Acorn Energy, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Acorn is a holding company whose OmniMetrix subsidiary provides wireless remote monitoring and control services and equipment. Its two segments are Power Generation (PG) and Cathodic Protection (CP). Financial amounts below are in thousands of dollars unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,751 | $1,705 |
| Gross profit / margin | $1,258 / 72% | $1,210 / 71% |
| Operating income (loss) | $(122) | $26 |
| Net income (loss) attributable to Acorn shareholders | $(123) | $20 |
| Operating cash flow | $221 | $68 |
| Investing cash flow | $(159) | $(8) |
| Cash at period end | $1,784 | $1,974 |
Hardware revenue was $761 and monitoring revenue was $990. Hardware gross margin fell to 45% from 49%, while monitoring gross margin rose to 92% from 86%. Operating expenses were $1,380, including $198 of R&D and $1,182 of SG&A. Basic and diluted loss per share was reported as $0.00, rounded.
At March 31, 2022, total assets were $6,347 and total liabilities were $6,900; total deficit was $553. Current assets were $4,337 and current liabilities $4,539, producing negative working capital of approximately $202. Deferred revenue totaled $5,692, of which $3,652 was classified as current. The filing reports no external borrowing balance; operating lease liabilities totaled $417, and other long-term liabilities were $13. Acorn also disclosed that OmniMetrix owed the parent approximately $4,054 for advances, loans, accrued interest and expenses; this is an intercompany balance.
Material changes versus Q1 2021
- Revenue rose 3% ($46), with CP revenue up 24% to $306 and PG revenue down 1% to $1,445. Higher hardware sales were partly offset by lower monitoring revenue.
- Hardware revenue increased to $761 from $697. The prior-year period included $112 of custom TG Pro unit sales that did not recur; excluding those units, hardware revenue increased about 30%.
- Monitoring revenue declined 2% to $990, partly because connections were lost as 3G technology was sunset.
- SG&A increased 17% to $1,182, including higher personnel, travel and trade-show, consulting, audit and stock-compensation costs. R&D increased 11% to $198.
- Acorn moved from $20 of shareholder-attributable income to a $123 loss. OmniMetrix generated $168 of segment income before taxes, but $290 of unallocated corporate costs more than offset it.
- Operating cash flow increased to $221, helped in part by a $299 increase in deferred revenue. Technology investment rose to $157 from $8.
Outlook, risks and notable items
- Management believed cash and expected operating cash generation would fund operations at current levels for the foreseeable future, including the 12 months after issuance. Cash was approximately $1,335 as of May 11, 2022, down from $1,784 at quarter-end. Management said it may seek a new credit line or other financing for additional investment.
- Management expected a moderate increase in R&D expense for the remainder of 2022 as it worked on product redesigns and expanded product lines. The filing provides no quantitative revenue or earnings guidance.
- Backlog, primarily deferred revenue, was approximately $5.7 million at March 31. Deferred revenue is recognized over time and management said its recognition does not require significant cash outlay.
- Supply-chain constraints increased component costs and reduced hardware margins. The company cited risks from limited availability of application-specific components and potential lead-time disruptions.
- Management described COVID-19 impacts to date as minimal and said OmniMetrix continued operations as an essential business; future impacts remained uncertain. Travel and meeting restrictions had slowed sales-closing timelines.
- The new Microsoft Azure cloud environment launched May 1, 2022. The company invested approximately $144 in the quarter and estimated a further $70 investment through launch; capitalized amortization began at launch. A new customer portal was expected to launch in Q2 2022.
- Open purchase-order commitments were approximately $1.9 million, payable through 2022. Disclosed contractual obligations totaled $506, including operating leases and software and service agreements.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses previously reported, attributed to insufficient subsidiary resources and limited IT capabilities. No material change in internal control over financial reporting was reported during the quarter.
- Other disclosed items include a software-platform agreement with quarterly licensing payments of $4.45 and a term ending August 19, 2022, subject to automatic renewal absent timely termination notice.
Important facts for investors to verify
- Whether OmniMetrix can maintain and grow monitoring connections as 3G-related customer connections roll off, and whether monitoring revenue stabilizes.
- Whether component availability and cost pressures persist and continue to affect hardware margins, delivery schedules or customer demand.
- Cash usage after quarter-end, including the decline to $1,335 by May 11, technology investments and the company’s liquidity assumptions.
- The timing and conversion of the $5.7 million backlog and deferred revenue into recognized revenue and cash, alongside the $1.9 million open purchase-order commitments.
- Progress addressing the disclosed material weaknesses in internal controls and whether remediation requires additional resources or investment.
- Actual launch and costs of the customer portal and Azure environment, and the terms or renewal status of the software and data-hosting arrangements.