Ladies and gentlemen, thank you for standing by. And welcome to the Q2 2021 EnerSys Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Mr. Dave Shaffer, President and CEO. Sir, you may begin.

Thanks, Twanda. Good morning, and thank you for joining us for our second quarter 2021 earnings call. On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer. Last evening, we posted slides on our website that we will be referencing during the call this morning. If you didn't get a chance to see this information, you can go to the webcast tab in the investors section of our website at www.enersys.com. I'm going to ask Mike to cover information regarding forward-looking statements.

Thanks, Dave. Good morning, 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, or actual results may differ materially from 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 II '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 October 4, 2020, which was filed with the US 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 11, 2020, which is located on our website at www.enersys.com. Now, let me turn it back to you, Dave.

Thanks, Mike. I will spend the first few minutes of this morning's call providing an overview of our solid second quarter results and the state of our business overall. Then I will take a step back and provide an update on how we're tracking against the strategic initiatives we laid out at our 2019 Investor Day, a little more than a year ago. As we entered our second quarter, the COVID-19 pandemic continued to disrupt economic activity evenly in markets around the world. However, we began to see a rebound from the virus’s impact on our business throughout the period and actually exited the quarter with borders very close to pre-pandemic levels. US and Chinese motive power markets have recovered much faster than Western Europe, while energy systems and specialty were less impacted by COVID. We continue to build on the cost reductions we instituted early in the first quarter while always staying ready to flex operations back up in response to demand recovery. As you may recall, our model allows us to quickly adjust our CapEx and OpEx without impacting our revenue growth objectives or our quality of service. Many of the OpEx initiatives we have put in place will enable us to maintain an improved level of operational efficiency with our new global line of business alignment even as the demand ramps up. All of our major facilities remain open, and we continue to prioritize the safety of our employees as COVID cases rise around the world. Despite the ongoing headwinds caused by COVID-19, the diversified nature of our business was evident during the quarter as we reported solid second quarter fiscal 2021 adjusted earnings of $1 per diluted share. Our specialty segment was particularly strong, especially in the transportation portion of our business. Energy systems turned in a solid quarter with the beginnings of a 5G uptick becoming apparent. And while our motive power business still lagged Q2 prior year overall, our maintenance-free TPPL NexSys PURE products have continued to outperform. It appears that the COVID market disruption is accelerating our customer's interest in our new dual-chemistry NexSys products. This conversion to maintenance-free, combined with the lingering impact of COVID in Europe and our overall productivity improvements drove our decision to close our legacy flooded motive power factory in Hagen, Germany. Mike will provide more details in his prepared remarks. Due to improving business conditions and our streamlined cost structure, we generated exceptionally strong cash flow during the quarter, enabling an incremental $86 million in net debt reduction to achieve debt leverage of just under 2.1 times. We did this while still investing in the business. Please turn to Slide 3. I'd now like to provide a little more color on some of our key markets. Our largest segment, Energy Systems, performed well during the quarter despite the impact of the pandemic. In the Americas, we saw growing momentum throughout the second quarter with improved order rates for broadband and continued robust demand for battery systems, particularly on the telecom front. Combined, EMEA and APAC delivered double-digit year-over-year revenue growth. Global telecom carriers remain committed to investing in their networks to increase capacity and reliability. In the Americas, the completion of the T-Mobile merger has led to large purchases for our cabinets, batteries, and electronics as a complete system for their 5G ramp-up. In addition to the direct benefits of the merger, the mandated Dish spin-off presents a significant opportunity for EnerSys in the quarters ahead as this nationwide provider looks to build their own 5G network. The broadband business continues to be a story of short-term pain that will inevitably lead to exciting long-term growth for EnerSys. The COVID induced work and school from home policies have stressed all broadband networks and resulted in the MSOs focusing near-term network CapEx on capacity augmentation over longer-term network hardening programs. There is no denying that the reallocation of budgets has negatively impacted our business over this period. However, there is a clear light at the end of the tunnel as two of our largest broadband customers have recently begun allocating increased CapEx to network powering. And we have seen improved order rates and power project approvals driving an upcoming recovery for our broadband segment. Factoring in this positive trend, along with the industry's clear need for long-term network power infrastructure to support increased 5G power consumption, we expect the broadband business to transition from a headwind to a tailwind in the near future. Please turn to Slide 4. As noted earlier, our new maintenance-free NexSys products are being well received in the market. I am pleased to say we have started the launch of our NexSys iON lithium motive power batteries and are in the early stages of testing and validation globally with key forklift OEMs. We have also initiated pre-launch end-user site demonstrations globally, with very positive results in several large accounts. Our sales team is focusing the NexSys iON products on the portions of the market with the most demanding duty cycles. For example, we trialed NexSys iON at a carpet mill that runs their fork trucks nearly 24x7, where there's very little time to recharge the batteries. The increased capacity and excellent charge acceptance of NexSys iON allowed the customer to keep running while charging only during breaks. The new third-generation TPPL motive power pack is also progressing on schedule with respect to the high-speed line commissioning. And as we've discussed previously, this new product family will be using large format carbon-enhanced TPPL batteries coupled with a match battery management system. The carbon additive, when controlled correctly, will provide the user with a significant increase in energy throughput resulting in longer life. Further, the addition of a battery management system integrated with the vehicles and the chargers will allow the same experience as our lithium family of products. Please turn to Slide 5. The third segment of our business, Specialty, had another outstanding quarter, particularly in light of the ongoing impact of COVID. Our results in this segment are being driven by our success in transportation, where our backlog remains strong and over-the-road new truck demand is improving. The automotive aftermarket business was very strong in the quarter following several recent contract wins, along with continued success in retail channels with distributors such as NAPA. We have continued to increase EnerSys’ market share in the transportation sector by leveraging our technology platform with TPPL. Our defense business improved sequentially in the second quarter as our thermal products continue to win more awards. Our ongoing expansion of these thermal products used in munitions also continues to progress. The majority of these programs have capitalized on our industry-leading cobalt disulfide battery technology that provides lighter weight and extended operating times for applications in air and missile defense, air to ground weapons, and hypersonics. Our satellite business continues to shine as well. Please turn to Slide 6. Now that I've given you a brief overview of our second quarter results and the prevailing trends in each of our business segments, I wanted to take a look back at the strategic initiatives we outlined in our October 2019 Investor Day, which very much remain our core areas of focus today and we're seeing excellent progress in each of these. As a reminder, they include the following global initiatives: one, growing the portfolio of products in our energy systems business, particularly in telecom, with fully integrated DC power systems and small cell site powering solutions, which will accelerate our revenue growth from 5G; two, accelerating higher margin maintenance-free motive power sales with NexSys iON and Pure; three, increasing transportation market share in our specialty business; and four, reducing waste through continued rollout of our EnerSys operating system. Our acquisition of the Alpha Technologies Group two years ago created the only fully integrated AC and DC power supply and energy storage provider for broadband, telecom, and energy storage systems. It positioned EnerSys to provide a single-source solution for fiber connectivity, enclosures, small cell power, power conversion, power distribution, and energy storage backup with a nationwide engineer, furnish and install organization to turnkey and maintain the project. The opportunity we initially saw in Alpha is coming to fruition as large customers expand the spending patterns from just batteries to EnerSys’ complete systems offering. We expect this trend to continue in the quarters ahead. AT&T opportunities are improving for us as they deploy 5G infrastructure for macro and ram sites, while our strategic collaboration with Corning to speed 5G deployment through a next generation touch-safe line powering system for small cells is advancing. This collaboration will leverage Corning's industry-leading fiber, cable, and connectivity expertise and EnerSys’ technology leadership in remote power solutions and has been endorsed by one of our largest telecom customers. We’re excited by this opportunity and all the actions we're seeing on the 5G front. To help you better understand the impact it is already having on our business, it is worth noting that we have already seen $50 million of 5G related revenue lift during this year, which we believe is only the tip of the iceberg for this long-term growth driver. Unfortunately, the benefits of 5G were overshadowed by the reallocated capital expenditures from our larger broadband customers during the quarter as previously mentioned. We are more excited and optimistic than ever about the long-term effects 5G will have on our business, especially with the new technologies we are implementing to support our customers in this significant trend. Consequently, we are projecting consistent sales growth of over 6% CAGR in our energy systems over the next five years. Our next strategic initiative regarding maintenance-free motive power is progressing well according to our five-year plan. For instance, in this quarter, while sales of America's flooded lead acid batteries were down 25% year-on-year, sales of America's motive power TPPL NexSys increased by 25% in the same period. As this trend continues and demand picks up, maintenance-free products will make up a larger share of our motive power revenue, significantly boosting our profitability due to higher gross profit margins. We now estimate that our maintenance-free NexSys offerings will account for the majority of our battery business by fiscal year 2025. We are pleased to report that our next-generation initiatives aimed at increasing transportation market share in the specialty segment have been highly successful over the past year. The transportation business in the Americas continues to grow as we welcome new customers for ODYSSEY TPPL products in the premium automotive and trucking sectors. Despite challenges from COVID-related shutdowns, we have increased our transportation business by 64% this quarter following the integration of NorthStar, and we are currently limited only by TPPL capacity, which will expand significantly when the high-speed production line is fully operational. We are in a strong position to take advantage of the robust backlog and continuous demand for our products, as our long-term transportation sales outlook aligns with our planned capacity over the next five years. Finally, our last strategic initiative, EnerSys Operating System, or EOS, focuses on improving manufacturing costs and capacity realignment, such as the restructuring announced last night from EOS motive power business, which should reduce $20 million a year in costs. At this point, the integration of NorthStar is nearly complete. ODYSSEY branded automotive products are now being produced in NorthStar factories, and our new high-speed line is proceeding through its commissioning in the newest plant with commercial revenue expected before the end of this calendar year. NorthStar factories report to a TPPL global leadership team to more effectively share best business practices with our three other TPPL factories. Managing TPPL under one global team has been critical to our ability to integrate NorthStar and increase production capacity in such a short period of time. Despite completing the integration, however, we have been hampered by under absorption at our factories due to COVID, as well as the inefficiencies inherent in all startups. These inefficiencies include the time necessary to hire new people and train them on new products and systems. This was more challenging in a period when many government incentives paid them to stay unemployed. These short-term manufacturing inefficiencies have masked other areas of operational improvement, which will contribute to shareholder value in years to come. Please turn to Slide 7. While we are clearly on the right track and beginning to see the benefits of each of these initiatives, we estimate COVID-19 has delayed our progress against our Investor Day model by three to four quarters. With that in mind, during his portion of the call, Mike will provide an update on the plan we laid out during Investor Day. I'd like to conclude by saying that despite the challenges we've continued to confront with the pandemic, I am very proud of how our team has operated in this new environment. Looking ahead, we are extremely excited by the accelerated 5G build-out and the significant opportunity for our industry-leading TPPL product to provide as customers continue to seek a maintenance-free solution to their critical power needs. With that, I'll now ask Mike to provide further information on our second quarter results and go-forward guidance.

Thanks, Dave. For those of you following along on our webcast, we have provided the information on Slide 8 for your reference. However, I am starting with Slide 9. Our second quarter net sales decreased 7% over the prior year to $708 million due to an 11% decrease from volume, a 1% decrease in pricing net of a 1% increase from currency and a 4% increase from acquisitions. On a line of business basis, our second quarter net sales in motive power were down 21% to $264 million, and Energy Systems net sales were down 1% at $341 million, while Specialty increased 24% in the second quarter to $104 million. Motive Power suffered a 21% decline in volume due to the pandemic and a 1% decline in price, net of a 1% increase in FX. Energy Systems had a 4% increase from the NorthStar acquisition and a 1% improvement from currency, offset by decreases of 1% and 5% in pricing and volume respectively. Specialty had a 17% contribution from the NorthStar acquisition less 9% of volume improvements and a 1% increase from FX net of a 3% decline in price and mix. On a geographical basis, net sales for the Americas were down 8% year-over-year to $481 million with an 11% volume drop and a 1% price decline net of a 4% increase from acquisitions offset by a 1% decrease from currency. EMEA was down 6% to $172 million on 13% volume and 2% price declines with 5% improvements in currency and 4% from acquisitions, while Asia was up 3% to $56 million due primarily to currency. Please now refer to Slide 10. On a sequential basis, second quarter net sales were up slightly compared to the first quarter driven by translation improvements. On a line of business basis, specialty increased 17% with NorthStar starting to contribute its capacity for transportation sales, while motive power was flat and Energy Systems was down 4% on soft broadband revenue. On a geographic basis, Americas were down 2%, EMEA was up 8%, while Asia was up 1%. Now a few comments about our adjusted consolidated operating earnings performance. As you know, we utilize 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 11, 2020, for details concerning those highlighted items. Please now turn to Slide 11. On a year-over-year basis, adjusted consolidated operating earnings in the second quarter decreased approximately $9 million to $66 million with the operating margin down 50 basis points. Lower commodity costs and operating expenses were not enough to offset the volume declines in higher manufacturing costs. However, on a sequential basis, our second quarter operating earnings improved 70 basis points to 9.35%. Operating expenses, when excluding highlighted items, were at 15.7% of sales for the second quarter compared to 16.1% in the prior year as we reduced our spending by $11 million year-over-year and nearly $3 million sequentially. Excluded from operating expenses recorded on a GAAP basis in Q2, our pretax charges of $11 million primarily related to $6 million in Alpha and NorthStar amortization and $3 million in restructuring charges. Excluding those charges, our motive power business segment achieved an operating earnings percentage of 9.2%, which was 120 basis points lower than the 10.4% in the second quarter of last year due to the 21% lower volume mentioned earlier in driving an $11 million drop in operating earnings. On a sequential basis, motive power second quarter OE also dropped 120 basis points from the 10.4% margin posted in the first quarter due primarily to the reduction of $2.3 million in recovery on business interruption proceeds from the $3.8 million in Q1, down to $1.5 million. The recovery on our business interruption claim from the Richmond Fire has nearly concluded as has most of the reconstruction of the facility. We received $5 million in April, which was reflected in last fiscal year's fourth quarter results. We received another $4 million in May, which was recorded in the first quarter of fiscal '21 and we received over $1 million in July, which are reflected in Q2's results. We expect to collect another $2 million on the matter, bringing the total recovered to nearly $13 million. Overall, the claim, including property loss and cleanup along with the business recovery totaled approximately $45 million. Energy Systems operating earnings percentage of 8.8% was up from last year's 8.6% and up from last quarter's 8.0%. OE dollars decreased $0.5 million from the prior year, primarily from lower operating expenses and increased $2 million from the prior quarter on lower commodity costs and operating expenses. Specialty operating earnings percentage of 11.4% was down from last year's 12.3% but up from last quarter's 6.5%. OE dollars decreased nearly $2 million from the prior year on higher volume and increased nearly $2 million from the prior year on higher volume and lower manufacturing variances. Please move to Slide 12. As previously reflected on Slide 11, our second quarter adjusted consolidated operating earnings of $66 million was a decrease of $9 million or 12% from the prior year. Our adjusted consolidated net earnings of $43 million was nearly $10 million lower than the prior year. The decline in adjusted net earnings reflects the decline in operating earnings, as well as a $4 million foreign currency loss primarily on unfavorable exchange rates for intercompany balances. Our adjusted effective income tax rate of 17% for the second quarter was lower than the prior year's rate of 18% and lower than the prior quarter's rate of 21%. Discrete tax items caused most of these variations. Fiscal 2019's full year tax rate was 17%, while our fiscal 2020 tax rate was just below 18%, which is consistent with our expectations for fiscal 2021. EPS decreased 19% to $1 on lower net earnings. We expect our third fiscal quarter of 2021 to remain near the $43.1 million of weighted average shares outstanding in the second quarter. As a reminder, we still have nearly $50 million of share buybacks authorized but have no immediate plans to execute any repurchases with perhaps the exception of the modest annual repurchase made to offset employee stock dilution. Our recently announced dividend remains unchanged. We have included our year-to-date results on Slides 13 and 14 for your information but I do not intend to cover these in detail. Please now turn to Slide 15. Our balance sheet remains strong and well positioned for us to navigate the current economic environment. We now have nearly $414 million of cash on hand, and our credit agreement leverage ratio is now 2.1 times, which allows over $600 million in additional borrowing capacity. We expect our leverage to remain below 2.5 times in fiscal 2021. We generated over $87 million in free cash flow in the second fiscal quarter of 2021. Our first half free cash flow generation was very strong at $177 million. Our receivable collections also remained very good with our DSO matching its historical low. Capital expenditures of $40 million were at our expectation for the first half of the fiscal year. Our CapEx expectation for fiscal '21 of approximately $65 million to $70 million has expanded slightly as the economic outlook has improved. Our major investment programs, those being lithium battery development, continued expansion of our TPPL capacity including the NorthStar integration, the installation of our high-speed line, and the transition of NorthStar products for the European market to our French factory are all progressing as planned. Our high speed line is being commissioned this month and should soon commence operations. Even with these investments, we've retained the agility to flex our manufacturing footprint as needed. Our decision announced last night to close our Hagen, Germany facility after nearly 25 years of group ownership reflects our assessment that: one, the transition of maintenance-free solutions for forklifts; two, the collective oversupply of flooded batteries for forklifts in EMEA, along with; three, the continued slump in demand from the pandemic and other market conditions. It was a decision we struggled with given the strength of the workforce and our lengthy ownership of that facility. It will cost in excess of $80 million, with 75% being cash charges for severance, decommissioning, cleaning, and closing open contracts with vendors, but it should pay back in under four years and we can handle all expected demand from our other existing factories. We anticipate our gross profit rate to remain near 25% in Q3 of fiscal '21 as the lower utilization in some of our factories over the July to September months will not hit our P&L until this third fiscal period, which we are now in. We expect expanding margins thereafter. As we had previously mentioned, we recently took the time to refresh our outlook from that provided on our Investor Day last fall. As Dave mentioned, we still feel the core of our expectations remain intact beyond the nine to 12 month delay due to the pandemic in reaching our previously provided target for an additional $300 million in incremental adjusted net earnings. We believe the most profound updates are that: number one, the conversion to maintenance-free solutions for motive power is progressing faster than initially expected, thus, precipitating the closure of our motive power factory in Hagen, Germany; number two, our increased confidence in our solutions for the 5G build-out; number three, stronger than expected demand in the automotive aftermarket; number four, our planned TPPL capacity expansions will still satisfy our projected needs; and five, our performance in this recession has been as we predicted on Investor Day if a recession were to occur. As Dave described, we believe motive power markets are recovering while our Energy Systems and Specialty markets continue to have bright prospects. With some of the uncertainty from our elections and the pandemic behind us, we currently feel we have enough visibility to provide a guidance range of $1.17 to $1.21 in our third fiscal quarter. Now let me turn it back to you, Dave.

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

Our first question comes from Noah Kaye with Oppenheimer.

I guess I'll start with Dave and Mike. Last quarter, you provided very helpful commentary on orders cadence and how that trended during the quarter. I think you did some disaggregation amongst the segments and regions. I wonder, you mentioned, obviously, the headline here seems to be that orders are close to pre-pandemic levels. Can you maybe just aggregate that a little bit and provide us some color if you want, either by segments or geographic trends of how that has trended over the course of this past fiscal quarter and maybe even into October or November?

I would say over the last 12 weeks, orders have stabilized, so it's not just one-week phenomenon. And as you know, most of the gap in the orders previous to that was in the motive power segment. So that's where most of the improvement has occurred. It's broad-based. As I said in my prepared remarks, China and the US seem to be coming back faster in motive than Western Europe, even though we do see recovery there as well. It's just not as fast. And it's a moving landscape with the transition to maintenance-free. We've done some really good things in our Polish factory. So there's just a lot of moving pieces that precipitated the Hagen decision. But overall, the order flow environment has been solid. Actually, as I noted in my prepared remarks, Energy Systems rest of the world had a very good quarter. So it's broad-based. Mike, is there anything I missed there?

No, I think the order intake has been very consistent with prior year levels, and it's been there for three, maybe four months now.

I want to ask you, I think you provided some color on the decision to close the German facility. I want to ask you about that decision in the larger context of the technology shifts. You mentioned that even you've been maybe seeing a faster than expected acceleration in demand for the maintenance-free batteries and away from flooded lead acid. Would you say, first of all, that there seems to be more demand specifically for lithium in this environment and that's supporting some of your launches? And then also, how do you think about potential vertical integration risk for any of the OEMs, whether it's in the Americas or in EMEA on the lithium-ion side if they do decide to go further in that direction?

Noah, most of the demand is TPPL, actually. And I've told you for many quarters now, we're trying to create a common experience for the customer, whether they're using our TPPL technology or lithium. So whatever is inside the box, they shouldn't care about because the way it's charged, the way it's managed is the same, and it's proving out the way we wanted it to. Most of the orders, if not all of them in the recent quarters, have been for the TPPL. We think that as we push deeper into some of these real heavy-duty customers, the folks that run their trucks 24/7, 365, that's going to be an opportunity for us to pick up more sales in the lithium side. But we're actually doing extremely well with tinplate Pure led, and it's a high-quality problem. But right now, we're still in that situation where we're limited in how much we can do as we bring on this additional capacity. So yes, I would say it's mostly a TPPL story today. And we're hoping that the new lithium products are going to take the maintenance even further. The Hagen decision wasn't just about the technology shift, Noah. If you remember, there was the Sunlight fire and the Sunlight recovery. It's always been a low-growth market. We've expanded production, productivity, and capacity in Poland. So it was a complex, difficult decision, an emotional decision, but it was more than just the conversion to maintenance-free.

And I would say that while the pandemic may have influenced the timing of that decision, I don't think it changed the decision. The first two items that being the conversion to maintenance-free and the collective supply from the entire industry of flooded products versus its demand, we're simply in an oversupply situation, I believe.

Let me just sneak one more in here. Dave, I think you mentioned that there has been a nice uptick here really in some of these 5G related revenue streams coming in here, and it's been masked a little bit by broadband. Just considering all the different pieces and customers that you have. How soon do you think we actually get back to significant year-over-year growth in Energy Systems? Is that a 3Q event, a 4Q event? When do you really feel like we're going to start to see some true kind of top-line inflection here in the business?

Well, in the telecom sector, we're already seeing the growth, and we expect it to accelerate further probably spring time, maybe starting our new fiscal year. We expect probably another uptick in telecom. So the gap right now has been the broadband, the cable TV, Comcast, Charter folks. And you can see with their spectrum auction and some of the projects we're hearing, they've got some very aggressive plans laid out to bring faster speeds and more services to their customer bases. We kind of think is the big five in the US between Verizon, AT&T, T-Mo, Charter, and Comcast, those are really the big five broadband. And each of those customers, we have very good projects in the headlights. It's broad-based, and not everybody, and what can be a little confusing, I guess, is each of those big five have their own strategy on how they're going to use the 5G frequencies and technologies, where their initial focus is, what the longer-term focus is. The good news for EnerSys shareholders is we have a broad suite of products. We have reach, and services, and relationships, and brand awareness across all five of those major accounts. I think the real longer-term opportunity still exists globally for us to take these successes that we're starting to enjoy today in the US into the broader international markets. So no, we couldn't be happier with the Alpha acquisition, the plan. I think the timing has been disrupted from when we did the original acquisition, but by and large it's going to plan, and we couldn't be more excited about the 5G opportunities.

Our next question comes from the line of Greg Lewis with BTIG.

I wanted to discuss the specialty defense sector and how it may be influenced by the new administration. What context can you provide on whether this will affect the pace of business or if it will primarily focus on product life cycle changes? Given that it was a strong quarter, how should we approach this as we anticipate potential changes in government?

It's a growing important sector for us. Our recent success is largely attributed to a change in trajectory and focus, which stems from an acquisition we made a few years back when we obtained cobalt sulfide technology from the Enser deal, along with thermal batteries. This is where we have seen the most significant progress. Based on the feedback we've gathered, part of our defense business experienced a disappointing first half of the fiscal year. It's a mixed story, but other segments are performing very well. Overall, our sales team hasn't indicated any changes in their expectations, and many of our initiatives are long-term programs. Therefore, we do not foresee any major impacts for our shareholders from the change in administration. Mike, do you see it any differently?

It's important to remember, Greg, that the US fleet, including helicopters, tactical vehicles, submarines, and jet aircraft, is relatively fixed. The US will maintain these systems, which can last over 20 to 30 years. Therefore, we can reliably sell $40 million to $50 million in tactical vehicle batteries each year, and that remains consistent. Growth has been observed in thermal products, investments in precision-guided munitions, missile systems, and defense systems. We've also seen excellent results from our satellite business. The core business, which generates most of our revenue, is quite stable. While order timing can vary due to budget constraints, especially experienced early in the pandemic, those fluctuations typically stabilize. Overall, we are experiencing growth in our Enser-based operations and our satellite business.

And then just one more for me, and you kind of touched on it around the forklift business. And clearly, TPPL is still where there's a lot of demand but you have the iON product in, I guess, testing. And I think it's very topical just because you hear a lot about how hydrogen is going to change this market. Clearly, your customers aren't there yet. But as you think about the iON and the rollout of that, I guess a couple of questions around that and you, I think, in the prepared remarks. But as we think about CapEx rollout, what do you see the path for the rollout of that and really customer acceptance in any kind of way that moves the needle? It doesn't necessarily sound like it's a 12-month type window, it sounds like it's more going to be a little bit farther out. Any kind of color you could give around that, I think, would be pretty helpful.

Yes. I think what's most important to our customers and what's changing the dynamic is how heavy the equipment is utilized. So in traditional kind of manufacturing and distribution centers, they didn't push the equipment historically as hard as they do today. They're trying to go to fewer and fewer manning human beings in these facilities. So there's less human interaction, and they want to push the equipment to operate more hours of the day. The key issue for them is maintenance-free, it's uptime of the equipment. So the hydrogen options are certainly out there as one alternative. We think that our new maintenance-free batteries, especially when coupled with wireless charging opportunities, is another answer, because again, it's that lack of human beings and it's really just keeping that truck in service. Fuel cells, we worked with fuel cells a year ago, we had made an acquisition or a venture into that area, and it has its own sets of issues. So we chose the battery to stick with the battery route in this market. We feel very, very good about our capability, which we think is unique in the market. We know it's unique in the market is that we have an engineering group here that not only does all of the battery design work, all of the charger design work, all of the CAN bus and integration design work. So we really have a total comprehensive systems capability that none of our competitors do. We think that given any challenge, we can find a solution, and maintenance-free is an integral part of that. Certainly, the hydrogen guys are going to find their places in the market. Historically, we've seen those pencil in the extremely large sites with many trucks. But we think that we're on the right track with our new maintenance-free products.

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

Can I ask you to think for a second, just about next year like fiscal '22, and you have these kind of budding opportunities here, several of them, transportation, in the auto, in particular. I'm interested in your thoughts in that lithium and then also 5G. And if you think about the incremental revenue opportunities from each of those three for next year, what could that be? Are you expecting to sell $10 million in lithium products or $50 million? And if you could just try to quantify even with some broad ranges for those three categories for incremental revenue over the next year?

I'll address the lithium aspect, and then Mike can follow up. We recently updated our model alongside our sales team, so he has all the latest information. However, I wouldn’t set high expectations for lithium impacting our earnings per share in the near term. We need to refine our processes and reduce costs. While we have the plans in place, the initial volume is low, and we are still fine-tuning some areas. There is a significant amount of work ahead for the lithium segment, and it won’t impact our earnings as much as TPPL does. For revenue, we anticipate reaching tens of millions of dollars in fiscal year '22. The sales team is very enthusiastic and is urging us daily, as they seek a maintenance-free solution for various market segments. We need this lithium to target heavy-duty users, as previously mentioned. This remains our priority, but I advise against incorporating too much into our financial model at this stage while we work through start-up and ramp-up challenges. Now, Mike, regarding the transportation segment...

So Brian, concerning 5G opportunities, Dave mentioned that we already anticipate a $50 million increase in 5G-related revenue for this year, which is meant to be a full-year estimate, just to clarify. We believe that the significant growth in 5G for us will likely occur in late spring or early summer next year, as our main focus is on the outdoor plant work, which is not ideal to undertake in winter. We expect to see a surge in order activity by early spring and anticipate being quite active in the 5G sector by late spring or early summer. We are confident that whether for telecommunications or broadband, we have solutions effective for building out small cell networks.

And Brian, the other thing you've got to remember that's unique about 5G, the speeds are so fast that the power required to move those 1s and 0s at that speed is very high. So the power consumption of this equipment is for however you want to view it, per bit of data transmitted, the power requirements are very high. But everybody is doing it differently, whether it's CBRS spectrum or the millimeter wave, is it a fixed broadband initiative, is it to move from an MVNO model to doing their own wireless networks. Each one of these folks is committed to their own strategy. The good news for EnerSys shareholders is we have a broad suite of products. We have reach, and services, and relationships, and brand awareness across all five of those major accounts. I think the real longer-term opportunity still exists globally for us to take these successes that we're starting to enjoy today in the US into the broader international markets. So no, we couldn't be happier with the Alpha acquisition, the plan. I think the timing has been disrupted from when we did the original acquisition. But by and large it's going to plan and we couldn't be more excited about the 5G opportunities.

I believe that the demand is present. Our limitation is likely in our ability to execute. With the high-speed line becoming operational, and assuming it focuses on automotive resources, we need to ensure that both ends of the factory in Springfield, Missouri are ready to operate three shifts. This setup should generate an additional $150 million in annual revenue. However, this benefit will not be reflected in FY22 since the ramp-up is expected to begin around December and will take over the next 12 months. We are optimistic about this opportunity.

That's probably a good exit rate.

So just to be clear, is it now becoming clearer to you that the high-speed line capacity is going to be dedicated to auto because of the traction and demand that you're seeing it sort of you can't get them on the shelves fast enough to places like AutoZone?

I think that that's where the most pressure for us, the biggest backlog pressure for us right now is in that sector. But I legitimately feel like each one of the business units is going to be screaming for more capacity, whether it's 5G network, backup power with our SBS products, whether it's TPPL, Gen 3. There's several programs that are supported, cable television, Alpha cell, we can make on that line. So yes, there's plenty of opportunities for them to fill it. I think the reason Mike is being cautious and I'm glad he is, is we just don't want to put our ops guys in a box because it's going to take time to get to ramp to those levels. We're in production now. It's just muted and we're just ramping up slow. But officially, the line is in production. We're making products, and it's just going to continue to get better and bigger. But I think that $150 million is a good exit rate for the year.

And we have to balance all five of our factories. So it's not just what the high-speed line could do but it's also what the other plants can produce and how busy they are with other activities. If we have a location that has excess capacity, then we're going to move probably that product demand to that factory, and then that might impact what the high-speed line might run on. So it's balancing the entire TPPL capacity, which is what we're going to do, which will influence the high-speed line.

Is the revenue from that line, regardless of the end market, expected to maintain a similar gross margin whether it comes from the auto sector or another market?

I mean, the pricing is the same. It doesn't matter, I mean, from a customer form fit and function doesn't change, but our cost per unit goes down with that line.

Just as a reminder to everyone, when we first made this investment, it was not an incremental capacity play it was a cost reduction initiative. So if the product is made off that high-speed line, that one is going to enjoy lower costs than if it was made on some of our other lines that may have the same capabilities in terms of what product they can make. They can't make it at that price.

So the TPPL that used to be 35-ish percent gross margin is higher than that coming off of the high-speed line. Is that correct?

That should be a true statement, yes.

So regarding the NexSys iON, you previously indicated that after introducing it to the material handling market that residential storage would be next. Is that still the case? And then could you update us on the timing of that and what markets are in line to follow that?

Telecom and residential are both currently in development. We've already started that work. The latter part of fiscal '22 would be the best-case scenario for progress. We don’t expect much non-motive lithium to be included in our fiscal '22 model. Mike can correct me if I'm wrong, but those new product initiatives are expected to come later. Therefore, we anticipate they should arrive in late fiscal '22 or early fiscal '23.

The top line is not expected to change because we will shift that demand to our other factories in Europe that can produce those products. Following our announcement in the press release either last night or this morning, we have filed the 8-K today. There will be discussions with the Works Council regarding the timeline for the final closure, among other details. We do not have all the answers yet, but over time, you should expect to see savings of about $20 million a year, likely as an exit rate—not necessarily this year, but we should reach that goal at some point in the first half of next year.

Thank you, Twanda, and I want to thank everyone else for taking the time to attend our call today. We look forward to providing further updates on our progress on our third quarter 2021 call in February. Have a good day, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.