Legend Power Systems Inc

XTSX:LPS

Earnings Call Transcript 2020-Q3

[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 Legend Power Systems Q3 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, and welcome, everybody, to the Legend Power Systems Fiscal 2020 Q3 Investor Call. I'm Steve Vanry, Legend's Chief Financial Officer. We're pleased to have you join us on the call today to discuss our corporate progress and financial results for the third quarter of 2020 ending June 30.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.

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

Thanks, Steve. Welcome, everyone, to the quarterly call. Pleased to have you on the call and discuss the progress we've made and give you a good idea of what's happening with our market and business.Joined by Steve, as you've already heard; Mark Petersen, VP of Engineering; and Mike Cioce, our VP, Sales & Marketing. Steve will discuss our financials and enlighten you on the smart steps we took to reduce the financial impact of the pandemic on Legend. And Mark will update us on the strong progress made by the engineering team. Mike will share his excitement about our transition from a product-based company, which we spoke about last quarter, to our enhanced SmartGATE energy management platform and how the enhancements are transformational for Legend.During the last call, we discussed our focus on our continuing journey to enhance our solution offering, improve our sales process and sales talent and begin to see demonstrable sales and order activity validating our new platform and positioning. However, the pandemic started, and we had to accept tough times and have to make some tough decisions. And we made progress on that regard.We proactively reduced our cost to run our business but without reducing our effectiveness to deliver on strategy and expectations. We redesigned our infrastructure to support our strategy. And although our revenue recognition numbers reflect our inability to install solutions in buildings because buildings were shut down due to COVID, we made significant progress in our product and sales initiatives. Investments made over the last couple of years, which we've talked about in the last few quarters, to improve our solutions or develop new sales territories and regions is clearly starting to pay off. And Mike will highlight strong recent sales progress.Clearly, we have the right people meeting with the right audiences and developing meaningful business relationships to ensure our growth. We have never seen more sales opportunities. We've never been more excited about our opportunities with higher potential in multiple regions and verticals than in any time in Legend's history.I now will turn the call back over to Steve, our CFO, to provide a financial review, followed by Mark and then by Mike. Thank you.

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

Thanks, Randy. During our last investor call, I focused on providing details of the company's response to the rapidly shifting economic landscape. And our difficult but necessary decisions to ensure Legend's potential for growth remains intact. So we've been very transparent about our strategy for rightsizing, how we manage working capital during the pandemic and the positive impact it's having on our ability to restart Legend's growth trajectory. But I wanted to point out that the streamlining of the organization is also a byproduct of our transformation or shift as we call it. The transformation affects all areas of the company and is based on greater utilization of information systems, outsource expertise and leveraging preexisting networks and relationships, which, for lack of a better description, is kind of like unlocking efficiencies by moving away from the old-school bricks-and-mortar model.Examples of Legend's shift are most pronounced with our sales team, which now focuses on having a smaller number of high-achieving solutions sellers into fewer geographic regions and providing them with strong support. This new sales team will enhance Legend's U.S. growth by leveraging partnerships with nationally diversified firms that have preexisting infrastructure and relationships, which, for example, include energy service companies, contracting firms and others, some of which you'll hear about later from Mike Cioce.As for signs of growth, beginning in late May and through June, our customers and prospects reengaged for existing sales cycles, initiated new sales cycles and rescheduled previously delayed installations for completion. July and August activity has included a significant uptick in commitments from building owners, some from multibuilding assessments with our SmartGATE Insights service and others for full SmartGATE platforms. This resurgence in activity has been broad-based and includes engagements in several verticals. Based on the activity in our sales funnel and with a stabilized North American economy, we anticipate a return to growth in the company.It's been just over 24 months since the company completed its $10 million public offering. And our investments for growth have moved Legend from a product seller to an expanded solutions provider. We have a strongly aligned team of seasoned professionals using modern tools for better execution and are focused on leveraging relationships in regions where acceptance and awareness of SmartGATE is strongest amongst building owners.Thanks, everybody. And I'll pass it over to Mark Petersen now, Legend's Vice President of Engineering.

[Mark Petersen, Vice President of Engineering]

Thank, Steve. Steve talked a little bit about the -- what our investment has yielded in technology and our systems. And I just want to expand on that a little bit. The Legend of the past, we had a deep experience with providing energy savings, a great product. And inherently though, it was a product sale that tended to be focused at a technical audience such as an energy manager. And really, we needed to speak the language of energy savings. Success of our projects is heavily tied to return on investments and timing against other competing projects. And it was easy for Legend to be seen by our customers as a nice-to-have.When we contrast that to the Legend of today, we respect the past and we've built upon that really to get to that next level of success. And the product enhancements that have been enabled by the investments in the public offering, for example, in Legend, we're no longer just selling a one-dimensional product. But we have a solution sale to key business issues for these large buildings and building owners.With that, we need to speak the language of business, dollars and cents. And we've seen that, that really resonates with our target audiences in the commercial real estate and other market verticals. And Legend is really transforming ourselves to be a energy management platform with energy savings but also being able to tackle resiliency and ESG initiatives for our target markets. With that, we speak business language to businesspeople, and that's really resonating with our customers. With that solution sale, Legend is transforming from this nice-to-have to a real need-to-have.If we look at the -- what has the investment in the technology and investment in Legend yielded, first and foremost, we have an absolutely world-class team of experienced experts with track records of success in their roles. We have absolutely no egos on the team, a common goal of bringing game-changing technology to the market. I'm incredibly excited to work with them day-to-day and just so excited about our prospects and the work that we're bringing to market. The platform that we have now for the electrical room is really able to manage all of the electrical issues and all of the opportunities within that for an entire building. The new technology and topology we have builds upon that great history of the past of energy savings that allows us to take it to the next level in terms of control and regulation and completely manage power from the grid in real time.With numerous pieces of key infrastructure now in place on the control side, on the communication side for being able to provide connectivity to systems and bring that data out of the electrical room, which we know is the heart of a building, into the C-suite to see exactly what's happening with it, and with those pieces we have, we have the ability to do software enhancements to bring future modules to the system down the road, recurring revenue models. There's all sorts of things that those building blocks of technology that we now have in place unique to Legend Power.When we look at buildings, buildings are for people and conducting business. And in some segments of the market, buildings really are the business. And Steve mentioned our Insights service. And really, that's something that is incredibly exciting for us. Insights is not a meter or a box. But it's really all about Legend analyzing and taking that data from the electrical room and applying our years of experience to that to provide clear, meaningful business decisions to an owner-operator of a facility and being able to present via SmartGATE, a system which would allow them to manage those automatically to optimize their power and provide the best business results for their business.It's really about a data-driven approach. And we've really seen, as we're deploying Insights and shifting to this approach, there's tremendous amount of excitement around that. And it really is an excellent opportunity to be able to go into a customer with data from their own building mapped against Legend's experience to show them what a SmartGATE solution could look like.That connectivity is really key. There's a lot of new building blocks of technology that Legend put in place from databases, cloud service, all that sort of thing, to be able to do that. And we're sitting in this key location in the heart of the electrical building -- in the electric room, the heart of the building, being able to monitor, improve this critical resource. And when we look at what that means for Legend, for our partners, there's all sorts of opportunities as we go there with this platform for the future to be available for us to use that to direct future research and development, to bring future enhancements to existing systems and to further provide energy saving and other opportunities to our customers and open up all sorts of recurring revenue models as well.So with that, I'll pass it to Mike Cioce, our VP, Sales & Marketing.

[Mike Cioce, Vice President of Sales & Marketing]

Thanks, Mark. Thank you very much, Mark. I appreciate it. No 2 ways about it. It's been a challenging quarter for many businesses, and Legend Power has been impacted as well. Not being able to get into buildings has slowed some of our sales cycles but indeed has not stopped them. We have been working away, staying in touch with our customers, doing review and design work with them and keeping our deals moving forward. Just last week, we saw significantly increased activity and momentum in many of our deals, much more so than in recent months. When building owners and operators install high-tech systems to ensure the safety and the satisfaction of the people that depend on the building, they know these systems rely on power to operate at an optimal level. The air filtration systems, occupancy sensors, life and safety systems, elevators, HVAC and more make the building safe and give comfort to the people that are depending on the building. However, people might not realize that the incoming power supply might be volatile and limit these systems and inhibit their ability to protect and serve the buildings. This interacts directly with the financial performance as well, impacting revenue, expenses and asset valuation.More and more building owners are realizing that suboptimal power creates suboptimal results at many levels and that the best path to optimal performance starts with optimal power. You've heard a lot about the many changes in our business over the past year. We've moved away from messaging and focusing on an energy savings product to a high-value solution that enables optimal business performance by allowing buildings to use energy more effectively. We have changed the makeup of our sales team to more experienced solution sellers and changed our sales process to better align with the way our customers do business and much more.These investments in the right solutions, people, process and messaging are starting to pay off. While the results we announced today are for our fiscal Q3, we are seeing significant return to our Q4 deals. We are deploying Insights in a significant way with 4 major players who represent hundreds of buildings. We have higher education institutions that are moving forward with SmartGATE solutions. We have some of the world's largest commercial real estate companies buying more of our solution. We are in the final stages of a multisite deal with an ESCO in the U.S. market. Our ESCO partners, or energy service companies, they bundle energy conservation measures and sell them to -- and our ESCO partners have won deals with our solutions included, being only a matter of time before these orders materialize into revenue. In addition, one of our electrical contractor partners, who is one of the largest facility operators in North America, just last week reinforced to their sales team that Legend Power Systems is a preferred partner. After looking deeply into our solution, they are convinced that we offer what the market needs to manage a diverse and ever-changing electrical supply to sophisticated and sensitive building systems. Again, it's about optimal performance from optimal power. With influential organizations like our partners and ESCO partners, we multiply our ability to tell the Legend story well beyond our internal sales team. These ESCO partners we are working with have hundreds of sellers across North America, significantly extending our reach based on our existing investment into this $15 billion a year industry. So while COVID has impacted our performance, our activity has not slowed nor has our optimism about our future. Based on our existing investments, we have landed currently on a path of high results, which will materialize in the coming quarters. Today, it is more important than ever for building owners and operators to find a way to get optimal performance out of their buildings. And that optimal performance starts with optimal power from Legend Power Systems, of course. Now Randy, I'll turn it over to you.

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

Thanks, Mike, a lot of good stuff there. Just to summarize, I mean, our vertical markets are looking for innovative and entrepreneurial energy and business improvement solutions. We don't see a slowdown in that. In fact, we see an uptick. We continue to see both new and follow-on orders from all regions and previously unaddressed regions.As we've talked about today, for the last 4 or 5 quarters, we've continued to improve our sales and engineering teams. We're now starting to see return on our investments. And continually, the engineering team is enhancing our current products and energy management platform, which shortens our sales cycle, strengthens our value proposition and opens up new market opportunities. We are building strong relationships with industry players, as Mike touched on, with some of the ESCOs and electrical contractors, et cetera. And that will fuel strong sales growth. Our team takes responsibility when results are below expectations. Most importantly, we take the necessary steps to analyze our challenges, ensure we have a sound correction plan with the appropriate resources to drive improvement. The team is committed. And we will make Legend Power a recognized energy management leader. On that note, if there are questions, we would be happy to take them.

[Operator]

[Operator Instructions] There are no questions over the phone lines at this time. I turn the call back over to the presenters.

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

Thank you. Well, 2020 started out for us as a growth year in many ways, and we continue to see a fantastic opportunity for Legend Power to be a leading energy management solutions company. The lockdown and the associated challenges are affecting many industries, and we will continue to proactively manage our way through these unique times. We have a committed and talented team. We're getting stronger with each new hire. We have an outstanding energy management platform. And we have markets with high energy costs, energy challenges and seeking innovative ways to reduce their energy costs, improve the quality of their building environment and power profile. And this all leads to improving their financial results. We believe the future looks very strong for Legend and our stakeholders. And we're very excited about what we've got and where we're going. Thank you, and everyone have a great, legendary day.

[Operator]

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