Acorn Energy, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. Acorn is a holding company whose operating business, OmniMetrix, provides remote monitoring and control products and services for power-generation equipment (PG) and cathodic-protection systems on gas pipelines (CP). Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $6.776 million | $5.922 million | +14% |
| Gross profit / margin | $4.899 million / 72% | $4.131 million / 70% | Margin +2 percentage points |
| Research and development | $739,000 | $619,000 | +19% |
| Selling, general and administrative | $4.168 million | $3.822 million | +9% |
| Operating loss | $8,000 | $310,000 | Improved by $302,000 |
| Net income (loss) attributable to Acorn shareholders | $(21,000) | $69,000 | Declined by $90,000 |
| Cash from operating activities | $132,000 | $464,000 | Declined by $332,000 |
| Cash at year-end | $1.722 million | $2.063 million | Declined by $341,000 |
PG generated $5.787 million of revenue (85% of the total), up from $4.988 million; CP generated $989,000, up from $934,000. Hardware revenue rose to $2.746 million from $2.103 million, while monitoring revenue increased to $4.030 million from $3.819 million. OmniMetrix reported approximately $921,000 of segment income before tax in 2021, while Acorn’s $934,000 of corporate costs left consolidated results slightly loss-making before tax.
Gross margin improvement reflected stronger monitoring margins, including a more favorable cellular data plan, and price increases that helped offset higher costs. Revenue growth was supported by more hardware sales, a higher commercial and industrial customer mix, and replacement of older 3G units with LTE units. The 2020 comparison benefited from a $421,000 gain on forgiveness of OmniMetrix’s Paycheck Protection Program loan; Acorn’s own PPP loan was repaid.
Cash, liquidity, debt and commitments
- Year-end working capital was negative $60,000. Current liabilities included $3.541 million of current deferred revenue; deferred revenue generally requires no significant cash outlay as it is recognized.
- Total deferred revenue was $5.393 million at year-end, up from $4.554 million. The company expects to recognize $3.541 million in 2022. Backlog was approximately $5.4 million, primarily deferred revenue, versus $4.5 million a year earlier.
- Operating cash flow was $132,000; investing activities used $324,000, mainly for technology, and financing activities used $149,000, primarily to repay the line of credit. Cash decreased $341,000 during the year.
- OmniMetrix repaid its approximately $149,000 balance and did not renew its receivables-backed credit line, which expired in February 2021. No short-term credit was outstanding at year-end. The company reported $443,000 of operating lease liabilities and $1.849 million of total contractual cash obligations, including $1.217 million of purchase orders expected to be delivered over the next 12 months.
- Management reported approximately $1.825 million of consolidated cash as of March 28, 2022, but only approximately $64,000 was held at Acorn corporate, excluding OmniMetrix. Management believes cash and expected operating cash generation can fund current operations for at least 12 months from the financial statement issuance date.
Outlook, risks and notable items
- Management expects 2022 R&D and SG&A expenses each to increase approximately 15%, reflecting product development, technology and operational investment, and wage and benefit costs. It expects OmniMetrix to generate positive cash flow and not require working-capital support in 2022, but provides no quantified revenue or earnings guidance.
- Planned investments included a new customer portal, expected to launch in the second quarter of 2022, and a Microsoft Azure cloud-server environment expected to be deployed around May 2022. The company invested approximately $166,000 in the cloud initiative during 2021; further investment remained ongoing.
- Management disclosed material weaknesses in internal control over financial reporting, citing insufficient subsidiary resources and limited IT capabilities. Disclosure controls and procedures were assessed as ineffective at December 31, 2021. Management said the weaknesses did not cause material misstatements in the reported periods and intends to remediate them as resources permit.
- Key risks include the company’s history of losses and dependence on OmniMetrix’s growth and cash generation; limited corporate cash; reliance on key personnel; customer retention and competition, including generator OEM offerings; supply-chain constraints and specialized components; cellular-network changes; data reliability and cybersecurity; and the limited-liquidity OTCQB market. Management stated that COVID-19 had caused minimal negative impact to date, though it had affected sales timelines and supply-chain risk remained.
- The independent auditor issued an unqualified opinion on the financial statements. Its critical audit matters concerned revenue-recognition timing and assessment of the company’s ability to continue as a going concern; the auditor did not express a separate opinion on those matters. The audit did not include an opinion on internal-control effectiveness.
Most important facts for investors to verify
- Whether OmniMetrix can sustain profitable operations and convert deferred revenue and backlog into recognized revenue and cash.
- Whether cash generation can cover corporate overhead, planned investment and purchase commitments, particularly given the small cash balance held directly at Acorn.
- Progress in remediating the disclosed material weaknesses and improving IT and financial-reporting controls.
- Whether supply constraints, 3G-to-LTE replacements, customer retention and competition affect sales, margins or monitoring renewals.
- Whether 2022 expense growth and technology spending remain consistent with management’s expectations and the stated liquidity outlook.