Dragonfly Energy Holdings Corp. (DFLI) Earnings Call Transcript & Summary

Thanks, operator. We appreciate everyone joining us on today's call. With me are Denis Phares, Dragonfly Energy's Chairman, President and Chief Executive Officer, and Wade Seaburg, Chief Commercial Officer. Before I hand things over to Denis, I want to offer a short statement about forward-looking statements. On this call, the company will make forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, and those statements are based on current expectations. Such forward-looking statements carry risks, uncertainties and other factors that could make actual results differ materially from what those statements express or imply. Those risks get described more fully in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2025, along with our subsequent periodic reports. Actual results may differ because of 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 measure appear in today's release on the company's website. Please note that unless otherwise noted, all comparisons discussed today are on a year-over-year basis. I'll now turn the call over to Denis.

Thanks, Szymon, and good afternoon to all of you. The third quarter stood out for the ongoing pickup in commercial fleet uptake of our heavy-duty trucking solutions portfolio. Trucking revenue sequentially more than doubled, reaching $1.3 million, matching the outlook we gave in August, thanks to deliveries to a wider customer base. It is clear we have moved past the development and trial stage and are now seeing broader commercial industry adoption; for several years, our efforts in this market focused on demonstrating our technology via testing and wide-ranging pilot programs. During this quarter, we received orders for the first time from fleets that went straight to commercial deployment with no pilot, which shows the credibility our early deployments have built across the industry. This also shortens our sales cycle, speeding the journey from first conversations to orders. Given our current order book, we anticipate trucking revenue nearly doubling sequentially in the fourth quarter as we keep expanding shipments to existing customers and also grow our overall customer base. Looking further out, strong demand momentum is already building into 2027, with several fleets now discussing deployments for next year. We are excited about the progress in trucking and the opportunity that still lies ahead, which Wade will discuss in more depth shortly. RV market conditions stayed challenging, and industry shipments kept declining during the quarter. Lower OEM volume, combined with continued weakness in DTC, produced total net sales of $12.2 million, under our guidance of approximately $13.5 million. Throughout this period, we stayed focused on strengthening our OEM relationships. We have intentionally aligned with premium brands that keep making lithium standard, and adoption within those partnerships remains healthy as partners raise energy storage content and standardize our systems across more of their lineups. Turning to Dakota Lithium. We completed the purchase of the Dakota Lithium brand and its related assets at the end of July. This deal represents a significant move in our plan to expand our addressable market, bringing a well-known and established lithium battery brand into our portfolio that works alongside Battle Born across more applications and price points. Since completing the acquisition, our efforts have centered on restocking Dakota's inventory and reconnecting with its existing dealer and distribution network. We have also been bolstering Dakota's e-commerce platform and digital marketing capabilities so that direct-to-consumer sales are better supported as product availability improves. Early commercial signals have been encouraging. Our available products are performing strongly, and discussions with channel partners have bolstered our belief that brand demand is still solid. We anticipate new product inventory beginning to come in near the close of Q4, with wider availability and a more substantial revenue contribution starting in Q1 of 2027. Crucially, we expect Dakota to add to adjusted EBITDA, as we are able to use our current infrastructure and operational strengths with very little added overhead. Regarding technology, in August we announced a partnership with Sphere Energy focused on integrating AI-powered battery health and performance modeling into our next-generation systems. Using years of field data drawn from our installed base, we anticipate that this effort will provide customers with more accurate insight into how their batteries are performing, and it will also help us refine future products. We're continuing to push forward on our dry electrode and solid-state programs as well, which represent a significant long-term opportunity. With support through Tech Hub funding, we've made substantial upgrades to our R&D facility and technical capabilities, while keeping our near-term focus on revenue growth; at this point I'll hand the call over to Wade, who will discuss trends in our commercial markets in more detail.

Thanks, Denis. I'll start with heavy-duty trucking, where work spanning multiple years is now producing a growing list of major commercial fleet clients. During Q3, revenue from trucking climbed to $1.3 million, up from about $0.5 million in Q2. Most of that gain stemmed from shipments under the Stevens Transport purchase order as Stevens proceeds with its fleet transition, along with our first deliveries on Werner Enterprises' initial production order. We also finished first deliveries to several additional fleets. Turning to Q4, we expect trucking revenue to nearly double sequentially, supported by rising deliveries to Stevens and Werner plus orders from new customers. Denis mentioned earlier that fleets have started ordering our systems and moving straight into deployment, skipping a pilot altogether. That's a significant change, and in our view it reflects the trust we've earned through years of running large pilot programs, independent testing, and actual operation with several of North America's biggest carriers; those advantages are likewise being validated in live fleet use. Stevens Transport, whose fleet now includes hundreds of trucks fitted with Dragonfly systems, has reported diesel usage about 4% below what trucks with conventional diesel-powered APUs consume. Stevens has likewise reported that maintenance needs and downtime have dropped considerably, highlighting the broader economic advantages our technology offers; since diesel prices remain high, these operational efficiencies have become more and more valuable to fleet operators. Crucially, the savings begin the moment our systems are installed, and we believe this gives carriers a powerful financial reason to adopt them faster. Our solutions provide these gains without any need to move to fully electric trucks or to spend on new charging infrastructure. Our internal fleet modeling indicates that, at today's diesel prices, the DualFlow Power Pack achieves payback in about four months, and our all-electric APU delivers a similar payback; in our view, these savings rank among the reasons fleets are deciding faster. Meanwhile, successful pilot programs keep converting into bigger commercial commitments, and our roster of prospective customers continues to grow. We are in active talks with several of North America's largest commercial carriers and company-owned fleets, including discussions about deployments slated for 2027. Now to RV. The third quarter stayed soft, and RVIA reports wholesale shipments were down 13.7% year-to-date through September. On the RV side, our approach remains centered on partnerships with premium manufacturers. Airstream, Ember RV and Awaken RV have made Battle Born standard across select lineups, and those ties keep getting stronger as partners extend our systems to additional models and boost energy storage content. Notably, our main partners keep endorsing our solutions, drawing on years of their own field experience. In industrial markets, intelligent transportation systems are gaining traction. Traffic signal backup power and similar applications have traditionally used lead-acid batteries, and agencies and operators are now assessing lithium as an alternative that lasts longer and needs less maintenance. In the course of the quarter, we provided batteries for a project run by a State Department of Transportation, which is one more illustration of how our footprint in industrial applications keeps growing. We're still going after further opportunities in that market, since demand keeps rising for backup power that is dependable and durable. In all of these markets, one pattern shows up consistently: customers want power that is reliable and long-lasting while also bringing down what they spend to operate. In trucking, commercial rollout is speeding up because our fleet customers are realizing those savings and operational gains in real-world use, and we think that same value proposition holds across the markets we serve. With that, I'll turn the call back to Denis for a review of our financial results.

Thanks, Wade. Now on to what we saw in the third quarter. Net sales came in at $12.2 million, down from $16 million during the same period last year. OEM net sales reached $7.1 million, while DTC net sales were $4.8 million, and the decreases mostly reflected lower RV volumes along with ongoing weakness in consumer demand. Gross profit was $3.3 million, a 27% gross margin, versus $4.7 million and a 29.7% gross margin in the prior year period. Lower volumes drove those declines. Operating expenses totaled $7.3 million, compared with $8.5 million a year ago. Because of the substantial progress already achieved on our ongoing cost reduction initiatives, we now operate from a leaner cost base. Net loss attributable to common shareholders was $6.7 million, or $3.71 per diluted share, compared with a net loss of $11.1 million, or $16.45 per diluted share, in the prior year period. Adjusted EBITDA was negative $2.3 million, just slightly worse than negative $2.1 million in the prior year period. Even though revenue fell short of expectations, adjusted EBITDA beat our guidance of negative $2.4 million, which reflects the progress made on our cost structure. We keep pursuing further operational efficiencies. For the fourth quarter, we anticipate net sales of roughly $12.5 million and adjusted EBITDA of approximately breakeven, reflecting continued progress on our cost initiatives and the expected benefit from certain tariff-related refunds. Trucking revenue should nearly double on a sequential basis, partly offset by ongoing weakness in the RV market. As a reminder, last year's fourth quarter gained from RV OEM orders pulled forward out of the first quarter of 2026. Since the year began, we have built trucking into a growing revenue source, added the Dakota brand and lowered our cost base. We believe these steps have placed Dragonfly on stronger footing as we head into 2027. We stay focused on delivering sustainable positive adjusted EBITDA, backed by continued growth in trucking, Dakota Lithium and ongoing cost efficiencies. I want to thank our employees, customers and shareholders for their continued support. Operator, we would now like to open the call for questions.

About your guidance for roughly breakeven EBITDA in Q4, what makes you confident that you can hit that path? And which synergies are you finding, along with possible cost-reduction chances, to get there?

Thanks, George, and thanks for asking. All year long we've kept up our cost efficiency efforts, and that covers consolidating the operating rental space we have and resizing it in light of the revenues we've seen and that we expect. So we've kept gaining more benefits in the cost structure, and as a result we've anticipated improved bottom-line performance. And in particular for the fourth quarter, we're beginning to see some of those IEEPA tariff-related refunds, which we expected would keep growing this quarter and beyond; so that's something we anticipated and it's starting to materialize.

Turning to the balance sheet, what efforts could you discuss that might help bolster it somewhat as you head into 2027?

Well, when it comes to managing cash, we've been in this position for several years now. We've needed to tighten our belts. We keep tightening our belts. We're constantly on the lookout for what I'd call opportunistic chances to find capital sources, such as grants and the Tech Hub funding, and pursuing refunds wherever we're able to obtain them. But clearly, we will always be seeking the chance to raise capital when an opportunity presents itself to us.