Legend Power® Reports Record Revenue in F2018 with 56% Year-Over-Year Revenue Growth

Vancouver, Canada, January 24, 2019 – Legend Power® Systems Inc. (TSXV: LPS) (“Legend Power” or the “Company”), a global leader in voltage management technology, today reported its fiscal 2018 financial results for the year ended September 30, 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.

F2018 Highlights

  • 56% year over year revenue growth
  • A record, 74 units sold during year
  • Blended gross profit margin of 45%
  • Completed a $10.5 million bought deal, equity offering
  • Received in excess of $2 million in proceeds from stock option and warrant exercises
  • Cash position of $10.1 million, no debt, and $13.6 million working capital

Financial summary for the quarters and years ended September 30, 2018 and 2017.

Three months ended September 30, Years ended September 30,
(Cdn$, unless noted otherwise) 2018 2017 (reclassified)1 Change 2018 2017 (reclassified)1 Change
Revenue 1,283,433 1,065,714 20% 6,595,063 4,228,756 56%
Cost of sales2 1,078,252 888,072 21% 3,604,254 2,332,768 54%
Gross margin3 205,181 177,642 15% 2,990,809 1,895,988 58%
Gross margin %3 16% 17% (1)% 45% 45% 0%
Operating expenses (1,441,263) (1,154,348) 25% (5,618,313) (3,758,599) 49%
Adjusted EBITDA4 (1,050,094) (809,354) (30)% (1,981,639) (1,340,327) (48)%
Net loss (1,181,896) (965,443) 22% (2,559,385) (1,846,687) 39%

1 Previous year columns have been reclassified to conform with the presentation adopted in the fourth quarter of fiscal 2018.
2 Components of Cost of Sales has been adjusted to better conform with typical practice; namely, sales commissions and 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

“2018 marked a significant year of growth for Legend Power. We achieved record annual revenue, closed a $10.5 million equity offering, expanded into new U.S. regions, added strong talent to our team and continued our tradition of innovation,” said Randy Buchamer, CEO of Legend Power. “We are well funded to execute our overall operating plan including deployment of an enhanced team and strategy in the U.S. Our absolute priority is to be a high performing sales organization and during 2019 to achieve multi- vertical sales activity in Ontario and begin to realize the huge opportunity in the U.S. market”.

Revenue

Revenue for the fourth quarter of 2018 was $1,283,433, a 20% increase from $1,065,714 in the fourth quarter of fiscal 2017, while revenue increased by 56% in fiscal 2018 to $6,595,063 from $4,228,756 in 2017. The revenue increase in 2018 is due primarily to strong sales growth in the Ontario education vertical, both from new customer orders and follow-on orders.

Gross Margin

Gross margin in the fourth quarter of fiscal 2018 was 16%, down from 17% in the fourth quarter of fiscal 2017. Gross margin for fiscal 2018 and 2017 were identical at 45%. The significantly lower gross margins experienced in the fourth quarter of both 2018 and 2017 were primarily the result of year-end adjustments to cost of goods sold relating to inventory valuation amounts (expected to be reversed in Q1) and a proportionately higher amount of low margin installation revenue recorded during those quarters.

New York City

The Company has seen meaningful growth in its New York sales funnel and is actively responding to an increasing number of customer requests for site assessments and project-implementation proposals. Existing, experienced members of Legend’s senior sales staff have relocated to New York City to leverage the groundwork established over the last 12-months by the Company’s business development team. The Company continues to build solid relationships with electrical firms, energy consultants, resellers, utility representatives, key influencers and prospective customers. The Company has learned these relationships are a critical foundation to success in new regions in the U.S.

Since early 2018, business development activities in New York that include education, marketing and advertising, have resulted in forming key strategic partnerships with two organizations with successful track records facilitating U.S. expansion: 1) Lido Energy Partners, LLC (“Lido”) an energy-sector focused business development consultancy, and 2) Skaled Consulting, LLC (“Skaled”), a sales consulting and strategy firm.

Lido helps rapidly growing companies in the energy sector with their business development efforts. It helps them identify and seize opportunities to facilitate top-line growth by developing solutions to address such issues as margin compression, regulatory uncertainty, rapidly evolving technology, geopolitical influence and steep competition.

Skaled is a leading U.S.-based, sales consulting firm that has helped companies including LinkedIn, Microsoft and ADP optimize their sales processes, people and technology to accelerate business growth. This is achieved by creating short-term and long-term strategies designed to make customer generation repeatable.

The Company now believes that all the necessary components are in place to execute on its aggressive sales plan.

U.S. Expansion

The Company has identified and is targeting expansion to additional regions in the U.S. including: the Pacific Northwest, DC/Baltimore/Maryland, New England, Southern California, Northern California, and the Midwest. The new regions were identified based on utility rates, incentive programs, state-wide energy efficiency resource standards, growth forecasts, and energy efficiency programs. The Company has initiated the hiring of business development / sales personnel for each of the new targeted regions as they are sequentially opened. Learning from our experience in New York City, Legend is seeding new regions with awareness, education and a full-time presence to ensure a smooth and expedient transition to sales readiness.

Canada Sales

The Ontario region continued to exhibit sales growth with significant wins in the education vertical during fiscal 2018. Much as was the case with education, an investment of time and effort is required in other verticals to earn the right to sell. The Company is focused on maturing several other key verticals in the region to the point that we may successfully sell to customers within them. Reaching this point is expected to drive growth in our sales funnel resulting in multi-vertical sales in fiscal 2019. During fiscal 2018 the Company received follow-on orders from seven existing customers for a total of 17 units. One of the follow-on orders for 10 units totalled $931,000, bringing the customer’s total purchase of SmartGATETM systems to 19 units. The Company also recorded sales to four first-time customers for a total of 12 units. Two existing customers also placed orders for the Company’s new remote metering / analytics feature.

Sales in fiscal 2018 featured purchases by colleges and universities including five SmartGATETM systems by an Ontario-based college, totalling $597,585. This is the Company’s seventh sale in the post secondary subset of its Ontario education market vertical, and its third sale in fiscal 2018. Year-to-date, Legend Power’s three contracts in this vertical have averaged 4.5 systems and $520,000. Compared to contracts typically seen in fiscal 2017 and the first half of fiscal 2018, these three contracts generally reflect a greater number of units sold, as well as higher margins.

Other fiscal 2018 sales highlights include; the purchase of nine SmartGATETM systems by channel sales partner Haven Consultants International bring their total purchases to fifteen units in the last three years; and the follow-on purchase of three SmartGATETM systems by a multi-family and commercial real estate investment company, totalling C$236,735 bringing their total to 6 units purchased from Legend,

Product Development

During 2018 the Company completed the installation of remote metering / analytics capability in 36 SmartGATETM installations (expanded from original 30), providing customers with enhanced, real-time data on power performance in their commercial properties via any device with a web browser. The system’s

simple, intuitive user-interface displays key customer metrics including consumption, savings, maintenance status, operational and other parameters directly to web-enabled devices via simple log-in. The remote metering / analytics system refreshes the database in real-time and updates the user interface every minute.

During fiscal 2018 the Company also completed the design of a new 4000 amp system, which significantly exceeds the capacity of the previously largest system rated at 2500 amps. The first 4000 amp system was installed as a specified component in the overall electrical infrastructure per the construction of a major Canadian retailer’s newest location. This represents the first time that one of Legend’s SmartGATETM systems was engineered into the construction of a multi-million-dollar energy unit. The enhanced capacity of the 4000 amp system now means the Company can provide solutions for many prospective customers with buildings exhibiting significantly higher power demand.

Marketing

During fall 2018 the Company completed product rebranding with the change from Harmonizer to SmartGATETM to more accurately portray and communicate the energy efficiency inherent in our product to key customer verticals. We also engaged a digital marketing firm with the objective of creating early stage, top-of-funnel lead generation for sales via online marketing. The Company is better understanding how our prospective customers find us online, determining the largest opportunities across paid and organic search to attract prospects and developing a strategy to attract qualified prospects and generate leads. We intensified our social media communication which led to significant increases in viewership, participation and followers, and initiated use of video to explain/familiarize prospects with our product and to share existing customer testimonials.

Working Capital

As at September 30, 2018 the Company had working capital totaling $13.6 million, up from $4.1 million at September 30, 2017. The increase in fiscal 2018 was due in large part to the $10.5 million bought deal equity offering closed in April 2018, the exercise of 4,464,382 warrants at a price of $0.40 each for total proceeds of approximately $1.8 million, and the exercise of 1,056,163 options at prices ranging from $0.20 to $0.30 each for total proceeds of $299,583. As of September 30, 2018, the Company had approximately $10.1 million of cash and cash equivalents.

Outlook

Beginning in Q2 of fiscal 2018, the Company began the process of aggressively pursuing growth in the New York region and taking the first steps in identifying and establishing an early presence in other regions in the U.S. To accomplish this, certain senior members of Legend’s management team were either relocated to the U.S. or were directed to completely focus on U.S. expansion.

Scarce resources were leveraged to take on the significant challenge of “scaling-up” for growth which had unforeseen impacts on our existing business. In particular, the Company’s Director of Sales relocated from

Toronto to New York City in August, to assume a dual role leading both the Ontario and New York sales teams. We believe this change of focus and other outside forces including uncertainty caused by the results of the Ontario Provincial election in June 2018 had a material impact on our Ontario sales in Q4 of fiscal 2018. In management’s estimation, the slow-down will likely spill-over into Q1 of fiscal 2019.

Sales for the New York region in fiscal 2018 did not close within expected time frames or in some cases were delayed by customers to encompass a larger scope. New York is a very large market with a complex ecosystem of key influencers in the commercial energy efficiency sector. Legend’s management initially underestimated the time it would take to earn the confidence of the local ecosystem and be in a position to execute its sales strategy. This observed time lag has also impacted the results of New York based resellers who signed on to market the Company’s technology early in 2018. These delays have negatively affected Q4 fiscal 2018 and are likely to also affect Q1 of fiscal 2019. It is management’s view that its fiscally conservative approach to allocation of resources for U.S. expansion may have inadvertently inhibited the timely realization of the sizeable opportunity in New York while also slowing the momentum established in Ontario-based sales.

The Company acted to address observed sales weakness starting early in Q1 of fiscal 2019 by engaging Skaled, and Lido (described above – see PR dated October 31, 2018). Additionally, management has undertaken a complete analysis of the Company’s sales teams’ composition, strategy, activities and results for the purpose of implementing regular performance measures and accountability standards designed to foster best practices and a high performing sales organization.

Management is confident that the additional focus and resources will have a material positive impact on sales in the short-term and be the foundation for pursuing 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 fiscal year 2018 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, January 24, 2019 1:30pm PT (4:30pm ET)
TIME: 1:30pm PT (4:30pm ET)
DIAL-IN NUMBER:
Toronto (647) 788-4901
Toll Free – North America (877) 201-0168

CONFERENCE ID: 8362174
REPLAY: Available at: www.legendpower.com

About Legend Power® Systems Inc.

Legend Power® Systems Inc. (www.legendpower.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:

Steve Vanry, CFO
+ 1 604 671 9522
svanry@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.