Good morning, and welcome to the Acorn Energy 2023 Second 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. I will now turn the call over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrix operating subsidiary. Ms. Clifford, please begin.

Thank you and welcome, everyone, to 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 risks associated with disruptions to business operations and customer demand, from the company executing its operating strategy, maintaining high customer renewal rates and growing its customer base as well as from changes in technology, the competitive landscape, in the financial and economic environment. Forward-looking statements are based on management’s beliefs and the assumptions made using information currently available 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 management’s growth goals in 2023 or in 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 the risks and uncertainties that may affect the company is included in our 10-K under risk factors as filed with the SEC. 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 our OmniMetrix operating subsidiary. Jan?

Thank you, Tracy. Good morning and thank you everyone for taking time and joining this call today. Acorn achieved excellent topline growth, consolidated profitability, and positive cash flow in the second quarter. It was our second consecutive quarter of monitoring revenue growth, which is important because it demonstrates that we have returned to a monitoring growth trend following the negative impact of wireless carriers sunsetting their support for 3G monitoring technology. Monitoring revenues grew 10% in the second quarter, building on a 3% growth in the first quarter. We expect this trend to continue over the balance of the year and beyond. Because our realized gross margin on monitoring revenue is about twice that of our hardware, its growth has an outsized impact on our bottom line performance. Also, we consider margin revenues to be annual recurring revenues, or ARR, because typically, over 90% of monitoring service plans renew upon their exploration. Our Q2 performance also benefited from strong demand from large C&I customers or commercial and industrial customers for TrueGuard back-up generator monitors, contributing to a 39% increase in hardware revenue in the period. Overall, revenue growth of 22% allowed us to cover our public company overhead costs and achieved a consolidated net profit in Q2 versus a net loss in Q2 2022. On a cash basis, our growth was even better as cash basis revenue grew -- rose 33% to $2.1 million in Q2 2023 compared to $1.6 million in Q2 2022, and has increased 9% for the first half of 2023. We said on our last call that we expected this year return to a more normal business pattern with Q1 likely our weakest quarter and sales building into Q2 and Q3. Our performance has followed this pattern so far and supports our belief that we can…

Thanks Jan. In addition to our press release, we also filed our 10-Q this morning with the SEC. Now, I'll provide an overview of our results before we open the call to your questions. The numbers that we'll discuss are consolidated on a GAAP basis, except cash basis revenue, which is a non-GAAP measure that we reconcile to GAAP revenue in our press release. Q3 2023 revenue rose 22% to $2.0 million, driven by a 39% increase in hardware revenue, primarily for TrueGuard generator monitors both for C&I and residential customers. We've seen strength in our business across the board and particularly from large national customers for remote monitoring and control of backup generators. Through the first six months, revenue increased 10% to $3.7 million, reflecting the strength. We've noted before that currently, we record the majority of our hardware sales as deferred revenue in accordance with GAAP and amortize it ratably into revenue over a three-year period. Similarly, we defer monitoring revenue and amortize it over the term of the monitoring plan, which is typically one year. The cash value of hardware sales and monitoring services, however, is in based at the time of shipment and collected in accordance with payment terms within 30 to 90 days. The current accounting treatment results in a deferred revenue balance, which reached a record level of $6.4 million in the second quarter, up from $5.6 million a year ago. Internally, we focus on cash basis revenue because we give a more quantitative measure of year-over-year sales trends and is the primary indicator of future GAAP revenue to be recognized. As Jan mentioned, our cash basis revenue increased 33% to $2.1 million in Q2 2023 from $1.6 million in Q2 2022. And cash basis revenue rose 9% to $4.0 million in the first…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Scott Searle with ROTH MKM. Please go ahead.

Good afternoon, -- excuse me good morning. Thanks for taking the questions and nice to see the monitoring revenue recurring. And maybe, Jan, just to start, could you give us some idea of C&I versus residential in the quarter? It sounds like C&I was definitely the driver. But kind of give us an idea about from a net add standpoint, how is that mix skewing and maybe calibrate us towards what the installed base looks like? And then looking forward on the residential front, what have been the headwinds here? Is this predominantly interest rates? Is it something else? Or are there channel inventory issues that they're doing with -- and what's the expected time line of the recovery on that front?

Okay Scott, thank you for your questions. Firstly, in terms of C&I versus residential, as a company today, we are roughly 65% residential and 35% of C&I. In terms of the quarter, I'm not going to give you the number, but I can tell you that C&I was substantial -- substantially larger in the quarter than once residential, but residential was just because of our -- the size of our base in residential it does so, especially on the monitoring side, it is the predominance of the revenue generation. In terms of what we're seeing out in the marketplace, yes, interest rates are a very big factor. And almost all generators are financed, $15,000 is not something just pop out of pocket by and large. Again, I'm talking on the residential side. So, interest rates have been a factor. I think the economy in general have been a factor. People -- if you care a generator is viewed in terms of the residential generators view as more of a luxury item than necessity. We think over time that changes somewhat because of the grid. On the C&I side, it's certainly much more so a necessity today than it is a luxury. So, I think the economy also plays a factor. In terms of the ability for the generator manufacturers to get the product out, I think that there is -- in certain areas, there's still a backlog, but our dealers are saying that, by and large, they can get generators today. I'm not saying every dealer, but if you're an tap dealer, certainly, a lot of our customers are, I think, by and large, you can get inventory if you needed.

Got you. Thank you. And if I could just follow-up with one more. Looking forward to the guidance of cash growth of 20%. You've got some new solutions coming out in terms of the RAD closer pipe as well as DR [ph], it sounds like it's early days, but I'm wondering if you could give us an idea of how that pipeline is building the visibility on that front and how that really factors into both guidance in the second half of this year and then as we start to think about 2024? Thanks.

So, I'm saying on previous calls, and I'll reiterate now that I don't think that either of those factors are going to be big factors in -- really any factor in 2023. I think they kind of start towards the end of 2023. And they've become bigger factors over time, especially on the DR side, as we said, there's an education process. So, we don't know how fast the adoption is going to be. I can tell you that at the EGSA Conference, which is the Industry Generator Conference on October 1st and October 2nd, CPower, which is the largest company providing power to the ISOs has a presentation with us at the conference, and they will be with us in the booth. So, we're certainly trying our best to get the word out. I think that will have a major impact for our dealers. So, I think it really has no impact in 2023. It builds in 2024. And as we've said, it is an annual renewable revenue stream and so it cumulatively builds thereafter. But the numbers can be quite large. And if you look at what Arcot [ph] is paying for somebody to sign up for a program on standby generator of $70,000 per megawatt, the numbers can be quite large as the program grows. In terms of the RAD, we still have our trials out, again, a new product in an industry that takes time and has long lead-times for sales. So, I think that, again, is -- has a very nice impact in 2024 and beyond.

Great. Thank you.

Our next question comes from Edward Gilmore, private investor. Please go ahead.

Thank you. Hi Jan, good morning and thanks for taking the call and it's nice to see the good results this morning. I had a question on artificial intelligence. I was just kind of wondering your kind of general perspective on that, everything going on in AI and the monitoring the metrics can do and the data that's able to be collected. But wondered if you see any opportunities on the horizon there that might be beneficial for the product suite?

I write the second, we don't see it. We are certainly have our eyes on it. We are pulling data actual data from 25,000 pieces of equipment. So we are a data risk company. And obviously, the more analytics people want and need the more we can supply, and we're certainly seeing that on our C&I business, the people who had in the past had what we call dumb [ph] monitors, green light, red light, works, it doesn't work, I'm more focused on acquiring data. So, we think over time, AI so could have an impact and a positive impact. But right now, for us, it's too early in the game.

Okay, great. Thank you. And then just another question on the backlog, if I may. It's great to see that high backlog there actually 60% or so committed for the rest of the year. And I just wondered how much of the existing inventory is able to go to fill the backlog demand there? Thank you.

I mean in inventories, you have inventory of different products. I can't tell you that every -- we have inventory of antennas that might go for the full year, but we have PC boards that were continuing to order. So, I can tell you that we continuously order and we have a significant amount of inventory coming in and we have a significant amount of inventory going out.

If I might add to that response, I think actually what he's speaking is on backlog, there really is no need for inventory to fulfill that. So, those aren't a backlog of orders. That is the deferred revenue for units that have already been installed and it's just a function of gap. So, none of the existing inventory is required to satisfy that deferred revenue because it's not an actual backlog of orders to be filled. Does that answer your question?

Yes. Thank you, Tracy. Appreciate it. Thank you very much. Thank you, Jan. That's all the questions I had.

Thank you.

[Operator Instructions]

Operator, this is Bill Jones, Investor Relations. We have a question that was e-mailed from private investor if I may.

Please go ahead.

Okay. The question is from Tom, private investor. And the gist is -- of the question is, he's asking -- it says in the recent proxy materials, you noticed that you're requesting authority to reverse stock split to do a reverse stock split. You've had that authority and to date, have chosen not to do so. Could you explain why you would or would not given that the reverse split could allow more people potentially to buy the stock if it's not a penny stock?

Okay. So, definitely correct. We've had permission to reverse stock and a number of investors have said to us that we should do that in order to make it easier to purchase the stock because the number of brokerage firms don't allow customers to buy stock. So, I in the past, have been hesitant to do that because historically in the 40-plus years that I've been on Wall Street, the reverse stock split typically use value after the reverse split. So, I've been hesitant to do that. There's usually only one reason to go ahead with it. And that is and I've said this in the past that if we have some good news and kind of -- good news to come, meaning a string of good events, that would give me the confidence that reverse split stocks that did not lose value, but will rather gain value for our company. And so if we do a reverse stock split, and we announced that we're going to do a reverse stock split, I think one can rest assured that we feel very confident about the future, and we have some good news coming. But until that time, I've so far been hesitant to do it. But we'll see what happens into the future. I hope that answers Tom's question.

Thank you, Jan.

This concludes the question-and-answer session. I will now turn the call back over to Mr. Jan Loeb for his closing remarks.

Thank you everyone for your interest in Acorn Energy. We look forward to updating investors on our Q3 conference call. And as always, we will update you in the interim via press releases with any material developments. We appreciate your support and I'm happy to speak with investors or prospective investors about our company. You can set up a call with myself and Tracy or ask a question to our IR team, who's his contact information is in today's press release. Until then, we thank you all for joining our call today. All the best.

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