Good morning, and welcome to the Acorn Energy 2023 Third Quarter Conference Call. [Operator Instructions] 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 OmniMetrix 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, risks 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 OmniMetrix 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 OmniMetrix operating subsidiary. Jan?

Thank you, Tracy, and thanks, 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 OmniMetrix's compelling value proposition, operating discipline and our recurring revenue model. Today, we also announced a significant new reseller agreement with a leading U.S. generator 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 up-listing 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…

Thank you, Jan. I will touch on some financial highlights before we open the call to your questions. Note that our Form 10-Q was filed this morning in addition to our earnings release. I'm happy to announce that we've accomplished some significant goals in the last several months. As most of you know, since early 2021, we've been working on the development of a new user interface for our customer data portal. We're excited to announce that we have deployed the new interface, which we refer to as OmniView2.0 or OV2 and made it available to our customers as of October 1, 2023. We believe our customers will be very pleased with OV2 in that it offers an enhanced user experience and more benefits at their fingertips such as self-service reporting options. We think that OV2 offers a valuable competitive advantage as we move into 2024. Additionally, on September 1, OmniMetrix launched an updated version of our TrueGuard, AIRGuard, Patriot and Hero products that includes new functionality that allows our customers to have options as it relates to obtaining and utilizing the data that's provided by our hardware devices. This product update allows customers to have the option to purchase our monitoring service, monitor the products themselves or have disability or to choose another monitoring provider. Historically, our products were designed to only function with our monitoring services. This new product version functionality results in OmniMetrix hardware and monitoring services being capable of being two distinct products and services, thus hardware revenue, cost of goods and related commissions on sales of this updated version of our hardware devices are recognized in the product to shift rather than over the estimated service life of the units, which was generally three years. Monitoring revenue, however, continues to be deferred and amortized over…

[Operator Instructions] And today's first question comes from Bill Chapman, a Private Investor. Please go ahead.

Yes. Good morning, everyone. Jan, I know your dealer conference you guys had here in San Antonio for the generator sales went well. Will you - will CPower be marketing these generator dealers with your salesmen? Or is this just an area your salesmen doing marketing and CPower is doing the larger manufacturing market?

Yes. So it's mainly our salesmen have relationships with the dealers. So it's our salesmen who are selling DR to our dealer network and CPower kind of supports us. So if we need CPower to come in, make a presentation to - largely with the salespeople, they would gladly do that, if we need certain documentation. So any support they are willing to do for us, but we are the ones who are actually selling the DR service.

Okay. And how many salesmen do you have?

So in PG, which is the generator side of our business, we have four salesmen and the Head of Sales.

Okay. Got it. Okay. Good. And is ERCOT being receptive to this Demand Response marketing initiative? I know you got that they're proven at 1992, but are they excited about this from what you can tell?

I'm not - excited about what aspect?

Well, they're embracing the Demand Response? Because the oil people run the state, and they're interested in adding more natural gas plants, coal plants. And that's the big - they're not as interested on coal - I mean, on...

Yes. So well, firstly, most generators work on natural gas. So that's really not a problem. But yes, everybody - there's an education process throughout the country on Demand Response, but everybody is for it because nobody wants their own home to be without electricity at any point in time.

Okay. Makes sense. You made a projection maybe three years with all the - in the past, what the revenue from this Demand Response could be. Now that you've got more evidence, you've got some traction, what number are you coming up with that could possibly be top line sales for...

Yes, I'm not sure I ever actually gave out our estimate. It's just too new, and we don't know what the speed of the uptake will be. So all I can tell you is that hopefully, it will be a very meaningful number to our profitability. I'll focus more on the profitability because it's not a product we sell. So we don't have that much cost associated with it. We have some costs but not that much. And I said it's kind of akin to our monitoring business in terms of margins.

Yes. Okay. Good. One last question. Any additional analysts that you're talking to that may initiate coverage?

Not - no, unfortunately not. They're missing a big opportunity, but I'm not speaking to anybody.

Okay, got it. Okay. All right. Thank you.

Thank you.

[Operator Instructions] Our next question comes from Richard Sosa, a Private Investor. Please go ahead.

Good morning, Jan and Tracey. It was good quarter. It was nice to see it. Congratulations on the reverse stock split. Just had a couple of follow-up questions on the Demand Response. So you mentioned - so there was 92 connections, correct?

Correct.

So is that 92 different customers or is it end customers or...

92 end customers.

So 92 end customers, and do they all work with one dealer or is it multiple dealers?

Yes. No, they all work right now with one dealer. Yes.

Okay, one dealer. So it's more like a test has more - this will be a big thing to follow because at the end of the day, this 600 kilowatts is very small compared to - you had mentioned, I think - according to my notes, correct me if I'm wrong, you had mentioned I think in August maybe, the potential for 800 megawatts of - is that accurate, of power? So...

Yes. So 600 kilowatts is relatively small. And I mentioned when I said 800 megawatts was that we currently monitor, if you look at just what we currently monitor today, it's approximately 800 megawatts of power is what we monitor today. So I was just giving that as an example.

A reference.

Yes. So yes, this is in the really early stages, and we expect it to grow significantly over time.

And then just one on...

But it's important because this is our first. So we've talked about it for a while. It took a while to actually formalize, test it, make sure everything is good, and we're there.

Okay. That's great. Congratulations. And on the ERCOT side, when they go through approvals, do they approve one by one or is it kind of all 92 at once?

No, it's one by one.

You have to put it individually, okay. I think that's public information, right? Is that accurate or relatively public? And - go ahead.

No, I don't know the answer to that.

Okay. And then - so with, I guess, ERCOT in Texas, I mean, I know there's - it's not just ERCOT, right? You're not just working with ERCOT, right? It's other states as well?

There are other states, and there are other grid operators in Texas as well. But these '92 are in ERCOT's region.

Right. And is it safe to say that any potential future revenues, the majority would come kind of the summertime? Or is it could be any time of the year?

No. It's - the way I'm just using ERCOT as an example, because they're a good example. A year is broken down into four segments. There's a winter program, which is four months and has high usage. There's a summer program, which is four months and has high usage. And then there's a two month spring and a two month fall program, which are low usages.

Okay. So it's a - when you had mentioned this 15,000 to 17,000 a year, one megawatt of power, that's kind of blended average, right, with the bulk in the summer and winter.

Correct, over a year.

Okay. And then just one more - last question unrelated to Demand Response, just on this $150,000 of hardware sold. Is this something you just do from time to time? I think it's happened before, I recall, right? Just one customer, a couple of customers just want the hardware. Is that accurate? Or should we expect more of that kind of stuff in the future? Or is this kind of a onetime?

No, there some difference - Tracy, go ahead.

This is new functionality that we have launched in all future products sold. So what you were referring to the one-off sales were the custom units that were customized for one specific customer that they monitor internally themselves because they have that capability. This is new functionality that we've launched in our all existing products moving forward to offer various options to give us a little bit more competitive edge also so that we can offer some variability to our customers. So you will - this is not a one point in time. This will be the accounting treatment moving forward based on the new functionality.

And was it just a lot of customer feedback on this? Do they want this and asked for - what made this decision versus just doing the one-off customer? Is it something - this something you're going to do going forward for all hardware, right? So anyone can essentially unhook the monitor. Is that correct?

This is embedded - an embedded functionality change. So it was really after some review in our R&D process on just some options that we wanted to be able to offer as we appeal to more C&I larger customers that might have the ability in-house. We wanted to have that functionality available.

Okay. That makes sense. So okay, that answered my question. Okay. Congratulations on the quarter. I look forward to the updates.

Thanks, Richard.

Thank you, Richard.

And our next question was e-mailed in. So I'd like to introduce Bill Jones to proceed with the question.

Thank you. Yes, this is Bill Jones, Investor Relations. We had a question submitted via e-mail from a private investor, which says, "Hi, I am not yet a shareholder. My questions are, what is the average monthly monitoring revenue per generator? And what is the average hardware revenue realized when generator hardware is sold?"

Okay. So I would say that from the hardware side, it would be somewhere north of $400. And that includes both the kind of our residential product, which is a lower-priced product, and our commercial products, which are higher-based product. And then in terms of monitoring, I think in the past, we've said we charge our dealers a certain price. They mark it up to their customers. So for them, it's a profit center except for our end-user C&I customers, who don't mark it up, that use it themselves. So I'd say you're looking somewhere around $12 or so a month on average.

Okay. So for clarity, you've given averages. It's really a range around that.

Correct.

Very good. Thank you.

Ladies and gentlemen, that concludes the question-and-answer session. So I'd like to turn it back over to the management team for closing remarks.

Once again, thank you, everyone, for your interest in Acorn Energy. We look forward to updating you again after Q4 on our next call. In the interim, we'll provide updates via press releases of any material developments. We do appreciate your support, and we're happy to speak with investors and prospective investors. You may set up a call with Tracy or myself or ask a question through our IR team. This contact information is in today's press release. Until then, thank you for your time today.

And ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.