Ladies and gentlemen, thank you for standing by. And welcome to the Q4 2022 EnerSys 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. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Lisa Hartman, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today to discuss EnerSys fourth quarter and full year fiscal 2022 results. On the call with me this morning are David Shaffer EnerSys' President and Chief Executive Officer; and Andrea Funk EnerSys' Executive Vice President and Chief Financial Officer. Last evening, we published our fourth quarter and fiscal year 2022 results and filed our 10-K with the SEC which are available on our website. We also posted slides that we will be referencing during this call. The slides are available on the Presentation's page within the Investor Relations section of our website at www.enersys.com. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. Our forward-looking statements are made as of today even if this presentation is replayed at a different time. For a list of forward-looking statements and factors which could affect our future results, please refer to our recent 10-K filed with the SEC. In addition, we will also be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance, adjusted diluted earnings per share and adjusted EBITDA, which excludes certain items. For an explanation of the difference between the GAAP and the non-GAAP financial metrics, please see our company’s Form 8-K, which includes our press release dated May 25, 2022. Now, I will turn the call over to EnerSys' President and CEO, Dave Shaffer.

Thanks, Lisa. Please turn to slide four. The March quarter marked a strong finish to a challenging year. Demand across all segments continued to surge with fourth quarter net sales of $907 million, an increase of more than 11% over Q4 2021, surpassing $900 million for the first time in the company's history. As orders eclipsed sales by 17% in Q4 2022, our backlog increased sequentially by $150 million to $1.3 billion, breaking new records for the third consecutive quarter. Our backlog is healthy with over half of our total backlog attributable to long-term projects related to 5G deployments, California Public Utility Commission mandates and defense. Our customers understand the supply environment we are facing, and we remain confident in our ability to deliver the industry-leading products they need. We continue to monitor the risk of an economic slowdown, and the quality of our backlog insulates us to a certain extent as telecom, broadband and defense markets tend to follow their own cycles independent of GDP. For example, in fiscal year 2021, when COVID caused a significant economic downturn, Motive Power revenues decreased 14%, but A&D only decreased 5% largely due to government shutdowns, and Energy Systems actually increased 2%. These dynamics, although not identical, were similar to what occurred in the 2008 financial crisis. Further, while Motive Power revenues track closer to GDP, history has told us that a decline in lead prices and other commodity costs is also likely during a recession, which provides both the release of working capital from the balance sheet, as well as tailwinds from input costs. The inverse is what we are experiencing in FY 2022 with significant inflation and recapture lags. The price recapture lag has been our focus in fiscal year 2022 and will continue to be in 2023. Our pricing actions in the fourth quarter gained additional traction against the significant cost increases, contributing to a 19% sequential increase in adjusted diluted EPS to $1.20 per share despite continuing supply chain headwinds, labor shortages, and historic inflation levels. While pricing has not yet fully caught up with the persisting inflation we experienced this fiscal year, we are pleased with the trajectory our teams are making to realize our underlying financial potential in quarters to come. We continue to focus on the elements of the business within our control. Looking forward, we are confident in our strategy and excited about our opportunities ahead, as our proprietary technologies provide unique value propositions for our customers, that position us well to benefit from the growing mega trends fueling the markets we serve. I'll now walk through our business segment highlights. Please turn to slide five. Energy Systems strong revenue momentum in fiscal year 2022 continued in the fourth quarter, with an increase of 18% versus Q4 2021, bringing the full-year revenue growth to 11% over the prior year. While adjusted operating margins were lower in fiscal year 2022 versus 2021, as Andi will review with you later, Energy Systems fourth quarter margins improved for the second quarter in a row as our significant pricing actions are beginning to catch up on the substantial cost increases we experienced throughout the year. Q4 2022 order rates increase 20% compared to Q4 2021. And our backlog in the segment grew by more than $100 million in the fourth quarter alone. The robust market conditions are attributable to significant infrastructure spending, network upgrades and resiliency CapEx. While lithium is gaining momentum, all participants are finding sourcing challenges, which has provided some increased TPPL opportunities and data center markets as we leverage our strategic advantage of offering multiple technology options to our customers. The 5G communications build-out continues to have an incremental, extended and mounting tailwind, as customer CapEx spending has been reprioritized from small cell tower build-outs to expanding mid-band capabilities. While we play in all aspects of the 5G spectrum, we have a unique position in the small cell powering due to our technological advantages. Small cell build-outs are now expected to ramp in 2023, 2024, accelerating into 2025 and 2026. We are seeing ongoing progress with the California Public Utility Commissions grid shutdown and extended network backup mandate, booking nearly $140 million in related orders in fiscal year 2022 and already beginning some deliveries. We expect our net sales to ramp up in fiscal Q3 2023 and accelerate in Q4 and beyond. We have also seen an acceleration in our Rural Digital Opportunity Fund, or RDOF, projects with orders being received on a regular basis, which we expect to continue as significant funding becomes available over the upcoming years. In addition, our Fast Charge & Storage initiative has seen further momentum in both software development and customer specification design. Despite the strong product demand trends, EnerSys continues to face significant supply chain and cost headwinds, which have been exacerbated by the much-publicized shortage of microchips as well as recent geopolitical tensions. Our team continues to mitigate cost escalations with additional price increases. Our engineering and operations have been working closely to overcome shortages through product redesign and onshoring of contract manufacturing. As we navigate through the current cost and supply chain environment, and these pressures begin to subside, we expect continued robust demand for Energy Systems products to drive durable long-term growth. As a reminder, pricing catch-up in this business segment was delayed compared to our other segments due to contractual limitations and customer concentricity. However, we have made incremental progress with price outpacing costs for the second quarter in a row. Motive Power delivered solid revenue growth, up 17% for fiscal year 2022 versus fiscal year 2021, and has been able to offset significant cost increases with ongoing pricing actions and the favorable mix impact of our higher margin maintenance-free sales. Our results reflect the continued customer enthusiasm for our proprietary NexSys TPPL and lithium-ion maintenance-free product offerings. We achieved a key milestone in the fourth quarter with the launch in UL safety listings of our high performance NexSys lithium-ion batteries, which feature an integrated battery management system that performs auto diagnosis, voltage limitation, communication, and performance data. We are proud to be the first energy storage solution provider to bring this level of compliance standard to the material handling industry. Overall, market dynamics point to strong and steady growth for Motive Power with benefits from the trend of automation and electrification of material handling equipment, along with the value of our maintenance-free technologies and advanced charging solutions expected to have a lasting and positive impact on our growth in years to come. Our Specialty segment's full-year revenue increased 6% versus fiscal year 2021, mostly on price. However, this segment's true potential continued to be held back by supply challenges. While we have been able to increase our overall TPPL capacity significantly in line with our strategic plan, our TPPL demand continues to outpace our capacity, forcing us to allocate production between all three lines of business. Due to supply chain issues, we made the strategic decision to allocate more of our capacity to our 5G customers at the expense of our transportation market share growth. Specialty's adjusted operating margins were nearly 10% for fiscal year 2022, despite facing these pressures. As productivity and capacity enhancements take hold in our TPPL factories, more capacity can be allocated to this segment with lowered manufacturing costs. In our transportation business, we continue to increase our share of the Class 8 market with the OEMs, while the OEMs are constrained by supply chain and labor headwinds of their own. Inflation has persisted, which has been offset through additional pricing actions. Despite the current environment, the large transportation market is a significant long-term growth opportunity for us, as we focus on taking share with our proprietary TPPL technology. Aerospace and defense also provide significant growth opportunities given the current geopolitical environment. Please turn to slide six. Despite macro headwinds, our global TPPL production output pace increased 24% in our fiscal Q4 2022 compared to our FY 2021 average, with each TPPL factory increasing production in the double digits in the fourth quarter. We achieved our goal of a $1.2 billion annual run rate of TPPL capacity in the second half of the fiscal year and have hit this watermark repeatedly in the third and fourth quarters. Although, cost and supply have been volatile we are in a much better position from a production standpoint than we were when the year began with plans in place for continued capacity expansion of $200 million per year for the next five years. As previously mentioned, TPPL capacity is distributed across all three of the lines of business in which the demand for our proprietary technology cannot be satisfied. We continue to make strategic investments in our technology and innovation roadmap, partnering with customers to ensure we are delivering the solutions needed for years to come. The new products we are delivering today combined with our future technologies are squarely focused on retaining our leadership position and growing share in the markets we serve. Please turn to slide seven. We also made significant progress on our ESG goals in the fiscal year, including several sustainability and environmental updates that culminated in the publication of our first comprehensive sustainability report last month. The report highlights the critical role our power and energy solutions play in building a resilient low-carbon future and how they are a key component to decarbonization globally. While our products and services are critical to the energy transition, our role in reducing the impact of our manufacturing and distribution processes is equally important. Our sustainability initiatives push us to be more efficient, develop innovative solutions for our customers, and build a stronger, more diverse and engaging workplace for all of our employees. We set meaningful goals to reduce our water and energy intensity and increase the diversity of our leadership team and workforce. We will work toward each of these goals and others to further position us as an environmentally and socially responsible global organization. Please turn to slide eight. As we enter fiscal year 2023, we expect to face ongoing challenges with continued supply chain constraints, inflation exacerbated by the senseless conflict between Russia and Ukraine and the resurgence of COVID shutdowns in China. We remain focused on what we can control: catching inflation with ongoing price increases, redesigning our products for supply chain components, such as chips and resins, reducing costs through our EnerSys operating systems lean and footprint optimization ongoing efforts, expanding our portfolio with more technologically advanced products, growing profitably through TPPL capacity increases in new product introductions, and finally, mitigating risk to supply chain disruptions by contract manufacturing, onshoring efforts, dual sourcing, and strategically building inventory. I am proud of our employees' resilience and proven ability to address these challenges head on. Despite these near-term headwinds, we are optimistic about our ability to persevere and capitalize on the opportunities ahead of us. Our world-class technologies and capabilities position us to win in the growing markets we serve. Leveraging our proprietary technologies across all of our energy solutions, we are able to offer our diverse set of customers the best options to meet the needs of their specific use cases. We are confident in our ability to continue to deliver sequential profit improvements once the macro headwinds subside, and remain on track to realize our strategic plan. We're committed to being good corporate citizens and delivering long-term value to shareholders through profitable growth and a disciplined capital application strategy. With that, I'll now ask Andi to provide further information on our fourth quarter and fiscal 2022 results and go-forward guidance.

Thanks, Dave. In an effort to leave more time for Q&A, my scripted remarks will be more streamlined than in past periods. I will focus my discussion this morning on the key financial metrics and takeaways. For more detailed information about our results, please refer to our press release on our fourth quarter and full year fiscal 2022 financial results and the supplemental slides, which were posted to our website last night. For those of you following along on our PowerPoint slides, I will begin on slide 10. Our fourth quarter net sales increased in excess of 11% over the prior year to $907 million due to an 8% increase from volume and a 6% improvement from price net of mix, partially offset by a 2% erosion from foreign exchange. Full year net sales increased 13% over the prior year to $3.4 billion due to a 10% increase from volume and a 3% improvement from price net of mix. Adjusted operating income was $67 million in the fourth quarter and $264 million for the full year of fiscal 2022. This represented a sequential improvement of over $6 million in the quarter, as our price recapture has begun to catch up to the unprecedented cost increases we incurred this fiscal year. Also, as a reminder, when considering our full year results, in fiscal 2021, we had $12 million of business interruption insurance recovery for the fire in our Richmond manufacturing facility that occurred in fiscal 2020. Excluding that impact, our adjusted operating income eroded $8 million in fiscal 2022 versus fiscal year 2021 due to approximately $50 million of lagging price recapture and nearly $150 million of cost increases this year, the impact of which overshadows the improvement from volume and productivity gains. Please note this quarter, we began reporting EBITDA and adjusted EBITDA. We believe these metrics will be useful for investors when analyzing our core operating performance and cash flows. Adjusted EBITDA for the fourth quarter was $88 million and 9.7% of net sales compared to $97 million and 11.9% of net sales in the prior year fourth quarter. For the full year fiscal 2022, adjusted EBITDA was $340 million and 10.1% of net sales compared to $334 million and 11.2% of net sales in the prior year when you exclude the impact of last year's business interruption insurance recovery. It is worth noting that our margins are artificially deflated from the margin math impact of cost pass-through. A reconciliation of net earnings to adjusted EBITDA is presented in the appendix of our supplemental presentation for your reference. Our adjusted EPS was $1.20 in the fourth quarter of fiscal 2022, up from $1.01 in the third quarter due to the improvements in adjusted operating income previously mentioned as well as FX gains and other income and expense from a weaker euro. Please turn to slide 11. On a segment basis compared to prior year, our fourth quarter net sales in Energy Systems were up 18% to $410 million. Motive Power revenues were up 10% to $365 million and Specialty revenue was essentially flat year-over-year at $132 million. All lines of business posted substantial year-on-year price/mix improvements as our pricing actions are sticking and beginning to catch up to the unprecedented cost increases we have incurred this year. More detailed sequential and geographic results can be found in our press release and the supplemental slides. Before I continue, I would like to note that in slides 12 through 16, I will present some information relevant to this quarter's results that I don't intend to necessarily include every quarter. Please turn to slide 12. While robust demand remained the most important headline of the quarter, supply chain disruptions and inflationary pressures continue to impact our financial results. On a sequential basis, we incurred approximately $0.35 per share of volume-adjusted incremental costs, which were more than offset by almost $0.40 per share of improvement in price and mix. Cost increases in the quarter were driven by both lead and non-lead commodity inflation, as well as higher manufacturing costs from labor challenges, supply disruptions, freight and tariff cost increases and higher utility costs. Energy costs were particularly impacted in our European plants this quarter as a result of the senseless Russia/Ukraine war. This brings our fiscal 2022 volume-adjusted cost increases to nearly $3 per share year-over-year, with almost two-thirds having been offset by price/mix improvements, leaving approximately $1 per share not yet recaptured. Lead, non-lead commodities, and freight tariff inflation each comprise approximately one-third of the volume-adjusted cost increases, with plant labor and utility inflation mounting and offsetting most of the productivity improvements we made during the year. As a reminder, current margin headwinds will become tailwinds when supply chain inflation stabilizes, our onshoring initiatives take hold, and our pricing actions catch up from the multi-quarter lags. Please turn to slide 13. Looking at our quarterly sequential adjusted EPS bridge, Q4 2022 benefited from the net favorable price recapture previously discussed, approximately $0.20 per share of organic volume growth and FX gains and other income and expense from a weaker euro, which were partially offset by higher OpEx, raising our adjusted EPS from $0.19 from $1.01 in Q3 2022 to $1.20 per diluted share in our fourth fiscal quarter. For the full year adjusted EPS, as just reviewed, our net price/mix lag has not yet recaptured approximately $1 of the unprecedented cost increases. Volume growth from robust markets increased our full year adjusted EPS by approximately $1.40 per share. It should be noted that a large portion of our massive backlog growth was due to our suppliers and our customers' inability to ship. As such, the volume impact could and indeed should have been even greater, but instead will be pushed into upcoming quarters as supply chains normalize. Fiscal year 2022 also did not benefit from the $0.22 per share of last year's business interruption insurance recovery. OpEx was higher year-on-year due to investments in engineering, increases in wages and some resumption of travel. Finally, we enjoyed favorable FX gains and other income and expense during fiscal year 2022 compared to FX losses in fiscal year 2021, which added almost $0.30 per share, as well as having fewer shares outstanding. These massive changes largely offset a $0.02 decline from $4.49 in fiscal year 2021 to $4.47 of earnings per diluted share in fiscal year 2022. Please turn to slide 14. As Dave mentioned, the combination of strong demand and supply chain constraints led to a sequential rise in our backlog, which broke another record level to $1.3 billion at quarter-end, an increase of approximately $150 million over Q3 2022 and double the prior year. The fourth quarter backlog was driven by over $1.6 billion of new orders, which were 117% of our sales level. Approximately 50% of the year-over-year backlog growth was driven by both organic volume and longer-duration program wins, such as the CPUC backup mandate, while the remaining 50% was comprised of increases from price, advanced orders by customers, often due to their supply chain challenges and our delayed shipments due to our internal supply chain challenges. Please turn to slide 15. Our balance sheet remains strong and positions us well to navigate the current economic environment. At March 31, 2022, we had just over $400 million of cash on hand, and our credit agreement leverage ratio was at 2.5 times EBITDA, which is at the midpoint of our target range. The year-over-year increase in our leverage ratio is due to our opportunistic share repurchase as well as our strategic decision to build $200 million of inventory, $50 million of which was in the fourth quarter of 2022. The inventory growth was attributable to higher costs and lead times as well as an intentional focus on lithium cells, lead and other raw material component builds to mitigate against supply chain disruptions. We expect our leverage to be at the higher end of our target range of two to three times EBITDA for the first fiscal quarter of 2023 as we continue to reprioritize mitigating our risk to ongoing supply chain headwinds. It is important to note that our investment in primary working capital has historically been a significant cash generator during recessionary periods, providing a very effective natural hedge against the risk of a downturn on our balance sheet. In addition, our capital expenditures of $74 million in fiscal 2022 would be below our original full-year guidance due to the impact of supply chain headwinds on our capital projects. We remain on track for a strategic model's planned continued expansion of our TPPL capacity for fiscal 2022 and the incremental $200 million per annum increases thereafter. Our capital allocation strategy remains focused on three key priorities: investing in organic growth, complemented by strategic M&A, and finally, returning excess cash to shareholders through consistent dividends and opportunistic share buybacks. Our fiscal year 2022 capital allocation demonstrated our flexibility to thoughtfully invest in organic growth and return more cash to shareholders during a period of little to no M&A activity. We repurchased approximately $160 million of shares in fiscal 2022, nearly half of the total amount repurchased in the past five years. In March, our Board authorized $150 million to our repurchase program, which was augmented by $25 million in April through our annual evergreen dilution authorization. In the first quarter of fiscal 2023 to date, we've repurchased $20 million of shares, leaving $188 million of authorization remaining. We are entering fiscal 2023 with ample room on our balance sheet to remain flexible to meet our business needs, and we'll continue to allocate capital with the goal of delivering the best long-term returns to our shareholders. Please turn to slide 16. We believe we have set a solid foundation for a strong financial future. Our fiscal first quarter 2023 guidance range of $1.10 to $1.20 adjusted EPS, with a gross margin of 21% to 23% reflects our expectations that our accelerating price actions and cost recapture catch up will more than offset the sequential impact of significant incremental inflation and also that the FX gains we enjoyed in the fourth quarter will not repeat in Q1 2023. Our CapEx expectation for the full year fiscal 2023 is approximately $100 million, reflecting investments in new products, including lithium production lines and continued expansion of our TPPL capacity. Looking ahead, the pillars of our strategy remain unchanged. Our priorities are on track and trending to our initial investment thesis, and we are confident fiscal year 2023 will demonstrate continued progress on our journey. We have learned a lot over the past year and anticipate ongoing sequential margin improvement in the upcoming quarters as the true underlying profitability of our business emerges. In revisiting our strategic plan, COVID and its related supply chain challenges have occurred and been disruptive. While we did not plan for these volatile supply chain conditions and do not know when they will stabilize, we will remain focused on the things we can control and we will continue to make progress on the strategic initiatives we have laid out. Our estimate of the incremental value these priorities will deliver at the exit of our strategic plan period remains unchanged. The variable is timing. As Dave described earlier, demand remains robust. And, in fact, our end market opportunities have been further spurred by exciting mega trends and the accelerating energy transition toward low-carbon alternatives from fossil fuels. We are on track for our planned TPPL capacity increases. And despite the distractions of product redesigns and component shortages, we are making significant progress on our new product initiatives that will continue to elevate EnerSys from a traditional lead-acid battery company to a fully integrated energy systems provider. These proprietary technology platforms can be leveraged across all three of our segments with higher margin products that meet our customers' needs in dynamic markets, including the initiation of additional programs such as DC Fast Charge & Storage, which have not been contemplated when we last updated our strategic plan. We continue to execute on our EOS program with savings generated from lean initiatives and our Hagen plant closure. Although, the favorable impact of these efforts has been overshadowed by labor inflation and supply chain challenges. We've restrained OpEx growth to provide leverage against our revenue growth and our share buybacks have returned value to shareholders, which will bolster earnings per share. We will provide a more comprehensive refresh of our strategic plan, including projected timing when market conditions stabilize. But for now, we remain excited about our end market opportunities. We are pleased with the progress we are making against our strategic priorities. And finally, we are confident in our ability to create the shareholder value we committed to in our strategic plan at our 2019 Investor Day and reiterated in our update last fall. This concludes our prepared remarks. Operator, you may now open the call for questions.

Thank you. Our first question comes from Noah Kaye with Oppenheimer. Please go ahead.

Good morning and thanks for taking the questions. Andi, you provided a lot of great color on some of the price cost considerations. So, I appreciate those disclosures. Can you maybe pose dimensionally what you're thinking about in terms of price cost for 1Q? You mentioned some incremental costs to energy. But if you could just give us a little bit more detail around that and maybe possibly even quantify where you expect price cost to be? And then, I guess, the second part of this is, since a lot of the backlog is really in longer lead time projects, do you have visibility on where price cost might head for the back half of the year?

Okay. Thanks, Noah. It's obviously the area that we spend a good deal of our time. Looking forward for the first quarter, as Dave mentioned, we incur a lot of our costs this fiscal year and then they roll off. So, we do get pretty good visibility into much of those costs. We expect it to be another quarter of significant cost increases, probably in the range of $25 million to $30 million of incremental costs. But we anticipate that we will more than offset that with pricing actions. It was higher than we had originally expected. If you recall, on our last call, we had thought costs were stabilizing. And indeed, they got worse. But we continue to put incremental price increases on top of that. So, that was the question on the price recapture. I think you had another question on backlog.

Given that much of your backlog appears to consist of longer lead time projects, what visibility do you have regarding potential uplift in the second half of the year, assuming there are no further cost increases? This may be a risky assumption, but if you assess the current cost structure alongside potential price and mix adjustments based on the backlog, what implications might that have?

There are two factors to consider: price and mix. The supply chain challenges have impacted our mix, particularly in Energy Systems. Throughout this year, we've adopted a more aggressive pricing strategy and even made adjustments to our pricing on backlog orders. This means our backlog pricing remains relevant. We anticipate a catch-up effect, but we are facing a lag. It's notable that costs began to rise before prices did, and once costs stabilize, we expect to see this catch-up occur. We estimated this lag to be around $1 this fiscal year, which represents what we believe to be the full potential.

And Noah, as we noted in the remarks, we got a late jump on price recovery in the Energy Systems business. So that really put a lot of pressure on us. That's improving. That situation is improving. And we feel much better about where we're headed. But that was one of the headline issues obviously for fiscal year 2022 is we just got pounded on costs for the first half without a lot of price recovery, but I can tell you that that's getting better.

Great. Thanks, Dave. Maybe one, just touching on the comments you made during your prepared remarks around the unique cycles for the telecom folks. They are sort of off the macro cycle. What do you think happens to the carriers' 5G expansion plans if we do indeed go to a recession? And I guess, what are you hearing from them in terms of focus areas, plant buildout and the kind of sensitivity planning that might be doing around an economic slowdown?

I mentioned this earlier because it’s a recent topic for us. We just had a Board meeting last week, and one of the key requests from the Board was to thoroughly examine our backlog for any vulnerabilities. We looked at it from multiple angles to identify potential issues. Overall, we feel positive about it because, as you pointed out, much of it is tied to projects that we believe have stability based on our historical data. I asked Andi to review past downturns and how they affected the business since she wasn't with us then. She found that the biggest vulnerability appears to be in the Motive Power segment, but that represents less than a third of our backlog, so it’s not our largest concern. Historically, profitability has rebounded after downturns, mainly because commodity prices tend to drop during these cycles, which improves cash generation. While I'm not hoping for a recession, we are certainly preparing for one, which is why this topic was prominent in our discussions at the recent Board meeting.

Great. Thanks. I have more questions, but I'll jump back.

Thank you.

Thanks, Noah.

Thank you. Our next question will come from Greg Wasikowski with Webber Research. Please go ahead.

Hey. Good morning, David and Andi. How are you doing?

Good.

Good morning, Greg.

So, first question, can you just remind us what the typical seasonality looks like for you guys throughout the year, and how that might differ this year in fiscal 2023 with its supply chain and just having a chunkier backlog?

Our second quarter has historically been our weakest quarter, primarily due to summer shutdowns in Europe and various other challenges. However, this isn't always the case. It's quite difficult to discuss seasonality right now because of the significant disruptions not only in the supply chain but also affecting our customers. Therefore, I am hesitant to provide commentary on seasonality in the current climate. Historically, our strongest quarter has been the fourth quarter, while the second quarter has been the weakest. However, this isn't a strict rule and can vary from year to year.

Got you. Fair enough. And then next is kind of a two-parter on the EV charging. So, any updates with the sort of two, call them, anchor customers and securing a first legitimate order? And can you give us an expected timeline on when you expect that to happen? And then second part of that, any updates on the broader strategy as well in terms of thinking about other applications like highway corridors and/or for fleet use.

Thank you for the question. We were hoping to finalize the legal documents with the customer before this call, but we weren't able to do that in time. However, we aim to achieve our first revenues by the end of this fiscal year if our suppliers can collaborate with us. The projects have evolved, and the units we are discussing have increased in size; for example, we're now looking at a 1,000 kilowatt hour unit instead of the previously mentioned 500 kilowatt hour unit. We have faced challenges in pinning down the customer's exact requirements, but progress is being made. I appreciate your question as we've had our business review meetings this week, revealing that each product management lead has identified potential applications for this technology within their respective areas. In a distribution center, for example, combining solar energy, storage, and a charging fleet of electric forklift trucks presents a practical solution. It’s important to communicate that the power draw and consumption from electric vehicles during rapid charging can be quite significant. For instance, during a visit to an Electrify America charging station, I noticed long lines with high-capacity chargers requiring substantial power infrastructure. Often, the locations optimal for charging do not have sufficient power access. Utilizing a storage battery can speed up deployment and reduce bureaucracy and costs associated with large transformers and high-voltage setups. We are enthusiastic about growing in this area. I’ve emphasized keeping the team focused on our initial commitments to customers while ensuring that all lines of business are exploring opportunities for this technology. We've made great strides, and one of the pictures in our presentation showcases a fully functioning system entirely built on EnerSys technology. It’s crucial to note that we are using our own battery modules and chargers, not assembling parts from other manufacturers. We have also added a solid number of software engineers to support bringing this product to market. Overall, things are moving positively, and I am very excited about the future. The rising costs of fuel and other related issues are likely to accelerate the adoption of electric vehicles.

All right. Thanks David. I will jump back.

Thank you. Our next question will come from Greg Lewis with BTIG. Please go ahead.

Thank you and good morning. Dave, could you discuss what's happening in the lead market? It's certainly been an interesting few weeks with lead prices declining. I have two questions. What do you think is causing this recent weakness? And as we consider your lead procurement, when might this drop start to positively impact the numbers?

A few weeks ago, I attended the Battery Council International Conference. Lead batteries are by far the largest current application of lead, primarily in starter batteries for internal combustion engines. The forecast for battery unit manufacturing for starting, lighting, and ignition has remained predictable. I stopped trying to link demand with lead prices because, in my opinion, it's often driven by financial considerations and where money flows. On the supply side, we have faced some impacts due to COVID-related challenges in getting workers into smelters. However, the demand has remained steady and reliable throughout this time. We do have lead pricing mechanisms in place with our customers, which has resulted in some decreases, and we expect to see the benefits of that in a few quarters. We just need to keep being adaptable.

Okay. Great. As we look ahead to the coming year, I understand we haven't provided guidance. Regarding cost recovery from inflation and logistics, I am curious about our logistics requirements for the next few quarters. Have we secured or contracted any logistics services? In other words, whether logistics costs rise or fall, are we somewhat insulated for at least the next few quarters?

I believe we are working to manage our costs effectively. Our expenses show up a quarter later, giving us some visibility for the next 90 days. However, the full impact of the recent shutdowns in China is still uncertain. I am worried about potential freight congestion in other regions as well. One significant challenge has been onshoring electronics related to our energy systems, as we've faced substantial tariffs, amounting to tens of millions of dollars. Our efforts to bring manufacturing back to North America have been stalled due to our contract manufacturers facing similar issues, such as labor shortages and semiconductor supply constraints. This situation is frustrating, especially since many companies are trying to reduce reliance on Chinese suppliers due to tariffs. We have made progress, but I had hoped we would be further along by now. Our contract manufacturers are really struggling, so I want to emphasize that we are confident in our ability to secure pricing, but there is a delay in realizing that. We need to incorporate this price lag into our models. Nevertheless, we believe this headwind will eventually become a tailwind. Additionally, we are considering the potential impact of a recession on us, and we remain optimistic about our backlog and the nature of demand in areas like defense and 5G, which we do not expect will decrease significantly.

No, that was great. Super helpful. Everybody, thank you very much.

Thank you.

Thanks, Greg.

Thank you. Our next question will come from Brian Drab with William Blair. Please go ahead.

Hi. Good morning. This is Blake Keating standing in for Brian. You mentioned briefly in your prepared remarks, but could you provide more details on the market dynamics surrounding the 5G small cell rollout? What factors are contributing to the delays? Are you implementing any new solutions? I know you've often noted that frequency interruptions are among the challenges, so are you considering any solutions to address that?

I believe there are some technological challenges that have influenced the decision to concentrate on the mid spectrum earlier. These challenges may include supply chain and microprocessor issues that affected customer preferences. Additionally, competitive pressures have played a role, particularly after a major carrier quickly launched a mid spectrum campaign, prompting others to shift their focus away from small cell ultra wideband initiatives towards the mid spectrum. Spectrum availability is also a factor. It's a complex situation, but it's important for our investors to know that we provide power and batteries across these telecommunications networks. Whether it's mid spectrum, high frequency, or small cell, we have a market presence. We are particularly optimistic about the small cell sector due to our significant technology advantages in that area, which we believe will allow us to capture a larger market share and improve margins as this sector grows. As I mentioned earlier, we anticipate a noticeable increase in growth for small cells in 2024 and 2025, with plans to ramp up before then. We do have ongoing projects in our small cell portfolio, although the volume is not where we expected it to be a few years ago. Nonetheless, this still represents a significant opportunity for us, and we are currently experiencing strong demand and a robust backlog in our Energy Systems business. Our focus is on executing our existing projects, while we continue to keep the small cell opportunity in our sights.

Thank you. I have one more question. What early feedback have you received since launching the Mojave Home Energy system? Have there been any early successes or unexpected challenges?

We are currently facing supply chain challenges that are impacting our ability to produce at the moment. Our contract manufacturers are experiencing similar issues, making it difficult to obtain chipsets and personnel. It's a matter of prioritizing our efforts, and while the product is excellent, we are also developing another version that will be priced more competitively. However, we are facing significant supply chain difficulties with our new products, primarily because all chip manufacturers and distributors are placing clients on allocation due to limited supply. This makes it challenging to introduce new products since allocations are often based on historical usage. Additionally, as mentioned, this situation has resulted in many electronics being stuck in our backlog. The good news is that this backlog often includes our highest margin products. A major challenge for our Energy Systems business has been our late response to price recovery, but we've also been experiencing a shift in our product mix, sold more batteries and service cabinets rather than electronics, which negatively affects our overall performance.

Got it. Thank you. I will pass it along.

All right.

Thanks, Blake.

Thank you. Our next question will come from John Franzreb with Sidoti & Co. Please go ahead.

Good morning. Thanks for taking the questions. Two questions. One, it seems like the biggest concern on the recessionary front is in the Motive Power business. Historically, we have been given a glance at the order trends globally. Are there anything in those order trends that give you reason for concerns?

No, the orders remain very strong. I believe the Q4 orders were good and we’re seeing positive signs in Q1 so far. There are no warning signs on our radar. We’re aware of the same information you are and we want to be prepared, but currently, orders continue to be robust.

Okay. You mentioned that margin headwinds are transitioning to tailwinds and that the mix of electronics is impacting your gross margin and price cost recovery. How do you expect the gross margin profile to end for this fiscal year compared to the figures you provided for 2021 to 2022 in the first quarter?

I'll let Andi respond to that. It will be challenging for her unless she can inform me about the number of NXP chips we can expect to be delivered this month. But go ahead, Andi, you can take it from here.

I think it might be helpful to give you an idea. A quarter ago, when we were assessing what to expect for this quarter, we found that costs were $20 million higher than we anticipated. While we managed to increase our pricing slightly, the larger impact will come in the second quarter. We faced a surprise of $20 million in additional costs. We might recover around $5 million of that this quarter, but the remaining $15 million will carry over to the following quarter. This situation resembles a domino effect due to the delays we are experiencing. We’ve incorporated our strategic plan into our assessments, which we update annually. We presented this at Investor Day, and our business units continuously evaluate market conditions and pricing trends before setting our budget. Despite existing challenges, our market outlook remains strong due to factors like 5G development and growth in the transportation sector. Additionally, we are progressing with higher-value products, TPPL growth, and various approvals, which are aligning with our goals. We are also implementing rationalization efforts while managing supply chain headwinds. On the operational front, we continue to leverage OpEx as our volume increases, with price recapture expected to lag behind. We have good visibility for the upcoming quarter, but we focus on what we can control and are working on capturing our backlog and implementing pricing strategies more swiftly. However, it's challenging to predict when conditions will stabilize. Furthermore, we've invested significant effort in evaluating liquidity and cash flow to ensure we feel secure. We conduct sensitivity analyses regarding the potential impacts of a severe recession or ongoing inflation, and we're confident in our robust balance sheet.

We prefer the recession inflation, frankly. I hate to say it, but.

I hope that answers your question, John.

Okay. Great. Thanks for taking the questions.

All right.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. David Shaffer for any closing remarks.

Thanks, Shari. We want to thank everyone for joining us today. And we look forward to providing further updates on our progress on our first quarter 2023 call in August. Have a good day.

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