Executive Summary / Key Takeaways

• Strategic Pivot Driving Growth: Dragonfly Energy (NASDAQ: DFLI) is executing a corporate optimization program, successfully shifting resources to near-term revenue opportunities, resulting in three consecutive quarters of year-over-year revenue growth, notably a 23% increase in Q2 2025.
• OEM and Diversification Momentum: Strong OEM partnerships, particularly in the RV sector (50%+ OEM growth in Q2 2025), and significant traction in new markets like heavy-duty trucking and oil & gas, are fueling the company's expansion beyond its traditional direct-to-consumer base.
• Technological Moat: DFLI's proprietary dry electrode manufacturing process, patented solid-state battery advancements, and Dragonfly IntelLigence smart battery platform offer tangible benefits in cost, safety, efficiency, and user experience, creating a competitive edge.
• Strengthened Financial Position: Recent debt restructuring (deferring payments to April 2026, extending maturity to Oct 2027, removing most covenants) and successful capital raises have improved liquidity, providing a foundation for growth despite ongoing going concern risks.
• Path to Profitability: Management targets positive Adjusted EBITDA by Q4 2025, driven by revenue growth, operational efficiencies, and strategic market penetration.

Setting the Scene for Dragonfly Energy's Transformation

Dragonfly Energy Holdings Corp. (DFLI) operates at the forefront of the evolving energy storage landscape, specializing in deep cycle lithium-ion batteries for a diverse range of applications, including recreational vehicles (RVs), marine vessels, solar, and off-grid residences. Founded in 2012 with an early commitment to domestic battery production, the company has grown from selling over 350,000 batteries by 2020 to strategically expanding its footprint through both direct-to-consumer (DTC) sales under the Battle Born brand and robust partnerships with original equipment manufacturers (OEMs) under the Dragonfly brand. This journey has been marked by a continuous drive for innovation and market diversification, positioning DFLI as a key player in the transition from traditional lead-acid to advanced lithium solutions.

The broader energy storage industry is characterized by a rapid shift towards more efficient, sustainable, and intelligent power solutions. This trend is driven by increasing demand for green energy, the electrification of various sectors, and a growing need for reliable off-grid and mobile power. DFLI operates within a competitive arena, facing established giants like Tesla in integrated energy ecosystems, Enphase Energy in solar-integrated storage, Generac Holdings in backup power, and Sunrun in residential solar-plus-storage. While these larger competitors often boast superior financial resources, broader market reach, and more robust cash flow generation, DFLI carves out its niche through specialized product offerings, a strong focus on domestic manufacturing, and proprietary battery technology. The company's strategy is to leverage its technological differentiators and tailored solutions to capture market share in segments where customization, durability, and specific performance metrics are paramount, rather than competing solely on scale or price.

Technological Edge: The Power of Innovation

DFLI's core investment thesis is deeply intertwined with its technological advancements, which provide a significant competitive moat in the rapidly evolving battery market. The company is not merely an assembler of batteries; it is an innovator in battery cell manufacturing and system integration.

At the heart of DFLI's long-term vision is its proprietary dry electrode manufacturing process. This technology is designed to fundamentally lower manufacturing costs and enable domestic production of lithium-ion cells. Unlike traditional wet electrode processes that rely on toxic solvents like NMP and energy-intensive drying steps, DFLI's method involves powder coating a layer directly onto a conducting substrate. This eliminates the need for solvent recovery and extensive drying, leading to a less capital-intensive, more energy-efficient, and smaller manufacturing footprint. The company believes this process offers a substantial manufacturing cost advantage, though specific quantifiable figures are not publicly detailed. Furthermore, this technology supports the production of PFAS-free battery cells and is compatible with high-purity recycled materials, aligning with sustainability goals and potentially enhancing resource efficiency. DFLI contrasts its approach with extrusion-based dry electrode processes (like those from Tesla's Maxwell acquisition), arguing that its direct deposition method is "more difficult to scale" due to the elimination of an extra lamination step required by extrusion. This differentiation aims to provide DFLI with a scalable, eco-conscious pathway to domestic lithium battery production.

Complementing this manufacturing innovation, DFLI is advancing its nonflammable all solid-state battery program. A recently granted patent specifically addresses the preparation of feedstock for solid-state batteries, focusing on the solid-state electrolyte and the precise mixing of composite materials for dry electrode deposition. This patent reinforces DFLI's leadership in advanced battery technology, with the stated goal of enhancing safety, thermal stability, and scalability. While specific performance metrics for these solid-state cells are still under development, the inherent nature of solid-state technology promises benefits such as higher energy density, longer cycle life, and improved safety compared to conventional liquid electrolyte batteries. These advancements are critical for applications demanding extreme reliability and safety, such as heavy-duty trucking and military uses.

DFLI also enhances its current product lines with Dragonfly IntelLigence, a proprietary smart battery platform. This technology enables real-time communication between connected batteries and system components through a robust, hardwired network, allowing users to monitor performance directly via the Battle Born mobile app. This offers tangible benefits over traditional Bluetooth-based systems by providing more reliable data visualization, remote diagnostics, and smarter energy management. The accelerated adoption of IntelLigence among OEMs, with several beta testing for their 2026 model year lineups, underscores its value in optimizing performance and enhancing the user experience.

For investors, these technological differentiators are crucial. The dry electrode process promises lower manufacturing costs, which could translate into higher gross margins and more competitive pricing, particularly as the company moves towards full domestic cell production. Solid-state battery advancements could unlock new high-value markets requiring superior safety and performance, potentially leading to higher average selling prices (ASPs) and premium market positioning. Dragonfly IntelLigence enhances product stickiness and customer satisfaction, fostering brand loyalty and potentially driving repeat business and ecosystem expansion. These innovations collectively strengthen DFLI's competitive moat, allowing it to differentiate beyond price and capture value in specialized, high-growth segments.

Strategic Initiatives and Market Diversification

DFLI's strategic narrative is one of aggressive diversification and operational optimization, designed to capitalize on market opportunities and accelerate its path to profitability. The company's corporate optimization program, launched in collaboration with advisory firm Province, is central to this strategy. It involves a temporary reallocation of resources from longer-term R&D to immediate revenue-generating activities, such as new product development. This strategic shift has already yielded tangible results, including increased automation on production lines, standardized user interfaces, and the consolidation of operations into a new 400,000 square foot facility in Nevada, enhancing manufacturing efficiency without increasing headcount.

A key pillar of DFLI's growth strategy is the expansion of its OEM channel. The company is deepening its relationships with RV OEMs, moving beyond simply supplying batteries to designing and manufacturing complete, integrated energy storage solutions. A notable example is the partnership with Airstream, where Battle Born LiFePO₄ Batteries will be a standard option across select 2026 models, featuring integrated cold weather heating, seamless alternator charging, and solar compatibility. This approach, where OEMs increasingly seek turnkey solutions, plays directly into DFLI's engineering capabilities and domestic manufacturing advantage.

Beyond RVs, DFLI is making significant inroads into the heavy-duty trucking market, a substantial addressable opportunity. Pilot programs for its Battle Born DualFlow Power Pack are showing strong results, with fleets reporting measurable idle reduction and cost savings. This practical hybrid electrification solution, offering an ROI typically under one year, is gaining traction among fleets seeking to balance short-term cost control with long-term sustainability. Management anticipates "significant revenue contributions in 2025" from this sector, with new truck orders expected to ramp up in the first half of next year. DFLI's strategy here mirrors its RV success: engaging directly with fleet operators to demonstrate value, fostering advocacy for industry standardization, and driving momentum with truck OEMs.

Diversification extends to the oil and gas sector, where DFLI achieved a milestone by demonstrating its first off-grid methane reclamation power system. This solution, utilizing Class I Division II certified lithium battery packs, offers benefits such as supplying grid-level power from natural gas compressor packages and replacing outdated lead-acid systems, highlighting new revenue streams.

DFLI has also expanded its market reach through a brand licensing and contract manufacturing agreement with Stryten Energy LLC. This deal grants Stryten an exclusive, worldwide license for Battle Born trademarks in various business-to-business markets, including automotive, marine, and military. While not expected to be a "meaningful" revenue driver in the short term, the initial $5 million licensing fee (received in August 2024) and future mid-single digit royalty payments (capped at $25 million) provide long-term revenue potential. New battery models are slated for production under this agreement in 2025.

The company's commitment to a domestic supply chain is a strategic imperative, particularly in a volatile tariff environment. DFLI's existing offtake agreement for lithium from Ioneer (IONR)'s Rhyolite Ridge Project in Nevada, which recently received federal government approval, supports its long-term vision of vertical integration. This domestic sourcing, coupled with the company's Nevada-based final assembly, provides greater control over quality, cost management, and production timelines, mitigating tariff impacts through negotiated inventory pricing and strategic payment mechanisms.

Finally, DFLI has strengthened its distribution network through partnerships with major players like Keystone Automotive, NTP-STAG, SeaWide, and Meyer Distributing. These collaborations expand its reach to thousands of RV and marine dealers, increasing market access and product availability.

Financial Performance: A Turnaround in Progress

Dragonfly Energy's strategic pivot is beginning to manifest in its financial performance, signaling a potential turnaround. The company has achieved three consecutive quarters of year-over-year revenue growth, a significant milestone after a challenging period. In Q4 2024, net sales increased 17% to $12.2 million, followed by a 6.8% rise to $13.4 million in Q1 2025. This momentum accelerated in Q2 2025, with net sales growing 23% to $16.2 million.

This growth is predominantly driven by the OEM segment, which saw net sales increase over 50% year-over-year to $10.1 million in Q2 2025. This reflects the successful integration of DFLI's solutions into more OEM models and expanding partnerships. In contrast, the DTC segment experienced a decline, with net sales falling from $6.5 million in Q2 2024 to $5.9 million in Q2 2025, primarily due to ongoing macroeconomic pressures impacting consumer discretionary spending. Licensing revenue, stemming from the Stryten Energy LLC agreement, contributed $250,000 in Q2 2025, adding a new revenue stream.

Profitability metrics are also showing improvement. Gross profit increased 45.4% to $4.6 million in Q2 2025, with the gross margin expanding an impressive 430 basis points to 28.3%. This expansion is attributed to higher unit volumes and the consumption of lower-priced inventory, leading to better absorption of fixed manufacturing costs. Operating expenses have been actively managed as part of the corporate optimization program. Research and development expenses decreased 54.7% to $0.7 million in Q2 2025, reflecting a strategic reallocation of resources from longer-term solid-state R&D to near-term product development. General and administrative expenses also decreased 19% to $4.6 million, largely due to reduced legal and professional services.

The impact of these operational improvements is evident in the company's bottom line. Net loss significantly improved to $7.0 million in Q2 2025, compared to $13.6 million in Q2 2024. Adjusted EBITDA, a key metric for the company, improved to negative $2.2 million in Q2 2025 from negative $6.2 million in the prior year period, underscoring the benefits of increased OEM sales and corporate optimization.

From a liquidity standpoint, DFLI has undertaken critical steps to strengthen its financial position. As of June 30, 2025, the company held $2.7 million in cash and cash equivalents. A major debt restructuring in February 2025 extended the term loan maturity to October 2027 and deferred all principal and interest payments to April 2026. Crucially, this amendment removed all financial covenants through June 2026, except for a monthly minimum cash requirement of $2.5 million, allowing the reclassification of the debt as long-term. This was complemented by capital raises, including $7.4 million net from a preferred stock offering in Q1/Q2 2025 and $5.04 million net from a public offering of common stock in July 2025. The company also simplified its capital structure by exchanging all remaining preferred shares for common stock in July 2025, eliminating associated interest payments and potential share dilution. These actions provide DFLI with enhanced financial flexibility to execute its growth strategy.

Outlook and Risks: The Path Ahead

Dragonfly Energy's outlook reflects a cautious yet optimistic trajectory, underpinned by its strategic initiatives and recent financial maneuvers. For Q3 2025, the company anticipates net sales of $15.9 million, representing approximately 25% year-over-year growth, with an expected Adjusted EBITDA of negative $2.7 million. Management notes that Q3 sales are typically seasonally slower than Q2. Looking further ahead, DFLI targets achieving positive Adjusted EBITDA by Q4 2025 for the entire quarter. This ambitious goal is predicated on continued revenue growth, particularly from the expanding OEM and trucking markets, and the sustained benefits of its corporate optimization program and stringent cost controls.

The assumptions supporting this outlook include a continued, albeit modest, recovery in the RV market, where DFLI expects to outperform general industry forecasts due to wider adoption of its products and a trend among OEMs to re-content units with premium features. Significant growth is also anticipated from the heavy-duty trucking and industrial markets, with management expressing confidence in an imminent market turnaround and expanded pilot programs translating into "notable growth" and "significant revenue contributions." The company's domestic manufacturing capabilities are expected to continue providing a competitive advantage, mitigating the impact of volatile tariffs.

However, the path to sustained profitability is not without significant risks. The most pressing concern is the going concern uncertainty. Despite recent financing and debt restructuring, DFLI incurred losses and negative cash flow from operations in the first half of 2025. Management has concluded there is "significant doubt about the Company's ability to continue as a going concern," a sentiment echoed by its independent auditors. This uncertainty stems from the lack of further concessions from lenders and the inherent unpredictability of revenue realization from new markets, necessitating potential additional debt or equity financing.

DFLI also faces Nasdaq delisting risks. The company is not in compliance with Nasdaq's minimum Market Value of Listed Securities ($35 million) and the $1.00 minimum bid price requirements. While an exception has been granted until November 10, 2025, to regain compliance, this is contingent on achieving specific milestones, including debt restructuring/conversion and potentially a reverse stock split. Delisting could severely impact stock liquidity, financing capabilities, and investor confidence.

Macroeconomic headwinds continue to pose a threat, particularly to DTC sales and the broader trucking market, which has seen fleets delay new truck orders due to economic uncertainty and tariff impacts. While DFLI has managed tariff volatility through various mechanisms, it remains an ongoing cost pressure.

In the broader competitive landscape, DFLI, with its TTM gross profit margin of 25.56%, operating profit margin of -41.01%, and net profit margin of -55.84%, lags significantly behind larger, more diversified competitors. Tesla (TSLA), for instance, boasts a TTM gross profit margin of 18%, operating profit margin of 7%, and net profit margin of 7%, demonstrating superior profitability and scale. Similarly, Enphase Energy (ENPH) and Generac Holdings (GNRC) exhibit robust positive margins and stronger cash flow generation. Sunrun (RUN), while also facing profitability challenges (TTM net profit margin of -1.40%), benefits from a recurring revenue model. DFLI's niche focus and smaller scale mean it faces challenges in overall growth rates and market share capture compared to these resource-rich rivals. Its competitive advantage lies in its specialized technology and domestic production, but these must translate into sustained financial performance to close the gap.

Conclusion

Dragonfly Energy is at a pivotal juncture, executing a comprehensive strategic pivot to transform its financial trajectory and solidify its competitive standing. The core investment thesis rests on the company's ability to leverage its proprietary battery technology, expand its OEM partnerships, and successfully diversify into high-growth markets like heavy-duty trucking and industrial applications. Recent financial results, marked by three consecutive quarters of year-over-year revenue growth and improving profitability metrics, indicate that the corporate optimization program is yielding tangible benefits.

While the company has made significant strides in strengthening its balance sheet through debt restructuring and capital raises, the acknowledged "going concern" risk and Nasdaq listing challenges underscore the critical need for continued execution. DFLI's technological leadership in dry electrode manufacturing, solid-state batteries, and smart battery platforms provides a compelling long-term moat, offering advantages in cost, safety, and performance that differentiate it from larger, more established competitors. The successful realization of its Q4 2025 Adjusted EBITDA target, driven by OEM momentum and new market penetration, will be a crucial indicator of its ability to convert strategic initiatives into sustainable financial health and unlock its full potential in the evolving energy storage landscape.