Expion360 Inc.

Greetings and welcome to the Xtreon 360 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.xtreon360.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 and opportunity, including customer base and market conditions. While these forward-looking statements represent management's current judgment and expectations, they are subject to risk 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 reflects 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 Adelott, 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.xbion360.com. At this time, I will turn the call over to XBION 360's Chief Executive Officer, Brian Schaffner. Please go ahead, sir.

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. Xpeon 360 focuses on the design, assembly, and sales of lithium iron phosphate or LiPo4 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 groundbreaking 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'm proud of the progress that we've 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 Meijer Distributing Inc., a leading national marketer and distributor of automotive and RV specialty projects. 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. but now offer higher amp hour options and the latest advancements in power technology features, including Xeon 360'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 Xpeon 360's EX Smart Talk 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 GC2 series batteries 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. Expeon 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 into tight spaces in RVs. The Edge's slim design maximizes available space without compromising performance. The Edge incorporates vertical heat conduction, smart talk 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 solution DC-coupled home energy battery, expandable in 5-kilowatt increments up to 80 kilowatts in most jurisdictions, and for our AC-coupled 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-for 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 to lithium from lead acid. These LEDs require sufficient power generation and reliability to which Xpeon 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 Xpeon. 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 expansions. 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 into 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 Adelot to discuss our first quarter 2024 financial results. 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 two hundred thousand dollars or twenty two point nine percent of revenue as compared to four hundred thousand dollars or twenty nine point four percent of revenue in the prior year period the decrease in gross profit as a percentage of revenue was primarily attributed both to decreases in sales which drove higher fixed overhead costs per unit selling general and administrative expenses increased to 2.2 million dollars compared to 2.1 million dollars 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 31 cents per share and net loss of $2 million or 29 cents 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. 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 LiPo4 battery storage solutions will enable residential and small business customers to create their own stable microenergy grid and lessen the impact of increasing power fluctuations and outages. Xpeon 360 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 VUTA tooth 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 XBeyond 360 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?

Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one now. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. Again, if you would like to ask a question, please press star and then one now. The first question that we have comes from Brian Latnia from Zach's Small Capital Research. Please go ahead.

Good afternoon, gentlemen. That's exciting news about tractor supply. If I can just follow up a quick question there. You mentioned that you'll be on their website. Do you think there's a possibility to expand that to their retail locations as well?

Well, I mean, we would hope that that opportunity exists, but, you know, tractor supply seems to have a unique niche where they can have smaller locations than what you would normally have for square footage. And some of the big boys, the Home Depots and the Lowe's of the world, but their customers know that they can go in, and if it's not necessarily stocked there, they can get the product relatively quickly at that location using the web services. So we're very excited about starting there, and if they decided to move down that road with us, we would, of course, tell you first.

Okay, great. Any early feedback on the home energy system since you released the data sheets? You know, just looking at it, it looks like the system compares really favorably to the current market leaders like Tesla and LG. So I'm just wondering if you've 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.

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, and we're 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.

Okay. And just one sort of housekeeping issue, Greg, the gross margin, is there anything going on there with the mix? It's pretty much principally just the battery. You know, there's nothing going on in terms of pricing pressures or anything like that that would be holding down the margin right now, right?

No, it's mainly just with the batteries. You know, our pricing, we've Done really well with our vendors, you know, holding prices and not seeing too many increases thus far.

Okay, good.

And when I retire in a few years and I'm building out a van, that new Edge battery is going to come in handy. So, thanks. Okay, thank you, Brian.

Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then 1 now. We'll pause a moment to see if we have any further questions on the conference call. At this stage, there are no further questions on the conference call. I will now turn the call over to Larry Holup for webcast questions. Please go ahead, sir.

Our first question asks, can you speak to the Biden administration's tariffs against China that were announced today? Yeah, that was a, that was an interesting read.

You know, we don't really quite know the scope yet because it's a new executive order, but our initial read shows that none of our batteries are included in the tariff lists for 2024, 2025. The only lithium ion batteries that we could identify were ones used in electric vehicles, so that's a different chemistry than what we would typically use, and we don't provide batteries for EVs. 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'd 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're constantly doing that. So to be determined on the tariffs and whether there's any more.

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

We actually finished executing the call 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 you know, they have more than 2,200 locations and it fits perfectly with our product offerings We're 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 And since obviously that happened today, we will follow that up with a formal press release.

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

We have started to ship the pre-orders for the Group 27 batteries. 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're in the process of filling those orders.

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

Sure.

As we work with our customers, they're 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.

Our next question asks, any update on new OEM partners

We have many potential OEM partners and retail partners engaged. It's 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're finalized.

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?

Yeah, probably the only one is the constant question that comes up is, you know, can I self-install that in my home? And I don't want to speak to people that do off-grid work, but if you're working with the power grid – That's 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.

Thank you, Sal. 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, Sal.

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

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