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Edited Transcript of ACFN earnings conference call or presentation 18-Mar-14 3:00pm GMT

Q4 2013 Acorn Energy Inc Earnings Conference Call

Montchanin Oct 16, 2017 (Thomson StreetEvents) -- Edited Transcript of Acorn Energy Inc earnings conference call or presentation Tuesday, March 18, 2014 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Heather Mallard

Acorn Energy - General Counsel

* John Moore

Acorn Energy - President and CEO

* Jim Anderson

Acorn Energy - U.S. Seismic President and CEO

* Joe Musanti

Acorn Energy - COO

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Conference Call Participants

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* Jim McIlree

Chardan Capital - Analyst

* Bill Bremer

Maxim Group - Analyst

* Ted Liu

VSG - Analyst

* Bob Gesick

- Private Investor

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Presentation

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Operator [1]

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Good morning, and welcome to the Acorn Energy Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Miss Heather Mallard, General Counsel. Please go ahead.

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Heather Mallard, Acorn Energy - General Counsel [2]

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Thank you, and good morning, everyone. Please take note that certain of the matters discussed in this presentation contain statements that are forward-looking, such as statements relating to results of operations, financial conditions, business development activities and market dynamics. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of Acorn Energy or its subsidiaries.

All statements other than statements of historical fact in this presentation regarding Acorn Energy's or any of its subsidiaries' future performance, revenues, margins, market share and any future events or prospects are forward-looking statements. For more information regarding risks and uncertainties that could affect Acorn Energy's or any of its subsidiaries' results of operations or financial condition, please review Acorn Energy's filings with the Securities and Exchange Commission, in particular its most recently filed Form 10-K and Form 10-Q.

Acorn Energy's forward-looking statements are not guarantees of future performance, and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainties of estimates, forecasts and projections and may be better or worse than projected, and such differences could be material. Acorn Energy undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the presentation over to John Moore, President and CEO of Acorn Energy.

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John Moore, Acorn Energy - President and CEO [3]

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Good morning, and welcome to the Acorn Energy 2013 fourth quarter conference call. In 2013 we invested $17.8 million in cash in Acorn's four companies, as well as our corporate overhead. As a result of this investment, we now have three businesses that need minimal working capital support and have terrific growth prospects.

In 2014 only U.S. Seismic will require equity capital. We reduced current company overhead by 35% so that our 2014 corporate costs should run less than $3 million. Our plan for 2014 is to invest a total of $4.7 million in U.S. Seismic and, as needed, provide working capital loans to the other companies with the expectation they will be repaid by the end of 2014. So our $15.8 million of cash is anticipated to meet our expected needs for the foreseeable future.

Each of Acorn's businesses addresses a major macro trend. Now is when the money and time we've invested will pay off at DSIT, GridSense, and OmniMetrix. Joe Musanti, our new Chief Operating Officer at Acorn, is doing a great job in cutting costs and growing revenue at GridSense and OmniMetrix. We believe they're headed in the right direction and that with minimal working capital support in 2014 they will continue growing.

The growth of our backlog from $7.2 million at the end of the third quarter to $18.5 million at the end of the fourth quarter is a good indication of the pickup in our business. This trend has continued in the first quarter, especially at GridSense and OmniMetrix. I'd like to discuss the portfolio companies one by one beginning with U.S. Seismic and in the end discussing the three that are on their way to independence.

First I'd like to address the question, why is it taking so long to commercialize U.S. Seismic's technology? I think that first of all, because our technology is being used in a production environment, that the technology has to be proven in a harsh, busy oilfield environment where the overwhelming focus of the producer is to get oil from the ground. Our effort to help them take more oil out of the ground is an important but secondary focus. Often the time schedules we're given change based on the operator's realities on the ground. One tangible example of this is a tool we placed in the producing field in the middle of January which is just starting to take data because the customer is preoccupied with really new production wells around our tool.

Of the two months, we estimate only one week of delay was attributable to U.S. Seismic. Our customers, the major oil companies and service companies, want our tool to work and they continue to encourage us. Each step of progress raises the value of this company as well as the probability of our impact on their business. Although it may seem that our progress has been slow, in the eyes of our customers we're moving at near lightning speed.

In the past year, our investment in U.S. Seismic was validated by our selection by a super major oil company and in a pivotal trial. We won the trial in the well where we were compared to four competitors at 1,300 feet depth. The super major has since given us an order for two multilevel systems for a value of nearly $2 million. We were selected because no other company can match the performance of our sensor. However, our system is composed of more than just a sensor. There are components that have to be adapted to operate at great depths, temperature and pressure.

These are not science projects. They are straightforward engineering projects. We believe that when successful this will be a significant value driver for our business. However, it's not the single value driver for our business and we're working with three oil and gas service companies that either use permanent deployment methods like cementing the tool in the ground, or they have their own retractable systems.

So the first is SR2020, a small but very innovative seismic services company. They've invested significant resources to evaluate our system. The most recent test was two weeks ago and the next commercial shake out is expected to take place in the next several weeks. It's important to note that no tests we've done to date have been on producing wells. They've all been on observation wells. Since our system is proven, we will be ready to test -- once our system is proven, we will be ready to test on live frac jobs and with our service partners where we'll prove the economic value of our tool. So once the upcoming tests go well, SR2020 tells us that they have three upcoming commercial frac jobs to monitor. These will be the first real world tests of our system in micro seismic monitoring and we expect the results will be closely followed by the industry. This will be a big inflection point for our company.

I would like to pause for a moment and reflect on the size of the opportunity. According to Barclays, the market for seismic tools is $2 billion and the market for seismic acquisition and processing is another $14 billion. Up until now, the seismic market has been almost exclusively for oil exploration looking for large pools of oil in the subsurface.

The unconventional oil industry demands new technology. Producers know where the shale is. Our investment in U.S. Seismic is based on the belief that our sensors collect the most important information about the micro seismic events including detailed information about the specific structure, the shale, its thickness, stress regimes, natural fractures and geo hazards in the field. This is critical information to help the producers increase their production and to get a much higher return on their investment. We believe the market for micro seismic used for production could dwarf the exploration, the seismic exploration market. Current yields from shale are 10% versus 40% for conventional plays. So there's a lot of room for improvement.

We alluded in our press release to a new opportunity for U.S. Seismic. This is permanent or 4D seismic to enhance oil recovery fields. Permanent enhanced oil recovery fields. Permanent or 4D seismic refers to cemented sensors that record the movement of oil over time. Time is a fourth dimension. This is important because conventional fields today are having their production enhanced by floods of water, carbon dioxide or steam. This is more expensive than conventional production and it's critical to be able to observe how the oil is moving to detect bypassed pay, which is oil that hasn't been correctly pushed out into the drill bit, and for safety purposes to make certain the steam or carbon dioxide doesn't escape and hurt somebody.

Oil is produced using steam in California's diatomite fields. We recently completed a permanent insulation which is a head to head trial versus legacy geophones with one of the largest micro seismic service companies on site at a major oil company's producing field in California. This trial is another first for U.S. Seismic and is expected to reveal the superior performance of our tool in a completely new application. This is important because California has passed a law, Senate Bill 4, that requires all 5,000 stimulations per year, well stimulations per year, in the state to be monitored starting in 2015. Our demonstration will be observed by our target customer, our channel partner, by state regulators, as well as the large companies that own adjacent fields.

Steam is also used to produce Canada's oil sands using a technique called SAGD, or steam assisted gravity drainage. SAGD currently supplies 25% of all the oil Canada exports to the US. There's currently $250 billion of planned investment in the next 6 years in these fields and it's easily as large an amount of investment as goes into US fraccing.

Thought leaders in the industry have told us that several major accidents where steam chambers collapsed in Canada will most likely result in micro seismic technologies like ours being mandated on every well pad in Canada. We have a tremendous opportunity to replace older, lesser performing technologies like thermocouples, which are industrial thermometers, and tilt meters with our more advanced real time technology. We hope to announce trials in these fields in the future.

A big addition to the U.S. Seismic board was Gary Morris, the former CFO of Halliburton. We believe our ability to attract and learn from experienced board members like Gary is a credit to the opportunity we have as investors in U.S. Seismic.

DSIT is an acoustic technology company that's a leader in underwater security. Our product line includes diver and similar delivery vehicle direct detection systems, tactical training simulators for submarines, mobile acoustic ranges and underwater stimulation systems. As a whole, this industry is called anti-submarine warfare technologies. DSIT is punching above their weight by landing the largest order in their history against much larger, global defense companies.

Why has DSIT chosen to focus on energy infrastructure? It's interesting to note that 61% of the world's petroleum passes through five choke points in contested waterways. Luzon which is in the Philippines, South China Sea, Milaca and the Maladies which is near India, and the Gulf of Hormuz. DSIT is well positioned now that they have reference customers in each of these choke points. There is increasing friction between nations regarding ownership of the rich oil and gas deposits in the South China Sea. In particular, there's high tension among the nations that are currently extracting oil from the region. The market for anti-submarine warfare experienced 20% growth during the years 2008 to 2011 and Jane's Defence Weekly is forecasting accelerating growth, another 75%, in the total market by 2018.

We made important investments in expanding our naval product line and in 2013 marked the launch of our portable diver detection system. DSIT already had several customer orders for the product and we delivered the system and received good performance reviews. Most of DSIT's revenues are denominated in US dollars while most of its costs are denominated in shekels. The strength of the Israeli shekel negatively impacted DSIT during 2013 and we expect it will continue to impact the company during 2014. DSIT's management is very disciplined in the way they run the day to day business. Coming out of 2013 they've tightened their belts and are aggressively pursuing new opportunities.

GridSense is now our second largest business and has grown its revenues by 37% in 2013. Joe Musanti has decreased the breakeven from $13.5 million to $7.5 million and positioned the company for growth. In the second half of 2013, following Joe's restructuring, we provided GridSense a $1.1 million working capital loan of which they repaid $850,000 before the yearend and the balance was repaid in the first quarter of 2014. We expect we will continue to support GridSense with short term working capital loans to spur its growth in 2014.

Progressive governments worldwide are privatizing utilities to improve performance and encourage investment. We think that developing nations, as they seek to modernize their economies, are going to be big markets for our technology. One of the smartest and most assertive users of our technology is the Southeast Asian nation's power company that is using our transformer IQ to detect theft and to eliminate it. In particular, this trial in Southeast Asia has challenged us and caused us to advance our technology. We worked hand in hand with our local partner to actually manage the distribution grid of this country. Our employees have had to spend extended periods of time making certain our products were able to work reliably in the most challenging environments.

Amazingly, this country which has the most primitive electric grid in Asia, is now the most innovative user of our products. This added to our costs, reduced our gross margin, but is going to be a fulcrum for which we can expend the use of our products around the world. If the second stage of the project is as successful as the first, we've been told that there's at least $20 million of opportunity for us over the next 5 years.

We developed and commercialized the first pole top transformer monitor. Today it's being trialed by some of the world's largest utilities to monitor for technical losses and theft for nontechnical losses. There are over 30 million pole top transformers in the US. We have a head start in what Brett Sargent, our new Chief Operating Officer at GridSense, calls the race to the end of the driveway. At the April IEEE Smart Grid Conference, we'll launch the next version of the TIQ that will both lower the price point of our product and improve our margins. This product encompasses all of GridSense and our customers' learning of the past 3 years. There are many applications for this product that include voltage management, capacitor bank monitoring, power quality and theft detection which could add up to a very, very large market that we are currently leading.

Lastly I'd like to touch on OmniMetrix. We like the recurring revenue and high margin model of this business, so we invested heavily and doubled the number of connections in 2013. Following changes in senior management, we brought in Joe Musanti to tackle the tough task of aligning costs with expenses. We made major investments in the back end of the business to better support our clients. We started the year strong by landing an order from one visionary generator dealer for 1,000 units that represents almost one-third of our 2014 plan. Overall, we have orders for almost half of our 2014 plan.

A recent marketing study indicates that we have a leading generator monitoring device based on our superior customer service. Most of the traction we received in OmniMetrix was by developing a more aggressive pricing model based on dealer volume in the residential dealer market.

The next investments in OmniMetrix will be focused on improving our penetration of the commercial and industrial segment where we believe a substantial opportunity exists. The Obama administration has just mandated emission controls and substantial fines on large generators. This will impact 900,000 currently installed generators and give them a reason for monitoring. In 2013 we made substantial investments in upgrading our product to make it suitable for emissions monitoring and we are working on plans to improve our penetration in this growing market.

In conclusion, our business model is based on a thesis that we can generate very attractive returns by taking small companies with unique technology, addressing very large macro challenges in the energy industry, (inaudible) and a growing the businesses to a stage where they're valuable to larger companies at the point that major investments are required. We then look to exit when we feel we can maximize the return on investment.

This concludes my prepared remarks. Joe Musanti, Jim Anderson, Benny Sela and Michael Barth are standing by to answer your questions.

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Questions and Answers

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Operator [1]

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Thank you. We will now begin the question and answer session. (Operator Instructions).

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John Moore, Acorn Energy - President and CEO [2]

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So I know that Charlie Sloan has questions for us. Charlie, are you on the line? This is going to be a first.

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Operator [3]

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Showing no questions in the queue, I'd like to turn the conference back over to John Moore for any closing remarks.

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John Moore, Acorn Energy - President and CEO [4]

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Well, I want to thank our investors for their patience. We're all working hard on execution. I'm spending a lot less time on investor relations than I've ever spent before and I think we have the right team in each company to execute and beat our plans and looking forward to lots of success in the future. So thank you so much for our patient investors. We've got over 50 investors on the call today and we're grateful for everybody's time and attention. Oops, wait a minute, Jim McIlree just sent me a note saying that there are questions in the queue and that they're not being recognized, so this must be a Chorus Call issue.

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Operator [5]

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My apologies. I do have the question queue open. (Operator Instructions).

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John Moore, Acorn Energy - President and CEO [6]

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Let's let Jim McIlree ask the first question since he saved the day there. I would have been getting a lot of heat if we hadn't taken unanswered questions.

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Operator [7]

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James McIlree, Chardan Capital. Mr. McIlree, you've been promoted to the question queue. It appears as though he's removed himself from the queue.

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John Moore, Acorn Energy - President and CEO [8]

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Okay, well we know that Bill Bremer is online. He just sent me an email and he's online.

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Operator [9]

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Yes, he is. One moment please. Mr. Bremer, you have been promoted to the podium.

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Bill Bremer, Maxim Group - Analyst [10]

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Can we just get an update on USSI? With the super major, the one that we've been speaking about all along, I know there has been some deferrals in terms of picking out an appropriate site, some water issues. Could you just go through it? I know it's slated now I believe for the second half of 2014. Has a site been picked out at this point? Give us an update on that and then let's follow that up with relative to the 4D reservoir that you spoke about in California, that technology.

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John Moore, Acorn Energy - President and CEO [11]

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Great, Bill, thanks for asking that question. I'd like to hand that one over to Jim Anderson. Jim, would you mind taking that question?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [12]

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Sure, sure. With the super major, as John noted in the comments leading into this, we won that shoot out, received an order for $2 million for two arrays. This is for a full-scale high temperature frac monitoring job in the Eagleford. It has moved out. Initially this was scheduled for I'll say April/May timeframe, but some service contracts were brought onboard by the super major and these service companies asked for certain things to be added to our system such as longer cables, revised clamps, things like that. We implemented those changes that were asked for by the service companies, and now that test is scheduled, we're going to deliver the equipment in June, and the testing is going to start right after the 4th of July, the first week in July.

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Bill Bremer, Maxim Group - Analyst [13]

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All right, that's good to hear. And then the update on the say enhanced technology, sort of give --

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [14]

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Yeah, I think that's really a big deal because I think most people think California and oil are kind of not that important. But reality, this Monterey Shale, which is a big oilfield in California, is about 1,700 square miles and it's been rated at over 15 billion barrels of recoverable reserves. So it's really the most prolific shale field in the entire United States. And a lot of it is in this material called diatomite. It's kind of like fossils, plants and things like that that are very porous, almost like a sponge, but they're -- where a lot of oil gets trapped in it but it doesn't flow because it's not like a sponge where stuff flows in between, the oil gets trapped in there, so it has to be fractured to be removed.

So we just started a -- we installed a permanent monitoring array in one of these diatomite fields. And it's undergoing a three-month trial. And it really is a high visibility trial as John was mentioning in the opening comments in that I think the whole California legislature and all that would like to see more oil production. But there's a lot of safety regulations and things they want to implement to make sure it's working safely. So there's been regulations that come out that are requiring monitoring starting, as John said, in 2015. And so the industry is kind of scrambling on how they are to perform this monitoring and that's the purpose of this test that we're in for a three month monitoring job. Because the current technology, tilt meters and temperature sensors and conventional technology, just hasn't been able to give them what they're looking for. So this is a side by side comparison with conventional technology in a three-month evaluation and we have, as John said, the regulators, the major oil companies, and other operators all watching because they really need a solution. And the technology that gets picked for this, it's a gigantic opportunity just realizing it's probably the biggest shale field in the US and I think the Department of Energy said it's three times the size of the Balkan which is a huge field that's driving all that oil production we see in the South Dakota, Montana area. So we're really pleased with the opportunity.

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Bill Bremer, Maxim Group - Analyst [15]

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Right. Jim, does the $4.7 million that John specified in terms of CapEx for 2014, does that include this opportunity as well, getting it ready for 2015?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [16]

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Yeah. One of the things, like I was saying, is we went out there and the beauty is that in the last year, every time we've gone out, we've put the system in the wells, there's no question that clients believe the performance is outstanding. So our systems do work and work well and provide much higher definition than previous technology. But they also come back and said we'd like some improvements to it, some improvements to how we clamp in the well, and we have always not taken any development money from our clients such that we could own the intellectual property. So we have orders, but we go back and if there's some modifications that we need to make to our system, we have historically done that on our own dollar so that it's clear that we own the intellectual property at the end.

So all that $4.7 million is, a lot of that I guess I'd say, is paying for this development of these peripheral equipment that our clients are asking for and in making improvements over conventional technology. And all on our own investment.

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Bill Bremer, Maxim Group - Analyst [17]

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Let's move to GridSense now, John. Congratulations on the orders. Five different utilities, some small, some large. The bulk I believe, if I'm reading this correctly, is from Australia? Is that correct?

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John Moore, Acorn Energy - President and CEO [18]

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That is correct.

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Bill Bremer, Maxim Group - Analyst [19]

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And GridSense now seems to -- can you give us a sense -- do you feel as if you've turned the corner there in kind of real strategic plan for 2014?

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John Moore, Acorn Energy - President and CEO [20]

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Yeah, I think that the previous CEO of GridSense had a great vision, but I think that we -- what Joe brings to the story was an ability to be able to focus us. We've got 50 pilot programs now up from 40 at the beginning of the year, but what Joe has done is he's focused to surround the ten most promising, most near term opportunities. And he -- we saw one major deployment last year which was the Southeast Asian opportunity and they really took up a lot of our development time. On the first quarter call in 3 weeks we'll be talking about another major deployment that we have planned in Pennsylvania for the line IQ which is a smart switching program. And so Joe, I don't know if there's anything you want to add to that, but I think that the company is on the right rack and it I think could be a terrific growth company for us.

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Joe Musanti, Acorn Energy - COO [21]

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Yeah, I think the only thing I would add as far as the path going forward is the addition of Brett Sargent to the team who has extensive experience in the electricity grid and understands the product and the customers. So from a growth perspective, we're looking at him to sort of take us to the next level from the sales and marketing and from the engineering side.

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John Moore, Acorn Energy - President and CEO [22]

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And one of the things that Brett points out is, Brett's background was at GE, what he points out is that we really haven't had a chance to grow that fast because there wasn't really good communication networks in the electric grid. Now that there's been this big build out of smart meters and all the different communication systems on the grid, now all these utilities are starting to say, well how else can we amortize the investment in that communication system while it's monitoring the pole top transformers and the small volt transformers. So much of this clean tech business is about surviving until the world comes your way, and once it does, that's when you see a lot of growth and that's when the strategics start getting extremely interested.

So as we go from these sort of $100,000 pilots to $1 million deployments to we're working on some big $20 million and $30 million programs, that's when the GE Meatball or Schneider ABB come along and say, if these guys can get five major deployments, we can get 500. And we want to own that space. So it's been a lot of -- it's been a patient time for our investors as we've put money into this company. But Joe's got it to the point where it's really not consuming anything other than occasional working capital loans.

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Bill Bremer, Maxim Group - Analyst [23]

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Okay, gentlemen. Thank you.

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Operator [24]

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James McIlree, Chardan Capital.

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Jim McIlree, Chardan Capital - Analyst [25]

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Yeah, thanks. Sorry about that earlier, John.

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John Moore, Acorn Energy - President and CEO [26]

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No problem, Jim. Thanks for being on the call.

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Jim McIlree, Chardan Capital - Analyst [27]

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Can you walk me through the cash flow for the year? I'm not exactly sure I'm understanding how you're looking at the cash. So first of all, I thought you said $15 million give or take of cash, is that (inaudible) balance or is that, am I looking at the balance sheet?

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John Moore, Acorn Energy - President and CEO [28]

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Michael Barth, you correct me if I'm wrong, but our ending cash balance as of December 31st was $15.8 million. And we're just sort of giving you some perspective on where we're going to be spending that money. We feel that less than $3 million will be spent on SG&A at the parent company level and $4.7 million will be spent on U.S. Seismic.

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Jim McIlree, Chardan Capital - Analyst [29]

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And the other three businesses would be cash flow breakeven or slightly positive or right around breakeven?

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John Moore, Acorn Energy - President and CEO [30]

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Yeah, and one of the things that we've said, just to give you a little bit more clarity, is we expect to loan OmniMetrix $500,000 this year. Unlikely they will pay us the money back in the current calendar year, but they are going to have some pretty substantial growth this year. GridSense we expect that we'll lend them up to $750,000 and it will be paid back before the end of the year. And DSIT, again, is going to be I think entirely self-sufficient as they normally are.

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Jim McIlree, Chardan Capital - Analyst [31]

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And what kind of revenue do you need out of U.S. Seismic in order to hit that, in order to only have to advance them $4.5 million or $5 million?

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John Moore, Acorn Energy - President and CEO [32]

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That is an easy question to answer because we had a substantial negative gross margin in the past. As we look at U.S. Seismic, it's pretty much a development stage business. And what we expect is that there will be marginal gross margin this year so we're not really counting on -- we do have a revenue number in our mind that we want to accomplish because of the number of deployments, but it's not a big contributor to gross margin. I think it's somewhere between 5% and 15% gross margin this year, but that's really going to be dependent upon Jim continuing to actually commercialize the Interrogator. Which I should mention that we've done the optical software, the hardware integration, and we're not in the process of field testing. So that's going to be a huge driver of our ability to be able to generate gross margin at U.S. Seismic.

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Jim McIlree, Chardan Capital - Analyst [33]

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All right, so I just want to make sure I got it correctly here. So your current U.S. Seismic, 2013 U.S. Seismic cash outflow was a function of both gross margin as well as the operating expenses. And even if you have similar operating expenses and similar revenue this year, you're going to have a much lower cash outflow simply because your gross margins will be positive?

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John Moore, Acorn Energy - President and CEO [34]

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Yes, that's correct. That's -- now, I want to be -- Joe and Michael Barth and Jim, if you feel there's any correction or modification of that, please, please step in.

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [35]

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No, I think you hit it. This is Jim.

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Jim McIlree, Chardan Capital - Analyst [36]

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Okay. And then I'm a little bit confused about the SR2020 timeline. There's a test on another observation well first and then you go to a producing well? Or you completed the observation testing and now you're going to producing?

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John Moore, Acorn Energy - President and CEO [37]

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Jim, can you give color on that?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [38]

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Sure. Yeah, so we have couple of jobs lined up through SR2020 over the next I'm going to say 2 months, 2.5 months. And what we want to do is we want to go to a well near us and actually our team is going to be leaving the end of this week, and do a final shake down test of the whole 40-level system in a well within maybe I'm going to say an hour and a half from our facility. And we're going out there to prove out our equipment and make sure it all works well before we get at these actual frac jobs in Oklahoma and Permian Basin.

But there's also this client wanted to see our equipment in their well, so they're providing this well for us because we may have additional opportunities with them. So that test is probably going to happen starting this weekend, run maybe 4 or 5 days, and then we're expecting everything to work out well and then we'd be heading to the first monitoring job in Oklahoma with that job starting right around the 7th I think of April.

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Jim McIlree, Chardan Capital - Analyst [39]

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And with all those dates being asterisked by these oil companies could change things. But we believe that us monitoring a frac job, somebody actually letting us do that with our tool, and then proving they can improve the amount of oil they get out of the ground, we think that's a big inflection point for our company. I think that there are other ones, but nobody wants to be first, so if you can get somebody to be first, everybody wants to be first to be second.

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Jim McIlree, Chardan Capital - Analyst [40]

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Okay, great. So if I understand it correctly, then the big super major deployment or test is let's call it April/May and then if everything comes up great and you get a second half order or orders from them, this SR2020 thing also might result in second half orders, additional orders from them, if I'm getting it right. And then there are a few other things you're working on. But those are the two real near term order items and they're both likely second half?

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John Moore, Acorn Energy - President and CEO [41]

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Why don't you go ahead, Jim, and answer that?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [42]

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No, I just want to I guess -- because we stated a little earlier that the actual super major test was originally scheduled for May, we're going to deliver now a system in June and they are going to install it the first week in July. So that's what's going on with the super major. But over the next 2 to 4 months we have monitoring projects lined up in the Woodford Shale which we talked about in Oklahoma which is right now planned for the 7th. Permian Basin following that. We have a project lined up in the Barnett Shale, there's another frac monitoring job. All of those that I just mentioned are through SR2020.

And then the super major, that project in the Eagleford, which is a high temperature shale field, that will be in July. And then we have that permanent monitoring project in the diatomite which we have everybody in the industry looking at, and that's going to run three months. But all these things, like you said, are geared towards putting the foundation for future orders in the second half of the year.

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John Moore, Acorn Energy - President and CEO [43]

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To hitchhike on that, I would not expect much revenue out of U.S. Seismic in the first half.

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [44]

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Yeah, exactly.

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Jim McIlree, Chardan Capital - Analyst [45]

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Okay, that's very helpful, I appreciate it. Good luck with everything.

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Operator [46]

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Ted Liu, VSG.

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Ted Liu, VSG - Analyst [47]

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Good morning. Just to give you some possible color, in the Monterey in California, my understanding is a lot of the geology is overstressed which results in vertical columns where you can drill a vertical well, get the equivalent of horizontal well protection. And with the diatomite rock, you 're going to need various kinds of fraccing exercises to optimize it and as everyone probably knows, it took George Mitchell 20 to 30 years to figure out how to frac the Barnett Shale. So your system with USSI ought to be able to help the companies drilling into the Monterey to figure the best way to break up the diatomite to get excellent production. And if I'm off base, Jim, I'm sorry.

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [48]

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No, that's correct.

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John Moore, Acorn Energy - President and CEO [49]

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That's great. I think the other color on that, Ted, is that even though the Monterey Shale is probably the widest shale, I think it's like 1,800 feet wide --

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Ted Liu, VSG - Analyst [50]

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That's because it's a vertical, John. It's been overstressed into a vertical column so they can drill a vertical well. As if you'd have to go horizontal in most shale deposits.

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John Moore, Acorn Energy - President and CEO [51]

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And it's complex, they're still figuring it out, but there's apparently the frac fluid that they're using, Ted, is acid, which if course saying the word acid, the Sierra Club is up in arms, and that's really one of the biggest reasons why California is mandating permanent, basically monitoring for every frac job or every stimulation because they don't want to see that acid leach out.

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Ted Liu, VSG - Analyst [52]

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I think diatomite basically is a limestone, so acid would certainly be involved. And the amount of the acid probably would be pretty minimal. But that requires keeping careful track of it which necessitates micro seismic controls.

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John Moore, Acorn Energy - President and CEO [53]

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Right, and steam. Exactly, the diatomite is all about steam as well and that's the analog for SAGD. So we're grateful to have knowledgeable investors like you, Ted, and your clients in Acorn. Thank you very much.

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Ted Liu, VSG - Analyst [54]

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Keep up the good work, John.

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Operator [55]

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Bob Gesick, a private investor.

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Bob Gesick, - Private Investor [56]

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Good morning, John. I have a question. Can you please give us some color on when USSI does all this testing in the field, who pays all the expense load? Is it shared? Is that where USSI needs all the money from? Or can you please expand on that?

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John Moore, Acorn Energy - President and CEO [57]

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Sure. Jim, you want to answer that question? Yeah, why don't you go ahead and answer that, Jim?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [58]

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For the jobs that we get paid for, like with the super major and some of these other major oil companies and oil service companies, we charge for our people to be in the field. And there's a day rate and it's all paid for. The major part of the expenditure has to do with -- and we do do some testing ourselves in wells, but primarily it's client driven and clients fund that. Our major expense has really been any kind of improvements to the system needed that say our clients ask for and we look at it, determine that's really practical and necessary, then we make the determination internally that we will fund that ourselves. And the main reason is we want to control the intellectual property. As you know, we have a very, very strong intellectual property portfolio we're building with over 7 patents issued to date, we have another dozen being processed. So we think that's very important to keep that intellectual property and own it ourselves 100%.

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Bob Gesick, - Private Investor [59]

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How about when you do all the monitoring in the Monterey Shale? Is that customer paid labor or is that you guys making the investment?

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [60]

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That one job that we installed in the Monterey, we installed an array, it's cemented in a well, we provided that array ourselves. And the client I'll call it installed it and cemented it in. And we provided the system there and he's going to monitor that data for three months. So what we provided for that one is we actually provided the array.

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Bob Gesick, - Private Investor [61]

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So it doesn't sound like when you're in the field and doing all this testing that it's costing USSI a ton of money.

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Jim Anderson, Acorn Energy - U.S. Seismic President and CEO [62]

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No. Typically we get paid for that.

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Bob Gesick, - Private Investor [63]

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Okay, good. Thank you very much and good luck.

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Operator [64]

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This concludes the question and answer session. I would like to turn the conference back over to Mr. John Moore for any closing comments.

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John Moore, Acorn Energy - President and CEO [65]

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Great. My closing comments are that we're glad that we made the investments in 2013. We're cautiously optimistic about 2014. We're extremely excited about the business prospects that our companies have. We're cognizant of the fact, and we want our shareholders to be cognizant of the fact, that our business is very lumpy. It's lumpy because our customers tend to be very large companies and the decision making cycles tend to be very long, but the orders that we are stalking tend to be very, very large. So we appreciate our investors' patience and hopefully the message is clear to everybody that we've done some major belt tightening to make certain that we extend out the runway of our cash and we hope that 2014 will be a great year to be a shareholder in Acorn Energy. Thank you very much.

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Operator [66]

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The conference has now concluded. Thank you for attending today's presentation. Please disconnect your lines.