NASDAQ:XPON
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Expion360 (NASDAQ:XPON) reported third-quarter results after the market close on November 14th which again were slightly short of our forecasts. While the company reported a slight 8.7% sequential increase in revenue at least some portion of that growth appears to have been due to the liquidation of non-core products that were sold to reduce warehouse space requirements. While it is difficult to estimate the impact that these sales had on the company’s gross margin, management did indicate that the gross profit of the company would have been $230k higher in the quarter if these liquidations had not taken place. The RV market continues to face a very challenging operating environment as interest rates remain elevated and consumer demand (particularly for high-end RVs) has flatlined. Competition at the low end of the LiFEPO4 market is intense with many companies selling batteries at 30% or less of the cost of an Expion360 battery. We believe that many consumers will still pay for the added features on an Expion360 battery but that market is certainly impacted by lingering high interest rates. RV manufacturers are optimistic about a return to growth for larger RVs in 2025 but the next two quarters are likely to be challenging as the company enters a seasonally slow period for RV sales.
New Customer Relationships
Since our last update, the company has announced two additional customer agreements that target the off-grid, truck bed camper market.
The company partnered with Scout Campers to offer Expion360’s batteries as a standard option and with Alaskan Camper where the company’s 12.8V internally heated battery to come standard on all of their truck campers. We would note that Alaskan Camper makes a high-quality, well-regarded truck bed camper but it appears that the orders are mostly custom so this is likely a relatively small opportunity for Expion360.
The company indicated in its quarterly press release that a recent RV trade show resulted in “several new relationships with OEMs” and we will look forward to more details on these relationships in Q4.
Model update
Given the staggering 28x increase in the share count from May 2024 to November 2024, fundamentals are not likely to be the focus of investors in Expion360. Unfortunately, as we’ve seen with many microcap companies, a good product is not enough to overcome a challenging capital structure.
The company did not provide any forward guidance and did not host a conference call this quarter. We have used inputs from RV manufacturers, other battery companies’ forecasts and our assumption that interest rates remain elevated through the end of 2024 to arrive at a Q4 sales estimate of $1.35 million and total revenue for 2024 of just about $5.0 million growing to about $6 million in 2025.
However, as we have noted the company is unlikely to be able to fund its operating losses with cash on hand much beyond the early part of 2025 so the company will likely need additional debt or equity financing in order to sustain operations through 2025.
Valuation
Our most recent adjustment to the target valuation to $0.25/share was principally an adjustment to reflect the additional 50 million shares issued as a result of the August offering. However, given that the company has now reported 2.09 million shares outstanding after the 1-for-100 reverse split (209 million pre-split) our estimate of the total share count was off by a significant margin.
The valuations in the battery market have continued to decline in 2024 and expectations remain muted as the RV market recovery remains elusive. Expion360 has traded at a premium to its competitors for most of the past two years but given the uncertainty around the company’s future prospects, we do not expect that premium will remain.
We are now assigning a multiple of 1.25x 2025 revenues of $6 million to reach our new target valuation of $4/share but we would continue to advise investors that there remains a great deal of uncertainty regarding the company’s financing in 2025 and further dilution is a possibility. We expect that the shares could come under significant pressure given concerns about the company’s financial condition and potential tax loss selling as we approach the end of the year.
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