Good morning, and welcome to Acorn Energy's First Quarter 2022 Conference Call. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrix subsidiary. Please go ahead.

Thank you, and welcome, everyone, to our conference call today. As a reminder, many of the statements made in today's prepared remarks or in response to your questions may be forward-looking in nature. These statements are subject to various risks and uncertainties. For example, the operating and financial performance of the company in 2022 and in future years is subject to risks associated with disruptions to business operations and customer demand resulting from executing the company's operating strategy, maintaining high renewal rates, growing its customer base, changes in technology, changes in the competitive environment, financial and economic risks and any additional impacts from COVID-19 or its variants as well as having access to sufficient capital for growth. Forward-looking statements are based on management's beliefs as well as assumptions made using information currently available to management and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are no assurances that Acorn or OmniMetrix will be able to achieve their growth goals in 2022 or in future years. The company undertakes no obligation to disclose any revision to these forward-looking statements to reflect events or circumstances occurring after today. A full discussion of the risks and uncertainties that may affect the company is included in risk factors on Acorn's Form 10-K as filed with the Securities and Exchange Commission. Now I'll turn the call over to Jan Loeb, Acorn's CEO, for an overview of our first quarter 2022 performance and business outlook. Jan?

Thank you, Tracy. Good morning, and thank you all for joining today's call. OmniMetrix continued its solid growth momentum in Q1 2022, driven by our industry-leading solutions and track record for quality, excellent customer service and a compelling return on investment. Accordingly, we have started the year ahead of pace towards achieving our goal of 20% average annual growth with Q1 2022 cash basis revenue up approximately 26% over Q1 2021. Cash basis revenue is a non-GAAP measure which reflects the cash value of invoiced hardware and monitoring sales recorded in a given period. We use this metric internally to evaluate our business performance and growth trends. Under GAAP, hardware sales are typically amortized over a 3-year period and prepaid monitoring revenues are amortized over the term of the monitoring period, which is typically 12 months. We provide a reconciliation of cash basis to GAAP revenue in our press release. In periods of sales growth, cash basis revenue will tend to exceed GAAP revenue and net cash flow can exceed reported operating income as we saw in our Q1 with cash basis revenue outpacing GAAP revenue growth. Strong cash basis growth is a leading indicator for GAAP revenue trends in future periods. Our first quarter performance was driven by monitoring hardware sales. As we have seen in recent periods, hardware sales benefited from the wireless operators deciding to no longer support legacy 3G technology in favor of their investments in LTE and 5G technologies that provide superior bandwidth and performance. This sunsetting of technology used in older monitoring devices provides a boost to hardware sales as customers upgrade to new equipment. However, the upgrade cycle does not benefit near-term monitoring revenue as new units assume the remaining prepaid monitoring plan of the units being retired. There are also some monitoring…

Thanks, Jan. Following that overview, I'll just add a bit more detail about the financials, which are also in our 10-Q filed this morning, and then we'll take questions from investors. In Q1 '22, reported GAAP revenue rose approximately 3% to $1.75 million, reflecting a 9% increase in hardware revenue and a 2% decrease in monitoring revenue. The increase in hardware revenue was due to more monitoring units sold in Q1 '22 versus Q1 '21, including TrueGuard 2 and Hero 2 units. Partially offsetting the increase in units sold was approximately $112,000 in revenue that was recognized in Q1 '21 from the sale of custom TrueGuard PRO units that were custom designed for monitoring by the customer, and thus, the revenue was not deferred. Excluding the sale of those custom units, hardware revenue would have been $585,000 in Q1 '21. Therefore, the increase in hardware revenue, excluding those custom units, was approximately 30% period-over-period. Jan mentioned in his opening remarks that the increase in units sold is largely due to replacement of sunsetting 3G technology units. As new units replace the older units, monitoring revenue does not decrease in line with unit sales because the new equipment assumes the prepaid monitoring plan of sunsetting units. Therefore, sunsetting benefits hardware sales, but does not have the same accretive impact on monitoring revenue. Also, some customers who choose not to upgrade to newer technology may drop their IT monitoring plan. These factors explain strong hardware revenue in Q1 and weaker monitoring revenue. We saw similar trends in 2021, particularly as the year progressed. Our gross profit grew 4% to $1.3 million in Q1 '22, reflecting a gross profit margin of 72% versus 71% in Q1 '21. Again, gross margin improved slightly despite increases in production and manufacturing costs. As Jan noted, during…

[Operator Instructions] First question comes from Peter Rabover of Artko Capital. Peter Rabover;Portfolio Manager;Artko Capital: And I'm sorry if my questions are related to some of the things you said. I want to make sure I heard them correctly. So the first one is, I think you mentioned that the new hardware sales results in lower monitoring revenue uptake than in the past. Did I hear that correctly?

That's correct. Peter Rabover;Portfolio Manager;Artko Capital: And sorry, what was the reason that you gave for that?

The reason for that is with the new monitoring equipment that replaces the 3G technology, those new units are replacements for existing units and they assume the prepaid monitoring plan that is still remaining. Because the customer is replacing a 3G unit and they prepaid for 12 months of monitoring and they're halfway through that 12 months, there would still be 6 months that would be amortized related to that. So there's not incremental growth until the next renewal year. Peter Rabover;Portfolio Manager;Artko Capital: Got it. I understand that. And you think this is like a onetime this year kind of thing or how long do you think this 3G sunsetting will last?

I think we'll continue to replace 3G units throughout 2022. We expected certainly that AT&T was going to cut off and the various carriers was going to cut off complete 3G technology in February, but they've continued to allow service in certain areas. So we'll continue to see replacements, we believe, through the balance of 2022. Outside of that, I don't think we'll have it going into 2023. Peter Rabover;Portfolio Manager;Artko Capital: Okay. And then on the last thing, I think you candidly said you're evaluating an acquisition. Is that something you can elaborate on?

Sure. Jan, do you want to take that?

Sure. We are evaluating an acquisition. We are currently in our due diligence process. So it's a company that very much fits with us. And as we've said, we won't do an acquisition that we don't feel is accretive to our company. But that's all I can really say right now. Hopefully, assuming we advance to a definitive agreement, we'll have a lot more to talk about.

[Operator Instructions] Next question will be from Jack Mayer, Private Investor. Jack Mayer;Private Investor: Congratulations on a good quarter. A very, very good quarter.

Thank you very much. Jack Mayer;Private Investor: Jan, Tracy said that the, I guess, almost all of the decrease in cash between March 31 and May 11 is due to putting money in an escrow for an acquisition. Did I hear that correctly?

That is correct. Jack Mayer;Private Investor: Can you elaborate on that at all?

Just it's kind of what I said to Peter. Jack Mayer;Private Investor: It's a little unusual.

It's a unique situation that we were able to move quickly on. And so we put some money in an escrow account to show our seriousness with the seller. And hopefully, after we continue, after we complete our due diligence, we'll have more to talk about. But right now, I can't really talk more about it. Jack Mayer;Private Investor: So do I understand correctly that if you are satisfied with the due diligence that you are doing that the seller is in some way obligated to proceed given that you've put money into escrow?

Yes. Jack Mayer;Private Investor: Okay. Thanks for that clarification. Do you expect that the due diligence would go beyond the end of this quarter?

No. Jack Mayer;Private Investor: Okay. Well, again, thanks for that clarification. And I'm pleased to note that you're optimistic about the future of the company by having bought stock in April. So I guess we'll have to see.

You could say that maybe I'm not the greatest investor since I paid $0.50 for it and the stock's now at $0.40. But yes, I have a great view of the company. I think the company is really well positioned. And I thought that, that was a great price.

This concludes our question-and-answer session. Now I'd like to turn the call back over to Jan Loeb for closing remarks. Please go ahead.

Thank you again for your interest in Acorn. We are quite pleased with the performance of our business early in 2022, and we are excited for the rest of the year and for the long-term prospects of our business. We appreciate your support, and I'm happy to speak with investors or prospective investors about the business. You can set up a call with me or ask a question to our Investor Relations whose contact information is in today's press release. Thank you again, and I believe that concludes today's conference call.

The conference has now concluded. Thank you for attending today's event. You may now disconnect.