Acorn Energy, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited figures are in thousands of dollars, except per-share data. Acorn is a holding company; its consolidated operating business is OmniMetrix, while its 41.2% DSIT interest is accounted for under the equity method. GridSense is reported as a discontinued operation.
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $1,085 | $942 | $3,226 | $7,618 |
| Gross profit / margin | $629 / 58% | $524 / 56% | $1,837 / 57% | $2,937 / 39% |
| Operating loss | $(531) | $(624) | $(1,375) | $(2,699) |
| Loss from continuing operations, after tax | $(625) | $(635) | $(1,555) | $(3,276) |
| Net income (loss) attributable to Acorn shareholders | $236 | $652 | $(475) | $113 |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $(1,322) | $(3,881) |
- Revenue and margins: Nine-month reported revenue fell 58%, primarily because Acorn stopped consolidating DSIT after its April 2016 partial sale. OmniMetrix revenue increased 27%, to $3,226, and its gross margin rose to 57% from 51%, reflecting higher sales and a more favorable product mix. Q3 revenue increased 15% year over year.
- Profit and unusual items: Nine-month shareholder loss was $475, despite $258 of equity-method income from DSIT and $698 of income from discontinued operations. The latter included a $660 gain on GridSense deconsolidation. The 2016 comparison included a $3,543 gain on the DSIT sale. Q3 2017 shareholder income was $236, including $633 of discontinued-operations income, primarily the GridSense gain.
- Cash, liquidity and debt: September 30 cash and equivalents were $293; management separately reported $133 of non-escrow corporate cash. Working capital was $1,844, including the $5,916 carrying value of the DSIT investment and $579 of escrow. Current liabilities included $350 of short-term credit, $1,624 due to directors and $1,513 due to DSIT. Nine-month cash used in continuing operations was $1,278; director-loan proceeds provided $1,300 of financing. Contractual cash obligations totaled $3,733, including $3,137 due to directors and DSIT by the earlier of April 30, 2018 or sale of the DSIT investment.
Material developments and outlook
- In October, Acorn received the $579 DSIT-sale escrow, less $41 withholding tax. Cash was approximately $516 on November 8, 2017. OmniMetrix’s receivables-based credit facility was renewed and increased to a maximum of $1,000; the balance was $350 at September 30 and $150 on November 7. The facility carries an effective advance rate management estimated at 16.8% and requires a minimum $150 balance for one year beginning November 1.
- Management said available cash and financing were expected to fund operations only into Q2 2018. It stated that cash flow was insufficient for the next 12 months and that the approaching director and DSIT obligations, together with uncertainty about selling the DSIT investment in time, raised substantial doubt about Acorn’s ability to continue as a going concern. Possible funding sources include additional borrowing, selling or partnering OmniMetrix, or equity financing; none is assured.
- Management was pursuing a sale of its DSIT investment and expected OmniMetrix growth and its expanded credit facility to reduce cash needs. No formal earnings guidance was provided. Backlog was reported at $20.3 million: $17.2 million at DSIT and $3.1 million at OmniMetrix; DSIT backlog relates to an equity-method investee, not consolidated revenue.
- GridSense was dissolved and deconsolidated in September 2017; its assets and liabilities were transferred to a liquidating trust. The filing also reports ineffective disclosure controls due to previously identified material weaknesses, including resource, employee-turnover and IT-system limitations. Management reported no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Acorn completes a timely DSIT share sale, the proceeds available after required repayments, and the amount and timing of obligations due to DSIT and directors.
- Whether cash, director commitments and OmniMetrix’s renewed credit facility can fund operations beyond the stated Q2 2018 runway; confirm actual borrowing availability and costs.
- OmniMetrix’s continued revenue, margin and cash-flow performance, and the quality and convertibility of reported backlog.
- Progress resolving material weaknesses in disclosure controls and any further GridSense liquidation claims or distributions.