By Brian Lantier, CFA

NASDAQ:XPON

READ THE FULL XPON RESEARCH REPORT

Expion360 Reports Q2 results

Expion360 (NASDAQ:XPON) reported final second-quarter results after the market close on August 14th which again were slightly short of our forecasts. While the company reported a 31.5% sequential increase in revenue, the second quarter of 2024’s revenue of $1.28 million was below the second quarter results for both 2023 and 2022 despite having an expanded product line-up. While the RV market has seen a return to seasonality with demand increasing in the spring and early summer, the composition of unit shipments in the market has shifted away from higher-end motorhomes (historically, Expion360’s target customers) toward smaller campers with lower price points. Consumers buying at these lower price points are less likely to pay for the added features of an Expion360 battery. We expect the premium end of the RV market will remain challenged until interest rates decline sufficiently to spur more buying at the high end of the market

Updates/News:

Home Energy
Management indicated that a portion of the proceeds from the company’s August equity offering will be used to complete UL testing and various other certifications that will be necessary before the home energy storage system can be brought to market. Given the incredible importance of the home energy product being successful in order for Expion360 to achieve positive operating cash flow, we will look for announcements that could enable the company to penetrate this market quickly.

Edge Battery
The company also indicated that the new Edge battery (with a slim profile of just 4.2 inches) began shipping in the third quarter. We think the Edge battery is very innovative and will have a good deal of appeal to people living in their vehicles where space is at a premium but when compared to the overall RV or Marine markets, this is a much smaller market opportunity.

Tractor Supply Distribution Agreement
The company did not provide any further color on the relationship with Tractor Supply (NASDAQ:TSCO), but the company does have 7 SKUs currently listed on the Tractor Supply website.

We don’t have any indication yet regarding sell-through on the Tractor Supply website but we would note that none of the products have received a customer review yet so we think that it is likely that the total number of units sold through this relationship is relatively small at this point.

K-Z Recreational Vehicles Relationship
In early August, the Company announced a new relationship with K-Z Recreational Vehicles, a division of Thor Industries (NYSE:THO), to offer Expion360’s Edge batteries in its “Boondocker” package for customers seeking off-grid travel solutions. K-Z also elected to offer two of the company’s Group 27 100 amp hour heated batteries in their standard off-grid package. While K-Z is a well-established brand in the towable RV market this agreement appears to only be for the company’s Durango models which are high-end towables with retail prices approaching six figures.

We are encouraged by the company establishing a relationship with a division of an industry giant like Thor, but we recognize that this is likely a very small opportunity as structured today. As with home energy, we think it is important for Expion360 to expand its distribution with major OEMs and expanding its relationship with K-Z’s parent Thor (or another major RV manufacturer) will be a priority for the second half of 2024.

Model update
We recognize that given the staggering change in the number of shares outstanding (increasing from 7.5 million to at least 57.5 million in early August), our forecast for the company’s fundamentals like revenues and earnings is not as important as the daily volume and intraday technical charts that day traders use to navigate high volume microcap names.

We caution that investors should be careful not to misinterpret our change in EPS estimates for the company. While we are technically changing our forecasted EPS from ($1.02)/share for 2024 and ($0.82)/share for 2025 to ($0.34)/share in 2024 and ($0.12)/share in 2025, this is entirely due to the increase in the share count which has the effect of lowering the loss per share. It would be wrong for investors to assume that we have raised our estimates or reduced our projected losses due to any fundamental change in the company’s business. We would also caution that our estimate of the total outstanding share count is merely a “best guess” at this point and could be revised significantly higher depending on the final exercise price of the Series A and Series B warrants.

Valuation
Our most recent adjustment to the target valuation to $0.35/share was principally an adjustment to reflect the additional 50 million shares issued as a result of the August offering.

The valuations in the battery market have continued to decline in 2024 mainly as a result of the underperformance of the companies in the space relative to expectations.

We are now assigning a multiple of 2x 2024 revenues of $7.6 million to reach our new target valuation of $0.25/share but we would continue to advise investors that there remain several unknowns about the total number of warrants to be issued and the exercise prices of the warrants and thus, this valuation represents our “best guess” today. We may have to further adjust our valuation target when details regarding the number of warrants issued and the exercise price become finalized in October.

With all of this said, Expion360 still has a high level of interest from day traders and fundamentals rarely matter to this group of traders. On August 14, 35 million shares of Expion360’s stock traded hands in anticipation of an earnings announcement that had been prereleased a week ago and over 20 million additional shares traded after hours that evening. We have witnessed unpredictable movements in the shares of Expion360 in the past and we can’t rule out wild swings in the future, but we think investors cannot hope for an investment to become a “meme stock” as an investment strategy.

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