WILMINGTON, DE — Acorn Energy, Inc. (OTCQB: ACFN) recently announced results for its fourth quarter (Q4’22) and full-year periods ended December 31, 2022, with higher revenue, gross profit and improved gross margin in both of the respective periods. Acorn will host a conference call today at 11:00 a.m. ET to review its results and outlook and answer investor questions (call details below).
| Summary Financial Results – GAAP Basis | |||||||||||||||||
| ($ in thousands) | Q4’22 | Q4’21 | Change | 2022 | 2021 | Change | |||||||||||
| Hardware revenue | $ | 847 | $ | 754 | +12.3% | $ | 3,088 | $ | 2,746 | +12.5% | |||||||
| Monitoring revenue | $ | 998 | $ | 1,000 | -0.2% | $ | 3,912 | $ | 4,030 | -2.9% | |||||||
| Total revenue * | $ | 1,845 | $ | 1,754 | +5.2% | $ | 7,000 | $ | 6,776 | +3.3% | |||||||
| Gross profit | $ | 1,352 | $ | 1,225 | +10.4% | $ | 5,071 | $ | 4,899 | +3.5% | |||||||
| Gross margin | 73.3% | 69.8% | 72.4% | 72.3% | |||||||||||||
| Non-GAAP Measure | |||||||||||
| Reconciliation of GAAP Revenue to Cash-Basis Revenue | |||||||||||
| Q4’22 | Q4’21 | 2022 | 2021 | ||||||||
| ($ in thousands) | |||||||||||
| Total GAAP revenue | $ | 1,845 | $ | 1,754 | $ | 7,000 | $ | 6,776 | |||
| Less: Amortization of deferred revenue |
(1,633) | (1,484) | (6,205) | (5,886) | |||||||
| Plus: Sales recorded to deferred revenue |
1,751 | 1,766 | 6,983 | 6,725 | |||||||
| Other adjustments and write-offs | (48) | (2) | (16) | (17) | |||||||
| Total cash-basis revenue ** | $ | 1,915 | $ | 2,034 | $ | 7,762 | $ | 7,598 | |||
| Year-over-year growth | -5.9% | 2.2% | |||||||||
CEO Commentary
“I’m pleased that Acorn was able to grow in a challenging 2022 macro environment that included higher interest rates, high inflation and weaker overall economic activity. The company not only experienced increased labor and operating costs but also dealt with the sunsetting of 3G technology by mobile carriers, which led to some customer churn. In the face of these headwinds, we grew revenues by 3.3% on a GAAP basis and 2.2% on a cash basis. We also maintained our gross margin at 72.4% versus 72.3% in 2021 by focusing on driving sales of next-generation products in higher-margin commercial and industrial markets. We were able to generate positive cash flow from operating activities for the year – and in fact, we generated $342,000 of cash from operating activities in Q4, due in part to strong receivables collections as well as by our phased reduction of safety stock and gradual return to par inventory levels as supply chains normalize.
“Though some economic uncertainties persist, 3G sunsetting, which negatively impacted our high-margin monitoring revenue growth in 2022, is behind us. In fact, in Q4, our monitoring revenue was essentially flat versus Q4’21, after being down in each of the first three quarters of 2022. We expect monitoring revenue growth to return and align with historical growth trends in 2023, which we benchmark at greater than 20%. In fact, I’m very bullish that our overall growth, which we define as cash-basis revenue growth, will also exceed this target. Our confidence stems from current discussions and sales orders in early 2023, as well as from the potential of increased monitoring revenue and profitability from “demand response” programs. In July 2022, we announced a partnership between OmniMetrix, CPower Energy Management and Power Solutions Specialists TX, to help homeowners who install new standby generators to earn compensation for grid relief, which is known as demand response. Under the program, homeowners are compensated just for signing up and possibly supplying grid offload by running their generators for up to 12 hours per year, during periods of extreme demand, when the grid is stressed. We anticipate this partnership will begin generating revenue in late 2023.
“It is also important to note that if we meet our target growth, we’d expect to move to positive profitability in 2023. More than $70M of operating loss carryforwards (NOLs) would largely shield the company from cash taxes and benefit the company’s cash flow and cash position in 2023 and future periods.
“As customers deal with increasing labor and energy costs, destructive weather events, and growing pressure for more eco-friendly operations, we remain well-positioned for growth. Our solutions increase productivity, reduce downtime due to enhanced analytics, and reduce human-mediated activities like manual inspections and unplanned repairs. Reduced personnel time, travel and fuel costs not only boosts operating efficiency but also lowers carbon emissions and helps customers achieve their sustainability goals. Environmental and electric grid issues will only grow in 2023 and for the foreseeable future. We will continue to build awareness of our industry leading Internet of Things (IoT) technologies and expanding use cases, as we grow our client base. Our remote monitoring and control solutions are much less expensive and significantly more effective than perpetual, in-person inspection of industrial assets that are often located in remote locations.
“Given OmniMetrix’s technology leadership and the ongoing innovation of our product engineering and design team, we see an abundance of opportunities for growth in under-penetrated industrial markets, in 2023 and in the long-term, and we have a strong financial footing to support growth. We currently have approximately $1.5M of cash and no debt outstanding. We will also continue to search for attractive, complimentary acquisitions in the monitoring, IoT space, which we’d like to close in 2023.
“For these reasons, I am very excited about our prospects both near-term and longer-term, and I look forward to stronger and more profitable growth in 2023.”
Additional Financial Highlights
- Revenue rose 3.3% to $7.0M in 2022 from $6.8M in 2021, with a 12.5% increase in hardware and accessories (HW) and a 3% decrease in monitoring revenue. In 2021, OmniMetrix recorded $112,000 in revenue from the sale of custom TrueGuard Pro units that were designed to large customer specifications and monitored by the customer; thus, the revenue was not deferred. In 2022 the company did not have any custom unit orders. Excluding revenue from custom units, HW revenue growth was 17%. The increase in HW revenue benefitted from a higher percentage of commercial and industrial (C&I) customers versus residential customers and C&I products having a higher average price per unit. HW sales also benefitted from the sunsetting of 3G monitoring units in 2022. However, with sales of new units primarily replacing sunsetting units, monitoring revenue did not increase ratably with HW sales.
- Q4’22 revenue increased 5.2% to $1.85M from $1.75M in Q4’21, as hardware revenue grew 12.3%, while monitoring was relatively flat. Monitoring revenue stabilized in Q4; with sunsetting complete, the company expects monitoring growth to resume in 2023.
- Gross profit grew to $5.1M in 2022, reflecting a 72.4% margin, which compares to $4.9M and a 72.3% gross margin in 2021. Gross margin on HW improved to 48% in 2022 vs. 44% in 2021, reflecting a product mix that included a greater percentage of next-generation C&I units with more value add and higher average price points. Gross margin on monitoring revenue was 92% in 2022, compared to 91% in 2021. Overall gross margin was particularly strong in Q4’22 at 73.3% versus 69.8% in Q4’21, again benefitting from a revenue mix that included a greater percentage of higher-margin C&I product.
- Total operating expenses increased to $5.7M in 2022 vs. $4.9M in 2021 due to increases in both selling, general and administrative (SG&A) expenses and research and development (R&D). Higher SG&A included increases of $356,000 in personnel costs, travel expenses, and sales commissions in the aggregate; $212,000 in technology-related expenses; $45,000 of additional depreciation; $26,000 of higher corporate expenses; and a software impairment charge of $51,000 in 2022. R&D expenses increased by $106,000 for the continued development of next-generation products and the exploration of new potential product lines.
- Primarily reflecting higher operating costs due to investments in personnel and technology, net loss attributable to Acorn stockholders increased to $633,000 in 2022 versus $21,000 in 2021. In Q4’22, the company had a net loss attributable to stockholders of $77,000, compared to a loss of $66,000 in Q4’21, as revenue and gross profit growth offset increased expenses.
Liquidity and Capital Resources
Consolidated cash and cash equivalents were $1,450,000 at December 31, 2022, compared to $1,722,000 at December 31, 2021, with the change primarily due to net cash used in investing activities. The Company continued to invest in technology and software development, using $292,000 in 2022 and $317,000 in 2021. The 2022 investments primarily relate to the development and design of the company’s new Microsoft Azure cloud infrastructure to host its OmniView data servers. The new infrastructure provides a more modern, agile and cost-effective environment to grow IoT connections and services. The new cloud infrastructure was completed and launched in May 2022.
Net cash generated from operating activities was $31,000 in 2022, as compared to $132,000 in 2021, with the difference attributable to a greater net loss due primarily to personnel and technology expenses, partially offset by a decrease in net working capital with strong collections of accounts receivable and less investments in inventory.
Acorn currently has no debt. Acorn stated that it may pursue a line of credit to support internal growth or acquisitions in future periods.
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