Tritium DCFC Limited

Good morning and welcome to Tridium's 2023 Fiscal Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker, to Cary Siegel, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good morning or evening to everyone. We're glad you could join us today for Tritium's full fiscal year 2023 earnings conference call. On today's call are Chief Executive Officer Jane Hunter and Chief Financial Officer Rob Topol. Tritium has issued its results in a press release that can be found on the investor section of our website at tritiumcharging.com. As a reminder, our comments on this call include forward-looking statements which are subject to various risks and uncertainties. Statements may be based on certain assumptions and thus could cause actual results to differ materially from those predicted in the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. Factors that could cause actual results to differ materially can be found in today's press release and other documents filed with the SEC by the company from time to time, including our annual report on Form 20F. During this call, we may also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. More detailed information about these measures and a reconciliation to the most comparable U.S. GAAP measures is contained in the press release issued today, which is available in the investor section of our website and was furnished on Form 20F with the SEC. A recording of this call will also be available on the investor section of our company website. With that, I am pleased to turn the call over to Jane Hunter, Tritium's Chief Executive Officer.

Thank you, Kerry. Hello, everyone, and thank you for joining us. We're excited to be reporting on the fiscal year ending June 30 and Tritium's achievements over the first half of the 2023 calendar year. The highlights are record revenue that beat guidance for the first half of the calendar year and material gross margin improvement year over year. The Tennessee factory continues to scale successfully with record unit production, and we've secured some exciting new strategic customer partnerships. Service revenue achieved record levels and highlights a growing source of recurring and high margin business for the company. We've long held the belief that the virtuous asset cycle of hardware installations will resemble the razor blades to razors analogy, where the charger becomes a multi-year source of recurring revenue throughout its 10-year operating life and beyond. Working with our customers to upgrade their fleets to the latest model technology at the right time for their business is another beneficial aspect of Tritium's lifecycle mindset. This vision is coming to fruition as we enter more service level agreements with our customers with many under negotiation. We're also starting to see the very start of older fleets seeking charger upgrades to our modular technology, and we're both capturing revenue and saving expense via parts that can be reconditioned and cycled back into service, both in and out of warranty. We ended the production of our first generation of fast chargers this year, and we're now building two key product lines, our RTM 50 and 75 kilowatt chargers, and our PKM 150 kilowatt charger. Both of these models are part of our modular scalable charging platform, which is achieving on average an improvement of one and a half to two percentage points higher average uptime than our non-modular technology, as we've modeled for this latest generation product suite. This change has simplified manufacturing, filled services and inventory, and it's contributing to us achieving record uptime across our global fleet, where we've sold over 13,000 DC fast chargers across 47 countries. mainly in the US, Europe, and Australia and New Zealand. Of these more than 13,000 fast charges, there are close to 5,000 charges on our remote service and support network, both in and out of warranty, which are providing us with rich telemetry data that we're working on with our partners at Palantir to monetize through our new MyTridium software platform, which we plan to launch before the end of the year. We continue to supply our valued customers, including BP, Shell, Enel, Revel, and EB Networks, among many others, and we thank them for their ongoing trust in our products and for their partnership and support. In the second half of 2023 and into 2024, we anticipate sharing details of new customer partnerships that we expect to add considerably to our sales order and pipeline. Overall, this was a great year for Tritium on a number of fronts. but I wanna highlight today that the company is reporting revenue results that reflect the best fiscal and first half calendar year in Tritium's history. Fiscal year 2023 revenue was 185 million, an increase of more than 115% over the previous fiscal year revenue of 86 million. We achieved record revenue of 112 million for the first half of the 2023 calendar year an increase of more than 286% over the 29 million revenue from the first half of the 2022 calendar year, meaningfully exceeding the midpoint of the company's previously updated guidance for the calendar year published in May 2023. The company achieved a gross margin of 4% for the first half of the 2023 calendar year, a very significant improvement compared to a gross margin of negative 18% for the first half of the 2022 calendar year. This nearly 2,200 basis point improvement in the year-over-year period reflects the successful ramp-up of our Tennessee factory, which was being fitted out and staffed from March through August of 2022. This margin improvement also reflects the price increases we've negotiated for our products to counter the inflationary impacts of COVID and the component and freight premiums that were headwinds during 21 and 22. The easing of supply chain disruption has materially improved our default or delivery in full on time, which was 92% on June 30. It's also significantly reduced the use of air freight for finished goods, which dropped by 68% in the second half of the fiscal year compared to the first half. We're very proud of these results, which we achieved despite the challenges of continued long lead time for semiconductors, though they're now reducing. rising prices of raw materials, a tight labor market and the scale up of our new factory in Tennessee. Sales orders were $146 million for the fiscal year and $56 million for the six month period ending June 30. Order backlog was approximately $99 million on June 30. We have a strong sales pipeline and we anticipate sales orders and the pipeline will grow in the second half of the calendar year. as customer forecasts for 2024 and 2025 installations are expected to translate into purchase orders, and some new large customers, both secured or in the final stage contract negotiations, can be expected to place their orders. As a result of our current backlog and the strong revenue performance in the first half of this calendar year, we're reconfirming our revenue guidance in the range of $210 million to $225 million and our gross margin guidance in the range of 10% to 12% for the 2023 calendar year. The company set a new production record for the fiscal year ended June 30, building 7,800 units compared with 3,700 units for the prior fiscal year. Additionally, the company set a new production record for the six-month period ending June 30, building 5,100 units compared with 2,700 units for the previous six-month period. We've seen an increasing trend of sales of our higher power PKM 150 kilowatt charger versus our RTM 50 and 75 kilowatt charger. The PKM 150 has a higher average sales price and gross margin, but a slower tack time and a lower production rate. So we therefore expect to see less than 11,000 units built in the 2023 calendar year, while guidance on gross margin and revenue remains as previously published due to this higher power product mix. along with the benefit of charges with price increases now hitting our production line. We continue to believe that Tritium has the largest published production plans for DC fast charges outside of China and the largest planned production capacity onshore in North America. Tritium's working capital and cash balance have been a topic of concern for our shareholders as we see greater liquidity in advance of our guided EBITDA positive status in 2024. The technology sector and the EV category in particular have been depressed across the United States capital markets, and global macroeconomic conditions continue to dampen equity capital activity in Australia. These headwinds have made it difficult for listed green tech companies to raise funds in the US and in Australia. Despite this macroeconomic environment, in September 2023, following this reporting period, the company secured a financing commitment of up to $75 million with an initial funding of $25 million. This is on top of the $40 million that we secured in May from two of our existing large shareholders. The company intends to use the proceeds to invest in working capital to meet expected continued strong customer demand in the 2024 calendar year. Additionally, the company had inventory assets valued at $140 million at June 30, comprised of finished goods, raw materials and work in progress, compared to total inventory assets valued at 56 million for the same timeframe in the prior fiscal year. The company maintains a differentiated DC fast charger with a patented design remaining the world's only fully liquid cooled IP 65 rated fast charging technology. Preem's PKM 150 kilowatt charger also has a unique distributed architecture compared to the distributed architecture of our competitors. allowing for site services and outages to impact only the charger being serviced or with a fault rather than the entire charging site. Plus seamless one kilowatt incremental power sharing also means there are no underutilized power modules. Our technology roadmap sees us launching a Buy America and NEVI compliant 400 kilowatt modular and scalable charger in 2024, which will be a fully liquid cooled and IP65 rated distributed charging system. we've already received a high level of interest from existing and potential customers to purchase units as soon as they become available in the second half of 2024. This model will allow customers to add 250 miles of range to their EV in about 10 minutes, which we expect to appeal to public charging network operators as well as fleet and commercial customers. While many of our customers have an interest in this higher power category, we continue to see a sizable and growing demand for our current suite of modular scalable solutions, particularly our 150-kilowatt charger, which is right-sized for the charge curves of the majority of current EV batteries, while our RTM50 and 75 is perfect for retail and urban top-up use cases. Customers pursuing installations of products requiring greater pull from the grid are facing increasing delays, costs, and permitting challenges, and the scalable 150-kilowatt charger is a right-sized solution for sites allowing customers to start with fewer modules, then increase their charger power levels when they increase their site power capacity and as driver utilization grows at their sites. Our product roadmap also includes a 50 kilowatt fleet product with 24 50 kilowatt wall units running off the PKM 400 rectifier unit on a DC bus architecture, as well as a one megawatt charger for ferries, buses, and trucks. We anticipate sharing more news on these efforts in 2024. On sales, we've secured several new strategic customer partnerships over the fiscal year. More recently, including a major European utility, a US headquartered company with a global fleet, and a global automotive OEM. Additionally, we have some near-term major customer agreements in the final stages of contract negotiation. We look forward to announcing these partnerships in conjunction with the preferred timing of our valued customers. We were very pleased to secure a large order from ChargeNet the biggest network in New Zealand, to upgrade their hardworking fleet of RT 50 kilowatt chargers with our latest modular RTM 75 kilowatt charger. We're very proud of this partnership and the trust and existing customer places in Tritium's technology to upgrade their fleet. This sale will extend our longevity, brand and driver trust in the New Zealand market for many years to come. In July, we announced an order to supply all the chargers for the state of Hawaii's first round of National Electric Vehicle Infrastructure Funding, becoming the first charger manufacturer to secure an order through NEVI. And we've since received a second order for PKM 150s from the state of Hawaii through their partnership with Sustainability Partners. We were very excited to win this state funding. Hawaii is the most isolated island community on the planet and a trailblazer in promoting sustainability. We started our sales campaign in the Middle East, which we see as a growing market opportunity for electrification, especially well suited to Tritium's IP65 rated liquid cooled charges due to the heat and dust, which plays significant load on air filtered charges. In July, we hosted an important event at our Brisbane facility as we welcomed the US Secretary of State, Antony Blinken, and US Ambassador to Australia, Caroline Kennedy, to the company's headquarters. to discuss the importance of bilateral economic partnerships between the US and Australia. We expect the sales of service level agreements and remote monitoring services to grow significantly in the coming year due to a combination of a rapidly expanding installed base of charges, increasing driver and government demand for high uptime for charging equipment, and an evolving customer base with more large customers. These service contracts will provide a guarantee of rapid response times to our customers and the driving public, and are expected to become a long-term source of recurring revenue for Tritium. Services revenue was $9.3 million for the fiscal year, an 86% increase from last year, with gross margin growing to 39%. Our commitment to product quality spanning our hardware, software, and service offerings is a key differentiator and competitive advantage for Tritium. In recent months, we've been proud to see our EV charging customer BP Pulse achieving over 97% uptime across their Tritium charger networks in Australia and New Zealand. UK customer Evive also recently published their achievement of 98% uptime across their fleet of 150 Tritium fast chargers. And the CEO of Australia's largest public fast charging network, EV Networks, advised me today they're achieving 98% uptime per charger across their Tritium fleet. These high uptime achievements are a major strategic objective for the business and a verification of our world-leading technology. Beyond those named customers, our global fleet data shows a growing number of customers across the fuel, fleet and charging network segments who are achieving between 97% and 99% uptime across their Tritium charger networks. We're very pleased to deliver these excellent revenue and margin results for our shareholders, and we intend to continue our operational execution to plan. As we look forward, we're excited about the potential growth of our services business and the launch of our MyTritium software platform, as well as the ongoing development of our PKM 400 ultrafast liquid-cooled charger. and most importantly, about supporting our customers' charging requirements. We're extremely proud of the world-leading uptime we're achieving in comparison with our peers, and each one of our customers who reaches the 97% to 99% club is a cause for celebration across our team. Finally, as the leader of this company, I want to thank the Tritium team for their incredible efforts and their dedication to our mission and to our customers. I and my leadership team are very focused on increasing shareholder value. We think that gets done by meeting and exceeding our market guidance. And that's what we've done. Despite the headwinds of two consecutive years of a capital constrained market for a pre-profit business. We're laser focused on becoming EBITDA positive. And we think these revenue and margin achievements were the right milestones to focus on in order to attain that goal. We greatly appreciate your interest in Tritium. And with that, I'll turn the call over to our CFO, Rob Topol.

Thank you, Jane. With record revenue and unit production and the new and exciting partnerships that Jane mentioned, as well as the increasing charger uptime and reliability and the services revenue achieving new heights and coming online as a source of recurring revenue, this fiscal year has been filled with milestone achievements. As Jane mentioned, the company doubled revenue year over year, achieving record revenue of $185 million. Significant increases in production capacity throughout the fiscal year, including the first half of the 2023 calendar year, occurred as Tritium's Tennessee facility scaled and enabled the company to convert its backlog into revenue and expand its gross margin as the benefits of operating leverage materialized. The company maintains an order backlog, valued at approximately $99 million as of June 30. As a company, we're increasingly committed to delivering higher gross margins and are pleased with the progress being made on our path to profitability. The company reported gross margin of 4% for the six-month period ended June 30, 2023, versus negative 18% for the comparative six-month period, a significant improvement in just 12 months. For the fiscal year 2023, gross margin was negative 2%, flat with prior fiscal year as we incurred expenses in ramping up our production facility in Tennessee. The 4 percent margin achieved in the January through June 2023 period was underpinned by the levers that Jane mentioned earlier, which include, among other things, a substantial reduction in freight costs as a result of not having to ship U.S. and Europe-bound chargers from Brisbane, a successful ramp of the Tennessee facility, and focusing production on just two products that share 80% commonality of parts, our RTM and PKM charger models. Further, we are currently in the process of rolling off backlog volumes executed in a lower price environment in favor of 20% higher prices that went into effect in mid-2022, along with selling a more margin-friendly product mix and sourcing of multiple component suppliers to reduce build costs. Easing conditions across product supply chains during the fiscal year compared to the same period last year have also been noticeable with shortening delivery and lead times for certain key product inputs. Finally, Tritium's recent investments in supply chain management, including data science and predictive analytics, are yielding operational and production improvements. We're confident that these levers will continue to improve and support gross margin expansion through the balance of the year. Total comprehensive loss for fiscal year 2023 was 118 million versus 122 million in fiscal year 2022. Although revenue more than doubled year over year, SG&A expenses were relatively flat, growing only 7% versus prior fiscal year. Going forward, we expect small increases in SG&A in line with inflation and wage growth. Understanding that improving our capital position is vital to achieving our ambitious growth trajectory, We're fortunate to have secured two new partnerships with companies that believe in our business. This month, we've closed a 25 million financing commitment that can grow to 75 million. And in May, we announced that $40 million commitment. The proceeds will be used to fund working capital to continue to scale production volumes, further product development, and grow service operations around the world. Overall, we remain very excited about our business and the feedback we receive from customers around our technology and the uptime it is achieving. It's reassuring as EV adoption and government support are poised to grow exponentially over the next few years. Finally, Tritium is announcing that it will move to the calendar year for fiscal year reporting in 2024. For the six-month period ending December 31st, 2023, Tritium will file a six-month fiscal year followed by a 12-month fiscal year commencing in January of 2024. Thank you, Rob.

With that, we'll open the call to questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To rejoin your question, please press star 11 again. We ask that you please keep your questions to no more than one and one follow-up, and if time permits, we'll be more than happy to take more questions. Please stand by while we compile the Q&A roster. And I'm sure our first question comes from the line of Craig Irwin from Roth MKM. Please go ahead.

Good morning. And first, I should say congratulations on the strong revenue result. It's nice to see the momentum there for the company. My first question is about the linearity of gross margins in the quarter, or I should say in the half. Maybe what I really wish we had was margins in the the second half versus the first half of this half in the quarter. Can you maybe frame out for us the progress that you made over the 26 weeks? You know, how sustainable do you see this progress, and are we still looking at, you know, very substantial, you know, gross margin improvement over the next, you know, number of months?

Yeah, thank you, Craig, and thanks for the vote of support. Rob, I might let you take the gross margin question.

Sure. Hi, Craig. So as we shared in the results, we had significant improvement over the two half years, which when you look back at negative 18% from the Second half of fiscal year 22 versus this fiscal year. Obviously, what happened in between was the ramp up of the Tennessee facility. So as we went into last fall, had some ramp and startup charges, charges associated with bringing that factory up in line. And then as we came into this year and starting to see the production ramp month over month, That's where we started to see the gross margin grow positive, started to see gross profit contributing to supporting operations to support the business. And when you ask about the linearity, essentially, that's what we've seen from the start of Probably last fall, after the first few assembly lines were put into Tennessee, we started to see a consistent growth in gross margin, which again, we'll continue to see that. As we mentioned, the first half of the calendar year was 4%. So obviously in achieving a guidance of 10 to 12%, we're expecting that rate to continue into the second half of the year. And so as we look forward, of course, we want to see that growth continue. We've targeted EBITDA positive. in the first half of next year, which of course is going to require those margins to continue to grow. And we expect that based on the efficiencies we're seeing in production overhead, as well as the reduced freight and also the pricing structure that I mentioned earlier in the call.

Thank you for that. So it was also really nice to see the $75 million financing commitment that you announced today. But the working capital has been a consumer of cash over the last few quarters. Specifically inventories, it makes sense that you're going to be building inventories as you bring up 10C. But can you talk about the potential of liquidating this $140 million in inventory? Do some of those units that are in finished goods maybe have places and locations that they'll be going shortly? And, you know, is there any adjustment maybe on components or applicability of components to next generation products that, you know, maybe is not yet appreciated by the street?

Yeah, let me start on that and then I'll hand over to Rob on the inventory question, Craig. But look, the higher revenue year on year of about, you know, 115% has obviously equated to higher inventory. Inventory went up slightly higher at 150% year on year on the fiscal. And that's partially driven by order demand and ramping for next year. It's also got increasing spare parts sales in it and the holding of spares for both in and out of warranty services. We now have a larger field of fleet requiring parts in and out of warranty. We've got some stock on hand for the first time. So we've always planned to build stock on hand, but supply was so constrained that we just could never hold it. We actually now do have some stock on hand available, small amounts of that for customers who are ready to pick it up instantly. And we've also got higher build rates, which equals more finished goods with and stock in transit. But Rob, I'll let you put some color on that as well.

No, and Jane, I think you covered most of it. The ramp in raw materials was essentially set by the production forecast, looking at the inventory turns that we're capable of doing, and of course, staging inventory at two factory locations. What we do watch closely in inventory is the percentage of components that are tied to live BOM, so those that would be used by the RTM and PKM product lines. It's good that those two share 80% commonality in parts. But of course, as Jane mentioned, we do have inventory that's there to support legacy product lines. We've recently moved from six product lines to two. There will be some components there that will be a part of a long-term service business to support parts and support with customers. As well as in finished goods, we do have a mix of both chargers on hand for sale and available. We've not been able to actually hold stock for immediate order placement in the past, which is good that we have a little bit now that is there for immediate shipments. But as Jane mentioned, there is a portion of finished goods that's also in transit. So of course, from a revenue recognition standpoint, If there's goods that's still in transit to a customer for a DAP Incoterm, of course, those are still counted in there. But we do watch it closely. Again, it was a year of ramp. I do expect that inventory to probably improve a bit as far as a ratio to percentage of sales in the coming year. But as Jane said, since it was very hard to source components for a long period of time, The company erred more on being able to bring in that stock early, place long lead orders, and have that and not be short in supporting the production lines.

Understood. Thanks for taking my questions, and I'll hop back in the queue.

Thanks very much, Craig. Good to hear from you.

Thank you. And I show our next question comes from the line of Noel Parks from TUI Brothers Investment Research. Please go ahead. Hi.

Good morning and good evening.

Lionel, how are you?

Hello. Welcome. Thanks. Just a couple things. You know, I was intrigued by your mentioning that remote monitoring services were an area of expected growth on the service side. And it seems like it's an important sort of natural next step. I just wondered if you could talk a bit about what that can do for you competitively and also maybe what sort of lag from the time it's launched, do you think you could start seeing some significant revenue from it?

Yeah, we're very excited by that as a potential source of revenue, I have to say, Noel, and obviously service level agreements are great as well. remote monitoring really makes advantage of some of the staff we already have who are doing remote fixes, but can also do monitoring and use automated alerting from our new Mitridium modules, which will provide alerts to people who are watching the charger fleet and then speaking to our customers. Now, what we found is that some customers were already doing that themselves. And so they started to reach out to us to say, well, you've probably got better economies of scale to do this than we do. And so we've got our first contract in place for remote monitoring services. And I actually just had a conversation last week with one of our very large customers who's doing it themselves with the exact same question saying, well, actually, I have one guy full time who just does nothing but look at the charges. But it makes sense to me because you have a team of people that a piece of a person could do that work more cost effectively. So I think we're going to see some great economies of scale. And we intend to roll that out quite vigorously as a new source of revenue for us that has really just kicked off now.

Oh, terrific. Thanks. And at one point, sort of in discussing segments, I think you referred to fuel, fleet, and charging network. And I've been thinking particularly with the trend of higher margin chargers in the mix, I guess higher pricing, thus higher margin. Just curious about maybe the dynamics of where each of those segments or how each of those segments, you know, in their sort of order books with you are contributing to those trends. Is one of them in particular looking to power up more quickly than expected? Anything about that would be great.

Yeah, in terms of both your thoughts about both volume and margin in each of those different segments, yeah.

Yes, yes.

Yeah. So, yeah, I think, interestingly, what we see with fuel has a very mature procurement operation and a lot of buying power. And so they tend to be a large volume, lower margin customers. Fleet tends to be a more reasonable margin customer. And then the charge point operators tend to be some of our most buoyant margin customers. again, depending on their size and their buying power. Across volumes, though, we see very significant volumes in fuel, noting, though, of course, that that's not always the way they identify themselves. So BP Polk would be very clear to say they are not a fuel customer. They are an EV charging customer and a pure play EV company. And as opposed to certain other of our customers who would identify as fuel customers, such as, for example, Shell and Motor Fuels Group and Circle K and some of our other fuel customers. And I think from there, what we see is the CPOs tend to be orders in sort of the magnitude of maybe 100 to 250 charger orders, whereas you'd be aware that one of our very large orders that was published from BP was close to 1,000 chargers. They're different sizes and they're different. If we thought of them at a high level, I would say that with fuel, you're thinking about high volume, lower margin customers. With CPOs, you're thinking about smaller volume, but very good margin customers. And then with fleet, it's probably halfway in between the two.

Great. Thanks a lot.

Thanks, Noel. Good to hear from you.

Thank you. And I'm sure our next question comes from the line of Pavel Molchanov from Raymond James. Please go ahead.

Yeah, thanks for taking the question. When you talk about turning EBITDA positive in the first half of calendar 2024, what kind of top line and gross margin assumptions is that predicated on?

Yeah, shall I let you kick off on that, Rob?

Sure. Hey, Pavel. As we look forward, at this point, we're not setting 2024 revenue guidance, but clearly when you look at the economics of the business, and you look at, you know, current operational expenditures, SG&A, and then, you know, the gross margin goals we have and what we see as mature gross margins, you know, for a hardware business like this, you know, we believe that that's achievable based on what we're seeing as far as product margins today and as those improve with – gross margin improves with the way we look at production overheads, freight, and other associated costs. And so we've targeted the first half of 2024 because we believe based on the revenue growth rate that we're seeing historically from prior fiscal year and this fiscal year, and then looking at, as I mentioned, the flattening of our SG&A and operational costs, you know, we've targeted that first half of 2024 because we believe that the margin growth timed with the SG&A and operational expenditures basically has that crossover point in that period. And so we do expect to provide, you know, another business update later this year. You know, as a semiannual filer, we are trying to provide business updates in the quarters in between those filings, you know, and we do expect that we'll provide more guidance specifically on the revenue and margin expectations that tie to the EBITDA positive, you know, guidance we've already set.

And Fidel, we have a lot of levers we can play with there. So as we look at our forecast of sales orders for next year, we will right-size our overhead and our SG&A to whatever we're forecasting to hit. So that's something that we're working on as we speak, which is what do the models look like and the forecast look like and what do we need to do and where do we move on overhead to get that right? And so, for example, we've recently consolidated the footprints of our Brisbane factory. We moved the Lytton facility into the Archimedes Street facility. We had some headcount reduction there, and we've right-sized the overhead for what we're earning at that particular site and how many sales orders we've got. So we certainly have levers we can pull to make EBITDA positive occur at the right time next year.

Okay. Speaking of pulling levers, so turning EBITDA positive one good step, but you also have $10 million per quarter of interest expense that you need to service. What's the plan for getting that under control and actually starting to de-lever, pay down the debt?

Yeah. So first of all, I don't think the interest expense per month is that high. I can go back and you know, confirm that amount. But we did have increased finance costs as we brought on additional capital, as we mentioned earlier, the $40 million facility, as well as this most recent $75 million. So, of course, that did bring up interest expense. Also, it maybe seems like quite a while ago, but of course, we did raise our senior debt facility at the early part of the fiscal year last year. So obviously putting that in place to support the working capital ramp, obviously a lot of that has gone towards inventory, as we talked about earlier, and then just supporting the operations of the business as we start to improve gross profit and start to generate our own cash to support operations. But in the servicing of that, we clearly have a plan to support that and as well as debt covenants that come into effect next year. And as we talked about a bit of the modeling of how we look at next year, of course, we put all of that into account and looking at what we think is the necessary revenue, product and hardware gross margins, as well as the OPEX expenditures to support the interest payments too. Of course, at a company as a life cycle stage where we're at, it's typical to be bringing on additional capital to support the ramp. We know that as we transition to higher gross margins, we start to have the ability to pay back those facilities. You know, in some cases, we might see some of those convert to equity. It's not necessarily that they stay a long-term, you know, debt instrument on the balance sheet. And so, we do look at some of those at equitizing some of that, as well as the ability to pay that down with, you know, cash generated from operations as we go into next year.

And I think it would be remiss of us not to say that we have a very close and supportive relationship with Cigna Bearing to our debt providers. We speak to them on a regular basis and they could not have been more supportive of the business over multiple years now.

Okay, thank you very much.

Thank you.

Thank you. And I show our next question comes from the line of Rob Wertheimer from Milius Research. Please go ahead.

Hi, everyone. This is Justin Pellegrino, one from Rob. We just wanted to understand the order progression in the first half and into the second half of the calendar year. Demand looks pretty good for the industry, and you guys are well positioned for U.S. production, but orders and backlogs showed a bit of a deceleration in the first half. And I know you guys saw some orders come in post the period, but were you capacity constrained at all in the first half? Were you pushing off any orders or

order is just kind of lumpy thank you yeah no that's it's a good question and i think one i definitely wanted to address so you know thanks for raising that one what what we've seen is that there was a series of very large orders placed in the end of fiscal year 2022 which was partly due to the supply constraints so we had you know supply was um outstripping was under stripping demand so demand without stripping supply When that occurred, a lot of very large orders were placed, almost 12 months worth of stock, which those customers are still drawing down on and some of them are still not installed in the field. And in fact, we were still delivering some of those very large orders up until a quarter ago. And so that has changed now as we've seen an easing of that constraint on supply and We're not going to see orders placed like that. We're seeing forecasts for 12 to 18 months, and then we're seeing quarterly orders in tranches of, say, four orders over the quarter to make up a year or six orders to make up 18 months. And that's going to be quite different in terms of what we see in sales orders. And so I think in the pipeline, we can expect large orders from those existing customers to start to be placed in this half of the calendar year for their 2024 and 2025 rollouts. noting that we're going to see many of them shift to those quarterly purchase orders now that supply constraints have eased. And there's also some large new customers we've been working with to secure, and typically on 12-month sales cycles. So as we secure them, we'd expect them to place their orders over the coming six months. So I think it's really actually a feature of COVID, and we'll see some normalization of orders. There's actually, we won't share the numbers, but for some of those very large orders that there's still a large amount of site installation to be done. And until that's been rolled out, we won't see the next orders placed for those large customers, but they will come. And when they do come, there'll be large or there'll be, you know, one tranche of four ongoing large tranches. And I think you mentioned backlog as well. So, you know, the other question on backlog, it has decreased, but I think that's a good thing. This is a healthy amount of backlog now. It was too high before. And having 100 million of backlog is a good number, noting it gives us a 92% DIFOT, which is very important for follow-on sales. If our backlog's too high, we lose sales while customers go off to look for somebody else who's got stock available. So having a high delivery and full on-time spec allows us to sell more charges. So I think that's probably about the right amount in terms of backlogs.

Fantastic. Thank you. And then if we can sneak one in on uptime, you said the 97% and that seems pretty positive. We're just curious, were you seeing on uptime for your competitors or other industry benchmarks and where you are relative to that? We'll get back in line. Thank you.

Yeah, there has been, as you would know, very little published on uptime. So it seems to be something that's really been something of an industry secret. We were really thrilled to start to see customers who have got across the whole ecosystem that's necessary to achieve that level of uptime. It can't just be achieved by great hardware. You also have to deal with site installation, your grid feed, the quality of the grid feed, some upstream devices on the site, the communications at the site. Is there a local tower that can read from the modem? Are the SIM cards working with that local telco tower? So that ecosystem has to be understood by customers. And we're seeing this maturity of customers who are managing to get up to 97 to 99% uptime. And in fact, some of them who actually see it as quite normal. So I had an interesting conversation with a fuel customer the other day who said to me, you know, we're quite unhappy with the first week or two of standing up the charges. We have a few teething issues. We've got to get them up and running. And I was apologetic and saying, what can we do to help? And I said, how's it going after those first week or two? And he said, oh, we're at 99% uptime. He just said it like, was it just normal? And I said, wow, that's fantastic. That's amazing. But for him in their minds, that was completely normal. And so I think comparative to our peers, my understanding is that we are right at the top of our game. I believe there may be perhaps one charger manufacturer who could be ahead of us. So we might be at number two globally in terms of the achievements of very high uptimes across our fleets. And that's something that we've got really very significant focus on is reliability and uptime because we think it's a key differentiator and a key selling point. And each customer we get into that 97% to 99% club becomes a reference customer for another customer who thinks, okay, well, if they can do it, I can do it and I can work out how to do that. And I had an interesting conversation with somebody very senior at Ford a couple of weeks ago who said to me, well, we actually have telemetry data right across the field. So we're watching all sorts of different charger manufacturers across both Europe and North America. And he said the uptime that we see is that in Europe, it's about 72 to 75%. And in North America, it's high 60%. And I said, you know, we're achieving some numbers up in the high 99%. And he said, look, I want to compliment you on having one of the best chargers in the world. So It is absolutely a differentiator. And when we do voice of the customer activities, reliability is in the top three selection criteria for charging hardware for every customer you speak to.

Fantastic. Thank you. Thank you.

Thank you. And I show our next question comes from the line of Christopher Souther from B Reilly. Please go ahead.

Hey, guys. Thanks for taking my questions here. Maybe just on the reiterated guidance, it implies a pretty flat second half of the year from a revenue perspective, and typically you've had kind of more seasonally strong second half. Is this a function of the unusually, you know, longer-term orders that you've been kind of working through? Is it, you know, stronger first-half ramp of production than just earlier deliveries than you were expecting, or is this, you know, capped? in this kind of, you know, a bit different cadence for the year?

Yeah, it's a little bit of a function, Christopher, of the fact that we had some holdover charges which were not recognized but were built in the last half of the calendar year 2022. And so some of those fell through into the first half of this calendar year. And, you know, that probably unnaturally increased the revenue and the bills in that particular quarter. But also the ramp up that we see. So when we look at the first half, we broke production records in both May and June. So they were each of those was a production breaking a record breaking month. Then in July, we build about half that amount because we closed down for two weeks of stock take. And similarly, in August, there's a lower month because of some of the activities that we have on foot in terms of manufacturing production optimizations. And so, you know, I think we'll still do quite well in the second half. But those are probably the key levers as to why we have such a very high first half versus the second half. Did you have anything to add to that, Rob?

No, I think you covered it. As Jane said, the first half, and Chris, you kind of hinted at it, we were able to build more of our backlog than we initially expected. And as we set guidance in May, we had a great May and June in being able to do that with the production ramp in Tennessee. And so as we go into the second half of the year, we knew there would be a couple of headwinds early on with the stock take. Again, the factory is only running for a couple of weeks that month. And as Jane said, in August, we talked about earlier that we're moving from, you know, six product lines to two. So there is a little bit of, you know, relay out of the factory floor and reconfiguring to just support the RTM and PKM product lines, especially in the Brisbane facility. So, you know, of course, we'd like to see, you know, second half growth. We just, you know, want to make sure that, you know, we – see the strong ramp continue September through December, and we're expecting that. But yeah, we just frankly just had a little bit better first half than we originally planned.

Well, there was a second loan month, as you mentioned, of course, Rob, in August, where we closed the Lytton facility, subsumed everything into Brisbane, and probably had a week and a half downtime while we reconstructed the lines there to do nothing but the future products, which was a big deal. I mean, we've been building those five other product lines for close to a decade. So there was a very significant reconfiguration of the Brisbane factory across July, August.

That's right. Okay. Yeah, that's all helpful. And I certainly appreciate all the color on moving from more backlog-driven model to more of a flow model. Can you maybe just give us a sense of where the pipeline stands relative to a year ago? I was hoping we could get a sense of what customers are saying as far as 2024 plans and, you know, if you could give us a sense whether 2024 growth is a function of growth of the existing customers? Is it, you know, new customers? Is it Navi starting to contribute? Just kind of the growth drivers of the business for, you know, 2024.

Yeah, there's some very good large orders in the pipeline. You know, obviously you need to see them drop in and actually secure the purchase orders. But we have some very strategic customers where purchase orders are imminent. So we have a very strategic CPO in Europe who we're hoping to secure next week. They're going through their board approval next week and that will be a significant order on the back of that. As I mentioned, we've secured a large European energy company under GFA. So we're waiting to see what type of orders they'll buy under that particular order. And alongside that, there's our usual customers, so BP, Shell. We're looking to sell the PKM 400 to Ionity if we're successful tendering with them. We're participating in a couple of very strategic tenders with American CPOs at the moment, two of those that are quite far advanced. So some very near term, almost a kind of next week, and others still going through a little bit more negotiation before we get there. So, you know, overall, we're very confident. But as you know, it's a little bit lumpy. With these very large orders, you've got to secure the customer, get the purchase order in. And that's a little bit different than what I'd call our existing customer base who are basing it on forecasts. They're sharing the forecasts with us and they're really placing those forecasts either as a one-off or in four tranches. But look, I'm very confident that it's a strong pipeline for the coming year.

Excellent. And then maybe my last one here, just, you know, if you could kind of walk through, I guess, you know, the implied, you know, mid-teen kind of gross margins in the second half. Can you quantify some of the levers of improvement beyond that level for 2024? And just, you know, maybe update or remind us what you think kind of the target gross margins of, you know, this business is, you know, from kind of a hardware perspective.

Yeah, so I think Rob would have mentioned some of them before, but there's most definitely product mix. The RTMs have a slightly lower gross margin than the PKM 150s. The 400s have a higher gross margin again. There's the getting rid of the historical pre-inflation pricing, which we'd nearly come to an end of, which gives us that 10% to 20% price increase. there's the removal of those inflationary impacts. So we now have PPI clauses in our contracts and we don't fix pricing for more than 12 to 18 months before it can be renegotiated. There is that 68% reduction in the use of air freight out. There's the freight out reductions from Tennessee where the European orders, you know, now going from Tennessee, which is cheaper than going from Brisbane and we're trucking the US orders. And then the Tennessee facility, is really going to be able to achieve, I think, at least a sort of 5% to 7% COGS reduction, simply based on some of the productivity improvements that they've got, some of the automation programs that they've got, reduced tack time, faster end-of-line tests. So we'll see that play out, as well as our BOM reductions, which are part of our project slash, which is a mixture of both design changes and also alternates and things working with the supply chain team. Those are kind of the main levers. And of course, scale is the other good lever. Rob knows the numbers where we break even. And that's different depending on how much overhead we carry. So if we decide that we're going to cut overhead and SG&A in order to get to EBITDA positive faster because that's the right amount against the pipeline and the sales orders, then we'll take that path. And if we're just scaling, we'll continue to carry the overhead that we're currently carrying at the moment. But look, overall, I would say we're confident we're going to see those gross margin improvements continue to play out. But we have to take sensible decisions. So based on the size of your orders, you've got to right size the SG&A to the size of the orders. And those are hard decisions, but they're decisions that we're willing to take.

Yeah, I'll just make it even more specific, Chris. I mean, to be clear, the biggest driver of gross margin improvement in the second half of this calendar year is the pricing and mix. So what happened over the last six months was essentially the shift of ramping Tennessee production, as Gene said, moving to a very different freight model and logistics model because of the geographic location and where customers are located. But we're now seeing moving into the fresh sales orders based on, you know, current pricing structure, um, as well as a richer PKM mix. So that that's where we expect to see a real improvement in gross margin.

The other thing though, Christopher to consider is that, um, the gross margin would have been slightly suppressed and skewed by the very large order of nearly a thousand RTM 50s by BP, which we've been building right up until very recently. That's our very inexpensive and lowest priced product, and it has a lower gross margin. So you would expect that to sort of suppress gross margin until we complete building that deal.

Oh, that's very helpful. Thanks, guys.

Thanks, Christopher. Good to speak to you.

Thank you. Thank you. I'm sure we have time for one more question. And our last question in the queue comes from the line of Thomas Curran from Seaport Research Partners. Please go ahead.

Hello, everyone. I'll make this quick so I give us time to hop off this call and onto our call together, post-call. Just could you give us an idea for the second half of calendar 23 and then to the extent you know it for calendar 24, What's the expected CapEx and then any other known cash outflow obligations?

Yeah, CapEx requirements, and I can let Rob talk to this, but they remain very modest. So CapEx was $7.95 million for the fiscal year 2023. In terms of the factory ramp-up, we have already sunk the cost of the most expensive item, which is the end-of-line test equipment. We've gone out and bought all of the end of line test equipment we need to ramp for 2024. So that's already been spent within that 7.95. And our 20F states that CapEx requirements remain modest. So in the case of Tennessee, we've built out the facility. It's lightweight investment in the tooling and equipment. Always our most expensive equipment is that end of line test equipment. And the majority of that cost is already sunk and spent, ready to go. So I think we'll find it's modest CapEx expense for next year. Unless, Rob, you have anything to contribute?

No, that's right. We spent about $8 million last year. It was about flat the prior fiscal year. As Jane said, we've done most of the larger fit-up in the Tennessee factory. It's now just expansion of additional assembly equipment and utilizing the test equipment purchase. No other significant cash outflows planned. Obviously, as we start to generate more gross profit, back to Pavel's question, clearly starting to pay down liabilities across the company, that would be a primary focus, improve the balance sheet. But nothing else that's anticipated as a large capital expenditure or large cash outflow besides just normal supportive business operations, Tom.

Great. And then I'll just squeeze in one follow-up. Given the changes occurring and the nature of how your customers are placing their orders that we've discussed over the course of the call, you know, Chris kind of described it as a shift from more of a backlog to a flow-driven model. Entering calendar 2024, how much of what will be your calendar 2024 revenue guidance, would you expect to then be covered by backlog exiting calendar 23?

You mean backlog holding over that we've built in the last quarter and then that gets pushed a little bit like last year?

Yeah, just as you exit calendar 23, given this change that's occurring with customers moving more to a Toronto post rather than big awards, whatever your revenue guidance ends up being for calendar 24, what percentage of that would you expect to be covered by your backlog entering the year?

Yeah, I think that's a great question because we could expect it to be slightly lower in that previously we had a 12-month PO or even an 18-month PO single order where it was all secured and non-cancellable orders. Whereas now we can be more confident, I think, in the forecast, in that a number of the forecasts are actually in letters of intent. So they're laid out in an LOI. But until we actually secure the order, we don't actually have it as a secured purchase order, which is the way that we've usually... been able to report, which is secured purchase orders, non-cancellable. And so I think we may see that change in the coming six to 12 months versus those very large orders, which provided us with very significant backlogs.

Got it. Okay. I'll wrap there. Thank you.

Thank you.

Thank you. That concludes our Q&A session. At this time, I'd like to turn the call back over to Jane Hunter for closing remarks.

Thank you, Rob. All right, so at this stage, I'd like to conclude today's call by emphasizing how very proud I am of what Tritium's accomplished in this past year. I am honored to lead such a great company and team and to be at the forefront of this very exciting technology and energy transition, which brings health and environmental benefits to the planet. We think that Tritium, our customers, our suppliers, and our shareholders win by having the best charging products and software and by building the world's best service network. Delivering on those goals is going to drive significant revenue and margin growth. Thank you to everyone who joined us today and for your interest in Tritium. Thanks so much. Goodbye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.