Acorn Energy Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 3 speakers on the call.

Operator

Good morning, and welcome to Akron Energy's First Quarter twenty twenty five Conference Call. At this time, all participants are in a listen only mode. After some prepared remarks, we will conduct a question and answer session. As a reminder, today's conference is being recorded. Now I will turn the conference to Tracy Clifford, CFO of Econ Energy and COO of its own OmniMetrix operating subsidiary.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank you all for joining today's call. Let me first remind everyone that the following remarks as well as answers to questions may be forward looking. These statements are subject to various risks and uncertainties. The operating and financial performance of the company in future periods is subject to general risks associated with potential disruptions to business operations and customer demand, specific risks related to the company executing its operating plan, maintaining high customer renewal rates, growing its customer base as well as some changes in technology, the competitive landscape, or in the financial or economic environment among other factors. Forward looking statements are based on management's beliefs and assumptions using information and data currently available pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

There is no assurance that the company will achieve its targets. The company undertakes no obligation to revise or disclose revisions to such forward looking statements made as of today to reflect future events or circumstances that occur after this call. A more thorough discussion of risks and uncertainties that may affect the company is included under risk factors in our 10 ks available on sec.gov and on our website. Now I'll turn the call over to Dan Lowe, CEO of Acorn and OmniMetrix for additional comments. Dan?

Speaker 2

Hi. Thank you, Tracy, and thanks everyone for joining us today. I also want to thank members of the MicroCap Club and other investors that we were able to meet at the Planet MicroCap Conference in Las Vegas. We greatly appreciate your support and interest in Acorn. I'm pleased to report continued progress in our first quarter as revenue rose 45% or $956,000 to 3,100,000.0 contributing a $526,000 increase to operating income of 54% of the revenue increase.

Speaker 2

The rise of first quarter revenue was driven by a 78% increase in hardware due to our large contract with a cell phone provider. This performance confirms the efficiency and operating leverage of our business model in which approximately 50% of each incremental revenue dollar drops to operating income and EBITDA. In addition, despite our higher cost, our operating expenses decreased to 56% of revenue in q one twenty five from 71% of revenue in q one twenty four. On the bottom line, Acorn's Q1 twenty five EPS rose to 19¢ per share versus 3¢ in Q1 twenty four, an increase of over 600,000 now, 600000%, six hundred %, but it was below adjusted EPS of 31¢ per share in q four twenty four. For financial point purposes, our net income is now reflected on a fully taxable basis.

Speaker 2

However, we do not pay federal income tax as our income is shielded from federal tax by NOLs. Our first quarter is typically a seasonally low revenue quarter for us, and we incurred some higher expenses from orders and tax work related to the partial release of our valuation allowance to record a portion of our deferred tax asset on the balance sheet as of 12/31/2024. These expenses equated to approximately 3¢ per share. So on a capital basis to the twenty twenty four q four period, for example, our q one EPS would have been 27¢ adding back 5¢ for federal tax and 3¢ for audit and tax expense. And as I've mentioned, our Q1 is typically the low revenue quarter for our company.

Speaker 2

It goes one, two, three and four in terms of from lowest to highest revenue quarters. Our operating results in the second half of 'twenty four and in 'twenty five are benefiting from a material contract with a major cell phone provider under which shipping commenced in Q3 twenty twenty four. This contract will now total approximately 5,400,000.0 in gross top line revenue in hardware and the first year of marketing services. We expect to complete the hardware shipments in 2025. The revenue from monitoring will extend into 2026 because although we are paid on delivery and acceptance of hardware, we defer monitoring revenue over the service period, which is a twelve month from the installation and acceptance date.

Speaker 2

For example, approximately 96% of the revenue we've recognized for this contract with q one twenty five has been related to hardware. The margin revenue recognition doesn't begin until the units are installed and accepted. So there's a bit of a delay in recognizing monitoring revenue. Given that monitoring contracts typically have a nice about 95% renewal rate, we expect to generate ongoing margin revenue beyond the initial contract period. Our margin service represents the protective value of our solution as ongoing annual cost is modest compared to the effort and cost of purchasing and installing the new line tech solution.

Speaker 2

As a result, we we view marketing revenue to be annually recurring revenue. We continue to execute on this and other contracts with the highest levels of customer service as we believe our reliable track record can position us for additional opportunities with this customer and others with substantial remote monitoring needs. Based on our view and feedback, we believe OmniMessage remains the premier monitoring solution on the market, which is further substantiated by the fact that our solution is agnostic to generate a brand. Additionally, are told that our monitors are easier to install than competitive products creating yet another element of value for our customers. To this end, we are in discussions with several OEMs about the potential to bundle our solutions with the sale of their equipment.

Speaker 2

We cannot be sure if anything will come up these efforts, but we are the largest independent monitoring solutions provider with the best general monitoring solution and the OEMs know us. Tracy will talk more about our products, but suffice it to say, we provide much more critical information and we monitor many more points of data than OEM or competitor monitors. Today, we are all accustomed to apps on our phone that provide data that allows us to monitor and manage our own security, our climate control, our cars, etcetera. The same is true for business, which are businesses which are increasingly interested in generating and managing data as the basis for decisions to streamline and improve their operations while reducing costs. Reflecting this trend, we currently estimate a 75% attachment rate for monitors and new generators up from just 15% to twenty percent five years ago.

Speaker 2

Ultimately, we believe monitoring will become an embedded component in all generators and businesses will include monitoring as a spec in all their request for proposals. We think this is where the industry is going and we're working to position our broadly compatible industry leading solution as the obvious choice for commercial and industrial industrial customers. We also see a range of factors that we expect to increase commercial and consumer demand for backup generators and monitoring and control services. We outlined some of these demand drivers in today's press release. For example, regarding grid infrastructure, the North American Electrical Reliability Court or Merck has warned that grid reliability risks are particularly acute in roughly half of The US, particularly in regions that have the largest coal plants, which are being retired.

Speaker 2

These include the Mid Continent independent system operator on my vote, PGM in the 13 Atlantic Mid Atlantic and Midwestern State, SPC in the Southwest, and Air Cotton, Texas. According to the North, these regions are at high risk for the brownouts and blackouts now during peak summer and winter demand, and it's only projected to worsen. Our forecast, Texas growing demand for power could suppress could surpass its available energy supply to support peak demand beginning in the summer of twenty twenty six. This has some power demand they estimate that power demand in Texas will almost double by 02/1930 due to the population growth, more extreme weather, the proliferation of large users such as cryptocurrency miners and data centers. The Mid Continent may be in worse shape with inadequate reserves projected for this year in the Mid Atlantic region face similar issues.

Speaker 2

PGN has said that they will not have enough enough electricity by the twenty sixth, '20 seventh delivery year. So what occurred in Spain and Portugal recently could be a preview of what's to come in The US. These challenges will require significant investment in grid modernization, storage technology, thoughtful planning regarding the pace of conventional plant retirements and investment in demand response systems that can quickly reduce load during supply constraints. We have positioned OmniMetrix to play a key role in addressing this crisis in two ways. First is by performing the deployment and use of standby generators with monitoring services to ensure power supply in the event of grid failures.

Speaker 2

Second, we are playing a pioneering role in demand response to enable the use of standby generators to support electric grid in mini peak power demand. The rollout of demand response is taking longer than we had first expected, and it seems largely due to the complexity of the problem. ERCOT is still working to finalize its model for demand response providers, a process which has delayed the broader rollout of the program's commercial and residential customers via our partner, CPower. Given the obvious need and the value OmniMetrix can provide, we believe demand response remains an important long term growth opportunity and potential profit driver for our business. In addition to organic growth opportunities, we are also conducting an ongoing M and A search process to identify businesses that are well aligned with our operations and objectives and meet our financial criteria.

Speaker 2

We are seeking recurring revenue businesses similar to OmniMetrix with a monitoring component and the ability to be accretive to our bottom line in the first year. Those are our primary objectives in our search while expanding the scale of our business remains a key goal for this year. Turning to our publicly traded equity, we have long envisioned uplifting A1 to Nasdaq, where we believe we can benefit from much broader visibility, liquidity, and access to an expanded paper investors. Now with a balance sheet that meets the listing requirements, we have initiated dialogue with NASDAQ regarding our uplifting. We've already filed the application and paid the application fee.

Speaker 2

We expect the process to take a couple of months and simultaneously, we're considering changing our corporate name to better reflect our operations and our business focus. We expect to complete this process by the end of the third quarter and we are very excited to pursue the next step in our effort to build value for our shareholders. In summary, we believe that Aquent continues to be exceptionally well positioned for long term growth and increasing profitability. Our solutions provide tangible high ROI benefits that help customers achieve their operational, financial, environmental risk mitigation and regulatory goals. We believe there are a number of factors and trends that support our promising outlook in 2025 and beyond, and we are hard at work developing growth opportunities for the years to come.

Speaker 2

Now let me turn over the call to Tracy Clifford for her financial review and operational insights. Tracy?

Speaker 1

Thanks, Dan. In addition to our earnings release, we also filed our 10 ks this morning, and both are available online. I'll provide a brief review of q one financial and operating highlights, and then we'll take investor questions. Our q one twenty five revenue was 45% to 3,098,000 versus q one twenty four with a 70% increase in hardware revenue and 15% increase in monitoring revenue. The material cell phone provider contract contributed 876,000 related to TreeGuard hardware in q one twenty five and was the primary revenue growth driver on the hardware side.

Speaker 1

Our gross profit grew 46% in line with the revenue growth, reflecting a gross margin of 75.1% in q one twenty five versus 74.6% in q one twenty four. Total operating expenses increased 14% to 1,722,000 in q one twenty five from 1,513,000 in q one twenty four with higher SG and A and higher r and d expenses. The increase in SG and A included higher corporate audit and tax fees, as Dan mentioned, as well as increased expenses for personnel, sales commissions, and software and technology expenses. Audit and tax fees included an increase of 67,000 related to the work performed to derive the partial release of the income tax valuation allowance against against our deferred tax assets as of 12/31/2024. Acorn's strong results and outlook for ongoing profitability requires the release of evaluation allowance against our deferred tax assets, resulting in a $4,350,000 deferred income tax benefit recorded as of 12/31/2024, but the majority of that work and related professional fee expenses were incurred in q one.

Speaker 1

On a percent of sales basis, q one twenty five operating expenses actually decreased to 56% of total revenue from 71% in q one twenty four as our top line grew more quickly than our expenses reflecting the operating leverage in our model as Shannon previously discussed. Research and development expenses increased 22% in q one twenty five versus q one twenty four, reflecting an increase in salaries, including the hiring of a new senior level engineer in November 2024 and third party expenses for continued development of next gen monitoring products and potential new product lines. We are planning to add another high level member to our IT department before the end of twenty twenty five to provide additional resources for continued expansion of our data tools to respond to custom data requests and to support the generation of innovative ideas with a focus on cybersecurity. Overall, in terms of R and D, our focus remains on expanding our product offerings and enhancing existing solutions, particular generation segment. We're very excited about the upcoming launch of the next generation of OmniMetrix products coming in June.

Speaker 1

Our newest monitors, which we're calling Omni and OmniPro, were also a sleek modern platform designed for flexibility and ease of installation to have even greater appeal to potential customers. The Omni residential monitor has 50 alarms and 50 parameters, including battery voltage, fuel level, coolant status, missed exercise, and many more. Multicolor LEDs provide clear status information for troubleshooting with a new USB c connection and patented over the air programming and updates. The Omnipro commercial monitor also provides more functionality in a much smaller footprint than the TrueGuard Pro. It has up to 1,000 alarms and parameters with the ability to program exercises and to run them remotely.

Speaker 1

Air quality index integration to prevent exercises on bad air quality days, and patented over the air programming updates. The Omni and OmniPro are the culmination of nearly two years of work by our talented engineering team. Generally speaking, Omni and OmniPro offer faster installation, easier field maintenance, flexibility to change carriers on component or components without replacing the entire unit, and easy to use color coded visual diagnostics. We will have more information about the official launch of these exciting products in the coming weeks. Turning back to the financials.

Speaker 1

Our q one twenty five net income approved over improved over 600% to 464,000 or 19¢ per share versus 65,000 or 3¢ per share in q one twenty four, reflecting strong revenue growth and our significant operating leverage. As Jan mentioned, our q one twenty five taxable income is shield from federal tax liability payments by NOLs, unless there is no cash flow impact related to federal tax liabilities. Our q one twenty five EPS reflects an effective 24.5% tax rate and total tax expense of a hundred and 54,000 or 6 cents cents per share. This includes a hundred and 31,000 or 5¢ per share of federal income tax expense. In terms of cash flow, we generated 271,000 from operating activities, invested 6,000 in computer equipment, and our cash balance increased to 2,591,000 at 03/31/2025.

Speaker 1

As of March, our cash position improved to 2,724,000, and we continue to have no debt. Before concluding, let me quickly address the tariff question that is on the minds of the investors. Our monitors are assembled at a facility north of Atlanta. Our circuit boards are manufactured in West Virginia by a contract manufacturer who sources transistors from Asian sources, including China. Some of our cables are also sourced in China, but represent a small portion of our total cost of goods.

Speaker 1

Based on the current situation, we believe it would be feasible to incorporate tariff related cost increases into our pricing structure to avoid any significant impact to our gross margin long term. We will continue to monitor the situation as it develops and will provide future updates as appropriate. To sum up, our solutions provide substantial efficiency and ROI with expanded capabilities to monitor critical assets, including backup generators with remote control functions. We provide actionable data, risk mitigation tools, and regulatory compliance as well as peace of mind. We're excited about favorable market trends and opportunities in the remote monitoring space and look forward to updating you as we progress through 2025.

Speaker 1

Thank you all for joining the call. And operator, please prepare for q and a.

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.

Operator

At this time, we will pause momentarily to assemble our roster. Participants, to register for a question, you may press star then one on your telephone keypad. A reminder to all the participants, if you wish to register for a question, please press star then 1 on your telephone keypad.

Speaker 2

Okay. If there are no questions right. If there are no Ask

Operator

your question. Yes. I'll turn the conference back to Jan Luke for closing remarks.

Speaker 2

Well, I'm glad that we made our comments so in-depth that there are no questions. But we appreciate your support, and we're happy to speak with investors. You can arrange a call with us or ask questions through our IR team whose information is listed in today's press release. As always, we thank you for your support and look forward to updating you on our progress in future calls. Thank you all very much.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Powered by Quartr

Key Takeaways

  • Acorn Energy reported a 45% year-over-year revenue increase to $3.1 million in Q1 2025, driven by a 78% surge in hardware sales from a major cell phone provider contract that delivered a 54% incremental margin.
  • Gross profit climbed 46% to a 75.1% margin, while operating expenses fell to 56% of revenue from 71%, underscoring the operating leverage of Acorn’s business model.
  • The $5.4 million cell phone provider agreement will complete hardware shipments by year-end 2025, with deferred monitoring revenue extending into 2026 and a 95%+ renewal rate expected to drive recurring service income.
  • Acorn plans to launch its next-generation monitoring products, Omni and OmniPro, in June, featuring faster installation, over-the-air updates, and expanded data-point monitoring to enhance customer value.
  • Strategic priorities include expanding into demand response programs, pursuing M&A targets with recurring revenue profiles, and completing a Nasdaq uplisting by Q3 to boost visibility and liquidity.
AI Generated. May Contain Errors.
Earnings Conference Call
Acorn Energy Q1 2025
00:00 / 00:00