Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 EnerSys Conference Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, David Shaffer, President and CEO. Thank you. And please go ahead, sir.

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 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.enersys.com. I am going to ask Mike to cover information regarding forward-looking statements.

Thank you, Dave, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and views regarding future events and operating performance and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. 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 2, Management's Discussion and Analysis of financial condition and results of operation. 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, including our press release dated November 6, 2019, which is located on our website at www.enersys.com. Now let me turn it back to you, Dave.

Thanks, Mike. Before covering our second quarter of Fiscal 2020 results, I'd like to touch on a few important events that took place during the quarter that will help set the stage for the rest of our remarks. Please turn to Slide 3. In mid-September, we announced the acquisition of NorthStar from a Swedish private equity fund. In addition to a small operations business in Stockholm, NorthStar has two production facilities in Springfield, Missouri, where it manufactures and distributes energy storage products, similar in design and performance to EnerSys Thin Plate Pure Lead or TPPL products. The newest of the two factories also has additional floor space immediately available for our new TPPL high-speed production line. As you may recall, we were going to have to take up two manufacturing lines to install the high-speed line at our Warrensburg facility. We will now be able to preserve $100 million of revenue capacity at Warrensburg on top of NorthStar's additional capacity and will no longer require an inventory build in advance and installation. This acquisition fits perfectly with our previously discussed strategy to increase sales of premium products as it will enable EnerSys to dramatically accelerate our TPPL sales. The manufacturing processes and quality standards of NorthStar are very similar to EnerSys TPPL production, and it will require only a modest investment to convert the NorthStar factories to build our ODYSSEY, NexSys, and SBS products over the coming quarters. The proven expertise and training of the NorthStar production teams will dramatically accelerate our growth versus ordering and installing additional equipment, building on greenfield sites, and training new employee teams. Lastly, NorthStar has blue-chip customers in Europe, and given that EnerSys currently imports significant amounts of products from Europe into the US market, this transaction will allow for a rebalancing of factory loading and a dramatic reduction in inventory, freight duty, and currency risks. We are extremely excited to welcome the NorthStar team to the EnerSys family and will provide ongoing updates regarding the integration, synergy capture, and capacity expansion as we move forward. Mike will provide more detail on the financial aspects of the acquisition during his portion of the call. The second significant event of the quarter was the fire that took place in the formation area of our Richmond, Kentucky plant on September 19. First and foremost, there were no injuries to any employees or responders for which we are very thankful. We are confident in our ability to eventually recoup the vast majority of the product and equipment replacement and business interruption costs through our insurance policies. However, for our third quarter, we will lose approximately $20 million in sales as reflected in our guidance. The third major event was our Investor Day at the New York Stock Exchange in early October, which, by the way, the presentation is available on our investor section of our website. Thanks to all of you that attended or listened to the event, which we believe could not have been timed any better. EnerSys is reaching a key inflection point in its transformation as we build off of the two recent acquisitions we've completed, the modernization of our products to a modular system solution, and the expansion of our addressable markets while driving down waste from our enterprise. We believe we laid out an evolutionary yet realistic roadmap during the Investor Day that reinforces the opportunity ahead of us and the process with which we expect to capitalize on them. Please turn to slide 4 for details of our second quarter EPS results of $1.23. Please turn to slide 5. Now I'd like to update you on some of our key markets which are progressing largely in line with prior calls. Our Motive Power Americas business was strong in the second quarter as demand for our TPPL products remains robust. We believe our ongoing efforts to expand production, including the acquisition of NorthStar, will enable further growth in TPPL. Overall in the Americas, organic sales were up 12% during the quarter compared to the prior year. In the first half of FY20, TPPL orders grew over 130% year-on-year and represented 11% of Motive Power Americas sales. As discussed on our last call, orders in EMEA are softening from our traditional Motive Power OEM factory customers. We also saw a return to lower second quarter seasonal patterns in EMEA, which we hadn't seen the year before due to limited industry supply. EMEA demand for Motive Power TPPL products continues to accelerate. Motive Power in Asia continues to slow, particularly in China given the current trade climate, with the rest of Asia largely stable. During the Investor Day, Shawn O'Connell, President of our Motive Power Americas group, spent considerable time highlighting our efforts to increase EnerSys' relatively small share in the premium transportation sector. As you know, we have a technology platform with TPPL that we've adopted into a number of vertical markets, and transportation is one of them. The transportation business in the Americas continues to improve as we sign up new customers for our ODYSSEY TPPL products in the premium automotive, long-haul trucking, and agricultural spaces. In EMEA transportation, the ODYSSEY brand continues to be highly sought after due to its superior performance. Similar to prior quarters, our global telecom business continues to be soft. It is clear that normal spending patterns have been disrupted as the market awaits significant investments in modern high-speed networks including 5G. In particular, one of our largest historic customers continues to restrict CapEx, which has delayed near-term revenue pressure. The team remains confident that this delayed spending is creating pent-up demand, which we will be unleashing as the broadband networks continue to be stressed from streaming services consumption that requires more system build-out. Our last note is that the Sprint, T-Mobile deal has received approval from the FCC, and while it's currently being challenged by many states' attorneys general, a confirmed merger should drive greater spending. Moving onto another exciting part of our business, we are pleased to have reached critical mass in the very attractive aerospace and defense sector. While these programs are taking time to get to this point, once you engage, it tends to be for the long term and we're excited about the progress we've made in the position we're in. EnerSys has been gaining market share, and we anticipate our share will continue to grow. Please turn to slide 6; I will now provide an update on the continued progress we are making on our strategic initiatives. A year ago, we closed on our acquisition of the Alpha 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. The integration is essentially complete, made successful by EnerSys' and Alpha's aligned cultures, focused on making high-quality products that our customers can rely on. By the end of FY20, we should have captured $25 million in annual synergies, which is well ahead of our initial target. In addition, by the end of FY21, we estimate the total synergies will reach $35 million, which exceeds the original target by $10 million. The integration of Alpha's and EnerSys lithium-ion programs is also progressing well. As I mentioned on our last call, a sample telecom system was developed, combining our lithium-ion modules and energy storage management systems from the Motive Power with AlphaRacks' telecom rectifiers and controller systems. We are extending this further to offer such advanced features as autonomous peak 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 program is critical to our Outback subsidiary's photovoltaic energy storage system, and this offering is an important niche in this fast-growing renewable backup to mitigate unstable grid, utility-driven power outages like those reported in the California wildfires and other natural disaster-prone areas and peak shaving markets. Our second major strategic priority is to significantly increase TPPL manufacturing capacity to reduce lead times and to meet the exciting and rapidly growing demand that far outstrips our current manufacturing footprint. It will take approximately six months and approximately $40 million of CapEx spending for the NorthStar facilities to be able to manufacture EnerSys' product types. In addition, over the next two years, we will likely spend an additional $40 million CapEx at our existing EnerSys facilities to further expand their capacity and output. Our current TPPL manufacturing capacity of approximately $600 million should be done during the next couple of years. The new high-speed line shipping containers are beginning to arrive in Missouri, and the installation and testing should be completed by the end of FY20. Finally, on the new products, we have launched our 12-volt Motive Power TPPL block with carbon additives. This product will significantly enhance energy throughput. Although the additional carbon does not pose a significant process or cost impact to production, it allows us to achieve further margin improvements by offering a lower total cost of ownership, or TCO, for our maintenance-free customers. The new TPPL Motive systems will have an integrated battery management system allowing for a similar customer experience as lithium while helping to extend the life of the energy storage product. In summary, we have the people, the products, and the infrastructure in place to capitalize on the exciting growth opportunities ahead, including a massive global 5G infrastructure build-out and continued growth in broadband, increased global share for ODYSSEY brands and transportation, and our new product sales, including NexSys maintenance-free for Motive Power and our fully integrated DC power systems and services for telecom. After three years of living and breathing this power solutions industry as CEO, I can say with complete certainty that the need for energy and energy storage in industrial markets will continue to grow, and EnerSys is uniquely positioned today to participate in that growth for many years to come. With that, I'll now ask Mike to provide further information on our results, additional financial details on the NorthStar acquisition and the third-quarter guidance.

Thanks, Dave. For those of you following along on our webcast, I'm starting with slide 7. Our second quarter net sales increased 15% over the prior year to $762 million due to a 22% increase from acquisitions and decreases of 4%, 2%, and 1% from volume, currency, and price respectively. On a regional basis, our second quarter net sales in the Americas were up 35% to $525 million while EMEA's net sales were down 10% at $183 million and Asia decreased 20% in the second quarter to $54 million. Americas enjoyed 38% from acquisitions, less 1% decreases from volume, price, and currency, EMEA had a 4% volume decrease, less 5% in negative currency, and a 1% price decline. Asia had 17% volume and 3% currency declines. On a product line basis, net sales for Motive Power were down 3% year-over-year at $335 million while Reserve Power was up 36% to $427 million. Reserve Power had a 7% volume, 1% price, and 2% currency declines offset by 46% in acquisitions. Motive Power had a 1% decrease in price and a 2% foreign currency decline while volume was flat. Please now refer to slide 8. On a sequential basis, second quarter net sales were down 2% compared to the first quarter of fiscal 2020 driven by 1% volume and currency declines. On a geographical basis, Americas was up 2% while EMEA was down 10% and Asia was down 9%. On a product line basis, Reserve Power was down 2% while Motive Power was down 3%. 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 and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's Form 8-K, which includes our press release dated November 6, 2019, for details concerning these highlighted items. Please now turn to slide 9. On a year-over-year basis, adjusted consolidated operating earnings for the first quarter increased approximately $8 million to $75 million with the operating margin down 25 basis points. Lower commodity costs were not enough to offset the volume and price declines along with the inefficiencies incurred in Richmond, Kentucky. On a sequential basis, our second-quarter operating earnings declined 20% – 20 basis points to 9.8%. Operating expenses, when excluding highlighted items, were at 16.1% of sales for the second quarter compared to 14.3% in the prior year. Excluded from operating expenses recorded on a GAAP basis in Q2 were our pre-tax charges of $16 million primarily related to $6 million in restructuring and $5 million in Alpha amortization charges. Excluding those charges, our Americas business segment achieved an operating earnings percentage of 11.8%, which was 120 basis points lower than the 13.0% in the second quarter of last year. Lower volume in the Richmond interruptions created the decrease. On a sequential basis, the Americas second quarter decreased 10 basis points from the 11.9% margin posted in the first quarter primarily due to lower volume. Americas OE dollars were up approximately $12 million from the prior year from our acquisition and flat from the prior quarter. Europe's operating earnings percentage of 7.3% was up from last quarter's 6.8% but down from last year's 6.8%, and down from last quarter's 7.7%. OE dollars decreased $1 million from the prior year and decreased $2 million from the prior quarter in EMEA, primarily from lower pricing and volume. On a sequential basis, EMEA also had lower volume. The operating earnings percentage in our Asia business declined 430 basis points in the second quarter of this year to a 0.8% operating loss from a 3.5% profit in the second quarter of last year and were down from last quarter's 1.1% profit. Asia's OE dollars were down approximately $3 million in the prior year and down $1 million from the prior quarter on lower volume. Please move to slide 10. As previously reflected on Slide 9, our second-quarter adjusted consolidated operating earnings of $75 million was an increase of 12% in comparison to the prior year. Our adjusted consolidated net earnings of $52.7 million was $3 million higher than the prior year. The improvement in adjusted net earnings is a result of the $11 million contributed by the Alpha transaction. Our adjusted effective income tax rate of 18% for the second quarter was lower than the prior year's rates of 19% and flat with the prior quarter's rate of 18%. Discrete tax items cause most of these variations. Fiscal 2019's full year rate was 17%, which is at the low end of our 17% to 19% range of expectations for fiscal 2020. Excluded from the quarter's adjusted effective tax rate was a $21 million benefit from a deferred tax asset recorded to reflect recent Swiss tax law changes. Future increases in Swiss notional rates will be offset by deductions of the amortization from this deferred tax asset. Alpha contributed adjusted operating earnings of $18 million or 12.6% on revenue of $146 million. Overall, after considering interest, taxes, and dilution of shares issued to the seller, Alpha was 23% accretive after excluding $4 million in after-tax amortization on intangible assets recorded in purchase accounting. EPS, including Alpha, increased 5% to $1.23 on higher net earnings. We expect our third fiscal quarter of 2020 to have approximately $42.8 million or $8 million weighted average shares outstanding, which includes the nearly $1.2 million shares issued in the Alpha transaction, net of the $1.0 million shares repurchased in February to August of 2019. As a reminder, we still have nearly $50 million of share buybacks authorized. We have included our year-to-date results on slides 11 and 12 for your information, but I do not intend to cover these in detail. Please now turn to slide 13. The Alpha transaction continues to progress as planned and synergies realized as expected. The logic for acquisition remains intact; however, Alpha's revenue remains down year-over-year from current spend patterns at certain major broadband and telecom customers. We still have nearly $425 million of cash on hand, and our credit agreement leverage ratio is 2.1 times. We generated $105 million in cash from operations in the first half of fiscal 2020. Capital expenditures were $43 million. We expect full-year CapEx spending of approximately $90 million to $100 million in fiscal 2020. We utilized nearly $185 million of the cash on hand to purchase NorthStar on September 30, the first day of our third fiscal quarter. We expect our leverage to remain at or below 2.5 times in the second half with the addition of NorthStar. We anticipate our gross profit rate in the third fiscal quarter of 2020 to remain near 26%, which is comparable with half one of our fiscal year. The benefits of lower lead costs will likely again be negated by Richmond's interruptions. These costs of approximately $3 million per quarter were incurred in Q2, but will hit our P&L in the following quarter. In regards to the impact from tariffs, our first and second quarters have had approximately $0.05 per share in costs for each quarter. Although we are still assessing the impact on our second fiscal half, we currently expect similar cost pressure in H2. Tariffs, along with higher freight costs, have impacted our margins by nearly 100 basis points. The NorthStar acquisition will provide relief to freight costs beginning next fiscal year as transoceanic shipments from European factories to the US will decline dramatically. We expect to generate adjusted diluted net earnings per share of between $1.12 and $1.16 in our third quarter of fiscal 2020, which excludes an expected net charge of $0.49 per share primarily from charges related to the integration costs for NorthStar, amortization costs from Alpha, and our continuing restructuring programs. The fire at our Richmond, Kentucky facility that occurred late in our fiscal second quarter will impact negatively the third quarter revenues by $20 million or more as the equivalent of three or more weeks of output have been lost. While we should get partial or complete recovery from our business interruption coverage, there will likely be a lag in the recognition of this recovery of at least one quarter, which we believe is the primary difference between our guidance and the consensus EPS. The second possible difference is that our guidance reflects approximately $1 million in interest expense from our NorthStar acquisition while its operating results in our guidance are broadly neutral. Now let me turn the call back to Dave.

Jean, can we open the line for questions.

Our first question comes from Noah Kaye of Oppenheimer. Please proceed with your question.

Thanks, good morning. First, sort of for housekeeping and modeling, what kind of loss operating and income contribution should we assume on that $20 million of revenue that's not expected to come from Richmond.

I think in broad strokes, it's going to be about a $7 million to $8 million operating dollar hit, and so let's call it $0.15 of EPS impact on the quarter. Now, we do expect recovery of that; it won't show up in revenue, but it will show up in an operating earnings element, I'm not sure where on the P&L it's going to show up, probably above gross profit, but that will show up likely in the fourth quarter as we get the recovery from our business interruption insurance.

Okay, that's helpful. I guess sort of second question with Investor Day a month ago, you guided for 1% to 2% volume growth for the fiscal year. I think year-to-date organic volumes are down roughly 3% to 4%. You have this headwind on volume from Richmond coming in 3Q, so can you talk about sort of levels of confidence in that 1% to 2% volume growth target for the year and what you're assuming to kind of get a strong reversal in the back half.

Let's begin by noting that in the first half of the year, we experienced a negative 3% organic growth. The ERP implementation in Richmond significantly impacted our results. We believe that implementation's effects are mostly behind us, and we do not anticipate further issues. The fire was only 8 to 9 days old during our Investor Day, and at that time, we were uncertain about its effects on our results, although we felt assured that the bottom line would recover. We weren't sure how that specific geography would reflect in our results. If you compare this with what we shared on Investor Day, you would need to add back $20 million to your top line to calculate a growth rate. Looking at the second half of the year, assuming the ERP implementation issues in Richmond are behind us and considering the $20 million sales interruption, you can view that as a reconciling item. Additionally, we have faced challenges with some of our telecommunications and broadband customers. One customer has undergone a significant merger that has received preliminary approval from the FTC and FCC, while another major broadband company has postponed its CapEx, which we expect will be released shortly. Hence, if you anticipate an improvement in those markets, the opportunity remains, although it will be more challenging due to the results we experienced in the second quarter, which were not available on October 2nd.

Okay and then just I guess following up on that, your visibility into that CapEx release from that customer that you called out earlier, have you started to see those orders start to flow or is that something we still need to see.

The confidence has improved for certain. I had dinner with some of our key sales leads last night and just talked about that very topic. So, I don't know that it's going to come back to the same levels it was maybe a year prior to the transaction, but we expect a significant improvement year-on-year doing versus where this year has been dreadful. I mean it has been a very Draconian the cuts they've made and so we think that things are certainly going to improve, but I don't know that they're going to reach the historic levels they were prior to the transaction.

I wanted to mention that the historic levels occurred in the quarters ending June and September of 2018. The comparison we have is with a much weaker fourth fiscal quarter from January to March of last year, 2019. However, those levels peaked in the interim during the quarters that are now nearly 18 months behind us.

Yes, generally speaking, the feedback indicates that broadband companies are continuing to invest. We discussed several initiatives at the recent Investor Day, including aspects related to quad play and wireless services. We believe that some of these capital holds have created pent-up demand. There is a notable sense of optimism, but we need to deliver results, which is our primary focus. As mentioned in the prepared remarks, we have successfully navigated the integration challenges between the two companies. Our main efforts now are on the operational tasks of getting and shipping orders, and that is where we are concentrating our efforts.

Sure. I think in the interest of sharing the ball, I'll just ask one more question, but I think in your prepared remarks, you said that the NorthStar cost synergies primarily from logistics will start to flow in the next fiscal year. Can you just sort of help us understand that a bit more in terms of is there a lag between when you started to kind of achieve route efficiencies and when this gets recognized in COGS accounting in their foreign margin? Just so it will help us understand any kind of timing factors to think about as you work to achieve these synergies.

All right. I'd be happy to try that. NorthStar had its own portfolio and its own customers. For the next two quarters, we will be transitioning to EnerSys products so we can manufacture these for our US customers instead of relying on our European factories. This transition will take at least six months. Another significant factor is that the high-speed line, initially planned for Warrensburg, Missouri, will now be located in Springfield, Missouri. The second plant that NorthStar operates won't be operational until April of next year, marking the beginning of the next fiscal year. Consequently, many of the major synergies we are anticipating, such as reductions in freight costs and increased capacity from the high-speed line in Springfield instead of dismantling two lines at Warrensburg, will not be fully realized until next April. In the short term, there will be some cost synergies related to the executive officers of NorthStar, as we no longer need two CEOs, and Dave was not willing to step down.

Not yet.

Anyway, but that’s where you will see in the near term some synergies off the NorthStar transaction.

Okay, that's very helpful. I'll turn it over. Thank you.

Thank you. Our next question comes from John Franzreb of Sidoti & Company.

Hi guys, just regarding the $20 million in lost revenue, is it safe to assume that's going to competitors, and how confident are you that you can regain that business?

Well, John, my focus throughout the course of this has been market share, and that's — it is key, and you're right, I think a lot of that in the very early days went to competitors. It just takes us a while to turn the battleship in a sense. We've got to — in terms of the product mix, where we load products, a lot of this Motive Power business is book and ship; it's quick-turn stuff. So we have — we just weren't able to respond fast enough, but my focus has been keeping market share, getting it back in those instances, and then I've really leaned on Mike to do all the insurance-related activities. So we've sort of split the duties, so I would say, in a sense the $20 million is immediately lost share. I'm confident, especially with the progress we're making on the Thin Plate Pure Lead where it's been — it's been fantastic, we're adding another shift in one of our operations to keep up with orders, and the NorthStar acquisition is going to increase the number of blocks we can push through. So, there are a lot of moving pieces to this on the preservation of share, but certainly we couldn't turn fast enough to protect that $20 million.

And the other thing to keep in mind from a sequential perspective is that we've been dealing with a $10 million to $20 million shortfall that began in our fourth fiscal quarter of last year due to issues with the ERP implementation. We believe that the ERP challenges are behind us now in terms of output, but we have also faced some loss in formation capacity. I don’t think this sequential change is permanent because, as Dave mentioned, we are rapidly moving from traditional flooded products to maintenance-free products, and once we have that capacity up and running, we should be able to compensate for the shortfall. Additionally, a significant amount of demand has likely been satisfied by competitors, as there hasn’t been a lot of available capacity in the market for expansion. Our focus now is to recover our market share as quickly as possible.

Okay, fair enough. And regarding Alpha, could you just give me a sense of how pronounced the seasonality is in that business in the summer months versus the winter months and what kind revenue drop-off do you have on its seasonal basis in that business?

Well, I would say in the 18 to 24 months that I have seen, the highest quarters have been nearly $180 million per quarter and the lows are in the $125 million per quarter. So now, some of that is seasonal; some of it had to do more with the overall patterns of one of our big broadband customers. I would say seasonally, you probably would expect a $25 million to $40 million decline from the peak summer quarters to this quarter and I think we will see because of pent-up demand and when some of these capital budgets get released at the start of the calendar year. Our hope is that our fourth fiscal quarter, we'll see a fairly marked improvement from the quarter that we're just about a third of the way through.

Okay, great, thanks guys. I'll get back into the queue.

Our next question comes from Brian Drab of William Blair.

Hey, good morning. Thanks for taking my questions. So first on the $20 million in lost sales, if you take that into account and then looking forward, if you exclude NorthStar's contribution. Looking at the third quarter, do you think that sales would still increase sequentially, so taking the 20 million out, taking NorthStar out, does the combination of Legacy and Alpha grow sequentially into the third quarter or not.

Oh, it definitely would grow in the third quarter off of the second quarter for the Legacy business.

Okay, that's helpful. And then again just for help modeling, I think that at the Analyst Day that you expected NorthStar to contribute about $80 million in the second half of the year. Would we think about that as about evenly split between third and fourth quarter about 40 million in the third and 40 million in the fourth?

I think it's safe to say that I now estimate about $70 million for that business in the second half of the year. Keep in mind that due to antitrust regulations, we had very limited access to the company before this, but my updated expectation is about $70 million, which I would break down to around 30 to 40 million for Q3 and Q4.

Okay, got it. And then just to be clear on the insurance recovery and how you report that, when you receive that insurance recovery payment, that would be included or excluded from adjusted EPS?

Because it's challenging to account for revenue that we did not realize, none of that loss will be adjusted out. Therefore, we will reflect this loss in our adjusted results since we cannot define revenue we did not receive. As a result, and assuming a one-quarter delay, the benefits from those recoveries will impact our adjusted and reported results. The net effect is that if we project $20 million, this contribution will be between $7 million and $8 million, which translates to $0.15 EPS. I am accepting this loss in Q3, and if I receive the full recovery from the insurer in a timely manner in Q4, all else being equal, that $0.15 should appear not in my top line but in my EPS line in Q4.

Okay, got it. Thank you.

With both the as adjusted results.

Thanks. Could you provide any comments on the revenue forecast? Historically, before Alpha joined, from 2016 to 2018, the average sequential increase from the third quarter to the fourth quarter was about 7%. Do you anticipate a similar improvement from the third quarter to the fourth quarter in this fiscal year?

So I think that's still within reach, that sequential step up on the legacy businesses and I actually, probably, aim a little bit stronger than that, but as you know, we are somewhat reluctant to go more than one quarter out because our order book generally only stretches out the upcoming two months. So, you're asking me to project things I don't have a whole lot of substantive information, but yes, I don't see any reason we can't at least match that sequential step up in organic volume.

Okay, thanks. And if history is repeating itself, I think I'm probably the last person here on the call, unless someone has a second question, so I'm going to sneak in one more. Can you just remind me what the main impact has been from tariffs shipping from where to where, China to the US, etc. and which products or components are hitting you the most.

It's been a combination, Brian. It's on the electronics portion of the business, a lot of the contract manufacturers in the world; it's not just us, a lot of contract manufacturers on the electronics piece are over there, and we've been — as we've talked about, we've been moving stuff around as best as we can, and then we do have one particular battery range that we still import from China that's the only one of any substance, and the challenge there is the competitive landscape doesn't really allow us to do much, so that's where our broadest exposure has been.

Yes, as Dave mentioned, initially regarding the legacy business, we relied on contract manufacturers for most of the components of our chargers, primarily Motive Power chargers and some energy systems power chargers. Fortunately, we were able to address the impact of tariffs within a quarter or two because we had contract manufacturers in both China and Thailand. We rerouted our Chinese products to Europe and brought the Thailand-manufactured products into the US, effectively resolving the charger issue. However, we still face challenges with one line of batteries produced at our Chongqing facility in China that are sold in the US market. Our competitors are not manufacturing similar batteries in China, which complicates our position since the market is resistant to price increases. We have been exploring ways to modify our production, looking for options to create significant transformation outside of China. We are considering bringing the product into the value-added process earlier and sourcing some components separately to be assembled in the US. Although it is challenging, we are also evaluating whether Alpha's transformer, currently made in China, can be produced in India or elsewhere. I anticipate around $10 million in tariff costs for the second half of the year, which is not vastly different from what we incurred previously, as tariff rates have been rising throughout the year. While we have successfully applied for exclusions on some products, the ongoing increase in tariff rates has made it feel like we are just keeping our heads above water without significant progress. We expect another $10 million in tariffs for the second half but continue to work on finding alternative sourcing for the two remaining major issues. Additionally, I noticed a press release suggesting potential changes or reductions to some tariffs that may come in the following quarters, and I am hopeful about that possibility.

And then my comment on freight is the other component that we've seen going up, and that's one that we can control. Our ability to produce product in the geographical area that we sell it in is going to be a great cost savings for us, so we don't have all these products on the water going back and forth; NorthStar products that were made in Springfield, Missouri going in to be sold into European telecom customers, we won't need to do that; product that we made in France or the UK coming into the United States for the telecom market, we won't need to do that. So those are where we're going to see the bulk of some of our savings that we think makes the NorthStar transaction so appealing to us.

Okay, thanks very much. There is a lot of great detail. I appreciate it.

Mr. Schaffer, you may now proceed with any further remarks.

And I want to thank everyone today for taking your time to attend our call. We look forward to providing further updates on our progress on our third quarter 2020 call in February. Please have a good day, everyone.

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