Acorn Energy, Inc.

Good morning, and welcome to Acorn Energy's second quarter 2025 earnings conference call. All participants are currently in listen-only mode. Following management's prepared remarks, we will open the call for questions. To answer the questions, you may press star, then 1. As a reminder, today's call is being recorded. I'll now turn the call over to Tracy Clifford, CFO of Acorn Energy and COO of its Omni Network

Thank you, operator, and thank you all for joining us today. Before we begin, I'd like to remind everyone that today's remarks, including responses to questions, may contain forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected. Factors that may impact our future operating and financial performance include general risks, such as technical disruptions to business operation or shifts in consumer demand and customer demand, as well as specific risks related to our ability to execute our operating plan, maintain strong customer renewal rates, and expand our customer base. Additional risks may arise from changes in technology, increased competition, or shifts in the macroeconomic or financial environment. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on management's current beliefs, assumptions, and information available as of today. There can be no assurances that the company will meet its growth targets or other strategic objectives. The company undertakes no obligation to update or revise these statements to reflect future events or circumstances after this call. For a more detailed discussion of the risks and uncertainties that may affect our business, please refer to the Risk Factors section of our most recent Form 10-K, available on the SEC's website at www.sec.gov. or on our own website. With that, I'll now turn the call over to Dan Loeb, CEO of Acorn Energy and on the metrics. Dan?

Thanks, Gracie, and thank you all for joining us. Q2 2025 was a milestone quarter for Acorn. We delivered record remote monitoring and control revenue, strong operating cash flow, and EPS of 28 cents. And last month, we uplifted the NASDAQ capital market, enhancing our visibility, and positioning us for future growth. Let's start with some numbers. Second quarter revenue rose 55% year-over-year to $3.5 million, driven by an 89% increase in hardware sales and a 19% increase in monitoring revenue. Gross margin expanded to 75% from 73% last year. Operating income increased. 267% to $947,000, and fleet diluted EPS rose to $0.28 up from $0.11 in Q2 2024. Importantly, our EPS is now reported on a fully taxable basis. If we exclude our non-cash tax expense in Q2 2025, our EPS would have been $0.36 and be more comparable to our year-ago EPS of $0.11, which included no tax provisions. Our growth continues to be fueled by a strategic contract with a major U.S. cell phone provider, which has provided a huge benefit to our financial results since the third quarter of 2024. This approximate $5.4 million contract covers monitoring hardware and first year of monitoring services for the telecom provider's cell power backup generators. To date, we've recognized $4.1 million in revenue. of which approximately 95% is hardware. We expect to complete the hardware segments under this contract in 2025, while deferred monitoring revenue will extend into 2026 based on the rollout of the monitoring service activations. Given our over 90% renewal rate and cost prohibitive nature of switching to a competing offering, we expect this to generate recurring revenue well beyond the initial term. We believe this contract does not represent the total potential opportunity with this customer, and we're working to expand the scope of our work with this customer when the opportunity arises. Now I'd like to talk about our market position and competitive advantage. Alimetric remains the largest independent provider of remote generator monitoring solutions in North America. Our technology supports all major generator brands, and our industry-leading solutions are known for valuable features such as ease of installation, comprehensive diagnostics and reporting, a state-of-the-art user interface, and support for all major generator brands. These advantages and other advantages have earned us the trust of over 600 generator dealers, many of whom consider us the best-in-class solutions. Additionally, while some backup generator OEMs offer some type of remote monitoring solution, dealers are often reluctant to use those services because they do not want to jeopardize their customer relationships and service revenue lines by enabling a direct relationship between the OEM and their customers. As the pioneer of remote generator monitoring, we are committed to maintaining our competitive edge through ongoing investments in product innovations. In June, we launched our next-generation monitors, Omni for residential and Omni Pro for commercial and industrial use. These devices feature sleek design and smaller footprints, multicolor LEDs for real-time diagnostics, remote exercising programming, compliance reporting, over-the-air updates, and other software enhancements. These innovations improve installation speed, reduce service costs, and enhance reliability, further strengthening our value proposition. Patient work opportunities. We are actively pursuing growth in hardware sales and monitoring endpoints by supporting our network of over 600 generated dealer customers and through our internal direct sales efforts targeted at large and commercial industrial accounts. While we have a strong position in the residential market, our growth is more a function of overall economic factors, such as interest rates, inflation, and employment outcomes, as well as region-specific conditions that drive households in prioritizing their investment in backup generate power. The residential market has been relatively flat over the past two quarters, but expect that it will eventually return to its growth trend in the coming years. Larger commercial and industrial opportunities are where we feel best positioned, as it is in this market where our technology and service leadership are most valued and where we have the potential to pursue much larger opportunities across a variety of areas. We have a range of ongoing discussions with T&I prospects, but it tends to be a longer sales cycle, and so it's harder to predict the outcome. We are also increasingly being asked to look at other potential areas of monitoring activity, that would require some amount of new product development, but are largely rooted in our core strengths and capabilities. We will continue to evaluate such opportunities that align most closely with our core strengths and capabilities. Beyond organic growth, we are actively evaluating M&A prospects that complement our focus on remote monitoring, recurring revenue models, and could be accretive in year one. Our NASDAQ listing enhances our ability to pursue these opportunities as it provides a more attractive currency for such transactions. We also see potential in the OEM partnerships, where our monitoring solutions could be bundled with new equipment sales, offering OEMs a turnkey solution while allowing us to scale efficiently. It is difficult to know if any of these efforts will prove successful, but we believe they offer a great deal of potential to help us drive incremental growth. Longer term, it seems natural that monitoring will become an embedded component in standby generators and other industrial equipment. Given our service and technology leadership, we are working to position Omnimetrics as the obvious partner for commercial, industrial, and residential markets and enabling OEMs to focus on their core business. Importantly, several secular trends are expected to drive growing demand for our solutions, including increased ingredient stability in extreme weather events, growing adoption of smart residential and commercial industrial IoT systems, and the prevalent need for predictive maintenance and operational analytics. The key takeaway is that remote monitoring is increasingly being seen as a necessary and cost-effective tool to mitigate risks of operational disruption in the commercial and industrial segments and reliability and comfort in the residential segments. And Nonmetrics is ideally positioned to meet this demand. Based on our current trajectory and industry dynamics, we believe we can sustain 20% average annual revenue growth over the next three to five years. A scalable model, lean operating structure, and high margin recurring revenue model give us confidence in our ability to deliver long-term shareholder value. With that, I'll turn the floor back to Tracy for a deeper dive into our financials. Tracy?

Thanks, Dan. As Dan mentioned, Q2 revenue rose 55% to $3,525,000, including $1.4 million from the cell phone provider contract, leading to 89% growth in hardware revenue and 19% growth in monitoring revenue. Grace profit increased 58% to $2,639,000, with growth margin expanding to 75%. Operating expenses rose 20% to $1,692,000, but decreased as a percentage of revenue to 48% in Q2-25 from 52% in Q2-24, demonstrating our strong operating leverage. Net income to stockholders rose 156% to $720,000, or $0.28 per fully diluted share, despite a $242,000 tax provision, of which $206,000 is non-tax federal tax provision. First half highlights include revenue of $6,623,000, which is a 50% higher year-over-year, net income of $1,184,000, an increase of 252% year-over-year, cash flow from operations of $900,000, and a quarter-end cash balance of $3,253,000, which has increased to $3,428,000. as of August 5, 2025, and we continue to be debt-free. We continue to invest in research and development and product development. Q2 R&D rose 17% to $265,000, supporting the launch of Omni and OmniPro, continued enhancement of our Remote AC Mitigation Disconnect product, or RAT, within our cathodic pipeline industry segment, and exploration of new product lines. With respect to tariffs, our position remains that we don't view them as a significant impact on our cost or margin structure as we sort the small fraction of our components from outside the U.S. and assemble our product in the U.S. We are monitoring the situation, but currently believe we could adjust pricing to minimize any tariff-related cost increases if we deem this necessary to maintain our historical margins. We also continue to focus resources on enhancements to our OmniView2 or OV2 user interface, which we launched in 2024 to provide more features such as custom self-reporting options as well as streamlining our back-end operations and database processing to ready us to meet the anticipated demand in future growth and monitoring connections and to address any potential barriers to such growth. Additionally, we routinely enhance our cybersecurity protocols to mitigate the risks facing us as an IoT company. To facilitate these efforts, we recently hired a seasoned central systems architect to further expand our internal technology resources and enable us to continue to build on our strong IT infrastructure. We remain focused on delivering best-in-class solutions and listening to our customers to identify unmet needs that we can incorporate into future offerings and to continue to align ourselves as a true partner to our customers and not just a vendor. In closing, our solutions provide significant value by improving reliability and reporting, offering peace of mind and reducing service costs. We're excited about the opportunities ahead and look forward to updating you on our progress. Operator, please open the line for questions.

We will now begin the question and answer session. To ask a question, you may press stars and 1 on your touchtone phone.

If you are using a speakerphone, please pick up your hands before pressing the keys.

If at any time your question has been addressed and you would like to withdraw it, please press star. At this time, we will pause momentarily to assemble our roster.

Hello, Alex. Could you unmute it? Sure. Alex, can you take your question? You want me to speak now? Yes, sir.

Sure. Congratulations on the great quarter and a great year. I'm a long-time shareholder. the expectation of 20% growth for the next several years implies a pretty substantial pipeline on the hardware side. I understand that increasing the size of the telecom deal is part of that, but I wanted to hear some more color on pipeline for other deals.

Okay, Alex. Thank you for being a long-time shareholder.

Firstly, I want to just make sure that you heard I say that we expect 20% on average. So, you know, in this business, we can't really project, you know, big contracts, what's happening. You know, it's not like we have a large backlog. For example, on the Pelcom order, I mean, we basically shift, you know, within practically a year and a quarter a very significant amount of product. So, you know, I will say that, you know, we're talking to a number of OEMs. We're responding to a number of RFPs. And so I do have a, you know, a very good feeling that we can achieve this 20% on average annual growth rate going out three to five years.

Thank you, and great work. Thank you.

Our next question comes from Yash Ruparaita of David Budget Card Group. Please go ahead.

Yeah, congratulations on a great quarter. Yeah. Now that you've mentioned that you have already accomplished 4.1 million out of the 5.4 million, what's your outlook for the next two quarters? And I had the same question as Alex. Are there any new deals or contracts in the next couple of months that we should be looking forward to?

So, same answer.

I can't tell you, you know, when contracts come in or just general flow of business, but I have a high degree of confidence that things are happening just because of our industry leadership. In terms of the telco contracts, a lot depends on them. We are ahead of them in shipping product versus them installing product. So, at some point in time, they'll catch up, but I think that they want to get more products installed, which is obviously good for us because we don't book our revenues until the product's installed and activated and accepted. So, a lot depends on them in terms of the timing. when they want more product shipped to them.

All right. And one more question. In terms of monitoring revenue, how much do you see it growing in the, just like in terms of the monitoring revenue, how much do you see it growing in the next couple of years?

I would say it would be similar to hardware because if you think about it, Monitoring follows hardware. Now, hardware is a much bigger number. We've said in the past that hardware generally represents about 80% versus first-year monitoring versus 20% when somebody buys a product. But as that is established, the two should work hand-in-hand. Again, back to the Qualcomm contract, We've shipped more stuff than they've installed, so monitoring will catch up to that. But in general, they should move generally lockstep.

Got it. Thank you for your question, Chris. Thank you.

As a reminder, if you have a question, please press star and 1. Our next question comes from Chris Tuttle from ICO Candy. Please go ahead.

Thanks very much. Nice job, folks. Really executing well. My question is a little bit on – I know that it's a business that's hard to – you know, that's going to ebb and flow and appreciate your long-term views on growth and profitability. But maybe you could talk a little bit about your – your pipeline or what you're seeing in terms of opportunities that you can bid on, whether they're RFPs or other, because I sent you some info about, you know, the forecast of the reliability of the grid is not good, which would suggest that there's a lot more interest in the type of, you know, So maybe you could talk about, you know, what does your pipeline look like now versus six months ago or a year ago in terms of opportunities that you're going after?

So I'll say that the number of opportunities today are larger than they were six months ago, and they're more varied. So we're getting requests – For our solution, for our monitoring solution, that's not even in generators. People are coming to us and saying, you know, we see that you're a leader in remote monitoring. We need remote monitoring of this technology-sophisticated item. Would you be interested in doing that? So, as I mentioned in my remarks, there are some new and interesting RFPs that are coming out that are coming to us. and asking us to provide a solution for them. Again, I don't know that I'm going to win the RFP, but this is the first time that we've had, you know, people of size and difference reaching out to us if we can provide a solution. So, that's number one. And then, just in general, you know, what's going on in the industry, we're getting, you know, you know, a bunch of inbound calls, and then obviously our salesmen are getting more interest in what we're doing than we've had before. So, you know, again, the number of requests and interest is up. How that translates into actual product or sales is very hard for me to say at this point in time.

Okay. Yeah, that's exactly what I was looking for. Thanks a lot, Jan.

Okay. Thank you, Chris.

Once more, if you have not had an opportunity to ask a question, you may press star and 1. Our next question comes from Joel Pillar, a private investor. Please go ahead.

Hi, Jan. Good morning. Great job on the progress that ACORN has shown. Question on demand response. Any update there, especially with CPower's parent company being acquired? I know you have a partnership with them. So can you provide any updates specifically on what's going on with the CPower relationship and more generally on the future of demand response and generators? Thank you.

Sure. Thank you, Joe, and thank you for your continued support. So C-Power was bought from a private equity firm, L-Power, and now owned by NRG. And our partnership is very much intact. We speak to them on a weekly basis. In general, in terms of revenue, we're not seeing much of revenue today. We see a drop of revenue today, but not much. And We think long-term demand response could be a very big area for us because it's almost all profit. And it's really the grid operators themselves don't have their act together in terms of demand response, meaning what does it take to incent a company, a residential, to put their system together into the program that when the demand for electricity is up, that they can quickly, or we can quickly switch on their generators and take their demand off the grid. So it's really, our partnership is strong in place, but the grid operators still haven't gotten their act together in terms of their payments and their plan on demand response. So when that happens, we're going to be there, and it could be very exciting, but it's not happening yet.

Okay. But it sounds like you're still very bullish on the future potential of that marketplace, correct?

Correct. I think so. Based on all the things that you've said, you've read, you know, and people have sent in articles and stuff like that, you know, the grid needs help. And one of the ways is backup generators.

Thank you. This concludes the question and answer session.

I would like to hand the conference back over to Mr. Jim LeBeaume for any closing remarks.

Thank you all for joining today's call. We appreciate your continued support. For follow-up questions, please reach out to our IR team listed in today's press release. We look forward to speaking with you again

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.