Acorn Energy Management Discusses Q4 2012 Results - Earnings Call Transcript

Mar.19.13 | About: Acorn Energy, (ACFN)

Acorn Energy (NASDAQ: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

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.

Legacy Geophones that are produced by great companies like GeoSpace and ION have not changed significantly in the 50 years. These legacy Geophones, while suitable for finding pools of conventional oil, however, are not simply optimized to detecting the seismic signals associated with new oil and gas recovery techniques used in today's unconventional oil fields.

As a matter of fact, the best downhole Geophones on the market miss more than 90% of the seismic signals associated with hydrofracking. This is pure physics. The frequency range of the legacy downhole Geophones simply cannot be made wide enough to capture the microseismic signals associated with the hydraulic fracturing. Because our fiber optic Geophones operate using a completely different principle, we alone can detect the complete range of microseismic signals associated with hydrofracking.

Three, our customers understand how our success is critical to their success, and they are extremely helpful as we seek to finalize the production design of our systems. We have 2 pioneering medium-sized seismic services customers and one seismic tool companies client. We expect follow-on orders and will ship a 100-level array, the world's largest optical downhole system, to SR2020 early in the second quarter.

We announced a trial order from a supermajor oil company that will be shipped in the next 2 weeks. We expect the unit will be trialed in a competitive seismic shootout against legacy systems in April. This competitive seismic shootout is extremely important because the customer has compelling vision for the future of permanent sensors deployed to deliver what they call Life of Field Seismic.

If we're successful, as we expect to be, our first substantial follow-on orders will happen in the second half of 2013. Important potential customers that we expect to announce in the near future include a global microseismic services company and one of the world's largest national oil companies. We'll ship a high-temperature array to the Department of Energy in the second quarter that will be used to monitor enhanced geothermal fracking. The researcher leading this trial is a key thought leader in seismic fracture monitoring. A successful trial at high temperature will further enhance the credibility of our solution in the industry.

No mention our efforts at US Seismic would be complete without mentioning Kent Leacock's efforts in raising the awareness of our technology in the oil industry, the environmental and the regulatory community. It is very unlikely that monitoring of some kind will become a regulatory requirement in California, and these regulations will likely be spread throughout the industry and nationwide.

Our memberships in several West Coast petroleum associations have already helped us establish a relationship with a large, technically advanced independent petroleum producer in California, who'll be testing US Seismic's technology in the coming weeks. In addition, our efforts have opened the door for initial conversations with several major oil companies with big plans in California.

Four, we have the ability to expand our production at low capital cost and high margins, and our team has the experienced to be successful. The US Seismic team now consists of over 50 employees, many of which are experienced optical engineers. It's important to us that Jim and his team have been through this development and commercialization effort once before for our fiber-optic sensor system for the U.S. Navy.

What lessons can we learn from their previous success? First, they had to take the time to prove the technology worked. Likewise, today, they're derisking the fiber-optic Geophone technology. The pace of trials are picking up, and they conducted 2 trials in 2011 and 6 in 2012. The most recent 3 trials, each of which was with a highly credible oil gas partner, confirmed our systems generate radically better data than the best conventional system money can buy.

We've also refined our capability to produce the peripheral aspects of our system, like downhole clamps and cables, to assure the reliable use of our products in harsh oilfield environments. We have several more field trials in the coming months that will further derisk our product design, which should yield follow-on orders.

Once Jim and his team prove the systems worked to the Navy, he then focused on reducing cost. Today, the Navy system they developed is one of the most profitable product lines of Northrop Grumman. We're following the same successful game plan. We have invested to reduce the manufacturing cost for our systems by automating our production lines. We think of our products in terms of levels, a 3-sensor pod. Each level of the array consists of 3 sensors: X, Y and Z. Each array sells for approximately $20,000 to $25,000 per level. We currently produce at a rate of 40 levels per month.

Our automated lines are being used to produce the order for the supermajor oil company and all other orders going forward. We plan to close the year at a production rate of over 100 levels per month, and we'll have a capital equipment in place to support 200 levels per month, which equates to the $50 million capacity we've mentioned in the past. In the process, we will reduce the touch labor through automation by 90%.

The team's past and present came together in 2012 when US Seismic acquired the license from Northrop Grumman of their next-generation optical interrogator intellectual property that was initially developed for the Navy. We acquired 4 fundamental patents from Northrop Grumman, hired the team that developed the product and have invested in productizing the unit. The interrogator is important because it will replace the expensive custom electronic hardware-based solution we produce today with a PC-based solution offering speed and quality of data that the oil industry has never seen before.

The hardware for the interrogator was completed at the end of 2012, and the first half of 2013 will be used for the software integration. The interrogator will be ready for field trials in July of 2013. The commercialization of this product is important because it will enable us to realize 50% and eventually higher gross margins for our systems. We're developing a broad portfolio of foundational intellectual property. We now have 6 issued U.S. patents and 17 filed U.S. patents.

In conclusion to the US Seismic -- to conclude the US Seismic portion of our story, 2012 marked the first commercial shipments of our fiber-optic arrays. We shipped a total of 56 levels to 3 customers. We expect 2013 will see us ship a minimum of 340 levels to 6 customers, of which 3 will be repeat customers. This will represent a 500% increase in shipments. We expect to complete the commercialization of the interrogator and to solve any remaining peripheral engineering problems related to the downhole deployment of our systems. 2014 should prove to be the year of expanding commercial deployments, large-scale production and the realization of our goal of terrific gross margins and industry acceptance of our products.

We have invested $17.25 million of cash and announced that we'll spend an additional $5 million, in which $2.5 million has already been funded, to launch a tool that could revolutionize this multibillion dollar existing market for seismic tools.

Acorn and our management team at US Seismic is positioning the company to cash positive the second half of 2013. Any individual customer in the pipeline could cover the burn with a large single-scale commercial order. Jim's confidence in our technology has resulted him in hiring a second salesperson, and she's located in Houston and has a long history of success in the oil and gas technology sales.

So to move on to GridSense. There's considerable interest in GridSense's new products. GridSense had a challenging year in 2012 after substantial growth and the achievement of positive EBITDA in the second half of 2011. We're taking steps to set ourselves back on track. We recently installed Joe Musanti, an experienced Chief Financial Officer and Chief Operating Officer, at GridSense. Joe and Lindon are working well as a team. We invested substantial sums in product development in 2012 to expand the application of the Transformer IQ, to complete the Line IQ and to launch our software solution, Grid InSite.

I'd like to take a moment to explain how GridSense sales process works. Typically, a pilot program will grow from an initial order for 1 system to 5 to 25 units in the field. The customer is evaluating our reliability and how well our products are integrated with communication networks. Often, these pilots can take 6 months to several years. So far, of the 7 trials we've started in 2011, only 1 is no longer active, and that's because of a lack of budget. Upon the customer satisfaction with a pilot, we get what we call an initial deployment order for 700, 800 units, as is the case with the 2 most prestigious reference customers in the United States, our Southeast U.S. utility and our Southern California utility that we recently announced. Our marker for whether our capital is being effectively deployed at GridSense is whether these pilots and the initial deployments are supported by business cases at the utilities that will justify large-scale deployments.

Evaluations of the initial deployments can take 1 year to 3 years and hopefully result in a business case for deployment over a number of years for 100,000 to 500,000 units, according to the size of the utility.

We've landed our second initial deployment with the Southern California utility, which ordered 800 Transformer IQs. However, shipment of this order was delayed to the first quarter of 2013, and that has been subsequently delivered. The company expanded the number of active pilots from 7 in 2011, with 1 initial deployment, to 46 pilots today, which resulted in another initial deployment, the one I previously disclosed with the Southern California utility.

We expect 3 more international pilots to turn into initial deployments in 2013. This high level of pilots has increased the requirement for engineering to support the trials. Lindon Shiao and our CTO, Kevin Andersen, have a big vision for the market for monitoring small transformers -- that is, smaller underground and pole top transformers, and their pioneering strategy was acknowledged at a recent Greentech Media industry survey. We formalized collaborations with Landis+Gyr, Silver Spring Networks and On-Ramp Wireless that are big potential partners -- big potential channel partners.

The macro trend for transformer -- the age of transformers is compelling. Another driver of the market has appeared this year: cyber threats to our power grid. We've invested $14.2 million in cash to date in GridSense. The long-awaited Silver Spring IPO has added optimism to this market sector, but we remain cautiously optimistic, and our goal is for GridSense to attain a cash-neutral position in the second half of 2013 and resume its growth path from 2011.

The utility industry is bureaucratic, and sales cycles are long. We're having encouraging success. Our budgeted cash commitment to GridSense is $1.5 million for 2013.

We bought OmniMetrix in February 2012. What made this business compelling to us was: one, it fit into our theme of fallen U.S. grid reliability; two, it boasted a total addressable market of over 2 million installed generators, which is growing about 15% a year; three, it was well positioned to dominate a channel of over 1,000 dealers; and four, the vision of our -- at the time he was a consultant, but now he is our Chief Sales and Marketing Officer, Andy Briggs, that we could double the profitability of progressive dealers, dramatically improve customer satisfaction and reduce customer churn at the dealers with OmniMetrix's rock-solid product and brand reputation it had proven in the field over a 15-year period.

We bought the business in February 2012. We had 1 inside sales rep and negligible sales and marketing efforts and $60,000 [ph] in revenue through the Generac dealer network.

Today, we have an outstanding team of 10 sales professionals that were hired by Deena Redding and led by Andy Briggs. Andy's background is in sales at a leading Kohler dealership and later in his own business for Generac. As a Generac dealer, he became OmniMetrix's first customer. Andy rose to the top of his field until he was recently the head of Generac's Dealer Council.

So we have a former dealer leading our sales effort to the dealer channel. Andy is charged with us as a consultant, and he has a team that have only been on board since the beginning of 2013. Even without the full-time effort of Andy and his team, we were able to build our install base of units from 1,958 power generator units to 3,421 by the end of 2012, which is almost 75% growth. We also ended the year with 2,230 cathodic protection monitors on pipelines. We've changed the business model to a $300 to $400 upfront monitoring fee with no upfront charge for hardware.

Our plan for 2013 is to expand the number of generator monitors by 10,000 units in 2013 and 25,000 in 2014 and to achieve positive cash flow in the second half of 2014. We're on plan for 2013 with -- for example, the past 3 weeks, we shipped over 200 power generation monitors each week, and we have a robust pipeline of dealer relationships in key account trials.

The investment we made on OmniMetrix not only build out the sales force. We also made important innovations, like the industry's first 4G device monitor and the industry's first low-power mobile generator monitor and the only 24/7 call service targeting dealer technicians, who are key influencers in the sales process.

To accommodate the expected growth, we outsourced manufacturing and hired Chris Gropp as our Chief Information Officer to expand our business proposition from simply monitoring to higher-value services like power assurance and failure avoidance through predictive analytics and alarms.

Finally, let's discuss DSIT. They had another profitable year, with 30% revenue growth, and proved that we know how to grow consulting and engineering business into a product business. Since Benny Sela took over as CEO, DSIT has grown from a $4.1 million revenue but lossmaking business with just an idea that energy infrastructure represents a substantial soft target for terrorists.

Operating under that thesis that there are over 3,500 energy terminals located underwater and that they're vulnerable to attack from avenues where there's no visibility, our team took its expertise in sonar and acoustics and created an underwater security industry. DSIT is now an industry-leading manufacturer, generating $1 million dollars of EBITDA from $13.6 million of revenue.

In 2012, DSIT shipped 10 commercial systems. The company ended the year with over $9.6 million of backlog and a robust pipeline of business opportunities. We're working to expand their product line from active sonar to include passive sonar systems through a joint project with US Seismic funded by a grant. We believe this will substantially increase the size of the market and differentiate our product offering. In addition, they're expanding into seismic security applications. This winning team is going to keep winning, and we invested $2 million

in 2012 to help them fund their profitable growth. Macro factors such as the terrorist attack on the Statoil gas facility in Algeria and resource nationalism in the South China Sea and the Gulf are going to fuel the growth for the market for DSIT Solutions.

In conclusion, we're very happy with our emerging market and technology position. Our cash is sufficient to last through 2013 and our major cycle of investment. We believe each of our businesses will demonstrate rapid growth in 2013 and beyond.

Thank you very much, and we're now happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Jim McIlree from Dominick & Dominick.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

John, can you go over the investments that the company plans on making in each of the units in 2013 again? I think I got it for a couple of them. But if you can just do all 4, that would be great.

John A. Moore

Super. So we have announced that we're going to invest $5 million in US Seismic. We've already funded $2.5 million of that this year. We've announced that we're going to invest $1.5 million in GridSense, of which I think we've already invested $0.5 million. We're investing $3 million in OmniMetrix and $2.2 million in DSIT. That should total 2.2 -- $12 million.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Right. And the interrogator for US Seismic, I think you said that that's going to be -- or that's scheduled to be ready July 1. Does that interrogator need to be then tested for some period of time, 3 months, 6 months, before you get the commercial orders that you're expecting? Another way to ask that is, how critical is the interrogator's completion to generating the second-half sales that you're expecting?

John A. Moore

I'd like to turn that one over to Jim.

James K. Andersen

Yes. We have finished the hardware portion of that, and we're just going through the software and debug and expect to have it ready as a product in July. What we're making now is we have a hardware-based solution instead of a PC-based solution, and the main thing that brings to us is an ability to increase our margins. The cost of this new interrogator is on the order of 10% to 15% of the cost of the pre-used interrogator, which is really going to allow us to improve our margins, and the performance actually will be much better. So we're just trying to transition away from the more expensive hardware solution, and we expect to be doing that in July.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

And apparently, you think that the customers are indifferent to the 2 different versions of the interrogators, or -- if I were a customer, I wouldn't just wait.

James K. Andersen

I would think the customers -- oh, the performance -- the customers would enjoy the performance of the PC-based, primarily because of the fact that it takes up less room. It's about -- for a similar number of channels, it's about, I'm going to say, 20% of the hardware needed because most of the computations are occurring in a dual-core PC processing system. So we're not making a real big point of a lot of things because we are actually selling systems now with the older interrogator. And with the new interrogator, we're designing the -- that will be compatible with the older system, so people will feel comfortable that they could switch over at any time, and even if they have the older downhole equipment, the newer interrogator would work with it. And the main point -- and really the main point we're trying to do is this gives much better margins on our equipment.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Right. Okay, great. And John, on GridSense, it seems like you're shifting your distribution strategy a bit, trying to partner with Landis+Gyr, Silver Spring. And you mentioned a third. Could you mention who that third was again?

John A. Moore

On-Ramp Wireless, On-Ramp Wireless.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

On-Ramp. Is that -- am I correct that you are trying to shift the distribution strategy a bit?

John A. Moore

No. My favorite expression in physics is force equals mass times acceleration, and these big companies -- utilities buy systems from these big players, and we're really a piece of their system. So Lindon has been working very hard at developing those communication systems, and a lot of the -- we have 17 engineers now at GridSense, and a lot of the 17 engineers are devoted to making these pilots work by making certain that the different radio systems work with our system. So it's a lot of custom engineering that hopefully will result in some big deployments.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Okay. But I was focusing more on the distribution side. It seems like you've been going directly to the utilities, and now you're going more towards these integrators. Doesn't that just extend the time period that it would take for GridSense to become successful?

John A. Moore

Lindon? Lindon, why don't you take that question?

Lindon Shiao

This is Lindon. I'm happy to comment on that. I don't think that this is necessarily a shift or a change in our selling and distribution strategy. We've always work with other operating partners that specialize in certain areas. The 3 companies that John mentioned are leaders in the wireless communication space. And so we've had these relationships ongoing for a number of years already, but we're really now being able to leverage the channel that these companies represent. In addition to working with communication channel partners, we are also working with value-added integrators that provide more than just communications and software and sensors, one of which is IBM. And in addition to working with system integrators and communication providers, we continue to work directly with the end-user through our network of manufacturers, representatives, as well as distributors for our international markets outside of the U.S. and Australia.

John A. Moore

So, Jim, I think it's an "and" not an "or", so it's additive. It hasn't slowed down our penetration. It's helped it.

Operator

Our next question comes from Ronald Frank from Pacific Management.

Ronald Frank

I have a couple of questions. One is about at US Seismic, I'm glad to hear that you've hired a new salesperson in Houston. Have you also looked at hiring someone to do international sales and production at USSI?

John A. Moore

Jim?

James K. Andersen

Sure. Yes, we hired the person in Houston because we felt it was time to have somebody there representing us and -- not only from just sales, but also a little bit of customer care also, dealing with the customers on a pretty much daily or weekly basis. We are looking at hiring somebody in the U.K. to handle Europe. And for the first time, we're exhibiting at the EAGE Seismic Exposition, which is the largest seismic -- oilfield seismic exposition held in Europe every year, and we'll be exhibiting at that in June. So now that we have the product ready to start shipping in quantity, we're starting to expand how we're marketing including internationally.

Ronald Frank

Jim, how are you making the shift from being essentially an R&D facility to a production facility? And are you hiring more people to ramp up production? Or if not, when do you plan on doing that?

James K. Andersen

Well, as John mentioned, one of the things we did -- I used to run the group that made the fiber-optic sensor systems at Litton Industries -- is once we got the technology so it was working, we made a concerted effort to automate all the steps to produce it so we could remove most of the touch labor and actually improve the uniformity of the product. So there was a period of -- once we got the technology working there, we went through this process that took, on the order of about a 1 year, 1.5 years to get to the point where we could produce thousands and thousands of these sensors a year at Litton. We went through the same thing here in that, as we got the product, tested it out, and made sure it was working, we set up the infrastructure here to be able to produce in large quantities. Example being, we had to get an ISO certification because these large customers require that you have a good quality control system in place. They come out and inspect and make sure you could produce consistently, with high quality, to become an approved vendor of these large companies. We implemented an ERP system to automate -- we bar-coded inventory so we could track inventory and everything from purchase orders through inventory and shipping, work in progress and all that, so that's all in place. And so we're setting up to have the capital equipment in place now, which is automated, to handle $50 million in revenue, and we should have all that capital equipment in place this year to be able to ramp up. So we're not expecting to have to ramp up tremendously in labor because we're removing most of that touch labor. So we may add a few more people, but to get to the $50 million capacity, we require minimal additional technicians for that kind of work.

Ronald Frank

And are you going to be having enough money to build some inventory so that you can sort of not lose sales for lack of inventory?

James K. Andersen

Absolutely. That's one of the major things we're doing here in that customers call, and you think they'd plan better, but all of a sudden, they say, "We have this job in Country X, and we need the array there in the well in 60 days." And some of our items that have a lead time, that might be 10, 12 weeks. So we're trying to work out either keeping a certain amount of those things in inventory here or with the supplier working out supply agreements, they keep certain inventory for us in their locations, so we could turn orders around much quicker. And we're setting all that up now.

Ronald Frank

Good, glad to hear it. John, I have one other question. Just on the balance sheet, the net intangible assets doubled exactly from $4.78 million to $9.56 million, and the goodwill has gone up by $2 million. I'm assuming that's results of the purchase of OmniMetrix. Is that what that's about?

John A. Moore

I believe so. Is that right, Michael?

Michael Barth

Yes, yes, that's correct.

Operator

Our next question comes from Rudy Hokanson from Barrington Research.

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

A few questions on a number of the businesses. But first, with USSI, I was wondering if there was a note about the fact that part of the delay, I believe, was due to materials from a sourcing partner? Did I read that correctly?

John A. Moore

That is correct. Jim, do you want to take that question?

James K. Andersen

Yes, I wasn't sure where you read it, but that actually -- absolutely. What happened is -- and we're trying to work out how we deal with some of our customers, and what happened is, there was a customer that we're dealing with that wanted to supply -- design and supply the fiber-optic lead cable to us in order such that they don't have to pay the burdens associated with it if we bought it. And it turned out -- ended up being a bad idea, because where they ended up is, we used the cable they supplied, there are a lot of problems with it that now we're having to go back and fix. And so we decided, if we're going to sell the system, we have to control all the parts that are important to it, specifically the fiber-optic cable that you use to connect from our interrogator to our sensors. So there was an issue with that. It turned out not to be associated with the manufacturer, but it turned out to be some design flaws based on -- our customer had asked for with that cable, which made it not really suitable for downhole use. But we got that -- that problem's behind us, and we've changed our way that we are going to control all the key parts and only sell it as a system to our clients.

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

Okay. And then, a broader question on your business. As each proof of concept is fairly unique -- at least you highlight that in your 10-K. What kind of leverage can you get out of each experience? And also, what are you learning with each one of those proof of concepts that you could maybe share with us about your system?

James K. Andersen

The main thing we're learning on all these proof of concepts is, even though our fiber-optic technology works very, very well, there's a lot of peripheral things that have to also work well for our system to work. One example being some of our clients -- a very important part of our system is when you drop the thing down the well, once it gets to the depth, you have to have some way of clamping it to the internals of the wellbore so that the sound that's going through the earth gets coupled to the sensor. And we have a couple of designs for these downhole clamps that we've designed specifically for our sensors. They work very, very well. Some of our customers have asked for, they want to use some clamps made by other companies that are sort of industry-standard, and we've used these, and there've been issues with them because -- everything from material prongs, they don't couple very well. So we're learning that, in order to make our system so it works very well for our clients, we have to control some of these peripheral things and make sure that, for example, like the clamps and things like that work properly with our sensors and not just use some industry standard that companies -- other companies have been using for a decade or longer and want to keep using them just because they're used to them. So we're going through that process now. So the main things we've been learning is that it has to do with the peripheral equipment that might be used with ours, and we have to make sure that it works well with ours or recommend that our, say, clamps be used for our systems.

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

So on your upcoming test, your shootout in April, will it be a fully USSI-integrated system that you're going to be using? Or do you still adapt some third-party equipment?

James K. Andersen

No, this is, top to bottom, our equipment. Basically, the supermajor company came to us and said, "We've determined that we don't understand the subsurface well enough, and we're losing a lot of money in producing all our unconventional fields. I'm losing a lot of money," they feel. So they have to get this understanding of the subsurface figured out. So they said, "We're going to have a shootout between you and the other guys that are making similar equipment." But they want us to make what we think will work the best. So we are using our best sensors, our best downhole clamp. Everything that we're designing for this is ours. It's all been tested. We feel very confident because we know the technology we're going against. We've already gone against all of those downhole. We know we have better performance, so this company doesn't know it yet, but we believe that we'll be successful in this test that we're getting ready to do in April. And just like you say, one of the reasons we're controlling every key aspect of our product for this test, and they want us to. But I'll go another step, which -- even further, which is very important, is that one of the things they made sure of before they even allowed us to be in this test, and that's why we say we have to have these quality-control systems in place, show that we could produce at higher levels: they sent teams out, their quality-control people and everything, to come and visit our facility, do survey, because they want to make sure if, in fact, they pick us for this huge job that they have to do, we can actually produce at the quantity that they're going to need. And if they would have found that they didn't think we could, they wouldn't have included us in the test because it would be pointless that we can go out and do a test but then, when they want to use the equipment, we actually couldn't supply it. So all these other things that were going in the background in the last year all came to a fruition with this supermajor, which will also come to -- with other similar-sized opportunities for us.

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

Okay. A quick question on GridSense. You're moving the manufacturing, John, from Sydney to Sacramento. And I was just wondering if this is a direct sign that you now see the U.S. operation as becoming the focus for GridSense while you still have business globally?

John A. Moore

Well, I would say just that labor rates are very high in Australia, and we are seeing -- we do still have some substantial pilots going on right now in Australia. But yes, I think the U.S. is both, what, the cheapest place to produce as well as the place where we can control, and -- yes, the answer is yes. We're very optimistic about our Australia pilots, but in the meantime, it's a lot cheaper to design and build systems here in the States.

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

And so you don't anticipate any disruption?

John A. Moore

I think it's already happened.

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

Is it on time? It already has in '12?

Lindon Shiao

Yes, that's correct. That shift has -- is nearly complete, and it hasn't been very disruptive to our business. And as John mentioned, the decision to shift production from our Sydney office to Sacramento was largely driven by economics, and also to have production closer to our primary market in North America. While Australia still remains an important market, we think that the greatest area of growth is going to be in North America.

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

Okay. And then a question on DSIT and USSI. The agreement -- or the award to work together on taking the land security business of USSI and having DSIT do the marketing of it, or basically be the one that has it in their portfolio. There was, I believe, in a writeup somewhere, it was talking about negotiations or something else going on between USSI and DSIT. And I was just wondering, why hasn't that happened faster? And again, as you mentioned, the security issue in Algeria with a land natural gas facility, is this keeping you from being able to sell that system right now, because the 2 are still working out what the arrangement's going to be?

Benny Sela

Well, that's a good question. I think the real problem has been that both sides are just so busy, that -- but they're working on it, and stay tuned for an announcement. But we definitely want to get the security assets of US Seismic into the hands of DSIT so they can basically more than double the total market opportunity for DSIT by adding land-based perimeter security.

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

And one -- I'm sorry, I just thought something else with DSIT. I believe it was written that the geographical makeup of sales for DSIT going forward may be -- at least in 2013, the current outlook is that it may be a less percentage than it has been in 2012 in terms of the percent outside of Israel. Am I correct?

John A. Moore

Yes, that's true.

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

Could you explain what's happening with your markets on that, or why you say that?

John A. Moore

Well, just taking 2012, the results of 2012 were significantly impacted by this one particular order, I think we had about $7.4 million of revenue this year that was outside of Israel, just from this one particular order. So we're not going to repeat that. Plus, we recently got this new order that was domestic. So again, given the long sales cycle and it's -- we see this as a temporary shift. I mean, the basic market for us is overseas. I think 2012, you could say, was unusually high because of the impact of this one particular order.

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

Okay. So there's nothing strategic going on?

John A. Moore

Absolutely not. I mean, the strategy is definitely overseas. Overseas being non-Israel.

Operator

Your next question comes from William from Bremer.

John A. Moore

William Bremer with Maxim. Welcome, Bill.

William D. Bremer - Maxim Group LLC, Research Division

I guess my first question goes to Jim on the order pushout that looks as though it's now going to be hitting the second quarter of '13, if I'm right. Can you give us an idea of the magnitude or the dollar figure of that potential pushout there, and was it really -- is it due to the fact -- I heard you mention the cables, or is it potentially some supplier issues? And I guess my second question, Jim, to you is, is how many suppliers are currently manufacturing your arrays?

James K. Andersen

John, you want me to just go?

John A. Moore

Yes, please, Jim. Yes, please.

James K. Andersen

All right. So it turned out that a key component, and I kind of touched on this with another discussion, is the fiber-optic cable that takes our -- goes from our interrogator box down to the well to our sensors and then connects our sensors as -- because they're separated about 50 feet, 25 to 50 feet downhole. When we started seeing some problems with that cable on a previous job, we wondered if it was a systemic problem with the cable, or was it a problem with the design? So we pulled back, and if you get a bad reputation in this industry for reliability, it stays with you for a while. So rather than going with a cable we already had ordered, we went -- underwent a very rigorous test program, where we took our cable design, sent it out to an outside research facility, and had it run through the paces for pressure, tension, bending, to make sure that the cable that we're using is satisfactory for the job. That delayed our ability to ship that product until -- it's going to be Q2 of this year. But at the end of the day, we think that was beneficial. We explained it to the customer, they understood and actually were pleased that we went through this with their product so they'd feel comfortable when it was delivered that it would meet the specifications. So yes, things got pushed out. That was about a $1 million pushout on that one order. But at the end of the day, I think it's best for the company and for that client.

William D. Bremer - Maxim Group LLC, Research Division

And how many vendors or suppliers will be producing your arrays?

James K. Andersen

Well, actually, we produce it. But for example, the fiber optic cable is a key component, and so we buy that. We specify it from primarily one company, and that's a key component. The -- like for example, the interrogator, we design the equipment. We do not build the circuit boards. We have that done by a contract manufacturer. They come in, then we assemble that into the chassis. The sensors themselves, we manufacture and build them here. We have an automated winder that we're just going through proof-testing that does 10 sensors at a time as compared to, now, we're doing 1 at a time. The actual fiber for those sensors we buy from -- there's actually several suppliers for the optical fiber. But other than that, we basically assemble everything here.

William D. Bremer - Maxim Group LLC, Research Division

Okay, sounds good. And John, on OmniMetrix, the order pushout, can you give us a magnitude of that? And when do you expect that to hit?

John A. Moore

So when you say the order pushout, you mean the -- what we're doing right now, as far as I know, we're producing -- we're sort of shipping out of inventory right now, so we're -- OmniMetrix has a very stable product, and it's one of our most mature products in the portfolio, and it's really just an issue of ramping the distribution. And -- is that what you were asking about, Bill?

William D. Bremer - Maxim Group LLC, Research Division

Yes, I am.

John A. Moore

So Deena, would you mind just briefly touching on our order ramp at OmniMetrix?

Deena Redding

Sure. Our production capability is very strong. We have in-house production of probably months of availability. We usually can ship same day or next day for any volume of orders that are coming in currently, so we're contracted out to a contract manufacturer, as well, who's ISO-certified, so we're in good shape for that.

William D. Bremer - Maxim Group LLC, Research Division

Okay, all right. And then, I'm sorry John, I meant to say GridSense, okay? If you could provide us a little bit more there. Very significant amount of pilots occurring now, and looks as though you have -- I think you mentioned 46 today, 3 more internationally. How many do you have, internationally, slated for '13?

John A. Moore

Lindon, do you want to address Bill's question?

Lindon Shiao

Sorry, I had a phone on mute. I apologize. So the split between North America and international pilots is probably 60% -- 60% to 40%, 60% being the number of pilots that we're supporting in North America. And at the end of 2012, we did increase the number of new utility users, and the number of pilots based on our last count was over 45.

William D. Bremer - Maxim Group LLC, Research Division

Okay. And can you give us a sense of, at what point during a pilot do you feel as though you've hit the customer's milestones that they're really looking forward -- looking for, I mean? How much time and effort goes into each one of these at -- and at what point do you sit back and say, "Hey, okay, we are achieving what they're looking for, and it looks good for potential commercialization and future orders."

Lindon Shiao

So I think these pilots, we are realizing, do take a lot of time and support from our operating team. And one of the areas that we are buttressing in the organization is our presale and post-sale support team. The typical duration of an evaluation can range anywhere from a couple of quarters to over several years, and so it's really important for us to continue to support and continue to sell during that evaluation process. I think, as John indicated earlier, the typical process will begin with a unit or a handful of units, and that can expand to a couple thousand. And then the rollout would expand into several hundred, and then we believe that, with a number of the pilot customers that we have, they -- these pilots could materialize into significant network rollouts that would entail possibly tens of thousands of units.

William D. Bremer - Maxim Group LLC, Research Division

And then Lindon, just a follow-up on that. You did had an order pushout. When and how much do you believe -- when do you believe that'll be realized? And can you give us the amount, roughly?

Lindon Shiao

Are you referring to the trial that we...

John A. Moore

Yes, the Southern California order. Wasn't that like $1.2 million, and it's already shipped?

Lindon Shiao

Yes, the Southern California asset. Okay, yes. Right, that was over $1 million. We secured the order in 2012, but at the customer's request, we shipped after the 2012 fiscal year, and our most -- I think all of the deliveries were fulfilled in the first quarter of 2013.

Operator

Harvey Poppel is next from Poptech.

Harvey Poppel

John, I just wanted to quickly see if I've got a gross characterization of where the total company stands, and that is that 2012 seemed to me to be a bit disappointing in terms of the pace at which a number of your emerging units received the kind of orders that perhaps some investors had expected. But right now, you're sitting on of cusp of what looks like the upward curve that maybe some would've liked to have seen 6 months ago, but it's here and now. And for us who have been involved with the company for a long time, looking back is of no consequence when you have this kind of bright outlook going forward. Would that be a reasonable observation?

John A. Moore

Absolutely, absolutely, Harvey. I think I underestimated because of -- I underestimated how long the seismic was going to take, and there were delays. But it's -- Jim is right that it's more important that we get it done right and we have a reputation for quality and we now ship out things that we know might fail in the field. So I think you hit it perfectly, Harvey.

Harvey Poppel

Good. I have a couple of specific questions. When you speak of a level in USSI, what is a level? Is that the particular, discrete product?

John A. Moore

Jim, could you briefly explain that to Harvey?

James K. Andersen

Yes. For the sensors that use downhole, they have to be able to get, when they detect a signal, not only detect it, but get the directionality of that signal so they could pinpoint where it's coming from, either from a microseismic frac event or a reflection from a source that -- where the energy bounces off some strata. And in order to get that directionality, you have to have an X and a Y and a Z component at each sensor location. So that means you get the X direction, you get the Y direction and the Z, which is up and down the well. And from that, you could determine directionality. So traditionally in the industry, that group of 3 sensors is called a level. And so how they're described is to have like a 10-level system, 100-level system, which would have 3 orthogonal sensors in each level.

Harvey Poppel

Right, okay. And the other observation, more than anything else, is I'm particularly impressed with your newest acquisition, OmniMetrix, and the fact that it's playing in this -- what has got to be one of the hottest fields in the technology industry, which is the M2M marketplace, with a very robust product and a very defensible position. And I think the potential there is just enormous. I'm very, very cheered by that particular acquisition.

Operator

Our next question comes from Gavin Richey from Rockwood Investment Partners.

Gavin Richey

Does any of the other subsidiaries other than GridSense have or plan to have the incentive -- employee incentive plan?

John A. Moore

Each one of our subsidiaries has options that, upon exit, hopefully will make them rich.

Gavin Richey

Is there a number associated with those, like the 17% bonus pool?

John A. Moore

Each company has a different level. It's generally around 15%.

Operator

Our next question comes from Robert Littlehale from JPMorgan.

Robert Littlehale

John, I was curious to know, more from a macro standpoint, are you pleased with the elevation of Ernie Moniz to Secretary of Energy? Is that -- was that a good appointment, in your mind?

John A. Moore

Well, my -- yes, I think that she's got a good background, and we're sort of a -- there's this interesting tension in the United States between we want to get at that shale and the environmental community that wants to make certain that we do it in an environmentally responsible way, and I think she'll be very constructive.

Robert Littlehale

And then just a crystal ball type question, as it relates. It seems that there's a tremendous amount of effort to develop utility-scale battery systems for storage and outage management. Is that an opportunity for Acorn, do you think?

John A. Moore

I don't think so. I think that, you look at the amount of capital that gone into the batteries, and a lot of capital's been -- it's very difficult to change the nature of atoms to improve its storage. But one of the things we're focusing on is how do you make the grid smarter with things like demand response and make energy cheaper. So I think that batteries are hard. And a lot of capital's been torched in that business.

Operator

Our next question comes from Ross Silver from Vista Partners.

Ross Silver - Vista Partners LLC

Just a question for you, as it relates to the total spend for each company, your cumulative spend by the end of 2013. What's that number? And is it fair to use the IRR that you had with the successful sale of CoaLogix and apply that IRR to each of these companies? Is that sort of a fair number to use?

John A. Moore

Michael Barth, maybe you could answer that question about the amount of -- we've invested in each business.

Michael Barth

I'm sorry, can you repeat the question? I'm sorry.

Ross Silver - Vista Partners LLC

Sure. So what would be the total spend to date for each of the companies by the end of 2013, using

a number that you gave on the call? And then, is it fair to use the IRR that you had for the CoaLogix sale when thinking about the exit for these companies?

Michael Barth

Okay. In terms of the amount invested into each company, I don't -- I'm not going to have exact figures at -- off the top of my head, but I could tell you. I mean, John mentioned we said about $17 million with [indiscernible] of about $14 million or so. [indiscernible] $2.5 million that we put in. I'm [indiscernible]. OmniMetrix would be another $3 million, so that would be $14 million. DSIT is really only about $3 million. And in 2005, we actually sold a company and made an exit on DSIT. So in the DSIT that exists now, it's only about $3 million. In terms of the IRR, I mean, you could say that it's a good target. I mean, it's...

Ross Silver - Vista Partners LLC

I guess what I'm looking for is, what's a way to sort of think about -- to sort of, I guess, model, because your model is to find these companies, invest in these companies and then, at some point, potentially exit the company. So I'm just trying to think of sort of a ballpark-y, CoaLogix as an example. I just figured that -- was that a -- the right way to think, or is it potentially higher?

Michael Barth

I don't think the CoaLogix example is a bad example.

Operator

Our next question comes from Frank Barresi from Ameriprise Financial.

Frank Barresi

Hey, I was wondering, you'd -- earlier, someone asked about the interrogator and being ready July 1. But how likely is that to be delayed? I mean, how confident are you? And I don't -- didn't know if it was answered whether it would require a lot of testing. So that was one question I had just about how, on the interrogator, when will it actually be ready to ship, and how confident are you about that July 1? The other question is, is the tests -- you were doing some more tests with the customer you have that's using the system. And I was wondering how well it's working for him, if he's able to use it continuously, the seismic system? And that's it.

John A. Moore

So Jim, that's for you. And that will be our final question on the call.

James K. Andersen

Okay. So on I'm going to start with the second part first. There was a question about having it work continuously. There's no problem with it working continuously. We have systems that we just run in-house where we have them running around the clock for weeks at a time, and that's sort of how we test them, similarly like we take our sensors and we put them in an oven and leave them in there months at the time at high temperature and make sure that no issues happen with them. So for a continuous operation, we're very confident our systems will work continuously with no issues. With respect to the interrogator, yes, we're very confident that we'll have it ready for -- to offer to customers in July. I believe we have an order being lined up for a July delivery, and we intend to use the interrogator. It's a 100-level system, and we intend to use the new interrogator with that delivery that's going to be delivered in July.

Frank Barresi

Okay. And I guess when I said continuously, with all -- where you've changed the clamps and all that bit, I can't think of their -- I think it's -- is it SR2020 where they have had systems for a while? And are they able to use them as well as they would older equipment that's been around for a long time in their actual production work?

James K. Andersen

Yes. That one company that you're talking about, actually, was -- I think you're talking about Apex.

Frank Barresi

Apex, I meant.

James K. Andersen

Yes, Apex. Five points. The main, I mean, the -- we did some tests with them and everything worked well. We delivered a system to them, got very good data. They did have a problem with a cable, and that's the cable we've discussed, and the odd thing was it was provided to us by the customer, and so we're trying to work that issue that, on future orders, that we're going to control the whole system and actually buy the cable so that would eliminate the issues with the cable. But that was -- there is -- the 2 issues associated with that customer were the cable, and then there were some magnetic clamps that really didn't work that well with our sensors. But at the end of the day, even with all these issues, it was clear that the performance was very, very good as compared to the conventional technology. So when everything's -- gets working perfectly, which should happen with the next systems, it will be even better.

Frank Barresi

And are they ordering additional systems, then, Apex, or...?

James K. Andersen

Yes, we're through negotiations with them now, primarily on how we deal with this cable issue. And I expect -- and very soon, we'll be getting additional orders from them.

John A. Moore

Okay, great. So sorry, I apologize. Charlie Sloan has not yet had a chance to ask a question, and we're going to try to be very brief in answering Charlie's questions. Charlie?

Operator

And our next question does come from Charlie Sloan from Mid-Continent Capital.

Charles Melcher Sloan - Mid-Continent Capital, LLC

John, very quickly. Okay, so go. Fast forward 1 year, sales of $50 million plus?

John A. Moore

We, Charlie, we don't give projections, but we try to lay out the milestones.

Charles Melcher Sloan - Mid-Continent Capital, LLC

But you've laid out some milestones that suggest that it's $50 million plus in sales.

John A. Moore

I think it's going to be less than $50 million. In 2014?

Charles Melcher Sloan - Mid-Continent Capital, LLC

Run rate, run rate.

John A. Moore

Yes, so 2013 will be less than $50 million in sales and hopefully, 2014 will be more than $50 million in sales.

Charles Melcher Sloan - Mid-Continent Capital, LLC

Okay. And then finally, OmniMetrix. So OmniMetrix, if you have a cash flow positive at second half '14 or something like that, what happens?

John A. Moore

Second half of 2013 for GridSense. Yes, sir.

Timothy Fronda - Sidoti & Company, LLC

No, OmniMetrix.

John A. Moore

OmniMetrix, 2014, that's correct, sorry.

Charles Melcher Sloan - Mid-Continent Capital, LLC

So on OmniMetrix, you have an assumption in there of 95% retention ratio.

John A. Moore

That's correct. It's actually runs historically around 1%, but we're thinking as we get to bigger numbers that the churn rate could go up. And lastly, I think we have Jim McIlree.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

John, I'd didn't mean to keep you. On the metrics, I just wanted to go over the economics of that again. So you supply a $300 or $400 piece of hardware to the customer, and then you amortize that sale over the next 12 months? That's the way it works?

John A. Moore

I'll hand it to Michael Barth.

Michael Barth

We provide the hardware unit. We got monitoring fees upfront. The monitoring fees are amortized over the monitoring period. The hardware cost, and if there's any revenue associated with the hardware, is amortized over what's expected to be the customer life. So you have 2 tracks: you have your monitoring track and your hardware track.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

And is it designed to be cash flow neutral to OmniMetrix, that whole -- those 2 transactions?

Michael Barth

If you look at them together, the first year is slightly cash flow positive, and then any recurring revenue, which we, again, we anticipate, it should be long-term, it's going to be very high. Cash flow positive.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Right. So the investments in OmniMetrix this year are for sales and marketing, product development, but not to fund the -- necessarily to fund deployments of 10,000 units. It's really more of the infrastructure to get those 10,000 units deployed?

Michael Barth

Yes. I mean, you could say that there's some timing on the investments, because you have to have the inventory.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Right, okay. That's good. And then Jim, the supermajor shootout that you're going after, maybe I'm thinking of it too -- maybe I'm putting too much import on it, but it seems like that's -- if that doesn't work, is that a disaster for you guys? Is there any recovering from a failure of the supermajor shootout?

James K. Andersen

Yes, I mean, I'm envisioning we'll have a successful, call it, shootout. Performance-wise, we already know -- we've been against the other technologies in downhole, similar kind of testing, and we know that our performance is better. We're doing a complete checkout, because it is -- it really is important. I mean, there are other opportunities that are coming along, similar to this, but this is one that -- they came to us, they told us they have to do this, and have a -- develop this technology for their -- all their wells going forward in 2014, so they have to solve this understanding the subsurface issue in 2013, so they have a very tight schedule. They came to us with -- and explained this whole process. We've been working with them a while, but they said they tried all the surface seismic stuff and it didn't work for them, so they've -- convinced have to go downhole. In reality, if we are able to perform and win this for them, they -- it makes their job easier, because not only is our performance acoustically better than the conventional technology, but about 1/2 of the wells they do are high-temperature, and we're the only ones that have -- can meet their temperature requirements. So whereas it isn't like if we miss it that all is lost, but the upside in both 2013 and then 2014, if we win, is tremendous. So we're looking at it more on the positive side. So I've made it pretty much a top priority for us to get out there and make sure we win this competition.

John A. Moore

Thank you, everyone.

Operator

And ladies and gentlemen, that concludes today's question-and-answer session. And at this time, we would like to conclude the conference call. We do thank you for attending.

John A. Moore

Thanks.

Operator

And everyone, you may now disconnect your telephone lines.

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