You are listening to KeyStone’s Stock Talk Podcast – Episode 295
Great to chat with you again this week. This week, as we record on Canada’s election day, Aaron kicks off the festivities with his thoughts on the Productivity Crisis in Canada. I kick off our YSOT segment with a review of electrical grid modernization company, Tantalus Systems Holding Inc. (GRID:TSX). We interviewed management last week in Vegas and report on our findings. In that vein, Brennan reports back on DIRTT Environmental Solutions Ltd. (DRT:TSX), the second of the 22 companies we grilled last week. DIRTT is profitable again, reducing debt and looking to grow. Brennan let’s you know if they may offer an opportunity. Last, and not least, Brett answers a viewer question in Celestica (CLS:TSX / NYSE), which provides electrical manufacturing services. The stock is up 100% over the past year and after reported a solid growth quarter, Brett let’s you know if the growth can continue.
Let’s get to the show – I welcome my cohost, Mr. Aaron Dunn, and the killer B’s, Brett and Brennan.
Poll Question
YSOT Tantalus Systems Holding Inc. (GRID:TSX)
| COMPANY DATA |
| Symbol | GRID: TSX |
| Stock Price | $2.10 |
| Market Cap | $106.77 M |
Company Description
- Smart Grid Solutions: Tantalus provides a range of smart grid solutions, including intelligent connected devices, communication networks, data management systems, and enterprise applications and analytics.
- Connected Devices and Infrastructure: This segment includes computing modules for devices like meters, sensors, and street lighting, as well as automation equipment and communication infrastructure for an industrial IoT network.
- Utility Software Applications and Services: This segment offers software licenses, hosting services, software as a service, and professional services like project management, deployment, and maintenance.
- Focus on Grid Modernization: Tantalus’s solutions are designed to help utilities transform their aging, one-way grids into multi-directional grids, making them more resilient and efficient.
- Supporting Utilities: Tantalus supports over 300 utilities across North America and the Caribbean, with a high customer retention rate.
Servicing approximately 320 utilities, the company has deployed 3.5 million connected devices, 2024 revenues were Us$44 million with ~35% from software & services, just over US$12 million in annual recurring revenues and $1.3 million in adjusted EBITDA for the last year. With a capital raise this past year the company believes it is capitalized to commercialize its next growth phase through its TRUSense Gateway.
A multi-purpose device designed for use in existing ANSI meter sockets. It allows utilities to modernize their distribution grids by providing a secure communication path, advanced power quality measurements, and support for broadband initiatives, all without requiring a complete replacement of existing metering infrastructure.
The company believes…
- $150M potential revenue opportunity from Tantalus/s Advisory Committee
- $350M approximate revenue opportunity in our qualified pipeline
- $10B total addressable market
- 10-15% growth rate of existing Tantalus business
Multiple utilities have now been demoing the TRUSense for nearly six months; first commercial TRUSense orders are expected anytime, which will validate the product’s business-case – but until they are signed, it remains speculative.
Financials
Let’s take a look at the company’s historical annual revenue and gross profit figures.
Revenues have fluctuated, but generally grown over the past 8 years – similar in terms of operation profit and income. We have yet to see an inflection point in terms of revenues – but the move higher over the past year is encouraging.
Let’s take a quick look at the company’s Q4 numbers.
Revenue increased by 21% to $12.6 million, setting a new milestone for revenue generated in a quarter. Revenue from Utility Software Applications & Services increased by 36% while revenue from Connected Devices & Infrastructure (“Connected Devices”) increased by 14%. The increases in revenue were a result of adding new utility customers and continuing to expand deployments with existing accounts. Recurring Revenue as a percentage of total revenue was consistent at 24% of total revenue in the quarter.
Gross Profit Margin increased 100 basis points to 52.4% as a result of increased contributions from the Software segment compared to the prior year period.
Income for the period was $289,000 or $0.01 per share and decreased compared to last year as a result of the $2.3 million recovery of contingent consideration from the acquisition of DLC Systems, Inc. d/b/a Congruitive in the prior year period.
Adjusted EBITDA increased to $1.4 million compared to $348,000 during the prior year period.
Balance Sheet Highlights
- Cash: $13.2 million
- Debt: $10.6 million
- Lease Obligations: $2.2 million
- Net Cash: $2.6 million (removing lease obligations)
Valuations
- 2024a EV/EBITDA: ~55x
- 2025e EV/EBITDA: ~26x
- 2026e EV/EBITDA: ~12x
The street is split on how fast the profit inflection will come and how aggressive it will be. Most are looking for a significant jump in 2026, but the orders still have to come in.
Conclusion
Interesting company (We like the space – having profited tremendously from our last electrification recommendation – Hammond Power) – the difference at this stage in relation to Hammond, we were able to buy Hammond Power at 6-8 times EPS with growth, a growing dividend and no speculation on market acceptance to power growth. We do see a path for TRUSense to add significant growth, but there also remains risk.
Trailing valuations high…but the company certainly has the potential to grow into them.
Monitor at present as it does not make our more consistent profitability criteria.