Q3 2022 EnerSys Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 Enersys earnings Conference call.

Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 InterSIS Earnings Conference call. At this time, all participants are on a listen-only mode. After this speaks presentation, there will be a question and answer session. To ask a question during this session, you will need to press start and one on your telephone. Please be advised that today's conference is...

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded.

Speaker 1: If you require any further assistance, please press star then zero. I would now like to send the conference over to your speaker for today. David Schaffer, President and CEO , you may begin.

You require any further assistance. Please press Star then zero I would now like to turn the conference over to your speaker for today, David Shaffer, President and CEO you may begin.

Speaker 2: Thanks, Twanda. Good morning and thank you for joining us for our third quarter fiscal 2022 earnings call. On the call with me this morning are Mike Smedline, our Chief Financial Officer and Andrea Funk who will be succeeding Mike when he retires next month.

Thanks, Good morning, and thank you for joining us for our third quarter fiscal 2022 earnings call on the call with me. This morning are Mike <unk>, Our Chief Financial Officer, and Andrea Funk, who will be succeeding Mike when he retires next month.

Speaker 2: Last evening we posted 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 webcast tab in the investors section of our website at www.nrsys.com. I'm going to ask Mike to cover information regarding forward looking statements.

Last evening, we posted on our website that we will be referencing during the call. This morning.

You didn't get a chance to see this information you can go to the webcast tab in the investors section of our website at Www Dot Enersys Dot com I'm going to ask Mike to cover information regarding forward looking statements.

Thank you, Dave and good morning to 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 circumstances. Our actual results may differ materially from the forward looking statements for a number of reasons or forward.

Speaker 2: 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 circumstances.

Speaker 2: Our actual results may differ materially from the forward-looking statements for a number of reasons. Our 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 our earnings estimates, the forward-looking statements include...

Looking statements are applicable only as of the date of this presentation for a list of factors, which could affect our future results, including our earnings estimates.

The forward looking statements included in item two management's discussion and analysis of financial condition results of operations set forth in our quarterly report on Form 10-Q for the fiscal quarter ended January <unk> 2022, which was filed with the U S Securities and Exchange Commission.

Speaker 2: management's discussion and analysis of financial condition results of operations set forth in our quarterly report on Form 10Q for the fiscal quarter end of January 2, 2022, which was filed with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAF financial measures, particularly concerning our adjusted consolidated operating earnings performance and our adjusted diluted earnings per share, which excludes certain highlighted items.

In addition, we will also be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance and our adjusted diluted earnings per share, which excludes certain highlighted items for an explanation of the differences between the comparable GAAP financial information.

Speaker 2: For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8K, which includes our press release dated February 9, 2022, which is located on our website at www.enersys.com. And let me turn it back to you, Dave. Thanks, Mike. Please turn to...

<unk> and the non-GAAP information please see our company's form 8-K, which includes our press release dated February nine 2022, which is located on our website at www Dot Enersys Dot Com now, let me turn it back to you Dave.

Thanks, Mike Please turn to slide three.

Speaker 2: Enersys delivered another quarter of strong year-over-year growth with $844 million of revenue, the highest quarterly revenue in our company's history, increasing 12% over the third quarter 21, driven mostly by volume as well as ongoing aggressive pricing actions. We saw record demand across all of our segments with Q3-22 orders increasing 30% from the prior year and 33% compared to the same period of pre-COVID fiscal year 20.

<unk> delivered another quarter of strong year over year growth with $844 million of revenue the highest quarterly revenue in our company's history, increasing 12% over the third quarter 'twenty, one driven mostly by volume as well as ongoing aggressive pricing actions, we saw record demand across all of them.

Our segments with Q3, 'twenty, two orders, increasing 30% from the prior year and 33% compared to the same period of pre COVID-19 fiscal year 'twenty.

Speaker 2: We also reported third quarter adjusted earnings of $1.01 per diluted share, which was in line with our guidance. Our energy systems business reformed better than expected due to strong product demand, improving price recapture and excellent fulfillment execution.

We also reported third quarter adjusted earnings of $1, one per diluted share, which was in line with our guidance our energy systems business reform better than expected due to strong product demand improving price recapture and excellent fulfillment execution.

Speaker 2: Wotive Power successfully navigated the current environment to deliver impressive results, while strong demand in our specialty business, particularly at EMEA, drove another quarter of segment growth that was limited by our ability to supply. By leveraging our core product and service capabilities and technologies, we continue to develop a pipeline of short and long-term opportunities across the business.

Motive power successfully navigated the current environment to deliver impressive results, while strong demand in our specialty business, particularly in EMEA drove another quarter of segment growth that was limited by our ability to supply by leveraging our core product and service capabilities and technologies, we continue to develop a pipeline of <unk>.

Short and long term opportunities across the business.

Speaker 2: Helping to meet that demand, our global TPPL output pace increased 10% sequentially with each TPPL factor improving over the prior quarter, while our Richmond, Kentucky, motive power facility continued to perform very well.

Helping to meet that demand or global Tpa output pace increased 10% sequentially with https factory improving over the fire prior.

Prior quarter, while our Richmond, Kentucky motive power facility continued to perform very well.

Speaker 2: Our quarter-end backlog increased an additional $160 million in Q3 to an all-time high of $1.2 billion, which is more than double historical levels. Based on positive customer feedback and ongoing industry analysis, we believe we are performing better than our competitors and continue to maintain and in some cases grow our market share.

Our quarter end backlog increased an additional $160 million in Q3 to an all time high of $1 2 billion, which is more than double historical levels based on positive customer feedback and ongoing industry analysis. We believe we are performing better than our competitors and kidney continue to maintain and in some.

Cases grow our market share in.

Speaker 2: In addition, we utilized excess liquidity to buy back $116 million of stock since the beginning of the third quarter, bringing our full-year repurchases to $148 million while maintaining leverage below 2.5 times imminent.

In addition, we utilized excess liquidity to buy back $116 million of stock since the beginning of the third quarter, bringing our full year repurchases to $148 million, while maintaining leverage below two five times EBITDA.

Speaker 2: I'm proud of our employees for overcoming many of the headwinds we continue to face from mounting inflation, supply chain hurdles, and manning issues brought on by the recent surge in COVID variants. We incurred in excess of $30 million, or over 50 cents a share of sequential incremental cost in the third quarter, the highest quarterly cost increase yet. Despite these challenges, our teams aggressively offset most of these pressures with additional price increases, component resourcing, and engineering redesign work, which enabled us to achieve our guidance and set us up for the margin expansion in the quarters to come. While the supply chain issues remain, I am very confident we will continue to adapt and make sequential progress in realizing the true profitability of our business and our financial results. Now I will provide a little more color on some of our key markets.

I'm proud of our employees for overcoming many of the headwinds we continue to face from mounting inflation supply chain hurdles and manning issues brought on by the recent surge in Covid variance, we incurred in excess of $30 million or over 50, a share a sequential incremental cost in the third quarter a higher higher.

Cost quarterly cost increase yet despite these challenges our teams aggressively offset most of these pressures with additional price increases component Resourcing and engineering redesign work, which enabled us to achieve our guidance and set us up for the margin expansion in the quarters to come while the supply.

Chain issues remain I am very confident we will continue to adapt and make sequential progress in realizing the true profitability of our business and our financial results now.

Now I will provide a little more color on some of our key markets. Please turn to slide four.

Speaker 2: Please turn to slide four.

Speaker 2: Let's start with our largest segment, Energy Systems, which continues to see robust demand, with Q322 order rates increasing over 54% compared to pre-COVID Q320.

Let's start with our largest segment energy systems, which continues to see robust demand with Q3, 'twenty two order rates, increasing over 54% compared to pre Covid Q3 'twenty we.

We saw strong <unk> related demand from several of our largest customers and we're especially pleased with positive results in EMEA.

<unk> also continues with the California public Utilities Commission grid shutdown extended network backup mandate with a ramp up starting in Q3 and accelerating into Q4.

Speaker 2: grid shutdown extended network backup mandate with the ramp up starting in Q3 and accelerating into Q4. This momentum should continue well into fiscal year 23 incorporating our lithium technology and we are confident the solutions we develop for CPUC will be used for similar network resiliency programs. In addition, our strategic collaboration with Corning which focuses on 5G deployments by simplifying the delivery of fiber and electrical power to small cell wireless sites is gaining momentum with another large customer who communicated its intention to implement the system throughout its network of small cell sites by late fiscal year 23. We also had a booth at the Innersolar Energy Storage Conference in January where we showcased our new Mojave home energy storage system including our lithium technology battery.

This momentum should continue well into fiscal year 'twenty three incorporating our lithium technology and we are confident the solutions. We developed for CPUC will be used for similar network resiliency programs. In addition, our strategic collaboration with Corning, which focuses on <unk> deployments by simplifying the delivery of fiber and <unk>.

Actual power to small cell wireless sites is gaining momentum with another large customer who communicated its intention to implement the system throughout its network of small cell sites by late fiscal year 'twenty three.

Speaker 2: We also had a booth at the inner solar

We also had a booth at the intercept.

Speaker 2: Energy Storage Conference in January where we showcased our new Mojave Home Energy Storage System including our lithium technology battery. It received strong customer interest including our first tranche of orders that we expect to translate to revenue in fiscal year 23.

Energy storage conference in January where we showcased our new Mojave home energy storage system, including our lithium technology battery. It received strong customer interest, including our first tranche of orders that we expect to translate to revenue in fiscal year 'twenty three.

Speaker 2: In addition, I am pleased with our fast charge and storage initiative. We've hired 20 engineers dedicated to this effort and we have made substantial progress on our software development and customer specification design. We continue to anticipate our first revenues will be booked near the end of fiscal year 23.

In addition, I am pleased with our fast charging storage initiatives. We've hired 20 engineers dedicated to this effort and we have made substantial progress on our software development and customer specification design, we continue to anticipate our first revenues.

It will be booked.

And the fiscal year 'twenty three.

Speaker 2: Despite the positive product demand trends, energy systems' long and complicated supply chain continued to be hit hard by the macroeconomic environment of the third quarter, leading to further freight.

Despite the positive product demand trends energy systems long and complicated supply chain continued to be hit hard by the macroeconomic environment of the third quarter, leading to further freight led and other commodity inflation as well as component and labor shortages, although margins were again negatively.

Speaker 2: lead and other commodity inflation, as well as component and labor shortages. Although margins were again negatively impacted by mix, with more project services revenue offsetting higher margin power systems backlog that could not be delivered due to chip shortages, we did see a modest improvement in energy systems margins and are optimistic this trend will continue.

Heavily impacted by mix with more project services revenue offsetting higher margin power systems backlog that could not be delivered due to chip shortages. We did see a modest improvement in energy systems margins and are optimistic this trend will continue.

Speaker 2: We have worked with our customers to reach fair accommodations to defray the explosive cost increases we have incurred. We are seeing the pace of inflation growth decelerate in certain supply chain headwinds ease, and we expect the positive impacts of our mitigating actions, including pricing, engineering redesign, and contract manufacturer onshoring to be more broadly realized in Q4 and beyond. This expected cost improvement, combined with the many growth opportunities I mentioned, reinforce our positive long-term outlook for energy systems.

We have worked with our customers to reach fair accommodations to defray the explosive cost increases we have incurred we are seeing the pace of inflation growth decelerate and certain supply chain headwinds ease and we expect the positive impacts of our mitigating actions, including pricing engineering redesign and contract manufacturer onshoring.

To be more broadly realized in Q4 and beyond this expected cost improvement combined with the many growth opportunities I mentioned reinforce our positive long term outlook for energy systems.

Speaker 2: Please turn to slide five.

Please turn to slide five.

Speaker 2: Motive Power delivered another strong quarter with over $39 million of operating earnings, which is even more impressive when you consider the segment incurred $15 million of sequential cost increases. Price and mix improvements primarily offset these costs, aided by continued growth in our Nexus Lithium-Ion and TPPL maintenance-free product offerings. We remain the only battery producer to offer both Lithium and TPPL in maintenance-free, along with our traditional flooded products. In addition to generating strong financial results in the face of supply chain headwinds, we are continuing to invest in the transformation of our Motive Power business. Initiatives include 1.

Motive power delivered another strong quarter with over $39 million of operating earnings which is even more impressive when you consider this segment incurred $15 million of sequential cost increases.

And mix improvements.

Primarily offset these costs aided by continued growth in our nexis lithium ion and <unk> maintenance free product offerings, we remain the only battery producer to offer both lithium and TPS and maintenance free along with our traditional flooded products. In addition to generating strong financial results in the face of supply chain.

<unk>, we're continuing to invest in the transformation of our motive power business initiatives include one flooded in legacy charter product consolidation as we transitioned to maintenance free to robotic process automation for order entry three customer service self help <unk>.

Speaker 2: Flooded and Legacy Charger product consolidation as we transition to maintenance free.

Speaker 2: 2. Robotic process automation for order entry.

Speaker 2: Three, customer service self-help portals. And four, solution selling initiatives involving global collaboration on customer case studies supported by more user-friendly sales tools. Overall, we are seeing strong and steady growth in the motive power marketplace driven by several positive megatrends, including Toyota's commitment to full electrification as well as automation in material handling. Strong market dynamics combined with continued product differentiation in this segment are expected to drive additional growth opportunities going forward. In addition, as our OEM motive power customers have not fully recovered and continue to manufacture approximately 3% below their fiscal year 19 build rates, we believe there is even further runway for this LOB's volume growth to come.

<unk> and four solutions selling initiatives involving global collaboration on customer case studies supported by more user friendly sales tools.

Overall, we are seeing strong and steady growth in the motive power marketplace, driven by several positive mega trends, including Toyota is commitment to full electrification as well as automation in material handling.

Long market dynamics combined with continued product differentiation in this segment are expected to drive additional growth opportunities going forward. In addition, as our OEM motive power customers have not fully recovered and continue to manufacture approximately 3% below their fiscal year 19 build rates. We believe there is even further runway.

For this llp's <unk> volume growth to come.

Speaker 2: Please turn to slide six.

Please turn to slide six.

Speaker 2: While energy systems and motive power exceeded expectations during the quarter, our specialty business results were mixed. Specialty revenue grew 18% sequentially to $119 million in Q3, despite being hindered by labor shortage pressures in our Missouri factories, along with component shortages impacting our ability to meet demand.

While energy systems, and motive power exceeded expectations during the quarter, our specialty business results were mixed.

<unk> revenue grew 18% sequentially to $119 million in Q3 <unk>.

Despite being hindered by labor shortage pressures in our Missouri factories, along with component shortages impacting our ability to meet demand in the face of these challenges specialty still contributed nearly $12 million of operating earnings and is the high speed line and other productivity and capacity enhancements are installed in our <unk>.

Speaker 2: In the face of these challenges, specialty still contributed nearly $12 million of operating earnings. And as the high-speed line and other productivity and capacity enhancements are installed in our TPPL factories, both incremental cost and capacity improvement should be evident in future results. We're also seeing strong demand signals for Cal year 22 as the U.S. economy recovers and the repressed Class A truck demand continues to be released.

PPL factories, both incremental cost and capacity improvements should be evident in future results. We're also seeing strong demand signals for calendar year 'twenty, two as U S economy recovers and Larry.

Repressed class eight truck demand continues to be released.

Speaker 2: A&D performed well during the quarter as we continued to work on many exciting projects. We discussed one of these projects in a recent press release about our ABS-L lithium-ion batteries being a critical component of the NASA James Webb Space Telescope that was launched into space on Christmas Day. It has been nearly 10 years since Anderson was awarded the contract for our batteries to power this telescope and we are extremely excited to be part of such a historical mission.

A&D performed well during the quarter as we continued to work on many exciting projects. We discussed in one of these projects and our recent press release about our absa lithium ion batteries being a critical component of the NASA James.

Space Telescope that was launched in the space on Christmas day.

It has been nearly 10 years since <unk> was awarded the contract for our batteries to power. This telescope and we are extremely excited to be part of such a historical mission.

Speaker 2: Our TPPL production capacity continues to grow and we are at our planned run rate of 1.2 billion per annum. We also expect significant reductions in manufacturing variances next fiscal year as the supply chain issues subside.

Our <unk> production capacity continues to grow and we are at our planned run rate of $1 2 billion per annum. We also expect significant reductions in manufacturing variances next fiscal year as the supply chain issues subside.

Speaker 2: Improving manufacturing efficiencies, record backlog, and strong demand signals in transportation and A&D all point to good things to come in our specialty business.

Improving manufacturing efficiencies record backlog and strong demand signals in transportation and Andy I'll point to good things to come in our specialty business.

Please turn to slide seven.

Speaker 2: There is no doubt the recently passed infrastructure legislation holds many positives for Enersys. I want to take a minute to highlight the various areas of the law from which we expect Enersys to benefit. An overarching takeaway of the legislation is the opportunity to accelerate U.S. lithium ion cell manufacturing to support commercial and defense battery applications. While the details are still being finalized, certain inferences can be made as to how our business may benefit. More specifically, major funding allocations available by segment include the following.

There is no doubt the recently passed infrastructure legislation holds many positives for Enersys I want to take a minute to highlight the various areas of the law from which we expect enersys to benefit.

An overarching takeaway of the legislation is the opportunity to accelerate U S. Lithium ion cell manufacturing to support commercial and defense battery applications. While the details are still being finalized certain inferences can be made as to how our business may benefit or specifically major funding allocations available.

This segment includes the following for.

Speaker 2: For energy systems, the infrastructure law supports public and private broadband communications network build-outs and upgrades, critical power and backup for industrial and utility systems operations, monitoring and equipment control, and providing rural digital opportunity funds for broadband coverage in underserved regions.

For energy systems, the infrastructure law supports public and private broadband communications network build outs and upgrades critical power and backup for industrial and utility systems operations monitoring and equipment control and providing rural digital opportunity funds for broadband coverage and underserved regions and mode.

Speaker 2: and motive power, more than $65 billion was allocated to improve the electrical grid, which should help our customers accelerate the electrification of fork trucks and material handling equipment.

<unk> power more than $65 billion was allocated to improve the electrical grid, which should help our customers accelerate the electrification of fork trucks and material handling equipment and.

Speaker 2: and specialty, the legislation should help drive advanced battery manufacturing, set up a recycling grant program, and support road infrastructure, which is expected to increase trucking profitability and investment in fleets. In addition, the U.S. government has recognized the lack of lithium-ion cell production in the U.S. has created a national security weakness. U.S. government plans to establish new domestic cell production capacity and is strongly considering solicitations that require U.S.-made cells for key programs, of which EnerSys is actively working on. And lastly, we believe our fast charge and storage system will be buoyed by increased EV charging infrastructure, as well as an interconnected network to facilitate data collection, access, and reliability. We will participate in various RFQs across all three of our lines of business in the coming years as part of the infrastructure legislation, as it is undeniable that the law aligns well with EnerSys' core capabilities and technologies.

In specialty the legislation should help drive advanced battery manufacturing set up recycling Grant program and support road infrastructure, which is expected to increase trucking profitability and investment in fleets. In addition, the U S. Government has recognized the lack of lithium ion cell production in the U S has created in the Nash national.

Security weakness U S government plans to establish new domestic cell production capacity and are strongly considering solicitations that require U S made sales for key programs of which Enersys is actively working on.

And lastly, we believe our fast charging storage system will be buoyed by increased EV charging infrastructure as well as an interconnected network to facilitate data collection access and reliability.

We'll participate in various RF skus across all three of our lines of business in the coming years as part of the infrastructure legislation as it is undeniable that the law aligns well with <unk> core capabilities and technologies. Please turn to slide eight.

Speaker 2: Please turn to slide 8.

Speaker 2: Looking ahead, the global supply chain and its effect on rising commodity and labor costs, in addition to component shortages, will continue to be the major focus for the entire EnerSys team. Fortunately, we have gotten better at identifying and mitigating these headwinds through incremental price increases, alternative sourcing, engineering redesigns, and aggressive hiring actions. As a result, we are optimistic that Q322 represents the beginning of the recovery across the entire company with the pace of cost increases starting to decelerate and multiple pricing actions beginning to catch up.

Looking ahead, the global supply chain and its effect on rising commodity and labor costs. In addition to component shortages. We will continue to be the major focus for the entire enersys team. Fortunately, we've gotten better at identifying and mitigating these headwinds through incremental price increases alternative sourcing engine.

Fearing redesigns and aggressive hiring actions as a result, we are optimistic that Q3 22 represents the beginning of the recovery across the entire company with the pace of cost increases starting to decelerate and multiple pricing actions beginning to catch up we will remain laser focused on limiting the impact of it.

Speaker 2: We will remain laser focused on limiting the impact of these factors on our business. Even more importantly, we will work hard to keep our employees safe as the Omicron variant remains pervasive in various parts of the world. Despite all of the external headwinds impacting our business, one incredibly positive fact remains unchanged. That market demand across all segments of our business has reached all-time highs. Our technology, products, and services consistent.

These factors on our business, even more importantly, we will work hard to keep our employees safe as the omicron variant remains for pervasive in various parts of the world.

Despite all of the external headwinds impacting our business one incredibly positive fact remains unchanged.

That market demand across all segments of our business has have reached all time highs our technology products and services consistent consistently and reliably meet the needs of our customers and they have rewarded us by remaining loyal to Enersys. Our backlog has grown to unprecedented levels and we are confident that we have made.

Speaker 2: consistently and reliably meet the needs of our customers, and they've rewarded us by remaining loyal to Intersys. Our backlog has grown to unprecedented levels, and we are confident that we have maintained, and in some cases, grown, our market share in this challenging environment.

Pain and in some cases grown our market share in this challenging environment. We continue to develop new products and technologies that are mission critical and linked to mega market trends for which both our customers and shareholders will benefit.

Speaker 2: We continue to develop new products and technologies that are mission critical and link to mega-market trends for which both our customers and shareholders will benefit. While our bottom line does not yet reflect all the hard work and progress we have made, I am confident that we are on the right track to enter this realizing our true potential in the quarters and years ahead. With that, I'll now ask Andy to provide further information on our third quarter results and go forward guidance. Thanks Dave.

While our bottom line does not yet reflect all the hard work and progress we have made I am confident that we are on the right track to enersys, realizing our true potential in the quarters and years ahead with that I'll now ask Andy to provide further information on our third quarter results and go forward guidance.

Steve.

Speaker 3: For those of you following along on our webcast, we've provided the information on slide 9 for reference. I'm starting with...

Are you following along on our webcast we provided the information on slide nine for reference.

Starting with slide 10.

Speaker 3: Our third quarter net sales increased 12% over the prior year to $844 million due to a 10% increase from volume and over 3% from price net of mix, partially offset by a 1% decline from foreign exchange.

Our third quarter net sales increased 12% over the prior year to $844 million due to a 10% increase in volume and over 3% from price net of mix, partially offset by a 1% decline from foreign exchange.

Speaker 3: On a line of business basis compared to prior year, our third quarter net sales in energy systems were up 14% to $385 million. Specialty was up 9% to $119 million. And motive power revenues were up 12% to $340 million.

On a line of business basis compared to prior year, our third quarter net sales in energy systems were up 14% to $385 million.

<unk> was up 9% to $119 million and motive power revenues were up 12% to $340 million.

Speaker 3: Modus Power's improvement was mostly driven by 9% growth in organic volume and 5% in price and favorable mix, offset by 2% impact from FX.

Motive powers improvement with mostly driven by a 9% growth in organic volume and 5% in price and favorable mix.

Set by 2% impact from FX.

Speaker 3: Our motive power volumes are now comparable to the pre-pandemic levels of two years ago, with 8% higher revenues from the favorable impact of price and mix.

Our motive power volumes are now comparable to the pre pandemic level of two years ago, and 8% higher revenues.

Favorable impact of price and mix.

Speaker 3: Energy systems had a 14% increase in revenues from volume as well as a 1% improvement from price net of negative mix, partially offset by a 1% decrease from the impact of foreign exchange.

Energy systems.

14% increase in revenues from volume as well as a 1% improvement from price net of negative mix, partially offset by a 1% decrease from the impact of foreign exchange.

Speaker 3: Specialties revenues benefited from over 6 percent price mix improvement and 3 percent organic volume growth, with the volume growth tempered by delayed shipment.

<unk> revenues benefited from over 6% price mix improvement and 3% organic volume growth with the volume growth tempered by delayed shipments.

Speaker 3: On a geographical basis, net sales for the Americas were up 16% year over year to $578 million, with 13% more volume and 3% higher price mix.

On a geographical basis net sales for the Americas were up 16% year over year to $578 million with 13% more volume and 3% higher price mix.

Speaker 3: EMEA's revenues were up 5% to $203 million from a 5% increase in volume and 5% improvement in price mix, offset by 5% impact from foreign exchange.

EMEA revenues were up 5% to $203 million.

From a 5% increase in volume and 5% improvement in price mix offset by 5% impact from foreign exchange.

Speaker 3: Asia was up 8% at $63 million on 7% more volume and small gains from both price mix as well as currency.

Asia was up 8% at $63 million on 7% more volume and small gains from both price mix as well as currency.

Please now refer to slide 11.

On a sequential basis third quarter net sales were up 7% from the second quarter due to 5% organic volume growth and 3% price mix improvement, partially offset by 1% foreign exchange translation.

Speaker 3: On a sequential basis, third quarter net sales were up 7% from the second quarter due to 5% organic volume growth and 3% price mix improvement, partially offset by 1% foreign exchange translation.

Speaker 3: On a line-of-business basis, specialty revenues increased 18 percent over 2Q, with 2 percent higher price mix and 17 percent higher volume from seasonality, as well as a pickup of second-quarter order fulfillments that were pushed into the third quarter.

On a line of business basis specialty revenues increased 10% over Q with 2% higher price mix and 17% higher volume from seasonality as well as the pick up a second quarter order fulfillment that were pushed into the third quarter.

Speaker 3: While we are pleased with our results and specialty, it's important to note that this quarter does not fully reflect the revenue potential of the business due to continued supply chain constraints. We expect our specialty sales growth rates to increase as supply normalizes and our capacity increases.

While we are pleased with our results in specialty it's important to note that this quarter does not fully reflect the revenue potential of the business due to continued supply chain constraints.

Expect our specialty sales growth rates to increase as supply normalizes and our capacity increases.

Sequential motive power revenues were up 6% with 3% higher price and mix and over 4% volume growth, partially offset by nearly 1% currency translation.

Speaker 3: Sequential motive power revenues were up 6%, with 3% higher price and mix, and over 4% volume growth, partially offset by nearly 1% currency translation.

Speaker 3: Motive power volume growth benefited from a return from the European holiday season in the second quarter.

Motive power volume growth benefited from a return from the European holiday season in the second quarter.

Energy systems sales were up 4% with 3% sequential price mix improvement and 2% organic volume growth, partially offset by a 1% FX drag.

Speaker 3: Energy systems sales were up 4%, with 3% sequential price mix improvement and 2% organic volume growth, partially offset by a 1% FX drag.

Speaker 3: On a geographical basis, America's revenues were up 5% over the second quarter from a combination of both net price mix and volume.

On a geographical basis Americas revenues were up 5% over the second quarter from a combination of both net price mix and volume.

Speaker 3: EMEA was up 13% on 14% volume, buoyed by the second quarter European holiday season rebound, as previously mentioned, as well as a 2% improvement in price mix, partially offset by a 4% drag from currency.

EMEA was up 13% on 14% volume buoyed by the second quarter European holiday season rebound as previously mentioned as well as a 2% improvement in price mix, partially offset by a 4% drag from currency.

Speaker 3: APAC revenues were up 3% from a combination of both volume and price mix.

APAC revenues were up 3% from a combination of both volume and price mix.

Please now turn to slide 12.

Speaker 3: On a year-over-year basis, adjusted consolidated operating earnings in the third quarter decreased to $60 million.

On a year over year basis, adjusted consolidated operating earnings in the third quarter decreased to $60 million.

Speaker 3: As you may recall, in the third quarter of Fiscal 21, we settled our insurance claim for the Richmond Fire, which resulted in a $6 million benefit to the quarter that skews the prior year comparison.

As you may recall in the third quarter of fiscal 'twenty. One we settled our insurance claim for the Richmond fire, which resulted in a $6 million benefit to the quarter that skews the prior year comparison.

Speaker 3: On a sequential basis, our third quarter operating earnings dollars were relatively flat, as $30 million of higher costs from inflation and supply chain headwinds were offset by dramatic improvements in price mix and volume.

On a sequential basis, our third quarter operating earnings dollars were relatively flat.

$30 million of higher costs from inflation and supply chain headwinds were offset by dramatic improvements in price mix and volume.

Speaker 3: Although gross margins eroded 88 basis points, our sequential gross margins would have been slightly higher if not for the cost recovery impact in the margin calculation.

Although gross margins eroded 80 basis points, our sequential gross margin would have been slightly higher if not for the cost recovery impact in the margin calculation.

Speaker 3: mounting inflation, and persistent supply chain headwinds negatively impacted MICS and our ability to supply customer demand across all of our lines of businesses, as Dave has discussed.

Mounting inflation and persistent supply chain headwinds negatively impacted mix and our ability to supply customer demand across all of our lines of businesses as Dave has discussed.

Speaker 3: Operating expenses when excluding highlighted items were 14.7% of sales for the third quarter compared to 14.8% in the prior year and 16.4% in Q320, as we have maintained a more efficient operating leverage with our revenue growth continuing to exceed our OpEx spending growth.

Operating expenses when excluding highlighted items were 14, 7% of sales for the third quarter compared to 14, 8% in the prior year and 16, 4% in Q3 'twenty as we have maintained a more efficient operating leverage with our revenue growth continuing to exceed.

Our opex spending growth.

Speaker 3: Excluding the previously mentioned Richmond fire recovery in the third quarter of 2021, prior year's operating expenses would have been 15.3% compared to this year's 14.7%.

Excluding the previously mentioned Richmond fire recovery in the third quarter of 21 prior year's operating expenses would have been 15, 3% compared to this year is 14, 7%.

Speaker 3: On a sequential basis, our operating expenses were $6 million higher, as we have hired engineers and also incurred higher selling expenses to support the revenue growth and some resumption of travel, but we're still slightly lower as a percentage of revenue.

On a sequential basis, our operating expenses were $6 million higher as we have hired engineers and also incurred higher selling expenses to support the revenue growth and some resumption of travel, but we're still slightly lower as a percentage of revenue.

Speaker 3: Excluded from operating expenses recorded on a gap basis in Q3 were pre-tax charges of $9 million, primarily related to $6 million of Alpha and North Star amortization and $3 million of restructuring charges for the previously announced closure of our flooded Motive Power manufacturing site in Hagen, Germany.

Excluded from operating expenses recorded on a GAAP basis in Q3 were pre tax charges of $9 million.

Primarily related to $6 million of Alpha and Northstar amortization and $3 million of restructuring charges for the previously announced closure of our flooded motive power manufacturing site and Hopkins Germany.

Speaker 3: Excluding these charges, our motive power business generated operating earnings of $39 million, or 11.5% of sales, which was 180 basis points lower than the 13.3% of sales for the third quarter of last year, but slightly better after adjusting for the $6 million benefit from the Richmond Fire recovery received last year as previously mentioned.

Excluding these charges our motive power business generated operating earnings of $39 million.

Or 11, 5% of sales, which was 180 basis points lower than the 13, 3% of sales for the third quarter of last year, but slightly better after adjusting for the $6 million benefit from the Richmond fire recovery received last year as previously mentioned.

Speaker 3: MotivPower continues to capitalize on strong demand, favorable mix from our maintenance-free product growth, and ongoing OpEx restraints.

Power continues to capitalize on strong demand.

<unk> mix from a maintenance free products growth and ongoing opex restraint.

Speaker 3: OE dollars for motive power increased over $5 million from prior year, excluding the Richmond fire recovery, and up over $8 million from the same quarter two years ago.

OE dollars for motive power increased over $5 million from prior year, excluding the Richmond fire recovery and up over $8 million from the same quarter two years ago.

Speaker 3: On a sequential basis, Motive Power's third quarter operating earnings percent of sales decreased 130 basis points from the second quarter due to escalating inflation and the margin math pressure from cost recovery pricing pass through.

On a sequential basis motive power third quarter operating earnings percentage of sales decreased 130 basis points from the second quarter due to escalating inflation and the margin math pressure from cost recovery pricing pass through.

Speaker 3: Energy Systems operating earnings percentage of 2.6% was down from last year, but an improvement from the prior quarter's 2.3%. A $1 million investment in our fast charging initiative combined with higher freight, tariffs and material costs, unfavorable mix from supply shortages, and lagging price improvement realization caused the OE erosion versus prior year.

Energy systems operating earnings percentage of two 6% was down from last year, but an improvement from the prior quarter to 3%.

$1 million investment in a fast charging initiatives combined with higher freight tariffs and material costs.

Unfavorable mix from supply shortages and lagging price improvement realization caused the OEM erosion versus prior year.

Speaker 3: As Dave mentioned, the contract nature of this business causes delays in matching price and costs that negatively impact us in inflationary periods, but will benefit us when costs stabilize and decline.

As Dave mentioned the contract nature of this business causes delays and matching price and costs that negatively impact us and inflationary periods.

Benefit upfront cost stabilized and decline.

Speaker 3: We were encouraged by Energy Systems' sequential price improvement in the third quarter and believe that price actions are beginning to catch up with the cost increases and we will continue to see ongoing, sequentially improving margins in the quarters to come.

We were encouraged by energy systems sequential price improvement in the third quarter and believe the price actions are beginning to catch up with the cost increases and we will continue to see ongoing sequentially improving margins in the quarters to come.

Speaker 3: Specialties operating earnings 9.6% of sales was down from last quarter's 11.8% and last year's 11.9%.

Specialties operating earnings nine six percentage of sales was down from last quarter's 11, 8% and last year's 11, 9%.

Speaker 3: OE dollars were largely flat sequentially and down $1.6 million year on year, with margin erosion coming from inflation and input cost increases being only partially offset by price mix and higher volumes, and supply headwinds delaying additional order fulfillment. Please move to the next slide.

OE dollars were largely flat sequentially and down $1 $6 million year on year with margin erosion coming from inflation and input cost increases being only partially offset by price mix and higher volumes and supply headwinds delaying additional order fulfillment.

Please move to slide 13.

Speaker 3: As reflected on slide 12, our third quarter adjusted consolidated operating earnings were $60 million.

As prudent as reflected on slide 12, our third quarter adjusted consolidated operating earnings were $60 million, our adjusted consolidated net earnings were $43 million.

Speaker 3: Our adjusted consolidated net earnings were $43 million.

Speaker 3: Our adjusted net earnings reflect the change in operating earnings previously discussed, along with $2 million of currency gains in the third quarter of 2022 versus a $2 million currency loss in Q321 and a lower share count, partially offset by a slightly higher adjusted tax rate.

Our adjusted net earnings reflect the change in operating earnings previously discussed along with $2 million of currency gains in the third quarter of 22 versus a $2 million currency loss in Q3, 21, and a lower share count partially offset by slightly higher adjusted tax rate.

Speaker 3: Our adjusted effective income tax rate of 17.5% for the third quarter of fiscal 22 was higher than the prior year's rate of 16.8% and also the prior quarter's rate of 15.6%.

Our adjusted effective income tax rate of 17, 5% for the third quarter of fiscal 'twenty, two with higher than the prior year's rate of 16, 8% and also the prior quarter's rate of 15, 6%.

Speaker 3: Discrete tax items cause most of these variations.

Discrete tax items caused most of these variations.

Speaker 3: At $1.01 per share, third quarter EPS was at the midpoint of our guidance range despite dramatic and rapid cost increases, aggressive pricing actions, volatile supply chain conditions, and extremely robust demand throughout the period.

At $1 one per share third quarter EPS was at the midpoint of our guidance range, despite dramatic and rapid cost increases aggressive pricing actions.

The tile supply chain conditions, an extremely robust demand throughout the period.

Speaker 3: Our EPS was flat sequentially and down 26 cents from prior year after absorbing over $60 million dollars, or a dollar per share, of year-on-year cost increases as delayed pricing realization and supply chain headwinds temporarily muted and offset our strong demand, and the impact of the Richmond Fire Insurance recovery in Q321 exaggerated the prior year comparison.

Our EPS was flat sequentially and down 26.

Prior year after absorbing over $60 million or dollar per share of year on year cost increases as delayed pricing realization and supply chain headwinds temporarily muted and offset our strong demand and the impact of the Richmond fire insurance recovery in Q3 21.

Exaggerated the prior year comparison.

Speaker 3: As announced in our subsequent events footnote and last night's press release, we acquired nearly one and a half million Enerci shares for $116 million since the beginning of the third quarter, bringing our year-to-date repurchases to almost 1.9 million shares for $148 million this fiscal year, and leaving $42 million remaining on our board of directors share buyback authorization.

As announced in our subsequent event footnote in last nights press release, we acquired nearly one 5 million enersys shares for $116 million since the beginning of the third quarter, bringing our year to date repurchases to almost one 9 million shares for $148 million this fiscal year.

And leaving $42 million remaining on our board of directors share buyback authorization.

Speaker 3: As a result of our share buyback activity, we expect a lower weighted average share count for our fourth fiscal quarter of 2022 to be approximately 42 million shares versus 42.5 million shares in the third quarter.

As a result of our share buyback activity, we expect a lower weighted average share count for our fourth fiscal quarter of 2022 to be approximately 42 million shares versus $42 5 million shares in the third quarter.

Speaker 3: Our leverage at Q322 remained below 2.5 times EBITDA, which has historically been the high end of our comfort range to enable untapped liquidity for both growth and investments.

Our leverage at $3 22 remains below two five times EBITDA, which has historically been the high end of our comfort range to enable untapped liquidity to both growth and investment.

Speaker 3: As demand for lithium technology mounts, we are intentionally preserving some capacity for lithium sourcing strategies to buffer against supply chain exposures.

Demand for lithium technology now we are intentionally preserving some capacity for lithium sourcing strategies to buffer against supply chain exposures.

Speaker 3: Last night we also announced our quarterly dividend, which remained unchanged from prior levels.

Last night, we also announced our quarterly dividend, which remains unchanged from prior levels.

Slide 14, and 15 reflect year to date results and provided for your reference, but I don't intend to cover them. At this time. Please now turn to slide 16.

Speaker 3: Slides 14 and 15 reflect year-to-date results and are provided for your reference, but I don't intend to cover them at this time. Please now turn to slide 16.

Speaker 3: Our balance sheet remains strong and positions us well to navigate the current economic environment. We have $397 million of cash on hand and, as previously mentioned, our credit agreement leverage ratio is now at 2.4 times EBITDA, which allows $385 million in additional borrowing capacity for growth and investment.

Our balance sheet remains strong and positions us well to navigate the current economic environment.

We have $397 million of cash on hand, and as previously mentioned our credit agreement leverage ratio is now at two four times, EBITDA, which allows $385 million and additional borrowing capacity for growth and investment.

Speaker 3: We expect our leverage to remain below 2.5 times EBITDA for the fourth fiscal quarter of 2022.

We expect our leverage to remain below two five times EBITDA for the fourth fiscal quarter of 2022.

Our year to date cash flow from operations was a negative $78 million.

Speaker 3: Our year-to-date cash flow from operations was a negative $78 million. This was primarily due to our inventory expanding $164 million year-to-date to meet the requirements of rising revenues, as well as some higher input costs and transit times, along with intentional inventory builds to mitigate supply chain disruptions.

This was primarily due to our inventory expanding $164 million year to date to meet the requirements of rising revenues as well as some higher input costs and transit times, along with intentional inventory builds to mitigate supply chain disruptions.

Speaker 3: Capital expenditures of $52 million were in line with their prior guidance. Our CapEx expectation for fiscal 2022 remains at or below $100 million and reflects major investment programs in lithium battery technology development and continued expansion of our TPPL capacity.

Capital expenditures of $52 million were in line with our prior guidance.

Our capex expectation for fiscal 2022 remains at or below $100 million.

And reflects major investment programs in lithium battery technology development and continued expansion of our <unk> capacity.

Speaker 3: Also included in our operating cash flows was $34 million in cash spending on highlighted items, primarily related to the previously announced restructuring of our Hagen Germany motive power plant, which delivered almost $5 million of savings in the third quarter, in line with the projected annual savings of $20 million as previously communicated.

Also included in our operating cash flows was $34 million in cash spending on highlighted items, primarily related to the previously announced restructuring of our Hagen, Germany motive power plant, which delivered almost $5 million of savings in the third quarter in line with the projected annual savings of $20 million as previously communicated.

We anticipate our gross margin to remain near 22% in the fourth quarter of fiscal 2022 with continued but decelerating inflation being offset by accelerating and aggressive price actions and mix improvements.

Speaker 3: We anticipate our gross margin to remain near 22% in the fourth quarter of fiscal 2022, with continued but decelerating inflation being offset by accelerating and aggressive price actions and mix improvements.

Speaker 3: In addition, as Dave has described, demand across all three of our lines of businesses is robust and continues to grow. While temporary supply chain challenges are suppressing our ability to fully capitalize on these opportunities, our mitigating actions, including on-shoring of contract manufacturing, strategic inventory builds, and product redesign are beginning to take hold.

In addition, as Dave has described demand across all three of our lines of businesses. It was robust and continues to grow.

<unk> temporary supply chain challenges are suppressing our ability to fully capitalize on these opportunities our mitigating actions, including onshoring of contract manufacturing strategic inventory builds and product redesign are beginning to take hold.

Speaker 3: We therefore anticipate ongoing sequential margin improvements in the upcoming quarters as the true underlying profitability of our business emerges.

We therefore anticipate ongoing sequential margin improvements in the upcoming quarters as the true underlying profitability of our business emerges.

Speaker 3: As a result, our guidance range of $1.11 to $1.21 per share in our fourth fiscal quarter of 2022 reflects our volume growth combined with aggressive price actions and other mitigated activities more than offsetting the sequential impact of continued inflation and supply chain challenges as we make progress on our return to the true underlying profitability levels for our growing business. Now let me...

As a result, our guidance range of $1 11 to $1 21 per share in our fourth fiscal quarter of 2022 reflects our volume growth combined with aggressive price actions and other mitigated activities more than offsetting the sequential impact of continued inflation and supply chain challenges.

As we make progress on a return to the true underlying profitability levels for our growing business.

Now, let me turn the call back to Dave.

Speaker 2: Thanks Andy. Tawanda, we can now open the line for questions.

Thanks, Andy.

I Wonder we can now open the line for questions.

Speaker 1: Thank you. Ladies and gentlemen, as a reminder to ask a question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A process.

Thank you, ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone to.

To withdraw your question press the pound key again Thats star one to ask the question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of <unk> with Oppenheimer. Your line is open.

Speaker 1: Our first question comes from the line of Moya Kay with Oppenheimer. Your line is open.

Speaker 4: Hi, good morning and thanks for taking the questions. Appreciate all the color around the sequential improvement here. I was just wondering if it would be possible to dimension for us how much price benefit you're sequentially expecting in 4Q. And if possible, to give us some color on how much of that is really coming in energy systems, just based off of the lag in these contracts starting to catch up.

Hi, good morning, Thanks for taking the questions I appreciate all the color around the sequential improvement here.

Just wondering if it'd be possible to dimension for us how much benefit you're sequentially expecting in <unk>.

And if possible to get some color on how much of that is really.

Coming in energy system.

The lag in these contracts starting to catch up.

Speaker 4: And if possible, what are you thinking about price runway in terms of further improvement as we get into 2023?

If possible, what you're thinking about price runway.

Further improvement as we get into 2023.

Speaker 2: Noah, as Andy's looking up the numbers here real quick, I just want to tell you that

No.

He is looking at the numbers here real quick.

Just wanted to tell you that.

Speaker 2: the issue really in energy systems right now.

The issue really in energy systems right now is the constraint we have on releasing backlog and also the mix impact because.

Speaker 2: is the constraint we have on releasing backlog, and also the mix impact, because the products that we can't ship are the ones that have the highest margin. So there still is a nagging mix constraint on that business, as well as unleashing some backlog, but there's been a lot of good work done on the price. So, Andy, do you have those numbers for NOAA? Yes, I do, NOAA. It's a good question. It's obviously what we spend a lot of our time and focus on. As we mentioned, Q3 was the highest cost increases, but it was also the first quarter where our price kept pace with those cost increases, so that gives us a lot of confidence. In Q4, we expect our cost increases to again be very high, in the range of $20 million, but we expect our pricing to keep pace with that again and actually be slightly higher. In energy systems, they have probably about a third of that cost increase, and we think their pricing is going to be almost twice what the cost increases are in the quarter. So that will be part of what contributes to the ongoing margin improvement in the business, and with more to come once, as Dave mentioned, the mix begins to improve. And NOAA, remember that most of our costs are FIFO, so we do have a fairly good line of sight on the cost side and are optimistic, as Andy noted, that the pricing is starting to keep pace. So the deceleration is welcome, but it's by no means are we out of the woods in terms of these inflationary pressures, but we did see a $9 million drop sequentially.

The products that we can't ship are the ones that have the highest margin. So there is still is.

A nagging mix constraint on that business as well as unleashing some backlog, but there is there's been a lot of lot of good work done on the price. So Andy do you have those numbers for Noah.

No.

It's a good question, it's obviously, what we spend a lot of our time and focus on.

As we mentioned Q3 was the highest cost increases, but it was also the first quarter, where our price kept pace with those cost increases so.

That gives us a lot of confidence in Q4, we expect our cost increases to again be very high in the range of $20 million, but we expect our pricing to keep pace with that again and actually be slightly higher in.

In energy systems, they have probably about a third of that cost increase and we think the pricing is going to be almost twice what the cost increases are in the quarter. So that will be part of what contributes to the ongoing margin improvement in the business and with more to come once as Dave mentioned, the mix begins to improve and know a remember that.

Most of our costs are FIFO. So we do have fairly good line of sight.

On the cost side and are optimistic as Andy noted that.

The pricing is starting to keep pace. So the deceleration is welcome but it's by no means are we out of the.

Out of the woods in terms of these inflationary pressures, but we did see a $9 million dropped sequentially.

Speaker 2: in terms of the sequential rate of inflation increase. So, fingers crossed, it's going to start to continue to slow down.

In terms of the sequential rate of inflation increase so fingers crossed it's going to start to continue to slowdown.

Speaker 4: That's super helpful guys. I guess to follow up on that, you mentioned that there's some easing of bottlenecks, but then you just pointed to, you know, ongoing shortages still presenting some issues. So I guess, you know, really, where are kind of still the primary bottlenecks? Is it really the chips and energy systems? And I guess, what are your expectations for when we start to see some easing there and your mix can really improve?

Okay. That's super helpful guys, I guess to follow up on that you mentioned that there is.

Being a bottleneck, but then you just pointed to.

Ongoing shortages.

Presenting issues, so I guess really where we are kind of.

So the primary bottleneck.

The chip.

On the energy system.

And I guess what are your expectations for when we start to see some easing there and your mix can really improve.

Speaker 2: Yeah, I think we're kind of whittling it down to the chip issue. I think the redesigns are helping at Yearn, and his team have unfortunately had to reallocate a lot of our focus on some chip redesigns in products to chips that are more readily available. That's helping. I think that we haven't seen any benefit, but we've actually made tremendous progress on our on-shoring initiatives, so we have quite a few products now.

Yes, I think we're kind of whittling it down to the chip issue I think the redesigns are helping at year end and his team at Devon Unfortunately had to.

Reallocate a lot of our focus on some chip redesigns and products to chips that are more readily available thats, helping I think that we haven't seen any benefit but we've actually made tremendous progress on our onshoring initiatives. So we have quite a few products now.

Speaker 2: that are not being made in China anymore, which will start to have future impacts. So we've made great progress on all the initiatives we laid out last quarter, and I'm really happy with the team.

That are not being made in China anymore, which youre, starting which will start to have future impacts. So we've made great progress on all of the initiatives, we laid out last quarter and I'm really happy with the team.

So.

Speaker 2: But again, I would say the biggest constraints right now, beyond.

But again I would say the biggest constraints right now.

Beyond the chip issues. The second biggest issue I think we've put in this quarter that we're talking about this prior quarter, where the labor issues that we had in Missouri, I think we're getting our arms around that one.

Speaker 2: The CHIP issues, the second biggest issue I think we fought in this quarter that we're talking about, this prior quarter, were the labor issues that we had in Missouri. I think we're getting our arms around that one. Ted, he heads up our HR group and he's over there. He's in Missouri today and he called me last night. So I feel like that one we're getting our arms around.

Ted.

As he heads up our HR group and he's over there. He is in Missouri today. He called me last night, So I feel like that when we're getting our arms around.

Speaker 2: But certainly the chip issues, you know, they're pervasive. And we're, you know, we'll just continue to adapt. We've, like, the customers in the beginning were, you know, very resistant.

But certainly the chip issues.

They are pervasive and we'll just continue to adapt.

The customers in the beginning we're.

Very resistant.

Speaker 2: We had a lot of contractual obligations, we didn't have the necessary protections for some of these explosive costs, but everybody's reaching a new level of fairness and there's been a lot of positive cooperation with everybody to come up with mutually beneficial solutions. So I would say, yeah, it's coming down to mostly a CHIP concern as we go into fiscal year 23.

We had a lot of contractual obligations, we didn't have the necessary protections for some of these explosive costs, but but.

Everybody is reaching a new level of fairness and theres been a lot of positive cooperation with everybody too.

Two to come up with a mutually beneficial visuals beneficial solutions. So I would say, yes, it's coming down to mostly a chip concern as we as we go into fiscal year 'twenty three.

Speaker 4: That's super helpful. And I guess one more related question before I turn it over, really around working capital and inventory management.

That's super helpful and I guess, one more related question before I can really around working capital and inventory management.

Speaker 4: It's no surprise you're going to have working capital build when you've got record broad base demand and the supply constraints, but I guess when do you think working capital starts to ease up a little bit? In particular, when do inventory levels start to plateau back down? Because obviously, it's a super dynamic environment. You don't want to carry too high inventory balances, particularly if that's relatively high cost inventory.

It is no surprise youre going to have working capital build when you got that good broad based demand and the supply constraints, but.

When do you think working capital spend.

That's a little bit in particular.

The inventory level.

Plateau back down.

So you can see the dynamic environment, you don't want to carry too high inventory balance is particularly.

But the high cost inventory.

Speaker 2: I think Andy did a good job in her script of detailing out why the inventory numbers are good. I think DSO, DPO are largely in check. I don't think there's any issues there to discuss. It's all in the inventory line, and so much of it's just related to the extended lead times out of Asia, the longer times on the boats. It's just mathematical. We did do, we are sort of pigeonholing or stockpiling. Some of the critical components, that's been a part of the number. Andy certainly has all the.

I think Andy did a good job in her script.

Detailing out.

Why the inventory numbers I think DSO GPO or are largely in check I don't think theres any issues there to discuss its all in the inventory line.

So much of it is just related to the extended lead times out of Asia the longer times on the boats. It's just mathematical we did do we are sort of pigeonholing or stockpiling. Some of the critical components. That's that's been a part of the number of Andy certainly has all the.

Speaker 2: The breakdowns on that, but in terms of when does that situation stabilize more?

The breakdowns on that but in terms of when does that situation stabilized more.

Speaker 2: It's just when our confidence builds on the supply chain we get back to some, as you noted, it's just a very dynamic environment. So I would say, you know, next year at some point things should get better.

It's just when our confidence builds on the supply chain, we get get back to some as you noted it's just a very stat are very dynamic environments. So I would say.

Next year at some point things should get better but in the meantime, we're just going to continue to make what we think are the right allocations. So Andy is there any other color on the inventory you want to talk about Dave I think you've nailed it until supply chain issues subside, we're going to continue to use inventory as a buffer and we're very fortunate to have the borrowing capacity to do so.

Speaker 3: to have the borrowing capacity to do so. It will be a cash flow opportunity when the macro environment normalizes, but as you mentioned, we had $153 million of increase in inventory year-to-date, with $30 million of that being in the third quarter. A lot of that is the cost increases, it's intentional strategic builds to mitigate against some of these supply chain headwinds. And then as our growth continues, I mean, you've seen our backlog numbers, but just to give you an idea, our Q3-22 order rate is 40% higher than our sales rate. So we're seeing impressive growth. Last year that was about a one-to-one ratio. So we need to make sure we've got ample working capital to satisfy our customer demand. Yeah. Yeah. You put all these points together, it seems like you're setting up 2023 for a very strong cash flow generating year. I'll turn it over to Eric. Thanks, Noah.

<unk>.

It will be a cash flow opportunity when the macro environment normalizes, but as you mentioned, we had 100 $153 million of increase in inventory year to date with $30 million of that being in the third quarter. A lot of that is the cost increases it's intentional strategic builds to mitigate against some of the supply chain headwinds.

And then as our growth continues I mean.

You've seen our backlog numbers, but just to give you an idea our Q3 'twenty two order rate is 40% higher than our sales rate. So we're.

We're seeing incredible impressive growth last year that was about a one to one ratio.

We need to make sure we've got ample working capital to satisfy our customer demand.

Yes, yes.

Speaker 4: Yeah, yeah, you put all these points together, it seems like you're setting up 2023 for, you know, a very strong pre cash flow generating year. I'll turn it over here.

These points together I think you said.

Ending up 223 for <unk>.

Very strong free cash flow generating year.

I'll turn it over here.

Thanks Noah.

Thank you.

Speaker 1: Our next question comes from the line of John French Rabe with Sidoti. Your line is open. Good morning, everybody.

Our next question comes from the line of John <unk> with Sidoti Your line is open.

Good morning, everybody and thanks for taking my question.

Speaker 5: I actually want to go back to the previous point about the higher mixed products and when you expect to realize shipping those products, because if you're maintaining the gross margin profiles flat, it doesn't sound like you expect to have made any headway into the fourth quarter. Is that a fair assessment or am I missing something? I think, John ...

Just want to go back to the previous point about the higher mix products.

And when do you expect to realize shipping those products because if you maintain the gross margin profile is flat it doesn't sound like you expect to head.

Any headway into the fourth quarter is that a fair assessment or I'm missing something.

I think John .

The.

The the onshoring in the mix issues.

Speaker 2: The on-shoring and the mix issues are definitely going to get better, and we're expecting...

Are definitely going to get better.

And we're expecting.

Just continued steady progress but.

Speaker 3: It's just a question of the rate of progress. So, Andy, do you have any dimensions you want to add? Yeah, you know, obviously we've got significant price improvement that we continue to expect to see, you know. But on top of that, I think it's worth at least noting the mass impact of margins. You know, when we've got the price recapture of the cost increases, it's zero margin sales. Now, when that's not a big number, it's not that noticeable.

It's just a question of the rate of progress. So Andy do you have any dimensions, you want to add.

Obviously, we've got we've got significant price improvement that we continue to expect to see it.

But on top of that I think it's worth at least noting the masked the impact of margins.

When we've got the price recapture of the cost increase is at zero margin sales now when thats not a big number.

It does not that noticeable.

But it hurts our margin when the percentages are going up but it helps us when it's coming down to give you an idea in Q3 'twenty to the gross margin impact of this margin math is was a 100 basis points. So we typically see ourselves as a 25%, 10% to 15% OE business, which obviously.

Isn't where we are right now.

You were to add $250 million of pricing at zero margin you would get a 200 basis point erosion in gross margin 100 basis point erosion in operating earnings. So part of what we're seeing is the lag in the pricing catch up as well as these mix impacts that we're starting to see improvement with mitigating activities.

Speaker 3: earnings. So part of what we're seeing is the lag in the pricing catch-up as well as these mixed impacts that you know we're starting to see improvement with their mitigating activities but we're not yet where the business can get to and part of it is just the math of this cost increase. Do you have a sense of when you'll be able to reach equilibrium as far as the pricing and the mix balancing out? Yeah when we look at next year we expect the second half of the year is probably when we'll get back to normalized levels. Obviously there's some things outside of control with supply chain but you know as we are have become more aggressive and effective with our mitigating activities and our pricing is catching up we expect continuous sequential improvement and in the second half of next year to really be at record levels.

But we're not yet where.

The business can get to.

And part of it is just the math of this cost increase.

Yes.

Do you have a sense of when you'll be able to reach equilibrium as far as the pricing and the mix balancing out.

Speaker 5: Do you have a sense of when you'll be able to reach equilibrium as far as the pricing and the mix?

Speaker 3: Yeah, when we look at next year, we expect the second half of the year is probably when we'll get back to normalized levels. Obviously there's some things outside of control with supply chain, but as we have become more aggressive and effective with our mitigating activities and our pricing is catching up, we expect continuous sequential improvement in the second half of next year to really be at record levels.

Yes, when we look at next year, we expect the second half of the year.

Probably when we will get back to normalized levels. Obviously, there is some things outside of control with supply chain, but.

As we are have become more aggressive and effective with our mitigating activities and our pricing is catching up.

We expect continuous sequential improvement and in the second half of next year to really be at record levels.

Speaker 5: Great, great. And then just switching to some of your lithium comments, Dave, can you just, I guess, a couple of things. Could you talk about how much lithium sales are across all three segments in total, of the total company maybe, and where you see that going in two years in light of the slide that had all those opportunities you were pointing out?

Alright, great.

And then just switching to some of your lithium comments Dave.

Can you just I guess, a couple of things could you talk about how much lithium.

Those are of course of course.

Please segments in total.

The company may be.

Where do you see that.

<unk> two years in light of the slides ahead all of those opportunities you were pointing out.

Speaker 2: Yeah, I would say in terms of the backlog, it's still below $100 million in terms of the backlog for lithium, but a lot of positive projects that we're working on involve lithium, and that's really in all three of our business lines. My job is to focus on the future.

Yes, I would say in terms of the backlog.

Yes.

It's still below a $100 million in terms of the backlog for lithium but the.

A lot of positive <unk>.

<unk> that we're working on involve lithium so and thats really in all three of our business lines. So.

My job is to is to focus on the future and so.

Speaker 2: There is quite a bit that we know is within reach, I think.

There is quite a bit that we know is within reach I think the.

Speaker 2: The fast charge and storage project, the California Public Utility Commission's project, there's a lot of lithium in there. Lithium motive power, we've got quite a bit in the budget that we just went through this with the board last week. So the team is very focused and optimistic there, and that's why we made some comments in here about

The fast charge and storage project.

<unk> public utility Commission's project Theres, a lot of lithium in their lithium motive power, we've got quite a bit in the budget.

We just went through this.

With the board.

Last week so.

The team is very focused and optimistic there and that's why we've made some comments in here about.

Speaker 2: From a capital structure standpoint, we're trying to make sure that

From a.

From.

Capital structure standpoint, we're trying to make sure that.

Speaker 2: we keep some portion of dry powder available for securing that supply chain because it's really, I would say,

We keep some portion of dry powder available for securing that supply chain because.

It's really I would say exceeding.

Speaker 2: exceeding expectations versus where my head was at five years ago in terms of the rate at which

Expectations versus where my head was at five years ago in terms of the rate at which lithium.

Speaker 2: opportunities would avail themselves. I think things are accelerating quickly. I think as we noted

<unk> would avail themselves I think things are accelerating quickly I think as we noted.

Speaker 2: The legislation, the infrastructure law is part of that. Customer feedback and acceptance of our solutions has been a big part of it. So everything is picking up pace, and as such, we need to make sure

Sure.

The legislation that the infrastructure law as part of that custom.

Customer.

Feedback and acceptance of our solutions has been a big part of it. So everything is picking up pace and as such we need to make sure that that we have a viable supply chain and thats one of our key focuses with our.

Speaker 2: that we have a viable supply chain and that's one of our key focuses.

Speaker 2: with our, you know, with our cap structure.

With our cap structure.

Speaker 5: Okay. And just one last question, just because I never heard this before on the motor side, you talked about.

Okay, and just one last question.

If I heard this before on the motive side you talked about the <unk>.

Speaker 5: the electrical grid offers opportunity for higher forklift sales.

Greg office opportunity.

With sales could you just talk to me about that comment or that slide what that means.

Speaker 5: Talk to me about that comment or that slide and what that means. But it's what we're, you know, what the group is talking about is.

It's what we're what the group is talking about is that there is a big push right now I think similar in the transportation World with electric vehicles. I think there was a major push right now for electrification and material handling equipment, where you can't do that if you don't have available.

Speaker 2: that there is a big push right now, I think similar in the transportation world with electric vehicles. I think there's a major push right now.

Speaker 2: for electrification of material handling equipment. Well, you can't do that if you don't have available power and grid capacity. So I think there's just some general optimism that is the grid.

Power and grid capacity, so I think theres, just some general optimism that as the grid.

Speaker 2: investments are put into place. It's not only going to facilitate electrifying the transportation fleets, but there's also some large customers.

Investments are put into place, it's not only going to facilitate electrifying the transportation fleets, but theres also some large customers.

Speaker 2: uh, that are committed to electrifying material handling. So, you know, I think we've been stuck with a ratio

That are committed to electrifying material handling so.

Think we've been stuck with.

Ratio.

Speaker 2: In the U.S., for example, in the 60s for the percentage of material handling equipment that was electric versus gas, we think there's going to be a breakthrough.

In the U S. For example in the <unk> for the percentage of material handling equipment that was electric versus gas, we think theres going to be a breakthrough in that number and part of breaking through that that constraint or that number is going to be the availability of <unk>.

Speaker 2: in that number, and part of breaking through that constraint, or that number, is going to be the availability of electricity to charge these forklifts and so forth.

Christy to charge these forklifts and so forth so it's.

Speaker 2: And then we're working on a couple of projects longer term, which tie together, similarly, our fast charge and storage solution with solar, and then putting that in a distribution center or warehouse environment. So we just feel very...

And then we're working on a couple of projects longer term, which tie together similarly, the fast charging storage solution with solar and then putting that in a DC warehouse distribution center warehouse environment. So we just feel very.

Speaker 2: positive and optimistic that what's laid out in this bipartisan legislature is just well, we're well aligned, our investors are well aligned with these future investments. Got it. Thanks for taking my questions.

Positive and optimistic that what's laid out in this bipartisan legislature.

<unk> is just what we're well aligned our investors are well aligned with these future investments.

Got it thanks for taking my questions I'll get back into queue.

Thank you.

Thank you.

Speaker 1: Our next question comes from the line of Greg Wyskowski with Weber Research. Your line is open.

Our next question comes from the line of Greg <unk> with Webber Research. Your line is open.

Hey, good morning, everyone, how you doing.

Speaker 2: Good. Morning. First question is on the backlog, and Andy, those are really interesting data points that you brought up on that plus 40% of the order rate, so just curious.

Good morning.

First question is on the on the backlog and Andy doesn't really interesting data point that you brought up on that plus 40% of the order rate. So.

Just curious.

Speaker 2: How long do you think the backlog continues to build here, and then as supply chain starts to ease, do you think that eventually the backlog returns to more normalized levels, or do you kind of see that coinciding with this rise in demand that you're seeing, and maybe the backlog kind of stays at this historically elevated level?

How long do you think the backlog continues to build here and then as <unk>.

Supply chain starts to ease.

Do you think that eventually backlog returns more normalized levels or you kind of see that coinciding with.

Its rise in demand.

That youre seeing and maybe the backlog kind of stays at this historically elevated level.

Speaker 3: Yeah, thanks Greg. You know, as long as our order-to-sale ratio is, you know, 30-40% above 130%, obviously our backlog will continue to grow because we're getting more orders in than we're shipping.

Yes, Thanks, Greg.

As long as our order to sale ratio is 30% 40% above.

130, 130%, obviously, our backlog will continue to grow because we're getting more orders than them then we're shipping.

So we do see the demand continuing but if you look at what makes up some of the backlog growth I'd say about $70 million or so with that is supply chain delaying deliveries. So that should normalize as supply chains begin to get back to stabilized levels, and we're able to ship that product out.

Speaker 3: back to stabilized levels, and we're able to ship that product out. We probably have about $50 million, which is price. So, you know, as we have higher-priced orders, our backlog will be reflective of that. And then we do have some advanced ordering, where it's the order book is increasing at longer-than-normal phasing because of truck lead times and electronic lead times. That might be in the range of $150 million to $200 million. And again, as supply chains normalize, that should start to be realized into revenue and not on a backlog book. Yeah. Mike, do you have anything to add? Yeah. Greg, one other thing to think about. In modus power, in specialty, the battery is probably not going to get ordered, you know, with a longer lead time than the truck itself. Correct. But when you get to energy systems and the scope and complexity of that, it's going to be a little bit different. Okay.

<unk>.

We probably have about $50 million, which is price.

As we have higher priced orders our backlog will be reflective of that and then we do have some advanced ordering where it's the order book is increasing at longer than normal phasing because of truck lead times and electronic lead times that might be in the range of $150 million to $200 million and again is as supply chain has normalized.

That should start to be realized into into revenue and not on up on our backlog book.

Speaker 6: Yeah, Mike, do you have anything to add? Greg, one other thing to think about. In MODIS power and specialty, the battery is probably not going to get ordered.

Yes, Mike.

Greg one other thing to think about in motive power and specialty the battery is probably not going to get ordered.

Speaker 6: you know, with a longer lead time than the truck itself. But when you get to energy systems and the scope and complexity of some of these builds, whether it's for 5G or the CPUC mandate.

With a longer lead time than the truck itself or how do you get to energy systems.

The scope and complexity of some of these builds whether it's for <unk> or the CPUC mandate.

Speaker 6: uh... you know you can still be taking orders that that might go out

You can still be taking orders that might go out 18 to 24 months. So I think in that line of business you could see continuing growth in the order book beyond well beyond the revenue numbers that Andy referenced.

Speaker 6: 18 to 24 months, so I think in that line of business you could see continuing growth in the order book

Speaker 2: beyond, you know, well beyond the revenue number that Andy referenced. Yeah. I think, Greg, what's important to me is that we have, and all the LOBs have, an extremely good line of sight on what's driving the backlog. And it's all in the...

I think Greg what's important to me is that we have in all.

All the <unk> have extremely good line of sight on what.

What's the what's driving the backlog and it's all in the <unk>.

Energy systems for example, as Mike noted, it's tied to very specific network construction initiatives, our transportation business.

It's really tied to our market penetration with our thin plate pure lead into a very.

Enormous transportation sector, we've had tremendous success in the class eight over the road market, reaching the end users showing the total cost of ownership benefits.

Speaker 2: success in the Class 8 over-the-road market, reaching the end users, showing the total cost of ownership benefits. So I think that there's a high degree of strategic alignment of our backlog with our strategic initiatives that we laid out in our analyst day some time ago. So we are, we feel like we're lined up well. And then in motive power, for example, as Mike noted, there's most of the customers wait until just the trucks, you know, maybe 8, 12 weeks before the truck is supposed to arrive at the dealer.

I think that the there is a high degree of strategic alignment of our backlog with our strategic initiatives that we laid out in our analyst day, some time ago. So.

We are we feel like we're lined up well and then in motive power for example.

Speaker 2: We feel like we're lined up well and then in motive power, for example.

Speaker 2: As Mike noted, most of the customers wait.

As Mike noted there is most of the customers wait until just the trucks with two maybe 812 weeks before the truck as opposed to arrive at the dealer that's when they order the battery. So I would say Andy most of our backlog and motive is less than 90 days old.

Speaker 2: just the trucks, you know, with two, you know, maybe eight, 12 weeks before the truck is supposed to arrive at the dealer, that's when they ordered the battery. So I would say, Andy, most of our backlog and motive is less than 90 days old.

Speaker 2: So, I think in general we feel extremely good about the quality of our backlog and to your question about getting more of it released.

So.

Think in general we feel extremely good about the quality of our backlog and to your question about.

Getting getting more of it released.

Speaker 2: It's just going to come down to contract manufacturing. So I don't have that breakdown. Andy, I don't think we talked about that yesterday. But some portion of that backlog obviously is going to be out of our battery factories. And then some portion is going to be out of contract manufacturing. And so the contract manufacturing, I think we have probably a little bit better ability to flex up as soon as the chips become available.

It's just going to come down to contract manufacturing. So I don't have that breakdown Andi I don't think we talked about that yesterday, but some portion of that backlog, obviously is going to be out of our battery factories and then some portion is going to be out of contract manufacturing and so the contract manufacturing I think we have probably a.

<unk> better ability to flex up as soon as the chips become available. So that's really a lot of the constraint on the electronics and the contract manufacturing piece and then on the battery piece as you know there's really there's only so much we can do out of those big fixed asset type of businesses.

Speaker 2: So that's really a lot of the constraint on the electronics and the contract manufacturing piece. And then on the battery piece, as you know, there's really, there's only so much we can do out of those big fixed asset type of businesses. So.

Speaker 2: But we feel extremely optimistic about that. And just like you, we look forward to just, if anything, and I said this to Andy yesterday and Mike, we just need stability.

But we feel extremely optimistic about that and just like you we look forward to.

If anything and I've said this to Andy yesterday.

And Mike, we just need stability.

Speaker 2: That's what we, you know, if we have to readapt to a new level of lead times or cost price, we can do that. It's just, it's this crazy dynamic, I mean, just the sequential impact of, you know, more than, really more than 50 cents a share of cost pressure sequentially. It's just, these are unprecedented times, but it too shall pass. Okay, got it, yeah.

What we do.

If we have to re adapt to a new level of lead times or.

Our cost price, we can do that it's just it's this crazy dynamic.

I mean, just the sequential impact of.

More than really more than 50, a share of cost pressure sequentially. It's just these are unprecedented times, but it too shall pass.

Okay got it that's really helpful color. Thanks.

Right.

Speaker 7: The follow-up is on the EV charging product, and I just have a couple there. Can you give us any specific details or updates around those initial expected orders or initial two customers in that $100 million order that's kind of dangling out there? And then, as you kind of continue to think about this product and commercializing it, is the focus still on the commercial REITs?

Follow up is on the EV charging product and I just have a couple there.

Any can you give us any specific details or updates around that.

Initial expected orders or initial two customers in that $100 million order thats kind of dangling out there and then.

As you kind of continue to think about this product and commercializing. It is the focus still on the commercial REIT.

Speaker 7: thinking about office parks, shopping centers, apartment buildings, etc. Or have you, you kind of spoke about this a little bit in the material handling.

Thinking about office Park shopping center and department of buildings et cetera.

Or have you kind of spoke about this a little bit in the material handling.

Speaker 7: Have you thought about different applications like highway corridors or fleet applications, kind of combining that with material handling seems like something that would really make sense for that system. Just your thoughts there as you kind of move forward with commercializing it would be great.

Have you have you thought about different applications like highway corridors or.

Fleet application.

Binding that material handling it seems like something that would really make sense for that system.

Your thoughts there as you kind of move forward with commercializing it would be great.

Speaker 2: Yeah, well, it's a great question. And our sales funnel, even in the last 90 days, has sort of exploded in terms of the breadth of opportunity. So it's not as narrow a play as I thought maybe initially, that I think especially fleet charging, corridor charging, the ability to rapid charge. We had one customer, Class 8 fleet customer,

Yes, it's a great question and our sales funnel even in the last 90 days as sort of exploded in terms of the breadth of opportunities. So it's not as narrow a play as I thought maybe initially that I think especially fleet charging corridor.

Charging the ability to rapid charge, we had one customer.

Last eight fleet customer.

Speaker 2: that is looking at class 8 electric trucks.

Looking at class eight electric trucks.

Speaker 2: And they had a kind of a charge drive profile where they wanted the charge to be done in 45 minutes.

And they had a kind of a charge drive profile, where they wanted the charge to be done in 45 minutes.

Speaker 2: On this particular application, that was over 700 kilowatts.

When this particular application.

That was over 700 kilowatts.

Speaker 2: of electrical load and I just to, you know, to dimension that, that's like adding a hundred homes to the grid every time you plug in one of these trucks to charge it. So I mean just the scale of that, so I think most people are starting to recognize.

Electrical load.

And I just to dimension that.

That's like adding 100 homes to the grid every time you plug in one of these trucks to charge it.

I mean, just the scale of that so I think most people are starting to recognize.

Speaker 2: in these high-charge environments, how limiting the grid connectivity is going to be. And so that people are certainly coming to the realization that they're probably going to have to buffer that with available energy so that the impact of that surge or that charge is not so heavily felt on the grid directly. So it's a.

In these high charge environments how.

How limiting the grid connectivity is going to be and so that people are certainly coming.

To the realization that they are probably going to have to buffer.

That with available energy.

So that the impact of that surge or that charge is not so heavily felt on the grid directly so it's.

Speaker 2: worse. I think all the things you mentioned, the distribution center, the

Worse.

All the things you mentioned the distribution center.

Speaker 2: the corridor and then fleet charging. I think we've got a lot now for us.

The corridor and then fleet charging I think we've gotten a lot now for us what I'm trying to do from an execution standpoint, and the way we roll. It out is keep the spec narrow so we don't get too.

Speaker 2: What I'm trying to do from an execution standpoint and the way we roll it out is keep the spec narrow so we don't get too crazy in terms of rolling this out and I've been pushing the team hard.

Crazy in terms of.

Rolling this out and I have been pushing the team hard to hunt with a rifle amount a shotgun. So as we as we go forward our focus is still on.

Speaker 2: to hunt with a rifle, not a shotgun. So as we go forward, our focus is still on these commercial REIT-type customers. The spec is, I would say the spec is done.

These commercial REIT type customers to <unk>.

<unk> is I would say the spec is done there's been a lot of arm wrestling over the last 90 days about the size of the container.

Speaker 2: There's been a lot of arm wrestling over the last 90 days about the size of the container, the, you know, the number of, you know, how much...

The number of how much.

Speaker 2: storage energy, but that's all nailed down now.

Storage energy, but that's all nailed down now and I and I really hope by the end of this fiscal coming up fiscal year 'twenty three we're going to start the revenue but.

Speaker 2: And I really hope by the end of this fiscal, coming up fiscal year 23, we're going to start the revenue. But this same concept, and one of the things I just have to remind you, I want to take this opportunity, is that the technology we're using is highly, highly, highly aligned.

The same concept and one of the things I just have to remind you want to take this opportunity is that the technology. We're using is highly highly highly aligned with the modules that we're doing for motive power for energy systems business. I think these belk Houston principles that are our CTO has driven into the.

Speaker 2: with the modules that we're doing for Motive Power for Energy Systems Business. I think these Bulk House and Principles that our CTO has driven into the business are really starting to show the benefits. So it's amazing to me how quickly we've been able to put this system together simply because of the hard work we've done over the last five years, putting together our whole with him infrastructure and DNA software, BMSs. So it's very exciting project. We've made a tremendous amount of progress in the last 90 days.

Business are really starting to show the benefits so.

It's amazing to me how quickly we've been able to put the system together simply because of the hard work we've done over the last five years, putting together our whole lithium infrastructure DNA software BMS is.

It's very exciting project, we've made a tremendous amount of progress in the last 90 days.

Okay, that's great, Thanks, David and Andy and.

Speaker 7: Okay, that's great. Thanks, David and Andy and congrats again, Mike. Best of luck to you.

Congrats again, Mike Best of luck to you.

Thank you.

Speaker 1: Our next question comes from the line of Greg Lourdes with BTIG, your line is open.

Our next question comes from the line of Greg Lewis with <unk>. Your line is open.

Speaker 8: Yeah, thank you and good morning. And yeah, my thanks for the help over the last couple of years and good luck.

Yeah, Thank you and good morning.

Yes, Mike Thanks for the help.

For the last couple of years and good luck.

Speaker 8: You know, Dave, I guess I wanted to talk a little bit about your comments around the ability to kind of aggressively push price, but at the same time gain market share. Any kind of color around the business lines where that's happening and or is that being driven by any, or should I say are there any differences by region of where that is happening?

Dave I guess I wanted to talk a little bit about your comments around the ability to kind of.

I believe push price, but at the same time gained market share.

Any kind of color around the business lines, where that's happening and or is that being driven by any.

Should I say are there any differences by region where that is.

Speaker 2: I don't think it's a region, it's not a regional issue, it's pretty much the toughest place on price recapture was on our energy systems with our large contracts with big wireless carriers, broadband carriers, and it's just the nature of the agreements that we've had with them.

I don't think the region, it's not a regional issue. It's a it's the it's pretty much the toughest place on the price recapture was in our energy systems with our large contracts with big.

Wireless carriers.

Broadband carriers and it's just the nature of the agreements that we've had with them.

Speaker 2: So it just took longer. So you saw that in terms of our mode of business and our specialty. Now, in the specialty side, we have similar issues.

So it.

It just took it just took longer so you saw that in terms of our motive business in our specialty.

In the specialty side, we have similar issues.

Speaker 2: We have similar issues with some of our large OEM customers on the Class VIII side. But in general, it's really not the issue anymore. But there was absolutely a delay.

We have similar issues with.

Some of our large OEM customers on the class eight side, but in general it's.

It's really not the issue anymore, but there was absolutely a delay in our es business just due to the nature.

Speaker 2: in our ES business, just due to the nature and the customer concentricity issues, we have much fewer customers and much bigger customers in ES than we do in the others, just by the nature of the business. But I think the pricing and the fare accommodation is gotten a lot better, will continue to improve, and really it's the mix from the electronics drag that I'm still really cautious about.

And the customer concentration issues, we have much fewer customers and much bigger customers in es than we do and the other is just by the nature of the business, but I think the pricing and the fair accommodation.

As has gotten a lot better we will continue to improve and really it's the mix from the electronics drag that im still really.

Cautious about and then.

Speaker 2: from a margin perspective and then obviously as Andy pointed out the margin map we're not getting a margin on the cost price recapture so that obviously has a dilutive effect on the way up but to Andy's point will be more of a benefit on the way down.

From a margin perspective, and then obviously as Andy pointed out.

The margin math.

We're not getting a margin on.

The cost price recapture so that obviously has a dilutive effect on the way up but to Andy's point.

It will be more of a benefit on the way down.

Speaker 8: Okay, I realize we're on the hour, so thank you very much.

Okay I realize we're on the hour. So thank you very much.

Q.

Speaker 1: Thank you. As a reminder, ladies and gentlemen, that's Star 1 to ask the question.

Thank you as a reminder, ladies and gentlemen, Thats star one to ask the question.

Our next question comes from the line of Brian Drab with William Blair. Your line is open.

Speaker 1: Our next question comes from the line of Bryant Drabb with Will Blair. Your line is open. All right. Good morning. This is Blake.

Hi, Good morning. This is Blake Keating on for Brian .

Hi, Blake.

Speaker 9: We're just looking to get an update on the alpha business, how that's been growing, kind of how you expect it to grow, you know, over the next year or two, and then also within that business, you know, how you're seeing the opportunities in 5G and if there are upgrade opportunities in the cable network. Right. I would say it's hard.

So.

Can you just looking to get an update on the alpha business, how that's been growing kind of how you expect it to grow over the next year or two and then also within that business, how you're seeing the opportunities in <unk>.

Upgrade opportunities.

The cable network.

Great I would say, it's hard for me anymore to to talk about the alpha business because it's so integrated in with our with our whole energy systems business today, but I will tell you that alpha's greatest market share as a brand was in the North American.

Speaker 2: to talk about the Alpha business because it's so integrated in with our whole energy systems business today. But I will tell you that Alpha's greatest market share is a

Speaker 2: was in the North American cable television companies like Comcast and Charter, for example. They've always just done extremely well there. I think the business is doing fantastic. The California Public Utilities Commission business is coming through those, you know, kind of legacy channels. But the products we're putting together for CPC are absolutely an amalgam.

Cable TV companies like Comcast and charter for example, they are always just done extremely well there I think the the.

Businesses is doing fantastic, the California public Utilities Commission business.

Is coming through those kind of legacy channels, but but the products, we're putting together for CPUC are absolutely.

Speaker 2: of what was Alpha and what, you know, is Enersys. So whether it's TPPL batteries, lithium batteries, enclosures from our legacy Percel, Enersys legacy Percel factory, or XM3 UPS systems out of Alpha.

Album of what was alpha and what is Enersys, so whether it's <unk> batteries lithium batteries enclosures from our legacy per cell Enersys legacy for cell factory.

Or X M three <unk> systems out of Alpha.

Speaker 2: But I would say the business is extremely healthy.

But I would say the business is extremely healthy.

Speaker 2: doing extremely well. Those customers continue to invest heavily in their hybrid fiber coaxial networks. There's still a lot of potential in the rural,

Doing extremely well those those customers continue to invest heavily in their hybrid fiber coaxial networks.

There's still a lot of.

Potential in the rural.

Broadband I think the <unk> projects, we've started to capture revenues for the art off funding already so plenty of runway left in that business. It's just.

Speaker 2: I think the RDOF projects, we've started to capture revenues for the RDOF funding already. So plenty of runway left in that business. It's just the electronics piece, as noted, has been frustrating, first with

The electronics piece as noted has been.

It's been frustrating with first with tariffs bringing that.

Speaker 2: You know, bringing that, you know, we, those tariffs became extremely burdensome. And so this, so I'd say when we talk about alpha, I'd say a lot of what we're talking about the pressures are on the electronics piece of our business. And as noted, we've made significant progress on on-shoring for tariff relief. And the chip issues are, they are what they are. We're doing what we can with redesigns and so forth.

Those tariffs became extremely.

Burdensome and so this.

So I would say when we talk about Alpha I'd say a lot of what we're talking about the pressures are on the electronics piece of our business and as noted we've made significant progress on onshoring for tariff relief.

And the chip issues are they are what they are doing what we can with redesigns and so forth.

Speaker 9: All right, and then just the last quick one, do you guys still expect revenue in the fourth quarter to be up about $50 million sequentially? And then any directional guidance on 23 would be great, 23 revenue would be great. Thanks.

Alright, and then just the last quick one.

You guys still expect revenue in the fourth quarter to be up about $50 million sequentially.

And then any directional guidance on 'twenty three.

It would be great. Thank you your revenue would be great. Thanks.

Thanks.

Speaker 6: So, Blake, traditionally we don't guide for the upcoming year's revenue at this point. I would say in terms of sequentially that...

Hi, Blake, we traditionally we don't guide for the upcoming years revenue.

This point I would say it.

In terms of sequentially.

You would expect our fourth quarter is historically, our strongest quarter.

Speaker 6: You would expect our fourth quarter is historically our strongest quarter. I think in terms of, we had a very good third quarter in terms of top line too. So it's probably not as big of a sequential volume growth, but you will see pricing moving the needle up as more of our pricing initiative.

I think in terms of we had a very good third quarter in terms of top line too. So it's probably not as big of a sequential volume growth, but you will see pricing moving the needle up as more of our pricing initiatives come in so.

Speaker 6: come in. So the $50 million is probably not all that unreasonable, but it's not all volume growth. It's price as well. Yes, it's different. It's a little different right now with all the constraints we have on delivery.

The 50 million is probably not all that unreasonable, but it's not all volume growth, yes, it's different.

A little different right now with all the constraints we have on delivery.

Yes.

Thank you.

Thank you.

Speaker 1: I'm showing no further questions in the queue. I would now like to turn the call back over to David Shaffer for closing remarks.

I'm showing no further questions in the queue I would now like to turn the call back over to David Shaffer for closing remarks.

Speaker 2: All right, well, Mike, I went back and counted. You've participated in 50 of these. This is your 50th analyst call. You've done three investor days for us. You were on the stage twice to ring the bell for the New York Stock Exchange, 18 acquisitions, $1 billion of debt offerings. And I don't know how many calls with investors. That's got to be a countless number.

Alright, well.

Mike I went back and counted you've participated in 50 of these this is your fifth <unk> analyst call.

You've done three investor days for us.

You were on the stage twice to ring the Bell for the New York Stock Exchange.

Acquisitions of $1 billion of debt offerings, and I don't know how many calls with investors Thats got to be a countless number let me speak on behalf of all Enersys stakeholders and thanking you for 26 years of invaluable service to the company.

Speaker 2: Let me speak on behalf of all Enersys stakeholders in thanking you for 26 years of invaluable service to the company.

Speaker 6: Thanking you for recruiting and preparing Andy and for me personally, thank you for your wisdom and loyalty to the company. I will miss you and always consider you a friend. Thank you very much. It's been a most enjoyable ride and I'm still, you know, I'm working through the 31st but Andy's taking over most of the day-to-day stuff and I've got some...

Thank you for recruiting and preparing Andi and for me personally. Thank you for your wisdom and loyalty to the company I will Miss you and always consider your front well. Thank you very much its been a most enjoyable ride.

Still.

Working through the 31, but Andy has taken over most of the day to day stuff and I've got some.

Speaker 6: bucket list items, the strategic initiatives I want to try to run down, so I'll still be around.

Bucket list items, the strategic initiatives I want to try to rundown, so I'll still be around.

Speaker 6: And I'll miss all of you, but if anybody needs to talk to me in the next...

And I'll Miss all of you, but if anybody needs to talk to me in the next 75 days I'm still here great. Thanks, Mike.

Speaker 6: 75 days, I'm still here. Great. Thanks, Mike. So thank you, everyone, and we look forward to providing further updates on our progress on our fourth quarter and year-end 22 call in May. Have a good day, everyone.

Thank you everyone and we look forward to providing further updates on our progress on our fourth quarter and year end 'twenty to call in May have a good day everyone.

Speaker 1: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Music

Yes.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Speaker 10: The.

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