Mr. Randy Buchamer reports

LEGEND POWER SYSTEMS REPORTS Q2 F2023 FINANCIAL RESULTS

Legend Power Systems Inc. has released its financial results for the three months ended March 31, 2023. The company has also scheduled a conference call to provide a business update to discuss its fiscal Q2 2023 financial results today at 11 a.m. ET (8 a.m. PT) (details herein). The call will be hosted by Randy Buchamer, president and chief executive officer. A complete set of financial statements and management discussion and analysis has been filed on SEDAR.

Fiscal Q2 2023 highlights:

• Revenue of $74,000 versus $344,000 in fiscal Q2 2022;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $1.04-million versus a $1.32-million loss in fiscal Q1 2022;
• Net loss of $1.19-million versus a $1.48-million loss in fiscal Q2 2022;
• Cash of $1.5-million, no debt and $3.15-million in working capital at March 31, 2023.

Subsequent events:

• The Green Proving Ground program for the U.S. General Services Administration, which operates approximately 1,800 federally owned buildings, is proceeding well. The deployment and evaluation schedule is well under way, with plans to build and ship the first system in September, 2023, followed by a second system shortly after.
• The company published performance results of the first round of Gen3 SmartGate platforms. These results included a 20-per-cent increase in energy savings performance over prior generations as well as elimination of over 99 per cent of incoming grid fluctuations. Several customers have reported that the maintenance and repair savings are outpacing energy savings in many cases, resulting in $2 of maintenance savings for every $1 of energy savings.

"Many new large opportunities continued to advance in our sales funnel, and we continue to believe we will hit our target bookings this year," said Randy Buchamer, chief executive officer of Legend Power Systems. "These include deals with ESCOs [energy service companies], commercial real estate companies, government agencies and electrical distribution companies. It is now evident that our sales and power analysis process is enabling us to speak directly to C-suite executives about the benefits of active power management and Legend's solutions to reduce greenhouse gas emissions, save electricity and, most importantly, improve the overall functionality of the entire building."

Fiscal Q2 2023 operational highlights

Sales activity is continuing at a strong pace and customers are engaging with deep and wide interest. The company currently has new late-stage large deals with very strong financial viability. The new late-stage deals are in commercial office, multifamily residential and with ESCOs. The strength in viability is driven mainly by customers articulating power quality concerns and higher visible costs. This handful of deals could bring over $10-million in new potential bookings. Partner sales efforts also continue to grow in volume, dollars and strength.

SmartGate is deployed in several key commercial real estate verticals such as multifamily residential, hospitality, big-box retail and commercial office, accounting for roughly 50 per cent of installed SmartGate units. Additionally, Legend Power Systems is engaged in active sales processes with several of the top firms in the commercial real estate space, with over 110 buildings in active sales cycles for more than 300 potential SmartGate units.

This quarter the company's channel sales team has grown reseller and ESCO relationships, furthering adoption of both insights, power impact reports and SmartGate solutions. Target markets and reseller channels continue to respond positively to Legend's solutions and combined opportunities. The company is engaged with over 50 organizations interested in becoming Legend selling partners in the United States and Canada. The channel sales team continued development of partner support tools for the partner portal, including marketing support, sales support, technical support and deal registration.

The company continues to focus on onboarding, training, and streamlining of operations and procedures. The company's sales order process has evolved to improve on-time delivery and lead time performance with the addition of tighter controls and implementation of key performance indicators. Initial results show improvement in on-time delivery and dramatically reduced sales order turnaround times, meaning cash sooner. Significant improvements have been realized in material requirements planning, inventory management and production planning tools and processes. The company is evaluating an application to improve business intelligence and procurement decision making, including supplier-managed inventories and safety stock requirements. Across all areas, KPI (key performance) targets have been set and progress continues toward the company's operational goals.

Direct sales efforts continue to grow with system bookings and new sales opportunities pipeline. The current sales booking pipeline is healthy and in line to support booking target expectations. Continued progress on installation of Gen3 SmartGate and positive measurement and verification reports are expected to enable booking growth to expand in fiscal 2023.

Planning for increased capacity is well under way, both organically and abroad. A multiphased approach includes a doubling of capacity in Legend's current location through increased utilization of existing equipment and cross-training new operators in areas of constraint. In parallel, all Legend's basic subassemblies are being quoted by several local assemblers to offload a significant manual operation. Candidates include the company's current provider plus another that is also quoting on the company's system-level assembly and test. This candidate will form part of a dual-source arrangement with a near-shore or offshore provider, discussions which have already begun. As the company sees growing strength in its forecast, Legend is addressing capacity and resource to match while balancing the need to place orders for long-lead-time components. Although supply chains are improving somewhat, as opposed to capacity, they will ultimately gate deliveries for the near future.

Revenue for the three months ended March 31, 2023, was $74,006, compared with $343,573 in the same quarter of fiscal 2022. The lower revenue during Q2 of fiscal 2023 was primarily due to a timing issue. Supply chain challenges resulted in delayed product deliveries to customers, pushing the deliveries into the next quarter.

Gross margin in the second quarter of fiscal 2023 was negative 7 per cent, compared with 17 per cent in same quarter of fiscal 2022. The decrease in gross margin experienced during Q2 of fiscal 2023 was due to inventory count adjustments as well as additional costs incurred to replace and repair a unit damaged in transit, which the company expects to recover the majority of. Target gross margin remains in the range of 40 per cent to 45 per cent going forward.

The company's operating expenses for the second quarter of fiscal 2023 were $1,188,409, down from $1,536,477 in the same quarter of fiscal 2022. The primary cause for the decrease was lower salaries and consulting costs as a result of internal cost-cutting measures.

Adjusted EBITDA for the second quarter of fiscal 2023 was negative $1,035,944, compared with negative $1,317,640 in same quarter of fiscal 2022.

Net loss for the second quarter of fiscal 2023 was $1,188,091, compared with a net loss of $1,479,789 in the same quarter of fiscal 2022. A decreased operating expense in Q2 of fiscal 2023 compared with the same quarter of fiscal 2022 resulted in a lower net loss.

Cash at the end of the quarter was $1.5-million. The company has no debt and had working capital of $3.15-million. The company took cost-cutting measures last year and continues to manage cash and working capital while working to meet sales and growth targets.

Conference call details

Date:  Friday, May 26, 2023

Time:  11 a.m. ET (8 a.m. PT)

North America toll-free dial-in number:  888-886-8658

Conference ID:  24837575

Replay:  available on Legend Power's website

About Legend Power Systems Inc.

Legend Power Systems provides an intelligent energy management platform that analyzes and improves building energy challenges, significantly impacting asset management and corporate performance. Legend Power's proven solutions support pro-active executive decision making in a complex and volatile business and energy environment. The proprietary and patented system reduces total energy consumption and power costs while also maximizing the life of electrical equipment. Legend Power's unique solution is also a key contributor to both corporate sustainability efforts and the meeting of utility energy efficiency targets.

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