NASDAQ:XPON
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Expion360 Announces $10 Million Financing
On August 7, Expion360 (NASDAQ:XPON) announced the pricing of a $10 million financing. The financing consisted of 50 million units sold at $0.20/unit where each unit consisted of a common share (or prefunded warrant), two Series A warrants (exercisable at $0.24/share), and a Series B warrant.
In the three months before filing the preliminary prospectus for this offering, Expion360’s shares had traded between $0.80 and $2.00 per share so the pricing of this transaction is substantially below our expectations and resulted in a much higher share count than we anticipated. The company indicated that the new share count after this offering will be roughly 57 million shares.
We estimate that the company will likely receive net proceeds of $8.7 million from this offering and the company will use $3.4 million of the proceeds to repay outstanding debt. We anticipate that the company will add nearly $5.3 million in cash to its balance sheet after this transaction. Since Expion360 is still burning approximately $1.5 million of cash per quarter, this highly dilutive financing ultimately provides less than one year of cash runway.
Preliminary Q2 Results
As part of the company’s preliminary prospectus for the latest equity offering, Expion360 released preliminary Q2 operating results which were just slightly below our model at $1.28 million in revenue for the quarter (roughly 6% below our forecast of $1.36 million). The company’s gross margin remained stable above 25% and the company had a gross profit of $326 thousand (versus our model of $343 thousand).
We will wait for the company’s Q2 conference call (to be held on August 14th) to update our model but we recognize that fundamentals will not be the focus for investors at this time.
Our previous valuation target was based on the existing share count which at the time was just under 7.5 million shares. We assumed that the company would continue to slowly tap its equity line of credit when the markets were favorable to fund operations. In May, our assumption was that the company could add up to 2 million additional shares to fund operations through the end of 2024.
The offering of 50 million shares (plus 100 million series A warrants and 50 million series B warrants) is significantly greater than our previous projections and materially impacts our valuation target. The majority of our change in the valuation target is our assumption that the total share count will increase substantially to at least 57 million as a result of this offering (from a previous estimate of 8-10 million at the end of 2024). As a result of this sharply higher share count and the prospect that additional warrants could significantly increase the share count even further, we are lowering our target valuation to $0.35/share. Investors should note 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 are likely to revise our valuation target when details regarding the number of warrants issued and the exercise price becomes finalized.
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