Good afternoon. My name is Ena, and I will be your operator today for Dragonfly Energy's Third 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 within the meaning of the United States Private Securities Litigation Reform Act of 1995 based on current expectations. Forward-looking statements include all statements that are not historical statements of fact and statements regarding the Company’s intent, belief or expectations, including, but not limited to, statements regarding the Company’s guidance for 2024, results of operations and financial position, planned products and services, business strategy and plans, market size and growth opportunities, competitive position and technological and market trends. Some of these forward-looking statements can be identified by the use of forward-looking words, including “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,” “plan,” “targets,” “projects,” “could,” “would,” “continue,” “forecast” or the negatives of these terms or variations of them or similar expressions. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. 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'll now turn the call over to Dragonfly Energy's CEO, Dr. Denis Phares. Please go ahead.

Thank you and welcome to everyone joining us today. At Dragonfly Energy, our commitment to pioneering innovative lithium-ion battery technology remains unwavering. Despite macroeconomic headwinds, we believe we have made considerable strides in expanding our footprint beyond the RV market and into the heavy-duty trucking, oil and gas and other high-impact sectors. Our strategic initiatives have focused on diversifying revenue streams, enhancing our technology, and positioning ourselves for long-term growth through partnerships and targeted research and development investments. The broader economic environment continues to pose challenges, impacting consumer discretionary spending and extending economic pressure to sectors such as retail and trucking. However, our adaptability has been key to navigating these uncertainties. By reinforcing our partnerships, advancing our product innovation, and strategically focusing on high potential verticals, we believe we are laying a robust foundation for sustained growth. Our move into the trucking and oil and gas sectors is part of our strategy to leverage our experience in transitioning traditional lead-acid application to lithium solutions, a shift we demonstrated in the RV market. Although initial adoption in these newer markets has faced delays due to numerous economic conditions, we remain confident in these sectors' potential to become significant revenue drivers as conditions improve. The continued success of our pilot programs within the trucking industry has led to the conversion of these initial trial customers into a revenue generating segment. With that, we're proud to report that we recognized our first meaningful trucking revenue in the third quarter and we anticipate continued quarterly growth within the trucking market. We believe positioning it as a significant revenue driver for Dragonfly Energy in 2025. In terms of technology, we believe that we are at the forefront of introducing intelligent connected solutions that enhance energy storage efficiency and user experience. Our new Dragonfly Intelligence technology…

Thank you, Denis, and thank you to everyone for joining us today. Before we dive into the details, I want to acknowledge that our revenues for the third quarter were negatively impacted by challenges in our direct-to-consumer markets, which were affected by broader macroeconomic factors impacting discretionary spending. While we are disappointed by this outcome, we're encouraged by several bright spots that are driving long-term momentum across our business. Starting with the original equipment manufacturers, or our OEM revenue, we experienced sequential growth, and our increasing portion of these sales continues to be derived from the RV OEM market. Our OEM revenue increased from $5.6 million in the second quarter of 2024, to $7.4 million in the third quarter of 2024. This represents a 10% increase that we believe may be attributable to a recovering RV market, the implementation of our smart battery product line, and us beginning to penetrate the heavy-duty trucking market. A significant driver of this revenue increase was the introduction of our new smart battery product line, implemented by one of our OEM partners. These new Battle Born products featuring our patent-pending Dragonfly Intelligence communication technology have not only been adopted by this OEM, but have also expanded their energy storage capacity, demonstrating the value of this technology. We believe that the Dragonfly Intelligence ecosystem with its feature-rich design will gain further market traction as additional OEMs test and experience its potential to enhance customer satisfaction. The RV Industry Association, or RVIA, is forecasting continued recovery in the overall RV market with unit production reaching the mid 300,000 per year range. We believe this broader market recovery will benefit our OEM partners and further support Dragonfly Energy's growth trajectory. In the heavy-duty trucking market, our solutions provide the benefit of a restful night's sleep during the…

Thank you, Wade. As we will now provide a review of our third quarter 2024 financial results, as well as a more detailed outlook for the fourth quarter of 2024. Please note that all figures presented are GAAP, unless otherwise noted. Dragonfly Energy generated net sales of $12.7 million in the third quarter of 2024, down from $15.9 million in the third quarter of 2023. We believe that the decrease can be attributed to lingering weakness in our direct-to-consumer or DTC battery sales. Our DTC segment generated net sales of $5.2 million in the third quarter of 2024, down from $10.3 million in the third quarter of 2023. OEM sales in the third quarter of 2024 were $7.4 million, up from $5.6 million during the third quarter of 2023, which we believe is indicative of some recovery in the RV market. Dragonfly Energy's gross profit in the third quarter of 2024 was approximately $2.9 million compared to $4.6 million in the third quarter of 2023. The decrease in gross profit was primarily due to a lower unit volume of sales and a 6.4% decrease in gross margin from 28.9% to 22.5%. The overall decrease is a result of higher, lower margin OEM sales and lower, higher margin DTC sales. Operating expenses in the third quarter of 2024 were $8.9 million, down from $10.5 million in the third quarter of 2023. The decrease was primarily driven by lower employee-related costs and stock-based compensation in the prior year. Total other expense in the third quarter of 2024 was $0.8 million, compared to $4.1 million in the third quarter of 2023. Other expense of $0.8 million incurred during the quarter ended September 30, 2024, was comprised primarily of interest expense of $5.6 million related to our debt securities, offset by a change in…

Thank you. [Operator Instructions] Your first question comes from the line of George Gianarikas from Canaccord. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. Maybe to start, Denis, there's been a lot of press over the last couple of few months around dry electrode batteries in the marketplace, particularly from Tesla and others. Could you share your thoughts as to how you've assessed those technologies relative to yours and your thoughts on bringing your technology to market. Thank you.

Sure. Thank you, George. Well, first of all, my thoughts on dry electrode go back a lot of years. We've been working on this for well over a decade. And the overall push to dry electrode is really driven by a desire to lower the manufacturing costs, and I think the ability for domestic manufacturers to really compete on the world stage is made available by some sort of step function drop in manufacturing costs. And that's why dry electrode in particular is of such interest today. The ability to eliminate the NMP solvent and the entire drying step to produce the electrode is the obvious first step, I think, in really reducing the cost of manufacturing. So that was our motivation in really trying to develop these dry electrode processes. There are other dry electrode processes different than ours. So what we do is very specific in terms of powder coating a layer, one grain at a time, on a conducting substrate. What Tesla has done through their Maxwell acquisition, along with some others is a dry electrode process known as extrusion, where powders and a specific type of polymer are mixed together and then extruded into a freestanding film. And our view on that is that it's more difficult to scale. And the reason I say that is because there's an extra lamination step where you have to take that film and press it and adhere it to the current collecting foil, whereas we're growing the film directly on the foil. So in my view, in our view, we've developed a dry electric process that not only demonstrates the cost reductions, but also applies technologies that actually scale very well. So we're very excited to be working on a topic that is now at least garnering some interest, and we think we're really well-positioned to deploy this technology and actually be in a position to mass produce cells domestically.

Thank you. And maybe to follow-up on something you've mentioned now a couple times on your earnings calls, this non-dilutive capital that could fund a half-gigawatt-hour production, can you just sort of give any more detail around what that involves and how close you are to securing that financing? Thank you.

Yes, well, we are in the process of setting up a subsidiary in Canada and obtaining the financing through the subsidiary. So, in that way, we're going to be able to deploy the technology through the subsidiary to begin with. And that with allow us to raise the capital through -- sorry, and that would allow us to raise the capital through the subsidiary instead of through the parent company.

And which, can you give us any more details in the program specifically?

Well, I will say we are in advanced negotiations with a couple of the provinces in Canada. And I guess we'll be able to speak in more detail as we select which direction, which path we're going to take.

Thank you.

Thank you, George.

Thank you. And your next question comes from the line of Chip Moore from ROTH Capital Partners. Please go ahead.

Hey, Denis and Wade. Thanks for taking the question.

Hey, Chip.

Wanted to ask -- hey, Denis, I want to ask on auxiliary power. Nice job getting some revenues this quarter, particularly in a market that's not particularly doing great right now. So hats off. I guess I thought I heard you say, you're looking for more growth next quarter, but then did I hear you right on significant revenue potential next year? Is there any way to sort of frame that? Is that independent of the market or are you thinking market recovers and some of these fleet wins start to ramp or just how are you thinking about that opportunity?

Thanks Chip. This is Wade, I'll take that one. So the way we're looking at it is kind of threefold, right? It's both market acceptance. So the fleets are the trials that we put in place this year are proving themselves out. And it's expansion of those programs through the new trucks that the fleets are going to be getting, but then it'll also be assisted by the market, the overall transportation market recovery. And then lastly, the third lever there is we're seeing more applications for our product within the transportation market than just the APUs that we initially identified. So there's a real need for the solutions that we're offering and the fleets are really engaging at a much higher level now than what they were even last year when it was still fairly high.

Got it. Appreciate that Wade. Maybe a second question on methane reduction. So first pilot completed, sounds like things are going well. Just update us there on market potential and then any concerns that we get a new EPA administration and that could have impact or how are you thinking about that?

Sure. The conversations that we've had with both the fleet operators and the end users themselves have been very positive over our solution regardless of what administration was to take control. And they've already identified that the MERP [ph] is kind of the balls rolling down the hill and there's no real way to stop it. It's just the speed at which it is. The packaging companies that we're working with are really, I don't want to say it, they're really -- they're getting an influx of orders right now for their packages from the natural gas providers. And they're in sales negotiations right now over our solution. So they're working through that right now. Did I answer that fully?

Yes, no, that's helpful. Appreciate it. And if I could just sneak one more in, just modeling the Q4 guide, I guess the OpEx sequential step down looks pretty notable. Any timing issues there or anything to keep in mind or maybe how do we think about the next few quarters on OpEx?

Well, I mean, as you know, we've been in cash conservation mode for quite some time now and we've been pulling every lever that we can. So I wouldn’t say there is anything notable to report other than our continued focus on being frugal and cash management.

Got it. Understood. Thank you both. I'll take the rest of mine offline. Thanks.

Thank you, Chip.

Thank you. [Operator Instructions] There are no further questions at this time. I will now hand the call back to Mr. Denis Phares for any 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. And that concludes your conference for today. Thank you all for participating, and you may now disconnect.