© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. [Operator Instructions] Mr. Vanry, you may begin your conference.
Thanks, Brent. Welcome to the Legend Power Systems Fiscal 2020 Q1 Investor Call. I'm Steve Vanry, 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 sedar.com. I will now pass the call over to Legend's CEO, Randy Buchamer for an overview of our first quarter. Randy?
Thanks, Steve. Welcome, everyone, to the Legend Power Systems Fiscal 2020 Q1 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 with a better picture of where we are in the marketplace and our business today. I'm joined, as you just heard, with Steve Vanry, our CFO; also, Mark Petersen, our VP Engineering, who will update you on our technology and product suite that we're very excited about. Firstly, Steve will discuss the financials, and as I said, Mark will talk about the Q1 launch of Insights and the SmartGATE power management platform and how the enhancements are transformational for the company. Q1 focus was to continue to enhance our solution offering. We improved our sales processes and sales talent, while implementing a corporate messaging campaign to communicate our new value prop, and our solutions to our target markets. During Q1, we introduced the most significant product enhancement and value proposition improvement in Legend's history. Historically, Legend has the position as an energy-saving product company. And adjusts on reducing energy costs and achieving an acceptable return on investment. The enhancement of our products through a solutions platform adds the capability to address 3 most customer-stated energy challenges experienced in commercial buildings today. This transformation will continue to enhance our value prop, provide prospects with frequent evaluations. And now, beyond sustained energy, increase our market potential, open up in the industrial markets, expand our competitive advantage to provide the sales team with an unequaled story and product to sales. Quite simply, Legend is now the leading provider of an appropriately-sized and [ costly ] complete power management solution for commercial buildings to proactively protect, manage and improve your buildings. Mark will give you more detail about the changing solution, but we're very excited about where we're going. It is critical for success that Legend's support these solutions platforms 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 experience and capable sales people 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 during the last quarter, far more sales opportunities in multiple regions and verticals than any time in our history. A few weeks ago, during our fiscal 2019 Q4 investor call, Mike Cioce, 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 is not on the call today, will be on the next update call. But he in fact, is very pleased with the progress and the exciting opportunities in -- both in New York, Seattle and in Ontario. We're seeing bookings grow and our growth prospects are very positive. During these difficult financial market times we've seen in the last little while, it's something, now that Legend has a strong balance sheet and resources to our growth plan. We've invested for growth as we committed when we raised our mind 2 years ago by enhancing our solution offerings, improving our sales team and processes and building a strong engineering team, who will continue to evolve Legend's 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 brands by participating in industry shows. We're working with key ecosystem players to ensure they are aware and ultimately support Legend Power to their client's buildings. We do anticipate sales growth in the Legend. Leadership team is very positive of Legend's future, and we are each very committed to making Legend Power the leading power management company. I will now turn the call over to Steve Vanry, our CFO, who will provide a financial review, followed by Mark Petersen, to speak about our outstanding offerings. Thank you.
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 2 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 and understanding the nuances of installing a new and 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 customers. We feel our working capital position has legends ready to navigate fiscal 2020 and 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 Petersen.
Thanks, Steve. Legend has traditionally had a strong product offering based on 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 the 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 the high-resolution data stream of all the electrical usage and parameters that are stored in the cloud and easily accessible through a web portal. Our new stand-alone SmartGATE Insights approach allows us to document and diagnose the power quality and its impact on a building prior to the 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 and 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 multidimensional 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 our building's electrical systems 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 results. 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 Legend's 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 deteriorate 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's solution in the marketplace.
Thanks, Mark. And thank you, Steve. A lot of excitement here with the new products 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 Cioce. And Mike's been awesome in leading the changes required to build the 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 4 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 innovative 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 will allow questions.
[Operator Instructions] Your first question comes from Jeff Cowel, a private investor.
Randy, question -- two questions, regarding SmartGATE Insights. What do you think the amount of time 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 customers' possession?
Sure. I'll -- may 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. What -- 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 6 to 12 months, get some data, because we really didn't have a way of proving how our system would work and what we could do. So 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 could do for them. So with SmartGATE Insights, what's really compelling is, it's a $3,000 price tag. It has a guarantee that would be credit towards a unit when they purchase the unit. And if we cannot show power management opportunities, we credit them. So there's really no risk to offer there. But most importantly, it's installed very easily, and we can run it -- we figure 60 to 90 days at maximum. So it really shortens that cycle, but then we can sit down, I would say, like a doctor with your blood tests and everything else, and say, this is what's happening with your building. Well in the past, we could have debates about whether or not we're making an impact on building. It had to be many months down the road, we can sit down having a discussion right away. In a lot of cases, what's really interesting is SmartGATE is the -- the profile of a building from a power management perspective is that very much is close to a significant thousands of dollars power management study that electrical contracting companies do. Also the fact that we can, on an ongoing basis, provide that data and present 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 of the their business. And then secondly, with very detailed information that people like Mark, that are smarter than us, on all this stuff, can talk to the ecosystem players about. So we're really excited about it, and that will validate it, we believe, again, in shorter 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 to add Mark?
I'm just kind of going to add a thing, I think the one key difference is, in the past, we're always working with a snapshot of information 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 sales process, we now have 60 or 90 days of 24-hour coverage. And it's that synonymous data, so that when we go in to -- move to a SmartGATE system, it's just a much more data-driven approach.
Yes, we've got over 30 of those now, just to put that in perspective. Could I ask you just to ask the second question once more for clarity?
I think you answered it, Randy. I asked how many of these units you had deployed, and you just answered, you said 30, correct?
Yes. Okay, that was -- Yes. Okay. Good.
And so one of the points you brought up -- one more question, Randy, about one of the benefits of the Insights 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 "old school", somebody comes in and assess your building?
Yes. So this is Mark speaking. I'll answer that. I think first thing, in terms of costs, typically, an engineering study like some of your power quality would be, depending on your region, $5,000 to $10,000. We typically include 1 week of data gathering, and you receive back a 20 to 30 page report that is incredibly dense and engineering focused, and virtually unreadable to somebody who's not an expert in this field. So two things. One advantage of ours is the price point is very attractive; two, we are really focused on -- we have the engineering depth via our deep experience in this field. But I think one of the key advantage is what we're doing is, we're translating it, those engineering, technical speech 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 a part of the key things that set us apart and how we're dealing with that.
And I think the other thing is when you look at that $5,000 to $10,000 report, that's a one-off at that particular time. We have a perpetual -- we're accessing the data, and we give an ongoing access to the power management. So the way I look at it is, for half to a 1/3 of cost you get a perpetual power management report available both in an executive format and a detailed format for people that want to look to that level.
So maybe a forward looking question, Randy. 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. We're 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?
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 this format really started to grow 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 and physically take it from the system. But are we seeing follow-on orders and orders, commitments based on that data? The answer is yes. And do we expect that to continue to grow? Yes. There'll be opportunities for Insights to go ahead and be a part of the sales cycle, and there will be opportunities -- we've seen some people say, well, to take as much time to get approval for 3 or 4 of these, if it does so just do a system, so they have to bypass the process. I suspect that won't always be the case. You should also appreciate that -- what Mike is doing with his sales cycle, he spoke last quarter's update. He's looking at deploying dozens of these at a time as opposed to one off, piloted 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 add value to the sales process. We're not trying to sell Insights, we're trying to sell SmartGATE. Insights will be sold, but key as a tool and a way to communicate with our target market with their data and software language, with what's happening in their building. And that is part of the transformational aspect of the SmartGATE product line.
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 started to displace some of the requirements that give them an entrée to maybe future work? Is that -- is too early to talk about that?
Yes, I think it's too early. But I think we've always tried to be collaborative in 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, you've got a building, you've got someone who at looks that from a point of view of HVAC, where someone else looks at lighting. What this does and the reason you get a power managing for 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 where actually, we can sit down with the engineering, electrical contractors that work with building owners. And it's a tool to discuss how we jointly can work with people to make buildings better. We're excited about it. The second part is, in the past when we've worked with 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 LTS proprietary methodology, sometimes we get people saying, well, I'm not sure -- or why -- how to do it this way. We will continue to adopt industry standards, so that's not our numbers or our language that the Insights 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 could hold hands and go to the client to talk collectively about this is your data, just like you draw out your blood test, what we can do about it. And it creates opportunities for everybody.
Your next question comes from Horst Hueniken with Hueniken Asset Management.
My first question is for Mark Petersen. 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 2 products. What, if anything, can you tell us about what your engineering team is working on now?
So let's clarify. So SmartGATE Insights is largely complete. There's always still continuing engineering work to improve products and to 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 now where the majority of the team is focused through 2020.
Yes, 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 the opportunities for improvement, it's our goal to continue to enhance the platform. So really shifting from a product we sold before, Harmonizer, to a platform that has a never-ending evolutionary growth.
Yes, there's a lot of work 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 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 sort of the database and data side for Legend as well. But 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 we think could improve our offerings.
And with also changing elements of the gird, all of the different fluctuations, all the different things we're seeing out there, it's not like we've got a SaaS market where there will 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 are the opportunities, where the product developed, 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 the exciting news is we got backed in a platform that's open to accept a lot of the changes in 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.
That's helpful. And it 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?
Yes, it's a good question, Horst. It's not something that we 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.
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've happened to ask is, what if you have a $50 million order come in? Well, first of all, it does not happen all in one day, it spreads 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.
[Operator Instructions] There are no further questions at this time. Mr. Buchamer, I will turn the call back over to you.
Great. I appreciate the questions, appreciate especially those people on specific coast getting up a little earlier today. But what's a better way to start your day than with 3 knights of Legend? I guess, really -- all I really wanted to do is 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 solutions company as we discussed. The team is 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 unequaled in the marketplace. We 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 of the ESG market or opportunities with the 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. Our challenges -- and clearly, we 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.