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Acorn
Energy
Acorn
Energy Conference Call
Tuesday,
July 12, 2016, 4:15 PM Eastern
CORPORATE
PARTICIPANTS
Jan
Loeb -
Chief Executive Officer
William
Jones -
Investor Relations
PRESENTATION
Operator
Good
afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Acorn Energy Conference Call. During the presentation,
all participants will be in a listenonly mode. After the speakers’ remarks, you will be invited to participate in a question
and answer session. As a reminder, ladies and gentlemen, this conference is being recorded today July the 12th,
2016.
I
would now like to turn the conference call over to today’s host, Mr. William Jones, Investor Relations for Acorn
Energy. Mr. Jones, the floor is yours sir.
William
Jones
Thank
you. Before we begin, I would like to review the ’Safe Harbor’ statement. Many of today’s statements made in
the prepared remarks or in our responses to your questions are forwardlooking. These statements are subject to various risks and
uncertainties, including the resolution of final payments to GridSense creditors and the resulting cash available to Acorn.
Further,
the performance of our operating companies in 2016 and future years are subject to various risks and uncertainties, including
risks associated with executing Acorn’s new operating strategy, meeting performance milestones, risks associated with conducting
business with government customers, including possible cost overruns on fixed price projects, and our success in driving growth
in our core business, as well as progress in executing cost reduction initiatives.
Such
forwardlooking statements are made based on management’s beliefs, as well as assumptions made by and information currently
available to management, pursuant to the ’Safe Harbor’ provisions of the Private Securities Litigation Reform Act
of 1995. There is no assurance that Acorn or its operating companies will be able to achieve its goals for growth in 2016 and
future years.
The
company undertakes no obligation to disclose any revision to these forwardlooking statements to reflect events or circumstances
after the date made. A complete discussion of risks and uncertainties which may affect Acorn Energy and its subsidiaries is included
in the risk factors in the company’s Form 10K filed by the company with the Securities and Exchange Commission.
And
with that, I would like to turn the call over to Acorn’s CEO, Mr. Jan Loeb. Jan?
Jan
Loeb
Thank
you, Bill, and thank you all for joining today’s call on fairly short notice. Once again, I will focus my prepared remarks
on a few key issues, so that we can move directly into the Q&A session.
On
our April call, I highlighted our mission and three principal goals in that delivering improved operating and financial performance
and creating value for shareholders. These areas of focus are; one, to shore up Acorn’s immediate financial position
and derisk the business while also fueling our working capital.
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Two,
to rationalize our disparate operations and focus on profitable growth in an effort to turnaround our disappointing operating
performance; and three, as Acorn is a publicly traded company, to focus our initiatives with a greatest potential to create
value for Acorn shareholders.
Today’s
announcement of the closing of our sale of our GridSense assets delivers very solidly on these goals. And I am proud that we have
been able to accomplish this asset sale in less than three months time. I hope this provides some confirmation of the urgency
we feel in taking decisive action to move this company forward.
Now,
let me briefly review the transaction announced today. But first, I would like to reiterate that the decision to sell the GridSense
assets was made after a thorough review of all possible alternatives and attempts to turn it around, as GridSense has been a significant
drain on Acorn’s resources and management focus for many years.
In
our review we came to realize that we had neither the time to capital nor the resources required to turn the business around,
so the only path forward was through liquidation. Even though we recognized that there were many good things about the asset and
their potential. And effective in our first quarter we accounted for GridSense as a discontinued operation.
Today’s
sale of GridSense asset to Franklin Electric represents the best possible outcome for our company, and GridSense is now partnered
with a company that is committed to serving the utility industry and is a proven leader in this space. And they have agreed to
hire back some of our previous employees.
Importantly,
we were able to secure gross proceeds of $1 million for the GridSense asset, which we believe represents an excellent outcome
given the situation. This divestiture effectively holds a persistent cash drain from Acorn and also provides additional working
capital that we can focus on our OmniMetrix remote monitoring operations.
The
exact scope of the proceeds to be received by Acorn will be resolved over the next few quarters by the independent liquidation
officer that is managing the resolution of credit obligations. Any monies that will be received will be recorded as a gain on
the assets which were written down to zero in the first quarter of 2016.
In
summary, this transaction is significant both in its positive impact on our operating income bottom line result, as well as from
its contribution to our working capital position to strengthen our ability to drive growth and improved financial performance.
We continue to believe that our monitoring subsidiary, OmniMetrix, can grow at a 25% per annum rate or better and that is progressing
well towards achieving profitability on a standalone basis corporate overhead.
In
addition to our improving balance sheet, I should remind investors that Acorn has more than $60 million in net operating loss
carry forwards, a valuable asset to offset future federal income taxes if and when the company returns to
profitability.
We
believe Acorn has an attractive portfolio of business assets that with some proper management discipline are in the
aggregate worth substantially more than our prevailing public market valuation. Our goal is to help the company realize this
potential and we feel that today’s closing is a significant step in the right direction but we are not
finished.
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Before
we move to our Q&A session, I also wanted to discuss a few proposals that are being put forth to our shareholder vote at our
fastapproaching Annual Meeting on July 21st. It is very important that shareholders take the time to consider our proposals and
vote so that your pointofview is reflected and will help shape our future.
While
several issues are normal Annual Meeting issues, of particular note are two particular proposals; one is, the approval of
a reverse split authorization that will give our board the ability if and when our share price and market conditions warrant such
an action to affect the reserve split between 1 for 10 and 1 for 20. And to be clear, this shareholder authorization provides
the board with the option to affect reverse split over the next year, but there was no requirement to do so, should it not make
sense for the Company and its shareholders.
Keep
in mind that our goal is to grow, return to profitability and ideally to use our stock as a currency for acquisitions. However,
we believe that the attractiveness of our stock as a currency is directly related to the share price and the exchange on which
it trades.
A
reverse split can provide the mechanism by which we increase our share price and position Acorn for an uplifting far sooner than
it would otherwise be possible. This is the board’s rationale and seeking shareholder approval of the reverse split authorization,
but we will only proceed with the split in conjunction with continued progress in business fundamentals. And we are clear that
reverse split would only make sense, if it can be achieved a share price that would better position Acorn to achieve growth and
shareholder value objectives, which is our focus.
Secondly,
we are also asking shareholders to authorize the potential future issuance of up to 8 million shares of preferred stock. Our rationale
and seeking disapproval is to provide Acorn with the option to raise capital to be a preferred stock offering. Such capital would
be used to fund growth initiatives and acquisitions, because preferred stock is treated differently than common stock, its issuance,
unlike that of common stock, would not jeopardize, the value of future use of our substantial taxloss carryforwards which are
among the most significant assets of our company.
So
we view the preferred shares as a potential funding source that provides the company more flexibility to fund potential acquisitions
without jeopardizing our NOL. And again, we would not issue any of these preferred shares unless we have an acquisition in mind.
Management
goal as a group and my interest personally are in line with shareholders, and that is the impetus and rationale for these proposals.
And we welcome your comments on these issues and keeping with SEC regulations, concerning proxy communications Acorn plans to
file the transcript of today’s conference call as an exhibit to our proxy statement.
And
with that operator, let’s open the call for investor questions.
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QUESTIONS
AND ANSWERS
Operator
Thank
you, sir. We will now begin the question and answer session. To ask a question you may press “*” then “1”
on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If anytime your
question has been addressed and you like to withdraw your question, please press “*” then “2.” Again,
it is “*” then “1” to ask a question. At this time, we will just pause momentarily to assemble our roster.
Again,
if you would like to ask a question, please press “*” then “1” on a touchtone phone. Again, that is “*”
then “1.”
We
have a question from Milton Aronowitz, of Wells Fargo Advisors. Please go ahead.
Milton
Aronowitz
Hi,
number one, with the sale of GridSense and what you got in DSIT, do you feel you have enough capital to generate growth for the
rest of the year, and in the next year? And then number two, do you foresee OmniMetrix being cash flow positive in the fourth
quarter or by the fourth quarter?
Jan
Loeb
Hi,
Milton, we hope to see OmniMetrix cash flow positive by the end of the fourth quarter.
Milton
Aronowitz
Right
Jan
Loeb
And
in terms of the sale, if I understand your question correctly, with the proceeds from the sale of DSIT, which we accomplished
at the end of April.
Milton
Aronowitz
Right
Jan
Loeb
And
the assets and the net proceeds that Acorn will get from the GridSense asset sale. That will carry us through the end of the year,
the answer would, be yes.
Milton
Aronowitz
Okay
Jan
Loeb
Will
that be enough to fund growth initiatives, such as acquisition or the like, the answer for that would be, no.
Milton
Aronowitz
No,
well that’s why you issued the preferred. But getting back to the reverse split, I would be against that, because there
will be absolutely no liquidity in stock, I mean, we have only got up till what 40 million shares out, you reverse split it, we
got 4 million shares. Nobody will buy the stock and nobody can sell it, there will be no market in it that will be so illiquid
that it just doesn’t make any sense really.
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Jan
Loeb
I
would beg to disagree with you in that, number one, liquidity, just the number of shares in and of itself is not the answer to
liquidity, it’s obviously market value, is liquidity. Nobody says that Berkshire Hathaway is illiquid, because it’s
a combination of number of shares outstanding and the market price.
Milton
Aronowitz
Right.
Jan
Loeb
So
firstly right now as of today just so we have approximately 30 million shares outstanding today.
Milton
Aronowitz
Right,
so you reverse split it, you would have 3 million shares, and nobody is going to buy it.
Jan
Loeb
I
would beg to differ. If the company is doing well and the prognosis of the company is positive, which obviously we think it is,
we believe people would definitely buy the stock because people quite are…
Milton
Aronowitz
How
are you going to buy it, I mean there will be no shares outstanding?
Jan
Loeb
As
I said in the case of Berkshire Hathaway there is…
Milton
Aronowitz
Well
they’ve got a lot of more shares out than 4 million shares, or 3 million shares.
Jan
Loeb
Well,
that’s today. But, if we make an acquisition; if we do something with the preferred, I think you…
Milton
Aronowitz
Well,
that’s different, the preferred is different, right.
Jan
Loeb
I
don’t believe liquidity will be our problem. I think execution is what we need to do, and I think if we execute…
Milton
Aronowitz
Well,
that’s yes.
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Jan
Loeb
…I
think if we execute properly, there will be many people who will be interested in buying the stock.
Milton
Aronowitz
Okay.
Thank you.
Jan
Loeb
You’re
welcome.
Operator
Again,
as a reminder, if you like to participate in today’s Q&A, please press “*” then “1” on a touchtone
phone. Again, that is “*” then “1”.
Next
is Michael Osterer of UE Systems.
Michael
Osterer
Yes,
hi Jan, and good afternoon to anyone else who is there. First, I want to acknowledge you, you have come in and it seems like you
are executing on what you said you would do. I am an old loyal shareholder of ACFN, as you well know. And I would suggest possibly
one of the larger ones, if not one of the larger ones, I have no idea what other people hold. So, I am willing as I have said
before to contribute any expertise I have to the board, and I would like that to be known, and as you say this is a transcript?
And number two, I want to the fellow shareholder Milton I thought it was a good question, and I would want to know would that
be put up to a vote now is how it goes, correct? You are asking for the vote to reverse split the stock at this time, at anytime
during the next year when you find it prudent and necessary to do? Is that correct?
Jan
Loeb
Correct,
we are asking for permission from our shareholders to give the board the right, some time over the next 12 months, should the
board deem necessary and beneficial for the company to allow the company to do the reverse split. That is one of our proposals.
Michael
Osterer
And
my other question is regarding, at this point in time, does anyone have any options to purchase more stock you used to give them
the prior CEO John Moore and other Officers and Directors were granted options. Can you tell me what’s up now, if any?
Jan
Loeb
Yes.
There are still options outstanding. I mean, once they were issued, you can’t take them back. So there are options outstanding,
but they are almost all at significantly higher prices and where the stock is today. I have a few, obviously as I came on to the
scene a little later, I have about 60,000 options at lower prices, so that’s basically it. All the other options that are
outstanding that have been given out and accumulated over the years are at significantly higher numbers.
Michael
Osterer
So
in your estimation at this point in time, when you use 30 million shares, that’s in the ballpark?
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Jan
Loeb
Yes.
That is the fully diluted number of shares using the treasury method of the options outstanding.
Michael
Osterer
Thank
you.
Jan
Loeb
Thank
you, Michael and thank you very much for your long time support and continued support.
Operator
And
Mr. Loeb, Mr. Jones, there are no further questions at this time. Would you like me to give the instructions again?
CONCLUSION
Jan
Loeb
I
don’t think that’s necessary. As anybody contacts us post the call. So first, let me just give some closing remarks.
I like to thank everyone for joining us today, and while we expect a very modest turnout at our Annual Meeting, each and every
shareholders welcome to attend, again it’s on July 21, in Wilmington, Delaware. But if possible, we do ask that you let
us know if you plan to attend so that we can be sure to accommodate all attendees.
As
the CEO of Acorn, I am very focused and incented on realizing the potential of this company for the benefit of our employees and
stockholders. I do hope you can see the focus and drive in our actions over the past few months.
I
welcome your comments and questions, and I am available to speak with any and all shareholders who have questions. I ask you to
schedule such calls with our Investors Relations team with Catalyst Global. Their contact information is on today’s press
release. And people could feel free to call me as well. And with that, we will end today’s call. Thank you all very much.
William
Jones
Thank
you.
Operator
And
we thank you Mr. Loeb and Mr. Jones for your time also today. The conference call has now concluded. At this time, you may disconnect
your lines. Thank you again everyone take care and have a great day.
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