UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
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| Class | Outstanding at November 5, 2024 | |
| Common Stock, $ par value per share |
ACORN ENERGY, INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2024
TABLE OF CONTENTS
Certain statements contained in this report are forward-looking in nature. These statements are generally identified by the inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of similar meaning. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Many of these factors are described in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
| 2 |
PART I
| ITEM 1. | FINANCIAL STATEMENTS |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| As
of September 30, 2024 | As
of December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Deferred cost of goods sold (COGS) | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred COGS | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Current operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred revenue | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Equity (deficit): | ||||||||
| Acorn Energy, Inc. stockholders | ||||||||
| Common stock - $ par value per share: shares authorized, and shares issued at September 30, 2024 and December 31, 2023, respectively, and and shares outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated stockholders’ deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost – shares at September 30, 2024 and December 31, 2023 | ( | ) | ( | ) | ||||
| Total Acorn Energy, Inc. stockholders’ equity (deficit) | ( | ) | ||||||
| Non-controlling interest | ||||||||
| Total equity (deficit) | ( | ) | ||||||
| Total liabilities and equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| COGS | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expense (R&D) | ||||||||||||||||
| Selling, general and administrative (SG&A) expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||
| Interest income, net | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | ||||||||||||||||
| Non-controlling interest share of income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to Acorn Energy, Inc. stockholders | $ | $ | $ | $ | ||||||||||||
| Basic and diluted net income per share attributable to Acorn Energy, Inc stockholders – basic and diluted | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average number of shares outstanding attributable to Acorn Energy, Inc. stockholders – basic and diluted | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(UNAUDITED) (IN THOUSANDS)
| Three and Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||
| Number of Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Number
of Treasury Shares | Treasury Stock | Total
Acorn Energy, Inc. Stockholders’ Equity (Deficit) | Non- controlling interests | Total Equity (Deficit) | ||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||||||
| Proceeds from stock option exercise | * | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
| Three and Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Number of Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Number of Treasury Shares | Treasury Stock | Total
Acorn Energy, Inc. Stockholders’ Deficit | Non- controlling interests | Total Deficit | ||||||||||||||||||||||||||||
| Balances as of December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net loss | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Proceeds from warrant exercise | * | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Accrued dividend in OmniMetrix preferred shares | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
ACORN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Depreciation and amortization | ||||||||
| (Decrease) increase in the provision for credit loss | ( | ) | ||||||
| Impairment of inventory | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | ( | ) | ||||||
| Decrease (increase) in inventory | ( | ) | ||||||
| Decrease in deferred COGS | ||||||||
| Decrease (increase) in other current assets and other assets | ( | ) | ||||||
| (Decrease) increase in deferred revenue | ( | ) | ||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Increase in accounts payable, accrued expenses, other current liabilities and non-current liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows used in investing activities: | ||||||||
| Investments in technology | ( | ) | ( | ) | ||||
| Equipment purchases | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows provided by financing activities: | ||||||||
| Stock option exercise proceeds | ||||||||
| Warrant exercise proceeds | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash at the beginning of the period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued preferred dividends to former CEO of OmniMetrix | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
ACORN ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 1— BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. (“Acorn”) and its subsidiaries, OmniMetrix, LLC (“OmniMetrix”) and OMX Holdings, Inc. (collectively, with Acorn and OmniMetrix, “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The December 31, 2023 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine- and three-month periods ended September 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
All dollar amounts, except per share data, are rounded to the nearest thousand and, thus, are approximate.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 7, 2024.
Reverse Stock Split
On
September 5, 2023, the Board of Directors of Acorn approved a Certificate of Amendment to Acorn’s Restated Certificate of Incorporation
(the “Certificate of Amendment”) that provided for a
NOTE 2—ACCOUNTING POLICIES
Use of Estimates in Preparation of Financial Statements
The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| 7 |
Concentrations of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade accounts
receivable. The Company’s cash was deposited with a U.S. bank and amounted to $
Inventory
Inventories are comprised of components (raw materials), work-in-process and finished goods, which are measured at the lower of cost or net realizable value.
Raw materials inventory is generally comprised of radios, cables, antennas, and electrical components. Finished goods inventory consists of fully assembled systems ready for final shipment to the customer. Costs are determined at cost of acquisition on a weighted average basis and include all outside production and applicable shipping costs.
All inventories are periodically reviewed to identify slow-moving and obsolete inventory. Management conducts an assessment at the end of each reporting period of the Company’s inventory reserve and writes off any inventory items that are deemed obsolete.
Revenue Recognition
The Company’s revenue recognition policy is consistent with applicable revenue recognition guidance and interpretations. The core principle of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes: (1) identifying contracts with customers, (2) identifying performance obligations within those contracts, (3) determining the transaction price, (4) allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) recognizing revenue when or as each performance obligation is satisfied. The Company assesses whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. The Company’s sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size. See Note 10, Revenue, for further discussion.
Revenue from sales of the hardware products that are distinct products are recorded when shipped while the revenue from sales of the hardware products (product versions sold prior to September 1, 2023) that were not separable from the Company’s monitoring services was deferred and amortized over the estimated unit life. Revenue from the prepayment of monitoring fees (generally paid twelve months in advance) is recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period. See Notes 9 and 10 for the disaggregation of the Company’s revenue for the periods presented.
Any sales tax, value added tax, and other tax the Company collects concurrent with revenue producing activities are excluded from revenue.
| 8 |
Income Taxes
The Company is subject to U.S. federal income tax and income taxes imposed in the state and local jurisdictions where it operates its businesses. Deferred income taxes are determined using the balance sheet approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. The assessment of the realization of deferred tax assets is subject to significant judgement and the Company evaluates its deferred tax assets for realizability at each reporting period. The Company’s deferred tax assets consist primarily of net operating loss carryforwards which may be able to be utilized against taxable income, however the changes in ownership may limit the ability to fully utilize loss carryforwards under Internal Revenue Code Section 382. The Company intends to perform a study to determine what portion of its deferred tax assets may be subject to annual limitation due to the tax law limitations and complete this analysis in the fourth quarter of 2024. The income tax expense in the nine- and three- month periods ended September 30, 2024 represents the tax by various states on the 2023 income of OmniMetrix.
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits, and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s tax years subject to examination based on the statute of limitations is generally three years; however, the tax authorities may examine records and other evidence from the year the net operating loss was generated when the Company utilizes net operating loss carryforwards in future periods.
Basic net income per share is computed by dividing the net income attributable to Acorn Energy, Inc. by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net income per share is computed by dividing the net income by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options. The dilutive effects of stock options are excluded from the computation of diluted net income per share if doing so would be antidilutive.
For the nine-month period ending September 30, 2024, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was (which have a weighted average exercise price of $). For the three-month period ending September 30, 2024, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was (which have a weighted average exercise price of $). For the nine-month period ending September 30, 2023, the weighted average number of options that were excluded from the computation of diluted net income, as they had an antidilutive effect, was (which have a weighted average exercise price of $). For the three-month period ending September 30, 2023, there were options that were excluded from the computation of diluted net income due to having an antidilutive effect.
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Add: Stock options | ||||||||||||||||
| Diluted | ||||||||||||||||
| Basic net income per share | $ | $ | $ | $ | ||||||||||||
| Diluted net income per share | $ | $ | $ | $ | ||||||||||||
| 9 |
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, and early application is permitted. The Company is currently assessing the impact the adoption of ASU 2023-07 will have on its segment reporting disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional disclosures of income tax components that affect the rate reconciliation and income taxes paid, broken out by the applicable taxing jurisdictions. The Company expects to adopt this ASU for the annual period beginning on January 1, 2025, and does not expect a material impact on the consolidated financial statements.
NOTE 3—LIQUIDITY
As
of September 30, 2024, the Company had $
At
September 30, 2024, the Company had working capital of $
As
of November 5, 2024, the Company had cash of $
NOTE 4—ALLOWANCE FOR CREDIT LOSSES
For the Company, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” applies to its contract assets (deferred COGS and deferred sales commissions), lease receivables (sublease, see Note 6) and trade receivables. There are no expected or estimated credit losses on the Company’s contract assets or its lease receivable based on the Company’s implementation of ASU 2016-13.
The Company’s trade receivables primarily arise from the sale of our products to independent residential dealers, industrial distributors and dealers, national and regional retailers, equipment distributors, and certain end users with payment terms generally ranging from 30 to 60 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customer’s ability to pay. These factors include the customer’s financial condition and past payment experience.
| 10 |
The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on an entity-by-entity basis. The estimate of expected credit losses considers a historical loss experience rate that is adjusted for delinquency trends, collection experience, and/or economic risk where appropriate. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss.
The
Company has historically experienced immaterial write-offs given the nature of the customers that receive credit. As of September 30,
2024, the Company had gross receivables of $
The following is a tabular reconciliation of the Company’s allowance for credit losses:
| As of | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Balance at beginning of period | $ | $ | ||||||
| Provision for credit losses adjustment | ( | ) | ||||||
| Net credits (charge-offs) | ( | ) | ||||||
| Balance at end of period | $ | $ | ||||||
NOTE 5—INVENTORY
| As of | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| $ | $ | |||||||
At
September 30, 2024 and December 31, 2023, the Company’s inventory reserve was $
NOTE 6—LEASES
OmniMetrix
leases office space and office equipment under operating lease agreements. The office lease has an expiration date of
| 11 |
Supplemental cash flow information related to leases consisted of the following (in thousands):
For the Nine Months Ending September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
Supplemental balance sheet information related to leases consisted of the following:
As of September 30, 2024 | ||||
| Weighted average remaining lease terms for operating leases |
The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms of more than one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of September 30, 2024 (in thousands):
Year ended September 30, | ||||
| 2025 | $ | |||
| Total undiscounted cash flows | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities (a) | $ | |||
| (a) |
On
July 6, 2021, the Company entered into an agreement with King Industrial Realty, Inc., to sublease from the Company
| Total undiscounted cash flows - sublease: | Year ended September 30, | |||
| 2025 | $ | |||
NOTE 7—COMMITMENTS AND CONTINGENCIES
The
Company has $
| 12 |
NOTE 8—STOCKHOLDERS’ EQUITY (DEFICIT)
(a) General
At September 30, 2024, Acorn had shares issued and shares outstanding of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
The Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.
(b) Summary Employee Option Information
The Company’s stock option plans provide for the grant to officers, directors and employees of options to purchase shares of common stock. The purchase price may be paid in cash or, if the option is “in-the-money” at the end of the option term, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable for one share of the Company’s common stock. Most options expire within five to ten years from the date of the grant, and generally vest over a three-year period from the date of the grant.
At September 30, 2024, options were available for grant under the Amended and Restated 2006 Stock Incentive Plan and no options were available for grant under the 2006 Stock Option Plan for Non-Employee Directors. During the nine-month period ended September 30, 2024, options were issued of which all were issued in the three-month period ended March 31, 2024. options were issued in the three-month period ended September 30, 2024. The options were issued as follows: an aggregate of to directors (excluding the CEO), to the CEO, to the CFO and an aggregate of to employees. In the nine- and three-month periods ended September 30, 2024, there were grants to non-employees (other than the directors, CEO and CFO).
During the nine- and three-month periods ended September 30, 2024, options were exercised, all of which were exercised in the three-month period ended March 31, 2024. No options were exercised in the three-month period ended September 30, 2024. The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years (all in weighted averages):
Number of Options (in shares) | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2023 | $ | years | $ | |||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||||
| Outstanding at September 30, 2024 | $ | years | $ | |||||||||||||
| Exercisable at September 30, 2024 | $ | years | $ | |||||||||||||
| Risk-free interest rate | % | |||
| Expected term of options | years | |||
| Expected annual volatility | % | |||
| Expected dividend yield | % |
| 13 |
(c) Stock-based Compensation Expense
Stock-based compensation expense included in selling, general, and administrative expense in the Company’s unaudited condensed consolidated statements of operations was $ and $ for the nine-month periods ended September 30, 2024 and 2023, respectively, and $ and $ for the three-month periods ended September 30, 2024 and 2023, respectively.
The total compensation cost related to non-vested awards not yet recognized was $ and $ as of September 30, 2024 and 2023, respectively.
NOTE 9— SEGMENT REPORTING
As
of September 30, 2024, the Company operates in
| ● | Power Generation (“PG”). OmniMetrix’s PG services provide wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial power generation equipment. This includes OmniMetrix’s TrueGuard power generator monitors and AIRGuard product, which remotely monitors and controls industrial air compressors, and its Smart Annunciator product, which is typically sold to commercial customers that require a visual representation of the generator’s status and has a touchscreen display that indicates the current state of that generator. | |
| ● | Cathodic Protection (“CP”). OmniMetrix’s CP services provide remote monitoring and control products for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. OmniMetrix also offers the industry’s first RADTM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools, which can drastically reduce a company’s expense while increasing employee safety. |
The Company’s reportable segments are strategic business units, offering different products and services, and are managed separately as each business requires different technology and marketing strategies.
The following tables represent segmented data for the nine-month and three-month periods ended September 30, 2024 and 2023 (in thousands):
| PG | CP | Total | ||||||||||
| Nine months ended September 30, 2024: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Segment income before income taxes | $ | $ | $ | |||||||||
| Nine months ended September 30, 2023: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Segment income (loss) before income taxes | $ | $ | ( | ) | $ | |||||||
| Three months ended September 30, 2024: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Segment income before income taxes | $ | $ | $ | |||||||||
| Three months ended September 30, 2023: | ||||||||||||
| Revenues from external customers | $ | $ | $ | |||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Segment income before income taxes | $ | $ | $ | |||||||||
| 14 |
The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between the segments. Further, the Chief Decision Maker does not review the assets by segment.
Reconciliation of Segment Income to Consolidated Net Income Before Income Taxes
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total net income before income taxes for reportable segments | $ | $ | $ | $ | ||||||||||||
| Unallocated cost of corporate headquarters | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consolidated net income (before income taxes | $ | $ | $ | $ | ||||||||||||
NOTE 10—REVENUE
The following table disaggregates the Company’s revenue for the nine-month and three-month periods ended September 30, 2024 and 2023 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Nine months ended September 30, 2024: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Nine months ended September 30, 2023: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended September 30, 2024: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Hardware | Monitoring | Total | ||||||||||
| Three months ended September 30, 2023: | ||||||||||||
| PG Segment | $ | $ | $ | |||||||||
| CP Segment | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
See Concentrations of Credit Risk in Note 2 for additional discussion.
| 15 |
Deferred revenue activity for the nine months ended September 30, 2024 can be seen in the table below (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Recognized as revenue | ( | ) | ( | ) | ( | ) | ||||||
| Balance at September 30, 2024 | $ | $ | $ | |||||||||
| Amounts to be recognized as revenue in the twelve-month period ending: | ||||||||||||
| September 30, 2025 | $ | $ | $ | |||||||||
| September 30, 2026 | ||||||||||||
| September 30, 2027 and thereafter | ||||||||||||
| $ | $ | $ | ||||||||||
The
amount of hardware revenue recognized during the nine months ended September 30, 2024 that was included in deferred revenue at the beginning
of the fiscal year was $
The following table provides a reconciliation of the Company’s hardware revenue for the nine- and three-month periods ended September 30, 2024 and 2023 (in thousands):
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| Reconciliation of Hardware Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Amortization of deferred revenue | $ | $ | $ | $ | ||||||||||||
| Sales of custom designed units and related accessories | ||||||||||||||||
| Hardware sales (new product versions) | ||||||||||||||||
| Other accessories, services, shipping and miscellaneous charges | ||||||||||||||||
| Total hardware revenue | $ | $ | $ | $ | ||||||||||||
Deferred COGS relate only to the sale of equipment. Deferred COGS activity for the nine-month period ended September 30, 2024 can be seen in the table below (in thousands):
| Balance at December 31, 2023 | $ | |||
| Additions, net of adjustments, during the period | ||||
| Recognized as COGS | ( | ) | ||
| Balance at September 30, 2024 | $ | |||
| Amounts to be recognized as COGS in the twelve-month-period ending: | ||||
| September 30, 2025 | $ | |||
| September 30, 2026 | ||||
| September 30, 2027 and thereafter | ||||
| $ |
| 16 |
The following table provides a reconciliation of the Company’s COGS expense for the nine- and three-month periods ended September 30, 2024 and 2023 (in thousands):
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| Reconciliation of COGS Expense | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Amortization of deferred COGS | $ | $ | $ | $ | ||||||||||||
| COGS of custom designed units and related accessories | ||||||||||||||||
| COGS of hardware sales (new product versions) | ||||||||||||||||
| Data costs for monitoring | ||||||||||||||||
| Other COGS of accessories, services, shipping and miscellaneous charges | ||||||||||||||||
| Total COGS expense | $ | $ | $ | $ | ||||||||||||
The following table provides a reconciliation of the Company’s sales commissions contract assets for the nine-month period ended September 30, 2024 (in thousands):
| Hardware | Monitoring | Total | ||||||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
| Additions during the period | ||||||||||||
| Amortization of sales commissions | ( | ) | ( | ) | ( | ) | ||||||
| Balance at September 30, 2024 | $ | |||||||||||
The
capitalized sales commissions are included in other current assets ($
Amounts to be recognized as sales commission expense in the twelve-month-period ending:
| September 30, 2025 | $ | |||
| September 30, 2026 | ||||
| September 30, 2027 and thereafter | ||||
| $ |
NOTE 11—RELATED PARTY BALANCES AND TRANSACTIONS
Officer and Director Fees
The
Company recorded consulting service fees to officers of $
The
Company recorded fees to directors of $
| 17 |
ACORN ENERGY, INC.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains “forward-looking statements” relating to the Company which represent the Company’s current expectations or beliefs including, but not limited to, statements concerning the Company’s operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipate”, “intend”, “could”, “estimate” or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company’s control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
All dollar amounts in the discussion below are rounded to the nearest thousand, except per share data, and, thus, are approximate.
FINANCIAL RESULTS BY COMPANY
The following table shows, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.
| Nine months ended September 30, 2024 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 7,457 | $ | — | $ | 7,457 | ||||||
| COGS | 2,014 | — | 2,014 | |||||||||
| Gross profit | 5,443 | — | 5,443 | |||||||||
| Gross profit margin | 73 | % | 73 | % | ||||||||
| R&D expense | 698 | — | 698 | |||||||||
| SG&A expense | 2,882 | 771 | 3,653 | |||||||||
| Operating income (loss) | $ | 1,863 | $ | (771 | ) | $ | 1,092 | |||||
| Nine months ended September 30, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 5,809 | $ | — | $ | 5,809 | ||||||
| COGS | 1,453 | — | 1,453 | |||||||||
| Gross profit | 4,356 | — | 4,356 | |||||||||
| Gross profit margin | 75 | % | 75 | % | ||||||||
| R&D expense | 614 | — | 614 | |||||||||
| SG&A expense | 2,932 | 814 | 3,746 | |||||||||
| Operating income (loss) | $ | 810 | $ | (814 | ) | $ | (4 | ) | ||||
| 18 |
| Three months ended September 30, 2024 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 3,050 | $ | — | $ | 3,050 | ||||||
| COGS | 863 | — | 863 | |||||||||
| Gross profit | 2,187 | — | 2,187 | |||||||||
| Gross profit margin | 72 | % | 72 | % | ||||||||
| R&D expense | 234 | — | 234 | |||||||||
| SG&A expense | 960 | 237 | 1,197 | |||||||||
| Operating income (loss) | $ | 993 | $ | (237 | ) | $ | 756 | |||||
| Three months ended September 30, 2023 | ||||||||||||
| OmniMetrix | Acorn | Total | ||||||||||
| Revenue | $ | 2,087 | $ | — | $ | 2,087 | ||||||
| COGS | 537 | — | 537 | |||||||||
| Gross profit | 1,550 | — | 1,550 | |||||||||
| Gross profit margin | 74 | % | 74 | % | ||||||||
| R&D expense | 212 | — | 212 | |||||||||
| SG&A expense | 990 | 340 | 1,330 | |||||||||
| Operating income (loss) | $ | 348 | $ | (340 | ) | $ | 8 | |||||
BACKLOG
As of September 30, 2024, OmniMetrix had a backlog of $4,384,000, primarily comprised of deferred revenue, of which $3,572,000 is expected to be recognized as revenue in the next twelve months. This compares to a backlog of $6,211,000 at September 30, 2023. Now that we are selling hardware units that are capable of operating distinctly from our monitoring and control software, the hardware backlog will no longer continue to grow and will be fully amortized by August 31, 2026, while the monitoring backlog will continue to be deferred and amortized over the period of service.
RECENT DEVELOPMENTS
On June 1, 2024, we entered into a contract with one of the nation’s largest cell phone providers to provide monitoring hardware and services. Under the contract, OmniMetrix will provide monitoring devices and related remote monitoring and control services for between 5,000 to 10,000 cell tower backup generators in the U.S. The monitoring hardware and monitoring services, which will be deployed over a two-year period, commenced in the third quarter during which we recognized $724,000 in hardware revenue from this contract. We expect to generate total revenue over the life of the contract of approximately $5 million which encompasses the revenue from the sales of the hardware and the first year of monitoring.
On January 12, 2024, we entered into a new contract with our current primary data provider for Internet of Things (IoT) wireless services for a 36-month contract term with automatic one-year extensions, subject to termination notice. The pricing structure involves account setup, SIM charges, monthly revenue obligations, and various rate plans based on data usage and regions along with other optional services. The monthly expense obligation is $10,000 for the first 6 months and $15,000 thereafter. We are also eligible for volume discounts based on total monthly service revenue. Additionally, the agreement includes an IoT Enhanced Support and Priority Care Services Rate Plan with various support service types and pricing tiers based on the number of devices and terms for SIM migrations, including tiered pricing and conditions for waiver of certain charges during migration. This agreement allows us to migrate our customers to higher tier data plans for nominal additional cost.
| 19 |
OVERVIEW AND TREND INFORMATION
Acorn Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology-driven solutions for energy infrastructure asset management. We provide the following services and products through our OmniMetrixTM, LLC (“OmniMetrix”) subsidiary:
| ● | Power Generation (“PG”). OmniMetrix’s PG services provide wireless remote monitoring and control systems and IoT applications for residential and commercial/industrial power generation equipment. This includes OmniMetrix’s TrueGuard power generator monitors and AIRGuard product, which remotely monitors and controls industrial air compressors, and its Smart Annunciator product, which is typically sold to commercial customers that require a visual representation of the generator’s status and has a touchscreen display that indicates the current state of that generator. | |
| ● | Cathodic Protection (“CP”). OmniMetrix’s CP services provide remote monitoring and control products for cathodic protection systems on gas pipelines serving the gas utilities market and pipeline operators. The CP product lineup includes solutions to remotely monitor and control rectifiers, test stations and bonds. OmniMetrix also offers the industry’s first RADTM (Remote AC Mitigation Disconnect) that mounts onto existing Solid-state Decouplers in the field and can remotely disconnect/connect these AC mitigation tools, which can drastically reduce a company’s expense while increasing employee safety. |
Each of our PG and CP activities represents a reportable segment. The following analysis should be read together with the segment and revenue information provided in Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
OmniMetrix
OmniMetrix is a Georgia limited liability company based in Buford, Georgia that develops and markets wireless remote monitoring and control systems and services for multiple markets in the Internet of Things (“IoT”) ecosystem: critical assets (including stand-by power generators, pumps, pumpjacks, light towers, turbines, compressors, and other industrial equipment) as well as cathodic protection for the pipeline industry (gas utilities and pipeline companies). Acorn owns 99% of OmniMetrix with 1% owned by the former CEO of OmniMetrix.
Following the emergence of machine-to-machine (M2M) and IoT applications, whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it plays a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military, government, and private sector assets against emergency events including terrorist attacks, natural disasters, cybersecurity threats, and other issues related to the reliability of the electric power grid. As residential and industrial standby generators, turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly monitored in IoT applications and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned as a competitive participant in this market.
OmniMetrix sells monitoring hardware devices and data monitoring services. On September 1, 2023, we launched an updated version of our products that includes new functionality in our TrueGuard, AIRGuard, Patriot and Hero products that allows our customers to have options as it relates to obtaining and utilizing the data that is provided by our hardware devices. This new functionality allows for SIM card options, configuration options regarding IP address endpoints and DNS routes, and access to our over-the-air data protocol. This product update allows customers to have the option to purchase our monitoring service, monitor the products themselves if they have the ability in-house, or choose another monitoring provider if they so desire, whereas, historically, our standard products only functioned with our monitoring services. The modification to the circuit boards and embedded firmware of hardware enclosures in stock as of August 31, 2023 were made such that only the new version of these products was sold subsequent to this date. Prior to such product modification, revenue (and related costs) associated with sale of equipment was recorded to deferred revenue (and deferred charges) upon shipment for PG and CP monitoring units. This deferred revenue and the deferred cost of the hardware with respect to the sale of new equipment was recognized over the life of the units, which was estimated to be three years. Revenue from hardware sales subsequent to August 31, 2023 is recognized upon shipment, instead of being deferred. Revenues from the prepayment of monitoring fees (generally paid in advance) are initially recorded as deferred revenue upon receipt of payment from the customer and then amortized to revenue over the monitoring service period (typically twelve-month, renewable periods).
Results of Operations
The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the nine-month periods ended September 30, 2024 and 2023, including the percentage of total revenues during each period attributable to selected components of the operations statements data and for the period-to-period percentage changes in such components. For segment data, see Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
| 20 |
| Nine months ended September 30, | ||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | From 2023 to 2024 | ||||||||||||||||
| Revenue | $ | 7,457 | 100 | % | $ | 5,809 | 100 | % | 28 | % | ||||||||||
| COGS | 2,014 | 27 | % | 1,453 | 25 | % | 39 | % | ||||||||||||
| Gross profit | 5,443 | 73 | % | 4,356 | 75 | % | 25 | % | ||||||||||||
| R&D expense | 698 | 9 | % | 614 | 11 | % | 14 | % | ||||||||||||
| SG&A expense | 3,653 | 49 | % | 3,746 | 64 | % | (3 | )% | ||||||||||||
| Operating income (loss) | 1,092 | 15 | % | (4 | ) | (* | )% | * | % | |||||||||||
| Interest income , net | 53 | 1 | % | 46 | 1 | % | 15 | % | ||||||||||||
| Income before income taxes | 1,145 | 15 | % | 42 | 1 | % | * | % | ||||||||||||
| Income tax expense | 67 | 1 | % | — | — | % | * | |||||||||||||
| Net income | 1,078 | 14 | % | 42 | 1 | % | * | % | ||||||||||||
| Non-controlling interest share of net income | (17 | ) | * | % | (7 | ) | * | % | 143 | % | ||||||||||
| Net income attributable to Acorn Energy, Inc. | $ | 1,061 | 14 | % | $ | 35 | 1 | % | * | % | ||||||||||
*Result is less than 1% or not meaningful
The following table sets forth certain information with respect to the unaudited condensed consolidated results of operations of the Company for the three-month periods ended September 30, 2024 and 2023, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period-to-period percentage changes in such components. For segment data, see Notes 9 and 10 to the unaudited condensed consolidated financial statements included in this quarterly report.
| Three months ended September 30, | ||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||
| ($,000) | % of revenues | ($,000) | % of revenues | from 2023 to 2024 | ||||||||||||||||
| Revenue | $ | 3,050 | 100 | % | $ | 2,087 | 100 | % | 46 | % | ||||||||||
| COGS | 863 | 28 | % | 537 | 26 | % | 61 | % | ||||||||||||
| Gross profit | 2,187 | 72 | % | 1,550 | 74 | % | 41 | % | ||||||||||||
| R&D expense | 234 | 8 | % | 212 | 10 | % | 10 | % | ||||||||||||
| SG&A expense | 1,197 | 39 | % | 1,330 | 64 | % | (10 | )% | ||||||||||||
| Operating income | 756 | 25 | % | 8 | * | % | * | % | ||||||||||||
| Interest income, net | 20 | 1 | % | 19 | 1 | % | 5 | % | ||||||||||||
| Income before income taxes | 776 | 25 | % | 27 | 1 | % | * | % | ||||||||||||
| Income tax expense | 42 | 1 | % | — | — | % | — | % | ||||||||||||
| Net income (loss) | 734 | 24 | % | 27 | 1 | % | * | % | ||||||||||||
| Non-controlling interest share of net income | (9 | ) | * | % | (3 | ) | * | % | * | % | ||||||||||
| Net income attributable to Acorn Energy, Inc. | $ | 725 | 24 | % | $ | 24 | 1 | % | * | % | ||||||||||
*Result is less than 1% or not meaningful.
| 21 |
Revenue for the nine and three months ended September 30, 2024 and 2023
Revenue increased by $1,648,000, or 28.4%, from $5,809,000 in the nine-month period ended September 30, 2023 to $7,457,000 in the nine-month period ended September 30, 2024. Hardware revenue increased by $1,470,000, or 55.7%, from $2,637,000 in the nine-month period ended September 30, 2023 to $4,107,000 in the nine-month period ended September 30, 2024. During the nine-month period ended September 30, 2024, we recognized $724,000 in hardware revenue pursuant to sales under the Material Contract discussed above under Recent Developments. See the reconciliation of hardware revenue below. Monitoring revenue increased by $178,000, or 5.6%, from $3,172,000 in the nine-month period ended September 30, 2023 to $3,350,000 in the nine-month period ended September 30, 2024. The monitoring revenue under the Material Contract is not permitted to be invoiced until the hardware is installed and the customer has accepted the monitoring services in their spend management software portal; thus, the increase in hardware and monitoring revenue will not align. The increase in monitoring revenue was due to an increase in the number of connections being monitored in the nine-month period ended September 30, 2024 compared to the nine-month-period ended September 30, 2023.
As discussed above, OmniMetrix has two reportable segments, PG and CP. Of the $7,457,000 in revenue recognized in the nine-month period ended September 30, 2024, $6,681,000 was generated by PG activities and $776,000 was generated by CP activities. This represents an increase in revenue from PG activities of $1,687,000, or 33.8%, from $4,994,000 in the nine-month period ended September 30, 2023, and a decrease in revenue from CP activities of $39,000, or 4.8%, from $815,000 in the nine-month period ended September 30, 2023.
The increase in PG revenue was due to the revenue contribution from the Material Contract, an increase in the revenue recognized from TG Pro and TG2 products, and an increase in PG monitoring revenue due to an increase in the number of connections being monitored. The decrease in CP revenue was due to a decrease in installation income as we recognized $38,000 in CP installation income in the nine-month period ended September 30, 2023 which was nonrecurring. Other than this item, the period-over-period CP revenue was flat, with a decrease of $8,000 in monitoring revenue offset by a $7,000 increase in revenue from hardware and other accessories. The new version of the PG and CP hardware was sold in 2024; thus, the revenue was recognized when the units were shipped instead of being deferred and amortized over three years as had been the case prior to the September 1, 2023 product modification.
Revenue increased by $963,000, or 46.1%, from $2,087,000 in the three-month period ended September 30, 2023 to $3,050,000 in the three-month period ended September 30, 2024. Of the $3,050,000 in revenue recognized in the three-month period ended September 30, 2024, $2,826,000 was generated by PG activities and $224,000 was generated by CP activities. In the three-month period ended September 30, 2024, as compared to the three-month period ended September 30, 2023, revenue from PG activities increased $1,028,000, or 57.2%, from $1,798,000, and revenue from CP activities decreased $65,000, or 22.5%, from $289,000.
Hardware revenue during the nine- and three-month periods ended September 30, 2024 and 2023 is further detailed in the table below (in thousands):
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| Reconciliation of Hardware Revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Amortization of deferred revenue | $ | 1,463 | $ | 1,821 | $ | 436 | $ | 629 | ||||||||
| Sales of custom designed units and related accessories | — | 135 | — | 43 | ||||||||||||
| Hardware sales under the Material Contract | 724 | — | 724 | — | ||||||||||||
| Hardware sales (new product versions) | 1,573 | 150 | 618 | 150 | ||||||||||||
| Other accessories, services, shipping and miscellaneous charges | 347 | 531 | 134 | 182 | ||||||||||||
| Total hardware revenue | $ | 4,107 | $ | 2,637 | $ | 1,912 | $ | 1,004 | ||||||||
| 22 |
Gross profit for the nine- and three-month periods ended September 30, 2024 and 2023
Gross profit for the nine-month period ended September 30, 2024 was $5,443,000, reflecting a gross margin of 73.0%, compared with a gross profit of $4,356,000, reflecting a gross margin of 75.0%, for the nine-month period ended September 30, 2023. The gross margin was lower in the current period due to a greater volume of hardware sales which have a lower gross margin than monitoring.
Gross margin on hardware revenue for the nine-month period ended September 30, 2024 was 55.5% compared to 53.4% for the nine-month period ended September 30, 2023. Gross margin on monitoring revenue for the nine-month period ended September 30, 2024 was 94.5% compared to 93.0.% for the nine-month period ended September 30, 2023.
Gross profit for the three-month period ended September 30, 2024 was $2,187,000, reflecting a gross margin of 71.7%, compared with a gross profit for the three-month period ended September 30, 2023 of $1,550,000, reflecting a gross margin of 74.3%. The gross margin was lower in the current period due to a greater volume of hardware sales which have a lower gross margin than monitoring. Gross margin on hardware revenue for the three-month period ended September 30, 2024 was 58.1% compared to 54.1% for the three-month period ended September 30, 2023 which was due to the change in the product mix positively impacted by the Material Contract. Gross margin on monitoring revenue for the three-month period ended September 30, 2024 was 94.5% compared to 93.0% for the three-month period ended September 30, 2023.
Operating expenses for the nine- and three-month periods ended September 30, 2024 and 2023
R&D expense. During the nine-month periods ended September 30, 2024 and 2023, R&D expense was $698,000 and $614,000, respectively. During the three-month period ended September 30, 2024, OmniMetrix recorded $234,000 of R&D expense as compared to $212,000 in the three-month period ended September 30, 2023. The increase in R&D expense is primarily related to the increased salaries of our engineering staff that were effective October 1, 2023 and the continued investment to redesign and expand our product line to continue to increase our level of innovation ahead of our competitors.
Selling, general and administrative expense. SG&A expense of the consolidated entities in the nine-month period ended September 30, 2024 reflected a decrease of $93,000, or 2.5%, as compared to the nine-month period ended September 30, 2023. OmniMetrix’s SG&A expense decreased $50,000, or 1.7%, from $2,932,000 in the nine-month period ended September 30, 2023 to $2,882,000 in the nine-month period ended September 30, 2024. This decrease was primarily due to a decrease of (i) $35,000 in personnel expenses due to two sales roles that have been unfilled for a portion of 2024 and that we are considering eliminating offset by annual salary increases that were effective October 1, 2023, (ii) $34,000 in sales tax and other business tax related expenses, (iii) $24,000 in depreciation expense, (iv) $29,000 in travel and trade show expenses, and (v) $13,000 in commission expense offset by increases of $82,000 in technology expenses for software and IT professional fees and a net increase in other business expenses of $3,000. Corporate SG&A expense decreased $43,000, or 5.3%, from $814,000 in the nine-month period ended September 30, 2023 to $771,000 in the nine-month period ended September 30, 2024. This decrease was due to a decrease of $102,000 in expenses related to the reverse stock split executed in September 2023 which were not reoccurring in 2024 and net aggregate decreases in other administrative expenses of $13,000 offset by increases of (i) $18,000 in legal fees due to an increase in our monthly retainer effective January 1, 2024, (ii) $18,000 in audit fees due to an increase in engagement fees year over year of 14% and also to the timing of when the services were performed, (iii) $12,000 in tax professional fees primarily due to the preparation of our 2023 tax provision, (iv) $12,000 in stock compensation expense due to options issued at higher exercise prices, and (v) $12,000 in officer fees due to a 3% increase effective January 1, 2024
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SG&A expense of the consolidated entities in the three-month period ended September 30, 2024 reflected a decrease of $133,000, or 10.0%, as compared to the three-month period ended September 30, 2023. OmniMetrix’s SG&A expense decreased $30,000, or 3.0%, from $990,000 in the three-month period ended September 30, 2023 to $960,000 in the three-month period ended September 30, 2024. This decrease was primarily due to a decrease of (i) $46,000 in personnel expenses due to two sales roles that were unfilled in the third quarter of 2024 offset by annual salary increases that were effective October 1, 2023, (ii) $18,000 in travel and trade show expenses, (iii) $17,000 in sales tax and other business tax related expenses, and (iv) $12,000 in commission expense offset by an increase of $59,000 in technology expenses for software and IT professional fees and a $4,000 net increase, in the aggregate, across other expense categories. Corporate SG&A expense decreased $103,000, or 30.3%, from $340,000 in the three-month period ended September 30, 2023 to $237,000 in the three-month period ended September 30, 2024. This decrease was due to a decrease of $102,000 in expenses related to the reverse stock split executed in September 2023 which were not reoccurring in 2024 and net aggregate decreases in other administrative expenses of $16,000 offset by increases of $6,000 in legal fees due to an increase in the monthly retainer effective January 1, 2024 and $9,000 in audit fees due to an increase in engagement fees year over year of 14% and also to the timing of when the services were performed.
Net income attributable to Acorn Energy. We recognized net income attributable to Acorn stockholders of $1,061,000 in the nine-month period ended September 30, 2024, compared to net income attributable to Acorn stockholders of $35,000 in the nine-month period ended September 30, 2023. For the three-month period ended September 30, 2024, we recognized net income attributable to Acorn stockholders of $725,000, compared to a net income attributable to Acorn stockholders of $24,000 for the three- month period ended September 30, 2023. Our net income during the nine- and three-month periods ended September 30, 2024 and 2023 is comprised of the components listed in the table below:
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| Net Income Attributable to Acorn Energy, Inc. Stockholders | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Income before income taxes - OmniMetrix | $ | 1,915 | $ | 856 | $ | 1,012 | $ | 366 | ||||||||
| Corporate expense, net of interest income | (770 | ) | (814 | ) | (236 | ) | (339 | ) | ||||||||
| Income tax expense - states | (67 | ) | — | (42 | ) | — | ||||||||||
| Non-controlling interest share of net income | (17 | ) | (7 | ) | (9 | ) | (3 | ) | ||||||||
| Net income attributable to Acorn Energy, Inc stockholders | $ | 1,061 | $ | 35 | $ | 725 | $ | 24 | ||||||||
Liquidity and Capital Resources
At September 30, 2024, we had working capital of $277,000. Our working capital includes $2,153,000 of cash and deferred revenue of $3,572,000. The deferred revenue does not require a significant cash outlay for the revenue to be recognized.
During the nine months ended September 30, 2024, our OmniMetrix subsidiary provided $1,647,000 from operations while our corporate headquarters used $908,000 during the same period.
During the nine months ended September 30, 2024, we invested $48,000 in technology and other capital projects and received proceeds of $13,000 from financing activities related to the exercise of options.
Other Liquidity Matters
Intercompany
OmniMetrix owes Acorn $2,158,000 for amounts loaned, accrued interest and expenses paid by Acorn on OmniMetrix’s behalf as of September 30, 2024 as compared to $2,657,000 as of December 31, 2023. During the nine-month period ended September 30, 2024, the intercompany amount due to Acorn from OmniMetrix decreased by $499,000. This included repayments of $784,000 offset by interest of $96,000, dividends of $57,000 due to Acorn and $132,000 in shared expenses paid by Acorn. These intercompany balances and amounts are eliminated in consolidation.
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Liquidity
As of November 5, 2024, we had cash of $2,087,000. We believe that such cash, plus the cash generated from operations, will provide sufficient liquidity to finance the operating activities of Acorn and OmniMetrix at their current level of operations for the twelve months from the issuance of these unaudited condensed consolidated financial statements. We may, at some point, elect to obtain financing to fund additional investments in the business. If we decide to pursue additional financing in the future, it may be in the form of a bank line, a new loan or investment by others, an equity raise by Acorn which could then facilitate a loan by Acorn to OmniMetrix, or any combination thereof. Whether alternative funds, such as third-party loans or investments, will be available at the time and on terms acceptable to Acorn and OmniMetrix cannot be determined at this time.
Contractual Obligations and Commitments
The table below provides information concerning obligations under certain categories of our contractual obligations as of September 30, 2024.
CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS
| Twelve Month Periods Ending September 30, (in thousands) | ||||||||||||||||||||
| Total | 2025 | 2026-2027 | 2028-2029 | 2030 and thereafter | ||||||||||||||||
| Software agreements | $ | 5 | $ | 5 | $ | — | $ | — | $ | — | ||||||||||
| Operating leases* | 132 | 132 | — | — | — | |||||||||||||||
| Contractual services | 491 | 235 | 256 | — | — | |||||||||||||||
| Purchase commitments** | 757 | 757 | — | — | — | |||||||||||||||
| Total contractual cash obligations | $ | 1,385 | $ | 1,129 | $ | 256 | $ | — | $ | — | ||||||||||
*Reflects the gross amount of the operating lease liabilities. Does not include rent amounts to be received under the sublease and it is gross of the imputed interest of $3,000.
**Reflects open purchase orders for components/parts to be delivered over the next twelve months as sales forecast requires.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our CEO and CFO concluded that, due to the material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2023, our disclosure controls and procedures were not effective as of September 30, 2024.
As noted in our Annual Report on Form 10-K for the year ended December 31, 2023, we employ a decentralized internal control methodology, coupled with management’s oversight, whereby our subsidiary is responsible for mitigating its risks to financial reporting by implementing and maintaining effective control policies and procedures and subsequently translating that respective risk mitigation up and through to the parent level and to the Company’s external consolidated financial statements. Also, as the Company’s subsidiary is not large enough to effectively mitigate certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout the Company in a manner that is feasible given the constraints within which it operates.
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The material weaknesses management identified were caused by an insufficient complement of resources at our OmniMetrix subsidiary and limited IT system capabilities, such that individual control policies and procedures could not be implemented, maintained, or remediated when and where necessary. More specifically, there were material weaknesses identified in our internal control over financial reporting related to ineffective design and implementation of information technology general controls (“ITGCs”) in the areas of user access, program change management and vendor management controls.
As a result, a majority of the significant process areas management identified for our OmniMetrix subsidiary had three material weaknesses present. This condition was further exacerbated as the Company could not demonstrate that each of the principles described within COSO’s (the Committee of Sponsoring Organization’s) document “Internal Control - Integrated Framework (2013)” were present and functioning.
Changes in Internal Control Over Financial Reporting
During the nine-month period ended September 30, 2024, we have implemented the following (i) a process pursuant to which System and Organization Controls (SOC) reports are obtained from third-party vendors on a recurring schedule and such reports are evaluated for any issues, (ii) provisioning/termination controls with signed and authenticated authorizations, and (iii) change controls for development processes that require authorizations, peer review, quality assurance documentation, ticket matching of changes to work authorizations and overall change controls. It is our belief that these added controls and related actions will effectively remediate the existing material weaknesses. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Other than the remediation actions described above, there were no other changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
| ITEM 6. | EXHIBITS. |
| #31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| #32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| #101.1 | The following financial statements from Acorn Energy’s Form 10-Q for the quarter ended September 30, 2024, filed on November 7, 2024 , formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
| #104.1 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | This exhibit includes a management contract, compensatory plan or arrangement in which one or more directors or executive officers of the Registrant participate. |
| # | This exhibit is filed or furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by its principal financial officer thereunto duly authorized.
| ACORN ENERGY, INC. | ||
| Dated: November 7, 2024 | ||
| By: | /s/ TRACY S. CLIFFORD | |
| Tracy S. Clifford | ||
| Chief Financial Officer | ||
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