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Good morning. My name is Michelle, and I will be your conference moderator today. At this time, I would like to welcome everyone to the Legend Power Systems Q3 2023 Financial Results Conference Call. [Operator Instructions]. Legend Power, you may begin your conference.
Thank you, Michelle, and welcome to Legend Power Systems Fiscal 2023 Q3 Investor Call. We're pleased to have you join us on the call today. We'll discuss our corporate progress and provide our fiscal 2023 Q3 update, representing 3 months ending June 30, 2023. I'm joined by Florence Tan, who is our CFO; Paul Moffat, Chief Operating Officer; and Mike Cioce, who is VP, Sales and Marketing. 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 our company profile at sedar.com. Florence will provide a brief financial overview of Q3. Paul will address our operational progress, and Mike will update you on our various sales activities. And over the last couple of years, Legend has continued to transform from an energy savings company to build our brand as the active power management solution for ensuring optimal power for buildings. Our transformation rebranding has resonated with our target markets in major federal and state agencies and leading commercial building owners either have or are planning to implement our active power management solutions. We created a new category and market without any direct competitor and our pipeline and order flow is growing, and we will make Legend Power a compelling public company. Also after the quarter, we raised about $2.5 million equity to support our sales growth plans. This capital plus 25% deposits on orders are expected to provide cash for operations. I would now ask Florence to discuss Q3 financial information.
Thank you, Randy. During this quarter, revenue recognized was $470,000 compared to $1.02 million in Q3 FY '22. The revenue recognized was based on 2 SmartGATE systems and 3 installations compared to 12 SmartGATE systems and 6 installations, respectively. Deferred revenue as at June 30, 2023, was $210,000 compared to $30,000 in the prior year. The pipe is healthy, and we will see the transition of these revenue recognition as the orders are fulfilled. Gross margin in the third quarter of fiscal 2023 was 22%, compared with 5% in Q3 in the prior year. The increase in gross margin is due mainly to an increase in sales prices as well as an inventory adjustment taken in the prior year. On a year-to-date basis, gross margin for the 9-month period was 21% compared to 9% year-to-date in the prior year. The company ended the quarter with $522,000 in cash, no debt and $2.23 million in working capital. And as Randy previously mentioned, we have recently raised about $2.5 million. And with this working capital, we continue to proactively focus on items critical to attaining our growth projections, and we will continue to manage our capital resources as we always have to support our sales growth plans and deliver for our shareholders. I'll now pass it to Paul, our COO, for an operational update.
Thanks, Florence. Good morning, everyone, and thanks for joining the call today. I'm pleased to report that we have 12 systems in backlog as of today and are receiving the last of the required parts over the coming weeks. As these orders are device-only that is the customers are handling the installation. Legend will be able to invoice for the remaining 75% beyond the original 25% deposit upon delivery of the systems. That's upwards of $1 million cash into the business in a short time frame. Production has already begun and will be completed over the next few months. Operationally, our performance has improved overall across the company metrics. The last 4 systems shipped met 100% on-time delivery and plans are in place to continue this record for systems in the backlog. Regarding labor and overhead, we have seen lower costs and improved cycle times as efficiency and utilization increases with more frequent production builds. As well, cost of goods sold has decreased 5% due to efforts to negotiate lower material costs and source alternate but less expensive components while increasing the overall quality and reliability of the product. Outsourcing of higher manual labor cables and harnesses has also lowered costs as well as offsetting work from the factory, allowing for increased throughput. And application-wise, we have made some great improvements in decision-making reports from our inventory and MRP systems. And again, we're seeing workload offset and time to decision decreased. All of the above has helped to evolve our continuous improvement culture and optimize our business model. I'm very pleased with the morale and dedication of the team, and we all look forward to continued fulfillment of our growing sales orders. And with that, I'll pass you over to Mike.
Thanks, Paul. Again, everybody, thanks for joining, and it's a pleasure to give you an update today. Sales efforts of Legend continue to push forward and continue to grow quarter after quarter. We have a very strong 3-year pipeline north of $150 million due to our tremendous efforts to grow a brand new category, as Randy mentioned, we're making a category here within the building technology space. All of our near-term deals are continuing to advance with several more moved to verbal agreements and paperwork is being passed for review and execution. We have had 2 deals push out to future quarters due to the availability of larger-size systems. But generally, the pipeline continues to strengthen. We have 11 deals for near-term closing. And based on these deal sizes, our 23 bookings goal is within reach. So we're excited about that. Additionally, the sales team continues to add new brands to the pipeline every month. In fact, just in the past 30 days, we've added some of the largest companies in the world to our pipeline. For a general update on some of the notable events in the last 90 days.
First of all, with New York City, the City of New York, we actually met with the design firms for the City of New York to onboard them with how to work with the SmartGATE and how to work the SmartGATE into the design for the city going forward. What was really interesting about that is each of them not only was very supportive, but also had other customers they wanted to immediately take us to. So that's just another example of the strategy of landing industry leaders to influence that general market is working for us. And an update on the GSA. We do have 2 facilities identified. We're -- and in addition to that, we were recently asked to participate in a roundtable with the GSA Administrator, Robin Carnahan, Robin was appointed to head the GSA by the President, Biden in April of 2021. We were asked to kick off the session based on our work with them and the positive momentum that we have with the GSA in general. The very few other companies that were invited to participate are software information-focused providers. Administrator, Carnahan took the opportunity to reiterate that never before have we had the momentum and the money that we have in place today to pursue these critical endeavors. She also indicated that the focus is faster, better and save money. Legend Power Systems' SmartGATE offering aligns very well with these mandates. She also pointed to a number of opportunities for accelerating -- and acceleration of the procurement process and leveraging the Investment Reduction Act for funding. So we're really excited about the momentum we have with the GSA. Addition of new customers, our near-term pipeline includes a number of high visibility highly recognized brands. Additionally, our sales team's messaging is working and engaging even more highly respected brands. The big companies with the big buildings with big emissions and big challenges are looking for big solutions and SmartGATE fits the big bill. So we're excited about that. In fact, one senior executive we recently met with indicated in the past 3 months, he has had multiple powerful CEOs, politicians and heads of foreign state becoming trapped in their elevators due to voltage fluctuations. Again, pointing to making the buildings work is just as important, if not more important, than saving dollars along the way. On the partnership front, we continue to add new partners to drive new momentum, new pipeline and revenue growth. The response from these highly respected partners in the energy ecosystem, it's generally accepted that the most -- for the most part, the income power condition from the grid is while within standards, but presents many challenges for critical buildings. And mitigating these risks is quickly becoming a high priority for many top tiered organizations. When we combine all of that momentum with -- from the City of New York, the GSA, new customers with the momentum from our existing customers, we do have some exciting new customers but at the same point in time, our SmartGATE results have earned us new opportunities for new buildings with some of the largest multifamily brands in North America. Additionally, we were recently asked by a long-term supporter to present our latest SmartGATE offering and results to the operating committee of the Ontario Ministry of Education. This put our latest platform and results on display for 85 leaders from the Ontario education sector who have already generated solid revenue for Legend Power Systems. In the past few weeks, this has led to over 8 new opportunities in established markets for LPS. And our other multifamily sector customers are continuing to expand new opportunities and new sales that are coming in, in the near future as well. So again, deals are advancing nicely. We expect a solid annual bookings number for fiscal '23. Our pipeline continues to advance and attract new customers, and we have a lot of exciting things going on. I look forward to taking your questions in a few minutes. Randy, back to you.
Thank you, Florence and Paul for you updates. We continue to see a massive shift in corporate mind space and effort to climate, environmental emissions is becoming top corporate objectives. We see that the world is serious about taking steps to positively impact climate change. In all of Legend's markets, we see consistent and systemic change to make buildings less harmful to the environment, combined with improving efficiencies, reducing costs and making other tenant experience. Federal and civic government are committed to making easier for corporations to adopt electrical energy saving technologies for commercial buildings, and they continue to introduce programs that support Legend solutions. We now would be very pleased to take questions you may have.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. One moment please for you first question. [Operator Instructions].
And Michelle, I have a written from e-mail that I can make as the first question, if you'd like for Randy.
Okay.
The question that was sent to me was that there seems to be good reports about progress, but it seems that the sales cycle is taking longer. And Mike and I have talked about this numerous times. And obviously, we're matching our sales cycle with the customer buying cycle. But I think the key thing that we have talked about in the past quarters is that deals are getting larger. They're getting more complex. They're involving many more levels of decision makers. Also, the sales process continues to be streamlined as we install systems and build trust with new customers. By that, I mean that the customers that have the systems that have worked in their buildings, they're happy with it. We get quicker time to next systems because we've gone through that process and understand the -- that how we deal with their logistics and procurement, et cetera. Also, the sales cycle begins when we earn the right to sale. I just want to remind people listening that we have to go through when you create a new category, making people aware of what you do, educating them on your solution and moving them to the point that they're comfortable that you can start the sales process. So in lot of these large, complex accounts in new geographical areas, et cetera, we're actually doing a lot of the marketing cycle upfront, which appears to be part of the sales cycle, but you don't really sell until you earn the right to sale. And I think finally is that as we positively impact prospect businesses and actually selling solutions that they can see in their own environment, working and delivering results, we see the process streamlining. So hopefully, that gives a little bit better color on that. And hopefully, we have some additional questions, Michelle.
Thank you. We do have a question from Horst Hueniken, Hueniken Asset Management.
My first question is just to confirm that the bookings target is still $15 million by the fall of this year.
Yes. We expect that booking for -- between now and the end of the year, absolutely. We've had a couple of things move out, and we have had some things move in. But yes, that is the target.
My next question, I don't know if this is addressed to Florence or you, Randy. For modeling purposes, I'm trying to estimate the revenue in the fourth quarter and the upcoming first quarter of next fiscal year. We -- you have indicated that you've got 12 systems, or Paul indicated 12 systems in the backlog, you're finally getting those missing parts. So obviously, you can book that. But I'm wondering whether there's any other information you can provide for us to pin down what the revenues might be in the coming 1, 2, 3 quarters?
I would think that what we've disclosed so far is probably what we know at this point in time. Availability of parts I think affect the book -- sorry, the rev rec. The bookings is something that we have, have some better feel to. So I mean, really, right now, what we're looking at is cash contributions over the next quarter or 2. By that, I mean, deals where we actually invoice and can plug cash out of the existing inventory of $1.5 million of new Gen3 inventory and actually have a positive cash onto the balance sheet. So we're looking at those things tightly, Horst. But as far as the exact rev rec numbers, et cetera, we haven't published any forecast numbers or anything, and it's something we're looking at and will depend on availability of some components of it.
Okay. My final question relates to the ESCOs. On the one hand, you disclosed that you're talking to 50 of them. I'm wondering whether either you or Mike could just update me on how many ESCOs you're actually not just marketing to, but you've actually got agreements to work together with?
Mike?
Yes, sure. So if you look at that 50 number, that was on the partnership side altogether. That's not necessarily just ESCOs. When we look at our partnership strategy, we're leveraging multiple members of the energy ecosystem that includes ESCOs, that includes distributors, that includes consulting firms, that includes electrical contractors, everyone plays a role that -- when we look at that number of 50. That's the broader number there. We look at the numbers that we have actual agreements with. We're into the double digits. I'd have to go through and pull that number and I'll follow with you after this, to give you the -- to give you that exact number.
[Operator Instructions]. There are no further questions at this time. I will turn the call back to Randy Buchamer for closing remarks.
I'll just give it 10 seconds to see if anybody does have any last chance for questions. Okay. It doesn't appear so. So we'll wrap up. Basically, we continue to earn the respect of the target markets in our ecosystems, and we're making them comfortable with Legend Power as an innovative company to work with. We continue to build our brand. We're working with key ecosystem players to ensure they're not only aware of it but ultimately support Legend decisions in their clients' building. And I think that's where we're seeing a lot of growth. The Legend Power leadership team is very positive about what we're doing in our future. We're very committed to making Legend Power a leading energy management company. We've got the committed, talented team. We've got an outstanding active power management platform, markets with high energy costs, power challenges, ESG and climate change objectives and they're seeking innovative ways to reduce their energy costs and improve the quality of their buildings. The future has never looked better, and we believe for Legend and our stakeholders, we will continue to get better. The time for Legend is now, we're very excited about the business, and we thank you very much for your participation and support. Thank you again, and have a great legendary day.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.