This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will again be placed on hold. Thank you for your patience. Music Good afternoon. My name is Chino and I'll be your conference operator today. At this time, I would like to welcome everyone to the Legend Power Systems Q3 2021 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 resolve your question, press the pound key. Thank you. Mr. VanVy, you may begin your conference.
spk04: Hi, everybody. It's Steve VanVy, Legends Chief Financial Officer. Welcome to our fiscal 2021 Q3 investor call. We're pleased to have you join us on the call today to discuss our corporate progress and financial results for the third quarter of 2021, which were the three months ended June 30th of 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 Legends forward-looking statements and risk factors, please see our year-end management discussion and analysis, which was filed on CDAR under our company profile. That's at cdar.com. I will now pass the call over to Legends CEO, Randy Buckemer, for an overview of our third quarter. Randy? Hi, Steve.
spk06: Everyone, welcome to the fiscal 2021 Q3 investor call. Thanks for participating. Obviously, you've heard Steve is on the call. He's our CFO. We've got Mike Ciosi, our VP Sales and Marketing. We've got Mark Peterson, our VP Technology and Engineering. And obviously, Steve will come back and provide a financial overview. Mike Ciosi will update you shortly regarding the great sales activity progress, and Mark will provide a Gen 3 and supply chain update. I'm pleased to tell you that despite the pandemic and all the things that have been going on around the world, but we are continuing to experience growth in all aspects of our business. We continue to believe that our opportunity to be a leading active power management solution has never been better, and we'll continue to do so. We're at the beginning of a 20 to 30-year transformational journey where companies are going to spend trillions of dollars a year needing to protect their buildings from electrification and decarbonization challenges. And Legend is perfectly positioned to be a leader in this enormous business transformation. Specifically during the quarter, we continue to achieve our intended business activity growth. Deal flow pipeline expanded significantly. Quite simply, we have more opportunities than we can currently support. Backlog is growing. Insight service deployments are meeting or exceeding targets. Reseller and ESCO channels are embracing both insights and smart gate solutions. Mike will speak about the successful channel sales training and some of the ESCO progress conducted during the quarter. Basically, the target markets and reseller channels continue to respond very positively to legend solutions and our combined opportunities. Highlighted during the quarter, we completed a $10.3 million gross raise to support our growth plans. We have the balance sheet to support our very aggressive growth goals. Our biggest challenge is we need more A players on the team to meet the demand for our solutions. We've been constantly interviewing to find that people will make a difference, those A players that make companies. We hired a production specialist, Ben, to help us manage supply, inventory, and production, and he's made immediate impact. In July, we added a senior business manager in New York who's had a very impressive start. Starting September 15th, we will have our very first channel leader who will bring years of experience and contacts to grow our channel business. We're lucky to get this person. This person knows more about channel development than all the current Legend team. The channel's leader also was picking their own team. They've already introduced us to an A player that they've known for years. And we put an offer out to that person this week. And we're very pleased to say today that that person accepted. So we've got two new, very high-end sales talent joining the team. And we're growing to meet the opportunities that we see in multiple markets and channels. Our other channel problem that we've had is through the challenge of securing parts and assemblies uh to meet the gen 3 demand a lot of people have asked questions about that but we know that most every company has experienced the same challenge of part shortages and price spikes as i mentioned earlier we've got a specialist who's joined us to improve our operations and we have a part-time person that's 100 sourcing securing parts mark will talk about this a bit later but we're doing everything we can to manage the process but it will affect delivery times We have not and we will not lose any business due to part shortages and delays. Margins will be impacted as previous sales were based on them, current costing, and we have experienced price hikes. We expect the situation to continue for possibly 12 months. We'll see how that goes. Regardless of the region, companies appointed senior leadership to address ESG and building energy improvement efforts, and everyone is looking for new and innovative energy technologies. leading technologies like Legend's Smartgate platform. And clearly, the world is looking for products like Legend's Smartgate platform, and we're poised for significant growth. Combining our new platform with exciting sales progress, which Mike will talk about, all of us have a lot to look forward to. Quite simply, we expect to see continued confirmation that the time is now for Legend and our solution. And during these uneasy financial market times, It's absolutely comforting to know that Legends has depleted the capital raised and has the sufficient balance sheet and resources to fuel our growth plans. We're investing to grow is what we told people when we raised the money, and we are investing to grow with people and additional talent in key parts of the organization. We're building a strong engineering team that will continue to release leading-edge energy management solutions. We'll continue to improve. and expand our sales team to ensure we achieve our growth targets. I'll now turn the call over to Steve Banner, our CFO, who will provide a financial review, followed by my COC VP Sales and Marketing, and Mark Peterson, VP Technology and Engineering, to speak about the excellent product and sales improvements we've made during the quarter and how our target markets are responding to our leading solutions. Over to you, Steve.
spk04: Sorry, mute button. Just before we get started, you'll hear us make reference to our SmartGate platform either as Gen 2 or Gen 3. And Gen 3 is also called the next generation or the new generation, just so you can distinguish between the two as you hear it referred to. So revenue recognized in Q3 was based on six SmartGate systems. and 18 completed SmartGate installations for the nine months ended June 30th. Sorry, for the quarter. And for the nine months ended June 30th, 2021, there were 32 systems and 22 installs, respectively. And this is relevant because, as you may recall, two or three quarters ago, we had about a million dollars of Gen 2 inventory. And the sale of these systems brings that inventory down by somewhere around 80%. The balance of The inventory for Gen 2 or a bunch of the balances really for any warranty occurrences going forward. Sales pipeline and sales bookings backlog are both healthy and growing. However, the transition of these to revenue recognition remains slower than anticipated due to customer-driven install scheduling, external COVID-related personnel constraints, and inventory supply chain delays. Gross margin of 27% during Q3 improved from 18% during Q2 also of this year. And for the nine months ended June 30th, 2021 was 25% up from 21% in the same period of 2020. But overall gross margins remain significantly under our historically reported averages. This year we have strategically moved older generation inventory as I had referenced, at more attractive pricing to both secure business with marquee customers and also to proactively create free cash from otherwise sunk capital. As the company transitions to selling its next generation, or Gen 3 Smartgate platform, management anticipates margin challenges to persist into 2022 as global supply chain constraints continue to negatively impact inventory component pricing. And this may have a really an amplified effect on Gen 3 as it does rely on an increased number of foreign sourced components. But eventually, normalization of supplier order fulfillment and scaling of legend sales and revenue will help to bring margins in line with our longer term average results. The company has transitioned to a growth phase and has acted to build the infrastructure and personnel needed to keep pace with demand. The closing of our bought deal prospectus offering in June of this year and the additional working capital now in hand positions us well to invest in the offense part of our business by adding high performing sales and marketing personnel and providing them with the tools they need to succeed. We will also invest to ensure the timely production, delivery and installation of our next generation Smartgate platform technology and additional feature sets. The added working capital allows us to proactively focus on the items critical to attaining our growth projections, namely insights, engagements, and their conversion to full platform sales and expanding our ESCO channel partner and reseller networks. We will continue to frugally manage our capital resources as we all always have and squeeze the most out of every dollar provided by our shareholders. In short, we are very happy with where we are at and very optimistic about the future. Thank you. And over to Mike Ciosi legends, VP of sales and marketing, Mike.
spk01: Thanks, Steve. I appreciate that. And as Brandy had indicated, I'm going to be covering off a number of the key activities and the momentum that we see from the sales and marketing team. But before we jump in, I wanted to take a few minutes and level set on several critical aspects of the business. As you've heard before, we're transforming from an energy efficiency product to an energy management platform and solution. for the past year or so. And this has been driven by our customer response and their needs and feedback from the market. What we're taking to market today is dramatically different than even two years ago. Back then, we were offering an energy savings product. Today, we provide an active power management platform that not only saves energy, but also protects a building from the perils of our ever-changing and rapidly changing electric grid. And as we've mentioned in the past, as the world decarbonizes and electrifies more and more, the power provided decreases in quality significantly. Where we now see 80 to 90% of the buildings we assess with risk and financial losses due to their incoming power, in the coming years, this will only increase and the risks and losses will get bigger and bigger as we continue to reduce greenhouse gas emissions. Simply put, reducing greenhouse gas emissions is great for the environment, but it's horrible for buildings and the people that depend upon them. There's no two ways about it. As a planet, we need to reduce our greenhouse gas emissions, and there's no question about that. And just as there's no doubt about the need to decarbonize, there's no doubt that buildings will need to address the increasing problems of low inertia energy proliferating through the grid and coming into their buildings. So the need for our product will continue to grow for the next two to three decades, presenting an absolutely massive market opportunity for Legend Power. With an estimated million buildings that can benefit from our solutions in North America alone, even a single digit market penetration means billions of dollars in revenue for Legend Power. And that's what we're building. We're building a company that will provide the dominant mission critical technology for power distribution and data for large building electrical systems. This is the message that we're taking the markets today and it's resonating. Our bookings for fiscal 2021 are almost equal to the prior two fiscal years combined. We are constantly and consistently achieving our insights booking goals of 90 per quarter which will put us on a consistent and predictable revenue trajectory for the next 12 to 24 months and well beyond that. We will see customers, and we are seeing customers, buying smart gates based on the information we're providing as part of our insight service. We're seeing this happen at or above our predicted 50% close rate. On the direct or strategic side of our efforts, we're landing significant opportunities with some of the top names in commercial real estate. During the past quarter, we won a multi-site portfolio deployment of SmartGates for a leading real estate company that manages almost $70 billion of assets across the globe. And now we're actively working with them to identify and prioritize more of their largest buildings in their portfolio. And yes, while we continue to broaden new markets and new geographies, we're still seeing deals flow in from existing markets like Ontario Education and more. So our pipeline and bookings are growing substantially due to the hard work being done by a very few number of sellers. And on the channel side of the house, we're seeing an increase both in the number of companies that want to partner with us, as well as the number of sellers that are effectively in the field representing the Legend Power brand. We've added four new ESCOs to our roster, a channel partner that private labels energy efficiency solutions for utilities across the U.S. When people hear what we offer, the problems we solve and the value proposition we provide, they're leaning in. They're not leaning away. These successes are leading to results, not only in the strategic side, but as I said, on the channel side. We've recently completed field training for a number of our channel partners, including ESCOs and other resellers. This has resulted in potential tens of millions of dollars of additional new pipelines that have been created in the past quarter alone, again, with a very few number of legend sellers engaging with hundreds of sales partners or professionals, that's the model we're building. And one partner alone has already identified 50 existing customers with thousands of buildings that could benefit from our solutions. Not only does this represent potential tens of millions of dollars of pipeline with legend power, but also positions them as a strategic partner to take these customers into the future. These are the types of win-win leading strategic partners that we're looking for and that we're landing. We're not looking to engage with low-margin commodity-driven organizations. We're partnering with leading organizations that are helping to shape the future of buildings and electrical management for the coming decades. These are the types of firms that are drawn into our new offering. However, as Randy mentioned, that this kind of growth does come with some challenges. And right now, one of the biggest challenges we face is having enough people to pursue all the business that we're creating. We've conducted almost 100 interviews over the past few months looking for the top A players, top A talent that we need to continue to grow the company to our goal of $100 million a year. To that end, we've extended a few offers, as Randy has mentioned, Recently, to some of these A players, and we've recently hired a top performer from the facilities management field for the Northeast, and he's already contributing in very positive ways. As Randy has also mentioned, we've extended an offer to a very seasoned sales channel leader with decades of experience building out channel sales organizations that drive hundreds of millions of dollars in sales. And this person will be fully on board in the coming week. And again, as Randy had indicated, they're already building out their team with their known quantities, their A-player talent from their previous successes. As Randy indicated, we've extended an offer to one of their top picks, and they've accepted and will be starting in the coming weeks as well. And we'll continue to add A-players to the Legend sales and marketing team to ensure we can deliver on our high expectations of sales and revenue results. We are well on our way to solving this challenge of bringing on top talent at various levels of the organization. One of the other challenges we're having is related to the global supply chain issues that are affecting virtually every high-tech company on the planet. And Mark's going to go into more detail on this, but it's impacting the timing of when the solutions can be deployed to our customers, which does factor into their decision-making. Let me be clear, this is not causing us to lose any deals. We are, however, seeing some organizations that are moving cautiously due to timing uncertainty. Of course, we are taking that opportunity to reiterate that first come, first served. So the fastest path to solving these challenges, saving energy, protecting themselves from the grid, reducing the greenhouse gas starts with a signature today. So again, we're not losing deals. We're seeing a slight delay in decision-making for a small portion of our deals. And again, Mark will go into more details of how some of these specifics are affecting, as I mentioned, virtually every high-tech company on the planet. So the short version is that our backlog and bookings have never been bigger. Our pipeline has never been bigger. We need our sales team to be bigger, and we're focused on making that happen so we can continue on our aggressive growth performance. Again, the future of legend only gets brighter and brighter with each passing quarter. So there's the sales marketing update, and I'll pass it over to Mark.
spk03: Great. Thanks, Mike. So I'm really excited to be talking to you guys today, and I think there's a couple things I wanted to cover off. First, speak briefly about product and some of the enhancements and changes that we've been able to bring to the market. And second, to talk a bit more about the impact from COVID on supply shortages and what that means and how Legends reacted. And then lastly, just about momentum and some of the things I've seen, especially with my long tenure here at Legend. On the product side, I'm really excited about the shift in our customer offerings. We have successfully transitioned from our previous solution-based on energy savings, as Mike talked about, to a holistic, active power management platform that incorporates energy savings, but also equipment protection and data. And, you know, Mike talked about the engagement of Insights, and that's the one that's probably most exciting for me. You know, we've really validated that Insights first sales approach with the market. The reception's been absolutely excellent. Our Insights service allows us to help potential customers understand the adverse impact of power on the reliability, efficiency, and lifetime of their electrical equipment. And it's really a data-driven approach. We're able to show them the direct impact of power on their operations. And I think the real breakthrough for us is that we're doing that using clear business language that everyone understands, dollars and cents. This approach is allowing us to break away from a lot of the technical jargon that's everywhere in the energy efficiency industry and really helping us to stand apart. This transition has really been enabled by our Generation 3 SmartGate system, where through the developments we've made and the R&D that we've accomplished over the years at Legend Power is a complete active power management system for the facility. It builds on our core history of energy savings and really brings a couple of extra layers with data and equipment protection into a single package that's sized for commercial building market in a really attractive package. This new technology is allowing us to protect the building's electrical system and all of those components from, as Mike talked about, the continuously evolving electrical conditions on the grid, and allow customers to take control of their electrical environment in a really proactive way. The reception from our partners and customers to this value proposition and process has been very, very positive. I think that's one of the biggest shifts we've seen in the last year or so at Legend. On the part side, as we know, COVID has seen a dramatic impact throughout the world across global supply chains for technology. Every day there's more and more stories in the news regarding chip shortages and whether it's for automobiles or home electronics, etc. It's affecting every industry and sector and Legend is not immune to that. We anticipate part shortages increasing. particularly in semiconductor components and passive electrical components such as capacitors, will continue for at least the next 12 months. But at the same time, we haven't been idle. We've been very carefully navigating this and making moves to mitigate the impact on our business. One of the key things we've done, we've hired a production manager with 20-year-plus experience in production and sourcing materials to help lead that end of the team and working carefully with procurement and inventory management We've done a lot of work inventorying key components when it makes sense to do so. For low-cost components that are hard to obtain or can be long, we keep them on the shelf and make sure they're ready to go. We've done design changes to eliminate difficult-to-obtain parts in favor of more commonly available ones where it makes sense. And one of the key ones, and other members of the leadership team have been involved in this, is just enhancing the partnerships and relationships with key suppliers. and really building up those relationships. So we're, they're not just taking orders from us, but they understand our business. We understand theirs and building those relationships to make sure that, you know, we have the latest and greatest information, but also that we're at the front of the line when parts do become available and that we're able to react accordingly rather than, you know, basing decisions off rumors and speculation with these plans in place. You know, I do believe we're the worst impact from COVID is behind us in terms of, um, you know, being able to conduct business in a climate that's overshadowed by COVID. And as Rindy and Mike both touched on, you know, the business impacts, I'm very proud that with, you know, key communication with our customers, we haven't lost any deals due to these delays. And I think we're doing a great job of managing through it. And then the last one for me, I really wanted to just touch on briefly was momentum. You know, I've been fortunate enough to be involved with many of our customers and partners firsthand to see their reception to our value proposition and technology and see how that's been building and And with the last 11 years I've been with Legend, we often see a slowdown in customer engagement in the late summer months. Key decision makers are away at cottages or on vacation, et cetera. And fall typically gets very busy for us. But this year has been different. We've really seen at the external meeting level with customers, it's the highest level of external activity I've seen with Legend through meetings, et cetera, through August. And it makes me very excited for what we're going to see in, you know, into the fall quarter and what that looks like. So, so really bright, you know, it's a really bright sign for me just to see how that's tracking and to see how we can translate that into future business. So with that, over to Randy.
spk06: Thanks, Steve, Mike, and Mark. Just want to take a second to discuss what we see as Legends Outlook. As mentioned earlier, we're seeing the systemic changes that are occurring to address climate change. The electrification, decarbonization, energy efficiency, they're all mainstream and long-term, and they're tremendous positive movements for Legend. Everyone has or is developing a plan and strategy to address the climate change and the ESG challenges. Our target markets are looking for innovative and entrepreneurial technology companies like Legend, and our message is strongly resonating. We're securing business with many of the most successful organizations in our target markets. We're well capitalized to support our growth. We're meeting or exceeding our Insight service deployments and Insight Smartgate platform sales conversion targets. The reseller and ESCO channels continue to accept and adopt our solutions. And again, the ESCOs alone are a $15 billion industry. And we've developed this business with three sales reps. As we've mentioned, we will build out and continue to add to our sales team. And through ESCO Partners, we've been introduced to the massive health and defense verticals, and we expect down the road to have some exciting news in those arenas. Our investments in people and building relationships in New York is bearing fruit. We are an accepted energy solution with all the agencies, both state and civic, that make technology decisions. We also establish a presence with Insight Deployments in other major eastern U.S. cities, and this continues to be a big year for our U.S. expansion. And the next generation of Smart Day platform, as we call Gen 3, is being delivered to market. We'll continue to enhance the platform to address additional power-related challenges and cement our position as the solution for managing power in commercial buildings. Government, free enterprise, resellers, ESCOs, senior AFC leaders, and businesses throughout North America need legend solutions to achieve their goals. They need legend, and we're going to make sure they get legend. At this point, we'd like to welcome any questions.
spk08: All right, so as a reminder, to ask a question, you will need to press star 1 on your telephone. To resolve your question, press the pound key. Again, that is star 1 on your telephone. Please stand by while we compile the Q&A roster. First question comes from the line of Ian Gillies from Stifel. Your line is now open.
spk02: Afternoon, everyone.
spk06: Afternoon.
spk02: With respect to the Gen 3 product offering, can you maybe distill down why you think you're getting a better response to that product than maybe the Gen 2 unit and what some of the basic upgrades have been to make it a better product?
spk06: So what you're asking is, on the Gen 3 product, why we think we're getting a better reaction and what some of the major changes are. So on a reaction-wise, maybe we can ask Mike Sciosi to give first-hand what he sees. And then maybe, Mark, you can bridge the technology advancements for the Gen 3. Starting with Mike, please.
spk01: Yeah, absolutely. We are definitely seeing a big uptick in the engagement with customers with the value proposition of the latest generation. And that stems with the fact that it does have a significantly increased functionality. It's addressing more problems than it did than the previous generation did. The previous generation, and Mark will get into the specifics of it, but it brought voltage down and that saved energy. Now what we're doing is we're holistically managing power as it's coming in. So we're doing full regulation and Mark Woods could talk about some of the other features of the new platform. But it solves a much broader range of problems. Now, not only are we still saving energy and actually saving more energy than the previous version did, but now we're actually protecting the buildings and the systems in the buildings from the perils of the electric grid. And again, when we look at what the insights shows, It gives us that scoring on three major categories, the lifetime, the reliability, and the efficiency of the power that's coming into the building. And again, we typically score those from a 1 to a 10, with 10 being high. What we're typically finding is only about 10% to 20% of the buildings naturally fall into the good range category. Naturally, just from what's coming in from the grid. So conversely, what we're seeing is that somewhere between 20 and 30% of the buildings are falling into the critical range. So if you do all of the math on that, that works out to about 80 to 90% of the buildings are negatively impacted from the incoming power. So again, when we look at it from the way, the reason why customers are engaging in a much more powerful way, pun intended, is because we have a much more powerful solution. Again, we're solving more of the common power challenges that are created as we start to see solar and wind and battery proliferation throughout the grid, whether it's in buildings or at the grid level. At the end of the day, those types of energy have a dramatically different power profile and that dramatically different power profile is way less stable. And that less stability just plays havoc on building systems. And it's hard to run a building when your systems are constantly having havoc played upon them. So that's from a customer perspective, that's part of the reason why we're engaging in a much more compelling way with the Gen3. And the other thing that I'll say before I throw it over to Mark is that the Insights has really been a game changer on this as well. Because the Insights creates the visibility to the unseen. We're leveraging the machine learning and the machine intelligence to be able to find those types of problems that they typically did not see before. So it's the combination of the Insights and the Insights the Gen 3 or the next gen product and the enhanced capabilities that are really solving much more problems that are much bigger for customers. Mark, do you want to talk about it from a technical side?
spk03: Yeah, I can add a little bit briefly to that. I think that the change with insights is huge because it allows us to come back with a very robust and data-driven approach to show them what the impact would be if they decided to proceed with a smart gate. So I think that's huge. And then on the smart gate itself, you know, as we said that the previous system, previous system could reduce voltage only and do it in discrete steps. You know, the Gen 3, the major change is that we're able to reduce or increase the voltage and to be able to do that, you know, on a continuous basis to the very, very, very fine increments. And by doing that, that allows us to produce, you know, much larger energy savings, but also opens the door for to protecting the system and the electrical system when the voltage is lower than it needs to be. So we're able to prop it up. And it's really allowing us to approach customers with a multi-dimensional value proposition because there's the energy savings, there's the protection of the equipment and the data. And in the past, we only had one of those sort of legs of the stool. So being able to go and go to them with multiple value propositions. They're all sewn up in a single piece of equipment. I think this is what's driving a lot of the increase in how it's resonating with customers.
spk01: Yeah, absolutely. And just to touch on a little bit of the types of systems that we impact inside of buildings, pumps, motors, elevators, escalators, HVAC equipment, life and safety systems, and air purification systems. So when we're looking at a lot of these portfolio managers and some of the big real estate investors, they put a lot of technology into these buildings. And this technology is absolutely critical to them providing that world-class experience. But it's also much, because it's a higher tech and more sophisticated systems, they're also more susceptible to power issues. So I think that more and more building owners and operators are realizing that those high-tech systems are at risk because of the incoming power, and that risk is only going to increase as we start to decarbonize more. Does that answer the question, Ian?
spk02: Yeah, thanks. That's helpful. The next topic I wanted to hit on, and it's a two-part question, First part, are you able to quantify where the backlog is today versus maybe where it was at the end of last quarter? And then the second part to that question is, you've been very successful on your 90 insights per quarter year to date. I would expect you will be through the end of the year. And if you do the basic math running through it based on some of the parameters provided, it would suggest the backlog exiting the year should be somewhere between $15 and $20 million today. So I was wondering if you could maybe hit on the two parts about where the backlog is, where it was, and how you feel about kind of being in that 15 to 20 million range at the end of the year.
spk06: Well, I don't want to make any comment on the number. We can't make a comment on a public discussion like this about where the number will be or any sort of future. Those are, I think, conversations and analysts we could have with you offline. You know, what we're finding is that the backlog is growing. I was talking to the board yesterday about how much more interest there seems to be in our company because we're starting to take other people's lunch and their budgets. And we're trying to be very careful of what we message out there. For example, we're hiring a couple people from a lighting company. we don't think they're going to be very happy with us. We're taking budget from people that are not competitors but in the same category of budget. And we have had a lot of information out about the company. And I, as a CEO, am a little sensitive on it. So we don't report the number of backlogs. We can say it's growing. I can't comment. The math, if you take it through the number of insights, and take the methodology we propose leads to significant backlog growth by the end of the year and continuing. We do also remind that on the backlog, it does count from when we introduce a power impact report, 12 months is what we look at from the follow through on that 50% ratio. And Mike mentioned last meeting too, a few people have asked for an extension on their insights for a little bit longer or for a different period to compare different periods, et cetera, and get a little more information. So it's all directional and never absolute, but we are very confident with what we're seeing.
spk02: Got it. That's helpful. With respect to ongoing demand, it sounds like there's A lot of customers who are looking to add the product, the supply chain stuff I think is well known and certainly isn't idiosyncratic to legend. But I'm wondering if there's any opportunity to increase pricing and or is there any way to pass any of the costs through at some point just to protect some of your margin over the course of time?
spk06: Yeah, we put an 18% COVID surcharge going forward. But we had to give protection to some orders that potentially were about to happen. So some of those are protected. And from September 1st on, there's an 18% surcharge.
spk02: And then I suppose the last one for me, I think it would be interesting to hear maybe a little bit about some of the steps you're taking or... How do you think economies of scale may help protect some of the margin in the future just as you move away from what I would call batch manufacturing to, I guess, a more standard line style?
spk06: Yeah, I mean, I think that when you look today, we're very much putting systems together one by one. It's what we've done. It's how we've always looked at things. And even when we had orders for 10 units, everything was one at a time. And that has to change. So what we've done is we have hired a person on the inventory supply and production side. We also have some additional talent we're looking at adding to move us from building from a singular viewpoint to best in class and adopt some of the best manufacturing production methodology. So you'll see that happen over the next 12 to 18 months. You know, we look at significant increases once we get through into a normalized time. You know, we've always looked historically at margins that were in that sort of 50% range and plus, and sometimes we had 60%, 65% on the product component on itself. We're very confident that with some time, we'll get back to that. And when Gen 3 becomes production line growth, so that we can actually be putting product together in numbers. We'll get the economy to scale. And the third point is that, you know, we've been buying some components where we're a top customer of a handful of suppliers. There's a whole bunch or nothing to them. We're just not buying in any kind of volume. That's changing. And we conducted discussions with a lot of people in our supply chain and had discussions regarding that. And there's a lot of interest. So we have a lot of ways to improve our costs. We have a lot of ways to get economies of both scope and scale. And the fifth point I would add is that we will move our assembly closer to region. So right now, you've got product coming from, for example, the US. It gets shipped. We pay duty. We assemble it, put it into the product, ship it, pay duty. You can just think about the cost there. We will move with volume to the appropriate center in the U.S. and produce in the U.S. and not produce out of Vancouver. And Vancouver will become an excellent center where there's a lot of expertise and testing, but we will not be assembling or producing products there. So there's lots of opportunity for improvement.
spk02: Perfect. That's very helpful. I'll turn the call back over. Thank you very much.
spk08: Next question comes from the line of Horst Huneken from Huneken Asset Management. Your line is now open.
spk05: Thank you for allowing me to ask a question. On August 5th, you disclosed that Legend Power had entered into an agreement with a reseller that services large utilities across the U.S. Either Randy or Mike, might you be able to share with us the sequence of action steps that have yet to be taken by both Legend and the reseller to translate this agreement into actual purchase orders.
spk06: So I think it's pretty straightforward. Do you want to answer that, Mike?
spk01: Yeah, sure. So we are actively involved with their sales teams and are out working deals with them as of today. So we are actively in that process.
spk05: So you've got all the people in place already? It's just a matter of chasing leads at this stage?
spk01: We're chasing, our existing team is chasing the leads that are coming in. With bringing our channel leader in and expanding the channel team, we're going to be able to go after more of those deals. So right now what we're doing is we're hitting those high-priority opportunities that are coming in. By expanding the team, we're going to be able to go after more of those deals on a more proactive basis.
spk06: And that's just a very small indication of partnerships and relationships we expect in those channels to develop over the next short and medium term.
spk05: So what I'm hearing is that there's no major obstacles. It's just a matter of good marketing and good selling. You're not restricted by inventory or lack of people or funding.
spk06: Yeah, no, I think that you're probably taking too much out of that. You can't look at one particular partner and isolate it. If there's a large deal, for example, with another reseller, Mike is understaffed right now. That's why we're spending so much time doing interviews, etc. We are understaffed, period. But we're not just hiring anybody. We could have had a team of a dozen. but we've been very, very picky and looking for the top, top talent. We expect to continue with Gen 3 supply chain issues that will affect delivery time. So when you say we're not impacted by inventory, not true. Not by people, not true. Those are both impacting our ability to not just address the announced August 5th reseller, but the opportunities and growth we're being asked in other arenas. What's going to happen to us over time, my experience is we'll have to prioritize opportunities to which one Legend's involved with and not. And we have to give permission for particular suppliers or partners for particular verticals and not have everybody running around crazy where it's just not effective. So it's very early, but it's strategically done in a way that we can facilitate the appropriate partners coming in and appropriate reasons for long-term builds. And this announcement on August 5th is just the beginning of the implementation of that plan.
spk05: That's the color I was hoping for. And by the way, I do support you looking or taking your time looking for top talent. In the long run, I think that will give you a good return. Thank you. You're welcome.
spk06: I mean, I think the thing we can comment on that is that we have We have no problem with people wanting to explore opportunities with Legends. That has continued over the last year, but it's grown. On the sales side now, people are extremely excited. And what we're seeing is they want a differentiation point. They don't want to sell commodity. And they want to sell and be in a true partnership with their customers that they don't feel they're in today. So there's a real change in that marketplace. and legend is the place to be. There's no question about that.
spk05: Good to hear. Thank you.
spk06: You're welcome.
spk08: And there are no further questions at this time. I will now turn the call over back to the presenters.
spk06: Okay. Maybe just give it 30 seconds and see if anybody else has a question.
spk08: All right. Again, if you would like to ask a question, please press star 1 on your telephone. We do have a question on a cue from Tony Cruz. Your line is now open.
spk07: Hi, and congratulations on all those announcements that you made on these resellers and ESCOs. I think that's a great foundation to grow the business. I just have a question related to the 90 insights that you've projected and you met those projections in two quarters now. With all the activity with the ESCOs and with the resellers and bringing in new people, it would seem to me like you might be in a position in the near future to increase those estimates. Is that the case, or is it still a little bit too early to make any estimate in the future where those numbers could increase?
spk06: Well, less than a year ago, our target was 40 a quarter. We expanded two quarters ago to 95. So we'd like to enjoy at least a quarter or two of, uh, hitting our targets. Um, but all joking aside, Tony is, I mean, your question is, do we see increased growth in our discussions? Do we see higher numbers of insights, except for the answer is absolutely.
spk07: That's great to hear. That's great. That's what I thought you'd say based on your, your comments that you've made. And it's excellent. Thank you.
spk06: You know, it's, um, when you start looking at the talent out there the partners that can work with us some of those partners can do that number in a quarter easily themselves so the number will grow over time as we've earned the right with our partners to work with them so there's there's lots of opportunity for growth absolutely for sure thank you all right again if you would like to ask a question please press star one
spk08: Are there any more questions? There are no further questions on the queue, sir.
spk06: Okay. So what we'll do is we'll wrap up. I want to, again, thank everybody for their time and their interest and their support over the last year or so. Hopefully what we've done today is share with you from different viewpoints within the organization that we're seeing significant sales activity growth, and we believe that significant activity growth will continue to be meeting or exceeding our targets and growing the revenues that we've all hoped for. As I mentioned earlier, we're at that very early beginning of a 20, 30-year transformational journey. And there's companies that are going to spend trillions of dollars a year combined needing to protect the buildings from electrification and decarbonization challenges. And there just isn't a company that's better positioned to be a leader in this enormous business transformation. And I don't think people have really bit off and chewed that statement, but it's a huge one and we're excited about it. We've got a committed and talented team. We're getting stronger with each new hire. We will continue to hire top talent as we talked about today. We've got an outstanding active power management platform, strong working capital, markets with high energy costs, power challenges, ESG and climate change objectives, and they're seeking innovative ways to reduce their energy costs, improve the quality of their building's power. We believe, from multiple points of view within the company, the future looks very good for Legend Power and our stakeholders. Thank you again, and have a great legendary day.
spk08: This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer