mCloud Technologies Corp. Price & Performance (MCLD)

Good morning, and welcome to the MCloud Technologies fiscal 2022 Q3 earnings conference call. Today, the company will discuss the unaudited results for the 3 months ended September 30, 2022. Presenting from Mcloud are Russ McMegan, our Chief Executive Officer and Chantal Schuetz, our Chief Financial Officer. Before we proceed further, please note that remarks made on this conference call may contain forward looking statements about MCloud Technology's current and future plans, Expectations, intentions, results, levels of activity, performance, goals, achievements or any other future events or developments. Forward looking statements are based on information currently available to management and on investments and assumptions based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those Expressed or implied by the forward looking statements. As a result, MCloud Technologies cannot guarantee that any forward looking statements will materialize And you are cautioned not to place undue reliance on any forward looking statements. Except as may be required by law, MCloud Technologies has no 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 and A Available on sedar.com. At this time, I'll turn the call over to Russ McMeekin, Chief Executive Officer at M Cloud. Go ahead, Russ.

Thank you, Wayne. Good morning, everyone, back in North America. I'm here in Daman, Saudi Arabia. It's nighttime here. A lot of action going on here in Saudi. Let me kick off the call here with some key updates from the last call. 1st and foremost, what we've been really busy on since the last call and that is Rationalizing things within inside the company and integrating to the Google Cloud for things that are customer facing technology Components, I'll get into a lot more detail on that as well as go through the various geographies and applications of Focus and the progress we've made. The key components of AssetCare migration to Google Cloud, obviously, to the cloud, integration with Google Earth Engine, we Featured it at the COP27, still are featuring COP27 here this week in Aramco and many parts of Saudi Arabia, I've been here for 2 weeks now. It is very well received being able to get aerial data connected to AI, connected to 3 d Assets and be able to go from aerial view, we'll call from sky to flange to tackle the methane problem that is a big ambitions here in the kingdom. And then last but not least, leveraging the natural AI engines from Google so that we can put all this data out into mobile wearable devices so that we can take action out in the field.

The adoption here of wearable devices is probably further ahead than most parts of the industrial world for many reasons. But So these applications will fit very well, do fit very well, I mean, on the Google platform for customers like Aramco and others. Thirdly, as I mentioned, COP27 was an opportunity for us to highlight some of the joint things we did with Google that was very well received. We are very fortunate that our new Director, she's in COP27. She attended with a number of high ranking officials from Saudi Arabia. So the feedback has been phenomenal. And so having that Google, Aramco, having Dina on the team And representing us all at COP27 has been super. Some of the specific items around the Google strategy, obviously, I just touched on the technology component. The next part is the go to market. So in every region here in Saudi and U. S. And Canada and U. K, we have not only regional approaches, but we have Specific named accounts together or chasing accounts. There are big names. Obviously, Aramco is a big one. Obviously, Mercedes is a big one. Big auto dealers that Google is bringing to the mix, but there are others.

So there are large customers, midsized customers, those who fit that profile that Google and we are Going after around sustainability and the applications we're bringing to market. There is also a marketing machine, an amazing marketing machine at Google. We were reasonably well prepared for COP27, so we got some things done, but we're going to be much better prepared in 2023 for some of these bigger events Where we jointly market and the marketing machine at Google is amazing. So we intend to leverage that also in automotive with EV. It's a big push of theirs, marketing there as well as other parts of sustainability. Next component is customer contracts, billings and collections that will be wherever Practical and that's pretty much everywhere. Customer contracts, billings and collections will be done through Google through that channel. Here in Saudi Arabia that fits perfectly. And so that has a lot of efficiencies and a number of good reasons for doing that. And at the last call, I discussed how we were going to be launching things here in the kingdom. I didn't say what it was, but now we now have a pretty good I think on our website, our team has put up a brief demo of what we've been showing here That shows again from Sky to flange concepts or not concepts actually, we're actually connected to real assets doing real things.

So that's That's quite exciting. The three areas of focus that we have obviously oil and gas where we look at methane from an aerial perspective Well, we have 3 d digital twins of the assets we can get right down. We can do a digital LDAR, which is lead detection and repair, which is a standard in oil and gas Adopted globally, and there's a lot of activity there and having that fully digitized. If you do that by definition, you will greatly reduce methane In the oil and gas industry. The second area of focus is around wind energy and what we do there specifically is we use the Weather data from Google Earth, we feed the AI models. This was tried by others, by Operators in Europe before we came on the scene, we've since adopted some of those concepts. We have different models And how we look at each of the power curves of these various wind turbine types. So the combination of what we get from Google Earth, The models we have already, obviously, we do blade inspection. That data also goes into the AI model. We we believe between we and Google that is there's no other solution like it for optimizing wind.

And when you have 2, 3 megawatt wind turbines, If you make 1% or 2% changes in capacity factor, that is a significant amount of kilowatt hours per day that we can tackle with this combined application. And third is around commercial buildings, those who have solar on top of them, which is our EV customers or and look at Bank of America, they may not have EV, but they certainly have solar. If you have radiant models from Google Earth tied to our AI models, you can first of all predict when to optimally produce Solar power, if you're doing what we're doing in EV and that is balancing from the grid versus storage versus from Solar production, you're able to optimize that. And then if you're getting credits, you can take true Radiant, be able to convert that what it should have been in terms of solar produced versus purchased from the grid for audit purposes. So those are the 3 big apps that we're driving with Google. The customers that we presented this to, these are big, big customer brands, very well received and we intend to scale this Globally and be a pure play SaaS company with us.

Those of you who have the slides Or if you cannot go to our website and see the demo, you can see that COP27 again, you see the aerial images. There's data that goes into Google Cloud that shows you carbon monoxide, that shows you methane, it's color coded. You can determine in real time where the problem sites are. You take it to the next level, and that is to get into the 3 d digital twin. Obviously, it implies that you're a customer of mCloud that has A 3 d digital model drives a lot of demand for wanting to have 3 d digital models because it puts a lot of efficiencies around being able to Tag and Track for methane purposes, which is becoming more and more mandated. It's certainly being mandated here in the Kingdom. And a lot of these asset owners or operators here are reporting monthly Eldar, which in most parts of the world are doing it annually. So that is going to be totally automated. That drives a lot of demand for us. But the focus here is to be able to report back to the central government, central people who want to have the before and after in terms of methane mitigation and leak reduction, these create digital reports that are accurate reports that are very quick and easy to create.

Again, I mentioned in my opening remarks that Dina Alnati joined the Board of Directors. She's a highly regarded person here in the kingdom. She advises, I think, a minister that a lot of you guys in the call probably know about, Prince Abdul, as he's been Salman, you unfortunately know him for not wanting to produce more oil to satisfy the world Wishes around oil production, but he's also very keen on sustainable oil. He's very big on decarbonizing oil production and Dean is a key advisor in that ministry. He's a very, very wonderful guy. His team are very, very smart and they drive a lot of the policies here in the kingdom. So We come not only with her being extremely brilliant, well educated and well connected here, but she also has a lot of Importance on policy making and adoption here in the kingdom. So having her on our board is just absolutely a great privilege and we're very excited and Working closely with her is pretty fun actually. So on that note, I'm going to turn it over to another fun person, Ashanta. I'll turn it over to you.

Thanks so much, Russ. And just a really warm welcome to Dina. It is a pleasure to have her on our Board. And also thanks to everyone who was here to join us this morning. As highlighted in our earnings press We did note a decline in our Q3 revenue of this year to $2,900,000 from $7,400,000 in the same period last year. This decline was highly attributable to 2 very specific things. The first of those are actions we took in Q3 to rationalize the business and our pause in activities to allow for the integration efforts And various activities with Google Cloud to become our primary delivery platform. The second item I wanted discuss here was the completion of the Agnity transaction on July 29th that was announced on August 2nd. We draw readers of the financial statements to note 15, the deconsolidation of subsidiary, included in our other income On the face of the P and L for the period is $3,400,000 related to the fair value adjustment of that royalty receivable, very specific to Agnity. During this quarter, the company took all the necessary steps to exit our technical project services to focus entirely on the sale of AssetCare.

A lot of that Russ has explained in his talk so far this morning. Additionally, we've had a variety of Low value contracts that we decided to either retire or not renew as we carry forward with Our new strategy. We do have an expected 25% plus improvement to our cost Those will begin to materialize in Q4. Certain measures that we've already undertaken in Q3 included headcount reduction, I would say approximately 20% on office space rationalization and sunsetting of legacy space As well as the sunsetting of legacy non Google technical infrastructure. In particular, including our Q3 Salaries, wages and benefits line is $1,000,000 in costs related to headcount reductions That will bring our quarter 3 2022quarter3 2021 more aligned with each other. Additionally, as a result of our decision to rationalize our office space, we've taken a $2,100,000 charge For impairment related to our Calgary, Edmonton and Vancouver offices, this allows us to right size the headcount While still preserving a world class customer and technology center for this market. These are both one time charges that we don't expect to get See you again in future periods. And in regards to our measures in sunsetting of non Google technical infrastructure, there's a reduction in R and D of $300,000 as well as some modest cost reductions in our cost of goods sold.

I will now turn the call back to Russ.

Thanks, Chantal. So the last part of the presentation here will be to walk you through region by region activities that are going on specifically with Google. And then I received quite a few questions by email and by text and so on. So I've taken kind of a Cluster them and put them together and go for about 10 questions here that I will address that cover most of what I received here in the last A week and then last couple of hours. So I'll address those here in my remarks. So now looking at the regions in the U. S, Work is underway to all the auto dealer contracts to have them. And I don't think we've had any push Back on having all those contracts to be on Google in the Google marketplace on Google contract paper. The strength here, one is Google looks at the Automotive space is very strategic. They've been selling workspace, Google Workspace into that market. There you probably can go look and see that they've signed some Very large deals with the largest North American auto producers, automakers, all around EV or a lot of it around EV. So that's No, it's a very key focus area.

Before we were very focused on New York State and California because we like the low hanging Incentives, but with Google, we're going to look way beyond just those 2 states because it's not just from their perspective incentive driven, but Selling SaaS, selling cloud and getting all the benefits of all the applications we can provide. So a lot of upselling they see as well on top of just simply doing EV optimization. Carbon Royalty, we have a great working relationship with them. We're going to continue to leverage that from a Trading of carbon credits as those are accumulated. We are going to we are working closely with Google to make sure that inside of Asset We have all the tracking tools to automate all these things. And I'm learning here in Saudi not only from EV perspective, but from an oil and gas The tools we're looking for are very common. So we're going to be able to bring that to market as one common carbon tracking for Offset trading purposes. So that relationship with Carbon Royalty will move more strategic to tracking these things, trading these things, Using the Google platform to be able to have an audit trail and move out of just pure or not purely, but of being a Heavy duty financing arm will buy out over time in the next several quarters, buy out the using the contracts To repay them what we borrowed from them to get these early sites up and running and that will all be bundled together as part of our strategic go forward plan.

In Canada, we have great customer position with a lot of great operators in Alberta and Northern BC. We'll leverage that. Google has got a nice, actually literally 2 blocks from our office, operation in Calgary. We're going to use that working together to go after. We have About a dozen named accounts that we have very good relationship and they have very good relationship. They're primarily in oil and gas. We're going to use the sustainability in methane tracking versus back office functions as our primary push. Early customer reception has been very good And we'll be talking a lot more about that in future calls. Saudi Arabia, I think I've kind of said in my opening remarks, Going back to where this all started in July of 2021, the introduction of mCloud Meet Google for Sustainability and vice versa started here in the kingdom back in July 2021. So Saudi has been an early adopter of this concept. They came up with a lot of very strategic things around Google Earth data so that we could start doing some things here in advance of Google Cloud having Given being operational here in the kingdom, so strategically, we're doing a lot of the validation of these Google mCloud things here in Saudi Arabia.

So That's well received here because they feel ownership from the strategy. It's also very well received. It's a massive market. So that's Quite well. UK and Europe, Mercedes Benz is our big we're going live here in the Q4 at is a lot of solar capability going in at Brackley. They see Google Earth and Google Cloud as being strategic and making sure we optimize that. There's significant amount of EV going in there. So it's a massive reference center in the UK and then into Europe. Asia Pacific, we're going to be very targeted in Japan. I don't want to divulge at this point who that is, but it's a major one of the largest operators In Japan, similarly in Malaysia, there's the national oil company Petronas is a Google setting up has set up a data center in Malaysia. We already have Petronas as a customer, but now there's a much more strategic move here and we'll be talking about that more in likely middle of next year. Now moving to questions that I received. One that I received a lot, the most popular one is when did the relationship with Google start? As I said, it started here in Saudi Arabia, actually literally here in Dammam in July 2021.

I was one of the first foreign visitors here after COVID restriction was lifted literally the day after. And so those discussions started then. And then when we signed the digitization and decarbonization agreement with Aramco, it was predicated on we would definitely be moving a number of these applications quickly to the Google Cloud knowing that the data center wouldn't be ready in the Kingdom and Eastern Province, still middle of next year. Aramco owns or a big investor in a company called V2. They use that for rapid prototyping and still have a lot of use cases for V2. So we're flexible. We can run them both and are running in V2 today. In fact, a lot of the things we're working on today is in V2. And then by August, we then took it from just Saudi only to Google came to the conclusion that this makes sense not only for Saudi Arabia, but on a global basis, the 3 applications we I just outlined in my earlier discussions fits The framework globally in the stack that they want to bring to market around sustainability. And so we finalized everything by August and here we are with all this In the public domain though.

Next question is how quickly can this scale? Well, some of the early customers are massive Aramco, Mercedes. There are a couple other auto names that I haven't mentioned by name, but they come from the Google side and are also massive that have the same kind of scale, Similarly in Big Wind. So first area how it's going to scale is the first initial customers are massive customers, But we have about 100 named accounts that are not necessarily Fortune 50s, but are big customers that we are going after. We will have an excellent account management structure. We have an excellent regional subject matter structure. So you combine account management with subject matter to go after these other named accounts. And so we're not only going to scale with the big guy big name customers, but also there's a lot of midsized companies That are being pursued as we speak. 3rd question was around carbon royalty. I think I kind of addressed that earlier. The only thing I would say is by using the Google contract paper and they do the billing and collection and so on, that gives us a lot of Flexibility with these 10 plus year contracts.

And if those of you who follow SolarCity or Tesla will know that the early days Of SolarCity that uses an identical model to what we use in EV charging from how we capitalize and how we do manage contracts Yes, Google was the early tax credit partner in Solar City. So I was in the valley and there was a They've kind of perfected that model. So the similar people and same people that we're working with here at Google were very experienced around What they did with Solar City. So there's a lot of things that are coming down the pipe that today is not the right time to talk about it, but there's a lot of things That alleviates what we were doing with Carbon Royalty and focuses us on more strategic things and less around financial engineering. One other question is what does this mean for Bank of America? Well, Bank of America remains a very loyal customer and we've made a very loyal But they have a number of the facilities actually several not far from my place in Arizona where they have rooftop solar. Again optimizing rooftop solar at the Time of day is an important thing.

So we intend to go back to them as a combined Google Cloud solution and talk to them about other things than just Rooftop HVAC. The other question I have is Brackley in the UK, is that up and running? It is On its way to being up and running. Brackley now is pretty famous, having one this weekend race in Brazil. I think everybody at the campus in Brackley We're using it as a party zone. But yes, it's definitely up and running or will be up and running. I think the team has it set for Sometime in early December, Phase 1 to be fully functional. Next question is Europe Wind. How is that coming along? Europe Wind is coming along Quite nicely. We went to speak to a number of them before announcing Google to discuss what I just talked about here earlier. That's very well received. In fact, some of the early Locations that were used by Google Earth around wind are in Europe, and I'll let you go see that in the public domain. 7, what other major accounts are coming with Google? As I said in Canada, USA, Japan and Malaysia, we got a very precise Account management structure where we identify for 2023 key targets.

These are TCV targets for all of our people to go and chase And meet those targets. Next question is what is Google going to represent for you in China? Well, we don't do business in China. Today, To us, China is pretty small. We will continue to opportunistically react to China as it comes our way. But as it relates to Google mCloud, there is no activity in China. One more question is around metrics since we're not using asset count as a key Benjamin, there's a couple of reasons. One is confidentiality on these contracts. Secondly, there's a lot of application Sales that are going into these contracts that have are not tied on a per asset basis. There are forms, reports, there's Head mounted display applications, we're selling a whole litany of things that don't fit the fee per month per asset or per Person model, but that we see the revenue from. So it's over time would just skew how we track things. So there's a Confidentiality angle, but there's also a practical angle. But to answer your specific question, average monthly MRR, so if we take the quarter divided by 3, Our MRR on a monthly basis, that trend, after we get through, call it, the 2022 noises of transition from what we had to where we are, It should be your standard SaaS metrics of MRR, average month, monthly MRR.

And then we should compare that to the customer acquisition costs. In our case, That's salaries, benefits and marketing expenses. So MRR to CAC ratio should move from a negative position where we are now to a positive position where MRR Exceeds CAC and that's the metric we're going to focus on. And then the slope of that curve to be more SaaS Google likes slope of curve, so that's the focus there. Last but not least is the F1 To pay off the convertible note, where are we at with the SEC? Chantal, after this call, will provide exactly what the SEC asked last week and that is update our financial statements. There's nothing exotic in these. There's no agnity. There's nothing like that. It will be very simple And we should be off to the races here pretty quickly. So in summary, we couldn't be more happy with the Google alignment globally. Literally is amazing. Having Aramco as a validating massive customer is amazing. And within Saudi Arabia, it's not only Aramco, there are large Authorities that we work with now within Saudi Arabia that have adopted Google Cloud and the applications and are focused on exactly the same thing.

They're just managed as Separate authorities here in the kingdom, but decarbonization is a top focus. Mercedes Benz is part of this kind of go to market strategy has been phenomenal. So we're well aligned. We're soon going to have the balance sheet for the strategic alignment to go and chase this market on a global basis. So We're moving into 2023 on a positive note. We've got some work to do to get the convertible note done, get the balance sheet finally fixed and then we walk on. So I'll now turn the call back to the operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer One moment please for your first question. The first question comes from Brian Kinstlinger of Alliance Global Partners. Please go ahead.

Hey, thanks for taking my questions. Just first, can you help us understand the buckets That are in the year over year decline of 60% revenue, 1st bucket being rationalization, 2nd bucket being Agnity, sorry. And the third, any other factors and what they were?

Yes. So let's go in reverse order, Brian. Call it Ceasing of contracts that are the $6, $7, $8 per month MRRs are a bunch of them. Michael stores, there's lots of them. Those were That's 1 in the 3rd bucket. Then there's Agnity. And I think if you go look in the footnotes in the financial statements, you'll see the Size number what that is, it's about $7,000,000 year on year. And then it's project services, but some of our contracts Alberta, we're bundled project services and with asset care, so you'd see it only in one line. If you're looking at project services, You got to take out some of the asset care is not going to be renewed because when you pull out the projects from what was categorized under asset care or recurring asset care, The value that they create per asset is pretty low, so we rationalize those. So that's the sum of the bucket. I would look at it in reverse order.

So I take Agnendi $7,000,000 and divide by 4, and that's the quarterly year over year drop. And then rationalization, you're saying is the other major factor or no? Or it's Yes, yes, definitely like something. Yes. Keep going.

And then while you're not going To provide, and I get it assets connected further, it's our basis for understanding right now. So Did you cut off half the assets? Did you cut off more than half that were at these low price? Just help us contextualize how that would play down.

Yes, it'd be about half would be the right number and their blended average value of about $11 Okay. And then, just so I understand, I understand going forward, you're going to use the Google platform, that's going to be your platform. But what was the cost to support these roughly half legacy connected assets that Made it in the best interest to rationalize them given they're at least helping scale and probably marginally reduce the cash burn.

Yes. I'm not sure I'd agree with you marginally reducing the cash burn, but I think Chantal gave you a precise number of what we charged out. The other is headcount, right? There are people supporting what in the headcount reduction, some of them were supporting in our He's lower value per asset contract. So headcount reduction, Chantal, I think you gave quite specific numbers around it. And then, yes.

Okay. And then lastly, for a while, we've talked about the consulting and professional services expenses. It hasn't really changed much. I thought over time it would go away or get reduced to nominal. Is that more on the financing side? I mean, why have we not seen that and what will we expect of that going forward?

Yes. So once we've done F-1s and financing, we're in like refinancing or financing mode, right? So I guess we'd love to not have audits Every time we do an update to a filing statement around the F-one, it requires a lot of professional services, outside services, lawyers, accountants, blah, blah, blah. So So once all this, you call balance sheet activity is done, these types of services should go or will go away, but that's the primary Spend in those categories.

Okay. And then lastly, you made a comment that the Revenue growth will exceed the rationalization. Just help us understand, does that mean going forward, Anything that's rationalized, you'll grow faster than so you're going to grow from this bottom point. Does that mean what's already been lost, you're going to start to recoup very quickly? Just Help us understand, given the cash burn, you've burned $23,000,000 in the first from operations in the 1st 3 quarters, how will this impact that over the next, say, 12 months?

Headcount reduction obviously impacts the reduction in spend. The Value per, call it, customer will improve considerably, right, the contract value. So the customer acquisition costs Required for these customer types, the way we're doing going to market now, the productivity of customer acquisition cost is significantly better than where we were before. You had another component to your question. I want to make sure I answered it.

No, that's okay. Fully. I'll see if others have questions. That's okay. Thank you.

Okay. Thank you. The next question comes from Jack Vander Aarde of Maxim Group. Please go ahead.

Okay, great. Thanks. Good morning, guys. Russ, Chantal, I appreciate the quarterly update. A couple of follow-up questions. Russ, you mentioned you guys have retired some legacy assets. I think you said maybe about half of the connected assets were retired, which were lower value, dollars 11 assets or so on average. How many did you retire all the assets, all the legacy assets that you expect to have retired? Have you retired? Or are there more Tom, in how long might we expect retirement?

Yes. No more retirement to answer your question, but are there still Some lower value assets. I'm not going to get into Bank of America's pricing, but they obviously got a sweetheart deal. So that's the only Leftover lower value asset and we intend to upsell them with what I'd mentioned before with the Google Platform and optimizing where they have solar in the various branches and so on. But Putting that aside, that's the only thing left and we don't intend to rationalize those.

Okay, great. So you plan to maintain those Bank of America assets Totally. And upsell them other things working with Google. Correct.

Got you. Okay. That's helpful. And then just Following up just for clarity with Aramco, which obviously is a huge opportunity, it is a huge opportunity. Just wondering, have you generated revenue from Aramco? If not, why? And what do you kind of Expect from in 2023 from Aramco?

So generated do we have contracts? The answer is yes. Have we recognized revenue yet? No, because it's to be running on the Google platform. So we will recognize revenue with Google platform. Not going to give any specific guidance for 2023, but it's a significant it is a big reason why I'm here a lot And why we and I and Google and we and Google are very focused on Saudi Arabia and Aramco is for 2023 and beyond for sure.

Okay, great. And then, I don't know, is there anything we're overlooking in terms of anything since last quarter we talked about Central areas of upside in terms of your revenue growth that you're maybe more excited about or you weren't thinking about as much as maybe popped opportunities in the near term since we last spoke?

Every day we look at accounts with Google, there's more Things we hadn't thought about, right? So you're talking about the world's highest performing cloud company That opens up doors every day. So every day we wake up to this opportunity that we didn't even dream about this time last year. So I think if we just focus on harvesting the opportunities That are ahead of us. With Google on a global basis, each accounts we're pursuing, only good things can come from a check.

Okay, great. I think that's it for me. I'll hop back in the queue. I appreciate the update. Thanks.

Thank you. There are no further questions at this time. I will Turn the call back to Russ McLeighan for closing remarks.

Okay. Well, thank you everyone and have a great day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.