10-Q: Dragonfly Energy Q3 Sales Up, Secures $78.8M Capital

Dragonfly Energy Holdings Corp. reported a 25.5% increase in Q3 net sales and successfully raised $78.8 million in capital post-quarter, significantly restructuring its debt and mitigating going concern doubts.

Summary

• Net sales for the three months ended September 30, 2025, increased by $3.2 million, or 25.5%, to $16.0 million compared to $12.7 million for the same period in 2024.
• Net sales for the nine months ended September 30, 2025, increased by $7.1 million, or 18.6%, to $45.6 million compared to $38.4 million for the same period in 2024.
• Gross profit for the three months ended September 30, 2025, increased by $1.9 million, or 65.0%, to $4.7 million, with the gross profit percentage rising to 29.7% from 22.6% in Q3 2024.
• Gross profit for the nine months ended September 30, 2025, increased by $4.2 million, or 46.0%, to $13.3 million, with the gross profit percentage rising to 29.1% from 23.6% in the same period in 2024.
• The net loss for the three months ended September 30, 2025, was $11.1 million, compared to a net loss of $6.8 million for the same period in 2024.
• The net loss for the nine months ended September 30, 2025, was $24.9 million, an improvement from a net loss of $30.8 million for the same period in 2024.
• Research and development expenses decreased significantly by 64.1% in Q3 and 49.3% for the nine months, reflecting a strategic shift from solid-state to product development.
• General and administrative expenses increased by 21.5% in Q3 and 9.4% for the nine months, partly due to increased headcount for product development and a $0.6 million lease impairment.
• Selling and marketing expenses decreased by 9.4% in Q3 and 7.7% for the nine months due to lower employee-related costs.
• Total other expense increased to $7.3 million in Q3 2025 from $0.8 million in Q3 2024, primarily due to higher interest expense and a negative change in the fair market value of warrant liability.
• Subsequent to September 30, 2025, the company completed two equity financings, raising aggregate net proceeds of $26.9 million (October 6, 2025) and $51.9 million (October 17, 2025), totaling $78.8 million.
• The Term Loan was restructured on October 20, 2025, including a $45.0 million prepayment, $5.0 million debt forgiveness, and conversion of $25.0 million principal into Series B Preferred Stock, reducing the remaining debt to $18.612 million.
• The company regained compliance with Nasdaq's minimum bid price and market value of listed securities (MVLS) requirements as of October 20, 2025.

Sentiment

Score: 7

Explanation: While the company reported a net loss and increased Q3 net loss, the significant increase in sales and gross profit, coupled with successful, substantial capital raises and a major debt restructuring post-quarter, indicates a strong positive shift in financial stability and future prospects. The mitigation of going concern doubts and regaining Nasdaq compliance are critical positive developments.

Positives

• Significant increase in net sales for both the three-month (25.5% to $16.0 million) and nine-month (18.6% to $45.6 million) periods ended September 30, 2025.
• Substantial improvement in gross profit and gross profit percentage, indicating better margins (Q3 2025 gross profit up 65.0% to $4.7 million, gross profit % up to 29.7%).
• Successful completion of multiple equity financings post-quarter, raising aggregate net proceeds of $78.8 million.
• Major debt restructuring, including a $45.0 million prepayment, $5.0 million debt cancellation, and conversion of $25.0 million principal into Series B Preferred Stock, significantly reducing outstanding debt to $18.612 million.
• Mitigation of substantial doubt about the company's ability to continue as a going concern due to capital raises and debt restructuring.
• Regained compliance with Nasdaq's minimum bid price and market value of listed securities (MVLS) requirements as of October 20, 2025.
• Reduced Research and Development expenses by 64.1% in Q3 and 49.3% for the nine months, reflecting a strategic shift to product development.
• Expansion into new markets like trucking and industrials with new product offerings, such as the Battle Born DualFlow Power Pack.
• Long-term license agreement with Stryten Energy LLC, generating $250 thousand in Q3 2025 and $750 thousand for the nine months ended September 30, 2025.

Negatives

• Increased net loss for the three months ended September 30, 2025, to $11.1 million from $6.8 million in the prior year.
• Total other expense significantly increased to $7.3 million in Q3 2025 from $0.8 million in Q3 2024, driven by higher interest expense and a negative change in fair market value of warrant liability.
• Interest expense, net, increased to $6.4 million in Q3 2025 from $5.6 million in Q3 2024, and to $16.5 million for the nine months ended September 30, 2025, from $15.3 million in the prior year.
• Negative change in fair market value of warrant liability of $0.9 million in Q3 2025, compared to a positive change of $4.9 million in Q3 2024.
• General and administrative expenses increased by $0.9 million (21.5%) in Q3 2025, partly due to an impairment of one lease and related leasehold improvements of $0.6 million.
• Cash and cash equivalents decreased to $3.8 million as of September 30, 2025, from $4.8 million at December 31, 2024.
• Negative cash flow from operating activities of $11.2 million for the nine months ended September 30, 2025.
• The company was previously non-compliant with Nasdaq listing rules (minimum bid price and MVLS) and had to request a hearing, indicating past financial instability.
• The company still needs to maintain a minimum liquidity covenant of $5.0 million monthly through December 31, 2026, and may need to raise additional capital in the future.
• The Series B Preferred Stock has an 8% cash dividend and 2% PIK dividend, which will be a recurring obligation.

Risks

• Ability to service outstanding indebtedness and comply with financial covenants; failure could lead to acceleration of payment, material adverse effect on operations, or bankruptcy.
• Ability to raise additional capital to fund operations; inability could lead to suspension or termination of development, modification of business plan, curtailment of operations, or cessation of business.
• Maintaining Nasdaq listing; failure could affect market price, liquidity, and ability to raise capital.
• Addressable markets may not grow as expected.
• Failure to timely achieve anticipated benefits of customer arrangements (e.g., with THOR Industries/Keystone RV Company).
• Ability to generate revenue from future product sales and achieve/maintain profitability.
• Loss of senior management or key personnel.
• Loss of relationships with key suppliers (especially in China) or key customers.
• Ability to protect patents and other intellectual property.
• Failure to successfully optimize solid-state cells or produce commercially viable solid-state cells in a timely manner or at all, or to scale to mass production.
• Failure to produce lithium battery cells in the United States in a timely manner or at all, or to scale to mass production.
• Failure to timely achieve anticipated benefits of the licensing arrangement with Stryten Energy LLC.
• Changes in applicable laws or regulations, including tariffs or adjustments to customs payments.
• Adverse effects from other economic, business, and/or competitive factors (e.g., economic slowdown, inflationary pressures).
• Ability to sell desired amounts of common stock at desired prices under the committed equity facility.
• Accuracy of projections and estimates regarding expenses, capital requirements, cash utilization, and need for additional financing.
• Developments relating to competitors and the industry.
• Reliance on two suppliers for lithium iron phosphate cells and a single supplier for battery management system.
• Current dependence on one manufacturing facility.
• Potential impact of global and macroeconomic conditions (e.g., economic, political, and social instability).
• Mandatory Panel Monitor by Nasdaq through October 20, 2026, meaning any future non-compliance with the Minimum Bid Price Requirement will result in a Delist Determination Letter without a compliance plan opportunity.
• The company may need to complete another reverse stock split if the common stock trades below $1.00 again.

Future Outlook

The company expects sales to increase in the coming quarters and next 12 months due to existing OEM customers expanding models with battery systems and entrance into new markets like trucking and industrials with new product offerings. Cost of Goods Sold is expected to increase in conjunction with anticipated revenue and higher tariffs. Research and Development expenses are expected to be lower than last year due to a strategic shift in focus from Solid State to Product Development. General and Administrative and Selling and Marketing expenses, as a percentage of revenue, are expected to be relatively stable over the next 12 months. The company anticipates needing to raise additional funds through equity, equity-related, or debt securities to fund operations, strategic plans, and meet financial covenants.

Management Comments

• "Our increase in sales is a reflection of a slight recovery in the motorized RV market and increased market penetration as compared to prior quarter and prior year."
• "Although our existing RV OEM customers have only slightly increased their year-over-year production rates, the incorporation of lithium storage systems has accelerated faster than the increase in RV units shipped."
• "DTC sales remained relatively flat, indicating generally constant consumer sentiment in the space."
• "During the third quarter of 2025, we continued to implement our corporate optimization initiative, prioritizing product development to drive near term revenue and profit."
• "We expect that direct to consumer sales will remain relatively flat through 2025."
• "We expect growth among our existing RV OEM customers due to an overall increase in RV shipments as our customers expanding the number of models that will include our battery systems in the new model year."
• "We expect increased revenue through our market diversification efforts – especially in our industrials market, including industrial solar and oil and gas, as well as the trucking market, in which we have been piloting our systems with fleets for the last two years."
• "We expect Research and Development expenses to be lower than last year as we change our focus from Solid State to Product Development."
• "With these strong initiatives, along with continued revenue generation anticipated in the next twelve months and the Companys ability to maintain covenant compliance with a monthly liquidity minimum of $5,000, management has concluded that the substantial doubt regarding the Companys ability to continue as a going concern has been mitigated."

Industry Context

The company's performance reflects a slight recovery in the motorized RV market, with an accelerated incorporation of lithium storage systems despite only slight increases in overall RV production rates. DTC sales remained flat, suggesting stable consumer sentiment. The company is actively diversifying into new markets such as trucking and industrials, aligning with broader trends towards hybrid electrification solutions and advanced energy storage. The shift in R&D focus from solid-state to product development indicates a response to market demands for near-term revenue and cost-effective scalability in battery manufacturing.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks.
• The company competes with traditional lead-acid battery manufacturers and lithium-ion battery manufacturers who primarily import or private label products.
• The company's LFP battery chemistry has not been subject to the shortages or price impacts seen by manufacturers of nickel manganese cobalt and nickel cobalt aluminum batteries, suggesting a relative advantage in supply chain stability for its specific technology.
• The company is expanding into new end markets like rail, specialty and work vehicles, material handling, solar integration, and emergency and standby power, which are identified as opportunities for LFP batteries to supplant traditional lead-acid batteries.

Management Changes

Corporate Governance

Legal Proceedings

• In March 2025, the company agreed to pay LithiumHub a total of $2,500 thousand in exchange for a non-exclusive license to patent rights, terminating ongoing patent litigation without admission of infringement.
• As of September 30, 2025, an accrued settlement liability of $2,125 thousand was recorded and subsequently paid in full on October 22, 2025.
• Currently, no legal proceedings, governmental actions, administrative actions, investigations or claims are pending against the company that are expected to have a material adverse effect on its business and financial condition.

Related Party Transactions

• On January 26, 2024, the company entered into a convertible promissory note for $1,000 thousand with a board member, which was repaid on February 1, 2024, including a $50 thousand loan fee.
• On February 27, 2024, the company entered into a convertible promissory note for $1,700 thousand with a board member, which was repaid on March 1, 2024, including an $85 thousand loan fee.
• Effective April 12, 2024, the company amended employment agreements with its Chief Executive Officer, Chief Revenue Officer, and Chief Marketing Officer to adjust terms of their annual equity compensation.

Stakeholder Impact

• Shareholders: Potential for dilution from recent and future equity offerings, but also benefit from improved financial stability, debt reduction, and Nasdaq compliance. Series B Preferred Stock conversion price of $3.15 per share and dividend obligations could impact common shareholders.
• Employees: Reduced headcount in R&D and S&M, but increased headcount in G&A for product development. Employee Stock Purchase Plan (ESPP) continues to allow share purchases at a discount.
• Customers: Increased sales to OEM customers and expansion into new markets suggest continued product availability and development.
• Suppliers: Continued reliance on two China-based LFP cell manufacturers and a single BMS supplier, posing concentration risk.
• Creditors (Term Loan Lenders): Significant debt reduction through prepayment, forgiveness, and conversion to Series B Preferred Stock, improving the company's ability to meet remaining obligations. Series B Preferred Stock provides dividends and redemption rights.

Next Steps

• Continue to increase market penetration into target markets.
• Expand sales to RV OEM customers by increasing the number of models that include the company's battery systems.
• Diversify into new markets, including trucking and industrials, with new product offerings.
• Optimize manufacturing efficiency and throughput to increase production capacity.
• Continue to automate additional aspects of battery production lines.
• Construct and operate a pilot production line for solid-state cells when capital becomes more available.
• Return to solid-state chemistry R&D as capital becomes more available for longer-term projects.
• Raise additional debt and/or equity financings as needed to fund operations, strategic plans, meet financial covenants, and repay outstanding indebtedness.
• Maintain compliance with the Nasdaq Minimum Bid Price Requirement to avoid delisting.
• Be subject to a Nasdaq Mandatory Panel Monitor through October 20, 2026.
• Make monthly interest payments on the restructured Term Loan commencing December 31, 2025.
• Use 50% of net proceeds from any future equity offerings to redeem outstanding shares of Series B Preferred Stock.

Key Dates

Recommendation

While Dragonfly Energy Holdings Corp. has demonstrated significant improvements in sales and gross profit, and has taken crucial steps to address its liquidity and going concern issues through substantial capital raises and debt restructuring, the company still faces considerable challenges. The net loss increased in the most recent quarter, and the company continues to operate with negative cash flow from operations. The Series B Preferred Stock introduces new dividend obligations and potential future redemption requirements. Although Nasdaq compliance has been regained, the company remains under a mandatory monitoring period, and future stock price volatility could trigger further delisting concerns or necessitate another reverse stock split. The reliance on a limited number of suppliers and the need for future capital raises also present ongoing risks. Given the recent positive developments are largely forward-looking (post-quarter events) and the underlying operational profitability is still a concern, a "hold" recommendation is appropriate. Investors should monitor the company's ability to sustain revenue growth, achieve profitability, manage its new preferred stock obligations, and successfully execute its market diversification and product development strategies.

Keywords

Lithium-ion batteries, Energy storage, SEC filing, 10-Q, Financial results, Capital raise, Debt restructuring, Nasdaq compliance, OEM sales, DTC sales, Battery technology, Solid-state cells, Corporate governance, Risk factors, DRAGONFLY ENERGY HOLDINGS CORP., DFLI