Acorn Energy, Inc. (ACFN) Earnings Call Transcript & Summary

Okay. If you know someone who is trying to enter the Zoom session, they should go to zoom.us/join and enter the meeting ID 84072052980. They also may join by telephone. They'll get the audio by dialing (646) 558-8656 and again, entering meeting 84072052980. I see a couple of people in the waiting room and I just admitted a couple more folks. And I think, Jan, you can take it away.

Thank you very much, Sheldon. Good afternoon, ladies and gentlemen. My name is Jan Loeb. I'm the President and CEO of Acorn Energy as well as a member of the Board of Directors, and it's my pleasure to welcome all of you to the 2021 Annual Meeting of Stockholders. Thank you for joining us today via Zoom or our dial-in numbers. To ensure smooth running of the meeting, all participants are muted. If you wish to be recognized during the meeting or have a question during the Q&A, you will be able to raise your hand and ask to be recognized using the Zoom raise hand function, which you can access by clicking on the participants button and then clicking on the raise hand option or by clicking Alt+Y at the same time on your keyboard. I would like to introduce the other members of our Board of Directors: Gary Mohr, Michael Osterer and Dr. Samuel Zentman. Also joining us today is Tracy Clifford, our Chief Financial Officer; and Sheldon Krause, Assistant Secretary and outside counsel for the company. We also welcome representatives of our Auditor, Friedman LLP; and William Jones of Catalyst IR. I will act as Chairman of the meeting, and Mr. Krause will act as Secretary of the meeting and Inspector of Election. Mr. Krause and Mr. Jones will be cohosting the Zoom session. I now call upon the secretary of the meeting to present proof of the mailing of notice of the meeting.

Mr. Chairman, I'm in receipt of an affidavit of mailing of notice of the meeting commencing on or about August 4, 2021. I direct that the affidavit be received and filed with the records of the meeting.

As the Chairman, I am in receipt of the inspector's oath sworn to and duly notarized, which will be filed with the minutes of the meeting. I am informed by the inspector that the count of shares present immediately prior to the commencement of the meeting indicates that in excess of 50% of the outstanding vote of the company is represented at this meeting in person or by proxy. I therefore hereby declare a quorum present. We will now proceed to the proposals on the agenda. We will present all of the proposals, after which we will open the polls for voting on all proposals. If you voted by proxy, we have your vote and your shares will be voted in accordance with your instructions, and there's no need to vote now at the meeting. Any record owner who wishes to vote who has not signed a proxy or who wishes to change their vote may vote by phone by calling (302) 448-8580. Let me repeat that again, (302) 448-8580, and someone will confirm your record share ownership and take your vote. Let's proceed to Proposal #1, the election of directors. I call on the secretary to formally place the persons listed on the management proxy into nomination.

Mr. Chairman, I hereby nominate for election as directors of the company to serve until the next annual meeting of the company or until their successors are duly elected and qualified the 4 persons listed in the management proxy.

Is there a second?

I second.

Next item of business is Proposal #2, the amendment of the company's restated certificate of incorporation to authorize a reverse split of the company's common stock at any time prior to September 13, 2022, at a ratio of between 1 for 10 and 1 for 20 if and as determined by the Board of Directors. The affirmative vote of the majority of the shares of common stock entitled to vote on this proposal is required for approval.

Mr. Chairman, I move the approval of Proposal #2.

Is there a second?

I second.

The next item of business is Proposal #3, the adjournment of the annual meeting, if necessary, to permit further solicitation of proxies in the event that there are insufficient votes to approve Proposal #2. The affirmative vote of the majority of the shares present and voting in person or by proxy is required for approval.

Mr. Chairman, I move the approval of proposal #3.

Is there a second?

I second.

The next item of business is Proposal #4, the ratification of Friedman LLP as the company's independent accountant for the year ending December 31, 2021. The affirmative vote of the majority of the shares present and voting in person or by proxy is required for approval.

Mr. Chairman, I move the approval of Proposal #4.

Is there a second?

I second.

The next proposal is Proposal #5, an advisory vote on the compensation of the company's named executive officers. We are asking stockholders to cast an advisory vote on the compensation of our named executive officers disclosed in the executive and Direct Compensation section of this year's proxy statement. While this vote is nonbinding, the company values the opinions of stockholders and will consider the outcome of the vote when making future compensation decisions. The affirmative vote of a majority of the shares present and voting in person or by proxy is required for approval.

Mr. Chairman, I move the approval of Proposal #5.

Is there a second?

I second.

We'll now proceed to the voting on all proposals. Once again, if you voted by proxy, we have your vote and your shares will be voted in accordance with your instructions and there is no need to vote now at the meeting. Any record owner who wishes to vote who has not signed a proxy or wishes to change their vote may vote by phone by calling (302) 448-8580, and someone will confirm your record share ownership and take your vote. I now declare the polls open for voting on all proposals. Let's take a brief pause while we wait for the results of the balloting. [Voting]

We will now close the polls. I now call upon the Inspector of Elections to report the results of the balloting.

Mr. Chairman, the count of the ballot has been conducted. On the basis thereof, I report that a plurality of the issued and outstanding voting stock of the company has been voted for the election as director of each of the 4 management nominees listed on the ballot. And Proposals 2, 3, 4 and 5 have all been adopted by the requisite majority. A full report of the balloting on each of the proposals will be submitted for inclusion with the minutes of the meeting. On the basis of the report of the inspector of elections, I hereby declare that the 4 management nominates for director have been duly elected and Proposals 2, 3, 4 and 5 have been duly approved.

There being no further business before the meeting, we will now adjourn the meeting. I will now entertain a motion for adjournment.

So moved.

Is there a second?

I second.

May I have a voice vote? We will briefly unmute everyone on the call for the voice vote. [Voting]

Aye.

Aye.

Aye.

Aye.

Okay. All opposed, say nay.

Aye.

Okay. They ayes have it. I declare this meeting adjourned. I'll now talk a little bit about the company, give some updates, and then we will open for a question-and-answer period. We have some slides that I'll kind of walk through, and Bill is kind enough to put the slides up for us. We have some people on the call who know the company very well. And so please bear with me, we have some people on the call who don't know the company that well. And so I will try to make this presentation [indiscernible]. So as you know, Acorn Energy owns 99% of OmniMetrix, which is the only subsidiary that we currently have. In the years past, acorn was a holding company with many different companies, and we've sold them all off to focus on what we believe is the best company and one that has significant growth attributes and that it's OmniMetrix. There are 40 million shares outstanding of Acorn Energy. The insiders own about 28% to 29% of the company. What OmniMetrix does is it provides remote monitoring of [indiscernible] also rectifiers, which sit on top of gas pipelines and monitor the electric carbon on gas pipelines that prevent corrosion. We also monitor air compressors and have a number of other products that we sell. But the key is it's a remote monitoring product. You'll see what it probably looks like in the slides, what's coming. This is a high-margin business. And what I the real value of the company is the recurring monitoring revenue that the company has. For the first 6 months of this year, our recurring revenue was approximately 60%, and we think it's -- will -- most probably the monitoring number will grow as a percentage of overall sales. It might drop a little bit to 55% over the longer term, but it will be a significant value to our company. Overall, we believe our company can grow in excess of 20% a year. We'll talk about why we believe that is the case. And our monitors are agnostic, meaning you can put one of our OmniMetrix monitors on a Generac, Kohler, Briggs & Stratton machine and it works for everyone. So therefore, dealers who sell many brands of products like our monitors because they can stock less inventory. And clearly, as travel restrictions, illnesses and other factors, the biggest one being environmental, remote monitoring is certainly very much where the industry is going. On our next slide, Slide #4, just to give some of the financial highlights of the company. Our current enterprise value is about $22 million. In 2020, we did about $6 million in revenue. If you just take the 20% growth for 2021 and 2022, you get to $8.6 million of 2022 revenue. Obviously, our goal is to beat that and give us an enterprise value of about 2.5x sales, which we believe is very low. If you look at where other companies are selling, it's usually 3 to 5x sales. Larger companies get -- some are bigger multiples. But companies that have larger recurring revenue also get bigger multiples. So we obviously believe that our stock is undervalued at 2.5x our estimate for 2022 revenue. On Slide #5 is just a picture of our products. That's our TG PRO, which is for commercial industrial generators. And then the other side is our pipeline rectifier monitor, which is for pipeline cathodic protection, as I said, again, corrosion on pipeline. Slide #6 just tells you that our monitors can -- are remote and therefore, can do it over cellular or satellite, whatever the customer wants. So most of our customers, 95%, want cellular. However, there are some customers who are in far-removed places and like enabling, especially, for example, offshore oil and gas. Satellite communication is how they remotely monitor their equipment. On Slide #7, I think it's an important slide in understanding why we think we're going to grow significantly. And that is because for our customers, it is a lot cheaper to monitor their pieces of equipment remotely than the way it's been done in the past, which is truck rolls. So typically, a dealer, usually, if there's a problem with a generator, has to send that 2 truck rolls, the first one to diagnose what the problem is and sometimes the second one to fix what the problem is. With remote monitoring, he knows in advance what the problem is and can fix it with only one truck roll. So not only is it cheaper for him, and it is also very good for the environment. Plus a lot of dealers use it as a profit center because they charge their customers for remote monitoring. On Page 8, just a snapshot of some of our customers. In both a cathodic protection and in the generator space, we clearly have some significant customers who use our product. On Slide #9 is the growth drivers to our company. So I would think the #1 growth driver that we have is just the growth in generators in the United States. The grid is becoming less reliable. And therefore, generator sales are up very significantly. Generac is really the only public company today that you can follow the sales. And their numbers are -- substantially today, most dealers have at least 20 backlog in order to get generators. That's how fast the industry is growing. So -- since that's what we monitor, so our base business should be growing fairly significantly. In addition to that, they're -- as we're an IoT company and data is becoming more and more important, people who've never had monitoring before understand the benefits of monitoring and are putting in monitors. As air quality is being monitored and more and more states are asking for air quality management, our monitors do report on air quality. Meaning when the generators get turned on and turned off, then there's a record of that, that the EPA is looking to get. So just data in general is -- the needs of data in general is increasing, and that is very good for our business. And then overall, we've had infrastructure spend that has really been delayed over the last years. And as pipelines get built and overall infrastructure gets invested in, that, too, is very good for our business. On Page 10, we have just some of our newer products, Smart Annunciator, which we launched last year and the air compressor monitor that we launched the year before. We are currently launching a new product in our cathodic protection business, which will be out in the fourth quarter. It's currently being beta tested in a few of our larger customers. On Slide #11, just again talk about the growth in the generator market, the weather and how that impacts the grid. But even, I believe, more important than weather and wildfires is the fact that coal and nuclear power are being generated less and less onto the grid and wind and solar more and wind and solar are just not as reliable because it depends on clouds and other things that mother nature sends us. So this is becoming less and less reliable. And therefore, more and more people are buying their own generators. We have people working from home and working remotely. And so therefore, power in a person's home is becoming more important, also driving growth in generators. On Page 12 is some of our competitive advantages. We have a bunch of patents on our product. And then we have just years of expertise. We've been in this business for over 25 years. Our CTO is most probably the most well-known engineer of remote monitoring in the industry. And so we think we're very well positioned in the industry to grow. On Page 13, just a snapshot of our balance sheet. As you can see, we have $2 million of cash, no debt, very clean balance sheet, which hopefully, we can use that maybe in addition to some other funds to make some accretive acquisitions. We have $70 million of NOLs that will certainly protect our income going forward -- especially with the potential for an increase in corporate tax rate makes that a little bit more valuable. On Page 14 is just our leadership. I'd just like to say that I've been working with Tracy Clifford on and off for over 20 years. And in my 40 years of experience interacting with CFOs and COOs, I can unclearly say that Tracy is the best CFO and COO that I know. We're fortunate to have her working for Acorn and OmniMetrix. On Page 15 is just an investment summary. The multiple revenues, we think, is low for our company. Our business is well positioned for growth because of the size of market and trends within those markets. We have strong technology and new products coming -- that have come and are coming. We have a large customer base, strong balance sheet. And the insiders owning as much stock as we have, we're certainly committed to growing value for our shareholders. Slides 16 through 19 are just things that happened historically with the company prior to new management team taking over and things that we've done since 2016 to improve the company. I don't think that is important for the company going forward, but the people who want to have a little background on the company, that's Slides 17 through 19. So that is a very quick run-through of the company. As I said, most of you know what the company is already, but I will leave it -- I will now leave open the floor for some Q&A. I would want to say one other thing and that is that today, after the close of -- probably tomorrow morning prior to the open, we will have a press release out. I had tried to get the press release out prior to the annual meeting, but I was unsuccessful in doing that. And the press release will just talk about a customer of us -- of ours -- a small customer of ours that has increased dramatically the number of units that they're going to buy. And we think, obviously, that that's significant and something that we should issue a press release and an 8-K about. So stay tuned and keep your eye open for that. I'd now like to open it up for questions and hopefully, we have some answers for you.

[Operator Instructions] And let's see, we're going to start here with Joel Sklar. And Joel, if you could unmute. [Operator Instructions]

Okay. And thank you, Jan, for -- that you and your Tracy and team have done a tremendous job. Very happy with my ownership of Acorn. So thank you for that. I'll start off and also for those, where this is irrelevant [indiscernible] or happy, healthy new year. A couple of questions. First, can you give us some idea of what traction you're getting with new products relatively new, like the air compressor market and annunciators? And on the same theme, you announced the new product in the last quarterly call. Really not a lot of information or any questions on it. I'd like to get a little bit more color on it. I think it was with air conditioning turn on or something. So if you could provide a little color there, it'd be greatly appreciated. I'll go back on mute for now.

Okay, Joel, thank you very much for your wishes. On -- in terms of the new products, our new products are doing okay. They're not doing phenomenally well. They're doing okay. In 2020 and even in the year of 2021, because of COVID, travel has been much curtailed. And for a new product, you really need to go out and sell it and demo it to your customers. So that's been a little bit of difficulty. Our basic products, everybody knows what they are and everybody uses it. So in 2020, the COVID year, our sales were flat, which was very good compared to most other companies that had down sales because people knew what the product was. But for new sales and for new products, 2020 and beginning of 2021 was difficult. So we have -- we're certainly making sales of it, but not at the rate that I would have liked to see coming out with a new product. And we expect that adoption of the products over time, sales people are traveling, et cetera -- or traveling more, I should say, we think that will continue to grow nicely. In terms of the new product, I just mentioned that the product is in the cathodic protection side of the business. We're beta testing it right now with 4 of our customers. And I would rather not say what it is. Let me say, this would be the first product of its type in the market. It's a competitive market and so I don't want to say exactly what it is right now. But it should -- it is a good product. It's unique, and I have high hopes for it.

Okay. We're going to go next to -- just bear with me. I'm not so great at this part of it. But we're going to Maj Soueidan. Excuse the mispronunciation. I'm going to -- are you unmuted?

Yes. This is Maj Soueidan from geoinvesting.com, which is a research firm out of Philadelphia. At this time, thanks for doing this, man. This is awesome. I have one question for you actually. If there was anything that you could do better at the company, that you could do right now, what do you think you could do? If there's some room for improvement that can help move the company moving forward?

I would like to make an acquisition. I think internal growth, we are set with. My goal has been to make an acquisition and -- for the company because I think value -- the larger you are in this segment, the more value you're worth. So I'd like to become bigger, both internally and through acquisitions. And I've been unsuccessful so far in doing that. Not for lack of trying, but part of it, I think, is my fault because for people who know me, I'm generally more of a value individual. And the multiples in this sector are very, very high. And our stock price does not reflect those multiples yet. So therefore, it will be dilutive to our shareholders for me to go out and make an acquisition like that. And then part of it is just I'm going up against -- for example, we bid on a company and I have been outbid by over 50% by PE firms, people not using their own capital to make the acquisition. So if I would like -- if there's something that I would like to do better, I'd like to make an acquisition and a smart one.

Also -- and if you could do that, are you looking particularly for just [indiscernible] something for you? Would it be new product? Would it be geographic diversity? What would it be?

It must -- if I had my choice, which I don't necessarily know that I'll get, it would be a new product in the commercial and industrial area. We think commercial and industrial has significant growth. It's somewhat less competitive than the residential side and so it would be commercial and industrial and a new product. In our existing products, I think we're well positioned. So my first choice would be new product line, commercial and industrial applications.

Okay. We're now going to go to Shai Dardashti , if you could unmute.

Okay. Great. So I'm a private investor in my own capacity. I have a few questions. Regarding the organic growth going forward, is this taking market share? Or is this fresh market adoption?

We think, by and large, it's fresh market adoption and a little bit is market share.

And then I previously was a shareholder in Telular, which had a subsidiary called TankLink. Is TankLink an appropriate mental comparison or very apples-to-oranges situation?

So TankLink, in general, would be a good comparison thinking about monitoring an IoT. So generally, propane tank monitoring and oil monitoring tanks is a lower-margin business than what we do. For example, most tank companies charge, let's say, $350 a month for monitoring. Our average is $10 a month. So in context -- and certainly, I'm sure you can tell from what I'm saying, is that I've certainly looked at companies in the area for acquisition. But it's -- so in context, it's -- it would be a fit. But I think we would be lowering our margins and our monthly by going in that area.

Can you speak a bit more about the reverse stock split authorization, the bigger picture strategy and possibly uplifting conditions?

Yes. So our shareholders have given us the reverse spread -- the reverse stock commission now for 4 years. We haven't done one because in general, I'm not a fan of reverse stock splits. The only area that I am a fan of it is if it's in conjunction with some positive news and a bigger event. So at some point in time, it is my hope that we will become NASDAQ listed and that we will be a share that institutions would be interested in buying, and having shareholder permission for a reverse split gives management that flexibility.

[Operator Instructions] Just before I -- the one thing I'm supposed to do here is read the safe harbor statement. I didn't do it. So certainly, anything that was discussed here in the presentation by Jan or in the Q&A, these may be forward-looking statements, and they're subject to the various risks and uncertainties which may actually -- which may cause actual results or performance to differ from expectations. These risks are summarized in our 10-K and 10-Q filings. I see I have one raise -- we have a couple of raised hands here, but we'll go to K. Goodman. And I'm not sure, I'm sorry, I don't have the first name on the listing, but you can go ahead. Please introduce yourself.

It's Keith Goodman. I'm from Maxim Group. Just a quick question. You had, at the beginning of the call, mentioned your expectations of growth from 20% a year for the next couple of years. And then you mentioned a new customer who's been giving you some new business. And at the same time, a little disappointed with new products just because of a lack of salesmen to be on the road during COVID. And I was just curious if that new customer and the slow sales from new products are accounting or if you're modifying your expectations of 20% growth or if you expect more or less or whatever.

So we've put out that we expect to grow at least 20% a year. Since you were on the second quarter call, I believe, that our cash sales for the first 6 months was up 23%. So I certainly hope to beat the 20% number, and that is taking into consideration the new customer and taking into consideration all the other factors. The only thing that's not taking into consideration is anything external, acquisition or anything like that. This is all internal growth. My goal is north of 20%.

[Operator Instructions] We have a question from Paul Lucat . Go ahead, Paul .

I'm interested in the air conditioning disconnect business. It's quite compelling with the situation with rolling blackouts. Who is the target customer? The utilities or the end customer, end user?

Well, it really depends. Most of our customers are the dealers. So the -- because the dealers are the ones that have the technicians to install the product. So our product needs some level of installation, whether it's on the generator, whether it's on a compressor, whether it's on an air conditioning. And so our dealers, the dealers itself, Generac, Kohler, Briggs & Stratton, they are our customers. So generally speaking, we do not sell to the utilities. We also don't -- the only area where we sell to utilities in the pipeline in the cathodic protection area, where we actually sell to the end users of a pipeline company because the pipeline companies have their own corrosion protection technicians that go out and monitor the pipelines. So they have the ability to put it, including our product. So there, we sell directly to the end customer. But on the PG side, the power generation side, we generally sell only through deal, unless there's a specific case. Disney, for example, wanted us to sell them the monitors for the generators at Disney -- at the Disney parks and they want it to come from us. Again, they have their own capability. Obviously, Disney parks has their own technicians so they can put it in. But by and large, we sell to the dealerships.

Okay. Well, one person in queue. We have Shai Dardashti .

I'd love to please better understand the employee equity ownership and also the employee incentives. Anything in those directions you could share?

Sure. So I'm not talking about top management. I'm just -- you want to know about the employees, correct?

Yes. Generally, how the salespeople are incentivized and how the frontline people think like owners.

So salespeople are generally -- they have a base, which I think is a fair base. I don't want to say a small base.

[indiscernible]

Sorry. I'm just going to mute all, and then I'm going to unmute you again. Okay. So salesmen have a base. It's a fair base, meaning it's not super small, but it's not large either. I think it's fair base and then commissions. So -- but overall, I would say commissions versus base for our salespeople -- for our top salespeople is -- base is 60%, then commissions 40%. The -- all employees have -- we have a bonus pool for all employees. We have a stock option plan for all employees, which we had for a couple of years. But we will give out options on Acorn Energy, but we found that they'd rather have cash in hand. So we rolled out a cash bonus plan that is dependent upon a percentage of revenue and a percentage of EBITDA of the company. And so that's how all employees -- the salespeople do not participate in that. All our employees participate in that bonus, and that is being given out quarterly. And then just the insiders obviously own a significant amount of stock, and just good operations presumably lead to increased stock value.

And the last question, can you speak to churn? When you do have any recurring revenue churn, what tends to be the commonalities or common drivers?

So in general, we had very little churn. We've in the past said that our renewal rate is over 90%. I would say, starting this year, we're going to have more churn in general because Generac is really trying to gain market share here. And so they are trying to encrypt their generators. So -- and also offering ridiculous prices like free monitoring, et cetera. So I think this year, we'll have -- this year and next, we'll have more churn. And then I think we'll get back to what we think is over 90% renewal rate. Historically, the -- a monitor, let's say, costs $200. The -- if the customers have put -- spent $200 for his monitor, he's not going to swap it out for a different model. Because the size of $200 is the technician cost -- the technician coming, removing one monitor and replacing it with another monitor, the technician costs of a truck roll is most probably close to $300. So once the monitor's in, it typically stays in there for at least 6 years.

Jan, I thought you said you do -- your monitoring does work on Generac.

Correct. It works on Generac, Kohler, Briggs & Stratton. It works on everything. So -- but Generac is trying to -- on the residential side, not on commercial and industrial. But on the residential side, they're trying to encrypt their machines to make it difficult for dealers to put in OmniMetrix. Historically, if you had a dealer at either -- and had -- a dealer had a choice to put in Generac's Mobile Link or OmniMetrix' monitor, the dealer would almost always choose OmniMetrix because the dealer does not want Generac in his business. I mean the dealer doesn't want Generac knowing who is the ultimate owner of that generator. So the dealer would always pick us over Generac's Mobile Link besides the fact that we have a better product and it's a premium product. But -- so Generac has been trying to combat that with encryption and much lower fees. And I think they'll pick up some share for the next year or 2 and then that will be it.

Didn't Generac try and make a deal with you?

We've certainly spoken to them.

There doesn't appear to be anyone in queue with a raise hand. So Jan, I'll turn it back to you.

Okay. So everybody, with that, let's wrap up today's meeting. Thank you all for attending. It's been a very nice attendance. If you wish to contact us, you can reach our IR team at (212) 924-9800. You can always call me. I'd love to talk to you, answer any questions. You can call Tracy. I look forward to seeing you all in person, hopefully, at the 2022 Annual Meeting and encourage you to participate in our quarterly conference call. Thank you all very much.

Thank you. We will now end the meeting.

Thank you.

Thank you. Bye-bye.