Dragonfly Energy Holdings Corp. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Dragonfly manufactures and sells lithium iron phosphate (LFP) battery packs and accessories, primarily for recreational vehicles, marine vessels and off-grid uses, while developing dry-electrode cell manufacturing and solid-state battery technology.
Key financial results
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $64.4 million | $86.3 million |
| Gross profit / margin | $15.4 million / 24.0% | $23.6 million / 27.4% |
| Operating loss | $27.4 million | $34.4 million |
| Net loss | $13.8 million | $40.0 million |
| Adjusted EBITDA (non-GAAP) | $(17.1) million | $(7.9) million |
| Cash from operating activities | $(17.7) million | $(45.7) million |
| Cash from investing activities | $(6.9) million | $(6.8) million |
| Cash from financing activities | $19.5 million | $41.7 million |
- Sales fell 25.3%. Direct-to-consumer revenue declined to $36.9 million from $52.4 million; OEM revenue declined to $27.5 million from $33.8 million. OEMs contributed 42.7% of 2023 sales.
- Gross margin contracted as lower volume reduced absorption of labor and overhead, sales mix shifted toward lower-margin OEM business, and material costs rose. Operating expenses declined, including because 2022 included substantial business-combination costs.
- Net loss narrowed substantially, but this was not evidence of improved operating profitability: results included $29.6 million of noncash income from the change in fair value of warrant liabilities, while operating loss remained $27.4 million and adjusted EBITDA worsened.
- Cash and cash equivalents were $12.7 million at year-end, down from $17.8 million. Working capital was $15.5 million. Inventory declined $11.4 million to $38.8 million.
- The company reported $69.7 million of term-loan principal plus $6.1 million of payment-in-kind interest at year-end. Its debt carrying amount was $19.7 million after unamortized discounts, but the entire carrying amount was classified as current because of covenant issues. The loan is secured and bears high, partly cash-pay and partly payment-in-kind interest.
Material changes and business developments
- Demand weakened amid inflation and higher interest rates, reducing RV and marine sales. In July 2023, Keystone stopped installing Dragonfly’s storage solutions as standard equipment and returned to offering them as an option, materially limiting 2023 revenue.
- The company sold 64,906 batteries in 2023 versus 96,034 in 2022, according to the Business section. The MD&A gives a different 2023 unit figure—64,096—so the filing does not provide a consistent value.
- Dragonfly raised approximately $20.7 million net in a June 2023 offering of common shares and warrants, and repaid approximately $5.3 million of term-loan principal in July. It issued 588,500 shares under its equity facility in 2023 for approximately $1.3 million net proceeds.
- Dry-electrode pilot-line construction was completed in July 2023; the company reported producing anode material at scale in August and cathode material in October. It was producing sample cells and expected to begin scaling production in the second half of 2024. Solid-state work remained in development, with coin-cell testing underway and prototype pouch cells targeted by year-end 2024.
- A new 390,240-square-foot Reno facility reached substantial completion in March 2024, triggering rent obligations; the company also entered a 64,000-square-foot Fernley lease in April 2024.
Outlook, risks and unusual items
- Management outlook: Based on customer discussions and current unit forecasts, management expected RV-market revenue to increase in 2024 and gross margin percentage to remain relatively stable over the next 12 months. It expected general and administrative expenses as a percentage of revenue to decline. These are expectations, not quantified company-wide revenue or earnings guidance.
- The company expects to spend more than $50 million over the next two to three years on solid-state development and cell-manufacturing technology. It says additional capital will be needed for operations, R&D and expansion; financing may be unavailable or dilutive.
- Going concern: Management said covenant failures were probable within the next 12 months. Lenders waived certain covenant failures for 2023 quarters and waived a liquidity failure for the quarter ended March 31, 2024. The auditor included a going-concern explanatory paragraph, citing operating losses, negative operating cash flow, likely future covenant noncompliance and insufficient resources to repay the loan.
- Covenants and liquidity: Failure to comply without a waiver could allow lenders to accelerate the secured term loan. The company had received multiple waivers and issued lenders penny warrants in connection with the December 2023 waiver.
- Tariffs and controls: The company revised its 2022 financial statements for tariff underpayments and disclosed approximately $1.58 million of underpaid tariffs identified in 2024, reported to U.S. Customs and Border Protection. The filing says the prior-period error was immaterial, but management reported ineffective disclosure controls and an unremediated material weakness related to capturing, recording and paying tariffs correctly.
- Other key risks: dependence on two China-based cell suppliers and one China-based battery-management-system supplier; reliance on a primary manufacturing facility; execution and financing risks in scaling new facilities and solid-state technology; customer and RV-market concentration; potential dilution from equity facilities, warrants and registered resales; and Nasdaq’s December 2023 minimum-bid-price notice. The filing stated the compliance period ran through June 10, 2024.
- There is no material litigation reported. A full $19.6 million valuation allowance was recorded against deferred tax assets. The first tranche of merger earnout shares was not earned because the 2023 revenue and operating-income milestones were not met.
Important facts for investors to verify
- Reconcile the 2023 battery-unit figures (64,906 in the Business section versus 64,096 in MD&A) and the gross-margin presentation (24.0% in the results table versus 23.1% in the accompanying narrative).
- Confirm current cash, operating cash burn, financing availability and ability to meet the term-loan liquidity and other covenants; assess the going-concern warning and subsequent lender waivers.
- Track the actual tariff liability and any additional CBP assessment or penalties, and whether the tariff-related control weakness has been remediated.
- Assess the status, cost and funding of the new facilities, dry-electrode scale-up and solid-state development against management’s stated timelines and investment plans.
- Evaluate potential share dilution and market overhang from the ChEF equity facility, outstanding warrants and registered resale shares, as well as the company’s Nasdaq listing compliance status.