Acorn Energy Inc (ACFN) 2012 Q2 法說會逐字稿

Good morning and welcome to Acorn Energy's second-quarter 2012 earnings conference call. (operator instructions). Please note this event is being recorded. I would now like to turn the conference over to Heather Mallard, Vice President and General Counsel of Acorn Energy. Please go ahead.

Thank you and good morning. Please take note that certain of the matters discussed in this presentation contain statements that are forward-looking such as statements relating to the 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's 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 the 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 am now very pleased to turn the presentation over to John Moore, CEO and Chairman of Acorn Energy.

Thank you Heather. Welcome friends and fellow Acorn Energy shareholders. I'm excited to tell you about our progress and financial results for the second quarter and our management team's efforts to build a base for continuing outstanding shareholder value creation.

First, I'm very proud of our strong balance sheet. As of June 30, the Company has over $54 million of total current assets, over $45 million of working capital, including approximately $32.8 million in cash and short-term deposits, and $6 million of funds held in escrow, and $1.9 million of restricted cash. The Company expects to receive the funds held in escrow before the end of the quarter. A strong balance sheet is important because we are investing aggressively in our promising businesses and the number one thing a business must never do is run out of cash.

To expand our balance sheet, we have worked with our management teams to obtain formula-based bank financing. It's always smart to work with banks when you don't need their money.

We have also spent a lot of time, some money and effort raising investor awareness. In each of our businesses, I want to give you some sense of how much cash we intend to spend to get the business on a self-sustaining, solid, positive cash flow trajectory.

I'm not going to spend any time discussing why pioneering digital energy as a theme is such a compelling opportunity. I invite you to read our recent and past shareholder letters to understand what a truly unique time this is for investors.

I'd like to take a brief moment to explain our perspective. Anybody who knows me knows I love to send our friends and investors articles and books on why what we are doing matters so much right now. Like many of you, I am a huge fan of Malcolm Gladwell and the three things he's written helps underscore what we are doing at Acorn and why we think investing our gains from our recent CoaLogix success and our existing core businesses makes so much sense for our shareholders.

Firstly, Gladwell's first book, "The Science (sic) of Success" talks about how it requires 10,000 hours of dedication to master a critical skill. That's what our business has done. We are leveraging your capital against our management team's 10,000 hours with the goal of providing an outside return on your capital. Whether we're talking about DSIT's sonar experience with the Israeli Navy which led to the creation of the underwater threat detection business, Jim Andersen and his team's experience at Litton, Kevin Anderson, the inventor of the GridSense TransformerIQ, or the 13 years that OmniMetrix took to create the power generation monitoring industry. These are all fulcrums against which we are investing your capital and we hope to succeed in a spectacular yet capital-light way because of this profound time-based investment.

Second, Gladwell wrote "The Tipping Point" about how ideas spread. He focused on the three vital personalities -- the maven, the salesman and the connector. The maven represents the 10,000 hours that our founders and their team have invested. Acorn is using your capital to address the main issue facing the maven, mainly the fact that he is exclusively product-focused rather than market-focused. I think it's worth pointing out that most small business -- high-technology businesses fail because they spend most of their money developing the technology and run out of time and resources to allow the technology to encounter the market and be changed by it so it can become a financial success.

Finally, Gladwell wrote "How David Beats Goliath". And in this article, he discusses how relentless effort, not talent or entrenched interests, is the critical component of success. We are bringing the full court press to our customers. This customer focus is why we are so excited about investing in our businesses. Our managements need the people and the resources to grow our businesses to profitability and profitable growth is our goal.

DSIT is our largest and most profitable business. Unfortunately, where there is oil and gas, there is conflict and there are major tensions in the Middle East, Southeast Asia, and Latin America. DSIT helps secure energy terminals from terrorist intrusion. Sales are up 40% versus last year, and the business earned a profit of $450,000. We've invested $2 million to date in this business, and we expect to invest another $3 million to expand this profitable company's product line and sales and marketing effort. It was Dan Ben-Dov, DSIT's sales manager, who bumped into Jim Andersen at a security trade show and called me to urge Acorn to invest in US Seismic. Dan's vision was that DSIT was a leader in active sonar for diver detection and US Seismic had a very interesting passive sonar for diver detection. He believed the combination would be important for realizing the potential of the diver detection market by solving two big problems -- false alarms and environmental concerns in a cost-effective manner. The idea is that active sonar is considered disruptive to marine life and has been banned in some markets. Passive sonar can be coupled with active sonar to detect a potential threat and then wake up the active sonar to verify and track a potential threat. We've acted on Dan's vision by the two companies winning a BIRD grant of $900,000 to co-fund the development of this important project and we believe it will substantially expand the market to DSIT leads.

We hope that DSIT and the US Seismic will expand their cooperation beyond this initial success to land-based perimeter security. The company has a growing reputation for innovation and customer satisfaction. We expect continued growth from this terrific management team and their pipeline of opportunities.

We are repeatedly hearing from our customers and other vendors that the distribution automation market that we are pioneering is a killer app for the smart grid. It's important to review what will likely not be a growth year at GridSense through the lens of, one, a rapid growth in trial programs from one to over 20 and, two, the fact that GridSense last year beat their budget by introducing the TransformerIQ, an entirely new concept to help utilities deal with their aging workforce and transformer infrastructure.

We offer a solution to major a problem for utilities at a compelling price point and we have limited competition. We have always stressed that our business is non-linear. 2012 is proving an important year in expanding the trials and applications of TransformerIQ but some of the projected rollouts have moved into 2013.

I cannot overstate the challenge faced by distribution utilities in dealing with these two problems or the hard but effective work our sales team is doing to exploit this blue ocean opportunity. We've added Alain Steven, Secretary-General of the very large Grid Operators Consortium to the GridSense board, and expect he will help us expand our credibility and visibility into the large customers internationally.

Baltimore Gas and Electric published an article in Transmission and Distribution World on our work together on the TransformerIQ that highlights a very attractive payback of our product. We are excited to play a prominent role in this high-profile $450 million smart grid project with BG&E among many others. Lindon Shiao, our CEO, is probably the most excited about our new grid insight product that will increase the velocity and scalability of sales by being able to address the fragmented but large co-op and municipal markets as well as adding an important recurring revenue component to our business. Lindon now has over 20 engineers working on expanding our solutions suite and expect that, in 2013, we'll get a glimpse of the true potential of this outstanding company.

Our legacy business of power quality monitoring instruments at GridSense had a weak first half that led Lindon, who is always quick to make hard decisions, to reorganize the sales function in Australia. In these early stages of the business group, it has been nice to depend on the regular contribution from these products but it's not really relevant to the vast opportunity we see.

We've invested $12.7 million in GridSense, including $1.9 million in Acorn shares, and we've recently agreed to provide an additional $3 million to fund the business through 2013. What we expect will be positive cash flow.

I'd like to remind everyone that GridSense was profitable in the second half of 2011. I've also said that I never want to expand our portfolio of companies unless it's a big fat pitch across home plate. Three years ago, the company that couldn't resist adding to our portfolio was US Seismic. Earlier this year, it was OmniMetrix.

OmniMetrix is our on-site power generation monitoring business. This big opportunity we are addressing was brought home in spades in the recent weeks with the derecho, a big storm in the mid-Atlantic taking out power to our nation's capitol and other areas for as long as two weeks and compromising the 911 service. Washington Post ran an editorial saying "The previous night's storm had shut down commercial power and emergency batteries were exhausted after a few hours at key Verizon control offices in Arlington County and Fairfax. Each office had a pair of backup generators, each roughly the size of a walk-in closet. One of the generators failed at each site and the remaining units weren't strong enough to keep 911 service up." Ironically, Verizon has made one of the largest investments in backup generators of any cell phone provider. This drives home our message. Every generator needs to be monitored in real time. We hope to turn this excellent company and their competitors into real customers.

Similarly, Amazon datacenter hosted their multi-billion dollar cloud service business that hosted Instagram and Facebook lost power when their backup generators failed to start during the same storm.

We have a compelling value proposition at OmniMetrix. OmniMetrix created the industry and it's the leading brand that ensures thousands of generators start when needed. There are over 2 million generators throughout the United States. The business is much larger overseas where on-site power generation is the primary source of power in regions like Africa, South America and Southeast Asia. We acquired OmniMetrix for $8.5 million and intend to invest about $2.5 million, of which $1 million has already been funded, to build the support infrastructure in sales and marketing to grow the business from the current 4200 connections to 50,000 or more by 2013. To facilitate this growth, we innovated the business model to become a pure subscription-based business charging an annual fee of $400. We have the luxury to invest now. We feel that, after 13 years of hard work by the company to perfect the solution, the market is finally ready.

There are over 1000 generator dealers. We were surprised when we did our due diligence that OmniMetrix had only sold 55 units through Generac's entire distribution last year. We recruited an advisor, Andy Briggs, a former generator dealer and past President of Generac's Dealer Council. He developed a very convincing strategy for us to help double the profitability of the dealer service business through the adoption of our Smart Service program which allowed service technicians to review this machine's history before climbing into a truck. A better knowledge of the history means a higher first trip success rate. Over 50% of generator faults can also be reset online. This has a big impact on the dealer's bottom line. He's helping us set up pricing policy and salesforce, some interesting anecdotes that underscore this terrific opportunity. One is that one large dealer that was buying from a competitor ordered 110 units and this points out that our Smart Service program is beating our competitors' product and that the momentum of the evolution of remote monitoring is here today.

Our dealers are extremely excited about OmniMetrix's product, both for their existing product customers, some of which have -- some of those dealers have thousands of long-term maintenance contracts as, well as new customers. Some examples include one of the world's largest amusement parks which, after testing our OmniMetrix units, agreed to install it across their entire base of 140 gen sets and a well known big-box retailer, after testing our box within the dealer's captive region, has decided to roll out OmniMetrix box on an additional 250 units in 2012 out of a complete installed base of 2200 units.

So we have an exciting growth business ahead of us. There are over 600,000 cell phone towers around the world, tens of thousands of hospitals, fire stations, critical manufacturing data centers, and air traffic control centers, to name just a few targets. Customers who use our products have historically a high retention rate which supports the theme that Acorn's digital energy technologies are addictive. Our shareholders are well aware of the value we can create through this recurring revenue business.

Lastly, US Seismic. Since our initial investment in the fourth quarter of 2009, we have invested $14.5 million in cash and Acorn Energy stock in US seismic, which includes $2.5 million in the last two weeks. We have a commitment to invest another $2.5 million before the end of the year. Our uses of proceeds of the most recent $5 million commitment is as follows -- $3 million for working capital, $1 million to cost reduce our sensor ray design that takes 90% of the touch labor out of the existing products, $1 million for two low-temperature low-pressure arrays and demonstration units.

So our field trial and customer updates -- up until recently, we have completed five what I would tell everyone was imperfect demonstrations. Each imperfect demonstrations resulted in an order because, one, the customers believed the good parts of our data was hundreds of times better than the data from the legacy seismic tools and, two, our customers believed our problems were engineering problems, not science problems. We were lucky to have such smart customers.

In the past several months, US Seismic has conducted two additional trials. At the most recent trial with one of the world's largest oilfield services company, it was a flawless demonstration of the power of our technology. Hats off to Jim and his team. We expect, in the next several months, to receive several orders from small to medium-sized seismic services businesses. In the next six months, we expect to receive several initial orders from major international oilfield service companies and follow-on orders from our initial small to medium-sized seismic service customers. In addition, we are working with several major international [coal majors] to validate our products but ultimately expect that any orders that result from these collaborations will be received from the oilfield service providers.

So I'd like to provide a quick product development update. Our investments in product development have two primary goals -- one, improve the reliability and field readiness of the product, and, two, reduce manufacturing costs and delivery costs. First, we had to make our custom hardware solution product reliable. Substantial investment in firmware and hardware delivered a product that is reliable and functional but very expensive to produce. Our current hardware product is fine for performing field demonstrations but it's too onerous and has limited sensor density.

The Northrop Grumman license for the Interrogator is the central focus of our efforts. We expect to have a demonstration unit complete and debugged by the fourth quarter and have commercial offerings in the first quarter, the bent of 2013. The benefit of the Northrop Grumman license technology is primarily software and able to leverage extremely powerful PC-based components, resulting in dramatically improved margins and performance. In addition, instead of each box being able to manage 12 sensor channels, each box will be able to handle 300 sensor channels. This is critical as a small footprint is important for the unit to be practical in the field and wireline trunk deployments.

Lastly, manufacturing and an expansion capital update. Substantial investments have been made in automatic production equivalent in the quality of processes. US Seismic passed their first ISO 9000 inspection and hope to achieve certification in the third quarter. They have received CE, UL, and other certification for our products. The SAP ERP systems have been implemented and are a daily part of our quality programs.

Entering 2013, Jim and the team are preparing US Seismic to have $50 million of capacity. I want to reiterate this is not a projection of revenue but a statement of capacity. Acorn expects to invest an additional $5 million next year. Now, I want to point out this hasn't been presented to or approved by our Board of Directors but I'm just trying to manage everyone's expectations of how much capital we are going to be investing in the business to support the required scale-up implementation, inventory and working capital. We are very excited about the prospects of US Seismic and feel we've backed the right team and the market is desperately in need of low-cost and highly-effective tools for improving the productivity and environmental profile of fracing and the exploitation of unconventional resources.

In conclusion, we expect to eventually have approximately $20 million invested in order to transform what is today a $2 billion industry.

In conclusion, we have concrete plans to invest, as I've highlighted, about $15 million of your Company's capital over the next year to grow these four terrific companies to what we expect to be positive cash flow. Our businesses are all capital-light, high-margin and facing large demand pain on clearly identified pain points for our customers. We are mindful of the challenges of creating new industries but we are in on the ground floor of solving the largest challenges facing the world's energy needs.

I'm happy to now take questions from the shareholders and the analyst community.

(operator instructions). William Bremer, Maxim Group.

Good morning John. How are you?

Welcome Bill.

My first question is on US Seismic. Can you go into a little bit more the 300 sensor channels versus 12? I want a little more color there. And then, the $50 million capacity, how long is that going to take you to potentially have that capacity?

So, Jim Andersen, I would like to turn that question over to you.

I will. Thank you very much William. So, on the first one, I'll start out is that our initial what is called Interrogator technology -- because we have sensors that are fiber-optic and light goes down to the sensor and, comes back, but all the brains for sending the light down and looking at the reflected signal to turn it into what the customer wants is in a box we call an Interrogator. And up until now, across the industry, these interrogators are very I'll call it hardware intensive, a lot of circuit boards and circuitry and things like that to take that signal that's reflecting back and turning it into the data format that the customer wants.

What Northrop Grumman had developed and now we license and we are commercializing is rather than having that all done with hardware, it's done via software, so there's a little bit of upfront processing with the signal coming -- reflecting back but the majority of the horsepower and turning that into the format that the customer wants is done via software and, you know, PC. You know, this technology was developed on the order of 10 years ago. It was starting to be developed and there are four patents issued -- actually three patents issued and one pending and we licensed that recently.

And the beauty of it is, when it was initially being developed, the PC technology, it was marginal I would say. But now, PCs have developed on the order of hundreds to thousands of times better and it's really made I'm going to call it software-based demodulation very, very cost effective and we believe it will come out with a very cost effective interrogator box. And taking into account the size that John was talking about, typically right now, based on a hardware solution, one of our Interrogator boxes which might fit in, say, a 19-inch equipment rack can handle on the order of a dozen sensor channels. And, with the PC-based demodulation technology, as the product first rolls out the door, one box will be able to -- similar sized box we have now will be able to handle 300 sensor channels. And as we progress, we intend to triple that future introductions of the product. So, that's respect to the size difference.

And I forgot, what was the second question?

The next question is really on -- oh, I'd like to add, what's the timing on this ramp up to 300?

By the end of this quarter, Q3 we'll have the first prototype up and running and we'll be testing it, taking it out to different field locations, and working all the bugs out through Q4 and introducing it as a commercial product in Q1 of next year.

Okay. And then the ramp up to the $50 million capacity if all goes well, what's the timing on that?

Well, we are setting up to -- for handling capacity of $50 million next year. And the beauty of it is it really isn't taking a lot of capital equipment. Some of the things we have already done is we are setting up to have an ERP system. We used SAP Business One, which I think you know is the biggest software solutions provider in the world, tracks all the POs, inventory, work in progress and all that. So, that's getting in place. We're having -- we're expecting it to be an approved ISO supplier. ISO 9001. We're having a final audit in about seven or eight days and expect to get the certificate within a couple of weeks after that. And that's important because it's being imposed top-down from our major customers when they start buying production equipment and when we transition from prototype test equipment and production. They've imposed it upon us and we're making sure that is in place to handle it. So that's all happening in the background.

And then we looked at the things we make here versus the things that are made outside of USSI and pretty much all the heavy intensive capital equipment, things that need capital equipment, are being done outside. An example being the fiber-optic lead cables, the cables that have to be armored, high temperature, 20,000-pound breaking strength, all these things. We design them here but they are completely manufactured outside our plant and shipped to us and then we cut into the cable at certain locations to install our sensor -- fiber optic sensors. So, very little capital is involved in that.

The places where capital expenditure is required at some of the automation, that is our fiber-optic geo-phones consist of wound coils of fiber. And we've purchased our first automated station which has increased our I'm going to call it output per shift by -- on a factor of 50 to 100 and we envision that in order to handle $50 million in revenue next year, we would need two of those stations. And the stations are fairly inexpensive, like $35,000 now that we've developed, so not very capital intensive. And then there's some other stations that we are developing for automated testing and equipment when, as it's being put together because we had to remove the touch labor, so think of it as the thing is getting built, just do a quick hook up to something and test it out, all automated and we are setting all that up. Again, not really capital-intensive -- these stations aren't that expensive.

So, internal capital-wise, it's pretty capital light but pretty much in our plan, based on the investment we are already getting from Acorn Energy, that I'll call it capacity to be able to handle $50 million will be in place in Q1 of next year.

Okay great. Let's stay with US Seismic. John, Jim, how do I see US Seismic's revenue in the back half of this year? Similar to this last quarter, the second quarter, or a steady little ramp-up?

Do you want me to take that John?

Well, I guess to the -- though I appreciate that question and it's -- we are -- the business is so small at this stage and we are -- really it's dependent upon -- each one of these orders that we are talking about is $1.5 million, $2 million and it's a question mark when the -- we've got a big pipeline but it's sort of a question as to when we can -- when those orders land. And that's really a lot of times dependent on these big service companies. Jim, is there anything else you would want to add to that?

Yes. And I would just say that we are expecting to have, over the next 30 to 60 days, land some of these follow-on contracts we've had for first article systems, so these will be like the single systems like John is talking about that cost on the order of $1 million, $1.5 million. And then it comes down to how many of these systems we can deliver in Q4.

Yes. And we're really trying to get people not to be focused on quarter-to-quarter revenue. That's the hardest thing is we think it's important we land these orders when we ship them out. Is it third quarter, is it fourth quarter, is it first quarter? I don't know but each one of these potential orders, particularly with these larger oilfield service companies, could lead to much, much larger Company-transforming opportunities. So we're really hesitant to -- and I know, Bill, that's your job is to forecast, but we really are not giving any projections on that.

Okay gentlemen. John, you called out GridSense a little bit in terms of year-over-year numbers. Can you give us a sense of what you're seeing there back half of this year as well as the first half of the year?

Well, what we're seeing is that the communications companies are saying that really AMI is not as hot as everybody thought it was going to be but really the killer app for the smart grid is distribution optimization, which is what we do. And, as far as I know, we and one other company, Elster, have got these transformational products and, once again, huge utilities, huge potential deployments, and very limited visibility. Even the biggest companies have problems scheduling when they are going to land these deployments. So I want to limit the amount of time that we take to talk about that right now because I don't really have much insight other than the fact that, based upon the number of pilots that we have, it's -- there should be dramatic growth ahead of us when that growth occurs. What quarter, I can't predict.

Okay thank you.

Rudy Hokanson, Barrington Research.

Thank you. I have four questions I'll lay out and then you can address them in the order you want. One is I just wanted to doublecheck that the footnote about DSIT becoming involved in Seismic is indeed related to the grant that was given to USSI and DSIT or if there is something else that is happening right now.

Second, you make reference in the press release to OmniMetrix working on its business model. And I was wondering if you could give more detail on that.

Three, if you could speak to expectations for R&D in the second half of the year for Acorn in total, perhaps in sum for each one. I know that you've been adding to engineers and others that come under that classification in the P&L, but I was just wondering in terms of looking at that line item if you can maybe express it a little bit more.

And then, going back to the USSI question that was asked before, and without a forecast specifically of revenue, if you could -- I just want to make sure if I understand. When you say that you're doing some small proof of concept sales or large proof of concept sales, and what we just saw announced at the end of June and early July were items, two different situations, one was $700,000, one was $800,000 but now you're talking about $1.5 million. I just want to make sure I understand the size of what these orders are likely to entail when you say small or large please.

Great. Thank you Rudy. So Jim, would you mind taking the last question?

Yes. I will first off compare it to, when you say size of orders, our target market is the micro seismic monitoring. And there's several of the areas where you have to monitor our high temperature which require more expensive equipment and, I would say that's probably on the order of maybe 30% of the fields being hydro-fraced or high temperature. These are fields like Haynesville in Texas and Eagle Ford and there's places, some of the places in California and then maybe a little internationally. But those require a little bit more expensive system. So, the conventional technology required to monitor these areas costs on the order, for a typical system, $7 million. We are coming out with a -- the fiber-optic technology that actually is superior and we're sort of testing the price point, but we are coming out with the early adopters for -- to address that market with some things on the order of between $1 million a $1.5 million.

And then, for the lower temperature system, those will run on the order of $500,000 to $700,000, maybe $750,000, which are sort of some of those initial orders that you talked about. I'm sorry, does that answer it?

Thank you so much Jim. Dena, do you want to talk briefly about how we've changed the business model at DSIT -- I'm sorry, at OmniMetrix?

Sure. Historically, the business model for OmniMetrix has been to sell the hardware and also charge for the monitoring fees for the ongoing service that we provide to the customers. The cost of the hardware has dictated that it's been a barrier to entry for the -- for our customers to connect with us. So, with the Acorn investment, we have removed that barrier to entry and basically done the razor/razor blade model and are giving away the hardware in exchange for the connection. The connection is the value of the business and that's -- in moving forward and the recurring revenue stream and we believe that our data and our deliverables to the customer is so strong that they will become addicted to the data. Therefore, our churn rate has historically always been extremely low and the future of the Company is in gaining the number of connections and then, in the future, we will expand the services to them to actually increase the offerings and add services to the customer -- to our existing customer base.

Could you perhaps give a bit of perspective in terms of what the equipment used to cost upfront? And then also, and I may be mistaken on this, I thought part of the business model in the past involved charging for a full year of service upfront and then every subsequent month that a customer was charged was really for a month one year out or did I misunderstand that?

To answer the first part of your question, historically, in the past, we had charged approximately $1000 for the hardware.

And then, the second part of your question, we do -- we did historically and are currently charging a year's worth of monitoring in advance and then, at renewal, we will charge the year's worth of monitoring in advance on every renewal year. So, that part of the model hasn't changed. We are just taking away the hardware cost.

Okay, so if I just understand it, there is only a charge once a year for the next 12 months?

That's correct.

Okay, thank you.

Great. And Benny Sela, would you mind commenting on the DSIT seismic expertise?

Yes, we have gained a lot of experience in the advanced signal processing of acoustic underwater signals, classification, and detection. And it turns out that this expertise and technology is applicable to Seismic Systems which is a similar soundwave that propagate in the ground versus underwater. And that's where we complement with USSI. They have the advanced front-end essentials and we complement them by adding the advanced signal processing providing detection and classification for them. And that's where we tie together. Our Ministry of Defense has also given us a couple of contacts like this lately.

Regarding land-based security projects, we can't talk too much about them, but applying the acoustic technology that we gained four seismic application. And from that point of view, it's a really good match with USSI and this is an expansion on top of the build projects that would be -- as John explained, would be jointly doing for underwater active, our active in USSI passive sensor -- diving detection sensor.

So, again maybe to reiterate what John was saying earlier, and why this grant, the BIRD project, is so important is that, this way, neither one of you has to reinvent the wheel but you can complement -- where you hadn't been in the seismic market, now you can take the knowledge and connections USSI has to some degree and see how you can be complementary on seismic and on the perimeter security that USSI -- I believe that's the way that it's called -- has been working on, that you can take your more naval application and work with them on those markets. Is that correct?

Yes, exactly. That is what synergy is all about, when one plus one is three and not only two.

Thank you Rudy, and Rudy, I think the -- I can't break the numbers down for you on the R&D, but the one point I wanted to be very clear about was that we have a little less than $40 million of cash. We have $15 million of money for direct investment, and our operating costs, including our dividend, is about $8 million a year at the corporate level. And so, we've got two years of cash with all of the foreseen investments in the operating businesses. And that's sort of an enviable position to be in, and probably 25% of that capital will be invested, if I were to guess, in R&D with 75% being spent on sales and marketing, getting the products into the marketplace. Thank you very much.

Just for the sake of the mundane as we try to build these financial models, can you just give me -- is it possible to give a rough run rate of what would be called R&D in the second half of the year, not counting all the capital spending but just R&D? Would it be good to look at the first half of this year and say it's likely to repeat or is it likely to maybe trend down because you have -- of what you've done in the first half or is it best just to call it flat?

You know, I don't know that I can comment on that, Rudy. I'll give that some thought and get back to you.

Okay, thank you.

Jim McIlree, Dominick & Dominick.

Thank you and good morning John. A few things. First on OmniMetrix. What is the contemplated monthly or annual charge for the service?

Dena?

It will be dictated by volume. Obviously, we are trying to partner with dealers, so the content for the dealers is the more customers they create connections with, then the lower the cost of the monthly monitoring. But it's anywhere from $25 a month to $45 a month is the range, depending on the volume.

Great. And how long is it reasonable to think that the distribution channels will be let's say completely built and you can start going after the end-users?

We are in parallel going after the large volume end-users currently and we typically try to work with these dealers because it benefits their business to have these large-volume customers as their service dealers as well. But there's nothing stopping us currently from going after end-users. We're just obviously looking for the low-hanging fruit currently and the volume accounts are what those are and these dealers represent the connections to the customers that typically we don't have. So that's the real main driver behind letting the distribution at the dealer level help us with the volume connection.

And the dealers are the OEMs or the -- (multiple speakers) OEMs?

Yes, they are the service dealers to the OEMs. Service dealers to the manufacturers, correct.

Great. And then, John, on both GridSense as well as US Seismic, can you lay out what a typical timeline would be from get a trial, trial lasts X many weeks or months, evaluation period of a certain time, get the order, another evaluation then you get the big one. Just so -- I'm trying to kind of map out the time period for both GridSense and US Seismic for that.

Great. I'd like to hand that one over to Jim Andersen. Jim, would you mind sort of giving your experience to date?

Yes, so what happens is you have the initial week off to do some kind of demonstration with the client and sometimes it's a funded demonstration and sometimes we make the decision it's work to go out there because we have the part -- the equipment to go and do the test. Sometimes we do it gratis for them. Typically, once we do a demonstration, within a month's time, they give us an indication that they want to place an order for a larger system. A lot of times though that -- that's stating they have the -- they plan to do it and when they do it, sometimes months go by. But, they always come through so they have to date. And then, once we built up a system and deliver it, which we've done -- example one, we delivered a system at June 31, end of Q2, to one of our clients and they are getting ready to go test it in the field sometime in the middle of this month, so we shipped it to them, they installed it in their truck, they are doing some integration work with their own equipment. They're going to go test it. So that time from when we deliver to when they test it was on the order of a couple of months. And then based on this testing that they're going to do, they -- if they are happy with how everything works, sometime this quarter, we would expect a follow-on order. So, sometimes when you deliver it, it's a couple of months so they actually can schedule a test. And like for this client we are talking about, they're going out to a high temperature field and a shale field in Haynesville field in Texas.

So, it sort of varies but I'd say, from one step to the next, the decision is typically made quickly in the order of a few weeks to 30 days. But sometimes it takes 60 days from that decision to get us to the actual order.

And as these -- I am sorry, Jim, but as these systems are potentially deployed, is it likely that an operator would deploy it and do one in one field and then it's working so he deploys multiple more? Or is it more likely that it was -- you do one in one field and then you kind of sprinkle it in other fields to see if it also has applicability there?

Yes, what we are hearing from the our clients that we are making systems for is the biggest thing -- we've gone out, we've tested it with a small-scale system on the order of a few levels, and they are happy with the performance on that. So then they order a system that's full-scale and they want to see how that performs in an actual monitoring. And some customers say they go out and do one monitoring job and that's enough to convince them and they'll turn around and order multiple systems, and some have said they want to do to -- use that initial system in two or three tests before they are ready to order multiple systems. So, I don't know. Does that sort of answer the question?

Yes, that's very helpful. Thank you.

And then I'd say that I think things happen faster at US Seismic than they do at GridSense because GridSense really is creating a category where there's never been any tool at the price points that we have that monitors the cable temperature and underground infrastructure. And so, unfortunately, what you do is you show up at these -- you sort of get these pioneering customers who are willing to adopt the product or try it out and do a pilot, maybe they have some side pocket money to fund it. And then if they're very happy with it, then they have to put it in budget for the next year. And that's one of the big things that sort of have been slowing down the progress at GridSense.

The good news is that there are literally thousands of utilities out there that are target customers. And we think that grid insight is going to -- which is the software package that allows the pilot -- the user of the pilot to be able to instantaneously be able to monitor and get new immediate feedback from the sensors. They don't have to ask permission from their IT department. And across any business we've ever dealt with, the IT department is usually the enemy of any innovation in the energy network. So, it's good news for GridSense and I think it's going to shorten the cycle there.

Okay. That's great. Thank you very much and good luck everybody.

[Ted Liu], [Bally] Financial Group.

Good morning John. Congratulations for another great quarter.

Thank you so much. We are very happy with 40% growth.

Me too. I just wondered if you are getting an adequate flow of opportunities for potential acquisitions in the future.

Ted, that's a great question. Whenever I -- we are intellectually curious but we always measure is what we're looking at as alternative opportunities as good as what we have right now? And, I would have to say that, probably for the first time in my life, I felt like I have enough to say grace over, providing capital to the four management teams that we have, and we really want to keep our powder dry to fund the growth of these four terrific companies. Thank you very much for asking the question.

Okay, thank you.

[Ricky Salamon], [Verition].

So congratulations on the progress, particularly in US Seismic. A question I guess first for Jim. I've been hearing talk of maybe some competitive technologies, distributed acoustic sensors, or DAS, and also HP and Shell were supposedly working on a MEMS-based solution. Can you talk about your technology and how it might stack up against potential competition?

sure. I guess I'll talk about the MEMS first. You know, for people that might not know, there was a -- Shell and HP announced a joint venture where they're going to develop MEMS, which is a miniature mechanical sensor technology. And they came out with some reports. Bottom-line right now, I think they are struggling and I haven't heard of any progress in probably on the order of maybe six or eight months, but from the latest stuff I've seen, and I'll talk a little bit about it, they published a paper on the order of 18 months ago with where they want to be on performance on the MEMS system. You know, at that time, they said they are at a noise floor and this is a typical measurement of performance. So I'm going to throw couple of numbers out but, but you know they mentioned a 70 nano G for [root hertz]. It is a noise floor measurement that they were able to achieve in the lab and they are trying to develop something that would be similar to -- and which they haven't tested all outside labs in the field. And they also felt that they were going to develop what is called an ASIC, which is an application specific integrated circuit, to couple with that MEMS sensor to increase the performance down to somewhere on the order of what is called a 10 nano G level. But you know that -- they're trying to demonstrate that in a lab and not sure when they would take it to -- into the field.

You know, just to give a comparison, we just shipped the system to a customer that had a noise floor that was already better than what they are trying to get. And we are shipping it and so I think we're already there.

And when it comes to cost, we are targeting to be able to be less expensive than the conventional technologies being used now. This is the coiled geo-phone. I mentioned that there are several companies that have developed MEMS sensors outside of the HP -- Shell-HP joint venture. They are on the market. They've been on the market for almost on the order of five, six years. They've never been able to achieve the performance of the -- even the traditional geo-phone. But they are much more expensive, so I think, to date, the MEMS entry into the oil and gas has been disappointing to the companies that have tried to do it.

One last thing -- one value of this you hear this thing called LinkedIn, you know, the lead researcher on that MEMS project via LinkedIn thing left that project and went to work for I think it was like Apple or -- yes, Apple. I was trying to remember where it was -- who it was -- left to maybe six or eight months ago.

So, my impression is since we haven't been hearing anything on that, that -- and the lead researcher leaving, and then how the level of success the other MEMS suppliers have had in this market, I don't feel that threatened by it, especially because we already have a product -- we've already shipped it -- that performs better than what they are trying to attain. So, that's the MEMS stuff. And before I move on to DAS, I wanted to make sure that answered your question.

Yes, that's great. It sounds like we are less expensive and more sensitive and (multiple speakers)

Absolutely. And the other part which they are making with this is called an application-specific integrated circuit. They want to make that and put it down whole, there is no technology out there now for that that you can make an IC survive as the temperature is needed for down-hole. So, probably would end up being something that might be used on the surface but not down-hole.

So then it comes to the DAS, which is really, really interesting. And DAS stands for distributed acoustic sensing. And, I'll equate it to, on the order of a decade ago, there was a system that came out that was called distributed temperature sensing, which I'll say the two are sort of analogous. And what distributed temperature sensing was, you take a single fiber, put it in some kind of cable but put it in a well and just the fiber itself will give you a temperature profile along the fiber of the entire length of the well. Trying to build upon that, there's been several companies that have tried to pick up on some technology that's been around for a long time called Rayleigh Backscatter. I don't want to go into a lot of technical detail on it, but it's a technology that's been around for probably 15 years, which is where the DTS gauge distributed temperature profile, this takes a single fiber and it allows you to give you a distributed acoustic sensing where you can sense noise along the fiber and it's just a verify -- it's in a cable to protect it but the fiber itself is the entire sensor. So people looked at that -- that would be beautiful. It's inexpensive, which I agree with all of those things but now we start talking about reality. Let's say you want to measure seismic. I have, there again I have to go back to, okay, what's the requirement for a seismic sensor? And typically the biggest one is noise floor. That's number one most important criteria, noise floor. And that means that like noise floor means how quiet of a signal can you detect? And, if you take the standard geo-phone that's used to date and say, okay, let's compare the noise floor of that compared to the MEMS, I mean the distributed acoustic sensing, that distributed acoustic sensing is at least 100 times higher noise. So, it's not even close to the conventional geo-phone and if you would compare it to us, it's on the order of 1000 to 10,000 times less sensitive. So, I do think I see some value in it. You could put it in a well you could listen to things like valves closing, maybe flow coming in from different areas, but I don't think anybody with any kind of seismic expertise would say that it would be used -- can be used for detecting seismic activity as far as either vertical seismic profiling or micro seismic events like we would detect.

So where I think that would go, DTS ended up having on the order of maybe, after a decade out in the field, a $50 million sort of like market size. There's applications for it but they are limited. I think this DAS technology will also have a similar kind of market size as DTS because it's not really seismic. It would just be another tool they can listen to things. So, we're going after the seismic market which the existing market for seismic -- seismic equipment is on the order of a $1.5 billion market. And we're looking to increase that by coming out with a better product that more than meets the needs.

And then the last thing I'll just say is that I went through a similar kind of I'm going to call it process that happened on the order of about 10, 12 years ago, when I was running the fiber optics group at Litton, some companies came out and wanted to use this what is called similar DAS technology. They said this will take over all the stuff that's going on at Litton and the Navy for the fiber optic sensors we were developing because the single fiber sensor is -- would make it so much easier and cheaper and more reliable -- same kind of things they are talking about now. The Navy went through a two-year study and after two years of studying, it came out and said this technology will never have the sensitivity needed for a high-performance Navy sonar system and just dropped it.

So, some of the -- so I think it's trying to find a home somewhere else, and this is one of them but I think eventually they'll come to the same conclusion. What I like about it is the industry now is really a lot more interest going on with fiber which is pointing a lot more people to us. And, we just did a demonstration with a large, very large oilfield service company where they wanted to put a DAS system down-hole with us just as a comparison. And without going into a lot of detail, I guess they ended up dealing feeling like that system was deaf compared to ours. And after a few hours of comparison, they didn't bother looking at what data that DAS system was getting because it barely picked up anything as compared to what we were doing.

So in general, I think it's good for us but I don't ever think and I think most people in the industry don't think that it can never be used for seismic measurements. So, I think I hope that -- does that answer your questions?

Yes I'd say. Thanks. But I also had a couple of questions for you. Let's say, by some chance, you get an influx of large orders. You say it's not capital intensive. Could you ramp beyond -- you going to be $50 million by the first quarter. You could easily ramp to more than that if you had to, right?

Yes and here we are talking about capital and infrastructure in place and so we're setting up -- we need to be ready because there have been several clients that have come to us mentioning this is the kind of requirement they have and their biggest issue they say in working with us is they go you know what? We don't want 10 of anything, a dozen of anything. We need hundreds of thousands. We want to make sure you can do this. So, we are setting up to do that with the capital equipment. Of course we'll have to bring in more people and all this stuff but the capital equipment will be in place to handle it. And I feel that we've had some of these large customers come out. We show them what we're doing, talk about the capacity, and they've walked away -- and plus you know our quality program -- and they walk away satisfied. So I think we're on the right path.

But we do -- we would have to increase some of the staffing as these come in, but capital equipment-wise we'd be fine. But, the beauty I think John mentioned is we're going through a process right now to reduce the touch labor to -- believe it or not, on the order of 90% reduction in touch labor via these automation and upgraded designs we are doing right now.

Okay great. And that leads me to my next question. So you have the new Interrogator coming in. You're taking out human touch from the process.

Right.

What's that going to do to your gross margins on systems that are going to be going out the door, say, in the middle of 2013? How does that look?

That is exactly why we're doing this, because our intent is always to have greater than 50%. We envision -- when you look at the competing technology, there's so much room in there for us with a better product, much less costly to make, and we need to sort of test it, but we see, with these advancements we're making in removing the touch labor and the PC-based Interrogator, we see the possibility of much better than 50% gross margin in 2013.

Okay, terrific. And on the OmniMetrix side -- this is my last question -- you mentioned you wanted to get to 50,000 connections by the end of 2014. And just to briefly go over that model, so you're going to be collecting 425,000 -- I'm sorry, $425 per connection at a high gross margin. What other costs are going to be -- like how is that business model going to look exiting 2014?

The first year, whenever we are absorbing the cost of the hardware initially, obviously the gross margin will be a lot lower. But, in years two and beyond, that margin is phenomenal. We have very, very low costs associated with those additional years of the revenue. So, that's what's so exciting about the business is obviously the churn rate is important and historically we've had very low churn rate, so having that big margin and also as we move forward adding services so that we can also create additional revenue sources through automated systems should prove this model looks very good.

So it's really just a question of how much money do we want to invest in sales and marketing and what we see as sort of this really terrific little ocean -- I mean every time you turn it over, you find another application like, you know, there's 3000 large-scale aquariums. Just to sort of show how niche these applications are, major cities like Philadelphia, Atlanta have these aquariums and they all have backup generators and they lose power and whales die. So, this is -- there is a lot of stuff out there and so we're really excited to see -- to put his money to work.

So you guys are hunting whales. I get it. (laughter)

Frank Barresi, Ameriprise Financial.

I had a couple of questions. The first one, which is beyond OmniMetrix, how many dealers have you signed up already on to do this?

The next one was on -- I'm sure it's in the 10-Q but how large is DSIT's backlog? You know, how are current sales going?

Then the third one is was if there are problems in developing this PC-based system for US Sensor, is the 12-channel system good enough? I mean would you think you would be selling that for a while? Or I guess it really comes down to how likely is it, because it sounds like you have a pretty ambitious schedule to commercialize the PC-based system. So I was just wondering if the 12-channel would be a viable commercial product if it takes a lot longer than you think.

And then just the fourth question, you said something about Elster. I had to leave for a second. I didn't quite -- in relation to GridSense.

Good, I'll follow up that one. So, Benny, are you still on the line? It's Friday. It's the Sabbath in Israel. So we may have lost -- I know we lost Michael. Did we lose Benny?

Yes. He is no longer on the call sir.

I apologize. So, I don't actually know the number. If I were to guess, it's probably around $8.5 million of backlog at DSIT. But I will get you an answer on that, Frank.

And then, Jim, do you want to answer the question about potential delays or how the progress is going on the Interrogator?

Yes. Here is the big benefit or the approach we're taking is that I think most of you know I used to work at Litton. It became Northrop Grumman and this is a technology developed there. And we actually -- after I left, several actual systems there were actually built and operated. So, we know it works and we license technology, but the beauty of it is that people who are actually listed as the inventors on the patents are the people we hired in here to take the technology forward. So they've already done it once before for a military system and it's really ending up being an adaptation. So, I feel the risk is pretty low.

We've already built several pieces of -- there's some circuit boards we have to make, minimal amounts and -- but the algorithms that were used to get through the PC were pretty much using similar algorithms that was used at Northrop Grumman as part of the license. So, I feel very, very confident that we'll have the thing operational and ready to sell in Q1 of 2013. You know, is the existing 12-channel viable? Yes, but the margins are low. And that's what we're trying to improve upon.

Great. Thank you so much Jim. Yes, so at the end of the day, this is all about driving our businesses towards cash flow positive, and we like high-margin businesses like we have in the portfolio.

The last question was about Elster. Ed Woolard, our advisor, former CEO of DuPont, always challenges me. Is it really possible that you guys have so little competition? And I think that's true in the case of US Seismic.

DSIT has a very good competitor in a company called Sonardyne. And GridSense -- really nobody else is out there offering products at the price points that we offer. There are some -- there is one terrific company called Elster. One of our former top converts guys is now running the North American electric business. And, to the extent that they get a $100 million deployment of their meters, it's sometimes difficult for us to sell against them because they can adapt a product or something like that. But nobody has the same vision that GridSense has. So I just wanted to mention it because I feel it's very important for us to be balanced about how big these opportunities are and what's the pace of adoption.

Okay John. And I would also was wondering about how many -- on the OmniMetrix, have you signed up dealers or -- at this point in time?

Dena, do you want to answer that question?

Sure. Historically, Frank, we have approximately 50 dealers that have bought from us over the past 12 years. What we've done over the past two months is developed a smart service program where we are launching a new sales effort to go to these dealers and explain the benefits of our product as opposed to the historical way of selling it. If a customer asks for monitoring, then they would call us. So, we're trying to drive the sales from the dealers to show them how it will benefit their business and create more business in the service industry for them and have them actually out there helping us sell the product as opposed to it being a pull.

So over the past couple of months, we have taken those existing 50 dealers that have been historical customers of ours and turned them into ordering customers that actually order from us. And John gave you an example of we had one that bought zero from us last year and they've already bought 110 in the past 60 days from us this year based on this new program. So, you know, we are slowly trying out this new program that we are implementing to see how -- what the reception is going to be and it's been phenomenal so now we're taking it to all the other dealers that are existing customers of ours and then try to grow that from there.

Thank you so much Dena. And then lastly just to circle back on the DSIT backlog question, in the 10-Q, it says that we have $9.5 million of backhaul at DSIT so, we are -- the Company is in great shape and I think we've got a great pipeline. Thanks so much Frank.

Thanks John.

Charlie Sloan, MCC.

Charlie Sloan!

John, how are you?

I didn't know you changed your name to Carly.

I did, only for this call because I didn't want to go through this! My questions are as follows. The -- you tried to solve the pain points of energy, right, the existing grid and all these other issues that are very difficult. With GridSense and USSI, are you reaching the pain points of making the sale? You talked about there is no question that in big organization like utilities or healthcare or some of these other companies, IT is simply part of the sale. They are the buyer at some point and it's almost as much not selling to the engineer as is much selling to the C suite and then also through the IT area. Do you have the right people in place at both of those organizations to do that?

Charlie, great question. So first of all, I was crushed by my effort to be able to sell to IT to the -- with the Coreworks business. That was a hard and difficult lesson. I will defer the question to Jim as far as the level of people he talks to and the sales process there, and then I will quickly respond on GridSense.

Hi. Presently, I feel we do and here's how it has been operating for us up to now. The pull is really coming from the major oil companies and so they are -- of course they want to improve their efficiency but the problem they seem to be having in this fracing industry, there's a bad public relations related to hydro-fracing. People hate to admit they're doing it but you can see on like the television commercials like the Chevron, the Exxon Mobile, BPs are all coming out and saying how they are trying to do this in a environmentally friendly way. And, one of the big ways they want to improve their image, not only just improve their efficiency, is show that they are good stewards and they monitor what they do. And so that's also becoming a big pull from the oil companies.

So what happens is we initially get contacted via the major oil companies. They call for some kind of demonstration. And then once they seem pleased with it, which has already happened in one and about to happen in another, they don't end up buying the system. They direct us to their service company because the oil companies don't buy the hardware. They buy the service from their service companies. These are the Halliburtons, the Schlumbergers, you know, those kind of guys. So that's sort of happening. And so what we end up doing is the service company likes us because all of a sudden their customers calls and says go call USSI and set up some kind of relationship with them and go out and do some kind of demonstration and qualification. So, that's sort of how it's going.

And I think with the staff we have up to now, we've been able to handle that. But we're also right now looking at expanding, bringing an oil guy on our board, and looking at the possibility of hiring a sales person in the Houston area. And we think it's about time to start expanding that.

Well, that's my other question -- with USSI, it doesn't sound to me, John and Jim, like it's a capital question per se. But -- because, John, you've laid out the capital vision for the Company and you have two years of capital and many of these businesses -- DSIT is one of the best businesses I've ever seen in terms of running it. And so many of these businesses will be cash flow positive by then. But capital, what you said, Jim, regarding capital is if -- and it's not a capital question because everything is pretty capital-light, but is it a question of your size? And does it make sense to get capital at some point from some JV partner that takes away that major hurdle that some people may have in buying it?

Well, I mean what we've been able to show the people is that we are relatively capital-light because they see these huge systems that are needed to go out in the field and say, well, the huge part of the system is a cable and we just buy -- we specify it and buy it and they delivered here and we cut into the cable in certain locations, hook our sensors up. So that part, we are taking all the touch labor out of it or a majority of it out, so -- (multiple speakers)

Jim, I think Charlie is basically saying --

I'm asking a different -- probably a different question of John of the capital as a question accelerating the business. How do you accelerate the business to make sure that you stay ahead of competition? And whether it's capital per se or whether it's a joint venture partner that you accept you share part of the surplus of acceleration of the business.

That's a good question. You know, we haven't had an objection. We haven't had any objections based upon our capital structure. And so that's one of the things that has not been a problem so far. And we think who collaborates the best wins, but I'm reluctant to -- I haven't seen a problem on our side yet or the customer side that would indicate that we would have to do that at this time.

But some of the objectives you may see are just lack of orders, right? Sometimes it's the question of omission of -- the customer says yes that's neat, that's great eye candy. That's awesome. And then they say, well, it's a small company. We'll wait for a couple of years. Right?

As I say, stay tuned.

Yes, and that's a concern. And that has actually happened on a couple of occasions. They said we want to come out and visit and explain to us how you are going to be able to meet this huge requirement we have.

Right.

And I think they've walked away satisfied, because we show that, on the areas that -- like we'll acquire a lot of capital equipment stuff -- that that's all done outside. We are mainly integration and we have a specific part of the product that we made that we keep close control over such that IP stuff doesn't get out there. But that is definitely all -- it's always brought up by the large customers that they to come out and visit and that's one of the things they told us. They said well, one of the things we'll require is you to have an ISO 9001 and we heard it and we're doing it. So absolutely, that is a concern and question and we're doing our best to address it but you know --.

No, it's a higher-level question probably about how best to address this huge market quickly before competition, true or not, really comes in and drives down the price points further, because there will be competition. Competition is good.

Absolutely, yes.

So, anyway, I think you guys are doing all the right things and that goes across all the different portfolio of companies, John, and just keep up the hard work. Thanks.

Thank you so much. I think we'll take one last question and then we'll wrap up. Thank you for being so patient everybody. We have 88 people on the call, so I'm really grateful for the all the attention from our shareholders.

Currently, there are no more questions.

There you go. I'm not that grateful anymore. Thank you very much everybody. That concludes our presentation and thank you so much. We're looking forward to the future of each one of our four companies. Thank you very much.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.