In, we've got a number of people that are still coming in. We're gonna start in just a moment, so we'll let you know when we're ready to start. All right, Randy, we have a large number of attendees. I think we're ready to go. I'll go ahead and resume recording and turn it over to you.
Good morning and welcome to Legend Power Systems' fiscal 2025 Q2 investor call. I'm Randy Buchamer, Legend Power's Chief Executive Officer. We're pleased to have you join us on the call today and discuss our corporate progress, our financial results for the second quarter of fiscal 2025, which were the three months that ended March 31st, 2025. Please note 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 actually change results and 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, who is our CFO, Paul Moffat, COO, and Mike Cioce, who is our VP Sales and Marketing.
Florence, as usual, will provide a great financial update and highlight an overview of the quarter. Paul will update you on the great progress made while managing in a tight cash environment. The team continues to reduce costs and cost of goods, strengthening margins and improving supply chain and production capabilities. Paul's team continues to enhance and build Gen3 solutions with great success. Mike will update you on the exciting Gen3 solution market performance and customer acceptance. Further development of the five key relationships, or pillars, continues to show they will be the driving forces of our sales growth. The sales team has secured several outstanding partners that are keen to grow their businesses with Legend's solutions.
We've operated in a tight cash environment for the last couple of years, and Q2 continued to be a tight cash quarter, and we continued to make the necessary expense and operational cost reduction changes. While some part orders were put on hold, we successfully managed our backlog by leveraging existing inventory to continue fulfilling commitments. Despite these hurdles, we've maintained strong supplier relationships who have been supportive and patient. We've been paying down outstanding accounts while prioritizing payroll and other critical needs. The dedication and resilience shown by our Legend team during a challenging Q2 has been truly commendable, and again, thank you to the Legend team. We see more opportunity than before, and we do see a very bright Legend future. The Legend team is absolutely committed to make Legend Power a success story.
Our previous $10 million investment in developing Gen3 continues to drive our business and support a decision well made. You will hear a lot of details about Gen3 today. The performance of Gen3 SmartGATE systems in the field continues to exceed expectations, driving strong customer satisfaction and repeat business. We continue to transition from commitments for dozens of SmartGATE installations annually to, we believe, hundreds of systems annually. This shift is underpinned by strong execution, proven solutions, and a growing pipeline of wins and opportunities. We're confident that our trajectory is not just upward but transformative. Importantly, while the green investing sector has faced political challenges, Legend Power Systems' value proposition transcends political narratives. By delivering lower costs, increased profitability, and reducing risk, we provide enduring value rooted in traditional business fundamentals. Florence, if you would, please provide some financial highlights.
Thank you, Randy. During this quarter, revenue recognized was $523,000 compared to $124,000 in Q2 of fiscal 2024. Our gross margin for the quarter was 22% compared to 46% in the prior year, and gross margin percentage has decreased due to increased cost of certain inventory components as well as suppliers paid in US dollars. However, gross margin dollars were $114,000 compared to $57,000 in Q2 of fiscal 2024. Margin percentage is also lower this quarter due to the mix of SmartGATE units sold, and we do anticipate margins to return to the targeted margin levels. Paul will go into a bit more detail on this later. The company ended the quarter with $224,000 in cash, no debt, and $874,000 in working capital. The company also received north of $750,000 of outstanding trade receivables and deposits from sales orders subsequent to March 31st, further strengthening our working capital position.
We continue to focus on the priorities critical to attaining our projections while managing our resources to support our sales growth plans and deliver for our shareholders. I'll pass it now to Paul, our COO, to provide some operational highlights.
Thank you, Florence, and good morning, good afternoon to everybody. Very excited about the progress that we've made, throughout the company and in operations. The entire team remains focused on delivering, in product development, supply chain, production, installation, field services, customer services, and we've really realized a lot of success from the continuous improvement and simplification in everything we're doing, business processes, manufacturing processes, and we've really optimized and transformed operations to establish strong methods for our growth and our future successes. We now have 15-plus systems in backlog, thanks to the great efforts of sales, Mike Cioce and his team, and with shipments planned over the coming months, providing additional cash flow into the business. I'm happy that we continue to use our on-hand inventory. It's decreased significantly, down several hundred thousand dollars, of course, because we're transforming and converting into goods for sale and for cash.
We're consuming what's on hand. We're offsetting purchases, and really, we're now converging down to that new factory design that I mentioned and our optimal safety stock design. I'm very happy to see that we're making that progress. Material orders, as Randy mentioned, continue to be scheduled as needed to minimize cash outlay. Obviously, we're ordering everything we need, in addition to inventory for our backlog, but we're doing that to align to factory capacity, and we're ensuring our working capital is at those optimal levels. Again, as Randy mentioned, our supplier support remains very strong. I'm very happy with the relationships that the team has developed with our key and smaller suppliers. We've seen additional lead time improvements, and we're actively seeking new suppliers.
Our cost of goods sold reductions, we saw some really great wins, recently. We're now sort of moving on to the next big part in the list, and we're looking for additional suppliers, both for cost savings, good quality, but also to gain, you know, flexibility and redundancy within our supply chain. Our platform continues to be refined, hardware, software, firmware, functionality, and capacity of the system. Our engineering team is working hard on, you know, maintaining designs and documentation, but also looking at additional product power capacity and functionality, really improving the overall platform across the board. Great news there. We've got a nice roadmap set up, and we're making lots of cool changes, coming up to further enhance the functionality of the product.
What's a bonus of that is it's all on the existing system, so we can add that in the field as our customers need those options onto existing products. Our gross margin percentage last quarter was impacted by some blips in part costs, largely by product mix. We had some USFX impacts, but I completely see us trending back to 40-50% plus gross margins over the coming quarter. This was a bit of an anomaly, but we have a strong foundation and setup for very strong gross margin percentages, and those will come again. As Randy mentioned, thank you, the monthly operating costs are continuing to be reduced. Following further rationalizations, we've looked at our applications, we've looked at our services, and we've done that really as a cleanup without impacting any of our quality or deliverables.
Very proud of the team overall. The entire team, everyone's working together seamlessly on improving business processes, to not only improve our product but to improve our performance to the market and to the customer. We have created a great and stable foundation to optimize our business systems, for seamless delivery and growth. Thanks, thanks, everyone, for listening. Thanks to the entire team, and with that, I'll pass it over to Mike.
Thank you, Paul, and thank you, everybody, very much for your time today. I appreciate it, as always. What I want to focus on today is how Gen3 is driving and delivering on its performance of transforming the company and driving sales. We really want to spend some time on that because if we look at our $10 million investment in SmartGATE Gen3, it was made with a bold objective, and that was to transition from an energy savings device to a high-impact active power management platform. The goal was to enable buildings to evolve from passive consumers of electric power into grid-interactive power-optimized assets. In our latest update, we highlighted a major step forward, which was the launch of our voltage adherence risk rating and the acceleration it is triggering in our sales cycles.
That shift from simple energy savings to operational risk mitigation wasn't just strategic. It truly was transformative. I'm pleased to report that the impact has not only intensified as more Gen3 systems have been sold and deployed, and are beginning to drive real-world performance at scale. For example, as of today, we have sold 70 Gen3 SmartGATEs , which is well ahead of the adoption rate of our Gen1 system. We have 43 Gen3 SmartGATEs fully deployed and over 27 more scheduled over the coming months. The results are clear that Gen3 is outperforming our expectations. Here's what I want to spend some time on: what the, what the data from these systems are actually telling us.
The first is that SmartGATE is delivering greater than a 98% reduction in building equipment risk by maintaining voltage within the design specifications, not just the utility tolerances. This ultra-stable, high-quality power enables building systems to perform as intended, which is maximizing reliability, efficiency, and asset life. One of our customers reported a 90% reduction in elevator entrapments after deploying the SmartGATE, which is just a direct outcome of improved voltage stability. Our customers are also telling us that they're seeing a 40% or greater reduction in repairs and failures of critical building systems and components. That is equating to our customers seeing $2 in non-energy savings, which is fewer maintenance, fewer service calls, extended life of systems for every dollar worth of energy savings. We're well ahead of expectations there.
That's helping us see our customers experience a 15% ROI, with some customers achieving higher results than that when they look at the total financial impacts. These outcomes are reframing the value proposition. Energy savings alone, they're not justifying project spends, but risk reduction, reliability, tenant satisfaction, and portfolio performance absolutely do. This has really allowed us to transition to a product strategy, a portfolio strategy. The shift is happening across our customer base. One commercial real estate customer that began with a pilot of just a few systems has now scaled to over 50 systems and is still ordering more as they transition to a portfolio-wide rollout. Their latest order increased from 10 systems to 18 systems, and they've also taken over the installation and management and processes using their own preferred contractors.
That move increases our margins, increases our upfront deposits, and accelerates our cash, our cash collection. Most importantly, we're seeing this pattern repeat with more new customers. Once SmartGATE proves its value, scaling becomes the logical next step. Back in February, we emphasized how strategic partners are growing, are becoming a key part of our growth engine, and that's proving to be true. The performance results that we're unable to share is helping those partners sell faster and at a greater scale. Flagship opportunity in New York, we're in the process of conducting power impact assessments at a major airport, initially targeting six to eight systems as their pilot. This site will serve as a live showcase in bringing more enterprise customers and re-validate real-time results.
Through our partners and their corporate affiliates, we now have multiple sales entry points into government, infrastructure, and large commercial portfolios. We continue to work closely with ESCOs and facility management groups that are focused on system reliability and building optimization, not just energy efficiency, because at the end, this is just perfectly aligned with our value proposition. At the end of the day, the market is listening. It's exciting to see how quickly the market is adopting this new message. Our voltage adherence risk rating continues to resonate, reframing SmartGATE from a nice-to-have energy to an essential infrastructure solution. More importantly, we're no longer being viewed as a product vendor. With SmartGATE Gen3, Legend Power is positioned as a strategic infrastructure partner, solving critical building problems that others simply cannot. As we've discussed before, we look at our strategic pillars.
I want to give you a quick update on those strategic pillars, which will drive our go-to-market acceleration. First of all, with the GSA multiple award schedule, we are now in final terms review, and this is the last step before approval. Most companies take 12 to 18 months to reach this stage, and we're tracking well ahead of that timeline. Again, the multiple award schedule will unlock a streamlined procurement across federal, state, and local agencies and will serve as a critical accelerator for verticals like the Department of Defense, City of New York, and ESCOs and beyond. Speaking of the City of New York, we're scheduled to deliver our first 4,000 amp system for a new school this July, and that's a major milestone in large-scale public infrastructure deployments.
With the GSA, technology proving ground, after some delays from early Trump-era administrative changes, we've now been informed that all of our projects will continue within the next 60 days. The first install will move quickly, and the second installation is expected to be 60-90 days behind that. This puts us back in sync with our Oak Ridge National Labs review and the federal reporting process, which will also serve as another broad accelerator for SmartGATE adoption. With the Department of Defense, our projects remain active and underway, and the multiple award schedule, once it's finalized, will make those processes faster and more simple across the entire Department of Defense. We look at our ESCOs and our strategic partners, our momentum continues to build. Our new partners are coming online, and existing ones are progressing towards larger repeat deployments.
This is all being driven by the results that they're experiencing in the field, which is super exciting. Now, if we look ahead, Gen3 isn't just meeting expectations; it's redefining them. Our systems are performing better, delivering broader impact, driving faster, higher sales, and shifting how customers allocate capital. The momentum is not just fueling more deals, but better deals, as we move decisively from portfolio-wide to portfolio-wide deployments. What does all this mean? In summary, our $10 million investment has transitioned SmartGATE from energy savings device to grid-interactive energy platform. 70 SmartGATEs sold, 43 deployed, 27 scheduled, delivering results at scale. Our voltage adherence report reframes risk and SmartGATE as a reliability platform.
Our customers are telling us that 98% risk reduction, 40% greater reduction in repair and replacement spends, ultra-stable power and proving the reliability uptime and the lifetime of the critical building systems. They're up to 90% fewer entrapments, $2 for every dollar of energy savings and operational savings, 15% ROI. Again, that's manifesting itself in major real estate groups expanding their system footprint dramatically. Our customers are managing more installs, which improves our margins and our cash flow. Strategic partners and ESCOs' traction are growing rapidly. Our multiple award schedules in final review, the City of New York deployments, GSA proving grounds, and Oak Ridge National Labs are all advancing. We're also advancing and finalizing our departments with the Department of Defense. At the end of the day, we have significant momentum that's driving us forward.
I look forward to your questions and greatly appreciate your continued support of Legend Power Systems. Randy, back to you.
Thank you, Florence, Paul, and Mike. Obviously, you can tell that the Legend Power team is very positive about Legend's future, and each and every one of us is committed to making Legend Power a leading power management company. We thank you again for your trust and partnerships, and we continue this remarkable transformation. We would be pleased at this time to take your questions.
We've got a couple of questions queuing up in the Q&A. Randy, the first question is, Mike mentioned one customer with 50 systems. Are they all Gen3? They still have three legacy Gen1 systems, and the bulk of them are Gen3s. We're talking to them about upgrading because they see such dramatic improvements with SmartGATE Gen3.
Yeah.
There's another question out there, Randy. It says, please discuss your working capital requirements, go forward in the prospect of yet another equity raise.
We have managed our last couple of years, our working capital with very small financings. We have completed two years ago, August 17th, I believe it was, for $2 million at $0.18, with outstanding warrants at $0.25. Those are due at the end of July this year. We will see, with some progress and things that we have between that time and now, some appreciation in the marketplace. We are hoping and believe we can get some of those warrants hopefully exercised. And, you know, we continue to manage the cash very closely. You know, we continue to get things done with minimal cash. However, when we have some significant growth plans, and achieve those, and the market sees those results, I think the big thing we have to do is show the demonstrable results.
There are different opportunities available to us from different alternate financings of receivables, some of these large companies and projects that are defined over multiple years with the government, et cetera. There are different alternatives. I would not go right just to equity, but that is obviously one of the options available to us. We are in discussions as a board. We are in discussions as a leadership team how best to manage our investments and to manage our working capital for some of these larger deals. The nice thing is, as Mike said, a lot of them now are starting to go direct with their own installation partners, which is something that is very advantageous to us and something that we desired. We get a 50% deposit.
We have some orders coming up that are of significance, and we do get a 50% cash deposit with those orders. I think we can continue to manage tightly. The question gets as you get larger and larger orders, we have different alternative capital. We've talked to different people. Equity is just one of the options, and we would be pleased to give better visibility on that at a later date.
Great. Another question comes in, wanting to better understand the gross, profit margin for the quarter versus earlier the year, and what steps are we taking to, bring those back to, back to those historic levels?
Yeah, you want to address that, Paul?
Yeah, absolutely. Thank you. We did see a bit of an anomaly in the last quarter. We had a mix of products that was on the low end of our gross margin. We also had some installations in that mix. Our product gross margin itself, when we sell equipment only, is very strong. It's north of 50% and even greater. As we continue to look at the most expensive components within the system and reduce those, I see significant support to get back to those levels within one or two quarters, perhaps just one.
Some of the top componentry, which can be as much as 20% or 30% of the product itself, we're seeing, you know, 50%-75% cost reductions because we've been spending a considerable amount of time looking at our sources and our supplier base, and what our opportunities are to really take the bill of material to the next level. Because some of it, of course, is from the original design and the original prototypes and the original product, and now we have an opportunity to really reinvent that bill of material and optimize, and we're taking advantage of that. We see some very strong gross margins. You've seen that in the past. We have achieved those gross margins, and we will continue to do that.
Yeah, the last number of quarters, you know, you've been in the 45%-ish. I think, you know, the fair answer is this is a bit of a blip.
Yeah.
Yeah, and just to further add on to that, when we look at our product mix, we have small, medium, and large systems. We are margin compressed on the small systems. The medium and the large systems have much better margins. When we look at our pipeline, the vast majority of them are in the medium and large systems. We're very excited about that. Then again, as Paul mentioned, another big driver of that is customer installations versus customer self-install. A good portion of our pipeline is going to be customer self-install, which accelerates our cash as well as increases our margins.
We can just add, we're quite confident that we'll continue, as previous last two, three quarters, trending up back into traditional margins that we've achieved in previous years. We're quite comfortable with that.
Another question that's come in, Randy, is do we expect any impact on product demand from the recent changes to the IRA tax credits in the U.S.?
It is hard to really answer that, because we have not, it has not been something that has really been affecting our business to date. I would say we will wait and see. We are not hearing that conversation with customers. It is not coming up. It is the same with the tariffs and things. It just has not been something that has been a significant piece of the conversations. I would say at this point, we do not know, but we are not anticipating that being an issue. Again, it is one of those things we report as we get further down the road with our U.S. customers. I think there is just some uncertainty generally in the U.S. with things on, off, on, off. That sort of comes up when I am talking to different people. No, we are not, we are not seeing those issues as concerns at this point in time.
Yeah, and to further add on to that, again, what's driving our momentum is, as Randy mentioned, is the fact that our value proposition is rooted in traditional business value: lower risk, lower expenses, higher profitability, higher valuations. We're not dependent on incentives. We're not dependent on any government policy in order to drive our business forward. In fact, I'll go as far as to say that one of our prospects that we're talking to that's in a late-stage sales cycle went on to say that they don't, they actually don't even care about energy savings. What they care about is making sure the building operates the way that their customers need it to, the way that the people that depend upon the building need it to. That's what's really driving us more, more so than any government policy.
I think, you know, Mike, that's a good point, because what we are really seeing is the switch that you have been driving from a sales perspective and marketing perspective is the value proposition. I mean, we used to look at incentives and what's your ROI and, you know, compete against lights ROI and, you know, repairs to air conditioning, et cetera. It was very much driven to an ROI, and we had to have certain incentives and things. Now, when you're dealing with dirty power and the problems in the buildings, as you said, my elevators don't work, and you've reduced 98% of the elevator problems, et cetera. That's driving decisions. I mean, it really is clear now that the power quality issues that we have today need to be fixed and addressed, and they're only getting worse.
Definitely. There's another question that's come in about our backlog and impact to cash as well as revenue, based on the backlog.
Yeah, so we've got 15 systems. We do have some order announcements pending. We have some existing inventory that's prepaid. There's some payables against some of the inventory. There's about $1.3 million, I think, roughly in inventory. We have enough pretty much to put out the 15 systems backlog with some components required. We start getting additional inventory required for some of the subsequent orders to that. You know, a lot of that inventory is prepaid, and we're drawing down on that as Paul said earlier. We're managing that also with going forward orders. We've made some changes with the key suppliers. Our top two most high-cost components of our system, we are engaging and have been engaging with alternate suppliers, testing equipment, et cetera, that have dramatic cost reductions.
Our highest component product, we see reductions in our cost of goods of probably about, as much as 50% or greater. That would represent probably somewhere in the 35-40% of the overall cost of our units. There is some good stuff happening there for sure. I also want to add to that, Paul.
Yeah, if I could, you know, remember that the backlog is fluid. It's always changing. If I report 15 last month and I report 15 now, it's not the same 15. In this case, there were, I believe, five systems shipped last quarter, perhaps more, but they were low, they were low-power type systems. It just happens, as Mike said, the remainder are higher capacity, higher amperage systems. They were of lower margin. In general, that 15 that we have now includes, of course, the new wins, and those will be built and shipped over the coming months. I mean, the current production schedule right now shows them going out to September, October type of timeframe.
Yep.
Those are all the questions that we have on the docket right now. Randy, do you want to go ahead and wrap up?
Sure. I hope it comes across. We're pretty excited about where we're going despite some of the challenges. We're very excited about Legend Power in our future. You know, as Mike said, the pipeline is growing, deals are becoming larger, and multiple-year opportunities are being exposed. The U.S. electric grid and grids globally are facing increased power quality challenges due to aging infrastructure, growing renewable penetration, and rising demand for electrification. The shifts are introducing significant power quality issues, commonly referred to in the industry as dirty power or power quality challenges driving demand for SmartGATE solutions when you really simplify it. We've got a committed, talented team and an outstanding active power management platform without equal. We just do not see anyone out there in any of our discussions that has any capability like Legend Power. We're focused on achieving sales objectives.
We closely manage our cash with reduced operating costs and securing sales deposits. We look forward to realizing significant sales progress and continued returns on our $10 million investment and several years of time in developing Gen 3 and enhancing USC sales capabilities. There was no debt. All that was prepaid to be able to create revenue for multiple years with an enhanceable platform. We believe the future looks incredibly strong for Legend Power, our stakeholders, and our partners. We thank you today for your support. We look forward to sharing many Legend Power success stories with you on an ongoing basis. For everyone, have a great legendary day, and for our good friends in the U.S., have a great, legendary long weekend. Thank you.