Last week, Legend Power Systems (LPS:TSXV), a global leader in onsite energy management technology for buildings, reported an improving outlook as economies emerge from the coronavirus pandemic. On the call, which we recommend you listen to, management outlined several nuggets that make the 60 minute call well worth your time. For those of you that are more inclined to read the highlights we have put some of the key points below that illustrate the business is at a turning point.
The replay for Legend’s second quarter of fiscal 2020 conference call, recorded on May 28, 2020 can be found HERE.
The Key Highlights of the Q2/2020 Call
Recent business activity by region:
New York City:
- completed the installation of a multi-family building for one of the largest privately-held commercial real-estate companies, resulting in conversations for more systems in more facilities;
- 2 other installations scheduled this quarter;
Boston:
- SmartGATE Insights installations at a number of locations, including with a major insurance financial services company as well as with a US multi-family REIT;
Seattle:
- SmartGATE deployment at a major tech facility;
Public sector:
- late stage conversations in the U.S. and expect to place a number of systems in the coming months;
New Jersey:
- Installs pending;
Ontario:
- Number of installations in Ottawa schools being completed;
- Secured orders in multi-residential market;
- Not seeing deals go away, but some timelines have been extended due to the pandemic;
- A lot of interest outside of North America, but management couldn’t elaborate because of a non-disclosure agreement;
Outlook commentary:
- Current customer conversations represent over $100 million of potential lifetime customer spend;
- ESCOs: “Energy Service Companies”, companies that specialize in bundling energy conservation measures “ECMs” for government organizations and schools are a $15 billion annual industry;
- Expect to place a number of systems in the coming months with some of North America’s largest ESCOs, regardless of pandemic, who will act as a Legend reseller;
- A lot of Legend’s late-stage deals are in the funding process, one of the last for ESCOs, and are moving forward despite the pandemic;
- Should see contracts within the next 2-3 months;
- ESCOs is a market that is “a potential company maker” for Legend stated CEO Randy Buchamer;
- Non-competitive company selling to ESCOs saw revenues go from $2 million to $20 million;
- Working with a major North East “public sector entity” and expect to go to contract with them in the next 30 to 60 days;
- Current capacity at facility in Vancouver could generate $30 million of revenue – Legend really doing only assembly, not a manufacturing company so easy to ramp a new facility in new strategic locations with no specialized equipment;
Balance Sheet:
- As of May 28, 2020, cash and cash equivalents was $3.3 million (up $700,000 from March 31), working capital was about $4.7 million, $1 million of inventory (will turn into about $2 million in cash, based on historical margins);
- Assuming inventory sold then cash increases to about $6 million;
- Assuming no sales, the operating burn rate is about $400,000 of cash per month (about $100,000 is dedicated to next-generation technologies);
- Although the pandemic has delayed some projects due to a few temporary building closures, receivables collections cycle was running within the anticipated timeline;
- Based on current customer communications and about 50% reduction in receivables since March 31, Legend does not anticipate an allowance for doubtful accounts;
- No plans to raise capital during fiscal or calendar 2020;
Management moved quickly to secure the company’s financial position:
- On March 20, 2020 management proactively reduced costs and estimates that cost expenditures will fall by about $1 million between April 1, 2020 and September 30, 2020 ($1 million should spread evenly over this period);
- The Company recently received a 2-year US$145,000 program loan US Paycheck Protection Program that has 1% interest – under the program, Legend can apply for loan forgiveness;
- Received the first tranche of Canada Emergency Wage Subsidy worth C$65,000 for 4-weeks of payroll cost – the program has been extended to 5.5 months and Legend could be eligible for more 4-week payroll tranches;
- Engineering of new feature sets continues unabated;
Sales structure:
- 9 people in sales & marketing, some sell direct, and others target channel sales. Also separate team targeting ESCOs;
Number of conversations with organizations involved in electrical installation and contracting; - Also offering SmartGATE Insights as a services offering, for prospects that may not want to add to capital budget;
- ESCOs are lower margin sales but also lower cost (mostly shipping) since ESCOs do all the preparation, sales calls, relationship building, and proposals, so little change to EBIT margin.