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

Okay. We can begin. I think everyone who was asked to come in, is in and, Jan, you can start.

Thank you. Good afternoon, ladies and gentlemen. My name is Jan Loeb. I'm the President and CEO of Acorn Energy. Inc. as well as a member of the Board of Directors, and it is my pleasure to welcome all of you to the 2024 Annual Meeting of Stockholders. Thank you for joining us today. To ensure a smooth running of the meeting, all Zoom and dial-in participants are now muted. [Operator Instructions] 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 COO of our OmniMetrix subsidiary; and Sheldon Krause, Assistant Secretary and Outside Counsel of the company. We also welcome representatives of our auditors from Marcum LLP: [indiscernible], and Willem van der Berg. And also David Collins and William Jones of Catalyst, our IR firm. I will act as Chairman of the meeting, and Mr. Krause will act as the Secretary of the meeting and Inspector of Election. Mr. Krause will host and Mr. Jones will co-host 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 mailing of notice of the meeting commencing on or about August 2, 2024. I direct that the affidavit be received and filed with the records of the meeting.

I'm 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 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.

We'll now move to the next item of business, which is Proposal #2, the ratification of the Audit Committee selection of our company's independent accountants for the year ending December 31, 2024. 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 #2?

Is there a second?

I second.

The next proposal is Proposal #3, 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 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 #3.

Is there a second?

I second.

We will now proceed to the voting on all proposals. Once again, if you vote it by proxy, we have your vote and your shares will be voted in accordance with your instructions, and there's no need to vote at the meeting. I now declare the polls open for voting on all proposals. Let's take a brief pause while we await the results of the ballot.

Mr. Chairman, we have all the votes that you can proceed.

Thank you. We will now close the polls and now call upon the inspector of elections to report the results of the balloting.

A count of the ballots has been conducted. On the basis thereof, I report that a plurality of the issued and outstanding voting stock of the companies have voted for the election as Director of each of the 5 management nominees listed on the ballot and Proposals 2 and 3 have both been adopted by the requisite majorities. 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 5 management nominees for Director have been duly elected, and Proposals 2 and 3 have been duly approved. There being no further business before the meeting, we will now adjourn the meeting. And I will follow with some discussions after the official part of the meeting has been adjourned. I will now entertain a motion for adjournment.

So moved.

Is there a second?

I second.

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

Aye.

Aye.

Aye.

Aye.

All opposed, say nay. [Voting]

The aye's have it. I declare this meeting adjourned.

Okay. Before proceeding to the presentation and questions, I'd like to mention that certain of the statements, which may be made 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.

Okay. Good afternoon, everybody. I will make some general statements and then open it up for Q&A. I don't have a script. So this will kind of be free-flowing thoughts about the year that we've just had since the last annual meeting. Since we just had our Q2 conference call a month ago, I thought I would focus my remarks more about overall items that we don't usually get a chance to when we're talking about quarterly updates. In addition, seeing that most of the people on this call are very familiar with the company, I thought that I would just give a very quick overview and then anyone who would like to go into more detail about company matters, feel free to call me or Catalyst IR. And certainly, we can go into a lot more detail about the company and its inner workings. So as you know, Acorn Energy has 2 divisions. One is power generation, where we supply a piece of equipment to generators mainly, although we do some other products as well in that category, and we sell it with monitoring. So we sell a piece of equipment, and then we also monitor that generator usually for many years. Our second piece of business is CP, corrosion protection. And there, we sell, again, a piece of equipment that is more expensive than our generator monitors. And that goes on and monitors a piece of equipment called a rectifier, which controls the electrical charge on a gas pipeline. All gas pipelines have an electrical charge running on top of the pipeline in order to prevent corrosion. And again, we sell a piece of equipment and then we have a monitoring fee, which is annual, could be charged quarterly depending on what the customer wants. So what makes our business, I believe, very attractive is the fact that we have an ongoing annual revenue stream from the monitoring that continues to grow, and it is at 90% plus profit margins. And equipment is at a 50% kind of profit margin. So overall, we have very high margins, 70% or so, and I think the company is poised for some exceptional growth. Since last year, I think the first thing that happened post our annual meeting last year was we did a reverse stock split, 1 for 16. The reason for the stock split was at least, I think the Board of Directors desire to get out of what I would call penny stock purgatory. Nowadays, penny stocks just have a bad reputation and I felt that our company certainly does not deserve that. And therefore, we decided to do this 1 for 16 reverse split. It also therefore, made our stock more eligible for institutions and other type of investors like that to purchase the stock. I have gotten comments that the liquidity of the stock by doing that, we certainly have potentially impacted the liquidity of the stock, being that there is now only about 2.5 million shares outstanding. My view on the stock liquidity, which might be different from a lot of other people, but guarded through 40-plus years of experience in the stock market is that liquidity generally finds itself when there's equilibrium in the stock price. Meaning if the stock price generally gets to approximately what people think the value of the company is, you do not have liquidity problems. You have liquidity problems when the stock price is significantly undervalued in the marketplace. And so therefore, you have a dearth of sellers in the marketplace. And I feel that, that is really what's occurring in our company. I think that many of you heard before that, our stock is undervalued. And I think that has impacted the liquidity of the company. I don't view that liquidity is a problem. And as stock price increases, I think you'll see much more liquidity in the stock price. So that was kind of the first major event in the year. Other things that have occurred is obviously some of the things which we have talked about on the call is just the movement and growth in generators. And in particularly, monitors of generators. So we've mentioned that the reliability of the electric grid has come every year into more question, especially now where there is more demand for electricity, whether it's artificial intelligence, EV, people working remotely, the demand for electricity has only increased and is slated to only increase further. And so therefore, the need for the reliability of electric grid is very important and with more solar and wind power going into the grid and they do not have the same reliability as fossil fuel, more and more people are opting to buy generators and then people, corporations, industry buying generators. And because the need for data and to make sure that their generators are going to run when they're needed, more and more generators are putting on monitoring and so therefore, we are seeing a significant amount of growth in our business. We also have, on top of that, the severity of weather events which you've seen, particularly in Texas and this last week in Louisiana, and that has also been fairly positive for our company. Within the company and other things that we've done is, I think we've had a reallocation of resources within the company this past year. We have doubled the size of our IT department and the IT department has focused on a number of items that we think are very important going out into the future. First, we've launched our second-generation product -- a software product called OV2, which we've had some very, very good feedback about. We've strengthened our cybersecurity significantly. Cybersecurity is a big item. And all our customers, especially the industrial and big customers are focused on that. And so we have significantly boosted our resources in the area of cybersecurity. Also, some of the attributes of our OV2 that we think we have today that our competitors do not have because their IT departments are significantly smaller than ours, now is what we would call air quality data. So we have mentioned this in the past that there are states that if you are -- if it's a bad air quality day, the states do not allow you to run your generator or exercise your generator. And if you do, you potentially get fined. With our software, if it's a bad air quality day, you cannot run your generator. Our software will not allow you to exercise that generator. Another area that we have focused on is demand response, which we've talked about on many calls, but again, that is something that we think, as a company focused on monitoring that we are leaders in that area. And then I think I can't -- not have a discussion about our big contract with a wireless operator for their cell towers. So what we've said in the past and what we said in the press release, is that this is a $5 million contract, and it's between 5,000 and 10,000 cell towers. What I would like to make clear is that the way we sell our product which many of you know is we sell a piece of equipment, and we sell our first year monitoring along with the piece of equipment. And that's no different here with this customer, and the $5 million that we've spoken about is just that. It's the equipment plus the first year of monitoring. However, we know that monitoring goes on for many years after the first year. We have a 90-plus percent renewal rate. So we have -- in the $5 million, I have not incorporated the many years into the future of the monitoring revenue, which will be significant. So people ask me what's going to happen after this agreement is over and what growth you potentially are looking at. And so one of the things is we still see, and that's what's great about our business, is the increase in monitoring fees because of this agreement. In addition, to the growth past this agreement, this particular company has many more cell towers than between 5,000 and 10,000 and hopefully, we'll do a very good job. In the 2 years that this agreement is focused on and that we'll get post that more of the cell towers. And we're certainly talking to other large companies about projects that we can do that -- now that I've mentioned about the grid and the need for data, et cetera, they are very interested in. So I feel confident that post this agreement, the company will continue to exhibit growth. I think that, in general, covers the year of what we've done that we don't generally talk about on our quarterly calls. And so what I'd love to do is open it up to your questions and see if I can answer them. So we will now proceed to the Q&A section.

[Operator Instructions]

We have a question from Jason [indiscernible].

Hello, Jan and everyone, thank you for the meeting here. I was wondering if you could discuss the competitive process for that $5 million win in a bit more detail? How or at least what you know or can share how many competitors, what were the key dimensions where you guys won on, whether it be price or some of the key features that won it for you? And also kind of the time line of when did that kind of kick off and how was that structured? Any details you can share? And there would be great.

Jason. Firstly, I can't tell you precisely how many other competitors. My sense is that there were 4 people in total, but I can't guarantee that. What I think made us win, obviously, price is super important. So you can't not say price. But I think that the company felt very comfortable in our ability for cybersecurity. It was a big ask by the company, and I think we passed all the tests that they wanted from us in that area. I think the ability to monitor any type of generator. I mean when you're dealing with between 5,000 and 10,000 cell towers, they have many types of generators sitting underneath the tower. So you need to have a monitoring system that can do everybody's generator. And I think we definitely can do that because, as you know, we're agnostic to the type of generator you have versus some of our large competitors that only do one particular type of generator, one brand of generator. So I think those -- I would think those are the 3 biggest items that allow us to win, and it took approximately 6 to 7 months, I think, from the request for proposal to getting the award. I hope that answered all your questions, Jason. Thanks. We have any other questions, please. Okay. Can we recognize Jason again?

Yes. I forgot to mention I'm a private investor. I've been a shareholder for not a long time, but not a short time either. I'm curious if you could tell us more how you think about the net operating losses and the magnitude of those? I know you've said substantial, but I really haven't delved into the numbers myself and kind of how you think about those more quantitatively?

What we've said and it's in public documents, that we believe it's approximately $70 million. And so we think that -- I mean you saw through the first 6 months this year that the company is profitable. And I think that starting in the second half, we will even be more profitable. So it's my hope that we use them efficiently and the sooner the better.

Yes. I'll go for one more, if other people aren't chiming in and this one is kind of out there. But I'm curious, over the years with the business, have you, particularly in like 2021, where things were haywire and everything was high valuations. Have you received offers to buy the business by any sort of private equity? I know right now, any offer would be too low at this point, but just curious how that's played out?

We have never received an offer by private equity or anybody else. Certainly, people have called and inquired, but that's as far as it has gone. We've never received anything nor do we have a sale process ongoing. So I mean obviously, we're a public company, and so we have to respond. But at this point in time, we've never received an actual offer nor do we have that process ongoing.

Just a quick one back to the cell tower deal. For the $5 million revenue estimate, can you break that down between hardware and monitoring revenue?

The answer is I can, but I won't. But I think that in general, if you're familiar with the company, you'll understand that our equipment sale price is significantly higher than our annual monitoring fee. So I think if you looked at it and said equipment in general is, maybe 4x to 5x what an annual monitoring fee is, you'd be in the ballpark. I'm not saying that, that's what this contract would be because there's -- obviously, there's size here. It's a very large contract. So they have a lot of negotiating leverage. But I think in general, if you looked at equipment versus monitoring in the PG space, you'd say, maybe 4x to 5x is what the equipment side is versus the monitoring side.

Rick, I'm just going to -- I don't know if you got a follow-up. I'm going to allow you to unmute again if you do?

No. That was helpful. I appreciate the time.

Okay. Anybody have any other questions, please?

[Operator Instructions] Joel Sklar.

Hi Jan. Jan, I know this isn't a big part of our business, but since we never talk about the cathodic protection element, is there anything that you can offer there as to any future growth there, any prospects or anything like that?

Sure. Thank you, Joel, for the question. So obviously, certainly with this large contract that we just received, power generation and everything that I've spoken about, power generation is the growth engine of the company, and it is 90-plus percent of the revenue of the company. So that's why I haven't really spoken much about cathodic protection. But what's going on in cathodic protection, as you know, is we came up with a product called the RAD. It was a first-generation RAD. We put that out in the field with some trials. We got back comments from customers as to what they would like to see in the next-generation RAD, and so we are currently working on that now, and that should be done relatively soon. So we have our core customers in cathodic protection. Hopefully, they continue to grow. And hopefully, with the new RAD, second-generation RAD, we'll get some traction there. But again, it's going to be relative to what's going on in power generation. It's going to be a small impact to the company.

Okay. Thank you, Jan. Maybe a second question, since there seems to be [indiscernible] here. Yes. Just I know today, you're not going to get much into the demand response, but can you just give us an idea that when you sell a new C&I account these days, sell a monitoring equipment, whether that's part of the conversation in terms of the future, especially if it's an account that has a lot of the newer generation generators that are equipped to handle the demand response. Is that part of the conversation at all in terms of the sales process?

So yes, I would say that it is part of a conversation in order that people see that we are thought leaders in what's going on in the industry. I don't think you should take away that when we sell a unit initially, somebody is going to sign on to demand response. It's an education process. So I think they look at us and we say that we have demand response capability, and they feel very good about that, and they think about maybe into the future when they are focused on demand response, they can use us and our monitor for that and that makes them happy. But we don't generally see that a new customer, a customer comes on board and says, I'm coming on board because you have demand response capability, and I want to sign up right now. That we're not seeing.

I don't see any other hands raised. [Operator Instructions]

Okay, seeing no more questions, 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 Catalyst IR at (212) 924-9800. I look forward to seeing you all at the 2025 Annual Meeting and encourage you to participate in our quarterly conference calls. And if you would like to call me directly by all means, we can set up a call and go through any detailed questions that you like. So thank you all very much. Enjoy the rest of your day.