Good day, ladies and gentlemen, and welcome to the Q2 2017 EnerSys Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will host a question-and-answer session and our instructions will follow at that time. As a reminder to our audience, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. David Shaffer, Chief Executive Officer. Sir?

Thank you, Brian. Good morning, and thank you for joining us. On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer. Last evening, we posted on our website, slides we will be referencing during the call this morning. If you didn't get a chance to see this information, you may want to go to the webcast tab in the Investors section of our website at www.enersys.com. I'm going to ask Mike Schmidtlein 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 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 based on management's current views regarding future events and operating performance, and are applicable only as of the date of such statements. For a list of factors, which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in our Quarterly Report on Form 10-Q for the quarter ended October 2, 2016, 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 November 9, 2016, which is located on our website at www.enersys.com. Now, let me turn it back to you, Dave.

Thanks, Mike. On Wednesday, we announced our second quarter results of $1.15 per share, which was above our guidance range of $1.06 to $1.10. You will notice on slide 3, we had another very good quarter, and once again achieved an all-time record for as adjusted gross profit percentage of 28.5%. We also achieved the second quarter records for as adjusted operating earnings percentage, as well as earnings per share of $1.15. Our organic growth was mainly driven by the reserve and motive power businesses in Asia. The increase year-over-year profitability was due primarily to lower commodity costs, higher volume, positive mix, tax effects and for earnings per share from lower shares outstanding. Please turn to slide 4. I now want to focus on our current business activities and third quarter guidance. During the second quarter, the global motive power business continued to experience positive organic sales volumes in all regions, and our premium products continue to resonate with our customers. The second quarter organic growth is very similar to what we experienced in our first quarter of fiscal year 2017 and in fiscal year 2016. Global orders for motive power batteries continue their steady growth pattern. Asia continues to be our highest growth area benefiting from the conversion of internal combustion for trucks to electric. In Europe, Middle East and Africa, we are increasing the percentage of our motive power sales that are value added products, which include thin plate pure lead, IRONCLAD, gel, high-frequency chargers and battery management systems. Year-to-date, premium product sales were up year-over-year by 24%. This has allowed EMEA to manage or maintain their operating earnings by the weak telecommunications demand in the emerging markets. We announced plans to exit our South Africa joint venture due to weak economic conditions, limited growth in the mining…

Thanks, Dave. For those of you following along on our webcast, I'm starting with slide 8. Our second quarter net sales increased 1% over the prior year to $576 million due to 2% increase in volume and 1% from acquisition, offset by a 2% decrease from currency translation. On a regional basis, our second quarter net sales in the Americas were up 1% to $325 million, while Europe's were down 5% to $181 million, and Asia increased 23% in the second quarter to $71 million. In the Americas, a 1% increase in acquisitions and 1% from pricing offset a 1% currency decline. Europe had a 1% decrease in volume and a 1% decline in price, along with 3% in negative currency. In Asia, volume increased 17%, and the recent ICS acquisition contributed 4% growth, while pricing increased 1% and currency improved 1%. On a product line basis, net sales for motive power were up 1% to $299 million, while reserve power also increased 1% to $277 million. Despite a 1% currency headwind, motive power enjoyed a 2% volume gain, while reserve power enjoyed a 1% volume increase and 2% from the ICS acquisition offset by a 2% negative currency translation. Please now refer to slide 9. On a sequential quarterly basis, second quarter net sales were down 4% to the first quarter from 4% less organic volume on 2% fewer working days in Q2. The Americas region was down 1%, while Europe was 8% lower and Asia was down 4%. On a product line basis, motive power was down 2% and reserve power was down 6%. 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…

Thanks, Mike. Brian, we can now open up the line for questions.

Yes, sir. Our first question will come from the line of John Franzreb with Sidoti. Your questions please. John E. Franzreb - Sidoti & Co. LLC: Good morning, everybody.

Hi, John. John E. Franzreb - Sidoti & Co. LLC: I'd like to start with – one of your last thoughts there, Mike. When you talk about sequentially the gross margin dropping to roughly 27% from the 28.5% that you just recorded, what's the biggest driver in the decremental gross margin?

So, the biggest driver in that decline is going to be the sequential increase in the cost of lead from the second quarter. The first and second quarters had relatively comparable lead costs. We'll see Q3's increase of about $4 million, which is going to be about 75 basis points pressure. So if all other things were equal, that 28.5% would move down to about 27.75% thereabouts. The 28.5%, which was a record, I think, is a reflection of the improvements we've made in the mix of our higher margin products, our premium products. I think, it reflects the fact that we've intentionally tried to go after better business rather than more business in regions like Europe. I think it reflects the fact that our India activity, which had been losing money in the last year pretty heavily, is getting closer to breakeven. So we've been making progress there. So all of those things should help us to kind of counter the negative in lead, and I will say, as you go in other quarter sequentially with most of that lead costs being known, but not all of it, I would expect probably another $4 million to come on top of it. So we got another 75 bps of pressure next quarter, followed by an additional 75 bps, thereafter. So once we get out to Q4 and even into Q3, what's going to keep us in that 27-plus range is going to be some of the cost benefits that we anticipate from our lean initiatives. I think those are the two quarters, the second half of the year, where you'll start to see some of those benefits.

I think, John, the other issue is that, we have seen some movements in LME lead prices, as Mike just alluded to, and there is some lag in our recovery with our pricing actions. So that's historic. We never can seem to recover as fast as lead can go up, so that's part of the sequential story as well. John E. Franzreb - Sidoti & Co. LLC: Got it. Perfect. That was great, guys. And Dave, you mentioned that in motive, Asia's growth has been, I guess, better than expected. Could you just talk a little bit about that? My impression has always been that was kind of the hardest region to crack for the motive side of the business?

Yeah. It's actually going fairly well for us. So I mean, WIT Statistics demonstrate that, that region seems to be coming back to life a little bit better, which is exciting. And even though the economic situation in China, which we feel like is improving a bit, we still see a lot of lift from the conversion from gas to electric within the China market. And outside of China in the Asia market, we're seeing fairly stable situation, similar to what we're seeing in the U.S., and actually Europe's pretty good in motive right now. So really the gas-to-electric conversion is sustaining us in China, and we look for better things as the China markets continue to improve. And we made a fairly significant investment in a new factory there, which we hope to take better advantage of as the market and the situation does improve there. India, not much of a motive power market today, but we feel well-positioned to take advantage of that as that market begins to mature. And then, just as a reminder, John, Japan, Korea, a fairly significant motive power markets, fairly significant part of the WIT Statistic. Given the xenophobic nature of those regions, we've never really had much success in those markets. So you sort of have to just keep in mind that we don't participate, unfortunately, in Japan and Korea. John E. Franzreb - Sidoti & Co. LLC: Dave, how big of a potential is motive Asia 3 to 5 years down the line?

Yeah, I'm cautiously optimistic. I think as the Chinese market can get back to what were historic rates, layer that on top of – on the gas-to-electric conversion and then put in the perspective of our untapped factory capacity in Yangzhou, I'm cautiously optimistic that there is some upside, especially in the Chinese market for EnerSys, motive power. John E. Franzreb - Sidoti & Co. LLC: Okay, guys. I'll get back into queue. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Gallo with C.L. King. Your questions, please? Pardon me. Michael, please check your mute button.

I think we lost Michael.

Our next question comes from the line of Ben Hearnsberger with Stephens. Your questions, please.

Hey. Thanks for taking my question. I wanted to ask about the Purcell order. Is that in the telco space?

It is in the telco space. And we haven't seen any major network deployments like we did a couple of years ago in terms of 4G rollout. But there is still some projects out there, specific filling in areas, adding some additional capacities to networks, and we're excited. And we think that this is going to breathe some life into on that group. I really like that group of folks, and I'm very encouraged and happy for our team out there to enjoy the success, and keep them busy for at least the foreseeable future.

Okay. So, it'd be fair to say that, it's a helpful order. Probably not big enough to backfill the slowdown we've see in that business, but it's a step in the right direction.

It's a perfect summation.

Dave also, I think you kind of alluded to some higher operating expenses in advance of lean. Can you kind of detail what some of those costs are? How they impact the margin?

It's not just lean, but it's a lot of the change oriented initiatives we have going. So lean initiatives and IT both are going to potentially have an impact on OpEx in advance of the savings yield. And so those will be consulting fees, it will be bringing on licenses for software in advance of actually using them to their full extent, transition in nature. But we are very confident and optimistic about all of these programs, otherwise, we wouldn't be doing them. But we wanted to flag to you, we are very keenly-focused on operating expenses, but we wanted to flag to you that, there may be some short-term headwinds. We think they're manageable, and we'll just discuss that at every one of these calls to make sure you're aware of what's going on.

Okay. I know we're going to have some gross margin impact from lead, can you size the potential margin impact from some of these incremental costs on the OpEx side?

Right. Well, Ben, it's Mike. So the costs that, Dave was talking about is probably incrementally about $1 million – $1 million to $1.5 million a quarter. So – and as you know, our operating expenses, when you add them up full-year, about $360 million. So they're going to come in far below, they're probably about 0.5% (25:35) for those, incrementally. So, they exist. They should help us to drive cost savings elsewhere, although not initially. But they should allow us to grow to be faster, be more responsive, and all of those benefits should show up elsewhere within our P&L.

Okay. That's helpful. I guess, lastly on the ERP rollout, where do we stand, and do you need that system in place to accomplish your lean goals?

I think that, what's important is that, the two initiatives work in concert with each other. I don't know that it's entirely dependent to achieve. The lean, frankly, is more about flows and process and waste. So they're not – they certainly don't – they are a bit mutually exclusive. But one thing we have to be careful of is making sure that, the design and the rollout is done in unison. So we've got our new CIO and our new COO meeting on a regular basis to make sure that these two rollouts are not fighting each other along the way. And so far, I have to say, I'm extremely pleased with what I've seen. On the IT side, things are improving. We took a fairly significant charge last quarter as we reset our direction. We have a new engagement partner. We just had our SAP Executive Steering Committee, yesterday. We got an update from the team, and I'm very pleased with where things stand. And in terms of lean, we're not really started, yet. But in terms of the initial assessment, the opportunities, we think, are very tangible to achieve that $35 million sustainable and structural reduction in costs that we've targeted for the next – last couple of quarters.

And just to add to that, Ben, I think the – we have, call it, half a dozen or more entities in North America we need to rollout the SAP ERP system to. So the timing of which, we will probably continue to go with some of the smaller ones as we gain confidence in our build out, which allows us to focus the lean initiatives on our larger facilities, which would give us the biggest bang for our buck in the lean initiative. And that's where you really want to have that lean initiative done. Let's say that's two years from now when you're doing that implementation on SAP. Now, you've gotten some of those things in front of you, and hopefully your building materials are going to incorporate some of the labor savings or any other changes that you're going to make in the product or processes from – as a result of those.

And Ben, I just want to remind you, and I think it's inherent in the roll-up history of EnerSys that, as we've assessed internally with our own folks and we've brought in outsiders to assess the opportunities, we have some significant confidence that we can do what we do today better, faster, and certainly with less waste. And I personally, I'm a believer that the faster that we can compress that cycle time from the day from which we make a quotation to the day at which we can actually ship the product, if we can do that – and certainly, we don't want to cheat, we don't want to do it by simply layering in too much inventory. But the faster that we can compressed those cycle times, we think, is going to have a meaningful impact on our traditional organic growth rates, and to help us take share just by getting it out faster. So we're very optimistic about that point.

That's really helpful. Thanks for taking my questions.

Okay.

Thank you. Our next question comes from the line of Brian Drab with William Blair. Your questions, please? Brian P. Drab - William Blair & Co. LLC: Hi, good morning. Just wondering, if you could first just step through the latest WITS data for us. Typically, you're able to give...

Yeah, Brian. Brian P. Drab - William Blair & Co. LLC: ...the rolling three months in the different regions.

Yeah. Trailing three months versus prior year, we'll break some out, the United States, 20%; the total Americas, 18%. So pretty exciting and demonstrates that the momentum is holding in that region. In Western Europe, 17%, similar. Eastern Europe, 24%. So some recovery there, with the total European number of 18%. In the Middle East and Africa, smaller market, 1%. So the EMEA – Europe, Middle East, and Africa subtotal – totaled 17%. In Asia, spiking up. China, as we noted earlier, we're starting to see some recovery. China is up 19%. And the total Asia figure, 13%. So worldwide, 3 month trailing versus prior year, we're seeing a 16% increase in the unit orders. Now, the one thing I have to remind you of is that, these unit figures – these are unit figures, will include fleet replacements. So as they decommission older trucks and bring in newer trucks, we will see increased truck volume reflected in these results that don't necessarily mean that there's increase in the amount of materials being handled or an increase in the amount of batteries sold. So, it's not a one-for-one, but it certainly demonstrates that the material handling markets are staying healthy. Brian P. Drab - William Blair & Co. LLC: Can you just clarify, if there is a fleet replacement, wouldn't each unit come with a new battery?

Not necessarily. It's – oftentimes, trucks come with multiple batteries. And then how the trucks are repurposed and how batteries are reconditioned, it's absolutely not a one-for-one in terms of new trucks and new batteries. Brian P. Drab - William Blair & Co. LLC: Okay. And then I think this is a question that I know I've asked over the years, and you've gotten many times over the years, but can you just reconcile some of these growth that you're seeing, 20% in the U.S., 80% in Europe, in this specific niche of the industrial world relative to kind of the industrial recession that we're seeing in general?

Again, just be cautious, these growth rates do include that fleet replacement stuff. Brian P. Drab - William Blair & Co. LLC: Yeah.

So that's going to be... Brian P. Drab - William Blair & Co. LLC: Outside of the – I guess – and I know you've mentioned the fleet replacement, but maybe if you can just talk a little bit more about that, because I'm trying to understand how there's a global fleet replacement. What drives that? I mean, you're talking about hundreds of different customers operating fork trucks.

I think the cost of money is a factor. The lease terms are a factor. The technology and the desire of the customers to get a more modern vehicle that's more efficient is part of the drivers that can impact these WIT Statistics. And then I think that, and I've mentioned this prior, that the statistics we're quoting you are for electric forklift trucks, Class I, II, and III. So also inherent in these numbers are conversion from gas to electric. I think that's another key driver for this. And then I think where these electric forklift trucks are used, Class I, II, and III, these are in retail areas. They're in distribution centers. They're in automotive parts, automotive assembly factories. So the markets where we are seeing good activity in electric forklift trucks aren't necessarily as exposed to a strong dollar export. I had mentioned in the past plane building, shipbuilding, some of these industries that have been there, oil and gas that have been hit hard with strong dollar or commodity issues. These really aren't the markets for electric forklift trucks. The other thing I've mentioned in the past is that, electric forklift trucks are used in the developed economies. So the United States, Western Europe, Japan, Korea, these are the big markets. China is becoming a very increasingly important electric forklift market. But the developing markets where we're seeing a lot of commodity price struggling, those aren't big electric forklift truck markets. So we're not seeing the same drags as you would see in a global GDP or global industrial production statistic, the exposure to the BRICS. It's not – these are narrower in scope, and we think that all of those factor into why we continue to see fairly healthy growth in the electric forklift market.

And I think as retailers and distributors want to get their product to their customers with goals of same-day, you're seeing distribution centers being built out to try to enhance that delivery system.

That's a great point, Mike. And so the velocity at which goods are moving and goods are turning is a great positive impact for material handling equipment. Brian P. Drab - William Blair & Co. LLC: Got it. Okay. That's all really helpful. Thanks for going through that. Another – I mean, sticking kind of at a high level, you have a new Chief Technology Officer on board. I'm wondering if you could give us a better sense for what the priorities are for him and for that team?

That's great. Well, we couldn't be happier with the start that Jörn's made. Right now, he's spending a lot of time assessing our current technical capabilities and meeting the teams. And again, I mentioned earlier that our history is a rollup company. And as such, we have a tremendous amount of technical talent and capability but it's distributed globally. It's not very uniform, and we don't think we're getting perfect utilization out of our current technical resources. So one of the key areas of Jörn right now is to get the team, get to know everybody, assess our capabilities and then start to think through how we can do a better job of utilizing existing resources. The other reason, we brought out Jörn is to make sure that we take advantage of markets that emerge in the future that would be incremental opportunities for EnerSys. Well, we haven't seen tremendous conversion or threats to our existing markets today, but we do see some markets on the horizon, where we think we're going to need to change our product portfolio to take advantage. I'll just give you one example. It's not all the examples, but one example is the grid storage market or all of the energy storage opportunities related to traditional AC powering of homes or of commercial sites or industrial sites. We've been talking about this for some time. It's been a little bit of a Moby Dick. We've been chasing the white whale now for a decade. My personal assessment that these markets are really starting to materialize. The opportunities are starting to materialize, and we think that the lithium has a real future in these markets. And so that's one of the reasons we brought in Jörn, who has deep experience in these areas, to make sure…

We've always said around 24%, 25%, but I think we need to reset that number. It's going to be 30-plus today. We've had some nice movement with our European team. So yeah, it's – we're doing the right things there. We've changed some compensation schemes with some of the sales folks. So, yeah, that number continues to go in the right direction. Brian P. Drab - William Blair & Co. LLC: Thanks for all the detail.

Thank you.

Thank you. Our next question comes from the line of Michael Gallo with C.L. King. Your questions, please? Michael W. Gallo - C.L. King & Associates, Inc.: Hi. Good morning. Sorry. I was...

Hi. Welcome back, Michael. Michael W. Gallo - C.L. King & Associates, Inc.: Just a follow-up question. Obviously, with the change in the administration, it's possible that in 2017, there's a tax holiday that might allow you to bring some cash back. So I was wondering, I guess, one, how much cash is outside the U.S. today, and how you would think about utilization of that cash or potentially bringing it back? Certainly, it seems you've been doing some acquisitions certainly on the international side of the business versus returning it to shareholders, if you could bring it back, say, at a 10% tax rate. Thanks.

Well, it's a great question and it's one that we've been looking at. And we're looking at the taxation situation not just because of the possibility now of the opportunity perhaps to bring funds back into the U.S. at, say, a 10% rate versus maybe attracting as high as 35-plus percent if we were to do it. And then we have – to your first part of your question, out of our $440 million of cash on hand and in short-term investments, $400 million of that lies overseas. Not all of it in foreign currencies, but it's still, for U.S. tax purposes, it has not been brought into the U.S. So, there's great opportunity for us to bring these funds home. We likely wouldn't bring all of them home, because there are opportunities to spend that money, and there is a certain level of operating cash that we need for those units across the world. But we're certainly looking at it. But we're looking at it, we were already looking at the situation just because of some of the BEPS initiatives across most of the EU countries, the base erosion profit sharing initiatives and the country-by-country reporting requirements that are starting to show up across the EU. So all of those have caused probably not just us, but every big company that operates globally to be assessing their tax situation, and we certainly are. And certainly, if we were looking at a potential to bring money home for a 10% tax rate, we would certainly be considering it.

I think, Michael, just beyond the repatriation of the tax holiday issue, just operating in an environment of lower taxation and lower regulation is something that EnerSys is really looking forward to. Michael W. Gallo - C.L. King & Associates, Inc.: Okay. Great. And then just – I might have missed it earlier, did you say how big the enclosure order was? And is this – are you kind of back where you think this business is going to come back on a more consistent basis to kind of where it was when you bought it, or is this – I know there can be some lumpiness in this business. Is this a one-off where you got an order this quarter and then you may or may not see anything for a little while in that business again?

No, I think it's certainly not going to bring us back to the heyday. And you did miss that. We touched on that earlier. It's not going to bring us back to the full run rate, but it is going to have, I think, a meaningful impact. That business is not material to the overall EnerSys volume, but for that particular business, this is going to have a meaningful impact, we hope for many quarters to come, because this is a multi-year project.

And keep in mind, this is a unit that has had some impairment charges on its intangible assets the last two fiscal years. So, we're optimistic that that can take that off the table and put this from having that distraction occurring. Michael W. Gallo - C.L. King & Associates, Inc.: Okay. Thank you.

Thank you. We have follow-up questions from the line of John Franzreb with Sidoti. Please proceed. John E. Franzreb - Sidoti & Co. LLC: Thank you. Mike, how much of the $35 million in cost savings that you've kind of highlighted has been realized in the second quarter of this year?

So, in the second quarter this year, I would say, it's small. It's probably $1 million or $2 million, collectively. These are things that kind of start small, and they take up to 12 months to kind of hit their stride. So I think you're going to see, starting from very modest Q2, increasing benefits in Q3 and then to Q4. So, I think in light of the pressure that we've described on lead, our ability to stay in the 27-plus percent rate of our gross profit is going to be a demonstration to you that these cost savings are coming through. John E. Franzreb - Sidoti & Co. LLC: Okay. And Dave, could you just give us an update on your thoughts on the potential 5G rollouts and how EnerSys will participate in that and the timing of that?

Yeah. Tom forwarded some nice articles for me to kind of dimension some of the timing. They're in trials. I mean, they're early, early days. The trials are already happening in this now. 2017, there's going to be some trials. Most of the stuff I'm reading is Europe is going to be kind of a 2020 to 2025 type of rollout, and then in U.S. maybe a couple years sooner than that. And then, I think what we talked about in the past is, we think that we're extremely well-positioned for the backhauling portion of the increase in the network load. So this 5G is going to dramatically increase the amount of ones and zeros that are flying through the air. And as all that data concentrates, it has to be brought back to the web. We think that we're well-positioned on the backhaul portion. In terms of the actual distributed, and we've said in the past ubiquitous, small radius sites associated with the 5G, it's really unclear as to what battery technology, if batteries are going to be included in that portion of the network topology. So I don't have a good answer for you there. But the one thing we do know is that, when it comes to the fiber optic portion of the networks, the backhaul portions of the networks, we feel well-positioned with our products and our relationships globally. John E. Franzreb - Sidoti & Co. LLC: If the technology went to a lithium-based chemistry versus lead, do you have a roadmap? Is that part of bringing Jörn in maybe to participate that? Do you have the capacity to do it as things stand? Could you talk about it a little bit?

It is Part of the roadmap is what we're calling, and we'd be talking about in February, our small cell, small site enclosures with integrated lithium batteries. That is part of a roadmap. John E. Franzreb - Sidoti & Co. LLC: Okay. Didn't mean to get too far ahead of your February presentation.

It's all right. John E. Franzreb - Sidoti & Co. LLC: Thanks for taking my questions.

No worries.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today. Now, it's my pleasure to hand the call back over to Mr. David Shaffer, Chief Executive Officer for closing comments or remarks. Sir?

Well, I just want to thank everybody for taking their time today to attend our call, and everyone have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Everybody have a wonderful day.