Good morning, and welcome to the Acorn Energy Second Quarter 2022 Conference Call. [Operator Instructions] 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 its OmniMetrix subsidiary. Ms. Clifford, please go ahead.

Thank you, and welcome all to our conference call this morning. As a reminder, many of the remarks that follow when answers to 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 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 other risks. 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 2022 or in future years. The company undertakes no obligation to disclose revisions to these forward-looking statements to reflect events or instances occurring after today's date. 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. Reconciliations of certain non-GAAP financial metrics to their corresponding GAAP measures are provided in today's press release, which is available at the Investor Relations section of the company's website located at www.acornenergy.com. I'll now turn the call over to Jan Loeb, Acorn's CEO, for an overview of our business performance and outlook. Jan?

Thank you, Tracy. Good morning, and thank you all for joining today's conference call. As many of you know, all of Acorn's revenue comes from our 99% ownership of our operating subsidiary, OmniMetrix. Despite a variety of macro challenges such as inflation, rising interest rates, supply chain and general economic uncertainty, OmniMetrix's hardware monitoring service model delivered a modest revenue improvement and improved gross margin in both the second quarter and first half of 2022 versus the year ago period. Our hardware revenue continues to benefit from the decision by wireless service providers to no longer support legacy 3G wireless technology in favor of newer technologies like LTE and 5G, which delivers superior bandwidth and performance. As we've discussed, this sunsetting of 3G has benefit sales of our next-generation monitoring hardware but has had a nominal negative impact on our margin revenue growth. And this is mainly due to the loss of some customers that do not upgrade or renew their monitoring services. We expect a small number of remaining 3G units to be upgraded over the balance of the year, substantially completing this transition. While we are disappointed with our operating performance in the second quarter, we expect to have a significantly stronger second half returning to what we believe is an attractive sustainable long-term path to growth. Our positive outlook is based on purchase orders we have received along with current customer dialogues in progress. We are also confident about our longer-term growth prospects, especially in underpenetrated commercial and industrial markets we currently serve as well as opportunities to deploy our industry-leading remote monitoring and control technology and expertise in new complementary applications. For example, in the second half of last year, we started beta testing, a new solution, our remote A/C Disconnect or gas pipeline, a product…

Thanks, Jan. I'll provide a brief overview of our financials in today's release and our 10-K filed this morning. Then we'll open the call for your questions. Our second quarter revenue rose approximately 1% to $1.62 million, reflecting a 10% increase in hardware revenue and a 5% decrease in monitoring revenue. As Jan noted, the increase in hardware revenue was primarily due to sales of next-generation monitoring equipment to replace legacy 3G devices related to the sunsetting of 3G technology by wireless carriers. Also pursuant to GAAP since we defer and amortize hardware revenue over 3 years, revenue trends are indeed impacted by sales in prior quarters. Conversely, sunsetting has negatively impacted our monitoring revenue to some degree as the legacy 3G units replaced with next-generation technology assumed a prepaid monitoring plan of older unit. So while hardware revenue increases with the new equipment purchase, there's no growth impact on monitoring revenue. Also, some customers inevitably choose not to upgrade to newer technology when their 3G unit went dark and thus their monitoring service was terminated. The first half of 2022 reflects this sunsetting impact as hardware revenue grew 10%, while monitoring revenue fell 3%. We expect to see the negative impact of sunsetting on monitoring growth to be largely behind us by year-end as just a small percentage of 3G units remain in the field. Our gross profit grew 2% to $1.25 million in Q2 '22, primarily reflecting revenue growth and gross margin improvement to 77% from 76%. Note that our gross profit and gross margin improved slightly despite increases in production and manufacturing costs. Last year, we took some specific actions to maintain margin, including a price increase and the negotiation of more favorable cellular data rates for our business, and we continue to look for opportunities to…

[Operator Instructions] Our first question here will be from Edward Gilmore, a private investor.

And congrats on the new partnership with the oil and gas partner. I was just wondering if you expect to put a press release out about that with any more information? Or is there any other additional details that you might be able to share today on the call?

Thank you very much. No, not right now. And there's probably a couple of reasons why I wouldn't want to do it right the second and that is I certainly would need to have signoff from the oil and gas company, number one. Number two is this is -- this would be our first customer in a brand-new product in the space. So I'm not sure I want to get my competitors kind of a path. I'd rather maybe rack up a couple of more big customers before we have a big press release or a big splash about it. So my gut right now is, unless it turns out to be like a super material event that we would not put out a press release.

Okay. And then you sound pretty upbeat on the back half of '22 here and it seems pretty promising with what's in the pipeline. I wondered if maybe you could elaborate a little bit on that and maybe what you attribute that upcoming strength, too?

I am positive about the second half of the year. And some of it is as you just mentioned, the RAD, so we have some new product coming out in the second half of the year. We have a couple of customers, the bigger customers that the sales cycle takes longer. And so we've been working on them for a bunch of months and so it looks like in the second half of the year, they'll actually come through. As you can tell from Power Now, our deals with Power Now, which is Briggs & Stratton dealer, we are putting more focus on Briggs & Stratton dealers than we've had in the past. So just a combination of reasons gives me confidence that we should have a much better second half than we had in the first half.

Okay. Great. And 1 last quick question. I know you've been pretty active in the past in purchasing on open market shares of the company. And I know as a private investor, I appreciate that other investors appreciate that I was just curious if you had any plans to continue that this year. And I'll jump off.

I have -- it's opportunistic. It's not like I have a master plan. And why I'm sure other investors appreciate it. That's not why I'm buying it. I'm buying it because I think I can make some significant money on my share purchases. So I don't want everybody to believe that it's my altruism that's doing it.

[Operator Instructions] And we have a question from [ Jack Mayer ] from Family Trust.

Congrats on the progress. Just very briefly, you've talked about these new things with the power offloading. I'm sorry.

You're talking about demand response.

Right. The demand response, and you've indicated when you thought that, that would begin to matter to the bottom line. Question is, are there any metrics that you think you could be able to refer to before you actually start making money on this, that will give us some indication of how that's going.

I don't believe that the company will give out metrics, but I think what you should be able to discern is profit margin expansion. So what will happen is demand response is a highly profitable piece of business because we don't sell any products. We don't have any COGS associated with it. We have a little bit of SG&A, but not much in way of SG&A. So when you should start to see as this begins, and it's going to begin slowly. It's not going to all come overnight, it's going to ramp and build slowly. But as you see profit margin expansion, it will most likely be due in large part to demand response.

Got it. And so based on your current expectations, at what point do you think that, that will begin to be material -- the change -- at what point do you think the change will be recognizably material?

I don't know the answer to that. But what we've said is that it will start in 2023, meaning the dealers that we're talking to, they have to deploy the machines. The machines have to be signed up with the ISOs. So we're saying that it should start in 2023. But as I said, it's going to ramp, and I can't tell you when it will start to show meaningful numbers.

With no remaining questions, we will conclude the question-and-answer session. At this time, I would like to turn the call back over to Mr. Jan Loeb for any closing remarks.

Thank you again for your interest in Acorn Energy. We are very excited about the opportunities in front of us and for the long-term prospects of our business. We appreciate your support, and I'm always happy to speak with investors or prospective investors. You can set up a call with me or ask any questions through our Investor Relations team or through Tracy Clifford, whose contact information is in today's press release. Otherwise, we look forward to updating investors on our Q3 conference call. Thank you again. I believe that concludes today's conference call.

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