Clear Blue Technologies International Inc

XTSX:CBLU

Earnings Call Analysis

Revenue Bounces Back as Margins Hold Strong

After a challenging start to the fiscal year due to macroeconomic events, the company reported a significant recovery with a record Q3 2023 revenue of $2,273,000 and anticipates continued growth. This turnaround is partly driven by innovating to reduce diesel consumption by 20% to 50% at sites, potentially adding 5% to 10% to profit margins. The eSite Power Systems acquisition is already yielding strong results, and recurring revenue jumped 37% from the previous year. A mega partnership with Watt Renewable promises an additional $1.58 million in bookings, predominantly shipping in Q1. Gross margins impressed at 38%, and overall margins are expected to be in the mid-30s for 2023 despite inflation pressures. Operating expenses fell by 14%, aiding a significant 117% rise in EBITDA. Q4 revenue guidance is slightly lower at $1.8 million to $2 million due to the season, yet the outlook for 2024 is strong, anchored by a diversified product line and a substantial Q1 backlog of $1.4 million.

Transition to Artificial Intelligence and Machine Learning

Clear Blue is making significant strides with their eSite business and emphasizing a transition to AI through machine learning technology starting in 2024. They have already established a robust data infrastructure, processing more than 10 billion transactions and adopting predictive analytics. These steps are leading them toward innovative energy solutions, with the potential to cut diesel use by 20% to 50% and eventually achieve zero diesel on certain sites. This development could result in additional profit margins of 5% to 10% for their telecom customers.

Third Quarter 2023 Results and Future Earnings

The third quarter of 2023 saw revenues of $2.273 million, making for a trailing four-quarter revenue of $3.466 million. This improvement marks the end of a downturn influenced by the macroeconomic events of early 2022, as the book-to-bill commenced in Q3. Growth was also bolstered by the acquisition of eSite Power Systems, with the eSite-Micro product already contributing strong results. Apart from hardware sales, recurrent revenue from their energy as a service model, cloud software, and ongoing management services is central to their business proposition. The expectations for future margins are set in the mid-30% range despite the pressure from inflation and commodity prices.

Bookings and Partnerships Rekindling Growth

Clear Blue received a noteworthy purchase order and partnership with Watt Renewable, booked at $1.58 million, signaling strong growth potential for the next year. This along with a strong bookings outlook totaling over $400,000 in Q3 and shipped within the same quarter suggests improved revenue flows in the coming quarters.

Cost Management and Operating Performance

In the third quarter, Clear Blue managed to reduce operating expenses by 14% year-over-year, showing effective cost management. Despite investments in acquisitions and inflation pressures, the company has focused on innovating to lower costs and has passed some increased costs to customers. Their gross profit has grown, maintaining margins in the mid-30% range. The EBITDA also increased by 117% for the quarter to $67,243, signaling an improving operational performance expected to further enhance with the company's revenue growth outlook.

Financial Stability and Future Outlook

Clear Blue enjoys a strong financial position with a substantial amount of a 10-year 0% interest loan on the books, and support from partners and shareholders allowing for favorable debt restructuring. With an operational focus on achieving positive EBITDA and a cash flow plan designed to avoid additional equity raises, management expresses confidence in the company's forward-looking prospects. For Q4, guidance is slightly lowered to $1.8 million to $2 million due to seasonal effects, but they already have a $1.4 million backlog for Q1, setting up for a robust start to 2024. The aim is to consistently achieve results similar to or better than Q3 on a quarter-to-quarter basis, driven by a diversified product line and solid gross margins.

Earnings Call Transcript 2023-Q3

[Nikhil Thadani]

Hi, everyone. Thanks for joining us for Clear Blue's Q3 Earnings Call today. Q3 results were posted on SEDAR+ and the company's website last night. My name is Nikhil. I'm with Sophic Capital, helping Clear Blue with their Investor Relations. [Operator Instructions]. With that, over to yourself, Miriam.

[Miriam Tuerk, executive]

Thanks very much, Nikhil. So good morning, good afternoon, everyone. Thank you so much for joining our Q3 Earnings Call. I'm joined today by Farrukh Anwar, our CFO. We're going to go over the company a little bit, and then we're going to talk about our Q3 results and then talk about what we have in front of us for Q4 and more importantly for 2024.

Okay. So the first thing I'd like to just talk about is when industries and technologies hit an inflection point, what happens in the future is a market change from the history. And I believe that our industry and what Clear Blue specifically does in the clean tech industry is around where the wireless industry was around 1998 to 2000. The power infrastructure is evolving very rapidly now. We now have a lot of the world where we used to think of it, we have power or we don't have power. And there's a lot of places in the world. South Africa would be a great example where there's partial power. We only have grid power some of the time.

As a result of that and the huge movement towards green energy, the power infrastructure is being changed radically. And as part of that, there's a big movement to get power that is independent of the grid. When you see that happen, you can see the same type of change in the power infrastructure as you see in wireless where things just explode on the wireless power side. So we believe that we are at that inflection point. We're starting to see a lot of trends from that perspective. And the market is seeing the same thing. So as an example, Visual Capitalist - CB Insights was talking about the fact that one of the top tech trends in 2023 was virtual power plants or small independent power. And in that market, Clear Blue is a market leader in providing power solutions.

So our product portfolio has expanded quite a bit over the last 18 months. We've had our core Illumient solar street light product line. We've had our core Nano-Grid product line, but we've expanded it into 2 additional products. One was we did an acquisition of eSite for the telecom marketplace. And the second is we've brought out our own Pico-Grid product, which is for satellite WiFi and IoT. All of these products are powered and operated by our Illumient's core cloud technology, our Illumient's core cloud manages all of our Illumient systems that we install for streetlight, solar streetlight, manages all of our Pico-Grids, manages all of our Nano-Grids, and the integration with eSite-Micro will be completed in Q1, we've already sold, and there's been a large demand for many customers to do that.

The key differentiation for Clear Blue is we don't just sell hardware, we actually deliver on the ongoing green uptime performance operation metrics of a power service. And in that, we're unique. We're the only hardware company and technology company that focuses as an ongoing service on delivering energy forecasting management, troubleshooting and remediation, and allows our customers to deliver on their metrics. And I'll be talking about that a little bit more later in this presentation.

So what are the applications that we're focused on? Smart Cities solar infrastructure is part of what we do. This year has been a big upswing in the Illumient and the solar street lighting in IoT marketplace. I think given all of the fires and the problems with the grid that we've seen in North America and just a very strong determination that now is the time to meet our climate change goals and to build resiliency in our network. We've seen a large uptick in sales of our Illumient product line.

On telecom, we continue to expand our business in terms of Nano-Grid Power Systems and now with our eSite systems. And as we roll out and expand our market penetration for our Pico-Grid product, satellite IoT WiFi systems are what we do. So really, what you need to understand is that we are providing power solutions from anything from 0 watts. So I've got a 3-watt security camera, really low power, but it's mission-critical and it's got to run on solar only, right up to mainstream large telecom infrastructure at the 30 kilowatt range.

So when you look at other solar companies and they're doing commercial solar farms or feeding into the grid, those are really bigger systems than what we do. We do everything that's more downstream from that, which is where we're powering the IoT infrastructure of the marketplace. So we don't really go after your house or commercial solar farms, where all you're doing is generating the energy. We deal with mission-critical applications and solutions in our commercial industrial infrastructure and making sure that, that works really well.

In our Illumient product, in early 2022, we only had one product line, which was our STRADA series. We launched our CAMMI series, which was really the support of lithium and some evolution on the pole designs but support for lithium battery operations and systems. We did that in 2022, and then we have also launched our SENTI product, which is actually a very exciting product for us. We believe that SENTI is going to be bigger than STRADA and CAMMI combined, once it gets fully deployed to the market through our partners and our different sales channels. It is an all-in one solar street light.

You probably have seen all-in-one solar lights in the marketplace for the last 5 or 6 years. We did not enter the market because those products were not really meeting the performance specification that's required. They were kind of a little bit unreliable, not very well performing as you know, because we monitor and manage, people know when our stuff doesn't work. And so we wanted to make sure that the product would stand behind our value proposition of performance.

And with our new SENTI product, which is a patented product has a lot of unique functions, we now have the ability to step into that market. It gets us a really great product that could be deployed across North America, but also internationally. So as I said, we've begun shipping both Pico-Grid and SENTI this year. And then, of course, we've done the acquisition of eSite Power Systems.

When you are operating telecommunications equipment, if you go back a few years, you were talking about small little computer rooms with rack-mounted equipment with air conditioning. And that worked okay when you're running on the grid. But as soon as you're running and powering that on a diesel generator and you're wanting to move to solar, you've got to get rid of the air conditioning. You have to move to an environment where you can run it outside because air conditioning might be 30%, 40%, 50% of the energy. And as you know, any energy conservation is all about the 3Rs and the first one is reduce.

In order to reduce the air conditioning, you have to have power electronics that doesn't operate in an air conditioned, dehumidify, perfectly dust-free data center environment, you need to have power electronics that can operate in high heat with high humidity, with a lot of dust and dirt without air conditioning. And that's why we love eSite. eSite is specifically engineered.

I call it the Volvo of power electronics because we love our Swedish team. The quality of that product is unparalleled in the industry. I ran into someone at a conference in Africa 3 weeks ago, and I said to him, owe want to tell you about our eSite product. He goes, I know eSite, I had it 4 years ago. That stuff never dies. It works all the time. And I think it was partially because of the operations of the partner who is also a partner of Clear Blue, but 90% of it was the quality of the hardware.

So it is the first product specifically engineered for that environment. When you take that and you now integrate this, and this is what we've done, you bring Clear Blue smart power management capability, our service and operations model, and a full solution. All of a sudden, we believe we have a product that is really competitive with the Tier 1 suppliers of telecommunications equipment in the world. And we've started a conversation with our customers about how we're on the road to 0 diesel.

So we are really proud of the customer base and the services and the operations that we have in the marketplace today. Our transactions, our days of operation, our number of countries that we operate in has been expanding and growing. And I think it's important to understand that every one of these systems, we're operating and managing. So it's a virtual power network around the world that Clear Blue is operating and managing from its cloud infrastructure on a minute, hour, daily, weekly and monthly basis.

So how do customers benefit from all this energy management? And there's really 4 key things. The first is we have to manage how much energy we have. You don't have unlimited energy in these applications. You might have a solar only system and it gets rainy and dark and overcast, all of a sudden, you don't have that much energy. If you're running on diesel hybrid, which is where we're really moving quite strongly with our eSite business, you might have unlimited energy from the fuel, but you've got very aggressive ESG climate change targets where you don't want to use that gas anymore.

And so being a company that can do energy forecasting and can manage through those periods of low energy is a key value add that Clear Blue brings. With that, we talk about battery life cycle management and potential energy, how much energy could we use and where can we use it? And then, of course, it's got to work, it's got to work well. And as you deploy the thousands of systems, especially the smaller sites, this has got to be completely remotely controlled. You can't send a technical service person to every street light pool or to every Pico-Grid installation and you've got to reduce your cost of operation. There's a lot of pressure in the market to reduce cost, and we support our customers significantly that way.

So we're really proud to be able to talk about the fact that we are on the road to AI. We will begin implementing machine learning technology into our infrastructure, which is the real AI starting in 2024. But before you ever get there, you have to have data, you have to build a big data infrastructure. We have a cloud, big data analytics infrastructure with more than 10 billion transactions processed and thousands and thousands of transactions coming in a day. You can start to think about how many interact debit transactions the banking network has and understand that in Clear Blue, we're running a transaction processing capability with high security performance in the cloud. We've built that infrastructure.

We are doing massive quantities of analytics. We are implementing predictive analytics on a daily and weekly basis. And all of those are the leading steps to machine learning and AI. So this company started on the road to AI in 2011 when we started the company. The first little breadboard device was communicating to the cloud, and we were grabbing that data. And we have a strong leadership in the marketplace in this. And I think the impact of what we can do and what we can bring to our customers is really unparalleled and a really exciting opportunity for Clear Blue going forward.

So we've started to have a conversation with our customers, specifically the telecom operators and those companies that use diesel to power infrastructure and make sure everything is working. And we're starting to talk to them about how do we get to 0 diesel? And their first reaction is, yes, can't get to 0 diesel. These sites are small. They're in the middle of urban areas, there's buildings, et cetera, et cetera. And the interesting thing is that we, over the last 2 or 3 years, have already proven to the market that we can have a huge impact on the size of the system. With Clear Blue Smart Power, you can buy 40% last solar panels and batteries and get the same or better uptime performance in a solar-only system than any other company in the marketplace.

If you now take that and you extrapolate that to sites that are hybrid solar-diesel, with predictive analytics, we believe, it's not proven yet, we believe that we can reduce the amount of diesel consumption by 20% to 50%, and that there's a significant number of sites which can go 0 diesel. Today, they're running on diesel generators. Tomorrow, they're going to be on solar-diesel. And after a year of or 2 of predictive analytics and operations, we'll be able to turn the generator off. That's our target objective. So that's where we're going with our customers.

And at the end of the day, when we do that, that's going to put 5% to 10% additional profit margin right to the bottom line of every towerco or telecom company that is on the road to 0 diesel with us. So that's where we're going. That's our target objective. We're at the beginning -- well, not at the beginning, we're kind of at step 2 of that process, but we have a significant competitive advantage in going there. And as we deliver on this to the marketplace, I think Clear Blue's leadership in the market is going to grow strongly and solidify.

Okay. Let's talk about our Q3 results. I'm going to turn it over to Farrukh now, who's going to go through the numbers. Farrukh, are you there?

[Farrukh Anwar, executive]

Yes, I am. Thank you so much, everyone, for joining. Thank you, Miriam. So let's start with our revenue. So revenue for Q3 2023 was $2,273,000, which yielded a trailing 4 quarter result of $3.466 million. The first 2 quarters of the current TFQ were impacted by economic downturn triggered by the macroeconomic events of early 2022. As companies around the world paused their capital spending, Clear Blue's revenue was delayed by those delays in customer rollouts. Beginning in Q3 2023, the company saw a return to strong bookings, and some of those orders began to ship in Q3, resulting in a record third quarter. The company foresees this trend to continue, and TFQ revenue will begin to grow again going forward.

Next slide, please. So in terms of our sector and regional results, so TFQ for Q3 2022 includes a result of quarters prior to the downturn, whereas TFQ, Q3 2023 incorporates Q4 2022 as well as Q1 and Q2 2023, all quarters, which were impacted by the downturn. The macroeconomic events of 2022 were primarily because of this downturn. The Q3 quarterly results show that Clear Blue is now back to revenue growth mode. And as we move forward, TFQ revenues should begin to grow again going on forward.

Our telecom vertical has been growing consistently over the past few years. However, for the first time, you saw a decline in this vertical during the previous 12 months. This decrease can be attributed to the same global economic issues, which saw that certain telecom rollouts were delayed, resulting in a decrease in revenue for TFQ of 2023, Companies and customers also delayed their CapEx expenditure in 2022, which caused project deferrals. We shall continue to have -- we still continue to have a good relationship with these customers and are working with them to accommodate their revised rollout schedule. When you speak about bookings later, you will see that the orders have now started to increase and -- which is now reflected also in our Q3 2023 results.

Next slide. As you know, Clear Blue completed the acquisition of eSite Power Systems in Q1 of 2023. We have now launched this next generation of that product by integrating eSite unparalleled industry-leading power electronics with Clear Blue smart power management cloud software and a service and our business model. While normal sales cycles are typically 18 months, as you can see, eSite-Micro is now already contributing strong results in Q3. For Q4, eSite will be a large component of our quarterly revenue, and we are quite bullish about its potential in 2024 and beyond.

Next part, please. Let's talk about Illumient and EAS recurring revenue. So recurring revenue is the revenue that the company earns from its energy as a service and Illumient ongoing management services as well as our cloud software. Every single system that Clear Blue has ever sold includes an ongoing service component. Clear Blue manages and operates these 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 their wireless telecommunications bandwidth to support the ever-growing customer base, so to do our power needs of those sites. This ongoing growth of telecom systems and ongoing operations and maintenance of power needed to keep these systems functioning is what drives growth in our recurring revenue. As you see, in addition to our telecom customer rollouts over the years, is having a nice impact upon the growth of our recurring revenues.

Recurring revenues includes all revenue from existing installed systems, the undergoing ongoing management by Clear Blue. Customers will sometimes undertake to expand the capacity of their sites as telecom traffic grows and these onetime transactions are included in our recurring revenue as well. Trailing in Q3 2023, the company saw a return to strong bookings, which included onetime revenue as well. As a result, Q3 recurring revenue was $195,315, a 37% increase from the same period last year. For the trailing 4-quarter period, return on revenue increased by 2% to [ $715,000 ], which basically relatively remained flat for the period.

In general, recurring revenue is expected to increase each quarter as company sales more units with the subscription model. And as our company's base of telecom installations growth, telecom systems tend to grow their capacity and power consumptions as well, which also increases our recurring revenue for Clear Blue. Miriam, do you want to speak about our bookings?

[Miriam Tuerk, executive]

Okay. So there's 2 components to our bookings. One is the amount of prepaid ongoing services that customers have, which is the first line of this thing, of this table. The second is the orders that we already have in hand. And each order, of course, has a component which is expected to ship in the short term as well as an ongoing service. We actually had -- I can't remember the exact number, but over $400,000 worth of bookings that we received in Q3 and also shipped in Q3. Generally, we say that an order takes 4 to 6 months to ship, but we were able to get some of them in the quarter. And then, of course, subsequent to the end of the quarter, we announced the Watt Renewable purchase order and partnership, which was a booking of $1.58 million. The majority of that, of course, will ship in either -- well, majority will ship in Q1. Some of it will ship in Q4 and then there's the ongoing.

And if you saw in the announcement, we received an order for 160 sites. We are expecting the other 60 sites for their initial rollout to be received in the first half of next year. So Watt is expecting to do a lot of business with us next year going forward in addition to this initial order. They are Canadian Nigerian company, a very good, strong growing company. They've raised financing, and we are partnering with them on a number of opportunities in the marketplace.

Farrukh?

[Farrukh Anwar, executive]

Yes. Thank you, Miriam. So our gross profit. If you look at the graph on the right, we can see that the company has been able to grow its margins over the years, and now it's maintaining margins in the mid-30% range. With high inflation and increased 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 to pass a portion of these increased costs of patina to its customers. This being made possible because of our value proposition as well as our software and service. TFQ gross margins increased to 38% when compared to the comparative period. Given the acquisition of eSite at the beginning of Q1 2023 and other cost pressures on the company, we expect the overall margins for 2023 to be in the mid-30s range for 2023.

Next segment. Our operating expenses in this environment of high inflation and resulting higher costs, Clear Blue management is focused on reducing operating expenses where possible. In Q3, 2023, the operating expenses decreased by 14% compared to the same period in 2022. The operating expenses include $224,000 relating to the acquisition of eSite. And upon excluding the same, the revised operating expenses relating to the company for the 3 months ended September 30, 2023, is $969,000, which is a decline of 30% as compared to September 30, 2022.

Share-based compensation expenses were lower compared to the comparative quarter of $164,000 -- by $164,690. General and administrative expenses decreased by $163,940, and however, professional fees were a little bit higher by $95,000, and rent was a little bit higher by $38,000 when compared to the comparative quarter. For the trailing 4 quarters ended September 30, 2023, operating expenses decreased by $784,000 to $5,136,000 compared to $5,921,000 in the previous period. Excluding inside operating expenses, it was $5.2 million, which decreased by 11% when compared to 2022.

Next slide, madam, please. So our EBITDA increased by 117% to $67,243 for the quarter as compared to a negative $387,315 in the comparative Q3 of 2022. The company excludes its government R&D grants as part of its adjusted EBITDA calculation. As the company has commitments for these brands for the next 3 years, it is a fundamental part of our financial plan to assist in our R&D development. It has been included in this calculation. Adjusted EBITDA loss decreased by 103% for the quarter and 31% for the trailing 4 quarter basis. The delta in non-IFRS adjusted EBITDA between Q3 2023 and Q3 2022 can be attributed to the receiving of go branch towards operating expenses. As Clear Blue's revenue is expected to grow nicely over the remaining year, we expect our non-IFRS adjusted EBITDA to improve. Miriam, do you want to speak about our next slide?

[Miriam Tuerk, executive]

Okay. So I'm just thrilled with the results in Q3. I think that a couple of points, we were trending quite strongly to $2 million to $3 million a quarter and then Q1 of 2022 hit, and we had a 4-quarter downturn. That counter is behind us, and we are now building going forward, and so $2.27 million was great. I just want to make a couple of comments about the gross margin.

Getting a high gross margin for hardware companies is really hard. I've seen some in the industry. They're getting a couple of million dollars of revenue, and they're doing like 4% gross margin. We've built a lot of value in what we do in the software, in the functionality, and the capabilities. And that's what shows up in the gross margin. So if you've got low gross margins, to some extent, it doesn't matter what you do when you start to sell more and more. 38% gross margin, and we just want to guide everybody 30 to 35 with the new products and all those things is where we think we should be in the next 12 months. But those are solid margins, and we're really thrilled about them. Our EBITDA, positive EBITDA for the quarter. And as you know, we've been talking about getting there and moving forward, and we continue to believe and focus on that and deliver on that. And of course, our recurring revenue.

On the cash side and the debt side, a couple of comments I would like to make. The first is it's important to understand that when you look at the balance sheet and you look at our debt, almost $4 million of that debt is a 10-year 0% interest loan. So that bodes very well for the ongoing operations of the company. And the second thing is that our partner, BDC and some of our major shareholders supported us very strongly in extending and adjusting the convertible debenture and the BDC loan. Those are now out to 2026, and we have a revenue and a cash flow plan that allows us to meet those items without the need for additional equity raises.

So it really does set up the company to be able to handle everything going forward and to continue to be in a mode of not needing to do an equity raise. I will tell you that has not been easy, especially given that it was a really soft Q1 and Q2. This team has as micromanaged everything and been really cautious in how we've done it. And I will also tell you that our suppliers and partners have been really fantastic in supporting us as we work through that.

We're almost through it. We have to keep our eye on the ball, but things are moving in a very positive way. And then I think the last thing from Q3 is we still have $3.9 million of available funding. So you put all of that together, and it's got pretty good momentum from a go-forward perspective.

Okay. Now let's talk about the future outlook. And I just couldn't help myself to say finally. It's been 3 years of knockdown, drag out difficult market environments. And our outlook for Q4 and 2024 is quite strong. We see ourselves -- I'm not giving guidance, but we're not talking about $175,000 or $250,000 a quarter, which is what we did in Q4 and Q1 last year. We're now talking about are we at 2? Can we get to 3 or at least $1.5 million.

And so those numbers are just radically different continued solid gross margins are something that we have as an asset. We also have a fairly large chunk of inventory and positive adjusted EBITDA is where we're going. So our outlook for Q4 in 2024 is to finally get us to consistent quarter-after-quarter results very similar or close to or better than what we did in Q3. That's what all of management and the entire company is focused on.

In terms of guidance for Q4, of course, you know everything drops off of a cliff after American Thanksgiving and with the December holiday season. So our guidance at this point is a little bit lower than Q3. $2 million to $3 million was what we -- sorry, $2.2 million was what we had given for Q3. Right now, we're saying $1.8 million to $2 million. That's really just because of the Christmas season.

As you know, we've announced the Watt Renewable. So we already have a $1.4 million backlog on Q1. And so it's not going to be a low quarter like it was in previous years where we had a very, very small Q1, we're going to have some good solid results in Q1. And the reason for all of that is the diverse product line. We have our 3 really solid products, Illumient, Nano-Grid, and eSite and Pico-Grid/SENTI are going to start to contribute materially in 2024. And so you put all of that together with 4 solid product lines in different markets. We've derisked our dependence on certain deals, certain products and certain customers. When you add them all up together, we feel very strongly that 2024 is going to deliver results that's going to make everyone happy, both as the management team and the employee base.

Our customers are really in love with the functionality and the capabilities we've delivered and then also positive EBITDA, positive cash flow, and growing top line, solid margins to deliver that for our shareholders is our plan. That's all I had in terms of the formal presentation. Nikhil, do we have any questions?

[Nikhil Thadani]

Thank you, Miriam. Once again, if you have any questions, please feel free use the Q&A box on the bottom of your screen or e-mail them to me here. We have a few that came in via e-mail. So let me start out with those. You mentioned some large conversion programs are being planned for 2024 in your outlook. Can you give us some more color on those programs?

[Miriam Tuerk, executive]

Yes. So some of the partners that we work with, which sells some of the telecommunications or IoT devices or lights in the marketplace. We've seen some of them come out with mandates that say were bringing out an off-grid solar product support. So a lot of the loads are starting to just -- it's a culprit directive. We're going to go green and we're going to do product road map on our technology to deliver that better and better.

On the operations side, telcos and their supporting ecosystem, tower operators, network as a service operators have really ramped up their programs to do capital investment for solar and green initiatives. We're seeing it across the entire industry. It's really being driven by 2 key -- well, 3 key things. First of all, they are all under pressure to meet the climate change goals and to go green and all of those things.

But on the financial side, there's 2 really key things happening. One is the cost of fuel, generator, gas, and all of that operations has spiked significantly across the world. And as a result of that, people can't afford to run on their generator fuel programs that they did. And it swung to the point where it's negative cash flow. So if you go back 2 years, you have sites running on 100% diesel or diesel grid, they're making money, their positive contribution margin. Everybody is happy.

Now those sites are running at negative cash flow. The cost of the fuel operations cost per month is less than the money they're getting from for that site. And that's forcing a radical and very aggressive change to get off of the diesel and the generator.

The second thing that's happening is some of you may be very familiar with the fact that it's really hard to raise capital in today's marketplace, it's so hard to get investment into companies and into the capital initiatives into budgets. But where there is capital available is in solar and green. There's a lot of capital sitting there looking for good solar and green energy initiatives. And solar farms are so low margin now that it's really hard to make a good return on investment. So there is a keen desire to invest capital in conversion programs from generator to solar.

So we are seeing a number of large programs where people are getting off of generators and doing their capital upgrade program in the form of a solar upgrade program to fund these projects. And a lot of our legacy competitors are really good at running generators and AC from the grid, but have very little experience in solar. Clear Blue knows solar and knows how to manage energy from solar. So those large programs are maturing in our sales funnel. There are multiple deals with multiple customers in our sales funnel. And I want to emphasize, nothing is closed at this point in time, and we can be not assured that anything will close, but they are maturing in the sales funnel, and we're quite bullish on their potential to have a material impact on the company.

[Nikhil Thadani]

We've got a few more that came in online. So let me switch to those. The first one pertains to the company's presence in the U.S. It's a 2-part question, so I'll start with the first part. Can you please explain Clear Blue's vision and sales and marketing plan for the U.S. market?

[Miriam Tuerk, executive]

So we have 2 types of customers in the U.S. today. One is we have a pretty good distribution channel and a nice network of customers for Illumient or solar street lighting business. We plan on using that base to expand into the smart city IoT market. The second is we have a number of international global telecommunications companies in the U.S. who are our customers for projects they're deploying in emerging markets. So ViaSat, for example, wonderful partner of ours. We've done a number of projects in a couple of countries, including Mexico, they're a U.S. company. Parallel Wireless would be another one. Vanu would be another one. U.S. companies deploying internationally.

What's going to change next year is we are starting to really focus on expanding our business in Pico-Grid and SENTI and we see a significant amount of focus on that in the U.S. marketplace. And then I think, hopefully, later next year, and this one will be dependent upon what our performance results are, we will start to focus on the telecom infrastructure in North America. I was a bit gobsmacked and I've not had a chance to call my former colleagues from Bell, Canada and really talk to them. But as you will all know, we had a huge hurricane hit the Maritimes last year.

And when we had the hurricane hit in, I think it was August, September, there were articles in the news where they said, yes, Bell Alliance has upgraded by deploying $20 million worth of generators to all of these sites don't where your cell network will be up and running even through this hurricane storm. And I'm thinking to myself, okay, so I've got more hurricanes because of the climate change. And so I need to fix that by adding generators with diesel fuel to operate the network when those hurricanes hit. It's just a self-fulfilling circle. So I think there is a real opportunity to build the resiliency in the network with solar hybrid systems instead of generators, and that will be a kind of Phase 2 focus that we plan on having in North America next year, including the U.S.

[Nikhil Thadani]

The second part of the same question, which I think you've hinted out already is recognizing that the U.S. is not the same as Africa for Clear Blue. The U.S. is still the world's largest economy and which products or offerings do you see as having the most traction in the U.S., which I think you already alluded to. Same question goes on to ask about if you could describe the customer base for Pico-Grid products in the U.S.?

[Miriam Tuerk, executive]

In the U.S., we have our larger Illumient street lights, we believe -- and that business is really growing, like really growing. And it's difficult to forecast because forecasts come from historical trends, and it's changing. But we've seen a nice uptick, and we've seen size of project, number of projects, type of projects really change. Pico-Grid, we try to build products that we can use for multiple applications and solutions. Pico-Grid will have 2 market components. One is Pico-Grid and the other is our all-in-one solar street light SENTI.

SENTI is going to be huge in North America right out of the gate, very optimistic that powertrain is going to leave the station much faster because we have existing channels and existing distribution and existing relationships and customers. Pico-Grid in North America is going to have 2 flavors. The first is we're going to go after the Smart City infrastructure and supporting Smart City. So we're talking to some of our existing partners and customers who are doing solar street lights and street lights and street infrastructure and adding Pico-Grid to that capability is something that they're interested in.

So SENTI number one, Pico-Grid Smart City #2. Then the third thing, and this is where we've hired a director of sales dedicated and focus to start January 1 on this is the IoT marketplace and becoming the preferred OEM partner for Power Solutions. So going after the security cameras, the traffic meters, the agricultural sensors, the environmental, all of the Internet of Things devices, major market in the U.S. of manufacturers and suppliers of those technologies, and we want to be the power solution that ships with that product. So that's going to be a major focus in North America next year.

I suspect that where it goes will be significantly to international markets, but it will be 2 U.S. and Canadian OEMs who ship internationally because I think it's important to remember that the largest growth area is where there's no power or where there's some power. And we still have pretty good power in North America compared to the rest of the world.

[Nikhil Thadani]

The next question is asking about margins of the business units that you have. Which are the highest margins, which are the lowest? And how does that impact your operational and market focus?

[Miriam Tuerk, executive]

So the highest margins are the more mature products and the lowest margins are the more early-stage products. And that's because we establish ourselves as a competitive advantage and leadership in the market, not because we're cheaper. Nobody sells a business plan because we're cheaper. It's because of the features and functions that we do. So if you look at, for example, Pico-Grid, Phase 1 of Pico-Grid is to deliver the functionality that the market needs. Phase 2 is then to focus on scale and profit margin from a product. If you look back at our margins a few years ago, Nano-Grid, even Illumient, when the beginning, we were sub-10% and we've been growing our margins on that business. So Nano-Grid and Illumient are more mature products where we've really got our supply chain in place, our costs in place to deliver good, solid, strong margins.

Pico-Grid and eSite-Micro are earlier stage and just need the time to get it there. So they are lower margins. And that's why we keep saying to everyone, even though our margins are high, in the high 30s right now, please don't be surprised if we start to report 32, 34 as those other products come online, they will average down our margin. But then once we get the volumes and get everything going, we'll do exactly what we did for Nano-Grid and Illumient, and we'll increase the margins for those products.

[Nikhil Thadani]

The next question is from an investor. And I suppose you're asking about the stock price. They're asking about the performance of the stock price? And do you believe that shareholders will be more satisfied with the stock-based performance in the future?

[Miriam Tuerk, executive]

I absolutely believe for those who are close to the company, they know that I'm all in personally in everything I have into this company, and we'll only have a retirement if the stock price does well. I believe that we are going to have a very strong return on our price. I don't know when. And I'm not looking to do a pump and dump. So I really don't care what the stock price is today or tomorrow. We're keeping our heads down. We're building a very strong business. You can see it in the gross margins. You can see it in the EBITDA, and you can see it in the top line in the sales funnel, and the market will catch up once the macroeconomics start to adjust.

So I think when I talk to people in the market, we think that 2024 is going to be a good year. It's going to be a good year for us. And I think we are going to break away from the pack of companies, do they need money, don't they need money. We've gotten through all of this year in a good way and the outlook is good. So I absolutely believe that it will.

I think if you go back over a longer period of time, there was a point in time before where the stock price went down to $0.08, and then it went back up to almost $0.80. It does change. It does move. I have one investor who -- people will know who he is, who's had investments that went up to $10, back down to $1 to $5. As we scale, we'll move out of the micro-cap into the small cap and those swings will become less large.

But this is a company that can be doing $100 million in revenue very quickly in the few years and can have a market cap significantly above $500 million. That's what we believe. We've been heads down on that. And when the stock went to $0.04, I didn't think it was worth that. And I think we'll get there. I believe that, and I don't do that naively. I talk to our IR partner Sophic, I talked to people who are investors in the marketplace, and it will come.

[Nikhil Thadani]

Switching back to the top line growth, and we've got a few questions on that front here. How are you thinking about new orders and bookings in Q4 and 2024?

[Miriam Tuerk, executive]

We have, as I said in the -- and this is why we talked about these larger projects, we've got a pretty big funnel of deals. And Steve Perry, who is a sage independent -- our lead independent director, has said to me, Miriam, you forecast and then it's a little bit lower than what you think it's going to be, and you're consistently under what you think it's going to be. And then one day, you're consistently over where you think it's going to be. Right now, the funnel is really strong. But we're not counting our chickens until they're hatched. And so we are very solid in saying this is where we're at.

As you saw, we had added the $1.6 million. But as I said in my comments, just in terms of where the outlook is, we see strong quarterly revenues and our new base plan in our mindset is, okay, we're at. We've already got a backlog of $1.4 million for Q1. So am I going to do $2 million? Or am I going to do $3 million? How do I get to $3 million and now why can't that be $4 million? That is way stronger than what we did last year, which was we ended up with $175,000 in Q1, so or $200,000, something ridiculously low.

So that's why I say finally. We are finally at the point where our backlog and our orders coming in are stronger, materially stronger than what we've seen in the past in the funnel, and we just need to deliver on it to show it as actual results.

[Nikhil Thadani]

We have another 2-part question. This is about M&A. Any plans for further acquisitions? And how large is the IoT market that is addressable for Clear Blue in the U.S.?

[Miriam Tuerk, executive]

I have always said and the Board believes that as a public company, we have access to liquidity when the time is right. And we've done 2 acquisitions in this company, one very early on that was quite small, and eSite. When I've talked to large strategic investors, they kind of looked at us and said, well, can you do this acquisition? Can you make it work like that's really hard to do. And I think we've delivered on it to have 20% of our revenue in Q3 come from our acquisition that we closed in February, given normal sales cycles is the positive results.

So I believe that we're able to demonstrate to the marketplace that we know how to do acquisitions. Most importantly, our technology architecture is ready and waiting to do those acquisitions. And I don't think we're planning anything in the short term because of where the stock price is. I think we want to get up to a position where we've delivered a few quarters of results and then the stock price will follow to show us what the real valuation of the company should be, and then we will look for acquisitions.

In terms of the addressable market for Clear Blue for Pico-Grid, I don't have the information to give you a good answer at this point. I can tell you we think it's a multibillion-dollar market. Certainly, the satellite WiFi market is huge for us. Just think about competitors to Starlink in North America who are deploying thousands of devices who need solar or hybrid grid solar backup for those Internet WiFi devices. But a real bottoms-up market size the number, I think we need to get in the market, do sales calls, talk to people and confirm where we're at in other verticals and then come back to the market with that information.

[Nikhil Thadani]

I think we're coming up on the hour, so maybe we can take 2 more. The next question kind of focuses, I guess, on what a lot of investors have been thinking about this year. Is it fair to assume that around $3 million of quarterly revenue is the consistent level for the company to be EBITDA positive without the benefit of government funding?

[Miriam Tuerk, executive]

Without the benefit of government spending? So we have got it funding for the next 2 years. So out into 2026, we have the funds there. So I -- Yes. If we didn't have government funding, we probably need to be a bit higher than $3 million a quarter. I would say $3.75 million, a $15 million run rate would get us a cash flow positive without the government R&D grants. With the R&D grants, we are buying at $12 million, so $3 million a quarter. I will comment that we have 4 programs contributing to Clear Blue right now, three of which are grants. And we've had government grants for multiple years in the past, not just [indiscernible].

So I do anticipate that we will get grants going forward. We also get ITC grant. So for example, just the tax return, refunds that we get, they do also contribute to us. So there is always going to be some government grant because we are very R&D-intensive. We invest significant R&D in this company and technology, innovation and now with AI is where you can unlock significant value. We know that as a country and as a company and that we get help from the government on that, which we greatly appreciate.

[Nikhil Thadani]

The last question is also a 2-part question and somewhat related to this question. How should we think about your cash management and cash needs for 2024? And are there any additional cash inflows that you're expecting in the near term from these different government programs? And the second part of the question is where are you focusing your R&D efforts? Are these being driven by specific customer requests or more in-house market research?

[Miriam Tuerk, executive]

Okay. So second question first. I think there -- so it's not somebody asked for this feature custom. It's more we see the trend in the marketplace and we deliver to those trends. So we know that the customers are keenly focused on managing diesel consumption and optimizing and maximizing solar performance. That is the big pressure point. When companies get funding from ESG funds for these solar capital rollouts, they commit to certain performance metrics. So all of a sudden, everybody's got to deliver on solar. They can't just say, oh, give me the money on solar and I'm good to go. They contractually commit to a certain performance level of solar versus diesel. And there, we know that's coming at us, and we are investing in it to be prepared for it.

In terms of government grants, we get some money on a monthly basis, and we get some money in larger lumps. We are expecting a lump in Q1, and we're confident that there will be no issue in getting that. We've done lots of prep work for it. We've never had a problem in the past getting it. So that's the status there.

[Nikhil Thadani]

I don't have any more questions here in the queue, Miriam. So I'll hand it back to you for any closing remarks. You may have.

[Miriam Tuerk, executive]

Okay. So I think the first thing I will say is, I've said this before, but our employees, our suppliers, our customers and last but not least, for sure, our investors have been strong supporters of Clear Blue. It's been tough. Really thrilled with the results. I want to congratulate everybody in the company on Q3. And for us, that's just like the way it's going to be going forward, and we believe we're going to do that. So we appreciate your support.

And I think if you guys all help us a little bit in the marketplace on the stock, give it visibility, give it trading volumes, give it a little bit of a kick, I think it will be good, and we'll deliver something that makes everybody happy next year. So just going to say thank you so much, I'm going to stop recording and end the webinar now.