Good day, ladies and gentlemen, and welcome to Fourth Quarter 2019 EnerSys Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at the time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Mr. David Shaffer, President and CEO. Sir, please go ahead.

Thanks, Michel. Good morning and thank you for joining us. On the call with me this morning is Mike Schmidtlein, our CFO. 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 can 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 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 our earnings estimates, see forward-looking statements included in Item 7, management’s discussion and analysis of financial condition and results of operations set forth in our annual report on Form 10-K for the fiscal quarter ended March 31, 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-8K which includes our press release dated May 29, 2019. Which is located on our website at www.enersys.com. Now let me turn it back to you, Dave.

Thanks, Mike. I will begin on Slide 3. EnerSys reported fourth quarter fiscal 2019 adjusted earnings of a $1.43 per diluted share which was in the middle of our prior guidance range of a $1.41 to a $1.45. This compares to the prior fourth quarter adjusted net earnings of a $1.24 per share representing a 15% year-over-year increase. Adjusted earnings were positively impacted by improved price and product mix, discrete tax benefits and the add back of Alpha’s amortization partially offset by higher operating expenses and lower sales volume related to the ERP implementation drag at our Richmond location, which I will discuss in more detail in a moment. Net sales for the fourth quarter were $797 million an increase of 17% over prior year quarter and sequentially it was largely due to our December 28 acquisition of Alpha. Before going into each of our business lines I want to briefly discuss the ERP system conversion at our Richmond, Kentucky plant which negatively impacted our results during the fourth quarter. On January 1, 2019 the Richmond facility went live and we subsequently experienced a production interruption as product identification and configuration issues delayed both manufacturing and shipping resulting ultimately an approximately 15 days of lost production. The identification and configuration issues were largely remediated by March and the plant exited the quarter at record monthly shipment levels. Unfortunately, the late quarter production increase in Richmond was unable to make up for the shortfall earlier in the quarter leading to a record backlog of motive power orders along with continued long lead times. With the new system in place, our team is working extremely hard to make up for that lost productivity and to meet the strong overall demand we're seeing for our products. Please turn to slide 4; motive power…

Thanks, Dave. For those of you following along on our webcast, I'm starting on slide 10. Our fourth quarter net sales increased 17% over the prior year to $797 million due to a 20% increase from acquisitions and 1% increases from both pricing and volume minus the 5% decrease from currency. On a regional basis our fourth quarter net sales in the Americas were up 33% to $508 million, while Europe's net sales were flat at $228 million and Asia decreased 19% in the fourth quarter to $61 million compared to the prior year. The Americas enjoyed 36% from acquisitions and 1% from pricing less the 2% volume decline and a 2% decrease from currency. Europe had a 11% volume increase less 10% a negative currency and a 1% price decline. In Asia volume decreased 14% and currency declined 5%. On a product line basis, net sales for motive power were down 3% year-over-year at $347 million while reserve power was up 39%, $449 million. Motive power had a 2% volume increase and a 1% decrease in price and a 5% currency loss. Reserve power generated 42% from acquisitions and a 2% increase in price netted by 5% in foreign currency loss. Please now refer to slide 11 on a sequential basis fourth quarter net sales were also up 17% compared to the third quarter fiscal 2019 driven by 16% from acquisitions and a 2% volume gain less a 1% price decline. The Americas region was up 26% while Europe was up 5% and Asia was slightly up. On a product line basis, motive power was down 1% while reserve power was up 36%. Now, a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our company's operating performance, specifically excluding…

Thanks, Mike. Michel we will now open up the line for any questions.

Thank you. [Operator Instructions] Our first question comes from the line of Noah Kaye with Oppenheimer. Your line is open. Please go ahead.

Good morning. Thanks for taking the questions. Appreciate the details you provided on the Richmond interruption. Can you talk about where you're at globally in your ERP implementation across the business and what gives you confidence that you'll get continuity of operations going forward?

Thanks Noah for the question. You know we’ve -- the Alpha acquisition has gave us an opportunity to evaluate where we go next with our strategy and we're taking a little bit of time right now we're coming off a tough implantation down at the – at the Richmond plant. So it is the right time for us to take a breath and evaluate the next phases and it’s really a question of the sequence and what are the priorities and we're in the midst of that evaluation right now and it will be you know it's going to be a long journey. It was always going to be a long journey and we're – we should have the clarity we hope to in the fall be announcing kind of the next phases and where we go with our digital core investments. I think most of it will be tied, the way it feels right now Noah is it'll be more focused on the distribution side of the business and the configurations part, especially with a lot of the modular new products and a lot of the Alpha systems. We're getting a lot of traction with the customers from the system side. So I suspect more of our emphasis is going to be there versus going into the traditional manufacturing factories and plugging away on an MRP system. So we don't have that exact color right now, but we'll certainly give you that update in the fall.

Okay. Great. Appreciate that and look forward to it. You know you highlighted the increased CapEx to build out the TPPL capacity and I guess a related question to – to this idea of continuity and flexibility is how do we think about the future flexibility of those factories to serve different end markets? We can see that you know with many different verticals and all the different SKUs you know you're manufacturing a lot can move around in any of your individual markets you know in any given time period. How do we think about what these investments will provide not just in terms of added revenue, but maybe the flexibility to serve different markets?

Well, it's a solid question and it was a driving influence with specification of our new high speed automated line actually. So, to your point we have to have an envelope on these machines that can carry the full spectrum of products. You bring up a good point, the history of this technology started way back in aircraft batteries a long time ago and – but one of the key drivers for our growth over the years in terms of operating performance has been the expansion of that core technology into new markets and the block sizes are getting bigger and bigger, and that's been one of the big challenges for the factories over the last year or so, has been this rotation into these bigger blocks especially as we get into more and more motive power. So, it's very clear that we have to specify new equipment going forward that can accommodate the full spectrum of the – of the range and that's – that's what's driving a lot of our decisions right now. And we also want to have plant redundancy most of our customers want at least two factories that are tooled for these high runner products. So, these are it's an astute question and it's very clearly one of the things that's driving the capital investment, we have to build flexibility, we're building modularity into the products and we have to build that same flexibility into our assembly equipment.

Okay. Thank you for that color. And maybe one more if I could. Again in your remarks you mentioned the customers you’re serving with the Alpha EnerSys integrated offerings are having problem with other suppliers, can you maybe speak to that a little bit more in terms of what challenges are being encountered and how you think you're differentiating.

So, Drew gave me a call last night, was after still call last night was after – who’s still late on the West Coast but he gave me a call last night before the call and he had just left a meeting with one of the large wireless customers and that's Drew Zogby, he is the President of the Energy Systems Business and he came over with the Alpha transaction and so and the feedback from Drew was we're working on a big project which we're excited about and it's a combination of a per sell enclosure Alpha, Cortex, Rectifiers and EnerSys batteries and the ability for that customer to provide a single purchase order with a single configuration part number just dramatically eases that. And then we even have the ability to do full engineering furnish and install as well related to the site so that such a -- it's so much harder when they have to coordinate multiple purchase orders try to coordinate what fits -- when is it going to all arrive and then -- when there is problems or if there is problems there is a lot of finger point typically most people are trying to assess out who's to blame for whatever is going on and what we're offering is really one throat to choke and it's -- especially in today's telecom world where there's been so many headcount reductions and that tends to be the future I don't think I see any lead up in that. The big telcos just don't have the expertise they used to. So they're going to rely on more and more of their suppliers and so we feel like the strategy and the combination is positioning us extremely well before and really we wanted to get this set up and ready so that when the 5G investment starts in earnest which can really take a leading position and simplify the lives of our customers. That's the whole – that's a major driving part of the whole strategy.

Great. Thank you for that. I'll jump back in queue.

Thank you. And our next question comes from the line of John Franzreb with Sidoti & Company. Your line is open. Please go ahead.

Yes. David, I just want to continue on that last point you made. From what I recall Purcell had some sizable customer concentration and that became something of an issue. This Alpha has similar customer concentration or not?

I think, John the issue is the industry has best of concentration. So whether it's wireless or whether it's broadband there's just dominance in these industries. So you can avoid it. So you know Verizon and AT&T and Sprint, T-Mo that's it there's really three customers. And I apologize for getting a little echo here. And then on the broadband side Comcast and Charter are dominant. And so when any one of those customers decides to take a little break on spending or to lock down their balance sheet a little bit, we're going to feel it, and that's the nature of the business. So yeah, I would say it's not so much Alpha is it just the industry, but we brought the cast as broaden as it is possible and we try to maintain relationships and approvals at all the various carriers through broadband comp.

Okay. So thank. That’s helpful. So last quarter you kind of thought that the telco spending would recover in the second half of this fiscal year. Is that still the case or not?

It’s feeling more getting more confident every day on that phone call last night was helpful in that regard. And as we alluded to in the prepared remarks, we just think that there are certain of these types of investments especially on the maintenance and operations, the operating budgets of these companies that you can – you can forestall some of these things like battery replacements, but you can use – eventually you're going to have to get them done. We're confident that recovery is going to occur. It's really too account and I don't want to name names, but it’s pretty well publicized, one in the broadband space, one in the wireless space that have their own reasons for locking down some spending. I think a large of it my sense is, is that everybody is trying to get their strategy and their balance sheets ready for the inevitability of major investment is 5G. So, I like to think of it as the calm before the storm, but I can't give you a definitive answer on when the 5G is going to start in earnest.

Okay. Fair enough. And then regarding first quarter guidance I just want make sure I understand some things regarding Richmond and the motive side of the business. How much revenue was deferred from Q4 into Q1 in that business or was that revenue actually lost and how much you said some of the costs are going to be incurred in Q1? And is that – is that embedded in your guidance or you be excluding those costs associated the ERP rollout in your guidance maybe you can quantify that number also?

Hey, John, would you try picking up handset hands that -- maybe that will help us on the echo.

Okay. I’ll give a shot. Okay. How is that?

All right, a little better. Okay. So the – teeth answer to the latter part of your question our guidance includes that knock on impact from Richmond and incurred in Q4 as it rolls out into our Q1. The total number on the revenue is a big number a 25 type million of which we would anticipate some you know -- we have the ability to probably pick up $10 million to $15 million of it in the upcoming quarter. Now how much if any of that has been lost I think you would be hard to argue that we didn't lose some of those quarters that went elsewhere. But we you know it's -- for us it's while we hate to lose an order it's more that that customer’s next order comes back our way is that much more important item for us and we are hopeful that that our customers will hang with us and understand the situation. I would say that there is about $3 million as I said in my remarks that a drag on impact that is Q1 that is reflected in our guidance.

Okay. Thanks a lot, Mike. I’ll get back into queue.

[Operator Instructions] Our next question comes from the line of Brian Drab with William Blair. Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking the questions. The first question is it looks like you've given us an estimate on the content per small cell site for Alpha and I just want to drill down on that a little bit, is the estimate roughly $1,000 per small cell site for Alpha content.

Yeah, yeah, that's a good. That's a good rough out number. And you can see there’s two ways that you know it's there and that's what we try to depict there. One of the gate – the gateway solution is really tied to HFC, hybrid fiber coaxial networks. And then the line powering solution which is the other picture we show is using a kind of a traditional copper twisted pair way of bringing power to the small cell site. We have both and we really like the situation where they're using the existing HFC networks to provide powering to the small cell sites. We think that's a great win and we hope and we encourage many of the wireless telcos to use those HFC networks for back call for real estate for power.

Okay. And I was under the impression that maybe there would be more components required on some cases than what you're depicting in those pictures. You know like the down converters, the power supplies, but…

Okay. So, you're right. That's a – Brian, it’s a good point that the down converter is at the small cell site, but there's an up converter in an enclosure with DC rectifiers and battery, somewhere at a node, somewhere else. That's not depicted. But yeah you're – you're right, there's more to that line powering than you see. In terms of the gateway remember what's happening there is the towers coming through the coax. So, it’s actually pulling the power through the coax, so as they add more and more loading onto the coax that's going to require either more or larger XM3 UPS systems and Alpha cell batteries which again we have a very good market share in that outside plant powering for those coaxial network. So, yeah, there's much more to the story, but – and the numbers we’ve quoted were very specifically and narrowly on just the small cell site stuff, but to your point there's a lot more to the story than just that.

But Brian, this is Mike. You know one of the attractive features of the product offering is it doesn't take that much to get in the business and so it is that the fact that there isn't that much more to add until you build up significant mass to have that up converter and the power supply. So, they can get into this game with less cost and maybe other solutions.

Right. So, we had – we had three small cell site industry experts address our combined sales meeting and that my takeaway Brian is that of course you always need three things, you need real estate, you need a place to put the small cell site, you need power, you have to power the small cell site and you need backhaul. You need to get the data from that radio back to the network. And we think that the especially the gateway solutions where they're using those small cell sites on existing HFC networks is perfect. And to Mike's point you can pop those in very quickly, so if a wireless carrier wanted to roll out 5G in a geographic area that has a lot of HFC network already there like my neighborhood. I can't walk you know more than a few feet without seeing an Alpha box on a pole somewhere that it provides an opportunity for the carriers to deploy very rapidly. So we're excited about the products and the positions we have and we like the fact that we're getting things organized before the 5G spending starts in real earnest.

Okay. Thanks. And then you mentioned the 25% share estimate to, I mean, is that a rough ballpark if you look at that as a conservative…

Just a conservative number we threw out there.

Yeah.

Just trying to make the point – just trying to make the point at what the addressable market is. We like our position in both line powering and gateway powering at small cell sites.

Okay. Got it. And then just one more quick one right now. You mentioned that the $25 million in cost synergies is on track.

Yeah.

Can you comment more specifically on what has been realized or what are we seeing in the numbers so far and what do you think you'll -- that we'll see in the numbers in fiscal 2020 versus fiscal 2021 of that total realized gain?

Well, you know the total target was in the $25 million to $26 million range. Brian and our estimates for this year range from $10 million to $16 million depending on whether you are talking calendar or fiscal period. You can see or I will inform you that the sequential step up from our Q4 period ended March 31 to our Q1 period ended June 30 has stepped up by $4 million. So there is a little bit higher volume in that timeframe, but it also reflects some of those synergies are taking hold. So you know if you were to put it in a range that range right now is in the $10 million to $16 million so if I drew it in line and said it somewhere $13 million to $14 million for this year with the other half going into next year and one of the opportunities we have because we assumed we would lose some existing customers and we deflated our total estimate with the assumption that we would have some lost sales and we really haven't seen that yet. So there is upside potential to do better than that. Albeit those higher sales the not lost sales are should be fairly immediately but the sales where we're connecting our products and selling them elsewhere where in the world are our benefits that that that's what takes at least a year to catch hold.

Okay. Mike and then just to really clarify it at this point. So if you say $10 million to $16 million first of all so $16 million sounds like that's how we should think about it if it a fiscal year that we're thinking about. And then is this a run rate that you would exit the year having achieved or is that actual the $16 million reduction in costs in fiscal 2020?

So certainly that should be the exit rate that we achieve and it would be you know so I would expect as I said we’re somewhere between $10 million to $16 million in fiscal 2020.

Okay.

And exit -- by the time we exit next year we're at $25 million to $26 million. Now the timing of it for exactly when we hit that full stride is a little bit harder to predict but it should be pretty close by next year to getting that in the full year.

Okay. All right. Thanks very much.

Yeah.

Thank you. And I’m showing no further questions at this time and I would like to turn the conference back over to Mr. David Shaffer for any further remarks.

Well I just want to thank everybody for taking your time today to attend our call. Have a good day everyone. Bye-bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.