Vancouver, Canada, February 28, 2019 – Legend Power® Systems Inc. (TSXV: LPS), a global leader in onsite energy management technology, today reported its first quarter of fiscal 2019 financial results for the quarter ended December 31, 2018. A conference call to discuss the results is set for 4:30pm EST today (dial in details below). A complete set of Financial Statements and Management’s Discussion & Analysis has been filed at www.sedar.com. All dollar figures are quoted in Canadian dollars.
Q1 F2019 Highlights
- Revenue for the quarter was $403,400, down 69% versus $1.3 million in the year-ago quarter;
- Gross margin was 81% versus 37% in Q1 F2018;
- Cash position of $9.6 million, no debt, and $12.5 million working capital.
Financial summary for the quarter ended December 31, 2018.
| Three months ended December 31 | |||
| (Cdn$, unless noted otherwise) | 2018 | 2017 (reclassified)1 | Change |
| Revenue | 403,400 | 1,282,707 | (69)% |
| Cost of sales2 | 76,832 | 803,923 | (91)% |
| Gross margin3 | 326,568 | 478,784 | (32)% |
| Gross margin %3 | 81% | 37% | 44% |
| Operating expenses | (1,484,843) | (1,229,868) | 21% |
| Adjusted EBITDA4 | (1,048,352) | (635,537) | (65)% |
| Net loss | (1,091,332) | (747,328) | 46% |
1Previous year columns have been reclassified to conform with the presentation for the three months ended December 31, 2018.
2Components of Cost of Sales has been adjusted to better conform with typical practice; namely, sales commissions and selling fees are now accounted for separately under “Selling Costs”.
3 Gross margin is based on a blend of both equipment and installation revenue.
4 Adjusted EBITDA; for the periods reported, we are disclosing Adjusted EBITDA, which is a non-IFRS financial measure, as a supplementary indicator of operating performance. We define Adjusted EBITDA as net income or loss before interest, income taxes,amortization, non-cash stock-based compensation and foreign exchange gains and losses, as well as unusual non-operating items such as bad debt. Warranty expense is no longer included in the Adjusted EBITDA calculation, as such historical amounts have been updated.
Management Commentary
“As we detailed last month in our fiscal 2018 year end results, delays in the New York market and a slowdown in Ontario sales negatively affected our fourth quarter of fiscal 2018 and were anticipated to have a follow-on effect in Q1 of fiscal 2019,” said Randy Buchamer, CEO of Legend Power. “Since then, Legend’s primary focus has been addressing these sales challenges. We’ve significantly reshaped our sales team, including hiring the Company’s first ever Vice President Sales and Marketing, and allocated $1 million for marketing initiatives to target an 8-times increase in our sales funnel by the end of 2019. We want to assure investors that growth in our New York sales funnel continues and we haven’t lost any prospects,but due to size and complexity of buildings we are targeting in New York versus Ontario, deals are taking longer to close. We are well capitalized and anticipate further investment in fiscal 2019 to build out and grow U.S. markets, which was disclosed as a primary use of the proceeds generated from our April 2018 equity financing.”
Revenue
Revenue for the first quarter of 2019 was $403,400, a 69% decrease from $1,282,707 in the year-ago quarter. The year-over-year revenue decrease was due to sales challenges encountered in both New York and Ontario. All revenues during both periods were sourced in Canada.
Gross Margin
Gross margin in the first quarter of fiscal 2019 was 81%, up from 37% in the first quarter of fiscal 2018. The higher gross margin was primarily due to the results of a physical inventory count completed on December 31, 2018, which led to an increase in inventory valuation in the amount of $138,891, materially reducing cost of goods sold reported during Q1 2019. Net of the inventory valuation increase, gross margin would have been 46%. All gross margin was attributable to Legend Canada in both comparative periods.
Cash and Working Capital
As at December 31, 2018, the Company had cash and cash equivalents of $9,613,434 (September 30,2018 – $10,046,366) and working capital of $12,511,508 (September 30, 2018 – $13,618,319) and no debt. Based on working capital as at December 31, 2018, estimated cash requirements for the next twelve months and the Company’s ability to timely collect accounts receivable, management forecasts the Company will have approximately $5 million in cash at December 31, 2019.
Sales and Marketing
Legend’s customers typically buy one unit to prove out the results, and buy more after seeing those results. This has been proven by having roughly 75 customers that have collectively purchased almost 300 units. New York prospects appear to also want to validate a first unit prior to ordering multiple units; however, New York has added complexity, including more complex building infrastructure as well as a reluctance to rely on our proven Canadian energy savings results – thus forcing us to prove SmartGATE’s benefits from scratch.
We have recently invested in an outside partner to drive the outbound prospecting for our sales team to ensure that nothing gets in the way of starting to talk to net new customers on a regular basis – thereby growing our pipeline consistently.
We are bringing in new highly experienced sales professionals, in a way that we have not been able to do so before. Specifically, we have brought on 3 new sales executives that combined have over 60 years of selling experience and over 20 years selling energy control systems / savings initiatives in their respective markets. These energy sales professionals have done their own research and have validated Legend and our offering. Not only do they believe in the offering and direction of Legend but, more importantly, feel that the clients they have talked to over their careers will immediately understand SmartGATE’s value proposition and long-term energy and maintenance savings capabilities.
New York
In New York, we are in discussions with marquee customer names in Technology, Banking and significant commercial real estate companies. In addition, we are also in conversations with multiple New York State and municipal organizations. Many of these firms are contemplating placement of SmartGATE units in commercial properties for their initial proof points. Another noteworthy aspect of New York is that due to the increased complexity of buildings in the market, we are seeing an increase in projected deal size, which in some instances is significantly larger than our typical Ontario project. Of course, there is work, and risk, between here and there – but we are diligently enhancing our sales process to ensure results.
U.S. Expansion
The Company has hired full-time experienced business development focused professionals in both the Pacific Northwest and DC/Baltimore/Maryland region to initiate the process of introducing Legend to key players in the energy efficiency ecosystem and educating them about our energy management platform. The new regions were identified based on utility rates, incentive programs, state-wide energy efficiency resource standards, growth forecasts, and energy efficiency programs. Learning from our experience in New York City we strongly believe these are the steps required for a smooth and expedient transition to sales readiness.
Outlook
The Company’s sales cycle has typically been between 6 and 9 months, thus the Company’s Q1 F2019 below target revenue results are the by-product of the lack of sales activity identified in Q4 F2018. It’s also probable that due to the length of the sales cycle, the full financial impact of the recently implemented sales team changes may not be realized until the second half of fiscal 2019. Management is confident that the recent changes made to its sales operations, processes and people along with the recently initiated lead generation program will have a material positive impact on sales and be a catalyst for renewed momentum in Ontario and realization of the significant growth opportunity in the U.S.
Investor Conference Call
The Company will host a conference call to provide a business update and discuss its first quarter of fiscal year 2019 financial results. The call will be hosted by Randy Buchamer, President & Chief Executive Officer and Steve Vanry, Chief Financial Officer. Investors may access the conference call via the following numbers:
DATE: Thursday, February 28, 2019
TIME: 1:30PM PT (4:30pm ET)
DIAL-IN NUMBER: North America Toll Free Dial-in Number: (877) 201-0168
Local and International Dial-in Number: (647) 788-4901
CONFERENCE ID: 1984667
REPLAY: Available at: www.legend20.wpengine.com
About Legend Power® Systems Inc.
Legend Power® Systems Inc. (www.legend20.wpengine.com) is a global leader in voltage management technology. We help buildings use less energy by eliminating ‘overvoltage’; an inherent challenge associated with power grids around the world. Legend’s industry-proven SmartGATETM enables dynamic power-management of an entire building. The proprietary and patented system reduces total energy consumption and power costs, while also maximizing the life of electrical equipment. Legend’s unique solution is also a key contributor to both corporate sustainability efforts, and the meeting of utility energy efficiency targets.
For further information, please contact:
Randy Buchamer, CEO and President
+ 1 778 945 1501
rbuchamer@legendpower.com
Sean Peasgood, Investor Relations
+ 1 647 503 1054
sean@sophiccapital.com
Neither the TSX Venture Exchange nor the Investment Industry Regulatory Organization of Canada accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Statements
This Press Release may contain statements which constitute “forward-looking information”, including statements regarding the plans, intentions, beliefs and current expectations of the Company, its directors, or its officers with respect to the future business activities and operating performance of the Company. The words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” and similar expressions, as they relate to the Company, or its management, are intended to identify such forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future business activities or performance and involve risks and uncertainties, and that the Company’s future business activities may differ materially from those in the forward-looking statements as a result of various factors. Such risks, uncertainties and factors are described in the periodic filings with the Canadian securities regulatory authorities, including the Company’s quarterly and annual Management’s Discussion & Analysis, which may be viewed on SEDAR at www.sedar.com. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update these forward-looking statements other than as may be required by applicable law.