ACFN

Acorn Energy, Inc. (ACFN)

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Acorn Energy (ACFN)

Q4 2012 Earnings Call

March 19, 2013 11:00 am ET

Executives

F. Kent Leacock - Vice President of External Affairs

John A. Moore - Chief Executive Officer, President and Director

James K. Andersen - Chief Executive Officer of US Sensor Systems Inc and President of US Sensor Systems Inc

Lindon Shiao - Chief Executive Officer of GridSense and President of GridSense

Michael Barth - Chief Financial Officer, Chief Accounting Officer and Chief Financial Officer of Dsit Solutions Ltd

Benny Sela - Chief Executive Officer of DSIT and President of DSIT

Deena Redding - Chief Executive Officer and President

Analysts

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Ronald Frank

Rudolf A. Hokanson - Barrington Research Associates, Inc., Research Division

William D. Bremer - Maxim Group LLC, Research Division

Harvey Poppel

Gavin Richey

Robert Littlehale

Ross Silver - Vista Partners LLC

Frank Barresi

Charles Melcher Sloan - Mid-Continent Capital, LLC

Timothy Fronda - Sidoti & Company, LLC

Presentation

Operator

Good morning, everyone, and welcome to the Acorn Energy Fourth Quarter and Year End Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. And at this time, I'd like to turn the conference call over to Mr. Kent Leacock. Sir, you may begin.

F. Kent Leacock

Good morning, everybody. I'll be reading the Safe Harbor statement.

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 condition, 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 or any of its subsidiaries' results of operations or financial condition, 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 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. John?

John A. Moore

Thank you, and welcome to the year-end 2012 Acorn Energy conference call.

We accomplished a lot last year. Important investments were made, and we believe 2012 should be viewed as the springboard to what will be a dynamic growth year for Acorn Energy in 2013.

After earning $1.99 per share in 2011, we deployed part of the proceeds from the CoaLogix sale to grow our operating businesses, which contributed to a net loss of $0.93 per share in 2012. We have a plan to achieve profitability in 2014. We're going to do this via revenue growth and margin improvement. We're going to get there from investments made by 2012 and those that we have planned for 2013.

My excitement about US Seismic continues to grow for 4 reasons: one, the transformative macro opportunity; two, the evidence that seismic monitoring is going to become essential for unconventional production; three, our customers and successful field trials; and four, the successful operation of our automated production plant that can be expanded rapidly at high margin and low cost.

One, I'm excited because on a macro level, the unconventional research revolution is going to drive the prosperity of our country for decades to come. The Energy Information Administration just announced that the California Monterey Shale contains 65% of the technically recoverable oil from shale, and the University of Southern California released a report: the state cannot afford to ignore this black gold rush. It's early days in even figuring out how to get to this resource out of the ground, but you know 2 things: one, California is the most seismically active state in the nation; and two, it's the most environmentally concerned and heavily regulated state in the nation. So the state needs the revenue, and it's almost certain to require seismic monitoring.

Steve Jobs said the PC was a great product because it was a small thing that controlled really big things like companies. The $12 billion seismic industry is the tail that wags the hundreds of billions of dollars spent in oil exploration every year, except in the unconventional oil plays, where seismic is used less than 3% of the 20,000 frac jobs done each year. We think this is about to change.

Two, evidence is growing that seismic monitoring will be essential for unconventional production. "Smart drilling" is a catch phrase for enhanced oil recovery and fracking, where the oil producer uses steerable drilling techniques to unlock huge stores of hydrocarbons.

As the industry learns how to access these reserves, they're learning they need to be smarter about the way they deploy their capital. Industry experts are estimating that less than 1 in 3 unconventional wells are meeting owner expectations. As much as 70% of the capital expenditures are being wasted on each frac job.

Jim Volker, CEO of Whiting Petroleum, a $6 billion market cap NASDAQ company, recently stated they feel that they're only extracting 10% to 11% of the oil in place. Many unconventional drillers are experimenting with intensifying their drilling with new ideas like array fracking, where they drill laterals on top of each other. These techniques will require new emphasis on both using seismic mapping during production, where historically seismic has been used as an exploration tool. The industry is necessarily migrating to enhancing the quality and the quantity of subsurface information, and we should think about it as sort of a subsurface broadband using data to bring data for micro-seismic signals. US Seismic is introducing the only downhole sensor on the market specifically designed to detect the entire range of microseismic signals generated during the hydrofracking production process.

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