Legend Power Systems Inc. (LPS) Earnings Call Transcript & Summary

Good afternoon. My name is Dawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Legend Power Systems Quarter 2 2021 Financial Results Release and Conference Call. [Operator Instructions] Thank you. Mr. Buchamer, you may begin your conference.

Thank you. Welcome to Legend Power's Fiscal 2021 Q2 Investor Call. I'm Randy Buchamer, the CEO. I will be acting as CFO also today as Steve Vanry is busy working on our prospectus to ensure that gets filed this afternoon for our financing. As the CFO I'll provide a financial review and as CEO, I'll give you a corporate update. And then I'm very pleased to have Mike Cioce, our VP, Sales and Marketing, and he'll discuss the great sales progress we've been making. We're also really happy to have everyone join us on the call today to discuss our progress and the financial results for the second quarter 2021, which, just a reminder, the 3 months that ended March 31, 2021. Please note that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. And for information about Legend's forward-looking statements and risk factors, please see our management discussion and analysis, which was filed on SEDAR today under the company profile at sedar.com. Financial review. Revenue was lower than we would have expected as the abundance of sales in the past 6 months was temporarily slowing and reaching revenue recognition milestones due to customer-driven installation scheduling, internal and external COVID-related personnel constraints and building lockdowns and inventory supply chain delays. We now have a significant backlog to recognize in revenue, which we anticipate will take place over the next couple of fiscal quarters. Our gross margin percentage during 3 and 6 months ended March 31, 2021, was significantly under our historically recorded average. We have strategically moved older-generation inventory at more attractive pricing to both secure business with marquee customers and proactively create free cash from otherwise sunk capital. While gross margin has been a variable, while revenue has remained low due to installation delays, management believes that as the company's scale and sales bookings convert to revenue, that margins will improve and be closer to longer-term averages. During Q2, we continue to proactively manage our operating costs obtain a balance between the company's then activity level while maintaining the infrastructure and personnel needed to quickly transition back to a growth cycle. We are definitely now in a growth cycle as evidenced by our activity and sales booking performance results reported to Q2 '21, and the bought deal financing we agreed to last week could not have come at a better time. With additional working capital, we will be well positioned to expand the offensive part of our business in sales and marketing, and Mike will talk about that; ensure the timely production, delivery and installation of our next-generation technology. Traditional capital also allows us to proactively focus on items critical to retain our growth projections, namely insight engagements and their conversion to full platform sales and expanding our ESCO, channel partner and reseller networks. Post closing of the proposed bought deal financing, we will continue to prudently manage our capital resources, as we always have, and squeeze the most of every dollar provided by our shareholders. In short, we're very happy with where we are and are very optimistic about the future. On behalf of Mr. Steve Vanry. My updates. And also, as Steve said earlier, please tell you that despite the pandemic, we are experiencing growth in all aspects of our business. We continue to believe our opportunity to leading energy platform solution has never been better and we'll continue to do so. We are achieving our intended business activity growth. Backlog is growing quickly, quarter booked business equaled more than our previous 2-year sales. For this fiscal, we are on the track to book orders well excess of the last 2 years sales combined. Insight service deployments are meeting or exceeding targets, achieving Insight SmartGATE conversion targets. Our 2 largest deals that we just completed were actually flowing through at 100% conversion ratio. Reseller and ESCO channels are embracing both Insights and SmartGATE solutions. And outside the quarter as we touched on earlier, a key event, our 10.3 raise to support our growth plans. And since January, we have put over 20 solid press releases highlighting some key corporate programs. Just want to touch on a few of the headings because sometimes we forget how far we've come in such a short period of time. We cut a deal and put with 1 of the ESCOs 2 significant SmartGATE platforms in New York schools; we worked with an ESCO to assess 10 City of Boston buildings; we were chosen as the top and really the only choice in the active power management category by third-party white paper. One of our channel partners followed up with Insight deployments and got 5 SmartGATE systems during the quarter. And one of the largest orders that we had in the corporate history added 2 additional systems to make a 19-system order. One large multi-res ordered 15 Insight 1 SmartGATE system, 10 Insight order with a large New York multi-res. City of DCAS, that's the New York Department Citywide Administrative Services chose our SmartGATE solution for demonstration agreement coming up in the schools and will open us up to almost 5,000 buildings. New largest order in Legend history is Ontario multi-res ordered 10 new Smart Gate systems. That became our largest dollar value record and 100% Insights to SmartGATE conversion ratio. Department of Health took 10 Insights, a whole new vertical for Legend. ESCO. For the first time we had our partner use Legend Insights solutions to help a major property management firm assess multiple buildings before they bought the buildings. First time Insights have become a due diligence tool, very excited about that. And ESCO teamed up with the Department of Defense, and that's a whole new vertical for us, and we're currently assessing some defense buildings as we speak. And of course, We announced the overbought 10.3 financing. And these are just the major highlights. There were many more, and reflecting on the releases, one sees major demonstrable progress in our business. And over the last few years, based on customer feedback, as we mentioned in the last quarter, we needed to offer more than just energy savings, and we're clearly doing that with our enhanced platform. The new platform, SmartGATE, does save the energy but addresses the common power problems occurring in building. And over the last couple of years, we have invested several million dollars to develop a new and expanded Legend SmartGATE platform and educating our target markets about our solutions, and we're now starting to get paid back on those previous investments. During September, we introduced our analog product, Insights, which performs detailed power analysis to identify problems and opportunities to improve power quality and efficiencies in commercial buildings. Insights already analyzed over 200 power parameters, and we form a power impact report where we present our findings and recommendations to our prospects. In this way, we are pulled on our customers' business instead of us trying to push our products on the prospect. So huge improvement. We are still seeing customers save energy, but we can do so much more for our target markets. And Mike will talk a bit about that later on. The exciting thing is our platform has growth to integrate with electric charging, all kinds of electrification products and solutions as they come out into the marketplace. And we can become a hub to make those all better. And just to remind you what we talked about last quarter, we see our business model as being very simple to understand. The core goal is to get 90 Insights service deployments a target per quarter. And if we can get and continue the 50% conversion rate we're getting, that means that for every SmartGATE sale from every 2 Insights, we create $110,000 platform sale and $1,000 to $4,500 recurring revenue. And also just to take off what we talked about last quarter, we continue to see that massive shift to corporate effort to climate and environmental initiatives becoming top corporate objectives. The world started to exert steps and continues to positively impact climate change. And in all of our markets, we saw consistent and systemic change to make buildings less harmful to the environment, combined with improving efficiencies, reducing cost and making a better tenant experience. The Democrats in the U.S., they're committed and they come out talking about how they want to make it easier for corporations to adopt electrical saving technologies for commercial buildings. This is exactly where we play and where our solutions excel. In regards to the region, the company's [ united ] senior leadership to address ESG and building energy improvement efforts, and everyone seems to be looking for new and innovative energy technologies, leading technologies like Legend's SmartGATE platform. Clearly, the world is looking for products like Legend SmartGATE platform, we're poised for significant growth. Combining our new platform with the exciting sales progress, which Mike and his team have made, is very exciting for all of us. There's much to look forward to. Quite simply, we expect to see continued confirmation that the time is now and growing for Legend Power and our solutions. And during these uneasy financial market times, it is [ company knowledge ] that Legend has deployed a capital raise and has the sufficient balance sheet resources to fuel our growth plans. We've invested to grow by improving our sales team and processes and building a strong engineering team that will continue to release leading-edge energy management solutions. We will continue to improve and expand our sales team to ensure we achieve our targeted growth. We will continue to earn the respect of our target markets and their ecosystems and make them comfortable that Legend Power is an innovative company to work with. We will continue to build our brand by working with key ecosystem players to ensure they are aware of and ultimately support Legend Power in their clients' building. Mike will share how excited we are about growing our reseller ESCO market. The Legend Power leadership team is extremely positive about Legend's future, we're excited about our current results and we're committed to making Legend a leading energy management organization. Mike Cioce, VP, Sales and Marketing, will now speak about the excellent product and sales improvements he and his team have made and how our target markets have responded to our leading solutions. Mike?

Thanks, Randy. Appreciate it. In the last few quarterly calls, we've been talking about the fact that the demonstrable results are coming. And we're very pleased that now we can look back over the calendar '21. And it's obvious that our demonstrable results are here and that they are indeed sustained. And again, if you look back since the beginning of '21, with more than a dozen major announcements, as Randy has outlined, there are some definite themes that start to surface. And the surface that our sales model is working. And when we look at the fact that we have a multipronged sales approach where we're selling into direct sold businesses, distributors, channel resellers and ESCOs, we can start to see that we have demonstrable results on all fronts. And also, when you look at the fact that there's multiple verticals that are involved, from commercial office, to multifamily, to government, K-12 education and higher education, we're starting to see our business model really start to come to life and produce demonstrable results across multiple sectors and multiple distribution channels. Again, if you look back at the list that Randy read off and you look at the ESCO deals that not only did we get systems installed inside of K-12s in New York, we also have them operating at the municipal level as well as the federal level. So when we see that the ESCO channel is starting to gain momentum, it's very exciting. Obviously, when we look at the fact that there's also multiple ESCOs that are involved, again, further proof that the model is working. Again, when you look at some of the fact that over the last -- since this -- since January this year, we've announced 2 of the largest sales in the company's history with one surpassing the other. So it's very exciting times. And again, when you look back to the business model of the Insights-led sale, the reason why we're doing that is to allow building owners and operators to look across their portfolio holistically, quickly and find those areas for results, where we can reduce the risk and improve their financial performance and increase their tenant safety and satisfaction. So again, if you look at those large system sales that have come through the direct side across multi -- on the multifamily side, again, the business model is simply working. There are a couple of deals that I do want to spend a little bit of additional time on because of the significant strategic nature in them. Again, one of them -- we've already discussed briefly about the ESCO momentum. But it's also noteworthy to really spend a few minutes talking about the City of New York and our demonstration agreement with the City of New York because this gives us the opportunity to earn the right to get into every facility and every entity operated by the City of New York, which includes the New York Police Department, fire department, museums, libraries, government buildings, water treatment facilities, so on and so forth. And the other thing that's also very exciting about this is the procurement process that we went through with this on them is very similar to the new energy technology program was actually modeled after the new energy technology program from the GSA at the federal level. So the fact that we've been able to successfully navigate that process to get an agreement in place with the City of New York is incredibly exciting. Not only because, again, the potential that exists there. But also, New York is just -- they're viewed as a trendsetter for large municipalities. So again, we cannot understate the importance of that agreement with the City of New York and the DCAS group. Again, if we look at the new largest deals, 100% conversion rate, double-digit systems orders from long-term customers. And the other things that are exciting about this, and this is just the tip of the iceberg. These building owners and operators were -- we've done dozens with them, and they own and operate hundreds. So from the excitement level and potential that we have there, that's one of the things that, again, if you look at our -- if you look back at our new business model, something that's dramatically different before we would go, we would do one school at a time. Now what we're doing is we're addressing major portfolios dozens at a time. And that's getting us much larger sales, much faster and a much more meaningful and engaged way with our customers. And again, just further demonstrable results that the new model is working and the new model being, again, direct sold ESCOs and channels as well as leveraging the Insights to sales. And that all comes together with our release on our growth metrics. Again, one of the big differences between the old Legend sales model and the new Legend sales model is it's much more predictable. As Randy indicated, we can look at it and say that for every 10 SmartGATE Insights we place, we expect 5 SmartGATE platform sales. And that's, again, game-changing from our ability to be able to predict what our bookings will be. And again, this is generating -- if we look at back of the metrics that we announced, we're generating results in direct channel and ESCO. So we're not relying on one distribution channel. The markets are engaging with our solution like they never have before. That's predominantly because of the cost growth and the intersection that we represent. Not only are we something that's good for the environment, it's good for ESG strategies, but it's also good for your customers, it's also good for the financial health and performance of organizations. And those are some of the things that are really starting to engage and why the new business model is -- and the new sales model is working so spectacularly. So we're very excited about what we've got going on. So again, a lot of great results which are creating more great results, which is one of the reason why we're more excited than ever about the future of Legend. And please stay tuned for more announcements shortly. Randy, I'll hand it back to you.

Thanks, Mike. Lots of good stuff. Appreciate it. I I'd just like to summarize then we'll take questions. And maybe just to look a little bit of our outlook as the leadership team looks forward. And we continue, as we said earlier, the systemic changes occurring to address climate change and energy efficiency are mainstream and long term and really positive for Legend. Our target markets are looking for those innovative and entrepreneurial technology products like what Legend brings to the party. And we're securing business with many of the most successful organizations in our target markets. That's one thing we don't talk about a lot of times, but the people and the companies we're attracting are absolutely outstanding. We will capitalize and have capitalized for our aggressive growth plans. That $10 million will be used for OpEx. Just a reminder, there's no CapEx for our business. We have no debt. And that money will go to OpEx and working capital to grow Legend. We continue to meet or exceed our Insights service deployments. Even though we more than doubled it from the first quarter, we met and exceeded our targets. The reseller channels and ESCO channels are continuing to accept and adopt Legend's SmartGATE solution as a core offering to their markets. Just a reminder, there's no direct competitive offering to what Legend does in the ESCO marketplace that they can utilize. We've opened relations to the best resellers and ESCOs in North America and are writing business, as you can see, with many of them. And the ESCOs alone are a $15 billion industry. It's also interesting to note we were chatting the other day about our business achievements and how we've accomplished them with just a handful of sales representatives for Legend. And what's exciting, Mike's team is training tens of hundreds of ESCO sales reps. And we're just talking the other day about how far we've come with a handful of reps, and to really engage those hundreds and thousands of ESCO reseller channel partners, what can happen. And since the last quarter, we got introduced into the massive health and defense verticals through ESCOs. And our investments in people and building relationships in New York is now clearly bearing fruit. We're an accepted energy solution, like Mike was saying, with all the agencies, both state and civic that make technology decisions. You can expect continued demonstrable proof that our sales are growing in New York. And we've established a presence with Insight (sic) [ Insights ] deployments in other major U.S. cities. The next generation of our SmartGATE platform has been delivered to market, and we're establishing a strong positioning as the leading electrical energy management technology available. We will continue to enhance our SmartGATE platform to address additional power-related challenges and cement our positioning as a solution for managing power in commercial buildings, government, free enterprise, resellers, ESCOs and senior ESG leaders and businesses throughout North America need Legend's solutions to achieve their goals. They need Legend. Let's turn it over to questions, please.

[Operator Instructions] No questions at this time. Please continue -- I'm sorry. I'm sorry, we have [ Jeff Powell ] on queue.

Congratulations on a busy few months, and great to see that you exceeded your goal of 90 SmartGATE Insights for the period. I had 2 questions for you. One is pertaining to your goals moving forward. I noticed in the press release you didn't mention what your goal is on SmartGATE Insights. And then I have one question, which I'll ask when you're finished with that.

Yes. It's 90 each quarter going forward is what we said last quarter is our goal until the end of the fiscal.

Got it. Okay. Maybe I missed on that. So second question is pertaining to a point you made in your prepared remarks regarding the CapEx. As you mentioned, you have a CapEx-light business model. The recent raise, was that a function of needing a bigger balance sheet to placate perhaps one or a few of these ESCOs that you've been talking with? And maybe you could just -- further to that, you could talk a little bit more, if you can, on what you plan on doing generally with the capital.

Yes. I think there's several answers to that is -- as Mike touched on a couple of years ago, we've [ created ] 1s and 2s systems, and now we're getting 10 at the time, 19 at a time, multimillion-dollar deals. Yes, it puts a strain on working capital. So we needed to make sure our balance sheet got the working capital to carry the increased business. We also wanted our balance sheet to show that we were substantive in nature so that large organizations wouldn't be put off by our size and some of the ESCOs and resellers wouldn't be put off by our size. And thirdly is that we really wanted to make sure that we could move from a small company still operating small to make a splash on the sales and marketing side. So Again, as you touched on, there's no real CapEx required. There's no debt. The money is for sales and marketing. We'll keep about, at any point in time, in the neighborhood of $5 million in working capital. And the rest is really for sales and marketing, it's for growth in the engineering production side, so we can fit demand. It's all offense. So that is clearly where when we looked at it, we said we can either grow at a certain pace or there was an offer to do a raise. And we thought there's never a perfect time, but let's take that capital and take advantage of the opportunities in front of us. And clearly, that was the decision made by management.

[Operator Instructions] No further questions at this time. Please continue, sir.

Thank you. I just wanted to wrap up by thanking everyone for the support. Obviously, the -- seeing $15 million of potential bookings on the deal was really exciting. That was cut down to $10.3 million. But obviously, people are starting to understand what we're doing and the results are still resonating for a strong interest in the marketplace. So we're really excited about that. I appreciate everyone's help and anyone that took place, in previous financing or this financing, for your support. You need to know that we are very committed, and the talented team is getting stronger as we add additional people. And Mike will be adding people that have a lot of reseller experience in the U.S. That's one of our key goals. And we need to continue to evolve our platforms, increase our production capabilities, which we will do. So we can help the markets take the problem of high energy costs and power challenges, their ESG goals and climate change objectives and help them with our innovative solution. We're obviously very excited in what we're going. We're pleased with the performance over the last while. But it's just the start. There's lots of great things that will happen for us. We're looking forward to the future. It looks very good for Legend and, of course, for all our stakeholders. The time for Legend we believe is now, and we thank you again for your attention during the call. Thank you. And everyone, have a great legendary day.

This concludes today's conference call. You may now disconnect.