Acorn Energy, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; financial statements are unaudited and amounts are in thousands of dollars unless noted. Acorn is a holding company whose operating business, OmniMetrix, provides remote monitoring and control products and services for power-generation equipment and cathodic-protection systems.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,973 | $1,621 | $3,722 | $3,372 |
| Gross profit / margin | $1,490 / 76% | $1,246 / 77% | $2,806 / 75% | $2,504 / 74% |
| Operating income (loss) | $83 | $(222) | $(12) | $(344) |
| Net income (loss) attributable to Acorn shareholders | $96 | $(223) | $11 | $(346) |
| Basic and diluted EPS | $0.00 | $(0.01) | $0.00 | $(0.01) |
- Q2 revenue rose 22% year over year; six-month revenue rose 10%. Power Generation (PG) generated $3,196 of first-half revenue, up 13%; Cathodic Protection (CP) generated $526, down 4%.
- For the first half, monitoring revenue was $2,089 and hardware revenue was $1,633. Management cited more monitored connections, stronger PG product sales and $92 of custom-unit sales recognized immediately as revenue.
- First-half gross margin improved one percentage point year over year. Q2 gross margin decreased one percentage point. First-half operating expenses were $2,818 versus $2,848, including no software impairment in 2023 versus a $51 impairment in 2022.
Cash, liquidity and obligations
- Cash was $1,573 at June 30, up $123 from year-end; operating cash flow was $155, investing cash outflow $37, and financing inflow $5. Cash was $1,738 on August 8, 2023.
- Working capital was negative $389, including $4,154 of current deferred revenue. Management notes that recognizing this deferred revenue does not require significant cash outlay and believes cash plus operating cash generation will fund current operations for twelve months from issuance of the statements.
- Total assets were $6,209; total liabilities were $7,172; stockholders’ deficit was $963. The filing reports no conventional borrowings; lease liabilities were $279, with $293 of undiscounted future lease payments. Other contractual obligations were $41, and open purchase orders totaled $631, payable through October 2023.
- Deferred revenue/backlog was $6,367, up from $5,635 a year earlier; $4,154 was expected to be recognized in the following twelve months.
Changes, outlook and risks
- Compared with first-half 2022, Acorn moved from a $346 shareholder loss to $11 of income, helped by revenue growth, improved gross margin, lower total operating expenses and $27 of net interest income versus $1 of net interest expense. Q2 also returned to profitability.
- Management gave no quantitative earnings or revenue guidance. It said current cash and expected operating cash generation should support current operations for twelve months, while noting it may seek a credit line or other financing for additional investment.
- One customer represented 21% of Q2 invoiced sales and 15% for the first half. Two customers together accounted for 39% of receivables at June 30; by August 8, 64% of their aggregate $277 balance had been collected, including full collection from the customer with $177 outstanding.
- Management identified risks including credit losses, reliance on management and key personnel, quarterly variability, competition and execution of its growth strategy. It wrote off $8 of inventory in the first half.
- Disclosure controls and procedures were reported ineffective because of material weaknesses previously identified: insufficient subsidiary resources and limited ERP capabilities impeded implementation, maintenance or remediation of controls. No material change in internal control over financial reporting was reported during the quarter.
Key facts for investors to verify
- Whether revenue growth and higher monitored connections persist, particularly in PG, and whether CP sales recover.
- Cash conversion, collections from concentrated receivables, and the cash impact and timing of purchase commitments.
- Progress in remediating the material weaknesses in internal controls and improving ERP capabilities and staffing.
- Whether the stated twelve-month liquidity assessment remains valid and whether additional financing is needed for growth.