Morning. Can you all hear me all right? Perfect. Thanks for allocating some time to learn a little bit about our business, Tantalus Systems. Before jumping in, our CFO, Azim Lalani, is here in the front with me, and Deborah Honig, who supports all of our Investor R elations, is in the back of the room. To the extent there are follow-up questions or items that you'd like to cover outside of today's presentation, please feel free to grab one of the three of us to learn as much about the company as possible. What I'm going to do is try to give over a very quick overview of who we are. I'll dive into a little bit of our technology, and then from there, focus a little bit on our business model and how we're scaling our company.
As you think about Tantalus in the context of so many other presentations today, we are a technology company based out of the Vancouver Metro Area, solely focused on helping electric utilities modernize the distribution grid. For those of you who track stories about data centers and the rise of AI and the electrification of transportation, that has a cascading impact on the reliability of the distribution electric grid and what is becoming, based on the CEO of Apollo's commentary today at a conference, an existential threat for economic development in various communities. We have found ourselves sort of at the epicenter of a number of secular drivers that are forcing us to all think about how we both consume and, for utilities, deliver power. That's what we're focused on. At a very high level, we're traded on the Toronto Stock Exchange under the ticker symbol GRID.
We also have a ticker symbol on the OTC QX for U.S. investors to make that a little bit easier. We have about 150 employees spread between the United States and Canada. Today, we support over 325 utilities as customers, and that is growing every year by about 20 utilities. We continue to gain market share against some of the largest players in this space as we think about scaling our core competencies and capabilities. In terms of financial profile, I just summarized that we report in U.S. dollar. The reason for that is 99% of our revenue comes from the U.S. today, and that is our market of focus, even though we are Canadian-based.
With that said, the new administration here in Canada, the initiatives around Buy Canada activities as of Friday and yesterday in British Columbia to begin requiring data centers and AI centers to have gas-powered backup generation before they're approved. Some things happening in Ontario. There's a great opportunity for us to expand our business in our own home country. Curious for us, we're Canadian-based, but we think of Canada almost as an international market. To that end, we report quarterly, calendar year. Our upcoming Q3 results will be presented and filed in mid-November, I think November 11th to 12th. I like to focus on trailing 12 months. When we sell to electric utilities, keep in mind the buying patterns are pretty systematic depending on their budget cycle.
While we've made very good progress on a quarter-over-quarter basis, and you'll see that if you dig into our business a little bit, on a trailing 12-month basis, we've hit a number of milestones, just under $50 million of revenue. 35% of that comes from software and services. 25% of total revenue today is from recurring revenue. Our recurring revenue grows at about 20% compounded annual growth since 2016. I'll explain how we're driving that. Overall, we generate positive adjusted EBITDA. For those of you that have been tracking us for some time or shareholders, we appreciate the longstanding view. We have just come out of a $15 million R&D initiative to bring a new innovation into the market called the TRUSense Gateway, which is accelerating the growth of our company. We'll talk a little bit about that today as well. We expensed all of that.
When you look at us historically, prior to actually initiating what was a three-year R&D initiative, we delivered positive adjusted EBITDA for 18 consecutive quarters. As a management team, we know how to do that. We made a deliberate decision to invest in R&D to bring forward new innovation. As you meet us today, we are now in the process of not only completing that R&D, but now commercializing the technology and driving revenue, EBITDA, and cash flow as a result. Why do we exist? Why do utilities select us? Why do we add 20 new utilities on average a year? There are three main secular drivers in the utility sector. When you think about utilities, for those of you that are not familiar, there is generation, there is transmission, and then there's the distribution, where we live, where we work, where we are today.
The distribution grid is our focus. How does a utility deliver a sufficient number of electrons to allow us to power every single device that we have, as well as support economic development for communities and cities? As we see things unfolding rapidly and changing for the grid, especially in the United States, it is well documented that for the first time in 50 years, the amount of electricity that is being consumed is on a growth pattern. When you think about the utility industry, and some say they're slow movers, I like to say they're very deliberate. Fifty years ago, they built a 10-lane highway, knowing that they only needed about six lanes of that highway to support the demand. That has changed radically. Now that 10-lane highway is insufficient for what otherwise is about 12 or 13 lanes of traffic.
How does a utility prepare for that in the context of permitting in Canada and the United States? It is not easy to activate generation. That is a decade-long initiative. Utilities are turning their attention to the distribution grid to mitigate what's called an imbalance between the supply of power, how much they have, and the demand of power, how much we all consume. When things go out of whack, much like economics, when demand exceeds supply, price increases, that gets politicians involved because consumers pay higher rates, or with the way the grid is built, protective relays kick in, meaning the grid is designed to prevent an overvoltage situation. You get things like rolling blackouts in the Tennessee Valley Authority for the first time in five decades. That is not good business for the utility. That is where we are very much focused on helping.
Incrementally, we see, as a result, rising power outages. Regardless of your view on climate change, we are seeing an increasing number of extreme events. We see utilities get devastated, and their communities get devastated by those extreme events. As you track us, you'll see an increasing number of use cases and data that we gather to provide the utility with the necessary visibility to understand how a storm is impacting their grid, where the outages are starting, and then, most importantly, how quickly to respond for restoration. The third issue that we see, which is where our machine learning and AI and software analytics come into play, or data analytics come into play, is a retiring workforce. This is a frightening statistic. About 46% of all engineers in the U.S. utility industry on the distribution side today are within five years of retirement.
How do you replace tens of thousands of engineers? The answer is automation. That automation drives to data. How do we capture data, devices that we deploy in the field? When we think about opportunity, we think about how many utilities are out there within our target market, how many devices, intelligent edge computing devices can we deploy and sell for profit to those utilities, and then, over a decade, over 15 years, how do we access very granular data and drive that through software and analytics for automation? The opportunity in front of us is substantial. It's in the billions of dollars as a relatively small company. One of the biggest risks and challenges we have today is how we prioritize which of the opportunities we pursue. What do we do? We deliver a technology platform for utilities. We refer to it as a grid modernization platform.
It includes an edge computing device. We have a couple of different scenarios or a couple of different parameters and sizes of those devices. If you think about the guts of your iPhone, that's what we design, and that's what we have built. Instead of putting a PCB board with edge computing into an iPhone, we're putting it into the glass of a meter, a load control switch, a distribution automation sensor, substation equipment, and our latest innovation, the TRUSense Gateway. Those devices sit in the distribution grid, which is the right side, or your left, my right, from the substation down to the meter. That's where utilities have historically focused their time, effort, and investment. They're looking to turn what otherwise is still a very analog system into a digital, intelligent, and ultimately predictive network of connected devices.
$50 million of revenue today for Tantalus on a trailing 12-month basis through June 30th is from the substation to the meter, a combination of devices, 65% of revenue, a combination of software and services, the remaining 35%. As we think forward and think growth and long-term opportunity for our company and for our shareholders, we are increasing our focus on what we call behind the meter. How does an electric utility mitigate the imbalance of supply and demand of electricity when they don't have enough power to support everything in demand? Let me give you a personalized example. For those of you that have seen me present, sorry for the redundancy, but I drive an F-150 Lightning pickup truck, 19 kW battery. It is sufficient to serve as a backup generator for my home. I live in the New York Metropolitan Area down in Connecticut.
Apologies for being an ugly yank, at least in current times. When I plug that vehicle into the side of my house, I double the amount of power that the utility is delivering and how much I am consuming. On the one hand, that's great. Revenue for the utility goes up. The problem for that is, as the grid is built from substation, big power line, down to distribution transformer, distribution transformer, power line to pole-top transformer. I'll show you an image of those in a moment. Pole-top transformer to the meter on the side of my house. The pole-top transformer across the street from my house was installed in 1988. In 1988, the F-150 Lightning vehicle did not exist. My house was 50% of the footprint it is today. The family that owned the house before I did doubled it.
It's a 4x increase in power relative to what the utility envisioned 40+ years ago, close to 40 years ago. How does the utility reliably deliver power to me? They're responsible for that. That's the type of thing that we're working on. How do we help a utility manage and think about leveraging load behind the meter, my F-150 vehicle as an example, in the event that they see an increase in demand at peak demand time and a shortage in supply to avoid the transformer from collapsing or exploding, from a power line shorting, from a substation going down? What we're focused on is a new product called the TRUSense Gateway. It's in sort of the second picture, and it's a collar. Most people, when they think about grid modernization, they think about smart metering that's been around for a long time, not very sexy stuff, right?
Large meter companies doing that for some time, and everyone, most people, about 80% of Canadians and 80% of Americans have an automated build today. That also means 20% of people in Canada and 20% of the United States still have a person who shows up on the side of their house to read a meter once a month. It's the only industry we rely on today that is that archaic. There is still a significant opportunity to upgrade metering infrastructure in Canada and the U.S. What we've done, though, is for utilities that may not be in a position to upgrade a meter, we've come up with what we call a collar. The TRUSense Gateway sits between a standard meter socket and a standard meter.
What we're doing is not only gathering meter data, but we're gathering, for the first time in the industry, very granular power quality data that historically has only been available at the substation. When we think about power quality, think voltage, think current. For those that may have done some engineering in your life, think harmonics and waveform, and then some very specific statistical calculations around blinks and flickers. The way to think about that is if you ever see the lights flicker in your house, that's actually a millisecond disruption of power. It could be at the transformer, it could be at the meter, it could be at your circuit panel in your house. How do we help utilities pinpoint that granular level of data? From that data, protect assets as things are stressing.
This device also is able to allow the utility, for the first time, to engage with me as a consumer, provide me economic incentive, let them control or throttle the voltage going to my charger to protect the transformer. Some people I meet are a hot water heater with one of our partners, GE Appliances. Preheat water in advance of peak load and take that water heater offline. For every kilowatt saved, every megawatt saved, is a kilowatt and a megawatt that doesn't have to be generated or delivered. When you think about that imbalance between supply and demand, this is a very surgical way for utilities to address that in the absence of firing up a peaker power plant or building one or waiting for one to come online. I get this from some investors.
Why on earth would I allow a utility to control a water heater or my EV charger? I like to personalize. I have two teenage kids. They live and breathe on Instagram and TikTok. When power goes out in the house, Wi-Fi goes down. When Wi-Fi goes down, if the cellular network similarly is struggling, my wife and I have a really bad day. A lot of our technology vision is how to help the dads like me with teenage kids that are addicted to phone and making sure that they have continuity and access to their social media accounts. If you're in that realm, invest in Tantalus. That's all you need to know about the company. What do we do? What does it look like? The device turns into data. It's a means to an end. I also get, why not just give away the hardware?
Or why are you in the hardware business? The hardware business locks us into a utility for typically 12 to 15 years. It creates a moat, a barrier to entry. Unless we really screw up, that device is there for a long time. That device is capturing data every millisecond of every day. When we think about incremental R&D beyond the device, once we convince a utility to deploy it, how do we monetize that data? How do we think about AI engines to think about the parameters of a storm coming based on historical data? How does that storm impact the resiliency of the grid? Where do they need to be thinking about and upgrading? How do they think about imbalances between supply and demand and managing peak load with a predictive engine behind it based on data that we're capturing and analyzing every day? It translates into analytics.
That's what you'll see over here. It's a little bit hard, my apologies, but I like the top right-hand corner one. The blue bars up and down are how much power is flowing through a transformer. The red line is how much power should be flowing through that transformer. What you'll see is, in many circumstances throughout a period of time, the utility has no visibility but for data capture from our device today. What is the ramification of having more power flowing through a transformer like at my house when I charge my EV? That's above the nameplate of that transformer. What happens is the transformer, which is a bucket of oil and some insulation, starts to overheat. Winter months, that's OK. It's cold outside. Summer months in Connecticut, it could be 100 degrees and 100% humidity in August. Nasty.
That device, if it's overheating, is a bucket of oil that's waiting to explode. How does a utility see that in advance and then either upgrade the transformer, load management at my house, reconfigure some things across their feeders to reduce the stress on that? The second thing that we didn't really think about when we started the innovation around the TRUSense Gateway, the green bars underneath are a reverse power flow, meaning it just so happens that one of the transformers we were monitoring had a home with a battery in it. That home did not submit for permit. The utility had no idea there was a source of generation because it's silent.
In the event of power outage, if their line crews are not following procedure with gloves and grounding equipment, and they see a line down on the ground, and their view is power's out, and they pick that line up, you have workforce safety issues. It was somewhat of an incremental use case, an example of what we are learning as we get this device in the field of all the things we can do based on data to pinpoint where does a utility have risk of what's called backfeed onto the grid, and how do they use that information to protect their workforce? A fascinating set of use cases that continue to evolve from us. That translates into how do we make money? We convince a utility that we are the right technology partner.
One of the best elements of how we continue to scale our user community is in the way we retain utilities. Our retention rate today, not annually, but over the last two decades, is 99%. In my 11 years as CEO, we have had one utility migrate away from Tantalus to a competitor. We have been very successful through our sales channel, through our sales processes, and through our technology to ultimately gain market share against larger vendors. A lot of reasons for that for separate conversation. Once we convince the utility that we're the right partner and we get substantial references from our existing customer base who produce use cases on what they learn from our technology, we then get devices deployed. That establishes an immediate decade-long relationship from that data, from that device data, from device software and analytics.
For every device that we sell, there is an immediate source of recurring revenue on a per-device basis. On some of our core stuff that we've been deploying, on average, about $4 per device per year. On our TRUSense Gateway, almost up to $11 per device per year over a 10+ year period. Our gross margins, as a result, scale quite nicely, even though 65% of revenue is from the hardware upfront. On average, about a 54% gross profit margin. We can generate profit and cash flow from the device while simultaneously creating that source of revenue over a long period of time, software and services. As you'll track us, you'll see the inversion back to scaling the business with positive adjusted EBITDA.
What I would say is we are more focused on revenue growth today and taking advantage of the opportunity in front of us than we are maximizing positive adjusted EBITDA. As we model the business out, our internal target for adjusted EBITDA is about 15% - 17.5%. Today, we've got a fairly good operating leverage between the growth rate of revenue and the growth rate of OpEx. We have the luxury, as a management team, of pinpointing when to accelerate investment in human capital, in resources, in R&D relative to cash flow that's flowing through our model. As you can see, the model continues to repeat. We've demonstrated a track record of replicating what we're doing as we bring new technology into the field to utilities. Again, device equals data, data equals software and analytics for recurring revenue.
By definition, every time we are successful in adding a new utility, our recurring revenue goes up. In terms of the team to execute, as I'd mentioned, Azim Lalani here with me today. We are fortunate to have Azim join us in the last year. Prior to, even though not a tech guy, for the past 20 years has supported publicly traded companies in Canada, the United States, with market capitalization substantially larger than ours. As we think about doubling and tripling the size of our company, what's the infrastructure, the governance, the systems, the processes that we need to make sure we don't trip and fall along the way? That's where Azim's expertise is. I'll highlight another individual somewhat new to our team, Chris Allen.
Chris Allen was the former CFO and COO of Copperleaf Software, a great story out of British Columbia software business, a little bit more focused on the generation and transmission side in the utility industry. He was part of that executive team that led to ultimately a billion-dollar trade sale to a strategic buyer about a year ago. On the board, we are very fortunate that Laura Formusa, Ontario-based individual, is our Chair. She was the former CEO of Hydro One, among the most accomplished females in the North American utility industry and helping us think through not only the trials and tribulations of managing relationships with utilities, but as we think about now expanding our market opportunity with things that are unfolding in Canada, how are we best positioned to do that from someone who led the largest or one of the largest utilities here in the country?
Incrementally, we've added Dave McLennan, former CFO of Sierra Wireless. Dave was part of Sierra Wireless when it was about our size and helped grow that company into the networking communications giant that it became. Kristy Honey, I'll highlight too, someone else from Ontario, local, most recently the former Chief Information Security Officer for Ontario Power Generation. Responsible for all the cyber attacks on nuclear and hydro dams here in Ontario. As we think about automation, data, and communications, cyber being a huge component of our planning. We've been pretty fortunate to see an uptick and an increased level of interest in our stock as our TRUSense Gateways come into market, as our financial profile continues to improve. We have six covering analysts today with great support from those firms and trending favorably as we continue to build momentum in the market. Now, simplify.
I know it's a lot to digest, company after company, but Tantalus finds itself in a really unique position in that we have a significant number of market catalysts. Every day that there's an article about the capacity constraints tied to data centers and AI, we are in that sweet spot. We are at the intersection for utilities in trying to help address that. We have a substantive business today that is throwing cash flow at $50 million of revenue, positive adjusted EBITDA, positive free cash flow for the first six months, $18 million US dollars of liquidity on the balance sheet to support our growth. Incremental to that, which we don't think yet is factored into valuation, is the upside opportunity in terms of the long-term effect of data analytics from our TRUSense Gateway.
I think there's a decent amount of upside, which is why we still have a good bit of insider buying as well. With that, I'm short on time, but questions? Yes, sir.
What's the unit economics of those Gateways? How much does it cost to, I guess, acquire, as you mentioned in this call? How much does it cost for the hardware? How much revenue do you get from selling the hardware and from the follow-up software and analytics services?
The question is, what are the economics on the TRUSense Gateway? I appreciate the level of detail in your question. A lot of that we're not going to disclose. What we have shared is we are selling the TRUSense Gateway on average for about $550, $500 for the upfront device, $50 in the form of a software license, 22% annual maintenance on that $50, so about $11 per device per year. The gross profit margins are in alignment with how we segment hardware versus software and services in our MD&A. Sorry, I'll come right back to you. Yes, sir. Go ahead. No, go ahead, Jason.
Just on the margins, you guys are 6% EBITDA margins. I know the target is 15% - 17.5%. Is that like a two to five year? Are you trying to, I don't know if the focus is on revenue, but in terms of profitability, when does that start to really kick in?
Yeah, I think from an operating leverage, it probably kicks in at around the $70 million revenue mark. I think in that capacity. With that said, if we continue to see opportunity to scale the business, we've got the support, I think, from shareholder and board to invest in that growth, so long as we're continuing to throw off cash flow and have a balance sheet that can support it.
Great. Just on the AI theme, I know Alberta is talking about a lot of data centers being powered by cheap natural gas. I'm assuming that we have some good leverage to that in Alberta.
Absolutely. There's a cascading impact there through the distribution grid. As you fire up a peaker power plant, if it's not sectionalized, you've got a change in variation and variability on the grid. How do you protect the assets upstream of that peaker power plant? That's where we're focused. I think we're cut off. I can answer your question outside of that if it would help. Thank you all for your time and attention.