Legend Power Systems Inc

XTSX:LPS

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Randall Buchamer, executive]

Everybody, and welcome to Legend Power Systems Fiscal 2024 Q3 Investor Call. I'm Randy Buchamer, Legend's Chief Executive Officer. We're pleased to have you join us on the call today. We're going to discuss our corporate progress and financial results for the third quarter of fiscal 2024, which is the 3 months that ended June 30, 2024.

Please note that certain statements in this call may be forward-looking in nature. They 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 management discussion and analysis, which was filed on SEDAR yesterday under our company profile at sedarplus.ca.

I'm joined by Florence Tan, our Chief Financial Officer; Paul Moffat, our Chief Operating Officer; and Mike Cioce, our VP, Sales and Marketing. Florence will provide a financial highlight and overview of Q3, Paul will share details on the great progress. He and his team have made speeding up cash flow, reducing operating costs and cost of goods, increasing margins, again, now up to 50%, well done, and improving supply chain and production capabilities.

Mike is going to review another significant quarter of sales bookings success and continued positive sales progress. Q2 was a record quarter. We've received purchase orders exceeding $2.5 million. Q3 was yet again in new bookings and LOI quarter record of about $3 million. Two quarters in a row continued to increase bookings for multiple markets, but most importantly, orders in the City of New York, systems shipped to the GSA, Federal Government Department of Defense and additional ESCO orders. Each of these four entities, business potential can transform Legend. They're huge.

They've accepted us as a powerful and needed technology, and these first orders are just beginning of consistent large multiyear orders. You have constantly asked us for demonstrative proof that major players want and need Legend solutions. And the last two quarters proved that demand is there for Legend solutions.

There are many other prospects and a very healthy pipeline. We're Past the toughest hurdles, the checks at the Federal Government, Department of Defense, City of New York, et cetera. Our multiple years of investment in developing these accounts is now starting to pay off. It's also worth noting that if the purchase orders received during the last 2 quarters were able to be revenue recognized during each quarter. We would have had 2 profitable quarters in a row.

The last quarter had a bit over $1 million of revenue recognized and with about 50% margins, our quarter financials improved significantly. The business is starting to come together nicely. We have 16 systems to ship and revenue recognized in the coming 6 months. Our sales funnel is growing. We have visibility on several pending large orders and the city of New York's first batch of RFPs are now being analyzed and they're starting to be awarded to vendors that will be giving us the orders for SmartGATE systems.

We have very strong visibility on numerous large deals, Mike will talk about. The large deals have evolved dozens of systems, coordination of installation, pricing and timing, multiple layers of decision-makers and the process and order procedures have been extensive. The deals are there, although our timing on the completion of some of the deals has been off. We will press release order achievement on a timely basis. And again, Mike will talk more about the sales efforts.

And we're just delighted with Paul's leadership, since he's come on to help us -- just become a more successful organization and operations productions, and his team, we continue to deliver margin improvement from 46% in Q2 to 50% in Q3. Although margins will vary quarter-by-quarter depending on different write-downs and different adjustments. We expect strong margins going forward. Just outstanding team progress and much appreciated. And again, Paul will give better color on that.

We worked hard. Our last financing was August last year and with deposits, et cetera, we have had sufficient cash through fiscal 2024, and by securing additional deposits and with appropriate market conditions, hopefully, the [indiscernible] of warrants, will have cash well into calendar 2024. To date, we have received deposits on every order outside of government.

We continue to decrease the time to collect receivables. We focus on shipping our growing system backlog and collecting cash as quickly as possible. We're now less than $1 million to operate on a quarterly basis, so we're being very efficient with our cash. We have met with 2 government agencies, one will finance up to 80% of U.S. customer SmartGATE purchases, and the other contacted me directly about funding on an increased product development and our portfolio for patents. And that is different funding and things that the government has for you to ensure that you're a world-class organization.

And over the last number of years, we've invested over $5 million in Gen3, and a $5 million building out our sales operation and creating awareness to support for the active power management marketplace, which we created, and there is no equal. The $10 million invested is fully paid for without any debt, and we are now beginning to see strong payback on our investments, which will show in our results going forward.

Just to note, the $10 million in product marketing investments and over 6 years of sales and marketing relationship development, have created a substantial barrier to entry and will drive returns for many years. You have to go through the process and earn the right.

Q2 and Q3 bookings, margin improvement, sales pipeline growth demonstrate our business plan is working. The proof in testing stage is done. We have a proven energy management solution and the marketplace wants to work with us. We continue to receive outstanding customer feedback regarding the excellent performance of the Gen3 solution.

Large follow-on orders are in progress. I'll say it once more. Large follow-on orders are in progress. And we see multiyear, hundreds of millions of potential in our core major relationships developed to date, and Mike has visibility on additional pipeline diversion to extremely large sales.

We're forecasting that most customers will provide upfront deposits will help with cash flow. And to date, that has been the case. Over time, the combination of securing deposits, with the conversion of prepaid inventory and delivery system, we expect continued cash growth.

We have passed the critical stage of having to improve our solutions work. We have successfully completed technology evaluations in numerous markets and the toughest markets possible. That's the most important thing. We passed the test. And we're focusing on helping partners and prospects develop a large multiyear, multimillion-dollar deployment plans.

We've had two record sales booking quarters in a row. Mike tells us that's going to continue. Our order visibility is clearer and stronger than ever. We are on our way.

Florence, want to talk a bit about the financial highlights for the quarter, please.

[Florence Tan, executive]

Thank you, Randy. So during this quarter, the revenue recognized was $1.04 million compared to $470,000 in Q3 of fiscal '23. And our gross margin for the quarter was 50% compared to 22% in Q3 fiscal '23. We're seeing our cost management and factory utilization measures yield our targeted results and we continue to seek opportunities for further gross margin improvements. Paul will be giving a more detailed update on the efforts achieved during the quarter.

Deferred revenue as at June 30, 2024, is $524,000 compared to $210,000 at the end of last fiscal year. Our backlog is progressing and continues to grow and we will see the transition of these to revenue recognition as the orders are fulfilled. The company ended the quarter with $806,000 in cash, no debt and $1.5 million in working capital.

Along with commitments that we have received subsequent to June 30, and additional working capital to invest into the business, we continue to proactively focus on the items critical to attaining our growth projections. 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, to provide some operational highlights.

[Paul Moffat, executive]

Thanks, Florence, and welcome -- hello to everyone on the call. I'm very -- yes, I'm very pleased, as you've heard from others with our gross margin for the quarter hit 50%, up from 46% in the prior quarter.

Definitely, we're realizing lower material costs for many parts and this is going to get better with new orders, with our buying power, we're seeing improving support from our suppliers and more competitive costing as we move forward. So with the record sales that we've had over the past 2 quarters, we're able to level load our factory very well and fill it.

Our utilization is reaching planned levels, about 85%, which is typical and our fixed costs, of course, are being spread over the increasing number of shipments. And all of this is increasing to that gross margin improvement. And definitely, I see that kind of strength going forward as we bring in the new orders.

Our capacity and our capacity ability has increased twofold, largely from our learning curve, which is great, both production and engineering from an assembly and test point of view, of automated, have streamlined and have implemented a variety of continuous improvement activities.

We were once producing 4 systems per month. We can now double that to 8. And we can add another shift to get us up to 16. And the beauty of this is we can do all of it utilizing an existing test asset so that we can offset any further capital expenditure.

And as important as the actual shipment quantities, our planning and production process has matured, and that's been evidenced by our 100% on-time delivery score for July this year. So very happy with those results and how those have trickled through to our operational metrics.

So our now routine fulfillment cadence. It's definitely paving the way for growth organically and through outsourcing. Really, overall, this is easing how we can communicate and transition to our contract manufacturers.

Our operating costs, they remain at the lowest levels as before, down over 45% from a peak several years back and will continue to remain low for the foreseeable future. Of course, we'll add resource and asset as needed, but only for the growth of the business as we see that into the next calendar year.

With many of the sales opportunities in the decision stage and based on those forecasted deposits, definitely, as you've heard from both Randy and Florence that cash will remain positive throughout the remainder of 2024, and into 2025 and beyond. Completion shipment and installation of our backlog will bring a further $1.9 million of cash into the business, and that's including a very minimal offset based on the investment we've made in inventory and in the development of our product.

Shipment lead times are also getting better, more on the operational metric front. We are nearing 6 months or less, in some cases, as we did with the 1 ESCO beat that significantly with an expedited order. These are far better than expected. And as a result, we've been able to move our production schedules in by as much as 3 months and therefore, allowing us to invoice much sooner and strengthen our cash position going forward.

Regarding our strategic initiatives, again, all of them going well. Our insights to win to impact report lead time continues to improve. We're maintaining the sales momentum from insights to SmartGATE proposals. We continue to offer and sell maintenance plan and installation management services. The Gen3 4000 app development materials have arrived and testing for that product will begin in September.

So that's completely on schedule. And strategically, our material planning process has improved once again. We now have an automated procurement recommendation tool, which allows us to stay on top of the backlog requirements and make sure that we're receiving materials on time and shipping on time.

Suppliers continue to show strong partnership in the support of our growth. So I'm very pleased to see their response and their ability to participate and support us in the growth that we have going forward. So as I reported last quarter, we're very comfortable with our readiness for growth. And now that we've realized another quarter of improved sales and operational metrics, we're convinced of the strength of this position, and we look forward to the challenge ahead of us.

Thanks, everyone, and I'll pass it over to Mike.

[Mike Cioce, executive]

Thank you, Paul. Appreciate that, and thank you, everybody, for joining us today. We always appreciate your time and I'm excited to share with you our sales and bookings progress for Legend Power Systems.

First off, we are experiencing some varied results with some deals taking longer than expected. But we are also in the midst of a record-breaking year. We've achieved back-to-back record bookings quarters. In Q2, we set a new record for bookings as well as our single largest order booking to date. And we surpassed those marks again in Q3, breaking our previous record booking quarter again and setting an even larger single deal record in our company's history. Year-to-date, our bookings are the highest single year in Legend's history, and we still have the fourth quarter to go.

Highlights for the quarter include a major deals secured with the U.S. Department of Defense, along with other significant orders that continue to strengthen our market position. Overall, we have tremendous momentum as a company. We continue to progress on our major wins with the City of New York and the U.S. General Services Administration or GSA.

Each of these, combined with our win with the Department of Defense can individually, each be a company maker for Legend Power Systems. Again, as we've emphasized for years, our business is inherently complex, and that's something we need to continue to embrace. This isn't as simple as buying a phone at the mall and turning it on. Our strategy of embracing this complexity, addressing the entire ecosystem and shifting towards multiple system sales is proving successful.

We've secured several deals, each of which has the potential, as I said, to be a company maker. These deals are beginning to flow in, and we anticipate increased volume as our key customers gain more familiarity with the SmartGATE process and its results.

On the strategic front, we are actively working on our GSA schedule application. This is a key initiative that will benefit Legend on multiple fronts. Not only will it streamline the purchasing process for federal agencies, eliminating the need for one-off efforts, but will also energize our sales efforts with other public sector entities like the City of New York, the U.S. Department of Defense, the GSA itself, as well as several key markets in the public sector.

We're working to do this to solidify our GSA purchasing, which only streamline our future growth and addressable market of over $10 billion. Please keep in mind that many of these are significant deals that have already been won and will continue to contribute to bookings for years to come, as Randy had said, potentially totaling hundreds of millions of dollars or more. This proactive step of applying for the GSA schedule comes ahead of our completion of the Green Proving Grounds program and is expected to continue to drive results for us.

Completing this application has been a company-wide effort, and we're excited about the doors that will open. Once approved as many public entities leverage GSA schedules, we anticipate accelerating our engagement with key entities, including the City of New York, the General Services Administration, ESCOs and other critical state and municipal bodies.

Looking ahead to Q4, as mentioned, we are on track to extend our record-breaking year. We have a robust pipeline for the quarter with bookings projections in line with our expectations. We are actively tracking 17 specific deals totaling more than $7 million in new near-term bookings, with 4 of these deals worth more than $1 million each. We expect a meaningful number of these to convert to bookings in Q4, adding to what is already a record-breaking year.

As has been in the case in the past, we expect many of these to close this quarter. If not, we anticipate they will be closing and following quarters. At a high level, again, we're not losing deals, but we are encountering some deals pushing into future quarters.

Additionally, in response to the customer inquiries about maintenance savings, we are strengthening our value proposition by incorporating risk quantification and mitigation into our power impact report process. With this data, we collect, and we can now clearly identify the risks customers face and demonstrate how SmartGATE effectively mitigates these risks. This approach not only highlights the immediate value of risk reduction, but also enhances the overall financial performance of our system, often making it less dependent on traditional ROI calculations.

In summary, we're having a record year for bookings with back-to-back record quarters, which will be recognized and create cash in the door over the coming quarters. Our previous investments in new product, sales and marketing and production capabilities continue to strengthen our brand.

We are winning accounts that pave the way for tens of millions to hundreds of millions of dollars or more for years to come. We remain committed to meeting our sales targets and addressing the current challenges. And as always, thank you for your current support, and we are more optimistic than ever about the future of Legend Power Systems.

Randy, I'll turn it back to you.

[Randall Buchamer, executive]

Thank you, Florence. Thank you, Paul. I just want to let everyone know how much each of these individuals contribute to make my role easy. So thanks again for being such a great group to work with.

Alternative energy growth and increased problems with the grid ensure that Legend solutions have a huge marketplace. There's a continued massive shift of corporate effort to climate environmental initiatives becoming top corporate objectives. And the world is seriously committed to taking the steps to positively impact climate change.

As Mike said, in all of our markets, we see consistent and systemic change to make buildings as harmful to the environment, combined with improving efficiencies, reducing costs of running the buildings and making a better tenant experience.

We continue to earn the respect to our target markets, their ecosystems and make them comfortable that Legend Power is an innovative company to work with. We continue to build our brand by working with key ecosystem players to ensure they're aware of and support Legend Power. We have substantial long-term revenue relationships established and order flow beginning to grow.

Legend Power leadership team is very positive about Legend's future, and we're each committed to making Legend Power a leading active power management company.

At this point, we would be pleased to take your questions. I can start out with some questions that were submitted earlier.

[Randall Buchamer, executive]

The first question was, on the June call, Randy started -- stated that the company is self-funding. Understand he bases assumption on one, the receipt of cash and 25% deposits.

Yes, that's correct. And yes, we are on nongovernment accounts, getting 25% deposits.

Two, more cash when you ship the product?

Yes, we get, again, 25% deposit on nongovernment accounts, 25% when we ship, 25% when it's installed and 25% when it's up right. That was implemented about just under 2 years ago to improve cash flow.

Point three, your team's expectation of additional purchase orders of at least $2.5 million a quarter. And on that one, I'm sorry, Mike didn't deliver 2.5 quarter, he delivered 3. So we'll have to talk to Mike a little bit about that. So yes, we're hitting our targets in the last 2 quarters.

And three, your team's expectation of additional purchase orders -- sorry, of gross margins of approximately 45%. And as you've heard, that is what we believe is -- will be pretty well the normal.

It will swing quarter-to-quarter, but Paul's team did deliver 50%, so it's actually better.

How have things unfolded? Is Legend still on track?

Yes, we are. There's always the timing aspect, bringing some product in for different orders, which is so cash flow and working capital is always something we're looking at. But if we hit our targets and the timing of the targets of cash and deposits is on schedule, we're in good shape from a cash point of view.

We also have $3.5 million in warrants exercisable at $0.25. And I believe we're going to be bringing some of that in the next while with some of the news and success that we have.

In May, the unrisked order pipeline stood at $150 million, and the risk adjusted amount was $50 million. Where does the pipeline stand today? Please define how your risk and order opportunity.

I'll turn it over to Mike, if you want to just take that?

[Mike Cioce, executive]

Yes. Randy, can you clarify that question one more time. I want to make sure that I understand it.

[Randall Buchamer, executive]

Sure. Absolutely. In May, the unrisked order pipeline stood at $150 million, and the risk-adjusted amount was $50 million. Where does the pipeline stand today, both unrisk and risk and please define how you risk and order opportunity.

[Mike Cioce, executive]

Yes, absolutely. So when we look at our total pipeline, that's what we're looking at from an unrisk standpoint. So we're looking at it from the customers that we're currently engaged with, and that's still currently north of $150 million.

When we look at our risk assessment pipeline, what we're looking at it from the standpoint of timing, because we do look at it from -- looking out 3 fiscal years. So when we look at the 3 fiscal years, we are still north of $75 million in the pipeline that we're currently working. So that's -- our pipeline remains very strong.

And again, when we look at our strategy of going after -- going after the companies that we have to do business with. We're really focusing on the companies and the organizations that can buy hundreds and thousands or thousands of SmartGATEs rather than the ones and twos each. And that's really helping to propel our pipeline.

So again, pipeline looks at it from the standpoint of what's going to come in today and then what also are follow-on orders. So we're looking at that, yes, we're still -- our pipeline is still very strong, north of $150 million long term and north to $75 million over the 3-year period.

[Randall Buchamer, executive]

And the other question I have that was submitted was just about DCAS visibility you have on the other 24 RFPs issued by DCAS when might be converted orders?

And just to start, I should explain for those that aren't familiar with the progress with DCAS and the process. So we've become a core strategy with our SmartGATE in the electrical rooms for DCAS for the schools, and they are building new schools, and they are renovating existing schools.

So what happens, a tender goes out, they may be for $5 million or could be for $10 million to do an electrical room. And those will go to about 5 or 6 contractors that are in that business. And they'll be putting switchgear and new cabling, all kinds of things. But in that, it will also state that a SmartGATE is required.

So first point is on the RFPs. We're one of the components of the RFP, an upgrade of the electrical room. And second is, we will then get an order from the individual contractor and not direct with the City of New York. Good news is we get deposits with those. And the question is, are those proceeding?

Yes, the 24 RFPs are in, they're evaluating those and awarding them. We announced our first order or award that was done with an individual contractor, which they have put a deposit on a SmartGATE system. And we will get those on a continuous basis. So we're pleased with that's going.

And the other side is, some of that $4.5 billion electrification project at the City of New York has, we should remember that some of it will be new schools. So new schools could be 1, 2, 3 years out as far as planning and building and securing properties, et cetera. So we're part of that. The good news is that there's a lot of business there. We're speced in, and we're excited about it. And at this point in time, the relationship is strong and moving along nicely.

And the last point I would make is, we are working and Mike talked about the GSA. There is a process we're going through where we can make it easy for federal agencies, municipalities, et cetera, to order SmartGATE systems by applying through and being part of what they call a GSA schedule. We are submitting that. We expect to get that approved and that will also speed up the process, not only with City of New York, but all the federal agencies and municipalities in the U.S. So that is something that we'll keep you abreast of.

Mike, anything I missed there that you want to add?

[Mike Cioce, executive]

No, you hit all the pertinent points. And again, when we look at the City of New York, there's pros and cons to our approach from the standpoint that -- we are -- as Randy said, we are a component in large dealers. So we've decided to work directly with the electrical contractors as part of that. And electrical contractors, of course, they also are trying to enter their cash flow. So a lot of times, what we're doing is -- what we spend our time working on is, once a contract has been awarded to be working with the contractors to get them to place the order, because obviously, there's some timing from when they place the order to when they're actually going to get paid for it.

So we're working diligently with them to get as much clarity and as much visibility to the timing on those orders coming in. So they understand, again, it's not like a cell phone where you just go to them all, pick it up and turn it on. There's an order process that needs to be followed and that goes through to the installation process as well.

[Randall Buchamer, executive]

And just to summarize, to be very clear, we are specced in on that school electrification program in the City of New York, and we expect continued business, and we will have some news coming out on additional agencies except that they'll take advantage of the schedule with the GSA, et cetera. So more news on that as we proceed along.

At this point, additional questions that we can answer, we'd be pleased to do so.

[Mike Cioce, executive]

And again, there is the question-answer tab the letter below the speaker screens, if you'd like to go ahead and click on those to submit your questions. And then also, the Legend team, we can click on that to see what questions are currently pending.

[Randall Buchamer, executive]

Yes. So one of the questions, again, is, did you say you have received an order from the Department of Defense?

Yes, we've press released an order, Department of defense, the initial order, which is an LOI that we're going through the process of finishing up the paperwork to be able to ship that equipment, et cetera. It's about all I can say at this point in time, but there will be more news coming out than that.

Also that I believe last quarter, you spoke with 23 units in progress for shipping this quarter 16. Am I correct that this represents a decrease?

No, the numbers are always moving as far as systems going in out what we refer to as backlog. So backlog actually has -- we had a bunch of units went out that created the rev rec. So how our systems will work is we get the backlog in, count it as a backlog, gets built, shipped and then we collect different stages of cash. So this is just growing, not decreasing.

And Florence, do you want to add a point there?

[Florence Tan, executive]

No, you covered it. We shipped the 7 units since the difference in the number of shifts.

[Randall Buchamer, executive]

Right. Next question is, please precisely define the difference between orders and bookings.

Hopefully, it did that, if not, a booking is an order, a commitment. So they're used in different ways, but they made the same thing. But they are, from a user's point of view and/or an investor's point of view, bookings and orders are identical.

We have another one. Congrats everyone and my question is back on October 3, '23, it was stated in the press release at the end of fiscal year ended 2023 Legend Power System has $75 million of pending proposals, USD 125 million of near-term opportunities. Company estimates the current 200 potential customers that are active in the sales funnel could be worth over USD 2 billion to Legend. Do you feel this is generally still in place?

I'll start with that, Mike, and then you can add. Yes, we do. We see it growing and exponentially with some of the large wins that we've had and securing with the government and the process that we're going through to make it easier for the federal government and municipalities throughout the U.S. to order. Absolutely, we do see that growing. Mike?

[Mike Cioce, executive]

Yes. Just to add on to that. Again, the total addressable market is well over $2 billion Again, when we look at the U.S. federal government alone, we're anticipating that being north of a $10 billion opportunity. So again, when we look at the opportunities in front of us, the strategic approach that we've taken, the customers we're pursuing are do represent a significant amount of business.

Again, we've said this before, and I'll reiterate it. We're not trying to build a company that's going to do $10 million, $20 million, $30 million in sales. And we're looking at this from doing hundreds of millions of dollars in sales to potentially billions. Again, a massive market opportunity over the next couple of decades that we want to build a company to pursue that.

[Randall Buchamer, executive]

Next question was, wondering what the percentage proportion of fixed and the variable costs are in the cost of goods sold?

That would be Paul's area, pass it over to Paul.

Again, I'm wondering what the percentage proportion of fixed and variable costs are to COGS?

[Paul Moffat, executive]

Yes, fixed and variable cost is about 10% or 15% of the total COGS. So that would be all of our labor and then all of our fixed overhead of the operations.

[Randall Buchamer, executive]

Yes. And just to make a point, as volume increases, that gets exponentially a lower percentage, as we can spread and get additional systems built with the labor force that we have. So economies of scope and economies of scale is something we look forward to.

Anything you want to add there, Florence?

[Florence Tan, executive]

I'll just also add, it depends on the utilization of the production facility in the quarter because it does get attributed to inventory and therefore, there may be a time difference between what you would expect and therefore, posted gross margins each quarter.

[Randall Buchamer, executive]

Right. Okay. And the other question was how long does it take for LOI to go through to a purchase order?

We've had limited experience with LOIs. Normally, it is part of a process. In this case, federal government, where they give you a commitment and then the proper paperwork and budgeting and that goes through. We'll answer that question next quarter as we get better definition on that.

Next question is Oak Ridge Laboratories is working on testing your SmartGATE unit and writing report. When might that report be released? And I understand Legend Power will be able to use this report and market to their customers.

I'll just take the second part, Mike. Yes, we will be able to use report. We will be able to take it with Oak Ridge Labs actual logo and share with -- on a public basis without any restrictions. And the report will be written once the 2 units have performed the different tests. They're waiting for the second GSA unit to go in and Oak Ridge will start with that.

I would suggest, Mike, we're probably looking at towards the end of the year. Is that a reasonable time frame?

[Mike Cioce, executive]

Yes. I believe when we're looking at this, it's not a straightforward answer because we're going to have preliminary information that can be shared and then we're going to have the final report that's published. And the difference between the preliminary information in the final published report could be a matter of months. But again, I believe that we should be expecting to see that final published report in -- definitely in calendar year '25, what part of that -- there's some variability to that based on their ability to finalize the reporting.

[Randall Buchamer, executive]

Right. The other question, Mike, for you is how many schools have been selected for electrical upgrade by the city of New York?

[Mike Cioce, executive]

Yes. So that's a bit of a moving target. Right now, I believe that they've identified about several hundred schools that are going to be electrified as well as a triple-digit number of new schools. So again, it's a bit of a moving target because they're always adding more to that.

So yes, we're definitely managing that to be the expectation of hundreds and hundreds of markets.

[Randall Buchamer, executive]

Right. What percentage of current bookings are government has not been paid in installments and when do they pay?

So to date, the -- most of our business is nongovernment. We're just starting to get government orders recently. And again, when do they pay? They pay in progress installments? So that will depend on the agency, but they have a schedule where you pay on certain milestones. So it's not necessarily the same as what we have with nongovernment.

But as we build chip, et cetera, there will be different milestones and agreements. Again, they're not consistent. So it will depend on which agency, et cetera, but there is a milestone payment term. It's not just wait until we get it, and we give you something. It is paid on the schedule.

And another question here, Mike, for you, for Mike's comment, can you elaborate on how the U.S. government is a $10 billion opportunity?

[Mike Cioce, executive]

Yes. So if we look at the amount of square foot which that they operate, which is north of about 4 billion square feet of facilities. And then the average market service is about 250,000 square feet. That will give us the approximate number of SmartGATEs and then the opportunity flows in from there for with our average sales order.

[Randall Buchamer, executive]

Yes. Okay. Florence, did you want to add anything?

[Florence Tan, executive]

No, I think all the answers have been given for the questions here.

[Randall Buchamer, executive]

I think that's the list of questions. I'm going to pause just for a moment to see if anybody else wants to ask an additional question.

Okay. It looks like the questions have been asked. It's an exciting time for us at Legend. We're excited about where the company is going. It's been a long journey. And at times, it's hard to keep the momentum and the energy in the company when it's not getting the success that it hopes. And I just remind everybody that this is a category that we've created. This wasn't it going in and a replacement strategy for our core existing product. We created the marketplace.

And I think that's one of the biggest things is that we are now starting to see the brand that we built, is starting to be recognized and paying off. And on that note, we have a committed and talented team and outstanding active power management platform without any equal. We have and are prepared to address the challenges that we have faced when we were creating and developing a brand new market. It's a tough road. But the nice thing is that it creates a huge barrier to entry for people to try to replicate what we're doing.

We are focusing on achieving our sales objectives. We're closely managing our cash by reducing our operating costs and securing sales deposits. We have 2 quarters in a row of success, and we will continue to build and grow the business, and we expect that some of the trends you're seeing now to continue for the foreseeable future.

And we look forward to realizing significant sales progress and returns on our $10 million investment in the several years of time in developing Gen3, enhancing U.S. sales capabilities and most importantly, making his team developing their relationships with key decision makers that are now championing Legend SmartGATE solutions in their agencies and companies.

We believe the future looks incredibly good for Legend Power and our stakeholders. Thank you and to everyone on today's call. Thank you, and have a great Legendary day.