[Audio Gap] along with our press release on the Investors section of our company website, which can be found at www.dragonflyenergy.com. Second, during this call, we'll be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. And finally, we will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release on our website. With that, I will turn the call over to Denis.

Thank you, John, and thank you to everyone joining us today. Before we review the first quarter results, I would like to take a few minutes to provide some information about the company for those who still might be new to the Dragonfly story. Dragonfly is a comprehensive lithium-ion battery technology company with operations that span the development of proprietary and patented 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. And we market and sell these systems into a wide range of consumer and industrial markets. The company was founded in 2012 to initially develop intellectual property focused on lithium-ion cell manufacturing. Since then, Dragonfly has worked to revolutionize the mobile energy storage industry with an initial focus on making lithium-ion batteries more accessible for RVers facilitating a completely off-grid experience for those consumers. Our market share continues to increase within the RV market and has expanded to include the marine and off-grid solar sectors. Traditionally, the RV marine and off-grid 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 presents customers with a safer, cleaner and better performing storage solutions. When compared to lead acid alternatives, our batteries are environmentally safer, provide 2 to 3x more power, last over 10x longer, are 1/5 the weight, charge faster and require no maintenance. We are proud of our innovations and growth to date, and we look forward to further growth within these core markets while expanding our reach into new market adjacencies that also rely on lead acid batteries. We market our deep cycle lithium-ion batteries under 2 brands. The first is our Dragonfly Energy…

Thank you, Denis. I will now review our first quarter 2023 results. All figures are GAAP unless otherwise noted. Despite the challenging macroeconomic backdrop, Dragonfly generated net sales of $18.8 million in the first quarter, an increase of 3% compared to the first quarter of 2022 and at the top of our $17 million to $19 million revenue guidance. Total battery units increased by 3% year-over-year and growth was again driven by our OEM customers, which accounted for approximately 47% of sales in the quarter compared to 17% of revenue in the first quarter of 2022. The growth in our OEM business is largely the result of increased demand from our partners to include our battery solutions on their products at the manufacturer rather than having the consumer choose to add the solution in the aftermarket. We expect this trend to continue and believe OEM sales will continue to be a significant driver of our growth throughout 2023. Our direct-to-consumer business or DTC, represented approximately 53% of sales in the quarter compared to 83% of sales in the same quarter a year ago. The year-over-year decline in our DTC business was in line with expectations and driven primarily by macroeconomic factors, with overall aftermarket demand for batteries and accessories declining as rising interest rates and inflation continue to negatively impact demand. While we have seen recent signs of stability, we expect this segment of the market to remain more challenging through the remainder of 2023. Dragonfly's gross profit in the quarter was approximately $4.7 million, a decrease of $0.8 million from $5.5 million in the first 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…

Thank you, John. As I mentioned in my opening remarks, 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. Where we have not focused our efforts is on the electric vehicle market. Many of our lithium-ion battery peers are focused on propulsion, EVs, high energy density and very rapid charging. But Dragonfly's long-term ambition is directed toward enabling safe and affordable grid storage. And as a result, we are focused on providing storage solutions that are nonflammable, long-lasting and lower cost, all characteristics that are vital for storage solutions, if we want to be able to put more renewable energy sources on the grid. At Dragonfly, we are striving to create nonflammable storage solutions to facilitate the adoption of a smart, reliable grid through the deployment of batteries to every home in business. We have been focused for more than 10 years on developing dry deposition manufacturing processes and nonflammable cell chemistries. And I'm happy to report we are currently in the process of establishing our pilot line for nonflammable cells. We continue to be extremely encouraged by the progress we have achieved with our solid-state products. The composite solid-state electrolytes we have produced have already exhibited the capability of 1 hour charge and discharge rates at room temperature, more than sufficient for a storage application. And our cell formation protocols resulted in cells that have exceeded a commercially viable 1,000 cycles with no added liquids and no external pressure applied. Moreover, we have accelerated the application of the powder coating manufacturing process to a wide variety of conventional cell chemistries, primarily due to an increased industry-wide interest…

[Operator Instructions] Your first question comes from George Gianarikas with Canaccord Genuity.

Maybe we could start with the pilot line that you mentioned on the call. I was wondering if you could give us any more detail around launch time line and any incremental operational updates you need to make before launch? And any sort of those details you can [indiscernible].

George, I think what we can say right now is that the pilot line is virtually done in terms of the equipment that's required to lay down the electrodes and produce the cells. One of the big issues we have is that we can't do the solid state chemistry without a dry room, which is something that we are in the process of basically planning the building out of the dry room. But what we can do is conventional electrodes. So we are able to start producing prototype conventional cells off of our line this summertime. So it's something that is coming pretty rapidly here, but we are excited to deploy the chemistries that we've developed for solid-state nonflammable solutions, but we need the dry drive room for that.

Right. But this pilot line should be able to show us that the aerosol polymerization and dry deposition process work with regards to manufacturing traditional cells. Is that correct?

That's correct. The aerosol deposition of electrodes, yes.

Got it. Maybe focus a little bit on the marine opportunity as well. You've always talked about the second half of this year being a potential inflection point for increased adoption there. Is that still something that you're working towards and do you feel -- have there been any incremental conversations and wins to dock operators, et cetera, that maybe give you some confidence in that being a growth driver in the second half of the year.

The marine market is a lot more fragmented than the RV market is in terms of manufacturers of boats. But we are certainly in conversations with some manufacturers, and we do expect to be able to announce something in the near term. But one of the reasons that we were bullish on the second half of the year is because the deployment of our IntelLigence line of batteries allows us to comply with the new standards that just were announced at the end of last year. And that's really going to be a real boom to the business because of the difficulties boaters have now in getting their boats insured when they have lithium-ion batteries on them. So it's something that the industry has been struggling with over the last year. It's something that they address pretty quickly with standards and our new products are going to be the first on the market that directly address those recommended standards.

And if I can just sneak maybe another one in. So this is with regard to your financials and the way you characterize the overall marketplace or RV marketplace. It sounds like things have stabilized after a period of weakness and you've given guidance for the second quarter. Can you just reflect on some of the guidance you gave for the full year of 2023? The last time you reported, that's gross margin improvement and some revenue improvement that you expected for the second half of the year.

Sure, George. It's John here. So there is no change to that outlook. If we feel the need to adjust that '23 outlook, we would certainly make that public. But the guidance that we gave on the last call for the full year of calendar year 2023 is unchanged.

Great. And you expect your gross margins still to be up modestly year-over-year for the full year. Is that correct?

Correct. We continue to expect that margin improvement as we go through the year. Correct.

Our next question comes from Vincent Anderson with Stifel.

So real quick, do you have any specific qualifications or ancillary hardware control components, those types of things, still left to develop in order to enter some of the heavy industry markets? And if so, just what we should be keeping an eye out for to kind of signify progress there?

Sure. Thanks, Vince. I don't think there's anything specific that we're sort of key-ed on. As Denis mentioned, we did have some specific products that we've announced and that we'll get into mass production as we get into a little bit further in the year around marine and some of the things for the boating standards. As we come into some of these newer markets or, I should say, some of these adjacent markets, there are certainly components or things that may be required for us to compete more effectively to bring a full system to bear, but there's really nothing on the battery side itself that we expect as we're going into these adjacent markets. There may be a unique form factor for a specific OEM that is worth us developing, but in general, we can either partner for some of the pieces that we may not need from an accessory or component standpoint and then, over time, develop them if we felt that the opportunity was great enough. But there's nothing, I think, over the short or intermediate term where we feel like for some of those nearer-term market adjacencies that we're targeting that we don't have the capability to compete with what we've got today.

Okay. That's helpful. And as we -- and just from a capacity perspective, up until now, everything has been kind of based around the traditional lead acid form factor. But as I think about some of those more ancillary markets, would there be any modest changes to the assembly line from a form factor perspective to reach any of those markets that we have to think about? Or is this all still going to work pretty well within your existing footprint?

So the short answer is it should fit very well within the existing footprint. And even within the existing markets, the RV market is a good example, where we -- certainly, with the early go-to-market efforts, we designed battery packs that were really expected to be drop-in replacements for lead acid. But we have created unique form factors even for the RV market off the existing technology. You take our GC3 batteries, right? Those were designed to fit specific enclosures that had been -- where you couldn't put lead acid batteries in the past because the encasement needed to be accessible so that you could do the maintenance on the lead acid batteries. As we work with OEM partners, there are spaces within the trailers or spaces within equipment where we can now put batteries for them in different form factors because the batteries that we make don't need the maintenance. And so doing unique form factors is not something that is foreign to us. It's something we've done in the past. And it's something that we expect to do looking out over the next several years as we get into some of these new markets. But it still relies on the same cells. It's still using a lot of the same development work. So from a true manufacturing perspective or assembly perspective, there's really not a big change required of the lines.

Got you. That's good to know. And then, Denis, if you don't mind, I'd love to just kind of expand on your prepared remarks around where you stand on your cell performance that kind of informs your commitment to moving forward with the pilot line investment. I'm thinking, one, it would be helpful to know where you're seeing the best results from an electrolyte separator perspective, but also just kind of the volume of cells that you've tested at this point. And then any kind of key metrics beyond the ones in your prepared remarks, like optimization left around maybe some targeted internal resistance measures or polymer loading, things of that nature.

Sure. Well, what I reported was the cycling performance where we exceeded over 1,000 cycles that was over 80% capacity remaining. We did it at a C/5 rate. I can't talk to the chemistry of the electrolyte, obviously, but we have been making significant improvements as we move forward in the impedance of the electrolyte. But one thing that we have always been very good at, and I've spoken at length about, is the impedance of the interface between the electrode and the electrolyte that really allows us to make these cells possible. In terms of volume, obviously, we're still doing this at lab scale. We deposit on electrodes that are roughly the size of 18650s. And we make coin cells and we cycle coin cells. And we cycled a large number of coin cells, and they tend to be very repeatable. But ultimately, we need to expand into the pouch cell prototype line, and that's where we're headed.

Okay. That's helpful. And then as I think about the kind of the current state of cell manufacturing here in the U.S. and then what you're working on. I understand completely that one of the main advantages of the process is only really fully realized with a solid-state chemistry. But just kind of given particularly the recent domestic content requirements for certain IRA credits and just the general demand for kind of mature U.S. cell production, is there an opportunity in between here and full solid-state realization to deploy your electrode manufacturing process in a more traditional liquid electrolyte cell or even maybe explore non-lithium but still probably intercalation-type battery chemistries altogether?

Absolutely. I mean we kind of alluded to it in the prepared remarks where we are getting attention because of the fact that it's a solvent-free process, which has been of great interest in the industry in general. And so since it's kind of funny, in the absence of the dry room, it actually makes sense to produce conventional cells now. And that's exactly what we're doing, and we do have opportunities in that realm as well. So we are absolutely going to be producing conventional cells of a variety of different cathode and anode chemistries centered around intercalation. We're not trying to do anything with lithium metal. And you're right that we can apply it to other intercalation chemistries that are not lithium, and that is something that's on our radar as well.

Our next question comes from Brian Dobson with Chardan Capital Markets.

So just going back to Ioneer for a moment and your partnership with that company, do you think you could just maybe review some of the competitive advantages that you believe that partnership offers?

Sure. Denis is often quoted as saying that he didn't choose Nevada by accident, right? There is an awful lot of lithium in the ground there. And as we think about the long-term opportunity that's in front of the company, securing a strategic supply of that lithium, we certainly think is very, very important. And that has been a relationship that goes back a few years. It's now gotten to the point where both sides, particularly with them starting to break ground and do things that way, it made sense for us to turn that into a more formalized agreement to make sure that we have that local supply of lithium available to us, particularly a number of years out when we expect to be at a much different scale in terms of producing our own cells. I would say, too, it's something that is a very big focus for the state government as well. The Governor's office was a big supporter and a big help in getting both our 2 companies together as well as supporting the Rhyolite Ridge Project for Ioneer itself. So it's something that I think the state certainly has an interest in, and it's something that we're certainly interested in when we think long term about the supply chain that we'll need in order to be a vertically integrated cell manufacturer.

Yes, very good. And I guess switching gears and talking about your connection with Airstream, that's a marquee name that stands for quality. Since inking that deal, have you guys found an increase in interest from other parties looking to partner with you?

I think it's important to remember, Airstream is a relationship that we have had, and I think this also goes back to the strategic interest that THOR showed in us in the summer of last year when they made a strategic investment in the company. Airstream is a THOR brand and is one that I think, as you rightly point out, extremely well recognized. And I think this is just another indication, if you will, of the strength of that relationship that we have with THOR. Denis, I don't know if there's something else that you'd like to add there in terms of, I guess, the growing sort of trend within the industry to go to adoption at the manufacturing level.

What's funny is that I think that our relationships within the RV industry have garnered us relationships outside of the RV industry. And I think that's something that this Airstream partnership has done. We're pretty well known already in -- within the RV industry. But we've -- not just having a relationship with Airstream, but we also achieved what they call Five Rivet Status, which means we're a preferred supplier for a very high-quality brand within the RV industry, and that has garnered us some attention from outside of the RV industry as well.

Great. And then I guess switching gears and talking about marine applications. It's great that you've met the new standards put out by the American Boat & Yacht Association (sic)[ American Boat & Yacht Council ]. How do you plan on positioning your batteries in that market? You did a really good job carving out niches for your existing products. And should we expect kind of a similar marketing strategy in the marine sector?

I think it will be similar primarily because of the fact that the marine business is so fragmented. And so it's -- we can't just come out and pull out like a THOR-type relationship in terms of manufacturers. But the aftermarket is enormous in the marine space. So it's something that we look at as the next big aftermarket opportunity for us. And in marine aftermarket, folks care about the safety and the compliance of their batteries because of, obviously, the increased necessity when you're out on the water rather than being on the road. So we do see this as an opportunity for us to position ourselves as the ABYC-compliant brands selling directly to the aftermarket, and we'll likely use many of the same tools that we use to break into the RV aftermarket.

The next question comes from Pavel Molchanov with Raymond. I mean sorry about that. We have Vincent Anderson with Stifel.

Hopefully, I didn't cut anybody in line there, but thanks for humoring me. Sorry, I was inspired by that last question on marine. And you mentioned that RVs kind of provide a good model for go-to-market, but it kind of occurred to me, importantly, the size, maybe, and the notoriety of some of the higher-end sailing areas of the marine market, particularly at an OEM and competitive level where they're kind of standard setters and also very weight-conscious, is you said aftermarket is important, but are there select verticals within marine where an OEM relationship, even if small, can provide an Airstream-type sort of validation.

Absolutely. And we are actively working to land those. So yes, it's not going to be -- we don't expect those to be as large volume as a Keystone, but we certainly do expect them to provide validation and a template for how to apply the systems. But that's a good point. Those are very important.

Yes. And to Denis' point, and to yours, Vince, the sailing committee, in particular, seems to really set some of the sort of the examples for the rest of the group. And I think that is, as you rightly point out, an area where we are very well focused.

And next, we have Pavel Molchanov with Raymond James.

You mentioned off-grid solar as pretty robust growth driver that's offsetting some of the weakness in the RV space. Are there any particular geographies or demand drivers, power prices or climate events, disasters that are driving this demand more recently?

The demand seems to be very much industrial in nature in terms of more widespread deployment for things like security applications, parking lots, lighting, that sort of thing. So it is off-grid solar. In terms of demand among off-grid residences, that is growing as well. And it typically aids us in the fact that those are larger systems. The stationary systems do tend to be larger than the mobile systems. And so we've had a larger number of very large systems that we've deployed in the aftermarket. But we do see a lot of the growth in the industrial solar area.

And Pavel, I would also say, as it relates to some of that consumer, it is a wide variety of reasons, whether it is somebody looking for true energy independence, whether it is frustration with the rising energy prices. In some instances, we're starting to see cases where in order just to put solar up, you're now being required to have some sort of a storage solution with it. So that it isn't just wasted energy that one is trying to sell back to the grid. So there's a lot of different reasons for it. Some of it is regulatory. Some of it, I think, is frustration with rising energy prices and things of that nature. But it's been a nice little growing business for us, and we're really encouraged by what we're seeing on the horizon.

Okay. Follow-up on the solid state efforts that you talked about earlier, fire safety is always kind of a hot topic of conversation, no pun intended. And I'm curious if you can give an update on how you guys are approaching kind of the fire safety aspects of solid state.

That's a driving motivation behind the development of solid state. And I think that's what sets us apart is that a lot of technology has been focused on developing solid state in order to accommodate a lithium metal anode or for very fast charging or for very high energy density. That's not what we're doing. We're actually keeping with the intercalation chemistries, primarily lithium, monophosphate and graphite, and we have a ceramic-heavy composite electrolyte because that is not flammable. And the notion of removing -- completely removing the organic electrolyte to put in a ceramic-heavy composite, which is something that you can uniquely do with the powder coating process, is really what sets us apart. And it's a -- the safety and nonflammability of it is the driving force because we envision these deployed in every structure on the grid.

And there are no further questions at this time. [Operator Instructions] And I don't see any more questions, presenters, please proceed.

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 your conference call for today. We thank you for participating and ask that you please disconnect your lines.