cells, we're really focusing on customers that can take what we have and produce cells from those tapes that we're able to give them. Consequently, we're able to refocus some of our resources on the near-term revenue drivers that we feel is critical for this business to -- in terms of revenue growth and market viability.

Q: Maybe last question for me, just in terms of potential tariff impact. Have you fully baked that into your profitability guidance for the fourth quarter?

A: Yes, we have. The tariff impact as it turns out, we have a lot of non-tariffable costs in terms of our labor and our overhead and some of the components that we don't source overseas. So I would say from a percentage standpoint, the tariff effect on us is lower than it is generally in the industry, but it is something that we -- obviously, we've had to deal with, go to our upstream suppliers and work with them, go to our downstream customers. So it is something that we have been -- we've had to bake into our projections -- but obviously, it's something that we're able to work around. And fortunately, we don't feel it's a huge impact on our business compared to the rest of the industry.

Q: Denis, I was wondering maybe it sounds like you feel pretty good about the revenue funnel this year, what you're seeing in terms of potential opportunities. Maybe just a little bit, if you could expand on, I guess, particularly in RV around re-contenting and some of the trends in that market particularly with some of the uncertainties, just more broadly in terms of macro, what you're seeing there?

A: Yes. Sure. Thanks, Chip. This is Wade, I'll take that question. What we're seeing from an overall macro perspective is still in line with what the RVIA is putting out there, which is a modest 5% to 10% growth across the industry. But what we're seeing from our window into the market is wider adoption of our products across our core customers' platforms. So they're putting lithium products on to more models and models that we were on already, they're expanding those platforms. And then we're also seeing people wanting OEMs specifically wanting to get a little bit more maybe sophisticated with their approach to energy storage and calling us because we've done it more than anybody else in that industry specifically. So that's -- it's exciting because that we're seeing some of that content come back into the OEMs and we're seeing them take ownership over that customer experience, and that's what our products really enable them to do.

Q: Got it. So safe to assume it sounds like you think you can comfortably outperform that forecast with some of the -- A: RVIA Q: Right, Right. And then to layer on top of that, I think I heard you say around auxiliary power in particular that we should look for a larger contribution this year? I know it's a small base, but in terms of materiality there? Any way to think about how much that could contribute? And I imagine that some of the same dynamics around some of the uncertainties out there as well.

A: It's exciting that the trucking market is starting to come back just a little bit, right? It's we're seeing some ready start to come back up. We attended TMC, the big trucking maintenance conference this last couple of weeks, and it was higher attended than it had been in years past, which was very encouraging. As far as estimates there, it's really indicative of our customers on how they decide to roll those out commercially as to what that growth looks like. But the engagement that we're having and the number of trials and the number of engagements going from 1 or 2 trucks to 100 trucks to then 1,000 trucks is happening. And that part is extremely encouraging because the market is extremely fragmented. There are thousands of operators out there with a couple of hundred trucks in their organization. And they really take the lead the larger organizations that have R&D and engineering teams to be able to evaluate new technologies within the transportation market. So as we knock down some of these leaders and bring them into the Dragonfly customer base, it will speak volumes for the industry.

Q: Great. And maybe if I could just get one last one in. Just the Stryten licensing deal? Just any update there and how to think about maybe new market areas that you might go after there as well?

A: Yes. Thank you, Chip. The Stryten relationship has been pretty strong and active since we signed the deal last July. And honestly, it really has focused on product development on establishing our internal efficiencies and making sure that we're able to produce the products that they're interested in because there is a contract manufacturing component to that deal as well. But it does take some time, and we're not expecting anything meaningful in the short term. This is something that we'll really start to look at in terms of meaningful revenue, I think, starting 2026, if not later in 2025, but it's not something that we're really projecting to be meaningful this year. But it is an active relationship. And since they are different markets, we're talking about things like golf card and lawn and garden that we haven't been really involved in, in the past. There is some product development associated with that, and that's sort of the time constant we're dealing with.