Steven Ralston, CFA
Acorn Energy's second quarter results are above expectations
Acorn Energy (ACFN) reported second quarter results for the period ending June 30, 2011. Revenues increased 30.3% to $10.72 million from $8.23 million, primarily due to strong growth at CoaLogix and GridSense, where revenue growth was well above expectations. Total gross profit declined 14.2% to $2.98 million from $3.48 million in the comparable-period last year. The gross profit margin decreased 1,444 basis points (bps) to 27.8% from 42.3%, primarily due to the margin pressures at CoaLogix and DSIT. However, as a result of the implementation of cost controls, including reduced corporate expenses and no 2010 bonuses being awarded, Acorn reported a quarterly loss from continuing operations of $2.08 million or $0.12 per diluted share, which was above our estimate of a loss of $0.14.
Revenues at DSIT declined 11.1% to $2.51 million in the second quarter, primarily due to the delay of a follow-on order of a large expansion project to alter the configuration of the already ordered DDS system. The gross margin declined 1,341 basis points (bps) to 24.1% from 37.5% in the prior sequential quarter due to technological difficulties in non-Naval projects that increased labor costs and a delay on an AquaShield project. For the second half, the growth and the level of profitability are partly dependent upon the receipt of the anticipated follow-up order.
Revenues at GridSense increased 190% year-over-year to $1.50 million from $517 thousand, which were much better than expectations. Revenue growth was driven by a major TransformerIQ monitoring project by a leading southeastern electric utility to deploy at least 750 TransformerIQ’s and seasonal strength in Australia where utilities consumed the balance of their annual budget allocations. The gross margin sequentially expanded 631 basis points (bps) to 48.4% from 42.1% in the first quarter as a result of the economies of scale, along with lower production costs on account of shifting production from Australia to a lower-cost facility in California. The majority of the units for the TransformerIQ monitoring project will be shipped in the second half of 2011.
USSI reported a 209% increase in revenues to $99 thousand, up from $32 thousand in the depressed comparable-period last year. So far in 2011, USSI has received four significant potential orders that are currently in pilot programs under proof-of concept contracts from oilfield service and equipment companies. The value of three of the proof-of concept contracts is over $1.6 million, which should be booked over the next 18 months; however, these contracts could generate $36 million in annual revenues if they transition from development to production. To prepare for this expected growth, USSI leased a 21,000 square foot of office-production-warehouse facility in Chatsworth, California (San Fernando Valley), more than quadrupling USSI’s workspace. USSI continues to grow its sales pipeline, and management anticipates significant growth in revenues for the balance of 2011 and into 2012. The results of CoaLogix are not being dissected due to the pending sale of the operation.
Our Outperform rating is reiterated with a target of $6.10. The proceeds from the impending sale of CoaLogix will give management flexibility towards further enhancing shareholder value.
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