Full Year 2023 Tritium Dcfc Ltd Earnings Call
Participants
Cary Segall
Jane Hunter; CEO & Executive Director; Tritium DCFC Limited
Robert Topol; CFO; Tritium DCFC Limited
Christopher Curran Souther; Research Analyst; B. Riley Securities, Inc., Research Division
Craig Irwin; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division
Justin Pellegrino; Research Analyst; Melius Research LLC
Noel Augustus Parks; MD of CleanTech and E&P; Tuohy Brothers Investment Research, Inc.
Pavel S. Molchanov; MD & Energy Analyst; Raymond James & Associates, Inc., Research Division
Thomas Patrick Curran; Senior Analyst; Seaport Research Partners
Presentation
Operator
Good morning, and welcome to Tritium's 2023 Fiscal Year Earnings Conference Call.
(Operator Instructions)
Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker to Cary Segall, Head of Investor Relations. Please go ahead.
Cary Segall
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 Investors 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 20-F.
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 Investors section of our website and was furnished on Form 20-F with the SEC.
A recording of this call will also be available on the Investor section of our company's website. With that, I am pleased to turn the call over to Jane Hunter, Tritium's Chief Executive Officer.
Jane Hunter
Thank you, Cary. 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 rise as analogy, where the charger becomes a multiyear 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 life cycle 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 recycled back into service, both in and out of warranty.
We ended the production of our first generation of fast charges this year, and we're now building 2 key product lines, our RTM 50 and 75-kilowatt charges 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 1.5 to 2 percentage points higher average uptime than our nonmodular technology, as we've modeled for this latest generation product suite.
This change has simplified manufacturing, field services and inventory and is 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 U.S., 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 MyTritium software platform, which we plan to launch before the end of the year.
We continue to supply our valued customers, including bp, Shell and Nel, Revel and EV 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 want to 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 DIFOT or Delivery In Full On time, which was 92% on June 30. It's also significantly reduced the use of airfreight 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 times 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 6-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 6-month period ending June 30, building 5,100 units, compared with 2,700 units for the previous 6-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 PKM150 has a higher average sales price and gross margin, but a slower takt 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 chargers with price increases now hitting our production lines.
We continue to believe that Tritium has the largest published production plans for DC fast chargers 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 seek 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 U.S. 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 cost of 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 time frame 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 IP65-rated fast-charging technology. Tritium'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 1-kilowatt incremental power sharing, also means there are no underutilized power modules.
Our technology road map 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 rightsized for the charge curve of the majority of current EV batteries, while our RTM 50 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 than increase their charger power levels when they increase their site power capacity and as driver utilization grows at their sites.
Our product road map also includes the 50-kilowatt fleet product with 24 50-kilowatt wall units, running off the PKM400 rectifier unit on a DC bus architecture as well as a 1-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 U.S. 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 hard-working fleet of RT 50-kilowatt chargers with our latest modular RTM 75-kilowatt charger. We're very proud of this partnership and the trust an existing customer places in Tritium's technology to upgrade their fleet. This sale will extend our longevity, brand and drive 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 PKM150 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 cool chargers, due to the heat and dust, which placed significant load on air-filtered chargers.
In July, we hosted an important event at our Brisbane facility, as we welcomed the U.S. Secretary of State, Antony Blinken and U.S. Ambassador to Australia, Caroline Kennedy, to the company's headquarters to discuss the importance of bilateral economic partnerships between the U.S. and Australia, and we (technical difficulty) and Tritium.
We expect the sales of level agreements and remote monitoring services to grow significantly in the coming years due to a combination of a rapidly expanding installed base of chargers, 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 have been proud to see our EV charging customer, bp pulse, achieving over 97% uptime across their Tritium charger networks in Australia and New Zealand. U.K. customer, evyve, also recently published their achievement of 98% uptime across their fleet of 150 trillion 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 at our PKM400 ultrafast liquid cool 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 of course 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 2 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.
Robert 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 materialize.
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 6-month period ended June 30, 2023, versus negative 18% for the comparative 6-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% margin achieved in the January through June 2022 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 2 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 2 new partnerships with companies, I believe in our business. This month, we have 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 received from customers around our technology and the uptime it is achieving, and 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 6-month period ending December 31, 2023, Tritium will file a 6-month fiscal year, followed by a 12-month fiscal year commencing in January of 2024.
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Jane Hunter
Thank you, Rob. With that, we'll open the call to questions.
Question and Answer Session
Operator
(Operator Instructions)
And I show our first question comes from the line of Craig Irwin from ROTH MKM.
Craig Irwin
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 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? How sustainable do you see this progress? And are we still looking at a very substantial gross margin improvement over the next number of months?
Jane Hunter
Yes. Thank you, Craig, and thanks for the vote of support. Rob, I might let you take the gross margin question.
Robert Topol
Sure. Craig, so as we shared in the results, we had significant improvement over the 2 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 start-up chargers, chargers 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, starting 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.
Craig Irwin
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, you bring up Tennessee. 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 is there any adjustment, maybe, on components or applicability of components to next-generation products that maybe is not yet appreciated by the Street?
Jane Hunter
Yes. 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 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 part 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. But 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, we have in stock in transit. But Rob, I'll let you put some color on that as well.
Robert Topol
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 2 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 6 product lines to 2. 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. It's also in transit. So of course, from a revenue recognition standpoint, if there's goods, it's still in transit to a customer for a DAP in go term. 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 aired 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.
Operator
And so our next question comes from the line of Noel Parks from Tuohy Brothers Investment Research.
Noel Augustus Parks
Just kind of a couple of things. 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?
Jane Hunter
Yes. We're very excited by that as a potential source of revenue. I have to say no and obviously, service level agreements are great as well. But remote monitoring really makes advantage of some of the stuff we already have, who are doing remote fixes, but can also do monitoring and use automated alerting from our new MyTritium 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 chargers, but it makes sense to me because you have a team of people that a piece of the 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.
Noel Augustus Parks
Terrific. And at one point, sort of in discussing segments, I think you referred to fuel, fleet and charging network. And I was thinking, particularly, with the trend of higher-margin chargers in the mix, I guess, higher pricing -- that's higher margin. Just curious about maybe the dynamics of where each of those segments or how each of those segments in their sort of order books with you are contributing to those trends is one other in particular, looking to power up more quickly than expected. Anything about that would be great.
Jane Hunter
Yes, in terms of both -- your thoughts about both volume and margin in each of those different segments?
Noel Augustus Parks
Yes.
Jane Hunter
Yes. So yes, I think interestingly, what we see is 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 (technical difficulty) 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's not always the way they identify themselves. So bp pulse will 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 such as, for example, Shell and Motor Fuel Group and Circle K and some of our other fuel customers, and I think from there, what we see is the CPRs 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.
So they are 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 CPRs, you're thinking about smaller volume, but very good margin customers. And then with fleet, it's probably halfway in between the two.
Operator
And I show our next question comes from the line of Pavel Molchanov from Raymond James.
Pavel S. Molchanov
When we talk about turning EBITDA positive in the first half of calendar 2024, what kind of topline and gross margin assumptions is that predicated on?
Jane Hunter
Yes, shall I let you kick off on that, Rob?
Robert Topol
Sure. Hey, Pavel. As we look forward, we've obviously not -- 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 current operational expenditures, SG&A, and then the gross margin goals we have and what we see as mature gross margins for a hardware business like this, 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, 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 another business update later this year. As a semiannual filer, we are trying to provide business updates in the quarters in between those filings, and we do expect that we'll provide more guidance, specifically on the revenue and margin expectations that tie to the EBITDA-positive guidance we've already set.
Jane Hunter
And so Pavel, 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 rightsize 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 we need to do and where do we move on overhead to get that right.
And so for example, we've recently consolidated the footprint of our Brisbane factory. We moved the London facility into the [Acme] Street facility. We had some headcount reduction there, and we've rightsized 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.
Pavel S. Molchanov
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 delever, pay down the debt?
Robert Topol
Yes. So first of all, I don't think the interest expense per month is that high. I can go back and 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, a company as a life cycle stage where we're at, it's typical to be bringing on the 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. In some cases, we might see some of those convert to equity. It's not necessarily that they stay a long-term debt instrument on the balance sheet. And so we do look at some of those equitizing some of that as well as the ability to pay that down with cash generated from operations as we go into next year.
Jane Hunter
And I think it would be remiss of us not to say that we have a very close and supportive relationship with Cigna & Barings 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.
Operator
And I show our next question comes from the line of Rob Wertheimer from Melius Research.
Justin Pellegrino
This is Justin Pellegrino on for 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 backlog 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 the orders or orders' just kind of lumpy?
Jane Hunter
Yes. That's -- it's a good question. And I think one I definitely wanted to address. So thanks for raising that one. 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 -- supply was outstripping with understripping demand, so demand was outstripping 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, 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, 4 orders over the quarter to make up a year, or 6 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 rollout, noting that we're going to see many of them shift to those quarterly purchase orders, now that supply constraints are eased. And there's also some large new customers we've been working with to secure and typically on 12-month sales cycle. So as we secure them, we'd expect them to place their orders over the coming 6 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 (inaudible) there's still a large amount of site installation to be done, and until that's being rolled out, we won't see the next orders placed for those large customers. But they will come. And when they do come, they'll be large or there'll be 1 tranche of 4 ongoing large tranches.
And I think you mentioned backlog as well. So 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, it gives us a 92% DIFOT, which is very important for follow-on sales.
If our backlog is too high, we lose sales where customers go off to look for somebody else who's got stock available. So having a high delivery in full on-time spec allows us to sell more chargers. So I think that's probably about the right amount in terms of backlog.
Justin Pellegrino
Fantastic. And then if we can sneak one in on uptime. You said the 97%, that seemed pretty positive. We're just curious, were you seeing on uptime from your competitors or other industry benchmarks and where you are relative to that and we'll get back in line.
Jane Hunter
Yes. There has been, as you would know, very little published on uptime. So it seems to be something that's really 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, we're quite unhappy with the first week or 2 of standing up the chargers. 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 is it going after those first week or two? And he said, we're at 99% uptime. He just said it like was it just normal. He said and I said, "Wow, that's fantastic." That's amazing. But for him, in their mind, 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 1 charger manufacturer who could be ahead of us. So we might be at #2 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 (inaudible) 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, we're achieving some numbers up in the high 99%, and he said, "Look, I want to complement 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 3 selection criteria for charging hardware for every customer you speak to.
Operator
And I show our next question comes from the line of Christopher Souther from B. Riley.
Christopher Curran Souther
Maybe just on the reiterated guidance, it implies that it was 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 that unusually longer-term orders that you've been kind of working through? Is it stronger first half ramp up production and just earlier deliveries than you were expecting? Or is this capital supply constraints? Do you think that it's come in this kind of a bit different cadence for the year?
Jane Hunter
Yes. It's a little bit of a function, Christopher, of the fact that we had some holdover chargers, 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 that probably unnaturally increased the revenue and the builds 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 built about half that amount, because we closed down for 2 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 optimization.
And so 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?
Robert Topol
No, I think you covered it. As Jane said, the first half and Chris, you kind of hinted that we did see -- 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 to the second half of the year, we knew there'd 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 6 product lines to 2, so there is a little bit of relay out of the factory floor and reconfiguring to just support the RTM and PKM product lines, especially in the Brisbane facility.
So of course, we'd like to see second half growth. We just want to make sure that we see the strong ramp continue September through December, and we're expecting that. But yes, we just frankly just had a little bit better first half than we originally planned.
Jane Hunter
Well, there was a second low month, as you mentioned, of course, Rob, in August, where we closed the London facility subsumed everything into Brisbane and probably had 1.5 weeks downtime while we reconstructed the line there to do nothing but the future products, which was a big deal. I mean we've been building those 5 other product lines for close to a decade. So there was a very significant reconfiguration of the Brisbane factory across July, August.
Robert Topol
That's right.
Christopher Curran Souther
Okay. Yes. 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 can get a sense of what customers are saying as far as 2024 plans. And if you could give us a sense, whether 2024 growth is a function of growth at the existing customers? Is it new customers? Is it NEVI starting to contribute, just kind of the growth drivers of the business for 2024?
Jane Hunter
Yes. There's some very good large orders in the pipeline. Obviously, you need to see them drop in and actually secure the purchase orders, but we have some very strategic customers where our 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 pay -- buy under that particular order. And alongside that, there's our usual customers. So bp, Shell, we're looking to sell the PKM400 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 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 call our existing customer base who are facing it on forecast, they're sharing the forecasts with us, and they're really placing those forecasts either as a 1 of 4 in 4 tranches. But look, I'm very confident that it's a strong pipeline for the coming year.
Christopher Curran Souther
Excellent. And then maybe my last one here, just if you could kind of walk through, I guess, the implied 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 maybe update or remind us what you think kind of the target gross margins of this business is from kind of a hardware perspective?
Jane Hunter
Yes. So I think Rob would have mentioned some of them before, but there's most definitely product mix. The ITMs have a slightly lower gross margin than the PKM150s. The 400s have a higher gross margin again. There's getting rid of the historical pre-inflation pricing, which we 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, now going from Tennessee, which is cheaper than going from Brisbane, and we're tracking the U.S. orders. And then the Tennessee facility is really going to be able to achieve, I think, at least a sort of 5% to 7% cost reduction, simply based on some of the productivity improvements that they've got, some of the automation programs that they've got, reduced takt time, faster end-of-line test. So we'll see that play out as well as our BOM reductions, which are part of our project/which is a mixture of both design changes and also alternate some things working with the supply chain team.
So those are the kind of the main levers. And of course, scale is the other good lever. Rob knows the numbers where we breakeven, 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 your -- size of your orders, you've got to rightsize the SG&A to the size of the orders, and those are hard decisions, but they are decisions that we're willing to take.
Robert Topol
Yes. 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 6 months was essentially the shift of ramping Tennessee production, as Jane 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 current pricing structure as well as richer PKM mix. So that's where we expect to see a real improvement in gross margin.
Jane Hunter
The other thing, though, Christopher, to consider, is that the gross margin would have been slightly suppressed and skewed by the very large order of nearly 1,000 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.
Operator
So 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.
Thomas Patrick Curran
I'll make this quick so I give us time to hop off this call and on to 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?
Jane Hunter
Yes. 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. So we've gone out on board all of the end-of-line test equipment we need to ramp to 2024. So that's already been spent within that $7.95 million. And our 20th state, say, 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 some consent-ready to go. So I think we'll find a modest CapEx expense for next year. Rob, do you have anything to contribute?
Robert Topol
No, that's right. We spent about $8 million last year. It was about flat with 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 to improve the balance sheet. But nothing else that's anticipated as a large capital expenditure or large cash outflow besides just normal support of business operations, Tom.
Thomas Patrick Curran
Great. And then I'll just squeeze in one follow-up. Given the changes occurring in the nature of how your customers are placing their orders, that we've discussed over the course of the call, 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?
Jane Hunter
You mean backlog holding [ovens] that we've built in the last quarter and then that gets pushed a little bit like last year?
Thomas Patrick Curran
Yes. Just as you exit calendar '23, given this change that's occurring, with customers moving more to a tranche of pros 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?
Jane Hunter
Yes. 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 noncancelable orders, whereas now we can be more confident, I think, in the forecast, a number of the forecasts are actually in letters of intent.
So there 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 being able to report, which is secured or purchase orders noncancelable. And so I think we may see that change in the coming 6 to 12 months versus those very large orders, which provided us with very significant backlogs.
Operator
Thank you. That concludes our Q&A session. At this time, I would like to turn the call back over to Jane Hunter for closing remarks.
Jane Hunter
Thanks, Dylan. 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.
Operator
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
