Expion360 Inc. (NASDAQ:XPON) Q1 2024 Earnings Call Transcript

Expion360 Inc. (NASDAQ:XPON) Q1 2024 Earnings Call Transcript May 14, 2024

Expion360 Inc. misses on earnings expectations. Reported EPS is $-0.31299 EPS, expectations were $-0.28.

Operator: Greetings, and welcome to the Expion360 First Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded and will be available in the Investor Relations section of the company’s websites at investors.expion360.com. Before we begin the formal presentation, I would like to remind everyone that certain statements made on this call and through the webcast are forward-looking statements within the meaning of federal security laws and are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding the company’s beliefs, plans, and expectations about the company’s operations, future development plans, growth prospects, product pipeline and development, anticipated timing of commercial availability of its products, beliefs about marketing size, opportunity, including customer base and market conditions. While these forward-looking statements represent management’s current judgments and expectations, they are subject to risks and uncertainties that could cause actual results to differ materially. The company has explained some of these risks and uncertainties in its SEC filings, including the risk factor section of its annual reports on Form 10-K and quarterly reports on Form 10-Q.

You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation, except as required by law or the NASDAQ listing standards, the company expressly disclaims any intent or obligation to update any forward-looking statements. Your hosts today, Brian Schaffner, Chief Executive Officer; and Greg Aydelott, Chief Financial Officer, will present results of operations for the first quarter ended March 31, 2024. A press release detailing these results crossed the wire this afternoon at 4.05 p.m. Eastern Time and is available in the Investor Relations section of the company’s website at investors.expion360.com. At this time, I will turn the call over to Expion360’s Chief Executive Officer, Brian Schaffner.

Please go ahead, sir.

Brian Schaffner: Thank you, Operator, and good afternoon, everyone. I’m pleased to welcome you to today’s first quarter 2024 Financial Results Conference Call. For those of you who might be new to our story, I’d like to start by giving a brief overview of who we are and what we do. Expion360 focuses on the design, assembly and sales of lithium-ion phosphate or LiFePO4 batteries and supporting accessories for RV, marine applications and as recently announced, our expansion into light electric vehicle and Home Energy Storage markets. With plans to expand into industrial applications in the future, we design, assemble, and distribute high-powered lithium battery solutions using ground-breaking concepts with creative sales and marketing approaches.

We believe that our product offerings include some of the most dense and minimal footprint batteries in the RV and marine industries. We are developing the e360 Home Energy Storage system, which we expect to bring positive change to the industry in barrier price, flexibility and integration. We are deploying multiple intellectual property strategies with cutting-edge research and innovative products to sustain and scale the business. We currently have customers consisting of dealers, wholesalers, private label customers and original equipment manufacturers or OEMs, who are driving revenue and brand awareness nationally and complement our wholesale channel and direct-to-consumer sales. We have a management team and board experienced across engineering, technology and finance, and we believe the confluence of these factors positions us to execute our long-term growth strategies.

I am proud of the progress that we have made in the first quarter and remain excited about our future prospects. Our e360 product line, which is manufactured for RV and marine industries, has shown to be the preferred conversion solution for lead-acid batteries through its sales growth. We currently have more than 300 customers across the United States consisting of dealers, wholesalers, private label customers and OEMs. We then sell our products to end consumers. In addition, we also sell products directly to those consumers. We have sales relationships with major RV retailers, including Camping World, a leading national RV retailer, as well as Meyer Distributing Inc., a leading national marketer and distributor of automotive and RV specialty products.

We believe we have a strong reputation in the lithium battery space, which we plan to continue leveraging to broaden our distribution channels as we expand into adjacent verticals, such as LEDs and Home Energy Storage. To highlight some of our accomplishments and milestones in the first quarter, in January 2024, we launched our next-generation Group 27 and GC2 Series lithium iron phosphate batteries designed for use in a variety of applications that now offer higher amp-hour options and the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction, Internal Heating, Bluetooth and CAN Bus Communication. In March of 2024, we announced that our EX1 SmartTalk Bluetooth batteries had achieved UL 1973 compliance.

The UL 1973 compliance ensures that Expion360’s EX SmartTalk Bluetooth batteries meet safety standards required by our customers for energy storage systems. This certification not only underscores our unwavering commitment to safety, but also our dedication to innovation and excellence in a growing industry. In April 2024, we announced substantial pre-orders for our next-generation Group 27 and GC2 Series batteries that now include our proprietary Vertical Heat Conduction technology, driven by customer demand. The new versions also include higher amp-hour 4.0 and 4.5 amp-hour cell technology, Bluetooth and CAN Bus Communication. Expion shipments for these orders have begun in May. This month, May 2024, we launched the Edge battery, now available for pre-order, which utilizes a modular design for off-grid power solutions.

It is available in 12.8-volt and 51.2-volt configurations, featuring a slim profile that maximizes available space without compromising performance. With dimensions of just 4.2 inches in height, 17.5 inches in width and 21.9 inches in length, the Edge offers flexibility for installation in a variety of applications from mounting on the walls of vans to fitting in tight spaces in RVs. The Edge’s slim design maximizes available space without compromising performance. The Edge incorporates Vertical Heat Conduction, SmartTalk Bluetooth and CAN Bus Communication. We plan to begin shipping the Edge in the third quarter of this year. Lastly, on April 30th, we released specifications for our Home Energy Storage Solutions. DC-coupled home energy battery, expandable in 5-kilowatt increments up to 80 kilowatts in most jurisdictions and for our AC-coupled one, all-in-one home energy battery featuring 10-kilowatt battery paired with a built-in 5-kilowatt inverter and expandable in 10-kilowatt increments up to a total of 40 kilowatts.

We have strategically positioned our battery portfolio across both established market segments and future premium market segments each of which I will quickly touch on. The recreational vehicle and overland segment continues to grow, driven by interest in outdoor activities and the demand for vehicles that depend on batteries to power systems. Our lithium batteries support these systems and the appliances, while replacing noisy generators for off-grid power and are charged by the engine or by solar. As previously mentioned, we recently launched the Edge battery. This custom form factor includes many applied core patents and other IP that we have been developing in the past couple of years and we plan to begin shipping that product in Q3 this year.

The Edge incorporates Vertical Heat Conduction, SmartTalk Bluetooth and CAN Bus Communication and we are currently wrapping up UL testing. Our solutions are also employed in the boating and marine segment to support trolling motors and operating cabin electronics. The third established market we serve is light electric vehicle, or LED, such as golf carts, which are also undergoing a transition from lithium to lithium from lead acid. These LEDs require sufficient power generation and reliability to which Expion batteries deliver. Our newest market segment we recently announced is our plans to enter the Home Energy Storage market, including new home and commercial solar power storage solutions. I will expand on that opportunity when we get to the Home Energy section.

And finally, we see industrial applications as a future growth vertical for Expion, driven by demand for additional capacities for electric forklifts and industrial material handling. We are building a robust IP moat across all five of these market segments, in which we have 11 patents pending. Now for a shift to some more detail about our market expansion with E360 Home Energy. With the December 2023 introduction of our two LiFePO4 battery solutions to support Home Energy Storage, for which I just mentioned, the recently released specifications, which you can see on our website, we are targeting home and small commercial solar users, installers who are interested in the high-performance modular system with straightforward installation. We are mobilizing quickly with the launch and plan on accepting pre-orders for the new Home Energy Systems, commencing in the second quarter of 2024, with shipments to begin in the second half of 2024.

We believe the Home Energy market provides complementary economics to our business model, with an opportunity to generate recurring revenue streams while enabling margin expansion. Our solutions provide scalability and versatility across market channels. Some of these channels include solar installers, electrical contractors, retailers, and wholesalers, big box stores and franchise hardware retailers, residential and commercial builders, along with energy service providers. We believe the launch of the Home Energy segment will support the company’s strategic objectives. A view of our Home Energy systems and specifications and pricing can be found on our website. Future Home Energy announcements will include identification of strategic implementation and installation partners.

I will now turn the call over to Chief Financial Officer, Greg Aydelott to discuss our first quarter of 2024 financial results.

Greg Aydelott: Thanks, Brian. For the first quarter of 2024, revenue totaled $1 million, decreasing 35.5% from $1.5 million in the prior year period. The decrease was primarily attributable to the lingering effects of the downturn in the RV market, combined with some customers limiting orders in anticipation of the availability of our new products with enhanced features. Gross profit for the first quarter of 2024 totaled $200,000, or 22.9% of revenue, as compared to $400,000, or 29.4% of revenue in the prior year period. The decrease in gross profit as a percentage of revenue was primarily attributable to decreases in sales, which drove higher fixed overhead costs per unit. Selling general and administrative expenses increased to $2.2 million, compared to $2.1 million in the prior year period.

The increase was primarily due to salaries and benefits, which included non-cash stock-based compensation, and sales and marketing increases, offset by significant reductions in legal and professional fees. Net loss for the first quarter of 2024 totaled 2.2 million, or $0.31 per share, and net loss of $2 million, or $0.29 per share in this prior year period. The increase in net loss was primarily a result of lower net sales for the period, and non-cash stock-based compensation expense. I will now turn the call back to Brian for his closing summary.

Brian Schaffner: Thank you so much, Greg. In closing, we are confident and enthusiastic about our growth trajectory for 2024. That comes from our experience in the fourth quarter of 2023 and our current 2024 activity to date. Thus far in 2024, the RV industry reports that RV shipments in the first quarter have increased 9.3%, and that the full year 2024 shipments are expected to be up 18.8%, or 365,500 units, according to the RV Industry Association’s March 2024 survey of manufacturers and the spring 2024 issue of RV Road Signs. We also announced the planned launch of, and have just released the specifications for our E360 Home Energy system, which we expect to disrupt the industry with its barrier price, flexibility, and integration.

These two LiFePO4 battery storage solutions will enable residential and small business customers to create their own stable micro-energy grid and lessen the impact of increasing power fluctuations and outages. Expion360 continues to work towards additional OEM market penetration while thoughtfully balancing our customer requirements of confidentiality during negotiations and our duty to provide timely information to our investors. We continue to add features, improve energy density, and develop unique OEM-centric form factors. Notably, we announced substantial pre-orders for our next generation Group 27 and GC2 Series batteries with our proprietary Vertical Heat Conduction technology, which began shipping this month. The launch of the Edge battery featuring a slim profile that maximizes available space and incorporates Vertical Heat Conduction, SmartTalk, Bluetooth and CAN Bus Communication.

And we recently released specifications for our Home Energy Storage solutions. Before we get to the Q&A portion of this call, we have an exciting announcement to make. We recently signed a contract to become a vendor for Tractor Supply. That will greatly impact and expand our retail footprint. Tractor Supply has 2,232 locations in the continental United States, and in June, we expect customers across 48 contiguous states will have the opportunity to purchase Expion360 products through this retailer’s website. I thank you all for attending, and now I would like to hand the call over to the operator to take a few questions. Operator?

Q&A Session

Operator: [Operator Instruction]. The first question that we have comes from Brian Lantier from Zacks Small-Cap Research. Please go ahead.

Brian Lantier: Hi, good afternoon, gentlemen. That is exciting news about Tractor Supply. If I can just follow up with a quick question there. You mentioned that you will be on their website. Do you think there is a possibility to expand that to their retail locations as well?

Brian Schaffner: No. I mean, we would hope that that opportunity exists, but Tractor Supply seems to have a unique niche where they can have smaller locations than what you would normally have for square footage in some of the big boys, the Home Depots, and the Lowe’s of the world. Their customers know that they can go in. If it is not necessarily stocked there, they can get the product relatively quickly at that location using the web services. We are very excited about starting there. If they decided to move down that road with us, we would of course tell you first.

Brian Lantier: Okay, great. Any early feedback on the home energy system since you released the data sheets? Just looking at it, it looks like the system compares really favorably to the current market leaders like Tesla and LG. So I am just wondering if you have heard anything back from people in the industry and if there will be opportunities to sort of let people see the product in person at any upcoming industry events?

Brian Schaffner: Well, we’ve had good traffic related to calls that have come in about the new products. As I noted before in previous press releases, these units have to be sold and installed through certified dealers. We are currently working with some of those dealers to do test pilots in preparation for customer installations. So we’re just moving down the path that is needed to put this in the hands of our customer, but we have to follow the steps.

Brian Lantier: Okay. Just one sort of housekeeping issue, Greg. The gross margin, is there anything going on there that is principally just the battery? There is nothing going on in terms of pricing pressures or anything like that that would be holding down the margin right now, right?

Greg Aydelott: No, it is mainly just with the batteries. Our pricing, we have done really well with our vendors holding prices and not seeing too many increases thus far.

Brian Lantier: Okay. Good. And when I retire in a few years and I am building out a van, that new Edge battery is going to come in handy. Thanks.

Brian Schaffner: Okay. Thank you, Brian.

Operator: Thank you. [Operator Instructions]. At this stage, there are no further questions on the conference call. I will now turn the call over to Larry Holub for webcast questions. Please go ahead, sir.

Larry Holub: Our first question asks, can you speak to the Biden administration’s tariffs against China that were announced today?

Brian Schaffner: Yes, that was an interesting read. We don’t really quite know the scope yet because it is a new executive order, but our initial read shows that none of our batteries are included in the tariff list for 2024-2025. The only lithium-ion batteries that we could identify were ones used in electric vehicles, so that is a different chemistry than what we would typically use and we do not provide batteries for EV use. If the tariffs for some reason did affect us, the majority of the businesses in our space would be subject to that as well, so at least we would be on an even competitive field. We have been working to reduce our costs and lessen the impact of what our customers have to pay for our products, so we are constantly doing that. So to be determined on the tariffs and whether there is any more.

Larry Holub: Our second question asks, can you expand upon the announcement at the end of the call related to tractor supply?

Brian Schaffner: Absolutely. We actually finished executing the contract with them this morning. We weren’t sure if we were going to be able to announce it or not. I was very excited. But they have more than 2,200 locations and it fits perfectly with our product offerings. We are going to be offering our 27 and 24-series products along with the AURA Cap and solar power bundles, and they have a large customer base and we’re just very excited about the opportunity to provide them with our products. And since obviously that happened today, we will follow that up with a formal press release.

Larry Holub: Our next question asks, have you begun shipping products to fulfill pre-orders for Group 27 and GC2 batteries?

Brian Schaffner: We have started to ship the pre-orders for the Group 27, and our GC2 batteries are in and we are going to be fulfilling those pre-orders as well. So, yes, we have begun and we are in the process of filling those orders.

Larry Holub: Our next question asks, can you talk more about the new Edge battery with respect to customer orders and feedback?

Brian Schaffner: Sure. As we work with our customers, they are appreciative and excited about options and that this new form factor gives them more flexibility during their RV design process, flexibility that they haven’t necessarily seen in the past with other form factors. So that is what is driving the interest in the Edge battery.

Larry Holub: Our next question asks, any update on new OEM partners or customers?

Brian Schaffner: We have many potential OEM partners and retail partners engaged. It is very exciting to see the reactions to our new form factors and options, and we expect to begin announcing orders and highlighting new relationships as they are finalized.

Larry Holub: And our last webcast question asks, is there any color you would like to add regarding where you are currently at with your Home Energy Storage solutions?

Brian Schaffner: Yes, probably the only one is the constant question that comes up is, can I self-install that in my home? And I do not want to speak to people that do off-grid work, but if you are working with the power grid, that is a very dangerous game, and these units must be sold and installed through certified dealers. And we’re currently working with some of those dealers to do test pilots in preparation for customer installations.

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Schaffner for his closing remarks. Please go ahead, sir.

Brian Schaffner: Thank you so much, and thank you for attending today’s call. It means a lot to me. We are excited about where we are headed and looking forward to engaging with our investors throughout 2024. If for some reason we are unable to answer any of your questions, please reach out to our IR firm, MZ Group. They would be happy to assist. I do my best to make myself available. And this concludes our call.

Operator: Thank you, sir. Ladies and gentlemen, that then concludes today’s conference. Thank you for joining us. You may now disconnect your lines.