Acorn Energy, Inc.

Welcome to Acorn Energy's second quarter 2020 conference call. All participants are in a similar mood. Should you need assistance, please call your 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 would now like to hand the conference over to Tracy Klippert, DFO of Acorn Energy and COO of the OmniMetrics 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 risk 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 our customer base, changes in technology, changes in the competitive environment, financial and economic risk, as well as having access to sufficient capital for growth. Board booking statements are based on management's beliefs as well as assumptions made using information currently available to management pursuant to the safe harbor for visions of the Private Security 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 these 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. In our second quarter, Acorn achieved 7% year-over-year revenue growth, a gross margin of 70%, and we approached break-even on a consolidated net income basis with a net loss attributable to Acorn shareholders of $33,000 or 0 cents per share. This is the best bottom-line operating performance that we've achieved in many years. and it was achieved during the pandemic. With these results, I'm optimistic about the future of our business and proud of our Omnimetrics team. I would like to take this opportunity to publicly thank our entire Omnimetrics team for their individual and collective efforts over the past several months as we worked through the challenges of COVID-19 both personally and professionally. As a company, the health and safety of our employees and customers is paramount, as we continue to adhere to CDC guidelines in our daily operations in our 21,000-square-foot facility and at client sites. Our business, which provides remote monitoring control services for equipment and infrastructure support for government, health care, and other critical services, is classified as essential by the state of Georgia. As such, we have remained fully operational throughout the pandemic without any employee furloughs. We started the year with a bullish outlook for growth, but by the end of Q1 and into early Q2, we were seeing lower sales volumes, mainly due to reduced hardware sales activity as businesses were either closed or focused on other aspects of their operations in attempting to function successfully through the pandemic. As many of you know, cash-based sales is a performance tracking measure we use to supplement our GAAP-reported revenue and revenue growth trend. Cash basis sales are different from gap revenue because we defer and recognize revenue from hardware sales over a three-year period, and we defer and recognize revenue from monitoring contracts over the period of service, which typically is one year. We invoice upon hardware shipments and monitoring renewal period. which creates the difference between cash sales and GAAP-recorded revenue. Cash sales gives insight on the volume of business closed in a period. In Q2 2020, cash-based sales was essentially flat at $1.47 million as compared to $1.468 million in Q2 2019. We are satisfied with this result because we were able to maintain our sales volume level despite very challenging business development conditions caused by COVID-19 and related shutdowns and delays. In our biggest segment, power generation, which focuses on the monitoring of standby generators for commercial and residential accounts, our cash-based sales increased $77,000, or 6%, in Q2 2020 over Q2 2019. In our small cathartic protection, or CP, segment, focused on the monitoring and control of the electric current running in gas pipelines cash basis sales declined by $75,000 or 31% due to restrictions on travel and sales interactions. In the CP segment, our clients are generally larger corporations where in many cases sales meetings have been postponed due to social distancing and other restrictive policies currently in place. Additionally, CapEx budgets in the CP segment are also being impacted by energy price volatility and supply and demand disparities that continue to negatively impact this business. Prior to the COVID disruptions, our expanded sales team was making considerable progress building a solid pipeline of customer trials. The sales cycle in the CP segment is typically 12 to 18 months, but is likely to lengthen in many cases due to meeting and travel restrictions. However, we remain focused on converting these customer trials into deployments over time. Now more than ever, remote monitoring control has a very compelling value proposition as our technology and services enable our customers to manage mission-critical industrial equipment much more cost-effectively and safely. As we can substantially reduce the number of people and travel required to manage disparate assets over wide areas, these benefits are gaining even greater appreciation with mandated personal safety requirements, travel limitations, social distancing mandates related to the pandemic, in addition to the increasing frequency of severe weather events. We believe this equips us with even more fact-based justification to the need and benefits of our products and provides a substantive platform to support our expanding sales and marketing efforts, particularly given the very low penetration of remote monitoring and control solutions in our target market. Now, let's turn back to a few financial highlights. Afterwards, Tracy will provide more specifics to our financial performance and position, and then we'll open the call to your questions. I mentioned that we achieved 7% revenue growth over Q2 2019, a gross margin of 70%. Most significantly, our gross profit grew 13% in Q2 2020, outpacing revenue growth due to the strength in our high-margin recurring monitoring services revenue, which grew 19% in the quarter. This performance underscores the attractiveness and resilience of our monitoring service business and the strategy we've been executing for the past few years to refocus ACORN's resources on building this compelling business. Turning to business development initiatives in the second quarter, we launched our new Smart Enunciator product, which provides customers with status updates on critical electric systems. And last month, we forged our first distribution relationship outside of North America, targeting continental Europe with the Italian company MEL Systems, which will market our AirGuard monitoring solution in Italy as well as other countries in Europe. It will take some time to build out this distribution relationship and to customize our solution for the European market, but we believe this is an exciting new growth opportunity for our company. We also hope to launch a new online electric software product upgrade later this year, which will offer more features and value to our customers, solidifying our leadership position in the remote monitoring and control market, and we will have more to say after the launch. In the meantime, despite the COVID-related business development challenges in the near term, we see an abundance of market opportunities. Historically, new standby generator monitoring sales have been positively impacted by natural disasters and emergencies such as hurricanes and storms, to disrupt power systems and highlight the importance and value of standby power and remote monitoring to ensure generators can be relied upon to be called into service without delay and to operate for as long as necessary without interruption. Similarly, we believe the pandemic can also stimulate generator and remote monitoring demand as reliable electrical access for home offices has become more important. Some of you may have been impacted by the tropical storm that went up the East Coast last week. Although not a hurricane, this storm left millions of people without power, some for upwards of a week. We expect the aging of the U.S. power grid infrastructure will continue to be an issue and a driver of backup power generation and monitoring for many years. This is one of the many underlying trends that support our confidence in achieving our long-term annual average growth rate of 20%. For several years, we have stressed our goal to advance ACORN to achieve cash flow break-even and then profitability on a consolidated basis. I am very proud to report that we came very close to achieving that goal in the second quarter despite COVID-related challenges, and we are optimistic that we will be able to continue to build on the financial performance of the business to achieve positive cash flow and profitability over the next few quarters. Critical value as we approach profitability is the fact that ACOIN has a very large net operating loss carry forward, which would shield future income from income taxes benefiting both net income and cash flow. We believe we're on solid footing for next year. We're in expectation that the economy will be more fully reopened and business activity will at least begin to normalize. It's too early to establish specific goals for 2021, but we certainly hope to be in the black from a consolidated earnings and cash flow standpoint in 2021. We believe we have the resources to endure the current COVID-induced downturn, and we remain confident in the value of our remote monitoring services and their long-term growth potential within a still largely untapped market. Given the opportunities we see, our healthy cash position, and my confidence in the Onometrics team, I'm very enthusiastic about our business and what we can do going forward. Now I'll turn the call back to Tracy Clifford, our CFO, to go over more Q2 financials in more detail. Tracy.