Acorn Energy Inc (ACFN) 2025 Q3 法說會逐字稿

Good morning and welcome to Acorn Energy's 3rd quarter 2025 earnings conference call. All participants are currently in listen-only mode. Following management's prepared remarks, we will open the call for questions. As a reminder, today's call is being recorded. I'll now turn the call over to Tracy Clifford, CFO of Acorn Energy and CEO of its Omnimetrics subsidiary.

Thank you, operator, and thank you all for joining our call today. Before we begin, I'd like to remind everyone that today's remarks, including responses to questions, contain forward-looking statements. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected.

Factors that may impact our future operating results and financial performance include general risks such as potential disruptions to business operations or changes in consumer or customer demand.

As well as specific risks related to our ability to execute our operating plan, maintain strong customer renewal rates, and expand our customer base. Additional risks may arise from changes in technology, competition, or shifts in the macroeconomic and financial environment. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1,995 and are based on management's current beliefs, assumptions, and information available as of today.

There can be no assurances that the company will meet its growth targets or other strategic goals or objectives. The company undertakes no obligation to update or advise forward-looking statements to reflect future events or circumstances that occur after today's call. For a more detailed discussion of the risks and uncertainties that may affect our business, please refer to the risk factors section of our most recently filed Form 10k available online at www.sec.gov or on our own website. Now I'll turn the call over to Jan Loeb, CEO of Acorn and Omnometrics, for further remarks, Jan.

Thanks, Tracy, and thank you everyone for joining this call. First, let me start by acknowledging that although monitoring and hardware revenue each grew over 20% for the 1st 9 months, driving a 35% increase in net income, our Q325 revenue was significantly lower than in Q3 2024 due to lower hardware revenue.

The Q3 2025 revenue variance is largely due to the timing of hardware revenue from our large cell phone provider contract.

Given the size and nature of our business, a contract of this magnitude, while highly beneficial to both our short-term and long-term cash generation, And created variability in our quarterly reporting primarily due to the timing of hardware revenue.

This contract was originally expected to roll out over 2 years, but the customer desired faster deliveries, which were largely fulfilled over the 1st 12 months.

Final deliveries that we had expected to record in Q3 2025 have been pushed into Q4 2025 and possibly Q1 2026, resulting in no hardware revenue from this contract in Q3 2025 versus revenue of $724,000 from initial hardware deliveries in Q3 2024.

Additionally, we recognize $215,000 of deferred hardware revenue in Q3 2025 versus $436,000 in Q3 2024, a difference of $221,000.

The Fred hardware revenue reflects the non-cash amortization of hardware sales prior to September 2023.

Which were deferred and amortized over 3 years.

The amount of revenue recognized from the amortization of deferred revenue will continue to decrease as we have not deferred revenue from hardware sales since September 1, 2023.

When we began selling hardware units that can be sold independently from our monitoring services, hardware sales are recognized to revenue upon shipment or transfer of title. We expect all deferred hardware revenues to be fully amortized by August of 2026.

Adding the $221,000 difference in Q3 hardware amortization plus the $724,000 of hardware revenue results in the delta of $945,000 or approximately 95% of the hardware revenue variance between Q325 and Q324.

An additional factor is the reality that new hardware sales have been soft on the residential side of the business, but stronger in the commercial and industrial segment.

Echoing this residential trend, last week, a leading generator, OEM, reported Q3 revenue below expectations in the home market.

Which they attributed to reduced incidence of power outages, one of the lowest rates in 10 years, due in part to fewer US hurricane impact this season.

As you can imagine, power outages from any source are a major driver of backup generator demand.

We also believe ongoing economic conditions, including high interest rates, slowing job growth, and other financial uncertainties, have slowed deployment of backup generators which range between $7000 and $24,000 to purchase and install depending on the home size. It is our sense that these economic challenges have tempered residential demand for several quarters.

Longer-term, we expect residential demand will rebound as economic conditions moderate, grid uncertainty builds, and power outage incidents grow in frequency and duration.

In terms of our large cell phone contract since inception, we have realized $3.9 million of hardware revenue and $343,000 in monitoring revenue, totaling roughly $4.2 million.

We are told that there will be additional purchase orders under this contract, but as of right now we have shipped all the initial hardware ordered.

We will continue to recognize monitoring revenue under this contract that was deferred at the point of sale over the 12 month period commencing on the install date.

Total deferred monitoring revenue at September 30th, 2025 under this contract was $290,000.

Of course, We fully expect this customer to renew our monitoring services given the customers over $4 million hardware investment.

We expect them to be a long-term and happy customer.

This is supported by the value and cost savings of our service and cost prohibitive nature of switching to a competing offering, all of which are reflected in our history of greater than 90% annual renewal rates.

Looking forward, the big question for shareholders is what is our strategy to build on our scalable, high margin, cash generating business to achieve our long-term growth goals? The answer is that we are pursuing a number of initiatives across commercial, industrial, and residential markets that fall into 5 distinct buckets.

1, larger commercial and industrial opportunities being pursued by our direct sales team. 2, strategic OEM relationships in which we partner to provide our industry leading technology and services. 3, expanding our penetration of the residential market through our over 600 generator dealers.

4, developing new products and expanding the capabilities and value of existing products, and 5, through accretive M&A transactions.

I'll briefly touch on each of these growth initiatives. Larger commercial and industrial opportunities are being pursued via via our internal sales team across sectors including healthcare, telecom, real estate management, retail, and the military. We have a range of ongoing discussions, but many of the organizations are larger and more complex, resulting in sales cycles that are longer, and the timing and outcome is hard to predict.

We see meaningful long-term growth potential from C&I customers because of their regional and national scale and our proven ability to deliver a compelling return on investment in terms of cost savings, improved data and analytics, as well as reduced operational risk.

Strategic OEM relationships in which we partner to provide our industry leading technology and services. We continue to advance discussions with OEMs regarding potential strategic relationships where monitors would be bundled and installed by the manufacturer rather than in the aftermarket.

We believe Omniometrics technology and service leadership combined with our ability to support all generator brands puts us in a very strong position to partner with OEMs.

This will allow an OEM to focus on their core business while delivering a superior total solution across their customer universe.

Of course, these initiatives require discussion, research, testing, and planning.

Yet there's no guarantee of success, but we believe the concept makes good sense for both sides, and we'll continue to pursue this avenue which could be an important growth driver for us, expanding our penetration.

Of the residential market through our over 600 generator dealers, while retail adoption of generators has been slow due to a number of factors, we expect the pace to pick up moving forward. We go to market in the residential space through a network of over 600 generator dealers, and so our primary drivers are working to support them in their outreach.

New product development is another area of long-term importance that Tracy will touch on in her remarks. M&A transactions remain a priority in our growth efforts. We are evaluating several complementary M&A prospects with monitoring components to their business. Negotiations with two of these are progressing, though it's too early to predict if or when they might happen.

We are very motivated to execute on one or more transactions to accelerate our growth and drive further operating leverage.

But we remain disciplined on managing risk and the price we are willing to pay to ensure we are building value for our shareholders.

As we have new investors on today's call, I'll just touch on some of the long-term secular trends supporting our growth. First, remote asset monitoring is projected to grow approximately 23% annually through 2032, driven by the increasing adoption of IoT connected devices, real-time data collection, demand for predictive maintenance and data analysis, as well as compliance and reporting obligations.

Even some of you on today's call are probably monitoring things you probably didn't or couldn't just 5 years ago, like home thermostats, lighting, doorbells, HVAC systems, appliances, etc. Newer cars allow you to monitor the car's location, fuel efficiency, fluid levels, and other measures, or you may use your remote start, remote climate control or door locks. The same thing is happening within businesses. Remote monitoring is increasingly being seen as a necessary and cost effective tool to enhance operational performance and reduce the risk of disruption, providing reliability, cost savings, and convenience, and Omni metrics is ideally positioned to meet this growing demand.

We all read of growing energy man from AI and data centers, which is taxing the US energy grid and reducing the reliability of electricity access.

Though the hurricane season has spared the US, the prevailing trend has been more frequent.

And severe weather and other natural disasters increasingly disrupting the grid.

Electrification demands across the economy are compounding a fragile grid and creating a supply and demand imbalance for electricity. The point is CMI customers and residential customers increasingly need reliable backup power, and that's the key driver of our business.

We expect that these major secular trends will continue to support our long-term growth.

Based on the trends and our growth initiatives, we continue to believe 20% average annual revenue growth is an achievable target over the next 3 to 5 years.

It won't be a straight line, and it will require that we execute on one or more of our larger growth initiatives in coming periods, but we feel the scope of opportunity and the strength of our position makes this very achievable.

With that, I'll turn the call back to Tracy to go over our financials and for her perspectives on our operations, Tracy.

Thanks, Jan.

As Jan noted, the primary driver of our year over year performance in Q3 and through September relates to the timing of orders under our cell phone provider contract.

Focusing on third quarter performance for 25 versus 24, we realized $148,000 of monitoring revenue related to the contract in Q325 and zero hardware revenue versus $724,000 of hardware revenue and no monitoring revenue in Q324.

An aggregate difference of $576,000.

Q325 total revenue was $2,478,000 versus $3,050,000, a difference of $572,000. High margin recurring monitoring revenue grew $422,000 to a record $1,560,000 in Q3 2025.

Our Q325 gross margin expanding to 78.5% from 71.7% driven by a significantly higher proportion of monitoring revenue relative to hardware revenue.

Operating expenses increased 24.8% to $1,786,000 from $1,431,000 in Q324 due to higher SG&A and R&D expenses.

Increases included $110,000 in non-recurring corporate expenses related to our NASDAQ uplifting. A $60,000 increase in tax professional fees, of which approximately 50% is not recurring as it related to our 382 study that was completed in October, a $40,000 increase in our other public company expenses and stock compensation, and $33,000 of higher R&D investment.

Q325 net income to stockholders fell to $252,000 or $0.10 per diluted share versus $725,000 or $0.29 per diluted share in Q324, a function of lower revenue and higher operating costs.

The year-to-date highlights include revenue of $9,101,000, which is a 22% year over year increase. The first nine month gross margin improved to 75.9% versus 73%, reflecting the benefit of adding revenue on a largely fixed cost structure and progress we are making in our hardware product margins.

EPS of $0.57, an increase of 36% year over year, even after consideration of income tax expense of $331,000 in the current year period compared to $67,000 of income tax expense in the prior year-to-date period.

Cash flow from operations was $1,795,000 which is a 143% year over year increase.

Quarter end available cash of $4,167,000, which increased to $4,372,000 as of November 4, 2025. And we continue to be debt free.

As a leader in remote generator and pipeline monitoring, we maintain our competitive edge through ongoing investment and product development.

Q3 was the beta launch of our next generation monitors Omni for residential and OmniPro for commercial and industrial use. These next generation monitors offer a smaller size and quicker processing speed, other new features that reduce installation time and service costs, and enhance reliability such as over the air updates, and they offer remote exercise programming and enhanced compliance reporting.

These features and upgrades increase the value of our offering relative to our competition.

Also in Q3, we began testing a redesigned version of our remote AC mitigation disconnect or RA for our pipeline segment.

Without getting too technical, the RAD product allows remote disconnection and reconnection of alternating current or AC mitigation tools for enhanced employee safety and lower cost versus manual field disconnections which are required for maintenance. The new RADEX design adds pipeline measurement capability in addition to the disconnect feature combining two important pipeline maintenance requirements into a single product.

We also continue to improve our OmniView 2 or OV2 user interface in response to customer requests and suggestions, and we routinely review and update our cybersecurity protocols to mitigate constantly changing risks.

Many of our ideas for improvements come from listening to our customers and being proactive in addressing customer concerns and needs in our future offerings and updates. This requires close relationships and partnerships with our customers, which we are very proud of at Omomemetrics. Our customers sincerely value that our products improve reliability, reduce costs, and assist in their compliance and operational reporting. Based on feedback, we're excited about the opportunities ahead, and we look forward to updating you in the coming quarters. Operator, you may now prepare the lines for questions.

(Operator instruction)

Chris Tuttle with Blue Caterpillar.

Hey, guys, thanks for taking my question. I actually have a couple, let's start with the positives. Your, recurring revenue on the, software monitoring side was up, nicely, and I'm curious, is that something you see as being sustainable? Are we going to experience, kind of ongoing some level of potential growth in that category?

It is sustainable. It is recurring, so, we expect.

Consistent growth in that number. I'm not saying you're going to see 37% every quarter, but.

Since we amortize first years, so it comes in over time, and, you should see consistent growth, and we view that as the core value builder of our business.

Okay, I mean, unless something unusual happens like a customer cancels or something, there should be some as more units come online that the number will go up at least a little bit over time, in other words, this quarter should be, at least marginally higher than than last quarter.

100%.

And hopefully better than nothing.

Yes, got it, perfect. Now my other question is, just turning to hardware for a moment, obviously a little bit weaker than maybe people were expecting, and I just wanted to make sure I understand what you said. It sounds like there's still a few more deliveries on these long-term, the big contract that kind of propelled you guys in in this quarter and in Q1. Do I have that right?

So the basically we finished the majority of our deliveries to this customer in Q2 of 2025. So we started Q3 of 2024. We ended Q2 of 2025, so over a one year period. However, there's, we'll call it other stuff that they have told us that we're going to be getting.

They haven't given us a date yet, so there's still, I, I'll call it the tail end of the contract is still to come and hopefully it'll be Q4, maybe it'll be Q1 of 2026.

And that's again that's on equipment equipment.

Right, that's on the hardware line, right? Additional deployments and so, with your last question sort of with respect to this, contract, and obviously the customer is a large customer, they moved to their own, beat, they own the football, do you still believe that there's a possibility you might get, do they have additional.

Coverage that they want to implement and could that mean additional purchase orders for you at some point in the future along the same lines of what what you've had with them?

The answer to that is yes, but they have given us no indication.

But that's forthcoming.

Okay and then the last question.

You know Tracy talked about some things on the new product side and and you know you guys got to show me the at least the new box that you were putting out and it you know it looks like a real you know step forward and this time you you talk a little bit more about AC power. And just I mean maybe you could help me understand I mean I get it at a high level but is there a specific kind of market use case customer type that you think about when you look at the AC based you know some of the things that Tracy talked about?

So I believe what you're referring to, was AC mitigation, which is in our corrosion protection.

Side of our business, so I'm sure about 90% of our revenue comes from power generation and about 10% comes from corrosion protection.

So this is a product that we've been beta testing and corrosion protection and has seemed to have gotten some industry attention and so we're hopefully going to roll that out in the 4th quarter and we'll see what what happens. So that's in our corrosion protection side of our business versus our power generation side of our business.

I got it. That's helpful clarification. All right, I'll get off the box here and let other folks jump in if they've got questions. Thanks a lot, Jan.

And Tracy.

Thank you, Chris.

Jason Mulenkamp, private investor.

Hi Jan Tracy, always good to hear from you both.

I have a more timeless question here perhaps so I'm a bit curious if you could discuss, you guys have always been good about reinvesting in the business and moving the product forward what I don't have a sense for would love to hear from you is when you, launch a new product, what, kind of what percentage of those are to existing customers? I, I'd imagine some customers upgrade, some don't, could you just discuss that a little bit for folks?

Sure, so in the case of, the Omni and Omni Pro.

Those are products that are replacing.

Existing products, so we have TrueGuard and TrueGuard Pro as.

Existing products and we're now replacing them with Omni and and Omniro and as Tracy discussed all the, benefits, well she discussed all the benefits, but some of the benefits of the new product versus the old product.

In the case of in the case of the EAD EX, that that would be a totally brand new product. We don't have an existing product like that in the marketplace. Our product for corrosion protection is the hero, so that would be a brand new, line for us.

Does that answer your question.

And let me add actually I think Jason let me add to that for you so when we introduced the new generation of TG and and TG Pro our existing customers would not typically replace the units that they currently have certainly moving forward as you know we have customers that, order on a repetitive basis. And dealers that order on a repetitive basis, so their orders, their new orders would then be fulfilled with the new generation of products. So we will essentially as our inventory depletes on our existing, older generation that will be entirely replaced with the new generation inventory. So anyone who ordered. From that point forward will will receive the new generation of products but they would not it it's not our expectation that anyone would would replace an existing unit that is functioning properly to replace it with our new generation product. I think that was more what you were asking correct?

Yeah, correct, that's very helpful and the, so the growth there is generally tied to your existing customers or dealers having growth in their business essentially is that true?

Yes, or consistency in their business, yes.

Okay, thank.

You. Consistent demand.

Joe Stein with Oppenheimer.

He did.

I can't do what they're telling.

Me. let's move on, operator.

No pro no problem we can move on.

Yeah can you hear me?

I kept going off the machine. It's Joe's done. I'm sorry.

I got on a little late, but I was my question was the problem not having the inventory and receiving product or a lack of demand.

We got no revenue in the in this quarter on the telephone side. Did I misread that?

Yeah, no, it's, we did not have the order.

And we did not have a PO to ship anything so.

Got you, we don't have an inventory.

We have whatever our customers need we're we're very good about that.

That's what I thought. Okay, all right, everything else reads very well, but thank you for clearing that up for me.

Okay Thank You.

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jan Loeb for any closing remarks.

Thank you all for joining today's call. We appreciate your continued support. If you have any follow-up questions, please reach out to our IR team. Listen to today's press release or to Tracy or myself. We look forward to updating you again on our next conference call.

Take care.

The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.