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spk01: Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Legend Power Systems Q1 2020 financial results release and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad, If you would like to withdraw your question, please press the pound key. Thank you. Mr. Vannery, you may begin your conference.
spk03: Thanks, Brent. Welcome to the Legend Power Systems Fiscal 2020 Q1 Investor Call. I'm Steve Vannery, Legend's Chief Financial Officer. We are pleased to have you join us on the call today to discuss our corporate progress and financial results for the first quarter of 2020, ending December 31, 2019. I'd like to remind everyone 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 caveats about forward-looking statements and risk factors, please see our management's discussion and analysis dated January 28, 2020, which can be found on our company profile at CDAR.com. I will now pass the call over to Legend CEO Randy Buckemer for an overview of our third quarter. Randy? Thanks, Steve.
spk05: Welcome, everyone, to the Legend Power fiscal 2021 investor call. We're pleased to have you join us on the call today. Appreciate your support. And we want to update you on our progress and provide you a better picture of where we are in the marketplace and our business today. I'm joined, as you have heard, with Steve Vannery, our CFO, and also Mark Peterson, our VP Engineering We'll update you on our technology and product suite that we're very excited about. Obviously, Steve will discuss the financials, and as I said, Mark will talk about the Q1 launch of Insights and the soon-to-release SmartGate Power Management Platform and how the enhancements are transformational for the company. Q1 focus was to continue to enhance our solution offering, improve our sales processes and sales talent, while implementing a corporate messaging campaign to communicate our new value prop and our solution to our target markets. During Q1, we introduced the most significant product enhancement and value proposition improvement in Legend's history. Historically, Legend has been positioned as an energy saving product company and judged on reducing energy costs and achieving an acceptable return on investment. The enhancement of our product to a solutions platform adds the capability to address three most customer stated energy challenges experienced in commercial buildings today. This transformation will continue to enhance our value prop, provide prospects with reasons to buy Legend now, beyond just saving energy, increase our market potential, open up the industrial markets, expand our competitive advantage, and provide a sales team with an unequal story and product to sell. Quite simply, Legend is now the leading provider of an appropriately sized and costed complete power management solution for commercial buildings to proactively protect, manage, and improve their buildings. Mark will give you more detail about the changing solution, but we're very excited about where we're going. It's critical for success that Legend supports our new solution platform with the appropriate sales talent and experience, which has led to a significant changeover in our Toronto-based sales team during Q1. Our philosophy is to have fewer salespeople in each region, but have more experienced and capable salespeople that spend more quality time in front of our prospects while greatly reducing our sales team's administration and non-sales activities. Legend has and will continue to attract high-caliber sales talent to ensure our success. We have seen through the last quarter far more sales opportunities in multiple regions and verticals than any time in our business. A few weeks ago, during our fiscal 2019 Q4 investor call, Mike, COC, our sales and marketing leader, updated you on the various improvements he has led with our value prop, sales processes, and how excited Mike is to achieve the necessary improvements with the sales team. Mike's not on the call today. He'll be on the next update call, but he would tell you he's very pleased with the progress and the exciting opportunities both in New York Seattle, and Ontario. We're seeing bookings grow, and our growth prospects are very positive. During these difficult financial market times we've seen the last of a while, it's company to know that Legend has a strong balance sheet and resources to fuel our growth plan. We've invested for growth as we committed when we raised our money two years ago by canceling our solution offerings, improving our sales team and processes, and building a strong engineering team who will continue to develop and release leading-edge power management solutions. And we have done so. We 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 continue to build our brand by participating in industry shows and working with key ecosystem players to ensure they are aware of and ultimately support Legend Power in their clients' buildings. We do anticipate sales growth, and the Legend leadership team is very positive of Legend's future, and we're each very committed to making Legend Power a leading power management company. I will now turn the call over to Steve Vandy, our CFO, who will provide a financial review, followed by Mark Peterson to speak about our outstanding offerings. Thank you.
spk03: Thanks, Randy. Revenue for the first quarter of 2020 was approximately $1 million. a 149% increase from just over $400,000 in the first quarter of fiscal 2019. Revenue was generated as to 64% from U.S. sales and 36% in Canada. 88% of total revenue was generated from completed installs and 12% from equipment delivered to customers. Gross margin in the first quarter of fiscal 2020 was 21%, down from 81% in the first quarter of fiscal 2019. The company's long-term average gross margin has been approximately 45%. The significantly lower gross margins experienced in the first quarter of 2020 was due primarily to two projects completed for an early adopter marquee New York City customer. Early projects in new regions typically involve higher overall install costs, in particular electrical contractor costs, due to a significant learning curve in understanding the nuances of installing a new unfamiliar technology. The lower margin is also due to a disproportionate amount of total revenue derived from installation services, which have historically yielded lower gross margins. The gross margin achieved in Q1 of fiscal 2019 was significantly above the company's long-term average due to an inventory valuation adjustment, which impacted cost of goods sold. The company's operating expenses for the quarter ended December 31, 2019, were $1.62 million, up from $1.48 million in the same period of 2018. The increase of $136,000 is due primarily to higher salaries, consulting fees, and professional fees offset by lower general and overhead and selling costs. Legend remains financially healthy with a working capital position of approximately $6.4 million at December 31, 2019. Within working capital, trade receivables and amounts due from customers on contract totaled in excess of $1.9 million. These receivables are primarily owed by repeat customers with 76% of the total amount having been outstanding for less than 30 days or had not been invoiced to customer. We feel our working capital position has Legend ready to navigate fiscal 2020 as we push to roll out our enhanced value proposition with SmartGate Insights and an unmatched suite of power quality solutions. Thank you, and now over to Legend's VP of Engineering, Mark Peterson.
spk00: Thanks, Steve. Legend has traditionally had a strong product offering based in energy efficiency. We have proven the potential of our voltage management technology as a leading energy conservation measure for numerous building types in the commercial sector. However, we have always had a strong vision for the potential of the technology to grow to solve a much larger set of business problems. We continue to challenge ourselves. How can we provide additional business value to our customers across their enterprise? Smartgate Insights is the first step. Insights is a comprehensive platform that monitors energy use and power quality, both at the building and enterprise level, and takes a complicated world of power quality and makes it both visible in data, but also translates it into business friendly language. Smartgate Insights allows Legend to provide visibility to the growing issue of power quality and quantifies the risk and waste in a facility with clear and easy to understand metrics. It includes a high-resolution data stream of all the electrical usage and parameters that are stored in the cloud and is easily accessible through a web portal. Our new standalone SmartGate Insights approach allows us to document and diagnose the power quality and its impact on a building prior to a SmartGate deployment. The Insights platform is central to our strategy going forward. allowing us to provide an in-depth diagnosis of power quality issues and the potential for energy savings. Smartgate is continuing to evolve as well. We continue to introduce new features to the platform to increase the value to our customers to build on our base in energy efficiency. Technical innovations such as phase balancing, boost in buck, and full regulation will allow us to mitigate the damaging effects of poor power quality while increasing the energy savings we can offer. we can reshape the incoming power to whatever is optimal for the customer. We are creating a regulated, controlled grid connection that allows Legend to approach potential customers with a much stronger multi-dimensional value proposition. This value proposition is squarely targeted at real challenges in their business, such as rising utility rates, increased maintenance costs, and negative occupant experiences. When combined with insights, we can now provide an enterprise-wide solution to ensure a building's electrical system is operating at its best and most efficient. In addition to strengthening our value proposition, our new power quality feature set can widen our addressable market to include segments that have not traditionally been strong for Legend. This enhanced vision for our products would not be possible without the engineering and operations team. Over the past 18 months, we have strategically rebuilt the engineering team with top engineers brought in from leading technology companies. The entire team is focused on building an innovative solution for managing power in the electrical room, and we are confident in the end result. Legend has made wise investment decisions in the people and tools necessary to develop this technology. This will yield a strong platform for our product for many years to come. Looking to the future, Legend is uniquely positioned to take advantage of several larger trends in the industry. State and federal regulations continue to provide strong mandate and financial incentive framework for energy efficiency. These are key enablers for Legends technology. The changing nature of electrical generation with less reliance on old technology and increasing reliance on renewables creates additional stresses on the grid and deteriorates power quality. And finally, electrical rates continue to rise in virtually all jurisdictions across North America. These combinations of conditions and increased focus on decarbonization provide a strong outlook for legend solutions in the marketplace.
spk05: Thanks, Mark, and thank you, Steve. A lot of excitement here with the new product and things we're doing. What we're finding, we're continuing to see the market look for innovative and entrepreneurial companies like us, and we believe our message is resonating strongly. We've continued to address the challenges to grow our sales. We believe Now we have the right leader in Mike Sciosi, and Mike's been awesome in leading the changes required to build a business. Mark's team is enhancing our current product as you're hearing to a power management platform which brings urgency to our sales cycle, strengthens our value proposition, and opens up new market opportunities that we never could address before. We've invested over the last four quarters to improve both the sales and engineering teams to ensure we have the growth We have a strong balance sheet to fuel our growth. We continue to get follow-on orders validating our value proposition. We know it's strong and it's getting proven out. We're building strong relationships with industry players that will fuel strong sales growth. And we're finding that on a weekly basis we're seeing news or articles related to energy and power management matters in commercial buildings. And we're continually inundated with ESG market potential. We believe we're in the right place at the right time. We're a committed team that will make Legend Power a recognized energy management leader, and we're looking forward to the next year. At this point, we'll allow questions.
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Again, to ask a question, press star one on your telephone. Your first question comes from Jeff Cowell, a private investor. Your line is open.
spk06: Yeah, hi. Good morning, gentlemen. Randy, two questions regarding Smartgate Insights. What do you think the amount of time required A prospective client would need to have it installed in order for the metrics to validate the need for your solution. And then two, how many of these units do you currently have in pilot customer's possession? Thank you.
spk05: Sure. I might come back on the second question for a little more clarity, but let me start with the first. Well, Smartgate Insights is, let me step back and answer it this way. One of the challenges we've had is we put a $75,000 to $100,000 solution into a customer's location, and we run it for six, 12 months, get some data, because we really didn't have a way of proving out how our system would work and what we could do until we had the data with the large units. So we're looking for a fairly large commitment I think that's why we've seen the sales cycle longer because people wanted to see demonstrable proof with their data points showing what we can do for them. So with Smartgate Insights, what's really compelling is it's a $3,000 price tag. It has a guarantee that that would be credit towards the unit when they purchase the unit. And if we cannot show power management opportunities, we credit them. So there's really no risk offer there. But most importantly, It's installed very easily and we can run it. We figure 60 to 90 days maximum. So it really shortens that cycle, but then we can sit down. I always say like a doctor with your blood tests and everything else and say, this is what's happening with your building. Where in the past we could have debates about whether or not we we're making an impact on the building, it had to be many months down the road, we can sit down and have a discussion right away. In a lot of cases, what's really interesting is SmartGates is the profile of the building from a power management perspective that very much is close to a significant thousands of dollar power management study that electrical contracting companies do. Also the fact that we can, on an ongoing basis, provide that data and present it in a way that's meaningful for both the executives. So in other words, a more streamlined approach for the executives with meaningful data points on the key things that they're interested in their business. And then secondly, with very detailed information that people like Mark that are smarter than us on all that stuff can talk to the ecosystem players about. So we're really excited about it and that will validate and we believe, again, short the sales cycle give a compelling need to move ahead, not just energy savings, but additional power opportunities to improve their building's profile. Very exciting. Anything else, Mark?
spk00: I'm just going to add, I think one key difference is in the past, we're always working with a snapshot of information. You know, that we would have limited information taken over a week or a few days to build out a potential proposal. The advantage of SmartGate Insights is once we've installed that early in the sales process, we now have 60 or 90 days of 24-hour coverage and this vast amount of data so that when we go in to move to a smart gate system, it's just a much more data-driven approach.
spk05: Yeah, we've got over 30 of those out now, just to put that in perspective. Now, could I ask you just to ask the second question once more for clarity?
spk06: I think you answered it, Randy. I asked how many of these units you had deployed, and you just answered, you said 30, correct?
spk04: Yes, okay. Yeah, okay. Good.
spk06: And so one of the points you brought up, one more question, Randy, about one of the benefits of the Insight is that it could potentially replace an engineering consultant coming in and doing an assessment on a property. Can you elaborate a little bit more on what that process might cost typically for an engineering firm and what sort of additional metrics, assuming there are, that you would be able to effectively measure as opposed to sort of the quote unquote old school, somebody comes in and assesses your building?
spk00: Yeah, so this is Mark speaking. I'll answer that. I think first thing, in terms of cost, typically an engineering study like, you know, to look at your power quality would be, depending on your region, $5,000 to $10,000. It would typically include one week of data gathering and you'd receive back, you know, a 20 to 30 page report that is, you know, incredibly dense and engineering focused and virtually unreadable to somebody who's not an expert in the field. So two things. One, you know, advantage of ours is the price point is very attractive. Two, we're really focused on, you know, we have the engineering depth via our, you know, deep experience in this field. But I think kind of the key advantage is what we're doing is we're translating it, those, you know, engineering, you know, technical speak into clear, concise business languages that customers would understand. Things like dollars per square foot in terms of maintenance costs, et cetera, if you're in the commercial real estate, and the impact on risk and waste in your business. That's, I think, really part of the key things that set us apart in how we're dealing with it.
spk05: And I think the other thing is that when you look at that $5,000 to $10,000 report, that's a one-off at that particular time. We have a perpetual, you know, we're accessing the data, and we give an ongoing access to the power management.
spk06: way i look at it is for you know half to a third the cost you've got a perpetual power management report available both in the executive format and the detailed format for people that want to look to that level so maybe a forward-looking question randy um given that you said it's 60 to 90 days approximately to get some actionable metrics and in the news release this morning it says that you started introducing insights in November were pretty much in that window, the latter end of it. Out of those 30 units, are you starting to see any actionable sales items for Smartgate?
spk05: So what we did was the early version of insights went into the educational school system in Ontario with existing customers. Those were sales. to get data and profile to help us fine-tune the product to what it is today. So Insights, in its format, really started to go out early 2020. So we have units that are gathering data, et cetera, now. And also the other difference we haven't mentioned is we're doing that remotely. We can access the data and information. We don't have to go in and physically take it from the system. But are we seeing fall on orders or orders commitments based on that data? The answer is yes. And do we expect that to continue and grow? Yes. There'll be opportunities where insights will go in and be a part of the sales cycle. And there'll be opportunities we've seen some people say, well, you know, to take as much time to get approval for three or four of these if it does to just do a system so maybe they'll bypass the process. I suspect that won't always be the case. But you should also appreciate that what Mike's doing with his sales cycles, he spoke last quarter's update, he's looking at deploying dozens of these at a time as opposed to one-off box, pilot it for a year. He wants to make sure that we're getting year-over-year commitments of deployment throughout a network based on having the correct information available so that people make informed decisions. So it's all part of and advantage of the sales process We're not trying to sell insights. We're trying to sell smart gates. Insights will be sold, but see it as a tool and a way to communicate with our target market with their data and talk their language about what's happening in their buildings. And that is part of the transformational aspect of the smart gate platform.
spk06: Have you received any sort of, I don't know, feedback or friction from some of these electrical consultants where maybe, albeit it's only been 30 units, but maybe you've started to displace some of the requirements that give them an entree to maybe future work? Is that, is it too early to talk about that?
spk05: Yeah, I think it's too early, but I think we've always tried to be collaborative with the marketplace, not competitive. So this is a tool that creates opportunities for people in the ecosystem with that data to sell their offerings. In other words, today if you've got a building, you've got someone who looks at it from a point of view of HVAC or someone else looks at lighting. What this does and the reason you get a power management port is you want to look holistically how everything is working in your building, where the opportunities are to eliminate risk and waste. So we're providing a tool that actually we can sit down with the engineers, electrical contractors that work with the building owners. And it's a tool to discuss how we jointly can work with people to make the buildings better. We're excited about it. The second part of it is in the past when we've worked with the energy consultants and engineers, we've had a process to assess what's going on with the energy in their building. And because that was an LPS proprietary methodology, Sometimes we would get people saying, well, I'm not sure, or how do you do it this way? We would continue to adopt industry standards so that it's not our numbers or our language. And I think Insight is the next step to actually using the client's data so that what we don't have is the client and the consultant between us. We can hold hands and go to the client and talk collectively about, this is your data. Just like the doctor blood test, what are we going to do about it? And it creates opportunities for everybody.
spk06: Thank you. That's it for me, gentlemen.
spk01: Your next question comes from Horst Winneken with Winneken Asset Management. Your line is.
spk02: Thank you. My first question is for Mark Peterson. Now that your team has finished engineering the SmartGate Insights device and launched the next generation SmartGate transformer unit, it appears you have completed the engineering of these two products. What, if anything, can you tell us about what your engineering team is working on now?
spk00: So, let's clarify. So, Smartgate Insights is, yes, largely complete. There's always still continuing engineering work to improve products and to, you know, reduce cost, et cetera. But we are still actively working on the new feature set for the Smartgate system. So that is very much still in active development and we continue to roll out new features to address power quality. We talked about the increasing voltage, reducing voltage, et cetera. So that is very much an active project and where the majority of the team is focused through 2020.
spk05: Yeah, and don't look at it as a product focus. Look at it as a platform. And that's the never-ending story because as we get requests from our customers, or they have the data shows opportunities for improvement. It's our goal to continue to enhance the platform. So really shifting from a product we sell before a harmonizer to a platform that has a never-ending evolution to it.
spk00: Yeah, there's a lot of work too on the engineering side on the cloud connection, the data stream, the managing of that data, and then the opportunity for that data for us for internal purposes, for research, for market development, for future marketing with customers, as well as the customer-facing aspects of that data. There's a tremendous amount of engineering and software work that's happening on the database and data side for Legend as well. These systems are generating hundreds of parameters every second each, so there's a vast probe of data coming at us that we are actively working with and using to improve our offerings.
spk05: And, you know, with all the changing elements of the grid, all the different electrification, all the different things we're seeing out there, it's not like we've got a static market. There'll be opportunities that we can deploy solutions to. And the real answer to your question is the team has looked at that. They've looked at where the opportunities, where the product can go. But most importantly, again, the platform, Smartgate, was designed to go with many different directions, depending where the customer wants to go. So that's exciting news is we've invested in a platform that's open to accept a lot of the changes and the tools and devices that are coming into the marketplace in the future. We'll be able to incorporate those and not have to design a new product or start from scratch. That's been built into the platform.
spk02: That's helpful and sounds like Mark's team is going to be continuing to be busy. My next question is for Steve. The balance sheet shows that the company has $6.4 million of working capital, as you pointed out in your press release. Is Legend Power currently in a position to borrow money from one or more lenders? Should it decide to do so at some point? And if not, what needs to happen before the company can borrow money?
spk03: Yeah, it's a good question, Horst. It's not something that we've discussed here, I don't know that it would necessarily be at the top of our list as a funding source. And frankly, I don't know what the appetite would be from the lending side.
spk05: I think just to add to that, the way we look at it is what we have talked about is financing orders. Because what I happen to ask is, what if you had a $50 million order come in? Well, first of all, it doesn't happen all in one day. It's spread over time. But there are multiple opportunities to finance book deals, and that's what we've looked at. We're not looking at any debt financing into the organization per se, more financing, expansion of deals, et cetera. That would be my take on it. Okay.
spk02: Thank you. Appreciate that.
spk05: That's all for me.
spk01: Again, if you would like to ask a question, please press star 1 on your telephone. There are no further questions at this time. Mr. Buckemer, I would turn the call back over to you.
spk05: Great. Appreciate the questions. Appreciate especially those people on the Pacific Coast getting up a little earlier today. But what a better way to start your day than listen to three guys and legends. I guess really all I really wanted to do was thank you again for your participation and support. 2019 was a transformational year in many ways, and we continue to see a real fantastic opportunity for Legend to be a leading power management solution company as we discussed. The team's committed. We've got the right people. We're getting stronger with each new hire. We've got an outstanding power management platform that is unequal to the marketplace. We've got a good, strong balance sheet. because markets with high energy costs and power challenges. And we're seeing, as I said earlier, daily, weekly news on the ESG market or opportunities for power, people that can help be part of the solution to the problem of energy and power management. And that's really exciting for us. We're continuing to see the high energy costs, power challenges, and we clearly are seeing people growing in their need to seek innovative ways to reduce their energy costs, improve the quality of their buildings, environment, and power profile. And we believe the future is very bright for Legend and our stakeholders. And on that note, I'll thank you and wish each of you a very great, legendary day.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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