Clear Blue Technologies International Inc.

Good morning, everyone. Welcome. Thank you for joining us today. We're just going to give a couple more minutes here to let everybody get joined up. And then we're going to get things started. Okay, welcome everyone. Thank you again for joining us today for the Q3 2022 earnings call. My name is Natalie Smith, and I'm here today with Miriam Turk, our CEO, and Farouk Anwar, our CFO. So just a few little items before we get started. If you have any questions, we welcome your questions. So please just put them in the Q&A or in the chat and we will take care of them after the presentation. And if you're having any trouble or issues, just message me in the chat. And this presentation is being recorded and will be posted on our website about an hour after this presentation concludes. So with that, I think that's it. I'm going to turn it over to Miriam.

Thanks, Natalie. Good morning and good afternoon, everyone. Thank you so much for joining our Q3 2020 earnings call. It's been a tough quarter. I'm not going to make it a rosy picture. Clear Blue's not happy with the results of Q3 2022. And we'll be very frank during this presentation about why that's happened and what the situation is. But we're also going to provide you with all of the work and activities we've done to ensure that we make it through this economic downturn. And it is truly the economic downturn that has impacted us. So it'll be a good part of the presentation on the 2023 outlook and what we're doing there. I would encourage you to ask any questions that you have. And for those of you who know me, I try to be as accessible as possible. And I'm very happy to have any conversations that anyone wants to have offline. Just reach out to me. My email's at the end. So, Farouk, our steadfast CFO, is here joining me, and I'm going to dive right in. First of all, of course, this presentation will have some information and some thoughts from a company perspective of forward-looking information, and we ask that you always take that with a grain of salt. We're giving you the best of our knowledge and ability, but it is forward-looking and not 100% guaranteed, so please take that into consideration. In terms of the agenda, we're going to talk a little bit about Clear Blue and what we've seen happening in the market. And there's been a lot of change and activity in the market this year. You could probably say that the economic and the war and the gas prices and all of those things, climate change issues of 2023, have had a very negative impact on our current results. But from a total company outlook perspective, they've had a huge positive impact. And we're going to try to, in a balanced way, talk about both of those things in this presentation. We're also going to talk about the Q3 2022 results. And then last, but most importantly, talk about the outlook. So I'm going to just start with Clear Blue. And I want to talk a little bit about the market trends. And I think that power and power infrastructure has renewed importance. People didn't used to worry about having power in any part of the world. If you were in the emerging markets and you had a diesel generator, you just went and got gas and filled up the generator. It didn't sound nice. It didn't smell nice, but you had power. Now all of a sudden you've got gas shortages and the cost of gas is way too high. In the developed marketplace, all of a sudden you have discussions about rolling blackouts. You have, we've already seen in North America, you know, power outages are now a normal thing where they were unheard of maybe even 10 years ago. Massive power outages in some places like hurricanes and tornadoes and things like that in Florida and Atlantic Canada. And then more minor ones like, that are being affected everywhere. So there's a huge phase shift happening in everything related to power. And all of a sudden power is something that is of keen conversation, especially for our friends in Ukraine. So what are we seeing on the ground around that? So let me give you just a couple of examples. um tower exchange is a large tower telecom tower community and we've been working with um a number of of telcos uh in the marketplace and as an example one of the telco cios um said in october at the tower exchange because we met with him at mwc in march and he said in the last six months the world has changed for us the cost of diesel has gone crazy My number one priority now is to invest CapEx in my own towers and co-invest with my tower company suppliers to deploy solar at every tower and get off of diesel. So that is an announcement of a major program to take a huge infrastructure base of grid and diesel and grid diesel infrastructure and convert all of those systems into a solar and solar hybrid infrastructure. And of course, we don't do diesel. I mean, we can support a diesel generator, but that's not our focus business. Our focus business is adding solar to energy infrastructure. So all of us, not only new projects for that customer, but the existing infrastructure just moves smart dab middle of what Clearblue does. Then let's talk about IHS Towers. So they announced in October their carbon reduction roadmap, which is called their Green Project. And they've announced that between now and 2024, they're going to spend $214 million in CapEx to go green. And again, what we're doing is taking the existing... infrastructure and converting it to solar. And then lastly, if you look at the North American market, which many of you will know that our lumient solar streetlight smart city business has been a bit quiet the last couple of years, that's about to change. And it's changing for a couple of reasons. One, you know, both Canada and the U.S. have announced significant the Clean Air Act, the Infrastructure Act, And the Canadian government's recent announcement of a refundable tax credit equal to 30% of the capital cost. So the ability to go solar is being empowered from a cash and a funding perspective. And given the issues with resiliency and infrastructure, there is just a very common understanding that this is where we need to go and what we need to do. So the conversations are changing significantly in our favor. So the need for smart off-grid is becoming much more compelling. I think the thing that I haven't really also mentioned is that when it comes from just general climate change, we now all feel it every day. And so people at the end of the day do things that's kind of in their retail personal world. And the concept of going green and doing solar streetlights and that kind of thing is just so fundamental in the fact that we're all living with terrible climate change impacts around the world. So the demand for smart cities and solar streetlight is really starting to increase. We have a really strong pipeline for 2023 of projects that are already expected and moving. Telecom continues to be a key area of focus and a significant amount of investment, not only to get 3 billion people who do not have connectivity, good, strong connectivity to the internet, but also to make that infrastructure green and more reliable. And lastly, Our new PicoGrid product, which is going to be focused on satellite Wi-Fi and IoT, and I'm going to talk a little bit later about what that could mean for 5G, is also something that's starting to grow quite strongly. So just a reminder about what it is that Clearblue does. We... are a power and energy service delivery company. We provide power and energy to the customers and the way that buy our services. And the way that we do that is we have our own technology in around the smarts and the brains of a system. And when you add the right solar panels and the right batteries and the right infrastructure around that to make an entire off-grid power system, you have a reliable energy source. So we sell an entire off-grid power system. We use solar panels that are commonly available. We have our own lithium batteries, which we manufacture in partnership with a company in China. And we have our smart off-grid control technology. That technology is connected to the number one operations management platform in the world. And I say that because when we show it to people and when they see what we have built in our platform and capability, that is the feedback we get from our customers. And with those two things put together, along with Clearblue's own team, we are managing and operating mission-critical devices around the world. So the core technology, solar panels, we're riding the technology evolution wave. Lithium, while we have our own battery, we're using industry-leading cells. We're riding the lithium battery and other energy storage technology wave. What we focused on is the specifics that are required for smart off-grid, nano, and pico-grid systems. And remember that Clear Blue doesn't do microgrid, which is the bigger solar systems that are very commonly deployed in commercial infrastructure, and you see them, you know, along the highway somewhere. What we do is nanogrid and picogrid systems, which are a next level down, and they are better tuned for completely wireless disconnection. connected from the grid off grid. So they're more resilient. They're not subject to a massive outage and you're cutting the cable so that you are eliminating a significant amount of cost from an infrastructure perspective. So that core technology really consists of two pieces. One is we make a power device and that power device has a lot of smart control, smart management, and a number of high availability performance aspects of the technology. It also is designed in a way where we have total ability to control everything in a power system remotely. Think about, you know, 50 years from now when every fridge, toaster, microwave, you know, plug in the house is is remotely controlled. You know, you're a thousand miles away, you're coming home and you decide you want to turn the lights on. You can do that in spots today by adding things into the network, adding your nest for your thermostat and putting in a smart plug. But in our infrastructure, we start right at the power distribution panel. Everything is controlled centrally from our Clearblue controller. And that Clearblue controller talks wirelessly to to our cloud infrastructure. And our cloud infrastructure has the predictive data analytics and the management and control capability to deliver significant value to our customers. So let's take a look at what that means from an on the ground perspective. And this is a picture of two systems that were installed for one of our telcos at the same time last year in Africa. So the one on the left, is a competitor solution. And the one on the right is a clear blue solution. Now, first of all, you can see that if you want to do anything with that system on the left, or you want to figure out what's going on, you got to go to the site, figure out, well, why is that breaker switched? And what's going on with this? And I need the technician to have expertise to troubleshoot, to connect to it, to talk to it and do all of those kinds of things. So it's a very expensive system, and it requires someone to go to the site to manage and operate it. On the clear blue side, you send somebody to the site, there's actually nothing he can do. He's just got to make sure those cables are connected properly. There's actually no physical on-the-site control aspect. Everything is set up to run remotely and be controlled remotely. But the second thing that's most important about this is because the first thing, a unit on the left, is standalone and it doesn't have connectivity to the cloud like Clear Blue does. And on the Clear Blue side, we have predictive analytics, energy forecasting, weather forecasting, and the ability to manage the infrastructure effectively. We've been able to demonstrate, and it's been validated independently by Facebook, by Meta, through a project they did last year with a six-month field study that they did independent of us, that, in fact, the system on the left costs 40% less than the system, sorry, the system on the right costs 40% less than the system on the left. So think of it this way. The guy on the left, $20,000. The one on the right, $20,000 up front. And then there's all of the ongoing benefits. So there's a huge compelling value proposition that we deliver to the customer. And when it comes to our technology, you know, it's all about predictive analytics. And now with the STDC grant that we have received, we're going to be moving into artificial intelligence. where we're going to be using the data, and Clearblue has more data than anybody else in the world, to deliver the key value proposition. Energy and weather forecasting to manage and deliver the energy that you need. Maintenance, troubleshooting, remediation, making sure that battery is healthy and has got a long life, and ensuring that we can handle the modular upgrade of our technology and our capabilities from a potential energy perspective. When you put all of that together and the history and the work that we've done as a company, we're very proud of the marquee customers that we have in the marketplace. We're still operating systems for these customers. They're buying new systems. Most of them are long-term partnerships. We do a project every year or every quarter, and we're running and operating these systems on an ongoing basis. That's resulted in strong global traction. And we have systems in production in 37 countries around the world, many states and provinces, more than 400 customers. We're almost at 10,000 units deployed, and we have more than 10 million days of operating. So when you can start talking about the fact that you've processed 10 billion transactions from those devices in the field to the cloud, you leave every other company behind. There's companies out there that have a device where you can connect to it and pull out the data. There's other companies that have this cloud platform or server platform where you can connect to it, put data in and start building something. Think of that like an Excel spreadsheet. compared to online Oracle financials. So Clearblue has the network, the connectivity, the security, the encryption, all of those things that actually, you know, when we plug in, when a customer plugs in a power system anywhere in the world, everybody in the company, including me, says, you know, this customer system came online, has been activated, and here's how it's doing. That's the blue difference. So let's talk a little bit about the market. And I wanted to dive into a couple of market pieces. As you know, the telecom marketplace and telecom tower marketplace is quite a large market for us. And as you can see here, it's growing nicely. but it is a four dot X billion dollar market on an annual basis. So this is the number of new power purchases every year. This isn't the number of towers. This is the number of new power purchases. And when you look at that infrastructure, it really breaks down into about 40% low powered systems, which is less than nine kilowatt, about, 40% medium size systems, which is 9 to 36 kilowatt. And then there's the really large systems, which are 36 to 700 kilowatt. Our target market is the medium and the low market. That's 73% of the entire market. And we've got systems in both the low size up to nine kilowatts kind of bread and butter. But we've got systems that are 10, 15, 20, 25 kilowatts. And I don't think we've hit 25. I think we're 23 kilowatts. But we're modularly scalable. So that's the range. That is also the range where adding solar has the potential to bring significant value. When you're at a high-powered site that's 700 kilowatts, if you want to go solar, you might as well do a microgrid solar farm. But if you want to really deliver value from a solar perspective, it's those low and medium-sized power sites. And when you look at that, it's important to understand that the markets we're already in, we're talking about 20,000 new sites a year. And now that everyone is accelerating away from diesel to a solar hybrid conversion, and there's a huge CapEx spending program being done everywhere in the marketplace to do that, that opens up another 70,000 sites per year. And I can tell you, even on Thursday morning, I'm involved in presentations with customers and discussions around those things. Let's talk about 5G for a second. And I've talked in the past about the fact that we see that as a future opportunity for Clear Blue. And we're getting to the point now where it's starting to be something where we're going to be more active in. We really got the first 5G rollout starting to happen yesterday. in 2022 and 2023, mostly in Western markets where power is less of an issue. It's interesting because in the Western markets, if the grid goes offline after a few hours, the cell towers start to lose power and they stop. In Africa, the grid goes offline so often that the telcos have to keep them running even when there's no grid. So they don't get the get out of jail for free card. Oh, we don't have any power from the grid. The cell service is going off. They've got to keep them up and running with diesel generators. So they almost have a more onerous service level than we have here in markets where the power infrastructure has traditionally been more reliable. But we've always talked about the fact that there's going to be a need to put in 5G kind of at the street level at every tower. And that's really the 5G small cell market. And you can see here in 2021, pretty small market, $0.9 billion. This was $900 million market. But when you go to 2028, it's an $18 billion market. So what is a 5G microcell consume? It consumes between 10 and 40 watts. Well, at 10 to 15 watts, it's a picogrid system. And at 20 to 40 watts, you might be into a nanogrid system depending upon where it operates. So mission-critical infrastructure, small power, needs to be reliable, needed to drive cars that are going to be driverless cars and drones and all of those things and all of the 5G services that we need that's going to be needed for a smart city. And every time you put one of those on a pole, and you can see here what an example 5G cell looks like, connecting it to the grid is going to be expensive. And so the opportunity for clear blue products in the 5G microcell is an area that we're going to be focusing on in 2023. Early days still, but definitely a growth opportunity for us. So that's a little bit about Clearblue. We're now going to turn to our Q3 2022 results. I'm gonna turn it over to Farouk and then later on, I'm gonna come back and talk about the outlook and what 2023 looks like.

Thank you so much, Miriam. Thank you everyone for joining. All right, so we're going to start with revenues. The global macroeconomic environment has become quite challenging. Renewed COVID-19 restrictions in China and the war in Ukraine has put pressure on global supply chain. This has resulted in part shortages throughout the world. As a result, some of our customer rollouts and deployments have been affected, decreasing revenue for the quarter and trailing for quarter accordingly. Specifically, two of our customers have delayed projects due to telecom equipment shortages and delays in financing, which together impacted Clearblue's revenue by more than $2.1 million in its 2022 year-to-date revenue. You can see on this bar chart, we can see that the quarter-by-quarter impact on revenue resulting from delayed customer rollouts. Next chart, please. BW's lightning vertical is made up of one-time revenue and energy as a service deferred revenue. As a result, the company continues to grow its energy as a service offerings. We have been seeing a gradual decrease in a one-time lightning revenue and corresponding increase in energy as a service recovering revenue. The 18% decrease in lightning revenue is a result of the same shift with revenue to be generated over the next three years. The decrease in U.S. revenues is directly attributable to the shift in the Lightning revenue. Our telecom vertical has grown over the past few years. Large system rollouts of customer projects began in Q4 2020, showing strong growth in the competitive periods during 2021. However, due to the global supply chain issues, rollouts have delayed and pushed projects to 2023, resulting in a decrease in revenue for the quarter and trailing for quarter of 2022. However... We continue to have a good relationship with these customers and we're working with them to accommodate their revised rollout schedule. So as I spoke in the previous slide about recurring revenue, we can see over here that the recurring revenue, which is the revenue that company earns from its energy as a service, Illumion's ongoing management services and cloud software, every single system Clearblue has ever sold includes an ongoing services component. Clearblue manages and operates these power systems on an ongoing basis for our customers. This is at the heart of our business and value proposition. As telecom customers increase wireless telecommunications bandwidth to support an ever-growing customer base, so too do the power needs of those sites. This ongoing growth of telecom systems and the ongoing operations and maintenance of power needed to keep the systems functioning is what drives the growth in our recurring revenue. As you can see, the addition of our telecom customer rollouts is having a nice impact upon the growth of our recurring revenue. For the trailing four quarter period, recurring revenue grew 51% to $736,000. For Q3, revenue was up $143,000, up 14% from the same period last year. Next slide, please.

Now let's talk about our bookings backlog. We define bookings as all future contracted Illumians and EAS deferred revenue, as well as committed orders and contracts, projects where we have purchased orders and or deposits, and of course, which are not included in revenues. At the end of Q3, our bookings were up 18% from year end to a total of just over 1.8 million, with 1.4 of that to be delivered in the next year and the remainder thereafter. With regards to 2023, we're actually currently seeing solid demand for projects during the first part of 2023. And as a result, Our December 31st bookings going into 2023, we actually expect to be quite strong and are going to give us a very solid start for the year. So we're actually, as we speak right now, confirming the revenue in the forecast with orders in hand through the end of this year for Q1 and Q2 of next year.

Farouk? Yeah, thank you so much, Miriam. So, gross profit. If you look at the graph on the right, we can see that the company has been able to grow its margins over the years and now is maintaining margins at mid-30 range. With high inflation and increasing commodity prices, there has been pressure on the company's margins. However, in most cases, the company has managed to either innovate lower costs elsewhere or pass a portion of these increased costs of materials to its customers. Trailing four-quarter margin increased to 30.3% up from a gross margin of 28.9% in 2021. However, including trailing four-quarter 2022 was a one-time low margin deal in Q4 2021. If you exclude this quarter, like if you're excluding Q4 2021 from the calculation, the year-to-date gross margin is 37.4% compared to 29.7% in the comparative year-to-date of 2021. Next slide, please. In this environment of high inflation and resulting higher costs, Clear Blue's management is focused on reducing operating expenses where possible. The reduction in salaries and wages by approximately $137,000 and business development expenses by around $109,000 for this quarter is in line with this initiative. However, certain expenses not within our control have increased G&A, mainly cloud and software costs, which approximately increased by $125,000. Remaining variance is due to higher marketing and traveling, higher travel and marketing expenses that occurred in Q3 2022, where customers are returning to in-person meetings and conferences. And a portion of this is also because of the amortization of R&D projects, which we started this year. It's around 89,000 for the quarter compared to nil in the comparative quarter of 2021. So on a trailing four-quarter basis, so the company received COVID-19 related grants around 580,000 last year. So compared to that, we received nil in the current trailing four-quarter period. So when normalized for COVID-related subsidies, expenses are somewhat flat. Next slide, please. So we can see over here just a bit of loss increased by 194,000 for the quarter and 48% on a trailing four quarter basis. But the increase is mainly attributable to reduced margin resulting from reduced revenue and because of delayed rollouts and delayed project startups. Thank you.

So I'm not going to sugarcoat it. Q3 is not the quarter and not a quarter we're proud of. The results are disappointing. And I have to tell you that the management team and the sales team have been ruthless in analysis of why is this happening? What is the issue? And our sales funnel and sales activity is ever stronger with medium and long-term sales demand strong and growing. And project planning for rollouts, you know, things are getting bumped a quarter. They're getting impacted because, oh, now we can't get these radios, et cetera, et cetera. And so these results are definitely the result of the wider economic environment over the last three years. In 2020 and 2021, our momentum helped us to deliver strong growth in those years, even though we were dealing with COVID and supply chain. But in 2023, all of the last three years has caught up with us. So because of the uncertainty in the environment, we're no longer comfortable providing forward guidance. We're going to pull back from that until we get to stronger certainty. We want you to feel comfortable that when we do give guidance, it's because we have the confidence, the visibility, you know, far out in the field. And there's just too much uncertainty that has arisen this year that no one could have forecast. So, yeah. But what we are seeing is, you know, in previous years, we usually see a really big Q4. People pull project spending into the end of the year. And the opposite is happening this year where customers are now pushing things out to next year. So Q4 will likely finish the year soft. And as a result, we now expect that 2022 is going to fall below the guidance range we provided in August. Once the economic situation stabilizes and we have stronger, forward-looking, reliable data, we will resume guidance on the revenue line. We're going to continue to give you information about bookings, about sales funnels, about orders and other tools that give you visibility. We disclose a lot of financial information to our investors, but that's the one item we want to be a little bit more cautious about. We're going to talk a little bit more about 2023 in the Outlook section. So just like everyone else, we've undertaken significant focus on our balance sheet to ensure that we can manage through this difficult economic period. In Q3, we made really exciting progress on that. The FedDev loan, which we won in June, is a $4 million, 10-year, 0% interest-free loan from the Government of Canada. We signed that deal in June, and we saw the first funds from the FedDev program come in late in Q3. This loan pays us a monthly amount to Clear Blue every month. So it's not like the $4 million is already in. It's something that comes in every month and it reduces our net cash burn. And that will continue through to March of 2024. Repayment of the principal, there's no interest on it, will begin in 2025. Additionally, in September, we were thrilled to have won an STDC grant of $5 million. This is a grant. It's not repayable. It's not equity. It's not debt. And these funds will be received over the next three years and allows us to continue our R&D program. So we expect to receive the first tranche of these funds in December this year. But I think it's important to understand that when you go through an economic downturn like we're experiencing, many companies have to really slow down their ability to leap on technology. And because we've gotten this R&D grant funding, we've reduced and tightened our expenses. We're clearly doing that, but we are able to continue our program of getting new product at the door for PicoGrid. We've got some other announcements coming in the and also to start implementing artificial intelligence and expanding our platform potentially into other areas. And that is actually going to be a huge accelerator because we're going to come out of it ahead, not behind. And it's been a key focus and strategy of the company to make sure that we continue to do that. And we're just so thrilled and honored. You know, Canada is an energy country. and clean energy is a key part of the future of the country, and we have been able to get great support from everyone in the market, whether it's public investors or a government from that perspective, and just thrilled to be able to have that assistance and support. So now let's talk a little bit about guidance and what we see from a go-forward perspective, and then we'll open it up to questions. So just to walk through a couple of the milestones that we achieved in Q3 and what we've already been able to announce from a Q4 perspective. So the $5 million STDC grant, we have opened a Nigerian subsidiary. It's just one person at this point, so the expenses are quite limited. But we now have a fairly large group of Nigerian customers and there's a lot. I mean, it's one of the biggest economies, if not the biggest economies in Africa. And so opening that subsidiary has really strengthened our opportunity with the number of customers in that marketplace and was key and critical to us doing that. won the Deloitte fast 50 award for clean technology and, uh, had to go to the award ceremony last week. And then they also gave us a women in technology award. I said to the company internally, and I want to reiterate, you know, I was, I was a little bit embarrassed to have received a women in technology award, but behind every woman in technology, there is a huge team and company behind you that helped to make you, um, do everything that you do. And I'm very proud of the clear blue team. Uh, the, uh, amount of hard work and how committed the management and the employee base is to this company is really a huge asset for the company. We've announced a couple of deals. So Telia Cameroon is going to be powering telecom sites for MTN Cameroon. We're doing a small rollout in Q4, but they have a fairly large rollout plan for Q5. year in their plans so we have that in the sales funnel and you know very high probability given that they're already spending already mobilizing already work moving out um we have been working very hard to build our relationship with parallel wireless over the years and continue to do that we first announced our first project with them i think in q2 of last year so 2021 and we've received a couple of subsequent orders so we're now at a total of about four million dollars And with a recent award, we have a million of that, which is going to come in the first half of 2023. So this is part of the bookings deals that we have in the quarter that we expect to carry into January 1 of next year. And then I've already talked about the validation of our 40% lower costs. So we are 40% lower upfront CapEx than alternative systems. And that's been independently validated and announced by the meta study. So in terms of the outlook for 2023, you know, the world's stock market investors, especially small cap investors, have had a tough 2023. And we share in your pain. We've been experiencing a fair amount of pain ourselves. But for those of you who know Clear Blue, we take these opportunities to come out stronger. And our entire focus has been to ensure that 2023 is a huge success for us and for our investors. To that end, there's a number of exciting things that we want First of all, we used to talk about being EBITDA positive in the 12 to 14 million dollar range. And if the economy had not done for the third year in a row what it did this year, we were very confident that we were going to reach that target. And but we didn't do it. So Clear Blue's been on the cusp of positive EBITDA and positive cash flow for a few years now, but always just shy of that objective. And that's no longer, that dog doesn't hunt from our perspective. So we've taken strong and definitive action to ensure that 2023 actually delivers on this promise and does so even with an economic tough environment. So we've continued to focus on cost reductions and cash flow, and we are now able to, to get to a net zero cash burn for all of 2023 and a positive EBITDA for the year at under $8 million in revenue. So that's down from $12 to $14 million to under $8 million in revenue. On the revenue outlook side, I don't want you to take that $8 million as our target. That's not what we are talking about. We believe that 2023 is going to be a strong growth year over 2021 results, which were $8.1 million. And that's our target. And our $400 million sales funnel has more than enough near-term opportunities for us to achieve that plan. So we've taken a conservative approach say, hey, we've just got to start generating cash and positive EBITDA at a much lower level. The new reset level is under 8 million, but our focus and our growth plan for next year is going to be significantly higher than that. And so we have downside protection, but strong upside potential. And given that new baseline, if we are able to achieve our plan for the year, and we strongly believe that we can do it, then you're going to see strong EBITDA and strong cash flow. Because customers have delayed projects in 2022, we're seeing stronger than normal bookings for early 2023. Usually what we see is they pull everything into Q4, we have a big Q4, and then Q1 starts slowly. The opposite of that is happening this year. So by the time we get to December 31st, we believe we're going to have bookings in hand that will substantially cover a very large portion of our plan for Q1 and Q2 for next year. And we do see that Q1 is going to be a bigger quarter, not a smaller quarter. And then lastly, in addition to our normal sales activity, the company's been working on a number of more strategic business development opportunities, strategic investors, partners, and opportunistic M&A. While we have nothing to announce on this front, the discussions have been positive across all fronts. The company is a leader in the market. We have strong references from large and key customers, and we're seeing a lot of keen interest in what we do. And we are going to continue to maintain our leadership in the marketplace and deliver on the value. And 2023 is going to be a positive year for Clear Blue. So at this point, I'm going to turn it over to Natalie and have her curate any of the questions that you have posted in the chat panels. If we can't answer any of them correctly, this call today. We'll be happy to reach out to you individually. And I'm happy to have a call with anyone who may have any questions. Natalie, do we have any questions?

We do. We've got lots of great questions today, all different areas. So the first one is related to M&A. So you talked about this a little bit, but what are the issues that are preventing the company from making some strategic acquisitions?

Well, I think that... we are looking at a couple of strategic acquisitions and having a number of conversations. There are a number of opportunities in the market because we built a quite strong and comprehensive smart off-grid management platform, the opportunity to leverage that into other technologies and other products and expand our product base is quite strong. And there's a lot, you know, it's the one plus one equals three. You take some one-time hardware sales business that's in a good sector or expanding the sector we're in, And you add the clear blue business model and the clear operational model, and all of a sudden you have a managed service, much higher margin business. You see our margins for in the quarter and year, you know, we've been growing them strongly, even with the economic pressures. pressures we've had with very strong margins as a company in the solar space and to build a recurring revenue business. The key is to make sure that we can do it at a good price in a good financial model without taking too much cash flow risk, because most of these require investment. And quite frankly, to not super dilute any shareholders in a way that is inappropriate. So looking at all of those things, we started the M&A and business development program in a very explicit way in July of this year. So it's just started in terms of a formal activity and process with someone dedicated to working on that. And we're seeing some very strong early results. So hopefully we'll be doing something in 2023. But job one, the business, positive cash flow, return to our investors. And we will never do anything on that site that we would see is in any way risking any of that.

Okay, great. The next question, I'm not sure if you or Farouk would like to answer this. The MD&A states that management believes adequate cash flow resources. However, when the CFO states that, typically the company goes to market within a few months to raise funds. Do you anticipate doing this and further stock dilution because of it?

So in our press release, we also talk about management's ability to add capital to the business to ensure a net zero cash burn for 2023. And so maybe what I can do is talk about both of those comments together. I'm not going to get into any individual transactional discussions today, but I do want to reinforce the comment in the release on both of those topics. As a founder and CEO of the business, and I'm very enthusiastic about Clear Blue's future, I've put everything I have into the business, emotionally, physically, mentally, and financially. And we believe we have the ability with prudent management of the business to reach a zero net cash burn goal. something that is vital for any venture exchange company in 2023. As investors and shareholders of the business, management team wants other shareholders to know that we have the ability to invest additional capital to help reach that objective. We believe this is an important message, our ability to both manage costs, and we've done a lot on that side. Specifically, management, for example, has taken a quarter of a million dollars, so $250,000, right off of our compensation in order to help the company maintain a good balance sheet, et cetera, et cetera. And we have the ability to add capital if we need to, if we have a short-term crunch. And that gives us the confidence that we can reach our zero net cash burn objective next year. So we've talked about the fact that we can reach that objective at around $8 million in revenue, but that's not our plan. We're pointing you to the $400 million pipeline discussed in the MDA. That is clearly a strong opportunity to grow the business more rapidly while maintaining firm control on burn, given the difficult capital markets being experienced by all of us. This company has raised capital in the past in very small quantities when we've needed to. um, we all know the, the, the, the, the stock price is ridiculously low at this point in time. Um, so, uh, but we're going to do what we need to do and we have the ability to do to make sure that we've got, uh, the capital and the cashflow to make it through, um, even, uh, a most dire economic situation, which we've clearly had for 2022. And now if If it happens in 2023, depending upon, I've talked to some people who say the market's going to be really strong, and I've talked to others who think not. We're seeing bookings, et cetera, et cetera, but we're being conservative and we're managing.

I just like to add one thing over here that we try to do as much as we can to reduce or not affect or dilute our stock. So we've got, I'd like to point out, the $5 million grant from SDDC. That's a grant that's financing. It's non-dilutive. Same with the FedDev $4 million loan. That's also non-dilutive and it's interest-free. So wherever possible, we try to raise funds that are non-dilutive in nature.

Those two amounts together basically cover about 60% of our cash burn from an operating expense perspective next year. So the ongoing go forward monthly amount is very low.

Okay, thank you. We're going to change direction here a little bit and talk about pipelining new products. Regarding the $400 million sales pipeline, what's the breakdown in dollars for the deals that might have a high probability of resulting in a sale within the next one to two years?

Uh, so I, I'm going to be going off the top of my head here, but, um, we are, uh, we're data junkies to some extent. And when it comes to sales funnel, we're ruthless on making sure we have the best information possible, uh, about the status of the deals. Um, uh, um, and, uh, where we're at, I believe of the $400 million funnel, uh, The high probability funnel for 2023, the last time I checked was $38 million. So when you win a large contract, there's phased rollouts. They don't ask us to, you know, if we have 5,000 systems that are going to roll out over the next three, four years, they want the containers of equipment to arrive as they're doing the install. So when you take all of that stuff and, And take the multi-phase projects and partnerships and rollouts. We're doing ongoing projects everywhere. And you look at just what we see closing and shippable. The high probability funnel for 2023 is about $38 million.

Okay, thank you. And with regards to new products, in the MD&A, there are market opportunities with modest additions to the current product line. What functions are you looking at to complement the current list of products? Yeah.

So really two areas. We've already announced EcoGrid product, and we're going to be doing a fairly large marketing and sales rollout in Q1. It's going to be – so just a status update on EcoGrid. We have systems in the field. We've got pilots with customers, and they are running fairly well, better than we kind of had expected for first pilot prototype systems. So we are currently planning to start shipping – commercial version of the product in Q2 of next year. That PicoGrid product presents a great opportunity to also expand our product line in the aluminum solar streetlight and smart city infrastructure. And so I love building one product that we can use in multiple applications, just like our core controllers used for our bigger streetlights. It's also used for our nano grid product. Our PicoGrid is also going to come out with a, a, a streetlight application. So that's one that's well underway. I think we'll be making announcements in early January for that. And it has the ability to do both streetlights, but also cell phone charging, which imagine if we could have all of these poles across North America with cell phone charging in them in the event that you have power outages in areas and you can go over and charge your cell phone during those events, all remote, controllable, and manageable by Clear Blue. On the other end, when it comes to the telecom marketplace, as we've moved out of the low site system into the medium size system, we're doing a lot more grid hybrid systems. And so adding technology and capabilities around grid and larger power load. So growing upstream and then fleshing out the downstream, you know, expanding upstream our nano grid business into bigger products. And then on the picogrid side, making sure we're going, you know, we're coming out with multiple product flavors for our picogrid product.

Okay. And just related to that as well, in the MD&A, a new product for aluminum was mentioned. Can you share what that is?

Yeah, that's the one I just talked about. Okay. You're going to see a new product. It'll be announced in January. It's called Senti. stay tuned we think it's a major game changer i will tell you that we are expecting solid growth next year in illumiant um we've got a number of projects and relationships in the pipeline that we're expecting on and we're expecting the orders imminently and you know even orders this week um so we do we're starting you know illumiant's kind of not been um Huge success for us the last couple of years. It's kind of been flat, but I don't think that's the case for 2023, both because we our core product, good market starting to pick up more and more. We came out with the new product that was lithium based in Q2 of this year. And we've already getting our first order for that one. And then we have this new product coming out, which we're calling Senti and we'll be announcing in January next. And I think that one I'm very excited about for a number of reasons. So we'll talk about that once we've announced it publicly. But it's leveraging the PicoGrid technology. So the amount of incremental R&D investment in order to take PicoGrid and make it Senti is, you know, we're talking tens of thousands, not even hundreds of thousands of dollars to do that.

Okay, thank you. So moving back to the telecom side a little bit, you talked about 5G rollout. Have you been approached by any telcos regarding potentially using Clear Blue's products to power their antennas yet?

Yes, we've had a number of conversations with people. We have one project in the plan that we hope to win very soon, which will be a nationwide 5G rollout. But we really haven't... 5G is mostly in the developed markets where we are not. And, you know, the first thing everybody did was upgrade their major infrastructure. So the biggest towers in downtown Toronto are now 5G. And as that rolls out and then they start with the smart cell. So when you saw me talk about the 5G micro space, you know, 2021, it was it was a very small market, but it's explosive. So 2023 really have to get on it. I wish we could spend more money on sales than than we are. So we're going to have to figure out how we all, you know, do everything with the team we have because we are being conservative until we, you know, have demonstration that we've made our plan and not just the baseline 8 million, but we're in the, you know, 10, 11, 12, 13, 14 million, 15 million revenue and higher. And once that happens, then we can invest more in sales to focus in a dedicated way on 5G. We still have time. It's only early in that market.

Okay. A little bit expanding on that. What are the new markets that you see some potential synergy in other than 5G? And can you explain why IoT is not stronger?

So the new market is the medium size and the conversion of existing installations. So the new market focus for us is this new focus this year on taking what used to be grid and diesel systems and making them solar. That's a huge opportunity. And we're already well in the door with many conversations with customers. They're picking up the phone and calling us and say, hey, you're our solar off-grid power solution provider. I need solar here. Can we move on that? In terms of IoT, we've not done a lot in that market. So important to understand that everything we do is IoT, right? Smart cities, solar streetlights, IoT. Telecom infrastructure, IoT. Internet of things is basically IoT. you know, connecting to the internet things that are not people. And we power a whole crap load of that stuff and the infrastructure for that stuff. So everything we do is IoT. But as we get specific verticals, we carve them off and we call them our aluminum solar street lighting business and our satellite business and our, you know, our satellite Wi-Fi business and our cell phone tower business. But when you talk about core IoT, which talks about the rest of it, you know, sensors and switches and, management of all these devices. I think there's been two reasons why we've not done more in that area. We do a little bit, but not more. One is dedicated sales focus. So you... You know, I'm a believer in Jeffrey Moore's Inside the Tornado. You don't spread yourself too thin in 50 different areas. You focus in an area and you create draft by that whole community working together and getting yourself well established in that market. So that's what we've done. But I think the other reason is that a lot of IoT is those 5 and 10 watt devices, right? And the 5 and 10-watt devices were not well served by our NanoGrid product. Our NanoGrid product could do it. It was just too big. So with PicoGrid, now we've got a strong product that's very specifically perfect for IoT. And so part of our launch next year will be to start growing that vertical in that segment from a sales perspective and working hard to grow that market and that business. So I think we will change that discussion in 2023.

Great. Thank you. I'm going to ask one more product related question and then we're going to move back to supply chain and financing. So with regards to Illumiant, you mentioned strong growth in Illumiant in 2023. So where is this growth coming from? Is it North America? Is it other other countries? Is it from cities looking at not being reliant on the power grid or other areas?

So we focused our Illumiant business in North America primarily. We did do a number of projects internationally, but the lead conversion rate, you know, the number of people kicking the tires and then not doing something and the number of people, you know, buying from everybody else, you know, because there's a lot of Chinese crap there. To be honest with you, it's very common in Africa to see a solar streetlight from a Chinese company and 12 months later it doesn't work. That's acceptable there. So we've really focused our Illumiant streetlight business in North America where it's mission critical, it's reliable, the light's got to work. If it's not working, it's a safety issue, it's got to get fixed. That's our market. So we're seeing that business in North America, in the US and in Canada. What we're seeing is infrastructure. So highway interchange projects, parkway projects, expansion of projects that we're already doing, phases of new construction where we'll have a city that's doing construction. you know, some sort of a facilities area. Maybe it's a, you know, subway parking lots, et cetera, et cetera, where you are getting the solar streetlight infrastructure being put in. And we see specs for a lot of those projects. So, you know, we're expecting an order this month And it's, you know, very high six-figure projects. And we're seeing continued acceleration with that. The new Infrastructure Act, almost more than the Clean Air Act, is really funding much needed investment in infrastructure in the United States. And the Clean Air Act, of course, is giving subsidies for it. And the Canadian government came out with the same. So 30% tax credit on capital investments for clean tax credit. is also very compelling. And I think people are just, you know, the conversation's much easier. The guy in the room says, I don't believe in climate change. And, you know, the grid's great. We don't have any problem. And I'm not paying a lot of money to the power utilities. He doesn't say that anymore. You know, he I remember talking to one guy that was one month away from retirement and, you know, you know, that was his perspective. And the younger guy was was was was clearly on board, but he wasn't. That's gone now. Now they're like, oh, I've got power outages, the utilities down. I've got storms with trees coming down all the time and I've got rain and I've got droughts and et cetera, et cetera. And we've got these climate change. We're seeing it everywhere. We're seeing heat waves, et cetera, et cetera. And now we got to go solar. So it's just a complete difference in attitude across the board that we're seeing.

Okay. So just moving back to supply chain, you had mentioned that Clear Blue's batteries are manufactured in China. And if so, are you at all looking at moving production away from China, given everything that we're seeing there with regards to the protests, lockdowns, etc.? ?

So when it comes to our supply chain, everything else we do has multi-country and multi-vendor diversity. The only thing where we are still very committed to China, we have multiple vendors, but we're still committed to China is on the battery technology. And a big part of the reason for that is because all battery technology almost comes from China. So if you talk to someone who manufactures a lithium ion battery in Europe, That's great. He's doing final assembly in Europe, but the sales come from China. Over the next few years, you're going to see more global diversity around that. And it is our plan in 2023. to find other alternatives from that. It's important to understand that Clear Blue works with any batteries. So we have a smart controller that is separate from the battery and can evolve depending upon lead acid to lithium to nickel metal, to capacitors to other things. So we have the architecture that gives us movement flexibility. But from a volume procurement perspective, lithium batteries are very expensive. And we have a very compelling, I don't want to share any trade secrets, but we were really smart in what we did around lithium batteries and have a very cost compelling, good price competitive solution with a couple of vendors in China. So we'll de-risk it, but I feel very comfortable and hope to continue to work with China. We talk a lot about issues with China, but not all is bad with China. There's still a lot of good business to be done there. We just have to right size it and balance it. And that's what Clearblue will do.

Yeah, and I'd just like to add one thing over here. So we've got two type of batteries. We've got the lithium batteries. We've also got lead acid batteries. So we've secured ourselves for basically no questions you're asking about protests and lockdowns and stuff. So most of our lead acid batteries for the next year, we have in coming out from Chicago, like from a warehouse out over there. So we were basically covered for our lead acid batteries on that front. for the short term, for sure.

Okay. So we've got one more question. I think I'm going to make that the final question. If anyone else has any additional questions to follow up with this, then please use the emails there and get in touch with us and we'd be happy to answer your questions. These have all been really great questions asked today and we appreciate your participation. So our last question here is for Miriam. And the question just is, have you considered doing a rights offering to raise funds without diluting existing shareholders?

We have considered it. Doing a rights offering is something our lawyer has a significant frustration on. It's not an easy process. What we do try to do is communicate with our shareholder community. We have strong relationships in Europe. We have strong relationships abroad. and always try to keep in touch with everyone. And whenever we are looking at doing something, we do everything we can to make sure we've touched most, if not all shareholders. And I think what I've always done is when we do complete something, I've always left a little pillow that if after the fact someone goes, hey, wait a second, I would have liked to and we missed you, that we make room. So we don't do it with a formal rights offering, but we do do it to make sure that people are happy.

Okay. Well, that's all the questions that we've got for today. I think this has been a great presentation on the Q3 earnings. Thank you very much to everyone for joining us. And as I mentioned, this recording is going to be up on the website if you'd like to review it later. And thank you to Miriam and thank you to Farouk.

Thank you, everyone. We appreciate your continued support in Clear Blue and trust that we are ensuring the success in the future of the company. We're working our guts out here. The team is just amazing.