Acorn Energy, Inc.

Good morning and welcome to the Acorn Energy fourth quarter and year-end 2022 conference call. At this time, all participants are in a listen-only mode. After some prepared remarks, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Tracy Clifford, CFO of Acorn Energy and COO of Omnimetrics. Ms. Clifford, please begin.

Thank you. We welcome everyone to today's call. As a reminder, many of the remarks that follow and answers to 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 2022 and future years is subject to risks associated with disruptions to business operations and customer demand resulting from the company executing its operating strategy, maintaining high customer renewal rates, and growing its customer base, as well as from changes in technology, changes in the competitive landscape, and changes in the financial and economic environment. Forward-looking statements are based on management's beliefs and the assumptions made using information currently available to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. There are no assurances that Acorn or Omnimetrics will be able to achieve management's growth goals in 2023 or future periods, and the company undertakes no obligation to disclose revisions to such 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 our 10-K under risk factors as filed with the Securities and Exchange Commission. A reconciliation of certain non-GAAP financial metrics to corresponding GAAP measures is provided in today's press release, available in the investor relations section of the company's website, acornenergy.com. I'll now turn over the call to Jan Logue, the CEO of Acorn and its Omnimetrics operating subsidiary, for an overview of business performance and the outlook. Jan?

Thanks, Tracy. Good morning, and thank you all for joining our call today. 2022 was another year of growth for Acorn, albeit at a slower rate than we forecasted and would expect to see in the future. The fact that we did achieve growth in 2022 is a testament to the resilient business of our operating subsidiary Omnimetrics and its monitoring service model. Considering macroeconomic headwinds as well as industry challenges due to sunsetting of 3G technology, I think we navigated the challenging landscape in a formidable manner. So in light of this, I'd like to congratulate the entire Omnimetrics team, including management, our knowledgeable sales and technology teams, our innovative engineers, tech support and production, and our back office folks who work together to be successful and are truly our greatest asset. When I talk macro headwinds, which are things we do not control, one example that people may or may not realize is how rapidly rising interest rates impact our business. The power generation segment is our largest segment. That is the monitoring and control of generators. The vast majority of new generators are purchased on credit, especially in the residential market and to some degree in the commercial and industrial or CNI market. So obviously, any increase in the borrowing rate for consumers or business can have a negative impact on the number of new generators sold. We don't sell generators, but sales of monitoring equipment and our monitoring services are directly tied to sales of new power generators, so it has an impact on the demand for our products and services. While single-digit revenue growth is obviously well below our growth target of 20%, for all things considered, demonstrating any revenue growth in a difficult environment is still a favorable outcome. In 2022, wireless carriers stopped supporting 3G technology, so anyone who had older monitoring equipment had to make a decision on whether to upgrade their monitor to LTE simply let their monitoring contract expire or go to a competitor's device. As a result, we had some customer churn in 2022, which depressed our growth, particularly of high-margin monitoring revenue. The good news is that this sunsetting of 3G technology is behind us, and we expect to return to a stronger growth trend in 2023. As we note, Each quarter, generally accepted accounting principles or GAAP requires us to defer our hardware sales over three years and amortize it monthly into revenue. And for monitoring, we defer revenue and amortize it monthly over the term of the monitoring contract, which is typically one year. The cash value of the sale, however, is invoiced at the time of the sale and collected within normal promptly paid terms of 30 to 90 days. When we refer to our growth rate, we measure this on a cash basis of revenue, and we provide a reconciliation of cash basis revenue to gap revenue in our quarterly press release, as we have done today. In 2022, our monitoring revenue declined approximately 3% due to 3G-related customer churn. But as you can see in Q4, it was flat, and we expect a return to monitoring revenue growth in 2023. Hardware grew approximately 17% in 2022, adjusting to exclude non-recurring sales of custom units in 2021. The growth rate was 13% with inclusion of the non-recurring sales in 2021. In 2023, we expect a return to more normal growth trends, which we benchmark as 20%. Some of the reasons for our optimism are based on what we are seeing in Q1 in terms of sales discussions, forecasts, and orders from current customers and new business leads. We have a solid and growing base of high margin commercial and industrial customers, which we expect to be the foundation of our strong revenue growth in 2023. Our new remote AC mitigation disconnect solution for gas pipelines, which we call RAD, is continuing with customer trials and we have some new customer prospects. We are pleased with the progress of the trials and we are bullish on the prospects for orders in 2023. In prior calls, we have discussed our new demand response program, With demand response, our monitoring and control technology is used to enable standby generators to be automatically turned on to provide electric-powered grid relief during periods of extreme demand for up to 12 hours per year. This helps grid operators call independent system operators, or ISOs, to avoid rolling brownouts or blackouts. Demand response programs compensate generator owners simply for enrolling in the program and on the metrics to earn fees for enabling and managing the generator endpoint. We believe these programs offer the potential to substantially increase the value of our monitoring franchise by approximately doubling our profit per enrolled generator. The man response programs are available across commercial, industrial, and residential markets for new generators that deliver enhanced energy efficiency. In 2022, we partnered with CPower Energy, the leading national energy solutions provider, The partnership allows us to offer demand response solutions to generator dealers. We signed our first dealer, Texas-based Power Solutions, in the second half of 2022 to allow homeowners to earn compensation for offering grid relief in Texas to ERCOT customers. The Electric Reliability Council of Texas, or ERCOT, manages power for 26 million customers. This week at the Electrical Generating Systems Association, or EGSA, industry show in Las Vegas, power exhibited with us in our booth. In addition to some of these specific examples, there are several longer-term trends that will continue to benefit our business. First, the electric grid is a major concern in the United States. Due to the age of the infrastructure and to a lack of investment in new power supplies outside of wind and solar power projects – and wind and solar are intermittent by nature Stress on an aging grid is not going to be solved anytime soon, as it takes more than a decade of planning to build a new power plant in this country. With the growth of the electric vehicle market, which is supported and subsidized by the government, electricity demand is only going to increase in the coming decade. The increase of severe weather events is also likely to continue, thereby further increasing demand for standby power generation and for microgrids throughout the economy. All these overriding factors create a scenario of increasing long-term demand for grid relief and for demand response programs provided by standby generators. I've talked about how inflation has an impact on our costs, but conversely, it can also have a benefit in terms of our business and our value proposition. This is because our monitoring solutions reduce personnel costs, travel time, emissions, and overall environmental impact required to maintain industrial equipment and critical systems. Therefore, as our customers' costs increase, the return on investment of our services to them also improves. Remote monitoring will always be a significantly less expensive alternative to physical inspection, particularly with higher personnel and fuel costs. Our solutions also provide customers with essential data and information that enables them to improve their internal operations by making timely decisions and avoiding costly equipment malfunctions. Remote monitoring and control of equipment leads to improved efficiency, better maintenance, and reduced downtime for critical equipment. Cost savings is always important to customers, but cost-effective solutions are even more essential in an inflationary environment. Again, while our growth has lagged the rate we believe is achievable over the longer term, I'm pleased with our team's success in navigating challenges in 2022, and we see significant near-term opportunities in 2023. That is why we continue to invest in our business, in our products and services, and our IT infrastructure to enhance our competitive position. We will continue to be opportunistic in evaluating acquisitions, of which I would like to accomplish at least one this year. I believe private company owners have become more realistic about their company's value in this market environment. We have more than $70 million of operating loss carrying forwards, which could be useful if we were to acquire a profitable business and also as we organically achieve profitability. Before turning the call over, I want to mention that we intend to add a new board member in the coming days. This will increase the board size by one, adding an independent board member who has strong familiarity with ACORN, is financially savvy, and hopefully bring new and constructive ideas to the company. Now I'll hand the call over to Tracy Clifford, our CFO and CEO of Omnimetrics, to review our performance and to provide additional insights. Tracy?