Acorn Energy, Inc.

Good morning and welcome to Acorn Energy's first quarter 2022 conference call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Tracy Clifford, CFO of Acorn Energy, and COO of its OmniMetrics subsidiary. Please go ahead.

Thank you and welcome everyone to our conference call today. As a reminder, many of the statements made in today's prepared remarks or in response to your questions may be forward-looking in nature. These statements are subject to various risks and uncertainties. For example, the operating and financial performance of the company in 2022 and in future years is subject to risks associated with disruptions to business operations and customer demand resulting from from 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, and any additional impacts from COVID-19 or its variants, 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 provisions 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 2022 or in future years. The company undertakes no obligation to disclose any revision to these forward-looking statements to reflect events or circumstances occurring after today. 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. Now I'll turn the call over to Jan Loeb, ACORN's CEO, for an overview of our first quarter 2022 performance and business outlook. Jan?

Thank you, Tracy. Good morning, and thank you all for joining today's call. Omnimetrics continued its solid growth momentum in Q1 2022, driven by our industry-leading solutions and track record for quality, excellent customer service, and a compelling return on investment. Importantly, we have started the year ahead of pace towards achieving our goal of 20% average annual growth, with Q1 2022 cash basis revenue up approximately 26% over Q1 2021. Cash basis revenue is a non-GAAP measure which reflects the cash value of invoiced hardware and monitoring sales recorded in a given period. We use this metric internally to evaluate our business performance and growth trends. Under GAAP, hardware sales are typically amortized over a three-year period and prepaid monitoring revenues are amortized over the term of the monitoring period, which is typically 12 months. We provide a reconciliation of cash basis to GAAP revenue in our press release. In periods of sales growth, cash basis revenue will tend to exceed GAAP revenue, and net cash flow can exceed reported operating income, as we saw in our Q1 with cash basis revenue outpacing GAAP revenue growth. Strong cash basis growth is a leading indicator for GAAP revenue trends in future periods. Our first quarter performance was driven by monitoring hardware sales. As we have seen in recent periods, hardware sales benefited from the wireless operators deciding to no longer support legacy 3G technology in favor of their investments in LTE and 5G technologies that provide superior bandwidth and performance. This sunsetting of technology used in older monitoring devices provides a boost to hardware sales as customers upgrade to new equipment. However, the upgrade cycle does not benefit near-term monitoring revenue as new units assume the remaining prepaid monitoring plan of the units being retired. There are also some monitoring disconnections for customers who choose not to upgrade or who may switch to competitive products. AT&T's 3G sunsetting occurred in February 2022, but there's still a significant number of 3G units out in the field. We expect the bulk of those remaining units will be replaced over the balance of 2022 to continue a trend of relative hardware sales strength. We believe we have the most innovative design and engineering team in the markets we serve. To maintain our leadership position, we continue to invest in developing product enhancements, as well as developing potential new product lines, particularly in under-penetrated commercial and industrial markets, where we see tremendous opportunities for growth with attractive margins. We announced a partnership last year with Houston, Texas-based Power Solutions Specialist, to provide remote monitoring and control equipment and services for backup power generators. Power Solutions is a leading generator dealer in Texas and a prominent Briggs & Stratton distributor. What makes this partnership noteworthy is Power Solutions' commitment to bundling our monitoring solutions with Briggs & Stratton generator sales. Historically, Generac and Kola generator dealers have been our biggest customers. We are working to build on this relationship with Power Solutions and believe we can utilize this model to develop similar dealer relationships. I'd like to briefly comment on the macro factors that all companies have had to deal with over the past year, including the pandemic and supply chain disruptions and inflation. We feel we have been able to manage through these issues with a combination of management planning and advanced procurement of critical supplies and components. And we have also made some design adjustments to accommodate parts availability. Additionally, last September, we implemented a 15 to 20% price increase on hardware, equipment to help offset rising input costs. We are contemplating additional price adjustments to be implemented possibly by mid-year. We will continue to evaluate the environment and take further steps in terms of inventory pricing or other factors if necessary. With respect to the threat of inflation, there is a silver lining for us in that rising prices can actually be a positive for our business. Omnimetric solutions reduce the personnel, travel time, emissions, and overall carbon and environmental impact required to monitor and manage critical assets and industrial systems. As these costs go up, our value proposition increases. Combine that with an aging energy grid and increasing severe weather patterns, and our monitoring solutions become even more valuable to our customers. Remote monitoring is significantly less expensive, more effective, and more environmentally friendly than sending inspection teams in trucks to remote locations. For clients and potential clients, we believe that the time to value and ROI for omnimetric solutions has never been more evident. We are also fortunate to have significant working capital and financial strength to invest in our business and to manage our inventory, including $1.3 million of cash and no debt. We believe this advantage could allow us to gain market share versus more or less financially stable competitors. We have invested several hundred thousand dollars fiscal 2021 to stay ahead of back orders and out-of-stock components. A strong financial foundation also enables us to continue to pursue growth opportunities both organically or through value-enhancing opportunities, including partnerships and potential acquisitions. We regularly monitor our markets for external opportunities and we remain committed to a disciplined approach whereby any external ventures would need to be accretive to our growth and enhance our market position with the intent to build value for our company and shareholders. We live in an information age of big data where industrial clients are increasingly embracing data and information to improve industrial processes and to avoid equipment malfunction. Remote monitoring of equipment and systems provides information necessary for our customers to improve their internal operations. Timely maintenance, improved efficiency, and reduced downtime of critical equipment can provide significant cost and bottom line improvements. We continue to see significant internal opportunities for growth in the under-penetrated commercial industrial markets that we serve, as well as in related market opportunities for remote monitoring, control, and related IoT services where we have technology expertise. One area we are exploring is expanding our IoT offerings to help our customers take advantage of demand response or demand management programs offered by many utilities to energy consumers, including industrial consumers, whereby the customers can receive financial incentives for reducing their energy consumption during peak periods of energy demand or undersupply. We have the technology to turn on backup power generators remotely, on demand, for our customers. We believe this could be an interesting service opportunity. To the extent that expansion increases our profitability, it's important to note that we have more than $70 million of net operating loss carried forward. NOLs would largely shield our profits from cash income taxes for the foreseeable future, thus benefiting the potential free cash flow available to the company. Before I pass the call back to Tracy, I would like to note that our annual renewable revenue, or ARR, was approximately 49% of our total sales in Q1. By continuing to grow our base of high-margin annual renewable revenue, we believe we are creating an increasingly valuable base that should deliver a significant shareholder value. Overall, I am Also, please, we outpaced our 20% annual growth goal in Q1 and look to continue this strong momentum throughout 2022. With that, I'll turn the conference back to Tracy Clifford, our CFO, to provide insights and review the financials in more detail.