Jason L. Tienor
TWST: Please begin with a brief introduction to Telkonet, including some key highlights from its history, and an overview of the primary services and technologies the company offers.
Mr. Tienor: Telkonet (TKOI)is a clean technology company located in Milwaukee, Wis., and its stock is traded on the over-the-counter bulletin board under the symbol TKOI. Early in its history, Telkonet began as a developer of PLC, or power-line communications technology. In early 2007, we acquired two companies named EthoStream and Smart Systems International. These acquisitions were the catalyst for Telkonet's market repositioning and strategic development. In early 2008, the current management team was brought to execute on the company's vision and strategy and to grow it as a profitable enterprise.
Based on these acquisitions, Telkonet is now is comprised of two distinct divisions, the EthoStream Hospitality Network and EcoSmart Energy Management, and we specialize in intelligent networked energy-management solutions.
Our EthoStream division designs, develops, installs and services high-speed Internet access networks in more than 2,300 hotels, and provides access to more than 4.2 million monthly users, making EthoStream the most trafficked HSIA network in the U.S. The EthoStream Hospitality Network also provides marketing opportunities through its EthoStream Network Portal that is utilized by entities including Google, JiWire, iPass and others. EthoStream's business is comprised of installation and marketing revenue, as well as a significant recurring base of support revenue.
EcoSmart, our intelligent energy management products, have been installed in more than 200,000 rooms throughout the hospitality, military, education, health care and public housing markets. Telkonet's EcoSmart products are developed around a patented algorithm called Recovery Time that a) maximizes savings through efficient HVAC controls, b) increases existing HVAC equipment life through effective use of capacity, and c) increases occupant comfort through the efficient implementation of HVAC control with minimal occupant impact. These controls allow us to provide a 30% to 45% energy savings and return on investment of three years or less.
Building on this same platform of controls, we've continued to expand our competitive leadership through the deployment of our mesh-networked EcoSmart platform that allows real-time monitoring and management of savings and efficiency as well as extensive integration with third-party controls, including existing building automation systems, such as Johnson Controls or Siemens, and property management systems throughout the hospitality market. This same platform has added features including an artificial intelligence module that is able to monitor room trends, and dynamically, schedule HVAC controls as well as process traditional room scheduling features.
Finally, we've demonstrated our market leadership in this space through our commercial deployment of demand/response capabilities partnered with utilities. Existing deployments have demonstrated as much as 50% load reduction during a load-shed event. This capability shows the enormous value that this type of energy management system holds in reducing the need for new power generation.
TWST: To the extent a layperson would need to understand, please tell us how the technology works and how it saves customers' money?
Mr. Tienor: The EcoSmart Suite deploys a number of devices throughout a space to provide control over the HVAC for that space. These devices include EcoSmart digital thermostats, occupancy sensors, door and window sensors and controllers as well as Zigbee bridges and network gateways. These devices communicate with one another in room, as well as with a traditional network installed throughout a facility. The products will maintain the occupants' chosen HVAC settings while a room is occupied, but will implement Telkonet's patented Recovery Time technology as soon as the space becomes unoccupied. This means that the EcoSmart technology will continuously calculate a dynamic set point that the room may drift to, conserving energy through the reduction in HVAC operation, until an occupant returns to the room, at which point the room will be returned to the occupants preset temperature in exactly the Recovery Time that had been programmed by the building owner.
The period of time that the EcoSmart system controls the room while it's unoccupied provides the extensive value of the system. As an example, the average time that a hotel room is physically occupied is 30%. The other 70% of the time when the occupant is absent, the HVAC is still running in that space. The cost to heat or cool a hotel is one of its largest annual expenditures. Telkonet's EcoSmart Suite provides enormous savings through implementing our intelligent patented technology on this unnecessary energy consumption. Taking into account the ability to reduce generation during peak energy periods, the ability to participate in demand/response programs and the reduction in maintenance costs through real-time equipment monitoring, our EcoSmart platform provides enormous value to our customers.
TWST: As you told us, Telkonet historically has worked largely in the hospitality sector, and I know the company has had some recent customer wins there as well. In which other verticals do you see opportunities to sell Telkonet's services, and what strategies will the company employ to penetrate those markets as well?
Mr. Tienor: Yes, our largest market is the hospitality market due to our history within the market and our presence through our EthoStream Hospitality Network. The hospitality market has also been the quickest to recognize the potential for savings with regards to its HVAC expenditures and opportunity to integrate these granular controls into existing building automation systems and property management systems.
That being said, we've recognized enormous traction in both the education and military/government market segments and have begun to focus on the health care and public housing segments as well. One of our largest customers is New York University, with more than 4,000 rooms installed. We've engaged with NYU in several innovative and cutting-edge initiatives including partnering with the university and NYSERDA to demonstrate production load-shed initiatives as well as integrating lighting control directly into the energy management deployment.
Also, our $1.2 million deployment at the Fort Drum military base in partnership with Trane demonstrates the enormous potential for savings across military institutions meeting federal mandates such as the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The military is probably our second-fastest-growing market vertical with several new engagements each year with our most recent being a prestigious military training academy.
While we've historically sold directly into our markets, we've strategically approached these new markets aligned with channel partners including well-known ESCO's including Johnson Controls, Noresco, Trane and others, as demonstrated by our past engagements. We also employ an extensive network of value-added resellers that have existing relationships with institutions within these markets.
TWST: Legislation, such as the Energy Independence and Security Act and the Energy Policy Act, has provided public funding to your potential customers. Is there any similar pending legislation or regulatory reforms that would create significant new opportunity for Telkonet if they were to be passed?
Mr. Tienor: That's a great question, and yes there are. While there has been enormous federal support for energy-efficiency initiatives in the past such as those you mentioned, as well as the American Reinvestment and Recovery Act and President Obama's recently released Better Buildings Initiative, Congress continues to emphasize new legislation that will assist in reducing the nation's reliance on new energy generation and protect our environment. Examples of initiatives currently on the table that offer significant opportunity for Telkonet's EcoSmart technology would include the Energy Savings and Industrial Competitiveness Act, S.398, PACE Assessment Protection Act, H.R.2599, and on the residential front, S.1737, S.1029, S.1914, all reference energy-efficiency standards in residential housing.
TWST: Would you tell us about your professional background? Also, what are some of the strengths you believe Telkonet has among the members of its core management team at this point in time?
Mr. Tienor: I have an entrepreneurial background based largely in technology. Having founded and run several companies based on technology and development, the last of which was acquired by Telkonet, I keep myself intimately involved in our platform and development. I believe that a business is made of its people and technology and strive to nurture those two resources.
Having said that, I believe that the core strength of my management team is that entrepreneurial spirit instilled in many of them. Combined with a strong sense of loyalty, dedication and belief in our technology, this team has not only executed on the commitments that it has made to our organization and our shareholders, but continues to set new milestones for itself each day. Our newest member has an extensive background in clean technology and brings with him a wide-ranging network of industry affiliations that has significantly expanded Telkonet's presence in the space.
In continuing to grow our management team, we look for these same attributes and continue to fill each position by retaining the strongest candidate possible. In striving for the best in each new hire, I believe we raise the bar both for the company and for ourselves.
TWST: How would you describe the competitive landscape for Telkonet, and what are some of the advantages you believe the company has over its direct competitors?
Mr. Tienor: Competition for our technology is very market-centric. While we recognize a few competitors in the hospitality space, we haven't recognized the same activity in our other target markets. We attribute that to the development that's been done on our EcoSmart platform to provide the greatest flexibility and compatibility across HVAC systems and the ability to integrate with third-party automation systems outside the hospitality market like Johnson's Metasys system.
In addition, an early misconception is that our EcoSmart Suite competes with a traditional building automation system. This is not correct. EcoSmart works complementary to BAS or BMS systems in that it provides more granular control over individual environments. Working in concert with a BAS or BMS allows building owners additional savings and greater individual occupant comfort.
Telkonet's EcoSmart platform also has been expanded to provide controls beyond HVAC to room lighting and individual plug load, allowing us to manage all in-room consumption. These new capabilities have placed us head and shoulders above our competition and our ability to manage these features from our software-as-a-service EcoCentral platform cements our ability to work directly with utilities, leveraging first-to-market relationships.
As I mentioned, our technology, including compatibility, cloud-based controls, intelligence and integration capabilities, provides our initial competitive advantage. Coupled with our deployed based and demonstrated demand/response capabilities, Telkonet has set itself apart from an industry of narrow product solutions and startups with no product or little to no revenue.
TWST: What would you say is the most significant challenge Telkonet is facing and what is your team's strategy for dealing with that challenge?
Mr. Tienor: We believe that as a result of our restructuring, we've solidified our position as a leading commercial energy management provider in the clean technology market. Having posted profitability through our first three quarters of the year, we've executed on our commitment to the organization and shareholders and are rapidly growing the company to take advantage of the significant market opportunity in front of us.
The most significant challenge in front of us is that of scaling. The idea of striking while the iron is hot is crucial for us right now. Not only the enormous awareness in the commercial markets, but the emerging opportunity in the residential space, is fueling industry growth. Taking advantage of Telkonet's product leadership and market success to increase market penetration is a key focus.
Our strategy, as I mentioned earlier, is to make greater use of our third-party partners and ESCO relationships to expand our sales force. In addition, participation in industry groups and events is helping to bring greater awareness to the EcoSmart platform as well. Lastly, continuing to grow our internal team and fuel direct growth, as well as manage opportunity, is a priority for the company over the next year. Our recently added Executive Vice President of Sales has brought an enormous wealth of industry relationships with him to assist with that.
TWST: For investors who are keeping an eye on the company, what are the top three strategic goals on Telkonet's agenda for 2012?
Mr. Tienor: The top three goals for Telkonet this year are very clear - expanded revenue to demonstrate performance on our growth initiatives coupled with continued profitability; second, expansion on the EcoSmart suite of products with the new release of our lighting and plug-load devices providing an expanding competitive differentiator and positioning the company for its strategic entry in the home energy management, or HEM, market; and third, the expansion of our relationships with ESCOs providing continuing growth in the performance contracting space and expanding opportunities overall.
TWST: For investors who are interested in clean tech, what are the most compelling reasons they would want to put their money into Telkonet as opposed to other similar companies?
Mr. Tienor: I appreciate that question because it gives me an opportunity to demonstrate our value, which is that we are a profitable, successful company with a proven product. In clean technology, specifically energy management, that is seldom the case. We regularly see startups with ideas or prototypes that are unproven and have no market penetration. This is where we differ. We've been operating for more than a decade and aren't ashamed to admit that we've learned over that time and have taken suggestions over that time to develop the revolutionary suite of products that we have in EcoSmart today.
In addition, the continued technological growth and advancement of EcoSmart has allowed us to enter in relationships with ESCOs and utilities that other companies have not had an opportunity to initiate. Through leveraging this leadership position, we're poised to capitalize on the experience and expertise that only time can bring.
TWST: Thank you. (MES)
Jason L. Tienor
President & CEO
10200 W. Innovation Dr.
Milwaukee, WI 53226