NASDAQ:XPON
READ THE FULL XPON RESEARCH REPORT
Expion360 Reports Q1 Results
Expion360 (NASDAQ:XPON) reported first-quarter results after the market close on May 14th which fell slightly short of our lowered forecasts published in April. The spring RV selling season has seen a boost in the demand for new vehicles at many RV dealerships (the first sequential uptick since 2022 with shipments rising 9%) but the growth of units seems to be focused on the lower-end towable market. While total RV shipments did grow by 9% in the first quarter, all of that growth came from towable RVs (up 15.8%) while larger, more expensive motorhomes that historically have been the biggest market for Expion360’s batteries fell 22% in the first quarter.
Revenues were down 36% versus the first quarter of 2023 but did manage to post 13% growth from the fourth quarter when revenues had dipped to just $859 thousand. The company’s core market remains the recreational vehicle and marine markets which are still struggling to find their footing in today’s high interest rate environment. Most RV retailers have cited that affordability rules the day with their customers and Expion360 batteries are viewed as a premium product in the market where price is dominating today.
Home Energy
The company highlighted that it released the data sheets for its e360 home energy storage systems on April 30th and they’ve been in discussions with dealers and installers since then to roll the product out to the market. The company’s first two offerings in this market – a DC coupled expandable server rack style system (expandable to 80 kW) and an AC coupled all-in-one 10 kW system (expandable to 40 W) – compare favorably to the industry-leading offering from LG and Tesla (the Powerwall). Many of the technical specifications are identical and the Expion360 product has a lower ticket price.
Edge Battery
The company’s management also highlighted a new product for the RV and van market that has been received well by the market due to its unique configuration. The slim profile battery (just 4.2 inches tall) enables users to place a battery in unique spaces that otherwise wouldn’t work for a standard battery. While the market for a product like the Edge Battery is fairly small, we think it will address some of the problems that custom builders have when trying to build battery systems into a living space.
Tractor Supply Distribution Agreement
Perhaps the most exciting news of the call for investors though was the news that the company has signed a distribution agreement for some of its battery lineup to be offered on the website for Tractor Supply (NASDAQ:TSCO). Tractor Supply has annual revenues of $14.5 billion and more than 2,200 retail locations across the country. A quick review of the Tractor Supply website indicates that they do not currently have any LiFePO4 battery offerings and its only storage batteries are gel or lead acid batteries. Given that many of Tractor Supply’s customers may need or want long-term energy storage solutions we think this has the potential to be a very significant deal for Expion360 (particularly if they could get on the shelves of retail locations). We will hold off adjusting our model until we get some hard evidence of sell-through but this is a step in the right direction for Expion360.
Operating expenses continue to exceed total revenues as the company invests in the sales infrastructure to target new markets. Expion360 ended the quarter with just $2.3 million in cash after burning $1.7 million in operating activities in the first quarter. With less than 6 months of cash on the balance, it is likely that the company will continue to tap its equity line of credit in 2024 to fund operations which may significantly dilute existing investors (see the financial condition discussion below).
Model update
We remain concerned that the anticipated bounce back in the RV industry is weaker than hoped and skewing toward lower-end models that often opt for cheaper batteries LiFePO4 batteries or other alternatives like lead acid batteries. These concerns are partially offset by the opportunities available to the company in the home energy storage market and through the new distribution agreement with Tractor Supply. The company is entering its seasonally strongest period for the core RV and marine battery sales but it will be important for investors to see progress by the company establishing distribution and installation partnerships for the home energy storage systems over the next six months. Our 2024 revenue forecast is now $5.9 million which is roughly in line with 2023’s results.
We are maintaining our 2025 revenue estimate at $7.6 million but we will revisit that forecast as we progress through 2024 and we believe there is upside to this forecast if the home energy storage market demand accelerates or the Tractor Supply agreement surprises to the upside.
Key valuation considerations:
1)   The sharp downturn in the RV market has been deeper and longer lasting than expected. The company has diversified its product lineup to include Light Electric Vehicles (LEVs) and home energy storage and the company’s success in these markets will be a key focus for investors in 2024.
2)   We continue to value the company at 3x 2025 sales – forecast at $7.6 million – for a total market value of $22.8 million. Based on the current share count outstanding (7.45 million) this would produce a target of $3.05/share, but we believe that the share count will continue to grow throughout 2024 ending the year around between 8 and 9 million shares. Until we can get more clarity on the growth of the company’s total outstanding shares after the second quarter is reported, we are going to use the mid-point of that range or 8.5 million shares outstanding at the end of 2024. Thus, our new target is $22.8 million divided by 8.5 million shares or roughly $2.70/share.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.Â
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
