Acorn Energy, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial amounts below are in thousands of dollars unless stated otherwise. Acorn is a holding company; its operating business is OmniMetrix, which provides remote monitoring and control systems and services through Power Generation (PG) and Cathodic Protection (CP) segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,611 | $1,468 | $3,316 | $2,806 |
| Gross profit / margin | $1,222 / 76% | $1,022 / 70% | $2,432 / 73% | $1,944 / 69% |
| Operating income (loss) | $5 | $(22) | $31 | $(296) |
| Net income (loss) attributable to Acorn shareholders | $2 | $(33) | $22 | $(316) |
| Basic and diluted EPS | $0.00 | $(0.00) | $0.00 | $(0.01) |
- Cash flow: Six-month operating cash flow was $83; investing used $42 and financing used $149, primarily to repay the credit line. Cash decreased $108 to $1,955.
- Liquidity: Working capital was approximately $40 at June 30. Current assets were $3,906 and current liabilities $3,866. Deferred revenue included $3,239 current and $1,480 long-term; management stated recognition requires no significant cash outlay. Cash was approximately $2,039 on August 5.
- Debt and obligations: The approximately $149 outstanding on OmniMetrix’s receivables-based credit line was repaid in February 2021; the facility expired February 28 and was not renewed. Operating lease liabilities totaled $494. Contractual cash obligations were $831, including leases, software agreements and services.
- Segments and revenue mix: First-half PG revenue was $2,837 and CP revenue $479. Total hardware revenue was $1,291 and monitoring revenue $2,025.
Material changes versus prior comparable periods
- First-half revenue rose 18%; Q2 revenue rose 10%. Management attributed growth mainly to hardware and accessory sales and more installed billable monitoring connections.
- First-half gross margin improved to 73% from 69%; Q2 margin rose to 76% from 70%. Management cited a stronger commercial and industrial customer mix, accessories, monitoring revenue and data-plan restructuring.
- The company moved from a first-half 2020 operating loss of $296 and shareholder net loss of $316 to first-half 2021 operating income of $31 and shareholder net income of $22. Q2 2021 was near break-even, with $2 attributable net income.
- First-half R&D increased 20% to $353, while SG&A increased 5% to $2,048. The credit line was paid off and not renewed.
Outlook, management commentary and risks
- Management said cash plus expected operating cash generation should fund operations at current levels for the foreseeable future, including the 12 months after issuance. It may consider a new credit line to fund additional investment.
- Management expected moderate R&D growth and continued SG&A increases during 2021, reflecting product development, staffing, travel, sales activity and technology investment. No numerical full-year revenue or earnings guidance was provided.
- Management reported minimal negative COVID-19 impact to date, continuing recurring monitoring revenue and customer retention, and said sales were returning toward projected levels as travel resumed. COVID-related restrictions had delayed equipment sales and extended CP sales cycles; future effects remain uncertain.
- Supply-chain disruption remains a risk, particularly for application-specific electronic components with limited alternatives. The filing also cites customer credit, dependence on key personnel, quarterly variability, competition and execution of the growth strategy as risks.
- Acorn disclosed that its disclosure controls and procedures were not effective due to material weaknesses previously identified, related to limited subsidiary resources and IT capabilities. No material change in internal control over financial reporting was reported during the quarter.
- Commitments include software-platform licensing fees, a customer-portal development project of approximately $106, technology infrastructure enhancements of approximately $21, and other contractual obligations. A July 2021 office sublease is expected to generate monthly payments of $2.375 through December 2024.
- One customer represented approximately 10% of first-half invoiced sales. Two customers represented 18% and 11% of accounts receivable; by August 5, the company had collected 90% of approximately $207 outstanding from those customers.
Important facts for investors to verify
- Whether revenue growth, improving gross margins and installed monitoring connections continued after June 30, especially given COVID-related sales-cycle delays.
- Whether operating cash generation can sustain the business while working capital remains approximately $40 and corporate costs continue.
- Progress in remediating the disclosed material weaknesses and improving disclosure controls and IT capabilities.
- Exposure to concentrated receivables, customer credit risk and availability of critical electronic components.
- The filing’s backlog discussion says “as of June 30, 2020” while reporting backlog of approximately $4,719, matching the June 30, 2021 deferred-revenue balance. Verify the intended date; the text is inconsistent.