Clear Blue Technologies International Inc.

Okay, good morning everyone and welcome. Thank you very much for your time today to join Clearblue's Q3 earnings call. We're going to be focusing today on a corporate update based upon some announcements that have been made over the last little while, some events. We thank you so much for your time. My name is Miriam Turk. I'm co-founder and CEO of Clearblue. And I'm joined today by Farouk Anwar, our CFO. And so with that, we're going to jump right in. I do want to say I am expecting that there will be many questions. Part of the benefit of being a public company is that we do get asked a lot of questions from our shareholders and get feedback. So I would encourage you to please post any questions you have in the Q&A and Farouk and I will tackle all of them this morning. Okay, so in terms of the agenda for today, we're going to give a corporate update on what's going on from a financing perspective and the ongoing operations of the company. We're then going to spend a little bit of time on going through the Q3 2024 results and also then talk about the outlook for the company. So... Three or four weeks ago, we made an announcement that two of our board members had left the company, had left the board of the company, and that at the same time, we had experienced a delay in the STDC contract. As you know, There have been quite a lot of global and economic challenges over the last four years. I think I can fairly say that it's unprecedented in our lifetime. And as a technology company, we need to invest in R&D in our product. Now, to do that, we have gotten signed contracts in good standing for R&D grants, the largest of which is the STDC contract. And because of the issues with that fund at a national level, nothing to do with our individual contract, which is in good standing, there have been uncertainty and delays as a result of that. And because of that, that presented a challenge four weeks ago, at which point we needed to let the market know that we had entered a period of uncertainty. Adding to that, we are seeing that, you know, the marketplace, the global economy and the, sorry, the economy in general, we haven't gone into a recession, things are looking good. But when you go under the cover, there's really a story of the haves and the have nots. And I think everyone has seen stories of bankruptcies and downsizing and restrictions, et cetera, et cetera. What we've seen is that our customers are also experiencing cashflow and there's a real change in how they're dealing with cashflow payments and delays. And that has caused a lumpiness in our revenue. And when you put all of that together on top of the fact that because of the historical supply chain issues that we've had over the last three or four years, which required us to invest in inventory, we have quite a large inventory on our balance sheet right now, almost $4 million. The result is that we entered into a really tight cash crunch stage, not really because of the ongoing operations from a day-to-day perspective, but really because of the historical buildup over the last four years from the story that I just provided above. So the net result is, when you look at the company's enterprise value, it's heavy on debt and light on equity. So we need to fix that. And really there's two basic things we need to deal with. We need to deal with making sure that we're cashflow positive and we're generating cash to cover our expenses. And we need to realign the debt versus the equity and reduce the debt, improve the shareholder portion of the overall equity and reduce the debt. So how are we going to do that? We do have a plan in place. I can't announce all of the details of that plan because it's not yet 100% bought into. It's not yet 100% concluded. But what I can tell you is that, you know, you kind of get a fast no and a slow yes. When we began this conversation with our key stakeholders, such as BDC, which is a secured creditor and the largest investor in the company, we got a very strong message that they wanted to work with us and resolve this issue. So we didn't get the fast no of, okay, this cannot get addressed. We've gotten... feedback from everyone that they were at the table and working with us to resolve and come forward with a solution. So how are we going to resolve the issue? Well, the first is that we have experienced some sales delays. And a lot of people will think that this is related to our emerging market Africa initiatives. That is true in that market, but we've also experienced very solid, known, planned, detailed design, detailed engineered, SPECT-approved construction projects that just took an extra two, three, four, five, six months. Projects that we've known have been planned for. We got a purchase order this week for a $300,000 order that quite honestly, we expected to ship in July, August. So the sales delays that we have experienced through our, which impacted our Q3 results are resolving and our bookings are growing. That's item number one. Item number two, we have reduced our OPEX significantly. We did a downsizing in October that reduced the overall salaries of the company by one third. We also did a cloud restructuring, which allowed us to eliminate about $600,000 in annual expense for software licenses and cloud licenses. The question would be asked, well, can you function with this reduction in staff? And we've been very strong at reviewing that. And because a lot of the large R&D projects that we needed to do have been completed, we feel confident that we can deliver that with the reduced topics. An example would be, there was a significant effort to integrate the eSight microproduct with Illumiance. That was delivered in the March, April timeframe of this year. another three, four months of bug fixes and stabilizing it and getting, you know, a, you know, release two, release 2.1.2 kind of out there to deal with all of that stuff. And the net result is it's good, it's solid, it's done. And so the large work effort around that can now be streamlined. Similarly with our Pico and Senti product. And I do want to emphasize there's always ongoing R&D that we need to do and we do plan on continuing to do R&D, but the big chunks of work have been completed. While in September and October, we had been notified by STDC that the entire program's payments were halted. We have been notified in the last two to three weeks that those payments are now flowing again. They're slow and they're delayed. So we're not going to get that payment in January as we had expected, but they are flowing. And we did reconfirm with STDC that's nothing that is that, you know, there's nothing wrong with our account or our program. We had a five month delay on the 2023 payment. And that did impact the operations for this year. That's part of the reason that we got there. But I do also want to say that STDC was established in 2001. It has been around for 23 years. It was a program that continued to be funded and supported by both liberal governments before the Harper Conservatives and throughout the Harper Conservative program. I only say that with the context that if someone has a question about whether or not you know, STDC would continue. It no longer exists as STDC. It is now part of the National Research Council program management, which includes IRAP, which is a program that's never had any problems, never had any issues and is well managed and operated. And so the question of whether a governmental change in the future would have an impact on us, one can never predict anything, but we do have a good contract and this has been around for a while. So the net of it is that we are working with our debt holders to convert some of it to equity and to provide some reasonable adjustments to terms and timelines. We are not kicking everything down the path because we want to reduce our debt and continue to pay off our debt. And we have been doing that. That is part of something that we've been doing from a cash flow perspective. But we need a window to kind of clean up the past and then Once we've got that done, we can move forward in a positive way. So from a going forward perspective, We have a plan that is not yet finalized. So I do want to re-emphasize, this is not 100% done yet. Until it's done, it's not done. But as I said, everyone's at the table working with us. We've had strong support from our suppliers. We've had strong support from our employees. We've had strong support from our major banking partners, our government partners. and from shareholders that have convertible debentures. So we're going to work on finishing that and bringing that to conclusion. We have already lowered our operations expense to get our ongoing runway in line with a revenue stream that is at its most ultra conservative would allow us to be cashflow positive. So our plan for 2025, taking the very conservative approach to what our number results would be, not saying that's what the results will be, it's just that we need to plan on more bumps happening in the future. And as a result of that, in the general market and economy, we've got to be resilient and really sound to be able to handle those things. And so we've lowered our operations expense to allow us to do that. Our plan going forward does include a reasonable amount of government grant support. So we got STDC in the plan for next year. It's $1.3 million of cash. We've got it late in the year to allow us time to kind of what the government go through. And then of course, sales growth. And I think that the exciting thing about the company and although we've been having a conversation about all of the things to be worried about, we do have exciting things so we have the new. eSight Micro integrated with the Lumion's product that has got significant value and benefit in the marketplace. We've got a lot of deals going and a lot of customers interested and that business is expected to grow. We've got new sales channels and new partnership deals that we have been building. And we've got a number of projects and deals moving forward. So our Pico product, which had been built for a large satellite partnership, that satellite partnership went down the drain in April when their satellite blew up. But we've now announced a new partnership. which is very exciting. It's with a satellite vendor that has both a low earth orbit satellite that competes directly against Starlink as well as a high earth orbit. And their plan is to integrate Pico with every satellite modem they ship to business customers. So it's a very big opportunity. We've got a strong partnership with one of the leading lighting vendors in North America. And all of those things are going to contribute to our sales growth going forward. Our objective is to conclude in December and early Q1 the activities that we've got. And then we're going to focus on building the business going forward. I'm sure there's a lot of questions about this. When we get to the end of the presentation, we will go through all of the questions that you may have. So now we're going to go through the 2020 Q3 results and year-to-date results. And although our trailing four-quarter revenue was strong, our Q3 revenue was abysmal and disappointing. And there are reasons for it, which I think under the covers are actually a good thing going forward, but I'm going to let Um, Farouk, talk about the financial numbers, um, and I'll talk about the outlook at the end. Farouk?

Yeah. Hi. Thank you, Mariam. Hello, everyone. Thank you so much for joining. So let's start about, you know, talking about our Q3 year-to-date revenues, our trailing four-quarter revenues. So our trailing four-quarter revenues have been pretty strong. If you can see the graph over here, you can see that our trailing four-quarter includes Q4 of 2021. and then Q1, Q2, and Q3 of 2024. So you can see with the comparison that Q4, Q1, Q2 have been pretty good. So It's just that when we talk about Q3 2024, that's when our revenue has declined. And it's because of a number of reasons, but mainly if you look at our revenues in Q3 2024, they were 369 to 97, which yielded a trailing four quarter of 4.3 million. So trailing four quarter includes a strong Q4 plus a strong first half of the current year, where we can see a steady increase in revenue. The comparative TFQ, includes Q4 of 2022 and Q1 and Q2 of 2023, which were heavily impacted by the economic downturn, triggered by the macroeconomic events of 2022. So we are getting out of it right now. The current quarter is down significantly by around 84% compared to the previous quarter. The decrease is due to delays in customer orders as certain existing and new customers delayed their purchase orders and payments while they finalized and closed their financing. Furthermore, in the current quarter, the company experienced cashflow constraints and therefore we shifted our focus from revenue generation to cash conservation. So the company is now matching shipments to payments from customers. So, you know, and therefore certain orders we push to the next quarter just because, you know, our payment terms did not align properly. So we said, you know, Once we get our money in 100%, you pay us, and that's when we are going to ship. And as revenue is linked to shipments, so you can see over here that our inventory is pretty high, but our revenue is low because those orders have been shifted to the next quarters, and we're going to generate that revenue in the next quarter as we get our financing over there. Mariam, next stop, please.

So I just want to give an example of what we're seeing and the need to make this change. And, you know, so... Previously, we would push to get revenue in the quarter. And if there was a little bit of a payment delay, we would adjust the terms. We would be very flexible. In the construction industry, there are what's called distributors. And distributors are there. One of their main benefits is that they make a payment assurance. In other words, the supplier will sell to a distributor who then sells to the contractor. And the distributor basically, up until recently, you know, they would pay the supplier no matter what, and then chase the contractor for the money. That was their role. Well, the distributor industry has now changed that. And what we're seeing is distributors are saying, I'm not paying you till I get paid from the customer. So if We're seeing, and this is why we talk about the economy being have and have not, our customers starting to be more cautious on their payment terms. and when they pay us. So, you know, distributors not giving it to me exactly when I expected it anymore. Now it's like, while they are waiting for payment from their customer, then we need to be ruthless on it's not shipping until we get paid. And we made that change in Q3 in a ruthless way, like zero tolerance on adjustment of that because we needed to, and it's probably best practices going forward. And so once that realigns, then, you know, it'll kind of reset itself. But there's a small gap between revenue and cash, which we're now aligning. And so there's definitely a blip. We also have a number of customers who have deals signed, but they haven't closed their financing or their financing is just about to close. And therefore, we didn't have the cash not shipping. Farouk, if you want to keep going.