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

Welcome to the Legend Power Systems Fiscal 2024 Q4 and Fiscal 2024 Year-end Investor Call. I'm Randy Buchamer, the CEO. We're pleased to have you join us on the call today to discuss the corporate progress and financial results for the fourth quarter and the year-end of fiscal 2024, which for the 3 months ended September 30, 2024, and the 12 months that ended September 30, 2024. Please note that certain statements in the call will 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 only from those expressed or implied in our forward-looking statements. For more information on Legend's forward-looking statements and risk factors, please see our management discussion and analysis document which is filed on SEDAR yesterday under our company profile at sedarplus.ca. I'm pleased to be joined by Florence Tan, our CFO; Paul Moffat, our COO; and Mike Cioce, our VP, Sales and Marketing today. Florence will provide a financial highlights and overview of the periods. Paul Moffat will share details on the great progress his team has made while managing in a tight cash environment. Paul and the team continued to reduce costs, operating costs and cost of goods strengthening our margins and improving supply chain and production capabilities. Mike will update you on the exciting progress made with the 5 key relationships or pillars that we believe will be the driving force of Legend's growth over the next number of years. We would like to personally thank Sean Peasgood and Jonathan Lansky for leading our private placement, which was announced this week. Interest has been strong. We're working on closing that placement and funds will be used for working capital and supporting backlog and sales opportunities. Thanks, guys. Q4 is traditionally a quiet sales quarter, it's July, August and September. A lot of people are off on holidays and things, but Mike's team regardlessly made great improvement in several areas, and he'll review those in detail. We've operated in a tight cash environment, as you know, for the last couple of years, but we continue to move Legend forward, and we see a great future. The Legend team is absolutely committed to making Legend a success. The past year has been transformative for Legend Power Systems with tangible wins across 5 strategic pillars that form the backbone of our growth strategy. Each of these pillars represent a stand-alone revenue growth opportunity, but together, we form a synergistic foundation that will drive significant revenue growth for Legend over the number of years. We're transitioning from dozens of SmartGATE installations annually to hundreds and ultimately the thousands per year. This shift is underpinned by strong execution, proven solutions, and a growing pipeline of wins and opportunities. We are confident that our growth is not just upward but transformative. We created a new Legend Power about 3 years ago with the development of our Gen3 active power management solution, and the marketplace sees great value in our platform. Our goal to create a solution that was needed to properly operate a building that's proven sound, and we have the foundation for strong growth over the next number of years. We believe our 5 pillars for success will make Legend Power a strong brand in the active power management marketplace. The pillars are the U.S. General Services Administration or GSA and the Green Proving Ground Program. Second is the U.S. Department of Defense. Third is the energy performance contracts that ESCO is utilized. The City of New York, led by DCAS. Mike will share significant progress made with other agencies, et cetera, in the city. And the GSA multiple award schedule is an exciting opportunity that Mike will talk about. So I'll let Mike talk about some of those details and the programs when he speaks about the 5 pillars. Our recent success to underscore the results of our strategy. We've achieved record-breaking bookings during the year, spanning new geographies, vertical markets to reflect intentional diversification. These wins have been accompanied by a significant improvement in margins, which we are steadily returning to historical levels of about 50%. And we see getting there, for sure. The performance of our SmartGATE Systems in the field continue to exceed expectations, driving strong customer satisfaction and repeat business. Importantly, while the green investing sector has faced political challenges, Legend Power Systems value proposition transcends political narratives by delivering lower costs, increased profitability and reduce risk. We provide enduring value rooted in traditional business fundamentals. Thank you, Florence. You're next.

Thank you, Randy. Good morning, everyone. During this quarter, revenue recognized was $705,000 compared to $159,000 in Q4 of fiscal '23. Our gross margin for the quarter was 21% compared to a negative 4% in Q4 of fiscal '23. As for our year-ending gross margins for the 12 months ended September 30, it was 38% for this fiscal compared to 18% in fiscal 2023. Margins for this quarter decreased from prior quarters of this fiscal, mainly related to an inventory provision taken and should sale of such inventory occur in the future, the company expects to record a recovery. Deferred revenue as at September 30, 2024, was $364,607 compared to $524,127 at the end of our prior quarter as our backlog was fulfilled. The company ended the quarter with $236,000 in cash, no debt, and $743,000 in working capital. We continue to proactively focus on items critical to attaining our growth projections, while managing our capital resources as we always have, to support our sales growth plans and deliver for our shareholders. I'll now pass it to Paul, our COO, to provide some operational highlights.

Thanks, Florence. Hello, everyone, on the call. Currently, our system backlog is very strong. We have 14 units that are part of our orders are in progress and are ready to be built. All the parts are on hand, and we'll be shipping those between now and the beginning of March, 10 of those with the remaining shortly after that. Our business optimization continues to make a great impact upon the business. As highlighted by Florence, our gross margin doubled over the prior year, approaching 40% and this trend will definitely continue upwards over the next 12, 24 months as continuous improvement efforts continue as that's a journey. And I look forward to sharing operational improvements with you as we meet each quarter. We've just completed a redesign of our factory, both physical and process-wise to improve our space utilization and optimize capacity. We balance the workflow, and we've established material and subassembly stocking levels to account for demand variation. So the process layout now delivers 8 units per month per shift, 16 with 2 shifts, and that really rounds out our Vancouver factory with a complete capacity plan. And in parallel, of course, we're working on outsourcing larger quantities to our manufacturing partners. So we're well set up for capacity throughput and meeting the demand as it's growing through 2025. Our operating costs remain as usual at the lowest levels, and we have lots of plans in place to invest appropriately where needed as our backlog grows. Cash from our recently announced private placement warrants an ongoing deposit and AR supports our operational expense beyond fiscal '25 and completion shipment and installation of our backlog will bring a further $1.6 million of net cash into the business beyond the deposits already received for those orders. System and software development continue. They are on target to support our customer requirements. And as always, we're very comfortable with our growth position and readiness for what's coming. We'll definitely meet the demand challenge. That's clearly upon us. So thanks, everyone, and I'll pass it over to Mike.

Thanks. Paul, appreciate that, and thank you all again for your time today. As Randy and the team have mentioned, it's an exciting time for the company as 2024 has been a transformative year for Legend. As Randy also mentioned, our growth strategy is built on 5 strategic pillars that each not only stand-alone for grade opportunity, but together, they lay the foundation for sustained and scalable success. These pillars reflect both the diversity of our market opportunities and the impact of our SmartGATE solutions. The first pillar that we'll talk about, as Randy mentioned, is the U.S. General Services Administration or the GSA, the Green Proving Ground program. Again, being 1 of only 8 participants selected from over 800 applicants to the Green Proving Ground, that was a significant accomplishment for us. This year, we're installing 2 SmartGATE systems in high-profile federal buildings. These deployments paired with a collaboration with Oak Ridge National Laboratory to quantify energy, maintenance savings and develop a plan for adoption across the GSA's 3 billion square feet, yes, I said, 3 billion square feet of facilities. We're excited to announce that the installation of our first SmartGATE system for the GSA at a prominent border facility is currently in progress and expected to be complete in short order. This milestone marks a significant step in our collaboration with the GSA demonstrating the scalability and readiness of our solution. The second SmartGATE installation is scheduled for early '25 at a high-profile federal triangle building in Washington, D.C. And these installations are critical to validating our technology's impact and setting the stage for a broader deployment across their 3 billion square feet of real estate. Strategic pillar #2 is the U.S. Department of Defense. Earlier this year, we secured a letter of intent from Department of Defense to install 10 SmartGATE systems at key military base, which has been plagued by recurring power issues that disrupt the critical operations there. This initial deployment focuses on 10 of the most critical buildings on a base that has more than 80 large facilities, addressing these immediate challenges and serving as the first phase of a broader rollout plan. While finalizing the alignment across the DoD's multi-tiered structure for purchasing, including command, operations, engineering and funding has taken a bit longer than expected, all stakeholders remain fully committed to completing the agreement as quickly as possible. This process underscores the complexity of the DoD procurement process as well as the value of the strategic pillar that we'll talk about with the master's -- multiple award schedule, but also highlights the confidence in this market's ability to meet their operational needs. Recently, we were pulled into a large energy savings performance contract or ESPC with a large ESCO and another major Department of Defense base. What's interesting is this base has 10x the number of buildings as the current project and again, representing a transformative opportunity to scale our solutions within one of the most demanding and expansive infrastructure portfolios in the world. This partnership not only validates our technology but also demonstrates the expanding role this market is poised to play in optimizing power quality across the DoD's global footprint. These opportunities position Legend to become a critical partner in solving some of the most pressing power challenges faced by one of the world's largest infrastructure managers, offering significant potential for long-term growth. Our third strategic pillar is the energy performance contracts with the ESCOs, as Randy mentioned earlier. Earlier this year, we completed an order with one of our key ESCO partners successfully installing SmartGATE in a school district in the Southwest U.S. that met and exceeded our performance expectations. The M&V process for this project is finalizing as we speak, and we anticipate additional orders from the same ESCO in the very near term. In addition to this success, we've had several other EPC agreements in the pipeline with paperwork pending finalization from multiple key ESCO partners. While the timing of these contracts can be somewhat unpredictable due to the rigorous process involved, the EPC market boasts an exceptionally high finalization rate, nearly 95% once agreements hit the advanced stage. This reliability, combined with our strong results position us for continued growth in this critical market segment. Strategic pillar #4 is the City of New York. And again, our long-standing collaboration with the City of New York continues to provide substantial opportunities particularly in light of the $4 billion initiative to electrify 100 existing schools and construct all new schools that are all new electric. Additionally, a partnership with DCAS positions us well for broader collaboration across all portfolios, not just the school construction authority and the 15 million square feet of city-owned facilities. It's noteworthy that our contracting partners in the City of New York have reported a slowdown in the velocity of the projects they're working with the city of New York. This deceleration is largely attributed to some of the ongoing legal challenges and pending investigations involving key city leaders, which have created some delays in decision-making and approval process across various departments. However, despite these challenges, our partners emphasize that deals are still progressing, they're simply taking a little longer to move through the pipeline. While this has impacted time lines, it has not diminished the city's commitment to energy performance and sustainability initiatives nor has it deterred our efforts to deepen our engagement and deliver impactful results for the City of New York projects. Our fifth strategic pillar is the GSA multiple award schedule or simply referred to as GSA schedule. We're progressing nicely through the application process, and we're now in the final stages of customer validation and pricing confirmation. Once this process is complete, the GSA schedule will not only streamline purchasing for federal government agencies, but also unlock access to virtually all state, local and municipal government markets across the U.S. This is a pivotal milestone for us as all -- nearly all government entities recognize and accept the GSA schedule as a standard procurement vehicle, significantly simplifying the buying process. For companies that have navigated this in the past, these contracts often become a reliable income stream, enabling small businesses to expand operations, hire more employees and increase market visibility. While specific company names are not publicly disclosed, the overall trend indicates that businesses experienced steady revenue growth due to consistent government purchasing through GSA schedules. In fiscal year 2023, the GSA awarded more than $41 billion in multiple award schedule contract sales with nearly 40% going to small businesses. Representing about $16 billion annually and the spending in nonfederal public markets is estimated to be equal to this amount. This demonstrates the substantial opportunity available to companies that are able to secure GSA multiple awards schedule agreement, leading to significant business growth and expansion in government contracting space, which is why we're very excited about that process. So again, an overview, we've achieved record-breaking sales this year, diversifying into new geographies and new verticals. As Randy mentioned, our gross -- our margins are turning to near historical levels. And this year also represented more booking diversification, both geographically and a number of verticals than ever. Our SmartGATE systems continue to exceed performance expectations, driving strong customer satisfaction and repeat business. So with these results and a robust backlog, we're positioned to be EBITDA positive operations in 2025. And importantly, our growth is driven, as Randy mentioned, by sound business fundamentals, delivering cost savings, reduced risk and increased profitability, which is independent of any public policy shift. So our 5 pillars supported by our proven results and strong execution are not just hypothetical opportunities, they're tangible wins. And we're building a scalable future and redefining the power optimization industry. So thanks for your support and your trust as we continue this transformative journey. Randy, I'll pass it back to you.

Thank you. Florence, Paul and Mike, I appreciate it. What you're hearing is we're continuing to build our brand and we're working with key industry players and some of the ecosystem players to ensure that they're aware of and support Legend Power. And what's interesting for us to shift in the reseller market this year is seeing SmartGATE spec into deals and our reseller opportunities continue to grow, not only with City of New York, but Department of Defense, et cetera, which is really helping us get credibility with the reseller marketplace. As Mike and I have said, we've secured our 5 key pillars, which have placed orders or are about to place orders, and these opportunities are massive. We're really excited about growing each of them. The opportunities are secured. They're not hypothetical. There are wins already achieved with execution underway. Our 5 strategic pillars, individually powerful combined to create a transformative growth engine. With a proven technology, a growing pipeline and a clear path to strong revenue growth over the next 3 to 5 years, Legend Power is poised to redefine the future of power optimization. For those invested in our journey, the future is extraordinary bright and the best is yet to come. The leadership team is very committed and positive about where we're going. We're very excited about the future. And each of us is making sure that Legend Power will be a leading power management company. At this point, we thank you for your trust. And your partnership as we continue this remarkable transformation. We will now take questions.

[Operator Instructions]. Randy, the first question we have is related to the GSA is currently evaluating SmartGATE, Legend Power's technology. Assuming it becomes approved, are you able to quantify how many SmartGATE units the GSA might install in each building it manages? Would it be 1 or 2 per building? Or more 4 buildings with a footprint exceeding 50,000 square feet?

Mike, I'll let you answer that and perhaps you can use the example in Washington of different loads in that building. I think that's illustrated.

Yes, absolutely. And again, the -- what we see with the GSA is not that different from other building operators. It really depends upon the size of the building and the number of electrical feeds that are coming into the building. So for example, the building that we're installing in the federal triangle is a larger building that's north of 1 million square feet, and there are over 30 electrical feeds that come into that. Now each electrical feed is an opportunity for SmartGATE. So when we're looking at averages, again, you've got smaller facilities that may need 1 to 2 SmartGATES and larger facilities that could potentially need dozens to fully cover the full load. So it's difficult to ascertain at this point in time because we do have to go through on a building-by-building basis, take a look at each of the services, the path to installation and move forward with that. So 1 to 2 average per building is very much on the low side. I hope that helps answer the question. Another question is one of your key customers, DCAS received 25 proposals in March of this year. Each of them specifies furnishing at least 1 SmartGATE unit at 8 months later. Only 1 unit is on order. Can you explain what is delaying the ordering of SmartGATE units for the remaining 24 proposals? Randy, would you like me to take that one as well?

Yes, please.

Yes, sure. So for a lot of these proposals were part of the solution. When they're doing an entire electric room or they're electrifying a building, it's a much larger project or if they're building new schools, it's a much larger project. So it's not -- these are not just for an individual SmartGATE. As Randy likes to say, [ when we're ] the furnace in the house, and they're not going to order the furnace for the house until the house is actually built and ready to take the furnace.

Yes. I think that what I would just add there, too, is that some of the schools are new, Mike, and some of them are existing. So the parallel to a house is you're not be ordering the furnace until the house is framed in, et cetera. So I think the key message there is just remember that we're part of that solution, like Mike said, and the timing of new versus existing is different. But the important thing is that we are working with them. We are [ specked ] in. We're seeing a lot of activity, and that will continue. One of the other questions is that we're a small company. Are there any partners out there that could accelerate deployments and visibility? I think you've heard a bit about that today. Obviously, the ESCOs, the both deals on the DoD, dealing with City of New York, GSA. As you get [ specked ] into a lot of these deals, the reseller marketplace sees your name. And for many of them, they may not have heard of us or very little they've heard about us. I think it's a validation point. So yes, there are companies that we're working with. We will have some announcements over the next 2 or 3 months with some very large players, that are working with us on some deals that we would be able to announce. So yes, there are several companies that we can work with. I'd say the smaller ones isn't really the way to look at it. It's just partners that have the relationships and have the brand with key marketplaces. And the nice thing is when we are [ specked ] into these deals, as Mike has seen with the City of New York, as an example, they have to come to us and get a SmartGATE. And there's only one road to SmartGATE, and that's through Legend Power. The other question we have is, can you update us on how things are going with the ESCOs? Are you starting to see any activity with large ESCOs? I think we probably answered that a bit. But yes, we are. There are some very big names, the top 3 or 4 that Mike is meeting with on a regular basis in discussions with submitting bids with helping out with different vertical markets or new geographical regions. So we are involved with the ESCOs. We have announced the deal that we had in New Mexico with the schools. There's some follow-up orders there, some other follow-up orders and deals are writing up in other cities. ESCOs are involved in the DoD deals. It's kind of intertwined. And I think when Mike was talking about the GSA, all of them look for that as a badge of approval. And I think that's the one thing that we're really excited about with the GSA is that all of them see that. And it all leads back to needing a SmartGATE. And as I said before, that's something you can only get from Legend. Next question is when do you expect the Oak Ridge Labs report to become publicly available. And I guess the best way to answer that is that the systems get installed and start creating data, and then that gives Oak Rigs Labs data to analyze and look at. Mark Petersen, our VP of Engineering, is on that team. They have -- every week they meet and discuss over Zoom what's happening. That will haven't started with Oak Ridge until the systems are up and running, which is very soon. However, we will get quarterly updates and actually monthly updates with Mark on Oak Ridge Labs. So the way we see it is, the ultimate report will likely need 12 months until it's completed, printed and be able to share. However, we will get monthly and quarterly updates and results, which we'll share with the marketplace. And we will share with customers as a proof of concept that we're working with one of the largest think tanks in the world, and here's what they're saying about our product. So we won't wait until final report. It's obviously something that's key for us. But we will be sharing information on an ongoing basis. Next question Mike is what happened to the 4 $1 million deals that were mentioned in the last webinar? Are they still in progress?

Yes. All of those deals are still in progress. They're moving along. Again, some of them are taking just a touch longer based on some funding approvals, but they are all still very much alive. So we're still very optimistic about our bookings forecast.

Again, additional questions we can take at this time. Not seeing any additional questions. Are you Mike?

No, no additional questions.

Okay. So just wrapping up. Obviously, we've said we are committed. We've got a talented team. We believe we've got an outstanding power management platform. There is no equal and all roads are leading to Legend as we're getting [ specked ] into a lot of these deals in the marketplace. We have and we're prepared to address the challenges that we face when we're creating and developing a new brand in a new market, a whole new category. We're focusing on conserving our cash, achieving our sales objectives, reducing our operating costs, increasing margins and actively securing deposits on all deals that we can. We look forward to realizing significant sales progress and returns on the $10 million investment we made in developing Gen3 and enhancing our U.S. sales capabilities. Again, those are all [indiscernible] costs without debt that we're getting the payback now, which is exciting. We believe the future looks incredibly strong for Legend Power and our stakeholders. We're seeing demonstrable proof on a daily basis. Thank you to each of you for your support. Happy holidays and wish you and your families a fantastic 2025 and of course, a great Legendary Day. Thank you.