Friday, May 22, 2015

Acorn Energy a Victim of Oil Patch Upheaval

Last week Acorn Energy, Inc. (ACFN:  Nasdaq) reported a net loss of $$2.8 million or $0.11 per share on total sales of $4.6 million in the quarter ending March 2015.  Shareholders were not surprised.  Acorn has been fighting against losses for months as it juggles the energy and environmental operations in its holding company portfolio. 

The March 2015 quarter included losses from the discontinued operations of US Seismic Systems (USSI), a provider of seismologically-generated geological information for oil and gas well developers.  Acorn had previously announced that operations at USSI had been suspended and its assets would be put on the auction block.  The rapid decline in oil prices has led to an equally rapid decrease in well drilling activity and demand for USSI services.  Unfortunately, neither USSI nor its majority owner Acorn Energy had the financial resources to support operations until well drilling activity resumes.  The most recent quarter included a loss of $1.2 million at USSI.  Acorn had already taken substantial charges totaling $9.3 million in the fourth quarter 2014, to record the write-off of USSI inventory, fixed, goodwill, and intangible assets.

The upside of this tale of losses is that even as USSI fell victim to the oil patch malaise, other operations in Acorn’s portfolio have prospered.  GridSense provides remote monitoring systems for utility companies, contributing $963,000 in sales to the mix.  Owners of gas pipelines get help from OmniMetrix, which deploys a wireless system for remotely monitoring pipe corrosion.  OmniMetrix delivered 5% year-over-year growth in sales in the most recently reported quarter on demand for additional monitoring units as well as higher selling prices.

The big story for Acorn Energy is in its third portfolio operation, DSIT Solutions. Based in Israel, DSIT provides sensor detection systems to owners of underwater assets, such as offshore drilling rigs, ships, harbor infrastructure and others.  Worldwide there is a need for enhanced security capability and DSIT provides solutions that are not easily procured elsewhere.  Acorn announced that DSIT had received over $19.0 million in new orders in recent months, bringing backlog to $26.4 million, more than twice the base of business a year ago.  Things are going so well at DSIT that it has enough cash to make a $5.0 million loan to the Acorn parent.

I expect to see more shutters snapped shut on oil patch service provides like DSIT Solutions.  Authorities in Saudi Arabia have recently voiced the view that oil prices will never get to $100 per barrel again and could lay stagnant in the $40s for a decade until the current glut of oil in storage is run out.  Perhaps that is simply a tactic to scare decision makers in the U.S.  If so, it certainly worked at Acorn Energy.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ACFN is included in the Efficiency Group of Crystal Equity Research’s Mothers of Invention Index of alternative energy companies.


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