Tantalus Systems Holding Inc

TSX:GRID

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to the Tantalus Systems' Third Quarter 2023 Financial Results Conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Deborah Honig, Investor Relations. Please go ahead.

[Deborah Honig, executive]

Thank you, operator. Thank you for joining us to discuss Tantalus Systems' financial results and operating performance for [ Q3 ] and 9 months ended September 30, 2023. Tantalus issued these results in a press release yesterday, which is posted on the company's website. Joining me on the call from Tantalus Systems, herein referred to as Tantalus, or the company, are; Peter Londa, President & Chief Executive Officer; and George Reznik, Chief Financial Officer.During the call, we will make forward-looking statements about Tantalus's 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 also available on our website at www.tantalus.com. Statements made on this call reflect management's analysis as of today, November 8, 2023. 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 selective IFRS financial measures, including gross profit, gross profit margin, core business expenses, adjusted EBITDA, recurring revenue, annual recurring revenue, referred to as ARR and adjusted working capital. 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 & CEO. Please go ahead, Pete.

[Peter Londa, executive]

Thanks, Deborah. Good morning, everybody. On behalf of our entire team at Tantalus, George, Deborah and I are pleased to provide an update on our business through the third quarter and first 9 months of 2023. We'll aim to work through our presentation and comments and provide ample time for questions during today's call. As you can see on Slide 3 of the presentation, team Tantalus achieved several new milestones during the quarter in large part due to our employees' continued contributions and dedication to the utilities we serve.Q3 represented another quarter of revenue growth year-over-year and on a trailing 12-month basis. Revenue was up 12% year-over-year, while revenue grew by 25% on a comparative basis for the trailing 12 months.Further, the revenue generated during the first 9 months of 2023 was the most amount of revenue that we have generated during this time in our company's history. Coupled with another strong quarter of gross profit margin, we are pleased to report that our team delivered positive adjusted EBITDA while continuing to make significant investments in our innovative solutions.Beyond our financial results, we converted 14 utilities from our sales pipeline through September 30, increasing our user community to 285 utilities across the United States, Canada and the Caribbean basin. We also have converted $27.6 million in total orders from our pipeline during the first 9 months of the year. We continue to witness strong interest in the TRUSense Gateway and the Congruitive capabilities and find our sales pipeline to be as robust as ever.In terms of major R&D initiatives that we continue to report on and provide regular updates to the market, we are making solid progress towards the commercialization of the TRUSense Gateway. While we still await UL Certification on the TRUSense Fiber Gateway, we've made good progress through our ongoing field trials with advisory committee members and remain on track to commercialize the Gateway by year end. Beyond the continued progress we're making with the TRUSense Gateway, we've also witnessed increasing demand for our Analytics capabilities, particularly after releasing the transformer monitoring analytics tool in Q3.As of September 30, we have almost 20 utilities within our user community leveraging and utilizing the analytics tool under a SaaS contract, and in full scale those initial orders and conversions represent approximately $300,000 of additional ARR on a full year basis. In addition to the utilities that are actively using our analytics tool, we're engaged with over 25 other members of our user community that are currently evaluating the Analytics subscription and beginning to plan for budgetary dollars.Lastly, we continue to make solid progress on several pilots of the Congruitive software and are incorporating these capabilities as part of our overall approach to the market.With that high level overview in terms of key highlights, I'll now turn it over to George, who will walk you through the financial results.

[George Reznik, executive]

Thank you, Pete. 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 $10.1 million in revenue for the quarter, representing 12% growth over the prior year period. As part of our revenue profile in Q3, you'll notice that we continue to experience strong contributions from Software & Services, which represented 37% of total revenue during the quarter and grew 26% over the prior year period. Within our Software & 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 third quarter of 2023 represented 25% of total revenue and increased by 18% over the prior year period to $2.5 million. As we continue to secure new utilities through our sales pipeline and deploy more connected devices in the field, we will witness increasing recurring revenue contribution to our overall revenue profile. Annualized recurring revenue or ARR represents a forward-looking forecast that reflects the anticipated total recurring revenue to be generated over the future 12-month period. As at the end of Q3, ARR increased approximately $11 million, reflecting 21% growth from the prior year period.As reflected on Slide 5, we delivered gross profit margin of 53% for the quarter. Just aggregating the gross profit margin further, the gross profit margin for our connected devices increased to 44% in Q3, despite continuing to navigate through inflationary pressures and ongoing supply chain disruptions. Gross profit margin for our Software & Services segment was 70% in the quarter. We witnessed higher contributions from installation service revenue in the quarter, which has a lower gross profit margin contribution.Moving down the income statement, as outlined in Slide 6, our core operating expenses consist of sales and marketing, R&D and general administrative items. As a reminder, our core operating expenses do not include share-based compensation, depreciation and amortization and non-core business related expenses. Our core operating expenses for the quarter increased to $5.4 million from $5.2 million in the period. While not reflected in this chart, our core operating expenses in Q3 decreased from Q2 of this year by approximately $600,000.We generated positive adjusted EBITDA of $63,000 in the quarter, reflecting -- in the third quarter, resulting in a significant improvement over last year's third quarter. While the aggregate amount is not yet significant, our team continues to make steady progress to revert back to consistent quarterly positive adjusted EBITDA as we absorb the R&D investments associated with the TRUSense Gateway and Congruitive software.To that end, management is prudently managing our operating expenses, while balancing the investments in R&D relatively to the growth of our revenue and continued strong gross profit margin contributions. Please note that our net loss is expressed net of significant non-cash expenses such as depreciation, amortization, stock-based compensation and unrealized foreign exchange. Non-cash items impacted by the net loss by approximately $500,000 during Q3 of 2023.As reflected on Slide 7, we closed the quarter with a cash balance of $4.2 million. The closing cash balance does not include $673,000 of restricted cash relating to a performance bond for a customer deployment. The cash balance was impacted by several components of our adjusted working capital, including the timing of revenue generated during the quarter with an increase in inventory and related accounts payable and accrued liabilities as of September 30, 2023.Inventory of finished goods increased in conjunction with certain orders slipping out of Q3 into future periods. In addition to the purchase of raw materials specifically, we purchased certain long lead time hardware products and related components pertaining to anticipated future orders and the upcoming commercialization launch of the TRUSense Gateway.In addition to our closing inventory balance, the accounting of deferred revenue always impacts our closing cash position as we progress through the course of a year. Due to the timing of customer payments for the company's ARR at the beginning of the year, we typically witness a decline in cash and adjusted working capital, particularly during our third quarter of each year.We're actively invoicing a substantial portion of the 2024 annual ARR to our customers, resulting in an anticipated incremental injection of cash in late Q4 and early next year. Beyond adjusted working capital, the company ended Q3 with $36.4 million in total assets and outstanding debt balance of $10.4 million. Our debt facilities are comprised of a working capital line of credit facility with Comerica Bank up to a maximum of $8.5 million and a term loan facility with EDC up to $7 million. During Q3, we paid down a portion of the Comerica working capital debt facility, which had a balance of $7.4 million as of September 30, 2023.During Q3, we also repaid the outstanding principle and interest of approximately $1.6 million for the Comerica Bank term loan obtained in conjunction with the Congruitive acquisition by accessing a portion of the recently closed $7 million term loan from EDC, which we secured at the end of Q2 of this year. As of this earnings call, we borrowed $3 million of the EDC loan facility with access to an additional $4 million available.As a reminder, the EDC term loan is a 6-year debt facility with interest only payments for the initial 12 months, followed by straight line amortization principle repayments with interest for the remainder of the term. We believe that the company continues to have ample balance sheet strength to support our ongoing operations and continued efforts to commercialize the TRUSense Gateway, particularly with the availability under the EDC facility and the anticipated collections of our 2024 ARR.As reflected on Slide 8, the decrease in cash from the prior quarter is primarily due to the aforementioned net changes in working capital items at our loan facilities. We anticipate witnessing an increase in our closing cash position through Q4 as we invoice our 2024 ARR of $11 million and begin to see initial collections towards the end of the year.As an aside, we would note that by paying down the outstanding balance of the Comerica term loan with a portion of the EDC loan, we have deferred approximately $1.6 million in related cash payments until 2025. Moving beyond the Q3 results, we thought it would be insightful to highlight a few metrics for the first 9 months of 2023 and the trailing 12 months.In looking at the first 9 months of 2023 and Slide 9, we are pleased to report that our revenue increased to $31.8 million, representing 16% over the prior year period. Delivering this amount of revenue sets a new milestone for the first 9 months of the calendar year for the company. Let me share a few interesting statistics regarding the total revenue that are available in our MD&A.First, revenue from Software & Services increased to $11.3 million, representing 35% of total revenue for the first 9 months of 2023. Revenue from Software & Services increased by 21% over the prior first 9-month period. Second, recurring revenue increased to $7.7 million, representing 24% of total revenue for the first 9 months of 2023. On a comparative basis, recurring revenue increased by 20% over the first 9 months of 2022.Gross profit margin increased to 52% during the first 9 months of 2023. We believe that the increase in gross profit margin reflects the value of our solutions and proactively managing through inflationary pressures and supply chain disruptions.Adjusted EBITDA improved significantly to negative $377,000 in the first 9 months of 2023 as compared to negative $2.5 million in the prior year Q1 to Q3 period. Across the board, we have delivered favorable financial results for the first 9 months of this year.In evaluating the trailing 12 months performance through September 30, we are pleased to report our revenue has increased to $43.9 million, representing 25% growth of its prior trailing 12 months period as outlined on Slide 10. This revenue profile would set a record for Tantalus on a calendar year basis. Revenue from Software & Services increased by 25% to $15 million as compared to the prior trailing 12 months period and represented 34% of total revenue generated.Recurring revenue increased by 22% to $9.9 million as compared to the prior trailing 12 months period and represented 23% of total revenue generated. Gross profit margin increased to 50% from 48% in the prior trailing 12 months period. Achieving a 50% gross profit margin over the last 12 months is in line with our long-term target.Adjusted EBITDA improved significantly to negative $274,000 for the trailing 12 months as compared to negative $3.8 million in the prior trailing 12-month period. This marked significant improvements while simultaneously investing heavily in the future of Tantalus through our TRUSense Gateway, our AI-enabled data analyst SaaS offerings and the TRUSense software platform. In evaluating our performance across the trailing 12 months through September 30, we believe Tantalus has made significant and substantial progress.I will now turn the call back over to Pete to provide our closing remarks.

[Peter Londa, executive]

Thanks, George. In summary, I'd say we continue to gain momentum across our business, but would simultaneously caution that we are starting to witness some delays in converting orders out of our sales pipeline as utilities await feedback on stimulus grants where they have applied for funding, as well as continuing to witness fluctuating lead times with our meter manufacturing partners. While we did not provide guidance this year, we remain committed towards our plan of delivering neutral to slightly negative adjusted EBITDA for the full calendar year in 2023, which was a key priority that we set to achieve this year.As we look towards future reporting periods, we are in the process of modeling the anticipated revenue contributions from the TRUSense Gateway over the next 3 years as members of our advisory committee and qualified accounts in our pipeline provide us with volume and timing expectations.As we gather additional information, we will provide further guidance into the revenue contributions anticipated from the TRUSense Gateway given the positive and material impact we anticipate from this innovative solution.While we continue to gain confidence across our income statement, as George referenced, we also believe the balance sheet remains sufficient to support the commercialization of the Gateway as well as our ongoing operations, particularly given the additional borrowing capacity under the EDC term loan.Our sales pipeline continues to expand and we'll be excited to see stimulus dollars begin flowing to the utility industry across the United States. We do anticipate a strong end to 2023 with our sales organization as we expect to close a number of orders out of our pipeline that will not only contribute revenue this year, but also help improve visibility into future reporting periods.We remain on track to secure UL Certification for the TRUSense Fiber Gateway and anticipating achieving available for sale or AFS by year end. Through our field trials of the TRUSense Fiber Gateway, we're fundamentally witnessing some very cool and company defining capabilities and functionality. We'll be eager to scale the capabilities not only through the advisory committee, but also with the increasing number of utilities expressing interest for all 3 versions of the TRUSense Gateway.We'll continue to make progress through the end of the year and certainly into the first 6 months on our Analytics packages. As we've reported previously, our grid reliability analytics tool that truly focuses on pinpointing anomalies and vulnerabilities across the distribution grid, as well as our newly or recently launched transformer monitoring analytics tool, which helps utilities pinpoint transformers that are stressing and on the verge of failure, are gaining true momentum across the user community. And as we continue to scale the Analytics capabilities, we're looking forward to not only focusing our time and attention on our existing user community, but also making those Analytics tools available to utilities that may not be relying on Tantalus's AMI system or other grid modernization capabilities.As for the progress we're making with the Congruitive software, we plan on rebranding the CIQ Connect suite of software capabilities in the coming weeks, and we'll look forward to sharing additional information on the power of what that software is capable of delivering to all utilities globally. As we continue to make progress on the TRUSense Gateway, on the Analytics packages, and in truly commercializing the Congruitive software that we've acquired, we firmly believe Tantalus presents a compelling near-term and long-term opportunity for our employees, our shareholders, the utilities we support and stakeholders across the utility industry.With that operator, we'll open the line for questions, and I'd just like to thank everybody for their time and attention this morning. And also on behalf of Tantalus send our prayers to those in the Middle East and in the Ukraine who are being impacted by things substantially greater than what we are talking about today. Thank you for your time.

[Operator]

[Operator Instructions] Our first question comes from Gabriel Leung with Beacon Securities.

[Gabriel Leung, analyst]

Pete, just want to ask about the UL Certification. It seems like it's taken a little bit longer than what was initially thought of -- I guess as of the last conference call. Just curious if you can provide some more color around the whole process there?

[Peter Londa, executive]

You're absolutely right. This is taking longer than we initially anticipated and certainly have outlined in the timeline worksheets and schedules that we've shared publicly. What I would say is the UL process is not linear as we work through the certification effort. Specifically, the TRUSense Gateway is fairly unique in that it is one of the first products that is being certified or anticipated to be certified under what's called UL 2745. That's the certification that we're pursuing. It not only covers a number of safety regulations that any meter plugging into a meter socket has to achieve, but it also has a number of incremental safety components certainly for the Fiber and Ethernet gateway because we have connections out of the meter socket to another device like an optical network terminal. So Gabe, I wish I had a more clear answer for you, but what I would say is, from our experience to date, we are witnessing some feedback from UL that is helpful to improve the safety and reliability of the device that we've designed. Nothing that causes substantial issue or delay on our end. We've also witnessed a few of the measurements and tests where our team has had to truly evaluate the manner in which UL set up the test itself and provide feedback and suggestions.So it is a very iterative process. We are down to a handful of tests and are fundamentally awaiting openings in UL's laboratories, particularly on the electric side. And it's just a bottleneck in terms of accessing the appropriate lab space for the device that we have, particularly given the fact that it's so relatively -- the certification 2745 is so new even for UL. So I'd say we're unfortunately a little bit of a Guinea pig in helping UL map out their processes on 2745, but in regular communication with the engineers and with our account executives at UL. I still think we're very comfortable and confident that we will achieve UL Certification.And most importantly, Gabe, we've made great strides on the field trials that we've been running now in parallel, thanks to the willingness of advisory committee members to put some of these devices out on their own meter sockets, and from putting those devices in the field I think we'll be able to flip a switch to available for sale very soon after achieving UL. So we remain on track, most importantly, for getting this commercialized -- the Fiber version commercialized by year end.

[Gabriel Leung, analyst]

And maybe just on that note, are you able to offer some commentary around the feedback you're getting on the initial field trials from some of these early utility customers, number one and number two? Have there been some additional utilities that started field trial since that 1st September announcement?

[Peter Londa, executive]

Yes, so we have several. We do have additional members of our advisory committee that have been supportive of field trials as they track this UL process with us in real time. So we're very fortunate to have their support. And I'd say when we originally mapped this out, we thought UL Certification first and then field trials second, with the support of the advisory committee and the benefit of really working in partnership with our customers, the utilities themselves. And their willingness to frankly start field trials in advance of UL, I think is indicative of how excited and how important the TRUSense Gateway is to their plans. As it relates to the feedback and the results that we're tracking, Gabe, they're, I think exceeding not only our expectations, but certainly the utilities that are participating. The level of granularity and precision that we are achieving on the power quality measurement capabilities surpasses anything in the market at the meter socket, at the price point where we will be. And so we're very excited about what that means for the utility industry, particularly public power and electric co-ops that don't have the benefit or the engineering teams that an IOU would to really try to improve and expand their reliability and resiliency of their grids.As it relates to the AMI capabilities, we're absolutely delivering the measurement that we expected and will be in a position to help utilities that are stuck with legacy AMI systems from other vendors that have been either [ end of life ] or no longer being supported as well as giving a path to some of our utilities that are looking to upgrade and migrate legacy systems. We think this will be an excellent opportunity to really surgically address next generation metering capabilities without having to actually physically replace the meter itself.And then lastly, we are communicating to an EV charger behind the meter control and making good progress on the firmware side to layer in the Congruitive software to provide that interoperability and protocol conversions that we've been talking about. So overall the feedback's been very positive and that's why I think the gating item for us at this point, Gabe, is UL Certification, and I think as soon as we have that, we'll be able to flip the switch and begin to communicate available for sale for the device and accept orders.

[Gabriel Leung, analyst]

Just one last question from me maybe for you or for George. As we get closer, [Audio Gap] I guess, given some of the commentary around lead times that you talked about?

[Peter Londa, executive]

Yes, so great and fair questions. Let me take the second portion first. As it relates to working capital, at the beginning of the year we are starting to build inventory of long lead time parts for an anticipated production of the TRUSense Fiber Gateway in the first 6 months of the year for delivery and for sale. To that end, from a balance sheet perspective, we get the benefit of 2 things -- 2 areas to support the balance sheet without being in a position where we would have to dilute our existing shareholders, particularly given where share price is today and we're very mindful of that.The first is, as you may recall, Gabe, at the beginning of each year we are able to invoice for and collect the annual recurring revenue, which every quarter continues to scale. And so we get a slingshot of cash starting really towards the end of December and running into, call it early February. And so that influx of cash on the accounts receivable gives us, I think, ample flexibility from a working capital perspective to ramp the first production units. And as those production units are sold, and as we collect cash, it starts to balance things out for us a little bit as the revenue ramps. So that's the first portion of [ debt ] -- managing the balance sheet from a working capital perspective.The second piece is, George highlighted, we do have $4 million available under the EDC loan. We're mindful of adding additional leverage onto the balance sheet and obviously incurring the interest costs. But we do have that flexibility. There are no restrictions to accessing that capital if the term loan was designed to help us manage through the near-term working capital, gaps of production of the first units relative to timing of collecting cash and then ramping from there. So from what we see today, we think the balance sheet is sufficient, particularly given the timing of the ARR. If we were in Q2, Q3 or this gets further delayed, then maybe that changes a little bit. But from where we sit today, Gabe, I think we're in a good spot.As it relates to your question on OpEx, so we still have -- as you know with the TRUSense Gateway, there are 3 versions. There's the Fiber, the Ethernet and the Cellular. The Cellular Gateway is the exact same footprint and design of the Fiber Gateway with the exception of the cellular radio that gets integrated into the device. So we do not have UL Certification requirements. We are working through PTCIB certifications and we've made good progress from an FCC perspective. As the Cellular Gateway process and development unfolds -- I think a lot of that work is through December, January, February. And once we get the work done on the cellular radio, that will be embedded. It's a Sierra Wireless radio that will be embedded into the TRUSense Gateway. We'll start to see the R&D on the Cellular Gateway start to dissipate.On the Ethernet Gateway, there are some changes that are required on the board. It's just a little bit different. There is a UL Certification process for the Ethernet Gateway. We believe we'll get the benefit of the UL Certification on the Fiber Gateway since they're so similar. So a lot of the base capabilities will already be UL certified and not have to start from scratch. The development work is predominantly done on the Ethernet Gateway. And so I think as similarly, once we get through the UL Certification for the Ethernet Gateway, we'll start to see some of the R&D dissipate.There are some external variable costs that we're incurring with consultants, contractors, certification bodies, design teams, and as we get all 3 of these versions commercialized in certainly the next, call it 3 to 6 months, Fiber Gateway, hopefully by end of year, or by planned end of year, the Ethernet Gateway, the Cellular ideally in Q1, maybe into April of next year, we'll see those variable costs start to dissipate and take some pressure off of the OpEx.So I think that's -- so we should start to see -- at least as it relates to the R&D spend on the TRUSense Gateway, we will start to see that come down. And I think it predominantly materializes towards the end of Q2 and into the second half of next year, Gabe. George, I don't know if there's anything else you'd want to add to Gabe's questions on OpEx?

[George Reznik, executive]

No, I think that's a good characterization of it. And maybe the only thing to highlight on, as I did in the call is the inventory balance that September 30 did, and the finished goods did include significant increase due to our current product offering, due to some sales orders and fulfilled orders that got deferred beyond Q3 as well as anticipated orders into Q4 that we're pursuing. So we anticipate that to be more normalized towards -- as we go towards the end of the year and turn that inventory frankly into cash. And as we ramp up at this point to TRUSense Gateway, there is some increase in raw materials, but as we proceed, we partner with a third-party CM that really funds a lot of our working capital, so -- as it has done historically for a product. So as we get to steady state of commercialization with TRUSense, we'll work and partner with that CM who will fund a significant amount of our working capital growth as we go forward.

[Operator]

[Operator Instructions] Our next question comes from Daniel Rosenberg with Paradigm Capital.

[Daniel Rosenberg, analyst]

My first question was around the gross profit line. So we've seen some good strengths over the past couple quarters there on a margin basis. Just wondering how we should think about this as TRUSense scales in mid next year towards late next year?

[Peter Londa, executive]

We've set a long-term trajectory to break the 50% threshold on gross profit margin. And we were extremely pleased to see that on a trailing 12-month basis. And we're in excellent position to exceed that, I think through the end of this year. As we go into next year, Gabriel, I think we'll see the continued contributions of the Analytics capabilities which will flow through our annual recurring revenue, through our SaaS offering. And I do anticipate to see continued improvement and contribution from the Congruitive software capabilities. So the margin contributions from those 2 efforts, right -- it's sort of a 3-pronged effort that we're pursuing in terms of R&D to enhance our capabilities and positioning in the market. I think that'll take some pressure off of the near-term or any near-term ramp up, and frankly, potentially discounting to drive initial orders. So I don't necessarily see any material or downward pressure on our gross profit margin.It may be a couple percentage points initially as we ramp from a cost of goods sold perspective. But as we get into full production mode of the TRUSense Gateway, certainly the Fiber and then soon thereafter the Ethernet and Cellular, I anticipate that we'll be able to drive efficiencies with our contract manufacturer, IMI. I was in the Philippines and visited with them 1.5 weeks ago to actually see the production line that has been set up. And I have a lot of confidence in our ability to drive efficiencies as we gain scale. So I think in the near-term, we really shouldn't see too much pressure particularly as we anticipate larger contributions from the software side of where we've been making investments. George, anything you'd want to add to that?

[George Reznik, executive]

No, I think that's a good summary, and really as we continue to increase our recurring revenue and ARR as we trend, that will certainly -- and that's a strong margin revenue that will -- and some of the related Software & Services that will be derived from the rollout and commercialization of the TRUSense Gateway will have a favorable impact on that line of business and overall margin to offset that and the hardware increase and contribute accordingly.

[Operator]

Are we done with that question?

[Daniel Rosenberg, analyst]

One more question from me -- or let me continue with this question. 2 customers added in the quarter. I was just wondering, is there anything to say around the number of customers? Are you guys focusing resources more on the new product, or is this just the ebbs and flows of the business? Just the cadence seemed to be a touch slower than what we've seen in previous quarters.

[Peter Londa, executive]

Yes, fair question. Daniel, thanks for tracking it. I'd say for us, the sales process, as we've always kind of suggested, is it -- there's a bell curve. And so as we get to the definitive end of quarter date, September 30, in this example, we do our best to move certain things from sales pursuit to evaluation, to selection, to contracting, to order and sometimes that aligns really well within 1 quarter, and sometimes things just don't -- So I think specifically off the top of my head, we've got 3, if not 4 utilities that have been in contracting for a decent amount of time, Daniel. And the hope was some of those would convert and sign before September 30. And some have migrated just into Q4. So from where we sit today, I don't have concern about the aggregate number. I think we're still in a very good position to secure on average the 20 new utilities that we have seen in prior years. The level of activity is far beyond that. As we get to the end of the year, we'll see how things shake out, but I think we picked up some momentum even here at the beginning of Q4.I'd say the other compounding factor, Daniel, that we're witnessing is the stimulus funding in the United States is a double-edged sword. On the one hand, I'll call it medium-to-long term. There is an investment coming from the United States government that surpasses anything that this industry has seen ever in terms of aggregate dollars. We witnessed the grip funding, which ties to reliability projects.The first round of that funding where we had several utilities submit applications, we saw most of those dollars get allocated. It's a 5-year program, and the first allocation was announced just a few weeks ago. I think we'll have some favorable news to report as things materialize, especially as it relates to the Congruitive software, in partnering with some other large vendors.But the smaller utilities, the municipal and public power utilities and electric co-ops, they didn't get as many dollars in this first round. And the rationale behind that is we've dug in and learned that the initial projects went to the largest utilities, some of the largest communities, some of the fastest growing communities, where I think that the government could deploy $25 plus million per project. Most of our utilities are looking for a fraction of that.With that said, when you go through the list, a few of our customers did receive funding. And what we saw is a few of the utilities that I think are eager to move forward with investments -- further investments in our technology, existing customers. They were waiting to find out if they were going to be included in the first round. I think we'll see some of those move forward and those that applied that did not get included in the first round are being encouraged to participate in the second round.And the double-edged sword is, while it is a significant amount, right, it's billions and billions of dollars across broadband investments, reliability projects, equitable services, integration of distributed energy resources, I think it's led some utilities to just wait to see or measure how fast they'll move to determine if they can get a piece of that pie so that -- one hand is, it's huge dollars. On the other hand, it's going to cause some delays for utilities that really are seeking to access those funds and they probably will access those funds. They just didn't access them in Q3. So I think that's what we're seeing. But I don't see any material risk in our ability to convert or the ability to continue to scale our user community effectively.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Londa for any closing remarks.

[Peter Londa, executive]

Thank you, operator. For those that have joined, thank you for your time and attention, for the members of team panelists that are on the phone. Thank you for all your continued hard work and dedication to the company and the utilities we serve. To George and the finance team, thanks for, again, hard work to get our quarterly results processed as well as our legal team that put so much time and effort into making sure we are timely in our reporting. So appreciate everyone's attention. I hope everybody has a great balance of the day. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.