Q2 2021 EnerSys Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Welcome to the Q2 2021.
Enersis earnings conference.
In total.
At this time all participants are in a listen only mode. After.
So to speak his presentation, there will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance please.
That's dobbins era.
I would now like to hand, the conference over to your speaker for today, He said, Dave Shaffer, President and CEO, Sir you may begin.
Thanks Wanda.
Good morning, and thank you for joining us for second quarter 2021 earnings call on the call with me. This morning is Mike Schmidtlein.
Our Chief Financial Officer last evening, we posted slides on our website that we will be referencing during the call. This morning.
If you didn't get a chance to see this information you can go to the web cast tab in the investors section of our website at Www Dot Enersis dot com I'm going to ask.
It's Mike to cover information regarding forward looking statements. Thanks, Dave Good morning, everyone.
As a reminder, we will be presenting certain forward looking statements on this call that are based on management's current expectations and views regarding future events and operating performance and are subject to uncertainties and changes in circumstance.
This is our actual results may differ materially from forward looking statements for a number of reasons are forward looking statements are applicable only as of the date of this presentation for a list of factors, which could affect our future results, including or his earnings estimates.
The forward looking statements included in item two management's discussion and analysis.
Our financial condition and results of operation So.
Set forth in our quarterly report on form 10-Q for the fiscal quarter ended October 4th 2020, which was filed with the US Securities and Exchange Commission.
In addition, we will also be presenting certain non-GAAP financial measures for an explanation of the differences between the comparable.
The financial information and the non-GAAP information. Please see our company's form 8-K, which includes our press release dated November 11, 2020, which is located on our website at www Dot Enersis Dot Com now, let me turn it back to Dave.
Thanks, Mike.
I will spend the first few minutes of this morning's call providing an overview.
Do you have our solid second quarter results and the state of our business overall.
And I will take a step back and provide an update on how we're tracking against the strategic initiatives, we laid out at our 2019 Investor day, a little more than a year ago.
As we entered our second quarter the code 90.
Teen pandemic continue to disrupt economic activity on evenly in markets around the world. However, we began to see a rebound from the viruses impact on our business throughout the period and actually exited the quarter.
Orders very close to pre pandemic levels do.
The us.
Some Chinese motive power markets have recovered much faster than western Europe, while energy systems, and specialty were less impacted by co that.
We continued to build on the cost reductions we instituted earlier in the first quarter, while always staying ready to flex operations backup in response to demand recovery as.
May recall, our model allows us to quickly adjust our capex and opex without impacting our revenue growth objectives or our quality of service.
Many of the op ex initiatives.
But in place will enable us to maintain an improved level of operational efficiency with our new global line of business aligned.
As you even as the demand ramps up.
All of our major facilities remain open and we continue to prioritize the safety of our employees as cold cases rise around the world.
Despite the ongoing headwinds caused by Coca 19, the diversified nature of our business was evident during the quarter.
As we reported solid second quarter fiscal 2021 adjusted earnings of one dollar per diluted share.
Our specialty segment was particularly strong, especially in the transportation portion of our business energy systems turned in a solid quarter with the beginnings of Fiveg uptick becoming apparent and Waller.
While our motive power business still lag Q2 prior year over all our maintenance free TPPL next is pure products have continued to outperform.
It appears that the cobot market disruption is accelerating our customers interest in our new dual chemistry Nexus products.
This conversion to maintenance free combined.
The lingering impact of Covance in Europe, and our overall productivity improvements drove our decision to close our legacy flooded motive power factory in Hog and Germany, Mike will provide more details in his prepared remarks.
Due to improving business conditions and our streamlined.
<unk> cost structure, we generated exceptionally strong cash flow during the quarter, enabling an incremental $86 million in net debt reduction to achieve debt leverage of just under 2.1 times. We did this while still investing in the business.
Please turn to slide three.
I'd.
I'd now like to provide a little more color on some of our key markets. Our largest segment energy systems performed well during the quarter. Despite the impact of the pandemic in the Americas, we saw growing momentum throughout the second quarter with improved order rates for broadband and continued robust demand for battery systems, particularly.
In the telecom front, combined EMEA and APAC delivered double digit year over year revenue growth.
Global Telecom carriers remain committed to investing in their networks to increase capacity and reliability in the Americas. The completion of the T. Mobile merger has led to large purchases for our cabin.
This batteries and electronics as a complete system for their Fiveg ramp up in addition to the direct benefits of the merger. The mandated this spin off presents a significant opportunity for enersis in the quarters ahead as this fourth quarter nationwide provider looks to build their own Fiveg network.
The broadband business can.
Continues to be a story of short term pain that will inevitably lead to exciting long term growth for enersis. The cobot induced work and school from home policies have stressed all broadband networks and resulted in the Msos focusing near term network capex on capacity augmentation over longer term network.
Work hardening programs.
There is no denying that the reallocation of budget has negatively impacted our business over this period. However, there is a clear light at the end of the tunnel as two of our largest broadband customers have recently begun allocating increased capex to network powering and we have seen improved order.
For rates and power project approvals driving an upcoming recovery for our broadband segment.
Factoring in this positive trend along with the industry's clear need for long term network power infrastructure to support increased Fiveg power consumption, we expect the broadband business to transition from a headwind to a tailwind in the near.
Future.
Please turn to slide four.
As noted earlier, our new maintenance free Nexus products are being well received in the market I am pleased to say we have started the launch of our next assign lithium motive power batteries and are in the early stages of testing and validation globally with key forklift Oems we have also initiated.
Nearly prelaunch end users site demonstrations globally with very positive results in several large accounts our sales team is focusing the nexus ion products on the portions of the market with the most demanding duty cycles. For example, we trialled Nexus iron at a carpet mill that runs their fork trucks nearly 24 seven.
Good where there is very little time to recharge the batteries the increased capacity and excellent charge acceptance of Nexus, Iran allowed the customer to keep running while charging only during breaks.
The new third generation TPPL motive power pack is also progressing on schedule with respect to the high speed line commissioning.
And Weve as Weve discussed previously this new product family, we will be using large format carbon enhanced TPPL batteries, coupled with a match battery management system. The carbon additive when controlled correctly, we will provide the user with a significant increase in energy throughput, resulting in longer life. Further. The addition of a battery.
The management system integrated with the vehicles in the Chargers will allow the same experience as our lithium family of products.
Please turn to slide five.
The third segment of our business specialty had another outstanding quarter, particularly in light of the ongoing impact of Cove. It our results in this segment are being driven by our side.
Yes, and transportation, where our backlog remains strong and over the road new truck demand is improving the automotive aftermarket business was very strong in the quarter. Following several recent contract wins along with continued success in retail channels with distributors such as Napa.
We have continued to increase.
X. Enersis is market share in the transportation sector by leveraging our technology platform with TPPL.
Our defense business improved sequentially in the second quarter as our thermal products continue to win more awards. Our ongoing expansion of these thermal products used in munitions also continues to progress the majority.
And these programs have a capitalized on our industry, leading cobalt they sulfide battery technology that provides lighter weight and extended operating times for applications in air and missile defense Air to ground weapons and Hypersonics, our satellite business continues to shine as well.
Please turn to slide six now that I've given you a brief overview of our SEC.
Second quarter results and the prevailing trends in each of our business segments I wanted to take a look back at the strategic initiatives. We outlined in our October 2019, Investor day, which very much remain our core areas of focus today and we are seeing excellent progress in each of these as reminder, they include the following global initiatives one.
Growing the portfolio of products in our energy systems business, particularly in telecom with fully integrated DC power systems, and small cell site powering solutions, which will accelerate our revenue growth from fiveg to accelerating higher margin maintenance free motive power sales with Nexus sign and pure.
Three increasing transportation market share in our specialty business and for reducing waste through continued rollout of our enersis operating system.
Our acquisition of the Alpha technologies grew two years ago created the only fully integrated AC and DC power supply and energy storage provider for broadband telecom and energy storage.
Systems, it positioned enersis to provide a single source solution for fiber connectivity enclosures small cell power power conversion power distribution and energy storage backup with a nationwide engineer furnish and install organization to turn key and maintain the project the opportunity. We initially saw and.
Jeff is coming to fruition as large customers expand their spending patterns from just batteries to Enersis is complete systems offering. We expect this trend to continue in the quarters ahead, ATM t. opportunities are improving for us as they deploy fiveg infrastructure for macro and ran sites, while our strategic collaboration with Corning to Spi.
Towards Fiveg deployment through a next generation touch safe line powering system for small cells is advancing this collaboration will leverage corning's industry, leading fiber cable in connectivity expertise and Enersis is technology leadership in the remote powering solutions and has been endorsed by one of our largest telecom customers.
Weeks.
We are excited by this opportunity in all of the actions we are seeing on the Fiveg front to help you better understand the impact it is already having on our business. It is worth noting that we have already seen $50 million of fiveg related revenue lift during this year, which we believe is only the tip of the iceberg for this long term growth driver. Unfortunately, the fiveg.
The benefit was masked by the reallocated capex spending from our larger broadband customers during the quarter as discussed earlier, we remain more excited and bullish than ever about the longer term impact fiveg will have on our business, especially with the new technologies, we are deploying to assist our customers in this mega trend as a result, we're project.
Acting steady, 6% plus CAGR of energy system sales over the next five years, our next strategic initiative maintenance free motive power is well on track to our five year plan in the quarter for example, while Americas flooded lead acid battery sales were down 25% year on year Americas motive power TPPL Nexus sales were.
25% in the same period as this trend continues in demand resumes maintenance free will comp comprise a larger portion of our motive power revenue and the higher gross profit margins will have an even more dramatic impact on our profitability. We are now estimating that our maintenance free nexis offerings will grow to be the majority of our back.
Battery business by fiscal year 2005.
We're pleased to say that the next generation initiatives growing transportation market share in the specialty segment has been a resounding success over the past 12 months the transportation business in the Americas continues to improve as we see signs.
As we sign up new customers for artist.
Odyssey TPPL products in the premium automotive automotive and trucking spaces.
While still impacted by shutdowns from coated we grew our transportation business by 64% this quarter with the integration of Northstar and are currently limited only by TPPL capacity that will increase dramatically when the high speed line is fully up.
Operational we are well positioned to capitalize on the strong backlog and ongoing demand for our long term trends and our as our long term transportation sales outlook matches, our planned capacity over the next five years finally, our last strategic initiative Enersis operating system or LLS focuses on improving.
Manufacturing costs and capacity realignment, such as the restructuring announcement announced last night for me as motive power business, which should reduce $20 million a year in costs.
At this point the integration of Northstar is nearly complete Odyssey branded automotive products are now being produced in North star factories and.
Moving new high speed line is proceeding through its commissioning in the newest plant with commercial revenue expected before the end of this calendar year Norstar factors report to a TPPL global global leadership team to more effectively share best business practices with our three other TPPL factories, managing TPPL under one global.
The team has been critical.
Two our ability to integrate norstar and increased production capacity in such a short period of time. Despite completing the integration. However, we have been hampered by under absorption at our factories due to coded as well as the inefficiencies inherent in all startups. These inefficiencies include.
And our time necessary to hire new people and train them on new products and systems. This was more challenging in a period when many government incentives paid them to stay unemployed.
These short term manufacturing inefficiencies have masks other areas of operational improvement, which will contribute to shareholder value in years to come.
Please turn to slide.
We did seven.
While we are clearly on the right track and beginning to see the benefits of each of these initiatives. We estimate COVID-19 is delayed our progress against our Investor day model by three to four quarters would that mine. During his his portion of the call Mike will provide an update on the plan we laid out during investor day.
I'd like to conclude by saying that despite the challenges we have continued to confront with the pandemic I am very proud of how our team has operated in this new environment. Looking ahead. We are extremely excited by the accelerated fiveg buildout and the significant opportunity for our industry, leading TPPL products provide as customers continue to seek a maintenance.
I agree solution to their critical power needs with that I'll now ask Mike to provide further information on our second quarter results and go forward guidance.
Thanks, Dave for those of you following along on our webcast. We have provided the information on slide eight for your reference however, I am starting with slide nine.
Our second quarter net sales decreased 7% over the prior year to $708 million due to an 11% decrease in volume a 1% decrease in pricing net of a 1% increase from currency and a 4% increase from acquisitions on a line of business basis, our second.
First quarter net sales in motive power were down 21% to $264 million and energy system net sales were down 1% and $341 million, while specialty specialty increased 24% in the second quarter.
Two $104 million motive power.
Suffered a 21% decline in volume due to the pandemic and a 1% decline in price net of a 1% increase in FX energy systems had a 4% increase from the North Star acquisition, and a 1% improvement from currency offset by decreases of 1% and 5% in prices.
Any and volume respectively specialty at a seven had 17% from the North Star acquisition, less 9% and volume improvements and 1% increase from FX net of a 3% decline in price and mix.
On a geographical basis net sales for.
There because were down 8% year over year to $481 million with an 11% volume drop and a 1% price decline net of a 4% increase from acquisitions offset by 1% decrease from currency.
EMEA added 6% was down 6% to 172.
$1 million on 13% volume and 2% price declines with 5% improvements in currency and 4% from acquisitions, while Asia was up 3% to $56 million due primarily to currency.
Please now refer to slide 10.
On a sequential basis second.
Third quarter net sales were up slightly compared to the first quarter driven by translation improvements on a line of business basis specialty increased 17% with Northstar starting to contribute to its capacity for transportation sales, while motive power was flat in energy systems was down 4% on soft broadband revenue.
We move.
On a geographic basis Americas were down 2% EMEA was up 8%, while Asia was up 1%.
Now a few comments about our adjusted consolidated operating earnings performance as you know we utilized certain non-GAAP measures in analyzing our company's operating performance.
NSE, specifically, excluding highlighted items accordingly, my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's form 8-K, which includes our press release dated November 11, 2020 for details concerning those highlighted.
Please now turn to slide 11.
On a year over year basis, adjusted consolidated operating earnings in the second quarter decreased approximately $9 million to $66 million with the operating margin down 50 basis points.
Lower commodity cost and operating expenses.
These were not enough to offset the volume declines in higher manufacturing costs. However, on a sequential basis, our second quarter operating earnings improved 70 basis points to 9.35%.
Operating expenses when excluding highlighted items were at 15.7% of sales for the second.
Second quarter compared to 16.1% in the prior year as we reduced our spending by $11 million year over year, and nearly $3 million sequentially excluded from operating expenses recorded on a GAAP basis in Q2, our pre tax charges of $11 million, primarily related to $6 million.
As an alpha and Northstar amortization and $3 million in restructuring charges, excluding those charges. Our motive power business segment achieved an operating earnings percentage of 9.2%, which was a 120 basis points lower than the 10.4% in the second quarter of last year due.
To the 21% lower volume mentioned earlier in driving an $11 million drop in operating earnings on a sequential basis motive power second quarter. OE also dropped to 120 basis points from the 10.4% margin posted in the first quarter due primarily to the reduction of $2.3 million in recovers.
Every on business interruption proceeds from the $3.8 million in Q1 down to $1.5 million.
The recovery on our business interruption claim from the rich can fire has nearly concluded as has most of the construction of the facility.
We received $5 million in April.
Bill, which was reflected in last fiscal year's fourth quarter results. We received another $4 million in May which was recorded in the first quarter of fiscal 21, and we received over $1 million in July which are reflected in Q twos results, we expect to collect another 2 million on the matter, bringing the toll.
Total recovered to nearly $13 million.
Overall, the claim including property loss and cleanup along with the business recovery totaled approximately $45 million entry.
Energy systems operating earnings percentage of 8.8% was up from last year.
8.6% and up from last quarter's 8.0%.
He dollars decrease to half a million from the prior year, primarily from lower operating expenses and increased $2 million from the prior quarter on lower commodity costs and operating expenses.
Specialty.
As operating earnings percentage of 11.4% was down from last year's 12.3%, but up from last quarter's 6.5% OE dollars decreased nearly $2 million from the prior year on higher volume excuse me they increased nearly $2 million from the prior year on higher volume and increase 6 million from.
The prior quarter on higher volume and lower manufacturing variances. Please.
Please move to slide 12.
As previously reflected on slide 11, our second quarter adjusted consolidated operating earnings of 66 million was a decrease of $9 million or 12% from the prior year.
Adjusted consolidated net earnings of $43 million was nearly $10 million lower than the prior year. The decline in adjusted net earnings reflect the decline in operating earnings as well as a 4 million dollar foreign currency losses, primarily on unfavorable exchange rates for.
Our company balances.
Our adjusted effective income tax rate of 17% for the second quarter was lower than the prior year's rate of 18% and lower than the prior quarter's rate of 21% discrete tax items caused most of these variations fiscal 2000 nineteens full year two.
Tax rate was 17%, while our fiscal 2020 tax rate was just below 18%, which is consistent with our expectations for fiscal 2021.
EPS decreased 19% to one dollar on lower net earnings we expect our third fiscal quarter.
We enter 2021 to remain near the $43.1 million of one of weighted average shares outstanding in the second quarter as.
As a reminder, we still have nearly $50 million of share buybacks authorized but have no immediate plans to execute any repurchases with perhaps the exception of the modest.
Annual repurchase made to offset employee stock dilution.
Our recently announced dividend remains unchanged.
We have included our year to date results on slide 13, and 14 for your information, but I do not intend to cover these deep in detail. Please.
Please now turn to slide.
Ordered 15.
Our balance sheet remains strong and well positioned for us to navigate the current economic environment. We now have nearly $414 million of cash on hand in our credit agreement leverage ratio is now 2.1 times, which allows over $600 million.
There's an additional borrowing capacity.
We expect our leverage to remain below 2.5 times in fiscal 2021.
We generated over $87 million in free cash flow in the second fiscal quarter of 2021, our first half free cash flow generation was very strong.
Looking at $177 million a receivable collections also remained very good with our DBSO matching its historical low capital expenditures of $40 million were at our expectation for the first half of the fiscal year, our capex expectation for fiscal 21.
Non of approximately $65 million to $70 million has expanded slightly as the economic outlook has improved our major investment programs those being lithium battery development continued expansion of our TPPL capacity, including the norstar integration the installation of our high speed line and.
Transition of Northstar products for the European market to our French factory are all progressing as planned.
Our high speed line is being commissioned this month and should soon commence operations.
Even with these investments we've had retained the agility to flex our manufacturing footprint as needed.
Our decision announced last night to close our Haagen, Germany facility. After nearly 25 years of group ownership reflects our assessment that won the transition of maintenance free solutions for forklifts to the collective oversupply of foot flooded batteries.
For forklifts in EMEA, along with three continued slump in demand from the pandemic and other market conditions.
It was a decision we struggled with given the strength of the workforce in our lengthy ownership of that facility. It will cost in excess of $80 million with 75% being.
And cash charges for severance decommissioning cleaning and closing open contracts with vendors, but it should pay back and under four years and we can handle all expected demand from our other existing factories.
We anticipate our gross profit rate to remain near 25% in Q.
Q3 of fiscal 21, 21, as the lower utilization in some of our factories over the July to September months will not hit our peon BNL until this third fiscal period, which we are now and we expect expanding margins thereafter.
As we previously mentioned we recently.
Took the time to refresh our outlook from that provided on our Investor Day last fall as Dave mentioned, we still feel the core of our expectations remain intact beyond the nine to 12 month delay due to the pandemic in reaching our previously provided target for an additional $300 million in incur.
Our mental adjusted net earnings we believe the most profound updates are that number one the conversion to major maintenance free solutions for motive power is progressing faster than initially expected. Thus precipitating the closure of our motive power factory and Hog and Germany number.
To our increased confidence in our solutions for the Fiveg build out number.
Number three stronger than expected demand in the automotive aftermarket.
Number four our planned TPPL capacity expansions will still satisfy our projected needs and five our performance in this reset.
Sun has been as we predicted on Investor day, if a recession were to occur.
As Dave described we believe motive power markets are recovering, while our energy systems and specialty markets continue to have bright prospects.
With some of the uncertainty from our elections and the pandemic behind us.
We currently feel we have enough visibility to provide a guidance range of $1.17 to $1.21 in our third fiscal quarter now let me turn it back to you Dave.
Thanks, Mike Antoine that we can now open the line for questions.
Thank you ladies.
Ladies and gentlemen.
As a reminder to ask the question you will need to press Star then one on your telephone.
To withdraw your question press the pound cake.
Again, Thats star one to ask the question.
Please stand by while we compile the culinary Boston.
Our first question comes from the line of Noah Kaye.
With Oppenheimer. Your line is open.
Good morning. Thanks.
Thanks for taking the questions.
I guess to start with.
David Mike last quarter, you provided a very helpful kind of commentary.
Orders cadence.
How that trended during the quarter. Thank you.
You did some desegregation amongst the segments and regions I Wonder you mentioned, obviously the headline here seems to be that orders are closer pre pandemic level, maybe disaggregate that a little bit and provide us some color.
If you want either by segments.
Or geographic trends.
I've heard.
How that has trended over the course of.
This past quarter and maybe even into October.
Sure no its good to hear from you.
I would say over the last 12 weeks.
Orders have stabilized and it's so it's not just a one week.
And and as you know most of the gap in the orders previous to that was in the motive power segment. So thats, where most of the improvement has occurred its broad based as as I said in my prepared remarks, China and the us seem to be coming back faster and motive.
And western Yeah.
Europe, even though we do see recovery there as well, it's just not as as fast and and Thats, a moving landscape with the transition to.
Maintenance free we've also.
We've done some really good things in our Polish factory. So there's just a lot of moving pieces.
Is that precipitated.
The haagen decision, but but overall the.
The order flow environment has been solid actually as I noted in my.
Prepared remarks energy systems rest of World had a very good quarter. So.
It's in.
It's broad based Mike is there any other.
Anything I Miss there no I think the the order intake has been.
Very consistent with prior year levels and it's been there for three maybe four months now right.
Okay. Okay. That's helpful.
I want to ask.
Q I think you provided some color on the decision to.
Closed the German facility I want to ask you about you know that decision in the larger context of of the technology shifts you mentioned that you've been you've been.
Maybe seeing a faster than expected acceleration.
In a in demand for the maintenance free batteries away from flooded lead acid.
You know what would you say first of all that there seems to be more demand specifically for lithium in this environment and that's supporting some of their launches and then also how do you think about.
Potential vertical integration risk.
For any of the Oems.
Whether it's a in the Americas or in EMEA.
On the lithium ion side, if they do decide to go further in that direction.
Right no most of the demand is TPPL actually.
So and is in.
I've told you for many quarters now we're trying to create a a a common experience for the customer whether they're using our TPPL technology or lithium so whatever is inside the box they shouldn't care about because the way its charge the way its.
Managed.
It is the same and it's proving out the way we wanted it to and and in most of the orders if not all of them in the recent quarters have banned.
For the TPPL, we think that.
As we push deeper into some of these real.
Heavy duty customers the folks that run their trucks 20 473 65.
Thats going to be an opportunity for us to to pick up more.
Sales in the lithium side, but we're actually doing extremely well within plate pure lead and Thats.
You know, it's a high quality problem, but right now we're still in that situation where.
We're we're limited in how much we can do as we bring on this additional capacity. So yeah I would say, it's mostly a TPPL story today, and we're hoping that the new lithium products.
Products are going to take a the maintenance even further and then that and again the haagen decision wasn't.
It wasn't just about the technology shift Noah.
The you remember there was the sunlight fire and that the sunlight recovery, it's always been a low growth market we've expanded production.
Productivity and capacity in Poland. So it was a complex a difficult decision an emotional decision.
But.
It was it was more than just the the conversion to maintenance free.
And I was I would say that.
Well the pandemic may have influenced the timing of that decision I don't think it changed the decision correct. The first two items that being the conversion to maintenance free and the collective supply from the entire industry have flooded products versus demand. It's.
It's Jeff.
We're simply in an oversupply situation I believe.
Okay. That's very helpful. Thanks, Let me sneak one more in here.
David you mentioned that.
There has been.
A nice uptick here really in some of these fiveg related revenue streams coming in here and it's been masked a little bit by broadband.
Just.
Considering all the different pieces and customer that you have.
So do you think we actually get back to.
Significant year over year growth in energy systems is that Threeq you event for Q event. When when do you really feel like we are going to start to see some some fruit kind of topline.
Inflection here in the business.
Well in the telecom sector, we're already seeing the growth that we expected to accelerate further.
Probably.
Spring time, you know, maybe starting our new fiscal year weeks, we expect probably another uptick in telecom so that.
Finally, the gap right now has been the broadband the cable TV Comcast charter folks and you can see with their spectrum auction.
And some of the projects we're hearing there.
They've got some very aggressive plans laid out to bring faster speeds and more sir.
Services to their customer bases there.
We kind of think is the big five in the U.S. between rise in 80, anti Timo charter and Comcast.
Those are really the big five broadband and in each of those customers we have.
Very good.
Projects in the headlights, so and it's broad based and not everybody and what can be a little confusing I guess is each each of those big five have their own strategy on how they're going to use the fiveg frequencies and and technologies whether initial focus is what the longer term focus is.
Is the good news for Enersis shareholders is we have a broad suite of products and we have reach and services and.
Relationships and brand awareness across all five of those major accounts and then I think the real long.
Our term opportunity still exists globally for us to take the successes that we are starting to enjoy today in the us.
Into the broader international market, so where we couldn't meet no no we couldn't be happier with.
The Alpha acquisition the plan I think the time.
He has been disrupted from when we did the original acquisition.
But but by and large it's going it's going to plan and we couldn't be more excited about the fiveg opportunities.
Okay. Thanks, so much for taking the questions.
Thank you.
Thank you.
Thanks.
Question comes from the line of Greg Lewis with BT I'd. Your line is open.
Yes, hi, Thank you and good morning, everybody Hi.
Hi, Greg.
So I just wanted to talk a little bit about the.
The specialty either.
Kinda the defense area.
Kind of as we think about it and the potential for new administration like.
Like what is that like you could give us some sort of contacts does that kind of change the that business in terms of pace or ramp or is it more around.
Product lifecycle updates or changes so lindy.
Just kind of curious as we can because clearly it was a good quarter you guys called it out.
As you kind of look out over whatever time period, you walk like how should we be thinking about that.
As you kind of as we move forward into a potential change in.
Robert.
Okay I.
It.
And it's a growing important sector for us and I think our success of late has mostly the change of trajectory in focus for us as a result of an acquisition. We did a few years ago. When we acquired the cobalt I saw fight technology.
Its ends are answered.
Thermal batteries and and so that's where we've seen the biggest stair steps, but based on the feedback we're receiving and actually.
I have to say that part of our defense business. The first half of our fiscal year was disappointing.
So it's.
It's a mix story there, but other parts are on.
Our really.
Really going very strong so by and large.
We haven't heard from anybody on our sales team any sort of change in what they expect.
And some of the things we're working on our long term programs anyway.
Anyway, so yes, we aren't anticipating any major impacts for our shareholders from the change administration might do you see it any differently now you need to keep in mind, Greg that the the us fleet of whether its helicopters tactical vehicles submarines.
Jet aircraft.
That's a pretty fixed fleet in the us is going to do their maintenance on them.
And they have those weapons systems last for 2030 plus years, so thats, a very steady stream, we can count on selling.
$40 million to $50 million and tactical vehicle batteries every year so.
That part doesn't change, where we've seen growth the thermal products the investment in precision guided munitions.
Missile systems Defense systems Shield, if you will that's.
Thats, where weve seen growth, we've seen really great results out of our satellite business. So so.
The core business, which is the bulk of the revenue is really steady and although it can be you know move a little bit depending on timing of when they make their orders and sometimes they have budget restrictions early in the pandemic. They weren't really good about ordering at that point.
But that always comes back in a generally always low.
Total sets so we're seeing growth on that answer based side.
Side of that and in our satellite business.
Okay, Great and then just one more for me and you kind of touched on it around.
Forklift business and clearly TPPL is still where there is a lot of demand, but in the year you have.
Well, the ion product and I guess testing and so and I think it's very topical just because you hear a lot about how hydrogen is going to change that this market clearly your customers aren't there yet, but as you think about the ROI and the roll out of that.
I guess a couple.
The questions around that and we can I think yes.
Prepared remarks, but like as we think about Capex rollout.
Yes.
Like like like.
What do you see the path for the rollout of that and really customer acceptance in any kind of way that that moves the needle it does it necessary.
Couple of Dolby sound like it's a 12 month.
When though it sounds like it's more going to be a little bit farther out any kind of color you could give around that I think would be pretty helpful.
Yes, I think what's most important to our customers and whats changing the dynamic.
Is is how heavy.
The equipment is utilized so in traditional kind of manufacturing and distribution centers. They didnt pushed equipment historically as hard as they do today and they are trying to go to fewer and fewer manning human beings in these in these facilities. So there's less human interaction and they want.
To push the equipment to operate.
More hours of the day and so the key issue for them as maintenance free it's it's a uptime of the of the equipment. So.
The hydrogen options are certainly out there as one alternative.
We think that.
Our new maintenance.
Three batteries, especially when coupled with.
Wireless charging opportunities is another answer because again, it's that it's that lack of human beings and.
That it's really just keeping that truck in service and fuel cells. We we worked with fuel cells that years ago.
We made an acquisition or.
Right.
Venture into that area and it just it has its own set of issues. So we chose the battery to stick with the battery route and this market.
And we feel very very good about.
As our capability, which we think is unique in the market. We know is unique in the market is that we have an engineering group here that not only does all of the battery design work all of the Charger design work all of the Canbus and integration design work. So we we really have a.
A total comprehensive systems capability that none of our competitors do and we think that given we've given any challenge we can find a solution.
And the maintenance free is is an integral part of that so and certainly the hydrogen guys are going to.
Find their places in the market historically weve.
We've seen those pencil in the extremely large sites with many trucks, but.
We think that we're on the right track with.
With our new maintenance free products.
Okay perfect. Thank you very much.
Thank.
Give.
Thank you.
Our next question comes from the line of Brian Drape with William Blair. Your line is open.
Hi, Brian Good morning, Hey, Hey, Dave Hey, Mike.
Yes.
Can I ask you to think for a second just about now.
Next year.
Fiscal 2002.
And.
You have these.
Kind of blending opportunities here several of them right transportation in the auto in particular I'm interested in your thoughts and then lithium.
And then also on Fiveg and if you think about the incremental.
Revenue opportunities from each of those three.
For next year.
What what what can that be like are you expecting that sell $10 million and lithium products or 50.
And if you could just try to quantify even with some broad ranges for those three categories for incremental revenue over the next year.
I'll take the lithium piece and then Mike can maybe.
Maybe take because we just we just came through all this.
We just redid the model with all the sales guys. So he has he has everything I wouldn't put high expectations, Brian for lift them on the on the EPS line.
In the near future, we've got we've got to get the Kinks out and the costs down and we.
We have the roadmaps, but when you start up the volume is low we're not getting all of the.
And we're still in soft tools on some of these things we still have a lot of work to do on lithium piece. So.
It's not nearly going to have the impact that TPPL has.
At the earnings line and on the revenue line.
You know, it's going to be in the tens of millions of dollars we expect in the.
In fiscal year 2002, but I can tell you.
The sales guys are super excited about it.
And they're pushing us every day.
Because they want to have that they want to have a maintenance free solution for every nook and cranny of the marketplace and today.
We need we need that lithium to go after the real heavy duty users as I referenced earlier, so thats the focus but I wouldn't put too much in the model.
Right now.
On the bottom line as we sort through the startup and ramp up issues and then Mike on the transportation piece do you want to add David David can I just ask before you move on from that can launch.
Longer term I believe you said in the past you think lithium margins should be in line or even above.
Of the corporate average margins, yes, that's still the case and is that like after year. One what's the time, yes, yes, I would say that's about the right time so.
The guys.
And they always I don't want to commit to it sooner is we've got to once you make all these design changes you've got to go through the UL approvals and everything.
Model again, so I I.
I don't want to get too far out over my skis on that so I think for F 22, let's just be cautious, but going forward it will absolutely absolutely being accretive margin business.
Okay.
Yes, so Brian with regard to Fiveg opportunities I think Dave in his remarks that it.
It is worth noting that we do already see $50 million of Fiveg related revenue lift during this year and that was supposed to be not a year to date referenced but a full year reference just for clarification.
And so but you know as we said, we believe that that that real growth in fiveg for us and everybody's all all the vendors in this.
Exercise have different timing for when they may have a part to play in it but we think that this is probably going to happen.
And in the late spring early summer of next year as the outdoor plant, which is mostly what we're working on you know it's not a real winner is not a good big time for doing that kind of work. So we really see next spring early spring were going to see a lot of order activity we hope.
And then by late.
Spring early summer I think we will be busy on the Fiveg front, and we and we really do feel good on whether you're a telecom player or broadband player that we have solutions that will work for you to build out a small cell network and Brian. The other thing you've got to remember that's unique about five you the speeds are so fast.
Pass.
That in the power required to move those ones and zeros at that speed is very high so the power consumption of this equipment.
His four however, you want to view it.
Per per per bit of data transmitted and the power.
<unk> requirements are very high so, it's and but everybody's doing it differently, whether it's CB Rs spectrum or the millimeter wave is it is it a a fixed broadband initiative is it a.
Is it too to move from an NVNO model to a.
Two.
Doing their own wireless networks each one of these.
Folks is committed to their own strategy, but in each of these cases, the power requirements will increase regardless of whatever their particular strategy is every one of these higher speed networks higher capacity networks is going to require.
Two more power.
Which is obviously good for alkali you're saying just a typo on that's right that's good for us.
Okay, and then auto you want to.
Incremental revenue opportunity in 21 22 versus 21.
So I.
I think that the demand is there for.
Number.
We're only limited probably by our ability to execute on that one so.
The high speed line comes up in assuming that that is initially directed at automotive type of resources.
We got to make sure that the front and back end of the that factory in Springfield, Missouri is ready.
For run three shifts when it is you know that should be able to produce an additional $150 million of revenue on a full year basis, so that benefit won't show up.
F Y 22, it will be because that ramp up will you know starting probably in December it's going to make that that increase over.
Over the next 12 plus months so.
But we think that Thats, a great it's probably a good exit rate.
Yes, so just to be clear.
Is it now becoming clear to you that the high speed line.
Capacity is going to be dedicated to auto because of the the tree.
The nexion demand that you're seeing at sort of that you can get them on the shelves fast enough in places like autism.
I think that that's where the the most pressure for us the biggest backlog pressure for US right now is in that sector.
But I I legitimately feel like each one of the business units.
It's is going to be screaming.
For more capacity whether it's.
Fiveg network backup power with our Sps products, whether it's.
TPPL Gen three.
There's there's we've there's there's there's several programs.
That are supported cable television alpha sell we can make on that line. So yes, theres theres plenty of opportunities for them to fill it I think the reason mikes being cautious and I am glad he is is.
As we just don't want to put our ops guys in a box because it's going to it's going to take time to get to that to ramp.
Those levels were in production now.
It's just muted and.
And we're just ramping up slow but officially the line is in production, we're making products and.
And it's just going to continue to get better and bigger, but I think that 150 is.
To that exit rate for the year and we have to balance all five of our factories right. So it's not just with the high speed line could do.
But it's also what the other plants can produce and how busy they are with other activities. So if if we have a location that has excess capacity that we're.
It can move probably that product demand to that factory and then that might.
Impact what the what the high speed line might run on so it's balancing the entire TPPL capacity, which is what we're going to do which will influence the high speed line.
And lastly is that revenue coming off that line regardless of end Mark.
Or going to be it's still going to be at.
The same roughly the same gross margin.
The auto or whether it's some other end market.
It's I mean, the pricing is the same it doesn't matter where from a customer it form fit and function doesnt change, but our cost per unit goes down with that.
Yeah, we just as a reminder to everyone. When we first made this investment it was not an incremental capacity play it was a cost reduction initiatives. So so if the product is made off at high speed line.
That one is going to enjoy lower cost than if it was made on some of.
Our other lines that may have the same capabilities in terms of what product they can make they can't make it at a price.
Some of the TCPL that used to be 35 ish percent gross margin is higher than that coming off of the high speed line is that correct.
That would be would that should be a true statement, yes. Okay.
All right thanks very much.
Okay. Thank you.
As a reminder, ladies and gentlemen that star one to ask the question.
Our next question comes from the line of Greg.
Lasalle ski with Webber Research your line is open.
Hey, good morning, guys. Thank.
Thanks for taking my question.
Sure Greg.
So regarding the Nexus eye on you previously indicated that.
After introducing it to the material handling market that residential storage would be next year is that still the case and then could you update us on kind of the timing of that and a and what markets.
Our in line to follow that.
Yes, actually telecom and.
Resi or both.
On the Q and in development now we've already started that work and I don't think.
I think the latter part.
Part of F 22 would be a best case scenario. So I don't think we've got a lot of non motive lithium loaded into the F 22 model.
Correct me if you don't.
I don't think so those npis.
Like we always said they were going to come later so let's.
Let's just say that those should be late F 22 early F 23 timing.
Okay, Great and then just from a modeling perspective on the a and the Germany factory, what kind of topline.
Attributions shoot Eric Yes.
Quarter over quarter change should we kind of mix.
I expect for that factory closing.
Well the topline shouldnt change whatsoever, because we're simply going to transfer that demand to our other European factories capable of making that those products.
Ultimately in Andes.
Obviously, the first step we have having made the announcement.
On our press release, either last night or this morning, AK went out this morning, because yesterday was veterans day.
There will be a negotiation with the works Council, which will include the timing of that final.
Closure et cetera. So we don't have all of the answers for that but I would say.
Hey.
Over time, you would expect that that savings of approximately $20 million a year will will be again, probably an exit rate certainly as we leave maybe not this year, but it should be we should be achieving that at some point in the first half of next year I would expect.
Okay, great. Thanks, a lot guys.
Yes.
Well I've got maybe in between any questions I just wanted to point out I think I in my final remarks concerning guidance I wanted to just clarify I think I use the long the low the wrong amount for the high end of our guidance.
I meant to say.
Dollar 23, so that everybody recognizes that the mid point is $1.20 for us.
So yes, I think you said 121 yet.
Thank you I'm not showing any further questions in the queue I will now turn the call back over to Mr. Shaffer for closing remark.
Thanks.
Thank you Twanda and I want to thank everyone else for taking.
Taking the time to attend our call today, we look forward to providing further updates on our progress on our third quarter 21 or.
2021 call in February have a good day everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for your <unk>.
Say at the patience you may now disconnect everyone have a wonderful day.
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