The conference is now being recorded. Welcome to the Smart Wires Technology Ltd Q2 2022 presentation. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question- and- answer session. Today, I'm pleased to present CEO, Peter Wells, and CFO, Julie Andrews. Please begin your meeting. Thank you. Well, good morning or good afternoon or good evening, depending on where you are. As mentioned, my name is Peter Wells, the CEO of Smart Wires. I'm joined today by Julie Andrews, our CFO. The earnings statement was sent out earlier today, and this presentation will provide a high-level overview of that report, leaving some time for questions that you may have after the presentation. Let's go to page three, please. Forward-looking statement. Any forward-looking information is inherently subject to risks, both known and unknown, and does not constitute a guarantee of future results. Page four, please. Today, I will provide an update on our performance through second quarter, looking at key business highlights, the trajectory of the grid moving towards a global energy network and the role of our technology in that new paradigm, the strong global momentum we are seeing for our business, our confidence in building backlog, and moving beyond the supply chain challenges we have seen throughout the year. Julie will then walk you through Q2 results and projected total year financial performance. I'll provide a summary, and we can take your questions. Moving to page five. Business highlights. Despite global supply chain challenges and setbacks, we continue to drive our business forward. We received an order for our second large-scale project with ISA TRANSELCA in Q2. This order will deliver a net revenue of between $18 million-$20 million over the next one to two years, and the project will enable 300 MW of additional renewable generation to reliably connect to the Colombian grid. This follows our first purchase order with ISA, with a net revenue of $20 million-$23 million received in September 2021, and we expect our backlog will continue to build in the country and the region near- to long-term. Our new global headquarters opened in North Carolina, and we established our Colombian subsidiary. In North Carolina, local officials visited our new offices with local news channels and conducted a tour, meeting many of our team. Our Colombian subsidiary in Medellín will serve as an operational hub for the Latin American region, where we have a really strong growth trajectory. We also strengthened our leadership in Q2 with the promotions of Jeremy Knepper, the Chief Operating Officer, and Jessica Joyce, the Chief Sales Officer. This allowed us to focus Michael Walsh on strategy and corporate development in the newly created role of Chief Development Officer. We also appointed Hêdd Roberts as General Manager for Europe and Sundar Baladhandapani as Senior Director of Controls and Communications. These promotions and additions allow us to continue building our team, strengthening our go-to-market position, advancing our technology, and enhancing our offerings. The last highlight I want to share today is the recent announcement of our reseller agreement with Operato, a subsidiary of ELES, the Slovenian transmission system operator. This broadens our commercial offering by allowing us to offer a dynamic line rating software called SUMO in conjunction with our advanced power flow control and analytical services. The power of this combined capability positions us to not only satisfy some near-term market requirements, but also to expand our position as grid-enhancing technology continues to evolve and become a major component in the future of the grid. Please go to page six. What does that future look like? In our view, there is a clear need to reimagine the grid for a net zero world. This is not just about our tagline, but thinking about a structured approach to the role of grid-enhancing technology in moving the grid towards a seamless digital platform with edge-to-edge connectivity that enables renewable energy adoption at an accelerated pace on a bigger scale and unleashes demand-side innovation for clean energy electrification. Much like the World Wide Web, we see a need for a global energy network, a new paradigm for energy transition, a new economy, and a sustainable approach to energy. It's an ambitious view, but we are far from being alone in this view. I hear similar viewpoints from customers, consumers, regulators, governments, and politicians around the world. We believe that the adoption of Grid-Enhancing Technology will build through three phases that link, grow, and evolve, namely applications, services, and platform. In this model, technology providers like us will pursue near-term applications of our technology that build into a distributed installed base with service layers and networked opportunities in the longer term. Today, we provide innovative software-enabled power electronics to solve known grid challenges like congestion or capacity, grid strength, resilience, and stability. These are project-based applications of our technology, transactional in nature. As these deployments grow, we see two service or annuity trends evolving. First, our technology is increasingly being viewed as part of multi-year deployments, solving problems across our customer systems and operations. Secondly, these deployments are being viewed as a network of technology that we can link and leverage to provide analytical and optimization services. Allowing more system access, greater asset integration, and new adaptive capabilities that will allow grid operators the ability to be flexible. The capability that will become increasingly essential and highly valued. This is where relationships and other moves like the Operato agreement provide new opportunities for our business. Finally, in the long term, we see the opportunity for the grid to provide a seamless platform or global energy network with a secure open architecture that takes energy transition to the next level. In our view, this is going to be critical. The world needs to move faster with greater commitment to a modern and connected grid. Without it, net zero goals will falter, missing targets and missing critically needed impact. Our technology can play a key role here. We know the capital is out there, and we need market designs and regulations more broadly to embrace the opportunity like we see in our core markets today. It's a massive opportunity with green economies, growth, and sustainable development at its core. I could not be more excited to be a small part of this journey. Moving to page seven. Let's get to some specifics around the journey to reimagine the grid and where we are seeing this global momentum building. In the U.S., the Inflation Reduction Act is providing key climate provisions for a 40% reduction in CO2 by 2030. In addition, FERC have proposed a rule to speed up connections for new renewable generation, including a requirement to review interconnection customer requests for advanced power flow control. This is where our technology, the SmartValve, plays. It is the advanced power flow control solution. In Latin America, we are seeing that fuel oil scarcity has impacted significantly electricity generation costs, accelerating the need to solve grid constraints and add renewable generation. In addition, hydro-dependent countries like Chile continue to see widespread drought and plans for large-scale series compensation to enhance interconnection between Colombia, Ecuador, and Chile are being established. All drivers for the adoption of our technology. In Europe, energy price escalation is further impacting congestion costs, ultimately going to the consumer and accelerating infrastructure investment and action. Examples of skyrocketing redispatch costs like Germany, with a possible EUR 5 billion in 2022, two times what we saw in 2021, are adding increased pressure on transmission system operators and regulators to act. The U.K., a progressive market where the annual Network Options Assessment is forecasting 50 GW of new offshore wind by 2030 and moves to a Holistic Network Design approach. It recently included 17 power flow control projects, 12 of which were given proceed status, and seven of these were identified as essential for offshore wind. We can therefore see strong momentum for our technology with multi-year applications and opportunities. Finally, Australia has seen rising energy costs due to Russia's invasion of Ukraine, unreliable coal generation, and the weather combining to create an energy crisis, resulting in the Australian Energy Ministry suspending spot market trading and narrowly avoiding load shedding. Significant projects to address these challenges, like VNI West, with a net market benefit of AUD 687 million, are set to expand transmission interconnector capacity between Victoria and New South Wales, including modular power flow control. In other words, SmartValve technology, our technology. Can we go to page eight, please? How do the future vision of the grid and the global momentum I just described translate to orders? The first point to make is that we are holding our guidance for new orders in 2022 to come in within the range of $100 million-$120 million. With the momentum we see in the market, especially in our core markets, we have either closed or we're tracking to close around 75% of this range. In addition, our high probability deal flow for 2022 has increased by about $140 million due to new opportunities with white house customers in core markets. Overall, this means we have a strong position in 2022 for orders, with upside potential beyond our guidance. Timing could move into early 2023 for some of these orders, but we are confident and excited about their potential and significance to our future backlog. Looking a little further out, we see that the pipeline and high probability deal flow for 2023 orders are taking shape, with more than $110 million categorized as high probability so far. We'll share more on this momentum as we progress through the remainder of 2022. Moving to page nine, please. I wanted to spend a moment on supply chain disruption and normalization. When we consider the global and commercial momentum that we have, the question becomes, what's holding us back in 2022? In simple terms, it all comes down to global supply chain issues that have disrupted new product development, product launch, production cut in and ramp, as well as similar impacts on field support. More specifically, lead times have been under significant pressure, forcing us to find alternate pathways for production. Just one simple example here. We have seen some printed circuit board components taking up to 18 months to deliver from order with the original manufacturer. Obviously, non-normal and something that should normalize over time. To combat challenges like this, we have initiated two pathways. First, we initiated an a buy-up process in Q2 to drive daily management on clean to stock, which is the percentage of material secured by production unit and production week. This daily deep dive allows us to assess status in any given production week, making sure we achieve 100% secure ahead of production. Gaps are addressed through active sourcing and sometimes redesigned to simplify and align to the availability of parts. Secondly, we initiated a continuous strategic review in parallel to a beta and clean to start, looking at supply diversification, design evolution, subassembly strategy, and so on. As an outcome, our line of sight to source improved by 2x in Q2 with a high degree of confidence for production plans through year-end. Looking at the chart on the left, you can see that we believe our supply chain is set to normalize over the next four to six quarters as original supply lead times cut in and/or improve, new suppliers ramp up, and our actions take hold. I'll now hand over to Julie for the financial update. Thank you, Peter. Good morning and good afternoon, everyone. Now moving on to slide number 10. Total revenue for the quarter was $8.2 million, a decrease of 20% compared to Q2 2021. Q2 revenue was in line with our expectations and previously communicated guidance that greater than 70% of revenue would come from the second half of the year as we transition from the 10-3600 v1.03 product to the 10-1800 v1.04 SmartValve and manage through continued global supply chain challenges. As Peter mentioned, we are taking a number of steps to mitigate and work through these challenges, but don't expect them to fully normalize until late 2023. Taking this into consideration, we issued revised guidance on July 21st, lowering our revenue outlook to $55 million-$60 million for the full year 2022. Moving to slide number 11. Gross margins were - 50% for the quarter. This was driven primarily by low production volumes in the quarter, driving deleverage of the fixed manufacturing cost base and cost pressure on broker-sourced components. In addition, a warranty provision of $900,000 for earlier generation products, the v1.03, was recorded, which had a - 11 percentage point impact to gross margin. While the company believes this provision to be adequate for potential issues relating to the limited production run of the v1.03, we will continue to assess on a quarterly basis and adjust as necessary. Due to the volatility of supply chain pressures and the impact on costs, we suspended guidance on gross margins for the year. Moving to slide number 12. Operating expenses were $13.3 million for the quarter, a decrease of 12.5% over Q2 2021, as we reprofiled our investments to manage cash outflows. Moving on to key balance sheet items and cash flow items. We ended the quarter with $44 million in cash equivalents, and restricted cash, including $13.8 million of restricted cash related to advanced payment and performance guarantees for certain customers. Inventory and prepaid assets increased by $14 million from year-end 2021 due to purchases and deposits for raw material associated with the launch of the SmartValve 10-1800 v1.04 product. Total current assets were $90 million compared with current liabilities of $25.1 million. They consist of $7.6 million of trade payables, $8.4 million of accrued expenses, and $8.3 million of deferred revenue and customer deposits. The deferred revenue represents milestone payments received to date that are expected to be recognized in the next 12 months. Our cash outflow for the quarter was $26.3 million. The primary use of cash was to fund ongoing operating expenses and inventory and material purchases. In addition, we also had capital expenditures related to our new company headquarters location and build-out of our state-of-the-art lab and testing facilities of $4.7 million. As previously communicated, our cash burn is expected to be higher in the first half of 2022 as we invested in inventory ahead of the new product launch, completed our headquarters location, and revenue and the related cash payments were lower in the first half of the year. We are managing our cash profile through careful management of quarterly spending, driving improved payment terms with both vendors and suppliers, and exploring strategic financing opportunities. Moving to slide number 13. As we announced on July 21st, we have issued full year guidance as follows. We reiterated our order guidance of $100 million-$120 million, led by the momentum we see in our core markets. We revised revenue guidance to $55 million-$60 million for the year, driven by the global supply chain disruptions. We expect the significant majority of our product deliveries and associated revenue to take place during the fourth quarter. This will impact Q3 revenues, which we anticipate to be more in line with what we have seen in the first half of 2022. We suspended guidance on gross margin and EBITDA due to the volatility of supply chain pressures and related cost impacts. This guidance is highly sensitive to our assumptions of the impact of global supply chain challenges related to component availability, subassembly production, and logistics. If actual conditions differ to these assumptions in either a positive or negative way, we may need to update this guidance and will provide calibration in future releases. Now back to you, Peter, for a summary. Thanks, Julie. Let's go to page 14, please. In summary, we believe we have positive momentum going into the second half of the year that will carry forward and build through 2023, especially as we get global supply chain disruption behind us. Let's refresh ourselves on the key areas we're tracking and addressing. First, on commercial momentum. We see strong global movement on policy, regulation, customer and prosumer. The market is aligning around the need to reimagine the grid for a net zero world, leveraging grid enhancing technology and companies like ours to create a new grid paradigm. As I hear often in Australia, no transition without transmission. The message is getting through, and we see this flowing through pipeline, deal flow and orders. Secondly, while global supply chain disruption has hampered our production, revenue generation, margins, and cash position in the first half of 2022, we see positive traction on our strategic plans and daily management that support our new guidance on revenue and will provide steady improvements quarter over quarter, normalizing almost completely by mid- to late 2023. Lastly, we have obviously suffered on cash burn through the first half because of lower production revenue. We have worked diligently to profile our investments and expense accordingly and continue to assess all capital management and strategic finance options. We remain very confident in our approach. I've mentioned previously that the energy transition won't be unleashed at the scale and with the pace needed without a digital grid that operates as a seamless edge-to-edge platform for global energy transition. That this new grid cannot be delivered without Grid-Enhancing Technology. When you consider Grid-Enhancing Technology, nothing rivals the power and potential of our technology. I find it remarkable that the grid is often a secondary consideration in the global discussion on energy transition. It's time we inverted that dialogue and made it clear. The conversation needs to start with the grid. In our view, building a global energy network built on a digital edge-to-edge grid platform will be the single biggest catalyst to accelerating change, driving green economies, renewable energy adoption, demand-side electrification, empowered prosumers, and new utility business models. I'm confident in who we are, what we are doing, and why our technology is so vital. The market signals are compelling, and despite some road bumps in the first half of 2022, momentum is on our side. Our vision is for a net zero world made possible by a digital, secure, responsive grid where people and communities live, connect, and prosper in peace, partnership, and balance with each other and the environment. If you're an investor, thank you for your support. If you're thinking about us, thanks for following our business. We appreciate the time you've given us today, and we can now take any questions you may have. If you wish to ask a question, please press zero-one on your telephone keypad. We will now have a brief pause while questions are being registered. We have several that have been sent in via our email. I will read some of those, and we'll answer those. The first one is from Gard Brita. CapEx for PP&E amounted to $14 million over the last three quarters. As you now have moved, do you expect the quarterly CapEx figure to come down? Gard, yes, we expect it to come down. We've expended substantially all of the costs related to the move, so we should see that come down pretty substantially in Q3 and in Q4. Moving on to another question from Gard and a couple of other investors as well in the same questioning. Could you please elaborate further on the supply chain issues? Where in the supply chain is the bottleneck the tightest, and what affects growth margins the most? Yeah, I can. I mean, first of all, I would say we've seen issues really across the board. There's been challenges really every sector that we've looked at. The ones that we've had, I would say the most pain points, either like specialized components that we use that are perhaps not off the shelf, right? That sort of tends to limit your options and that can obviously have an impact. To a large degree, components that are required for printed circuit boards. The sourcing components are not so much the PCBA themselves, the printed circuit board assemblies themselves. Like that's a pretty, you know, standard flow once you've got the components. Getting that raw material in, all of the components that go onto the PCBA has been significantly challenging. We've also seen problems and challenges around wiring and the harnesses and the production of harnesses and so forth. A lot of different areas, but I would say that really the most painful has been PCBAs. And that's where we've done just absolutely huge amounts of work through the clean to start process. The daily debrief that a cross-functional team of about 20 people are on this every day. And we're tracking obviously what we need in any given production week and making sure we've found ways to get there. We've really solved it through, as I mentioned earlier, a couple of ways, really. One is that we could go to distributors and resellers to find components. That comes obviously often with a cost, and sometimes that cost inflation can be significant. We've also looked at redesign, where sometimes we can change the specification of a component on a board, moving it to something that's more readily available. That's something else that we've explored and pursued. I think the second part of the question is around profitability. What impacts growth margin the most? I would say we've seen inflation. I think I struggle with the word inflation to some extent, but we've seen obviously we all know it, right? There's inflation in the market today. We've seen some really big spikes on costs as it relates to logistics, and as it relates to the basically the direct material flow coming in. The unit economics have been, I would say, challenged by that cost base. I think as Julie mentioned also, when your production is lower, but you still got sort of overhead, if you will, for your production capacity, Julie, you call it deleverage. The deleverage through first half, because what should be more of a variable cost is acting as a fixed cost, and that also is affecting our gross margins. Julie, do you want to add anything? Yeah, I would say, I mean, right now that's the single biggest impactor is just our fixed costs that we have in our manufacturing costs that as we don't manufacture, as we're behind on manufacturing, impacts us directly there. You know, the other thing I'd point out, and there's a question related to this from Marcus as well, but also is impacting our gross margin is the warranty provision. You know, Marcus's question specifically is, you know, this is the third consecutive quarter with the warranty provision. Can you explain what it is, and do we have any issues with the impact on lighthouse customers as it relates to this? I can take that one. Hey, Marcus, hope you're doing well. It's a good question. Look, we had, I would say, a very significant project last year with one of our lighthouse customers in the U.K. It was a large deployment, and we've been working through a very disciplined process there to look at product performance in the sort of short term to longer term. One of the issues that we had was often to do upgrades and modifications, it's quite difficult and quite lengthy because you've got to get outage windows from your customer. We partnered with just a phenomenal customer. We partnered with them. We found new ways to mobilize our teams and their teams. We've actually been on a, I would say, a really phenomenal pathway with them in the last over the last quarter, frankly. The availability and the reliability of the product is looking really good. I feel pretty confident. I really feel like in this last quarter, we've turned a big corner with them. I think, frankly, Marcus, it's really. You know, we're talking about the U.K. You can probably fill in the gaps, right, of who I'm talking about. Look at the Network Options Assessment and look at the number of projects now that are being tagged for our technology. That comes through the customer, but also the grid operator in that region, having confidence in the technology that we happen to build. There's a very clear reason now why we see the number of projects that we see, and also, frankly, why I'm increasingly now having, I would say, more forward-looking strategic conversations with customers rather than looking at sort of project-specific transactions. So that turn in the last, like in Q2 and then running into this quarter has been really, really good. Good. Then I would just add on that, Marcus, with, you know, as Peter mentioned, we're getting close to, you know, the reliability and availability targets that we've set. We believe we, you know, from a warranty provision standpoint, we're close to getting that completely burned in, and would expect, you know, likely after Q3 or so that it would not be, you know, a quarterly provision that we would be making. The other questions kind of spread across as well relate to just our confidence in our order guidance at $100 million-$120 million based on where we sit today with $24 million and $24.5 million in orders. Yeah. Where we have to go to hit that guidance. Yeah, I think it's a good question, but we would say when you look at what's in and what's pending, obviously we have line of sight to things that you guys can't see. As I said in the presentation, if we include the deals that are basically into that last phase, that could be we've gone through that final submission, we're into contracting, we're waiting for regulatory approvals, like, stuff like that. Those deals are really in the last, like, elements or phase of the phase right to an order. When you add those on top of what we've already booked for the year, we really are up to that sort of 75% of the guidance range we've given you. We feel very good about where we're going with what's there. That would leave us obviously then a little short of that sort of $100 million-$120 million. The balance of what's in our pipeline is still very much in play together with, as I mentioned, this incremental, like $140 million of new deal flow that should close either late this year or early next year. That's over and above what we came into the year with. Frankly, if all of those come in, we will obviously go above and beyond that guidance range. It's a little difficult to be so precise, which is really why we held the guidance where it is, because our confidence is that we're either gonna be right in the middle of that range or frankly, quite a bit above it. We feel very good about position today. Okay. There of course, as you'd expect, quite a few questions about our cash position and how we're addressing that, as well as a question about, you know, when we think we'll be break even on cash flow and any guidance on cash for 2023. I'll take the last part of that question. You know, we've mentioned publicly as well as in our annual report that we believe 2024 is the inflection point, that mid to late 2024, that we will break even from a cash flow perspective, not full year 2024, but during the year, that's when we'll have our cash flow breakthrough. In terms of our cash needs for 2023, we have not released any guidance for 2023 yet, and are not providing that on this call. I think let Peter add some context to this. You know, what we've said on the call in terms of we're exploring strategic financing options as well as reprofiling our cash spend, that's really all that we can, you know, communicate at this point. I'll let him add additional color if he has any. I think you said it well, Julie. Look, I mean, look, we're not gonna say it's not been challenging, right? We can see that, and we've had work to do through the year to date, and we've got obviously more work that we're working through now as well. Just to be, like, really clear, we believe we have good control of our cost profiles and business expense. We also believe that we have clear strategies that we can work through to solve any liquidity shortfalls we may need to address. At the end of the day, I think the volatility of the supply chain and production, obviously that's had us on sort of collection timing and disbursement. They haven't been working in our favor in the first half. A little bit of that volatility has been harder to manage as well. We think with all of the work we've done through the first two quarters, and with where we are today, we've got our arms around that. Our confidence is not dampened at all. As Julie said, we have clear pathways to break even a cash flow positive business in the midterm, and we're working to ensure we have sufficient cash buffers, really, I would say, at the end of the day, to manage the timing swings. Okay. I think we have answered the majority of the questions that have come in. If you still have a question that we didn't get to, please just shoot me another email, and we will respond, or you can also reach out, and we would be happy to have calls with any of our investors, as well. Handing it back to the operator. Ending the call. Once again, if you wish to ask a question, please press zero one on your telephone keypad. We have no phone questions at this time, so I'll hand over back to the speakers. Okay. Thank you. Thank you. Bye-bye.