mCloud Technologies Corp.

Q3 2021 Earnings Conference Call

11/29/2021

spk01: Good morning and welcome to the mCloud Technologies Third Quarter 2021 Earnings Conference Call. At this time, I will now turn the conference call over to Mr. Wayne Andrews, mCloud's Head of Investor Relations. Please go ahead.
spk00: Thank you, Operator. Today we will discuss the audited results for the three months ended September 30, 2021. Presenting from mCloud is Russ McMeekin, our Chief Executive Officer and Chantal Schutz, our Chief Financial Officer. Before we proceed further, please note that the remarks made on this conference call may contain forward-looking statements about mCloud Technologies' current, future plans, expectations, intentions, results, levels of activity, performance, goals, or achievements, or any other future events or developments. Forward-looking statements are based on information currently available to management and on investments and assumptions based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results levels of activity, performance, achievements, future events, or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, mCloud Technologies cannot guarantee that any forward-looking statements will materialize and your caution not to place undue reliance on any forward-looking statements. Except as may be required by law, mCloud Technologies has no obligation to update or revise any forward-looking statements as a result of new information, future events, or otherwise. For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in the company's most recent MD&A available on CDAR. I'm now going to hand the call over to Russ McMeekin, CEO. Please go ahead, Russ.
spk05: Thank you, Wayne, and good morning, everyone. Welcome to our third quarter 2021 conference call. Operator, please move to the highlight slide. Q3 highlights. Our asset care over time recurring revenues were $6.6 million. in the quarter compared to 3.6 million in Q3 of last year. Our total asset care revenues were $21.5 million compared to 12.3 million in the nine months last year. We only added 945 connected assets, bringing us just under 64,000 connected assets. We are definitely focused on exceeding the 70,000. We will talk about backlog later and pipeline. We have the backlog and pipeline to exceed 70,000 in fact, get to 100,000. We are at the mercy in Alberta specifically, not only the limitations imposed by the province, but by each customer's policy. We expect to see, at least in some customers' case, those restrictions to begin to lift here in December, and we'll start seeing some increase back to prior levels of installations. Just recently, we completed the milestone of listing on the NASDAQ. We also completed a underwritten offering of $9.5 million. And we've commenced our first of very many installations in Saudi Arabia, which will lay the groundwork for some very large growth starting in 2022.
spk04: I will now turn the call over to Chantal.
spk02: Thank you, Russ, and thank you, everyone, for joining us here this morning. As Russ mentioned on the last slide, we continue to see good growth in our asset care overtime revenue with an 85% increase year over year and a modest 3% quarter over quarter change. Operator, if you can move to slide four, labeled Q3 2021 versus Q3 2020 total revenue. Thank you. We see a healthy increase in total revenues when we look at Q3 2020 compared with Q3 2021. with a 19% increase. Notably, our asset care overtime revenues have increased from only 58% of total revenue mix to 90% in the current quarter. We expect this to be rebalanced when we commence a more normal pace of new connected assets on a quarterly basis. Russ will be addressing several initiatives that will lay the foundation for this later in our presentation. Asset care initialization is a modest 7% in Q3 2021 compared to 26% in Q3 2020. And this reflects the ongoing COVID restrictions in some of our key markets, notably Alberta. Operator, please turn to the slide labeled first nine months 2021 versus first nine months 2020 revenue. Thank you. Shifting our attention now to the cumulative nine-month results, revenue grew 29% for the nine months ending September 30th, 2021, compared with the nine months ending September 30th, 2020. Consistent with the results we see isolated in Q3 2021, compared with Q3 2020, our asset care overtime revenues have grown from 41% of total revenue for the nine months ended to 84% of total revenue for the nine months ended September 30th, 2021. Asset care initialization shifted from 28% of revenues in the nine months ending September 30, 2020, to 10% of revenues for the nine months ending September 30, 2021, further reflecting the fact that there were delayed installations resulting from the pandemic restrictions, primarily in Alberta. Q3 gross margins in 2021 were 61% compared with 63% in Q3 2020, and 64% year-to-date 2021 compared with 62% year-to-date 2020. Gross margins increased resulting from 84% of our revenues coming from asset care over time. We expect this to also rebalance as we commence to have more normalized quarterly connections in the 5,000 to 10,000 quarter as the pandemic restrictions are lifted mainly in Alberta. Operator, please turn to the slide label, Leveraging OPEX to Create Asset Care Growth. Thank you. Our ability to leverage operating expenses to create asset care growth continues to be a key indicator. As reflected in this slide, we continue to trend in a positive direction. Our goal is to achieve 70,000 connected assets, the point at which we estimate asset care overtime recurring revenues will more than offset direct operating expenses. Russ will be touching on some of the key performance metrics later in this presentation in respect to this. Operator, please turn to the slide labeled expenses in Q3 2021. Thank you. Our operating losses were $8.6 million in Q3 2021, compared with $7.6 million in Q3 2020. This was largely driven by non-cash increases in depreciation and amortization, increased expenditures directly attributed to research and development work, offset by a modest decline in combined sales, marketing, and other customer acquisition costs. Our loss before tax was positively impacted by a $1.3 million improvement in foreign exchange. The company also recognized a fair value loss on derivatives of $8.7 million. This is directly attributed to the IFRS accounting treatment of certain changes in terms of the 2021 debentures, including a reduced conversion price on certain tranches and the addition of a common share purchase warrant for each common share. Details can be found in Note 11b of the financial statements. Operator, please turn to the slide labeled Updated Performance Metrics Year-to-Date 2021. I'll now turn the call back to Russ.
spk05: Yeah, looking at performance metrics, obviously we're operating in a pretty captive market, so our win-loss ratio still remains quite high at 78%, which we're quite pleased with. We had good leverage in productivity of our sales expense. Our 3.7 times LTV to CAC ratio, a pretty robust number. And our combined pipeline and backlog here is at $178 million. And that provides us very good air cover or coverage for 2022 to provide us the growth engine we need to keep this machine going.
spk04: Operator, please move to the next slide. Business update continued here.
spk05: We announced last week that we were Deloitte Tech Fast 500. We were number 57th in North America and number two clean tech company from a growth perspective in Canada. We received a Ministry of Investment, which is MISA licensed in Saudi Arabia. In fact, I was in Kingdom three weeks ago. We are the first company to receive a MISA license for cloud, AI, analytics, and a number of other tech things. that allow us to be a unique supplier in the Kingdom of Saudi Arabia. We will be announcing sometime, hopefully before year end or early next year, that we are running in a fully endorsed cloud by the Kingdom, in fact, largely owned by Saudi Aramco Cloud. So that will put us in a very unique scenario in the Kingdom of Saudi Arabia. I was at a ribbon cutting in a first installation of a major owner of quick serve restaurants and a number of other retail operations primarily in shopping malls and other locations. We went live on the first two of 175 locations in the Kingdom, and we're moving at a pretty good pace in the Kingdom to be up and running in as many places as we can. The restrictions there are pretty limited now that they have pretty robust policies for workers, so we're able to do some pretty good things in the Kingdom of Saudi Arabia.
spk04: Next slide.
spk05: We also announced following the closing of our underwritten or announcing the underwritten transaction that we were able to expand our ATB credit facility for an additional $5 million. There are certain criteria we additionally need to make, but we're very pleased to have that additional accordion getting us to $10 million of availability. We're now moving from only working on three year contracts to large master service agreements with licensing components. This is for all. of asset care, AI, 3D digital twin, connected workers. So we have four of these underway, two of them in North America, two of them in the Middle East. And these will move beyond our traditional three years. These will definitely be significant number of connected assets. These will be working very collaboratively in the case of three of these companies or mega companies. And this will put us in a really good position going forward to not only have large footprint within large operators, but big referenceable locations that we can use to expand to other places.
spk04: Next slide.
spk05: In summary, we had 75% asset care revenue growth in the first nine months. That's compared to last year. We have ongoing adoption from our existing customers, adding assets to their fleet. We saw in the quarter some pretty nice pickup in revenues in Asia Pacific. We continue to see some. We continue to see restrictions in Q3 that hampered implementation, but we still build continue to build good backlog and this move to this master service agreement will add even more significant backlog going into 2022 and throughout the year of 2022. For Q4 and 2022, our priorities are obviously getting Alberta fully functioning, which we are on track to do starting later this month. Saudi Arabia, as I mentioned already. And we have activities, a lot of it in oil and gas, starting in the lower 48 states. And we'll be talking a lot more about that in 2022. Growing our business in Saudi Arabia is obviously oil and gas with some of the largest operators in the world. We will leverage our MISA license. But we'll also be connecting a lot more buildings. I had a great meeting with the health minister in our health ministry in the kingdom of Saudi Arabia. So there's some good policy setting going on in the kingdom that will be a good example of how asset care for indoor air quality will be used. In North America, you'll start seeing some larger deals that combine HVAC and IAC combined. We'll be announcing those shortly here, some very large deals as people get back to work. So now we'll end the prepared remarks and turn it over for some questions, analyst questions.
spk04: Back to you, operator.
spk01: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question does come from Ryan Kinstingler from Allianz Global Partners. Please go ahead.
spk07: Hey, great. Thanks for taking my question. So in reviewing the Alberta COVID restrictions, I read by showing you're vaccinated, wearing a mask and distancing, you are able to work in offices, I believe. Is that correct? First, is that accurate? And if it is, why aren't you installing? Is it customers are closed and not letting you install? Or what specifically is it that's not enabling you to install in Alberta?
spk05: In buildings, yes, pretty much. I was in office buildings last week, which were pretty empty. So that's one. On the industrial side, it's their own policy. So, yes, you can have a – so, first of all, they're not insisting on employees having a vaccine yet, so you don't know if they do or if they don't. And it's the employer's policies. So I think they're going to start modifying their policies to allow people to be more functional, do more things. But I think the other part you're missing in the policy is with all that, only 30% of the fire rated capacity is allowed. So yes to those two things. They're not mandating yet checking that you have in the workplace. Everyone has their vaccines. You do in restaurants. You do in sporting events. You do at casinos. But also, you're limited to 30% of the fire-rated capacity.
spk07: So is it that the employers right now are more restrictive? It's not policy of Alberta. It's more the employer restricting you from coming?
spk05: Yeah, except the employers, for sure. But I think the restriction that I actually sent you shows you in there that it's for 30% capacity as well. So that makes for a pretty dysfunctional operation. I know in our own office, we can't even have more than 30% of the fire rated capacity. That makes for a pretty dysfunctional operation.
spk07: Got it. And so I know last quarter you talked about connections in Alberta were zero for a couple of months. In October and November, are they still close to zero?
spk05: Yeah, close to zero, but now we started some. You will see some announcements soon, started some. So in December, that zero is picking up. So, yes.
spk07: Okay. And then can you quantify – I know you give a pipeline slash backlog. Can you quantify the number of – sorry, the total number of assets in signed contracts as well as the backlog that's signed for TCV?
spk05: Yeah. So –
spk04: Very specific number of assets is about close to $90,000. And TCV is not quite $80 million. We said we'd try to get to $80 million by year-end.
spk05: We're not there yet, but I think we'll see a number of deals that will get us to that $80 million of that pipeline of $178.
spk07: I think you were at $45 million last quarter. Are you higher than that right now? Are you lower than that?
spk05: Yeah, that's what I said. We're higher than $45. We're not quite at $80 yet, but we said at the last quarter... By year end, we expected to have signed backlog of close to 80 million. So we're not quite there yet. There's still another month to go, but we're tracking to that end of the 178. Okay.
spk07: And then in this current environment with a new COVID variant, what geographies do you see the most opportunity to actually get assets connected? Where are the restrictions not impacting you as much? And then how much TCV do you have in those?
spk05: Regions obviously Saudi Arabia, which I talked about. Southeast Asia and parts of Asia. So that you asked me how this new variant will impact. I think word of it came out Friday. So I don't know that I have an intelligent answer around the new variant. Where do we have backlog? I can just tell you, we have a lots of Middle East. We have lots of. I don't know that this new variant is going to cause any major changes in Alberta, to be quite honest with you. I think they're going to impose that you have to have a vaccine and put some tight employer policy rules and get back to work is what I think they'll actually do versus just tiptoeing around it. And we're starting to, I mean, I'm on my way to visit some customers on the red eye here soon. And that was before this new crazy variant. So I assume they're ready to roll. And that's here in the United States.
spk07: Two more quick ones. First of all, How, if at all, is it impacting the sales process for getting installations? Are you able to travel? Are you able to visit customers? Is it mostly remote sales right now? Talk about how the sales process is being impacted right now.
spk05: Yeah, so there's two dimensions to that. I am primarily in the United States. I was in Alberta for two weeks, but I have two passports. So with my American passport, I can fly to the Middle East and so on. I've been able to personally fly our Canadian people coming to the U.S. until recently. That hasn't been easy. As you know, we are Canadian-U.S. cross-border, and the predominance of our expertise today is in Alberta around oil and gas. For buildings, we're pretty self-contained in the U.S., so that's pretty much a drive-to customer site, so that hasn't been impeded much in the last month. So the selling process, both in California and New York, has been pretty good. And also, within the Kingdom of Saudi Arabia, we have our own kind of operating people there, so they're able to travel within the country without much restrictions. Cross-border travel has been a bit cumbersome. I travel on two passports, so it makes it a little bit easier. Within, call it the city areas where we have people, it's been pretty much unrestricted for the last month.
spk07: Okay. And then lastly, on the balance sheet, your accounts receivable you know, went up significantly in the September quarter compared to June, despite similar revenue. Are customers struggling to pay as their businesses struggle, or what might be behind this trend?
spk05: I'll let Chantal address that. I think it's not struggling to pay, it's just timing of paying, but go ahead, Chantal.
spk02: That's exactly right, Russ. It's just timing of paying. We don't foresee any issues around any of our customers' ability to pay. Okay.
spk07: Thank you.
spk01: Your next question comes from Jack Vander from Maxim Group. Please go ahead.
spk06: Okay, great. Good morning, Russ. Good morning, Chantel. Appreciate the quarterly update. Congrats on the recent uplisting as well. Just a couple more questions from me. I think a lot of mine have been asked. But, Russ, just another question on combined backlog plus pipeline. I think it was on slide eight maybe in the presentation. A total of $178 Canadian dollar million. Can you just remind me how you classify or define backlog versus pipeline, or if there is much of a difference, just the nuances there?
spk05: The nuance is ink versus high probability of ink. That's it. So pipeline is high probability of ink, but not ink yet. So per Brian's question, how much of it is ink? I think I answered that question. and how much of it is of high probability proposals, contracts being drafted, but no ink yet. So, that's the combination. So, the nuance is ink. That's it.
spk06: Understood. Okay. Appreciate the color. And then just as a reminder, too, then, of those assets in that pipeline, can you just talk about the mix, maybe, in terms of what types of assets? Because Right now, I still think it's mostly smart buildings and HVAC.
spk05: The building sizes that we are signing now, and you'll see some things coming soon, are significantly bigger than we've done in the past, like very much bigger than we've done in the past. So there's a heavy skew of number of assets that are building-centric, but oil and gas is pretty strong in terms of number of counts, and it's nicely grouped. So there's a lot of questions here about Alberta. So when Alberta was kind of ignoring COVID and we were rocking, everybody loved Alberta. Now Alberta is like tightened up and everybody seems to have a heartburn with Alberta, but they'll be back again. But now everywhere else in the world, they're pretty much unrestricted, have a lot of oil and gas, and we're signing some pretty good contracts. So you'll see a good distribution of, first of all, oil and gas and buildings and geographic distribution.
spk06: Gotcha. And then, and then how about just, uh, on a global basis, um, an update on maybe potential new wind turbines that are being connected or in the pipeline?
spk05: Well, they were primarily in Europe. I'm just like, I kept Asia quiet and then you saw the revenues creep up. Let me keep Europe wind quiet. And then you'll see the revenues creep up. I didn't do a bunch of hand waving about Asia last quarter. And I think you saw a nice material increase in revenues there. Let's apply the same principle here to Europe and wind, and I think you'll be pleased with that. China is a weird one. I don't know how they're going to react to this new variant. I don't know. There's a lot of wind opportunity in China, but we'll cross that bridge when we get to it.
spk06: Okay, got you. And then maybe just one more on maybe more on Saudi Arabia. You've clearly, you know, there's been a ton of press releases on it. You spent a lot of time talking about today. Congrats on obtaining the license, by the way. It seems like you've made a lot of moves, clearly building momentum over there since receiving that license. Can you talk about maybe in 2022, just what is Saudi Arabia as a whole? What does this represent to you in terms of maybe new connected assets next year? Like how many connected assets, what portion of your 2022 assets will be in Saudi Arabia? And also the asset care revenue from those. Is it a similar unit economics? elsewhere?
spk05: Identical unit economics, it could be quite significant. I'm reluctant to give kind of any numbers because it's not, once we start installing them and we're fully functioning, then I would be more than happy to be more clear about kind of the cadence of installations. As an example, our customer there, one of our customers there is larger than Exxon and Shell combined. So there's no lack of ability and footprint and desire and appetite We just need to get running on the cloud there, which should be done before year end. We'll announce something there. And then connect the first call 100, 200 assets, get that functioning, and then we can start speaking very precisely about the cadence of connections, which will be quite significant. I mean, it's a huge market.
spk06: Okay, great. Well, I appreciate the time. I'll hop back in the queue and look forward to keeping in touch. Thanks. Thank you.
spk01: And your last question comes from Martin Toner from ATB Capital Markets. Please go ahead.
spk03: Good morning, and thanks for taking the call, guys. Just wondering, any plans for the cash you guys just raised? What are use proceeds likely to be?
spk05: Yeah, they're defined in the prospectus. They're defining the perspectives, but Saudi Arabia, obviously, we discussed it. We have been making a lot of progress with regulators around the ESG technology to make sure it becomes a standard, or our software becomes a standard in the decarbonization movement, largely in oil and gas. We have some money to spend on development there, and then general working capital. But again, it's I've closed today, there'll be a file prospectus or supplement prospectus updated. The use of proceeds will be those three buckets.
spk03: Great. And are you still confident in reaching EBITDA breakeven level? In 2022? Yeah. Yes. Fantastic. Any issues with customers in any locations putting the a subscription on hold if they, you know, for example, areas where they're unable to operate?
spk05: Yeah, they were put on hold at a couple small locations, de minimis to number, so we backed those up. You're talking like less than 100 in terms of numbers. I think they're less than 100. And I think they're back on track now, so they're back on anyway. So within a 90-day period, but very, very de minimis.
spk03: Fantastic. Good stuff. Thanks for taking my questions. And, yeah, all my other questions were already answered. Thanks.
spk01: There are no further questions at this time. You may please proceed.
spk04: Okay.
spk05: Well, we thank everyone for joining the call, and we'll speak at the next year-end conference call.
spk04: Thank you.
spk01: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines.
Disclaimer

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