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Good afternoon, and welcome to mCloud Technologies' Fiscal 2019 Third Quarter Earnings Conference Call. Today, the company will discuss the unaudited results for the third quarter ended September 30, 2019. Joining the call today from mCloud is Russ McMeekin, Chief Executive Officer; and Chantal Schutz, Chief Financial Officer.Before we proceed further, please note that the remarks made on this conference call may contain forward-looking statements about mCloud Technologies' current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements or any other future events or developments. Forward-looking statements are based on information currently available to management and on investments and assumptions based on factors that management believes are appropriate and responsible in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct.Many factors could cause actual results, levels of activity, performance, achievements, future events or development 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 these maybe required by law, mCloud Technologies has no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in the company's most recent MD&A available on sedar.com. At this time, I will turn the call over to Russ McMeekin, Chief Executive Officer of mCloud.
Thank you. Welcome, everyone, to our third quarter conference call. Q3 was a very busy period. Let me start with a list of highlights for the quarter. In July, we closed the Autopro acquisition. This brings us excellent talent, early-adopter technology customers and a base set of contracts and revenues of approximately $35 million. We made very major progress towards our goal connecting 40,000-plus assets by year-end 2019. We closed a major debenture financing as well as a $13 million term loan late in the summer.We are now well aligned with key customers in U.S.A., Canada, China, Middle East, Australia, U.K., Southeast Asia, specifically Malaysia initially, and by early 2020, Continental Europe, and this will be mainly with wind assets. From a capital market perspective, we now have 4 prominent research analysts covering the company. We have started the requisite efforts for the TSX uplift. And on or before December 6, we are filing our F-1 to move to NASDAQ or do a list with the NASDAQ. These steps will be well underway. Bottom line, we are yielding solid synergies from our integrated acquisitions. We integrated the acquired technologies into a standardized offering. This is in response to our customer needs. Customers want to buy no upfront capital cost subscriptions than collect significant savings, and that's what we provide.Looking at our 3 main asset segments. #1, Smart Facilities. We now have over 7,000 connected buildings. Some customers are seeing as much as 25% in savings and a major reduction in kilowatt-hour usage. We are all set to scale many added buildings with existing customers as well as onboard new customers with fleets -- with large fleets of buildings and assets.Secondly, our smart wind turbines. We kicked off a Phase 1 program with a wind farm in China with 35 GE turbines. The data we extracted and analyzed has already yielded as much as 30% output improvement from the design of these -- from the original designs of these units. We expect China, U.K., and starting in 2020, Europe, to come online and add approximately 1,000 new assets in 2020. We are also focused on some parts of U.S.A. and potentially Canada.Third, Smart Process, very specifically, oil and gas. We have completed our first 100 asset sites, 6 sites, and we expect this -- and we expect before the end of the year to have an additional site in Alberta. We also expect to deploy early sites using 3D Digital Twins of assets using a head mount-connected hand-free and voice-activated augmented reality displays to remotely visualize these assets. We have our focus on connecting as many as 2,000 or more assets next year in 2020, and these will be in markets that we're targeting such as Alberta, Saudi Arabia, Southwest U.S.A., Southeast Asia and Australia. From a technology perspective, we continue to greatly enhance and expand our AI capabilities to very accurately replicate and optimize asset behavior. We are soon experimenting with drones. The aerial scanning -- we'll be doing aerial scanning to detect fugitive gas emissions in oil and gas applications.We're also trying to expand our IoT sensor measurements as input into our AI using embedded vibration sensing into towers and blades, CO2 sensing for buildings to give us more precise occupancy. We are embedding these sensors from a technology provider here in British Columbia. Our engineers are working very closely with them to create a unique offering for these applications.We are addressing customer needs through an integrated standardized offering, and this is built from a foundation of technologies we primarily acquired.Now moving to forward guidance for 2020. This morning, we put in our press announcement 2020 guidance. These are as follows: revenues in the range of $70 million to $80 million. Normalized income of $11.5 million to $14 million, of which more than half of these revenues will come from AssetCare, of that half, approximately 70% is expected to become directly attributed to connected assets. Margins in the first quarter will be in the low 50s due to the service mix, the AssetCare mix. Services will be a significant percentage of it. By Q4, margins will be in the high 50s resulting from the progression in the margin mix. We expect to have no less than 70,000 connected assets by year-end 2020. This is adding approximately 30,000 net new assets. And based on timing of execution, looking at these numbers, by December, we should be exiting the year on a run rate basis of approximately $100 million, of which 55% of this will come from high-margin AssetCare technology.Ending the year, this year in Q4, on the basis that the TSX-V signed off on CSA here in December, we expect revenues to be in the range of $13 million to $15 million, but we need to be mindful that our projects and technical services from Autopro, or what was called Autopro, is susceptible to holiday timing for some deliverables. So that's why the range. AssetCare, however, in this quarter which is not susceptible to holiday timing, will grow by at least $1 million in Q4 from Q3. Normalized income, we expect to be in line with Q3. We definitely will exceed 40,000 connected assets by year-end, as we previously stated. And entering into 2020, we'll have a very solid backlog of TCV and recurring revenue.To reiterate, we are pleased with the integration of the acquired technologies. Our customers are pleased by our implementation results and interest in adding additional assets and services. We are confident in our future growth prospects. In Q3, we demonstrated solid confidence in our 3 Ts: our talent is very robust; our technology is very robust; and our timing to deploy AI and cloud technology in the markets we serve cannot be better.I will now turn the call over to Chantal, then after that we'll take questions. Chantal?
Thank you, Russ, and thank you for everyone who's joined us. The big message that we want to take away from our Q3 filings is that we now have the infrastructure for the financial reporting that's required, the people and the tools, and we made significant progress this quarter resulting in the right processes in place that are ensuring that our financial results are reported on a timely basis with accuracy and reliability.This quarter saw 3 key financial transactions that have really influenced the look of our statement. We got the acquisition of Autopro, the convertible debenture and our share capital. As well, some readers may notice that we've gone back to adopting our year-end presentation of our financial statements for more visibility on the statement of comprehensive loss.In terms of the acquisition of Autopro, we have engaged [ BDO ]locally here in Vancouver to perform the purchase price accounting, and what we presented in this quarter's statements for the preliminary numbers that have currently resulted in about $31 million of goodwill.We have fully consolidated Autopro's results effective July 10, and we aim to complete the final PPA for the December 31 year-end and incorporation into our year-end filings, at which point we will allocate the goodwill between goodwill and intangibles based on the valuation report. Simultaneously, on July 11, we closed on our convertible debenture, and at that point in time, we performed all the final accounting. The convertible debenture is free trading this month. We've appointed AST as the debenture agent, and they will be sending out new debenture certificates today or tomorrow to all the holders, replacing the old certificates with a CUSIP. We've also applied to list the debenture with the TSX-V and that is forthcoming.Lastly is some of the significant changes with our share capital. As part of the acquisition of Autopro, our purchase price, this 50% cash, 50% shares, this has resulted in a significant increase in our shares outstanding to just over -- well, just around 156 million at September 30. This also included the exercise of some options and warrants as well as the issuance of 1.5 million shares at the time that we extinguished the $2 million loan payable to Flow Capital for the acquisition of the Agnity royalty agreement.Q3 was a really busy one for our finance team. There were a lot of complex accounting transactions that needed to take place. And it definitely provided us with the opportunity to develop and strengthen the very strong foundation to support the growth for the company going forward.
Okay. We'll move it back to the operator and take questions.
[Operator Instructions] And your first question comes from Kevin Krishnaratne with Paradigm.
Just couple of questions for you on the guidance, just to help us understand. So with regards -- thank you for the clarity on the assets that you expect per asset class. I think you mentioned 1,000 in oil and gas and 2,000 -- sorry, 2,000 in oil and gas and 1,000 in wind, was it?
Yes.
So with regard -- how do we think about -- so you've won 100 assets and that, I think, generated fast revenue of $100 million. So how do we -- is this something that we just scale with the oil and gas, that you're targeting the 2,000 assets to be connected in 2020? How do we think about the revenue opportunity for those?
Yes. So the same. So the asset count, the -- yes, so we've been using a safe number. $250 on average per asset in oil and gas per month is a good number. That seems to be resonating reasonably well on a global basis. Obviously, it's only been a couple of months, as you know well, but that's a good, from a modeling purposes, a good number to use.
Okay. Great. And then as regards with the total asset count, so that implies, I think, 27,000 HVAC units that'll be added, slightly accelerating from what you've done this year. I'm just wondering if you could talk about, what's giving you the confidence? What type of visibility you have with potential clients? Is there any way to kind of quantify a backlog? Or just how close you are on commitments? Just anything that you can help us understand, again, what's giving you the confidence in that. It's a very nice number.
Yes. So that's an excellent question. Thanks, Kevin. First of all, yes, the backlog, so existing customers, as I've said, but added buildings. So Starbucks and Tim Horton's are simple examples. RBC is simple example. But also, one thing I didn't mention and you -- now that you bring this up, I should've mentioned is, we've added 4 additional salespeople to the team. Very seasoned, coming from -- I won't name the companies they came from, but they're in this business, in this space coming with customers that are very relevant to what we do. So we would expect to perform at the mCloud level -- our performance level $3 million of TCV from there coming onboard, that was clearly discussed and vetted when we discussed in the hiring of them. So some of it is new people. Obviously, with new people comes some risk. So that's why we haven't factored all of their contribution in our forward guidance and some of it is backlog but a combination thereof. Good question.
The next question comes from Gianluca Tucci with Echelon Wealth Partners.
I guess -- yes, I guess, can you talk a bit about like what you're seeing in terms of geographic growth across your different SBUs and how you go about allocating resources to the various areas of the business?
Yes. Excellent question. So Middle East will be a joint venture. So there's a whole bunch of nuances when you deal with Aramco and what you need to have to be local. Bahrain is local enough, so we have to go through the appropriate stuff which we have been through there -- Houston procurement group and so on and so forth. So that is a -- call it a direct channel, but through somewhat of a joint venture to comply with local norms. Southeast Asia is direct. And today, that person is here in Vancouver but came from the Petronas team in Calgary and Petronas have quite a team here in KL, Kuala Lumpur. So he'll be doing some traveling, for sure. We have a person in Australia and that was -- is actually a Canadian, who's based in Australia, who has a lot of knowledge of what Autopro did, what mCloud does and what some of our competitors did. So that's a good head start. So it's a combination. But we definitely want to be as local as we can. In China, we did open an office in Beijing. Next year, you're going to see more people in Beijing or in China anyways. So there'll be more localized. So again, that's a direct model to some degree. And then, when we sell shopping malls through SCN, it's more of a JV-type approach, but the economics are still very favorable to us and to them.In the U.K., it's a partnership. We don't anticipate probably having to set anything up in the U.K. Europe, definitely something we want to do in Europe, being present in Europe in -- it's a very massive wind market in there, very, very keen on AI technology drone. We've had a lot of progress with them. So that's kind of new information to us to get real smart about Europe. So that'll be a direct model in Europe and the continent. And then U.S., we're direct in Canada. We're direct -- with the exception of somewhat TELUS.
Okay. So just on the updated guidance for 2020, like is there -- like can you quantify the incremental investment that has to be made from mCloud's perspective to get to you there?
Very little. So if those additional ones in continent or Middle East take off, it'll be above $80 million. To hit $70 million to $80 million, that's within our sphere of -- definitely, we needed to add some salespeople here, domestically. But of all these things, you've seen announcement from recently, Middle East, Southeast Asia, that would be -- I mean, that would be -- that's on top of this. There's upside or at least hit the high end of the guidance, for sure.
Okay. Perfect. And just my last question here. Can you talk, I guess, qualitatively about the Autopro integration and the conversion of their customer base to the AssetCare platform and things that you're seeing in these early days?
100%. So we had Chantal and I, a very good kickoff meeting with the sales teams, new and existing, from what we called Autopro but now as part of our process team in Edmonton about 4 or 5 weeks ago. We went through every account in the province and every one of the account managers after talking to, and prior to that, their homework was to talk to customers on what they saw for 2020. And we're very pleased to say that every one of the customers came back with -- anything from a small implementation to a major implementation, but it was unanimous, with all of them. So I would say from that perspective, I mean, timing is everything. Next year, we'll see if it happening in the first quarter or the fourth quarter, I don't know. But -- and if we don't fit into their capital budget, it's a subscription model. So we're not at the mercy of many things. So I think, generally speaking, I can let Chantal speak, if she wants to add to it, but I think we're pretty good on that front.
[Operator Instructions] And your next question comes from Steven Li with Raymond James.
A few questions from me. Russ, can you update us, so as of today, number of quota-carrying sales rep, I think you said 4 for the HVAC. How about oil and gas?
Four?
Already right now, right?
Yes. And we're adding more.
And then how many more over the next 6 months speed, do you plan to hire for each one of them?
No less than 4 more, Steve. And -- the quality -- so we have 2 headhunters, 1 in Toronto and 1 in Silicon Valley. And the quality that's coming in is very good. As long as they come within the same year, they can justify themselves. I don't think that there's really a cap.
So Russ, are you saying 4 plus 2 and 4 plus 2 or 4 plus 4 and 4 plus 4?
4 plus 1 or 4 plus 2, so a grand total of 6. So I'm not sure I was following your logic, but a grand total of 6 is currently underway of being hired. So I'm not sure, if I answered your question, but that's the number.
Okay. No, that's helpful. And on the guide, how much of that 30,000 net new -- how much of that growth is already in the backlog? How much do you still have to go out and win? Is it like 50-50?
Yes. I think in oil and gas and the 2,000 is defined in people's quotas, but we still have to go and sell it for that 2,000. Wind turbines is largely existing customers. We know the names. We know where they are. And I'd say within smart building, half of it is already defined. Just take them -- added the buildings that they've already said -- do more buildings of. And the other half comes from these new salespeople that have pretty convinced -- this [ gap ] convince us pretty strongly that they have captive customers. So I wouldn't say, have to go win it, but we certainly have to go earn it. It's probably more appropriate.
Okay. That's great. And yes, on the oil and gas, so the 2,000, how many new customers you're potentially targeting for that 2,000 assets?
So as it relates to mCloud today with Autopro part of the family, I'd say 0. Those are existing customers today that we have contracts and were approved in their purchasing. They're all existing customers. Because in that 2,000, there's virtually nothing. I backed out everything for Middle East. Every assumption for non-Alberta is not in that 2,000.
Okay. And Russ, you mentioned an additional site for Alberta before year-end. That's the same customer or is that a new customer?
No, no. Brand new different one. So similar in type but brand-new corporate name. Brand new to us, meaning. It's an existing customer as it relates to our projects and services, but it's a new AssetCare user.
And your next question comes from Kevin Krishnaratne with Paradigm.
Just a final question, just on the guidance that you gave on the EBITDA. They're both for Q4 and for next year. And in Q3, and in Q2, in Q1, you incurred a bunch of onetime costs that were not in EBITDA. How do we think about those in Q4 and in 2020? Is any of that contemplated? Just any color you can provide on anything that might not be in the EBITDA but might hit the cash flow statement?
Yes. So obviously, CSA is not closed and there are things that we're working on that we haven't disclosed that will be part of cost. That are all good things. So I would say, yes, but there'll be some -- as long as we're growing and making large transactions, the answer is, yes. Q3 is pretty heavy-duty. So that's pretty [ similar ] exceptional. And I wouldn't expect it to be that exceptional. But will there be more extraordinary items in Q4? The answer is, yes.
There are no further telephonic questions at this time. I'll turn the call back to Russ for closing remarks.
I think we have one more. I think Steven's back for one more.
Apology. Your next question comes from Steven Li with Raymond James.
Just one more for me. Russ, you're consuming quite a bit of cash. So are you expecting to be free cash flow positive or negative in Q4?
We still have closed CSA. We have a number of transactions we need to close. So we will use cash in Q4, definitely, because of the transactions we're working on right now, for sure.
Excluding the transaction, so just operationally, cash flow from operation, would that be...
Normalized income is a proxy for -- so if we weren't doing any transactions and you were just running the business, that would be the operational cash flow. That's where normalized income is.
Okay. But you're still going to have some investments, market expansion and technology integration, that would impact cash flow, right?
Yes. But relative to transaction, it's a small number, yes.
And there are no further questions at this time. I'll turn the call back to Russ.
Well, thank you very much for joining the call and we will see you in the next one. Thank you.
This concludes today's conference call. Thank you for joining us. You may now disconnect.