Acorn Energy's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.18.14 | About: Acorn Energy, (ACFN)

Acorn Energy, Inc. (NASDAQ:ACFN)

Q4 2013 Results Earnings Conference Call

March 18, 2014, 11:00 AM ET

Executives

Heather K. Mallard - VP, General Counsel and Corporate Secretary

John A. Moore - CEO

James K. Andersen - President and CEO, US Seismic Systems Inc

Joseph Musanti – COO; President and CEO OF GridSense and OmniMetrix; CFO of U.S. Seismic Systems, Inc., GridSense and OmniMetrix

Analysts

William D. Bremer - Maxim Group, LLC

James McIlree - Chardan Capital

Operator

Good morning and welcome to the Acorn Energy Fourth Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Ms. Heather Mallard, General Counsel. Please go ahead.

Heather K. Mallard

Thank you and good morning everyone. Please take note that certain of the matters discussed in this presentation contains 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 involve important risks and uncertainties that can 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 facts in this presentation regarding Acorn Energy 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 can affect Acorn Energy or any of its subsidiary's results operations or financial conditions please review Acorn Energy’s filings with the Securities and Exchange Commission, in particular the 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 may be different due to 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 A. Moore

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 that we will be repaid by the end of 2014. So our $15.8 million of cash is anticipated to meet to our expected needs for the foreseeable future.

Each of Acorn’s business 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 of 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 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 in GridSense and OmniMetrix. I would like to discuss the portfolio of company's one by one beginning with U.S. Seismic and at the end discussing the three that are on the way to independence.

First I would like to address questions, why it’s taking so long to commercialize U.S. Seismic's technology. I think that first of all because our technology is being used in the production environment that the technology has to be proven in a harsh, busy oil field 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 a producing field in the middle of January, which has just started to take data because the customer's preoccupied with drilling 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 a selection by a super major oil company 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 multi-level 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 straight forward 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 underground where they have their own retractable systems. So the first is SR2020, small but very innovative seismic services company. They have 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 test we have done to-date have been on producing wells. They have all been on observation wells. Since our system is proven we will be ready to test -- once our system is proven we’ll 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 test of our system and 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 of 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 and 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 the 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 oils move in to detect [mono test pay] [ph] which is oil that that hasn’t been correctly pushed out into the drill bit and for safety purpose to make certain the steam or carbon dioxide doesn’t escape and hurt somebody.

Oil is produced using steam in California’s pads [inaudible]. We recently completed a permanent installation which is a head-to-head trial versus legacy geo folks, with one of 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 to 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, our state regulators as well as the large companies that are on adjacent fields. Steam is also used to produce Canada’s oilsands using a technique called SAGD or steam assisted gravity drainage. SAGD currently supplies 25% of all the oil Canada exports to the U.S. There is currently $250 billion of planned investment in next six years in these fields that is easily as large as amount of investments that goes into U.S. fracking.

Thought leaders in 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 tiltmeters 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 abilities 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 the leader in under water security. Our product line includes diver and swimmer delivery vehicles, threat detection systems, tactical training simulators for submarines, mobile acoustic ranges and underwater simulation 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 51% of the world’s petroleum passes through five choke points in contested waterways, Luzon which is in the Philippines, South China Sea, Morocco and the Maldives, which is near India and the Gulf of Hamus. DSIT is well positioned now, because they have reference customers in each of these choke points.

There's increasing friction between nations regarding ownership of the rich oil and gas deposits in the South China Sea. And particularly there is high tension among the eight nations that are currently extracting oil from the region. The market for anti-submarine warfare experienced 28% growth during the years 2008 to 2011 and Jane's Defense Weekly has forecast an accelerating growth of over 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 has several customer orders for the product and we delivered the system and received good performance reviews. Most of the DSIT revenues are denominated in U.S. dollars and 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 $1.1 million working capital loan of which they repaid $850,000 before the year-end and the balance was repaid in the first quarter of 2014. We expect that we will continue to support GridSense with short term working capital loans to spur its growth in 2014.

Progressive governments worldwide are privatizing the 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 uses of our technology in a Southeast Asian nation’s power company that is using our Transformer IQ’s to intersect 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 of 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 cost, reduced our gross margin but is going to be a fulcrum from which we can expand 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 is at least $20 million of opportunity for us over the next five years. We have developed and commercialized the first pole top transformer monitor. Today it's being trailed by some of the world's largest utilities to monitor for technical losses and theft or non-technical losses. There are over 30 million pole top transformers in the U.S. 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 SmartGrid conference we will 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's and our customers learning over the past three 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.

So lastly I'd like to touch on the metrics. 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 one order from one visionary generator dealer for a 1,000 units that represents almost one-third of our 2014 plan.

Overall we have orders for almost half our 2014 plan. A recent marketing study indicates that we are the leading generator monitoring device based on the superior customer service. Most of the traction we received in OmniMetrix 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 penetration in this growing market.

In conclusion our business model is based on the thesis that we can generate very attractive returns by taking small companies with unique technology addressing very large macro challenges in the energy industry of large administrations and growing the businesses to a stage where they are valuable to larger companies at the point when 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 Andersen, Benny Sela and Michael Barth are standing by to answer your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions).

John A. Moore

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

Operator

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

John A. Moore

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 meet 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.

Jim McIlree just sent me a note saying that there are questions in the queue and that they are not being recognized. So this must be a Chorus Call issue.

Operator

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

John A. Moore

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

Operator

And our first question is from James McIlree with Chardan Capital. Go ahead sir. Mr. McIlree you’ve been promoted to the question queue. It appears as though he’s removed himself from the queue.

John A. Moore

Okay, well we know that Bill Bremer is on the line, he just sent me an email. He’s in line.

Operator

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

William D. Bremer - Maxim Group, LLC

Can you hear me John?

John A. Moore

I can, I can. Welcome Bill.

William D. Bremer - Maxim Group, LLC

Success, wow, all right. Can we just get an update on USSI, with the super major the one that we’ve been speaking about all long, I know there has been some deferrals in terms of picking on an appropriate site, some order issues, can you just go through it and I know it’s slated now I believe for the second half of ’14, has the site been picked out at this point, give us an update on that? And then let's follow that up with the relative to the 4G reservoir that you spoke about in California, that technology.

John A. Moore

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

James K. Andersen

Sure, sure. Yes so with the super major, as John noted in the comments leading into this, that we won that shootout, received an order for $2 million for two arrays. And this is for a full scale, high temperature frac monitoring job in the Eagle Ford. It has moved out, initially this was scheduled for, I’ll say April-May timeframe, but some service contractor brought on board to by the super major and these service company has asked for certain things 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 company 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, first week in July.

William D. Bremer - Maxim Group, LLC

Okay, all right, that’s good to hear and then the update on the enhanced technology, sort of geared for…

James K. Andersen

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 in 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 we call it 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 a fossil, plants and things like that, that are very porous, almost like a sponge but there -- 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, if the oil gets trapped in there.

So it has to be fractured to be removed. And 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's really is a high visibility trial, as John was mentioning in the opening comments in that the -- I think the whole California legislation, all that would like to see more oil production but there is a lot of safety regulations and things they want to implement to make sure it's produced safely.

So there has been regulations have 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 are in for a three month monitoring job because the current technology, tiltmeters and temperature sensors and conventional technology just hasn't been able to give them what they are looking for.

So this a side-by-side comparison with the conventional technology and a three month evaluation and we have just as John said the regulators, the major oil companies and other operators, all watching because they really need a solution. And it's -- and the technology gets picked for this it's a gigantic opportunity, just realizing it's probably the biggest shale field in the U.S. and I think [inaudible] said it's three times the size of the Bakken which is a huge field that’s driving all that oil production in the South Dakota, Montana area. So we're really pleased with the opportunity.

William D. Bremer - Maxim Group, LLC

Right. Jim just 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?

James K. Andersen

Yes. One of things, like I was saying is that we went out there and the beauty is that in the last year, every time we've gone out, we put the system in the well, there is no question the clients believe the performance is outstanding. So our systems do work and work well and provide much higher definition than previous technologies. But they also come back and said we like -- we would like some improvements to it, some improvements to how we clamp it 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 is 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'd guess I'd say is paying for this development of these peripheral equipment that our clients are asking for and making improvements over conventional technology and all on our own investment.

William D. Bremer - Maxim Group, LLC

Okay. Let's move to a GridSense now, John.

John A. Moore

Okay.

William D. Bremer - Maxim Group, LLC

Congratulations on the orders. Five different utilities some small, some large, the bulk I believe if I am reading this correctly is from Australia, is that correct?

John A. Moore

That is correct.

William D. Bremer - Maxim Group, LLC

Okay. And GridSense now seems to -- can you give us a sense -- it feels that you have turned the corner there and have a real strategic plan for 2014?

John A. Moore

Yeah, I think that the previous year GridSense had a great vision but I think that we what Joe brings to the story was an ability to be able to focus. You know we got 50 pilot programs now up from 40 at the beginning of the year but what Joe has done is he has focused this around, you know the ten most promising most near term opportunities and we saw one major deployment last year, which is a Southeast Asian opportunity and they really took up a lot of our development time.

On the first quarter call in about three weeks we’ll be talking about another major deployment that we have landed in Pennsylvania for the Line IQ, which is a smart switching program and so -- Jim, 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 track and I think could be terrific growth company for us.

Joseph Musanti

Yeah, I think the only thing I would add that 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 the growth perspective we are looking at him to sort of take us to the next level from the sales and marketing and from the engineering side.

John A. Moore

And one of the things that Bret points out -- Bret 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 communication networks in the electric grid. Now that there has been this big build out of smart meters and all the different communication systems on the grid, now all these utilities are sort of saying how else can we amortize the investment in the communication system, while it’s monitoring the pole top transformers and the small wall transformer.

So there is so much of this CleanTech business is about surviving until the world comes your way and once does that’s when you see a lot of growth and that’s when the strategic start getting extremely interested and so as we go from these sort of $100,000 pilots to million dollar deployments, you know we are 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. We want to own that space. So it’s been a patient time for our investors as we put money into this company but Joe has got it to the point where it’s really not consuming anything other than occasional working capital loans.

William D. Bremer - Maxim Group, LLC

Okay gentlemen. Thank you.

John A. Moore

Thank you, Bill.

Operator

Our next question is from James McIlree with Chardan Capital. Go ahead please.

James McIlree - Chardan Capital

Yeah, thanks and sorry about that earlier, John.

John A. Moore

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

James McIlree - Chardan Capital

Can you walk me through the cash flow for the year? I am not exactly sure I am understanding how you are looking at the cash. First of all you said I thought you said $15 million give or take of cash?

John A. Moore

Yeah we ended…

James McIlree - Chardan Capital

Is that end of day balance or is that -- am I looking at the balance sheet?

John A. Moore

Michael Barth, you correct me if I am 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 are going to be spending that money. We feel less than $3 million will be spent on SG&A at the parent company level and $4.7 million will be spent on US Seismic.

James McIlree - Chardan Capital

And the other $3 million that would be cash flow breakeven or slightly positive you know right around breakeven, let's call it?

John A. Moore

Yeah and one of the things that we have said just to give you a little bit more clarity, we expect to loan OmniMetrix $0.5 million this year, you know it will pass 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 will 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.

James McIlree - Chardan Capital

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

John A. Moore

That is an easy question to answer because we had a substantial negative gross margin in the past. As we look at those, we look at U.S. Seismic as pretty much as 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 like 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 we’ve gotten -- we’ve done the optical, the software and the hardware integration and we’re now 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.

James McIlree - Chardan Capital

All right, so I just want to make sure I got it correctly here. So your current U.S. Seismic or the 2013 U.S. Seismic cash outflow was a function of both native gross margin as well as the operating expenses and then even if you have lower 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?

John A. Moore

Yes that’s correct. That’s -- now I’ll let Joe and Michael Barth and Jim, if you feel there is any correction or modification then please get in.

Joseph Musanti

No, I think you hit it, it's Joe.

James McIlree - Chardan Capital

Okay and then I'm a little bit confused about the SR 2020 timeline, there is a test on another observation well first and then you go to a producing well or you’ve completed the observation testing and now you’re going to producing?

John A. Moore

Jim can you give color on that?

James K. Andersen

Sure, yes so we have a couple of jobs lined up through SR 2020 over the next I'm going to say two 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 at the end of this week and do a final shakedown test of the whole 40 level system in a well, within maybe I'm going to say an hour and half from our facility and we’re going out there to prove our equipment and make sure it all works well before we get these actual frac jobs in Oklahoma and Permian basin.

But there is also this client wanted to see our equipment in their well. So they are 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 four or five 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 7th I think of April.

John A. Moore

And with all those dates being asked of us, these little companies can change things but we believe that us monitoring a frac jobs, 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 the big inflection, a big inflection point for a company and then I think there are other ones but in fact nobody wants to be first. So if you can get somebody to be first, everybody wants to be first, to be second.

James McIlree - Chardan Capital

Okay great, and so if I understand it correctly then the big super major deployments or test is let's call April or May and then if everything comes up great then you get second half orders from them, that sets our 2020 thing also in my result second half orders, additional orders from them if I'm getting it right. And then there are a few other things that you’re working on, but those are the two real near term order items and that’s they are both likely second half.

John A. Moore

Yeah why don’t you go ahead Jim and answer that.

James McIlree - Chardan Capital

Yeah, correct.

James K. Andersen

No I just want to I guess we stated a little earlier that the actual super major test was originally scheduled for May we are going to deliver now the system in June and they are going to install in the first week in July.

James McIlree - Chardan Capital

Okay.

James K. Andersen

So that's what's going on with the super major. But over the next two to four months we have monitoring projects lined up in the Woodford Shale, which we talked about in Oklahoma which is right now planned for the seventh, Permian Basin following that. We have a project lined up in the Barnett Shale there is another frac monitoring job. All of those that I just mentioned are through SR2020. And then like the super major of that project is in the Eagle Ford which is a high temperature shale field, like that would 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 I said are geared towards putting the foundation for future orders in the second half of the year.

John A. Moore

Yeah I'd -- to hitchhike on that I'd not expect much revenue out of this out of U.S Seismic in the first half?

James K. Andersen

Yeah, exactly.

James McIlree - Chardan Capital

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

John A. Moore

Thank you, Jim

Operator

Our next question is from [Ted Lou][ph] with BFG. Go ahead, please.

Unidentified Participant

Hi, good morning. Just to give you some possible color in the Monterey and 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 a horizontal well production and with the diatomite rock you are going to need various kinds of fracking 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 under the Monterey to figure the best way to break-up the diatomite to get maximum production. And if I am off base Jim I am sorry.

James K. Andersen

No, that's correct. Yes.

John A. Moore

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

Unidentified Participant

It's vertical, John. It's been over stressed into a vertical column so they can drill a vertical well.

James K. Andersen

Interesting.

Unidentified Participant

As if you would have to go horizontal in most shale deposits.

John A. Moore

And also it's complex, they are still figuring it out but there is apparently the frac fluid that they are using Ted is acid which of course saying the word acid, the [Sierra] club is up in arms and naturally 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 of the pace.

Unidentified Participant

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

John A. Moore

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

Unidentified Participant

Keep up the good work, John.

John A. Moore

Thank you.

Operator

The next question is from Bob [Zizik] [ph], a private investor.

Unidentified Participant

Good morning, John.

John A. Moore

Hey, good morning, Bob. Thanks for calling in.

Unidentified Participant

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 it -- is that where USSI needs all the money from or can you explain upon that?

John A. Moore

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

James K. Andersen

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 so there is day rate and it's all paid for. The major part of our expenditure is have to do and we do some in testing ourselves in wells but primarily it’s a client driven and clients have fund that.

A major expense has really been any kind of improvements the system needed that say our clients ask for and we look at and determine that’s really practical and necessary and 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 seven patents issued to-date, have another dozen being process. So we think that’s very important to keep that intellectual property and own it ourselves 100%.

Unidentified Participant

How about when you do other monitoring in the Monterey shale, is that customer paid labor or is that you guys making that…

James K. Andersen

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 are called installed and submitted it in. and we were provided the system there and he's going monitor that data for three months. So what we provided for that one is we actually provided the array.

Unidentified Participant

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

John A. Moore

No typically we get paid for that.

Unidentified Participant

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

John A. Moore

Thanks.

Operator

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

John A. Moore

Great, my closing comments are that we’re glad that we’ve made the investments in 2013. We’re cautiously optimistic about 2014. We’re extremely excited about the business prospects that company have, we’re cognitive in to the fact that we want our shareholders be cognitive of fact that our business is very lumpy, its lumpy because our customers tend to be very large companies and decision making cycles tend to be very wrong and -- but the orders that we are stocking tend to be very, very large.

So we appreciate our investors' patience and hopefully the message is clear to everybody that we have done some major belt tightening to make certain that we extend out the runaway of our cash and we hope that 2014 will be a great year to be a shareholder in Acorn Energy. Thank you very much.

Operator

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

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