Legend Power Systems Inc

XTSX:LPS

Earnings Call Transcript 2020-Q2

[Operator]

Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the power -- to the Legend Power Systems Q2 2020 Financial Results Release and Conference Call.[Operator Instructions]Mr. Vanry, you may begin your conference.

[Steven Edward Vanry, CFO, COO & Corporate Secretary]

Thanks, Ian. Welcome to the Legend Power Systems Fiscal 2020 Q2 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 second quarter of 2020 ending March 31, 2020.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 more information about Legend's forward-looking statements and risk factors, please see our 2019 year-end management's discussion and analysis dated January 28, 2020, which can be found under our company profile at sedar.com.I will now pass the call over to Legend's CEO, Randy Buchamer, for an overview of our third quarter. Randy?

[Randall G. Buchamer, President, CEO & Director]

Thanks, Steve. Welcome, everybody, to the Legend Power fiscal 2020 Q2 investor call. Pleased to have everyone join us on the call today. We'll discuss our corporate progress and provide investor and financial market business update.Obviously, Steve is across with me in the room today, so you've met Steve. And also on the line, we have Mike Cioce, our VP Sales and Marketing, in his Atlanta home. Steve will follow me. He'll discuss our financials and he will lighten you on the smart steps that have been taken to reduce the financial impact on Legend. Mike will share his excitement about our transition from a product-based company to a soon-to-be-released enhanced SmartGATE energy management platform and how the enhancements are transformational for Legend.During our last update call during Q2 -- or Q1, I'm sorry, we confirmed our focus was to continue to enhance our solution offering, improve our sales process, add sales talent and implement our corporate social marketing campaign to communicate our new value prop and solution to our target markets. So during fiscal Q2, Legend continued with the most significant product enhancement and value proposition improvement in Legend's history.Historically, Legend has been positioned as an energy saving product company and is judged on on reducing energy costs and achieving an acceptable return on investment. The enhancement of our products with solutions platform adds the capability to address the 3 most common customer-stated energy challenges experienced in commercial building and not support the desired outcomes of increasing the rents, reducing the costs, increasing the profit and improving their building valuations.We are now so much more than just an energy saving simple payback proposition. This transformation continues to enhance our value prop, provide prospects with reasons [indiscernible] and beyond just sustaining energy, increase our market potential by opening up new verticals like the industrial market that Mike will talk about, and expand our competitive advantage in providing the sales team with an unequaled story and product solution to sell.Quite simply, Legend is now the leading provider of an appropriately sized, costed complete energy management solution for commercial buildings to proactively protect, manage and improve the buildings. We are seeing new and follow-on orders from New York, Pacific Northwest and Ontario. We are also shipping Insights solutions to Boston. Mike will give more detail on our transformation progress and highlight significant sales order improvements.During the quarter, we continued to support our new solutions platform with the appropriate sales talent experience, which led to a significant sales changeover in our sales management and Toronto-based sales team. The changeover is now complete. Mike Cioce has a team that he needs.Our philosophy, just to remind you, on the sales side is to have fewer salespeople in region, but have more experienced and capable salespeople that spend more quality time in front of our prospects, while greatly reducing our sales team's administration and non-sales activity. Legend has and can attract high-caliber sales talent to ensure our success and allow and make sure that we are in seeing executives at the senior level. We have far more sales opportunities with higher potential in multiple regions and verticals than any time in our history; and both Ontario, Pacific Northwest and U.S. bookings are growing; and our growth prospects are very positive.During these difficult financial market times, it's something now that Legend has a strong balance sheet and resources to fuel our growth plan. We've invested for growth by enhancing our solution offering, improving our sales team and processes and building a strong engineering team that continues to develop and release leading-edge energy management solutions. We continue to earn the respect of our target markets, adding verticals like ESCOs and industrial markets, again, Mike will touch on those, and make them comfortable that Legend Power is an innovative company to work with. We continue to receive new and follow-on orders from all regions. We anticipate sales growth and the Legend Power leadership team is very positive about Legend's future, and we're each absolutely committed to making Legend Power a leading energy solutions company.I'll now turn the call over to Steve, our CFO, again, and he will provide a financial update and then he will be followed by Mike Cioce to highlight our sales progress. Back to you, Steve.

[Steven Edward Vanry, CFO, COO & Corporate Secretary]

Thanks, Randy. I sense that our shareholders and the broader investor audience keeping tabs on us would like to better understand the company's strategy around the pandemic, managing working capital and regaining momentum in sales velocity. I will let Mike Cioce cover the latest with sales and marketing and focus on the other 2 items.First, however, I'd like to point out that any defensive financial strategy measures we've taken are not accompanied by a duck-and-cover mentality within the organization. To the contrary, we have retooled where necessary and continued to identify, contact and communicate SmartGATE's value proposition to key decision-makers in select verticals. Engineering the development of new feature sets has continued unabated and remain on schedule. And most importantly, our people are upbeat and optimistic about Legend's future.Now in response to COVID-19's impact on economic activity and its potential to slow the company's growth prospects. In March of 2020, management implemented a proactive cost reduction and continuity plan. It's anticipated that between April 1, 2020, and September 30, 2020, being our fiscal year-end, these cost-cutting measures will reduce overall expenditures by approximately $1 million. These cost containment efforts can be extended, if required, and pared back or removed entirely as the economy gets back on track. A review of expenditures resulted in cost reductions to conserve cash and reduced operating costs without impairing the company's ability to quickly grow as the economy improves.As for government subsidies, the company is eligible for both the United States CARES Act Paycheck Protection Program, or PPP as it's called, and Canada's Emergency Wage Subsidy or CEWS. On May 1, 2020, the company received a onetime amount of USD 145,000 or approximately CAD 200,000 under the U.S. PPP, which was advanced in the form of a loan. The loan matures in 2 years, bears interest at a rate of 1% and is forgivable in certain circumstances. We anticipate Legend will be deemed eligible for loan forgiveness and we'll make an application as such.The first tranche of Canada Emergency Wage Subsidy totaling $65,000 was received by the company on May 11 and is based on 4 weeks of our actual payroll cost. The CEWS was recently extended to cover a total period of 5.5 months and we anticipate the company may be eligible for the subsidy in other of the 4-week increments during the CEWS program.As at March 31, 2020, the company had cash and cash equivalents of $2.6 million, total current assets of $6 million and current liabilities of $1 million for a working capital of $5 million. Accounts receivable and amounts due from customers on contract at March 31, 2020, amounted to $1.3 million and $890,000, respectively, for a total $2.2 million in receivables.We're happy to report that other than delays in completing a small number of projects due to COVID-related temporary building closures, our receivables collection cycle is running within anticipated time line. Based on regular communication with our customers and an approximate 50% reduction in receivables since March 31, we do not feel an allowance for doubtful accounts will become necessary.Now to update you where we're at now, our cash position as of today is $3.3 million, up $700,000 from March 31, 2020, and working capital currently stands at approximately $4.8 million. Management will continue to take the actions necessary to prudently protect our working capital position. We do also understand that the key long-term driver of our balance sheet health will be sales with strong margins. And yes, the timing of future sales is difficult to forecast, but with the economy showing signs of a restart, our SmartGATE 2.0 launch coming soon and an invigorated sales and marketing group, we are very optimistic about the future.Thanks for listening. And now over to Mike Cioce, Legend's Vice President of Sales and Marketing. Mike?

[Mike Cioce, Vice President of Sales & Marketing]

Thanks, Steve. I appreciate that. So as you've heard, we are going through a transformation from a product company to a solution company. And I'm sure you're wondering, what does this really mean and how does it work and what's going on? So let me take a moment and just rewind to set the stage.Last year, when I inherited the team, simply put, there were a lot of gaps. We had one way of selling, both from a product perspective as well as how we sold, which was a simple payback based primarily on energy savings. We had some momentum in Ontario education, which was and is experiencing some government funding issues; little traction in commercial real estate; an inexperienced sales team; and a number of other key challenges.Fast forward a year and we have changed a lot, just about everything. We've moved from a product sale to a solution sale. We're focusing on broader multidimensional value for multiple segments. This is allowing us to gain real momentum in more geographic areas and segments. In fact, just -- the customer conversations we are having today represent a total potential lifetime customer spend with Legend reaching north of $100 million. So we are definitely moving in the right direction.So let's take that a little bit deeper. Obviously, the solution has expanded greatly. From our customers' view, our value has changed as well. We have a robust platform that solves broad-based challenges and makes a real difference for our customers. We improved the financial performance of their facilities. We make the incoming power better. We make the systems run better and last longer, which makes the systems and the buildings better for the people that depend on it, which helps revenue. And of course, by making everything run better, we lower costs, energy costs, maintain, repair, replace costs. When you put it all together, it drives profit and real overall market valuations up.So we've gone from selling a one-dimensional energy savings product, as Randy said, talking simple payback as we saw it, and gone to a multidimensional value proposition. Looking at the impact, we drive the way our customers and the leadership position look at it. We give predictability where they had none. If a customer is counting on a system to last 10 years and the grid conditions indicate that the life expectancy is going to be reduced by 30% or 40% and they would only get 6 or 7 years out of it, that's a problem, some unbudgeted expenses, capital planning, et cetera. Not only can we show them that, but we can actually improve the electrical [ conditions ] and give them the best chance of optimizing those assets. Of course, we still lower energy consumption and costs [indiscernible] responding to problems to preventing them from occurring in the first place, all while we're cascading impacts to the organization, from lower cost to higher satisfaction, increased revenue, increased profits and increased shareholder value. So yes, the product has definitely changed, but more has changed, including the makeup of our team, as Randy mentioned.We made a number of leadership and sales personnel changes in the past year. We moved from having more sales reps with less experience to having fewer sales reps with more experience. We have moved to professional sellers that guide the clients through the buying journey based on their findings through the solution sales process and focusing on the value that our customers care about at the highest level of their organization. We have changed from a single geographic and vertical dependence to having real momentum in multiple regions and sectors.So we've changed a lot. I'm sure you want trained set of workers. So let's keep taking a closer look. One example, in Ontario, we have several multifamily residential customers who have purchased multiple SmartGATEs. When they look at the energy savings they can offer their tenants, it lays the foundation for them to increase rental rates. When they combine the energy savings, lower costs and increased rental revenue with the available incentives and tax strategies, they see Legend as a significant financial competitive advantage.As Randy mentioned, also in New York City, we recently completed the installation of a multifamily building for one of the largest privately held commercial real estate country -- companies in the country. The results there have led to significant new conversations with this company for many more facilities and systems, both in the multifamily and commercial office building portfolios. When we overlay the impending fines for the GHG emissions regulations that are going into effect, it simply adds another very real financial benefit. We have 2 other installations scheduled this quarter with some of the largest buildings in New York and all of these will help strengthen our momentum in New York.We are currently moving forward with installation of SmartGATE Insights in a number of locations in Boston as well, including a major insurance financial services company as well as one of the largest multifamily REITs in the U.S. We have additional SmartGATEs being deployed in a major tech facility in Seattle as well. And again, the SmartGATE Insights pave the way and create visibility to the value of installing our SmartGATE platforms. And we expect more orders from these major organizations based on the results of the SmartGATE Insights installs.When we shift from the private sector to the public sector, we are building on our prior success. We have significant momentum in the public sector in the Northeast. We are in very late-stage direct conversations with some of the largest public sectors in the U.S. and expect to be placing a number of systems with them in the coming months. This allows us to take our success in Canada and extend it to a market that is almost 10x larger.It's important to note that many of the U.S. public sector organizations rely on energy service companies, or ESCOs. ESCOs specialized in bundling energy conservation measures, or ECMs for short, for government organizations and schools. With all ESCOs having essentially the same ECM offerings like lighting and heating and cooling and a few others, Legend Power offers them something new. In addition to attractive financials to offset critical measures they have to do, we bring an extra 3% to 5% energy savings on top of what we are currently offering. In many cases, that can be the boost they need to win more contracts.So we are seeing a significant uptick in work in the ESCO market, which is a $15 billion a year industry. We expect to place several systems with some of the largest players in North America in the coming months. And the best part is the SmartGATE platforms are now being proposed in many late-stage ESCO deals with some of the largest ESCO providers in the industry. Yes, these efforts will take some time to close, but can be a significant source of revenue in the near future. The ESCOs we are already working with have a very large footprint of sellers across North America and represent hundreds of millions of dollars of energy efficiency measures per year. Adding the SmartGATE platforms to their lineup helps them win more deals and means more revenue for us.And this is very significant and we definitely don't want to gloss this over, the ESCO is essentially acting as a reseller or channel for Legend. Keep in mind that a very few ESCOs that we are working with currently have hundreds of sellers in field positions, selling energy conservation measures mainly to schools where we know we have a strong position. Again, keep in mind, this is a $15 billion a year industry.Another point of strength is all of these are continuing amid the global pandemic. When these conversations continue to advance with such strong headwinds, we can point to the strength of our offering, our team and the value within the markets we serve as the main drivers.The bottom line is the Legend today is dramatically different than a year ago. Last year, we were 80% to 90% dependent upon Ontario education with a single value proposition. Today, commercial real estate, both multifamily and office space, ESCOs in the broader U.S. public sector making up the lion's share of momentum. We are running our first campaigns in the light industrial sector. Today, we have installs pending in New York, New Jersey, Washington, in Boston across education, government groups, ESCOs, multifamily and commercial offices. It's a huge departure from where we were a year ago. Yes, these types of durable capital assets would take some time to install and rev rec, but there's much more revenue on the horizon.So I've covered a lot of ground in the last 8 months or so. In short, we have a very strong value proposition that's driving momentum in multiple geographies and segments for Legend. We're building the right team and the right processes to ensure our success, and the building momentum will turn into near-term revenue as well as long term revenue. So these are just a number of the reasons why I'm very -- even more excited than ever about the future of Legend Power Systems.So back to you, Randy.

[Randall G. Buchamer, President, CEO & Director]

Thanks, Mike. There's a lot of excitement in your voice, and justifiably so. There's a lot of great things happening in the field.At this point, rather than providing an additional summary, we'll do that after questions. We would be pleased to address any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from [ Jeff Cowel ], who is a private investor.

[Unknown Attendee]

I've got a bunch of questions. So I don't want to monopolize the Q&A here, so feel free to kick me off and put me back into the queue if I'm getting a little long-winded. I'm particularly interested in New York. I know it's a new market for you guys. Clearly, it's been ground zero, at least in North America, for COVID. Can you talk a little bit more about what you're doing with ESCOs? How much COVID has put you back, if at all? And more importantly, what you're doing from today moving forward to try and implement some of your product in the New York area?

[Randall G. Buchamer, President, CEO & Director]

So why don't I just give you a quick highlight on that and Mike can give some additional detail, but basically the ESCOs are long sales cycles. They're not traditional sales cycles of 6 months or whatever. So you'll have an ESCO and it will address a whole school district of, say, New York, New Jersey. And they may have had a relationship and a sales cycle for 2 to 10 years. So we get involved once the point in time that they've already gone through all the preliminary analysis, all the preliminary pricing and sat down with the district or customer and the company said, yes, we'd like to go ahead and pick one ESCO and work with you. So the COVID is really a small piece of the overall time that they're dealing with customers and their relationships.So I'll make that point first. And so we haven't really seen a slowdown from that perspective. And I'll turn it over to Mike to give some more flavor, if you will, on the relationship with the ESCOs and what's going on.

[Mike Cioce, Vice President of Sales & Marketing]

Yes. Thanks, Randy. Yes, so the ESCOs are definitely a very exciting segment for us, for sure. When we look at the impact of COVID, yes, there has been some challenges getting on-site to do some additional work. What we're seeing is we're not seeing any deals go away. We're seeing some of the time lines potentially change, but the one who are late-stage are still moving forward very nicely. We've got a number of them. If you're familiar with the ESCO work, they go through a preliminary audit and they go through an investment-grade audit. Once they go through the investment-grade audit and the customer signs on full time, and then they go through a funding process. So where we are with a lot of the late-stage ESCO deals is they are in the funding process, which seems to be moving forward with no impact to COVID. So from an ESCO standpoint, we're definitely seeing some very positive momentum, especially in New York and the New Jersey area. Does that answer your question?

[Unknown Attendee]

Yes, that was helpful, Mike. While I've got you here, let me ask you a couple of sales-related questions. So I know you recently, I think, deployed -- at least talked about your Insights as sort of a leading, call it, a leading-edge primer to SmartGATE sales. Can you maybe talk a little bit about what sort of feedback, like how many units have you deployed? What sort of feedback are you getting over -- since the last quarter? Is there -- are you guys on the right track with this Insights as far as the leading potential indicator for SmartGATE units? I'd appreciate anything you can tell me on that.

[Mike Cioce, Vice President of Sales & Marketing]

Sure. Randy, would you like me to take this one?

[Randall G. Buchamer, President, CEO & Director]

Sure.

[Mike Cioce, Vice President of Sales & Marketing]

All right. Great. So as far as the Insights go, we did move that into our primary position for offering in January. We have seen a number of delays in getting some of the installs done because of access to the facilities because of COVID. So we have seen some challenges relating to that, but the excitement and the willingness of our customers to work through that is definitely still there.As we said, we've got a number of Insights being deployed in Boston as well as Seattle. And we're also talking to a number of organizations in New York about them as well. So we feel that this is going to be a very big driver to us because the biggest question that customers have is, what can this really do for my organization? And our sales process has been revamped to make sure that we're talking to all of the potential buyers across the organization and that we're understanding the metrics that move them to action. And we're making sure that those are represented in the Insights findings that we have.So from the standpoint of delivering the Insights reports and the Insights, we call it the energy impact report, and the energy impact reports have been a little bit delayed because of access to the sites for getting the Insights installed. But again, a number of orders are pending and installs are moving forward.

[Randall G. Buchamer, President, CEO & Director]

One aspect, Mike, I would just add, I guess, 2 points. We also found that in some situations, the Insights, being a $5,000 decision, still had to go through the capital process -- approval process. So we did change our product in 2 ways. One was to provide it as part of a service where we have no capital issue and to just be an operating addition. In other words, pay $1,500, $2,000, we'll do the analysis of your building. That doesn't include ownership, but includes the use of an Insight while we're doing that. That was to get around the capital process, as I mentioned.And secondly, we also found that some people on the install and code and different things for the Insights, as we're drilling into the switch gear in the electrical room, it scared some people. So we also have just introduced a portable Insight, which doesn't allow us to have to go into any membranes or anything. It's just a temporary magnetic connection. So it can be pulled off at an appropriate time. So we've made a couple of changes already based on customer feedback, which we're really encouraged about.

[Unknown Attendee]

Okay. And so sticking with the sales focus, Randy, Mike, I'm curious like how many people you have involved in the sales process? And what your go-to-market strategy is? Is it direct, indirect? Is it a mixture? Do you have any third parties that can help sell for you?

[Mike Cioce, Vice President of Sales & Marketing]

Yes, that's a great question, great point. As far as the direct sales team, on the sales and marketing team, we have a team of 9 and we have them divvied up into direct sales as well as channel sales. So we do have a number of folks that are dedicated to moving forward directly with customers and working directly with property owners, property managers on the direct sold side, and that's where a lot of the momentum we've got is coming from for commercial real estate as well as some of the government entities.On the ESCO side, we do have a separate team set up for that because the ESCO sales process is different. And it's very helpful to be very close to that world. And it's a very tight-knit community of ESCOs, especially on a region-by-region basis. So we do have some dedicated people for that.As far as our go-to-market strategy with the other channel partners, we have had a number of conversations with some very large organizations that specialize in electrical installation and contracting, and the preliminary feedback from them has been very positive and they see this as being a potential driver to their revenue as well as our revenue as well. So we're definitely -- we have -- we're working at all angles from the standpoint of making sure that we're -- we have dedicated people to talking directly to people that can buy SmartGATE as well as another group of people that are dedicated to talking to people who can recommend the purchase of SmartGATE. So that's kind of how we have that divvied up. Does that answer your question?

[Unknown Attendee]

Yes. No, that's great, Mike. Randy, just 1 or 2 more for me and then I'll get off the line here. So I know you've made, as most businesses have, recently some rationalizations in regards to overhead. And you talked about that briefly. Can you give us an idea of -- based on your current cash position and to take into account the cost rationalizations and then sort of give us a little bit of forward guidance on how long you think your current cash position, working capital is going to allow you to operate based on your balance sheet -- your current balance sheet before or if you ever have to come back to the market for some equity or some debt perhaps?

[Steven Edward Vanry, CFO, COO & Corporate Secretary]

Sure. Yes. It's Steve. I'll answer your question in 2 parts. One is in reference to the working capital as of today. So we've got somewhere around $4.7 million in working capital today. It's comprised of cash, receivables and inventory and some payables. Now the inventory is about $1 million today. So ultimately, based on our historical margins, that is likely going to turn into somewhere around, call it, $2 million in cash. And so -- and then we're expecting some more subsidies before the end of the year, so call it somewhere closer to $6 million to play with through the balance of this year, so that's the first part.The second part, and I know this is the burning question for everybody is, speaking of burn, is burn rate. And we might as well dig into that a little bit. And -- but I just want to be absolutely clear about burn rate is I'm going to give you a number that would contemplate 0 additional cash from sales. So just a pure old school, this is what it costs to run the business. Today, at a full clip, after the expense reductions, it's right around $400,000 a month, of which about $100,000 is dedicated to next-gen technologies and SmartGATE 2.0. And to say it one more time, that is the burn rate without any contribution from sales.Now -- sorry, Randy, did you want to add some color to that?

[Randall G. Buchamer, President, CEO & Director]

Well, I think that -- I think the question always is cash. I think you're doing a good job just addressing its working capital. But to be very direct, we don't have any plans to go back to the market during fiscal or calendar year whatsoever. We're comfortable with what we're doing in our cost reduction and additional decrease in cost opportunities for us. But as Steve said, you can cut to the bone. I think what people have to realize, we've made significant investments over the last 12 months on -- in asset purchases, in equipment and people. Somewhere about $1.5 million went out to our engineering team and our next phase product, which we have not launched into the marketplace yet. So that is included in burn, but it's really an investment that we haven't received a return on yet. So I look at that a little bit different. And that won't be an ongoing expense. We don't see the need for new testing gear. I mean, for example, one piece of equipment we had to buy was $100,000 just to put in perspective. So although it's including the burn. But I do believe that what Steve said gives you a good base and we're very confident that we will see sales contributions. And as that pulls out of the inventory as a prepay, that's straight or 90% cash to the bottom line as far as cash contribution. So we're comfortable with it.

[Unknown Attendee]

Okay. Guys, listen, I lied. I have one more question. My last question then I'm signing off is pertaining to sales wins moving forward from here. Generically speaking, Randy, is the plan to wait until the next quarter for investors like myself to find out about how your sales efforts are going? Or are you planning certain milestone sales to be communicated to the market in between reporting?

[Randall G. Buchamer, President, CEO & Director]

Yes. We won't do anything different than what we have historically done, which have our quarterly reports, but what we will and do plan to do is have a regular information coming out to the marketplace to talk about securing some wins because you have to separate the wins or contracts from rev rec. So a lot of times, business that's closed in the quarter doesn't get rev rec for a quarter or 2. But we do plan to have press releases on some of the wins that we do have. And we've got some great sizable stuff out there that we know is coming and we'll be happy to communicate that as the right time happens.

[Operator]

[Operator Instructions] Your next question comes from line of Horst Hueniken of Hueniken Asset Management.

[Unknown]

I realize that's a difficult name, Hueniken. Randy, you mentioned in your press release that you're seeing some sectors of your business open. Which ones would those be?

[Randall G. Buchamer, President, CEO & Director]

Sorry, your -- the question is, which verticals are open?.

[Unknown]

Yes. You stated in your press release that we are seeing some sectors of our business open. Could you maybe just give us some color on which ones are, in fact, becoming more active after COVID-19?

[Randall G. Buchamer, President, CEO & Director]

Sure. Yes. So the -- starting with the Ontario education market, it went quiet, schools got shut down very, very rapidly, and that went quiet. We are starting -- and in fact, we've got a number of installations we're completing in Ottawa. We're starting to see the schools perk up. They're looking at trying to go back in September and they're doing different things to prepare for that.Same thing in the New Jersey, New York marketplace. We will be looking at some progress in that marketplace and announcing some things in the next quarter where there's some good progress with the education marketplace. Governmental in the states is opening up for us. We've secured orders in the multi-res in Ontario. We have secured one of the largest in New York, and as Mike said, going into additional buildings. We have sent Insights into Boston, that's with multi-res and large insurance, et cetera.So I mean, really, I would say, one that's been probably the most hardest hit has been commercial real estate. They're trying to figure out some of the commercial tenants, whether they can afford to pay, especially if you've got models and things like that, there's been some deferral in times there. But generally, what we're finding is that, as Mike said, there's no one saying let's go away. They're saying, let's defer or not right now, but order flow and sales activity continues in all of the markets. And ESCOs is one, as we mentioned earlier, that's a huge market for us, a potential company-maker really. And it has not slowed down. The activity in sales calls continues.

[Unknown]

Maybe this next question is addressed to Mike. You mentioned that there are near-term and long-term opportunities that you're expecting will -- you're implying that they'll turn into purchase orders. When it comes to the near term, are we talking this quarter, next quarter? Can you just help us grapple with the shape of the curve in the next 3 quarters? I know it's a...

[Mike Cioce, Vice President of Sales & Marketing]

Well, I will do that -- yes, I'll do that as best as I can because when we're looking at this, each segment is a little bit different, right? For example, on the ESCO market, when we are notified as a win, it could be several months before we receive a contract and then the installation could come after that and then rev rec would even be occurring beyond that as well. So the ESCO market is probably one of the more difficult ones to predict. All of the indications that we're getting show that we will be receiving contracts in the coming months, in the coming 2 to 3 months from ESCOs. And the timing of those should be similar, but we have to wait to see exactly what the installation plan looks like for those ESCOs. So the ESCO side is...

[Unknown]

While you're on that, and I understand what you're saying. There's a contract and then there's a delivery schedule, and they are 2 different things. At what point will the company be in a position to actually announce that you've actually received the contract? Do you have to wait until you know the delivery schedule?

[Randall G. Buchamer, President, CEO & Director]

Well, this is one that we talk about probably every quarter, so I could probably just address it. It's -- as we said earlier, we have worked with 2 of our directors to develop a PR, a plan to show progress. It's so important to show that we're moving the business through and showing that we have a growth organization over the next couple of quarters with the lockdown and everything else. So we will announce, like we have sometimes, generic because we cannot announce a company name, but it is our intent that we have secured contracts. It's a separate topic from rev rec because rev rec is completely done for a quarter and recognized to the financial metrics that we have to meet, but the order flow and, where appropriate, we can relate that to show progress in the market. Two different things, but that would be my answer.

[Unknown]

Okay. I definitely think that would be helpful. Anyway, go on with the other sectors, Mike, you were talking about. So you've addressed the ESCOs. What about other sectors? Is there -- I'm just, again, wrestling with the shape of the sales curve in the other areas.

[Mike Cioce, Vice President of Sales & Marketing]

Certainly. We are working with a major public sector entity in the Northeast that is -- we're expecting to go to a contract with them in the very near future. And when I say that, that's in the next 30 to 60 days. The timing on that is still -- the timing on that install is going to be somewhat subject to availability for that particular location that we're going to be going into. On the private sector side, on multifamily and the commercial real estate, we're moving ahead, and that's going to be much more predictable. One of the things that we have always said that we need momentum in New York. When we look at the New Yorkers, they typically want to see who else has done it. Well, now we have a number of other customers [indiscernible]. So that's accelerating the opportunities with the organization for the most part. And we've got one of our [indiscernible] moving forward with looking at a number of additional sites and a number of additional systems. And we are going to be hopefully making decisions on that in the very near future. As far as the exact timing on that, the hope is that, that's going to -- that those decisions will be reached in the next month or 2. Now installation time, it all depends on [indiscernible] done in that building. So some of it just could be more near term and some installations could be slightly longer than expectation. That's very much by site. That's always [indiscernible]

[Unknown]

Great. Thanks for the clarification. Steve, if I could ask you to address the $1 million of cost-cutting. That clearly has not shown up in the quarter that's just reported, given the timing of the announcement. I'm just trying to get a sense of how much of that cost-cutting will show up in the third quarter and the fourth quarter. Do you expect most of that cost-cutting to be right up front or back ended or evenly spread throughout the next several months? Can you give us a sense of that, please?

[Steven Edward Vanry, CFO, COO & Corporate Secretary]

Yes. Of course, it should be spread fairly evenly throughout that 6-month period, starting April 1 right up to our fiscal year-end at September 30. A lot of these were recurring costs like payroll, for example. So you'll see it -- it will play itself out and amortize very evenly over those 6 months.

[Unknown]

So if I extend your response, you mentioned earlier that your burn rate without any sale is $400,000 per month. Would this $1 million, which will be gradually phasing in, get that burn rate down below $400,000? Am I thinking about that correctly?

[Steven Edward Vanry, CFO, COO & Corporate Secretary]

No, the burn rate that I referenced earlier is our current burn rate, so that's within this period of cost-cutting. And I think also for us and for everybody else, this is not a static number, these cuts we've made. We can extend them. We can reduce them. We can move them around. And we can do it very quickly.

[Unknown]

Okay. I'm not sure if -- my last question relates to the ESCOs. And I don't know if Steve or Mike are the right person to answer this. But in one sense, ESCOs are acting as distributors for you and the distributor typically wants to get data margin to distribute, which would argue that your gross profit margin or your EBIT margin would be lower selling through ESCOs than would be a direct sale, but then again, you might have 10x the volume that you're used to. But is there a meaningful difference in EBIT margin selling through the ESCO channel, in your view?

[Randall G. Buchamer, President, CEO & Director]

Well, let's make 2 comments. Firstly is that you have to take the corresponding cost of sales, and the level of support. So for -- effectively for the ESCOs, we have one person on the sales side where we have multiple reps for different verticals, et cetera. So the cost of running our business for the ESCOs is much lower.We're not involved in all the sales preparation. They do all of that. We're brought in, as Mike said, when they do what they call an investment-grade proposal. At that point, you're about 99% sure you've got a deal. And we get a call basically saying that we have put your product in part of our quote because we are part of an overall large quote that we make into an area or a customer. And we have very little cost other than really shipping our product and have commission. So our cost of business is much lower than that.And I think the other thing is that -- we spoke to a company that is 3 years into the ESCOs, and they've gone from $2 million to $20 million in 3 years. Not too dissimilar as far as attributes to Legend and in a similar aspect of the business, not a competitor. But their comments were once you're and proven, they just write into all your deals and you order late. So it's very streamlined, but we -- I don't want to take statement out of Mike's mouth, but I wouldn't be surprised if you look down the road, ESCOs could possibly be our #1 market.

[Unknown]

And I don't want to put more into your mouth, Randy, but it sounds like, on the one hand, you've explained well that you're not incurring certain sales and other costs. So even if you reduce the gross profit margin, your EBIT margin may, in fact, be even the same. At least it sounds like that. Am I off track there?

[Randall G. Buchamer, President, CEO & Director]

No, that's right. And all sales preparation, contracts, proposals, financial, all that is done by the ESCO. We support them at appropriate times. All the relationship, calling on districts, calling on customers, building that -- their relationship and bond, we don't have a cost to it. So it's a very simplistic, streamlined channel for us, very, very profitable.And my last point is -- and we're the only game in town. So if anybody wants to have our technology or equivalent, we're it.

[Operator]

Your next question comes from the line of [ Jeff Cowel ]. He is a private investor.

[Unknown Attendee]

Sorry, it's me again. One of the reasons I've got so many questions, besides from being inquisitive, may be a function of updating your investor-facing material. I noticed at least before the call that your deck on the website is quite dated. Is that part of the go-forward plan to get that refreshed and more current?

[Randall G. Buchamer, President, CEO & Director]

It's on my desk as we speak, and it will be finalized next week.

[Unknown Attendee]

Okay. Great. That's good to hear. New markets. You mentioned Boston, you put in some Insights. Obviously, you're working in New York. I've heard you mentioned Seattle. I don't know if that's sort of how active Seattle is as far as possible deployment. But outside of those 3, Randy, any other on this continent or region for that matter? I don't think I've heard you guys talk about overseas, and I don't really know what the dynamics outside North America are, but -- or are you guys have enough on your plate with those 3 markets and, of course, Ontario to keep you busy for a while?

[Randall G. Buchamer, President, CEO & Director]

Yes. It's a huge, huge market potential. And don't forget, the work that we did in New York led to the business in New Jersey, which leads to the business of Boston. And all these players are populated all throughout Canada and U.S. So as we continue to prove ourselves, we will see deployments go where our customers are. But rather than set up offices and go and try to earn their business, I like the Boston approach for 2 of the same customers when we like it. Let's do it in this city. Let's try it here. I'd rather be led to a market with a sale, and that's what we're doing.And anything outside of North America, I would leave you -- at this point, there's a lot of interest. I'm personally under an NDA. So I'm just going to stop the conversation there on that aspect.

[Mike Cioce, Vice President of Sales & Marketing]

Okay. One of the things I'd also like to add is that the ESCO side naturally will propel us into new markets. The ESCOs that we're working with do operate all across North America. And we are already in conversations with them to support other geographic areas as well. So the ESCO segment will naturally lead to other markets as well. That is a big [indiscernible]

[Unknown Attendee]

Okay. I appreciate that, Mike. So I appreciate that you've -- and you talked about this briefly in the news release, how your margins were a little bit less than what they've been historically. And it sounds like you kind of had a first customer kind of discount or something along those lines. But Randy, assuming a normalized full cycle margin profile, what is your kind of quarterly top line sales breakeven? And what is your present day capacity in theory on a per quarter basis top line?

[Randall G. Buchamer, President, CEO & Director]

Well, I mean, there's different ways to look at that. As we get less involved in installations, which had about between a 20% and 35% margin that really takes down our overall blended margins. We've done that purposely for competitive reasons. But on the product, we generally expect between 50% and 70% margins as a low and a high range.So what you start getting into -- and it's impossible to answer at this point in time. There's a new reason for expanding and asking partners to do some of the installations for us, and that's where we get some of the profit eaten up pretty quick because they've never done an installation before. So they are very cautious and give us a very high installed price. But as we normalize and as we founded on carriers and markets historically, we were in the 50% to 55%, 56% blended margin on a normalized basis. And you can do the math on that very simply. I would expect that to be the similar case as we go forward if you look out a couple of quarters and go forward.

[Unknown Attendee]

Okay. And so what would be your current capacity based on your present facilities, Randy? Like how much, theoretically, revenue could you guys generate in a quarter at full force?

[Randall G. Buchamer, President, CEO & Director]

So we talked, I think, numerous times in the past -- I apologize to those who were going back sort of history. The capacity we have, first of all, is that we don't need any specialized equipment. We don't have any capital investments to specialize buildings or whatever. We take a standard footprint size of a regional grocery store and we can set up camp on that. We take best-in-practice partners to developing individual components for us and we are an assembler. So we're not a manufacturer. So our cost to start up is virtually sign a lease, hire some people, way you go. And basically, from a working capital point of view, it's not an intense working capital impact whatsoever. What I've stated, the fact is our math, with what we're doing with the current systems, et cetera, we could do about $30 million in our current location. And then we would look at, for tax reasons, other strategic reasons to move something to the U.S., more in that sort of Chicago to New Jersey range, depending on what happens with this.

[Operator]

There are no further questions over the phone lines at this time. I turn the call back over to the presenters.

[Randall G. Buchamer, President, CEO & Director]

Okay. No one else in the queue? Good. Okay.Well, thanks, everyone, for participating. We obviously started out 2020 with high expectations for growth here. And in many ways, we continue to see fantastic opportunities for Legend. We believe that the business is growing and we're pleased with some of the progress. And some things with the lockdown have affected us and created some associated challenges, but they're affecting many industries and we just have to work proactively to manage our way through those unique times.We've got a team, as we mentioned before that's committed, very talented and getting stronger with each new hire. We have an outstanding energy management platform. We've got a good balance sheet. We've got markets with high energy costs and energy challenges. And they're all seeking innovative ways to reduce energy costs, improve the quality of their building's environment, their power profile and improve their financial results.We're very excited for the future. We think it looks very good for Legend Power and our stakeholders. Thank you for your time and we wish everyone a great, safe, legendary day.

[Operator]

This concludes today's conference call. You may now disconnect.