Dragonfly Energy Holdings Stock

Thank you. Good day and thank you for standing by. Welcome to the Dragonfly Energy Holdings second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Simon Ciroveski.

Thank you, Operator. Appreciate you joining us for today's call. Joining me here today are Captain Dennis Ferris, General Energy's Chairman, President, and Chief Executive Officer, and Wade Seberg, Chief Commercial Officer. Fortunately for Dennis, I'd like to make a brief statement regarding forward-looking remarks. Following 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. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or not applied by such forward-looking statements. Actions ultimately differ due to factors noted in the press release and in periodic SEC filings. Management will reference some non-GAAP financial measures.

Reconciliation and years corresponding GAAP measures can be found in today's release on the company's website. Please note, the comparisons that will be discussed today are on a year-over-year basis unless otherwise noted.

And I'll turn the call over to Dennis. Thank you, Simon. And thank you, everyone, for joining us today. We are pleased to report solid second quarter results with net sales in line with our guidance. Adjusted EBITDA came in better than our expectations, improving $3 million from our prior quarter, reflecting the cost actions we implemented earlier this year. The quarter also marked our first meaningful revenue contribution from the heavy duty trucking market. We have invested in this market over several years through pilot programs and product validation work, and we are pleased to see the foundation start to translate into financial results. I'll let Wade walk through our commercial markets in more detail shortly.

But first, I'd like to briefly discuss our acquisition of Dakota Lithium's assets. Dakota brings an established brand, an existing customer base and distributor network, and a complementary portfolio of products across marine, outdoor recreation, power sports, golf cart, and other specialty markets. Dragonfly already has the commercial, operational, fulfillment and customer support infrastructure needed to support the business. By bringing Dakota's products and revenue through that existing platform, we believe we can restore availability, grow the brand and increase revenue with limited incremental operating expense. We believe this creates meaningful operating leverage and broadens the customers markets and price points we can serve. Dakota generated approximately $12 million in net revenue in 2025, despite working capital and inventory constraints that drove performance materially below prior year levels. With an established customer base and demonstrated historical demand, we see a clear opportunity to recover and grow that revenue.

The total purchase price was $4 million, consisting of $1 million in cash and $3 million in Dragonfly common stock, issued at $2 per share and subject to a 12-month lockup. In connection with the transaction, we amended our term loan agreement and our lenders reduced our minimum cash covenant, allowed us to pay the next two quarters of interest in kind and deferred compliance with our senior leverage ratio and fixed charge coverage ratio covenants until September, 2027. We believe these amendments preserve near-term liquidity and provide additional financial flexibility. We anticipate Dakota Lithium will begin contributing meaningful revenue and be accretive to adjusted EBITDA in the fourth quarter. Ultimately, this acquisition adds an established revenue generating brand, materially expands our product and market reach, and enhances operating leverage by placing a larger portfolio through infrastructure and relationships we already have with no distraction to our existing operations. These factors support our goal of achieving positive adjusted EBITDA at an annualized net sales run rate of approximately $70 million. Before I turn the call over to Wade, I also want to highlight two important recent additions to DragonFly.

First, we are pleased to welcome Robert Keller as our Director of National Fleet Sales. Robert brings nearly four decades of experience across fleet operations, commercial vehicle sales, and transportation technology. Over his career, he has built relationships with many of the country's largest commercial fleets, and we believe that experience will be a real asset as we continue to expand national fleet adoption of our power systems. And in June, we welcomed Dr. Lucas Lutz to our board of directors. Lucas co-founded Sphere Energy, a technology company focused on applying advanced data science and artificial intelligence to battery engineering. Prior to joining our board, Sphere Energy conducted an independent third-party evaluation of our dry electrode manufacturing process, giving Lucas a firsthand view of the technology and contributing to his confidence in its capabilities and long-term potential.

His experience at the intersection of battery science and advanced data modeling aligns well with our focus on advancing dry electrode manufacturing and next generation battery technologies, and we look forward to his contributions as we continue building on that foundation. Alongside these additions, we continue to strengthen our intellectual property position. Most recently, I'm pleased to announce that we received another Japanese patent allowance supporting our solid-state battery technology. It covers systems and methods for applying dry powder coating layers within an electrochemical cell, an important part part of our unique dry electrode manufacturing approach. Together with our recent U.S. and European patent allowances, this expands the global protection surrounding our cell manufacturing technology and supports our work toward the scalable production of non-flammable, all-solid-state battery cells. We look forward to sharing more about our progress in this area in the coming months. With that, I'll pass the call over to Wade.

Thank you, Dennis. I'd like to walk through what we are seeing across our commercial markets, starting with heavy duty trucking. where the work we have done over the past several years validating our technology and building credibility with fleets began to show up in our results. Heavy duty trucking generated approximately half a million dollars in revenue in the second quarter. Based on current orders in hand, we expect that revenue to more than double to approximately $1.3 million in the third quarter and continue growing sequentially in the fourth quarter and beyond. This marks an important commercial inflection point for Dragonfly. After several years of pilot programs, field validation, and customer development, we now have a proven foundation converting into ongoing fleet revenue. These initial deployments are with large fleet customers, each representing meaningful expansion potential as programs progress from initial orders to broader rollouts and larger follow-on orders. We believe the engine we have been building is now working, and we believe this foundation can support sustained growth as existing customers expand and additional fleets advance through our pipeline.

During the quarter, we began shipping against the Stevens Transport purchase order. Those shipments include the complete set of products we offer, the Battle Born Dual Flow Power Pack, all electric APU, and our inverter. This is the first phase of Stevens' plan to move their full fleet of 2,500 trucks onto our solutions, and we expect shipments to build through the remainder of the year. Beyond Stevens, our fleet pipeline continues to broaden. We are engaged with several additional carriers at various stages of evaluation and deployment, including Werner Enterprises, where we are working closely on implementation of its initial production order and see meaningful potential for broader adoption over the coming quarters. Additional pilot programs are underway this summer. Successful results could support further expansion beginning in the fourth quarter and into 2027.

The broader trucking environment is also improving. Fleets have spent several years operating through an extended freight recession that constrained capital spending. As conditions stabilize and equipment demand improves, the economic case for our systems remains compelling, particularly as fleets look to reduce idling. fuel consumption, maintenance, and driver comfort challenges. The economic case for our solutions also continues to benefit from elevated diesel prices, which are further improving the payback of our solutions, as well as the 2027 engine transition, as fleets are pre-buying 2026 trucks ahead of the more expensive NOx compliant engines, which are also showing higher idle rates. Turning to the RV market, the overall environment remains soft in the second quarter. Through mid-year, RBIA reported shipments down 14.2% from the prior year. Against that backdrop, we continue to strengthen our position with our OEM partners.

We are being included across additional model lineups, and we continue to see increased energy storage content within existing models as OEMs look to deliver more capable power systems. The majority of our significant OEM customers continue to support our products and expand their work with us. based on their own field experience. We are also seeing encouraging progress in industrial applications, including potential programs with large national customers. we are not including these opportunities in our current expectations, they represent another meaningful avenue for revenue diversification. Finally, from a commercial standpoint, I share Dennis's enthusiasm for the Dakota Lithium Acquisition. Dakota brings established customer and distributor relationships across markets that are highly complimentary to our business. And our commercial and fulfillment teams are already focused on restoring product availability and reengaging engaging those customers. We also see meaningful opportunity in leveraging these two complementary product portfolios.

Dakota's lineup, including cranking, dual-purpose, and higher energy density batteries, expands the solutions our B2B customers can offer their customers. A multi-brand approach significantly expands the customers and price points we can serve.

After that, I'll turn the call back to Dennis. Thank you, Wade. Turning now to our second quarter preliminary financial results. Net sales were $13.2 million, including $8.4 million in OEM net sales and $4.5 million in DTC net sales, reflecting continued healthy OEM adoption trends offset by the softer RV market. Gross profit was $4.3 million with gross margin expanding 470 basis points to 33.0%, which included a $1.1 million benefit related to tariff refund payments recognized in cost of sales. Operating expenses totaled $7.2 million daily. down from $7.9 million benefiting from our cost reduction actions. During the quarter, we also continue to advance the facility consolidation discussed on our prior call. While the process was not fully completed by quarter end, we expect to complete the principal remaining actions during the third quarter.

Net loss attributable to common shareholders was $5.5 million, or 43 cents per diluted share. compared to a net loss of $7.0 million or $5.77 per share. Adjusted EBITDA was negative $1.6 million, a $0.6 million improvement year over year despite lower net sales, and a $3.0 million sequential improvement from the first quarter driven by our cost reduction actions flowing through the business. Looking ahead to the third quarter, we expect growth in net sales to approximately $13.5 million driven by growth in the trucking sector and offset by weakness in the RV sector. Adjusted EBITDA is expected to be approximately negative $2.4 million. The sequential movement and adjusted EBITDA does not reflect a change in the underlying trajectory of the business or our path toward profitability. Rather, it primarily reflects two temporary timing factors. First, we decided not to adjust EBITDA adjust out the expense associated with the now vacated space while it is actively being marketed for sublease.

Second, we expect to incur incremental operating costs to restore Dakota Lithium's commercial operations ahead of its meaningful revenue contribution. This does not change our expectation that Dakota Lithium will begin contributing meaningful revenue and be accretive to adjusted EBITDA in the fourth quarter. Taking a step back, the priorities we laid out at the beginning of the year are now coming into place. Our cost structure is right-sized, and the second quarter demonstrated the operating leverage it provides. Trucking revenue has begun to scale and is expected to ramp through year-end. And Dakota Lithium is expected to begin contributing meaningful revenue and to be accretive to adjusted EBITDA in the fourth quarter. Collectively, we believe these drivers support our target of positive adjusted EBITDA at an annualized net sales run rate of approximately $70 million.

And we believe we are well positioned to reach this target and deliver long-term value for our shareholders. Operator, we would now like to open the call for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from George Giannarepes, Kennecourt Genuity. Hi everyone. Thank you for taking my questions.

I'd like to focus a little bit on Dakota Lithium and just understand the metrics, the financial metrics around which you judged the acquisition and how we're supposed to think about your guidance. So the 70 million annualized run rate of revenue, I'm assuming, includes Dakota's revenue and the acquisition. and cost that they're bringing along with them. Is that accurate? Yes, it is, George. And in the press release around Dakota Lithium's performance, you mentioned that they had 12, I think it was 12 million in 2025 revenue. Any update as to how that's been trending over the last couple of quarters and maybe how much you expect them to contribute this year when it closes? Yes.

Yes, you know, they declined pretty significantly going into 2025 as they ran into inventory constraints as we mentioned. Those inventory constraints continued into this year. And they were pretty much flat going into the beginning of the year. At this time, we're focused on replenishing the inventory and restarting basically where they left off. So essentially it's a sales channel for you. Is that fair to say? I mean, you sort of alluded to that. Yes, it's absolutely a sales channel.

It's a very nice complimentary suite of products. They have a much larger diversity of products, which is really nice. They've been addressing market issues that we're not heavily, we don't have a heavy presence in. So we see it as a highly complementary channel, and we're really excited about the fact that it doesn't take a lot of operating expense to really get it ramped up again.

And how much operating expense will it bring on to core Dragonfly once it's fully closed on a quarterly basis?.

I mean, primarily there's going to be an increase in, you know, a little bit of payroll and marketing expense. And we're going to basically absorb a lot of that infrastructure expense with what we have. Okay.

Understood. So this sounds like it could get you to even dial break even a lot faster than you would have on a standalone basis, even with the marginal incremental operating expense. Yes. That's the idea, yes. Great. And then lastly, any commentary on the RV market? You know, what's, you know, broadly with rates going up, how you see the overall environment and when we should maybe expect a rebound in the overall activity? Thank you.

Wade, I'll let you answer that question. Yes, Dennis.

Yes, George, good question. There's still a general softness in the marketplace in talking to our OEM customers and participating in dealer meetings and talking to our dealerships that are selling Battle Born batteries directly into the marketplace. There's still a general softness in the market. They think it's going to continue through the end of the year and to 2027. So it's being hammered really by macroeconomic factors. discretionary spending is really difficult right now. The one thing I would say about the OEM mark, yes, the one thing I'd add there, George, is that we are seeing a really positive take rate on our product at the OEM level and more standardization options.

Thank you. Thank you, George. Our last question comes from Chip Moore at Ross Capital Partners. Hey, Dennis and Wade, thanks for taking the question.

You know, really good to see that inflection in the trucking market. Maybe, you know, Wade, you can talk about, The ramp there, the pipeline, how big could that opportunity or that pipeline be in 2027, 2028? Yes.

Yes, sure. You know, it's difficult to say what the transition of these fleets, how long they're going to pilot and then go to expanded pilot. But the fleets that are in the pilot phase or in even early discussion phases since onboarding, our new director of national fleet sales, are the largest fleets that you could name, both public and private fleets. So for hire fleets as well as private fleets. and a channel for us. We have, I think you could expect to see very significant growth from us in 2027 there. It's hard to really put a number to it right now.

Fair enough. But it'd be nice to see that flywheel kept moving. And also, I think she called out some potential on the industrial side that you're seeing some things percolate there and any more color?.

Yes, you know that that market's been interesting. We haven't we haven't really put a lot of resources into that marketplace we've really been focused on the other two verticals however that market continues to show really green shoots I'll highlight a couple of sectors there, the intelligent transportation systems. So if you think battery backup for traffic signals and that marketplace, that's turning out to be a big one. those markets are really looking for a better energy storage solution. And then I would also the cellular and telecom side of things. That's another niche market within what we call industrial solar that really looks to be very profitable for us in the future.

interesting yes nice nice markets um okay and and you know for my follow-up maybe um back to dakota uh you know it seems to make a lot of strategic sense and opportunistic in terms of getting to accretion with scale. Would you look at similar type deals or is this sort of a one-off? Our eyes are always open, Chip. Always looking for opportunities. Okay. And then just lastly, I think I saw right there was some exploration costs for a JV, just I assume something to do with dry electrode, but any update there. Thanks, guys.

Yes, we'll be able to talk more about those activities in the coming quarters, but thanks for the question, Chip.

This concludes the question and answer session.

I'd like to turn it back to Dennis for closing remarks. Thank you, everyone, for joining us today. We look forward to sharing additional details with all of you in the coming quarters. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, everyone. Thank you for joining us, and welcome to Dragonfly Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions].

I will now hand the conference over to Szymon Serowiecki. Please go ahead.

Thank you, operator. We appreciate you joining us for today's call. Joining me here today, Dr. Denis Phares, Dragonfly Energy's Chairman, President and Chief Executive Officer; and Wade Seaburg, Chief Commercial Officer.

Before I turn the call over to Denis, I'd like to make a brief statement regarding forward-looking remarks. 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. 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. Reconciliation to the nearest corresponding GAAP measure can be found in today's release on the company's website. Please note that all comparisons will be discussed today are on a year-over-year basis unless otherwise noted.

I'll now turn the call over to Denis.

Thank you, Szymon, and thank you, everyone, for joining us today. First quarter results came in above guidance on both net sales and adjusted EBITDA and reflected a softer RV environment as expected. The RV market continues to navigate meaningful headwinds with industry shipments and recent retail sales data down year-over-year. While the broader market remains soft, we continue to see healthy adoption trends within our OEM partnerships, driven by both expanded integration across additional model lineups and increased energy storage content within existing platforms. We are encouraged by signs of stabilization in the RV market as we move into the second quarter as well as the strong momentum we are seeing in our heavy-duty trucking business. After several years of building our presence in trucking, we are now beginning to see that work translate into meaningful revenue. Following our quarter end, Stevens Transport, one of the largest temperature-controlled freight carriers in North America, placed our largest trucking purchase order to date valued at over $3 million, covering nearly 500 trucks. Deliveries are expected to begin in the second quarter and continue to ramp through 2026.

Stevens has been a partner since 2024 when we began deploying our all-electric APU across a portion of their fleet for validation testing. We believe the results of that pilot program gave Stevens the confidence to commit to transitioning their entire fleet of 2,500 trucks to our platform, and this purchase order marks the beginning of that broader commitment. Importantly, the order spans our full heavy-duty trucking product portfolio, reflecting the expansion of our relationship beyond the initial deployment, a trend we are seeing more broadly as fleets transition from pilots to fleet-wide multisystem implementation.

Wade will discuss the heavy-duty trucking environment in more detail, but I would note that the backdrop for our trucking business has shifted meaningfully over the past several months, and we believe we are well positioned to build on this momentum throughout the year.

Turning to our cost structure. As we noted on our fourth quarter call, we implemented a series of decisive actions to align our cost structure with key growth opportunities while also ensuring that incentives across the organization remain closely aligned with long-term shareholder value. This included reductions in marketing spend, primarily in DTC-focused channels, targeted workforce reductions and compensation adjustments at the leadership level, where members of the executive team and Board agreed to reduce cash compensation by approximately 20% with that portion converted to equity-based incentives, again, with the goal of directly aligning the interest of our leadership team with those of long-term shareholders.

Since implementing these actions in March, we have realized approximately $4.5 million in annualized expense reduction on an adjusted basis. We also expect an additional $4 million in annualized expense reduction from the consolidation of rental space, which is expected to be finalized in the second quarter. Collectively, these actions are expected to drive an annualized adjusted EBITDA improvement of approximately $9 million. Following these actions, we believe Dragonfly is now appropriately sized while still retaining the resources necessary to support growth as our business continues to scale.

Moving on to the technology and IP side. In April, we received our first patent allowance from the Japan Patent Office for our powderized solid-state electrolyte and electroactive materials application. This milestone strengthens our global intellectual property portfolio, which includes nearly 90 issued or pending patents across battery technology, system integration capabilities and proprietary software.

While our top priority remains getting back to profitability, we continue to advance our dry electrode and solid-state programs, which we believe represent a significant long-term opportunity for Dragonfly. We have developed a significant amount of valuable IP over the years that we look to appropriately leverage through organic development, partnerships, joint ventures and similar structures.

Alongside this progress, we continue to invest in our domestic manufacturing capabilities. Earlier this month, we were selected for a second round of Nevada Tech Hub funding, a $527,000 nondilutive award that will support the expansion of our in-house cylindrical cell prototyping and testing capabilities. The project is expected to run through Q2 2027, and receiving this award for a second consecutive cycle reflects the program's confidence in our domestic battery manufacturing road map.

With that, I'd like to turn the call over to Wade to discuss our commercial markets in more detail.

Thank you, Denis. I'd like to discuss the progress we are seeing across our commercial markets with a particular focus on heavy-duty trucking, where rising diesel prices and an accelerating fleet replacement cycle are strengthening the ROI case for our solutions in real time. Fleets have been operating through an extended freight recession with capital spending constrained across the industry. Against that backdrop, the Stevens Transport order is particularly meaningful. It reflects a customer who evaluated our technology under pressure and chose to commit to transitioning their entire 2,500 truck fleet to our platform.

Following the Werner order in the fourth quarter, Stevens has now placed a purchase order spanning nearly 500 trucks with delivery scheduled throughout 2026. The scope of the order is worth noting as it spans our full heavy-duty trucking product portfolio, the dual flow power pack, the all-electric APU and inverter. The deployment is also expected to span 4 different OEM chassis, including trucks equipped with our 24-volt dual flow power pack. Together, these products address the full range of a truck's needs during the rest period.

The dual flow supports starter battery health and reduces idle-related strain. The all-electric APU eliminates engine idling by powering in-cab hotel loads, HVAC, climate control and onboard appliances without running the engine. And the inverter delivers clean, stable AC power for onboard electronics and appliances. Our ability to deliver fully integrated solutions differentiates our platform, reinforces our position as a complete energy solutions provider in this market and increases our revenue opportunity per truck. The timing of the Stevens order is also worth noting given the broader economic environment. Diesel prices have increased significantly since the beginning of the year, which has had a meaningful impact on the ROI equation for fleet operators evaluating our solutions.

Based on our internal fleet modeling, the dual-flow power pack was delivering a payback period of just over 1 year at prior diesel prices. In the current pricing environment, the payback period is under 10 months with similar improvements across our all-electric APU. Compounding this dynamic is the 2027 engine transition as many carriers are prebuying 2026 trucks in anticipation of higher prices when the new NOx compliant engines come to market. These next-generation engines are showing higher idle rates as they need to operate at elevated temperatures to process emissions effectively, leading to increased fuel consumption and engine wear during rest periods. They are also expected to be meaningfully more expensive, further strengthening the economics for our idle reduction solutions.

With these converging factors, we believe the outlook for the balance of the year is increasingly favorable. Fleet capital spending is beginning to recover and the fleets that deferred equipment purchases through the downturn are now moving. We are engaging in meaningful conversations and seeing encouraging progression as fleets advance through their evaluation phases. We have spent the last few years validating our technology and establishing our credibility across industry. Now we are seeing that work start to translate into the commercial momentum we have been building toward.

Turning to the RV market. The overall environment remained soft in the first quarter with recent industry data showing March new RV retail sales down more than 20% year-over-year, while wholesale shipments also declined year-over-year. Against that backdrop, we remain well positioned and continue to see healthy adoption trends within our OEM partnerships. Importantly, that growth is coming not only from broader inclusion across additional model lineups, but also from increased energy storage content within select existing models as OEMs look to deliver more capable power systems to their customers.

We are in active discussions with existing OEM partners on expanding our energy storage solutions to additional model lineups and increasing battery capacity within select current platforms, and we expect to provide further updates as those conversations progress. Across both markets, we entered the second quarter with improving momentum with trucking accelerating from a strong commercial foundation and RV positioned to benefit as end market conditions improve.

With that, I'll turn the call back to Denis.

Thank you, Wade. Turning now to our first quarter financial results. Net sales were $9.7 million, including $5.8 million in OEM net sales and $3.7 million in DTC net sales, reflecting the softer demand environment in the RV market. Gross margin was 17.6%, reflecting lower volumes. We expect meaningful improvement in Q2 as trucking revenue scales and fixed cost absorption improves. Operating expenses totaled $7.4 million compared to $9.8 million, primarily driven by our targeted cost reduction measures. Net loss attributable to common shareholders was $7.7 million or $0.64 per diluted share, and adjusted EBITDA was negative $4.6 million.

Looking ahead to the second quarter, we expect net sales of approximately $13.2 million, representing sequential growth of 36% as we begin to realize meaningful trucking revenue. For adjusted EBITDA, we anticipate a loss of approximately $1.9 million, representing a sequential improvement of $2.7 million, reflecting a higher revenue run rate and the cost actions we implemented in Q1 flowing through the business. We continue to target positive adjusted EBITDA at an annualized net sales run rate of approximately $70 million. With a more efficient cost structure in place and commercial momentum building across both our trucking and RV businesses, we believe we are well positioned to reach this target and deliver long-term value for our shareholders.

We view 2026 as a pivotal year for Dragonfly. Over the past year, we have both greatly improved our capital structure and reduced our cost base. Importantly, our Board and executive team now operate under a compensation structure weighted toward equity, closely aligning their interest with those of our long-term shareholders. We are also beginning to see the tangible benefits from our investments in the trucking market with material commercial orders and believe our momentum in the market will continue to increase as other carriers and OEMs follow suite, especially against the backdrop of higher fuel prices.

With a stronger balance sheet, a leaner cost structure and accelerating commercial traction in trucking, we believe Dragonfly Energy is strongly positioned to capitalize on the opportunities in front of us. We look forward to seeing many of you at upcoming meetings and conferences. In closing, I would like to thank our employees, customers and stockholders for their continued support of Dragonfly Energy.

Operator, we would like to open the call for questions.

[Operator Instructions]

Your first question comes from the line of Chip Moore with ROTH.

So nice to see this commercial momentum on the trucking side. Wondering maybe if you could expand a bit on -- I think you -- Wade, you talked about some of the efforts there and conversations you've been having. But any way to help think about the pipeline of opportunities similar to the order you outlined, what's the addressable opportunity? And how far are some of those conversations?

Yes. The pipeline is really strong, Chip. Thanks for the question. We've been, for the last 3 years since we've entered this market, we've been iterating product solutions and lining that up with OEMs and a lot of fleet trials that are happening in the marketplace over the last 3 years. And a percentage of those fleets have now started to order trucks. I mean just I saw on transport topics yesterday that truck orders are up 200% again. I think the second straight month has been up triple digits. So you're seeing it at the OEM level where fleets are starting to now order trucks again. And as they're ordering those trucks, they're taking into account all of the technologies that they've been testing over that time. This is one of the reasons why on the previous call, we talked about Werner announcements that we had at the end of last year. And that announcement was significant because at the time, they weren't spending any money on really anything. So to be able to get them to spend capital on technology at that point was a real significant marker for us within the heavy-duty truck market. So as far as total addressable market, they're building 250,000 trucks every single year and about half of those have sleeper cabs and need some sort of driver comfort feature. So the overall market is really strong for the solutions that we're putting out there.

That's great. That's helpful, Wade. And maybe for my follow-up, maybe Denis, around dry electrode and solid state, obviously, capital being a priority and preserving the balance sheet. But any updates there or anything capital light or anything else being explored around those assets?

Yes. I mean we're still obviously, the top priority, as I mentioned, is revenue cost structure and getting back to profitability. But we do have some, obviously, minimal spend to maximize what we can do in terms of developing the dry electrode, the solid state, continuing the development of IP. So what we're doing really just in the background, we're developing partnerships. We have interested parties, obviously, in what we're doing. It's a tricky time in terms of batteries. It's -- what's happening outside of China is becoming more and more difficult. So having technology is very important, and it's not lost on anyone trying to do something domestically. So we continue to develop the supply chain to develop the partnerships, and we look forward to being able to announce something really meaningful in the future here.

[Operator Instructions]. There are no further questions at this time. I will now turn the call back to Denis Phares for closing remarks.

Thank you all for joining us today. We look forward to sharing more updates with you in the coming quarters.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Dragonfly Energy Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. This call is being recorded on Monday, March 16, 2026.

I would now like to turn the conference over to Szymon Serowiecki, Investor Relations. Please go ahead.

Thank you, operator. Appreciate you joining us for today's call. Joining me here today, Dr. Denis Phares, Dragonfly Energy's Chairman, President and Chief Executive Officer; and Wade Seaburg, Chief Commercial Officer.

On the call today, we will be discussing fourth quarter and full year 2025 financial and operating results. These results are preliminary as they are subject to finalization and adjustment in connection with the preparation of our annual report on Form 10-K for fiscal 2025 to be filed later this month. More detail is provided in the press release.

Before I turn the call over to Denis, I'd like to make a brief statement regarding forward-looking remarks. During this call, the company will be making forward-looking remarks within the meaning of the United States Private Securities Litigation Reform Act of 1995 based on current expectations. 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 measures can be found in as released on the company's website. Please note that all comparisons will be discussed today are on a year-over-year basis unless otherwise noted.

I'll now turn the call over to Denis.

Thank you, Szymon, and thank you, everyone, for joining us today. First, I'd like to take a moment to reflect on the meaningful progress Dragonfly Energy has made in 2025. Throughout the past year, we focused on strengthening our financial foundation, expanding our commercial footprint and validating our technology across multiple industries. We believe these efforts have positioned Dragonfly Energy to capitalize on the opportunities we see ahead. A key priority is strengthening our balance sheet and capital structure.

During 2025, we completed several capital raising transactions, including a significant debt restructuring that materially improved our liquidity position and simplified the balance sheet. Importantly, these actions provided the financial flexibility needed to focus on operational execution and support our commercial growth initiatives. For the full year, net sales increased 16% to $58.6 million, primarily driven by growth in our OEM channel, where revenue grew 34% year-over-year.

This performance was driven by continued integration of our lithium power systems across a growing number of RV OEMs despite ongoing pressure in the broader market. One of the most notable developments during the year was our progress in the heavy-duty trucking industry. After an extended pilot program, Werner Enterprises one of the largest fleets in North America placed its first order of our Battle Born DualFlow power pack in the fourth quarter.

We believe the transition from pilot testing to a commercial order represents a meaningful validation of the technology and highlight the operational benefits our system can deliver to fleet operators. While this market has not yet contributed material revenue, the progress we have made positions us well to benefit as truck orders begin to normalize. At the same time, we continue to expand our reach into adjacent industries including industrial, marine and rail, while introducing new products that extend the Battle Born ecosystem.

Wade will discuss these developments in more detail in a moment. Alongside this commercial progress, we also advanced our intellectual property portfolio, which now includes almost 90 issued or pending patents across battery technology, system integration capabilities and proprietary software. This growing IT foundation supports the long-term development of our advanced battery technology and reinforces our position as a provider of integrated power solutions. As our customer base has continued to evolve toward OEM trucking and industrial markets, we felt it was important to also align the company's cost structure with these growth priorities while ensuring that incentives across the organization remain closely aligned with long-term shareholder value.

Earlier this month, we implemented a series of actions to strategically realign our cost structure. The initiative includes several key elements. At the leadership level, members of Dragonfly's executive leadership team and Board of Directors have agreed to reduce their cash compensation by approximately 20% for the remainder of fiscal 2026 effective April 1, 2026. In lieu of cash compensation, they have received equity-based incentives directly aligning leadership compensation with long-term share price performance and reinforcing our commitment to creating value for shareholders. This action underscores the confidence we have in our ability to drive long-term shareholder value. We are also implementing targeted workforce and compensation adjustments designed to reduce overall payroll expenses. These actions include a combination of selected workforce reductions and salary adjustments which are expected to reduce our overall payroll expense by approximately 20%.

Nonexecutive employees have received equity-based compensation, again, better aligning our employees with shareholders. Third, we are reducing discretionary spending across the organization as we shift resources toward OEM, trucking and industrial markets, areas where we see the strongest commercial opportunities. This includes a reduction in DTC focused marketing spend. Taken together, these actions are expected to generate annualized cost savings of approximately $4.9 million.

We also expect an additional expense reduction of $4.0 million through consolidation of rental space. Collectively, this results in an annual increase in adjusted EBITDA of $8.9 million. Importantly, we believe the organization is now appropriately sized while still retaining the resources needed to support disciplined growth as the business scales. As outlined in our release, we believe these changes help position the company to reach positive adjusted EBITDA, which we expect to achieve as the business approaches an annual revenue run rate of approximately $70 million.

Ultimately, the actions we have taken, including strengthening the balance sheet, expanding our commercial partnerships and aligning our cost structure are intended to support our path toward achieving positive adjusted EBITDA as the business continues to scale while also aligning the entire organization with shareholders of our company.

With that, I'll turn the call over to Wade.

Thank you, Denis. I'd like to spend a few minutes discussing the progress we're seeing across our commercial markets. particularly in heavy-duty trucking and the adjacent industries where Dragonfly Energy continues to expand its presence. Starting with trucking. As we have highlighted in previous calls, we believe the heavy-duty trucking market represents one of the most compelling long-term opportunities for Dragonfly Energy.

Fleets are increasingly focused on reducing fuel consumption, lowering operating costs and improving driver comfort while navigating tightening emissions regulations. The commercial opportunity we have been building remains intact. Though the time line for meaningful revenue contribution has extended beyond what we initially anticipated. While this revenue is not yet reflected in our guidance for Q1 2026, fleet engagement continues to progress. We are now beginning to see larger commitments emerge as fleets move beyond evaluation phases. As we progress through 2026, several fleets are working toward deployments involving hundreds of trucks per fleet, reflecting growing confidence in lithium-powered auxiliary power systems as a practical solution for reducing idling and improving operational efficiency.

In the fourth quarter of 2025, we announced a major commercial milestone with Werner Enterprises. Following a successful long-term pilot, Werner Enterprises placed an initial production order for our Battle Born DualFlow power pack solutions. This represents the largest fleet deployment of our systems to date and provides important validation for the technology in real-world commercial operations. The program demonstrates how fleets can reduce idling, lower fuel costs and improved driver comfort while maintaining uptime. Importantly, this order was placed during a prolonged freight recession, in which many carriers are delaying capital spending, reflecting the real-world value our systems deliver.

The Battle Born DualFlow power pack, which is one of our key products for this industry, also received external recognition during the year when it was honored with the Seal Sustainable Product and Innovation Awards, which highlight innovative technologies delivering measurable environmental impact. This recognition highlights the operational and environmental benefits the system is designed to deliver. Our solutions significantly reduced diesel idling during driver rest periods and in many deployments, fleet have seen idle time reduced by nearly 70%, preventing an estimated 10 to 12 metric tons of CO2 emissions per vehicle annually when deployed at scale. Turning to the RV market.

We ended 2025, having notably expanded our OEM footprint with Battle Born batteries now standard across select model lineups, Airstream, Awaken RV and Ember RV. These partnerships reflect growing OEM recognition of the value our integrated lithium power systems deliver, and we expect these relationships to continue deepening in 2026. Beyond RV and trucking, we are seeing encouraging traction in several adjacent markets. A notable example is the rail sector, where the American Railway Engineering and Maintenance of Way Association, AREMA, recently approved the industry's first lithium battery standard. This development is important because it provides rail operators with a clear framework for evaluating lithium-based energy storage systems across communications and signaling infrastructure, an area that has historically relied on legacy battery technologies. Following this milestone, our partnership with National Railway Supply has begun introducing Dragonfly Energy's lithium battery systems into the rail market, positioning us to support the industry's transition toward more advanced and reliable energy storage solutions.

We are also seeing progress in the marine market through our partnership with World Cap, a leading manufacturer of power catamaran. Following successful deployments across earlier models, World Cat expanded the integration of Battle Born Power Systems into additional platform, reinforcing the reliability of our technology and demanding marine environments. More broadly, we continue to expand the Battle Born ecosystem through new solutions designed for commercial applications, including industrial power stations and integrated solar offerings that complement our energy storage systems. Across these markets, we are seeing a consistent theme.

Customers are looking for reliable, efficient power solutions that integrate seamlessly into their operations. We believe Dragonfly Energy's ability to combine battery technology, system integration and domestic manufacturing positions us well to serve those evolving needs.

With that, I'll turn the call back to Denis.

Thank you, Wade. Turning now to our fourth quarter preliminary financial results. Net sales in the quarter grew 6.9% to $13.1 million, driven by strength in our OEM channel. OEM revenue increased approximately 30% year-over-year as manufacturers continued integrating our lithium power systems at the factory level, and we continue to expand our customer base.

DTC revenue declined to $4.7 million from $5.7 million, reflecting continued market headwinds and our changing corporate focus. As we have discussed previously, our long-term growth strategy increasingly centers on OEM partnerships where we can deliver integrated solutions at scale. Fourth quarter gross profit was $2.4 million with a gross margin of 18.2% compared to gross profit of $2.5 million with a gross margin of 20.8%. Operating expenses increased 29.9% to $12.6 million, which includes onetime expenses due to the debt restructuring. Net loss was $45 million versus a net loss of $9.8 million and net loss per share was $14.92 compared to a net loss of $13.89 per share.

Adjusted EBITDA was negative $3.8 million compared to negative $2.3 million. For the full year, net sales increased 16% to $58.6 million, driven by 34% growth in OEM revenue. Gross margin improved 370 basis points to 26.7% as higher production volumes supported better utilization of our manufacturing operations and adjusted EBITDA improved to negative $11.4 million from negative $18.5 million. Looking ahead to 2026, our priorities remain consistent. We plan to continue expanding OEM partnerships, pursuing opportunities across our commercial markets and improving operational efficiency across the organization.

In the near term, First quarter results will reflect continued pressure from the broader economic environment, which has been particularly evident in our core RV market, especially in January as well as a slower than anticipated ramp in our Trucking segment. Since then, activity has shown signs of stabilizing. As a result, we expect the first quarter revenue to be approximately $9.5 million and adjusted EBITDA loss to be $4.6 million. As the year progresses, we expect to see improved operating leverage across the business as we continue to work towards achieving positive adjusted EBITDA.

While near-term market conditions remain challenging, we believe the actions we have taken over the past year have meaningfully strengthened our foundation and positioned Dragonfly Energy for improved operating leverage as our commercial channel scale. These initiatives also support our path towards positive adjusted EBITDA and more closely align the company's leadership and all of our employees with our shareholders.

With that, operator, we can now open the line for questions.

[Operator Instructions] Your first question comes from Chip Moore of ROTH Capital.

Denis, I wanted to ask maybe if you could expand on RV OEM market, I think you called out a weaker January, but some more encouraging signs after that. Maybe you can speak to what you're seeing in that market here through the start of March.

Yes. Thanks for your question, Chip. I think I'll let Wade take that one.

Yes. No problem. Thanks, Chip. Happy to answer. Yes, we saw a less -- and this is reflected in RVIA's numbers that they put out for January as well. So we saw a demand not as strong as OEMs had thought going into January, which necessitated them to rightsize their inventory a little bit and get it more in line with where demand numbers were for January. However, in February and the first half of March, we've seen some recovery in that. The other thing that I would add is we're seeing a lot of interest in expanded capacity, energy storage capacity for model year change.

So we anticipate expansion within our existing OEMs. So it's -- I think they're projecting a flat market RVIA on a whole with regards to RVIA or with regards to the overall demand. However, we're going to see expansion within our energy storage footprint in RV.

That's helpful way. I appreciate it. And maybe for my follow-up, on heavy-duty trucking, that market obviously has been weak for some time. But I think most forecasters are looking for a bit of a pickup and probably some pent-up demand as well in the back half of the year. if that's what you're anticipating? And what you would expect in terms of a revenue ramp sort of more back-half weighted? Any color there?

Yes. That sentiment aligns very much with what our conversations are with our largest and midsized fleets. We're seeing capital expenditures start to happen again when they've gone through years of just not buying capital equipment. And then the other thing that, I mean, in that market is the 2027 engines are being released for the new NOx emissions, and those engines are showing higher idle rates, which is making our product even a stronger relevancy to their capital expenditures. So I anticipate a very exciting second half of the year for duty truck.

Great. Sorry, one last one. Just maybe the -- it sounds like you're deemphasizing or deprioritizing the DTC business. Just should we think about that as sort of declining modestly from here? Or how would you think about that side of the...

Yes, Chip, we've seen pretty much a steady decline in our DTC revenue for several years now actually. So it really is just a continuation of that steady decline. And because we've seen so much growth with our systems, the fleets, the OEMs, it just makes more sense to really put a lot of our focus, both in terms of marketing spend and product development spend in those buckets.

Your next question comes from Leanne Hayden from Canaccord Genuity.

To start, I was hoping you could just elaborate a bit on some early customer feedback you've received on your expanded product lines, the Battle Born solar panels came out more recently, but any color there that you could provide would be helpful.

Thanks for the question, Leanne. Yes, we've been moving in the direction of full systems, both in terms of our industrial customers and our RV OEM customers. So it really helps us to expand the per unit cost because now we're providing not just the batteries but the entire system in terms of the accessories, that's where that has really paid off. But Additionally, we do see some uptick in revenue in most of our segments because of these new products. Some people -- some customers buy them individually. But I would say the biggest boon for us is the incorporation in full systems.

Got it. Okay. Yes, that's very helpful. Just as a follow-up, curious if you could speak on your exposure to the recent lithium carbonate price volatility. I understand that you have kind of a unique battery chemistry and manufacturing process. So maybe to what degree those might insulate you from recent cost increases?

Well, the industry as a whole is susceptible to increases in the raw components, including lithium carbonate. To date, we have not experienced that, but it's not certain that we won't have potentially a slight increase moving through the year. But it is something that we feel we'll be able to incorporate as lithium carbonate in general, is a relatively small component of the battery pack as a whole. Nevertheless, the raw component materials have been volatile. And so it's likely that the entire industry is going to see some fluctuation over the next 12 months.

Yes. Yes, that's really makes sense. I'll just sneak in one more, if I could. I appreciate all the color you provided on cost down initiatives. That's great. Curious if you could help us think about cash burn throughout 2026 a bit more?

Well, these cuts certainly help with that. So we've been obviously very cognizant as to our cash levels for some time now. We managed to address the balance sheet issues late last year when we raised when we raised the funds. But moving forward, we really are focused on our P&L. We're focused on making sure that our spend continues to reduce. And we do see a significant increase moving forward in some of these adjacent markets. And as Wade noticed, even in our RV OEM markets, a greater uptake of our systems. And therefore, we do see some improvement for sure in terms of our cash flow going through the year.

There are no further questions at this time. I would hand over the call to Denis Phares for closing remarks. Please go ahead.

Thank you, everyone, for joining us today. We look forward to sharing additional details with you in the coming quarters. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good afternoon, and welcome to Dragonfly Energy's Third Quarter 2025 Earnings Call. [Operator Instructions] I'll now turn the call over to Szymon Serowiecki, Investor Relations. Please go ahead.

Thank you, operator. Appreciate you joining us for today's call. Joining me today are: Dr. Denis Phares, Dragonfly Energy's Chairman, President and Chief Executive Officer; and Wade Seaburg, Chief Commercial Officer. Tyler Bourns, Chief Marketing Officer, is also available for Q&A.

Before I turn the call over to Denis, I'd like to make a brief statement regarding forward-looking remarks. 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. 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. Please note that all comparisons that will be discussed today on a year-over-year basis unless otherwise date. I'll now turn the call over to Denis.

Thank you, Szymon, and thank you, everyone, for joining us on this Friday afternoon. We know this is an unusual time for an earnings call but as many of you have seen, we have had an exceptionally busy and productive period leading up to today's announcement.

In the third quarter, we continued our return to strong year-over-year revenue growth with sales increasing 26% to $16.0 million. Our gross margin expanded by over 700 basis points to nearly 30%, driven by operational improvements and positive product mix. Together with disciplined cost control, this led to a $3.3 million improvement in adjusted EBITDA.

Just as importantly, this was a quarter defined not only by financial performance, but by business execution. Beyond our financial results, we successfully executed a comprehensive capital raising and debt restructuring that fundamentally reshaped our balance sheet and greatly improved our liquidity.

Since July, we raised approximately $90 million in gross proceeds through 3 unstructured common equity offerings. Then in early November, we finalized a transformative restructuring of our term debt. This restructuring of our debt included a $45 million prepayment, $25 million of debt converted into preferred equity and the forgiving of $5 million outright. As a result, our total debt principal now stands at only $19 million which carries a significantly lower interest rate and extended covenant flexibility through 2026. Achieving this level of balance sheet improvement in just a few months reflected strong execution and confidence from both our lenders and investors.

These decisive actions represent an important inflection point for Dragonfly Energy. In addition to the financial benefits, we believe our improved balance sheet sends a strong signal to current and potential customers about the company's stability and long-term financial health as our previous financial condition influenced some customer decisions and adoption time lines. With these actions behind us and a strengthened balance sheet, we can now dedicate more time and resources to business growth.

In short, we have established a much stronger financial foundation and significantly enhanced our capital structure. We are now positioned to allocate resources toward near-term revenue opportunities strategic investment in our proprietary technology and continued expansion into adjacent markets. For the first time as a public company, we feel we are playing offense. Now I'd like to turn the call over to Wade to discuss our activities and accomplishments in our key end markets. Wade?

Thanks, Denis. I'd like to focus on the strong momentum we are building in our OEM business and how our strategic approach is driving results in our key markets. In the RV market, we expanded our OEM footprint through several notable partnerships. Our partnership with Airstream which we announced on our last call, continues to gain momentum. Battle Born Batteries are now standard across Airstream's 2026 motorized models, reinforcing our position as a trusted supplier in the premium RV segment.

We also announced 2 new important partnerships during this quarter. In August, we announced our partnership with Awaken RV, a newly launched manufacturer founded by industry veteran, Scott Hubble. Awaken selected Battle Born Batteries as the standard lithium power solution across their entire debut lineup of molded fiberglass trailers, recognizing our ability to deliver the safe, reliable and long-lasting power that off-grid travelers demand.

Then in September, we expanded our long-standing partnership with Ember RV making Battle Born Batteries standard across its 2026 Overland Series with factory-installed systems delivering up to 7-kilowatt hours of power, Ember has relied exclusively on our batteries since their founding in 2021 and this latest expansion demonstrates their continued confidence in our technology and our ability to adapt to continuously evolving OEM needs.

Our RV partnerships span premium brands like Airstream, innovative new entrants such as Awaken RV and established partners like Ember RV, underscoring our position as a leading provider of high-performance lithium power solutions across all market segments. Importantly, while the overall industry remains challenged, we are consistently gaining market share through deepening integration with existing partners and wins with new manufacturers.

Turning to heavy-duty trucking. We continue to gain traction in a market where current capital investment remains constrained. Several fleets that completed pilot programs have expanded into additional units after experiencing measurable gains and idle reduction, fuel savings and driver comfort. In particular, we recently began receiving production orders from a large nationally recognized fleet following a long-term pilot of our lithium power systems designed for idle reduction and hotel load support.

These orders reflect the continued expansion of our solutions into real-world operations with meaningful customer validation emerging from pilot programs. We expect to make an announcement soon. Our collaboration with PACCAR, one of the most respected commercial truck manufacturers in the world and the only American-owned Class 8 truck manufacturer is another important milestone in this segment. Earlier this year, PACCAR completed independent testing of our lithium power systems at their technical center. The systems were evaluated under the worst-case idle reduction conditions, and the results formed the basis of a jointly co-authored Whitepaper focused on practical lithium power solutions that reduce idling, fuel costs and maintenance for Class 8 fleets.

We debuted the Whitepaper at the battery show where it was reviewed by industry technology leaders, and it has continued to attract attention across the sector. At the ATA MCE conference in October it became a frequent topic of discussion among carriers and system integrators who are searching for commercially viable electrification solutions that can withstand real fleet demands. We believe this collaboration provides credible third-party validation of our technology under demanding conditions and it has increased our visibility with large fleet operators who are exploring practical and cost-effective paths to electrification.

As we have said before, we believe this significant adoption in heavy-duty trucking is a matter of when, not if, with growing validation from respected OEMs and leading fleets, we believe Dragonfly is well positioned to capture meaningful share as this market turns.

Now I will turn the call back to Denis to discuss key technology developments, third quarter financial results and our fourth quarter outlook.

Thanks, Wade. Our commercial traction aligns with continued advancements in our technology platform. During the quarter, we expanded our intellectual property portfolio with 2 newly granted United States patents. The first strengthens our proprietary Dragonfly IntelLigence platform and enables more robust data exchange, improved system reliability and advanced performance across mobile and stationary applications.

The second patent advances our Wakespeed charge control technology and supports high-power vehicle to trailer charging and broader system integration. With approximately 100 filed pending or granted patents, our IP portfolio reinforces our evolution into a complete power systems provider. I also want to reinforce our domestic manufacturing capabilities which continue to differentiate Dragonfly in today's volatile trade environment.

With final assembly completed at our Nevada facility, we maintain greater control over quality cost management and production time lines. During the quarter, we received recognition of our domestic manufacturing capabilities through a $300,000 grant from the Nevada Tech Hub, this nondilutive capital is supporting modernization initiatives, including upgrades to key manufacturing lines and is expected to generate 6-figure annual savings while enhancing efficiency and scalability.

As a Nevada-based company with a 400,000 square foot manufacturing facility in Reno, we are proud to contribute to the state's vision of building a complete lithium loop from domestic battery manufacturing to recycling.

Now turning to our third quarter results. Net sales grew 26% year-over-year to $16 million, reflecting a 44% increase in OEM net sales. Within our OEM segment, adoption trends in our core RV market remain healthy. Existing partners are integrating our solutions across additional model lineups while we continue to add new manufacturers to our customer base.

Net sales to DTC customers totaled $5 million compared to $5.2 million, reflecting continued macroeconomic headwinds. Third quarter gross profit increased an impressive 65% to $4.7 million, with gross margin expanding 710 basis points to 29.7%. This substantial margin improvement reflects increased volumes, product mix and operational efficiencies achieved through our corporate optimization program.

Operating expenses decreased to $8.5 million from $8.9 million. Net loss was $11.1 million versus a net loss of $6.8 million and net loss per share was $0.20 compared to a loss of $0.98 per share. Adjusted EBITDA improved to negative $2.1 million from negative $5.5 million, reflecting continued strength in the OEM segment and gross margin expansion.

Turning to our outlook for the fourth quarter of 2025. We expect net sales of approximately $13 million, representing a growth of approximately 7% year-over-year in our seasonably slowest quarter. We are forecasting adjusted EBITDA of approximately negative $3.3 million. While we had initially targeted adjusted EBITDA breakeven by year-end, we have made substantial progress towards this objective against a much more challenging backdrop than we anticipated characterized by a volatile tariff environment that extended the freight recession, macroeconomic uncertainty and the government shutdown that impacted our industrial customers, some of which rely on government funding.

Despite these challenges, we have fundamentally strengthened our balance sheet and expanded our OEM footprint, providing a solid foundation for execution in 2026. We remain confident in our ability to achieve profitability as we continue executing on our growth initiatives.

To summarize, this was 1 of the most strategically important quarters in our company's history. We strengthened our balance sheet, secured meaningful validation in heavy-duty trucking, expanded OEM penetration and improved our margin profile. These achievements reflect disciplined execution across our commercial, operational and financing strategies.

With a stronger financial foundation, and real momentum across our end markets, we are well positioned to capture the opportunities ahead. We remain focused on operational discipline, margin expansion and executing against a clear strategy that moves us toward profitability and we are confident in our ability to create long-term shareholder value.

Operator, we would like to open the call to questions.

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

Maybe to focus first just on the guidance a little bit for Q4 as to which segment of the business is dragging down sequentially, the revenue is it -- the OEM business that's sort of impacting the Q4 outlook?

George, thanks for the question. Yes, the -- it's an interesting economic environment we're in right now. And I would say in terms of our OEM business, Q4 is always the slowest quarter by seasonality. We've got a number of days off on the holidays. So that's not unexpected. There may be a little bit less than what we expected in the OEM segment but really, what's happening is we don't have as much visibility in the DTC segment.

And DTC is typically strongest in the fourth quarter. We got the Black Friday sales coming up. And given the macroeconomic conditions now and the low consumer sentiment, we're just trying to be cautious because we really don't have a lot of visibility there. Also included in the DTC segment, we have a number of industrial customers that have basically shut down due to the government shutdown. So just a number of things really led to us being a little bit more cautious with our guidance.

Right. And maybe assuming a return -- I'm not asking for '26 guidance necessarily but assuming a normalization from the consumer, is it fair to say we can look for significant growth in 2026? And how you're thinking about the year as far as perform and shape of 2026.

Yes. We're pretty confident about 2026. Not only do we expect more of a return to normality but we're also expanding into those new segments. So there's not a lot -- for example, the trucking business that we're starting to break into right now is going to be the primary growth driver in 2026 for us. So obviously, when you break -- when you're growing from a very low number into a completely new business segment that's where we expect to be the most tangible growth.

Got it. And in terms of -- can you help us sort of rightsize our mind in terms of where the balance sheet where the cash sits today after these transactions, where the share count sits today? Just trying to understand how to sort of have a real-time snapshot of your assets and your share count?

Well, I mean, my goodness, it's night and day from where it was. Our balance sheet, quite frankly, was a significant hindrance to us in terms of business growth. And I'm not even talking just our inability to invest as much as we wanted in near-term growth opportunities. But a lot of these new fleets, for example, or new customers that are these large fleets, they're public companies.

And obviously, they're going to look at our balance sheet and that's going to influence their decision. And so -- everybody likes the products. Everybody knows we're an innovative company, and it's really difficult for them to really commit the way that it has been. And now with this turnaround, for the first time as a public company, we've been able to alleviate the going concerns. It really puts us in a completely different situation allows us to really invest in the growth that we've been expecting over the last, honestly, 12 months.

And maybe just I understand the numbers, though, Denis, how much cash do you have on the balance sheet now? Because these transactions happened after the end of the quarter. So can you just sort of update us on the proper share count for our models -- proper cash for our models, et cetera.

So there's about 125 million common shares -- 121 million shares, and a pro forma cash balance after the debt paydowns and everything is on the order of $30 million.

$30 million. Okay. Great. And maybe just to talk about -- it'd be my last question, with some of the growth initiatives that you're able to put in place now that the balance sheet has been fixed essentially. What are the sort of things that you were able to do from a customer perspective to expand your -- and accelerate our growth in 2026?

Well, for example, we've had a pretty lean outside sales team, and we've been trying to expand into these large markets, the trucking market, for example. But also, we talked a lot about the oil and gas market for a long time. We have -- we believe; the only Class 1 Div 2 lithium-ion battery certification on the market.

And we have not been able to invest in growth into that segment, which we believe is an enormous opportunity. And there's been changes in the past, there were changes how natural gas is treated. But nevertheless, even though it affected what we were doing in terms of methane reclamation, there's still large opportunities for storage in that segment because it's primarily dominated by lead acid batteries.

So there's a ton of meat on the bone that we really haven't been able to invested in terms of specifically manpower. But also, we've been able to invest more in product development as well. And that's really where we put a lot of our cash this year to really try to get that new OEM business and try to accelerate trucking. So our product development will also be able to accelerate with new resources.

Congratulations on all the good work you've done over the last couple of months.

Your next question comes from Chip Moore of the ROTH Capital.

Denis, I wanted to echo congrats on the debt restructuring, right, clearly, understandable that that's been a hindrance on the commercial side. So maybe just expand on your comments about facing some headwinds there. I know it's early, right? It's only closed a week ago. So how are you thinking about early feedback from potential customers, whether it's fleets or OEMs? Is this more so to think about capital budgets for next year. And with this comfort, that really helps? Or just what are the conversations you're having?

Well, it was like a flip of the switch really. I mean, we're starting to get POs now. I mean you've got to consider the fact that as a vendor, our balance sheet is going to be a large part of what customers look at. It's not just the product and the benefits of the product, but also our long-term viability as a company.

And I think that what we've been able to accomplish in a very short period of time, has basically taken that out of the conversation. And now the focus is on the product itself and on the ROI and driver comfort and the ability of fleets to operate more efficiently now.

It really is a game changer in terms of the fact that the conversations have completely changed over now to how do we get going with these projects.

That's great. And a follow-up there, Denis, maybe you talked about EBITDA breakeven. Obviously, you need some more volume but it sounds like the outlook here for next year is getting better, you'll also have quite a bit lower interest expense as well, right? So just any more thoughts there? And then as you do hit breakeven, how are you thinking about some of the other growth areas, dry electrode and some of those -- any update there?

Yes. So you're right. We need more volume to get back to where we anticipated we would be. But the stage is set because we are getting better gross margins. We're operating more efficiently, we've gone through an optimization program to really set the stage for our ability to be profitable again. So all these things are very, very good things and driving volume is our #1 priority, and that's how we get back to profitability.

Of course, we continue to make progress on the dry electrode and even on the solid state chemistries but the top priority is getting back to profitability. And we're not going to jeopardize the long-term health of the company by overspending on those initiatives but we are making progress.

We continue to make progress. And of course, with the extra resource that we have, that progress will be accelerated.

Very clear. And maybe just the last one, just the government shutdown impacts, right? I imagine it's not massive, but as that abated here as things have opened up, hopefully, we don't get another one shortly, but yes.

I think it's a little early to see what the overall ramifications are since we just opened up again. But we do have important customers that were unable to follow through with some relatively meaningful projects because of the government shutdown. So we're keeping an eye on that. And obviously, we've taken that into consideration with the guidance for this quarter.

There are no further questions at this time. I would hand over the call to Denis Phares for closing remarks. Please go ahead.

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, and you may now disconnect.