Good day and welcome to the Acorn Energy Fourth Quarter and Year End 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrix 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 2021 and future years is subject to factors, such as risks 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 risks 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 OmniMetrix will be able to achieve their growth goals in 2021, 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 the Risk Factors on Acorn’s Form 10-K as filed with the Securities and Exchange Commission. Now, I will hand the call over to Acorn’s CEO, Jan Loeb. Jan?

Thank you, Tracy, and good morning to those joining our call. I'd like to start today by saying that I am very proud of the OmniMetrix team and grateful for how they rose to the challenges we faced over the past year. Despite significant business challenges posed by COVID-19, Acorn was able to achieve profitability on a net income basis in the fourth quarter and positive cash flow for the quarter and full year. These are very significant milestones for our company and ones that we have been working toward for several years. What's even more important is that we believe Acorn is on track to achieve profitability and positive cash flow on a consolidated basis for the full year 2021 and moving forward. This is particularly significant for Acorn because we have nearly $70 million of net operating loss carryforwards, or NOLs. These NOLs will shelter our future net income from federal taxes for the foreseeable future, positively impacting our operating cash flow and benefiting our future cash balances and financial positioning. Further, we no longer have any debt as we paid off our line of credit last month. What this means for our shareholders is we now have a growing cash-generating and self-funding business with attractive margins and recurring revenue streams. This should make our public equity more attractive to a broader base of investors and puts us in a stronger position to pursue value-enhancing investments and opportunities. Importantly, throughout 2020 and the ongoing spread of the pandemic, we were able to remain fully operational without any employee furloughs. We did, however, experience an interruption in all business development dialogues, particularly within our Corrosion Protection or CP business as prospective customers halted procurement discussions and in-person sales meetings. Nevertheless, the strength of our value proposition and business model…

Thanks, Jan. This morning, we released our 2020 fourth quarter and year-end results in a press release and also filed our 2020 10-K with the SEC. I'll review some financial highlights compared to the comparable fourth quarter and full year of 2019. OmniMetrix revenue grew 8% to $5.9 million in 2020 from $5.5 million in 2019 due to a 15% increase in monitoring revenue. This was offset by a 3% decrease in hardware revenue. Monitoring growth reflects an increase in the number of units being monitored, while the decline in hardware sales reflects business development disruptions caused by COVID-19, particularly in our Corrosion Protection segment. Revenue in Q4 2020 was 14% higher than Q41 2019 as a result of increases in both monitoring and hardware revenue. In accordance with GAAP, hardware sales are deferred and recognized to revenue over the estimated life of the unit, which is three years, thus 2020 revenue on a GAAP basis includes amortization of hardware sales made in 2020 as well as in the prior two years when we enjoyed strong sales increases. Gross profit grew 15% to $4.1 million in 2020, with a higher percentage of revenue coming from monitoring, which is a higher gross margin and also due to a favorable change in the product mix of hardware. Gross margin on hardware increased to 44% in 2020 from 38% in 2019, reflecting a more cost-efficient product mix in the Corrosion Protection segment as well as to reduce cost on new power generation products. Gross margin on monitoring revenue remained strong at 84% in both 2020 and 2019. In quarter four 2020, gross profit grew 17% over quarter four 2019 to $1.1 million and gross margin increased 1% to 69% from 68% in Q4 2019. OmniMetrix' total operating expense increased 4% to $3.6 million…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Richard Sosa, who is a private investor. Please go ahead.

Hi Jan how are you doing?

Good morning, Richard.

First of all, congratulations. As you know, I've held this stuff for what seems like over 10% of my life. So congratulations on your first quarter profit on an operating basis and the cashflow basis. You've been talking about this for many years and it's been a long road and it's great to finally see it. So definitely congratulations to you and your entire team.

Thank you.

So I had two questions. The last year you had talked a little bit about a slowdown in the industrial markets and both of your end markets, have you seen any kind of pickup in the first quarter specifically on the generator side?

The slowdown that you are referring to in the commercial and industrial side is really from the OEM side. So for example, Generac has said that their commercial industrial side generated sales has slowed because their residential side has picked up and has been growing very significantly. We have not seen a drop in the commercial industrial side because that has been our focus, like the residential side has a very low penetration rate. So, our focus is commercial and industrial. And since that's our focus, we've seen consistent growth in that area. The residential side of our businesses we're not so focused because there is significant competition from the OEMs on the residential side. That business has been growing for the OEMs, but from our standpoint, our focus is commercial and industrial, and that continues to grow very nicely for us.

And you, talked a little bit about the new administration and a new potential friendly administration. It makes a lot of sense, you have a democratic administration. It would make sense that OmniMetrix is a darling in their eyes, helps companies be more efficient, helps generators be more efficient, helps pipelines be more efficient, all of that is very good. Have you heard anything specific to like a specific policy that could benefit OmniMetrix?

We've not heard yet of any specific policies. But just in general, we're saying since green is going to be a focus and the administration has said it's going to be a focus and going to zero emissions, so remote monitoring is certainly an area that allows companies to do that, but you get closer to that goal. So we think we're in the right spot. But we've not seen or heard any direct policies that would impact us today.

That's great. I do have one more question, but I'll go back in the queue and let anyone go if there's somebody there.

We actually don't have anybody in the question queue currently, Richard, if you'd like to ask your next question.

Oh, that's great. Sure. So I noticed you did a presentation with Roche in December, and I see that you are attending a conference, virtual conference this week, later this week with Maxim I believe, is this something you plan to do over next few months to be, I mean, you've done a great job telling your story, obviously. But are you going to do more of these and get in front of new investors?

If we're invited, it certainly would be hope that I can do that. I think our story – I think, we've reached a milestone, which we've tried as you noted before, is to get to profitability on a consolidated basis. And I think that now that we've reached that milestone, our next milestone is to show that we have significant growth potential and the profitability that that growth can bring. As you know we have a 70% gross profit margin on our business. So as our gross ramps up the profitability story becomes a very large one. And so, I hope to bring focus to that over the next year or so. And conferences will help me accomplish that.

That's great, Jan. Congratulations. And I look forward to your continued success at Acorn/OmniMetrix.

Thank you, Richard.

The next question comes from Peter Rabover with Artko Capital. Please go ahead.

Hey Jan congratulations on reaching profitability and cash flow positive. I wanted to get some questions on the metrics for the hardware. The relationship between the hardware and the recurring revenue. And so, I think, Tracy might have said it, but what were the hardware sales this quarter $650,000 or something? Am I correct on that or…

Tracy? Tracy you want to handle that?

Tracy, this is the operator, your line might be muted if you're speaking, we cannot hear you.

Yes. I'm sorry. I'm sorry Peter, could you repeat your question?

What were the hardware…

Is it hardware sale, or hardware cash sale?

Yes, I guess – I guess an increase in deferred revenue, what are the metrics you guys use to track hardware sales?

Sure. We typically use metrics across our product lines as well because the gross margin differs by product. As it relates to cash sales, compared to the hardware sales, as I was stating, the hardware is amortized over three years of hardware sales, or actually amortized over three years. So, the cash, that is the difference between the cash sales metric and the actual GAAP revenue that we recognized. So there's actually three years of amortized sales coming into the GAAP revenue on a monthly basis. So that kind of explains the difference. As our hardware sales increase, of course, the layers of GAAP revenue that are amortized in will also increase.

Right. So I'm sorry, but what was the number of both the GAAP…

Our full consolidated sales across – I don't believe I gave hardware sales separately on the cash basis. Our full hardware sales and monitoring sales for cash basis were $6 million in both 2020 and 2019.

Sorry I was asking for the quarter, what were the hardware sales for the quarter?

Let me just pull that for you. Give me just a moment.

Okay. Let me ask this question. So while she is looking, I guess, do you guys have kind of a good idea on – and I think I sort of did it in the past, but I don't want to send this number without – doesn't come out and correct, but for every x amount of dollars of hardware sales whether cash or GAAP, what is your monitoring revenue base increased by?

You can't really use that number because our hardware sales, for example, rectifier sale is about we'll call it $1,800 a unit and the generator monitor sale is maybe $300 a unit. So you just can't say each dollar you'd have to you look at the units.

Okay.

Not units in total versus a volume – volume sales number.

Okay. Do you have an ARR number for the monitoring revenue?

So, you could say kind of on average for every unit we sell, it's approximately $150 a year in monitoring revenue, on average.

Right. Do you have like an average hardware – I mean, I guess I'm just trying to get better metrics to kind of highlight the value of the company in terms of given your high renewal rate, so an increase in hardware, which, I think, was like $400,000 or $500,000 for the last – for 2020, which was clearly a down year. Sounds like fourth quarter was at least $600,000, $700,000. Just trying to get gauge what the ARR base for the monitoring revenue which is like the – which is what really drives the gross margins, the gross profits, and the value of the company?

Yes, I don't know that we can give it to you here.

Okay, fair enough.

Peter, just to circle back to your question, the hardware sales in fourth quarter 2020 were $416,000 compared to $545,000 in quarter four 2019.

Really?

And again, that's across both segments.

I mean, your year-to-date number in the third quarter for hardware sales was 1.5 and for this quarter, it's 2.15. So I'm just kind of confused on what the GAAP is.

Those are going to be accessories. I can put together a reconciliation for you and we can circle back.

Okay. Fair enough. We can circle back. I'm just trying to gauge how the hardware sales are going basically.

Okay.

I guess my second question would be what the – you guys are, you have $2 million in cashflow, you are cashflow positive. And I guess, I know it's a small amount, like $2 million on a – but the market cap is not that big. So, I'm just curious what your plans with the cash flow going forward are?

So, we would use it to support our growth, number one. I mean, obviously we've said in our remarks that we expect the least 20% growth in revenue in 2021 and beyond. So, we'll need some working capital increases, inventory receivables, et cetera. So as we hopefully ramp up our growth, I would say that the cash right now would be used to support the growth of the company.

Okay. Thank you. That's all I have.

Thank you

[Operator Instructions]

Operator are there any more questions?

It appears we have no more questions. So this concludes our question-and-answer session. I would now like to turn the conference back over to Jan Loeb, for any closing remarks.

We are all well-positioned to return to normal growth trends and to reach sustainable, consolidated, net profitability in fiscal 2021. We'll continue to look for growth opportunities in the markets we serve or complimentary accretive opportunities. Once again, I thank you for your interest in Acorn. We appreciate the support of our shareholders, and I'm happy to speak with investors about the company. Please visit Maxim Group's website for information on their Emerging Growth Virtual Conference 2021, which is taking place this week. On the Maxim website, you can register to view our presentation, which will be available this Thursday March 18. You can also contact our Investor Relations with any questions or to set up a call with me. Thank you again for your time today. Operator, I believe this concludes this call.

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