Acorn Energy, Inc.

Good morning, and welcome to the Acorn Energy 2023 third quarter 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. Now I will turn the conference over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrics operating subsidiary. Ms. Clifford, you may begin, please.

Good morning and thank you for joining today's call. As a reminder, many of the remarks that follow and answers to questions may be forward-looking. Such statements are subject to various risks and uncertainties. For example, the operating and financial performance of the company in 2023 and future years is subject to various risks associated with potential disruptions to business operations and customer demand, risk related to the company executing its operating strategy, maintaining high customer renewal rates, growing its customer base, as well as from changes in technology, the competitive landscape, and the financial and economic environment. Forward-looking statements are based on management's beliefs and assumptions made using currently available information pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are no assurances that ACORN or On the Metrics will be able to achieve management's growth goals in 2023 or future periods. 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 risks and uncertainties that may affect the company is included in our 10-K and our risk factors, which is filed with the SEC and available online. A reconciliation of non-GAAP financial metrics to corresponding GAAP measures is provided in today's press release and available in the investor relations section of the company's website at acornenergy.com. I'll now turn the call over to Jan Loeb, CEO of Acorn and of our Omnimetrics operating subsidiary. Jan?

Thank you, Tracy, and thanks to everyone for joining our call today. We're happy to report that Acorn achieved another quarter of positive cash flow and net income driven by a 17% increase in Q3 revenue. This performance demonstrates the strength of our business, including Omnimetrics' compelling value proposition operating discipline, and our recurring revenue model. Today, we also announced a significant new reseller agreement with a leading U.S.-generated dealer, which I'll discuss momentarily. First, let me touch on some achievements during Q3, including the completion of a successful 1 for 16 reverse split during the quarter. Given the growing limitations on investing in low-priced stocks, particularly those below $1 per share, we believe that the reverse split makes our common stock accessible to a wider group of investors. Given our strong operating results, growth outlook, and sound financial position, we believe our higher post-split share price will help ACORN attract new investors while also supporting our longer-term goal of uplisting to a major exchange. Importantly, we continue to believe, I'm sorry, Importantly, growth in our recurring revenue monitoring revenue model base continued rising 13% in Q3 following gains of 10% and 3% in Q2 and Q1 of this year respectively. Monitoring revenue growth is the result of our expanding base of monitoring endpoints which reflects the value of this service to our customers and a return to a more normal growth trajectory following the impact of 3G sunsetting in 2022. Because our gross margin on monitoring revenue is about twice that of our hardware sales, monitoring growth is a key driver of our blended gross margin and bottom line performance. In addition, given that our monitoring costs are largely fixed, revenue from incremental net endpoint additions largely drops to the operating income line. Our blended gross margin increased to 74% in Q3 up from 68% in Q3 of 22. The improvement is principally the result of costs in the year-ago period related to some monitoring hardware inventory that was written down due to obsolescence following the sunsetting of 3G wireless technology. Going forward, we would expect our blended gross margin to fall more in the range seen in 2023, depending on the mix of monitoring and hardware revenue. Importantly, ACORN achieved a net profit for the third quarter in the first nine months of 2023, and we believe we are on track to build on this performance in future periods. Given ACORN's operating loss counterforwards, our NOL is totaling over $70 million. We expect future profits to be largely shielded from tax liability, providing further benefit to our future cash flows. Our cash basis revenue declined 12% year-over-year in Q3 23, following a strong 33% growth in Q2. Clearly, some of this relates to the timing of larger CNI or commercial and industrial orders that were placed earlier in the year, but we continue to see some weakness on the residential generator side as higher interest rates impact end-user generator sales for dealers who are our customers. We continue to believe that the substantial environmental and economic benefits of our remote monitoring solutions to customers should enable us to achieve long-term top-line growth averaging 20% or more annually. Though we are currently trailing that level on a year-to-date basis, we are working on a range of contract discussions and business development initiatives that we believe can support achieving this growth goal going forward. Underlying our optimism is the substantial efficiency, cost reduction, risk mitigation, and environmental benefits that our solutions provide to commercial and residential customers, along with the still very limited monitoring and control across our target market segments. In support of our growth outlook, today we disclose the completion of a non-exclusive reseller agreement with one of the nation's largest commercial-generated dealers with multi-regional operations. We believe this agreement could ramp over the next 12 months to between 2,500 and 3,000 new monitoring connections per year. We believe this relationship could contribute annual hardware sales, activation fees, and initial monitoring revenue of $1 to $2 million when fully operational, along with adding to our base of recurring monitoring revenue in subsequent years. We expect this partnership to begin to contribute to our results starting in the first quarter of 2024. Turning to our CNI customers, we continue to offer compelling remote monitoring and control solutions that meet their needs, particularly as they face rising costs, increasing environmental pressures, budget constraints, and ROI targets. While our solutions deliver significant benefits in all these areas, CNI customers are increasingly attracted to the carbon reduction benefits of remote monitoring, for example, in terms of reduced truck rolls to work sites. But they also value the environmental reporting that we can provide with some general operators needing to comply with state regulations. We believe growing environmental awareness and reporting requirements combined with ROI pressures provides a very favorable environment for our marketing and business development efforts. I would like to mention what I believe is an important industry development that was announced this week. Kohler, a large private company that has two divisions, one kitchen and bath products and the other an energy business, they are a very large manufacturer of generators, agreed to spin off their energy business, retaining a minority percentage of the business for a $3 billion investment from Platinum Equity. the well-known $50 billion private equity fund. We support many Kohler dealerships. We also see substantial growth potential from leveraging our monitoring and control capabilities for standby generators to support electric grid operators through demand response programs, or DR. We have partnered with CPower to build out our capabilities and offerings that enable generator owners to sign up and receive compensation for making their generators available for grid operators to turn on, and used automatically for brief periods to support the grid during peak demand. OmniMetrics will turn on an author and be compensated for its role in enabling demand response capabilities for each enrolled endpoint. It has taken some time to test, formalize, and market these programs, and we are proud to announce that during Q3, we enrolled our first 92 demand response customers, providing approximately 600 kilowatts of power. Each of these customers must now be approved by ERCOT, the grid operator in Texas, a process that we expect to take a few weeks, after which we would expect them to go live shortly thereafter. As we have mentioned, we believe DR is a very compelling addition to our business in several respects. First, DR provides an ongoing revenue stream to generator owners that helps them offset the cost of adding or owning backup generators. And in this regard, we expect it to help stimulate additional generator demand. For ACORN, DR provides an additional very attractive and sticky long-term benefit to our services that provides an added revenue stream with the potential to double the profitability of each enrolled generator. Accordingly, we are excited about our first enrollments and the potential for DR to become an important new profit source for our business going forward. Lastly, ACORN flows Q3 with over $1.7 million in cash, no debt, and generated positive free cash flow in the third quarter, first nine months of 2023. We believe ACORN is in a very strong position to continue organic growth and to continue to look for external opportunities for growth and value creation. Our strategic and value disciplines create a high hurdle for potential M&A opportunities, but we continue to explore possible avenues to accelerate the growth of our business. Let me now hand the call back to Tracy for her review of the financials and provide her insights on our operations.