© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to the mCloud Technologies Second Quarter 2021 Earnings Conference Call. At this time, I will turn the call over to Wayne Andrews, mCloud's Head of Investor Relations.
Thank you, operator. Today, we will discuss the unaudited results for the 3 and 6 months ended June 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 remarks made on this conference call may contain forward-looking statements about mCloud Technologies' current and future plans, expectations, intentions, results, level 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 assurances 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 you are cautioned not to place undue reliance on any forward-looking statements. Except as required by law, mCloud Technologies has no obligation to update or revise or 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 sedar.com. I will now hand the call over to Russ McMeekin, our CEO. Please go ahead, Russ.
Thank you, Wayne, and good morning, everyone. Let's move to the first content slide, please. Highlights for the first half. Despite pandemic restrictions, AssetCare revenues were up 102%, so were $14.4 million in the first half compared to $7.1 million in the first half last year. The recurring revenue, or AssetCare Over Time, was $12.6 million revenue versus $3.7 million in the same period last year, so robustly up. Overall, revenues were $15.6 million compared to $11.6 million, so up 34%. That's with a major decline in technical services. Those are project activities, primarily in the province of Alberta. Alberta and parts of the United States in May and June were heavily restricted. Alberta was certainly very restricted in May and June. Recently, I've been to Saudi Arabia. We're very -- I'll discuss this in some future slides, but we're very well positioned there in the Middle East in the second half. We are beginning to see Asia Pacific starting to pick up, and that's the whole region. We're very pleased with that. And this morning, we announced that we filed our 40-F, which is a major milestone towards the NASDAQ listing. Move to the next slide. We continue to make progress, albeit slow this quarter towards connected assets. We ended the midyear with 62,508. Our near-term goal before year-end with a very strong backlog to achieve it is 70,000 connected assets. And then we move on to next major milestone, and that is 100,000 connected assets. Moving to the next content slide. AssetCare overtime revenues on a quarterly basis continues to grow. We look back to Q1 2020, you see a nice progression. Year-on-year, we're up 140%. At this point, I'm going to turn the call over to Chantal. Please move to the next slide.
Thank you, Russ, and good morning, everyone. Total revenues for the first half of 2021 were $15.6 million, and this is a 34% increase compared to $11.6 million for the same period a year ago. Can we move to the next slide, please? Revenue in the second quarter was $7.2 million versus $5 million in Q2 2020. This represents an increase of 44% year-on-year despite the fact that asset initializations were delayed due to pandemic restrictions, primarily in Alberta. Q2 gross margins in 2021 were 64% compared with 62% for Q2 2020. Gross margins increased, resulting from 90% of our revenues coming from AssetCare overtime. If we can go to the next slide, please? Pandemic restrictions continue to hamper our ability to connect assets such that our AssetCare Over Time recurring revenue has not exceeded our direct expenses at this juncture as anticipated. We are working diligently to achieve our near-term goal of 70,000 connected assets, the inflection point where recurring revenues will exceed direct expenses, and we're expected to reach our objective in the second half of this year. Next slide, please. In July and August, we began to see collections improve. In the same period, we saw extensive increase in detailed planning for new AssetCare initializations, which we believe will commence to make traction post Labor Day. Sorry, just going backwards here for a minute, I apologize. Customer collections were slower than normal in Q2. Growth in new connections impeded in May and June, expected to make return in the second half of 2021 and 2022. Our ATB Facility currently is only 50% utilized, with facility expected to be fully available in the second half of 2021. As Russ previously mentioned, our Asia Pacific saw growth in business activity in the first half of 2021. And both Asia Pacific and the Middle East expected to make meaningful contributions in the second half of 2021. Next slide, please. So some of our major expenses for this period. In Q2, as at April 23, we had cash of $14.4 million. And as at June 30, this was $6.5 million. Cash used in the period was approximately $7.8 million and about 70% of that was from extraordinary nonrecurring items such as professional service fees related to financing; audit and legal, that was $2.1 million; loan repayments of $2.2 million; third-party IP licensing and R&D of about $1.1 million. As previously mentioned, in the second half of this year, we expect to have the full availability of the ATB credit facilities, that's $2.5 million, and a pickup in customer collections. Noting the change in our cash position since our April update, approximately 70% was not related to operations. I also direct you to Page 33 in the MD&A, where we present our pro forma balance sheet as at June 30, 2021. This was done to illustrate the impact of the conversion of the 2021 debenture liability, which has been approved for conversion to equity effective post financial state and MD&A approval on August 13, 2021. I'd also like to point you to the press we put out this morning, as Russ mentioned, communicating that we have filed our 40-F. This represents a major step forward in our efforts to list on the NASDAQ. I'll send things back to you now, Russ.
Thank you, Chantal, and I'm going to take the call now to a forward-looking view. Slide with the $80 million TCV please. So looking at the segments for the $80 million of TCV that is the goal we have set for ourself cumulatively by year-end 2021. First major segment is HVAC with a pretty powerful pull on the indoor air quality side of things, and I'll discuss that in more detail in the future slide as well as AssetCare in oil and gas and industrial around ESG. So this is what we'll make up, from a segment point of view, the bulk of our TCV trajectory for the second half of 2021. Next content slide. I was asked on previous calls to break things up from a TCV perspective in two ways, one from a segment point of view and the other from a regional point of view. So if you look at this $80 million of TCV, if you break it up, as I mentioned, industrial or oil and gas primarily is about half of the TCV segment in that $80 million. And most likely, in 2022, the pie chart will look very similar. Building is approximately 34% and then 20% of it is a combination of Wind and AssetCare Mobile. So I combine those here for illustration purposes. Most of the connected mobile assets are in the industrial side, however. By region, North America makes up the largest component of our TCV. Middle East, I will discuss in the next slide, is picking up to be quite a sizable component of the overall mix. U.K. and EU, which is primarily win for now is about 15%. And then Asia Pacific, as Chantal and I mentioned, is beginning to pick up quite nicely. Moving to the next slide. I was recently in the Kingdom of Saudi Arabia for over a week. As you saw, we announced a very strategic partnership with [ Erbsoft ]. To do business in the Kingdom, you need a licensed agent within the Kingdom. This agent and our partner there is very well connected with Saudi Aramco, which is the largest company on earth. We had a number of brilliant meetings with them as well as Aramco -- or Saudi Arabia is known for Aramco, but as you can see on this slide, there are numerous other major operators that own significant footprint of buildings, large petrochemical and refining companies. And so the focus in Saudi Arabia, obviously, is Aramco, but it's far beyond simply Aramco. We have a President there now in the Kingdom of Saudi Arabia. You'll see a lot more discussion in the second half of 2021 around Middle East, but very specifically Saudi Arabia. So we expect this to be a significant component going into 2022. Moving to the next slide. For those who are watching the presentation via screen, you can take your smartphone and point your camera towards the QR code. In the indoor air quality space, we are not only making them indoor air quality compliance, as you can see in the bottom right-hand side, as you've seen before, where indoor air quality exceeds the levels expected by a number of regulators or a number of health and safety standards. By turning on this -- by clicking on this QR code, you can see the actual health of the building you're walking into. So if you are walking into an office building and you're an employee and you want to see and we have customers, including our own offices that have this, you will see the state of the indoor air quality before you enter. Similarly, you can apply this to schools, you can apply this to retail locations as well as restaurants. So we believe our QR code certainly was very well received in the Kingdom, very well received here in DC. We expect it to be very well received in Ontario. Where this QR code is not just some kind of insignia of what could be, but in actual data and facts of the state of the indoor quality of your building. So I hope those of you who are able to -- were able to click on this QR code. Next slide. ESG, fugitive gas and the tracking and reporting around ESG is a big topic. It's one that our customers -- we have an upcoming mCloud Connect. We expect to have about 500 people around the world. ESG is one of the hot topics. You'll see the speakers from Microsoft's Chief Environmental Officer. You'll see a number of people. We have numerous customers of major companies on panels that will be presenting at the AssetCare Connect. And the predominance of the discussion will be either ESG and ESG reporting or indoor air quality. So you'll see a lot of discussion around these topics. You'll see real demos, see real technology. So things in the second half are really well poised to move. Next slide. In summary, AssetCare continues to grow nicely, up 102%. Our backlog continues to grow. We expect after AssetCare Connect, which is coincidental after Labor Day, where a lot of customers have started to put schedules in place to do things post Labor Day. We expect things to begin to lift quite nicely. We also expect the challenges in Alberta to begin to lift and therefore, back to work there and doing a number of things. We forecast in the second half that a number of locations in the United States will also be in good shape. Southeast Asia, Japan, a number of places where we have active contracts going on, we expect them to pick up quite nicely in the second half. And as I mentioned before, specifically in Saudi Arabia, we expect this to be a material contributor in the second half of 2021. Next slide and final slide. In summary and final summary, exceeding 70,000 in the near term continues to be our goal, and we will be achieving that before year-end. 100,000 connected assets will be the next milestone. If you look at our recurring revenue, our AssetCare Over Time run rate, at this point, in 2020, the run rate was approximately $8 million on a run rate basis. If you look at today, 2021, our run rate of the same category of revenue is 25.2%, so a 215% increase in a very strategic and important segment. And obviously, reaching or exceeding the 70,000 connected assets and as Chantal mentioned, the recurring revenue and the overall revenues exceed our direct operating expenses and, therefore, puts us in a positive operating EBITDA position is our focus. I will now turn the call back to the operator and open up for questions. Thank you.
[Operator Instructions] The first question comes from Brian Kinstlinger with Alliance Global.
Sorry, I didn't have the privilege of watching this slide deck, so I apologize, for some of the questions. And I guess, in the future, I'd suggest making it available separate from the webcast because the analysts are listening live. Can you give us the total number of connected assets today? I think I heard you say $80 million in backlog. And first, how many are in Alberta? And recently, we saw Alberta get back to additional restrictions after easing restrictions. So maybe talk about the environment there and what the backlog is specifically in Alberta?
Yes. So when you do get a chance to get the slides -- and I'll actually send it to you directly, the slide. So if you look in Page 12 -- anyway, so Alberta within the 40% of North America is about half of the North America backlog. So 40% of $80 million, which is about half of that we have already in -- booked. The other half is in the second half, of which -- of that half, about half is Alberta. And yes, we did see on Friday that the premier extended the lockdown. We expect, however, some of our customers, we know some of our customers on the industrial side are getting back that this extended restriction will not apply to them. So we're hopeful that, that won't impact that. And therefore, the industrial side of Alberta will be fine. So half of the backlog is industrial, and about half of the backlog is North America, of which half of the half is Alberta, Brian.
Got it. And but to be clear, to date, actually, in the third quarter, you haven't connected many new assets in Alberta. Is that right?
Almost 0 in Alberta. And May and June was completely locked down, yes, that's correct.
Yes. And what is your total connected assets today? Or you gave the quarter end?
Yes, 62,508.
That was it today, not at quarter end?
No, quarter end, as at the end of June 30, yes.
Right. And I'm wondering, mid-August, where are you. Can you provide that?
No, it's not a published number. Actually, I don't even have it close to me, but Alberta would continue to be near 0. So it's -- where we picked up is some in the U.S. for sure in New York, not in California yet, some in Asia, and none yet in the Middle East, but soon in the Middle East. But we're really relying on the back half of August, but more importantly, September.
Got it. And then -- In terms of Asia Pacific and Middle East, again, sorry, but can you provide the percentage of backlog that you have there? And are you already delivering on getting all of the assets live? Or does something need to happen between now and some point in time to start picking that up?
So 20% is Asia Pacific, to answer your question. The offshore platforms are proceeding without any challenge because we're doing it remotely regardless. So pandemic restriction doesn't really apply. A portion of that backlog is connected worker, Brian. So that is kind of less of a problem. So 20% of it is Asia Pacific, and we're less impeded certainly than we are in Alberta and North America with the customers we have in Asia Pacific.
And Middle East?
We're just signing TCVs now. So there's no -- the reason we're not connected is not due to any impediment. It's just you got to sign the contracts before you start, but I would expect something by September and definitely nice activity in the fourth quarter. That's not a pandemic issue because their policies are pretty clear. If you have a vaccine, you can do pretty much anything. So -- and you can't get into the country without a vaccine, so it makes it pretty simple.
And your workers, are they coming from North America to the Middle East and to Asia Pacific to do the installations or are they local?
Local, very local.
Yes. Okay. And then last quarter, you talked about 3 new partnerships, Con Edison, [ BayREN ] Automation, BC Hydro. Can you talk about are you today connecting assets or are today adding and signing assets to backlog?
No. Con Edison is definitely connecting. I think you'll see some of that discussion at AssetCare or at mCloud Connect. And BC Hydro starting to connect likely some discussion at mCloud Connect, but definitely, that's connection, not just signing TCV.
Right. And then lastly, in terms of -- I thought I heard that the debt insurers are going to convert. So will the short- and long-term debentures go to 0? If not, what portion? And then what will be the total of shares added to the second quarter share count?
So we added in yesterday's -- or Friday's conversion about 6.4 million shares. So we were at 34.7%, at 6.4%, gives you the share count in treasury. The $23.5 million debenture, which is due next year, this time next year or actually May next year are not in -- not yet converted. That we will likely deal with on an EBITDA basis in the second half -- or in 2022 as we pick up EBITDA. Our ATB Facility and other facilities we have is designed to be sized up to take out that debenture next summer.
So just to be clear, the $23 million of the $32 million is what you're saying, we'll still be there?
Yes, sir.
Your next question comes from Martin Toner with ATB Capital Markets.
Hello, Martin.
Can you guys hear me?
Now we do.
Okay. Well, sorry about that. Just in the PR, you mentioned some collections issues. And I see that long-term portion of trade receivables went up. Just wondering what was going on there. Can you kind of explain that a little bit?
Yes. Chantal, go ahead.
Sure. Thanks for the question, Martin. It's just simply a slowdown in collections. There's no collectability issues. A lot of companies have just extended the period over which they are paying their bill [Audio Gap]. Primarily that's happening in Alberta.
Got you. Okay. Just to confirm, the 70,000 connected assets level, that's where you're kind of roughly breakeven on an EBITDA or a cash flow before interest kind of basis?
Correct. We refer to the term, as you see in our investor presentation, we depict it very clearly. So if you look -- go to our website, you'll see the impact of 70,000 why that's meaningful. You'll see the operating -- so you'll see the revenues, the gross margins and its result in impact to operating EBITDA.
Perfect. So the asset you connect, connect at various ARPUs, if I'm right. Just wondering, do you think that the ones you guys connect from here to 70 will be kind of higher on that ARPU number about what you've been doing in the past or something else?
No, they'll be -- they're mainly industrial and they're a lot in Alberta, as Brian asked. So those, by definition, are higher blended value, or higher value period. So they'll be a skewed towards higher monthly recurring value per asset based on what's in that backlog.
Got it. Great. It sounds like the 1,000 or so connected assets result was mostly a function of lockdowns and ability to reach customers. But was there any churn of note in the quarter?
No, we didn't have any churn. No, churn. The answer is 0. So we remain very highly sticky. No churn. And on the other hand, we didn't add many new logos to our portfolio in second quarter. But as I mentioned, with the Middle East and Southeast Asia and Asia Pacific, you're going to see a lot of customers with -- in one case, Aramco, you're looking at millions of assets. We will have maybe several hundred of millions. So our ability to penetrate a logo and then scale within the logo will be beyond massive, right? So these are big, big logo, big asset customers that we'll be signing up in the second half.
Got you. Interesting. That sounds great. And I'm just wondering it sounds like the growth in the next couple of quarters is going to come more from the industrial side, but just wondering about the state of the buildings for the business.
Not really. Connected assets -- so indoor air quality, so you asked me the value, the ARPU value of an industrial asset is [ $250 ], right? And then ARPU value of an asset and buildings is closer to -- now it's -- actually, we're getting away with or I shouldn't say getting away with, getting higher pricing than $50. So we're seeing good pricing, around indoor air quality. I wouldn't -- if you look at the distribution, buildings is still a pretty sizable component, and that's driven largely by indoor air quality. So if you had a -- if you have -- if you weren't at a screen where you're able to see the QR code, you'll see offices in Alberta, offices here in BC, offices in the U.S., soon to have school districts where -- and I believe with this QR code becoming a reality of -- the question will become, if you're able to see the state of the quality of air in the building as a policymaker, why in the hell wouldn't we do it to all our buildings? So I think that you will see some pretty -- if you attend mCloud Connect, you'll see what I mean.
I pulled up the QR code, that's really cool. And so it sounds like you guys are still very bullish on the buildings opportunity. Just wondering if you have any thoughts on the pace at which that business will reopen.
I think it will be big because they're big footprint customers, right? We're not dealing with any customer that only has 5 buildings that I know of or 2 or 3 buildings. They're all in many, many buildings. So it will be a nice pace. And because it's distributed, Brian asked the question, are you stuck with one central groups flying around the world? The answer is no, it's regional. In building it's even easier because it's regional and it's not that complex to add the indoor air quality sensors or off-the-shelf capable things. The synthesis technology, most mechanical contractors can do pretty easily. So I think the ability to do -- and you're talking about California, which is bigger than Canada, talking about New York state. So these are big geographies, big pull. And we're not at the mercy of any kind of special knowledge to do it because this retrofitting of a building to be indoor air quality or demand response, energy efficient, this IoT technology is pretty straightforward for these mechanical contractors to do, which we don't do. I think at this point -- yes, we don't have any more questions, right?
There are no further questions at this time, indeed. Mr. McMeekin, you may proceed.
Yes. So we thank everyone. We'll see you in the third quarter, and we look forward to a very positive and high growth second half. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.