Good day and thank you for being here. Welcome to the Q4 2021 EnerSys Earnings Conference Call. All participants are currently in a listen-only mode. After the presentations, there will be a question-and-answer session. Please note that today’s conference is being recorded. I would now like to introduce your speaker today, Mr. David Shaffer, President and CEO. Please proceed.

Thanks, Lashana. Good morning, and thank you for joining us for our fourth quarter and full year 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.

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 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 year March 31, 2021, which was filed with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release dated May 26, 2021, which is located on our website at www.enersys.com. Now, let me turn it back to you, Dave.

Thanks, Mike. Please turn to Slide 3. Consistent with our last call, we generated strong results during the period due to rapidly growing demand for our products and services. We reported fourth quarter fiscal 2021, adjusted earnings of $1.30 per diluted share, a 17% increase over the fourth quarter of last year. Our Motive Power business saw another quarter of solid revenue and earnings improvement and our Specialty segment continued its positive momentum, bolstered by strong demand for our transportation products. Energy Systems benefited from telecom driven 5G growth in the Americas, delivering solid revenue, but falling short on earnings, which I will address soon. Cash flow was, again, strong this quarter, producing a record year and leaving us on very solid financial footing. Although the world has begun returning to some sense of normalcy, we continue to confront ongoing headwinds created by the COVID-19 pandemic. We have seen continued availability constraints in recruiting new employees and select raw material shortages, particularly in resins and electronic components. Prices have been sticky, but always lag rapid cost increases. Our team is responding to the near-term shortages and hiring challenges and expects steady improvement as the supply chain settles down and the rest of the world accelerates. I'd now like to provide a little bit more color on some of our key markets. Please turn to Slide 4. Let's start with our largest segment, Energy Systems, which faced several input cost pressures during the period, including higher tariffs, increased commodity prices and expedited freight costs. In addition, our customers continue to struggle with chip and labor shortages that have slowed their build rates, but we expect improvements from these broad upstream and downstream supply chain issues in the back half of the calendar year. EnerSys is participating in the mid-spectrum wireless U.S. build-out with batteries and outdoor DC power systems. While we maintain our strong market position, we believe our results will further accelerate when customers rotate to higher spectrum small cell 5G build-outs and can benefit from our next-generation line powering products. We are also very excited about U.S. broadband MSOs building out portions of their own wireless networks with their own HFC networks. Today, these MSOs primarily wholesale lease and voice data minutes from other network wireless providers. We have a full suite of DOCSIS 3.1 gateway products that help the MSOs deploy their wireless networks much faster at a lower total cost. Recently enacted extended MSO backup power requirements in California for public safety grid shutdown resilience provide an excellent near-term opportunity for EnerSys as well. If all sites currently identified are deployed, the opportunity is well in excess of $50 million. In addition to telecom, we are seeing favorable industrial utility trends as infrastructure improvements, reliability and resiliency are expected to provide another growth driver for Energy Systems. Renewable markets continue to expand with the legislative and regulatory push for energy storage applications for residential solar plus storage, monetization of distributed energy resources and numerous global climate initiatives aimed at vehicle electrification and renewable generation. We will capitalize more in this area as our next-generation renewable inverters and batteries are released. We have also made substantial progress on our own battery energy storage system plus DC fast charging initiative for electric vehicles, which I will speak more about shortly. Data center markets are also improving as areas lift more COVID-related site access restrictions. All in all, global megatrends continue to be favorable to Energy Systems growth. Please turn to Slide 5. Our Motive Power business performed very well in the quarter. We are now the only battery producer to offer both lithium and TPPL in maintenance-free along with our traditional flooded products. This segment generated strong operating earnings from continued market demand recovery, growing maintenance-free revenues and continued OpEx discipline. In addition, our Richmond, Kentucky facility has returned to full capacity and efficiency, while our Hagen, Germany Restructuring savings are starting to be realized. We launched our lithium platform with our four variants this quarter and all of our motive power products passed their internal UL tests. This month, we will be launching two additional variants, and we continue to collaborate with multiple material handling manufacturers. While we're only in the early stages of our launch, our customers continue to find this chemistry is best suited for the toughest duty and are actively trialing our offering with excellent results. Please turn to Slide 6. The third segment of our business, Specialty, reported another strong quarter despite the ongoing impact of COVID on our capacity ramp. Our transportation business is performing well as the OEM Class 8 vehicle market recovers. However, we, along with many of our competitors, have been dealing with hiring challenges and supply constraints, causing our backlog to remain stubbornly high as demand continues to grow faster than weak supply. As a result, our focus remains on expanding TPPL production, particularly in our three Missouri factories. Our Springfield ramp is behind schedule due to COVID, but we added a second shift to the high-speed line and increased oxide and pasting capacity. High-speed line production doubled in the last three months and continues to improve. Our Warrensburg facility made significant improvement from the last two years' performance as well. Lastly, our aerospace and defense team had another great quarter executing on submarine, tactical vehicles and munitions projects. We won several space contracts with a variety of customers and programs. Please turn to Slide 6. I am pleased that we officially kicked off our battery energy storage system plus DC fast charge initiative during the quarter, and we are moving fast. Early momentum has been driven by two commercial real estate partners, and our engineering team has exceeded my expectations by delivering a 285-kilowatt-hour prototype up and running at our tech center here at corporate in just a few months. Our launch real estate partner has identified over $1 billion of multiyear revenue opportunity starting early calendar year '22, if we hit the reasonable cost and performance targets. Our goal is to deliver an EV charger that charges any electric passenger car as fast as the car can handle, often changing hours into minutes. By using a large storage battery to quickly charge the EVs, we can dramatically reduce system installation costs at many sites, including the size of the AC transformer and high-voltage cabling from the utility interconnect. The energy system can also reduce operating costs by lowering peak demand from vehicle charging. In addition to fast-charging EVs, the bidirectional energy system can also help the host site use electricity more cost effectively for its commercial operations and can provide emergency backup power during power outages. The system is solar compatible and largely made from existing EnerSys lithium battery modules and charging technology. Our goal from the beginning of our lithium program is to use standardized modular products and these building blocks across all of our lines of business. This drives economies of scale and accelerates our time to market. We are lining up software partners for artificial intelligence and cloud services and reviewed preliminary business plans with our Board last week. We will provide more color on this exciting opportunity over the summer. With fiscal year 2021 behind us, I wanted to lay out what we're seeing in the market and the opportunities ahead of us. Despite the challenges of the past year, many caused by the global pandemic, we are well positioned for long-term success. We are on the precipice of a massive 5G build-out that will provide a strong long-term tailwind for our business. Recent commentary by the largest telecoms and equipment manufacturers has been unanimous. 5G is gearing up, and we should begin seeing the accelerated ramp in the second half of calendar year 2021 with the build-out continuing for five years or many more thereafter. The factors leading to this 5G growth include: T-Mobile's acceleration post-Sprint; universal and competitive 5G deployments for all carriers, including AT&T, which is expected to spend $24 billion a year on its network; Dish is entering into the marketplace with an FCC requirement to deploy 70% of the U.S. population by June 2023; and finally, government spending, our government-sponsored rural fiber broadband initiatives being rolled out at the federal and state levels throughout the U.S. There are some potential hurdles that could slow the ramp-up, including the success of the C-band auction completed in February for more than $81 billion, which could limit some carriers' financial resources to deploy it. The second hurdle relates to supply chain shortages discussed by the 5G manufacturers, particularly a lack of semiconductors. We will keep a close eye on these developments with the U.S. leading Europe but remain confident we're at the door of a major 5G expansion in the quarters and years ahead. In addition, the Biden administration has proposed a nearly $2 trillion bill, which includes upgrades to traditional infrastructure like U.S. highways and bridges and would also make significant investments in nontraditional areas that should benefit EnerSys directly, such as the electric grid, EV charging and high-speed broadband. While it is far from a done deal, there is bipartisan support for several areas of the build that we are prepared to act on. Our strategic initiatives outlined in our Investor Day nearly two years ago are worth repeating. One, to accelerate higher-margin maintenance-free motive power sales with NexSys iON and NexSys PURE. Two, to grow the portfolio of products in our Energy Systems business, particularly in telecom with fully integrated DC power systems and small cell powering solutions, which will accelerate our growth from 5G. Third, to increase TPPL capacity, particularly for transportation market share in our Specialty business. And finally, to reduce waste through the continued rollout of the EnerSys operating system. In addition, we are now adding our energy system plus fast charging to the above initiatives. We feel it is a core competency from decades of experience charging electric forklifts, and we believe it represents an immense opportunity. We will work hard executing each of these areas and to deliver the long-term value our customers and shareholders deserve. With that, I'll now ask Mike to provide further information on our fourth quarter results and go-forward guidance.

Thanks, Dave. For those of you following along on our webcast, we have provided the information on Slide 9 for your reference. I am starting with Slide 10. Our fourth quarter net sales increased 4% over the prior year to $814 million, due to a 4% increase from volume and 2% from currency gains, net of a 2% decrease in pricing. On a line of business basis, our fourth quarter net sales in Energy Systems were up 11% to $349 million, and Specialty was up 16% to $132 million, while Motive Power revenues were down 6% to $333 million. Motive Power suffered an 8% decline in volume, along with a 1% decrease in pricing, net of a 3% increase in FX. The prior year Motive Power fourth quarter revenues benefited from our recovery of the September 2019 fire in our Richmond, Kentucky facility. Energy Systems had a 12% increase from volume and a 2% improvement from currency, net of a 3% decrease in pricing. Specialty had 16% in volume improvements along with 2% offsetting impacts from positive currency and lower pricing. We had no impact from acquisitions in this quarter. On a geographical basis, our net sales for the Americas were up 4% year-over-year to $557 million, with a 6% more volume and 2% less pricing. EMEA was up 2% to $203 million, despite 3% volume and pricing declines due to an 8% improvement in currency, while Asia was up 19% at $55 million on 9% volume and 10% currency improvements. Please now refer to Slide 11. On a sequential basis, fourth quarter net sales were up 8% compared to the third quarter, driven by 9% volume improvements, net of a 1% price decline. On a line of business basis, Specialty increased 21% with our TPPL continuing to provide more capacity for transportation sales, while Motive Power was up 9% as it rebounds from the pandemic and Energy Systems was up 3%. On a geographical basis, Americas was up 12% sequentially, while EMEA was up 5%, but Asia was down 7%. 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 highlighted items. Accordingly, my following comments concerning operating earnings. My later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's Form 8-K, which includes our press release dated May 26 for details concerning these highlighted items. Please now turn to Slide 12. On a year-over-year basis, adjusted consolidated operating earnings in the fourth quarter increased by approximately $7 million to $78 million, with the operating margin up 50 basis points. On a sequential basis, our fourth quarter operating earnings remained flat at $78 million, while our operating margin decreased by 80 basis points to 9.6%, primarily due to results from Energy Systems, which I will address shortly. When excluding certain highlighted items, operating expenses were 14.6% of sales for the quarter compared to 16.4% in the previous year, as we reduced our spending by $9 million year-over-year and by 10 basis points sequentially. Excluded from the GAAP operating expenses recorded in Q4 are pretax charges of $27 million, mainly related to $6 million in Alpha and NorthStar amortization and $21 million in restructuring charges for the previously announced closure of our flooded motive power factory in Hagen, Germany. Excluding these highlighted charges, our Motive Power business generated operating earnings of 15.6%, which is 300 basis points higher than the 12.6% in the fourth quarter of last year, due primarily to improvements in manufacturing costs and lower operating expenses. Operating earnings for Motive Power increased by over $7 million from the prior year. On a sequential basis, Motive Power's fourth quarter operating earnings increased by 230 basis points from the 13.3% margin posted in the third quarter, again primarily due to improved manufacturing and operating costs, along with better price mix. Energy Systems operating earnings percentage of 2.6% was down from last year's 4.1% and from last quarter’s 7.4%. Operating earnings decreased by $4 million from the prior year and decreased by $16 million from the prior quarter, despite slightly higher volume, due to lower margins and higher input costs. These costs include higher tariffs, freight, materials, and manufacturing costs. Specialty operating earnings percentage of 13.2% was up from last year's 11.7% and from last quarter's 11.9%. Operating earnings increased by over $4 million from both the prior year and prior quarter, driven by higher volume and lower operating expenses. Please move to Slide 13. As previously reflected on Slide 12, our fourth quarter adjusted consolidated operating earnings of $78 million was an increase of $7 million or 10% from the prior year. Our adjusted consolidated net earnings of $56.5 million was $9 million higher than the prior year. The improvement in adjusted net earnings reflects primarily the rise in operating earnings, along with lower interest expense. Our adjusted effective income tax rate of 19% for the fourth quarter was slightly higher than the prior year's rate of 18% and higher than the prior quarter's rate of 17%. Discrete tax items caused most of these variations. Fiscal 2021 tax rate of 18% was consistent with that of the prior year. Fourth quarter EPS increased 17% to $1.30, which was near the top of our guidance range. We expect our weighted average shares for the first fiscal quarter of 2022 to remain relatively constant to the approximate 43.5 million of the fourth quarter. As a reminder, we now have over $75 million of share buybacks authorized and we have made modest purchases recently. Last week, we announced our quarterly dividend, which remains unchanged from prior levels. We have included our year-to-date results on Slides 14 and 15 for your information, but I do not intend to cover these details. Please now turn to Slide 16. Our balance sheet remains strong and positions us well to navigate the current economic environment. We have $452 million of cash on hand, and our credit agreement's leverage ratio is 1.7 times, which allows over $600 million in additional borrowing capacity. We expect our leverage to remain below 2.0 times in fiscal 2022. We generated a record $288 million in free cash flow in fiscal 2021. Capital expenditures of $70 million were in line with our prior guidance. Our CapEx expectation for fiscal 2022 is $100 million and reflects major investment programs in lithium battery development and continued expansion of our TPPL capacity, including the NorthStar integration. Even with these investments, we've also retained the agility to flex our manufacturing footprint as needed. Our decision announced last November to close our Hagen, Germany facility has progressed better than our expectations in terms of speed and cost. The expected $20 million in annual savings are starting to be felt already with the full benefit arriving by our fourth fiscal quarter of this year. We anticipate our gross profit rate to remain near 24% in Q1 of fiscal 2022, and we expect expanding margins thereafter. As Dave has described, we believe all three of our lines of business are well positioned and their diversity provides us with a stable earnings platform. Despite some concerns over the potential for lead arising shortages, we feel we have enough visibility to provide guidance in the range of $1.15 to $1.25 in our first fiscal quarter of year 2022. Now, let me turn the call back to Dave.

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

So lots of details here and a fair amount of commentary on eyesight to improving supply chain constraints in the back half of the year, the calendar year. And so I wonder how that might set up sort of on a cadence basis, some of your top-line recovery trends? Historically, I think your 2Q has been a bit soft just due to the European holidays. But if indeed, there's going to be some debottlenecking here and you think that's going to take place in the September and December quarters, how do you think about the setup for a sequential revenue improvement over the course of the year?

Thanks, No. Mike, do you want to help Noah?

Yes. I would say, we are in the low $800 million range, and that will probably stay $820 million, $830 million in the first half of the year, and that will probably expand in H2 by at least $50 million per quarter. So we would expect that kind of not quite at 10%, maybe a 7% to 8% improvement sequentially from H1 to H2.

The supply chain issues we are experiencing are affecting both upstream and downstream. We are feeling some pressure, and our customers are also affected. For instance, one of our major telecommunications clients was unable to obtain chips for their radio, which caused many of their power systems orders to be on hold. It seems that we are all facing similar challenges. The business rebounded too quickly. However, the feedback we have received indicates that things should gradually improve.

Yes. Yes. And then maybe just sort of on the internal side, do you think you could give us a little bit of the impact of some of the cost headwinds you mentioned around expedited freight and increased commodities? I know the manufacturing inefficiencies are part of this as well, right? But just in terms of materials and site, can you give us those numbers?

Yes, I'm sure Mike can give you some direction on that. I think you’re right, the manufacturing piece was a big part.

Yes, depending on which piece you are comparing it to or what base period. But typically, the drag we are seeing is the tariffs add a couple of million dollars per quarter. The freight, which is primarily a freight rate increase is probably in that same footprint. Some of the manufacturing variances, which at least in Q4, still have the incurred variances from as early as October of last year when we were still a little deeper in the grips of the pandemic. So as we move forward, those manufacturing variances going into Q2, where we have the current levels of operations and volume benefiting, you're going to see a nice expansion there. Some of the other things that will drive margin expansion as we go through the course of this year is going to be a number of price increases, which we have done recently, which as they move through the order book, will start to impact late in, let's say, June of this year. So starting this upcoming month, you'll start to see some pricing moving through. You're going to see the fact that for all of our factories moving up from some deep COVID type utilization rates where you were running at 50% to 70% capacity, we'll move back into their normal 80-plus percent capacity. So across our factories, you would expect to see that. And the one that's been the biggest drag, and this has been well-known and publicized when we bought the NorthStar business, which included two factories in Springfield, Missouri. We knew that those factories based on the NorthStar book of business were drying up quickly. But we bought them for their TPPL capacity and not their book of business. So as we've made that integration move some EnerSys product in there, done some transitions of their product to be closer to their end customers. And then we've added the high-speed line in the second of their two factories. Right now, that drag has been $5 million to $6 million per quarter, which we expect to abate as we go through the end of this fiscal year. So that's a big piece.

Energy Systems took a big chunk of that.

Yes, they have in terms of their allocation of that variance. As I mentioned, the Hagen restructuring will generate a $20 million benefit in our fourth quarter. This presents a significant upside. We have transferred some of our contract manufacturing away from China to other locations, including Mexico, allowing us to avoid tariffs that are currently between 25% and 30%. This move will help us shorten our supply chain and reduce freight costs, which we believe will add to our benefits. Additionally, from a business mix standpoint, our strongest performance has typically been in the outside plant segment of Energy Systems, particularly Alpha. The revenue from this segment has been mostly affected by weather and other COVID-related issues, but it has been slower than usual. We expect it to expand now that the appropriate season for this work has arrived, and we have seen indications of that. Therefore, we anticipate a normal margin improvement due to the typical seasonal cycle.

Yes. And Noah, just a couple of points just to add to what Mike said is, the Energy Systems business, the quote cycle is much longer than the other two businesses. So we'll put propose lock because it's very project oriented. So the price changes have always been slower in that business to push through. So there's some lag on that, that there's some note. And then clearly, our Energy Systems business is with a higher inclusion of electronics has been exposed much more to the tariff pressures. So that business has caught a lot of this. But as Mike kicked off, we've got good line of sight and a lot of pressure on the teams. COVID made competition for CMs moving out of China. It just slowed everything down, but we do have good line of sight, and that's why we remain confident things are going to slowly get better.

Yes. A lot of questions that I'll probably take off line, I guess in the interest of sharing the ball. But let me ask just one more that I've been getting from some investors. I think November 2019 feels a lot to us like a really long time ago, but you did mention the Investor Day, Dave. And so maybe can you just help us calibrate where we are now versus sort of that outlook from Investor Day? Is it fair to say that some of those targets for 2024 have been pushed a few years to the right? How would you kind of gauge your states the trajectory as companies on here in terms of earnings power?

Noah, it's Mike. I would say that since we refreshed this last September and October, which was during the tail end of the pandemic, we believe it likely extended our timeline by about a year. The insights that Dave outlined regarding the increase in maintenance-free motive power sales with NexSys iON and PURE, the expansion of our Energy Systems product portfolio, the rise in TPPL for transportation, and the reduction of waste through EOS are all still valid. In his remarks, Dave highlighted the significance of the new battery storage and DC fast charging initiative and the potential it holds. So, aside from the pandemic year being somewhat of a setback for advancing these initiatives, we can still consider that model with an additional year added, and it aligns with our expectations.

Could you elaborate a little bit more on the labor shortages you're seeing just across the different segments? We've seen similar issues with the availability of skilled labor following the stimulus checks. I'm just curious, is that driving the majority of the labor shortages you're seeing? Or are there other contributing factors there?

I think the biggest pressure for us is the ramp in Springfield, Missouri. We have needed to hire a lot of people, particularly skilled labor. I believe we are facing the same challenges that many companies in the U.S. are experiencing right now. The fears surrounding COVID and the availability of extended unemployment benefits have affected us as well. Most of these pressures are most acutely felt in Springfield, but we also observe similar situations in Poland, France, and globally. However, the most significant pressure is in Missouri.

But don't forget the intense pressure that our suppliers are experiencing, as piece part availability can create urgent distractions while trying to implement workarounds. This issue doesn't just affect us; it also involves our supply chain, including the coordination of drivers and trucks to ensure timely shipments.

Got it. Yes, that's helpful information. Last quarter, we discussed increasing material handling for lithium ion throughout fiscal '22, with new introductions in residential storage and telecom expected over the next year, leading to significant revenue contributions toward the end of fiscal '22 and into fiscal '23. Is that still the expected timeline? Or could the supply chain constraints and labor issues significantly impact that rollout? Alternatively, if the reception remains positive, could we potentially speed up that timeline and expand into other business lines?

I am not hearing concerns about labor regarding any of those initiatives. Our lithium facility in the U.S. is currently managing everything, but we are expanding operations in Asia and Europe as well. We are moving forward rapidly. The responses from the motive side have been very encouraging. As you pointed out, we are utilizing the same core technology in telecom and data centers, and the energy system I mentioned, which includes fast-charging capabilities, is also based on this technology. This approach is versatile. I would say we are more excited than ever about the potential.

Good morning, Dave and Mike. Guys, I want to talk about pricing. You touched a little bit on it. But in Slide 10, all three segments were down year-over-year. And best I could tell, both the commodity costs are up and volume is up. Can you just explain to me why that happened?

Well, John, remember on that slide, it's a combination of both pricing and mix. So it’s a bit of a tale of two stories. On the pricing side, our pricing usually lags behind the lead cost structure by about three to four months. Lead costs have recently increased, but if you look back four or five months, they were decreasing. So you have this situation where, while lead costs are going up in the short term, the revenue adjuster is still reflecting earlier periods, leading to some compression, especially in those lines of business that utilize pass-through mechanisms, which account for about 30% of our revenue now. It's not a huge impact, but it is noteworthy. Another aspect is the mix of what you are selling and the service work you are doing and the margins associated with that. Dave, I don’t know, you can probably...

Yes. I would say that in the Energy Systems segment, we have been facing shortages in some of our higher-margin products. As a result, we have been focusing more on these due to availability issues, while also addressing our service work and lower-margin products. I'm glad Mike clarified this because it really comes down to price and product mix, which has been a significant factor for Energy Systems.

Okay. So it's not a competitive landscape issue or anything of that?

No. I would say it's more COVID related, supply chain related. And then the other big piece, as I noted, especially in Energy Systems is just timing on getting things through. I'd tell you, freight, it's not insignificant. It's millions of dollars of freight rate changes we're seeing, and that's why we're pushing price increases across the board to recover because everything has gone up.

One of the things that the NorthStar sellers did shortly before starting their process was engage or contract with a few significant players in different markets for pricing to establish a healthy book of business, albeit with low margins. For one of those major players, the agreement is about to expire. We expect a substantial increase in price or the opportunity to shift volume that was previously committed to higher-margin business. This should lead to a notable improvement, especially since it involves a fairly large entity and we can transition out of a pre-acquisition agreement on the NorthStar side.

And that contract would have been in Specialty and one in ES. So it's an excellent point. We're starting to get out from underneath those.

That actually helps a lot, Dave and Mike. And then just shifting over, I guess, specifically to the motive segment. With your backlog up strongly and the WITS data through the roof, but shipments are down at the OE side, how long is it going to take you to catch up on each equilibrium? Is this going to be into the 2023 year? Or is it going to be back half 2022?

It's difficult to evaluate. The order data we typically share on WITS is impressive. However, the shipment data presents a starkly different picture. In fact, shipments have decreased year-to-date due to supply chain shortages at the truck original equipment manufacturers. I understand they are addressing these challenges, but their supply chains are quite complex. The feedback we are receiving indicates that all OEMs are exerting more pressure on us, urging us to increase our readiness to support their expanded production capabilities. Additionally, there has been recent news regarding internal combustion engine business for forklifts, which may add to the demand pressure for electric forklift trucks due to emissions concerns. Overall, the indicators are positive, with a robust backlog, and it ultimately hinges on how quickly these OEMs can resolve their supply chain issues.

Yes, Dave pointed out that some of the truck data has risen as much as 86% year-over-year over a three-month period, but their shipments have actually seen a slight decline. It's taking time for them to catch up. Our battery sales are more closely related to their shipments than to their order intake.

Right. Great. Okay. And I guess one last question. Just on the fast charging technologies. Can you just give a sense of context of how quick your fast charging existing technology is? And how much quick you have to make it in order to be fit to be vital for a commercial electrical vehicle?

Yes. I probably need to simplify this. The engineering really depends on the battery's state of charge and the type of car, as different cars charge at various rates. For instance, the Porsche Taycan charges very well, while other cars don’t. Generally, most electric cars come with an 18-kilowatt charger, and people typically connect it to AC power. Fully recharging a battery can take hours. However, we are charging the battery directly using DC fast charging, bypassing the onboard AC charger. Our aim is to provide as much energy as any car can handle. At their highest charge rates, users can add enough range to their vehicle in just 10 to 15 minutes, creating an experience similar to refueling at a gas station. This technology can effectively turn hours into minutes for most cases, which is very exciting. Additionally, the investment in this system is multifaceted; it also helps customers save electricity and can integrate with other systems to form a virtual power plant for utilities. This versatility is why commercial real estate developers are so interested and are driving us forward.

Can we discuss the second half of the fiscal year a bit more? One thing that really stood out to me from your list of factors that could improve margins in the latter half of the year was the $5 million to $6 million operating expense impact from NorthStar each quarter. On an after-tax basis, that seems to translate to about $0.08 or $0.10 per quarter, just from that one factor. Additionally, you mentioned several other elements that could enhance margins, and I believe you also indicated that revenue might potentially increase by $50 million in the third and fourth quarters compared to the first half's run rate. Consequently, you would clearly see operating leverage from that. It seems like there could be a significant increase in earnings in the second half of the year regarding the quarterly run rate, and I would like to clarify that or hear your thoughts on it further.

Mike can provide better details. It wasn't operating expenses, but rather manufacturing variances that are affecting the cost of sales. The factors were under-loaded when we acquired them, and we are in the process of ramping up. As I mentioned earlier, we are behind our ramp schedule outlined in the Investor Day model, which is entirely due to COVID. According to our Investor Day model, we aimed to increase our TPPL production capacity to $1.2 billion in revenue by fiscal year '22, while we were around $650 million at that time. I'm confident we will close the fourth quarter with a run rate exceeding $300 million for TPPL expansion, meaning we are more than halfway to our goal. Additionally, we have been authorized by the Board to accelerate some of the capital expenditures on TPPL to relieve some of this pressure. Demand has surpassed our best-case expectations used for the model. Moreover, we are working on stabilizing the workforce, improving training, productivity, and reducing scrap rates, which have unfortunately not been favorable from that factory, but things are getting better every day. I'm genuinely excited about being on track for the $1.2 billion pace, and with the additional capital expenditures, we can continue to grow that revenue. Mike, would you like to provide more insights?

Yes. To your question, Brian, I would anticipate that we set guidance with a midpoint of $1.20 for Q1. I would expect Q4 to be 20% to 25% higher at the EPS level, which reflects all of those improvements I mentioned earlier.

You just mentioned that Q4 is expected to be 20% to 25% higher than Q1. Is that correct?

That's what I just said.

The progress is not expected to be linear from the first quarter to the fourth quarter, but rather to increase in the second half. I anticipate that the third and fourth quarters might have similar performance. Would you agree with that?

I think it's clear that there isn't a straightforward line for the first half and a higher one for the second half. I would point out that there are two instances where the second quarter outperforms the first quarter, but we will see an increase when moving to the third quarter, which will further improve in the fourth quarter.

A lot depends on the resins. Some of our highest margin products were affected due to a global shortage of polycarbonate, which is a component of our resins. Mike may be hesitant to share details about the situation because we are unsure when resin availability will improve. We expect some relief in the summer. Overall, I believe you are correct in saying that Q3 will likely be better than Q2, and Q4 should surpass Q3.

And then I'm just curious, if there's any way to size how large this issue of the hiring constraints was in the quarter? And do you have any sense for how much that limited your capacity, maybe like what might revenue have been in the fourth quarter if you had no hiring constraints?

We should have reached $1.2 billion by now according to the original plan. So you could say that the top line has been affected, likely by about $200 million annually over the past few quarters. If you break that down quarterly, the manufacturing variances have been significant, estimating between $5 million to $6 million a quarter, which is a considerable amount.

Sometimes it's a challenge to not only hire people but also to keep them beyond the initial 90-day training period when they start delivering a return on the training investment. Often, individuals realize they could earn more by staying at home, leading them to rethink their decision to remain at work. Consequently, retention tends to be a bit difficult.

Yes, that's part of it. We don't want to get too deep into the psychology of it, but we fully expect that with the vaccine rates and things starting to settle down, there will be generally more confidence, and our HR team believes that conditions will improve.

Okay. So you're saying, really, Dave, the $1.2 billion target, you feel like you're limited primarily though by hiring constraints in terms of expanding the TPPL capacity like you're ready to go, you seeing the people?

I think absolutely, the majority of the issues have been personnel-related. Mike?

It is primarily related to personnel. There are some items related to capital spending, which our Board authorized to accelerate during our most recent meeting so that we could address those. However, to Dave's earlier point, we expect to exit nearly at full capacity.

Okay. Got it. And then just one last question for now. I'm just curious where we are in terms of Alpha's opportunity for small cell sites. My sense is that it still really hasn't started yet. And has Alpha enabled any small cell antenna sites at this point? And do you still see this as a $1 billion revenue opportunity for Alpha?

Yes, I do. I believe that some major carriers have reduced their focus on small cells. There has been a greater emphasis on mid-band spectrum compared to our initial expectations for small cells when we made the Alpha acquisition. We have been quite active in building out mid-band spectrum, so we're in a good position. We just need the supply chain challenges to improve. For small cells, we have two promising opportunities. One is our gateway products, for which we received our first significant order yesterday from one of our MSO carriers to begin installing radios on their HFC backbone. The gateway not only helps with backhauling call traffic but also supplies power. It was a significant milestone for us, and Drew was very enthusiastic about it. The other key small cell project is with Corning, who has been an outstanding partner. I regularly communicate with their CEO to ensure we stay aligned. Both Wendell and I are very excited about this program. However, the millimeter wave spectrum development has been a bit slower than we previously anticipated. Mike, do you have anything to add?

Well, don't forget that we mentioned the recent opportunity that arose through the California Public Utility Commission concerning grid and network resiliency, which will significantly help address the gap that the higher spectrum range could effectively fill if it is postponed.

Yes, I believe that will be beneficial, but it's largely due to the wildfires and the power shutdown. The CPUC is requesting extended standby for critical network sites, representing an opportunity of over $50 million. This is immediate and significant. As I mentioned in previous quarters, this business tends to fluctuate, and we're entering one of those peak periods right now. Therefore, we need to resolve some supply chain issues. We anticipate recovering from this low cycle we've been experiencing. Unfortunately, everyone is trying to regain momentum too quickly, which has caught the supply chains off guard. Nonetheless, that opportunity alone, even aside from the 5G developments, is substantial.

Your next question comes from the line of Jacob Green.

So a lot has already been asked, so I'll just keep it quick. Just trying to frame the bigger picture on the energy storage side and kind of the microgrid opportunity. How should we think about your charging station progression over the next few years? And on the margin side, is there an opportunity to, say, utilize any of your recycled motive batteries that may be at call it, 80% of a new capacity? So not ideal for motive, but would work just fine for energy storage.

That's a good question. Mechanically, it would work since they use the same modules, but it's not our main focus at the moment. However, it's definitely something to consider. Our current priority is to complete 100 systems quickly. We have a solid supply chain and contract manufacturing partner who has been excellent. It's crucial to get these 100 systems out as soon as possible. If all goes well, this customer has identified potential sites worth $1 billion for installing this type of system, so the success of the first 100 will greatly influence future opportunities. After that, our engineering team is set to work on a more cost-effective version of the product since the initial prototype is likely more expensive than the final version we will be selling. We've focused on getting something out rapidly for this single customer. Additionally, I believe the Biden administration is highly invested in this area. They've mentioned a new EV incentive, potentially around $12,000.

$12,500.

$12,500. We believe that this incentive can have a significant impact on the number of people who choose electric vehicles. We see that this administration is very committed, and we are favorable towards the timing. Moreover, the system is strikingly similar to one of our forklift batteries.

There are no additional questions in queue at this time. I'll turn it back to Mr. David Shaffer for closing remarks.

Well, thanks, everyone, for attending our call today, and we look forward to providing further updates on our progress on our first quarter 2022 call in August. Have a good day, and a good holiday weekend.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you for your participation.