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

Good morning. My name is Helene, and I will be your conference operator today. At this time, I would like to welcome everyone to the Legend Power Systems Q4, 2021 Financial Results Release and Conference Call. [Operator Instructions] Thank you. Mr. Vanry, you may begin your conference.

Thank you, and good morning, everyone, and welcome to Legend Power Systems Fiscal Year 2021 Investor Call. I'm Steve Vanry, Legend's Chief Financial Officer. We're pleased to have you join us on the call today to discuss our corporate progress and financial results for the fourth quarter and year ended September 30, 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. For more information about Legend's forward-looking statements and risk factors, please see our year-end management's discussion and analysis, which was filed on SEDAR today under our company profile at the website, sedar.com. I will now pass the call over to Legend's CEO, Randy Buchamer, for an overview of our fourth quarter. Randy?

Thank you, Steve. Welcome, everyone, to our Q4, 2021 fiscal investor call. Appreciate your support. Pleased to have everyone on the call. We want to update you on how things have gone over the last quarter, some updates for recent business, et cetera. And obviously, you've heard that Steve Vanry, our CFO is on the call. We also have Mike Cioce, our VP, Sales and Marketing. Steve will answer any financial questions, et cetera and give an overview later on. Mike will give you the update on a lot of the significant sales activity progress that's being made with his team. And really, to set up the call, I thought I would just mention that, obviously, that we all know these various macro challenges that we continue to face. But we are experiencing growth in all aspects of our business. We believe at this time that the opportunity that we see to become that leading energy platform solution we all want has never been better, and we're seeing signs of the opportunity will only continue to grow. We have been achieving our internal business activity growth targets, which ultimately drive the strong revenue growth over the next few quarters. Deal flow pipeline are expanding significantly. Gen3 platform is finally being shipped as of the end of September. Back order is growing. Insights, service deployments continue to grow. Reseller and ESCO channels are embracing both Insights and SmartGATE Solutions. And basically, our target markets and reseller channels continue to respond very positively to Legend solutions and combined opportunities. Stepping back, during the last quarter we completed a little over $10 million raise to support our growth plans. And we raised the capital for certain initiatives, which I just thought we'd step back and understand what we raised the money for and where we're during Q4, 2021. We said that we would complete our Generation 3 platform development and launch a Generation 3 product by the end of September. This has been accomplished. As of today, we have shipped or in the process of shipping well over 20 Gen3 platforms. Address one of our biggest needs, which was a proven sales leader with channel sales experience and contacts as the company set the direction earlier in the year that we would be transferring more and more business over to channels. So we were delighted when Wanda Adams joined Legend in mid-September. She is leading our channel development efforts and brings over 25 years of proven channel development success. Wanda also asked to personally choose 2 reps that she could bring on to the team from her background. And quite simply, she said, "I want the best to work with me, and I'm going to go get them." And she brought on Mike and Brian that Mike Cioce will add some more color on. But we've now got a team that has 20-plus years of experience with each person and all kinds of relationships all kinds of contacts in our target markets. We also said that we would engage and develop the ESCO market, and we would participate in the major ESCO show. And we are engaged with many of the top ESCOs. And we were the platinum sponsor at R3, which is the annual ESCO conference that was held in Houston, and Mike will talk about that. We also said we would need to build out our operations and our corporate resource capabilities to support our business growth. And this was really a continuation of our overall corporate strengthening performance improvement initiatives, which began over a year ago with our -- building a very professional engineering team and improving the capabilities of our finance and corporate services team that we started. At the end of Q3, we added a veteran production, assembling an inventory professional, Ben Sun, to improve our production capabilities. And Ben has just done a great job. A lot of experience, just a lot of moxy he has, and he's been really making a difference over the last 90 days. We are in the final interviews with a couple of candidates for the COO role and we're adding a COO to provide operational leadership to support our growth and value chain growth opportunities. And we're quite excited about that. And we believe that as we continue to grow as an operating company, we really need that leadership. And we are constantly interviewing to find people who make a difference and we're tracking A players. We are also growing to meet the opportunities in multiple markets and channels. And Mike and his team has opened up large deals and some federal program access, which will drive some strong revenue growth as we go forward. We also continue to experience supply chain challenges. I spoke to many on the phone about that, both here in components to meet the Gen3 demand. Quite simply, Gen3 delivery was later than we wanted, but if you don't have the components to make the product, it's hard to ship it out. We know that most companies are experiencing the same challenges and pricing spikes. So I think really adding Ben is a big difference because he's really someone that's full-time 100% thinking about sourcing and securing parts, et cetera, and doing a great job as we said. We have not and will not lose any business due to part shortages and delays and we work with our customers very collaboratively. But component shortages, cost increases and extended lead times will negatively impact our ability to build and ship Gen3 platforms until late September, that was really the case. And it will negatively affect margins, but we're taking all the necessary steps we can to manage this challenge. It's hard to really put a number on it, but I expect the current component challenges could last 12 to 18 months. But we'll update on a quarterly basis as we have more information. And I've said to several people on call, the positive side of supply chain dilemma is that we have sourced better, more strategic long-term partners that will be better business partners for Legend as we grow. So there is some good news out of it. And clearly, we continue to see the world is looking for products at Legends, SmartGate, and we continue to see demand and the interest there. Combining our new platform with exciting sales progress with Mike and his team that he'll speak to, we look really forward to really building over 2022 in subsequent years, and we expect to see continued confirmation at the time is now for Legend our solutions. Just a couple of other points, and I'll turn it over to Steve is that journey is uneasy financial market times. It's a company to know that Legend has a sufficient balance sheet, and we've got the resources to fuel our plan growth. We've invested to grow by improving our sales team and processes and building a strong engineering team, and we'll continue to release leading-edge energy management solutions. We'll continue to improve and expand our sales team and team members to ensure we can achieve our growth targets. And generally, we continue to earn the respect of our target markets and their ecosystems and we make them comfortable that Legend is an innovative company to work with. We continue to build our brand by working with key ecosystem players to ensure they are aware of and ultimately support Legend powering their clients' buildings and opportunities. Again, the leadership team is very positive about Legend's future. We're each committed to making Legend a leading energy company, and we're very excited about where we're going. I'll turn the call over to the other fellows to provide updates in their respective areas, and then I'll circle back and tidy up. Steve?

Thanks, Randy. I think to keep this call and its timing as efficient as possible, I'll break with tradition and not put forth the notes that I typically have and reserve that time for the Q&A to see if anybody has any specifics they'd like to dig into a little bit. So I'll pass it right over to Mike Cioce, our VP of Sales and Marketing.

Thanks, Steve. I appreciate that, and thanks, Randy as well. As Randy mentioned, we have a lot of continued progress and success in our sales and marketing efforts, and I want to give you some more color and commentary on those. Again, Randy mentioned that earlier this year, during September, we hired Wanda and her team with Brian Hashimoto and Mike Somers. They bring a tremendous amount of experience, not only in the ESCO market, but also in channel sales. Again, just a top-notch A player-based team that we're building out there. And that's really manifesting itself into a lot of results. For example, we attended the May ESCO, R3 conference in Austin, Texas during November. During that conference, we had conversations with 41 separate companies. And after the conference, we are engaged in active conversations with 24 of those organizations. And these discussions put us engaging virtually all of the larger ESCOs in the U.S. So when we look at the progress that was made during that event is very powerful for sure. We also, during the month of November, conducted a training event for the new ESCO partners. And this was very well received. It really talked about the growing problem of stability in the electric grid and what drives that and how active power management solutions like the Legend Power SmartGATE make a massive difference for building owners and operators. And we had almost 100 attendees registered for that event. So we're very pleased with the reception from that. And we've actually had a number of new companies reach out to us as a result of that training event as well. So when we're looking at our channel efforts in general, we are in active discussions with over 50 potential distribution partners today. So the team is already off to a fantastic start to make sure that we're really putting forth the growth engine for Legend's future. To support that, what we're also doing during our first quarter of calendar 2022 is we are launching our partner portal. And this partner portal is going to be a key resource to support our channel sales partners. This is going to address not only their training needs, but the marketing support, the sales support, the technical support and the service support that they need and expect in order for the SmartGATE platform and the Legend Power solutions to become a key part of their growth strategies going forward. So we're very excited to put that forth during the first quarter of calendar 2022. If we look at our direct sales efforts, again, as Randy mentioned, we're getting great uptick in deployments on our Insights and the data from that -- from those Insights are providing high levels of customer engagement. When customers are seeing what's actually happening inside of their buildings and the risk that exists inside of them, it's moving them to action. And that's the exact point of what we hope to do with the Insights. When we look at our 12-month conversion sales, we are on track to slightly ahead of our expectations. So we're very pleased with the way the change in the business going to the Insights-led sale is really generating some great responses. So again, we've got lots of sales. We've got very, very few knows. And we have a lot of deals that are in progress. To that end, one of the things to keep in mind is that virtually all of the deals that are in progress are for multiple systems. If you go back a couple of years, we are averaging 1 deal with 1 system. Today, we're averaging 1 deal with -- is 6 systems, 6 platforms. So that does a tremendous amount to accelerate our sales, and we're seeing that turn into some tremendous results for us. Yes, we have had some recent price increases that does require some different approvals for the deals that are in progress. But for the new deals, we're not seeing any negative impacts from that recent price increase because of the significant value that our Gen3 product brings. And again, when we look at some of the deployments that we're getting with our Gen3 systems being deployed, as Randy mentioned, we have over 20 being installed in the very near term. And the real-world results from the data from these installations will only continue to add fuel to all of our sales efforts, not only on the direct side, but also on the channel side as well because that's the information that the channels are really looking to build their business on. So again, when we look at all of the data from the Insights and the forthcoming data from the systems, it's just going to continue to position Legend Power as a leader in active power management and active power management plays a critical part to large building electrification and decarbonization efforts. So we're very excited about where we're headed. And to give you some ideas of some of the compelling results and activity that's driving our company forward. We were working with one company that we announced earlier this year, who purchased one system from us a number of years ago and then purchased another system and then they decided they wanted to go ahead and look at another 8 buildings to figure out which 1 or 2 that they were going to move forward with. And they obviously decided to move forward with all 8 buildings as we talked about earlier. And that does put us at a strong position at a very high penetration rate of their regional multifamily portfolio. But again, these types of results are driving engagement. So for example, we are in the early stages of working with them on more geographic areas and more vertical markets for them. And these are the types of results that -- the results that we are getting continue to drive. So we're very excited about the growth opportunities. And again, the future of Legend remains brighter than ever. So there's a quick overview of what's going on in sales and marketing. Randy, I'll throw it back to you.

Thanks, Mike. Maybe just take a second to discuss our outlook, and then we can open it up to questions. The systemic changes that are occurring to address climate change and energy efficiencies are clearly mainstream. We're hearing about it every day. They're long term, and they're tremendously positive for Legend. This seems that everyone is or has developed a strategy to address climate change, ESG opportunities, et cetera. The target markets we're working with are looking for innovative entrepreneurial technology companies like Legend and our message is clearly resonating well. We're securing business with many of the most successful organizations in our target markets, and we'll continue to do so. We're well capitalized to support our aggressive growth plans. We continue to build our team out with experienced proven talent that will be the key to our success. The reseller and ESCO channels are continuing to accept and adopt Legend SmartGATE solution as a core reseller and ESCO offering to their markets. And we've opened relationships with the best resellers in ESCOs in North America and writing business with many of them. And as we mentioned last quarter, the ESCO market alone is a $15 billion industry. And we developed up-to-date with 3 sales reps, and we've now doubled our sales team. Our multiyear and multimillion dollar investments in people and building relationships over the last 4 or 5 years in New York and Eastern U.S. is clearly now bearing fruit. We are an accepted energy solution, but most of the agencies are both state and civic that make technology decisions. We've also established a presence with Insight deployments in other major Eastern U.S. cities. And it continues to be a big year for our U.S. expansion. The next generation of our SmartGATE platform is now delivered to the market. We will continue to enhance our SmartGATE platform to address additional power-related challenges and cement our position as a solution for managing power and commercial building. So basically, government, free enterprise, resellers, ESCOs, senior SD leaders and businesses throughout North America need solutions like Legend's to achieve their goals, and we intend to work closely with them. At this point, we'd be happy to open to particular questions you may have.

[Operator Instructions] We have a question coming from the line of Kevin Shi with Stifel.

I just wanted to circle back on your comment on the 20 Gen3 platforms that have been shipped in the past few months. Would you be able to provide a little bit more color on the progress on the installation on those units?

Sure. First of all, thank you for your question. And what you're asking is that with the Gen3 introduction of launch, a little more color on the installations of Gen3. Is that correct?

Yes.

So we are just -- we started shipping rate at the end of September, Gen3 systems. Gen3 systems are now in some electrical rooms beginning or in the process of being installed. We don't really have a base of installations to drop them. That's one of the key things that ...

We lost you there Randy.

Excuse me, Randy has disconnected his line. But lets wait for him to open.

Okay. Well, Kevin -- Okay. We can wait for them to come in. Sorry about that, Kevin. Was Randy -- did Randy get to the heart of your question?

Yes. Yes. Yes, I got most of them answered.

Yes. So to be clear, these -- we haven't shipped all of the units. We're in the process of getting them out the door and their -- the installation is underway with the first of those units that are now in the field, but it's a process that's still underway.

And just to add a little color onto that as well. Keep in mind that when we're looking at doing the installations, that's in tight coordination with our customers. So we had to work within their time frame for their windows as well. So when we look at some of the potential installation windows, a lot of that's being driven by customers.

Sorry, I dropped off. I'll be quiet and let Mike answer the rest of the question. I apologize for that.

Hopefully, that's, that answer. Anything else, any other questions on that?

Just one quick one from me. Maybe I missed it in the reports, but can you guys provide a little bit more color on the progress on Insights? Whether -- I know that you previously commented in the past quarters that has a target of 9%. Just wanted to see how the progress is on that and whether there is a change in the target of [ 19 ] Insights per quarter?

Yes. Thank you. So the question is really update on the Insights in the quarter and where -- what that number will be going forward. So what we've done is we originally set a target of 40% interesting enough in this quarter, September, October, November a year ago when we launched. And we had always said that we were looking for a 50% conversion to sales within 12 months of producing and reviewing a power impact report with executives. And we're actually hitting that percentage, which is great. And we continue, during the year, hitting the 90%. The last quarter we found that it's -- the commitments of the 90% is there. It's between last quarter and this quarter, we're actually almost looking at combining the 2 from the perspective of installing enough systems to get the numbers and things that we need. So direct answer to your question is that we had commitments for the quarter for the Insights and some of them had to be installed for recording the data accepted into this quarter. And I think we're going to start seeing that a bit because we do have some samples of larger deals. We have examples where we're actually going outside of the Continental U.S. on some deals and shipping Insights to perform the assessments. And some of those things may affect the timing of the deployment, but the request and demand for the Insights is being met or exceeded. Are there other questions?

[Operator Instructions] We have our next question coming from the line of Tony Cruz.

Randy, I just wanted to ask a question I didn't really understand, but in the last answer, whether -- are you meeting the expected number of Insights employed and -- that were originally set as a goal, which was 90%, it sounds like you are, but it just hasn't been deployed. But the other question that I have -- that's the first question. The second question is do you -- you did say that expectations of how this goes from Insights to orders isn't moving up to your expectations, at least that's what I read from the press release. Can you elaborate on that, what exactly you mean by that? I know that there were some -- a lot of issues in this past quarter. But can you just elaborate what you mean by that? And what are the major hurdles that you're finding?

Yes. So the 2 questions are really about clarity on the Insights and then about the Gen3 meeting the demand or deployed conversion. So firstly, I mean, good examples are where the commitments are met on Insights. We have a commitment for out of Continental U.S., a large number of Insights that are being shipped. So for example, those aren't installed, but they're committed during this quarter as an example. So we meet our demand targets, whether we can perform all the assessments. And I think that's going to happen. We have a set number of Insight units that we rotate to different client offices. Sometimes we might have to leave an Insight in a little longer or ship it, et cetera. So it just depends, it's more of a timing issue. But if you look at the last year, we're very pleased with our ability to get Insights product in to be deployed, get the data points and convert them into sales. And what I mentioned was, if you take the only completed quarter we've had where we've looked at hitting the original 40% in September, October and November. We have converted over 50% of those original quarter Insight deployments to Gen3 sales. And really, Gen3 has been delayed. I mean the larger real answer to your question is the order demand is there. The interest has been there. We haven't been able to deliver the product until the end of September. We couldn't get the components. The components we did get were higher in price and quite late. We secured enough components to complete a little over 20 units. And then we are now in process of getting additional components for additional units. It's just going to be a challenge, I think, as I said, for the next 12 to 18 months. We have increased our inventory. Inventory is about $1.2 million as of today. It's a little more than I would like, but we have to allow for the longer lead times to ensure that we can make deliveries. We're doing some quarterly deals with suppliers to -- quarterly minimum commitments to get certain pricing and certain availability. We've also, in the past, when we switched from Gen2 to Gen3, I mean there isn't one single component in Gen2 that went into Gen3. It's a completely new platform. And what's interesting with that is that the platform wasn't really signed off by the people that have to approve the product before efficiency can be sold, whether it's UL or CSA approvals, et cetera. It wasn't done until near the end of September when the product then was shipped. So we couldn't secure down exactly some of the component products because there was alterations. The product wasn't locked down. So I've been asked that too, Tony, is why didn't you just buy a bunch of stock a year ago? Well, we would have had about several hundred thousand dollars of write-downs of product that was obsolete. So hope that gives a little bit more color. Gen3 demand is a lot of interest. We're happy with where we're going, Being a platform, it gives us data that we didn't have before. It gives us like the Tesla remote capabilities of downloading increased capabilities. It's giving us ability for some recurring revenue streams, et cetera, and some maintenance program. We're really excited about it. And we'll get through some of the challenges that we have in the supply chain. But I think overall, at the end of it, we'll be stronger. And I think that our cost will continue to go down during the year. And I think in some cases, we'll end up with partnerships that will be much stronger and secure a better future for Legend with the partnerships, too. Is that answering your question?

Yes.

[Operator Instructions] There are no further questions on queue. I will now turn the call back over to Randy Buchamer for any closing remarks.

Well, thanks, everyone, again, for your time. And just to wrap up, we know that the pandemic has affected most business revenue streams, and we're seeing significant sales activity growth despite that. And we will continue to build the business despite some of the challenges put forth. We have, today -- have the most committed and tailed team we ever had. We're getting stronger with each new hire. We have an outstanding energy savings platform. We've got strong working capital markets with the high energy costs and power challenges. And what we're continuing to see whether it comes to ESG or climate change objectives or decarbonization, et cetera, is that people are trying to find solutions and innovative ways to reduce their energy costs and improve the quality of their buildings' energy profile and meet the reduction targets that many jurisdictions are demanding. So we believe the future continues. Quarter-by-quarter, looked better for Legend. We're getting better. And we believe that the opportunity will continue to grow for us and the time for Legend is now and for many years to come. I want to thank everyone for their participation and wish everyone happy holidays and a fantastic 2022. And otherwise, have a great legendary holiday. Thanks very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.