Acorn Energy (ACFN) is an energy sector incubator executing a turnaround. They lost money in 2009 and 2010, turned a profit in 2011, but returned to losses in 2012. Their turnaround effort will depend on how their portfolio companies are positioned. Let's see what they have to offer.
DSIT makes underwater acoustic systems. I like that their physical devices are generic kits and their analytic system is COT rather than something that takes a decade of lab development to deploy. This gives them a cost advantage when competing against leading defense firms. I've noted that DSIT offers a couple of niche products that L-3 Ocean Systems doesn't have. Not every country's navy needs gold-plated weaponry.
GridSense Systems sells smart grid monitoring and analytics systems. There seem to be a ton of these types of systems on the market and some of their makers will be acquired by larger electric component makers. I think the key for GridSense is to either be the lowest-cost provider or figure out how their systems tie into utility smart-grid programs.
Omnimetrix also ties into the smart grid sector with its remote monitoring applications. These seem at first glance to compete somewhat with GridSense's products, with the main difference being that these are wireless and not hardwired into control lines. The products focused on failure prevention, particularly for generators, are sufficiently different from GridSense's tower and line monitors to be non-competing.
US Seismic Systems offers seismic monitoring systems for the oil and gad sector. This product line has the most immediate application to the U.S. boom in shale exploration.
It's difficult for a non-engineer like me to assess the technical capabilities of these products. They need to provide either cost savings or performance advantages at cost to penetrate existing markets. The success of each of these product portfolios in grabbing market share will determine whether they should be spun off from Acorn Energy or acquired. It's good that Acorn has almost no long-term debt, and their receivables have finally grown large enough to cover short term liabilities from quarter to quarter (as of September 2012). That is a tenuous survival strategy given their negative free cash flow, which if uncorrected will eventually force a drawdown of their cash balance. Mere survival isn't sufficient to dig out of the retained earnings deficit that has almost doubled since the end of 2011. Acorn's companies need managers who know how to grow markets. This turnaround story will be about human capital. I'll check back in one year.
Full disclosure: No position in ACFN or other companies mentioned at this time.
