Good afternoon. My name is Marissa, and I will be your operator today for Dragonfly Energy's Second Quarter 2024 Earnings Call. The call can be accessed, along with the earnings press release, 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. All attendees are in a listen-only mode at this time. 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 press release on the company's website. I'll now turn the call over to Dragonfly Energy's CEO Dr. Denis Phares.

Thank you, and thank you, to everyone, joining us today. With another quarter of growth under our belts, Dragonfly Energy continues to demonstrate our ability to diversify and progress our business in the face of difficult though slowly improving market conditions. We have historically leveraged our cutting-edge technology development with strong sales and marketing. And this quarter is no exception as we continue to lean into our strength to weather the realities of how higher interest rates affect consumer discretionary spending and consequently, our core markets. We have worked hard to diversify our downstream markets in preparation for more stable growth and a rapid path back to profitability. This has included our entrance into the heavy-duty trucking and oil and gas markets. Over the course of the second quarter, we also negotiated and finalized a brand licensing deal for our Battle Born Batteries brand with one of the largest American energy storage companies, Stryten Energy. We were thrilled to be able to announce the closing of this deal at the end of July. We are extremely happy with the mutual benefits this collaboration is expected to bring. For Dragonfly Energy, it means broad exposure for our Battle Born Batteries brand through B2B channels and into markets that were previously not even on our product road map. Stryten's vast distribution channels allow for mass brand proliferation with their reach extending to major retailers like Tractor Supply Company, Interstate, AutoZone and Continental Battery. These are the types of big box stores where we expect to see Battle Born Batteries products available for consumers to purchase in the future. We believe this exposure should build considerable brand value, including in our core markets. In addition to the increased liquidity through licensing royalties, revenue will also come in the form of contract manufacturing as…

Thank you, Denis, and thank you to everyone joining us today. Our focus today is on building momentum for sustainable and diversified growth. Over the past quarter, Dragonfly Energy has made significant strides in laying the groundwork for long-term sustainable growth across multiple key markets. We continue to expand our reach and solidify our position in the energy storage industry even as we face ongoing challenges. We are excited to report progress in our heavy-duty trucking market initiatives. While a full transition to our all-electric auxiliary power unit, or EAPU, has been slower than we anticipated. This can be attributed to the longer-than-normal freight recession and the multiple season trials some of our larger partners are requesting. These trials are critical to market adoption, as they demonstrate the real-world benefits of our EAPU and liftgate power systems. Our general theme when discussing our solutions with fleets is, let's use the diesel engine to move freight, but let's turn it off in all other instances. Importantly, our ongoing trials have yielded significant improvements in idle times. In most cases, we completely eliminate idling during the mandatory 10-hour rest period. In other cases, we have reduced idling from the mid-30% range to low single digits. This represents real savings for fleets in both fuel and maintenance costs and greatly increases driver comfort through uninterrupted rest. Another point of differentiation for our solution affirmed by the fleets is that there is no green premium. Our solution offers rapid and profitable decarbonization without additional costs, which is especially important for companies with stated ESG goals. This extends not just to our customers, but also to their clients, the shippers who are often larger corporations with ESG requirements. Importantly, this allows for the adoption of our lithium batteries into trucking fleets without the need for…

Thank you, Wade. I will now provide a review of our second quarter 2024 financial results as well as a more detailed outlook for the third quarter of 2024. Please note that all figures presented are GAAP unless otherwise noted. Dragonfly generated net sales of $13.2 million in the second quarter of 2024, down from $19.3 million in the second quarter of 2023. As a reminder, the second quarter of 2023 included standard install revenue from Keystone, which was not the case in the second quarter of 2024. Revenue of $13.2 million in the quarter was 5.7% lower than the low end of our $14 million to $15 million guidance range. This can be attributed to weakness in our key customers' orders, primarily due to a weather event at our largest customer's production facility, combined with some lingering weakness in the motorized RV market. Our direct-to-consumer or DTC segment generated net sales of $6.5 million in the second quarter of 2024, down from $10 million in the second quarter of 2023. OEM sales in the second quarter of 2024 were $6.7 million, down from $9.3 million during the second quarter of 2023. As previously mentioned, we expect that OEM revenue will continue to increase as a percentage of overall sales throughout 2024. Dragonfly's gross profit in the second quarter was approximately $3.2 million compared to $3.9 million in the second quarter of 2023. Operating expenses in the second quarter of 2024 were $9.9 million, down from $12.5 million in the second quarter of 2023. The decrease was primarily driven by lower employee-related costs and stock-based compensation in the prior year. Professional services were also lower, which is in part due to the prior year public offering. Total other expense in the second quarter of 2024 was $6.9 million compared to…

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions] Your first question comes from George Gianarikas with Canaccord Genuity. Please go ahead.

Hi, good afternoon and thank you for taking my questions. Maybe just to start with regard to your Q3 guidance, you sort of talked about some things impacting the robustness of the recovery relative to Q4. But can you just sort of go over some of the heavy-duty trucking delays that you mentioned? And also, is that Airstream issue having an impact also in Q3? I didn't pick that up in your comments. Thank you.

Thanks, George. This is Wade Seaburg. As far as the impact of the Airstream weather event, it is impacting a little bit our revenue in Q3, although with those production lines coming back online, both last month and then later on this quarter, we do expect that to definitely normalize in Q4 and have some bit of recovery in Q3. As to speak to the delays in heavy-duty trucking, those are largely driven by the longer than normal recession that's happening in the freight market as is indicative by the spot rates and other public company filings that you've seen from the freight and transportation sector. The other part that's delaying that adoption is the need to be able to see a three-season test out of the system. So fleets are wanting to see the system not only perform in the summer time, which is the high energy season of running the air conditioner, but they also want to see what that return on investment will be for that cost of the system during more milder climate months to make sure that the ROI is still going to pan out. And we have – we are more than confident based on data that we've gotten from fleets that it will absolutely pan out.

Thank you. And maybe for Denis, I'm curious as to whether you can share any thoughts on the recent Tesla unveiling of their first cyber truck to use dry-cathode 4680 cells, any thoughts there? That would be appreciated. Thanks.

I mean, I can't speak too much about that. It's a different drive process than ours. It's an extrusion process, and it is different chemistries, different polymers, and there are certainly challenges associated with that one that I think our process alleviates, but at the same time, I can't really comment on the efficacy of that process and how it's being implemented on a mass scale in those trucks.

Thank you.

Thank you, George.

Thank you. Your next question comes from Chip Moore with ROTH Capital Partners. Please go ahead.

Good evening. Hey, everybody. Thanks for taking the question. I wanted to ask another on dry electrode, Denis, I guess, having Stryten on board, does that change some of the conversations around non-dilutive funding. And then I think you mentioned advancing some potential government funding, just color on those efforts?

Yes. Certainly, one of the reasons that I think the Stryten partnership is so synergistic is they are interested in domestic cell supply. So there's no – there's definitely interest on their end for us to be applying the dry electrode process to make cells for them. So that's unambiguous. Regarding the government funding, there have been opportunities, I will say, throughout North America for government funding, and we've been pretty successful in a number of instances. And I think we're honing in on a couple in particular. And as I said, we're in the middle of site selection, and we'll be able to speak more to that as things continue to progress.

That's helpful. We'll stay tuned, Denis. And if I could ask one more, maybe just around the methane leakage opportunity, first deployment in September right around the corner. Just any update there on how things are progressing? How closely you'll watch that one and maybe timelines before we potentially see follow-on orders and the larger opportunity develop?

Yes. Well, that is certainly ongoing as we speak. So we are – in terms of system deployment, we're getting the components assembled and put into place. And what happens in – what's expected to happen in September is that the actual customers will be coming in and observing the system reclaiming methane in an uninterruptible fashion. That is certainly what is needed. Methane is – methane leakage can be detected from space, and there are now mandates to find methane leakers since it is such a potent greenhouse gas. And so it is something that we expect to take off pretty rapidly.

Understood. Okay. I'll hop back in. Appreciate it.

Thank you, Chip.

Thank you. Your next question comes from Jeff Grampp with Alliance Global Partners. Please go ahead.

Good afternoon. Hey, Denis. Maybe if we can start on that last topic and pull that thread a little bit more in oil and gas. So first deployment next month, and I think you guys indicated maybe thousands of deployments with a successful trial. How should we think about a successful trial? How are you guys defining that? And do you have a sense of what prospective customers would need to see in terms of duration of data, I suppose, before purchasing decision? Is this something they need quarters, months, years of data? Or do you have any sense of that? Thank you.

No, no. It's a very rapid test because ultimately, what the batteries are providing is continuous operation of the vapor recovery unit while the compressor is down. So that's – the importance of a leakage instances that it can happen when the compressors go down. So the compressors can run the vapor recovery units in normal operation. But when they go down, the batteries kick in, and are expected to run for the four, five-hour downtime until they ramp back up. So what – the nice thing about this project is it's very much in tune with what we've done in our typical RV or heavy-duty trucking applications where you are charging batteries or keeping batteries charged with an engine that is – that when the engine goes down or is turned off, the batteries kick in to run the electricity.

Got it. Understood. That's very helpful. And for my follow-up, on the – this trucking deal that you guys just announced. So you mentioned that basically, these guys are going to be turning over their entire fleet of 500-plus trucks. Any sense of what that conversion timeline looks like? Should that just kind of follow kind of a normal conversion cycle that you guys mentioned that's typically a handful of years? Or could this be on a more accelerated timeline perhaps?

Yes, a little bit of both. They're going to – thanks for the question. They're going to transition under their normal trade cycle of a four to five-year trade cycle, but then they are also evaluating the existing age of units that they have in the field and units that are under a year to 15 months are in the process of being converted in the aftermarket. So there are – there is a decent percentage that we'll see converted as aftermarket, but then the rest of the fleet will follow the normal trade cycle.

Understood. Thank you, guys for the time.

Thank you, Jeff.

There are no further questions at this time. I would like to turn the call back over to Dr. Denis Phares.

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 today's conference call. Thank you for your participation. You may now disconnect.