Please note, this event is being recorded. I would now like to turn the conference over to Deborah Honig, Head of Investor Relations. Please go ahead.
Thank you, operator. Thank you for joining us to discuss Tantalus Systems' financial results and operating performance for the first, for the three months ended March 31, 2024. Tantalus issued these results in a press release yesterday, which is posted on the company's website. Joining me today on the call from Tantalus Systems, herein referred to as Tantalus or the company, are Peter Londa, President and Chief Executive Officer, and George Reznik, Chief Financial Officer. During the call, we will make forward-looking statements about Tantalus' business. These statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Tantalus refers conference call participants, either today or in the future, to the company's forward-looking statements contained in the presentation and on our website at www.tantalus.com. Statements made on this call reflect management's analysis as of today, May 8, 2024.
Management does not assume any responsibility or obligation to update forward-looking statements made during this conference call unless required by law. Please note that the financial information referenced on today's call is stated in United States dollars and in accordance with IFRS, unless otherwise stated. The company is also presenting selected non-IFRS financial measures, including gross profit, gross profit margin, adjusted EBITDA, recurring revenue, annual recurring revenue, referred to as ARR, and adjusted working capital. Tantalus believes these non-IFRS measures provide meaningful information to investors. However, they do not have a standardized meaning and are not likely comparable to similar measures presented by other issuers. I will now turn the call over to Peter Londa, President and CEO. Please go ahead, Pete.
Thanks, Deb. Good morning, everybody. Thanks for joining our Q1 2024 earnings call update. Before we dive in, on behalf of our entire team at Tantalus, George and I are pleased to provide today's update. We'll aim to work through our presentation in a timely manner and provide ample time at the end of today's call for some Q&A. As you can see on Slide 3, we made good progress during the first quarter towards executing our 2024 plan. While we are witnessing strong momentum on the heels of recently announcing the securing Underwriters Laboratories, or UL, certification for the TRUSense Gateway, we are reporting a decline in revenue year-over-year. To cover this topic first, the decline in revenue is not reflective of a problem, market opportunity, or an indication of any issue in our business.
To the contrary, the Q1 revenue that we delivered is a function of the timing of securing orders from our pipeline, which can vary across a quarter, a calendar year, or month to month. We saw some orders that were expected to convert in sufficient time to contribute revenue in Q1 take a little longer across the finish line. In summary, the timing of our orders that ties to revenue within a quarter can sometimes be a bit lumpy, as some may say. But we believe the timing of orders and corresponding impact of revenue on a quarter-to-quarter basis will continue to smooth over time, particularly as we scale the business.
Beyond addressing the shortfall in revenue year-over-year, I would like to reference that we had another strong quarter of revenue contributions from our software and services segment, which continues to scale year-over-year as we execute our plan. Similarly, we witnessed 16% growth year-over-year in our annual recurring revenue, which we report on a go-forward 12-month basis. We also delivered another strong quarter of gross profit margin at 53%. As it relates to adjusted EBITDA, management's perspective is the negative performance in Q1 is justified as we accelerate towards the launch of the TRUSense Gateway. The adjusted EBITDA results for Q1 are manageable relative to our balance sheet and in line with our own internal expectations.
As previously communicated, we expect to deliver negative adjusted EBITDA during the first six months of this year, but we remain confident in our ability to deliver positive adjusted EBITDA for the full year 2024. Beyond our financial results, our sales organization hit it out of the park in Q1. Our team converted $21.6 million in orders during the quarter, blowing through our previous corporate record for orders converted in a quarter by over 20%. Our previous high water mark for orders converted in a quarter was last year, Q1, where we converted just over $17 million in orders. So beating that number by more than 20% is a strong indicator that we remain on a favorable trajectory and that we anticipate growth moving forward.
In addition to the record number in orders from a dollar perspective, we also added five new utilities, bringing our user community to 293. Last but not least, for those of you that have tracked our performance continually, we were extremely pleased to announce the UL certification for the fiber version of the TRUSense Gateway. I would note that the UL certification on the fiber TRUSense Gateway is also applicable for the cellular gateway. As we accelerate towards commercialization through available for sale references internally on the fiber gateway, we are turning our attention to finalizing the work that needs to be done to secure FCC certification for the cellular gateway, and we have commenced the certification process for the Ethernet gateway early in Q2. Overall, we're pleased with the quarter. I'll now turn it over to George, who will walk you through the financial results.
George, over to you.
Thank you, Pete, and good morning, everyone. Before diving into the financial results, I would remind everyone that we report in U.S. dollars. As reflected on Slide 4, we delivered $9.4 million in revenue for the first quarter of 2024, representing a 10% decline from the prior year quarter of $10.4 million. As Pete mentioned, our Q1 revenue results were impacted by capacity allocations with metering partners and the timing of order fulfillments. This resulted in revenue shifting out of the quarter and into future periods. We do not see our Q1 results as problematic or indicative of future results throughout the balance of the year. Gross profit margin increased to 53% for the first quarter of 2024, representing strong growth over the prior year quarter of 47%.
This increase in gross profit margin helped us offset the decrease in revenue in the quarter. The company's operating expenses during Q1 of 2024 were impacted by increased marketing programs, inclusive of attendance of two major industry trade shows, DISTRIBUTECH and TechAdvantage, in addition to continuing to invest approximately $1.5 million in the TRUSense Gateway development and commercialization. As such, we delivered adjusted EBITDA of -$536,000 during the first quarter of 2024, which represents an improvement over the prior year quarter of -$692,000. We experienced a net loss of $1.6 million during the quarter, which is expressed net of approximately $600,000 in non-cash expenses, comprised of depreciation and amortization, share-based compensation, and foreign exchange.
Digging into our revenue and gross profit margin on Slide 5, revenue from our connected devices was $5.8 million in Q1 of 2024, which decreased from the prior year period and contributed 62% of total revenue. Where revenue from connected devices was down, we increased the revenue contribution from software and services in Q1 of 2024 by 7% to $3.6 million. Revenue from our software and services represented a healthy 38% of total revenue in the quarter. Within our software and services revenue segment, we include recognized recurring revenue in each period. As a reminder, our recurring revenue is comprised of software as a service, or SaaS, subscriptions, term-based software licenses, software maintenance, technical support, and hosting services.
Recurring revenue recognized during the first quarter of 2024 increased by 11% over the prior year period to $2.6 million. Recurring revenue represented 28% of total revenue in Q1 of 2024, increasing from 23% in the prior year period. While not reflected in the chart, I'll note that our annualized recurring revenue, or ARR, as of March 31st, 2024, increased to approximately $11.6 million, reflecting 16% growth from the ARR at the end of Q1 of 2023. As a reminder, ARR represents a forward-looking forecast that reflects the anticipated total recurring revenue to be generated over the future 12-month period at a point in time. Disaggregating the gross profit margin further, connected devices' gross profit margin increased to 42% in Q1, as opposed to 34% in the prior year period.
The higher gross profit margin for connected devices in the quarter resulted from prudent management of the company's supply chain, normalization of logistic expenses, and mitigation of the impact from inflationary pressures through previously instituted price increases. Gross profit margin for our software and services segment remained strong at 72% in the quarter. We witnessed contributions from installation service revenue in Q1 of 2024, which has a lower gross profit margin contribution relative to the prior year quarter. In evaluating the trailing 12 months of performance through March 31st, on Slide 6, we're pleased to report that our revenue increased to $41.1 million, representing growth over the prior trailing 12-month period. Gross profit margin increased to 54% during the trailing 12 months to Q1 of 2024. This is an important achievement to drive continued operating leverage as the business scales.
We generated positive adjusted EBITDA during the trailing 12 months through Q1 of 2024 in the amount of $126,000, representing strong improvement over the prior year, which was -$2.5 million. We made this improvement while continuing to make significant investments in our innovative solutions and in particular, the TRUSense Gateway. The company invested approximately $5.5 million during the trailing 12 months through Q1 of 2024 in the development of the TRUSense Gateway, inclusive of over $1.8 million of external costs.
Said another way, had we not made the investments in these external costs to support the development of the TRUSense Gateway during the trailing 12 months to Q1 of 2024, it's fair to assume that there would be a dollar-for-dollar improvement for the investment made in external resources in our adjusted EBITDA results. The company experienced a net loss of $1.6 million during the trailing 12 months to Q1 of 2024. Our net loss is expressed net of significant non-cash expenses as indicated previously, with approximately $2.5 million of non-cash expenses during the trailing 12-month period ended Q1 of 2024, which exceeded the net loss amount. We anticipate migrating to net income in future by continuing to drive increasing and continued year-over-year performance.
Across the board, we believe that Tantalus delivered favorable results for the trailing 12-month period ended Q1 of 2024, and have already turned our attention to scaling the business further through the remainder of 2024. The composition of our revenue and related gross profit margin experienced during the trailing 12 months to Q1 of 2024 is provided on Slide 7. Revenue from our connected devices total $26 million and contribute 63% of total revenue during the trailing 12 months to Q1 of 2024. We continued to experience strong contributions from software and services, which represented 37% of total revenue during the trailing 12 months of Q1 of 2024, and increased by 15% to $15.1 million over the prior year trailing 12-month period.
Recurring revenue recognized during the trailing 12-month period to Q1 of 2024 increased by 16% to $10.4 million, representing 25% of total revenue. Disaggregating the gross profit margin further, the gross profit margin for connected devices increased to 42% during the trailing 12 months to Q1 of 2024, from 35% in the prior 12-month period. The increase is tied to product mix, prudent management of our supply chain, normalizing logistics expenses, and previously implemented price increases. Gross profit margin for our software and services segment was 73% during the trailing 12 months to Q1 of 2024, which is consistent with the prior trailing 12-month period. As reflected on Slide 8, we closed the quarter with a cash balance of $5.4 million.
Our cash balance increased on March 31st, 2024, from December 31st, 2023, due to several factors, including: the release of restricted cash of $673,000 due to the satisfaction of a customer implementation performance obligation during Q1; the adjusted EBITDA experienced in the quarter; the receipt of customer payments for the 2024 ARR during Q1, of which the majority is invoiced on an annual calendar basis; and the net movement of working capital items. Disaggregating our working capital items further, I'd like to review changes in our accounts receivable, inventory, accounts payable, and deferred revenue balances. Our accounts receivable increased by $2.3 million from December 31st, 2023, to a closing balance of $10.2 million as of March 31, 2024.
The increase in accounts receivable during Q1 is due to the timing of revenue experienced in the quarter and the collection of 2024 ARR in Q1. We have subsequently experienced significant cash receipts since Q1 of 2024 and are working to normalize our accounts receivable days sales outstanding, or DSO, going forward. We continue to manage our inventory balances after witnessing a higher balance in the middle of last year. During Q1, we witnessed a decrease in inventory levels from the prior quarter by $863,000 to land at $5.8 million on March 31st, 2024. We will continue to prudently manage our supply chain for existing products, while also ramping up to produce the TRUSense Gateway through the next three quarters.
It is worth noting that the inventory decreased by $2.4 million over the last six months since the end of Q3 2023. As for accounts payable and accrued liabilities, we saw a decrease of $1.9 million to $11.9 million during Q1. It is worth noting that accounts payable and accrued liabilities decreased by approximately $4.4 million over the last six months since the end of Q3 2023. Lastly, deferred revenue increased by $4.1 million from the prior quarter due to the 2024 ARR customer payments invoiced and also received. These prepayments will be offset by revenue recognized each quarter throughout the year. Cash was also impacted by the repayment of lease liabilities, capital expenditures, and finance expenses incurred on the bank and EDC loans during Q1.
As reflected on Slide 9, regarding quarter-end balance sheet highlights, adjusted working capital decreased to $2 million as of March 31st, 2024, from the prior quarter, due to the adjusted EBITDA expense, finance expenses, lease liability repayments, capital expenditures, and the net movement of working capital items addressed previously. We maintained favorable terms with our key suppliers to manage accounts payable relative to the terms that we have been able to routinely negotiate with our customers for accounts receivable. The net difference between our terms on accounts receivable as compared to the terms on our accounts payable, afford us with flexibility to scale and support the business going forward. The company has been working to normalize its investment in inventory and related accounts payable with key vendors, as evidenced in the decreased balances since Q3 of 2023.
This will enable the company to enhance management of its cash conversion cycle going forward to support the anticipated scale of the business and the impact of commercialization of the TRUSense Gateway. Beyond adjusted working capital, the company ended Q1 of 2024 with $35.5 million in total assets and an outstanding total debt balance of $11.5 million, which remained the same from the end of 2023. It should be noted that we continue to have $4 million of availability under the EDC debt facility, the remaining collection of our 2024 ARR after Q1 at 2024, and the visibility into our 2024 revenue profile. In summary, the company is managing our working capital to support our ongoing operations and the anticipated commercialization of the TRUSense Gateway.
I will now turn it back over to Pete to provide an update on our TRUSense Gateway and key initiatives for the remainder of 2024.
Thanks, George. As reflected on Slide 10, we find ourselves at the intersection of the electrification of everything and the need to modernize the electric distribution grid. We refer to that internally as Grid Modernization. These two investment theses intersect through the TRUSense Gateway, and the response we continue to witness from the industry continues to validate our belief that Tantalus is at the right place at the right time. Before providing further updates, I would truly like to congratulate the members of Team Tantalus, who worked tirelessly on behalf of our shareholders to bring the first version of the TRUSense Gateway to market. Our recent announcement referencing the successful completion of the UL certification for the TRUSense Fiber Gateway is not only a milestone for Tantalus, but we believe an important milestone for the utility industry.
The reason for that is the TRUSense Gateway provides a significant number of benefits by delivering on multiple use cases for utilities, whereby each use case, individually, can justify the ROI decision made by utilities on a standalone basis. Effectively, we've built a device that can knock down four birds with one stone. The multipurpose nature of the device expands the number of challenges we can address for utilities, which we believe will not only drive adoption across a very wide range of utilities, including investor-owned, but utilities across the board that are stuck and relying on legacy metering infrastructure that does not meet evolving regulatory drivers or the advancement of electric vehicles, distributed energy resources, smart appliances, and smart circuit breakers.
While we have outlined these use cases in detail through our earnings calls, previous webinars, and other marketing materials that are available on our website, the quick summary is that the TRUSense Gateway is capable of providing advanced metering capabilities without changing any existing legacy meters. It's capable of delivering substation-level power quality measurement at the residential meter socket for the first time. It enables utilities to prudently and safely integrate distributed energy resources, electric vehicle charging infrastructure, and smart appliances located behind the meter.
For the 220 approximate utilities that are proliferating broadband services to address the broadband divide that surfaced during COVID-19 in Canada and the United States, this device enables those utilities to connect directly to the fiber optic cables, backhaul data from the meter socket itself and appliances behind the meter, as well as power optical network terminals to deliver those broadband services. Based on the feedback in the market, we continue to believe Tantalus is a first-mover advantage, and we are actively preparing for a significant push to launch all three versions of the gateway during the first six months of this year. To that end, we are extremely excited to announce the first two wins for the TRUSense Gateway, including United Illuminating and the City of Bolivar, which we shared through press release a few weeks ago.
In terms of what those two announcements actually mean, I thought it would be helpful to provide some context. As it relates to United Illuminating, which is an investor-owned utility in the state of Connecticut, the opportunity that we've secured represents the first time Tantalus has sold a connected device to an IOU. It also represents the first IOU to embrace the notion of the cellular TRUSense Gateway. In United Illuminating's circumstances, they're facing two primary issues, one of which is the state of Connecticut is witnessing increasing demand for electricity, particularly during the winter as well as the summer. They're witnessing high, some of the highest electric utility rates in the United States, and they've got aging infrastructure on utility poles in the form of transformers, as well as aging substation equipment that they rely upon.
The TRUSense Gateway not only will help United Illuminating mitigate the peak demands by shifting load during the winter and summer through control of devices behind the meter, but it will also allow the utility to prioritize where to spend money in upgrading their infrastructure based on actual data and the analysis of that data at the residential socket. United Illuminating is relying on a legacy AMI system that they deployed five years ago. That system is incapable of meeting the regulatory drivers United Illuminating faces today. The TRUSense Cellular Gateway is an excellent path forward for the utility to leverage that existing infrastructure, while also prioritizing where to spend money moving forward. As it relates to the City of Bolivar, this is a public power utility that did not fall in our advisory committee when we built the TRUSense Fiber Gateway. Not only built, designed, engineered, tested, and certified.
In the circumstances of the City of Bolivar, it's a utility that is deploying fiber to also deliver broadband services. And we were humbled by the reference from the utility outlined in our press release, whereby, after an exhaustive search by the utility for their next technology partner, Tantalus and the TRUSense Gateway were the only vendor that could not only meet their immediate needs, but ultimately become the basis for grid modernization for that utility moving forward. Both United Illuminating and the City of Bolivar are exciting opportunities for our team to demonstrate the capabilities of what we've developed, and we'll look forward to continuing to provide updates from those utilities as our deployments progress.
In addition to the recent announcements of United Illuminating and the City of Bolivar, I'd also draw everybody's attention that since securing UL certification a few weeks ago, we have activated six field trials, some of which are with the advisory committee, some of which fall outside the advisory committee. And we've also secured initial orders from 12 utilities to date, and that number is counting. In terms of our launch of the TRUSense Gateway, we are actively pursuing the approximate $500 million of identified and qualified opportunities. That $500 million includes the identified $150 million of opportunity with our advisory committee members.
In terms of how we will look to execute that, thought it would be helpful to reference that our contract manufacturer of over 12 years that's been supporting Tantalus has the current capacity to build up to 150,000 TRUSense Gateways per year. That allows us to scale before we have to start thinking about an expansion in that factory or an alternative location to build the TRUSense Gateway. Overall, overall, I'd say we are somewhat humble in attempting to stay grounded by the progress that we've made and the momentum that we see building behind this technology. In the interest of time, let me just highlight a few things as it relates to 2024 and what our shareholders, our employees, our team is tracking towards. As referenced, we fully expect to deliver positive adjust, positive adjusted EBITDA for 2024.
It may not be significant in terms of percentage, but we are working and remain committed to getting back on track as the R&D investment in the TRUSense Gateway begins to dissipate through the second half of this year. We'll be very excited to continue to report on the progress we're making with respect to the number of utilities that are providing us with orders for the TRUSense Gateway in conjunction with having a first mover advantage. Our full intent is to try to capture that first mover advantage by getting the TRUSense Gateway in the hands of as many utilities as quickly as possible.
And while we spend a lot of time, obviously, talking about the TRUSense Gateway and the impact we expect that to have on our business and the industry moving forward, it would be unfair to also reference or to not reference, excuse me, it would be unfair not to reference the progress and the momentum that we continue to witness from our TRUSync grid data management software. As a quick reminder, the Congruitive software that we acquired two years ago is the foundation of our TRUSync grid data management software capability. And as we witness an increasing number of utilities struggle with the notion of managing an increasing volume of data from devices like the TRUSense Gateway, it creates immediate opportunities for us to present a grid data management software capability that we have not yet seen competitive threat surface yet in the market.
Overall, we've gotten off to a good start in 2024. Our team remains excited about the prospects of the direction for the organization, and we look forward to continuing to provide, hopefully, favorable updates through the balance of the year. Operator, that's the end of our comments in the presentation. I'd now turn it over for any Q&A that we may need to address. Thank you.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Nick Boychuk with Cormark Securities. Please go ahead.
Thanks. Good morning, guys.
Morning.
Morning.
It was great to see, gross margins in the connected device segment remain above 40%, and it sounds like there were a few positive moving parts that helped that. Can you guys kind of expand on what you're seeing with your key partners in supply chain, and, and how we should be thinking about the margins for the connected devices, the legacy side, and TRUSense hardware moving forward?
Yeah, hopefully, I just flipped backwards without making everybody nauseous, Nick, to Slide 5, that disaggregates that information. You know, George, why, why don't you take a crack at that one, George?
Yeah, no, of course, Pete. And good morning, Nick. Yeah, we did experience strong margins in the quarter of 42%. And as I said earlier, it's really, you know, partly transitioning out of COVID to more normalized level, really of increased efficiency in supply chain and lower shipping costs and better. And also the impact of several price increases we instituted, you know, not recently, but we're seeing the impact of that favorably. And in a nutshell, we do see continued margins in the upper thirties and really towards low forties for our core business, the TRUSense line of products that we have.
And the impact on the TRUSense Gateway, we really see comparable margins, you know, 35%-40%, depending on volumes between individual customers. So we think, going forward, Nick, that we'll have consistent and comparable margins. There may be some variability on a quarterly basis, but, you know, we're, we're happy with the progress we made, and, and that's what we're looking at. And, and in terms of, you know, working with, our suppliers, we continue to have favorable terms with them on a payment basis. And as we scale the business, we did have significant inventory on, mid-last year, as, as I've addressed in the call, which has been more normalized at the end of Q1, and as well as our accounts payable, which really related to the, timing of the inventory.
We see that normalizing to more cash-normalized cash conversion cycles going forward and supporting the scaling of the business. Pete, I don't know if you wanted to add some, any, additional commentary to that.
Other than the fact we'll have to thank our landlord for the construction behind you this morning, George. No, I think you covered it.
Yeah, apologize for that noise and, outside our control, but, thanks for your patience and.
Yeah, yeah, I'm joking there. I just wanted just to rectify one thing that you said, George. I think you were referring to TRUConnect as really the basis of the business, the TC module that gets integrated under the glass of meters, which has been the history, Nick, for the business, the TRUSense Gateway forthcoming, obviously.
Yep. That makes sense.
Correct.
Appreciate the color. Thank you. And kind of switching more to a, to a growth angle and outlook. Can you guys comment on the nature of the five new utilities added this quarter? Are they coming to you guys specifically to work with Tantalus on more of the traditional AMI side, or I'm kind of intrigued if they're working with you guys more on the TRUSense, like, you know, the United Illuminating and Bolivar, which I'm also assuming are included in the five new ones this quarter?
Yeah, I'll, I don't have a great slide, obviously, to cover that one, Nick. So I'll just leave this one up in the background. It's a mix. I'd say, the wins in Q1 are vastly tied to the core competencies of the business. RFPs, or we refer to them sometimes as unsolicited offers, where utility, we're able to navigate, and avoid an RFP process. A lot of the wins in Q1 tied to work six, 12 months ago. And so the bulk of what we've seen in Q1 is really still tied to the core competencies of the business, meaning our TRUConnect capabilities. And so that gives us comfort, obviously, Nick, because it means we are still winning accounts and growing this business on its core.
We think that supports the investment thesis behind this company. It's almost a free option on the upside right now with the TRUSense Gateway from our perspective. With that said, shifting into Q2, the announcement of the City of Bolivar. Thanks for the question, because it, it helps me provide some context I didn't cover in my comments. But for the TRUSense Gateway, I don't know if we're the vendor of choice for, Bolivar. They, they were pretty far down the path with another vendor that we compete with head-to-head. As we started to present the TRUSense Gateway to them, we leapfrogged that competition. And so the decision from the City of Bolivar was absolutely tied to what the TRUSense Gateway does for that utility and how it accelerates a number of initiatives around grid modernization.
I think as we see progress through the balance of this year and into next year, Nick, we haven't really thought about splitting out wins, sort of core versus TRUSense. And I could see some utilities like United Illuminating, especially IOUs, it's strictly TRUSense Gateway. I think for the public power and co-ops, we're gonna see a lot of wins where the TRUSense Gateway is a pivotal component to that offering. So it'd be a little bit hard to distinguish, if that makes sense. It's, I don't mean to tap dance around your question, it's just, it's not a black and white answer.
No, no, that makes perfect sense. Appreciate it. And then last one for me, like your, your comments about the TRUSense, it obviously sounds very favorable. How should we be thinking about the pace and the rollout of that product for groups like UI and Bolivar, but also along with the other 12 utilities you've now secured, secured these orders from?
Yeah. So, I think yourself and some of the other covering analysts did a great job of writing some notes after our users conference, as a result of our investor and analyst day, which we were privileged to host this year. You know, I think, Nick, the intent this year is to produce somewhere between 3,000 and 5,000 TRUSense Gateways. That's sort of our trajectory. I'll probably be able to give a lot more detail on that at our next earnings call after a few trips that we're making to the Philippines, starting already with our head of manufacturing there as we're talking today.
That first build, for 2024, the intent is to really get as many devices in the hands as many utilities as possible. So I don't see substantial deployments this calendar year from any utility. With that said, in the hundreds, I think is very feasible, utility by utility. As we think about UI and Bolivar, I think Bolivar's intent is to get to full deployment in less than a year to year and a half. There's a defined number of TRUSense Gateways that'll be part of that deployment, and then my full expectation is that number expands after the full deployment of our system, including upgraded meters and TC modules on our TRUConnect capabilities. For United Illuminating, this is public. It's gone through a regulatory review.
It's tied to what the state of Connecticut's regulators, we refer to that as PURA, the Public Utilities Regulatory Authority. They created what's called a sandbox program, competitive bid, over 100 applications, five, six, something like that, were selected. I think we ranked second, just behind an electric bus program that the state's trying to activate. And so we anticipate getting to, I think the order of magnitude is about 1,000 homes, maybe 2,000 homes, so not too substantial. But the intent is to do that over an 18-month period. What the regulators are trying to evaluate, along with United Illuminating, is how much load can be shifted over the course of multiple seasons. You kind of have to wrap around. It's actually like a 15-month window to capture data.
You kind of have to see two winters and one summer. That's what the utility and the regulators are requiring. Assuming we're successful, and we deliver on the ROI that we think is very achievable in conjunction with GE Appliances, Savant, the University of Connecticut, and the National Renewable Energy Lab, the groups that we've brought to the table here, from pilot, if you will, up to 2,000 homes, the system would be fast-tracked for approval within a regulatory review. Meaning that if we meet the objectives and the ROIs within this timeframe of the program, United Illuminating can effectively activate deployment without having to go back through yet another regulatory review, which can take a lot of time. So I think the acceleration there could be quite fast in the 2026-2027 timeframe.
In order of magnitude, United Illuminating delivers power to about 400,000 homes. It's not unrealistic, we see 10%, 15%, 20% adoption rate through recruiting, and I think United Illuminating's desire to not only manage load but protect pole-top transformers. You know, that order of magnitude, that could be one of the largest projects in our company's history if we're successful.
Okay.
Yep.
That's fantastic. Really appreciate the color.
Yeah, sorry if that's a little long-winded, but thanks for the question, Nick.
The next question comes from Gianluca Tucci with Haywood Securities. Please go ahead.
I'll fix that. Gianluca, how are you?
Hey, Pete. Good morning. How are you guys? Great color that you provided in your preamble, Pete. Thanks for updating us on the pipeline opportunity. On the field trials that are out there, and I guess, pending launch, can you talk to some of the KPIs that customers are looking for, and how long do these field trials typically last before they give you the green light to actually go live and deploy?
So sort of similar comment to Nick's question, Gianluca, and thanks for the question, as well as thanks for activating and initiating coverage this calendar year. We're excited to include Haywood as part of the firm supporting the company and providing coverage, so thank you for that. It's not a black-and-white answer. Let me bifurcate your question between KPIs and then field trial and what that looks like. On the KPI side, it really depends on the use case. The easiest ones to quantify and sort of articulate are sort of the power quality measurement and the behind-the-meter control.
As it relates to power quality measurement, what we're seeing, and my gut instinct is what's gonna drive the adoption here, is circumstances where utilities have aging infrastructure around their transformer fleet. And we've talked about this quite a bit. You know, the lead times for transformers have exceeded two years in some circumstances. Mind you, that's up from, like, six to eight weeks for pole-top transformers, and a couple months for substation or distribution transformers, right? So it is a phenomenon and a serious problem. In addition to those lead times, Gianluca, costs are up, like, 4.5x-5x in some circumstances. So managing the existing fleet of transformers, as well as protecting the new transformers, given how expensive they are, is really critical.
And so this very granular control, or excuse me, this very granular measurement of power quality at the meter socket is going to enable utilities to proactively identify where they have issues and then go figure out how to solve it. Whether that means maintaining the transformer a little bit differently, moving transformers around where there's an under-voltage or an over-voltage circumstance, making sure that the devices they just bought are actually operating the way they're supposed to. In those circumstances, you know that the KPIs are tied to asset protection. They're tied to power quality measurements. In many circumstances, utilities report that. SAIDI, SAIFI, CAIDI are a couple of abbreviations that may not have a lot of meaning to folks on this phone call, but those are measurements that utilities track pretty rigorously.
And so by tracking KPIs or, or by building KPIs around those power quality, statistics, the TRUSense Gateway plays right into it. As it on behind the meter, it's all about how much load can be controlled. Not just controlled, but measured and verified. Measured, how much is available. Verified, in terms of actually actioning, taking load off the grid. We're seeing a couple different things. You know, where we get really excited about the partnership with GE Appliances and Savant, is we can take, a water heater, electric today, soon, a more diverse set of water heaters that GE Appliances is, is quickly working on. But, we can turn that water heater into 6 kWh or 7 kWh of available and dispatchable load. Aggregate that across 20,000 homes, 50,000 homes, 100,000 homes, you're, you're talking megawatts.
Megawatts tied to dollars. So the KPI there is economic, for sure.
Right.
As it relates to field trials, s orry, I get excited and passionate about this stuff 'cause it's real and it's important. But, as it relates to field trials, it's gonna vary. We've got a couple of advisory committee members that are gonna use the field trials we've run as their field trial, meaning once the field trial is over and we validate what we're seeking to validate, they're going to deployment, period, full stop. There's some utilities in the advisory committee and in the sort of identified list of 30 that we are actively involved with, and some of which have already started to convert. Yeah, some of those are gonna do their own field trials, some are not.
My experience in this, at Tantalus over the last decade, I like to kind of use a three- to six-month bell curve for field trials. Sometimes it's a little bit longer. It's not typically much shorter. In most circumstances, Gianluca, it's to validate the technology, and then it's to make sure that their systems, their processes, their training, their employees know what to expect, know how to deploy it, know how to manage it once it's in the field. Some utilities are much faster and organized around that. Some have a little bit more trouble with process change. So that's what really dictates and fluctuates those field trials.
But, you know, so I think a big, good bell curve is three to six months, meaning we should see a number of trials, a number of pilots, a number of phase zero deployments this calendar year. A lot of those then activate into deployments in 2025, and that's where we think the revenue ramp is, and I think you've picked that up well in your report after TUC.
Okay, that's excellent color, and I appreciate that, Peter. Just secondly, and tying it into ARR, like the organic growth there, how do you see the trajectory of ARR growth changing as you deploy TRUSense into the field?
So, pricing on the device is gonna vary based on bells and whistles and, you know, single band Wi-Fi, dual band Wi-Fi, just PLC, a couple of ways to communicate behind the meter. The way we are envisioning this or the way we are beginning to secure orders, there is an upfront software license that's embedded on our custom ASIC, the little square chip, system on chip, that is not only in the TRUSense Gateway, but it is on all connected devices, meaning compatibility across different generations of technology for Tantalus. Such an important point, by the way, when you look at some of our competition, and a great path for differentiation of Tantalus versus others. There will be recurring revenue through 22% annual maintenance on those software licenses.
What's not included in the upfront is the transformer analytics tool, as an example. That is available as a SaaS offering, and what we anticipate seeing to drive ARR, over the long term, Gianluca, is as we start to collect data from this device, from the TRUSense Gateway, particularly power quality measurement, we'll be able to use our own analytics tools to pinpoint where utilities may be blind. And in conjunction with that, then present those issues that we've identified to the utility as the sales tool to justify an incremental spend on our SaaS offerings for transformer analytics, as a very specific example. So I, I anticipate, a decent amount of recurring revenue scaling per device per year.
Last but not least, we are shipping the TRUSense Gateway with an instance of our TRUSync grid data management capabilities embedded in the silicon of our chip. You know, as we generate more data for the utility, it's gonna create a problem to how to manage that data and how to make that data accessible across the entire organization, meaning the utility. It gives us an opportunity for the sales team and account management team to go back and start to help solve that problem on grid data management. To the extent we're successful, activate, you know, give them a key, activate the software, it's already there. So I think there's gonna be a lot of pull through. You know, upfront, it's heavy on the hardware, right? We're getting paid for the device.
We've got gross profit margin, it drives cash flow. Long term, this device is gonna sizzle. It really is, because of the data.
Love it. Thanks for the color, Pete, and I look forward for what's to come.
Thanks, Gianluca.
The next question comes from Daniel Rosenberg with Paradigm Capital. Please go ahead.
Hi, Pete and George. Thanks for taking my question. My first one comes around the 12 utilities that you mentioned and I was just wondering if the entirety of the steering committee is part of that group? Just anything to comment on the constituency?
Thanks for the question, and I fully appreciate it. The answer is not all of them yet. So there's quick upside in that number, Daniel. A good number of them have placed orders. The ones that are awaiting the cellular gateway not yet, because we still have work to do with the Sierra Wireless cellular radio that we're embedding into the device, and then managing through the FCC certifications, all of which are, I think at this point, pretty straightforward. There's still work to be done, but I don't see a ton of risk in that effort. So there are a couple of utilities that are still awaiting, and from there, I fully expect to get those orders.
Not I, the team will get those orders.
Thanks for that. And then you had mentioned some people, in terms of expectations of deployment, that, you know, some will start with a field trial and small follow-ons, with potential to launch fully, and so others may, go directly to, you know, a more substantial deployment. I was just wondering, are these, indications, in discussions? You know, how formal are these, orders? Are they contractually signed? Can you just elaborate on, how much visibility you have to follow on?
Yeah, again, Daniel, good, great, it, it, it's a very fair question. Little, little hamstrung to give you a full answer today. The initial orders that we've received are not for full deployment. They are orders for utilities to activate their field trials, meaning we're getting paid for the devices and our time and support to get those moving. From those field trials, we would launch into much more comprehensive contracts, and orders in terms of dollar mag- order of magnitude. I'd say we have a number of utilities, United Illuminating contracted, Bolivar contracted, for those deployments. We have a number of other utilities where we are engaged in contract negotiation. That's about as far as I can probably push it in answering your question today.
Okay, great. And then I was just curious on the funding opportunities out there for customers wanting to pursue TRUSense. Could you just speak to, you know, does everybody qualify under the same programming? You know, are there different buckets to reach into, whether you're a IOU or co-op or public power? Can you just speak to the security or, you know, the resources around funding for TRUSense?
So I don't have a slide to flip through it. You may be familiar with our summary of stimulus opportunities that are, I think, still in the appendix of our investor presentation on the website. I know Deb and the team at Tantalus are working to get our investor presentation updated with today's results or materials that we're sharing, well, from yesterday's press release, obviously, and filing, but some of the materials in this presentation here. So we'll make sure that summary is still included for anybody that's interested. As it relates to the TRUSense Gateway, there are a couple different buckets at a very high level. The abbreviation GRIP is $0.5 trillion, ballpark, maybe a little bit more, tied to grid resiliency and modernization.
The TRUSense Gateway checks that box. There's also a substantial amount of money referred to as BEAD, B-E-A-D. Just in the interest of time, it's a broadband stimulus package. The TRUSense Fiber and TRUSense Ethernet Gateways check the box there. You know, order of magnitude, off the top of my head, $800 billion-$900 billion available to utilities, where the TRUSense Gateway is an allowable use. We are actively engaged in trying to pursue applications with certain utilities. I'd say some utilities are very excited about it. Some utilities don't wanna get caught up in delays or caught up in incremental reporting.
So it's really a cultural decision within the utility, whether they're gonna actively pursue, but there's a lot of money floating through the system here in the United States, Daniel, and and the TRUSense Gateway checks a lot of boxes with a lot of different programs. So, we're gonna be pretty active on it over the next three years.
Okay, great. Lastly, just on the FCC, FCC process, it sounds like you have a lot of confidence in getting through the process. I think you mentioned a Q2 timeframe. Can you just elaborate on the specifics that you need to cross that bridge? You know, what are you waiting on?
So, for the cellular, for the Ethernet or both?
For cellular, please.
Okay. So, I think the terminology, our hardware engineering team will probably slap my hand after the call, but it's emitted and radiated emissions or something like that. Trying to boil down because I am not smart enough to be an engineer. But when you put a radio chip or cellular radio chip in a container like the TRUSense Gateway, you gotta be conscientious of how the spectrum responds. We got a lot of communication stuff in here, including a Wi-Fi chip and Homeplug 2.0. So, you put cellular for the backhaul, meaning that's how we're communicating to and from the device, coupled with utility-grade Wi-Fi and power line communications through Homeplug. You got a lot of spectrum that needs to be managed incrementally.
So, we're still working on that. To get deeper, Daniel, it's probably better for a one-on-one call, and to the extent you're interested, can pull members of the engineering team that will be able to articulate that much more effectively than George or me. But, or I should say, what I can. But, as it relates to the FCC, that's really making sure that the use of the spectrum on 5G or 4G LTE stuff, it really is making sure we're not interfering with emergency signals or licensed spectrum. So it's. That process is very straightforward. Where there's still some engineering work is how do we cope with a 5G or private LTE cellular radio, coupled with Wi-Fi, coupled with PLC?
There's nothing that's insurmountable there, and frankly, with the team that we have on staff, nothing that we haven't addressed previously with devices. It's just a function of tinkering and tinkering. I think our gut instinct is end of this quarter is still a good bogey. It may slip into Q3. We've actually started to jerry-rig a few things, to demonstrate cellular capabilities, for some utilities, one in Texas that was at our users conference as a prospective utility, so we're pretty excited about that. But I think it's, I think it's forthcoming. I don't see a significant amount of risk at this point on that cellular gateway. And Daniel, as we've talked about, right, the cellular gateway is the one that's most applicable, to utilities across Canada and the United States.
Right. Right. Okay.
Yeah.
Thank you so much for taking my question.
You got it. I know we're beyond time. I don't know if there are any other questions, operator?
The next question comes from Gabriel Leung with Beacon Securities. Please go ahead.
I'll just sneak one in. Thanks for taking my questions, Pete. You know, I think as part of the user conference, you had talked about, was Irby being obviously one of your key channel partners, especially on the fiber side of things. I think they were holding, 30+ or so accounts on the fiber side that were that were waiting for a UL certification. So just curious if you're able to provide an update on, on the pipeline there and, and what you're expecting in terms of the, those accounts to convert over over the next little while.
Yeah, Gabe. So thanks for hanging in here and for other shareholders that are still on, or investors still on, thank you for the patience. I'll take the comment that we either got to shorten the presentation or I got to figure out how to shorten my color commentary on Q&A. Again, my apologies for the passion. Yeah, so good news, there, Gabe. Irby is proving to be a tremendous first channel partner. I put them at this point as a strategic partner to Tantalus. We actually have folks on site at their center this week, training up their field services team, their account and sales team, and have done some of that in conjunction with a few of their targeted accounts.
All of it came through Irby, and one of their key accounts is part of our initial field trial. So, I'd say the level of activity with Irby, we anticipate is only going to increase now that we have UL certification on the fiber gateway. And as a reference, Irby is one of the leading providers of fiber optics, massive organization. They'll play with the cellular gateway as well, 'cause they do a lot across the utility industry in general. But where we see a lot of traction and scale quickly is gonna be at the utilities where they have already deployed or are in the process of deploying fiber networks, and the fiber gateway or the Ethernet gateway plug right into it.
So, yeah, Gabe, we'll be excited to, I think, share additional information as we get through this, you know, into the second half of the year. But it's, from my perspective, it is, at the executive level of our team, and continuing to escalate inside their organization in terms of the strategic nature of what we're doing together.
I got you. Thanks for that. Just one last question from me for, probably for George. You know, you identified, sort of $1.5 million of costs related to TRUSense in the quarter. So with, you know, the fiber UL certification out of the way, would you anticipate some of those costs to lighten up a little bit? Or should we expect those costs to sort of remain flat, just, I guess, given the remaining certifications and the ramp-up of sales? How should we think about that and just operating expenses overall, relative to Q1, for the remainder of the year?
Yeah, no, you know, thank you, Gabe. And, we did, you know, $5.5 million in Q1, and we, we did have significant, marketing activities as well as commercialization and development of the TRUSense Gateway in that period. Q2 tends to be a significant period. We had our TUC conference, but we really are commercializing three variants of the TRUSense, in parallel here, and, and including certification and field trials.
So you know, the operating expenses this quarter will be, we anticipate to be higher than they were this quarter, reflecting those investments, as well as the ramp-up of training, field service, not only supporting Irby, as Pete said, and their service team and sales team, but also our own team, so we can get through these trials and get our customers deployed quickly. We really see the $1.5 million, you know, of external costs really trending down. Certifications, prototypes, external contractors, as the products are commercialized and ready for prime time and rollout. Really offsetting that is incremental investment of the field sales, deployment sales, and continued development as we add additional functionality.
I'll use the iPhone as almost a parallel as they launched the i3, the Apple 3, and now we're at the 15, and continue to enhance and maintain and grow market share. So that's our, our plan, and we could see towards the back of the half as really trending, you know, a little lower than this quarter, but, you know, reflecting those investments. So they'll offset to a large extent, Gabe, the $1.5 million, but just redeployed investment to support the demand that we're witnessing experienced from our customers in the market.
Gotcha. No, thanks for that. And sorry, I just wanted to, ask one more question. Just on the revenue side of things, I know obviously Q1 was a bit tougher on the hardware side, but with the orders that you've closed, and just based on the commentary from your meeting partners, do you anticipate that the, the connected device line will return to year-over-year growth for the remainder of the year?
Go ahead, George.
Yeah, no, of course. You know, you know, we did have really strong orders, you know, 22% over the prior year quarter, and we're really seeing the fulfillment of those orders, Gabe, into Q3, Q4, and even into early next year. So we do see, you know, the strengthening of the traditional MI line of business and growth in revenue on our connected devices. And then complementing that, of course, will be the initial sales and related fulfillment of revenue for the TRUSense Gateway towards the later half of this year. So we do anticipate growth.
Gotcha. I appreciate that. Thank you very much.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Peter Londa for any closing remarks.
Thanks, operator. On behalf of our entire team, thank you all for the continued interest and allocating time to receive today's update. Appreciate questions from analysts, and as always, Deb, thanks for helping us get organized and many shareholders and investors that have questions can certainly direct outreaches to her. We'll look forward to providing an update on Q2 as we continue to move through the quarter. I hope everybody has a great day. Thank you, all.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.