Good day, and welcome to the Tantalus Systems third quarter 2026 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Peter Londa, President and CEO. Please go ahead, sir.
Actually, it is supposed to be over to me, Deborah Honig. So, thank you for joining us to discuss Tantalus Systems' financial results and operating performance for the third quarter ended September 30th, 2026. Tantalus issued these results, including their financial statements, management's discussion and analysis, and press release yesterday after market close, which are also 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 Azim Lalani, 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 investor presentation on our website at www.tantalus.com.
Statements made on this call reflect management's analysis as of today, November 12th, 2026. 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 US dollars and in accordance with IFRS unless otherwise stated. Due to one-time refunds associated with the International Emergency Economic Powers Act, IEEPA, that the company received during the three months ended September 30, 2026, the company is including an additional set of non-IFRS financial measures, non-IFRS ratios, and other supplementary measures, including adjusted revenue, adjusted cost of sale, adjusted gross profit, adjusted gross profit margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, recurring revenue, annual recurring revenue, also referred to as ARR, and liquidity.
These measures exclude the impact of the IEEPA refunds, as management believes these measures provide a more relevant comparison to prior periods. However, they do not have a standardized meaning and are not likely comparable to similar measures presented by other issuers. In conjunction with assisting investors understand the impact of the IEEPA tariffs on the company's financial results, we will be using a presentation during today's call. We will now turn the call over to Peter Londa, President and CEO. Please go ahead, Pete.
Thank you, Deborah, and good morning, everyone. On behalf of our board of directors and our employees, thank you for joining us to review our results for the third quarter. As Deborah mentioned, our reported results in the third quarter included a one-time refund of tariffs paid in prior periods. I will refer to adjusted figures, which exclude the impact of the refunds. Azim will walk through the details and why we believe the series of adjusted measurements are more relevant for comparison against prior periods. I will start with the headline. Adjusted revenue generated in Q3 was $14.3 million. While the number represents a record for revenue generated during a third quarter period, it is also only slightly higher when compared to last year's results. Software and services grew, while connected devices revenue was slightly below the prior year.
Coming off 18% growth in the second quarter, that is slower than we would like. Let me outline what shaped it, because the results reflect timing factors, not lost business. As outlined on slide three, during the quarter, we witnessed meter availability and capacity allocation constraints with existing metering partners. One partner was unable to deliver meters throughout the month of September due to component availability, while another vendor reduced capacity allocations in their factory during the second half of the quarter. For us, that meant shipments of meters integrated with our edge computing intelligence modules were pushed out of the quarter and into future periods. We also started to witness longer lead times with our contract manufacturer as the supply of memory and certain components tightens, which is one reason we have proactively been building inventory of raw materials and finished goods, which Azim will cover in more detail.
Finally, as I have said previously, when affordability pressures rise from higher fuel prices and inflationary pressures in their communities, utilities extend deployments rather than cancel them. We saw that with one of our larger customers asking us to push shipments from the second half of this year into 2027. As we are heavily focused on building and maintaining decades-long relationships that lead to an exceptionally strong retention rate of our user community, we believe it is prudent to be flexible when it comes to the deployment of our solutions, even if that means near-term impact to financial results that we can absorb without disrupting the continuity of our business. Beyond the quarter, our adjusted revenue and Adjusted EBITDA also grew on a trailing 12-month basis. We exited the quarter with another record of annual recurring revenue, or ARR, which now stands at $15.4 million .
That is the engine that converts hardware deployments into predictable, high-margin recurring revenue, and we continue to demonstrate an ability to put this model to work. Beyond the financial results, the indicators that tell us where our business is heading, such as the expansion of our user community, the adoption of solutions, the conversion of pilots to deployments, strong retention rates of our customers and our recurring revenue, as well as increasing ARR, all moved forward favorably during the quarter. Digging deeper, and obviously a significant area of focus for investors, is the status of the commercialization for the TRUSense Gateway. As reflected on slide four, I am proud to report that as of today, 92 utilities, representing approximately 2.7 million meters deployed, have placed orders for the TRUSense Gateway. This is up from 77 utilities as reported during our second quarter.
We continue to see a good mix of new and existing customers adopting this innovative solution. In addition to the solid growth in the number of customers placing orders, I would also draw your attention to the progression that we are making towards adoption. Utilities moving beyond pilots into scaling deployments grew from 37 last quarter to 53 this quarter. More than half of the utilities that have placed orders for the TRUSense Gateway are now deploying, and we continue to witness a conversion rate from pilot to deployment that far exceeds our expectations. We have shipped roughly 10,800 TRUSense Gateways as of today's call and are building a robust set of testimonials regarding the value proposition of this innovative offering. We often get asked how large a TRUSense deployment can become, and it truly depends on the use case and the size of the utility.
The initial use case that is fully validated at this point is incorporating the TRUSense Gateway as part of a new or existing AMI smart metering system. As a collector within that system, the TRUSense Gateway is capable of collecting data from up to 250 meters. While we never design a network at full capacity, the inclusion of the TRUSense Gateway as a collector provides us with a series of incremental capabilities for power quality analysis and load or DER management that lead to additional volumes over time. We find that utilities are very interested in the multifaceted capabilities, but typically lock into one business case to justify the purchase, particularly given the current operating environment where affordability is placing pressure on CapEx spending.
As an example, one longstanding utility customer in the Midwest that has been part of our user community since 2013 originally deployed our system more than a decade ago. That utility is now deploying the TRUSense Gateway to upgrade their entire communications networking infrastructure, leveraging both fiber and cellular capabilities. Over time, the utility will activate power quality in an effort to not only support their metering infrastructure, but also to support transformer monitoring as the utility seeks to extend the life of its distribution transformer fleet. Another example can be illustrated through initiative, inclusive of our AMI 2.0 capabilities. The utility serves over 35,000 meters, with approximately 10% of those customers also purchasing broadband services from the utility. By deploying the TRUSense Fiber Gateway, the utility is expanding the ROI on its original fiber investment while simultaneously improving the resiliency and reliability of the distribution grid for their community.
Both of these utilities serve as great examples of our land, expand, and broaden model at work. The other key piece of the story is what happens once our connected devices, including the TRUSense Gateway, are in the field. Keep in mind, the way we have structured our pricing, recurring revenue is triggered for each device at month 13 of its deployment. So the early deployments of the TRUSense Gateways are just beginning to contribute to recurring revenue. As an increasing number of devices are deployed and hit that 13-month milestone, we will drive additional recurring revenue in support of the software and services we offer to our customers. An example of this can be tied to our power quality data that our connected devices are capturing at the very edge of the grid.
As we run that data through our analytics tools, we are able to visit existing customers and demonstrate what that data from the system they already paid for is telling us, and outline how we can help them solve an incremental set of problems. By putting this model to work, we've been able to upsell our analytics to approximately 20 utilities as of today's call, five of which have also opted into our TRUGrid Advantage managed service offering that was introduced during our users conference in May. The TRUGrid Advantage managed service offering is in direct response to one of the biggest challenges our user community of utilities faces, which is the retirement of experienced engineering and operations staff.
Rather than trying to rebuild expertise in-house and be subject to the constraints of recruiting in some of the smaller communities that we support, a utility can now reliably focus on our team to monitor its system, interpret the analytics, and recommend the actions they should take. To support the growth of our offerings, we're in the process of establishing our first U.S. service center, which is expected to be opened in Q2 of 2027. In addition to being situated in the Southeast near a large number of our existing customers, the service center will support our managed service offering and a network operation center. It will also handle warranty repairs, returns, and refurbishment of connected devices.
Having our own service center right in the U.S. means faster turnaround and lower cost for our customers, and it gives us the infrastructure to scale managed services as another source of recurring revenue. I also would like to spend a moment on revenue visibility since it's a question we frequently hear from investors. On average, we add approximately 20 new utilities a year. It's a good barometer for us, but it doesn't mean we can't add more. As an example, through the first nine months of this year, we've added 19 utilities to our user community, with 11 of them converted in the third quarter. You may recall during our Q2 earnings call a few months ago, I referenced that we had eight utilities in active contracting and that we expected those utilities to convert before year-end.
As of the end of Q3, six of those eight utilities had signed agreements, while two remained in contracting. We have confidence that the balance of those utilities, the two in contracting, will sign before year-end. Our book-to-bill ratio is another area of focus for investors, and through the first nine months of the year was 0.9 x. Our qualified pipeline grew QoQ and remains the strongest in our company's history. Coupled with the 11 utilities joining our user community and continued growth of our ARR, we believe demand for our solutions remains durable. In terms of our revenue visibility and continuity, existing customers represented approximately 85% of revenue over the last 12 months, with no single customer representing more than 8% of total revenue during that period of time.
Our top 20 customers represented approximately 45% of revenue over the trailing 12 months, translating into depth and diversity of the customers that drive our annual revenue results. That's a fundamental principle of our growth strategy. As the user community grows, so does our visibility into revenue that we can generate in future periods. With respect to the distribution utility spending environment, it's consistent with what we've described last quarter. Utilities continue to invest, but they're being very deliberate. With inflationary pressure, fuel cost, and interest rate uncertainty, utilities are scrutinizing CapEx spending more closely, particularly across the public power and electric cooperative utilities that operate within a finite annual budget. With that said, we're not seeing cancellations or a declining set of opportunities.
Rather, we see utilities asking to extend their deployments, such as the example I highlighted earlier during today's call of a larger customer asking us to push shipments out of the second half of this year and into 2027. While deployments may get extended over longer periods of time, we still are witnessing healthy spending across the distribution grid. As I've said before, I think we have a natural hedge when affordability becomes paramount in buying behavior. When budgets are tight, utilities focus on how to extend the life of existing infrastructure and sequence their deployments. That's exactly where the TRUSense Gateway, our analytics platform, and our willingness to support flexible deployment schedules plays extremely well. Overall, we believe the tailwinds of electrification, aging infrastructure, and extreme weather leads to long-term growth for Tantalus.
If there's one theme across recent industry events- The ties to near-term spending by utilities, it's how affordability is impacting CapEx decisions. Not only was affordability highlighted in the recent elections across the U.S., but it also was a clear area of focus at the DISTRIBUTECH Northeast Conference last week, where the message from utilities and regulators in attendance was clear. Need alone does not justify grid spending in the current economic environment. Every investment has to show what value it unlocks. Utility executives are asking for risk-based analytics, lower-cost alternatives, and real cost-benefit evidence. That's the case we've been making for years. The TRUSense Gateway, our analytics, our TRUSync grid data management, and our commitment to backward compatibility and interoperability allow utilities to get more out of the infrastructure they already own instead of ripping and replacing it.
The independent evaluation of our pilot with United Illuminating in Connecticut quantified that value. Our core customers within the public power and electric cooperative utility market segment have been managing affordability pressure for years. The rest of the industry is now being held to that same standard, so we believe our playbook will continue to resonate with an increasing number of utilities relative to our competition. What we also learned through the DISTRIBUTECH Northeast Conference is that utilities are moving beyond simply enrolling DERs, or distributed energy resources, to actually orchestrating them and solving hard problems at an operational level. Visibility, hosting capacity, and power quality on stressed feeders is becoming increasingly apparent.
That one-two punch of power quality visibility coupled with control of dispatchable load through the TRUSense Gateway behind the meter puts us in a very strong position as utilities confront congestion on transmission lines and a shortage of power during peak events. Before turning the call over to Azim, I would like to also highlight two additional items from Q3. in August, we announced a partnership with Calix, a market leader in deploying and managing fiber networks for utilities. With more than 200 electric utilities deploying fiber today, we see that partnership as incremental upside in the cooperative space. Lastly, in September, many of you may also have seen that Tantalus was added to the Nasdaq OMX Clean Edge Smart Grid Infrastructure Index as part of its semi-annual reconstitution. We were one of only seven companies added this round.
As a result, Tantalus is now a holding of First Trust NASDAQ Clean Edge Smart Grid Index Fund, which fittingly trades under the ticker GRID and had roughly $12 billion in net assets at the time of our inclusion. The index tracks the global companies building the modern electric grid, and eligibility is based on criteria that includes market cap over the past couple of years. From our perspective, it is recognition of the role Tantalus plays at the edge of the distribution grid alongside much larger companies in our sector, and it broadens our visibility with institutional and retail investors focused on grid modernization. With that, I will turn it over to Azim to cover our financial results.
Thanks, Pete. As a reminder, all financial results are reported in US dollars unless otherwise stated. As a reminder, the U.S. government imposed tariffs under the International Emergency Economic Powers Act, known as IEEPA, in early 2025. When the tariffs were introduced, rather than incorporate them into our base prices, we disclosed them as a separate line item on our invoices to provide transparency to our customers and reflected that decision within our financial statements. In February 2026, the U.S. Supreme Court ruled that IEEPA does not authorize the president to impose tariffs, and in April 2026, U.S. Customs launched a refund process. We accordingly applied for and received approximately $2.6 million in refunds during the third quarter. The refunds consisted of approximately $2.5 million of tariffs previously paid, dating back to April 2025, and approximately $100,000 of interest income.
You may recall that during 2025, we absorbed 5% of the tariff costs and passed the balance onto customers. In 2026, we passed on the full tariff to our customers. A portion of the refunds, therefore, relates to tariff costs we absorbed rather than recovered from customers. As shown on slide eight, we thought it would be helpful to walk through how the accounting treatment of the tariff refunds under IFRS impacted what the business actually delivered during the quarter. The impact is fairly significant, as the culmination of the past 11 months of tariff activity is being concentrated into one quarter. Starting with revenue, although we are not contractually required to return tariff refunds, we made a commercial decision to provide approximately $1.4 million in credits against future purchases to eligible customers for tariff charges they previously paid.
The decision aligns to our original intent to provide transparency to our customers and in keeping with our focus on building and maintaining multi-decade relationships. The decision we made this quarter to provide such credits requires us to reduce invoiced revenue within our connected devices segment by the amount we plan to credit towards future purchases. Software and services revenue was not impacted by the IEEPA tariff charges or the related refund adjustments. Further, we recorded the $2.5 million in tariff refunds as a reduction of cost of sales. The net result of the accounting for revenue and cost of sales equates to a $1.1 million increase to gross profit, thereby increasing the gross profit margin to 70% for the quarter. The $100,000 in interest income was recorded separately as finance income.
To help investors assess the quarter's actual operating performance relative to prior periods, we are presenting adjusted revenue, adjusted gross profit, adjusted gross profit margin, which excludes the effect of the tariff refunds and the related customer credits. Unless otherwise noted, my comments that follow compare these adjusted third quarter 2026 figures with the corresponding prior year measures, which were not affected by IEEPA tariff refunds or related customer credits. Turning to slide nine, third quarter adjusted revenue was $14.3 million, our highest ever third quarter revenue, slightly above the $14.2 million reported last year. Adjusted gross profit margin was 56%, an increase of approximately 110 basis points.
Adjusted operating expenses exclude depreciation and amortization, share-based compensation, and in the second quarter, non-recurring restructuring costs were $6.8 million for the quarter compared with $6.6 million last year, and represented approximately 48% of adjusted revenue, in line with last year. Sequentially, adjusted operating expenses declined, reflecting lower recruiting expenses and timing of costs associated with our annual users conference, which was held in the second quarter. With strong gross margins and lower adjusted operating expenses, Adjusted EBITDA was $1.2 million, consistent with last year, representing an Adjusted EBITDA margin of approximately 8%. Turning to the segment results on slide 10, connected devices adjusted revenue was $9.2 million, broadly in line with $9.3 million last year. As Pete discussed, the YoY movement reflected shipment timing rather than lost business. Software and services revenue increased 4% to $5.1 million.
The increase in software and services revenue was tied to growth in the number of connected devices shipped and deployed, whose activation triggers ongoing annual maintenance revenue, along with contributions from TRUGrid Analytics and Advantage offerings. Recurring revenue for the quarter was $3.9 million, up 14% from last year. Recurring revenue as a percentage of total adjusted revenue was 27% for the quarter. The growth reflects the increasing number of deployed connected devices, which generate ongoing annual maintenance revenue, along with contributions from our analytics offerings. Beyond the results, Pete highlighted our annual recurring revenue, or ARR, which is a forward-looking estimate as of September 30th, 2026. I'd add that our retention rate over the last five years approximates 99%. Over the last 10 years, ARR has grown at a compound annual growth rate of almost 19%.
Drawing your attention to the right side of slide 10, connected devices adjusted gross profit margin was 42.1% compared to 45.1% last year. We often see fluctuations of our margin in this segment based on the mix of connected devices shipped during the quarter. In Q3, as an example, we shipped a higher volume of TRUSense Gateways and fewer polyphase meters. Since the TRUSense Gateway is still ramping up production, we would anticipate improved margins as volume increases. We are seeing inflationary pressure on certain components that are part of our bill of materials across all connected devices and are taking a multi-pronged approach. First, using our strong balance sheet, we began purchasing key components in advance over the past several months to secure pricing. As a point of reference, this proactive approach increased inventory balances in Q2 and again in Q3.
Second, we implemented a price increase on connected devices effective October 1st, 2026, our first price increase in three years. Collectively, these actions are intended to support ongoing and future deployments, secure pricing and capacity, and protect gross profit margins heading into 2027. Our software and services gross profit margin was strong at 81% and benefited from the annual renewal of our TRUSync grid data management application at a large IOU that occurs in Q3 of each year. We also witnessed a favorable mix inclusive of more annual maintenance revenue and less lower-margin installation revenue compared to last year. On slide 11, you'll also notice the impact of our decision to build inventory within our cash flow. During Q3, we invested $1.3 million in additional inventory and also had a $3.1 million seasonal decrease in deferred revenue in normal course that was partially offset by receivables collection.
These movements translated into an outflow of cash from operations of $1.1 million for the quarter. The other significant cash movement since June 30th was the repayment of the $6 million EDC term loan in early July. The repayment was funded by a new $3.5 million term loan and cash on hand, reducing the interest rate on our term debt from 11.75% to approximately 6%. We viewed this as a prudent decision to reduce our borrowing costs and delever the balance sheet. At September 30, total liquidity remained strong for Tantalus at approximately $33 million, consisting of $21.3 million of cash and approximately $12 million available under our line of credit. We have adequate flexibility to support the continued growth of our business.
Turning to slide 12, the trailing 12-month view helps put quarterly shipment timing into perspective given our sales cycle, which typically runs for 18 months, coupled with multi-year utility deployments. Over the trailing 12 months, adjusted revenue increased approximately 15% to $59.7 million. Adjusted gross profit increased to $32.7 million, while adjusted gross profit margin improved to approximately 55%. Connected devices adjusted revenue increased 17% to $39.4 million, and software and services revenue increased 12% to $20.3 million. Growth in recurring software and services revenue continued to support our overall gross profit performance. While continuing to invest in R&D and sales and marketing, we increased trailing 12-month Adjusted EBITDA to approximately $4 million, up 15% from the prior period. I'd also note that we generated positive income of $189,000 over the trailing 12 months compared to negative $881,000 over the prior 12-month period.
At September 30th, term debt was approximately 0.9 x trailing 12-month Adjusted EBITDA. I will now turn it back to Pete.
Thanks, Azim. Before we open the line for questions, I would like to quickly take a step back for a moment because the quarter tells two stories, and I want to be clear about both. The first is timing. As we have referenced, connected devices revenue in the third quarter was shaped by meter supply constraints, longer lead times across our supply chain, and one of our large customers asking to extend its deployment into 2027. In fact, our willingness to meet utilities where they are, even when it means a near-term impact to our results, is a big part of why our user community stays with us for decades. The second story is the one we pay most attention to internally, the indicators that tell us where the business is heading.
As outlined through today's presentation, we added 11 utilities to our user community in the quarter and 19 year to date, which already surpasses the number of utilities we added in all of 2025. Our book-to-bill ratio year to date through Q3 stands at 0.9 x, which still provides us visibility as we plan for year-end and into 2027. The 92 utilities placing orders for the TRUSense Gateway, with more than half of those migrating from pilot to active deployments, is yet another indicator of how we can drive growth for the business. With ARR at another record of $15.4 million and continued progress on both revenue, Adjusted EBITDA, and net income on a trailing 12-month basis, we feel the business is well-positioned to deliver profitable and sustainable growth for our shareholders. Thank you, operator. We are ready to take questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are 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 then two. Our first question for today will come from Baltej Sidhu with National Bank of Canada. Please go ahead.
Hi, good morning, everyone. Pete, could you unpack and quantify the shipments deferred from Q3 and the portion now potentially expected in Q4 and then 2027 perhaps? Just as a follow-up, are you seeing your suppliers and vendors allocate capacity now, or is it running at reduced rates still?
Yeah, I will take the second portion of that first, Baltej, and good morning. Thanks for the question. One of our partners disclosed within their public earnings calls a few weeks ago that their factory to produce meters was impacted by component availability. We saw for Tantalus, the meter that we integrate into, delayed by six weeks, starting in early September and continuing into the first few weeks of this quarter. That organization has gone back to full capacity, so we are in a good position to recover a good bit of that revenue. We are mindful, though, that we are not the only OEM partner with that meter manufacturer. So, we are still trying to assess how much of the revenue from that six-week period, in addition to revenue that we anticipate in this quarter, can get through their factory production line.
I am confident we can pull back a good portion of that this quarter, but we are mindful that that organization is juggling a fairly complex situation. As it relates to another meter partner, we continue to see diligent capacity allocations, not just to Tantalus, but for their own business as well as other partners. I cannot speak to exactly how that is unfolding or why, but we are tracking it vigorously. I think, Baltej, we remain in a good position to deliver our internal growth objectives for the year. As it relates to the first portion of your question, we know that the order of magnitude for one of our larger customers pushing shipments out into 2027 is almost $1 million of revenue. It is actually slightly more than that. That is tough for us to recover quickly.
It is a conscious decision that we have made at the management level and, frankly, with our board of directors, and from our perspective, is the right decision, even if it has near-term impact on our revenue trajectory this year, because we are focused on a multi-year, multi-decade relationship with that utility. They are not alone in having requests to start pushing some shipments into 2027. Fortunately, we have got a lot of levers to pull given the diversity of the number of utilities that contribute revenue within a quarter. So we do not see too much disruption, Baltej, but we are working through what is otherwise, I think, just a fairly complicated operating environment.
Very good. Thanks, Pete. Just one more if I may. It was great to see 19 new utility additions year-to-date against your target of 20 and another quarter to go with the potential of two more to be added. Could you add any color on how initial contract sizes are evolving and follow-on orders from existing customers trending? What opportunities are taking longer to convert, and what visibility do you have into bookings recovery?
Yeah, so a lot to unpack there. Let me try to hit a few of those points, Baltej. I'd say in the aggregate, as we look YoY , the orders that we have secured from new customers through September 30th already exceeds what we generated last year. So we've seen good performance out of our pipeline with new utilities. We don't really provide specificity on the average size because utilities can range for us from a few thousand connected endpoints or meters all the way up to tens of thousands of meters. So it's the utility order size varies fairly significantly.
What I'd say, though, is I'm certainly pleased, as is the rest of the team. On the 19 conversions year to date, we'll look forward to continued activity out of the pipeline in Q4, and the aggregate amount of orders year over year from new utilities will be strong. As it relates to our existing customer base, now keep in mind that Q2 of last year, we recorded, if not the largest, one of the largest orders ever in Tantalus' history with EPB Chattanooga. That's an order that lasts and will be deployed over multiple years. So while the order number hit in Q2 of last year, the revenue will be recognized over five to six years from that order itself. So I'd say on a like-for-like basis, the activity with existing customers remains pretty constant.
We have not yet delivered another significant order on the likes of what we saw last year with EPB on the TRUSense Gateway. But I think the customer success management team and our project managers and our commercial operation continue to do an excellent job of driving visibility from that existing customer base. That's the engine, Baltej. As we increase the user community, we know these are multi-decade relationships that drive revenue over extended periods of time and give us a decent amount of visibility as we see potential short-term disruptions on orders moving from one quarter into the next. So I know that doesn't answer every single aspect of your question, but hopefully it at least covers the highlights.
Well, that's great. Thanks, Pete. I will turn the line.
The next question will come from Nick Boychuk with ATB Cormark Capital Markets. Please go ahead.
Thanks. Morning, everybody. Pete, I want to stick for a second, if we can, just on the revenue dynamic this quarter, and I appreciate the color you gave highlighting how of the four dynamics that impacted the top line, three of them very clearly are transient. But with your meter vendor partners, I'm curious what levers, if any, you have to pull to make sure that their capacity either increases on a more consistent basis or if there is something that is changing and you're thinking about the near-term capacity and maybe investing in your own capabilities to produce meters to uncouple yourself from this dynamic moving forward.
Thanks, Nick. The first part of that question, twofold. Part one is making sure our sales organization is working as closely as possible with existing and new utilities that are converting out of the pipeline to lock down orders as early as possible, and being very disciplined in the timing of when deployments will unfold. As capacity allocations surface or as lead times extend, that's the other way to really kind of think about this. And I believe from what we're seeing with our contract manufacturer, it's supply of memory and other key components that go into meters or our edge computing device or our TRUSense Gateway, lead times are extending. And so navigating around that is, one, making sure utilities are very disciplined about laying out the timing of their deployments and doing that well in advance from a planning perspective, which inherently leads to visibility for us.
The second that we are starting to think about, Nick, is our inventory historically is raw materials and finished goods of the stuff we build, our modules that go into meters, our TRUSense Gateway, our networking communications infrastructure. With the balance sheet and the liquidity we have at our disposal for the first time in our company's history, we can actually think about, do we stock or do we work with some of our meter partners to lock into capacity in advance of orders? Not sure if we will necessarily do that, but it is a lever that we can pull if we continue to see capacity allocations getting constrained within the meter factories themselves. With the number of utilities placing orders and the diversity of our revenue stream and the limited concentration risk that we have, that might be a way for us to ensure we have revenue continuity.
As it relates to the second part of your question, I would say we are consistently thinking about how we diversify our access to integrate with metering partners, and it certainly becomes more paramount and a higher priority when we start to see constraints as we are managing through right now.
Okay. Makes a lot of sense. Thank you. You also called out, and I appreciate this color, the 10,800 TRUSense Gateway devices that have been shipped so far. I am curious if you guys can walk through or provide any more granular detail. Of the 10,800 and the 53 utilities who have placed follow-on orders, I am curious how many either have received full shipments in terms of their utilization, or is the vast majority of these the initial testing numbers? The 10,800, is it reflective of use cases in the field?
I think it is a combination of both, and I will default to the 53 utilities out of those 92 that have gone from pilot to deployment, Nick. The 10,800 units shipped aligns to where we thought we would be this year, utilities. Not all 92 have activated their deployments. The more recent orders, obviously, still waiting on devices to get delivered. But I would say what we are seeing for the utilities, the early adopters that were utilizing the TRUSense Gateway as part of an upgrade to an existing or part of a new AMI deployment with Tantalus, I think we are already starting to see increasing interest in the power quality measurement capabilities. For us, that means activation of analytics, and from activation of analytics, validation of further ROI on expanding the number of TRUSense Gateways per customer. We think in ratios.
The largest ratio is number of meters to TRUSense Gateway as a collector. From there, as we start to think about number of gateways to distribution transformers, as the transformer fleet becomes area of focus through power quality measurement, from there we get down to feeder and circuit power line visibility, which means incremental devices per number of meters. Then ultimately, the coup de grâce is behind the meter load control, where it is a one-to-one ratio for us. I would say of those three scenarios, the collector, power quality, and behind the meter, we are very well validated on using the device as a collector and as part of both existing and new AMI systems. I would say we are just starting to scratch the surface really on power quality.
We have a few high-level pilots that have demonstrated the functionality behind the meter and load control and dispatchable load.
I think in places like the Tennessee Valley Authority, that dispatchable load concept is going to become more paramount as we think about 2027 and 2028 that will drive incremental volume. But that is still very early, sort of top half of first inning for us.
All right. This was really helpful, Pete. Thank you.
The next question will come from Daniel Magder with Raymond James. Please go ahead.
Morning, everyone. Thanks for taking my questions. A number have been asked, but maybe on the macro front, just around the recent negative sentiment around data centers, and particularly after the Democrats win in the midterms, just how you think about how that affects your business and how you're planning for it?
Yeah, Daniel, thanks for the question, and relevant for us for sure, although we're not in the business of directly supporting those data centers today. As I think about, I'll call it near and medium term, so 12 and 24 months, I don't think the change in Congress is going to have a significant impact. The data center revolution really that's unfolding may shift to different states. I'll give you a very specific example of that. Texas has been at the forefront of a lot of attention because of the number of data centers and some of the vast industrial load that's hit ERCOT and that grid.
As that state has flipped from Republicans to the Democrats, we're already tracking activity in Oklahoma, and Louisiana, and surrounding states that are going to be very bullish on pulling data centers into those jurisdictions to the extent there's a slowdown in Texas from a political party perspective, because it drives economic development and job growth. Incremental, there was a really interesting article in The Washington Post two weekends ago, highlighting the impact of data centers on both load growth and rates from an affordability perspective. The findings is that the data centers and the evolution of those has not really been the material driver of increasing rates. It's been the broader electrification. It's been extreme weather events. It's been aging infrastructure that needs to be upgraded. For us, we've used this example before.
We've got a utility in Eastern Kentucky that is expecting a data center from one of the hyperscalers. We don't see any impact to that plan. That utility is going to potentially see an increase of their distribution grid from 200 MW to two gigs. The investments into that distribution grid to protect transformers, to have visibility on the feeder and circuit lines, and to gather as much edge computing intelligence is unfolding as we speak. I think as data centers surface, it may transition state to state. I don't see a moratorium across the entire U.S., or Canada for that matter.
That's helpful. Maybe just on Calix, I'm curious whether you've seen a difference in how utilities with existing fiber approach the modernization compared to, I guess, your traditional customers. Does having the infrastructure in place change the sale process at all or accelerate decisions around Gateway?
I think when we are able to now demonstrate and participate in Calix's users conference, which we did a few weeks ago, and demonstrate the integration of their device to connect fiber directly into the TRUSense Gateway, we just become a sort of bolt-on capability that in the grand scheme of things is a rounding error. I think it accelerates. I think it should accelerate our sales cycle. The closest example we have in our history is our ability to read legacy ERT technology, encoder receiver transmitters, that we've designed and built in conjunction with our partnership with Itron. That created a swim lane for us, where utilities that had electric, water, or gas ERTs, right, if they wanted to really start to automate and leverage that existing infrastructure without ripping and replacing, we had a dedicated swim lane to chase after it.
I think as very uniquely positioned with Calix to add on top of an existing fiber investment to support grid modernization, similar to what we just saw in the Tennessee Valley Authority with the utility I highlighted in our prepared comments, I think it absolutely gives us a swim lane, Daniel, and opens up the door for us to really make a huge push on the 200 electric co-ops across the United States that have already or are in the process of deploying fiber. Keep in mind, Calix is the dominant player there.
I think it's going to position us not just for upgrading metering infrastructure, but if one of our competitors' products is there and the utility's not ready to rip and replace, how do we layer in the TRUSense Gateway through that fiber investment to focus on power quality and/or controlling load behind the meter so that utility can dispatch that load to offset demand charges and/or peak?
I appreciate it. I'll pass the line.
The next question will come from Gianluca Tucci with Haywood. Please go ahead.
Hi, good morning, guys. Pete, I think you mentioned that about $1 million is pushed into 2027. Is that landing the first half of the year, or is it more spread out?
Yeah, good morning, Gianluca. I don't have a good answer for you just yet. We're still working with that utility. A lot of it will depend on their broader deployment with us, and frankly, do they see the need to accelerate earlier in the year? The utility operates on a July 1st budget cycle, so that's really going to be, I think, the gating item for us. Do they have remaining budget in the second half of their budget year relative to the first six months of our budget year, since we're a January 1st start? If so, can we push that into the first half? Again, there will be further investment by that utility with Tantalus above and beyond the devices that are getting pushed. So, it's not as if the deployment has stalled or stopped. It's just unfolding at a slower pace, Gianluca. That's the distinction.
That utility is still contributing revenue through Q4 of this year and Q1 and Q2 of next year for us. It's just a function of how it gets feathered in. Our intent is to be flexible, so long as it's not disruptive to the continuity of our business.
Okay. I appreciate that insight. Thanks, Peter. Question for Azim. R&D saw a bit of an uptick in the third quarter. Could you give us some insight as to where the incremental spend is going? On a pro forma basis, how should we be thinking about OpEX going forward, Azim? Thank you, guys.
Yeah, certainly. With respect to R&D, it's a combination of a couple of things. The first one is increased headcount, as we're adding expertise, certainly on the analytics front. Secondly, it's consulting expense, so third-party support to our R&D teams. In terms of overall OpEX, we're in a band of probably around 47%-49%. This is adjusted OpEX as a percentage of adjusted revenue. Over the past nine months, we've had some fluctuations between the quarters, but I think we're pretty steady on a full-year basis.
Okay. Thank you, guys.
The next question will come from Gabriel Leung with Beacon Securities. Please go ahead.
Morning, and thanks for taking my questions, and congrats on all the progress. Pete, just on TRUSense, I'm just curious what your thoughts. Are we sort of past the missionary selling stage of TRUSense yet, or do you think you have enough reference customers that selling TRUSense becomes a little bit easier? Perhaps we could see an acceleration of new utilities joining that TRUSense pipeline going forward.
Gabe, thanks for the question and hanging in. I still think we're in the early stages. It is helpful to see we're in the early stages as I think about the aggregate opportunity, right? We're chasing hundreds of millions of US dollars here, and the 92 utilities represent 2.7 million meters. We've just scratched the surface on, at this point, documented benefits and value of using the TRUSense Gateway as part of either migration of legacy communications networking infrastructure with existing customers, or as a point of differentiation for Tantalus when we're going head-to-head with larger competitors, and winning our fair share. It's a collector that sits in the meter socket. It's not a collector that has to go up on a pole. It's a device that not only collects data from meters, but it's also generating data in terms of power quality.
I think that one becomes a little bit low-hanging fruit for us, or I'd say we're further down the path in validating that, and the references only help. As it relates to what do we do with all the power quality data and how do we help utilities prepare to shift peak load, that's still super early. I'll give you a real-world example, Gabe. A few weeks ago, I was in western Tennessee visiting one of the utilities that was among the earliest adopters of the TRUSense Gateway and has really been the testing ground for us as we've deployed, and they've been incredibly patient and supportive. The day I was meeting with their executive team, TVA, their generation transmission entity, called the utility in normal course, referencing congestion on the transmission line, and forced the utility into an an outage. My meeting got pushed back 90 minutes.
Not too convenient, but more importantly for that utility, they had to shut down substations. That is the normal course. In real time, as soon as power was restored at the substation, power comes back to the houses. I am sitting in front of their general manager and articulating there is a better way. That utility has almost 500 TRUSense Gateways deployed. How do we ultimately get control behind those meters where the TRUSense Gateway sits and think about reducing load at an individual house level, aggregated in a coordinated manner, as opposed to just opening relay in a substation? That is much better for that community. It is much better for the utility to push a button than have to roll trucks into a substation and then customer call center receiving complaints.
That is what is early. I think that is the progression. That is frankly where the puck is going.
I would say as it relates to use case one, I think we will see an increasing number of utilities use the TRUSense Gateway because it is a communications networking device with a defined purpose tied to power quality. That is very unique in our industry. I think as more utilities see congestion on the transmission lines, whether it is industrial load or data center, there is going to be a better way, and that is the longer-term vision that we have got, which we are still in the nascent stage of it.
Got you. No, thanks for that. Maybe just one follow-up for Azim. I think you had mentioned you got the annual bump up in license revenues on the software side of revenues. Would you anticipate the software and services revenue lines to perhaps see a sequential dip in Q4?
If you look at historically, our software services has been in a band of around 75%-78%, and sometimes it fluctuates up and down. I think the bigger driver this quarter was last year we had a significant amount of installation revenue, which did not repeat this year, and that is typically lower margin for us, and that helped to bump up the overall margin. Certainly, when you look at the bigger components being the maintenance revenue and hosting. I think it is just a mix issue, but I think what you will see is software services revenue trending more towards historical norms.
Got you. No, appreciate that. Thank you.
This will conclude the question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
I appreciate everybody's patience in joining today's earnings call that's gone a little bit longer than expected. Certainly, opening comments by us a little bit longer given the complexity of the one-time refund that we've had to filter through our financials. But overall, at the management team level, we still believe Tantalus remains in a very strong position to execute against what is otherwise a lot of tailwinds behind this business tied to electrification, aging infrastructure, aging workforce, and extreme weather events. And we believe with the balance sheet and the continued progress that we're making, we're extremely well-positioned to benefit from those tailwinds on behalf of our shareholders. With that said, thank you for your time, attention, and support. We'll look forward to providing an update as we turn the page into 2027 and report out on Q4 and year-end results. Hope everyone has a great day. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.