Acorn Energy, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Acorn is a holding company whose OmniMetrix subsidiary provides remote monitoring and control services. Its reportable segments are Power Generation (PG) and Cathodic Protection (CP). Dollar amounts below are in thousands unless noted.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / Dec. 2020 |
|---|---|---|
| Revenue | $1,705 | $1,338 |
| Gross profit / margin | $1,210 / 71% | $922 / 69% |
| Operating income (loss) | $26 | $(274) |
| Net income (loss) attributable to Acorn shareholders | $20 | $(283) |
| Basic and diluted EPS | $0.00 | $(0.01) |
| Operating cash flow | $68 | $237 |
| Cash and cash equivalents | $1,974 | $2,063 at Dec. 31, 2020 |
| Working capital | $(71) | Not stated |
| Total assets / total deficit | $5,079 / $(483) | $5,201 / $(519) at Dec. 31, 2020 |
Revenue was composed of $697 hardware and $1,008 monitoring services. PG generated $1,458 of revenue and CP $247. Consolidated operating expenses were $1,184, including $178 R&D and $1,006 SG&A. Net investing cash use was $8; financing cash use was $149, primarily repayment of the line of credit. Cash declined by $89 during the quarter.
At March 31, current liabilities were $3,798, including $3,181 of current deferred revenue. Total deferred revenue was $4,480, largely expected to be recognized over time and, according to management, not to require significant cash outlay when recognized. The company had no short-term credit outstanding after repaying its line of credit; operating lease liabilities totaled $518. Contractual cash obligations were $827 through 2026. OmniMetrix owed Acorn approximately $4,468 for intercompany advances, interest, and expenses; this is an intercompany amount.
Material changes versus Q1 2020
- Revenue increased 27%, primarily from hardware and accessories sales and growth in installed billable monitoring connections.
- Gross margin improved by 2 percentage points to 71%. Hardware margin increased to 49% from 39%; monitoring margin was 86% versus 84%.
- SG&A decreased 3% to $1,006, reflecting lower travel and trade-show costs at OmniMetrix, partly offset by higher corporate expense. Management cautioned that travel and trade-show spending may rise as activity resumes.
- Acorn moved from a $274 operating loss to $26 operating income and from a $283 attributable net loss to $20 attributable net income.
- Operating cash flow fell to $68 from $237. The company repaid its approximately $149 year-end credit balance and did not renew the facility, which expired February 28, 2021.
Outlook, risks, and notable items
- Management said cash of approximately $1,968 as of May 7, 2021, together with expected operating cash generation, should fund current operations for the foreseeable future, including the following 12 months. This is not a quantified earnings or revenue forecast; the company may seek a new credit line to fund additional investment.
- Management reported minimal negative COVID-19 effects to date and described OmniMetrix as an essential business. Travel restrictions had delayed sales-closing timelines; future pandemic effects remain uncertain. Management cited backup-power needs and remote monitoring as supports for stable performance.
- COVID-19, supply-chain disruption, limited alternatives for certain specialized electronic components, customer demand, competition, dependence on key personnel, credit losses, and quarterly variability are identified risks. One customer represented 11% of Q1 invoiced sales and 11% of March 31 receivables; the company reported collecting that customer’s $73 balance by May 7.
- New commitments included a customer-portal user-interface project capped at approximately $85 and technology infrastructure enhancements estimated at $21, both expected to be completed in 2021. A software-platform agreement also requires a $50 annual licensing fee, paid quarterly.
- Disclosure controls and procedures were reported as ineffective because of previously identified material weaknesses involving limited personnel resources and IT-system capabilities at OmniMetrix. No material change in internal control over financial reporting was reported during the quarter.
- Subsequent to quarter-end, the CFO received options for 100,000 shares on May 10, 2021; the filing also reports an increase in her monthly consulting fee effective June 1.
Important facts for investors to verify
- Whether revenue growth, particularly hardware and accessories sales, is repeatable and how recurring monitoring revenue and deferred revenue convert to cash.
- Whether the company sustains positive operating cash flow after repayment of the credit line and how it will fund any additional investment.
- Progress in remediating the disclosed material weaknesses in internal controls.
- Potential effects of specialized-component availability, travel and sales-cycle normalization, COVID-19, and customer concentration.
- Timing, costs, and benefits of the software and customer-portal commitments, and the stated 12-month liquidity assessment.