ACFN - Artko Capital - Acorn Energy: Disappointing But Not Out Of The Realm Of Normality
Summary
- Acorn’s price performance has certainly been disappointing but not out of the realm of normality of the nanocap world.
- This is a nice, very high margin, recurring revenue business with a nice $4mm base at close to 90% gross margins.
- Despite a domestic industrial slowdown we are confident that the company will revert back to its 20% growth in 2023.
The following segment was excerpted from this fund letter .
Acorn Energy ( OTCQB:ACFN ) – 8% of Portfolio; $0.30 cost basis/$0.32 current price
Acorn’s price performance, down 45% in 2022, and down another 9% in 2023, has certainly been disappointing but not out of the realm of normality of the nanocap world, where even $10,000 worth of volume can push the price of this $13mm market cap company up or down 15%.
2022 was a transitionary year for the company whose main business is providing monitoring services for back up electrical generators in the United States. This is a nice, very high margin, recurring revenue business with a nice $4mm base at close to 90% gross margins. The other half of the $8mm+ cash revenues is the sale of hardware, which results in an increase in the monitoring revenue base.
On the one hand 2022 was a disappointing year in that the sunsetting of 3G technology by major telecom carriers has resulted in low single digit decline of the Monitoring segment revenue, which usually grows at close to 20%, as customers just chose not to go through the hassle of installing new hardware.
We believe that this is a unique, one time, occurrence which has passed starting in the 4 th quarter of 2022 and with high teens growth rates in Hardware not abating despite a domestic industrial slowdown we are confident that the company will revert back to its 20% growth in 2023 from approximately 5% cash revenue growth in 2022.
On the other hand, 2022 saw a signing of a transformational agreement with CPower Energy Management to use Acorn’s Omnimetrix software in the customer’s backup generators as a source of energy by power companies in times of peak demand. This deal should allow the customer, dealer, CPower, and Omnimetrix to share in both the standby and energy usage payments by the power companies.
While this isn’t an overnight magic bullet, we believe over time this deal should double to triple the Average Revenue Per Unit (ARPU) Omnimetrix receives from its 30,000+ customers from $100+ to potentially as much as $300 and should drive an increase in hardware sales as this obviously makes owning a backup generator as a lucrative proposition for any future customer.
Aside from 2022, the company has been a consistent 20% CAGR revenue grower and we believe, much like the Research Solutions Platforms segment, once the company passes the $10mm revenue mark it should be on the radar of more managers. The Omnimetrix CPower opportunity can drive the company’s Monitoring revenue base to $12mm and hardware to $10mm within 3 to 5 years where the company may be able to generate over $10mm of stable growing Free Cash Flow and have a market cap of $100mm to $200mm from $13mm today.
While the company has had consistent growth and achieved profitability since we have owned it, the stock price has been disappointing. We have engaged management in serious discussions about steps the company can take to boost its stock price, including encouraging a potential transaction that would better reflect its fundamental value.
Legal DisclosureThe Partnership’s performance is based on operations during a period of general market growth and extraordinary market volatility during part of the period, and is not necessarily indicative of results the Partnership may achieve in the future. In addition, the results are based on the periods as a whole, but results for individual months or quarters within each period have been more favorable or less favorable than the average, as the case may be. The foregoing data have been prepared by the General Partner and have not been compiled, reviewed or audited by an independent accountant and non-year end results are subject to adjustment. The results portrayed are for an investor since inception in the Partnership and the results reflect the reinvestment of dividends and other earnings and the deduction of costs, the management fees charged to the Partnership and a pro forma reduction of the General Partner’s special profit allocation, if applicable. The General Partner believes that the comparison of Partnership performance to any single market index is inappropriate. The Partnership’s portfolio may contain options and other derivative securities, fixed income investments, may include short sales of securities and margin trading and is not as diversified as the indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, utility and financial companies and is generally representative of the large capitalization US stock market. The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index and is generally representative of the small capitalization U.S. stock market. The Russell Microcap Index is comprised of the smallest 1,000 securities in the Russell 2000 Index plus the next 1,000 securities (traded on national exchanges). The Russell Microcap is generally representative of the microcap segment of the U.S. stock market. All of the indices are unmanaged, market weighted and reflect the reinvestment of dividends. Due to the differences among the Partnership’s portfolio and the performance of the equity market indices shown above, however, the General Partner cautions potential investors that no such index is directly comparable to the investment strategy of the Partnership. While the General Partner believes that to date the Partnership has been managed with an investment philosophy and methodology similar to that described in the Partnership’s Offering Circular and to that which will be used to manage the Partnership in the future, future investments will be made under different economic conditions and in different securities. Further, the performance discussed herein does not reflect the General Partner’s performance in all different economic cycles. It should not be assumed that investors will experience returns in the future, if any, comparable to those discussed above. The information given above is historic and should not be taken as any indication of future performance. It should not be assumed that recommendations made in the future will be profitable, or will equal, the performance of the securities discussed in this material. Upon request, the General Partner will provide to you a list of all the recommendations made by it within the past year. This document is not intended as and does not constitute an offer to sell any securities to any person or a solicitation of any person of any offer to purchase any securities. Such an offer or solicitation can only be made by the confidential Offering Circular of the Partnership. This information omits most of the information material to a decision whether to invest in the Partnership. No person should rely on any information in this document, but should rely exclusively on the Offering Circular in considering whether to invest in the Partnership. |
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Artko Capital - Acorn Energy: Disappointing But Not Out Of The Realm Of Normality