mCloud Technologies Corp. (TSXV:MCLD) is helping commercial and residential buildings reduce energy emissions through the use of AI-driven computer models
SmallCapPower | January 31, 2020: mCloud Technologies Corp. (TSXV:MCLD) is an AI and IoT company that uses both technologies to solve a variety of global problems created from fossil fuel use, including curbing energy waste, maximizing energy production, and maintaining energy infrastructure.
Company Overview
mCloud Technologies is a software company in the IoT space, which uses sophisticated analytics and algorithms to make existing infrastructure more efficient, helping businesses to operate more intelligently. mCloud’s current focus is on energy assets; for example, helping an office building maintain a uniform temperature by controlling HVAC units in a way that helps curb energy waste or ensuring a wind farm’s turbines are maximizing production. By leveraging software in the cloud, mCloud Technologies enables legacy equipment to match the intelligence of the newest and most advanced smart infrastructure at relatively low cost.
Figure 1: mCloud AssetCare Solution
Source: Company reports
This is done by utilizing IoT sensors to bring data from connected assets into the cloud, where AI and analytics are applied to maximize their performance through the Company’s AssetCare solution. By leveraging data from IoT sensors, AssetCare can help customers curb energy and create energy optimization solutions, specifically in helping to curb energy usage in older buildings where it is not cost effective to implement a complete HVAC system update.
Figure 2: mCloud Historical and Projected Revenue
Source: Capital IQ, Ubika
Company Highlights
High revenue growth expected through organic SaaS and consulting revenue. The Company generated $1.0M in SaaS revenue in F2018. This is forecasted to reach ~$5M in 2019, and with recent M&A transactions expected to add another $8.0M, consulting revenue is expected to be ~$35.0M by F2020. Beyond energy, mCloud’s solutions can connect other asset types, including lighting, air quality, and security, by levering the same artificial intelligence capabilities.
mCloud’s proprietary software creates computer models of building energy usage. The computer models are based on the principles of physics to analyze energy throughput, helping to reduce redundant usage and predict failures. The software uses data collected from sensors attached to HVAC units and forms a feedback control system to continuously maintain optimal temperature in a building. One of mCloud’s largest customers, Bank of America, has AssetCare in 3,300 buildings with 8,000+ connected HVAC units. The Company current has ~30,000 total connected HVAC units, a figure that management expects to increase to over 70,000 by the end of F2021.
Expanding product offerings and customer base through M&A. In 2018, mCloud Technologies acquired NGRAIN, which enabled it to better target the wind turbine market through its 3D imaging and modeling capabilities. It is so advanced that they are used to assess damage in F-22 and F-35 fighter jet engines. In 2019, mCloud acquired Autopro Automation, a consulting firm in the oil and gas sector, who’s services included control system lifecycle services, process control automation, and instrumentation services.
Valuation
Figure 3: mCloud Peer Group
Source: Capital IQ, Ubika
Undervalued compared with peers. mCloud Technologies trades at NTM EV/EBITDA and NTM EV/Sales multiples of 11.7x and 1.9x, a discount compared with Canadian technology companies, which trade at median NTM multiples of 18.6x and 5.8x, respectively. We believe that a valuation in the median to higher end of the peer group is justified based on mCloud’s higher-than-average gross margins and revenue growth. We expect this valuation gap to close as the Company executes on its plan to add an additional 30,000+ HVAC assets to its roster and post strong financial results.
Shares of mCloud Technologies have soared about 78% during the past 52 weeks, to its current price of $6.25, and now trade at a market capitalization of about C$100 million.
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