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Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Legend Power Systems Q3 2022 Financial Results Release and Conference Call. [Operator Instructions] Legend Power, you may begin your conference.
Thank you, Michelle, and welcome to Legend Power Systems Fiscal 2022 Q3 Investor Call. I'm pleased to have you join us and discuss our corporate progress and provide our 2022 fiscal Q3 updates. I'm delighted to have Florence Tan, our CFO on the call; Mike Cioce, our VP, Sales and Marketing; and Paul Moffat, our Chief Operating Officer. Florence will provide a financial highlight and overview of Q3. Paul will address the initiatives we've taken to address key challenges that we discussed in the last quarter. And Mike Cioce will update on the sales team's quarterly sales activity achievements and more detail on the U.S. GSA Green Proving Ground program participation and partnership that we secured. I also just want to take one moment and read out a disclaimer. Please note that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For more information about Legend's forward-looking statements and risk factors, please see our MD&A, which is filed on SEDAR today under the company profile, sedar.com. Florence, if you would take a moment and discuss the financials, please.
Thank you, Randy. During this quarter, revenue recognized was $1.03 million compared to $343,000 in Q2. Revenue recognized for the 3 and 9 months ended June 30, 2022, was based on 12 SmartGATE systems and 6 completed SmartGATE installations, and 20 SmartGATE systems and 6 completed SmartGATE installations, respectively. Sales and installation pipelines as well as sales bookings backlog are both healthy. However, the transition of these to revenue recognition remains slower than anticipated due to inventory supply chain delays and installation scheduling. Our gross margin percentage during the quarter was significantly under our historically reported average. As previously anticipated by management, the company transitioned to selling its next-generation SmartGATE platform, where margin challenges continue to persist as global supply chain constraints continue to negatively impact inventory component pricing, but that eventual normalization of supplier order fulfillment and scaling of Legend's sales and revenue will help to bring margins in line with long-term average results. The company has taken action in that regard by increasing sales prices by 15%. The company ended the quarter with $4.68 million in cash, no debt and $6.32 million in working capital. And management believes that based on the current working capital and visibility into the business that Legend is fully capitalized for the next 12 months.
With this working capital, we continue 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 also invest to ensure the timely production, delivery and installation of our Gen3 SmartGATE platform technology and additional feature sets. We will continue to frugally manage our capital resources as we always have and squeeze the most out of every dollar provided by our shareholders. In short, we are very happy with where we are and very optimistic about the future. Back to you, Randy.
Thank you, Florence. During last quarter's call, we discussed key improvement areas, and Paul will provide detail on what those steps and challenges we've taken to ensure we achieve those corporate objectives. The key improvement areas that we discussed last quarter were and are manage our cash and reduce our monthly operating costs, and we've reduced our annual cost of operations by about $1 million, and capital expenditures have been on hold unless they're critical.
We wanted to improve our cash flow cycle, and we implemented a new payment plan with orders, 25% with the order, 25% on delivery, 25% after what we call our measurement and verification process and 25% after 30 days. We also were addressing cost of goods and supply chain challenges, and Paul has led some very good and numerous initiatives to improve this area, and he'll talk about them shortly. And margin improvement is ongoing, and we've implemented, as Florence said, a 15% sales price increase during the quarter, and we have some visibility that the margins will improve in line with or close to the expected we had earlier in the year. At installation costs and leading the quoting process was something we talked about last quarter, I'll leave Paul to give you some more detail on the progress made there. Obviously, the partnership with the U.S. GSA Green Proving Ground was the quarter's sales highlight and quite likely the most significant sales outcome in Legend's history. I think it's really another example of when we go out with our solutions and people diagnose them, assess them, some of the leading groups in our industry really like and support Legend. It's a huge proving point for Legend's potential, and Mike, I think, will give you much more detail on how important and significant of a win this is. Additionally, Mike will introduce you to a couple of new valuable channels, sales tools and the partner portal, the non-Energy Impact Report and our new logger program. And we are seeing continued strong interest in our solutions. The pipeline is growing, and our average yield size is much larger than it was previous years. We now have several deals that are $10 million and up being worked. But we're really excited about our progress and where we're going. I'd like to turn it over to Paul to give you some color on some of those excellent initiatives and also acknowledge and thank Paul for the great work and leadership in this area. Paul?
Thanks, Randy, and thanks, everyone, for joining the call. So I've now completed my first 6 months with Legend Power. And since my first month 2 review and recommendations, we've been able to make significant progress really towards that desired end state. I now have a much better understanding, a good grasp of both the typical and unique challenges of the business. What I originally saw as the most critical first step was to prepare for growth. And I see us doing that through standards, processes, roles and responsibilities, setting internal expectations and streamlining both production and business processes. And this comes with an overall focus on elimination of waste and reduction in variation, which as many of you know, is Lean 6 Sigma approach. But this is both for production and probably more so for business processes. We really want standards, simplicity and consistency wherever possible, and we want transparency. We want to treat everybody within the business, we want our culture to understand that we have internal customers as well. So the macro and the micro point of view -- from the macro and micro point of view, the key deliverables are really about achieving time, quality and cost. And this is the focus that I've applied in all areas internally, not just to the end state to the customer, but as individuals pass their information, transformation of data, transformation of material throughout our business processes and production processes.
So metrics and KPIs have become very critical, and they're shared and transparent and they're singular. We've introduced those to monitor our progress, to highlight the frequent sources of variation, through Pareto chart analysis, through root cause corrective action analysis, and we set corrective actions to contain, correct and most importantly, improve these processes. And this methodology has been applied in many areas already. So for month 2, after my initial recommendations, month 3 to 6, we've been actively involved in implementation and making all of these things real. For example, our sales order process, major redesign, focusing on requirements, focusing on lead time, focusing on on-time delivery, all being measured, making sure that we do the due diligence upfront to understand what the challenges are, what the customer is expecting and what internally the margins and the profitability we want to achieve and managing those, so we're predictable and there's no surprises. We still have many several material cost reduction initiatives underway and lots of those are now being realized, both from design improvements and from various procurement strategies. We have a production status report in addition to our sales order status report. So we're making these things singular and visible and usable by everyone within the company. So we can all see and track our work in progress. We can measure our on-time delivery, our on-time completion to the production schedule, and that ensures that our factory is on track and our business system is on track to deliver to the customer. The production schedule is not only concerned with materials, but it also looks at a constrained model of resource and equipment management. And out of that, it's been great as we look forward to our growth. This is driving very creative and cost-effective initiatives to improve cycle time, improve factory capacity and reduce lead times. Our supply chain is being proactive as well, not just with ordering long lead time materials, but reported availability to build to the sales team, so we can actually tell them when they can build the first type of product or configuration, when that's available and allowing the sales team to choose lead times and allocate and pick which systems will go to which customers, again, being predictable. It helps us to align the product sales with those customer needs. We're investigating ways to reorganize our BOMs, and we're doing this to facilitate common subassemblies and minimum stocking levels, again, to further reduce lead times. A fine balance there and a challenge, but it's important that we do invest certain quantity upfront so we can be nimble and flexible and predictable, but yet be cost and cash conscious for long lead time items. Goals, responsibilities, internal deliverables, they're all much better understood as we implement these processes, and we understand what we're handing off to the next person and that it has to be of good quality on time and cost effective and efficient. So we're allowing for greater critical path efficiencies through the business, and therefore, a shorter order to cash lead time. Our key cash cycle changes are also taking place as Randy mentioned. So we're pulling the cash into the business forward by way of an improved payment plan and terms with the customers. We're doing the same thing on the supply chain side. It's a bit of a seller's market. Supply chain is a tough one right now, but we're working with our top suppliers. We're dual sourcing, and we're talking to them about ways to postpone and share and hold and provide our materials just in time at an economical price and at the right quantities. We're sharing forecasts with our suppliers. And we've also created, as Randy mentioned, an installation cost model. But what we've done there is really it's a should be costing exercise. We wanted to completely understand what is it and what does it cost to install. So we've created a model that standardizes labor and materials for all the various configurations that we have, building types, system types and some of the other optional or added work that has to be done with an installation. This allows us to take complete control and manage the installation equation and work with our contractors for win-win partnerships and to manage our installation pricing. So we found great effect and advantage to that and consistency with some of our key installation contractors with this type of model. And we're working with them to give them additional business as a payback for their support. And certainly, this list goes on. I've just given you a little bit of flavor of some of the things we're touching on. At a larger scale, what we're looking at here is implementing a culture, a change of behavior and attitude into the way we do business, the way we treat our internal customers and how we continuously improve everything we do in the business. And it's driven by KPIs and they're aligned to the company objectives. So it's very clear to individuals, the value of their work and how it changes the performance of our business. And it's this sustaining behavior of continuous improvement that will help us grow, that will help us meet our targets and become more and more efficient and more and more effective and be able to deliver the huge numbers that we will see, we hope to see from our growth plan over the coming months. So we have an exciting future ahead of us, and I think we have now a great operational foundation for growth that's been well established. Thank you very much. I guess at this point in time, I'll pass it over to Mike.
Thanks, Paul. I appreciate that. A lot of great things that you and the team are doing. So well done. As Randy mentioned earlier, our sales efforts at LPS continue to push forward, and we have a lot of exciting results to update you on today. But first, I'd just like to spend a few minutes on a brief overview of the SmartGATE market in general. At a high level, both customers and partners are continuing to engage and to be very impressed by this market offering. Commercial real estate customers and public sector customers continue to see the value not only from an energy savings and greenhouse gas reduction, but even more so for protection from the volatility on the electric grid. In fact, several of our recent sales and opportunities have been driven primarily by the grid protection aspects of the SmartGATE platform. So when we also look at the recent major funding initiatives by the U.S. federal government to incent and accelerate the transition from fossil fuels to renewable energy, and the increased awareness of the grid volatility created by many of these green energy sources, we will continue to transform from a nice-to-have solution to a have to have technology for larger buildings. As we continue to complete and verify the systems being installed and have more results to put in the market, the demand for SmartGATE will continue to increase faster every quarter. Keeping in mind, as I mentioned last quarter, as the grid continues to push towards and exceed 20% renewable energy supply in the grid over the coming few years, the number of buildings with critical power will double, the severity of the issues will double and the number of power fluctuations hitting buildings will increase tenfold, going from 2 to 3 per month to 1 to 2 per day. The more and more companies are realizing that they need to take actions sooner rather than later and that leads us to what I consider to be one of the most important wins in the history of Legend. Over the past year, we've entered into consideration for the U.S. government GSA or General Service Administration Green Proving Ground. The GSA is responsible for running the facilities for the U.S. federal government, and the Green Proving Ground is their program for the GSA to identify and test the most innovative energy solutions in the market. There were hundreds of companies that applied and around 80 that made the final review. Ultimately, they decided to move forward with 8 companies and Legend is one of the 8 companies. When we keep in mind that the GSA operates a staggering 361,000 properties on behalf of the U.S. government for billions of square feet of real estate, it's a massive opportunity. So during the next 18 months, we will be identifying and deploying a few SmartGATEs as test deployments to develop what a broad-based deployment strategy would look like. This is also an exciting program because they will engage Oak Ridge National Labs to conduct a deep validation of the market results. Oak Ridge National Labs is one of the top energy research facilities in the world. And once this analysis is complete, the findings will be published on the GSA website under the active power management category. And many sectors, geographies and industries look to these resources for vetted solutions to deploy to their facilities. So when we consider the scope of the GSA footprint and the rigor of the validation process not only does this potentially open the electrical room doors of the U.S. federal government, but also gives the markets in general, a rigorous review of this market platform performed by one of the most respected testing agencies in the world. And these findings will be available to us as well as every customer that we work with. So those are some of the reasons I think that's the most significant win in the history of Legend. As exciting as this is, we still have lots more sales activity as an organization, and we continue to sell systems into our existing markets from both direct and channel efforts. We continue to meet our Insights deployment goals at our Insights-led sales goals and as Randy also mentioned, our strategic efforts continue to push forward in a very meaningful way. We recently delivered the findings for the first 2 SmartGATEs to the city of New York. In the coming weeks, we should gain approval, which gives us the green light status with this market as a vetted solution for use in the city of New York public buildings. Those results show that not only did we exceed our 4.1% energy savings, but also that the facilities have dramatically improved operating environments due to more stable power. In fact, the risk of system failures went from around 20% to low-single digits. So this really paves the way to begin to develop broader deployment plans for thousands of buildings run by the city of New York. Over the past few years of selling efforts, we have developed relationships with many of the key energy leaders for the state of New York, and we look forward to not only helping them achieve the aggressive energy savings goals, but also dramatically improve the power and thereby operating environments of the city-run buildings like schools, courts, offices, libraries, museums and more. These large strategic focuses will continue to drive significantly larger orders for Legend. As Randy mentioned, we currently have several pending proposals that exceed our previous largest order by a multiple of 4. These are the types of wins that our strategic direct team is pursuing. On the channel side, we continue to engage with major ESCOs for both initial proposals and investment-grade audits. We are being written into a number of deals and expect this segment to continue to grow and perform nicely. Also on the channel side, we recently launched a new program that makes it easier for our channel partners to integrate SmartGATE into their offering and to make it as easy as possible to engage in new highly strategic conversations with their customers. Our new program -- logger program allows partners to subscribe to the program, which gives them access to a small voltage logger that simply plugs into any 110-volt outlet in the building and that they would like to review. After a week or so, the logger is retrieved and plugged into a computer and the voltage profile is uploaded to the Legend partner portal. Instantly, the profile report is built, which starts to shape the impact of the incoming electricity on the facility. This helps them build awareness for the need to conduct the full power impact assessment to determine the true cost of power for the building. When our partners realize how power is the connective tissue for all of the services they offer, HVAC, lighting, elevators, power distribution and more, adding the SmartGATE platform amplifies the value they can bring to their customers and elevates their partnership with their customers. At the end of the day, our channel partner efforts are continuing to grow and create results that will continue to propel Legend forward. I could easily go on to talking much longer about all the great things happening at Legend, but hopefully, that gives you a flavor of the results we are generating and pursuing. It's definitely a great time for our team Legend. So Randy, back to you.
Thank you, Mike, and thank you, Florence, and Paul, also for great update and for your various and multiple contributions to make the company better. We continue to see that massive shift that turned a few years ago, that corporate effort to improve climate and environmental aspects of the buildings, different initiatives, becoming top corporate objectives, that just continues to happen. In all of our markets, we see consistent systemic change to make buildings less harmful to the environment, combined with improving efficiencies, reducing costs and making the battery tenant experience. Recently, we saw the U.S. Democrats showing again how committed they are making it easier for corporations to adopt electrical energy saving technologies for commercial buildings and continue to introduce programs to support Legend's solutions. Clearly, what we see is the world is looking for products like Legend SmartGATE platform. We have much we believe to look forward to. And quite simply, we expect to see continued confirmation at the time is now for Legend and our solutions. And during these uneasy financial market times, it's a company now that Legend has a sufficient balance sheet and resources to fuel our growth plan. We've invested to grow by improving our sales team and our processes, building a strong engineering team that will continue really leading energy management solutions. So we, in summary, continue to earn the respect of our target markets, their ecosystems, and we make our partners comfortable that led to power is an innovative company to work with. We continue to build our brand by working with our key partners and players to ensure that they're aware of and ultimately support Legend's power in their clients' buildings. As a leadership team, we're very positive with what we're doing and the progress we're making, and we believe the future is exciting, and each of us is committed to making Legend Power a leading energy management company. At this point, Michelle, we would be very pleased to take questions for our listeners.
[Operator Instructions] Your first question comes from Horst Hueniken of Hueniken Asset Management.
I'm directing this question to Mike Cioce. If you could just clarify for me the state in which the trial is with DCAS, is it over? And if not, when might it be over?
Yes. So where we are with that is we have submitted all of the reports. Their third-party engineering firm is reviewing those, and we will be finalizing that over the coming weeks. So these systems are installed, they're tested, the measurement verification is done. And also, what's interesting is that this was also one of the first power quality verification reports we were able to deliver as well. And that's something that they're very excited about as well. So all the reporting is done. It's just a matter of final sign-off.
So just to -- so that I understand the process, so once the engineers have presumably signed off, what else needs to happen until you basically convert that customer or the prospective customer into a real purchase order?
Yes. So we've already begun looking at additional facilities because of the fact that the results were so strong. So we are actively engaged with them to start to prioritize the thousands of buildings that they have. So we are actively engaged in that next step now. So we expect that to convert to sales orders very quickly.
And a more broad question. You've been telling us and we've been believing that there's lots of demand for the technology that you're selling, but it's been tough to convert that presumed demand into purchase orders, at least larger ones. I'm trying to get a handle on what's been the main challenge? Is it just simply that you can't deliver because of the supply constraints? Or is it simply that large organizations just take an incredible amount of time to get comfortable with your technology? Can you give us some flavor for -- explain why it's taking longer than we would have expected a year ago?
Yes, sure. [ Well, I expect ] the best way I can because at the end of the day, each individual sales effort has its own life, if you will, right? So there are some where we've had to adjust pricing midstream, which causes a ripple effect in their approval processes. There are some where we're looking at delivery windows and trying to align that with their organization. And there are some that just have these projects they manage them in 2, 3, 4-year cycles.
So we are -- as much as we want to continue to influence and compress our selling journey, the reality is our selling journey is our customer's buying journey and every one of them is going to be different. So we work with -- we work very closely with every customer to be able to make sure that we get them to that point as quickly as we possibly can. Does that help?
Your next question comes from [ Jeff Cowell ], a private investor.
I've got a couple, so maybe I'll jump back into the queue. Building on what Horst was just asking about DCAS, it sounds to me, Mike, like you demonstrated that you can identify and rectify [indiscernible] the inefficiencies that exist in these buildings. I believe there's 7,000 buildings opportunity with this DCAS in the state of New York. So further to that, what's next? Like do you have an ask? Or do you just walk away after demonstrating that you have a product that could be quite effective in achieving your objectives?
We are at -- as I mentioned earlier, we are very actively working with them to start to identify those very next sites. So for example, when we look at one of the areas of consideration is they have 100 schools that have solar solutions on them, and they're starting to realize that the solar solutions also come along with some volatility. So right now, it's a matter of looking at all of the facilities that they operate, the courts, the museums, the libraries, the office buildings, the police stations, the fire stations, the schools and be able to identify which one of those can -- which one of those are going to be the next round for consideration. But I feel very confident that we're going to be managing these in large increments, not onesie-twosie for sure. So that's the thing that we're working with them right now is going through and prioritizing.
One of the things that cross my mind on why it's taking so long, and I appreciate you are doing very large organizations here is that maybe you haven't completely closed the loop on illustrating at how powerful your solution is. And it was something that was mentioned in the MD&A about a new partner portal, something about a true cost of power estimator, some sort of new marketing program that provides automated energy data logging. Maybe you could expand on those things because it sounds like you don't have a complete solution to illustrate yet to these big whales that you're going after. And again, misinterpreting that, I hope I am, but if you could expand a little bit, please?
I'll be happy to expand on it because we do have a very robust solution for that. So when we look at all of the different tools of what we're focused on is bringing people through the sales funnel as expeditiously as possible. So last quarter, we launched our True Cost of Power Estimator, which is an online tool for people to go in and put in the attributes of their portfolio to get a rough idea of what kind of benefit they could look at from an active power management solution. So that's kind of the first step. The next steps that they go through is going to going through the SmartGATE Insights power impact assessment. And that is a very robust tool that not only gives them all of the breakdown of what they currently have, but also illustrates out for them where this market will be able to take the buildings upon full deployment. So from that standpoint, we are -- that's something that we added in the last, I would say, 60 days, 60 to 90 days. So that's a new piece to the power impact assessment. So that definitely helps support people through. As we continue to get our measurement and verifications done for all of the 20 systems or so that we have pending, and we have the new power quality verification report, and we have those results, we can start using that in the market to be able to help pull organizations through the pipeline into that sales state. So we are definitely able to identify where the problems are, what they would look like, where -- when it's corrected. But now we also have additional proof points to validate that we're able to hit those exact results. So yes, we have a very robust solution to be able to make sure that we're demonstrating that. Does that help?
Yes, that helps. Okay. That's good to hear. Last question from me, and I'll jump back in the queue. Randy, you -- in the last couple of quarters, you've been talking about a pretty robust sales funnel as far as resellers go. And I think there was some mention of 50 or more in the recent press release. Why haven't we seen any news yet on you inking a deal with one of them? Are you -- I'm assuming that you're going to be choosing regardless, but given what Mike said, it sounds like you're ready to go with these guys. And it seems like the potential demand just keeps on building from these resellers. I'm curious what are you waiting for to pull the trigger with one or a few of these?
Well, I think pulling the trigger is the wrong way to look at it. I think it's expanding your partnerships. We've already pulled the trigger per se with some of these partners. And we're not going to be able to direct versus channel is a lot different. They're not our customers. Our customer is the ESCO or whomever it might be in a channel. We don't have the control over announcing deals. So you're going to see more of a large ESCO deal was done or whatever. It won't be as descriptive as it would have been if it was a direct customer that we're dealing with. But these are large organizations that take time to commit. You start with a region and you do some deals, it's proof of concept. You also have to remember the deals at the channels -- like the ESCOs do 10-, 20-year contracts. So when you're getting written in, there's a process that sometimes can be 1, 2, 3 years, but they're massive deal. And Mike and his team are involved in those. So I mean, it isn't really just pulling the trigger, it's building that trust, getting some deals done, which we have accomplished. And it's really seeing a lot of those large deals being written in turn being visible for the shareholders to see. So that's really the key part of it. I think the third part I would mention is that we didn't release Gen3 until April, May. We've only put a handful of them in and commission them. The product was just released, and that has held some things back for sure. And even with the channel, then some of the partners, when you can't deliver a product, you have a time frame due to supply chain challenges, and you're telling them, within 6 months, your cost of goods has gone up by 40%, it creates some interesting conversations. So I don't know, Mike, do you want to add anything else to that, that I said or?
Sure. As you said, Randy, for sure. For example, when we look at the ESCO deals in particular, from the time that an ESCO partner is awarded the business till the time they're actually deploying that, the amount of work that goes through on that is just enormous, and that could take anywhere from 12 to 24 months once they've won the deal to actually be producing orders. So when we say that we're written into orders, that's exactly what we're talking about is that our ESCOs that we work with are winning deals. We are in those deals. And when they -- because typically, what they do is to give you an idea of the process on that once an ESCO wins a deal, they package everything up and they come up with all the calculations and then it goes off to a third-party engineering firm to validate all of the calculations. And then once all those calculations and savings are then finalized and thereby a third party, at that point in time, then they go get funding, they actually go to the finance markets to say -- to actually get the funding to be able to move forward with that $10 million, $15 million, $20 million, $30 million, $40 million, $50 million project. Once that -- all that funding is finalized, then that goes to the -- then that's available for orders to be starting to be placed. And so that process can be lengthy and can be painful and frustrating and that's where we are that we've been written into a number of these deals. It's a matter of time before those orders and first orders come flowing in.
Yes. And I would add, Jeff, it's always difficult from a leadership team. You try to articulate what's going to happen, et cetera. And I get feedback from shareholders, well, you guys have been truthful with us. Well, it's not that we're not truthful, it's our timing can never be confirmed in advance, obviously. But I think the key thing is that we're seeing significant deals that are taking some time. But clearly, we're in that syndrome right now where we're zeros and then you try to become a hero by delivering. By that, to be clear, what I mean is people get tired of hearing these stories, yes, it's been a long time. And also these big deals to start comping in and you go from a zero to a hero, but you're not a hero, all the work you did to 1, 2, 3, 4 years before. And I've been through that multiple times on technology companies. It's just the way it works. So you've got invest time, you've got to put the energy upfront. You've got to put systems into the GSA. You've got to put systems into DCAS. You've got to do the things you're doing and then all of a sudden, the deals start flowing. So we're quite confident. I don't have any concern whatsoever saying to you that we have never had visibility for more orders, larger orders or stronger commitments from partners and direct channels than we've ever seen, huge improvement.
Your next question comes from Michael Bester of Primary Capital.
How many units do you need to deliver in a quarter to get the cash flow breakeven with your new payment schedule?
Well, if you look historically, in the last 6 months or so, we haven't wanted to sell systems because there wasn't the margin, Michael. So what we're seeing the latest large deal that we have put in place is a multimillion dollar deal, and we're looking at 36% to 40% margins on our foreseeable future and hoping getting back up to the 50% and 60% we've had in the past on product, not on installs. And of course, installs of partners, we don't have that component because that would be something that they'll provide and we won't participate in. So it's a mix of how many systems do depend if there's installation, there's a few answers that process. But fundamentally, what we've always worked on is that we need to do about $2 million a quarter to 2.5% on margins in the 45% to 50% range to put us into an EBITDA breakeven and moving into positive.
Okay. So your margins are back over 50% as of June 15. Is that correct?
No, that's not correct. What we said was the latest proposal we put out -- so what we're doing, Michael, is margins will still be tight for another quarter, at least. But on the next sort of 12 to 20 systems looking out and the proposals going out with the price increases and all the things we just discussed, that will get us on most deals between 35% and 45% margins if we look out 6 to 9 months. If we look out 12 or more, we would have to understand better what our pricing, what the alternate suppliers pricing is going to be. There's a lot of things that are going on. But we do believe we'll get back to normalized margins with Gen3 that you've seen historically. And if you remember the days remember 3, 4 years back now with the school when we were doing 2 to 4 with our Gen1 systems. That was providing the organization pretty much a breakeven to slightly positive EBITDA. But if you're asking for those margin 50%, I'd say, at least 12 months.
Okay. So where I'm going with this is, again, you have a little over $6 million in working capital and a finite time line to get cash flow positive. And you're very confident that you're going to get there?
Well, I wouldn't be on this call if I wasn't, let's start there, and we've taken a lot of steps, Michael, over the last 6 months to reduce that quarterly burn. So we've taken about $250,000 a quarter out. And that's a big help. So there's $1 million that we don't have to have in our pockets to operating the business. But when you look at the working capital, you start converting that inventory back into cash, even if it's done on a direct basis, just a dollar per dollar out any incremental profit. You've got over a year's worth of cash on that. So when we did all our scenario planning, et cetera, the answer is yes, we expect and on our analysis that we will have -- we have into September next year, we still have cash. You and I both know that, that is one answer, but you don't go run out of cash. So what we focused on, and I talked about this last quarter was the fundamental question is, does an event trigger us moving closer to a proof of concept? Let me just quickly tell you what I mean by that. As a company, we're focusing on delivering 3 demonstrable proof points by the end of this year. And what that means is the GSA was one, it's a massive opportunity. 2 other significant events, it sends the marketplace awareness that the company has proven out and is really entering that growth stage because we're lacking that right now. And I hear that all the time from different shareholders that show us some demonstrable events that we can feel comfortable about. So that's what we're focusing on. So we took the steps to reduce our burn, extend our cash and then focus on 3 demonstrable events that we believe are trigger points to allow us to take ourselves to the next level of market for some growth capital, et cetera, we can do that at a less dilute level, obviously. But you do that by having demonstrable events through your valuation is significantly higher. So there's a lot of steps that we could talk about off-line, Michael, but that's the thinking. And if a dollar goes out, it doesn't bring back a return that we want, in other words, onesie-twosie deal, we won't do them. And as I said last quarter, if there's a deal for 1 or 2 systems, we'll turn it down before we will tie up our working capital and potentially lose out or jeopardize a large, large deal. That's just what we have to do. So can that affect the revenue, yes, but in the normalization of the revenue, it will be larger deals and they look after itself. And the other point I would have is that we have a lot of interest in ultimate financing from a customer's point of view, which improves our cash flow, the terms of payment. We end up with 50% of the capital cost of our outlay of equipment back to us by the time we deliver the equipment. And then finally is we just have to keep doing with making sure we manage our cash properly and make it last as long as we possibly can.
Okay. Where I'm going with that is you must have some visibility on business to feel as confident as you again sound on the last call and this call. But I'll let it go at that, Randy. I was trying to get my head around, again, how you saw yourself getting from where you are right now to, again, cash flow positive.
Talking so much about -- and I think really, Michael, the summary I would give is I think you do 2 things. You manage your business today and you accept the challenges you have, number one. And I think historically, if we proved anything is that this company can be very frugal and manage its capital very carefully. And so we'll continue to do that. And I think you have to do that early enough that you can make a difference. So we believe they've done that. We believe that putting a lot of these changes in the last quarter give us a lot of help. But we believe that there are significant events that will occur within the time frames you described that will significantly elevate the organization's valuation and trust with people where it's going.
We have a follow-up question from [ Jeff Cowell ], a private investor.
I just wanted to clarify something first. Mike was giving me that explanation about the ESCOs and how the contracts work and whatnot. Mike, did you use the word written that we've been written into or that they would write you into? And the reason I ask is, I mean, building on that last question, the line of reasoning where you said in the PR that you have enough cash for a year, given how out of control, it seems like these large organizational time lines are for you, there's one piece of the puzzle with these ESCOs, are you confident because you have been "already" written into one or several of these ESCOs and you're just waiting for them to sort of like make the contract go live? Is that -- am I reading this right?
Randy, I'll handle that one if you don't mind. Yes, we've already -- we've actually already processed a number of orders for some ESCOs based on work that was done in 18, 24 months ago. So we've -- if we look at the ESCO staging, they go from a limited audit to an investment-grade audit once they get to an investment-grade audit. That's where they finalize all of the -- they call them ECMs, energy conservation measures that are going to be going into the program. So we have reached that stage with a number of ESCOs on a number of business deals. So when we look at that, that's where we are. And we're going through the mechanics on validating all of the calculations for all of the different ECMs because, again, if you think about it, if they're doing a $10 million or $15 million, $20 million deal, [indiscernible] going to be first market. It's not all in this market. So they're looking at those in their entirety. So yes, we have a number of those where we have participated with the winning ESCO, and we are in the investment-grade audit. Randy, do you have anything to add to that?
No, I think that's good. There's really what you're asking is give me comfort that I'm going to see a bunch of orders come in, and you can't do that other than put the orders and announce them. So that's what we have to look forward to. The question comes back as several of you've asked, how confident are you guys you're going to get that? Very confident. But that doesn't -- it doesn't give you the comfort you may want today. But we believe we're doing the right things. We think we've got a strong funnel. We don't think we know we do. And there's some very large deals. We have deals that if we do just one of the deal, they will equal 3, 4 years of our revenue historically, big deals. So that changes the game. You put a few of those on the table and then people start believing. So I've been through this before, and we had this conversation with Jonathan Lansky and Michael Atkinson a couple of years ago. You just have to do the right things and accept that people are going to doubt you until you put the meat on the table and serve dinner. That's what we're focused on, while conserving our cash, extending our time lines for opportunities and moving forward those opportunities to a cap point with all the things that Paul has been talking about and becoming operationally efficient. So as you grow and expand, the company is right for it. And I think those are all the things that we can do right now, and we just have to deliver on some of the large deals we're talking about, and I'm very confident we will.
Yes. I'm confident you're on the right track, too, Randy. Don't misunderstand my questioning here. It's really one of trying to ascertain whether this time frame of having enough cash and not having to dilute the equity any further is one that you're pretty confident on given that you're dealing with a bunch of companies that are pretty large and difficult to pin down at times, which I understand.
Yes. I believe fairly simple as those 3 demonstrable events between now and the end of the year as those are completed and communicated to the target market, valuations will look significantly different. We have complete comfort with that. We have to deliver on those.
Okay. One question and then I'm done. I noticed that salaries were up about 40-odd-percent over the period in question in your results today. And at the same time, I know that you -- as you mentioned, you've cut back expenses by $250,000 approximately per quarter. I'm not sure I fully understand how the 2 go hand-in-hand. But my question is, are you in a position from a personnel perspective as of today and moving forward based on your anticipated demand that you feel that this -- your salary count will be similar to what it was last quarter?
Yes. I mean you had all the different programs that were interluded in there to help offset some of the costs and things like that. Those all went away, obviously, with COVID. But what we try to do is be very strategic and maintain the people that are key to growing our business, adding people like Paul Moffat to come in and really professionalize us on the operational side and get us ready for growth.
If it isn't a role that adds value in the next 12 months in our growth plan, then we look at that as not a necessity but a luxury. But we do have significant investments with our people on the technology side on the engineering, but we've got some significant opportunities and some great product additions coming up. And if we don't carry those people and have that skill set in the company, requests from people for EV charging, bolt-on solutions, things like that, we can't look at those, but they're in our funnel, for example, because we've got the intelligence and the people to drive those programs. So that's a cost.
I think our costs from a salary, et cetera, point of view, what you've seen right now is you need to make sure you look after your key people. There was what they call the brain drain and the great resignation in January, February and March. We need to make sure we look after our people. And I will say right now that there are -- the cost of running our company with the people we have is very well managed and very cost effective. And I would challenge that [ differs ] to any organization of our size for sure.
There are no other questions at this time. I would like to turn the conference back to Randy Buchamer for closing remarks.
I think all [ I already ] say is we know that there's a time when you have to just deliver, and we're going to do that. That's really the bottom line. And we are confident. We've got a lot of things going, and it's just up to the team to take what we've talked about and deliver. So that's our focus. And you can expect to see some delivery -- demonstrable delivery points between now and the end of the year, that's our focus. So we'll see those delivery points over the next 3, 4, 5 months. And if we hit those, I think the company is going to look significantly different. And we do believe we're going to hit those. I think there's a lot of good things going on in the operational side for growth. There's a lot of things to help us on the supply chain, margins, et cetera. And I think these are all for the good. The good news is we're doing those things before we get the growth spurt, so we're ready for the growth spurt. So I would just summarize by saying we've got a committed team that still believes very, very strongly in the opportunity better than ever that the company has never been -- visible business available to the company that we've ever, ever seen, and we're going to get it. So appreciate the time, everybody, the questions. And everyone, have a great legendary day. Thank you very much.
Ladies and gentlemen, that does conclude your conference call for this afternoon. We would like to thank everyone for participating and ask you to please disconnect your lines.