NASDAQ:XPON
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Expion360 (NASDAQ:XPON) announced several new OEM relationships and a new distributor relationship on November 19th that appear significant for the company. While the company did not disclose the OEMs by name or indicate if the relationships were exclusive, the company did indicate that these new relationships were expected to add incremental revenue of $5.0 million to the company in 2025.
Given that our model only projected $5 million of total revenue in 2024 and $6 million in 2025, these new relationships appear very significant. The wording of the press release seems to carefully note that the company “expects these new relationships to generate incremental revenue of approximately $5 million” but does not indicate that these are firm orders as of today and we do not believe a contract is in place for any predetermined set of orders.
The company also indicated that it anticipates realizing $1.4 million of gross profit from these incremental sales which is impressive as that alone would exceed our forecast for all the total gross profit for 2024.
Model update
Despite having just revised our estimates two weeks ago, in light of these new relationships and the significant potential impact on the company’s financial condition we are updating our model today.
The company indicated that sales to these new OEM partners are expected to positively impact Q4 2024 results and we are boosting our forecast for Q4 2024 from $1.35 million to $1.7 million. We are also anticipating that the gross margin will rebound after some discontinued items were sold in Q3 which weighed heavily on the gross margin in the latest quarter. We are now projecting that the gross margin will rebound to a more normalized 22% in Q4 2024. As a result of these changes our loss per share for the company falls to ($0.96)/share for Q4 2024 from our previous estimate of ($1.02)/share.
We are taking a conservative approach with regard to 2025 revenues, adding roughly $2.9 million to our previous forecast of $6 million for a new forecast of $8.9 million.
As a result of higher margins on the sales to the new OEMs and cost controls our 2025 estimated loss per share falls to ($2.30)/share from a previous estimate of ($2.58)/share.
The company is working to reach positive cash flow from operations and if the company realizes $1.4 million of gross profit on these new OEM sales in 2025 it would be a significant step in the right direction, but the company is still projected to burn cash through 2025 and will likely need additional debt or equity financing to sustain operations into 2026.
VALUATION
We are maintaining our target valuation of $4/share until we gain further clarity on the nature of the new OEM relationships and the consistency of the new customer orders. The company’s shares are likely to remain range-bound until investors understand the company’s plans to address its financial condition in 2025. We would note that long-term investors in Expion360’s shares are down substantially in 2024 and tax-loss selling by investors looking to offset gains in their portfolios in December is a strong possibility.
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