Good afternoon. My name is Jenny, and I will be your operator today for Dragonfly Energy's First Quarter 2024 Earnings Call. The call can be accessed along with the earnings press release, earnings presentation and SEC filings on the Investors section of the Dragonfly Energy website found at www.dragonflyenergy.com. As a reminder, this conference call is being webcast and recorded. [Operator Instructions] 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 measure can be found in today's release on the company's website. I will now turn the call over to Dr. Denis Phares, Chief Executive Officer of Dragonfly Energy.

Thank you, and thank you to everyone joining us today. Ladies and gentlemen, the theme for today is, return to growth. There is no doubt that this company faced many challenges in addition to market headwinds that consumed our core markets throughout last year. But our strengths make us uniquely capable as a technology company with both revenue and large upside potential to weather historically bad economic conditions. We have demonstrated our ability to revolutionize an industry with broad adoption of our lithium batteries in RVs. And we are poised to repeat the same success in other adjacent downstream markets, including the heavy-duty trucking market. To update on that effort, during the first quarter of 2024, we have begun to take orders for our all-electric auxiliary power unit. In addition, we have launched our new Liftgate power system. Both of these leverage our expertise in mobile alternator charging demonstrated by our Wakespeed technology. Our Liftgate system has now been implemented in the trucking operations of bottling companies through Rush Enterprises, and we are looking to expand this application to the OEM level. Regarding the all-electric APU, we are pleased to announce that since the beginning of the year, we have begun taking purchase orders from fleets, including dry van fleet operator, CRST; a tanker fleet operator, Oakley; as well as Ploger, S&S, Wooster, Twin City among others. The fleets are diverse in size and in application demonstrating the versatility of the system. The previously announced pilot systems deployed within the larger fleets proved out the concept for these customers, consistently demonstrating reduced idling and enhanced ROI. Double-digit percentage improvements in miles per gallon have been commonly observed in the pilots, and we expect those improvements to only increase as we enter the warmer summer months. As some of these pilots…

[Operator Instructions] Your first question is from George Gianarikas from Canaccord.

I'd like to ask your opinion on today's news around the Section 301 tariffs and how that may impact both your core business and your growing cell production business.

Thanks for your question, George. Yes, happy to answer that. So from what I could read, this is news. It looks like the tariffs on sales and batteries in general, are going to be increased from 7.5% to 25%. For EV batteries, that happens this year. So that is not going to affect us for non-EV batteries that happens in 2026. So that doesn't affect the immediate business at all. But in terms of the longer term, that is fantastically positive for us because, ultimately, what we are trying to do is onshore the production of the cells and the increase in tariffs combined with the IRA certainly makes it very attractive to continue our domestic cell manufacturing developments and certainly it should make it more attractive to prospective customers as well.

And would you say that most of your competitors in the marketplace are using cells from China currently?

In terms of LFP, yes, that is absolutely a factor.

Maybe just a follow-up to focus on your cash position at the end of the quarter. Remember, last quarter, you talked about inventory on hand helping as a source of cash in Q1. I'm not sure if that impacted your Q1 cash balance or if you still see that as a potential lever for a cash source in the second quarter? And maybe if you can help us understand where you expect you're ending second quarter cash to finish up.

Yes, George, we certainly do expect to continue using the inventory as a source of working capital. And we have and there were increased uses of cash in the first quarter. As I mentioned, we did follow up on some cell manufacturing opportunities that we needed to execute on, and that has to do with our current relationships that we have in terms of prospective cell customers. But moving forward, we do expect to be able to access the ChEF. We did not access a ChEF at all in Q1. And so it is something that, as I mentioned, we certainly have at our disposal to use opportunistically. And so I think that the cash burn is expected to be less moving forward compared to Q1.

Your next question is from Alfred Moore from ROTH.

I wanted to ask maybe about nice to be talking about growth, I guess, first of all, and Denis, your comments just around the RV market, it sounded a bit more, I'd say, optimistic than back in March with the Q4 call. Can you just expand on what you're seeing there? I think you'll have better visibility when we got new models in a couple of months here. But any way to think about sort of cadence of the rest of the year with some of the share gains you've had and obviously, you're looking for a step-up in Q2.

Sure. Well, despite the fact that we did appear flat, and we have been flat with our direct-to-consumer business, RV business, which is not a bad thing. We're not dropping anymore, and we hope to see a recovery there soon. Our OEM RV business was pleasantly surprising, I would say. So that is why we're a little bit more bullish here. We've observed more uptake in terms of the lithium option. We've been taking some more orders from Keystone as even though it is an option, it is an option that's being selected. We're increasing standardization. And those coaches that have lithium on them, the trailers that have lithium on them are actually becoming the more popular coaches. So it does appear that the industry continues to move in the direction of lithium. That is lithium uptake is happening faster than the recovery in terms of RV shipments. That's a good thing. And that's why we do appear -- we are pretty bullish on the recovery of at least the lithium portion of the RV market. And then of course, there's the new model year. And we focus -- every year, we're focused on the new model year and getting in more and more models, and it certainly helps to have the new IntelLigence product line to be able to solidify our place there.

And if I could ask another, this new adjacent opportunity in the oil and gas market, very interesting. Can you talk a bit more about -- I think I heard you say potential for -- I think it was maybe 1,000 deployments over 18 months or something like that. Is there a way to think about revenue opportunity per [ seat ] and how long these systems might need to be piloted and just competitively, what you're displacing or going up against?

It's a relatively new product in terms of methane scrubbing. So it is a collaboration with a legacy. So we are providing the entire power system, which is comprised of about 70 kilowatt hours of batteries plus associated inversion, the Wakespeed technology for charging. It's a pretty large system. And I did say potentially thousands of deployments, and that certainly is coming from the customer and their customers and what they expect the new MERP requirements will require moving forward. So we are pretty excited about the opportunity. We are deploying the first system this summer. And we expect that towards the end of the summer, we'll have a little bit more visibility as to what those first POs might look like.

And if I could sneak one last one in, maybe just on the APU side, I think. You called out a number of fleets in the remarks and I think you're seeing traction with larger fleets. Just any update on how we should think about timing, particularly for those larger fleet orders, maybe more for next year, but just remind us.

Yes. I would say that we'll be able to start showing movement in this regard, particularly for the larger fleets over the summertime here. So as the summer progresses and we start getting -- the final data sets associated with some of the warmer summer months, we're going to be able to announce some of these fleets turning over. The larger fleets, I should say.

Your next question is from Brian Dobson from Chardan Capital Markets.

Thanks for the additional color on the positive benefit of these tariffs on your business. I guess I wanted to chat a little bit about the elimination of PFAS chemicals in your production. You had mentioned that this gives you a competitive advantage both in the United States and in Europe. Do you think you can delve into that a little bit further and speak a little bit about how you plan to take advantage of that.?

Well, this revolves around potential regulations coming down the pike, first of all. But just in general, the benefit of not having forever chemicals is something that is becoming more and more important as we see the effects of these chemicals in wastewater, in stream water. So I mean, this is -- it's an environmental issue. I'm not saying that the batteries necessarily are better batteries, but they are more environmentally friendly, more environmentally safe. But interestingly, what we've shown and what you can see in some of the data that we've put up is that the batteries are just as good. We can actually make the electrodes stick just as well. And the performance of the batteries are on par with the performance of the typical PFAS binders that we see. And as it turns out because of the process, it actually has an environmental benefit in the manufacturing as well because you can -- we can apply these chemicals without the need for as much power, and it helps streamline the process even a little bit more as we apply the dry electrode process. So it really is an environmental issue, but it allows us to produce batteries that are just as good as the batteries that are out there.

[Operator Instructions] Your next question is from Jeff Grampp from Alliance Global Partners.

I was curious on the trucking front. Do you have any sense with these fleets that you're talking to that sound a little bit closer to purchase decisions, what those order patterns may look like? Or do you get the sense these companies are looking to perhaps convert their fleet as part of this normal replacement cycle or maybe just a subset as kind of some of the early adopters? Or just any kind of insight as far as what the adoption curve may look like when fleets ultimately decide to go forward with your option?

Sure. Well, ultimately, the rate of adoption is up to each individual fleet. But what we expect is that the APU will be applied in terms of the turnover of their fleets annually. So typically, they're in the range of 20%, 25% of the fleet is turned over annually. And so our expectation would be that at least eventually will be in that cycle and in those new orders. But it really is up to the fleets to decide how quickly they want to move in that direction. And our optimism has to do with the fact that this is a quick ROI. I mean, this is a relatively easy decision once you're comfortable with the technology.

And then in the existing RV market, I appreciate highlighting that ex Keystone number, which is really impressive. Can you kind of contextualize how you guys are thinking about the rest of the year, especially taking into account the fact that as you guys kind of lapse the legacy Keystone revenue, obviously, that could imply some pretty healthy growth numbers at kind of the corporate level?

Sure. Thanks, Jeff. Well, we do expect to see a step function in Q3 because of the new model year. But we do expect a pretty monotonic increase throughout the year anyway because as I mentioned, there is an increased desire for the lithium option in those particular coaches where lithium is an option. So I did -- you mentioned Keystone, and we are an option on the Keystone trailers, and we certainly saw a pretty significant increase in Keystone orders in Q1 compared to Q4, although those were not included in our 70% growth numbers.

There are no further questions at this time. I will now hand the call back to Dr. Denis Phares for the 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.

Thank you. Ladies and gentlemen, this concludes the call. We thank you for participating and ask that you please disconnect your lines.