Q1 2020 Earnings Call
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Later, we will conduct a question answer session and instructions will follow at that time.
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As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Mr., David Shaffer, President and CEO .
Thanks Julie.
Good morning, and thank you for joining us on the coal with me. This morning is Mike Schmidtlein, our Chief Financial Officer.
Last evening, we posted on our website slides 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 Dot Enersis 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 managements 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. 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 earnings estimates see forward looking statements included in item two management's discussion and analysis of financial condition and results of operations set forth in our quarterly report on Form 10-Q .
For the fiscal quarter ended June Thirtyth, 2019, which was filed with the U.S. Securities and Exchange Commission.
In addition, we will also be presenting certain non-GAAP financial measures for an explanation of the differences between the comparable GAAP financial information and the non-GAAP information. Please see our company's form 8-K, which includes our press release dated August seven.
2019, which is located on our website at Www Dot Enersis Dot Com now, let me turn it back to you there.
Thanks, Mike.
I will begin on slide three.
Ever since reported first quarter fiscal 2020, adjusted earnings of $1.30 per diluted share and 11% increase versus the prior year first quarter adjusted earnings of $1.17 per diluted share.
Adjusted earnings were adversely impacted by one of our customers deferring a large order of high profit margin business to future quarters.
Along with our ability to increase our motive power production output to meet strong demand as we are still recovering from the ERP implementation challenges at our Richmond, Kentucky manufacturing facility.
Net sales for the first quarter were $780 million, an increase of 16% over the prior year quarter, primarily associated with our December 2018 acquisition of Alfa.
Please turn to slide four.
I now want to update you on some of our key markets. Our motive power Americas business continues to be strong as demand for our TPPL products continues to outstrip our manufacturing capacity.
Overall backlog in the Americas is up over 30% year on year and the orders were up 9% during the quarter compared to the prior year.
Thin plate pure lead orders grew over 200% year on year in motive power Americas alone.
Just like the Americas thin plate pure lead or TPPL Nexus pure lead motive power sales were strong in EMEA fueling a market share gain for enersis.
Since our last call, though orders in EMEA are softening from our traditional motive power OEM factory customers.
Historically, we have seen stronger replacement battery sales when new forklift truck slowdown to offset some of the softness also we expect to return to a lower Q2 seasonal pattern in EMEA.
Last year, our Q2 in EMEA was lifted by a fire at a competitor's factory.
Motive power in Asia is slowing in China, given the current trade climate with the rest of Asia largely stable.
Finally, as noted last quarter, we successfully launched our Nexus ion lithium motive power batteries that pull Matt in Chicago.
Although nexus will not contribute meaningfully to F. 20 sales.
We have several important customer programs in development that should help us further increase market share and expand addressable markets starting in fiscal 21.
Our transportation business in the Americas continues to improve although our Odyssey product family remains constrained on thin plate pure lead production capacity.
Orders for the heavy truck OEM segment continues to grow with our high performance TPPL batteries and start stop and non idle requirements.
The entire industry has felt some softness in the distributor network given the high inventories after a warm winter.
Recently, though orders are improving as hot weather kills batteries.
In EMEA transportation.
The Odyssey brand continues to grow in popularity owing to its superior performance, although once again TPPL production availability is constraining growth.
I will cover our plans on TPPL production capacity later in these prepared remarks.
Our telecom business globally continues to be soft.
We feel strongly that normal spending patterns have been disrupted pending significant investments in modern high speed networks, including Fiveg.
In particular, one of outflows largest historic customers continues to hold Capex, which has significantly stressed our business.
The team remains confident that this deferred spending is creating pent up demand.
In the Americas normal Telecom order patterns have also been impacted by merger activities of two of our major wireless customers.
Since our last call there has been significant level of new quotation activity, including full DC power systems and small cell site pairing.
These small cell site quotes have included Fiveg sites as well as traditional CA TV customers powering outdoor wireless sites, which is part of their quad play offering.
The sizable dimensions of the RF queues reinforce the heavy DC power consumption of these very high speed networks.
We are benefiting from significant orders form an outdoor DC power system, which included a person closure TPPL batteries and Alpha electronics. This is a testament to our strategy of providing full DC power system solutions.
This contract is an important foothold in an account poised for significant growth.
Although fiveg investment maybe later than we envisioned we are taking advantage of this time to refine the portfolio and supply chain.
The other areas of our legacy reserve power and Alpha business included dataset datacenter backup industrial and renewable are performing largely in accordance with expectations in all three regions. Finally, we are pleased to report that we have added several key industry experts in advanced battery Chemistries, serving the aerospace and defense markets.
These additions have significantly improved our credibility within the industry and is poised us for significant growth.
We're in the final stages of several important contracts yet to be announced that will have meaningful impact on our Andy business.
Please turn to slide five.
I will now provide an update on the progress we have made on our strategic initiatives.
As you know last December we closed on our acquisition of Alfa technologies group, creating the only fully integrated AC and DC power supply and energy storage solution provider for broadband telecom and energy storage systems, a truly powerful combination that has already been validated by our customers as noted prior.
The integration continues to go well driven by Enersis isn't alphas aligned cultures focused on money, making high quality products that customers can rely on.
We are above our targets of achieves achieving our annual synergies and in the past quarter, we have accelerated alignment with legacy Enersis and alpha teams to develop a modular power conversion system.
Using only a limited set of modules, we will be able to cover all alpha in Enersis legacy products and allow accelerated developments of new products, such as fast charging and energy storage systems. The architecture will allow scaling to volume manufacturing and we will be able to achieve significant cost reductions with increased reliability.
The integration of outflows in Enersis as lithium ion programs is also progressing as well.
A sample telecom system, we've developed combines the lithium ion modules and battery management systems from the motive power program without those racks telecom rectifiers and control systems. We are extending this further to offer such advanced features as autonomous peak power shaving demand response, and energy arbitrage capabilities with these additions and higher voltages, we will be able to transition the technology to energy storage products for commercial and industrial applications. The lithium battery program is critical to our Opex photovoltaic energy storage system as well. This offering is an important niche in the fast growing renewable backup and peak shaving market.
Our second major strategic priority is to significantly increase then plate purely manufacturing capacity to reduce lead times and to meet the exciting and rapidly growing demand, which far outstrips, our current manufacturing footprint.
In June we officially announced their plans to expand TPPL capacity over the next three years with more than 100 million, an additional capex spending which will increase our current TPPL manufacturing capacity by 70%, 75% and we expect an incremental 15% increase in TPPL manufacturing.
Resulting from our continued focus on lean principles combined the company expects that the two efforts to increase TPPL capacity by over $500 million annually.
We also announced our plan to continue our commercialization efforts for Green seal bipolar battery technology, which is licensed from advanced battery concepts. We remain very excited about adding this technology to our portfolio of products.
Please turn to slide six.
I will now provide an update on our operational excellence initiatives as noted last quarter, our ERP implementation in Richmond when poorly.
The challenges from the ERP change in addition to high market demand and the addition of Nexus pure TPPL to the portfolio has stressed our entire motive power Americas sales and supply chain networks.
As such in Q1, we delivered 95% of our targeted revenue in motive power Americas, our motive power Americas customers have always depended on enersis to reliably deliver.
I approved and encouraged many extraneous expenses in the quarter, which included loaner batteries expedited freight and overtime to help improve our deliveries. This not only created pressure on our Q1, but will also increase our cost of sales in Q2 by approximately $3 million due to FIFO.
Mike will provide more details in his prepared remarks.
I was disappointed that we could not get all of the issues behind us in Q1, but I am encouraged that our recent performance in the factory has shown marked improvement.
As noted prior increasing TPPL production capacity remains the stops a top strategic priority.
I am pleased to report that our lean program and TPPL factories has already increased output by over 10% versus prior year, which equates to approximately $50 million per annum in revenue.
We expect this to further improve to a 15% year on year improvement by year end.
Overall, the lean improvements have been inconsistent factory to factory, but the benefits are clear and we continue to make progress our Richmond facility has fully embraced the lean program, but much of the benefits were massed with the ERP implementation.
Finally, our new high speed line for TPPL has successfully passed all final acceptance testing and is in route from the U.S. from the UK, we expect aligned to be fully installed by this late fiscal year and expect throughput and prudent.
Expect significant throughput and product productivity improvements once stabilized.
As noted prior the line has been delayed due to our low inventory levels on TPPL.
Looking ahead to the second quarter of fiscal 2020, we are focusing continued growth in motive power Americas continued progress and tenant transportation.
Lower revenue due to normal seasonal patterns in EMEA.
And continued disrupted telecom spending globally.
As noted prior Q2 will also include $3 million in costs associated with our disrupted motive power America supply chain as well.
Mike will provide more specifics on our Q2 guidance in his portion of the call.
In summary, we are well positioned to capitalize on the exciting growth opportunities ahead, which will include a massive global fiveg infrastructure build out over several years and continued growth in broadband to include the expansion of existing existing DOCSIS infrastructure by broadband companies. Furthermore, quad play bundling of TV Internet home security and voice services by the major telecommunications providers is driving incremental spending on backbone infrastructure benefiting enersis taken in totality, we remain extremely confident that capital spending by our customers will drive significant incremental sales in our sector and the combined enersis and alpha product offerings are uniquely well positioned to benefit from the eventual surge in the capital spending cycle.
We also will benefit from increased global market share for our Odyssey brand and transportation and our Nexus maintenance free products in motive power as well as the fully integrated DC power systems.
Which combine alpha and Enersys batteries.
We look forward to providing you with the additional color on the state of the business, our competitive positioning and our growth strategies during our Investor day that is scheduled for October 2nd at the New York Stock Exchange.
With that I'll now ask Mike Schmidtlein to provide further information on our results in Q2 guidance.
Thanks, Dave.
For those of you following along on our webcast.
I am starting with slide eight.
Our first quarter net sales increased 16% over the prior year to $780 million due to a 22% increase from acquisitions and decreases of 3%, 2% and 1% from volume currency and price respectively.
On a regional basis, our first quarter net sales in the Americas were up 32% to $517 million, while Emeas net sales were down 4% at $203 million in Asia decreased 12% in the first quarter to $60 million.
Americas enjoyed 39% from acquisitions less a 6% volume decline in a combined 1% decrease from price and currency.
EMEA had a 3% volume increase less 5% a negative currency and a 2% price decline.
Asia at 8% volume and 4% currency declines.
On a product line basis net sales for motive power were down 1% year over year at $344 million, while reserve power was up 35% to $436 million reserve power at a 10% volume decrease in a 2% currency loss.
Offset by 47% in acquisitions motive power generated 3% from volume lift a 2% decrease in price and 2% in foreign currency loss.
Please now refer to slide nine.
On a sequential basis first quarter net sales were down 2% compared to the fourth quarter of fiscal 2019.
Driven by 4% volume decline net of 2% from acquisitions on a geographical basis Americas was up 2%, while EMEA was down 11% and Asia was down 1%.
On a product line basis reserve power was down 3%, while motive power was down 1%.
Now a few comments about our adjusted consolidated earnings performance.
As you know we utilized certain non-GAAP measures in analyzing our company's operating performance specifically excluding highlighted items accordingly.
My following comments concerning operating earnings My later comments concerning diluted earnings per share exclude all highlighted items.
Please refer to our company's form 8-K, which includes our press release dated August seven 2019 for details concerning these highlighted items.
Please now turn to slide 10.
On a year over year basis, adjusted consolidated operating earnings for the first quarter then for fiscal year 2020 for Enersis increased approximately $10 million to $78 million with the operating margin down 20 basis points.
Lower commodity costs were not enough to offset the volume and price declines along with the inefficiencies incurred in our ERP implementation in Richmond, Kentucky.
On a sequential basis, our first quarter operating earnings declined 40 basis points to 10%.
Operating expenses when excluding highlighted items were at 15.9% of sales for the first quarter compared to 14.5% in the prior year.
Excluded from operating expenses recorded on a GAAP basis in Q1, our pre tax charges of $9 million, primarily related to $2.4 million in restructuring and $5.3 million in alpha amortization charges.
Excluding those charges, our Americas business segment achieved an operating earnings percentage of 11.9%.
Which was 70 basis points lower than 12.6% in the first quarter last year.
Lower volume and the ERP implementation, along with the inclusion of Alphas slightly dilutive result created the decrease.
On a sequential basis, the Americas first quarter decreased 20 basis points from the 12.1% margin posted in the fourth quarter due primarily to lower volume.
Americas OEE dollars were up approximately $12 million from the prior year from our acquisition and flat from the prior quarter.
Emeas operating earnings percentage of 7.7% was down from last years, 8.2% as well as last quarter's 10.2%.
Oh $80 decreased $2 million from the prior year and decreased $8 million from the prior quarter, primarily from lower pricing and mix on a sequential basis EMEA also had lower volume.
The operating earnings percentage in our Asia business declined 110 basis points in the first quarter of this year to 1.1% operating profit from a 2.2% profit in the first quarter of last year, but was up from last year's court last first quarter's 2.1% loss.
Asia is OE dollars were down approximately $1 million from the prior year, but up $2 million from the prior quarter, despite lower volume on better mix.
Please move to slide 11.
As previously reflected on slide 12, our first quarter adjusted consolidated operating earnings of $78 million.
Was an increase of 14% in comparison to the prior year.
Our adjusted consolidated net earnings of $55.9 million was $6 million higher than the prior year.
The improvement in adjusted net earnings as a result of the $10 million contributed by the Alpha transaction.
Our adjusted effective income tax of 18% in the first quarter was lower than the prior year's rate of approximately 19%.
But higher than the prior quarter's rate of 13%.
Discrete tax items caused most of these variations.
Fiscal 2000, Nineteens full year rate was 17%.
Which is below our 18% to 20% range of expectations for fiscal 2020.
Also contributed adjusted operating earnings of $17 million or 11.4% on revenue of $151 million in the first quarter.
Overall, after considering interest taxes and dilution of shares issued to the seller.
Alpha was 20 cents accretive after excluding $4 million in after tax amortization on intangible assets recorded in purchase accounting.
S.
Including now through increased 11% to $1.30 on higher net earnings.
We expect our second fiscal quarter of 2022 of approximately $43 million.
The weighted average shares outstanding which includes nearly 1.2 million shares issued in the Alpha transaction.
Net of the point 8 million shares purchased in February to June of 2019.
As a reminder, we still have nearly $75 million of share buybacks authorized.
Please now turn to slide 12.
The Alpha transaction continues to progress as planned with synergies being realized as expected.
The logic of our acquisition remains intact.
However, alphas revenue is down significantly over year over year from current spend patterns of certain major broadband and telecom players.
We still have nearly $262 million of cash on hand in our credit agreement leverage ratio of 2.0 times. After the transaction is still well positioned we generated $30 million in cash from operations in the first quarter fiscal 2019 capital expenditures were $17 million.
We expect full year capex spending of approximately $90 million to $100 million in fiscal 2020.
We anticipate our gross profit rate in the second fiscal quarter of 2020 to be between 25, and 26%, which is comparable with Q1 the benefits of lower lead costs will likely again be negated by higher manufacturing costs from Richmond. These costs of approximately $3 million per quarter related to Richmond were incurred in Q4 and again in Q1.
But hit Rpls the following quarters.
In regards to the impact from tariffs, our first and second quarters have approximately five cents per share in each.
From that pressure, although we are still assessing the impact from our second fiscal in our second fiscal half. We currently expect a similar cost pressure and age to tariffs along with higher freight costs have impacted our margins by 100 basis points.
We expect to generate adjusted diluted net earnings per share of between $1.20 and $1.24 in our second quarter fiscal 2020.
Which excludes an expected net charge of 22 cents per share primarily related from charges of the alpha amortization and our continuing restructuring programs now let me turn the call back to Dave.
Thanks, Mike.
Julie we can now open the line for questions.
Ladies and gentlemen, if we have a question at this time. Please press Star then the number one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from queue. Please press the pound key.
And your first question comes from Noah Kaye with Oppenheimer.
Thanks.
Good morning, and thanks for taking the questions first maybe you can give some clarity on that large deferred order you mentioned.
First how do we think about large in terms of magnitude of revenue.
And then maybe your level of confidence that thats kind of delayed and not cancelled any color there would be helpful.
Yes, I spoke to the team.
Directly just as soon.
As early as yesterday and there is a high degree of confidence that orders between five and $10 million.
And.
It.
The team is highly confident that it will stay in the year I don't think Weve got much of that program then for Mike We Didnt put much of that in Q2 did we just to be safe well. The order in question actually is shipping in Q2. The question is whether we get a there are several orders from this customer in the question is whether the next one pushes out right Q2 to Q3 source Sumption was it would so that is not a net plus right on our expectations for Q I just bumps another order in but this has been a very reliable customer of ours for a long time.
And Theres a high degree of confidence about that business. It was a bit unfortunate I think.
And it's that and then.
As I noted in my prepared remarks, the other big challenge on Q1 that kind of put us at the bottom of the guidance was we only got about 95% out the door that we had hoped to.
I think if either one of those we could have stayed in the mid point.
Or higher but with both of those things happening at the same time in the quarter, that's what put us at the bottom end of the guidance range. So but the confidence is high that that business is staying with us.
Right right and then I guess just sticking with.
The mode of part of the business first.
You commented on the EMEA softness.
Your your EMEA OEM business.
Can't be more than 10% of total company sales I assume you can correct me if that's not the case, but how pronounced in magnitude is the slowdown that you see.
And if orders are slowing.
Obviously, it's not ideal and you've been doing this already but can you shift.
Some of that product around to make up for just the lack of inventory in the U.S.
Yes.
When I was over in Europe .
It was very consistent the total amount of batteries, we made but what would fluctuate as which channels we sold through.
And as I noted in my prepared remarks, typically when we see softening new forklift truck orders, we tend to see better replacement orders that said and all the guys are getting ready to for a different climate we've.
Sales guys see in terms of battery sales and we don't see the same lows that they do and the volume there has been fairly predictable and consistent Mike I mean.
It has and it just to calibrate that no. It's higher than you expect it's anywhere from 15% to 20% of total revenue right.
Oh, we OEM.
In EMEA is 15, and 20% of total company revenue.
I'm sorry, the total EMEA motive power, so, yes, thats not all factory direct so no its numbers probably not too far off.
Okay. Okay, and then and then you know your commentary and guidance obviously doesn't reflect.
You know any kind of real recovery.
From some of the telecom customers.
We have heard from some other companies that that at least spending it's kind of stabilized at current levels right and so just.
Just any kind of sense of Directionally is there any incremental weakness here or are we just kind of in a kind of the same holding pattern and then any thoughts or insight you might have on to when that starts to come back.
So I kind of the first point.
And I, probably should have put this as a reminder, in our prepared remarks is we don't have a single customer that's above 5%.
So this ER so just kind of go through.
This part of the business the cable customer that we had mentioned that's frozen capex is having a significant impact on alpha's business, but overall, we're not exposed to any single customer broadly we're very diversified from the markets. We serve from the regions we serve from the sectors. So.
But that said the alpha team is feeling this loss or lack of spending acutely, but we remain confident know that this is creating pent up demand you can only defer spending for so long networks, you have to spend money to keep them.
Fully functioning so that's that's a timing issue.
I'm pleased to report frankly that.
Since we spoke last on this call we've gotten three RF queues and just just three RF queues, which have a total combined value value over a half a billion dollars now I'm not promising you know that we're going to win this business, but we haven't seen this sort of activity in a very very long time on the telecom side I spoke to drew and some of his.
Key captains.
This week and there seems to be an improving sentiment.
For our second half versus what we've seen to date, so that that does seem to be improving I think as we had mentioned prior.
We've seen softness from some of the sea lacks and some from the old wireline portions of the network that businesses has been softer, but we're really starting to pick it up on the on the wireless side and we're seeing a lot of projects now which are interesting because there.
Nobody is going to spend money today on things that aren't fiveg compatible. So we see a lot of initiatives that are sort of evolutionary where they're starting as an LTV, but its upgradable to fiveg. We also see a lot of hardening of the network in certain areas. So that that situation is slowly improving and the optimism is starting to build.
So that's.
That's coming.
Like I said those those RF queues were very exciting we haven't seen numbers like that in a long time, Mike is there anything else you wanted to add no I think.
We've we've heard more recently some net positive things in the in the.
Our telecom business in particular.
Hopefully, we will see improvements yes.
I agree.
Okay. Okay. And then is that is there anything else, yes, no just apologies to my colleagues, but I got to sneak one more in here that this is the last earnings call I guess before your Investor day. So can you just give us a high level of.
What you're hoping to achieve with today, what we should be looking for.
I think that whats.
Important.
For us and for our investors to understand and then for us to communicate effectively.
Is the long term strategy and the view in light of the Alpha acquisition and that how that's changing the nature of the business and how I think we're layering on top of a business that has been a a fairly consistent cash generator for a lot of years. So our investors have been exposed to a business that.
As probably averaged.
Mike what $90 million to $100 million a year over the last 10 years in terms of buybacks and dividends.
It's been a stable business, but we're layering on top of that now this technology piece, which is going to expose us to growth as well.
So we think it's a unique combination for investors and we want to tell that story, clearly and we want to be very precise in the areas, where we're going to grow I think fiveg, which we just talked about is certainly an important part of it but I don't want you don't underestimate how small our market share is in the transportation sector and as we've talked about a lot as these heavy trucks go to start stop or non idle requirements. We've just been extremely successful so.
Theres a lot of life left in the lead story as well.
The bipolar, which we'll talk about.
Can even extend the life of led even further so theres a lot of great things to talk about but most importantly, it's really this unique investment opportunity for investment shareholders to not only.
Have sort of a steady cash flow business, but start to layer, some real significant and frankly exciting growth opportunities as well.
That's very helpful. Thanks, so much.
All right.
And your next question comes from Brian Drab of William Blair.
Hi, Dave Hi, Mike.
Hi, Brian .
Hey.
Excuse me.
You know that are totally in this more than half a billion can can you just talk about whether those are related to.
Currently alpha are both Alpha Enersis legacy.
Oh is it five are those specifically fiveg, so a little more color on that.
I would say.
Let's take a theres kind of three pieces to these RF queues. The first one is for a DC power system for Fiveg builds outside of the United States. So it's actually it's kind of exciting because it's fiveg and it's not the U.S. market.
And that's for sizable and that.
And the guys are working on the on the quotes now.
That's a percent one closure, it's enersys batteries.
Traditional thin plate pure lead batteries, and then alpha cortex rectifiers or the like.
So that's that's one of the opportunities.
It's big it will be aggressive pricing, but again, we haven't seen this sort of opportunity in a long time.
Can you say if that one's North America or is that outside North America, North America, that's actually rest of world.
Yes, I think thats one of the opportunities another one of the big opportunities is.
It's a kind of these neutral host folks that are starting to build out fives.
Fiveg is small cell site networks and this is a powering opportunity to to power small cell sites. So exactly what we've been talking about.
For the last couple of quarters.
Really right in the wheelhouse of the Alpha deal very much an alpha play and one of the key reasons that we did this transaction.
Given them in the mid term is leverage that and then the other one and I mentioned this in my prepared remarks, and this is one that I may be underestimated a little bit.
But some of the traditional coaxial network folks.
Are getting more aggressively into the.
Wireless arena.
And you know they.
Today.
They typically offer the wireless service over Wi Fi connection.
And then when you leave Wi Fi coverage they tend to have wholesale leasing arrangements with wireless carriers, well I think theres a appetite for some folks to start to do that on their own.
To put in some of their own network equipment and so this quad play by some of the traditional cable companies is also.
An interesting opportunity for us and and what's just been exciting to me is this has all happened in the last 90 days. Each these three big Pops of RFP as it can.
Brian No guarantee that were.
We're going to win any of this or.
All of this but we feel pretty good that.
Things are starting to loosen up.
Okay, Great and then can you.
Stock about what the.
The pipeline of leads that might lead to more of this kind of activity like how.
How is that.
Hi pipeline building and would you expect potentially.
The next 90 days see start to see more RF queues like this.
Yes, I think the the sentiment and I talk to like I said drew and some of the key guys. This week.
The sentiment is positive I knew that to.
Just yesterday, we got a million and a half dollars worth of purchase orders for some small cell site powering. Thanks.
Which was a nice little pop so yeah, I would say the sentiment is the pipeline is building we're going in the right direction.
Okay. Thanks, and then.
I guess, maybe the last question for now can can you just.
It may be.
Given some indication here and I missed it but for the second fiscal quarter.
Can you just talk Directionally at least about.
Motive revenue and reserve revenue, you're what you're expecting.
For the quarter.
Yes, no I was in my I Directionally, what I had said in the prepared comments was we access expect continued strength.
In the motive power Americas, and as we noted the backlogs up 30% Q1 year on year orders were still up 9% that business is going.
Going strong and it's really there has been a an execution issue.
And as Ed mentioned, we didn't fully execute to what we had guided to.
In Q1, but that said that business the outlook continues to be strong.
Hi, I noted that the transportation sector or the.
The the orders are very strong from the Oems the heavy truck Oems that that business is holding up well.
We think that this is important that the distributors.
For those.
Truck batteries. It was a it was a really warm winter across the U.S., but it's getting to be a hot summer and the heat.
It's the heat that kills the batteries and Thats the cold weather is when you find out about it.
But.
And that said, we're optimistic about that sector.
We said that motive power in Europe . The factory shipments are slowing for sure, but we expect some of that will be buttressed by.
The replacement battery side, we've got some work to do I think China I think all of US are a little uncertain as to how that's going to land.
So were not super optimistic about mode of in China.
As we just noted telecom is improving I think the rest of the traditional reserve power business.
Is a stable I guess the two big narratives. There is a timing on on Fiveg and then the other piece is sort of this pent up demand being created by this.
Capex hold at one of our major major CA TV customers I think those are the broad headlines for Q2.
I guess, how does that aggregate for I mean is this motive up then sequentially in the second quarter in aggregate.
Mike So.
It just kind of net net from a line of business standpoint Q2.
Hi, I'm, just wondering as I'm modeling here, what I it sounds like I would model a sequential improvement in revenue and emotive and and potentially a sequential improvement in reserve revenue I, just wondering directionally, which way to.
Yes, Thanks again for all that color I'm, just trying to boil it down to.
What.
What do we expect up or down.
Well I think the other piece, Brian I as Mike's kind of dig in through this.
We don't usually give too much.
Precision on revenue projections, but just directionally the other path to it as I noted in my notes last Q2.
In EMEA, we were aided because one of our competitors had a significant fire sand, we had a sort of an abnormally good Q2 last year, which makes for a little bit of a tough comp. This year, we've kind of put back into the revenue model Directionally the normal.
Seasonality.
For all of the European businesses, just its a very Holly holiday heavy schedule. So that's another.
That's another piece of the kind of the overall revenue guidance for Q2.
Okay, Yes, sorry to press you on I know you don't guide.
On the revenue, but that's you know of course, why you get kind of like these big got gaps between what the street was expecting and what you.
Put up this quarter I'm just.
Hi, Greg.
Line up with what you're expecting as much as I can.
Yeah, and I would say the top line total company, it's going to be relatively comparable sequentially. As you might expect in as has been the pattern over the last at least half dozen years Q2, and Q1 can be fairly similar.
There's been a couple of years, where one is stronger than the other and vice versa, but they generally are fairly comparable this year shapes up to be pretty much. The same I think our legacy business will have comparable results with a little bit of.
Of push as there always is between motive and reserve, but neither is going to change significantly sequentially. The alpha business had a good Q1 is going to have a a.
Revenue number I think in Q2 that is going to look a little bit more similar to what we saw in our fourth fiscal quarter of last year. So.
When I look at these businesses I would I would say our legacy business is going to have a performance sequentially. It looks pretty consistent with what we had in Q1.
And the Alpha business is going to have a performance pretty consistent it's Q4 performance.
I think thats pretty precise.
Yes, I can give you.
Yeah that was great.
Right.
Okay.
And again, ladies and gentlemen, if you have a question at this time, Please press star and the number one key on your Touchtone telephone.
Your next question comes from John Franzreb with Sidoti and company.
Hi, good morning, guys.
Maybe John stick on the revenue theme here.
Pricing hurt results in the quarter I imagine largely it was a function of led.
Can you talk a little bit about what your pricing expectations will be in the coming quarter.
So the pricing.
Degradation was primarily.
European Where's the pass through models or are set fairly.
Closely with the actual lead costs, which as you noted we're decline.
So most of that price degradation was there the Americas in general pricing has been a little bit more consistent because there has been other.
Things such as higher freight costs year over year that have been kind of keeping those higher so I would say if I looked at it very because pricing is broadly neutral emeas has been down but should be stabilizing now so you'd see less of that degradation.
In both.
Last quarter and this quarter I think you'd see that the improvement in commodities has been.
Better than any change in pricing so commodities have out way the benefits are good things about commodities going down as outweighed any pricing degradation.
Where weve had the pressure that not allowed our margins to expand beyond the range, it's kind of been for a few quarters has been.
The introduction of the tariffs, which is largely a physical late 2019 in early 2020 and continuing on into 2020.
The pressure that's added along with with fairly historic freight rates and in addition to that because of our demand on TPPL, we have so much product going across the oceans as our European.
Factories that produce TPPL been supporting the American market as well so those two items the freight I'll call it freight in tariffs.
Along with the ERP implementation that we've talked in it and not losing about with.
Richmond, and put about a 150 basis points of pressure collectively on those margins right now.
John just kind of one more.
Factor.
Which is a little bit more.
Discrete but.
The ERP issues and.
A lot of the challenges Weve had and I and I mentioned in my prepared comments, it's been disruptive for the whole sales and supply chain channel, it's impacted our mix and what we are selling to customers and so some of the premium mix availability has been impacted with the challenges in the factory, which is going to show up in the pricing line as well, we expect that is going to resolve itself as we move forward.
Got it and I guess with that thought.
Im kind of surprised that the obviously batteries doing so well.
Considering.
Freight tonnage is down and class eight truck engine orders have dropped significantly.
Could you kind of walk me through why that's the case.
I think it's clear to me why that's the case.
It's because the product and I've said this many times the product last twice as long, but it doesn't cost twice as much.
So.
I think the customers.
It's so it's a share issue, it's sort of a similar analogy as we talked about in the past where.
China is converting from gas trucks to electric trucks as more of these truck Oems are moving to start stop type profiles in there.
More focused on these non idle requirements I think that the performance of the thin plate pure lead is so superior to the other products that are available that it's we're taking share and we feel like that and our market share is.
Rounding error.
In that in that world.
And so we just feel like the more capacity, we can bring online and that's something we're going to focus on at the Investor day, and we touched on it at the last one and it's it's as true today, if not sure today than it was two and a half years ago.
That.
We think that it just.
Taking more nibbling more share out of this business are out of the transportation sector is a great win for our shareholders.
Got it got it.
And Dave.
In Europe .
Prepared remarks assumed by the narrative has kind of.
Improved around around lithium products and offerings I guess im reading into this but your first time of hernan, while the storage market being part of the dialogue again.
And it sounds to me like you've hired some talent and I'm, assuming that talent is probably in the lithium side of the market for aerospace and defense.
Is that the case from our reading too much into it.
No I think I think we've we've as I mentioned precisely and you said and you noted we've added some talent in the aerospace and defense sector specifically.
To go after some of the.
Thermal battery business and.
That's a primary lithium that's a.
A very exciting market a lot of exciting opportunity so.
And as I noted, we've got some contracts that we haven't announced yet that we're pretty close on.
So that's coming and then the other as you noticed sort of a separate thought and and on associated with the.
Aerospace Defense piece is we've also started to hire some new talent on the alpha side of the business, where they have a a foothold into the solar business with solar inverter and pre packaged.
Yes home energy storage systems commercial grade.
And I think a lot of the dynamics, especially in California.
A lot of the regulatory changes that are happening out there the energy storage piece is starting to pick up some steam and weve.
We've hired some.
MIT, great talent to sort of lead that business and.
Thats going to be an increasing part as I said from the very beginning the alpha acquisition was about.
It was three it was three tiers. It was first and from foremost it was taken advantage of the legacy Alpha customer base and the cash flows there and kind of the next wave was going to be the fiveg associated with the small cell side powering, but ultimately the thing I'm. Most excited about is these grid 2.0 these off grid solar these.
Renewable integration peak shaving, that's really where the.
Big money is going to be in the future and we're certainly making progress there for sure.
Well great could you just remind me how much in lithium sales you're doing today and what you think a reasonable target would be.
Five years from now.
Five years for a while.
Hi, Sean if you want.
[laughter] it's.
It's really interesting because if you can tell me what the price of led in the price of lithium are going to be five years from now I can answer your question and that's that was critical to our strategy.
John with the whole next is what we focused on was creating a maintenance free experience.
And then we're chemistry agnostic. So we've got we think we can provide that experience with both thin plate pure lead and lithium.
And I would say a regionally where my head was that in the long run, let's not say five years, let's say in the long run.
It is I would argue with with the guys around here. Some guys say it was going to be 50, 50, I thought it was always going to be 70%, 30% TPPL than lithium I think right now with some of the progress we're making on the TPPL side and if lead stays.
At or below where it is today.
It might be.
More TPPL than I, originally thought and because we really are improving the performance of the thin plate pure lead but that said, we want to be prepared for either.
A lot of this is going to just depend on where the cost of the lithium cells go.
And how much of that wave are we going to ride with the electric vehicle market. So it's a very hard question to answer.
But I want to just let our shareholders know that that's why we put money on red and we put money on black and the.
We'll let the market choose what it wants to do I, just have a margin expectation regardless of what we sell.
Great great. Thanks for taking my questions.
No problem.
Okay, Okay Im showing no further questions at this time.
I'd like to turn the conference back today.
Well Julien I want to thank you very much and I want to thank everyone, who took the time today to attend our call have a great day everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may all disconnect.