Dragonfly Energy(DFLI) - 2024 Q3 - Quarterly Report

Sales Performance - Company sold 10,283 batteries in Q3 2024, a decrease from 14,886 in Q3 2023, with net sales of $12.7 million compared to$ 15.9 million in the same period last year[173] - For the nine months ended September 30, 2024, the company sold 32,907 batteries, down from 56,183 in the same period in 2023, with net sales of $38.4 million compared to$ 54.0 million[173] - Net sales decreased by $3.2 million (19.9%) to$ 12.7 million for Q3 2024 compared to Q3 2023, driven by lower DTC battery sales offset by higher OEM battery and accessory sales[229] - Net sales decreased by $15.5 million (28.8%) to$ 38.4 million for the nine months ended September 30, 2024, compared to $54.0 million in the same period in 2023, primarily due to lower DTC and OEM sales[242] - DTC revenue decreased by$ 5.1 million to $5.2 million in Q3 2024 due to decreased customer demand, rising interest rates, and inflation[229] - DTC revenue decreased by$ 13.4 million to $16.9 million, representing 44.0% of net sales, down from 56.2% in 2023, driven by decreased customer demand due to rising interest rates and inflation[241][242] - OEM revenue increased by$ 1.8 million to $7.4 million in Q3 2024, attributed to a recovering RV market and penetration into the heavy-duty trucking market[229] - OEM revenue decreased by$ 2.3 million to $21.4 million, representing 55.6% of net sales, primarily due to a change in product offering by the largest RV customer, though RV OEM sales excluding this customer increased by 33% year-over-year[241][242] Financial Performance - As of September 30, 2024, the company had$ 8.0 million in cash, with a net loss of $6.8 million for the quarter, compared to a net loss of$ 10.0 million in Q3 2023[181] - Gross profit decreased by $1.7 million (37.6%) to$ 2.9 million in Q3 2024, with gross margin declining from 28.9% to 22.5% due to higher OEM sales and lower DTC sales[231] - Gross profit decreased by $4.1 million (31.1%) to$ 9.1 million, with gross margin declining to 23.6% from 24.4% in 2023, primarily due to lower unit sales volume[244] - Net loss improved to $6.8 million in Q3 2024 from$ 10.0 million in Q3 2023, driven by lower sales partially offset by reduced operating expenses and a positive change in warrant liability[238] - Net loss increased to $30.8 million, compared to a net loss of$ 17.1 million in 2023, driven by higher other expenses (primarily from changes in the fair market value of warrants) and lower sales[251] - Adjusted EBITDA for Q3 2024 was $(5.456) million, compared to$ (4.613) million in Q3 2023, and for the nine months ended September 30, 2024, it was $(16.900) million, compared to$ (15.412) million in the same period of 2023[267] - Net loss for Q3 2024 was $(6.779) million, compared to$ (10.007) million in Q3 2023, and for the nine months ended September 30, 2024, it was $(30.773) million, compared to$ (17.131) million in the same period of 2023[267] - Cash balance as of September 30, 2024, was $8.0 million[270] - Inventory balance decreased by$ 14.8 million to $24.0 million as of September 30, 2024, compared to$ 38.8 million at December 31, 2023[272] - The company generated a net loss of $6.8 million and had a negative cash flow from operations for the quarter ended September 30, 2024[290] - As of September 30, 2024, the company had approximately$ 8.0 million in cash and cash equivalents and a working capital deficit of $9.6 million[290] - Net cash used in operating activities was$ 4.7 million for the nine months ended September 30, 2024, primarily due to a net loss of $30.8 million[295] - Net cash used in investing activities was$ 1.7 million for the nine months ended September 30, 2024, compared to $6.5 million for the same period in 2023[297] - Net cash provided by financing activities was$ 1.7 million for the nine months ended September 30, 2024, compared to $18.7 million for the same period in 2023[298] Product Development and Innovation - The company achieved full certification for energy storage products for oil & gas operations in North America in May 2024, with first systems expected to be deployed in Q4 2024[176] - Company announced successful dry deposition of anode and cathode electrodes at scale in October 2023, with sample cells being produced for prospective customers and scaling production expected to begin in 2025[179] - Company's solid-state technology in development eliminates the need for liquid electrolytes, addressing safety concerns related to flammability, with a focus on scalability and cost reduction[179] - The company introduced Dragonfly IntelLigence®, a patent-pending smart battery technology, to the heavy-duty trucking market in October 2024[201] - The company is focused on scaling the dry-electrode process for low-cost domestic manufacturing of solid-state lithium-ion batteries, which is expected to require significant additional R&D expenses[218] - The company expects to spend over$ 50 million on solid-state battery development and cell manufacturing technologies over the next two to three years[272] Partnerships and Agreements - Company entered into a License Agreement with Stryten on July 29, 2024, receiving an initial licensing fee of $5 million and mid-single digit royalty payments based on net sales[182] - The company received an Initial Licensing Fee of$ 5.0 million in August 2024 from Stryten[271] - The company partnered with Highway Transport to transition over 500 trucks to Battle Born all-electric APUs, marking a significant milestone in the commercial trucking sector[198] - The company entered into a partnership with Keystone Automotive for the distribution of Battle Born Batteries products, leveraging their extensive network[202] Market Expansion and Customer Base - Company's RV OEM customers include Keystone, THOR, Airstream, and REV, with ongoing discussions to increase product adoption and design integration[174] - The company's RV OEM sales have been impacted by weaker demand, leading to a material limiting effect on revenue in 2023[205] - The company is expanding into new end markets, including medium and heavy-duty trucking, solar integration, and industrial applications, with plans to leverage LFP and solid-state batteries[209] - The company expects its deployment of products for oil and gas operations in North America to begin contributing to net sales in Q4 2024[242] Operational Expenses and Cost Management - Research and development expenses increased by $0.2 million (17.8%) to$ 1.6 million in Q3 2024, driven by higher wage and lease expenses[232] - Research and development expenses increased by $1.2 million (34.9%) to$ 4.5 million, driven by higher wage expenses and increased lease costs for a new building in Fernley[245] - General and administrative expenses decreased by $1.6 million (27.4%) to$ 4.4 million in Q3 2024, primarily due to lower employee-related costs and professional services expenses[233] - General and administrative expenses decreased by $8.2 million (35.6%) to$ 14.9 million, primarily due to lower employee-related costs and reduced stock-based compensation[247] - Selling and marketing expenses decreased by $0.2 million (5.8%) to$ 2.9 million in Q3 2024, mainly due to lower shipping costs[235] - Selling and marketing expenses decreased by $2.8 million (24.8%) to$ 8.3 million, mainly due to lower wage-related expenses and reduced shipping costs[248] - Cost of goods sold decreased by $11.4 million (28.0%) to$ 29.3 million, primarily due to lower unit volume, but is expected to increase in line with anticipated revenue growth over the next twelve months[243] Funding and Capital Structure - The company's ChEF Equity Facility, amended on May 20, 2024, provides up to $150 million in funding, intended to support business growth and maintain minimum cash balances[184] - The company raised approximately$ 20.7 million in net proceeds from the June 2023 Offering, including the partial over-allotment option[188] - The company issued penny warrants totaling 1,286,671 shares at $0.01 per share in December 2023 to waive compliance with certain financial tests[190] - The company issued penny warrants totaling 2,550,000 shares at$ 0.01 per share in May 2024 to waive compliance with certain financial tests[191] - The company issued penny warrants totaling 2,100,000 shares at $0.01 per share in June 2024 to waive compliance with certain financial tests[192] - The company issued penny warrants totaling 3,000,000 shares at$ 0.01 per share in September 2024 to waive compliance with certain financial tests[195] - The company issued $45 million of fixed rate senior notes on November 24, 2021, and entered into a$ 75 million Term Loan facility as part of the Business Combination[275] - The Term Loan will mature on October 7, 2026, with quarterly amortization of 5% per annum beginning 24 months after issuance[278] - The company issued Penny Warrants to purchase up to 2,100,000 shares of common stock on June 28, 2024, and up to 3,000,000 shares on September 30, 2024[275] - The company may need to raise additional funds through equity, debt securities, or credit facilities to support ongoing costs and strategic initiatives[273] - The company issued and sold approximately 2,245,391 shares under the ChEF Equity Facility, resulting in net cash proceeds of $1,705,193 for the nine months ended September 30, 2024[283] - The company completed the June 2023 Offering, providing net proceeds of approximately$ 20.7 million[288] Operational Updates and Future Plans - The company expects to begin operations in the new 390,240 square foot Reno Warehouse in Q4 2024, with consolidation of operations expected in Q2 2025[215] - The company identified an underpayment of tariffs to U.S. Customs and Border Protection in the amount of approximately $1.66 million[289] - The company has$ 2.9 million in short-term operating lease liabilities and $23.3 million in long-term operating lease liabilities as of September 30, 2024[299] - The principal amount outstanding under the Term Loan was$ 69.7 million as of September 30, 2024[299] Supply Chain and Manufacturing - Company sources lithium iron phosphate (LFP) cells from a limited number of suppliers, ensuring quality and long-term relationships[175]