Clear Blue Technologies International Inc

XTSX:CBLU

Earnings Call Transcript 2023-Q1

[Nikhil Thadani]

Hi, everyone. Thank you for joining us. We've got Clear Blue reporting their Q1 fiscal 2023 results shortly. Miriam Tuerk, CEO and Co-Founder, will walk you through the earnings. At the end of the call, we'll take some questions. There's 2 ways you can submit your questions. Please feel free to use the Q&A tab at the bottom, at which point, one of us will read the questions out. Alternatively, please feel free to e-mail the questions to us at [e-mail] or all [e-mail]. With that, over to yourself, Miriam.

[Miriam Tuerk, executive]

Thanks, Nikhil. Good morning, everyone. Good afternoon, everyone, in Europe. Going to go over a bit of an overview of Clear Blue. There's been a lot of changes around the new products that we have. I'm very pleased that Farrukh Anwar, our CFO, is with us here today, and he is going to lead the discussion on the Q1 2023 results. And at the end of the presentation, I'll give us a bit of an update on what our outlook looks like, and then we'll take it open to questions.

So the world has really changed for Clear Blue. We did a lot of heavy lifting in 2022 to position ourselves for strong growth and really to get lift off and strong leverage from the significant R&D investments that we've made and the significant market leadership that we have with our products, intelligence, data, analytics and operational performance. So we raised more than $10 million in nondilutive capital last year. $6 million of that comes in, in pure grants over the next 3 years. So that helps our balance sheet, it helps our cash, it helps our EBITDA and net 0 cash burn objectives. We acquired a pretty critical company that is -- got 1/2 of the 2-part story required to take advantage of the huge movement investments now happening related to solar.

Clear Blue's products were good for new installations and new deployments. But when it came to the world of the existing telco tower with existing diesel generator and larger grid connection, we didn't have the best fit. We could do it, but it wasn't the best fit. With the acquisition of eSite Power Systems, which we concluded in January of this year in Q1, we now have a fantastic product offering when put together with Clear Blue's Illumient services to go after that market. And that market is now moving significantly with many, if not all, of the larger telco and towercos moving towards solar, not just because of the focus on climate change but mostly because of the cost of diesel and servicing those sites.

So if you look at it, January 1, 2022, we had 2 products out in the marketplace, Illumient and Nano-Grid. As of July 1 of this year, we will have 5 products in the marketplace. Illumient, the core traditional product that we have, Senti, our new Illumient all-in-one street light, Nano-Grid, our telecom product that is great for satellite sites and satellite cell phone sites; eSite Power Systems, which is good for the larger retrofit hybrid diesel grid and solar systems; and lastly, our Pico-Grid Smart Off-Grid Power System, which is perfectly aligned with the IoT marketplace.

With the addition of eSite Power Systems, which is a Swedish company, it's been in the market since 2008. It's got more than 1,000 sites up and running on its patented eSite Power technology. We added a number of strategic and large customers, and we increased our customer -- our country coverage. We've now got a nice active customer, for example, in Vietnam that we've gotten, I think, 3 orders from since the beginning of the year.

So we're really moving into the core network of telecom and into core infrastructure with IoT. We're doing retrofit large-scale hybrid power up to 30 kilowatts now with our eSite Power Systems. And in our Illumient and infrastructure, you're starting to see mission-critical infrastructure projects, runway extension project at O'Hare Airport, Interstate Highway Exchange. And so the 2023 is certainly very different from 2022 and trajectory from both bookings and everything going forward is looking quite positive. We are cautiously optimistic.

So just to go over our product line, If you remember your decimal world, you had the Micro, the Nano and the Pico. So Esite-Micro is the previous eSite product with the addition of Clear Blue's Illumience management service and technology, cloud-based analytics, our service team as well as we now offer a full solution, not just the eSite System itself. And we're addressing a market that's anywhere from 3 to 30 kilowatts.

Our Nano-Grid product continues to be a really great asset. We're moving forward with a lot of satellite projects in that marketplace and satellite cell phone systems. It is servicing 20-watt up to 3-kilowatt systems. And our Pico-Grid product, which begins shipping commercially in early Q3, so July is a multi-device. So it can support up to 4 different devices, a lot of different IoT applications. Certainly, Wi-Fi hotspot is a great application. We have some agriculture applications coming in, security camera monitoring and a myriad of other opportunities, smart city projects that we're talking to a couple of customers about for our Pico-Grid product.

Just to summarize on our Illumient product. Over the last 8 to 10 years, we had the Strata series, which was really a lead acid very large significant infrastructure, big, heavy pole that was really.

Good for the part of the world where you're better off going lead acid than anything else. Highways and roadway series-type projects, good for all weather and for really high-powered lights.

The beginning of last year, we launched our Cammi product, which is really the movement towards lithium technology, good for warmer weathers and also higher powered lights. And one of our biggest orders this year has come out of that Cammi product launch. And then the new Senti product, which we will begin shipping commercially in Q3, as I mentioned, is our all-in-one solar street light.

When you talk about Pico-Grid and Senti, one of the things that's very different about these 2 products is these are mass market products. These are products that are in a box. They're sitting on a shelf. There Isn't a custom engineering project, the custom design project required for each of these projects to ship like you would have with an eSite project or a Nano-Grid project or even a large Illumient product.

This is something where we'll have volume sitting on the shelf and at distributors and customers can buy it. It's in a box. It weighs something I can lift up and walk out the door with and it's ready to go. You just open it up and anyone can install it. So on the Pico-Grid side, it will power IoT devices around the globe, whether it's water pumps for agriculture, Wi-Fi access points for the large satellite global rollouts that are now happening as a result of billions of dollars of investment by large satellite companies.

We all know the Elon Musk's Starlink story. But you may have noticed that there was a major successful launch of the ViaSat-3 first rocket. That is a very high-speed 1 terabyte per second large capacity satellite that's coming online now and more will be coming online. We have a strategic partnership with them. And on the ground, those satellite systems are going to be talking to Wi-Fi routers and access points. And satellite modems and those devices require power on the ground. In many cases, solar off-grid is the better solution. One potentially because there's no power in the area, very applicable in the emerging markets. But two, even when you're talking about large urban areas, in downtown course, it's not easy oftentimes getting power to a little device that you want to mount on a pole, whether it's a security camera or some sort of a sensor. So Pico-Grid is perfect for that.

Senti is an all-in-one solar street light. We have a bunch of patents filed for this, but we have not launched with our own all-in-one solar street light because the product didn't really work to the standards that are required by engineering lighting standards in North America up until now. The performance was too small. You were really talking about like a little flashlight coming out of the device and not enough energy and power to really give reliable power all night long.

With the advancements that we have, we now have our own lighting engineer on the LED side as well as the high performance of Pico-Grid, it's MPPT, it's lithium cells inside. It's not a separate battery. All of Pico-Grid goes inside of Senti with a high-performance larger solar panel and all of a sudden, you have an all-in-one solar light that meets engineering standards and cities national provincial state standards for lighting in many, many applications. It ships in a box, you put it on a poll and away you go.

At the other end of the spectrum, we have eSite. And eSite Power Systems is the company that we acquired, Esite-Micro is the new product that occurs when you take eSite Power products and you merge them together with Clear Blue's Illumient management platform, our management operating service, our big cloud analytics or predictive analytics, weather forecasting and energy forecasting, troubleshooting remediation. And when you turn it into an entire system.

I've started talking with customers about the road to 0 diesel, and it's not an easy road. Customers demand higher availability of their cellphone telecommunications connectivity than they do of any other power device. The power can go out, but that Internet rather better stay up. And so high availability in telecom is a really key requirement. And so the rule has always been just put a diesel generator, turn it on all the time, and I know I've got power all the time. The problem is it's become prohibitively expensive. And we all know the impact to climate change as a result of all of these diesel generators running everywhere.

So investing solar kind of gets you 1 step there, but it's a very limited small site. And so if you look at an old fashion site, you have a cabinet, you've got air conditioners in it with lots of cooling and fans. And if you want to get to a solar-only site, the first thing you've got to do is you got to become energy efficient. You have to get rid of air conditioning. And a lot of people don't understand that heat and thermal issues kill outdoor systems.

And so moving out of that nice air-conditioned environment to a non-air conditioned environment is the first step to going 0 diesel. And rather than just trying to make it work with existing technology that works great when you put it in the fridge, but does not work great when it's not air-conditioned. eSite took the visionary step of designing a passively cooled system that does not require active air cooling. It took the second step of pulling it outside of the battery cabinet.

So inside that cabinet is a bunch of batteries and a bunch of telecommunications equipment and all that power generation switching equipment was really, really hot and adding to the heat in the cabinet, not only affecting the electronics, but the batteries in the business. So on the hardware side, Esite-Micro and the converter technology that they've built and that we are honored and pleased to have as an asset within the merged companies now is the first step on the road to 0 diesel.

The second step comes from data analytics. So you know that our core technology, and I've got to update this picture and show all the different power devices. There are now 5 or 6 of them [indiscernible] that just one. But every power device we have, Pico, Senti, Illumient, Nano, eSite communicates wirelessly to our Illumient's cloud platform. And in our Illumient's cloud platform, we have, to our knowledge, the largest data set of 12 million operating days of historical data around the world of telecommunications and lighting systems and solar and solar-hybrid operational systems.

And using our energy forecasting and management and our troubleshooting and remediation, we deliver maximum uptime longest life and easy to install and maintain. And on the maintain side, it's all about how to get to 0 diesel. So our customers benefit from this intelligent management capability in many ways. Everybody in the marketplace is talking about AI. And I'm very cautious as to how we talk about it, and I want to make sure our investors and our customers and our stakeholders are all aware of where we're going.

The first thing that is important to understand is that it doesn't happen overnight. And you start at the ground level and you build over time, and it's kind of a continuous line. So I find this capability -- this analysis from Gartner, a very good analysis. And I understand that we've been talking about big data, data analytics and predictive analytics since almost the first days at the company has been established, we started off by getting all the data all the time.

As that data has grown, figuring out how to manage very, very large repositories of data is a huge endeavor, and we've got an infrastructure that allows us to do that. We have a lot of sophisticated analytics and tools that allow us to leverage information from that data, and we've now moved into predictive analytics. What is going to happen in the future? As part of our government grant program, we have a $14 million 3-year plan to invest to take that last step and to begin adding a checkmark under AI and the kind of AI we believe we're going to be using is machine learning.

There is no checkmark there, but we've got the first 4 checkmarks. And it's important to understand that the competitors in the marketplace can't just start with machine learning AI. They need the data, they need big data. They need domain knowledge about the operation of the sites from analytics, predictive analytics and that capability to move forward before they can add the layer of machine learning, and that's where Clear Blue is going.

So what's our target objective? Well, first of all, we want to lower the upfront cost. The upfront CapEx of tower infrastructure is the #1 limiting factor that limits the ability for people to roll out additional infrastructure in telecommunications. And we've been able to demonstrate independently validated that you need 40% lower upfront cost versus the competition in the configuration of those systems using Clear Blue.

That's just not lower cost of our staff. It's less solar panels and less batteries for a Clear Blue Smart Off-Grid System versus a traditional power grid or solar grid system. The next step is how do we reduce customer diesel consumption. Well, adding solar will help, but these are very difficult sites, shaded, legacy. They're not out in the middle of a farm and they're a small footprint.

So using data analytics and performance objectives and energy management is really what's needed. And our target objective is to reduce diesel consumption by 20% to 50%. As I said to one CEO of a very large tower company, we're never going to get to 0 diesel on all of your sites. But right now, you have 100% of your sites on diesel, you're going to reduce the diesel on all those sites by adding solar.

If our predictive analytics can take 20% to 50% of those sites where you could actually shut down diesel down to 0, that's going to have a huge impact. So it's going to improve maintenance, it's going to increase uptime. And then most importantly, from his perspective, maybe it adds 5% to 10% profit margin to his bottom line. So now we're going to turn it over to the discussion of the Q1 results, and I'm going to hand it over to Farrukh, who is going to walk you through our financial results. Farrukh, are you there?

[Farrukh Anwar, executive]

Yes. Thank you so much. Hello, everyone.

[Miriam Tuerk, executive]

Thanks. There you go.

[Farrukh Anwar, executive]

All right. So we're going to start with revenue. So revenue for Q1 2020 was $262,000, which yielded a trailing full quarter result of $1.6 million. Q1 typically -- Q1 orders are typically overflows from previous year. And as a result, this year's Q1 continued to be impacted by a difficult 2022 economic environment, wherein most customers paused their capital spending and financing of new infrastructure.

Next slide, please. Okay. So when we talk about our revenue, if you look at our trading full quarter revenue by different verticals and region, so Clear Blue's lighting vertical is made up of onetime revenue and Energy-as-a-Service recurring revenue. As the company continues to grow its Energy-as-a-Service offering, we have been seeing a gradual decrease in 1 time lighting revenue and corresponding increase in Energy-as-a-Service recurring revenue.

The 20% decrease in lighting revenue is impacted by the same [indiscernible] shift. The revenue to be generated over the next 3 years. The decrease in U.S. revenues is also likely impacted by customer projects, delaying -- delays in customer projects, waiting for the infrastructure and act. So we are now in a place that our future outlook is looking good for our lighting business. Our telecom vertical has been growing over the past few years.

However, for the first time, we saw a decline in this vertical during the previous 12 months. This can be attributed to global macro economic environment, which we saw that -- where we saw that certain telecom rollouts were delayed, resulting in a decrease in revenue for the quarter and trailing quarter of 2022. Customers also delayed their CapEx expenditure in 2022, which caused project deferrals. We will continue to have good relationships with these customers and are working with them to accommodate this revised rollout schedule.

When we speak about bookings, you will see that the orders have now started to increase and flow into the company.

Next slide, yes, please. So as I said in my previous slide, so this is the impact that we see in the shift. So Illumience and EaaS, Energy-as-a-Service recovery revenue. So recurring revenue is the revenue the company earns from its Energy-as-a-Service and Illumience ongoing management services and cloud software. Every single system that Clear Blue has ever sold includes an ongoing service component. Clear Blue manages and operates the power systems on an ongoing basis for our customers. This is at the heart of our business and our value proposition. As telecom customers increase wireless telecommunication bandwidth has increased their wireless telecommunication bandwidth to support their ever-growing customer base. So to do -- so as well, the power needs of those sites are also increasing. The ongoing growth of telecom systems and ongoing operations and maintenance of these power needed to keep the system functioning is what drives the growth of our recurring revenue.

As you can see, addition of our telecom customer rollouts over the years is having a nice impact upon the growth of our recurring revenue. So recurring revenue is expected to increase every quarter as Clear Blue sells more units with a subscription model and as the company's base of telecom installation growth. Telecom systems tend to grow their capacity and power consumption, which also increases the recurring revenue for Clear Blue. For the trailing 4 quarter period, recurring revenue grew 75% to $856,000. For Q1, revenue was $212,000, up to 40% from the same period last year.

Next slide, please. Do you want to speak about our bookings?

[Miriam Tuerk, executive]

Sure. So we, as you all know, had a brutal 2022 and the results in Q1 sort of carried over from that because most of our Q1 results come from what over in Q4 bookings. And -- but beginning in Q1, we saw a real change in the numbers. And so we're really thrilled to be able to talk about the fact that our bookings in Q1 and I can see there's an error on this slide. The top number is correct. Total bookings increased to $3.5 million in orders. which is up more than 50% from the amount that we had at the end of December. At the end of December, the bulk of the revenue was built out over the next 2 or 3 years. So the recurring revenue proportion of backlog of that. But in Q1, we started to see new orders which have a year 1 component as well as year 2, 3 components. So we're working very hard now for those bookings to ship and be delivered in Q2 and Q3 it typically takes 4 to 6 months, the actual range is anywhere from 2 to 6 months. for orders to transfer from bookings into revenue. And so as we've seen these orders come in the early part of the year, we expect to convert them to revenue this year. Farrukh.

[Farrukh Anwar, executive]

Thank you, Miriam. So if you look at the graph on the right, we see that the company has been able to grow its margins over the years. And now I maintaining margins -- and now we are maintaining margins at the mid-30 range. With higher inflation and increasing commodity prices, there has been a pressure on the company's margins. However, in most cases, the company has managed to either innovate lower costs elsewhere or fast portion of these increased costs of materials to its customers. The trailing fourth quarter gross margin remained consistent at 34% when compared to the comparative period.

Given the acquisition of the eSite Power Systems at the beginning of the current quarter and other cost pressures on the company, we expect overall margin for 2023 to be in the mid-30s range. This can be seen in the gross margin for the current quarter, which is -- which was at 36% compared to 41% in the comparative quarter of 2022.

Next slide, please, please, Miriam. So about the operating expenses. So in this environment of high inflation and resulting higher costs, Clear Blue's management is focused on reducing operating expenses as possible. In Q1, the operating expenses decreased by 11% compared to the same period in 2022. The operating expenses included $310,000 worth of eSite operating expenses. And the revised operating expenses related to the company for the 3 months, if you exclude the eSite, was around $1 million. So there's an actual decrease in operating expenses of 32% when compared to March 31, 2022.

So this is really the 2 costs were lower compared to the comparative quarter. Research and development expenses decreased by 147,000, and rent for our warehouses decreased by around $28,000 compared to Q1 2022. So the decrease was partially offset by an increase in professional expenses, which were higher around $25,000, and depreciation of property equipment, which was around $32,000, and this was mainly eSite-related equipment.

So for the trailing fourth quarter ended March 31, 2023, operating expenses increased by around $168,000 to $5.6 million compared to $5.5 million in the previous period. Excluding eSite side operating expenses, our total operating expenses were around $5.3 million, which takes an actual decrease of 3% when compared to 2022.

Next slide, please. So here we speak about our EBITDA and adjusted EBITDA. So if you look at this table, you can see that EBITDA was slightly positive at the quarter end by $25,000 as compared to $919,000 negative in the comparative quarter of 2022. This result includes an impact of government R&D brands. The company has signed a number of contracts with the government or different -- these are different projects and the grant for these will flow to the company over the next 3 years.

So because this is a consistent policy switch and basically, this is the grant that we are getting on an ongoing basis from the government to support our R&D expenditure. So that's why EBITDA number is a very important number for us, and you can see a positive because grants are included in there. However, when you take out the effect of these global brands, the difference between EBITDA and non-IFRS EBITDA, it's mainly because of our global grants.

So adjusted EBITDA loss increased by 32% for the quarter and increased 22% on a trailing 4-quarter basis. The delta in non-IFRS adjusted EBITDA between Q1 and Q1 2022 can be attributed to a decrease in revenue and an inclusion of operating expenses from eSite. Thank you so much, Miriam.

[Miriam Tuerk, executive]

Thank you, Farrukh. So what does Q1 tell us? Our hope and our belief is that it is a launch pad for upward revenue growth that we are done with the wonderful 2022 experience that we all don't want to repeat. We did do a lot of work in Q1 and set a lot of foundation items. The closing of the eSite acquisition is something that is material for the company and will add an important high-growth product to Clear Blue's portfolio.

As we've just ramped up sales and sales tends to take 12 to 24 months from a sales cycle perspective, you're going to see eSites start to come online. It's still a small amount in the funnel and early stage in the funnel, but that's going to be changing over time. Q1 is often times other than if we get like a 1 big order or something that carries over, Q1 has traditionally over the company's history, been a very low revenue quarter. We've had years where it's 5%, 7% of the total year. And it was low again this year as it often is because it was impacted by 2022.

But bookings, which is the orders for the rest of the year and the backlog going forward, were strong at $3.5 million. And subsequent to the quarter, they grew to $4.6 million thus far in Q2. We've been working hard to build our recurring revenue base, and we finally have lift off. We've been growing that nicely. So we grew it by 40% quarter-over-quarter to $212,000 per quarter. I look forward to having a trailing 4 quarter of recurring revenue of more than $1 million, going to be happy when we get there.

Gross margin was stable for the quarter at 36%, which is a pretty strong statement given the fact that supply chain issues and low revenue. As of today, the company has $5.6 million of available signed contracts for government funding. $3.8 million is that is in grants and $1.8 million is in the form of a 10-year interest-free loan. And that funding is outlined over the next 3 years. So put all of that together, if you compare the balance sheet from December 31, the balance sheet end of Q1, we have improved our balance sheet. We've increased our working capital nicely, and it is our plan to continue to focus on doing that and improving it.

So cautious optimism, bookings are strong, really happy on the sales side, got some great momentum, but it always takes a little bit of time to have a turnaround. And as customers execute in 2023, the bookings and orders have come back up. We've got a robust sales funnel, and that's looking good. eSite is contributing revenue. There was revenue in the quarter for eSite, and there will be a follow-on revenue in Q1 and Q3. The sales funnel is building nicely as Clear Blue ramps up its sales on this product and reestablishes relationships with those customers, et cetera, et cetera as our Illumient service. And beginning in early Q3, Pico-Grid and Senti will begin shipping and both of them have strong market interest.

In terms of key sales activities, we are focused on continuing the momentum around Illumient North America. Been very happy with the results year-to-date and now focused on making sure that we put pedal to the metal on that as more and more customers are looking to solar lighting first and are looking to capitalize on the tax benefits and tax credits that flow to both tax paying entities and nontaxpaying entities, really cities and municipalities. We've seen a market change in activity, some really good channel and partnership relationships that we've built, and we're working on consuming that momentum.

The towercos and the telcos behind them are investing heavily in solar upgrades. Almost every customer we're talking to is converting their existing nonsolar power systems to solar hybrid. And this is the market that Esite-Micro is perfect for when married with Clear Blue's Illumient product. So we've got a number of customers who have trials planned and active in Q2 and Q3. And those are all their proof of concepts with their end customers, all being planned for setups and rollouts for larger rollouts in 2024.

So we are heavily focused on the active success of these pilot projects. In addition to the pilots, we've got a large number of RFPs that have hit the streets that were -- we've been qualified for. You have to be selected as a vendor that's allowed to bid on those projects. Oftentimes, vendors will split the business to multiple customers because -- multiple suppliers because they don't want to put everything in 1 basket. So to get selected as a vendor, if you do your job well, can oftentimes mean you're going to get a slice of the pie, and we have a number of proposals underway.

Our Nano-Grid business is expanding. We're doing a lot of projects with satellite companies and e-learning. Avanti has a major e-learning program, and we are a partner of that partnership. We've got a first pilot up and running. And all of those projects, again, phased rollouts over time. We do see more Nano-Grid shipments coming online in Q2, Q3 and hopefully in Q4. We're launching Senti in North America, and we're launching Pico-Grid. Both of these products are low-dollar volume products. So it takes some time for the volume to grow. And that's why we are seeing that the revenue impact will be small in 2023, but we start to see larger revenue impact in 2024.

It's not that we're not going to ship anything in 2023. It's going to start out small. And because they're a small dollar item, it's in a box, ready to ship mass market-type product, it will take some time for that to grow.

So what are the catalysts for value creation? So when I look at -- how are we going to get us back to the point where our stock market valuation is more reflective of the actual value of the company and what are the catalysts that are going to show that?

Well, in 2023, you're going to see North American sales growth. Nice to see a good mix between Illumient and North American market. You're going to see Esite-Micro sales in the retrofit marketplace. Really focusing on our high-prop funnel for converting to actual bookings and orders in hand. Demonstrating cash flow breakeven at $2 million quarterly revenue and a return to at least 50% plus growth rate year-over-year is where we think we're going to get at.

Beyond 2023, you add all of that. 2024 has got a good growth rate from 2023. We start to show those trends. We show good organic growth on the top line, but we also have the opportunity to turbocharge it with M&A. If you see what we are going to demonstrate with eSite, that is a very good example of the company's ability to do an acquisition to integrate an acquisition and where 1 plus 1 equals 3. And we believe that as we demonstrate that success with eSite this year, that's going to enable us to turbocharge our other M&A targets and grow the business significantly. And all of that put together to show and demonstrate an established track record of consistent EBITDA growth.

So in terms of our outlook, we have a much wider product line. Our sales funnel and order book is diverse. One of the things that's great about the order book that we have is with multiple deals across multiple markets and products. Unfortunately, that means you don't see a press release with them. Clear Blue received one single order for $5 million.

But fortunately, what that means is we've got multiple engines firing with many, many orders and a book. So we're happy to see that diverse in multiple orders and bookings. We'll be announcing more orders as they come. But when you see a small, nice $0.5 million, $1 million order, 20 of those are way better than one big one. So that's what we're focused on. We have strong booking momentum, and we need it to continue in order for us to have a really fantastic year.

The critical need from Clear Blue's perspective is, you've got to get the orders in hand and then you've got to convert them to shipping. So it's critical that we have the time lines for the orders to actually convert from bookings to shipping. An order can generally will have anywhere from 2 to 6 months, most of the time in booking time line. So it's 2 months, we can get an order in October and ship in December. But if it's 6 months, if it isn't in hand in Q3, it starts to roll over to next year.

We are very focused and continue to have an objective of our target plan for 2023 to achieve positive EBITDA and net 0 cash burn. So far, we're on track to that, and we are going to continue to do everything we can to make sure that we deliver on that. And what that means is a continued ruthless focus on the balance sheet and cash continues internal to the company and will continue. So that's all we have. I'd like to open it up to questions if perhaps -- Soffik, do you want to maybe curate the questions?

[Nikhil Thadani]

Sure. Thanks, Miriam. And as a reminder once again, if you have any questions, please feel free to use the Q&A box at the bottom or sent an email to e-mail the questions to us at [e-mail] or all [e-mail].

We do have a few questions that have come in. So let me try and organize them a little bit in terms of maybe guidance, bookings, revenue and then working through the costs in that order, roughly speaking, Miriam.

So the first question we have is, I know you're not providing guidance, but in your comments, you said 2022 was not as typical a year as you might have seen in the past and 2023 would be So should we be thinking closer in terms of $8 million or $9 million on the top line in terms of 2023 revenue?

[Miriam Tuerk, executive]

So as you know, and I'm going to reiterate, we are not giving guidance at this time. There's been too much market uncertainty and where our numbers are at, but that sounds right. It's kind of in the ballpark of where we're trying to go.

[Nikhil Thadani]

Okay. The next question is somewhat similar. Moving down the income statement a little bit. It's asking about the outlook and being cash flow neutral or cash neutral rather. So the outlook mentions that 2023 revenue could be cash-neutral/EBITDA-breakeven at roughly $9 million in revenue. Can you help us understand the revenue visibility you need to attain that level since order intake this year according to your previous press releases correspond to about $4 million in 2022 revenue. Are you then expecting another $4 million to $5 million of orders in Q2 or Q3 of this year?

[Miriam Tuerk, executive]

So the first thing I would like to mention is that it's important to remember that when Clear Blue gets an initial order from a customer, it -- that order always includes the upfront initial sale of shipment of the equipment. It also includes the first 3 years of the ongoing service management. So deferred revenue -- recurring revenue that gets booked as an upfront amount, we also receive the cash. So an example might be, we might have a project for an Interstate Highway in the United States, it might be, let's say, it's 500 -- I'm just going to round off, let's say, it's $1 million project. It's not a $1 million project, but let's say it's $1 million project. So just for percentages Of that, you might have $500,000, $600,000, $700,000, that's onetime revenue, but you also then might have $300,000, $400,000, $500,000 of deferred recurring revenue.

Even though that's deferred revenue where we won't see the revenue this year, the company receives all of that cash. So depending upon the booking, when we get the booking and we ship, we receive full payment for 3 years ahead of time, and that assist us in our cash. As our bookings backlog grows, we will let the market know. At this time, the trend is positive, and we believe this trend will continue through Q3 and beyond. But we need the timeline for those orders to be such that we'll be able to ship in fiscal 2023.

Our high prob sales funnel shows potential that we could achieve those numbers, and we are cautiously optimistic that we can make it this year rather than having them delay into next year. But that's the critical thing is when will the bookings come in and how quick can we convert them to revenue.

[Nikhil Thadani]

Okay. Somewhat similar question just came in and maybe you can clarify it a bit more. How satisfied are you with the bookings year-to-date? And what is your target in bookings for the next 6 to 9 months?

[Miriam Tuerk, executive]

So I'm very satisfied doing the happy dance on the bookings to date. As I said, it's not just because of the number, it's the diversity. It's across all products and all markets. And many of these bookings are phases in projects that we have with customers. And so while things got paused last year, they've restarted the programs and their plans are to do phase rollout. So it's indicative that the halts has stopped, and we're pressing go, we've got the pedal to the metal again. And so the hope is that it's not just these orders, but that the follow-on phases continue to go forward. We're also seeing good interest in eSite, good interest in Pico and Senti.

And so that has us being quite positive from a really bullish in terms of the bookings we had. Bookings is a good news story right now, and we're very happy we need it to continue and we needed to execute delivery through the rest of this year.

[Nikhil Thadani]

We've got a couple more on the order intake and bookings and then there's another one on the sales funnel. So let me take them on the order intake. The increase in order intake beginning in Q1 2023 that was referenced in your MD&A, I think you might have just alluded to this, is that pertaining to your previously paused projects or more from new projects?

In other words, where do you expect further strength in order intake that you expect in 2023?

[Miriam Tuerk, executive]

So I think it's a good mix of existing customer follow-on phases and new customers. Many of these projects were indeed orders we had anticipated in 2022 and have now come in. Some of them are part, as I said, of multiphase projects for future phases are expected. Customers are moving forward but with caution. So for instance, we saw 1 customer break their 2023 order into 2 phases. So they said, well, this is the quantity we're going to need. And then at the end of the day, purchase order we got is, well, we're just going to be cautious, make sure everything keeps going the way it should be, and we see everything the trends continue on their side. So they placed an order for the first phase of that piece. There's a possibility we'll get a second phase this year.

So we are seeing those multi phases starting again. But we have some exciting new orders from new customers. And we have now started to see the impact of U.S., Canada and international programs investing in climate change initiatives. We expect that to continue and to grow. And our focus is growing our existing customer base, adding new customers to that base.

[Nikhil Thadani]

We have one more on order intake. Can you help us reconcile your order intake press release, year-to-date and bookings referenced in your MD&A. For example, Q1 order intake was around $3.5 million and Q1 quarter end bookings were about $3.5 million. However, bookings at the end of Q4 around $1.9 million. Does this imply that bookings should increase by another $1.9 million? Furthermore, year-to-date order intake has been around $4.6 million. Does this then imply that the current bookings number should be $1.9 million plus $4.6 million or roughly about $6.5 million? And why is there a time lag between order intake and when there's sort of announced this bookings in your MD&A.

[Miriam Tuerk, executive]

Okay. So I think I understand the question and how there could be some confusion. When we report bookings, we have bookings and bookings backlog. And because as a recurring revenue company, you want to know how much future guaranteed revenue you have. So in our MD&A results, what you saw on the table is our bookings backlog. It's -- please understand that, that number is always a point in time reference you would not add the year-end 2022 number to the Q1 number.

I'll work with Farrukh to make sure we're a little bit clear on bookings backlog versus new bookings. So each quarter, there are new bookings and new shipments, which are puts and takes to the booking backlog number. A booking is defined by us as Clear Blue having received some formal notification a purchase order, a contract or a letter of award. The time line between when a booking occurs and when revenue is recognized is impacted by the timing needed for a contract, if there's a contract required not always, most of our projects are not contracts, but the deposit payment, engineering, design and sign-off, which is the piece that can take a little or a long amount of time and then the manufacturing and shipping time line.

So the time between a booking and a shipment can vary Typically, orders ship between 2 and 6 months of booking. And then, of course, it's important to remember that recurring revenue is delivered over 3 years. So as our recurring revenue grows more and more of the bookings will be delivered over a 3-year period, and you're going to see our bookings backlog grow.

[Nikhil Thadani]

Changing track a little bit. You've got a question about the sales funnel. Can you quantify your sales funnel? And how large is it?

[Miriam Tuerk, executive]

So the first software license because we did a lot of -- we use a lot of open source software. the first software license the company paid for when we started the company with Salesforce. We are forensically detailed on our sales funnel. And we slice and dice it into multiple categories. We have a written documented rule as to what the percentage probability is in the pipeline. At any given time, our sales funnel is in those $300 to $400 million, $450 million, $350 million range. That is the sales funnel over the next 4 to 5 years. So it's things and projects we have visibility to.

So in order for a project to hit that sales funnel has to be a real project. The customer is ABC Joe, and he's doing telecom project wide or roadway project, Z. I'll give you an example of one that's in the sales funnel. There's a huge bridge from Manhattan to New Jersey, that's planned to be redone in about 2 to 3 years.

We've done the engineering layout. We've done the design, we've done the solar proposal. Who knows if they're going to go solar, but it's a real project. That's in our sales funnel, but it will show as a low probability, and it will show as something that would close in 2026. The more important piece is what's our higher probability funnel and our shorter term, what's possible to close this year. And that number, we ruthlessly scrub on an ongoing basis. We analyze it. We break it down into high prob pipeline. And in high prob, we have forecast and commit.

And that number has been growing quite strongly. I believe it's sitting at around $40 million for this year of high prob pipeline. So those are real deals that are imminent. We have budget, authority, need and most importantly, timeline validated that they would be orders for this year. And so with a high prob funnel of possible orders this year of about $40 million in a total sales pipeline of $300 million to $400 million we are looking for another $5 million in bookings, $6 million in bookings, $10 million in bookings this year to blow it out of the water.

[Nikhil Thadani]

We have a follow-up question on the bookings backlog. What is your current bookings backlog? Where would you like it to realistically be in the next 6 to 9 months?

[Miriam Tuerk, executive]

I don't know that I can answer the second one in terms of bookings backlog where I'd like it to be. Right now, it's -- as in the MD&A, it is $3.5 million of our current booking backlog, and we have broken out for you what revenue we believe will be in the forward 12 quarters in the next 12 months and what revenue will be after that. So that can show you from that perspective. In terms of where I want it to be, I'd like to get the order today and have it shipped tomorrow. And when that happens in the quarter, you don't even see it in bookings. We get the order and we ship. So we will have received orders in Q1 and Q2 that never show up in bookings. And I'd like every order to go, which would mean my bookings number would be quite small, but my recurring revenue, I'd like to see it grow quite significantly.

So the onetime backlog, I'd like it to go down because I'm shipping very quickly on an ongoing basis. But the recurring revenue backlog, I'd like it to be growing significantly $2 million, $3 million, $4 million because I want to go from $1 million in recurring revenue to $3 million to $7 million to $12 million, and we are on track to making those kinds of numbers.

I suppose, given that we are talking about $2 million to $6 million in booking time lines between when you get a book and when you ship, I'd like our bookings backlog to be around $8 million because I would be a very happy camper if we did $15 million this year. I'm not saying we're going to do $15 million. But where would I like it to be, I think that's what I go on vacation. I'd say I can take a week off.

[Nikhil Thadani]

The next question is about revenue. What impact in terms of incremental revenue percentage do you expect the introduction of Pico-Grid to have?

[Miriam Tuerk, executive]

I think this year, Pico-Grid and Senti will be below $1 million in revenue. And I actually wouldn't want it to be bigger than that. You have to follow the concentric circle model of building your business, and those are 2 new products. I don't want to ship 10,000 of them in the first shipment. We have to grow that business in a paced way so that we can validate in the field, the use cases, find any tweaks, identify any bugs, improve the release process, et cetera, et cetera.

So it will be under $1 million this year, nothing more than that, and I would slow it down to make sure that we've got enough traction to validate. Next year, my hope is that you will see -- I have no idea, north of $1 million for sure, but I'd like to see $3 million to $5 million from Pico-Grid and Senti. That's just off the top of my head. I'm not saying I've got the funnel or anything. That's not guidance. Don't hold me to that, just giving you my gut feel.

[Nikhil Thadani]

Next question is somewhat of a similar , but it's a little bit more qualitative. How is the integration with eSite proceeding? Is it mostly complete? And are there any revenue synergies that you can point to?

[Miriam Tuerk, executive]

So the eSite integration has gone really well, but it's still early days. So we've completed Phase 1 of the integration. We've integrated them into the org chart. We've integrated the team members. We've got good team building, people working together. We are slowly getting the integration of the processes. I can tell you that Q1 was a brutal quarter for Farrukh because he had to consolidate eSite financials. That was the first quarter where we did that. That's not a trivial exercise, and we're a pretty lean team.

So from that perspective, it's all going well. From a customer base, it's going well. stabilizing and securing the supply chain is something we're still -- lots of work coming and focused on. And it requires some focus to make sure that, that's all stabilizing going forward. So I think in general, it's going very well. I don't expect any problems going forward, just a lot of hard work.

What was the second part of the question? Oh, on sales. So yes, really happy with the synergies. One of the pilot projects that we're doing that we're very excited about is a marriage of a Clear Blue customer and an eSite customer. And those 2 customers are working together on a very big initiative. And when eSite and Clear Blue merged, we brought the 2 together. So we have eSite customers who are keenly interested in Clear Blue. We have eSite customers who are asking us to implement and buying our Illumient 3-year service and service team to operate and manage their sites for them, and that has done very well.

We've had a couple of customers. kind of screaming about it. And as soon as we acquired the company, we brought the team and in Africa and the skill set and the management process and the tools our integration has begun. The full integration of first phase of the full integration of eSite with Illumient will be delivered in the fall And so we're on a roadway there. Similarly, we have the Clear Blue customers who just grab that eSite products and very keen to go . So the synergies on the sales side between the 2 businesses was significant and really huge benefit for both of us.

[Nikhil Thadani]

[ Easing tracks ] a little bit. We've got about half a dozen questions more in terms of the cost side and balance sheet and governance so whatnot. We're also coming up on the hour. So Miriam, my guess it's okay if you keep going. We'll put the recording up on the website. How should we think about the gross margin going forward. Q1 was about 36% is a 30% to 35% range appropriate given the eSite acquisition and the current state of the global supply chain?

[Miriam Tuerk, executive]

Farrukh?

[Farrukh Anwar, executive]

No, I can take that. So given the acquisition of eSite at the beginning of the current quarter, and it's still early days, and there are other cost pressures on the company as well, as I mentioned in my presentation. So we expect the overall margin for 2023 to be in the mid-30s range, 30% to 32% to 35%, 36% around that time.

[Nikhil Thadani]

Got it. Next question, I guess, just moving down the income statement. They're asking what's a good way to think about operating cost going forward on a combined fair blue plus site basis? Based on the MD&A, it looks like Clear Blues' OpEx was about $1 million in Q1 and eSite was roughly another $300,000. And as you win more orders, do you need to increase your team size?

[Farrukh Anwar, executive]

So as I said earlier, that we did undertake a good strong cost-cutting exercise in 2022. So we can see that after the cost-cutting exercise, where we reduced headcount, salaries and reduced other expenses as well. And if you take out eSite, let's keep eSite for now, you can see that our costs have gone down significantly compared to Q1 of last year.

So with eSite, as we -- typically, the majority of the eSite costs are their salaries. So as we complete the integration, we expect the salaries for eSite to go down. And however, we do see market pressure on salaries of our own employees because inflation and whatnot. So many of these people work in Africa and all of which have experienced significant inflation. So there will be need to some increases in our cost for salary growth. As we scale our revenue, we need to hire additional resources. But as of right now, the growth is expected to be quite small this year.

So we are continuously reforecasting our budget and cash flow and as revenue grows, we are pressed to deliver more to our customers than we might hire more people. But on a continuing basis, our operating expenses have already been slimmed down. So for the things that I would see with just as I said, increase would be some salary pressures that we have for our internal staff.

[Nikhil Thadani]

Could you summarize the additional nondilutive capital remaining on various government grants and interest rate loans? And are you expecting any more cash disbursements from these programs in the near term?

[Farrukh Anwar, executive]

Yes, for sure. So as of May 29, the company has around $5.6 million of available government funding with 3.8 million receivable improving plants and $1.8 million received in the form of the Fed there 10-year interest free loan to fund our plans going forward for the next 3 years. So subsequent to the quarter end, we did receive approximately $1.2 million in additional disbursements, and that was newly driven plans. The receivables from Fed debt was slightly delayed because of the government strike. We do have around $300,000, 2 claims receivable from Fed debt. So as the people go back to the Fed that goes back to work and they start processing our claims. So we expect somewhere around $300,000 to $350,000 more in the short term to be received from Fed debt?

[Nikhil Thadani]

The next question is asking about cost philosophy on broader level. You're involved in many different markets and product lines, each of which could be a focus business in itself. There seems to be some limited sales traction in any given market, and yet the focus seems to be R&D to the limited cash flow to support it. How do you plan to exit from this cycle?

[Miriam Tuerk, executive]

So it's a really good question about are there related businesses and that. I think what I would say is -- when it comes to Africa, Pico, Nano and eSite have a lot of synergies. So for example, in our satellite business, we're seeing where there's a plan to be a fairly large hub-and-spoke model, 1 Nano-Grid, the power the satellite dish and then a whole bunch of Pico-Grids around it. So there are strong synergies between Pico and Nano and in that telecom vertical. We had a lot of conversations in Clear Blue around Illumient and the North American marketplace.

So remember that even though we talk about the world, our sales focus is Africa and North America. The other stuff is getting dragged in from other markets by customers that we already have or customers that are going there. We are very concentrated in 2 markets. Africa and North America. In North America, our Illumient business was pretty quiet the last few years and not going in the high-growth trajectory that we felt it could. We did a pretty comprehensive review last year and the year before, looking at our Illumient business and the why, was it us, was it the market, et cetera, et cetera.

And I think really 2 things have occurred. One, the infrastructure and Clean Air Act is having a material impact. So glad that we're still in that business, and we stay focused on that with one person supporting an entire network, that's pretty well established and doing a good job in building that business. The second was that the ability to just buy an all-in-one light that included solar power is where the major market growth happens.

So the Senti product has got to be the bulk of our revenue growth in that North American marketplace. So that is a valid question. and it was that we undertook and analyzed ourselves. But given the infrastructure Clean Air Act, the Canadian government subsidies, we've seen a big growth on that side and demand and interest and use case validity for Senti and our ability to sell it that way, we think that's still a good decision to be in.

In Africa, our 3 products are -- do have synergistic opportunities? I don't think I can think of any customer where we're only talking about 1 product. We're talking about multiples. So for example, eSite, Nano, Pico, there's all conversations going on with multiple customers. So there's good synergistic value there. And I agree with the investors' question about do we go beyond that until we're scaled much bigger than this? That's a really good question. And one of the reasons why we were pretty focused on what fit into the company as a product needed to be synergistic and that was the eSite acquisition.

In terms of the question of when we flip R&D versus sales, our biggest asset is that we have this big moat that it is not simple and easy for anyone. And today, our biggest competitor is Huawei. And it's not just Huawei on the telecom, they are going after the power. And so we've got lots of projects where it's us against Huawei. Our biggest most an advantage is the fact that even a company with lots of money cannot just go out and build what we have overnight. You have a cloud infrastructure, you have a communications infrastructure, you have hardware products, you have systems, you have service teams, you have data analytics, you have all of that. And that does mean that our carrying costs and operating costs are higher than other competitors in the marketplace where they just build a new product, they have a little hardware guy, they put a little software report in, you can download the data in excel spreadsheet the way you go.

It's completely different to what we do. What I would say, though, is that we made a very clear market decision to make sure that our R&D program was supported through grants and investments. And that is a big part of the hypothesis. We cannot just do R&D without the government grants to support that investment at this point in time. And that is why we spent a good chunk of time and effort to make sure we could secure a good R&D grant program to secure our R&D investments.

Now the name of the game is to grow sales and operations. I believe that we are very close, and I'm going to open a bottle of champagne when we cross over trailing 4 quarter $10 million, we are very close to that. And once the company gets into the $12 million to $15 million range, now it's time to start adding salespeople on that side. I think the other piece that we made a delivered strategy discussion on is the Pico-Grid and the Senti product, our mass market product. They don't require the same overhead of engineering, project management, customer support that a Nano-Grid or an eSite project would. And that is a big part of our growth strategy. Now again, you have to invest in R&D in order to have a platform that's scalable, and we have done that. But I think that, that's going to help a lot as well.

So that's a bit of a long answer. But Nikhil, did I answer the question?

[Nikhil Thadani]

I believe so, yes. And sparing through, I guess we've got 2 last questions left. 2 or 3 years ago, you stated plans to retire or change the roles in 2 years. Is that still the plan to change roles soon? And does the Board have a succession plan?

[Miriam Tuerk, executive]

No. It is not my plan to change soon. After everything we went through last year, I want to have 5 years of fun and very keenly interested in the company. We made some personal changes in our personal situation, myself and my husband, and we are now spending a big chunk of time in Africa, where there's a significant amount of customer partnership strategy, investor interest, and that is going to continue in the foreseeable future for the next few years.

I serve at the pleasure of the Board and the pleasure of the investors, so it's not necessarily a given. The Board is quite demanding, quite rigorous and really supports me to be the best COI can be. If at some point, it makes sense for me not to be the CEO, we will embrace that and make it happen. It's very difficult to build a succession plan for a person.

What you really need to do is to build a team and an engine where no single person has that. It's all in 1 person. And Clear Blue has done a lot of work in the last 18 months to do that. We have a good -- the amount of things where I'm personally involved in running the business, I have gotten less and less and less. We have good operations management at the management level below me. And so from a succession planning perspective, while I hope people would miss me, I believe that if we had to make a change, the Board could make that change and the management team in place could support whoever would be brought in to take that going forward.

[Nikhil Thadani]

Got it. The last one seems to be where can you pin a PDF copy of this presentation? I believe we usually put it up on the Investors section of our website, not recording, but the PDF as well, I guess, we'll do the same this time.

[Miriam Tuerk, executive]

Yes, we'll put both the PDF of the presentation and the recording up on our website as soon as we can.

[Nikhil Thadani]

We just got one last follow-up. Are there plans to transition to an independent Board without company insiders?

[Miriam Tuerk, executive]

Not without company insiders. We will -- we plan to have the company insiders be part of the Board on a go-forward basis. However, growing our Board is something that we do discuss. And it is our hope that we will potentially add some activity to the Board in this year. We talk about it quite frequently. It is very hard to find Board members. It's probably -- I think there are 2 critical most difficult hires that you can make.

And I don't know which one would come first, very hard to hire good salespeople. You can -- most people will know, you can hire 20 salespeople and 2 work and the other 18 don't. Finding good Board members who have the time and energy to contribute materially is not an easy thing. We do have a very good group of advisers and investors who we have as an extended family.

So all those government grants come with bankers who review our plans and give us advice, BDC, the bankers, all of those kinds of people. We have advisers who are observers and advisers to the Board, which we regularly bring in. We have Capital on the IR side. And our 2 independent Board members, Steve Perry and Jane Kerns, do a lot of work for the company. I will comment that we're very ruthless on making sure that we do the right corporate governance. So as an example, we have 2 levels of approval of all salaries, all changes. We have group reviews of editing. Anytime there could be an appearance of a conflict, the insider Board members will remove themselves from that conversation. And Steve Perry and Jane Kurn have led the charge.

Additionally, we'll go to Steve and Jane and say, where do you think we're at on the Board and what should we do? And they're helping us to add and grow it appropriately. So hopefully, you'll see some changes in the future. We're open to adding them, but it's got to be the right people, and they're not easy to find.

[Nikhil Thadani]

There are no more questions in the queue at this time. Miriam, I don't know if you want to make any closing remarks, we were done the Q&A portion.

[Miriam Tuerk, executive]

Yes. I think closing remarks. We've had a lot of support from everyone who is a stakeholder in the company, shareholders, investors, bankers, suppliers, partners, employees and customers. And I think we are through a very difficult 2022. The trajectory change is visible.

You can see it in the bookings. We see it in how the company is very busy. And we also commented that we seem to be firing on all cylinders, so we're running well and operating well as a company. So we thank you for that. We are really appreciative of that support. And we spend 18 hours a day, making sure that we deliver on the promise to all of you.

[Nikhil Thadani]

Thank you for your time, everyone. That's the end of the Q1 2023 earnings call. Thank you, Miriam.

[Miriam Tuerk, executive]

Thanks, everybody.

[Nikhil Thadani]

Thank you, all.