Good morning, and welcome to mCloud Technologies' fourth quarter 2021 earnings conference call. With that, I would like to turn the call over to Wayne Andrews, mCloud's Head of Investor Relations. Please go ahead.
Thanks, operator. Today, we'll discuss the audited results for the three months ended December 31, 2021. Presenting from mCloud is Russ McMeekin, our Chief Executive Officer, and Chantal Schutz, our Chief Financial Officer, and Vincent Higgins, President, Oil and Gas Digitization. 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 you 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 and with the SEC. The presentation that can be used to follow along with our discussion today can be found on our website, www.mcloudcorp.com, under the Investor tab. There is also a link to the presentation in our press release.
I'll now hand the call over to Russ McMeekin. Russ, please go ahead.
Thank you, Wayne. One quick correction, it's 12 months of audited financials that we will be reviewing today. Thank you, Wayne, and welcome everyone to the Q4 and year-end 2021 mCloud conference call. Let's first, before we get into anything forward-looking, take a look back and look at items from Q4 and 2021. AssetCare over time, recurring revenues ended the year at CAD 23.5 million as compared to CAD 12.8 million. That's up 83%. We added 323 assets, new assets in Q4, so quite a de minimis number. We ended the year at 63,776 connected assets as compared to 59,642 at year-end 2020.
Full year 2021, total revenues were CAD 25.6 million compared to CAD 26.9 million for the full year 2020. Key factors that caused this de minimis performance on a year-over-year basis, effectively flat. Constrained technical project services, which lingered all through the year. Challenges in connecting assets were lingering all through the year. In fact, it lasted through to about mid-March, now that's behind us pretty much everywhere. In fact, everywhere is behind us. Certain customers experienced limited usage in the period of 2021. We went back and validated those use periods and therefore adjusted accordingly. The good news is we had a lot of scope additions, we had a lot of extensions, we had a lot of carryovers and no churn.
Net of it all, we see all these contracts carrying forward and customers making full use here in 2022. Now let me move to things going forward that will drive growth. First of all, we've worked very hard on the ESG capabilities and connected worker capabilities, which created the groundwork that Aramco selected as their vendor of choice around ESG decarbonization for a digital hub in the Kingdom. I will be discussing in more detail items around this. Secondly, we work a lot on demand response, working closely with the utility demand signals, which affords us now the ability to do EV optimization and charging. We recently announced some pretty major deals, some very major deals. Again, I'll be discussing these in more detail later in the call. Thirdly, artificial lift optimization is definitely coming into light.
Oil prices are off the charts. We've asked Mr. Vincent Higgins, our President, Oil and Gas Digitization, to join the call. He'll be presenting more details on this later in the presentation. Let me now turn the call over to Chantal. Over to you, Chantal.
Thanks, Russ. I don't need to tell anyone here about the business conditions in 2021. Restrictions hampered completion and delivery of technical services project work at customer sites, and also limited access for customers to utilize the benefits of AssetCare solutions. In 2021, we did complete our Nasdaq listing, and we're now subject to PCAOB, the audit standard. We note additional expenses resulting from our SEC registration and Nasdaq listing in Q4 2021, and CAD 2 million in annual insurance and professional services expenses related to our U.S. listing. Restrictions prevented us from fulfilling the full scope of connected deliverables and also delayed execution of new customer contracts.
This has had a negative impact on our revenues from about May 2021 until mid-March 2022. We do anticipate having greater access to customer sites starting Q2 2022 and resuming normal operations with existing customers and contracts. These impacted revenues are expected to be realized later in 2022. As Russ previously noted, for the full year, AssetCare over time revenues were CAD 23.5 million in 2021 compared to CAD 12.8 million in the full year of 2020. This is up 69% year-over-year. As site access becomes less restrictive in 2022, we anticipate that our engineering services and AssetCare initialization will resume at a fast pace. Expenses tied directly to customer acquisition, product development, and new market development increased slightly year-on-year.
The CAD 4 million increase in expenses in the second half of 2021 is partially resulted from activities related to Nasdaq checklist and the $10 million financing, extended R&D and international expansion. We'll turn things back to you now.
Thank you, Chantal. Looking at the activities in 2022, first, let me start with the big piece, the very big deal with mCloud and Aramco. We started on December 15th by signing an agreement with Virtual Vision to host AssetCare in the Kingdom under Saudi Arabian law. Just if we hadn't mentioned this before, but Virtual Vision is largely owned by Aramco, so this makes this a very close to Aramco, highly secure cloud to provide our cloud applications to them. When you do get a chance to look at your slides, you will see a diagram that shows the entire scope of what is provided as part of the digital hub. These are things like 3D digital twins, connected worker, items around methane detection and ESG reporting, very specifically around LDAR and LDAR reporting.
We'll talk a little bit more in the next slide. On January 25th, we then signed the MoU with Aramco. This week or this past week, we then received our official full registration and vendor registration with cybersecurity on the initial application. Now starting post-Ramadan, this is Ramadan month this month, we will be prepared to scale all these applications starting at a number of sites, going into the second half or the middle of the year, second quarter 2022. We also signed an agreement with the Ministry of Investment of Saudi Arabia that makes us effectively a Saudi Arabian operating company. That allows us to hire people locally, do many things locally that many other companies cannot.
That puts us in a very, very unique position with Aramco, which is a key component of many things that they want to achieve. Putting Aramco into context, if you look at all the assets they have, we'll call it LDAR connectable assets, which are things such as asset pumps, compressors, wells, flanges, things of that nature. There are 39.1 million connectable assets in the Aramco fleet of assets or operations. They have 64 gas oil separation plants. Just one gas oil separation plant is bigger than most, if not any gas oil separation plants in most parts of the world. They have 10 full gas plants, which have 18 trains per plant. They have 17 refineries. They have 186 petrochemical plants, and they have 19 power plants.
Putting into context, just from a market cap point of view, they are larger than Shell, Exxon and Chevron combined. Their revenues are one of the largest in the world, and they're, as you probably saw the last reported quarter, one of the most profitable oil and gas companies on Earth. We're definitely aligned here with a major player, and we're ready for business on that front. Again, if you get a chance to look at the slide, you'll see the chronology or build up of ARR velocity. Beginning mid-year, as I mentioned, we will start the deployment of AssetCare within their assets. We expect by end of 2022 that 5,000 assets will be connected. That will add an AssetCare ARR velocity, CAD 9 million of ARR velocity.
We expect the exit velocity at 2023 to be closer to 15,000 connected assets, which is CAD 27 million of ARR velocity. Putting things into context for a five-year plan. Our five-year target horizon is 75,000 connected assets, which is approximately CAD 135 million of ARR velocity of asset exit at the end of five years. We mentioned in our press announcement last week that we had received some alternatives for strategic financing from the Middle East. We did receive a term sheet. We are currently evaluating the term sheet. Each component of the term sheet is considered very closely. Growth capital for us to expand in Saudi Arabia to be very well positioned to really grow this agreement with Saudi Aramco.
As I mentioned, we have this legal entity now, so we're able to hire locally and operate locally. This was very key to receiving this term sheet, to being able to perform at a local level. Saudi Arabia, as part of their Saudi Vision 2030, is very keen on American companies establishing themselves in Saudi Arabia and expanding. There are a lot of initiatives to make that happen. They also acknowledge within the term sheet that we have a convertible debenture due in June, on June 30, 2022. The capital that they are proposing in the various scenarios contemplates the ability to use capital to do that exercise on or before June 30th. Next major strategic service agreement or major master agreement that we signed was with Carbon Royalty Corp.
This allows us to pursue without any capital constraints the EV optimization for auto dealers. First of all, a bit about Carbon Royalty Corp. They are a streaming company or a royalty streaming company that has over $100 million of funds today. The principals within Carbon Royalty consist of people who were under Obama's administration in the EPA, under Bush's administration in the Secretary of Energy, policymakers in the European Union. They are very powerful people that understand very well the mandates for carbon credits or capturing carbon, revenues from tax credits and things of that nature. They're very keen on supporting us in going after these auto dealers.
The number of auto dealers just within the state of New York and California that we have line of sight to is over 2,000. The current deal is fully funded for the first 30 years. Putting that into context, that's CAD 45 million of TCV. Using the ARR velocity, that's CAD 2.5 million of ARR velocity. As we sit here today, we have 42 LOIs in place, so beyond the 30, asset shared, dealerships that we have aligned with Carbon Royalty Corp. The 42 LOIs are in the state of New York and the state of California. The agreement with Carbon Royalty is not capped, so as we perform those 30 dealerships or we get close to going live on those 30, there's the ability to continue to reload and re-up for the next set of car dealerships.
All the carbon incentives, credits, and green rebates, we split 50/50 with the Carbon Royalty Corp. That aligns us very well to make sure we not only get deployed quickly, but we also capture all the benefits that are available to us at each of these dealerships. We also signed, as you know, earlier this year, a deal with Mercedes. We expect that as part of these dealerships, there will be several Mercedes dealers that will be part of this fleet of 30 dealerships. Their desire is for this business model around EV charging, around EV dealerships, to be a global solution, and we'll be looking to expand on that as the year progresses. Using numbers again, like I did with Aramco, when you get a chance to look at slides, you'll see a chronology of builds.
We expect that mid-year 2022 to have three dealerships up and running. The ARR velocity of this is CAD 252,000 of ARR velocity. By end of 2022, we expect to have 45 dealerships up and running. That's CAD 3.8 million in ARR velocity. By year-end 2023, we expect to have no less than 500 dealerships, which is CAD 42 million of ARR velocity. Again, setting the five-year horizon here of what we expect, we expect 1,500 dealerships at least, which is CAD 126 million of ARR velocity. As part of this, we expect a number of them to be Mercedes dealerships and for them to continue to promote these to many, many dealers around the world.
Let me now turn the call over to our special guest, Vincent Higgins, who will walk us through the digital oil wells initiative. Vincent.
Sure. First of all, it's great to be here. I joined mCloud a few months ago from Honeywell, where I led the digital transformation offering for our industrial pump customers, bringing things to market, a number of products and services very similar to what we're doing here at mCloud, so quite familiar. The landscape for mCloud in the digital oil field is quite positive. The Department of Energy in 2022 has recently published the notion that oil and gas will continue to grow in terms of consumption and demand, and that the oil price will continue to be high over the next several years.
At the same time, there's a tremendous amount of pressure on oil and gas companies, particularly from the EPA and the SEC, around emissions, particularly around methane, things like EPA Method 21, and the SEC around new rules for reporting and registration. With that panorama in mind, the digital oil field is ripe for opportunity for mCloud. Together with a number of major oil service companies, collaborating with the new ESG digital hub in Houston, which I'm getting off the ground, we've developed a product similar to other AssetCare products to connect directly to the oil wells and associated facilities.
This allows both increase in production at the wellhead, but also a reporting of ESG type of metrics to the cloud, allowing the oil and gas companies to report in a better way down to the asset and sub-asset level, which is very important when you're talking about ESG reporting. We need to be able to drill down to the asset level and look at methane levels and leaks and things like that. We're estimating in North America of the 1.2 million wells that exist, these unconventional wells, based on the current oil price, that about 50% of those wells are prime targets and will benefit substantially from the mCloud Technologies.
Again, similar to what we're doing with other types of assets, we connect to the wells using edge devices. Along with adding other sensors, methane sensors and other sensors, we connect to other systems, and applications, business applications, historical data and other things. That all goes to the cloud, where we look at well and well monitoring. We detect equipment failures, predict those. We have visualization tools, et cetera. Also, taking advantage of a live operation center, and the mobility platform, we bring advice back to the well in three different forms. First, through advisory back to the operators of the well. They take the action. Secondly, through live operations center, where they can take action or the AI engine will take action. Also through the mobility platform from mCloud.
All of this under a specific subscription model. Number of cost of dollars per well, similar to other assets, and a very strong measurable return on investment. Regarding the forward-looking ARR velocity, we'll have online by mid-2022 the first 35 wells, which brings CAD 210,000 in ARR velocity. By end of year 2022, 500 wells, which is CAD 3 million in ARR velocity. By end of 2023, 3,000 wells with CAD 18 million in ARR velocity. Across the five-year horizon, 15,000 wells with an estimated CAD 90 million in ARR velocity. It's a perfect time for mCloud to join the digital oil field and to really have an impact and make a difference. Back to you, Russ.
Thank you very much, Vincent. In summary, we are positioned in 2022 and beyond with the technologies we've developed and with the customers we're aligned with and the validation we've received from the largest payer, in fact, the largest corporation on planet Earth, to really move forward in 2022 and beyond on a very, very strong basis. AssetCare solutions, as you just heard from Vincent and from my prepared remarks, are timely and relevant to many people, in fact, the most relevant companies on Earth. If you look in the auto and the building space, where EV charging is becoming a major thing attached to many, many retail operations, auto dealers being one very key one, that's very relevant today in all of the policy making. We didn't discuss much today about wind, but we will be.
That's the fourth master agreement we are working on with the largest wind producer in the world, the technology producer in the world. That will be coming later this summer, where we will be well aligned with them. In the oil and gas upstream, you just heard from Vincent, the AssetCare is extremely well positioned and timing could not be better. There's a confluence here of lifting of pandemics. You heard from Chantal, you heard from me, much more than you probably care for the last four quarters, all of the history of pandemic stuff. That's now behind us, and that is, you know, no longer going to be a factor going forward or should no longer be a factor going forward. High energy prices is playing perfectly into our strategy.
The adoption of very, very strict ESG mandates down to the SEC levels with very strict policies fit perfectly into our strategy. This put all together creates a very optimal environment for mCloud's growth in 2022 and beyond. I'm gonna turn the call back to the operator, for questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by 1 on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to remove yourself from the question queue, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have a question. Your first question will be heard from Brian Kinstlinger with Alliance Global Partners. Please go ahead.
Great. Thanks so much. A lot of great exciting things going on. My first question, I wanna start with the quarterly results, and the particular statement that you discussed. Can you talk about where that reduction of revenue comes out of? Is it asset recurring over time? Is it something else? As I look at the slide in recurring revenue, I'm a little bit confused because second half is down from the first half, but assets are increasing, so if you can reconcile those two items.
Sure. Yeah. Connected assets and the recognition of revenue are two separate things. We're seeing now two separate things. Are they connected? Yes. Are they collectible? Yes. Is the customer contract signed? Yes. There's a fourth validation of, is it being fully used in accordance with our standard of results as a service? I think you and Chantal have a plan to go over the model to go back where all those changes were made. Going back, going forward, those are the four tests we need to have. Are you connected? Yes. I mean, obviously, first of all, are you contracted? Yes. Are you connected? Yes. Are you collectible? Well, we wouldn't connect it if you weren't collectible. Are you operating, receiving the results of the service under the standard of results as a service?
That's the standard.
Right. Where are the revenues coming out of that you in the first three quarters? Is it asset over time?
All AssetCare over time. I think there's de minimis. Chantal, you can jump in. De minimis changes to anything else but AssetCare over time.
And then-
Do it 100% AssetCare over time.
Yes, 100%.
Can you talk about?
Just because it's coming out of AssetCare over time on your slide, you said recurring revenue is down in the second half of the first half. In the third quarter, it's going to come, in the fourth quarter, you said it would come, albeit a small amount. Why are those assets now generating less revenue even when you have changed the numbers?
Because the net effect of the number of the ones that are not validated for the fourth test use is greater than the net addition. The net effect of the two.
Okay. If I look at the fourth quarter, the average asset per month is at about CAD 20. You were at CAD 35 the quarter before, but that's probably going to change. Yeah.
Yeah.
How do we think about that going forward?
Yeah. First of all, there's noise in there, right? If you take numerator divided by denominator, it won't work because you have some assets sitting there effectively. Think of it revenue paused. They're idled. Just think of it that way.
Right. That's why I'm asking about going forward. How should we think about that?
I think starting in the future.
12 months and 24 months.
Yeah. No, I get the question. We were at about CAD 33 and change of blended value per asset, call it before the noise. Starting in Q2, we should be back to noise free. If that makes sense. That's the way to describe it.
Okay. Yeah, sure. Then, any specifics on how, you know, close to. Should I assume that the strategic capital is by the end of June? Take a look at, you know, your cash in three months to be ended.
No. A couple things. One is, as part of the carbon royalty agreement, there's front-end capital for projects. Now our model has switched, right? The nuance I don't think anyone's caught yet is with the carbon royalty agreement, and that type of model will be used for every growth vector we have, is capital as contract or actually in some cases ahead of contract. The model is totally flipped now. In terms of your question. It's a very, very good question is, are we looking at capital before rev rec? It's now the exact opposite. A lot more capital before even rev rec. That started here with the carbon royalty agreement. That's number one. Number two, the answer to your question around the Middle East. Their intention is to go gangbusters.
The more capital we have to go gangbusters in the agreements we have with Aramco, the faster we can grow and the more local people we can put in place. We already have a handful of technical experts in the kingdom ready to hire. We want to hire more. It's Ramadan, so it's a bit of a problem during Ramadan, but post-Ramadan scale. It's a win-win-win, right? We grow, they give us capital, and we hire locally.
Two more questions. The first related to that. Your convertible debt ending September, December was just over CAD 22 million. I assume what you're talking about pays that off in addition to growth capital. Is that right?
Can pay that off in addition to growth capital, yes. It's the point that I'm trying to make, it's highly flexible and the size of the commitment is large enough to cover both, yes.
Okay. Lastly, you've got some aggressive goals. You had some really good partnerships or strategic partnerships. 30,000-ish part-connected assets. You've highlighted a lot of different things in how you get there. How much hiring do you need to do in order to meet this demand? Because I assume you don't have all the people in local geographies.
Actually, that's another good one.
What's the average cost of that? Then there's recruiting challenges all over the world. How is that going to impact it?
That's a brilliant question. In North America, it's very-
Let me rephrase that.
Yeah. Sorry, did I interrupt you, Brian? Did you say something?
I don't know how brilliant.
No, it is a brilliant question because Vincent's model relies a lot on third parties. He mentioned quietly, but I'll say it louder. He's working with the world's largest oil services company on planet Earth, public listed oil services company. They have no shortage of resources, and the customers he's pursuing are well managed. We are just the cloud provider. Similarly with the EV initiative, as you say, is a very large plan. Those are third-party people in the state of New York and the state of California. We're the AI cloud people. The new hiring is not to call it aggressive as you would think. We're pretty well positioned from a resourcing point of view.
An area where we are committed to hire, we will hire and you will see headcount addition, but we are ahead of the curve. Our partner in Saudi Arabia is also the former dean of one of the largest universities in the Kingdom of Saudi Arabia, where we're gonna be hiring to meet the strategic ambitions of Saudi Arabia. They'll be hiring there. Are we ahead of the hiring curve? The answer is yes. We have a good partnership network, the best of the best. I don't know. I hear what you're saying around, there's a problem in hiring. I don't think that's gonna be that big of an issue for us because of how we're aligned with third parties, Brian.
Okay.
Next question will be from Martin Toner at ATB Capital Markets. Please go ahead.
Thank you for my question. I wanted to ask about the term sheet, in the language, and it would be, on a non-dilutive or basis, or I think you might have said accretive. Please remind me. Can you kind of give us a little more color on that, the extent that you can?
Yeah. It's accretive in that it's not like the 10% coupon on this CAD 23 million is peaked, right? It's accretive in the sense that it's gonna cost significantly less than what it costs us now. That's the definition of accretive. What else can I tell you? I think I pretty much described it all to Brian, right? I don't know what else I can say. I mean, I said pretty much all. Yeah. It's tied to the metrics that we need to do in the kingdom, but it's revenue generating metrics, and it's tied to, you know, the world's largest customer, so our company. Beyond that, I don't know what else I can say, Martin, that I haven't said already.
Okay, great. Should we expect it to be a convert similar to the old one?
No. Should you expect that? The answer is no. What exact form it will take, I don't know. But no, the answer is not a convertible like the old one. That's an easy and quick answer.
Awesome. Martin asked about the language in the PR about an enhanced accrual standard that is, has quote, "driving a decline in AssetCare over time." Was the revenue that you recognized in previous quarters substantially different than the cash that you guys brought in in those same periods?
Chantal?
There's no direct connection between revenue recognized in cash to which you could put on that. The revenue that was recognized was simply adjusted for timing. There was no downside to the revenue. It's been adjusted for timing. Do you wanna get on a call after this, Martin? I'd be happy to walk through all of the business.
Yes.
I'm putting words in your mouth, Martin. You're all wondering, is the cash going to be collected? The answer is yes, or it's already been collected. I think making sure there is a cash component tied to whatever the revenue is. Is that correct, Martin, ultimately?
Yeah. Just wondering, sometimes there's a mismatch between financial revenue and the, you know, what actually comes in the door in that quarter. I'm just wondering, you know, to what extent-
It's always that case. I think what Chantal is saying is always the case where we accrue revenue does not align with cash. Cash catches up or in some cases ahead, rarely, but is ahead. Cash is not aligned with revenue, but it never works. It's not, it has nothing to do with the standard. It's just never is.
Yeah. Yeah. Right. Understood. Okay, super. How much of the cost in Q4 was related to the non-recurring?
CAD 2 point some million. I think she said it in her remarks, right? Go ahead, Chantal.
For insurance. Just wondering if there were some other costs.
Yeah, there is. Well, there's insurance.
Yeah.
There's auditor costs, legal costs. We can go on and on and on, but yeah. Go ahead, Chantal.
Yeah. There was incremental increases in expenses related to all of the items that Russ just mentioned.
Great. Will any of those be one time, or should we think of them all as recurring?
The costs to be listed on the FTC will be recurring in terms of audit, legal, insurance.
Not a whole CAD 4 million of recurring. It's close to half that on an ongoing. Our increased OpEX, one exchange versus the other, is slightly above $2 million.
Got it. Perfect. Thanks so much. When I look at your OpEX this past quarter, if I take out that $2 million in, is that a good run rate going forward? How will the total expenses increase as you guys try and satisfy some of these new contracts that we talked about?
You know what, Martin? You and Chantal can get on a call after this because there is increases in SG&A from Saudi Arabia. I mean, there's a lot of gives and takes, right? There's Saudi Arabia, there's a bunch of things that we should factor all in. I don't know that here on the call is that productive, but I think that's a good analysis you and Chantal should do after this call if you have time.
All right. Perfect. That'd be great. Thank you. I think that's all for me.
Next question will be from Jack Vander Aarde at Maxim Group. Please go ahead.
Okay, great. Good morning, Russ. Good morning, Chantal. I appreciate the quarterly update. Okay. A lot of moving parts there, a lot of exciting things. You know, just to follow up for a first question, follow to a prior question that was asked. Maybe this is for both Russ and Chantal, but I'm just not sure I understand the AssetCare over time economics or contract dynamics, per se. It just seems like this revenue stream is very consistent for at least, you know, the past five consecutive quarters or so. Just looking at the over time portion of the revenue, it did decline despite being very consistent. Why, how much volatility or how much wiggle room are in these contracts just that would allow this to happen?
I'm just trying to understand the. It seems like a one-off quarter or tick down. I'm just not quite sure why.
Let me take a crack and Chantal can kick in. It has nothing to do with the wiggle room in the contract. It has to do with how we go back and look at the AssetCare over time and full use in those periods of time. If this was a normal year, let's say next year, and there's no more crazy stuff going on, there's no wiggle room in the contract. There's only did they use it or not? Is there weirdness in the well? In this case it's a pandemic restriction, but in the fact that they're not getting the results and the results as a service. We now know that as how we look at the rev rec standard, but it's not because they have wiggle room in the contract.
In fact, what we've done is gone back and said, "Hey, because you weren't using it." You know, this is like a store credit, think of it that way. Because you weren't using it effectively in that period of time, we'll extend that for that period. In those conversations with customer, they said, "If we're gonna do that, let's talk about adding some scope. Let's do other things." That's how that played out.
Okay. That's helpful. Maybe just talking about future growth drivers. You know, very encouraging to see all these new growth opportunities, you know, with Aramco, like you keep listing all the wells that you have, 3,000 targeted for 2023, then EV opportunities on top of it all. You know, clearly this is an incredibly complex undertaking I imagine. Maybe just from a strategic priority perspective and then a logistic and kind of human labor capacity perspective, how do you stack up these opportunities and execute on connecting these assets, like actually going out and making this happen? Are you able to tackle it all at the same time? Is it piece by piece? How do you, what's your decision process and how are you gonna execute on all these?
Yep, brilliant question also. Vincent was on the call deliberately as he's leading all the wells and under his kind of direction and with the partner network that he has, he has it under control, and we can let him add to his, to your answer in a moment if you wish. In Saudi Arabia, we have similar pedigree through Vincent, former Honeywell, former Yokogawa executive, and has a core team and is working with actually another publicly listed major oil services company in Saudi Arabia, a U.S. company with a mega operation in Saudi Arabia to tackle that initiative in Aramco as well as we will be hiring locally as I mentioned already.
Thirdly, the EV charging initiative is run with primarily third parties doing the equipment at the car dealerships in New York State and a separate group of people in California. As big as it sounds in aggregate, Jack, they are managed by, call it a single accountable person for the three initiatives, and below them the network of resources are there. This is not kind of your normal garden variety. We go book a building, you need to add a building, you need to get the resources. These initiatives are managed as a standalone initiative with the targets we just went through with an accountable leader for each. Did I answer your question?
Yeah. No, that's very helpful. That makes sense. It sounds like this is a simultaneous kind of overall effort and initiative, then just maybe-
One last thing I would say though.
Yeah. Go ahead.
This has been in the works for a long time, so we didn't just end up with the world's largest oil company saying, "We're going to put all of our..." ESG now for most oil and gas companies is like Sarbanes-Oxley was to publicly listed companies. It's a massive undertaking inside the company, and you cannot be wrong. There's no scenario you can be wrong. You can only be right when it comes to reporting. I'm sure you've seen that. We didn't just land in Saudi Arabia and say, "Hello, I'm here, and here we are as the ESG provider." Russ is one of the smallest publicly listed companies in the space with the largest publicly listed in the space. There is a lot of effort went into this initiative. Similarly with auto dealers, similarly with upstream oil wells.
There's a lot of effort went in behind the scenes in 2021 to pull off those three mega initiatives.
Well understood. Then just maybe one last question, and I apologize if you mentioned this, but there's a lot of info here to absorb. What I'm looking at is, in terms of these new kind of AssetCare growth opportunities, like with EV and the wells and then with also in Aramco, is there any sort of way you can kind of stack up what you expect for the ARPU or the expected kind of ARPU for these AssetCare revenue streams and contracts? You know, certain buildings, certain assets. They all have different, you know, ARPU profiles. How would you stack these up?
Yeah. Let's go through that. Yes. Because the math. You could just take the AR divided by the numbers that I just gave. Yes. Let's take on Aramco. Because of its workers, its assets of various types, on average, an asset at Aramco is about CAD 150. Let's use that. Auto dealers. Per auto dealer, there's a number of assets below it, but we think of it on a dealer basis because there is a minimum set of assets that need to be connected to be able to optimize. On a per dealership basis, it's about CAD 6,000 per month. On the numbers that Vincent went through, there's a number of layers, levels, all the way to audit, self-audit, reporting, applications that are provided to type at each wellhead.
On average, the monthly fee per well is CAD 500 per well. Now, in terms of contract duration at Aramco, it has no end. The agreement is effectively I think of it as a 20-year. Our ESG capability at Aramco never ends. As we keep adding to it keeps adding to this massive service agreement, and it doesn't have, like the other one, three-year term with renewal. It's just perpetuity. In the case of auto dealers, they're 20-year deals. In the case of oil and gas, they're five-year deals. If you try to do.
Very helpful.
If you try to do a TCV on Aramco, you can quickly add up to CAD 1 billion if you are imaginative about it, but it's not the way to think about it, which is why we've adopted the ARR velocity concept. That ties it to the single year concept, so it makes everything look the same.
Understood. That's helpful, Russ. I appreciate the update, and I'll get back in the queue.
Thank you. Next is a follow-up from Martin Toner, please go ahead.
Thanks, Russ. Real quick, can you kind of explain the ARR velocity?
Sort of an ARR run rate type of concept?
That's for the reason I just outlined. It used to be pretty easy, right? TCV was a good indicator because it was monthly fee times 36 months equals TCV. 80% of our deals were like that. Now you have 20-year subscription deals that are big, like very big. You have five-year deals, very big. The TCV would be misleading. You'd very quickly get to CAD 1 billion of TCV, and it would look crazy, right? What we've done is said, "Okay, take the monthly fee, the number of things that are tied to the monthly fee, times 12 months, that gives you an annual recurring revenue velocity." To your point, run rate. Yes.
Perfect.
Run rate, if you had, if you were in and connected for that twelve-month period. If you're connected on December 15th and you had, we'll call it a, you know, CAD 500 per month, and it was, you had 5,000 wells, you wouldn't have much benefit of the ARR or the MRR in the, in that year. The velocity value, you can do the math. Does that make sense?
Yeah. Thank you.
Sure.
Thank you. Next is a follow-up from Brian Kinstlinger . Please go ahead.
Great. I have a few more. Notwithstanding COVID, what are the other factors we need to think about in terms of what could cause delays in installations? I know a long time back, there was some weather issues. There's been some other challenges. What are the other things six months from now we might hear that keeps you up at night into installations?
Well, the obvious one, right, is EV chargers, right? You can do all the connection of anything you want, but, you know, the world went from no EV to only EV or want to be EV very quickly.
Right.
Through our relationship with Carbon Royalty, the reason we have capital up front is to get ahead of the curve and start placing orders, which we have done. You're asking hypothetically, what should you worry about? That's hypothetically one is EV charging. It's not a mCloud problem, it's planet Earth's problem. Demand for EV charging is greater than, by a long shot, than supply. At the wellhead, I don't think there's much challenge there. Aramco, you know, obviously, if Saudis keep dropping bombs in Saudi Arabia, that's not a good thing. That could be a problem.
Is it supply chain challenges on potentially locating enough supplies? Is that an issue? Potentially.
In oil and gas, less so, because what you're finding is, as Vincent will tell you, these wellheads are extremely well digitally connected. I think, I mean, maybe edge devices, but I've not heard. You would know better than I. Is there a shortage of edge devices in the world? I don't know.
No. I would say that the wells are generally well instrumented. At times you have to put in sensors around ESG, but it's more about getting the data connected to AssetCare and start the data flow.
Which is not a supply chain problem. Which is not anything, actually.
Okay. I hate to ask this one more time, but just to make sure I understand. If I look at the restated numbers now on the AssetCare recurring, the real impact was only in December. You know.
No.
I guess I'm curious. It was. I mean, they're very small. Like, for example, in the September quarter, you did CAD 6.3 million of revenue in AssetCare recurring.
It's pretty easy to explain though, right? Those same customers-
No, no. I'm, I just want to make sure.
Okay.
It sounds to me like we're all confused, so I just wanna make sure I have this right out loud. It sounds like in the December quarter, some of the assets, more so than any other quarter, were offline or not being used, even if they were installed. That's why the fourth quarter number is so low compared to the other quarters. Is that right?
That's correct. That continues till March. It's basically, it's almost all in one province, Alberta. 100%. Almost all. It continues till. The reason we're very deliberate, continues until the middle of March, right? Just be very clear that that pause. Paused is more accurate than disconnected. Paused continues to middle of March. Yes, you're 100% correct in what you just said.
That helps. I just think. Make sure we all understand. The other piece is a follow-up to one of the questions about expenses with Chantal. When I look at salary and wages, they're up CAD 1.5 million sequentially just in a quarter. G&A is up CAD 2.7 million just in a quarter. It sounds like you were talking about $2 million annually in expenses, but we've seen a huge increase, unless I'm mistaken here. Just maybe set the table for salary and wages on a recurring basis in G&A, because, you know, there's a lot more than that $2 million you were talking about.
The $ 2 million wasn't specific just to that quarter. We were identifying costs on a go-forward basis. In terms of salary and wages, we expect this to be relatively consistent on a go-forward basis.
Okay. What were the increases on salary and wages? Are you hiring a bunch of, you know, new people? Your executive team, obviously you've got, you know, you've hired someone in oil, in oil services. Maybe just take us through that, you know, substantial increase on a quarterly basis.
Sure. It was mostly in anticipation of drilling gas and the EV charging opportunities that we've got in the pipeline now. Russ did you want to speak more to that?
Yeah. Like I said, I only want to say that on the executive it was a net change. It's a net-net, right? There's no net positive at executive. We don't. We had in the quarter both, the COO is no longer with us, but Vincent has it. Now there's only Vincent, no COO. It's gonna be down, right? It should be down, right? They were both there for a period of time. At executive level, we're not net up. Everything else Chantal said is exactly correct. We're slightly ahead of the curve as well in Q4 in the Middle East, but we'll see more hiring going into 2022 in the Middle East, as I mentioned before.
Understood. Thanks for taking my follow-up.
Yeah, no problem.
Thank you. At this time, I would like to turn the call back to Mr. McMeekin for closing remarks.
Well, thank you very much. We're, you know, Q1 is done already, so we'll be on a call here soon. Thank you for your time here today. Thank you very much.
Thank you, sir. Ladies and gentlemen, this does end your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.