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

Okay. We'll start at a moment. Let's start on time. Jan, let's just allow everyone to come on. Anyone that did join obviously has the Zoom information. And if someone who's seeking that information, feel -- please feel free to forward that. And Jan, I think we can begin.

Okay. 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 2023 Annual Meeting of Stockholders. Thank you for joining us today. I also would like to recognize Mr. Joel Sklar, a long-time supportive shareholder, who is actually sitting with me in our conference room. I appreciate him making the trip down all the way to Baltimore. 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 Reactions button and then clicking on the raise hand option. I would like to introduce the other members of our Board of Directors: Gary Mohr, Michael Osterer, Peter Rabover and Dr. Samuel Zentman. Also joining us today is Tracy Clifford, our Chief Financial Officer; and the CEO of our OmniMetrix subsidiary; and Sheldon Krause, Assistant Secretary and outside counsel for the company. We also welcome representatives of our auditors from Marcum LLP and David Collins 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 will host and Mr. Jones will co-host the Zoom section. 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 3, 2023. I will direct that the affidavit be received and filed with the records of the meeting.

I am in receipt of the inspector's oath sworn 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 voting stock 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 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 is no need to vote now at the meeting. 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 5 persons listed in the management proxy.

Is there a second?

I second it.

Thank you very much.

That's close.

The next item of business on the agenda as set forth in the notice of meeting is Proposal #2, the amendment of the company's restated certificate of incorporation to authorize a reverse split of the company's common stock. Last week, the Board of Directors authorized and completed a 1 for 16 reverse stock split pursuant to the authority given to them by the shareholders at last year's annual meeting. In light of that Proposal #2 and related Proposal #3 will not be voted on. I will note that based on the vote received prior to the meeting, more than 96% of the approximately 28.6 million shares that voted in connection with this year's meeting voted in favor of giving our Board the authority to reverse split the stock. We will now move on to the next item of business, which is Proposal #4, the ratification of the Audit Committee's selection of our company's independent accountant for the year ending December 31, 2023. The affirmative vote of a majority of shareholders -- shares present and voting in person or by proxy is required for approval.

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

Is there a second?

I second it.

Thank you. 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 director compensation section of this year's proxy statement. While this vote is nonbinding, the company values the opinions of the stockholders and will consider the outcome of the vote when making future compensation decisions. The affirmative vote of the majority of the shares present and voting in person or by proxy is required for approval.

One second. I'll check it.

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

Is there a second?

I second.

Thank you. The next proposal is Proposal #6. In the advisory protocol, you can see the advisory vote on the compensation of the company's named executive officers. We are asking stockholders to cast an advisory vote recommending whether the advisory vote on the compensation of our named executive officers should occur every year, every 2 years or every 3 years. While this vote is non-binding, the company values the opinions of stockholders and will consider the outcome of the vote when considering the frequency of future advisory stockholder votes on executive compensation. A plurality of the shares present and voting in person or by proxy is required for approval of 1 of the 3 choices every year, every 2 years or every 3 years.

Mr. Chairman, I move the approval of Proposal #6.

Is there a second?

Second.

Thank you. We will now proceed to the voting on all proposals. Once again, if you go to 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 a record owner who wishes to vote who has not signed a proxy or who wishes to change their vote, may vote by phone or by calling (302) 265-0170, and someone will confirm your record share ownership and take your vote. I now declare the polls open for voting on Proposals 1, 4, 5 and 6, and previously stated Proposals 2 and 3 have been withdrawn and will not be voted on. Let's take a brief pause while we wait the results of the ballot. [Voting]

I think we can proceed...

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

Mr. Chairman, a count of the ballots has been conducted. On the basis thereof, I report that: one, a plurality of the issued and outstanding voting stock of the company has been voted for the election as Director of each of the 5 management nominees listed on the ballot. Number 2, Proposals 4 and 5 have both been adopted by the requisite majorities. Three, a plurality of the boats has been cast in favor or every year on Proposal 6. A full report of the balloting on each of the proposals will be submitted or included with the minutes of the meeting.

On the basis of the report of the Inspector of Elections, I hereby declare that the 5 management nominees for Director have been duly elected. Proposals 4 and 5 have been duly approved and a plurality of votes have been cast in favor of every year on Proposal #6. 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?

Second.

May I have a voice vote. We will briefly unmute everyone on the call for the voice vote. Unmuted. All in favor of the motion say aye. [Voting]

Aye.

Aye.

Aye.

Aye.

All opposed, say nay. [Voting]

Nay.

The Aye's have it, I declare the meeting adjourned.

I'm not happy about this Chairman.

About the adjournment?

Please carry on, though.

Thank you. Before proceeding to the presentation, I'd like to mention that certain of the statements which may be made in presentation this afternoon or in response to questions may be forward-looking and subject to various risks and uncertainties, which may cause actual results or performance to differ from expectations. A summary of these risks and uncertainties is included in our most recent annual report on Form 10-K and quarterly report on Form 10-Q. I will now proceed with my remarks and presentation, after which we will take your questions. So firstly, thank you all -- everybody, for joining today and for voting your shares. I'd like to discuss, first, the share -- the reverse share split, which we accomplished last week, explained a little bit the reasons behind it, et cetera. So we did a 1 for 16 reverse split. So the question is why now? So number one is, as many of you know, I felt that in order to accomplish a reverse split in a positive way, we needed 2 things. We needed some strong tailwinds and a positive future outlook because we've said in the past that many reverse share splits tend to lose value versus gain value and so coming off of a strong second quarter and first half of the year, I certainly think we have some good tailwinds behind us. We have a very strong balance sheet, which I think will carry us into the future. We've overcome a number of obstacles which we'll talk about. And the future looks very bright, which again, we'll talk about in more detail. So I think it was an opportune time to do it. And as many of you know, we've had permission from the shareholders to do this now for 4 years. But I think now was the right time to do within the Board of Directors to agree with that. You also know that we will repurchase any fractional shares from shareholders, and that will -- the exact number, et cetera, will be set forth in the next week or so. But again, it shows that the company feels very good about the future. Now the question is what did it accomplish? And so our main accomplishment is 2 things there. Number one is the stock over $5 allows institutions and regular investors to purchase stock more easily. We've gotten -- a number of our investors said that they would like to purchase stock, but there are brokerage firms that don't let them buy "penny stocks" and our $0.30, $0.40 stock certainly would fall into that category. And so we felt having the stock over $5 would broaden our potential investor base. And secondly, what we've said is that it's a first step to be listed on national exchange. That's our goal. As the company grows to be on a national exchange and certainly having a $5 stock or above is a step in that direction. So I've talked about overcoming some obstacles. And so as a small company, we sometimes feel the obstacles greater than larger companies, but the obstacles that I think over the last few years that we have overcome, obviously, COVID set many small companies back. We were an essential business, so we were able to continue to operate during COVID. And while we had supply chain issues, we've mitigated that by building up our inventory. So we were able to, I think, navigate that fairly successfully. We also had a 3G sunsetting. So as you know, this company has a 25-year history and it had a significant amount of 3G monitors out into the field and both Verizon and AT&T in 2022, stopped supporting 3G. So we had to change out all the 3G monitors that were there to either LTE or they dropped off. Many of you people know that we have approximately 90% retention rate, and that is because once -- one of our monitors is on a generator, for example, the economics are such that a dealer is not going to change out that monitor because just the technician hours and truck roll are much more expensive than the monitor or the monitoring fee. So that typically doesn't happen. However, when you have a switch over from 3G to LTE, that is an opportunity for -- and it's necessary for our dealers to switch over. So our competitor -- our largest competitor gave away a significant amount of monitors. And so that was -- it drove down our growth in the margin business per year. I'm happy to say that today, we have in place -- we've made up everything that they -- that we dropped over that period. And as you can see from our quarterly numbers, our monitoring business is now -- has been growing and now supersedes that what it was in the past. So I think we've done a great job in overcoming the obstacles. And I think a great deal or a reason for that is the personnel of our company. We have core people at our company to do a phenomenal job. And what we've done is we've hired a few other people and I think we have a phenomenal team at OmniMetrix. And I think really it's their credit that we've been able to overcome the obstacles and put ourselves on a growth path. So let's talk a little bit about our growth path and the future and why I think the future looks bright. And you've heard me talk a little bit about DR or demand response. And so what I'd like to do today is just give you an inkling of why I think this is so important to the company and why this is such a game changer. And so I'm going to give you a mathematical example of it and -- and you should not take this as this is what's going to happen because, obviously, I don't know what's going to happen. It takes execution. It takes time and takes education because our customers -- this is something that's brand new to our customers. And so we'll see how long the adoption takes. But everybody here has heard microgrids or if you haven't, it's a hot area where companies build power sources for companies that need the power and sell it to them. Sometimes you might have heard as energy-as-a-service and to build the microgrid depending on the size of the microgrid, can be $30-plus million to do. We have within us that capability for practically $0. And demand response is you all know that the grid and electricity needs today are somewhat suspect. We've had brownouts, we've had call for people to increase the thermostat because both solar and wind which are the source of energy out into the future, sometimes it's not sunny and sometimes it's not windy. So you can't always count on that to provide your energy needs. So demand response is in reaction to that. And one of the greatest sources of potential demand response is backup generators that sit idly behind commercial and industrial facilities, behind residential homes that are not on most of the time, unless there's a blackout. But they could be a source of power by taking that facility off the grid and allowing the grid to service other areas. So -- we, today, monitor approximately 800 megawatts of power in the commercial and industrial space. A number of the ISOs, those are the grid operators today, are offering anywhere between $50,000 to $70,000 a year per 1 megawatt of power, just to sign on to the program that if they need to call power, they can call your power. And there are 3 partners to this, there is CPower, which is the largest company connected to ISOs that are providing power they provide approximately 6 gigahertz of power to the ISOs. There is us, OmniMetrix because we monitor and control the generators. We can remotely turn on those generators anywhere in the world. And there's end user, the person who owns the generator or the dealer who sold the generator. So if you just say that there are 3 parties and each party deserves 1/3 of the $60,000 pie that is per megawatt. That's $20,000 a megawatt that would come to OmniMetrix. And let's just assume, and again, today, we -- one should not assume that we're going to go back to all the megawatts that we control and sign them up for this program. Do not assume that. But I'm just giving this to you as a -- to understand where we can be out into the future. So $20,000 a megawatt times 800 megawatts is $16 million. We've said that there's relatively little cost in this for us. There is administrative costs, and there's a few other software costs and -- but say that the margin is similar to what you make on our monitoring business, which is approximately 92% gross margin, and that comes out to $15 million of additional profit to OmniMetrix. And that's in addition to our base business, our monitoring business, which is a growing business. And we have $70 million of NOLs to protect against the income that we can make. And that is for a company that today after the 1 for 16 reverse split has $2.5 million. I think that bodes very well for where we could be if you look 5 years down the road to our company. So that gives you a sense as to why I'm excited about demand response. Another area that I think looks very good for our company is acquisitions. We've been looking for acquisitions for a long time, and we've been very selective in what we're looking for. We want to have something that is accretive to value. We want to have something that is synergistic, it has to have monitoring component. And I will say that as of today, we have a number of NDAs out. Again, I can't tell you that we're going to actually make an acquisition, but we're certainly looking at, I think today is a better time than we've ever seen for us to be able to make acquisitions. So -- and that's a kind of a summary of what's going on for the company. I think the future is very bright. And with that, we will now proceed to Q&A.

[Operator Instructions] Joining me to help answer some of your harder questions is Tracy Clifford, the CEO of Acorn and the COO of OmniMetrix. [Operator Instructions].

I don't see any hands raised yet. By the way, Jan, just don't want to -- I think in the last part of your presentation, you mentioned for a company with 2.5. I think you meant safe 2.5 million shares, you said $2.5 million. So...

2.5 million shares. Yes. Thank you.

[Operator Instructions] I see one hand.

You see a hand. Okay.

Richard Sosa. Richard?

I just had some more questions on the demand response. So that 800 megawatts of power in the commercial industrial space that you monitor. How much do you think that's growing per year?

We think that can grow well in excess of 20%. I mean if you look at our business today, residential, commercial, industrial, commercial industrial is really the growth arm residential because of higher interest rates. Just homeowners are not putting in a $50,000-plus item today.

And I guess, are any of your customers, the end users connected to these ISOs currently?

No, it's very difficult. I'm talking about the dealers. You might have some larger corporations that are connected, but they're not connected directly to the ISO, so they might be connected to CPower. Because in order to be connected to the ISOs, you have to have special software, and you have to pay the ISOs in advance. There's some big barriers to entries to be involved directly with the ISOs. So CPower, should we have some -- maybe some very large commercial industrials might go directly with CPower, but by and large, all of our customers, which is why CPower, went and did deal with us is the dealers don't have that kind of size to do that.

And then as of today, are you generating revenue from a demand response program?

No. We've just started signing up. We signed a deal with CPower at the end of last year. We needed to upgrade our software in order to connect with them and connect with the customers in an efficient manner. And so we've just started -- so we have a couple of people signed up and now they have to go to their customers, sign them up and then we go to the ISOs with them and then revenues begin to start.

My last question, Jan, do you...

I just want to say -- so don't expect this, there's an education process. So our shareholders should not expect that tomorrow there's going to be just an avalanche of customers signing up. I think it's going to take a little bit of time. But I think once people understand it and are educated about it, the growth will come very quickly.

Okay. Great. And my last question, do you think -- I know you might not be able to answer this, do you think you might be able to generate some revenue from this demand response program in this calendar year 2023?

No. We've said that it most likely will be in 2024.

Okay. Dean Avrahami?

I have a couple of questions. My first one is about the education process. Is the entire burden of educating the customer base on OmniMetrix? Or do the other stakeholders also taking on themselves to educate?

So CPower is joining us in that education process. I might have said it at a -- maybe at our quarterly conference call that the big generator show is October 1 and 2 in Austin, Texas, EGSA and we will be presenting with CPower there. We have a big webinar with all the attendees. And then at our booth, we will have our booth, CPower will be at our booth. So we are -- the education process will be, CPower will take some of the burden. Some of the burden will be on the dealers because the dealers have to sign the people up when they sell the unit. So if you look at, let's say, one of our dealers in Texas, who we've signed with and you go to their website, you'll see that they have OmniMetrix on their website very clearly. So the dealer is as well, but -- so I think it's a combination of all the 3 parties that are involved will have some education process to do. We have to do it to the dealers. The dealers have to do it to their customers and CPower, hopefully does it to both. There's one other party and that is the ISO, for example, ERCOT in Texas, we've been talking to them about chipping in on some of the marketing and education process. We'll see what happens there. So far, nothing has happened.

Okay. And my other question is about your cathodic protection monitoring business. How do you feel about its future? I mean I feel like it just doesn't get a lot of love in the press releases or in the marketing or just tell us what you think.

So look, the way our company is structured 85% of our revenue comes from power generation and 15% comes from cathodic protection. So just by nature of that, they don't get as much airtime. You've heard me say that we have a new product there called the RAB, which we are in trials for some of the very large gas pipeline companies, we'll see how those trials in. Again, there's a long sales cycle for the large utilities. So I mean, I have a positive outlook, but just by virtue of its size relative to our company and the DR potential, it doesn't get the airtime. I wouldn't say it doesn't get the love. I said it doesn't get the airtime.

Sheldon, I think we have hand raised by Mr. Bradley Schultz.

Yes. I was calling him, but I forgot to unmute myself. So Bradley, please go ahead.

Yes. Thanks for the great job communicating to shareholders. My question is about the 800 megawatts that's monitored, how much of that can be sold back to the grid?

Well today, none of it. So I mean, we don't have any contract with them with the people. So as of today, none. And then some of them are -- might be in locations where the various communities don't allow backup generators to run for environmental reasons. So as I said in the beginning, I don't count on the 800 us going back and signing all of them up. It's just given as a sign -- as the size of what we do, having 800 megawatts is not a big deal. We were already there. And I would expect over the next few years as DR takes off that some of those will go on to DR, others will not, and we'll add some more. But I would not count on the 800 as going on to DR today.

Next question is from BJ Cook. You can unmute.

Just one quick one. Demand response has been around for several years now. Just I guess my question is, what is it that changed that made OmniMetrix services required for? Or what gives you confidence that this is a big market for them? What changed within the demand response program that gave you this opportunity?

So a couple of things. Firstly, I think that -- just the need for electric power continues to grow with EV vehicles, with people working at home, I think just the demand for electricity continues to move up. I think the closure of fossil fuel power plants has driven the supply side down. So a combination of increasing demand, lowering of supply has made the issue a significant issue for the ISOs. So while in the past, they might have gotten away with paying you $10 a month to lower -- to increase your thermostats as a demand response mechanism, today, they need much more than that. So I think that, that is number one. Number 2 is that just generators and the new generators, which are environmentally friendly has opened up the market that these units can be used as backup power. So I think that also has helped. And so just in general, the demand requirements, better units out in the marketplace is fueling things that haven't been the case in the last 3 years. And I think we'll continue as EVs move in the marketplace, I think that demand for electricity is going to just continue on.

Next question is from Jason [ Mulligan ]. You can unmute.

I'm just curious if the demand response if that would be something in the future that would be like a default option with new sales down the line? Or can you speak to that, please?

Jason, I don't understand the question. I didn't know when you say default sales, what is that -- what are you referring to?

So new sales, how you default people and take advantage of nudge characteristics where it's automatically being done on new sales in the future?

Okay. So I mean, firstly, the purchaser of the generator has to sign on to the program. So it can't be done automatically. He's got to sign on to the program in order for him to get money from us or really from the ISO through us. He has to sign up to the program. He has to make certain commitments. He has to commit that his generator can be run remotely automatically at the time that is required. He has to commit that the generator has a service contract on it in order that the generator will work when it's required which is one of the reasons why dealers like this is because they will be able to sell a service contract with a generator. So there's nothing I can't do anything without somebody signing on. It's not like I can just automatically go in, even though I can control his generator, I can't just automatically do it without them signing on at the beginning when they either purchase the generator or they just sign on to the program.

Right. So it's not so much as -- you can't make a default option, but it's removing all the friction and the incentive with the dealers.

That's correct. I have a question here from Joel Sklar. Joel?

Okay. Thank you, Jan. And 2 questions -- so actually, the first one is -- sort of leverages off the last question a little bit. Now you talked about how the demand response will provide financial sort of windfall for us in terms of the greater profitability, but won't it also increase the uptake of monitoring because of the financial benefits to the end user? So right now, when you've talked in the past about monitoring only has a certain fairly low percentage of the generators, but won't -- can't this potentially greatly increase the amount of customers who want to sign up for or monitoring because of the benefit through demand response?

Okay. Did -- Bill, did you hear that question? So I can just go right to the answer. Do you want me to repeat the question?

We heard it. We all heard it.

So the answer to the question is yes. It should help spur monitoring sales and it will help spur our monitoring sales because you can't sign on to any program without having a remote monitor on your generator. So whether it's ours or competitor -- and right now, there's only one competitor that is in the marketplace that can do exactly what we do and that's Generac. It will spur sales of monitors, 100%. And so -- and that's why in my remarks, I said, besides the DR, also it's on top of the growth of the monitoring business.

Okay. One additional question. So when you mentioned the 800 megawatts in power. Now you've also mentioned that the -- it's only the newest generation of generator that can accommodate. So will there be ability eventually then to retrofit the older generators to accommodate demand response through the monitoring, especially for the C&I market?

Okay. So just to be clear, the 800 megawatts is only C&I. I mean, I did not have -- we monitor more than that in the residential field, but I'm focused on the C&I side of our business for demand response because they have the larger megawatt units. So the question is, can we go, which is similar to Bradley's question. Can we go back and retrofit those units? And I'll say is some of the units don't even need retrofitting. And other units, I don't think that we're going to go back and retrofit. What we're hoping to see again is, again, our customer is the dealer. So what we want to see is the dealers be successful. And that is that, let's say, a user today has a 200-kilowatt generator sitting his back and that powers his elevators, his lights, his computers, but it doesn't -- but it does not power, let's say, is production lines. Okay so that he will say to himself, you know what, I'm going to get myself a 500-kilowatt unit, a brand-new one that can power my entire facility. And I can put it on to the -- I can put it into DR programs so I'm going to get some money back. And so therefore, I can afford to do an upgrade of my generator. So what we're hoping to see is that people upgrade their generators and the dealers therefore make money as they sell a new generator. And that's why I'm saying, I'm more focused on new generators and the growth they're in versus going back to the 800 that we have today. Some of them, I'm sure we will do, but I don't know what the amount would be.

Okay. If there's no further questions, I have a question that was e-mailed from a private investor, Bill C. He's also a shareholder. And concerning the demand response program, is it CPower and/or Acorn going to market this program to the dealers? And approximately how many dealers are candidates for participation?

So it's similar to the question before that I think one of our shareholders asked about the education process. So it's really both are going to be involved in the education process, but it's Acorn that's going to the dealers. So CPower is not going to be calling on dealers selling anything. It's going to be OmniMetrix flowing on the dealers to sell the monitoring and signing up for the DR program. And in terms of number of dealers, it's hard to say because, for example, we have -- we're in discussions right now with the dealer that has over 80 different locations. So do you count that as one or do you count that as 80 because the kind of the pound company makes the decisions for all the smaller units. So there are a lot of units, there are a lot of companies out there, but we're focused on the bigger ones. And the single -- I don't want to say the single electrician, but the electrician in your neighborhood who might have put your generator in is not the guy we're focused on. We're focused on the big guys who are generally our customers anyway. But we call on a significant amount of dealers in this business.

Okay. Thank you. And I see no further hands raised, but if anyone else has a question, if they want to unmute themselves, please do so now.

Okay. With that, let's wrap up today's meeting. Thank you all for attending. If you wish to contact us, you can reach our IR team at (212) 924-9800. I look forward to seeing you all at the 2024 Annual Meeting. And hopefully, everybody will join us for our quarterly calls. Anyway, and Tracy and myself are reachable, if you have any questions. Thank you all very much for attending. Take care.

Thank you.