Good morning, and welcome to the mCloud Technologies third quarter 2021 earnings conference call. At this time, I will now turn the conference call over to Mr. Wayne Andrews, mCloud's Head of Investor Relations. Please go ahead.
Thank you, operator. Today, we'll discuss the audited results for the three months ended September 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, 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 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 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. I'm now gonna hand the call over to Russ McMeekin, CEO. Please go ahead, Russ.
Thank you, Wayne, and good morning, everyone. Welcome to our third quarter 2021 conference call. Operator, please move to the highlights slide. Q3 highlights. Our AssetCare over time recurring revenues were CAD 60.6 million in the quarter compared to CAD 3.6 million in Q3 of last year. Our total AssetCare revenues were CAD 21.5 million compared to CAD 12.3 million in the nine months last year. We only added 945 connected assets, bringing us just under 64,000 connected assets. We are definitely focused on exceeding the 70,000. We will talk about backlog later and pipeline. We have the backlog and pipeline to exceed 70,000, in fact, get to a 100,000. We are at the mercy in Alberta specifically at not only the limitations imposed by the province but by each customer's policy.
We expect to see, at least in some customers' case, those restrictions to begin to lift here in December, and we'll start seeing some increase to back to prior levels of installations. Just recently, we completed the milestone of listing on the Nasdaq. We also completed an underwritten offering of $9.5 million. We've commenced our first of very many installations in Saudi Arabia, which will lay the groundwork for some very large growth starting in 2022. I will now turn the call over to Chantal.
Thank you, Russ, and thank you everyone for joining us here this morning. As Russ mentioned on the last slide, we continue to see good growth in our AssetCare recurring revenue with an 85% increase year-over-year and a modest reflecting the fact that there were delayed installations resulting from the pandemic restrictions, primarily in Alberta. Derivative of CAD 8.7 million. This is directly attributed to the IFRS accounting treatment of certain changes in terms of the 2021 debentures, including a reduced conversion price on certain tranches and the addition of a common share purchase warrant for each common share. Details can be found in Note 11B of the financial statements. Operator, please turn to the slide labeled Updated Performance Metrics Year-to-Date 2021. I'll now turn the call back to Russ.
Looking at performance metrics, obviously we're operating in a pretty captive market, so our win-loss ratio still remains quite high at 78%, which we're quite pleased with. We had good leverage in productivity of our sales expense. Our 3.7x LTV to CAC ratio, a pretty robust number. Our combined pipeline and backlog here is at CAD 178 million, and that provides us very good air cover or coverage for 2022 to provide us the growth engine we need to keep this machine going. Operator, please move to the next slide. Business update continues here. We announced last week that we're a Deloitte Technology Fast 500. We were No. 57th in North America and No. 2 clean tech company from a growth perspective in Canada.
We received a MISA license in Saudi Arabia. In fact, I was in the Kingdom three weeks ago. We are the first company to receive a MISA license for cloud AI analytics and a number of other tech things that allow us to be a unique supplier in the Kingdom of Saudi Arabia. We'll be announcing sometime, hopefully before year-end or early next year, that we are running in a fully endorsed cloud by the Kingdom, in fact, largely owned by Saudi Aramco Cloud. That will put us in a very unique scenario in the Kingdom of Saudi Arabia. I was at a ribbon-cutting and a first installation of a major owner of quick-serve restaurants and a number of other retail operations, primarily in shopping malls and other locations.
We went live on the first two of 175 locations in the kingdom, and we're moving at a pretty good pace in the kingdom to be up and running in as many places as we can. The restrictions there are pretty limited now that they have pretty robust policies for workers. We're able to do some pretty good things in the Kingdom of Saudi Arabia. Next slide. We also announce following the closing of our underwritten transaction that we were able to expand our ATB credit facility for an additional CAD 5 million. There are certain criteria we additionally need to make, but we're very pleased to have that additional accordion getting us to CAD 10 million of availability. We're now moving from only working on three-year contracts to large master service agreements with licensing components.
This is for all of AssetCare, AI, 3D Digital Twin, Connected Worker. We have four of these underway, two of them in North America, two of them in the Middle East. These will move beyond our traditional three years. These will definitely be significant number of connected assets. These will be working very collaboratively. In the case of three of these, companies or mega companies, and this will put us in a really good position going forward to not only have large footprint within large operators, but big referenceable locations that we can use to expand to other places. Next slide. In summary, we had 75% AssetCare revenue growth in the first nine months. That's compared to last year. We have ongoing adoption from our existing customers, adding assets to their fleet.
We saw in the quarter some pretty nice pickup in revenues in Asia Pacific. We continue to see some restrictions in Q3 that hampered implementation, but we still continue to build good backlog. This move to this master service agreement will add even more significant backlog going into 2022 and throughout the year of 2022. For Q4 and 2022, our priorities are obviously getting Alberta fully functioning, which we are on track to do starting later this month, Saudi Arabia, as I mentioned already, and we have activities, a lot of it in oil and gas, starting in the lower 48 states, and we'll be talking a lot more about that in 2022. Growing our business in Saudi Arabia is obviously oil and gas with some of the largest operators in the world.
We will leverage our MISA license, but we will also be connecting a lot more buildings. I had a great meeting with the health ministry in the Kingdom of Saudi Arabia. There's some good policy setting going on in the kingdom that will be a good example of how AssetCare for indoor air quality will be used. In North America, you'll start seeing some larger deals that combine HVAC and IAQ. We'll be announcing those shortly here, some very large deals as people get back to work. Now we'll end the prepared remarks and turn it over for some questions, analyst questions. Back to you, operator.
Thank you. Ladies and gentlemen, we'll now begin the question-answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will then hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order that they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question does come from Brian Kinstlinger from AGP/ Alliance Global Partners. Please go ahead.
Hey, Greg. Thanks for taking my questions. In reviewing the Alberta COVID restrictions, I read that by showing you're vaccinated, wearing a mask and distancing, you are able to work in offices, I believe. First, is that accurate? If it is.
Yes, it is.
Why aren't you installing? Is it customers are closed and not letting you install? Or what specifically is it that's not enabling you to install in Alberta?
In buildings, yes, pretty much. I was in office buildings last week, which were pretty empty. That's one. On the industrial side, it's their own policy. Yes, you can have. First of all, they're not insisting on employees having a vaccine yet, so you don't know if they do or if they don't. It's the employer's policy. I think they're gonna start modifying their policies to allow people to be more functional, do more things. I think the other part you're missing in that policy is, with all that, only 30% of the fire-rated capacity is allowed. Yes to those two things. They're not mandating yet checking that you have in the workplace, everyone has their vaccines. You do in restaurants, you do in sporting events, you do with casinos.
You're limited to 30% of the fire-rated capacity.
Is it that the employers right now are more restrictive? It's not policy of Alberta, it's more the employer restricting you from coming?
Yeah. Except, yeah, the employees for sure, but I think the restriction that I actually sent you shows you in there's a 30% capacity as well. So that makes for a pretty dysfunctional operation. I know in our own office, we can't even have more than 30% of the fire-rated capacity. That makes for a pretty dysfunctional operation.
Got it. I know last quarter you talked about connections in Alberta were zero for a couple of months. In October and November, are they still close to zero?
Yeah, close to zero, but now we started some. You will see some announcements soon. Started some. In December that zero is picking up. Yes.
Okay. Can you quantify? I know you give a pipeline slash backlog. Can you quantify the total number of assets in signed contracts as well as the backlog that's signed for TCV?
Yeah. Very specific number of assets is about close to 90,000. TCV is not quite $80 million. We said we'd try to get to $80 million by year end. We're not there yet, but I think we'll see a number of deals that will get us to that $80 million of that pipeline of 178. We went.
I think you were at CAD 45 million last quarter. Are you higher than that right now? Are you lower than that?
Yeah, no, that's what I said. We're higher than CAD 45 million. We're not quite at 80 yet, but we said at the last quarter, by year end, we expected to have signed backlog of close to CAD 80 million. We're not quite there yet. There's still another month to go, but we're tracking to that end of the CAD 178 million.
Okay. In this current environment with the new COVID variant, what geographies do you see the most opportunity to actually get assets connected? Where are these restrictions not impacting you as much? How much TCV do you have in those regions?
Obviously Saudi Arabia, which I talked about, Southeast Asia and parts of Asia. You asked me how this new variant will impact. I think word of it came out Friday, so I don't know that I have an intelligent answer around the new variant.
Yeah.
Where do we have backlog? I can just tell you we have lots in Middle East. I don't know that this new variant is gonna cause any major changes in Alberta, to be quite honest with you. I think they're gonna impose that you have to have a vaccine and put some tight employer policy rules and get back to work, is what I think they'll actually do, versus just tiptoeing around it. I mean, I'm on my way to visit some customers on a red-eye here soon, and that was before this new crazy variant, so I assume they're ready to roll. That's here in the United States, so.
Okay. Two more quick ones. First of all, how, if at all, is it impacting the sales process for getting installations? Are you able to travel? Are you able to visit customers? Is it mostly remote sales right now? Talk about how the sales process is being impacted right now.
Yeah. There’s two dimensions to that. I am primarily in the U.S. I was in Alberta for two weeks, but I have two passports, so with my American passport, I can fly to the Middle East and so on. I’ve been able to personally fly. Our Canadian people come into the U.S. till recently. That hasn’t been easy. As you know, our Canadian-U.S. cross-border and the predominance of our expertise today is in Alberta around oil and gas. For buildings, we’re pretty self-contained in the U.S., so that’s pretty much a drive to customer site, so that hasn’t been impeded much in the last month. The selling process, both in California and New York, has been pretty good.
Within the Kingdom of Saudi Arabia, we have our own kind of operating people there, so they're able to travel within the country without much restrictions. Cross-border travel has been a bit cumbersome. I travel on two passports, so it makes it a little bit easier. Within, call it the city areas where we have people, it's been pretty much unrestricted for the last month.
Okay. Lastly, on the balance sheet, your accounts receivable, you know, went up significantly in the September quarter compared to June, despite similar revenue. Are customers struggling to pay as their businesses struggle, or what might be behind this trend?
I'll let Chantal address that. I think it's not struggling to pay, just timing of paying. Go ahead, Chantal.
Yeah, that's exactly right, Russ. It's just timing of paying. We don't foresee any issues around any of our customers' ability to pay.
Okay. Thank you.
Your next question comes from Jack Vander Aarde from Maxim Group. Please go ahead.
Okay, great. Good morning, Russ. Good morning, Chantal. Appreciate the quarterly update. Congrats on the recent uplisting as well. Just a couple more questions from me. I think a lot of mine have been asked. Russ, just another question on combined backlog plus pipeline. I think it was on slide 8, maybe, in the presentation. Total of CAD 178 million. Can you just remind me how you classify or define backlog versus pipeline, or if there is much of a difference, just the nuances there?
The nuance is inked versus high probability of ink. That's it. Yeah. Pipeline is high probability of ink, but not inked yet. Per Brian's question, how much of it is inked? I think I answered that question. How much of it is of high probability proposals, contracts being drafted, but no ink yet. That's the combination. The nuance is ink. That's it.
Understood. Okay. Appreciate the color. Just as a reminder, of those assets in that pipeline, can you just talk about the mix maybe, in terms of what types of assets? Because right now I still think it's like mostly smart buildings and you know, HVAC.
Yeah, the building sizes that we are signing now, and you'll see some things coming soon, are quite significantly bigger than we've done in the past, like very much bigger than we've done in the past. There's a heavy skew in the number of assets that are building-centric. Oil and gas is pretty strong in terms of number of accounts. There's a lot of questions here about Alberta. When Alberta was kind of ignoring COVID and we were rocking, everybody loved Alberta. Now Alberta is like tightened up and everybody seems to have a heartburn with Alberta, but they'll be back again. Now everywhere else in the world where they're pretty much unrestricted have a lot of oil and gas, and we're signing some pretty good contracts.
You'll see a good distribution of, first of all, oil and gas and buildings and geographic distribution.
Got you. How about just on a global basis, an update on maybe potential new wind turbines that are being connected or in the pipeline?
They're in Europe. Well, they were primarily in Europe. Just like I kept Asia quiet, and then you saw the revenues creep up, let me keep Europe wind quiet, and then you'll see the revenues creep up. I didn't do a bunch of hand-waving about Asia last quarter, and I think you saw a nice material increase in revenues there. Let's apply the same principle here to Europe and wind, and I think you'll be pleased with that. China is a weird one. I don't know how they're gonna react to this new variant. I don't know. There's a lot of wind opportunity in China, but we'll cross that bridge when we get to it.
Okay. Got you. Maybe just one more on maybe more on Saudi Arabia. You've clearly, you know, there's been a ton of press releases on it. You spent a lot of time talking about it today. Congrats on obtaining the license, by the way. It seems like you've made a lot of moves, clearly building momentum over there, since receiving that license. Can you just talk about maybe in 2022, just what does Saudi Arabia as a whole, what does this represent to you in terms of maybe new connected assets next year? Like, how many connected assets, what portion of your 2022 assets will be in Saudi Arabia? And also the AssetCare revenue from those, is it a similar unit economics elsewhere?
Identical unit economics, it could be quite significant. I'm reluctant to give kinda any numbers 'cause it's not. Once we start installing them and we're fully functioning, then I would be more than happy to be more clear about kind of the cadence of installations. As an example, our customer there, one of our customers there is larger than Exxon and Shell combined. There's no lack of ability and footprint and desire and appetite. We just need to get running on the cloud there, which should be done before year-end. We'll announce something there. Then connect the first couple hundred assets, get that functioning, and then we can start speaking very precisely about the cadence of connections, which will be quite significant. I mean, it's a huge market.
Okay, great. Well, I appreciate the time. I'll hop back in the queue and look forward to keeping in touch. Thanks.
Thank you.
Your last question comes from Martin Toner from ATB Capital Markets. Please go ahead.
Good morning, and thanks for taking the call, guys. Just wondering, any plans for the cash you guys just raised? What are use of proceeds likely to be?
Yeah, they're defined in the prospectus, but Saudi Arabia, obviously we discussed it. We have been making a lot of progress with regulators around the ESG technology to make sure it becomes a standard or our software becomes a standard in the decarbonization movement, largely in oil and gas. We have some money to spend on development there and then general working capital. Again, there'll be a filed prospectus or supplement prospectus updated at close today. The use of proceeds will be those three buckets.
Great. Are you still confident in reaching EBITDA break-even level?
In 2022?
Yeah.
Yeah. Yes.
Fantastic. Any issues with customers in any locations putting the subscription on hold if they, you know, for example, areas where they're unable to operate?
Yeah, they were put on hold at a couple of small locations, de minimis to numbers, so we backed those up. You're talking like less than 100 in terms of numbers. I think they're less than 100. I think they're back on track now, so they're back on anyway. Within a 90-day period, but very, very de minimis.
Fantastic. Good stuff. Thanks for taking my questions. Yeah, most all my other questions were already answered. Thanks.
There are no further questions at this time. You may please proceed.
Okay. Well, we thank everyone for joining the call, and we'll speak at the next year-end conference call. Thank you.
Thank you. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines.