Dragonfly Energy Holdings Corp. (DFLI) - Q1 2026 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2026. Dragonfly Energy Holdings Corp. manufactures lithium-ion batteries for consumer (Battle Born brand) and OEM markets, with a strategic shift toward trucking and industrial applications. The company operates as a non-accelerated filer and smaller reporting company. A 1-for-10 reverse stock split was effected in December 2025, and all share data is adjusted accordingly.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $9.7 million | $13.4 million |
| Gross Profit | $1.7 million (17.6% margin) | $3.9 million (29.4% margin) |
| Net Loss | $(6.6) million | $(6.8) million |
| Net Loss Attributable to Common | $(7.7) million | $(6.8) million |
| Cash and Equivalents (End of Period) | $8.6 million | $2.8 million |
| Operating Cash Flow | $(8.8) million | $(4.5) million |
| Total Debt (Carrying Value) | $10.3 million | $9.6 million |
| Working Capital | $23.4 million | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 27.3% to $9.7 million, driven by a 29% drop in OEM sales (RV customers right-sizing inventory) and a 26% drop in Direct-to-Consumer (DTC) sales due to macroeconomic pressures.
- Margin Compression: Gross margin fell from 29.4% to 17.6% due to lower unit volumes and increased material costs from tariffs.
- Expense Reduction: Operating expenses decreased 24.4% to $7.4 million, primarily due to a $1.9 million reduction in General and Administrative expenses (lower professional fees and litigation costs) and a $0.5 million reduction in Selling and Marketing expenses.
- Debt Restructuring Impact: Interest expense dropped significantly to $1.5 million from $4.7 million in the prior year, reflecting the October 2025 debt restructuring that converted $25 million of principal into Series B Preferred Stock and reduced the remaining principal balance.
- Warrant Liability: The company recognized a $0.5 million gain from the change in fair value of warrant liabilities, compared to a $3.8 million gain in Q1 2025.
Guidance, Outlook, and Risks
- Going Concern: Management has concluded that substantial doubt regarding the company's ability to continue as a going concern has been alleviated following capital raises in 2025/2026 and debt restructuring, provided they maintain a minimum liquidity covenant of $5.0 million.
- Outlook: Management expects sales to increase over the next 12 months driven by new model year OEM adoptions and expansion into trucking and industrial markets. A purchase order exceeding $3 million from Stevens Transport was received subsequent to quarter-end.
- Liquidity Strategy: The company has an At-The-Market (ATM) equity offering program for up to $50 million. Subsequent to March 31, 2026, the company sold approximately 380,000 shares for net proceeds of $0.8 million.
- Risks: Key risks include compliance with financial covenants (minimum $5M cash), reliance on two cell suppliers in China, potential tariff adjustments, and a pending consumer class action lawsuit (Berdner et al.) alleging design defects in battery terminals.
- Unusual Items: The company recorded $1.1 million in preferred stock dividends (cash and PIK) related to the Series B Preferred Stock issued in the debt restructuring.
Investor Verification Checklist
- Liquidity Covenant Compliance: Verify the company maintains the required $5.0 million minimum cash balance to avoid default on the Term Loan.
- Series B Preferred Stock Terms: Review the redemption obligations and dividend accruals (10% annual, 80% cash/20% PIK) on the $25 million Series B Preferred Stock.
- Legal Proceedings: Monitor the status of the Berdner et al. class action lawsuit regarding battery terminal defects and potential liability exposure.
- ATM Utilization: Track the execution of the $50 million ATM facility to assess future dilution and capital raising success.
- Tariff Exposure: Confirm the final liability amount regarding the previously reported tariff underpayment and accrued interest.