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Executives

Jason Tienor - Chief Executive Officer

Gene Mushrush - Chief Financial Officer

Analysts

Christopher G. Pearson - Davenport & Co. LLC

Michael Breard - Hodges Capital Management, Inc.

Telkonet, Inc. (OTCQB:TKOI) Q2 2014 Results Earnings Conference Call August 14, 2014 4:30 PM ET

Operator

Good afternoon and welcome to Telkonet’s Second Quarter Earnings Conference Call and Webcast. As a reminder today’s conference is being recorded.

Before I turn the call over to Jason Tienor, Telkonet’s Chief Executive, I would like to read the following statement. Certain statements included in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the company’s ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues in the sponsoring client.

Further information on potential factors that could affect the company’s financial results can be found in the company’s registration statement and on its reports on Form 8-K filed with the Securities and Exchange Commission. Telkonet is under no obligation to update items discussed today to reflect subsequent development.

Now I would like to turn the call over to Mr. Jason Tienor, Telkonet’s President and CEO to discuss the results. Mr. Tienor, you may begin.

Jason Tienor

Thank you Operator, and thanks everyone for joining us today for Telkonet’s 2014 second quarter earnings conference call and webcast. We appreciate your interest in Telkonet’s technology and growth and I am excited to share our continued progress with you.

As we closed out the first-half of 2014, the company has indeed made significant progress. We reported a solid quarter across the board and are pleased to have reported a tremendous jump in profitability from Q2 2013. The second quarter was very strong on many fronts as our team delivered on key strategic initiatives. These included broadening our sales funnel, further investing and developing our energy efficiency technology and effectively managing our expenses to ensure profitability.

I’d like to begin by highlighting some of the more important achievements in these areas. Beyond the 21% top line growth in the second quarter we are more thrilled by the progress being made in the demand creation for our EcoSmart energy management platform. We are at the forefront of the energy efficiency marketplace. Importantly this is a global market with Telkonet’s comprehensive EcoSmart platform gaining momentum on a number of vertical markets.

Last week we announced our most recent project win. EcoSmart was selected for installation in the Five Star Hilton Barra hotel in Rio de Janeiro, Brazil. This project award places us in the spotlight on a world stage. The Hilton Barra hotel was the first newly constructed property for the Hilton Hotels and Resorts in Latin America and will be a sponsored hotel for travelers all around the world attending the 2016 Summer Olympic Games. This hotel which is located within the Olympic village called for 298 guest room energy management installations.

The EcoSmart platform was chosen because of its ability to reduce energy consumption and equipment runtime by up to 45% while maintaining the hotel guest’s comfort and convenience. The growing demand and increasing cost of energy in Latin America as well as virtually every developed and developing region around the world raises concerns in social, economic and environmental circles. In large part, this is what’s been driving the growth of the energy management market.

There are reports from industry analyst that estimate that the energy management software for the hospitality sector alone will grow on a compound annual growth rate of over 16% for 2020, bringing this one segment of our total addressable market to nearly a $1 billion. This truly represents an incredible business opportunity which likely is the reason for the mergers and acquisition in this sector picking up. The two recent transactions announced in the past four weeks demonstrate this interest. In late July it was announced that the ESCO Energy Services Company with about $10 million in revenue would be acquired by ForceField Energy, which is a publicly traded company and about four times our size and market value.

And earlier this month ABM, a New York Stock Exchange listed company with a market capital of $1.4 billion announced the acquisition of AirCo Commercial Services. Companies are looking to expand into our market and in certain cases jump on the bandwagon, capitalizing on Title 24 energy code changes in California to offer energy efficiency solutions that reduce operating expenses and improve comfort in commercial buildings and hotels among other facilities.

Sector M&A and a favorable regulatory environment are trends that typically drive valuations higher, which could be very advantageous for our share price. Telkonet shareholders stand to benefit because of our unique position. Not only are we increasingly important participants in this market but also we have proprietary technology and innovative intellectual property, and a fast growing presence domestically and internationally with key partnerships.

Next I’d like to update you on our progress in developing a global network of business partners so that you can get a better sense of who is supporting us as an industry leading player. In our most recently announced contract win we leveraged the growing relationship with Brazilian partner, Evolutix to collaborate with us as our channel partner. Together we worked diligently to secure the contract with the Hilton Barra hotel in Brazil. The project paybacks to the customer are expected to be realized in as little as 18 months. The hotel guests will appreciate the comfort and convenience of the EcoSmart system day one.

While this is a significant win with such a young partnership this project is only one of three that we have recently secured through Evolutix. We have another in São Paulo, Brazil and one for the JW Marriott Hotel in Miami, Florida. Understanding the value proposition for EcoSmart and the increasing demand for energy efficiency solutions, Evolutix has worked with us to develop very innovative marketing packages that include, in certain cases, financings of the purchase of the system based on performance savings. This approach is very advantageous in the international arena particularly in South American and Caribbean markets which are where Evolutix is focused.

In addition we continue to experience a rapidly growing amount of proposal activity originating from our standing partnership with Evolutix in newbuilds and retrofits in this burgeoning international market.

Next, increased level of investment we made in sales and marketing beginning last year is paying off. We will continue to invest in these initiatives as well as in other customer centric initiatives through 2014 keeping pace with the success of these activities. In the first half of the year we added staff to both our field services department and sales and marketing team. Two experienced health executives were added to our direct sales team and two new marketing professionals were brought in, bringing our total EcoSmart sales and marketing team to 11. The field services department expansion will further bolster our already exceptional reputation for customer service and allow us to better accommodate the growing number of projects in our pipeline further cementing our leadership position from other competitors in the market.

From a strategic perspective we believe our team is executing on initiatives intended to broaden our markets and bolster our sales through expanded use of channel partners. Both primary and secondary markets are favorably responding to us [inaudible] which offer a unique value proposition for efficient energy consumption, return on investment and end-user comfort and convenience.

Through our proprietary platform technology and partnership with energy efficiency providers, ESCOs and utilities we are strengthening our position as a leading provider of energy management solutions. Our brand is being enhanced globally by our numerous designations as an approved provider for the largest hospitality brands in the world, and for many of more prestigious universities throughout the U.S.

Our direct sales force has been working closely with our growing base of channel partners. Due in part to this we presently have the largest number of concurrent educational market implementations taking place. These implementations demonstrate the breadth of our reach from Kansas with KSU to North Carolina with NC State, to California with UC Davis and Ohio with the University of Akron.

Our single largest project in the educational market which was born from our relationship with Johnson Controls is on track for completion in the third quarter of 2014. We continue to have a strong pipeline of opportunities with Universities both through channel partners and directly. A number of these are multiple phases of installation with universities where we have already been implemented within.

We believe our most significant opportunities in this market are yet to come. Our work with Johnson Controls is just one of the many growing channel partners that have recognized our importance in the energy efficiency market. Working with our direct sales force we have accelerated our sales pipeline growth in the first half of 2014. One of our most significant areas of growth has come from the International market including the efforts previously mentioned with Evolutix, [inaudible] and Barra.

Momentum has been gained in the entertainment gaming and hospitality sectors as well. We signed contracts with a number of regional casinos and now have our most concurrent project work underway for this sector with installations at several gaming establishments in our home state, Wisconsin.

Within the hospitality sector we have completed the large deployment for a full EcoSmart system at a facility in Boston, the Seaport Hotel, which incorporates HVAC, lighting and plugload. Also our largest ever combined EcoSmart, EthoStream project commenced installation in the second quarter and is scheduled for completion in the fourth quarter at the Metropolitan Hotel in Ohio. This demonstrates our ability to capitalize on marketing synergies between our two lines of business.

Other highlights in hospitality sector include our work with [inaudible] Hospitality where we have completed two [prior] [ph] projects in the U.S. and one internationally. These projects resulted in the award of our largest project yet with this group in The Swan and Dolphin Hotels at Disney World. This renovation will find Telkonet EcoSmart platform in more than 2000 rooms across this world renowned resort. The success we have been having reflects the strategy of broadening our channel partnerships and value added resellers. This includes business development efforts through coordination with architects, engineers, developers and designers which have allowed us to bid and secure projects earlier in their life cycle.

We have continued to focus on our relationships directly with franchisors, having earned additional third party validations and direct installations through corporate FTs such as Marriott Hotels. We also have recently seen the significant growth emanating from our OEM collaboration. An example here includes our product sales with [Ivadera] amounting to more than a quarter of a million dollars year-to-date.

As a result of these collective business development efforts EcoSmart has been increasing spected into new build designs. In turn we have improved our revenue pipeline growth and forecasting capabilities. The trends for EcoSmart are supported by increases in the number of proposal outstanding and the total dollar value of our outstanding proposals. At the end of the first week of August we set an important record as Telkonet’s backlog for signed contracts continues to reach new heights. From cross and post selling our two business lines, through international expansion, the vertical penetration in channel and by our partner marketing we are building market share and mind share.

Our success rate for biding on and winning new contracts continues to climb. Telkonet is increasingly becoming the provider of choice for energy efficiency solution throughout our target vertical markets and our business activity is escalating for an industry that is rapidly growing. A new dynamic is emerging where Telkonet is not just being spected but is required by the building owner or builder as a must-have technology solution. This is setting the stage for the company to continue to reach new heights as we move forward.

In addition the EcoSmart technology platform is increasingly being recognized as the leading solution of choice for reducing energy consumption and carbon footprint and eliminating the need for new energy generation, all the while improving occupant comfort and convenience. To maintain our leadership position as a must have solution we’ve continue to invest in both our hardware and software technology platform. For those of you who have followed the company for a while, you know that we catapulted in to the energy efficiency market and moving from a product provider to a solution provider.

This movement leveraged the networking system capabilities delivered by our EcoStream business as EcoStream is one of the largest and most trafficked public high speed internet access providers in the world, providing services to more than 8 million monthly users across a network of greater than 2,200 hospitality locations. With a wide range of product and service offering and one of the most comprehensive management platforms available for [HSIA] network. EcoStream offer solutions for any public access location. This business has been a consistent contributor to our revenue and corporate overhead coverage, yet its most important influences may be in the cross-selling opportunities which I touched upon earlier in the conference call and in technology synergies with our EcoSmart platform.

Leveraging the network IP and software engineers from our EcoStream operation we continue to enhance our EcoSmart product platform with new cloud-based capabilities. This has led to the recent of our EcoCentral Virtual Engineer platform which has strengthened our competitive position and helped us with innovative integrations.

EcoCentral VE is a virtual engineering product for cloud-based energy management. It provides a command center that brings new tools for building managers to aggressively save energy and operational cost. When integrated with our EcoSmart suite of wireless network energy management product the EcoCentral Virtual Engineer provides a robust cloud-based building control platform with 24/7 remote monitoring services that maximizes the building energy efficiency and cost savings while reducing dependency on physical staff.

We are very pleased to have completed our first EcoSmart suite platform deployment including HVAC lighting and plugload in a marquee 400 room Seaport Boston property and are proud of our relationship and support from this customer. The system is performing beautifully and we appreciate the opportunity for potential customers and partners to tour the site and its technology.

Another area of technology innovation is forward looking for companies as we presently do not sale products directly for use in the residential landscape, although we see this as an attractive market opportunity within our long-term strategy and have had existing partners introduce our products to this vertical market. Current deployments addressing this space include our native mobile application, touchscreen thermostats and redesigned [inaudible] hub. These products will enhance our platform for better efficiency and customer facing innovation in the commercial space while positioning us for entering in to the growing utility supported residential market.

Growth in this market has been demonstrated by the acquisitions such as Google’s purchase of Nest and Dropcam; Samsung’s purchase of SmartThings and Apple’s release of its home kit platform for developers.

Within the residential market digital home networking that links everything from home entertainment to security system to heating and air conditioning is on the rise and Telkonet’s networking and cloud technologies embedded within our EcoSmart platform will position us as a competitive new entrant.

This brings me to the third strategic initiative, effectively managing our expenses to drive improvements in our operational and financial performance metric. Since I was just speaking about R&D investment I will start here. Continued investment in R&D for next generation energy efficiency products is ongoing. R&D spending increased 11% from the prior year but decreased as a percent of overall revenue to 7% in the second quarter of 2014 from 8% in the second quarter of 2013. So while we are spending more to strengthen our leadership position and create future growth opportunities with our new products we are taking a measured approach that allows us to invest in the future while driving profitability and cash flow to improve our balance sheet.

Second quarter 2014 SG&A as a percentage of sales was 33%, down from 50% in second quarter of last year and even lower as compared with 53% in the first quarter of this year. Overall on a monetary basis, we intent to spend more on sales and marketing to capitalize on the opportunities in our growth markets but manage expenses based on the bottom line performance. Again as our revenue increase we’ll look to incrementally add to our sales and marketing efforts. We expect to keep an active management of our SG&A moving forward as a percentage of our overall revenues in order to ensure continued profitability.

In recent quarters and what we expect in the future roughly 70% of our total spending relates to the building out of our product line and sales and marketing infrastructure for EcoSmart. Clearly the EcoSmart business is our propriety due to its enormous growth opportunities although we intend to grow EthoStream and benefit from the strategic element it provides, including leverage through its cash flow contribution and coverage of corporate overhead and technology investments and synergies relating to EcoSmart when co-marketing or cross selling for our two business lines.

Our efforts are indeed delivering the intended results. EcoSmart revenues in second quarter were the second highest in the company history. Growth in EcoSmart as a percentage of total revenues is gaining ground. At the same time EthoStream also came in at the second highest quarterly level in company history. These are really impressive results and we believe that we’re at the early stages of a long term growth opportunity.

Now let’s look at some other operational financial metrics that have been successfully strengthening our balance sheet and building earnings momentum. We have been growing our cash and equivalents with a 22% increase since the beginning of the fiscal year. Our days sales outstanding are currently at record low of 24 days which is even more impressive when you consider how much we’ve increased our top line. Another record is our revenue per employee. We don’t just sell efficiency solutions we run our own business very efficiently as well and profitably with our second half and first half year revenues at the highest level in five years we are even more proud of the resurgence in our profitability.

We got to this level of profitability in part because of the increasing demand for our technology. Product sales are at the highest level in the last six years and our total sales were the third highest quarterly amounts in the company’s history. Gross margin was at the second highest quarterly in a row and operating income was at the third highest quarterly amount in the company’s history. Our profitability reflects effective management of expenses. SG&A and total operating expenses relative to payout improved year-over-year as I mentioned and they were the third lowest in the company’s history.

We’re really energized by our performance which continues to track in accordance with our strategic growth plans. Beyond our top line we excelled in all key financial and performance measures, with our most important highlight in the second quarter being the substantial improvement in profitability driven by revenue growth, expense management and leverage in our model. This progress is a clear indication of heightened recognition for our functional cloud-based energy efficiency solutions and that our profitable growth strategies are being successfully implemented.

Now I’ll hand the call over to Telkonet’s CFO, Gene Mushrush, for a more complete review of Telkonet’s second quarter financial performance. Gene.

Gene Mushrush

Thank you, Jason. Ladies and gentlemen, good afternoon and that you for joining us. Today I will be summarizing our second quarter 2014 financial results beginning with the discussion of our revenues. For the quarter ended June 30, 2014 Telkonet reported total net revenues of $4.4 million, a 21% increase compared to $3.6 million for the same period prior year. This growth was driven by product and installation sales of our EcoSmart line of energy efficient solutions. For the three months ended June 30, 2014 product revenues were $3.4 million, an increase of $760,000 or 29% when compared to $2.7 million in the prior year period.

Year-to-date product revenues declined $0.1 million include approximately $2.7 million attributable to the sale and installation of energy management products and approximately $2.4 million for the sale and installation of high speed internet access product. Approximately $400,000 of revenues and associated gross profit deferred in the first quarter was recognized in the second quarter in accordance with generally accepted accounting principles guidelines of revenue recognition. Associated installation costs were not deferred but recognized in the quarter incurred. This scenario is not uncommon and that’s why we recommend investors to analyze the company from an annual or similar long-term basis rather than simply looking at any particular quarter.

Our current backlog continues to reach new heights. We expect backlog to fluctuate depending upon the volume and size of contracts executed and the rate at which those projects are completed. As a reminder recurring revenues are not included in our backlog statistics.

For the three month ended June 30, 2014 recurring revenues remain unchanged at approximately $900,000 as compared to the same period prior year. Recurring revenues consist primarily of EcoCare and EcoStreaming support services. Reflecting upon the diversification initiative that Jason outlined in his remarks and despite the higher level of revenue and number of larger contracts awarded during the past few quarters, no single customer accounted for 10% or more of our total revenues through the first half of this year. We believe this confirms successful implementation of strategies to expand our customer base and increase revenues while still practicing prudent risk management.

Along with solid revenue growth the company’s financial results benefited from improved margins and profitability. From my prior reference, approximately $400,000 in revenue was recognized in the current quarter from a project where many of the installation cost were incurred in the prior period, therefore enhancing gross margins in the current quarter. Gross profit for the second quarter was $2.1 million, up 43% from $1.5 million last year. Gross profit as a percentage of revenue increased by 18% to 49% in the second quarter of 2014 compared to 41% in the same period the prior year.

Operating expenses for the quarter ended June 30, 2014 were $1.8 million compared to $2.2 million for the same period in 2013. We recorded selling, general and administrative expenses of $1.4 million in the current quarter, a 20% decrease from $1.8 million last year. Continued investment in next generation energy efficient products resulted in R&D expense increase of 11% compared to prior year. However R&D spending as a percentage of revenue decreased 7% in the current quarter from 8% last year. We recorded both operating and net incomes of approximately $280,000 and $220,000 for the quarter ended June 30, 2014 compared to operating and net losses of approximately $680,000 and $620,000 at June 30, 2013.

Again the backdrop of lower overhead as a percentage of revenue, continued expense management and higher sales by leveraging business model was pronounced. Adjusted earnings before interest, taxes, depreciation and amortization or EBIDTA, a non-GAAP measure, improved from a loss of approximately $530,000 at June 30, 2013 to income of approximately $350,000 for the quarter ended June 30, 2014.

Moving to the balance sheet we reported nearly $1.2 million in cash and equivalents at June 30, 2014 compared to $955,000 at the beginning of this fiscal year. The company continues to manage its sales tax liability of approximately of $750,000 by establishing voluntary disclosure agreements with the applicable states. These agreements establish a maximum look back period and corresponding payment arrangements. During the six months ended June 30, 2014 the company has successfully executed and paid in full VDAs in eight states totaling the approximately $105,000 and is current with subsequent filing requirements. The company executed VDAs and establish payment plan with three additional states.

Cash provided by operations during the current year was approximately $450,000 compared to $10,000 in the comparable prior year period. As previously disclosed on May 31, 2014 the company terminated its revolving credit facility with Bridge Bank and paid the remaining principal balance of $50,000. The company continues its efforts to formalize advantageous option that will satisfy its operational objectives. Our current ratio dropped from 0.9 at the end of the second quarter prior year to 0.8 at the end of the current quarter. We reported working capital deficit measured as current assets less current liabilities of $1.1 million at June 30, 2014 an improvement of over 20% as compared to deficit of $1.4 million at the end of the first quarter 2014.

And finally our debt-to-equity ratio a measurement of our financial leverage improved 4% to just over 1 at June 30, 2014 compared to 1.1 last year.

In conclusion, once again thank you for your interest. I will now turn the call over to the conference operating to facilitate the Q&A segment of this call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Chris Pearson with Davenport & Company. Please proceed with your question.

Christopher G. Pearson - Davenport & Co. LLC

Hello, good afternoon everyone.

Jason Tienor

Good afternoon Chris.

Christopher G. Pearson - Davenport & Co. LLC

Hey, great quarter, exciting stuff. I was just hoping that you could elaborate a little bit on the $400,000 of revenue that you have realized in this quarter where you have the expenses in the prior just kind of wondering if you could comment on margins and maybe what your normalized margin profile might look like even stripping out this extra on this half million dollar you think margins are increasing and are sustainably moving in that direction through the end of the year.

Gene Mushrush

Hi, Chris, this is Gene Mushrush. Good question. The impact of that revenue is almost pure profit. The product cost was actually recognized at the end of 2013 and then due to the requirements of having customer acceptance by the end of the first quarter that this was impossible. Most of the installation cost was incurred in that first quarter. Margins on the installation usually runs probably about 50%. So the impact of that $400,000 if it was pulled back into the first quarter would still have had another $200,000 of margin in it.

Jason Tienor

Yeah, one thing to consider though Chris that will only be true if you are looking into a vacuum as [inaudible] work only. Unfortunately we have this very same situation occur each and every quarter. The only thing that differs is the amount with which we recognize expenses in one quarter and the revenue for those expenses travels into the next. Now this particular quarter was one project. Actually I think we had a handful of projects that amounted to the pass through this quarter. The same happened last quarter I think it was a little bit less than the $400,000 amount that we talk about here.

Christopher G. Pearson - Davenport & Co. LLC

Right, right. Okay, that’s helpful. And then just you mentioned I guess Gene at the end of your comments but in terms of finding some more favorable longer-term financing partners, if you can just update us a little bit there. I mean obviously you guys have some great momentum in the core business and I would assume and hope that creditors will take note of that and just. If you can elaborate a little bit more on the discussions you are having and options you may be considering?

Gene Mushrush

Well we are definitely looking at revolving lines of credit because we believe that’s what benefits this company the best. I mean we are approached very often with dilutive type of vehicles that we don’t feel is in the best interest, not only of the company but also in the interest of the existing shareholders as well. So we are pretty specific on what we are trying to accomplish and knowing that we had vehicle in place is a true testament that it can be done, it’s just a matter of talking with those individuals, having them understand the business especially from where it came from versus to where it’s headed and those this question have been pretty positive actually since March of this year February of this year so.

Jason Tienor

And as you mentioned Chris what Gene just described is about the conversation previously, that being said they haven’t even yet seen the performance up until today that we just reported on. So [inaudible] more helpful in the conversations that we have [inaudible] that’s correct.

Christopher G. Pearson - Davenport & Co. LLC

Great, great. Well that’s encouraging. I guess one more from me. On the recurring revenue side, you talked about that being split pretty much between EcoCare and the EthoStream support. Just wondering, I guess I would have to give specific numbers but maybe some general comments around the mix there. I’m just wondering longer term as your EthoStream revenues ramp up the support services, the services that you offer seem to be a nice high margin opportunity that could really be meaningful with some scale. Just wondering if you are getting to that point at all or it’s kind of just an inconsequential contributor to the numbers right now and how you think about that component of the business contributing over time?

Jason Tienor

Absolutely, Chris, yeah, it’s a great point. This past quarter is the first time that we’ve seen a marked increase in our EcoCare revenues. So for those of you who were unaware EcoCare is the recurring revenue components of our EcoSmart platform, whereby we provide 24/7 monitoring, management, reporting, [inaudible] services. For the first time in the company’s history that number has almost become, our recurring revenue has almost become 10% based on the EcoCare revenues alone. And that’s a huge piece for us thus far because for service that was just released a little less than two years ago, gaining traction, educating our customer as to what is it, what benefits it provides to them, demonstrating the ROI that it has and then really being able to translate that into actual revenue and profitability is huge. So you are definitely right. We are seeing that ramp. That is something that we focus on. Because EcoCare is going to be an enormous part of the EcoSmart business both on the commercial side as well as we move into residential or consumer side as well.

Christopher G. Pearson - Davenport & Co. LLC

Great. Well, thanks a lot and congratulations and keep it up. That’s it for me.

Jason Tienor

Thank you, Chris.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Mike Breard with Hodges Capital. Please proceed with your question

Michael Breard - Hodges Capital Management, Inc.

Yeah. Just a couple of things. Are you having some of these – well, let me back up, are you well enough known now, your products known that distributors are approaching you, wanting and tying with you?

Jason Tienor

That’s a great question, Mike and thanks for the question. Unfortunately I will never believe that we are well enough known. Are we increasing our market penetration and market awareness? Absolutely. And do we have more incoming sales opportunities? Absolutely. That was one of the reasons for building out our marketing team, was to drive more of our sales activity as an incoming basis rather than continuously reaching out directly to customers. Also the individual that we just brought in to head our sales and marketing team is Director of Sales and Marketing has extensive experience on building distribution network and a lot of his focus is on working with that type of channel partner in order to not just sell for us but also extend the awareness of Telkonet and our EcoSmart platform.

Michael Breard - Hodges Capital Management, Inc.

Okay. And then also in the past you had some jobs where you might have put up a bond or something like that, I assume that’s much less of a problem for you now?

Jason Tienor

I would hope, it’s not a problem but safely we want to continue having the types of jobs that require us to put up a bond. Those are the typically the larger, hundreds of thousands of dollar within one engagement often through education and military performance contracts through contractors that we work with. So the great projects. They are very helpful in us moving our top line forward. The ability to obtain bonds has been, I’ll say improved but obviously this quarter’s financial performance is going to helpful in that regard as well.

Michael Breard - Hodges Capital Management, Inc.

Okay. And I know in the past you had some trouble with hotel where you got your service and we got this year ago from bodies that were bankrupt there. You have that kind of talks with the industry, I guess that’s more of a handy tool now.

Jason Tienor

Exactly, what you are seeing is the marketing has enormous adoption for energy efficiency initiatives. There have been website popping up that provide services making travelers aware of what level of efficiency and environment various hotels have for the travelers to make buying decision based on those criteria. So we find that’s much less combining both types of historical issues that they might have had. Now it’s just they are simply getting out there and making them aware of you are -- your service and demonstrating why it’s better than any other.

Michael Breard - Hodges Capital Management, Inc.

Okay. Well sounds like you are making real progress, congratulations.

Jason Tienor

Thank you Mike. I appreciate it. You have a great afternoon.

Michael Breard - Hodges Capital Management, Inc.

Thank you.

Operator

Thank you. Ladies and gentlemen, I would now like to turn the call back to management for closing comments.

Jason Tienor

First off, I would like to say thank you, thank you to the operator and thank you to everyone else for joining us this afternoon. We thank you for your support of Telkonet and we hope that we’ve communicated today’s call. We are very excited by the improvements in our performance and execution of our strategy in second quarter. And we believe that future outlook remains very promising. Our cloud-based technologies are being increasingly well received within the evolving and growing market for energy efficiency and we intend our share views on these trends along with our improved financial performance as we conduct non-deal investor road shows in the coming months.

If you like please contact our Investor Relations department if you’d like to schedule a meeting with management in the upcoming months. And we look forward to speaking with you at that time. Everybody else have a great afternoon and we’ll speak with you soon.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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