Acorn Energy, Inc. (ACFN-NASDAQ)
February 19, 2009 Issue
The Most Powerful Name In Corporate News and Information
Acorn Energy Is Layering Intelligence On Energy Infrastructure
Acorn Energy, Inc. is a publicly traded holding
company focused on two goals: improving the efficiency of the energy grid
and reducing the environmental impact of the energy sector. Acorn's
operating companies leverage advanced technologies to transform the existing
energy infrastructure. Acorn's strategy is to take primarily controlling
positions in companies led by great entrepreneurs and add value by
supporting those companies with marketing, strategy and business
development. Acorn Energy is a global company with equity interests in
CoaLogix, Comverge, Coreworx, DSIT and GridSense.
John A. Moore has been a director and Chief Executive Officer of our Company since March 2006. He also serves as a director of Voltaix a leading producer of specialty gases used in the production of solar cells and semiconductors. He was previously a Director of Comverge and served on its IPO committee. He serves on the Advisory Council of EnerTech Capital a $350 million energy technology fund. Mr. Moore was formerly President and co-founder of Edson Moore Healthcare Ventures, a fund which acquired $150 million of biotechnology assets from Elan Pharmaceuticals in 2002. John was a cofounder and CEO of Optimer Inc., a specialty materials company that was sold in 2007 to Sterling Capital, a leveraged buyout fund with over $4 Billion under management.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – February 19, 2009
Mr. Moore: “The vision for Acorn Energy was to fund companies that were adding a layer of intelligence onto the electric grid for the purpose of improving efficiency or reducing its environmental impact.”
CEOCFO: How are you doing that?
Mr. Moore: “We bought the energy intelligence assets of Lucent Technologies and Scientific Atlanta and changed the name to Comverge. They make load switches that are retrofitted on air conditioners and hot water heaters. Utilities use networks of Comverge’s load switches to reduce demand during periods of peak demand to avoid blackouts. We transformed the Comverge business model from selling devices to utilities to selling them electrical capacity. We built that company and we took it public in 2007 through Citigroup (NYSE: C) and it’s been very successful. Comverge has been named by Newsweek as one of America’s 10 most eco-friendly companies.”
CEOCFO: What choices do utilities have; why are they using your services and what is it are you actually doing with this level of intelligence?
Mr. Moore: “Electricity is a resource that you can’t store, so if you compare the utility industry to other asset intensive industries like hotels or airlines, those other industries have capacity utilization factors of about 75%. If you compare that to the utility industry, it’s about 40%. There’s a huge stake at being able to expand the capacity utilization on the electrical grid. The challenge is that most electricity is consumed from early in the morning to about 4:00 pm, particularly on summer days. So the grid is sized to fit that peak demand. We’re looking for ways to squeeze productivity, basically reducing the size of the peak demand of electricity, and spreading it throughout the day. If we can increase the capacity utilization of the grid from 40% to 50%, it’s the equivalent of quadrupling the total amount of capacity that’s provided today by renewable power. You are then able to avoid building power plants and transmission lines, avoid the emissions related to those assets and you also reduce the cost of service to the customers.”
CEOCFO: What are you actually selling and what is the revenue model?
Mr. Moore: “Comverge’s revenue model is selling capacity under 10 year contracts to the utilities. For example, we have a contract with Arizona Public Service, which is a hundred megawatt program where within 50 seconds of the utility experiencing a peak demand that they are not able to service with their base-load generation capacity, they can push a button and this invisible network of tens of thousands of load switches in residential homes in Arizona will dial back their demand to shave the peak. We enter into ten year contracts and we generally have 70% gross margins. We’ve taken that company public, so now we’re just outside shareholders in that company, but we’ve taken the capital from that business and re-deployed it into other energy intelligence assets.”
CEOCFO: Would you tell us a little about your other companies?
Mr. Moore: “We have a company called CoaLogix that is involved in reducing the environmental footprint of coal-fired power plants. We have different technologies that reduce the emissions of green house gases from coal-fired plants. CoaLogix was named last month the 2008 “Commercial Technology of the Year” by Platts Global Energy Awards. It is like winning an Oscar in the energy business. Reducing the environmental footprint of the coal-fired industry is a huge opportunity.”
CEOCFO: What is the competitive landscape like for you there?
Mr. Moore: “We created the market in the United States for this service. We have one competitor. There’s a billion dollars of total catalyst installed in the coal-fired plants in the USA, and our business is primarily in regenerating that catalyst. Our 2008 audited numbers are not yet complete but we know our revenue more than doubled versus the prior year. CoaLogix business is growing very fast at a very early stage.”
CEOCFO: Tell us about your Coreworx business.
Mr. Moore: “Coreworx is a company that was started by a team I had backed as an angel investor in the 1990’s. They created the first internet ‘bill-presentment’ company and sold it to CheckFree for $250 million. They have developed a technology, which helps some of the world’s biggest energy companies build and maintain their assets. It is a software system, which is used to automate the design and construction of energy infrastructure. Just as Integraph, Bentley and Autodesk created a billion dollar industry out of automating engineering drawings; we hope to do the same by automating the processes around the construction and maintenance of these energy assets.”
CEOCFO: What is your structure in terms of running and coordinating these companies?
Mr. Moore: “We are a holding company and we try to find great entrepreneurs that have experience in these industries. We buy companies that have proven technologies and reference customers, and then we use our capital to accelerate the growth of those companies. We partner with the management of these companies and they have big equity upside tied to the success of the business. We really don’t run anything; we just survey the markets and look for pain points in the energy industry. We look for capital light business models that can make a major impact in relieving these pain points. For example, Comverge is a company that has about a hundred million dollar market cap today, and that little company has more power under contract than all the solar cells in the world combined; over two gigawatts of power. So it is a very small company with a very big impact.”
CEOCFO: How is the economy playing into what you do?
Mr. Moore: “We’re about energy productivity and the energy industry is very inefficient. The number one use of energy is the production and distribution of energy. Because energy companies are usually late adopters of technology, we find that we can bring technology that has been proven in other industries, and apply them to the energy industries problems. Our companies provide low risk but big impact solutions. During periods of economic slowdown companies are forced to adopt productivity improvements where in a more prosperous environment they may not be cost conscious.”
CEOCFO: Are people coming to you at this point with technology or you have to go out and find them?
Mr. Moore: “The great news is that when you have success, people tend to come to you. Therefore, we have more than we can say grace over right now as far as new opportunities to deploy our capital. In this industry, it is easier to find great technology than great entrepreneurs. We tend to look for bolt-on acquisitions that our existing management teams can run.”
CEOCFO: What is the financial picture for Acorn like today?
Mr. Moore: “Acorn has 17 ½ million dollars of cash in the bank and marketable securities. We have $3.4 million of acquisition debt that is due in August of 2009, but we have no other debt. Our companies all operate at or near breakeven, but they are growing very fast. Our priority is to reinvest in our existing businesses. Our businesses are driven by innovation and customer relationships and there are lots of interesting opportunities out there in the world to help make our customers more successful.”
CEOCFO: Do you need to educate people or are they receptive to your technologies?
Mr. Moore: “We only buy businesses that have proven technology and reference customers. Once one of our businesses has identified a pain point and a high profile customer is willing to buy a product or a service to fix the problem then we invest in the business to spread the solution throughout the industry. The negative about the energy business is that they are late adopters and sales cycles are long. The positive is that once you have proven your technology the business tends to go vertical and orders are very large. Investing in sales and marketing for proven technologies is a low risk high return proposition for our shareholders.”
CEOCFO: Do you primarily work in the USA or is there an international component for you?
Mr. Moore: “DSIT is located in Israel, Coreworx is located in Canada, CoaLogix was located in Charlotte NC and Gridsense is located in Australia. All of CoaLogix businesses are in the USA, DSIT has projects in the Middle East and Eastern Europe, and Coreworx has projects in every country in the world. Gridsense has over two hundred utility customers throughout the world.”
CEOCFO: Is the investment community aware of Acorn?
Mr. Moore: “We’re a member of the Russell Microcap Index, but I would say that most investors are not aware of Acorn or about our past successes.”
CEOCFO: Why should the investment community be looking at Acorn and what should they know that might not jump off the page?
Mr. Moore: “The way that Acorn creates shareholder value is by finding the important but small companies at or near breakeven and then contributing dollars to fund their growth. We believe with Comverge that we showed that we could create substantial shareholder value as well as value for society and we think that we have a unique perspective on energy productivity and the importance of that for the economy. We think that we are going to be creating a series of industry changing and category creating companies that are going to create a tremendous amount of shareholder value. Our strategy of investing in capital light businesses, means that they were not subject to financing challenges of a lot of the larger clean-tech opportunities. Another that is interesting with Acorn is that we have a perspective of investing in specialty assets that operate with specialty margins where most clean-tech projects today are about specialty assets selling basic commodity assets, like how solar farms and wind farms produce electrons, and those are relatively low margin businesses.”
CEOFCFO: Do you think the investment community is ready to realize the difference or are they still lumping all green tech and clean tech projects together?
Mr. Moore: “I believe that most people look at the energy industry very superficially and believe that because these are large markets, they should be quick adopters of new technology. The primary nature of the energy technology business is the transfer of wealth from the impatient to the patient. Many people invest in energy technology companies thinking that there is a quick adoption, but if you look at the structure of the industry it is actually a lot of large companies like GE, Siemens, or ABB, selling to other large companies like the major utilities and the major oil and gas companies and it is a very long sales cycle. The magic of what we do is that we don’t invest in start up companies. We only invest in companies that have proven successes. Typically these businesses are operating near breakeven and we are able to buy them at a discount to the previously invested capital. We grow these businesses from a point of proven significance to a tipping point. Case-in-point, Comverge in December of 2007, we did a secondary for that company with Goldman Sachs at a $600 million valuation and that company only had $33 million of trailing revenue. When these companies do go public, they are extremely strategic and tend to benefit from very large valuations.”
CEOCFO: What should people reading this interview remember most about Acorn?
“If you are interested in investing in the energy and environmental
revolution, you are best off “supplying shovels to the gold miners.” Invest
in a company like Acorn that knows how to invest in specialty, fast, growing
businesses that have very high margins, small capital needs, reference
customers, and are extremely innovative. That’s your best defense against
the cyclical nature of the energy industry.”
“If you are interested in investing in the energy and environmental revolution, you are best off “supplying shovels to the gold miners.” Invest in a company like Acorn that knows how to invest in specialty, fast, growing businesses that have very high margins, small capital needs, reference customers, and are extremely innovative. That’s your best defense against the cyclical nature of the energy industry.” - John A. Moore
ceocfointerviews.com does not purchase or
recommendation on stocks based on the interviews published.