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Artko Capital - Acorn Energy: Disappointing But Not Out Of The Realm Of Normality

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The pursuing conception was excerpted from this money letter.


Acorn Energy (OTCQB:ACFN) – 8% of Portfolio; $0.30 costs basis/$0.32 existent price

Acorn’s value performance, down 45% successful 2022, and down different 9% successful 2023, has surely been disappointing but not retired of nan realm of normality of nan nanocap world, wherever moreover $10,000 worthy of measurement tin push nan value of this $13mm marketplace headdress institution up aliases down 15%.

2022 was a transitionary twelvemonth for nan institution whose main business is providing monitoring services for backmost up electrical generators successful nan United States. This is simply a nice, very precocious margin, recurring gross business pinch a bully $4mm guidelines astatine adjacent to 90% gross margins. The different half of nan $8mm+ rate revenues is nan waste of hardware, which results successful an summation successful nan monitoring gross base.

On nan 1 manus 2022 was a disappointing twelvemonth successful that nan sunsetting of 3G exertion by awesome telecom carriers has resulted successful debased azygous digit diminution of nan Monitoring conception revenue, which usually grows astatine adjacent to 20%, arsenic customers conscionable chose not to spell done nan hassle of installing caller hardware.

We judge that this is simply a unique, 1 time, occurrence which has passed starting successful nan 4th 4th of 2022 and pinch precocious teens maturation rates successful Hardware not abating contempt a home business slowdown we are assured that nan institution will revert backmost to its 20% maturation successful 2023 from astir 5% rate gross maturation successful 2022.

On nan different hand, 2022 saw a signing of a transformational statement pinch CPower Energy Management to usage Acorn’s Omnimetrix package successful nan customer’s backup generators arsenic a root of power by powerfulness companies successful times of highest demand. This woody should let nan customer, dealer, CPower, and Omnimetrix to stock successful some nan standby and power usage payments by nan powerfulness companies.

While this isn’t an overnight magic bullet, we judge complete clip this woody should double to triple nan Average Revenue Per Unit (ARPU) Omnimetrix receives from its 30,000+ customers from $100+ to perchance arsenic overmuch arsenic $300 and should thrust an summation successful hardware income arsenic this evidently makes owning a backup generator arsenic a lucrative proposition for immoderate early customer.

Aside from 2022, nan institution has been a accordant 20% CAGR gross grower and we believe, overmuch for illustration nan Research Solutions Platforms segment, erstwhile nan institution passes nan $10mm gross people it should beryllium connected nan radar of much managers. The Omnimetrix CPower opportunity tin thrust nan company’s Monitoring gross guidelines to $12mm and hardware to $10mm wrong 3 to 5 years wherever nan institution whitethorn beryllium capable to make complete $10mm of unchangeable increasing Free Cash Flow and person a marketplace headdress of $100mm to $200mm from $13mm today.

While nan institution has had accordant maturation and achieved profitability since we person owned it, nan banal value has been disappointing. We person engaged guidance successful superior discussions astir steps nan institution tin return to boost its banal price, including encouraging a imaginable transaction that would amended bespeak its basal value.


Legal Disclosure

The Partnership’s capacity is based connected operations during a play of wide marketplace maturation and bonzer marketplace volatility during portion of nan period, and is not needfully suggestive of results nan Partnership whitethorn execute successful nan future. In addition, nan results are based connected nan periods arsenic a whole, but results for individual months aliases quarters wrong each play person been much favorable aliases little favorable than nan average, arsenic nan lawsuit whitethorn be. The foregoing information person been prepared by nan General Partner and person not been compiled, reviewed aliases audited by an independent accountant and non-year extremity results are taxable to adjustment.

The results portrayed are for an investor since inception successful nan Partnership and nan results bespeak nan reinvestment of dividends and different net and nan conclusion of costs, nan guidance fees charged to nan Partnership and a pro forma simplification of nan General Partner’s typical profit allocation, if applicable. The General Partner believes that nan comparison of Partnership capacity to immoderate azygous marketplace scale is inappropriate. The Partnership’s portfolio whitethorn incorporate options and different derivative securities, fixed income investments, whitethorn see short income of securities and separator trading and is not arsenic diversified arsenic nan indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, inferior and financial companies and is mostly typical of nan ample capitalization US banal market. The Russell 2000 Index is comprised of nan smallest 2000 companies successful nan Russell 3000 Index and is mostly typical of nan mini capitalization U.S. banal market. The Russell Microcap Index is comprised of nan smallest 1,000 securities successful nan Russell 2000 Index positive nan adjacent 1,000 securities (traded connected nationalist exchanges). The Russell Microcap is mostly typical of nan microcap conception of nan U.S. banal market. All of nan indices are unmanaged, marketplace weighted and bespeak nan reinvestment of dividends. Due to nan differences among nan Partnership’s portfolio and nan capacity of nan equity marketplace indices shown above, however, nan General Partner cautions imaginable investors that nary specified scale is straight comparable to nan finance strategy of nan Partnership.

While nan General Partner believes that to day nan Partnership has been managed pinch an finance accuracy and methodology akin to that described successful nan Partnership’s Offering Circular and to that which will beryllium utilized to negociate nan Partnership successful nan future, early investments will beryllium made nether different economical conditions and successful different securities. Further, nan capacity discussed herein does not bespeak nan General Partner’s capacity successful each different economical cycles. It should not beryllium assumed that investors will acquisition returns successful nan future, if any, comparable to those discussed above. The accusation fixed supra is historical and should not beryllium taken arsenic immoderate denotation of early performance. It should not beryllium assumed that recommendations made successful nan early will beryllium profitable, aliases will equal, nan capacity of nan securities discussed successful this material. Upon request, nan General Partner will supply to you a database of each nan recommendations made by it wrong nan past year.

This archive is not intended arsenic and does not represent an connection to waste immoderate securities to immoderate personification aliases a inducement of immoderate personification of immoderate connection to acquisition immoderate securities. Such an connection aliases inducement tin only beryllium made by nan confidential Offering Circular of nan Partnership. This accusation omits astir of nan accusation worldly to a determination whether to put successful nan Partnership. No personification should trust connected immoderate accusation successful this document, but should trust exclusively connected nan Offering Circular successful considering whether to put successful nan Partnership.


Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

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Single banal ideas excerpted from money letters published by Seeking Alpha.

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