Acorn Energy, Inc. (ACFN) Q3 2026 Earnings Call Transcript

Operator: Good day and welcome. Good morning, and welcome to Acorn Energy's third quarter 2026 earnings conference call. Management's prepared remarks will be followed by a question-and-answer session. Please note that today's call is being recorded. I would now like to turn the call over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrix subsidiary.

Tracy Clifford: Thank you, operator, and thank you all for joining us today. I'd like to remind everyone that today's remarks and 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 anticipated. 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, expand our customer base, and successfully integrate acquisitions. Additional risks may arise from changes in technology, competition, or shifts in macroeconomic or financial markets. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on management's beliefs, assumptions, and information that is available as of today. There can be no assurances that the company will meet its growth targets or its other strategic goals and objectives. The company undertakes no obligation to update or revise forward-looking statements to reflect future events or specific circumstances that may occur after today. For a more detailed discussion of risks and uncertainties that may affect our business, please refer to the risk factor section of our Form 10-K for 2025 and our third quarter Form 10-Q, both of which are available at www.sec.gov and on our website. Now I'll turn the call over to Jan Loeb, CEO of Acorn and OmniMetrix, for further comments. Jan?

Jan Loeb: Thank you, Tracy, and good morning, everyone. Our third quarter was solid, profitable, and cash generative, and strategically one of our busiest ever. Revenue increased 4.6% to $2.6 million, and gross margin improved 200 basis points to 80.5%. Net income to stockholders was $940,000, or $0.37 per diluted share, including about $0.31 per share, or $780,000, from a further non-cash reduction in the valuation allowance on our deferred tax assets. This compared to net income of $252,000, or $0.10 per diluted share, in the year-ago quarter. To reduce our valuation allowance, we must demonstrate that we're more likely than not to generate future taxable income to use more of our NOLs, which is essentially a reflection of our greater confidence in our future profitability. Importantly, these tax assets reduce future federal cash tax obligations, thereby increasing operating cash flow. After several reductions, we still carry a deferred tax asset valuation allowance of roughly $9.5 million, value that isn't reflected on our balance sheet today. Our goal is to continue to grow organically and through acquisitions to unlock more of this cash flow benefit over time. This quarter's top-line growth was masked by two prior year period items that created a net headwind of $358,000. First, Q3 2025 included $215,000 of non-cash revenue amortization from legacy hardware sold before September of 2023, compared to just $5,000 this quarter. The remaining balance of deferred revenue from legacy products has now been fully recognized. Secondly, Q3 2025 included the recognition of $178,000 in deferred monitoring revenue pursuant to a policy that we implemented in 2025 related to units that were sold greater than 24 months prior that were never installed. For Q3 2026, this amount was $30,000. The prior year amount was significantly higher since that was the first year of policy adoption. Excluding the impact of these items and the Gen-Tracker partial month contribution in September of 2026, underlying revenue grew about 19%, with monitoring revenue up about 5%, and hardware revenue benefiting from initial stocking order for the launch of our Champion Power Equipment partnership. Hardware gross margin also climbed to nearly 59% from 50% due to enhancements in our next-generation OMNI product family, which delivers more value to our customers and has lower production costs than legacy products. In August, we acquired the remaining 1% of OmniMetrix in an all-stock exchange from OmniMetrix's prior CEO. We felt it was important to consolidate our ownership of OmniMetrix so that we could simplify our structure and financial reporting moving forward. While we typically prefer to use cash for acquisitions, in this case, equity allowed the prior CEO to retain full participation in the business upside along with greater liquidity. After years of effort, we were excited to complete our first acquisition of Gen-Tracker in the third quarter. More importantly, we were able to fund the $1 million payment at closing largely with cash generated from operations, reflecting the ability of a high-margin recurring revenue model to fund growth initiatives. Based in Minnesota, Gen-Tracker has been monitoring standby generators for 25 years. It adds approximately $1.1 million in expected annual recurring monitoring revenue, primarily from commercial and industrial customers, along with an established dealer network and four experienced employees who all have joined OmniMetrix. Gen-Tracker serves approximately 15 Fortune 500 customers, which increased our reach into this universe to approximately 50 large companies. Additionally, we have consolidated a respected competitor in commercial and industrial, right where we want to grow most. Strategically, Gen-Tracker is an ideal fit. They monitor generators through the automatic transfer switch, an approach that works on generators of virtually any make, model, or age, including those that predate modern controllers. We've always been able to monitor at the automatic transfer switch, but our focus has been on the generator controller. With Gen-Tracker, we have strengthened our ability to serve as a one-stop provider for an entire generator fleet, new or old, and regardless of brand mix. Our review of Gen-Tracker's customer relationships identified a few receivables that are unlikely to collect. This and other due diligence allowed us to structure and price the transaction on what we believe are beneficial terms for our shareholders. We paid $1 million at closing, and a $2.5 million balance will be paid in annual installments over five years, funded primarily by the acquired business. We are in the process of moving Gen-Tracker's accounts onto our platform and applying our disciplined operating and collection practices. The fourth quarter will be our first full quarter contribution from Gen-Tracker, and with continued focus execution, we expect it to be accretive to earnings and particularly to EBITDA. Also, in power generation, we continue to make progress toward our goal of securing a bundling relationship with a major OEM, most likely through a private label structure. We discussed our OMNI360 solution suite in depth last quarter, so I will be brief, and Tracy will give you an operational update. The bigger picture is this: the problems OMNI360 solves are not going away. We estimate theft alone will cost the cell tower industry roughly half a billion dollars this year. These are large organizations with many priorities and long decision cycles. While we have reason to be optimistic, we have commitments for POCs, proof of concepts, system installations. We do not currently see the likelihood for a meaningful commercial agreement in 2026 or any related revenue impact. The macro backdrop for backup power and monitoring remains very favorable. As the specter of prolonged power outages expands, as you would expect, we find the actual power outages and the increased potential threat of such outages is the most powerful driver of commercial, industrial, and residential new generator demand, which creates new monitoring opportunities. After roughly a year of below average outage activity, industry data indicate that power outages returned to more normal levels in the third quarter, and home standby generator shipments picked up significantly. Hurricane Isaias hit the Gulf Coast in early October and knocked out power to more than 900,000 customers, a stark reminder of why backup power matters. Looking ahead, NOAA's winter outlook calls for very strong El Niño, which tilts the odds toward stormier weather across the South and along the East Coast. More broadly, power demand from AI and data centers continue to strain the grid, and generator manufacturers are reporting multi-billion dollar backlogs for data center backup power alone. Meanwhile, just under 7% of U.S. households have a home standby generator, which signals significant opportunity in the residential market for new generator installations and monitoring. I would like to close with my perspective on building shareholder value. Acorn owns 100% of OmniMetrix, and we are profitable and generating cash. We have approximately $4.5 million in cash, no bank debt, a growing base of high-margin recurring revenue, and roughly $15 million of total deferred tax assets, including about $9.5 million that still is not on our balance sheet. We have a range of growth opportunities and initiatives that include three sources of significant upside: an OEM bundling relationship, the potential of our OMNI360 business, and additional M&A opportunities that are not reflected in our current operating results. We do not need any of these to continue our growth trajectory, but if one or more of these are realized, it could meaningfully change the scale of our company. Importantly, the investments we are making are modest, with a compelling risk-reward profile that balances risk management with growth. We are encouraged by our progress and the opportunities we see across the business. With that, I'll hand it back to Tracy to discuss our financial and operating results in more detail. Tracy?

Tracy Clifford: Thanks, Jan. What stands out in our third quarter performance is the steady growth of our core model. Our high-margin recurring monitoring revenues continue to build, hardware returned to period-over-period growth, and OmniMetrix remains solidly profitable while absorbing one-time acquisition costs and our continued investment in various initiatives. Jan walked through our revenue drivers, so I'll focus on margins, expenses, profitability, and the balance sheet. Summarizing Q3 2026 versus Q3 2025 comparisons, revenue rose 4.6% to $2,591,000, including $78,000 from Gen-Tracker's first three weeks under our ownership, specifically $68,000 of monitoring revenue amortization and $10,000 of hardware revenue. Gross margin improved 200 basis points to 80.5%, with monitoring gross margin steady at 95.3% and hardware gross margin rising to 58.6% from 50%. Operating expenses increased 6.2% to $1,897,000. OmniMetrix SG&A rose $214,000, including $71,000 one-time Gen-Tracker acquisition costs, along with investments in personnel, travel, and trade shows to expand our sales and marketing outreach, and costs related to our pursuit of the ISO 27001 certification. Corporate SG&A declined $84,000, as last year included higher legal and tax advisory fees related to our Nasdaq listing and NOL review, partially offset by higher non-cash stock compensation expense. R&D expense was lower by $19,000. OmniMetrix' combined operating income across our three segments was $553,000 versus $606,000 in Q3 2025. Excluding the non-recurring Gen-Tracker acquisition cost, OmniMetrix operating income would have been up modestly, even after absorbing $36,000 of operating expense in our pre-revenue infrastructure solutions segment. Consolidated pre-tax income increased 10.9% to $214,000, including the $780,000 or $0.31 per share deferred income tax benefit. Net income to Acorn stockholders was $940,000 or $0.37 per diluted share versus $252,000 or $0.10 in Q3 2025, which included a $111,000 or $0.04 per share deferred income tax benefit. Q3 2026 results also included $102,000 or $0.04 per share of non-cash stock compensation expense versus $33,000 or $0.01 per share in the prior year period. Turning to our liquidity and cash position, as Jan mentioned, we have cash on hand of $4,458,000 at September 30th, essentially unchanged from year-end, after funding the $1 million Gen-Tracker closing payment and the $250,000 payment for our AIO OMNI360 technology rights earlier in the year. Cash from operations was $1,276,000 for the first nine months, including $999,000 in the third quarter. Excluding deferred revenue, net working capital was $6.1 million compared with $6.25 million at year-end. Our backlog, which is primarily deferred revenue, grew 13% year-over-year to $4.1 million, of which $3.6 million is expected to be recognized over the next 12 months. That includes $522,000 of prepaid monitoring assumed with the Gen-Tracker acquisition. To provide a little more color, this quarter's $780,000 valuation allowance reduction related primarily to the tax treatment of capitalized R&D costs and changes to our forecast, including the incorporation of the Gen-Tracker product line and related revenue and expenses. It follows reductions in the valuation allowance of $4.7 million in 2024 and $1.1 million in 2025, leaving a remaining valuation allowance of approximately $9.5 million. We'll continue to reassess this each quarter. In terms of the accounting for our first acquisition, we recorded the $3.5 million of contractual consideration payable over five years, with the exception of the $1 million that was paid at closing, at a present value of approximately $3.06 million, with the discount on the $2.5 million in deferred payments accruing to interest expense over time. On a preliminary basis, the purchase price was allocated primarily to $1.85 million of intangible assets, primarily customer relationships, amortized over eight years, and $1.44 million of goodwill, which isn't amortized, but will be tested annually for impairment. Including our OMNI360 technology rights, non-cash intangible amortization will run about $70,000 per quarter starting in Q4. The allocation remains preliminary until the independent valuation is finalized, preliminary until the independent valuation is finalized, for which we are allowed one year from the transaction date. Operationally, the Gen-Tracker integration is progressing well. We've welcomed Gen-Tracker's four employees in Oakdale, Minnesota to the OmniMetrix team, and they're already supporting our broader operations. We're also introducing Gen-Tracker's dealers and customers to the broader OmniMetrix product line, migrating Gen-Tracker's monitoring data to our Azure Cloud-hosted environment, aligning billing and collection practices, and making plans to move the Gen-Tracker devices to our OmniView platform in 2027. In power generation, we were among the first companies certified to use T-Mobile's T-Satellite service. When a customer's generator sits where cellular coverage doesn't reach, think offshore platforms in the Gulf or remote utility sites, their traditional answer has been conventional satellite communications, which are costly. T-Satellite gives our customers a simpler, lower-cost alternative, and it generated strong interest at the EGSA show in September. In infrastructure solutions, OMNI360 remains in the pre-revenue stage as we build our pipeline of opportunities. We have several POCs underway in addition to our two demo towers. Customer interest is encouraging. In October, we joined the Wireless Infrastructure Association and attended its Digital Infrastructure Forum in Washington, D.C., putting us in the room with the carriers and tower owners who make these decisions. As our General Manager, Jesse Gott, put it, membership gives us a direct line into the priorities shaping our customers' businesses. Segment operating expense was $36,000 in the quarter, and we continue to manage that investment carefully as commercial discussions advance. We're also pursuing the ISO 27001 certification, which is the international standard for information security management, for which our audit by the certification entity is scheduled in December. Enterprise and telecom customers increasingly expect it, and we view it as an important credential as we pursue larger opportunities. To sum up, our recurring revenue base continues to grow, our margins remain strong, and we're generating cash while we integrate our first acquisition and invest in other initiatives. I look forward to updating you on our progress when we report year-end results. With that, operator, please open the line for questions.

Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Please pause for a moment while we assemble our roster. The first question comes from Joel Sklar. Please go ahead.

Joel Sklar: Yes. Good morning, Jan and Tracy. I continue to marvel at how you produce a positive bottom line and strong cash, despite all the development activities that you have underway for the future. Two questions for you. One has to do with OMNI360, and just wondering with the recent experience of Hurricane Isaias, I think that's the way they pronounced it. I saw that 600 cell towers lost power during that hurricane. Whether you have any anecdotal feedback from cell tower operators, from either your traditional generator monitoring or from your Proof of Concept setups for OMNI360. That's the first question. The second question is, I noticed on your website, you have fire pump monitors now listed as a product line. Is that brand new? I've never noticed that before. Can you comment on that at all, what the outlook would be for I assume if you develop something, a monitor for that market, you must feel there's a market there. Anyway, thank you in advance for your answers.

Jan Loeb: Good morning, Joel. In answer to your first question, there's nothing that we can do about a power outage at a cell tower during a storm. However, a lot of the generators, meaning the cell towers lost power, so a lot of the generators at locations that we monitor kicked on, and we obviously were monitoring that. Hopefully for the cell tower operators, they thought about checking their generators before the storm, which a lot did, to make sure that they're in top running order. I can't say that because of the storm, people called us and said, "We'd like to try you out." We're just not that known yet in the industry, so you got to give us a little bit of time to get more embedded. In terms of fire pumps, yes, we can monitor fire pump monitors, and it's been a product we have for some time. Now, as we continue to grow our retail base, a lot of the retailers are coming to us, and our sales force is going to them, and we are beginning to see a pickup in that business. It's a business we've had for a few years now. We're just trying to highlight it a little bit more on the website, and hopefully it'll continue to grow.

Joel Sklar: Okay. Thank you. Just a clarification with the recent hurricane and OMNI360. Where you have the Proof of Concept were any of those, I know there's probably a few that are set up because it's a Proof of Concept.

Jan Loeb: No.

Joel Sklar: Were any of those affected by the.

Jan Loeb: No, they weren't. Okay.

Joel Sklar: Okay, because I was wondering if that could demonstrate an improved emergency response. Yeah.

Jan Loeb: They were not in the path.

Joel Sklar: Okay. Got you. Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference over to Bill Jones for questions submitted over email.

Bill Jones: Hi. Thank you. We have two questions submitted by a private investor via email related to OMNI360. Can OMNI360 integrate with customers' existing Network Operations Center, NOC, systems through standard protocols or APIs, including alarm management and remote control? Or would customers need to use a separate OMNI360 dashboard? There is a follow-up.

Jan Loeb: Okay. In answer to that question, yes, the OMNI360 can take APIs. We only have experience with the API of our own units. We have set up some OMNI360s in cell towers that we previously were monitoring the generator, and nothing else on the cell tower was monitored. Through API, the OMNI360 dashboard can monitor the generator as well. We have not had other uses come through. We have that capability, but it loses the function. Meaning, if you have a camera system for security or door locks for security, it works on our dashboard. It does not work through an API, and so you basically do not get the all-in-one information flow that you get with our dashboard. The answer is yes, it can, but we do not anticipate that being the way a customer goes or that being in the best interest of the customer.

Bill Jones: Thank you. A follow-up also regarding OMNI360. Are potential customers primarily looking to add monitoring capabilities to previously unmonitored sites, or are they considering replacing existing solutions from established systems or competitors?

Jan Loeb: Too early to tell. Obviously, we're going after the entire market. I can tell you that the POCs that we're doing today, they are on previously unmonitored sites. They are not replacing an existing solution. We'll hopefully, we're going to go after both.

Bill Jones: Okay. Final question. The stock has been down. Is that related to data center or overall tech weakness, in your opinion?

Jan Loeb: Well, I am not a market pundit, but it certainly seems to me that our earnings, our outlook, all are very positive. We've been painted with the data center brush more than once in our history, both on the upside and now on the downside. So yeah, I certainly believe that that's what's going on in the marketplace today.

Bill Jones: That is all the questions.

Jan Loeb: Okay. Seeing no other questions, thank you all for joining us today, and thank you to our shareholders for your continued support. If you have any follow-up questions or comments, please feel free to reach out to me or to our investor relations team. Contact information is included in today's press release. We look forward to updating you on our next call or sooner through press releases on any interim developments. All the best.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.