Author Topic: ACFN - Acorn Energy  (Read 2392 times)

knight933

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ACFN - Acorn Energy
« on: March 14, 2018, 09:23:15 AM »
Hi again - Just wanted to see if anyone else out there has done any work on Acorn Energy (OTC: ACFN)?

After doing some work on this name, it feels like one of those micro-cap turnarounds that “looks” like a disaster on paper, but in fact the company has a net cash balance, organically growing high-teens / low-20%’s YoY, and with the most recent asset sale in Feb 2018, has been substantially de-risked.

We are ~2 weeks away from when the company files it’s 10K, which will give us the first look at Q4, which if revenue growth remains elevated, should be the next big catalyst on the stock.

High-Level Investment Thesis: After selling off a bunch of non-core assets/divisions, ACFN owns ~80% of a low-capex, high recurring-revenue, wireless remote monitoring business (OmniMetrix) which has been growing ~20% YoY and will turn cash-flow positive in 2018. What the financials will not show until the 10Q is filed this May, is that the Enterprise Value is currently ~$6.4M, with a market cap of $8.3M, and net cash of about $2M.

Net cash + strong organic growth AND about $60M in NOL’s that could be used to do accretive tuck-in acquisitions = It seems very hard to lose money here.

The current CEO, Jan Loeb, was a former securities analyst and is very shareholder-friendly and not promotional. ACFN is truly an ‘orphan stock’ that I think the market will ‘wake up’ over the next few months as the 2017 10K and the Q1 2018 earnings are filed.

Price Target: I can easily see the stock getting to $0.70 in a few years without any M&A. I get to that amount by taking about 12.5x 2020 cash EPS (minus the 20% of OmniMetrix they do not own, plus a $1M intercompany loan from OmniMetrix to Acorn). All of this ignores the fact they won’t be a tax payer for the foreseeable future; that was fully taxed. This ignores corp overhead at the Acorn level, but that was $1.2M in 2017, down $2.4M in only 2 years (since 2015), and falling more. Acorn should be break-even on consolidated basis incl. corp overhead by 2019-2020, but there should be a tuck-in acquisition by then, so likely much sooner.

Business Metrics: What makes this interesting is that you can only see the true financials if you manually strip away the businesses they dumped so this will not come up on any “value screen”.

Revenue: 2017 Revenue is about $4.4M, but mgmt. said on a February investor call they were over $5M, on cash basis. This year (’18) should be about $6M in sales. At 20% YoY, they can get to $8.6M in 2020, with 50/50 split between hardware and monitoring revenue with is recurring (e.g., high-margin, almost no CapEx)

Gross Profit: Due to Monitoring being annuity-like, it has very high incremental margins (+70%) so gross profit has been growing faster than revenue. My guess is that GP at OmniMetrix was $2.8M in 2017, and growing to $3.5M (’18), $4.35M (’19), and $5.5M (’20).

EBIT:  With total OmniMetrix Operating Expenses at ~$3.2M, this has room to come down based on talks with the company. That’s split about $500K for R&D vs. $2.7M for SG&A which is coming down.

Again, this company is a network of sensors, so CapE is minimal. If you put the above together, back of the envelope math shows OmniMetrix getting to earnings breakeven in 2018, and probably have enough profit to cover the Acorn overhead in 2019, absent any M&A.

Bottom line – I expect this spring to be a catalyst as folks figure out that they can get a net cash, organically growing forgotten company about to inflect from losses to profits, with huge optionality from the NOL balance as a free call option.

Anyways, just wanted to bring this to everyone’s attention. I know most do not care about microcaps. Any other perspectives would be appreciated.

Here's a link to a recent investor call from February that I would suggest reading the transcript here:

http://www.acornenergy.com/calls_transcripts.php

« Last Edit: March 19, 2018, 03:41:41 PM by Parsad »


atbed

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Re: Acorn Energy (ACFN)
« Reply #1 on: March 14, 2018, 01:50:35 PM »
Interesting...seems to compete with ORBC.

https://www.orbcomm.com/en/industries/natural-resources/oil-and-gas-equipment-and-pipeline-monitoring


Hi again - Just wanted to see if anyone else out there has done any work on Acorn Energy (OTC: ACFN)?

After doing some work on this name, it feels like one of those micro-cap turnarounds that “looks” like a disaster on paper, but in fact the company has a net cash balance, organically growing high-teens / low-20%’s YoY, and with the most recent asset sale in Feb 2018, has been substantially de-risked.

We are ~2 weeks away from when the company files it’s 10K, which will give us the first look at Q4, which if revenue growth remains elevated, should be the next big catalyst on the stock.

High-Level Investment Thesis: After selling off a bunch of non-core assets/divisions, ACFN owns ~80% of a low-capex, high recurring-revenue, wireless remote monitoring business (OmniMetrix) which has been growing ~20% YoY and will turn cash-flow positive in 2018. What the financials will not show until the 10Q is filed this May, is that the Enterprise Value is currently ~$6.4M, with a market cap of $8.3M, and net cash of about $2M.

Net cash + strong organic growth AND about $60M in NOL’s that could be used to do accretive tuck-in acquisitions = It seems very hard to lose money here.

The current CEO, Jan Loeb, was a former securities analyst and is very shareholder-friendly and not promotional. ACFN is truly an ‘orphan stock’ that I think the market will ‘wake up’ over the next few months as the 2017 10K and the Q1 2018 earnings are filed.

Price Target: I can easily see the stock getting to $0.70 in a few years without any M&A. I get to that amount by taking about 12.5x 2020 cash EPS (minus the 20% of OmniMetrix they do not own, plus a $1M intercompany loan from OmniMetrix to Acorn). All of this ignores the fact they won’t be a tax payer for the foreseeable future; that was fully taxed. This ignores corp overhead at the Acorn level, but that was $1.2M in 2017, down $2.4M in only 2 years (since 2015), and falling more. Acorn should be break-even on consolidated basis incl. corp overhead by 2019-2020, but there should be a tuck-in acquisition by then, so likely much sooner.

Business Metrics: What makes this interesting is that you can only see the true financials if you manually strip away the businesses they dumped so this will not come up on any “value screen”.

Revenue: 2017 Revenue is about $4.4M, but mgmt. said on a February investor call they were over $5M, on cash basis. This year (’18) should be about $6M in sales. At 20% YoY, they can get to $8.6M in 2020, with 50/50 split between hardware and monitoring revenue with is recurring (e.g., high-margin, almost no CapEx)

Gross Profit: Due to Monitoring being annuity-like, it has very high incremental margins (+70%) so gross profit has been growing faster than revenue. My guess is that GP at OmniMetrix was $2.8M in 2017, and growing to $3.5M (’18), $4.35M (’19), and $5.5M (’20).

EBIT:  With total OmniMetrix Operating Expenses at ~$3.2M, this has room to come down based on talks with the company. That’s split about $500K for R&D vs. $2.7M for SG&A which is coming down.

Again, this company is a network of sensors, so CapE is minimal. If you put the above together, back of the envelope math shows OmniMetrix getting to earnings breakeven in 2018, and probably have enough profit to cover the Acorn overhead in 2019, absent any M&A.

Bottom line – I expect this spring to be a catalyst as folks figure out that they can get a net cash, organically growing forgotten company about to inflect from losses to profits, with huge optionality from the NOL balance as a free call option.

Anyways, just wanted to bring this to everyone’s attention. I know most do not care about microcaps. Any other perspectives would be appreciated.

Here's a link to a recent investor call from February that I would suggest reading the transcript here:

http://www.acornenergy.com/calls_transcripts.php
« Last Edit: March 14, 2018, 07:56:37 PM by atbed »

knight933

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Re: Acorn Energy (ACFN)
« Reply #2 on: March 15, 2018, 08:48:20 AM »
Thanks for the input! I am still looking into competitors, so this is helpful, thank you. Although since Orbcomm has a market cap over $700 Million, its fair to say it is really in a whole separate league than Acorn!

But that is ok; with micro-caps I don't need Acorn to set the world on fire to earn a very attractive return. With a revenue base around $5 Million (2017), Acorn has a lot of room to grow off of such a small base.

atbed

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Re: Acorn Energy (ACFN)
« Reply #3 on: March 15, 2018, 01:08:42 PM »
ACFN sells at quite a discount to ORBC on price-to-sales, despite no debt and positive cash balance.

Thanks for the input! I am still looking into competitors, so this is helpful, thank you. Although since Orbcomm has a market cap over $700 Million, its fair to say it is really in a whole separate league than Acorn!

But that is ok; with micro-caps I don't need Acorn to set the world on fire to earn a very attractive return. With a revenue base around $5 Million (2017), Acorn has a lot of room to grow off of such a small base.


knight933

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Re: Acorn Energy (ACFN)
« Reply #4 on: March 16, 2018, 08:33:46 AM »
So I think it is reasonable for a micro-cap stock to trade at a discount to a company over $700 Million.

HOWEVER – I agree that ACFN is far, far too cheap, even when you look at it in terms of Price / Sales.

Based on feedback from bankers and other analysts, high-recurring revenue companies in the so-called “internet of things” (IoT) space, change hands at 3x to 6x revenue.

In context, ACFN trades at a little over ~1x forward sales. So yes, I agree that is an excessive discount for something that has net cash, growing high-double digits organically, about to inflect from money-losing to profitability (at the OpCo level), and gives zero credit for a massive NOL balance.

I suspect that others will eventually see the progress as ACFN's financials get better.


atbed

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Re: Acorn Energy (ACFN)
« Reply #5 on: March 16, 2018, 10:45:15 AM »
Agree, a discount is very reasonable. Q is how much? ORBC has significantly greater resources, and I believe its diversified product portfolio has less risk. I am just not familiar enough with ACFN and their technology.

So I think it is reasonable for a micro-cap stock to trade at a discount to a company over $700 Million.

HOWEVER – I agree that ACFN is far, far too cheap, even when you look at it in terms of Price / Sales.

Based on feedback from bankers and other analysts, high-recurring revenue companies in the so-called “internet of things” (IoT) space, change hands at 3x to 6x revenue.

In context, ACFN trades at a little over ~1x forward sales. So yes, I agree that is an excessive discount for something that has net cash, growing high-double digits organically, about to inflect from money-losing to profitability (at the OpCo level), and gives zero credit for a massive NOL balance.

I suspect that others will eventually see the progress as ACFN's financials get better.

knight933

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Re: Acorn Energy (ACFN)
« Reply #6 on: March 19, 2018, 07:10:14 AM »
For what it’s worth, I think the Price to Sales ratio is more of a starting point than something I think can be actually predicted/analyzed with any reasonable accuracy. If anyone has any thoughts on how they think about Price/Sales ratios, I would be curious to hear them, but I personally do not put much weight on them outside of ‘screening’ for ideas on which I will/should do more work. 

Once ACFN’s OmniMetrix unit starts producing profits, which I again what to highlight the inflection is coming this year, then gradually over time the P/S discount will narrow as the market slowly transitions to valuing it based on earnings.

But we will have a better look at this company once they file the 10K by March 31st, which is soon, so hence why I think the idea is very actionable right now.

knight933

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Re: ACFN - Acorn Energy
« Reply #7 on: March 28, 2018, 07:19:48 AM »
A few thoughts on the recently filed 10K for 2017 and comments on Q4: In summary, my thesis is unchanged as FY 2017 ended the year with sales up ~21%, and the company stuck to its $6M in cash sales projection for 2018. The balance sheet has been de-risked with net cash around ~$2M as of March. More corporate overhead cuts are coming, which will only highlight the improving OmniMetrix profits even sooner.

http://www.acornenergy.com/rsc/articles/ACFN-Q417-3-26-18.pdf

The transcript will come, but in my notes I had the CEO saying:

"But in total, where I think one of the main things is we are looking to reduce costs and we think we will be able to reduce costs in 2018 from where we were in 2017 on the corporate level, as well somewhat significantly.” (FYI - Overhead at Acorn went from $3.6M (’15), to $2M (16) to $1.1M (17))

I can only assume "significant" cuts means they will get this well below $1M in 2018, which is great for the equity. 

Again, what matters most is that revenue growth is still on track:

CEO: “On our last call, we said we expected over $5 million of cash basis sales for OmniMetrix in 2017, and we actually did $5.1 million compared to $4.2 million in 2016, an increase of 22%.... Looking forward, we said we expected approximately 20% in growth and cash basis sales, which would be over $6 million in 2018 and we still feel confident in this level of sales.”

Next Q1 report will be here in May, which will come soon enough.

atbed

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Re: ACFN - Acorn Energy
« Reply #8 on: March 28, 2018, 10:48:42 AM »
Thanks for sharing.

A few thoughts on the recently filed 10K for 2017 and comments on Q4: In summary, my thesis is unchanged as FY 2017 ended the year with sales up ~21%, and the company stuck to its $6M in cash sales projection for 2018. The balance sheet has been de-risked with net cash around ~$2M as of March. More corporate overhead cuts are coming, which will only highlight the improving OmniMetrix profits even sooner.

http://www.acornenergy.com/rsc/articles/ACFN-Q417-3-26-18.pdf

The transcript will come, but in my notes I had the CEO saying:

"But in total, where I think one of the main things is we are looking to reduce costs and we think we will be able to reduce costs in 2018 from where we were in 2017 on the corporate level, as well somewhat significantly.” (FYI - Overhead at Acorn went from $3.6M (’15), to $2M (16) to $1.1M (17))

I can only assume "significant" cuts means they will get this well below $1M in 2018, which is great for the equity. 

Again, what matters most is that revenue growth is still on track:

CEO: “On our last call, we said we expected over $5 million of cash basis sales for OmniMetrix in 2017, and we actually did $5.1 million compared to $4.2 million in 2016, an increase of 22%.... Looking forward, we said we expected approximately 20% in growth and cash basis sales, which would be over $6 million in 2018 and we still feel confident in this level of sales.”

Next Q1 report will be here in May, which will come soon enough.

knight933

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Re: ACFN - Acorn Energy - CEO buys 127,000 shares
« Reply #9 on: March 29, 2018, 12:57:16 PM »
Wow - Big insider buying today, immediately following Q4 earnings is a strong sign. On March 28th, the Jan Loeb (CEO) purchased ~127,000 shares at $0.2999, raising his stake from 3.6% of the company to ~4%. I take this as a strong vote of confidence - love to see mgmt put their money on the line. Hopefully this brings more buyers as they see the filing.

Here it is here: https://www.sec.gov/Archives/edgar/data/880984/000088098418000005/xslF345X03/primary_doc.xml