Acorn Energy, Inc.

Good day, everyone. Thank you for holding, and welcome to Acorn Energy's first quarter 2020 conference call. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I'll now like to hand the conference over to Tracy Clifford, CFO of Acorn Energy and CEO of its Omni Metrics subsidiary. Please go ahead.

Thank you and welcome everyone to today's conference call. As a reminder, many of the statements made in today's prepared remarks or in response to your questions may be forward-looking. These statements are subject to various risks and uncertainties. For example, the operating and financial performance of the company in 2020 and future years is subject to factors such as risks associated with disruptions to business operations and customer demand resulting from the impact of the COVID-19 pandemic. Executing the company's operating strategy, maintaining high renewal rates, growing its customer base, changes in technology, changes in the competitive environment, financial and economic risks, as well as having access to sufficient capital for growth. Forward-looking statements are based on management's beliefs as well as assumptions made, using information currently available to management pursuant to the safe harbor for revisions of the Private Securities Litigation Reform Act of 1995. There are no assurances that Acorn or Omnimetrics will be able to achieve their growth goals in 2020 nor in future years. The company also undertakes no obligation to disclose any revisions to the forward-looking statements to reflect events or circumstances after the date made. A full discussion of the risks and uncertainties that may affect the company is included in risk factors on ACORN's Form 10-K as filed with the Securities and Exchange Commission. I'll now hand the call over to Jan Loeb, CEO of ACORN. Jan?

Thank you, Tracy, and good morning to those joining our call. To start off, I would like to discuss the COVID-19 situation and how we are addressing it as a company and why we think we're well-positioned to get to the other side of this pandemic in an even stronger position. As you know, we provide monitoring and control services for industrial equipment, including backup generators for government and healthcare facilities. As a result, Omnimetrics operations have been classified essential by the state of Georgia, enabling us to continue to operate throughout the pandemic. Though we have moved to reduce onsite work as much as possible, while instituting a variety of protections designed to keep our team safe. For purposes of social distancing, we reduced the number of on-premises management employees at our Georgia facility to an average of five people versus approximately 20 normally on-premises. The remaining team members are able to work from home and have been doing so successfully. The state of Georgia has reopened, and we now expect to have employees return to the office starting this coming Monday, May 18. Of course, we will adhere to guidelines issued by the Centers for Disease Control regarding social distancing, hand washing, and wearing a face mask as appropriate. Though we started the year with encouraging growth, we finished the quarter only up 1% on a gap basis as COVID-19 responses began to significantly impact our new equipment sales due to travel and business activity restrictions. So far in Q2, we're seeing only about a 9% decline in sales volume, principally related to a decrease in new hardware sales, highlighting the strength and recurring nature of our core monitoring service revenue. It remains very hard to predict how the COVID-19 pandemic will ultimately impact business and consumer decision-making and investments in remote monitoring, as well as its impact on the pace of our sales efforts. On the plus side, however, remote monitoring is an ideal solution for managing industrial equipment more cost effectively, while at the same time substantially reducing or eliminating the personnel and travel required to manage disparate assets over wide geographies. Clearly, this benefit is gaining greater appreciation given social distancing and other mandated personal safety requirements related to the pandemic. Financially, We have a strong vantage point from which to navigate this environment, with $1.9 million in cash as of May 10th, including loan proceeds received by Acorn and Omnimetrics in Q2 2020 under the CARES Act to support companies through the pandemic. Given the opportunities we see, our financial position, and management's confidence in our team members, we have not laid off any employees in relation to COVID-19, and we do not expect to do so. We are also implementing programs to lower cost and maximize efficiency. One example is the decision to take certain aspects of our hardware assembly work, which were previously outsourced, and bring them back in-house. This will reduce overall cost and give us more control over quality, production timelines, and inventory. We believe we have the resources to endure the expected downturn and remain confident in the efficiency and value of our remote monitoring services and their long-term growth potential within a still largely untapped market. Throughout this process, we will continue to actively seek opportunities to streamline my cost structure and to make prudent investments in product development and sales and marketing to ensure omnimetrics leadership in the industry. Let me now briefly touch on our Q1 2020 results. And following that, I will let Tracy provide more specifics on our financial performance, and then we will open the call to your questions. I would like to highlight a few notable items from Q1 performance, beginning with our gross margins. We continue to achieve solid gross margins with our Q1 2020 gross margin rising to 69% versus 62% in Q1 2019. The increase in gross margins primarily reflects a favorable mix of higher margin monitoring revenue compared to product sales. I also wanted to point out cash basis sales, a performance tracking measure we use to supplement our reported revenue and revenue growth trends. We recognize revenue from hardware sales pursuant to GAAP over a three-year period and recognize revenues from monitoring contracts over the period of service, typically one year. While generally receiving cash up front, creating a disconnect between cash received and GAAP revenue recorded in a period. As a result, we also track cash sales to provide more visibility on the volume of business closed during the period, which will be recognized as revenue over time, and to compare actual cash sales growth to prior periods. Q1 2020 cash basis sales were $1.301 million as compared to $1.317 million in Q1 2019, a decrease of 1%. This is notable because despite the impacts of COVID-19, we were able to hold cash sales essentially flat during the quarter. Looking at the performance of our segments, in our power generation segment, the monitoring of standby generators for commercial and residential accounts, our cash basis sales were flat on a cash basis in Q1 2020 versus Q1 2019. In our small cathodic protection segment, which focuses on the monitoring control of electric current running on gas pipelines, cash basis sales declined by 5% as our sales team gained traction and we deal with the initial restrictive impacts related to COVID-19. In this segment, where clients are principally larger corporations, typical sales interactions with prospective customers have been tabled due to social distancing and other restrictive policies in place currently. Bear in mind that our new expanded and experienced sales team have made considerable progress building a solid pipeline of customer trials prior to the COVID-19 disruption. We have about two times the number of customer trials in the field than we had at this time last year, though the sales cycle in this segment can be 12 to 18 months. Of course, the pandemic may delay or reduce our progress in converting trials into formal agreements. We still hope to convert most of those trials to deployments over time. Of course, there are some customer budget challenges in the energy sector related to pricing, volatility, supply and demand disparities, and COVID-19 impacts. We see expanding opportunities for our AirGuard industrial air compressor monitors, which we believe have a market opportunity comparable to that of our generator market, and there are cross-selling opportunities with existing industrial customers. We are also in the process of launching an innovative new smart enunciator product this month that provides status updates on critical electric systems. We have a new software product that we expect to announce in the second half of this year. So despite challenges in the near term, we believe there are plenty of market opportunities. Historically, new monitoring sales have been favorably impacted by natural disasters and emergencies, such as hurricanes and storms, that disrupt power systems and highlight the importance and value of remote generator monitoring. The COVID-19 pandemic has the potential to be similar. As more people today are working from home across the country, given this change of work location, ensuring reliable electricity access for home offices is more important than ever and could stimulate demand for backup power generation and our monitoring solutions. Longer term, excluding the impact of COVID-19, we continue to have confidence in our annual growth goal of 20%. We also have a goal of reaching consolidated cash flow breakeven, which prior to COVID-19 outbreak we had expected to achieve by mid-2020. This is clearly an important goal for our company, especially considering our large NOL position, which would shield future income from income taxes. We still believe we have the financial resources available to reach these goals, although the timing is uncertain in the current environment. We hope to have more visibility next quarter as regions of the country start to reopen, and business normalizes. Now, I'll turn the call back to Tracy Clifford, our CFO, to go over more Q1 financial details.