ENS - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Quarter Two 2019 EnerSys Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, President and CEO, David Shaffer.

sir. begin, may You

David M. Shaffer

Good thank Demetrius. us. for morning you, you and joining Thank

on we the morning call Last Financial slides this with this evening, website Mike posted On me Chief morning. is call during be will referencing Schmidtlein, our we our the that Officer.

forward-looking go section to If didn't regarding of cover at I'm going can our Mike chance Webcast Schmidtlein tab information this information, to website you the see in ask to a you get to statements. the Investors www.enersys.com.

Michael J. Schmidtlein

Thank Dave, to you, good and everyone. morning

a on reminder, uncertainties to views performance based current we forward-looking As operating will be subject and this on and certain presenting changes expectations regarding statements and are are future in events call circumstances. that and management's

a Our actual results may differ materially of for number from statements the reasons. forward-looking

as are the statements this presentation. only forward-looking of applicable date of Our

results could and September list estimates, earnings X, forward-looking Exchange including a factors, XX, For of U.S. on quarter in of was with Securities Form analysis XXXX, our for financial the operations management's future Commission. results, the in and ended filed XX-Q our affect and fiscal our quarterly statements of Item discussion set report included which forth see which condition

will also certain In addition, measures. presenting we financial non-GAAP be

XXXX, financial X, of which between explanation release which is X-K, the see on For an our Form November the the located information website comparable differences non-GAAP GAAP and company's please press www.enersys.com. at information, includes dated our our

you, to back it turn Dave. me let Now,

David M. Shaffer

begin will X. I Mike. Thanks, on slide

X% by per organic which end our $X.XX of We Sales to of are second higher year-over-year, the strong pleased is guidance at of driven to earnings increased share, announce growth. quarter range $X.XX $X.XX.

demand In continued Power, Americas transportation, supply strong. significant again TPPL is sales Pure very from States. down In are The recovery we million of freight as capacity regions. all Year-over-year China defense, than Tower. growth selling costs do price gross dedicated offsetting to to by In related sales result Asia, to higher cost and strong in down broadband, to Our higher recovery offset profit Motive effort was year-over-year most order continues products. to to Power headwind our of organic Power well average EMEA approximately have and Thin Lead manufacturing and part increased are more due Reserve of commodity sales have telecommunications, the $X total in coming the Plate strong which pressure, United costs. raw strength during Reserve a quarterly recent TPPL commodity an inflation approximately selling material EMEA or aerospace cost continued XX% in business actions year-over-year price quarter. because all quantities our the

our inflection review third net where quarter, businesses. we briefly cost tailwind X. an pressures of I a slide will want become our to headwind. During Please point a to turn experience commodity instead global

is organic provided during strong we In batteries by healthy share and be As the in competitors. revenue Lead Americas strong across believe continue current Power gaining of EMEA EMEA, XX% maintenance-free over quarterly Thin both Americas the from order TPPL believe mentioned, and Americas will In the market up as second as Pure the comments orders be in and sales Motive rate sales mainly growth EMEA orders Power industry-leading Sales quarter. choice driven our continues robust we Customers' a trends Plate growth. their to make the experience experienced healthy Americas, EnerSys we second Reserve Motive in our Pure sales fiscal X% for in are increased now Recent continue their Pure this of the over quarter. of future. our our strong comprising preferred in XX% of continues to NexSys be is Power are business quarter, of acceptance The batteries customers. near to the all maintenance-free Power the of in are NexSys to details batteries our similar call We sales. to growth segments. and the August. Motive

Motive is lithium lithium lift battery, our lift a in Power NexSys maintenance-free class Next remaining The for iON. the three, truck It prompted kilowatt, month, our we five truck demand on launch growing batteries spending accelerated will development initial lithium battery. variants.

by batteries year calendar and fork one, have two, will electric We class mid for three XXXX. trucks, launched

Our a in want quality, global are from interest unmatched. whose lithium commitment, batteries, to have iON are EnerSys, because shown and aftermarket trusted customers, significant service buy who supplier we

second to EMEA's on quarter. business, Moving Power Reserve sales the in declined organic year-over-year

have volume this to transportation reduced We long market. we UPS manufacturing expect haul the center data in majority vast to our capacity, market share expand once increase of TPPL and sales offset, be additional the the of EnerSys allowing truck

Asia's Power organic continued quarter. growth Motive during the its second double-digit

In we competitor. the a from won addition to market Australian China, also strong, was away as business also

of demand, are Power Motive developing Our are operations timely, are capacity our Indian all This in strong fully global running. and additional is experiencing up since increase manufacturing plans currently for regions capacity India. manufacturing and in we

a second used decline, Reserve batteries. in usage quarter Power lithium sales organic as second government China of double-digit Asia's mandated Tower consecutive experienced the followed the

outside continue. tariffs team Defense to business, up strategy now replace the States. strategy on In to this Chinese increased sales slowed the has continues U.S. this to with been Asia capacity. OEMs patterns by telecommunications develop United Aerospace Our freed of plans is batteries. to strong growth manufacturing repurpose This volume U.S. The and

wins lithium for battery for two contracts space major Our and OEMs long-term defense systems major from missile orders defense batteries. recent include

Florida us United States securing in additional are facility are with There this that are we opportunities meet of a XXXX. hopeful addition slide X. year turn second demand. increased contract in We Please progressing the allow long-term our Aerospace of business and Defense the fiscal to to at shift to Tampa,

have underlying investors introduced XXXX. this have of earlier, mentioned have we cost cost first we second gross Salesforce, costs made the we year year-over-year costs, declines metrics and Day to increased our in we expansion of pertaining year's the transformation masked associated growth. that pressure peaked system with end February fiscal lead which during We with reductions will Since to Investor progress into quarter. experience helped a half enhancements that in new key SuccessFactors. system finance in this and commodity and and cost company's to increases, I continue XXXX, in The But commodity should onward, margin and cost as SAP, reduction developments, cost commodity provide consistent incremental which our This lean experienced product should significant savings. assumptions such fiscal initiatives, has as earnings at initiatives February modular the and

an we have slide to the I strategic progress on initiatives. our now provide update Now, on will X. turn made please

As market Alpha is acquire solutions we announced leading you Group. as meet integration connectivity highly speed our security power Technologies blue-chip DOCSIS growth transformational by complementary know, deliver today and in energy. challenges. world acquisition provides These a services, continuity future Alpha's power is agreement X.X their gigabyte consistent on with latency, businesses working DOCSIS as to MSOs X.X well strengths. two customer strongest MSOs as an This services flow wireless subscribers. the Alpha finally, broadband for allowing mission recently delivering of of an into and compliance. Alpha's upgrades telecom North MSOs and to generation. Alpha to of smart business excess is networks, per part city Alpha's to network cash and enjoys standard solutions keep and X and October XX, to the that cable infrastructure, broadband second today's in industry an networks, reputation, their and systems renewable the or multiple-service base, spending have surveillance, America. and networks, ultimately operators core increased industry-leading is their solutions with broadband on integrated

which grow digitalize are consumers of EnerSys one to sold share the power the competitive as the MSOs. their and against part several an the compete higher deliver speed their important alternatives. for to battery to need markets, MSOs wireless their remain recognize networks of Currently, Alpha. continue the bandwidth to is Alpha's MSOs backhaul also to lives. of systems Batteries data continue suppliers All Upgrading fair allows of will to to

During with strongest directly markup. carriers the same typically together. performance and about can two end groups in avoid literally enclosures, batteries to including batteries choke. the end batteries order is are systems was throat services. one But group the AC work The EF&I a confident be DC case, EnerSys telecom. the DC closely costs customers. excited EnerSys opportunity optimized offer is power engineering as wireless and products the to and the wireless telecom more include time, personnel extra to market that Over every XG buy for DC enclosures, purchase customers single DC on their enclosures, and complete to buying wireless and rectifiers, buildout, and an Alpha's at to Alpha's rectifiers, rectifiers,

small, powering solutions the EnerSys already from cell line exciting, powering site can multiple XG market approaches, XG antennas single as node. power Finally, recognizes solutions Their from a the Alpha. in

best be Our than X complete million to antennas that eventually is installed will more estimate XG coverage. provide

provide grid of XG, Alpha way coaxial and power XXX,XXX IP along and any IoT of easy that security, power addressable Things small to number existing fast world are the or hybrid storage gateways gateways or internet developments Internet is access addition, In Marketed and connect also These offers miles anywhere Outback leader Alpha's strands. a commercial energy I other of and under residential energy for storage. would energy devices. like powered solar providing Alpha and systems systems off-grid with renewable in their address a and to in customers. packaged brand,

inverter storage new a a energy world. our Combining and these optimized in for sector along system integrated is storage. bay Solar modules, Alpha's will power the expertise (XX:XX) systems, give fast-growing plus EnerSys with in completely lithium new and

the tremendous of integrating performance the software system firmware down opportunities to up and streamlining drive costs electronics. by CTO sees and fully of and drive all Our

detailed and months. XX% is XX combining through related streamlining. XXX% EnerSys related and call principally plan on the synergies cost-based The of and in XX% purchases are $XX The to consolidations, revenue-based. manufacturing enclosures contract and months synergies our we achieve XX% synergies to electronics and within XX by last Finally, cost-based are are week, Alpha. manufacturers, million SG&A combining within

the conservative several of synergies network relationship the on other though, as we of I assess intensely optimistic, sales. remain that on should sales global Alpha's of strength impact this EnerSys' are Alpha's international with our help the We acquisition revenue competitors.

potential Our models did rely that on not upside.

the non-lead and comprehensive now, long potential our term. information to with technology And markets NexSys product with industry launch our providing poised personifies in approximately target offer on achieved excited and we EnerSys which results, related turnkey cost iON, in million buzz our growth. an for million is integrated about commodity offering, to our set, very solution much-anticipated last on our by for the $XX cost to maintain very guidance. I and and With of market am in for total Alpha, focus further second look having compete year. and the similar customers forward exceptional In summary, well-positioned are the the $X Schmidtlein during there ask reprieve the pressures from second bolstered remain we businesses the addition Most product, of current like innovation. full strong lithium-ion platform fiscal of to our finally, so to EnerSys of perfect to is maintenance-free about half our after significant results in Alpha, quarter. a addition team, a provide improvements and QX, quarter service Finally, of pleased leader And Mike our many I'll

Michael J. Schmidtlein

Thanks, Dave.

slide our on X. webcast, For I am along those on starting of following you

X. to to X% Asia, the and while from In The Our in decreased net were decrease a volume Europe XX% down was down in X% volume Americas X% second year. net X% increase XX% and a increase increase, X% compared XX%, $XXX a refer pricing to price, net Power net product-line up was compared Europe flat. X%, currency. increase region On in Asia $XXX a our sequential sales quarter regional the also product-line driven the basis, and Reserve million, X% Power had in increase million X% $XX sales sales and Power a to X% and up $XXX slide second even, X% of sales a down a while was due increased On X% first X% to fiscal to Power up The X% Americas million volume. were had decreased for negative Reserve were Motive X% and and the while in to with were million and decline enjoyed currency. pricing down currency. $XXX prior from currency to decrease million currency sales prior Asia X% X%. was and Motive in loss. basis, increase and basis, a while by X%. quarter pricing on a Motive X% at volume Both X% from volume, Please was X%, $XXX a X% Reserve million. from On basis, the Americas quarter volume Power second-quarter second-quarter net a increased over to a XXXX XX% now was up year Europe's year-over-year a On

adjusted Now, few a consolidated about comments performance. our earnings

now the November expenses, adjusted million Asia with Please commodity XXXX, not increases in million, As items. second impact decreased $XX items. higher rising the sequential you highlighted were in XX.X% primarily Accordingly, on million, operating X-K, to which margin Form dilutive a million excluding all currently organic due operating approximately in know, second-quarter my analyzing increase On to expect earnings to Operating was highlighted X, operating from refer net utilize of $X.X later pricing operating points diluted earnings. opportunities. in to also our expenses at the X% excluding related enough costs. the and our X. slide basis operating for concerning offset to The $X M&A year-over-year comments to specifically compared on quarter XXXX with details fiscal charges costs prior includes year On our basis, from $XX higher earnings highlighted highlighted in the expenses to diligence operating certain on fees for primarily down XX.X% items, professional when million measures the commodity earnings in from share along my and exclude company's we consolidated XX press and GAAP a in nearly costs. sales second year. volume of basis and $X basis, costs dated and earnings in the our items. for margins range. prior company's concerning concerning following We turn quarter of were to operating the per are non-GAAP comments these operating EMEA commodity Please release be down Excluded other recorded due restructuring XX.X% a $XX million performance,

points in primarily margin On a sequential impact and up XX.X%, basis, in million last year. our of costs quarter, those segment Americas Americas was second quarter increased XX.X% XX approximately basis prior XX and points charges, below dollars quarter the Excluding the offset from earnings the of business posted which million due quarter's the quarter from in achieved last decreased higher partially the EMEA, the second higher operating $X in quarter prior in X.X% OE earnings from quarter. than primarily and from business from operating the from second basis declined lower our percentage the X.X%. last earnings lead prior quarter's of costs. but and profit second from Europe's from decreased X.X% last year points was was operating of this XXX quarter the dollars of $X million X.X%. down up to the Asia X.X% only and an from million OE $X pricing. year of margin on higher basis operating lead volume last X.X% up $X percentage. volume year pricing year's a were XX.X% The income to year, Americas first percentage Higher prior the were percentage

million year slide approximately volume, on down OE to to sequentially, up approximately Asia's Please $X prior move but dollars lower volume. due $X also were from million the XX.

earnings the comparison second-quarter decrease our year. prior million X, a slide to $XX consolidated on reflected X% operating of of adjusted previously in was As

the losses taxes, earnings and and The higher by commodity prior reflect net in year. higher of million $XX $X million savings, currency consolidated cost million foreign was more pricing, lower results and volume, adjusted than $XX Our approximately costs. offset

caused Discrete tax income quarter second rates approximately rate prior but lower Our variations. prior the comparable for tax adjusted XX% than quarter. year's was to items the these effective of of of XX%, most slightly

expect XX% EPS to on be to outstanding. and between We rates shares higher XX% lower continue to and net XXXX XX%. increased fiscal earnings $X.XX

XXXX have XX.XX of quarter fiscal We of to approximately expect shares million weighted average our outstanding. third

authorized exercised Directors last As $XXX slides we million XX a to Board now have our turn by reminder, not the Please and XX. of November.

As are for to usual, on similar we have slide pages year-to-date basis second now a and These for Please results. year-to-date your prior don't that on I quarter XX. information provided two our pages. to reference, cover to intend turn

and Now comments our some cash-flow position about financial brief results.

first $XXX with million hand million and the million million of and $XX agreement above undrawn the strong. We lines around $XX XX, our the X.X in cash just ratio Our We in were September XXXX, from generated credit expenditures cash is very for have now short-term balance first fiscal leverage Capital $XXX of from world. XXXX, half XXXX. operations as our remains investments half over on times. of credit sheet in

Please approximately on Act. year of impacts We and Tax million XXXX full table details from spending our additional XXXX fiscal expect the in now fiscal to slide The $XX provides XX. turn XXXX. new

previously As and to I mentioned, as fiscal tax rate remain expected, QX around was XX% effective XX% should XX%. our

We XXXX expect which net of be $X.XX charge diluted our between to per continuing our acquisition fiscal activities XX% from of rate an quarter Alpha's and between generate of gross third profit We anticipate in adjusted XX%. quarter $X.XX $X.XX XXXX, share our restructuring in expected primarily fiscal to our share, per various third and excludes earnings net programs. and

we revenue. method price to align recognition defer variances on our know, FIFO better of three the you with purchase a material of to two many raw As month

should average our lead In improve cold profit approximately quarter. mid-QX. and consistent by of battery in sequentially scrap XXX recent from spot rates supplier's won't drop QX to us lead again our one-month results with addition, last in prices, the and our our basis which purchases the Consequently, our is rate of deferral hedges, monthly in our until impact points which lead, QX, lead gross improve projections due with supply for

tariff approximately footprint While than we earnings and QX. we global origin States tariffs tax, mitigate fiscal adjustments impact If supply trade our anticipate of impact and economic, currently no our to end conditions, chain more China, fiscal believe our adopt products' from manufacturing in XXXX. gives $X and $X changing the flexibility believe impact largely will the million in their XXXX to actions with continue, operating to these between recent us we of United before in million

impact Technologies. assessing held options. still release any and and the presentation on last to Alpha an questions any call happy answered acquisition to We investor our cover that are mitigating that that hope We to website issued call announcing as X-K but concerning you of this Tuesday well. – We press that transaction, our Alpha similar are our of and we acquisition a now

currently However, is my reflect concerning EBITDA, that and X.X I at Alpha quite still to to X which wish approximately adjusted leverage our ratio, stable. our times out transaction point rise closing will leverage doesn't comments times, the after

strong Given we generation, delever expect from to this quickly. our cash transaction would

call me to the let turn back Now, Dave.

David M. Shaffer

will we open now the Demetrius, up Mike. Thanks, questions. line for Demetrius?

Operator

And question our Gallo comes Michael from with C.L. King. first

proceed. may You

Michael W. Gallo

Hi. Good morning.

David M. Shaffer

Michael. Hi,

Michael W. Gallo

to, sort third were back again of had some wanted step of price little tariff it quarter, do the and kind looking in on on in lead guess of better guidance than bit your strong given universally that adjusted a earnings quarter. should seem I it would the in Yes, able third Obviously, be kind the somewhat at to outlook. you've was you just more on just and in all price for seem should recovery, year-over-year, trends like your that the quarter, would lead organic flat second have recovery to those volume looking I basis the be taking at that factors. wanted an But than third-quarter which impacts this it quarter I a lag delve you better

improvement assuming about something step-up about we – will fourth is closes, in a then assume the Mike, for end at think And So of fourth that zero do quarter, related year. the closes tariffs, generate basis thing? further quarter? margins. I to XXX still the specific in that the be talked you get transaction question points as pre-acquisition impact expect gross how the points know potential for the for much that that's as a at think XXX that to and as this you acquisition and about basis Should just assuming you I kind we accounting we the can or the of Alpha is the is

Michael J. Schmidtlein

Okay.

So, first about guess I a I'll to with quarter. lot one our questions to try there. is of third the talk regard

So, of flavor have of give I'd understand. a a just to couple you there of are little so items you bit

the forwards traditionally And say the have costs from for rising, pounds are For month. – lead declines, that example, us. and million will – you and decline. the for or it's XX prolongs or under you commodity $XX place forward lead every year, contracts And when know, we a place anywhere as year-to-date it headwind million hedges place a created when million forwards year-over-year, when that cost to this that's you from a of and we XX lead spot deferral, rate benefit it's reprieve a subsequently I'll

time million a this year $XX and headwind. got million we this a ago So, our had year, benefit from about we've a at $X hedges

dynamics the of seeing you are there. part that's So that

they're month. – lead probably where my – going XX% quarter, are going started decline of to then about hopefully because be then able has change. we likely close. to you're include pricing about in we is at while on We about month XX% gone the substantial fairly place the them it benefits QX. time – the of in is November costs We first XX% projection July. transaction, of for gross going year, in be thereon, to to at our as profit real with et about in XXX%. I'm additional kind saying did for we've quarter net break regard combination pretty their probably the currently tell recovery ago just benefits will do neutral I you my in recovery QX their fiscal that where where we only be profit this cetera, don't the QX we are So, in in our pricing. QX – see we the And our up quarter That's hold least my to gross Alpha but that of will be should we're And try will first for tell year-over-year also that's actually And got expecting were be to – so pricing it's there. trying costs. expect last essentially seeing finally effectuate quarter. until that to – we've have we're The I be synergies – the been We a them in which actually some rates will say you fiscal we a We'll you see expectation which to of fourth to to won't have fiscal don't first that in any start at will comments it rates not if XX% just spot really. looking some quarter – And

it's impact only. But that a in needle I We're rate probably profit references considerably. fairly were not to projecting in going QX. the essentially not to to Alpha profit Alpha move include I'm confident So, bunch whole of gross if I in gross feel my EnerSys from

Michael W. Gallo

you. Thank

Operator

our Noah question And with next comes Kaye Oppenheimer. from

You may proceed.

Noah Kaye

the chain. manufacturing Dave, a supply things of touched questions. the on around you and thanks doing number for and global taking you're Thanks,

of to changes some in towards like your being the that driving it really changes demand and some these seems is accelerating meet what of high-level of us Some view kind portion regs. to to just response geared some what's trade give of in of able just really in trends markets? just and you Can demand of end due a

David M. Shaffer

Sure.

add to for us increase very factories standpoint, at Lead let's to to many, two, and it few time. the operations So, takes And and right that that, an it's pieces to It's it one, just chain takes a our Thin frustration of many the supply with three that capacity. build is the Pure quarters. machinery just time that now job From the Plate a expensive. take frustrating all is

so CapEx obviously plan, out did a million $XX – million that Analyst we to better we've than It's just – ahead – to clip is of pre-Alpha laid the create Plate a converting Lead And year frankly run gone we TPPL, to at to that originally The Pure $XX schedule planned. we're Day, into premium that's it's – product that Thin had need this in at products. a going growth. we're our around mix at in

we in happening We've additional so, happening There's investments U.K., our expand facility. capacity. to have trying got that globally. And France we're Warrensburg investments the in in and

One the challenge making Thin that for particular batteries of Lead in size Plate the the we're is are the Pure team of getting bigger.

manufacturing process. mix So, the parts the bigger is putting strains of on other

had about line in well, as that thing the been especially investments not past. new, to of We in But that production seem it's to those into and ahead. just a upstream so new batteries, to of the the Noah, stockpile frustrating, could the assembly the install talked we that's So, high-speed can't get line. build One we particularly planned but the high-quality We a we break size. problem, start bigger high-speed to lines. investments mix make to given have are

really the our factory we we Hopefully, zero. So listening. disappoint inventory down to shutting guys until customers the can our my equipment. op new get far, And ahead, are install cannot by stockpile is

forestall of the until can having putting all We're is of get that. we growth to us. pressure it on So, some

issue capacity. So, number our the one business, our side the now Plate it's Pure of on lead right Lead is Thin to expand

supply combine assembly right looking our sure that make we is now we for to focus footprint the transaction operational manufacturing forward us businesses. for optimize to and light Another chains two call then what Alpha the respective

go the Purcell. that new. – make you battery in So are more we're capital to Melbourne, need And facility there the of are we footprint sure places like lead robots, our Alpha lot our with Spokane of that facility brings optimally. light assembly most using Australia. factories got intensive, We've ICS

Plate of a and that Pure Lead sure operations is do. that enclosures of Alpha does capacity And does than amount we this Thin Mike highest after more So, significant of job run is I – to for productivity. electronics. part with synergies do we part the earlier we those Alpha referenced – more. two for purchases and manufacturing make is contract the

a all our volume. So, you're when contract with any part realistic very synergies dealing it's is manufacturer, of about

numbers So, can certainly those as concentrate and I we give the costs, some to and can synergy we drive we've of think credibility volumes, consolidate outlined. better

that now. additional So, added biggest talent those are team some talent And we're operationally team. Alpha to right supply the us facing chain we've the some wise inheriting good challenges are from recently and the

collectively, improvements quarters. we Noah? Is to in were the that for, you what So hope looking drive coming

Noah Kaye

That's that, And to better iON but some as right line that's entails? that to you the actually coming of know you off is of away But before, NexSys commercializing guess of support CapEx required the business, talked about investments but a can sort squirreling batteries your just of very sort you now. to follow-up market, about team be talk as think the to I wouldn't of you perhaps get helpful. I about you profile much the there, not closer need spend to you kind foresee can understand manufacturing what we type maybe to that so that this, make? going modular

David M. Shaffer

Yes.

– Pure NexSys made the our iON. So, the so our cells we've same say between after is NexSys manufacturing and the part of latter let's

that packaging be would taking businesses It's and batteries start these very light what after assembly-type Alpha similar batteries. does. So, the cabinets, electronics, let's that's And to just together.

number $X the of CapEx week. is used – so well CapEx-like. the million-ish other we it's very last And understood part that numbers the Alpha The for are and business is

different we're accustomed very a It's to. CapEx-like what it's model. than So,

So, And as partners, a batteries cells level, require million plus manufacture we the we Asia, in capacity. we've the going endeavor. That's next assessed will manufacturing we're Thin parallel make make manufacturing – going to ourselves. said, probably the the of buy specifications. to In EnerSys Lead the to the manufacturing that that, to that cells cell that to that few versus need our lithium-ion find Plate very the today now back Pure expand capital-intensive lead spend we to we over years $XX

will obviously, in dollars fee going that. surrender we substantiate our high that We give So, situation. to profitability in manufacturing to simply lithium some be of to that capital build of manufacturing partner overall But for what our scenario. is with or But now. that we lithium our own isn't to we customer. us markup and power recognize paying the and lithium-ion of we the value that billions the And diluted down have to impact risk be impact think spending systems, volume enough I factory deliver, provide a have to the There's in a it's provider. a as complete right those DC message systems, will that fee is we the the I cells deliver then we're be manufacturing important,

So that's parallel. sort of the

it's And is that it's difference. after comes together after TPPL, our a cell the it's it lithium made. point, So, whether whether or big not

Noah Kaye

than, marketing battery your say, the part last costs total of to cell And pack. in cells you're is smaller to for automotive as much what Right. be Correct? point, going an the solution

David M. Shaffer

Yes. Absolutely.

Noah Kaye

could one Okay. last just one If in. I sneak

announcement week. Just of initial curious reception and the on customers last your Alpha's to some from

David M. Shaffer

say very would positive. I

Noah Kaye

Okay. Any elaboration?

David M. Shaffer

DC his to well, up to single – they've capability date. there's feedback following on complete wireless market EF&I power we what Drew system that spoken customers. on doing PO and to customers a service I customers to on or message sales received to feedback But telco leaders one very choke don't received I've see very by and big – with want much. well to the around by spoken had particular from a a team been throat world credible I've conversations with a they've say that We've is – customers too from consistent the to too and gotten spoken plan their our what with – the we've delivering

Noah Kaye

Thanks Okay. back. much very the color. I'll jump for

David M. Shaffer

Okay.

Operator

question next with comes our John And Sidoti. Franzreb from

You proceed. may

John E. Franzreb

Good morning, guys.

David M. Shaffer

John. Hi,

Michael J. Schmidtlein

Hey John.

John E. Franzreb

if the to that you was the shift win Also, I comments, Europe, wonder upon expand discussion mentioned in the In here. from soft. like I'd competitors that. spending telecom Americas. to mix in that your could geographic you you you'll Dave, mentioned maybe share

about do had Asia, two that business markets out, lastly the that you're when you spend to the timing mandate from lithium Europe. new and bottom re-addressed of thanks And talked When quarters, in recycling. shifting China in consecutive does of on kind to? You get spending Telecom's to sales you've weak shifting

David M. Shaffer

had a poor right. connection. very John, All we

question? part of first your the repeat you could So,

John E. Franzreb

Sure.

The taking on elaborate Can first in Americas, from the part you you are share was, competitors. that?

David M. Shaffer

our Nexus Yes. chain Because with asked our supply salespeople Pure on limitations our Lead, we've of Thin Plate Pure customers. target to competitors'

what come most at the of been has we've incrementally competition. as expense selling So of

lion's share. So that would the be

coughed just care some to one their to well, that's as we've of little we our in the ability customers, that, bit lately picked a up business terms see not has their of of do blood up U.S. of competitors and traditional In take and in addition

lithium on So been year. should serious later in fiscal EMEA in who And the do, empty in is decide had delivered message I Mike? something different. believe with to the magnificent in over that's they to else is fairly to elsewhere, not that to prior advice Power was I I to that reasons we've last focus of back I where for in it's a us region what is well, continue re-use I've there That's taken that Asia around as be factory. – the They China, – the those want just we a heads even it mandates, of a iron to China place But the the we one reminder, had share competitors not the when to crossroads. EMEA to China and to customer of a frankly, it's people That to the And would benefiting from and their date get buses piece, a doing has and sales and we to and do spent strong frankly. gone have we've that piece their opportunity, good. Motive the helped with lot a phosphate heard volume, business we've as U.S. our call, a did Because us with And team be to amount cells their something at the calories. my especially that mentioned next. well. always And online very folks. easy two regards region, time find But endeavor areas. coming fire tremendous in Tower get hear from position competitor then, the to regards this other major as

Michael J. Schmidtlein

Asia I'd made progress. say results, we the John, have on And some

India, around demand a is certainly where helped in in in having them. be region steady Asia. sales their site a Power, now channel Motive rather dedicated which manufacturing has have for which it's the turned by much Reserve Our we demand and stronger consumed They've primarily Asian than Power, we've product, EnerSys the

on initiatives China factories opportunities Asia that of our we're I'll China talked that find because call problem well. getting in we've $X think a them including steel to we've got was costing lead (XX:XX) what as as two manufacturers on So, anchor quarter $X us year done with breakeven. a have now we last collaboration to in are we've million and in But of – perhaps partner be we've to that as out, boat attempting we million or a two a capacity had for Tower. to acid number pointed to And going Dave things, some the

redirect and where those big making enough acid Dave a not they China's there. find progress it now, lead as got place are the telecom to market to so batteries where use we're So, to it's we've we because a trying and said, story, is. Right is,

David M. Shaffer

John, plans. the I remarks, all laid best said in as my prepared

attempting harmonization were the repurpose to before we lead that as the planning started that capacity, added tariffs, to acid freed-up before batteries So, codes. were

from forward, in now, rail. goes, market have a that's to do some but we good I there, China going we've comes lest be had So the But harsh we stations right the retooled. China something certainly made too we early stages. satisfy movement now of to any China But to move export over and to be the subways building but the forward. pretty recent to had wins and recognize is we've plan need that Tower booming lot different, if indeed, rail some or so that on there previously team batteries we plans U.S. have endeavor, seen we

John E. Franzreb

in the full Okay. your Fair believe no? Mike, year. enough. I inclusive mentioned Is you of Alpha, or And SG&A of comments, margin kind for that XX.X%

Michael J. Schmidtlein

at different No, of that operating think in spend percentages the I to begin – again, profile the size if close dramatically, in that to pretty versus look you and their of ours, Alpha's isn't would period, light it's probably But change from expenses. their ours, because not one exclude trying completely are going that number the of and fact with. they relative were to

David M. Shaffer

Right.

Michael J. Schmidtlein

countries. were antitrust Alpha. day XX for a likely will of without executory my just to get in at three the most of have approvals benefit we comments as through So XX least period analysts, we And our

their So, Alpha is be limited forecast we right in you update proactive to we this now, point in at complete to employees, which business included. give with don't why planning, quite not and don't consequently we're to own prepared frankly are on the we an ability the have access our too

At opportunities the think we we and them, late better synergies. February you estimate feeling And much last own to a point, for I we we have that synergy have conversation. provided that believe, and that early will happen week. refine where in will that January, we'll

bit are EBITDA a a little ask XX% of now about there. right XX% rate. they running But So, a for about We're EBITDA I'd probably essentially, rate. at patience at

up their And to gross complementary it's at XX%, so, is XX%, when think savings, not lead beating I to really us And we're very going a as XX%, ourselves. with profit be cost and know, up, – you XX% fit, value. purchase going we're to spend figure a XX% rules for to got what accounting to And time, market see too to little inventory we've to going out writing We've much will got I change. say, not do. bit the that's more you're

probably and that's spend million, assets to and foreseeable to at goodwill, amortization close to on we of and do some CapEx throwing some $XX probably and intangible expect going for to your stay our kind be our be of to balance depreciation lists, D&A will pretty amortize CapEx combined specifics $XX which would assess for about numbers, million going probably our you call. too. is be which the tuned of future next situation. off our you same Currently, between future opening that amortize. to But more which We're the going to and have sheet don't our is P&L, and customer trademarks, We hit

David M. Shaffer

And to there's John, make. one I point want

customers for helping delight their I the forma committed going their They've our elimination, we every technology, will will in waste and we maintain push job. to day we've base. every been hopefully to from customers They pro that way directly. can OpEx commitment customer no forwards. It's we There to the do improvements fantastic their whole customers, do cost solve Alpha We extend customers. committed push and push brings to the speak my is to they we're gone we've way love and They've Alpha, what process, I we're push those think Board as been forward. it to only problems. to a it's them to and discussion we Directors, to step backwards. the want heard It's wanting delights their relevant going through technology. more Alpha move of do faster. will

John E. Franzreb

was the or just that reduction in ago? six-month we slide a running of behind year EnerSys on X, was cost that savings isolation, QX or ahead on $X And Are legacy million, cumulative? Perfect.

Michael J. Schmidtlein

All right.

So, John, you...

John E. Franzreb

– And ahead. also go

Michael J. Schmidtlein

Well, finish then respond. sorry. question your and I'm I'll

John E. Franzreb

that does Okay. When expense systems. to ask And also, SAP I away? was of going go about kind the

Michael J. Schmidtlein

right. All

the John, is our year-over-year for is $X.XX noted LME months, the actually actually six increase average of and the year-to-date you earlier that lead average $XX So, a million.

So the rest of just for folks. clarity for the

that costs, back internally and reduction $X savings, fair the down. employees with of we $X and the part it it that of initiative cost is net do the outside company number I'll gross resources XX savings of the about of but are million, the the call a million However, spend would lean amount nearly gross that both a is

million into not Alpha of million, a an the costs sometimes of on have we've are, largely incorporate $X.X you've SAP got but we now us, little we're of our thinking how gets we about designs to there. the to as going look future, ourselves to in how identified with $X decision the so complication savings, about for start And will although SAP the even of think it at get finishing hasn't took incorporated So, starting say made into that in valley business truly business this organization, it players in then I been the what get of we and pull and despair execution. yet, your of SAP that global achieved is And geographical but our off and to and lines the project, between their million and a entirely, whether power we more motive regions. terms truly Because than got is start rather thinking question. transaction. like are things $X that footprints, similar. bit I reserve to call They user, and power

So, still with a transaction. lot are still pleased the quite of work we but there,

John E. Franzreb

I taking appreciate Okay, it. guys. for Thanks questions. my

Operator

Brian Blair. Drab William our from question comes And next with

may You proceed.

Brian P. Drab

make sure thanks to level. the morning, wanted I from good high I'm questions. understanding for a something that Hey, taking just

the sounds about ask It just about giving impact You a fourth quarter should typical comment? significantly volume would any pretty earnings so you the rolling not right contracts the you're just through, where I'm price fourth lead from quarter. as to fourth Can me wrong neutral to guidance third going make forward Alpha, third know and directionally. seasonality, step now, question from but like up I lower increase not quarter tell should headwind, with and a quarter I guidance, large I'm sequentially think there, talked

Michael J. Schmidtlein

we've of that's little comments our guess in you these a a so issue lead of believe some given It's we consensus bit to cost QX, I a pass the I timing couple for compared – guidance how lower. know terms on already through. of So,

So, basis XXX give basis QX specificity in that's why with step-up XXX a little you QX. in more points would and points I another

see contraction billing them get months business even that's costs ago, have in little decline our to the spot of rate of gross You July, do in need higher, Europe, because to that have those primarily would a lower would a a to rates. as we few keep lead bit expect pass-through QX start margin started pickup mechanisms revenue you'll last but where some mind reflected you of in

that lower. why kind that's of keeps So it slightly

the I kind rates. on consensus of profit look in are those headline I think numbers at So for a analysts gross us When of – so the were ahead the little for QX. average

at QX, not I handily. throw be when think I a enough think I to confident pretty I and analysts moment. consensus full out I I'm going the dime able least And far is that at along, to right think, -- feel for look year the the that we'll beat -- at number you're on now

Brian P. Drab

one really on. comment to I just That's a And about little made helpful. that deeper Alpha in Okay. dig wanted Thanks. you

supplier? quantify you You their of also competitors of look much from supply revenue some how Alpha's battery mentioned you your competitors, that comes roughly so might for another could who even

David M. Shaffer

Yes, very sum. it's manageable a

the case in code of is the think that those worst I lot be million. $XX And would a we've to of number folks it zip that. spoken think we and absolute I see unlikely would

Brian P. Drab

if then, products. the associated revenue is you're but Okay. lithium Got you like now? it. And I a guess with sounds excluding curious with I lithium some could is this know the of of share, it what don't traction Alpha, some gaining number percentage

David M. Shaffer

I we have get I to said the mode original the slowly, we so it our much So, big as the yet. as trade originally as at we piecemeal, traditional didn't listen first to Defense, of to as spring, Chicago the in But to power, we're Aerospace wasn't sorts early time, just literally what The you when and want we show eat customers. until plan. was It everything OpEx the The in trying launch full There's lately. launched because line summer. that ready having and more the some a been launching my speak. more industrial started of we really do our to eat for. we've in won't think we takes plan really exclude of those telecom, midst line, cycle And development you prepared businesses, look remarks, we're really product in haven't variant

and but some got I products spring card more get we're this thing. this approvals. we full have just sooner I spending think customer doing than we line the right And the We're come launch. out morning got those feedback, to for want and had originally the money a from the just planned a text a we CTO lot

Day only are energy moving system. is Investor very we're the everything I according the some able firmware differentiated by we controllers, conversion, things one and system, very of about That to to Alpha software going that be battery the is BMSs, of in having me do we're most control what's entire overnight, will to set lithium enclosure, the and accelerate the tell talked transaction the happen in the only can there, you can that all what And but run. we've And it long forward the the already things accelerate it's to won't using to at my complete out everything much past. plan Alpha out is had very, do that So, I this regards to in very with ESS made in and comment doing we by what laid lithium. and but important, prepared remarks, laid having control exciting

Brian P. Drab

Okay. you have be question the the Thanks, And October, last for Mike, three the you you the Got would giving my if for – months Dave. it. us months? this do is data three mind – Americas, guess it then, ending do Europe, mind regions. it I WITS

Michael J. Schmidtlein

Yes. a Give me second.

Okay. me. I've front in it of got

the of and up months, XX%, Asia the compared trailing a Europe total I'll go – was was up three for and in for in Americas, XX%. to X% it year three was Europe up or EMEA, to it the XX% Americas month was So, worldwide prior XX%,

Brian P. Drab

Thank much. you very

Michael J. Schmidtlein

Okay.

Operator

would this conference. remarks. Mr. turn over concludes like I today's back the closing to for Shaffer gentlemen, and host, Ladies to our your Q&A David of portion call now

David M. Shaffer

your call great day. I attend time taking everyone today. want thank to for Have a to the

Operator

disconnect. Ladies a all you may and concludes this and Everyone our gentlemen, great day. have conference

EnerSys (ENS) 8 Nov 182019 Q2 Earnings call transcript