EnerSys (ENS) Earnings Call Transcript & Summary

Good morning, everybody. I'd like to invite everybody to start getting seated. I'd like to welcome everybody to EnerSys 2023 Investor Day. I'm Lisa Hartman. I'm the Vice President of Investor Relations here at EnerSys. We're really excited to be here back in person after so many years. This is a hybrid event. So I also want to thank people that have joined us on the webcast. And and want to thank everybody again for taking the time to be out here. Before I get to the agenda, I want to remind everybody that we will be making forward-looking statements. There are risks and uncertainties related to those statements. Please refer to the details in our safe harbor slide as well as our 10-K, which has a full list of those risks and uncertainties. We have a full agenda this morning. And throughout the presentations, you're going to hear recurring themes around our strategic framework of innovate, optimize and accelerate. Dave is going to start things off, talking about the critical role that we play in accelerating the energy transition. He'll give a look back to where we were, where we are and where we're going. Followed by Dave, we'll have 3 lines of business leaders, Drew, Shawn and Mark, who will walk through the business drivers for their segments. The compelling large end markets that we serve that's driving the overall growth opportunities for our business. We'll have time for Q&A about 20 minutes, followed by a short break. When we come back, Patrice will kick things off walking through how we are optimizing our operational excellence. Joern will be walking through our innovating energy solutions, including our fast charge and storage, which we have out in our product showcase. And then Andi will be tying it up wrapping everything up around how we're executing on our clear financial priorities and again, talking about our long-term opportunities for growth within the business. As I mentioned, we have plenty of time for Q&A. For those of you on the webcast, you can submit your questions through the portal, and I will read those for you here in person. And of course, we'll be taking questions in the room. We do have mic runners, so please wait for them to bring you the mic so that we can hear you both here in the room but also on the webcast. Following our Q&A, we should have a little over an hour for lunch and networking, we'll be moving out into the product showcase. I encourage everybody to meet our subject matter experts. We're featuring the innovations in 5G small cell as well as what we're doing in motive power, in particular, with wireless charging. I mentioned earlier, we have our fast charge and storage system and pedestal here. And we also have members of our ESG sustainability and DE&I teams that have some content to walk you through on the initiatives that we are -- that we've been focusing on and executing on those subjects as well. For those of you on the webcast, the product showcase is already posted. And for everybody, we will be posting the download of the slides when we conclude our presentations this morning. And with that, I will hand it over to Dave Shaffer, our CEO.

Thank you very much. Thank you, Lisa. Just a little bit about myself before we get started. I've been in this business since 1989. And it's easy for me to remember that I started in a battery factory the Monday after getting back from my honeymoon. So my wife always reminds me, I've been married to her 1 week longer than I've been married to this business. But I joined EnerSys in 2005 and I've had different roles and responsibilities. My background is principally technology engineering. But I've worked through the ranks and became CEO in 2016. I couldn't be more excited to be here today to talk to you about the company, about the significant opportunities we have in front of us and certainly give you all a chance to meet the team, do the product display and -- it's just been an exciting time to be at EnerSys. So we are a mission- and vision-driven company. Our mission is providing people everywhere with accessible power to help them work and live better. Our vision is serving the global community with mission-critical stored energy solutions. Down at the bottom of this slide, I won't read them all. But this is a value-driven culture. And we've put a lot of energy just as much as into the strategy and the product road map. Over this time period, we've put a lot of energy into the culture of the company. In the end, I was told early on in my career, a CEO has 2 jobs, a strategy and culture. And so just as much emphasis that's put on strategy, and hopefully, you identify and see the values that we've identified here throughout not only my presentation, but throughout everyone's presentation. So we feel extremely well positioned for long-term profitable growth. The team -- we beat this around and said, what are the 5 most important elements to making sure that we've positioned ourselves well. The first bullet the team agreed on is we have highly differentiated energy solutions and we have a full suite of products to serve a very diverse set of end markets. Secondly, and this is -- hopefully, will become more relevant as we go through the presentations, you'll note how well aligned EnerSys is with many of the electrification mega trends that are going on in today's world. A third is we have a resilient business model. We put so much emphasis in the past few years on the product road map, on technology, but we're building that upon a strong foundation of a business that's generated positive cash for many years. And with that, we just have a strong balance sheet, strong cash flow generation, and we have clear allocation strategies that we've identified for how to move forward. And then finally, the fifth point we've identified collectively is that the leadership team is extremely focused on creating value for all of our stakeholders, especially our shareholders. So I started in 2016 as CEO. At that time period, we were primarily a product company. And that product was mostly flooded lead acid batteries for industrial markets and industrial businesses, very, very good business, very important business. But when I took over, I didn't feel like that was going to provide the growth we needed to sustain a value creation for our shareholders. So we embarked on a journey to become a systems company, a solutions-oriented company. And that's where our investment has been over this time period since 2016. Inside of that time period, we've made 2 major acquisitions, One was Alpha Technologies. Alpha brought us power conversion electronics. It brought systems architecture system thinking. And the other major acquisition we did over this time period was NorthStar Battery which dramatically enhanced our ability to manufacture thin plate pure lead batteries. You'll hear a lot about TPPL batteries throughout the course of these presentations and the important value that's created for us. But along with that, over this same period, we've also invested in our EnerSys operating system. You'll hear from Patrice, the benefits that this brings to the organization, and we've done a tremendous amount with Joern and his engineering team to again develop the new products you're going to see throughout the course of the day. And so as we sit today in the themes that Lisa mentioned, innovating, optimize and accelerating is what this whole day is about. And it's a very different company. I certainly when I walked through and I saw the product area I was -- I mean I've been with the company a long time, and it was even a little shocking to me how different the company is, and I couldn't be more excited about it. So here's just some numbers over that time period. If you look back at FY '17, which is a 2016 time frame, 27% only of our revenue was generated from maintenance free batteries or systems and services. But you can see over that time period, the number has grown to 56%. So we've made a significant transformation. We're not done. By no means are we done. We have a lot of work to do, but you can see things are moving and they're moving in the right direction. Some of the highlights I'm most proud of as part of this journey, 110 new product introductions. That's -- it's been a huge testament to our engineering group and the product development cycle on these products is long. It's not -- these products can't be developed overnight. They're multiyear investments, especially when we get through the testing, the validation phase. The UL approvals, we have 75 UL approvals. Those all take time. So we've put a lot of rocks in the NAPSAC in terms of costs over this time period, building out these engineering capabilities in these products. And again, part of the theme of Accelerate is starting to leverage these investments we've made in [indiscernible] new product revenues, and that's the forward. And this 3.5x faster product development -- this is a testament. You'll hear me talk about modularity, and this is a testament to Joern's efforts and really driving the organization to use standard modular portfolio products. And what this means is we get to market so much faster than we did. When I look at some of the products you'll hear about today from Drew and from Joern and from Shawn, the time to market is nothing we ever could have done in the 2016 time frame. So it's a very different company. And over this time period, we've increased our engineers by 288%. That's a significant investment. So we are a global company. I have the unique history and position of living and working in all 3 of these regions. Each region has its own unique set of circumstances and challenges and opportunities. And so it's just been a wonderful part of my career to have spent time leading Asia out of Singapore, leading Europe, Middle East and Africa out of Zurich, Switzerland. And I can assure you, I have a global perspective on the business. And the numbers on the top row, the one I want to draw your attention to is on the further [indiscernible] but we have over 10,000 customers. That's a significant number. Historically, none of our customers are more than 5% of our revenue. I know that one of our biggest customer, just [ pierced ] 6% owing to a big project. But typically, historically, our customers are 5% or less. If you look at the geography, you can see the 73%, the heavy concentration in North America. This went up as a result of the Alpha acquisition. Alpha had its biggest footprint in the United States and in Canada, and that has increased that concentration in the Americas market, specifically in the North American market. And you can see that we certainly have some opportunities for growth in the rest of the world. And then the business segments will dig into in a minute. And we go to market through and report our results through 3 lines of business. So the first line of business, we go to market through is our Energy Systems business. The biggest part of our Energy Systems business is network powering. So big customers, wireless customers, broadband customers network, they all use a tremendous amount of power, and they all need backup power in case of emergency, so they can continue to deliver communication services, most especially 911 or emergency services. So backup power for communications network is a critical part of Drew's business. And you'll hear a lot about that. Data centers. Data center growth has been wonderful of late. And again, we'll get into how our lives are just becoming more digitized and the need for electricity and backup just continues to grow every day. And then inside of our Energy Systems business, we also have the grid and utilities and so forth. Going clockwise, our Motive Power business, think of material handling equipment. Think of electric forklifts, think of automatic guided vehicles, ground support equipment at an airport. This is all reported floor care equipment. Shawn is going to talk a lot about these products here in a few minutes. And then our third line of business is our Specialty business. Specialty is an amalgam or a combination of the transportation and aerospace and defense, not truly aligned, but neither was big enough to have or justify having its own line of business. So we combine those both under Mark. And there's exciting opportunities for growth in each of these sectors that Mark is going to talk about. So those were the outer rings and all 3 of those lines of business are built around 3 core competencies of engineering and supply chain. And we'll start with energy storage. This is sort of the history of the company. I know there's lots of forms of energy storage. We're talking specifically about battery energy storage. And of battery energy storage, we have 3 different technologies that we use, and you'll hear a lot about throughout the course of the day. The first chemistry is lithium ion. The lithium batteries we use in our product portfolio for maintenance-free folks that don't want to have to work on the battery, add water to the battery. They need a maintenance-free product. And these -- typically, the lithium batteries are used in heavy cycling applications. And they -- or customers that need an extremely fast recharge. And we've put so much energy and Joern and the team have just done so much on deploying and using these high-energy density batteries safely. Because our customers always want it smaller and smaller and smaller. That's a constant pressure on us every day. The next product that we go to market with is our thin plate pure lead technology. And this is -- it's also a maintenance-free battery but doesn't have the heavy cycle life that the lithium batteries do. So in those applications, a lot of Shawn's customers, which are lighter duty, medium service duty this provides enough service life for the product. So it's oftentimes a good compromise. And finally, there's the traditional flooded batteries. If we go clockwise to power electronics, a lot of this came through the Alpha acquisition. I want you to think of energy conversion. So it's going from AC to DC or DC to AC or DC to DC, different voltages. That's what these devices are for. And these are so important, and we're just taking things to the next level, and you'll see that today. Momo's here to talk to you about our wireless charging. It's a new form of transferring energy, that's super exciting for our customers in the distribution center world. You're going to see high voltage power transfer systems for small cell powering, like a 5G network. Drew is going to show you some case studies there. And then one I'm just really pumped up about and Joern can show you more outside and it will be part of his presentation is our fast charge and storage project which I think is a game changer for this company. Now to put these -- to put the system together, you have to have software. And software isn't one thing. Software is many things. And the edge computing, these are -- all of these devices have CPUs at the device itself. So there's some level of math and storage of data that occurs at the device. We call that edge computing. And then you've got to do something with that data. And so we have clouds that we're building to store the data. And then it's the creating value for our customers from the data. That's an exciting part of this. And we're leaning heavily in and Joern will talk about how we're leaning into artificial intelligence now to be smart about how we manage energy in these systems. So this is -- these are the fundamental -- foundational core modular platforms that we're going to market with. And we just think these are highly differentiated and put us in a unique position to grow with the electrical demands of the world. So talking about these mega trends that are driving the business. This is, I believe, a conservative number that our serviceable addressable market is in excess of $30 billion today. and our revenue sits at around $3.7 billion as reported. Again, you'll see on the bottom here, these 6 diverse end markets we talked about earlier, communications networks, data centers. You'll see those on the lower left. Think of then about how these arrows on the right, these macro trends are impacting each of these end markets that we talk about. Energy transition, Musk said it, I think it was 2 days ago that electricity needs to triple by 2045, if we're going to achieve the electric vehicles and all the other things that are occurring, tripling by 2045, that's a tremendous increase and driver as we're transitioning energy more to electricity and away from fuels and petroleum-based system. So this is a huge driver. Energy security. Think about the fragility of the grid. Think about the ice storms in Texas, think about the wildfires in California, think about how important it is to have backup power at some times to make sure that we're staying safe, that we're providing emergency services. Drew is going to talk about a case study, all about providing lifeline services in emergency situations. Energy security is critical connectivity. What element of our lives isn't more digitized than it was yesterday? How many apps did you run this morning? Controlling your smart house, checking the weather. Everything we do now is on our cell phone and the amount of energy and electricity and data storage, it takes to make that successful is a key driver and show me what part of our business isn't driven by these macro trend. Automation. This is a big issue for Shawn and his team as we get into these distribution center environments. We're just physically not enough people. Shannon is here, our HR lead -- and we just struggle sometimes to get people, and we're not alone. So automation is a macro that is going to be around for a long time. And then finally, the most important one on the list is decarbonization and what we could all do to make this a better planet. And again, the regulatory environment, you hear about the inflation Reduction Act, I'll talk about this environment is very beneficial for EnerSys and our shareholders, and it's also the right thing to do. And we've got some of our ESG folks here to talk to you in our product display area and show you some of the exciting things we're doing. So we are really exposed to these mega trends. Why EnerSys? Why EnerSys? We think we have some sustainable competitive advantages. And the first on this list is deep customer relationships. We're an old company. We've been around a long time. We've been doing this a long time. And the way we go to market, we've been -- we know these customers. We have complicated and broad channels of distribution. And with that, becomes the need to have domain expertise, whether we're selling into material handling or John Hewitt in the back, and he's one of the leading experts in the world on broadband powering. We -- you have to have people in your organization that can speak the language of the markets you're trying to go to. You have to have that domain expertise because it may all be amps and volts. But each of these different segments has very unique requirements, UL standards, and you have to be able to have folks in your organization. Aerospace and defense has some really tight requirements and you have to have these domain experts, and we do. Modular technology. This is really important for us. Why? One, I talked about the benefit of getting to market quicker with new products. But the other thing is I talked about one of our strengths is EnerSy's the diverse end markets we serve. But when you're spread out like that, it's harder to drive economies of scale because you have so many different -- your volume is spread over a lot of end markets. We're not just doing one thing like certain big battery companies. We do a lot of things. And as such, what we have to do is drive as much commonality in these piece parts so we can get some buying leverage as we progress. The business model we talked about earlier, the balance sheet, Andi's going to talk a lot about that. And you're going to hear directly from Patrice about the important efforts and progress we've made on our EOS journey and our operational excellence. So it's a 3-pillar framework. The innovation has been a really key area of focus as we talked about all the new products. We talked about hardware and software, and then optimize. When we talk about optimization, we have to drive the P&L. We have to drive the cost. We have to flex. We have to grow the revenue without growing the operational expense. Patrice has got to close the gap on some of our factories. We're really focused in the execution and really squeezing the margins hard in this phase and accelerate. To me, what does accelerate mean when we came up with these themes, accelerate to me is it's taking these new products we work so hard on over the past few years and really step on the gas and start to generate some incremental revenue for the business. So we -- I hope you got to see a press release we issued last night. We are very excited to announce the exploration of a Gigafactory in the United States. It's a wonderful opportunity. Benoit, the CEO of Verkor is here in the front row. I hope you get a chance to meet them in the breakout session and understand the mutual benefits that this opportunity provides for both companies. For us, and Joern and I, we've been at this now for a while. And it's one of my first hires. And our strategy was originally built about procuring sales and packaging them together. Well, the inability to control the design and the insecurity of the supply chain, especially in this crazy macro environment we're living in, is just much more difficult than we had anticipated at the time. The other challenge is the rapid explosion or acceleration of demand for lithium batteries due to the electric vehicle market. So though you might say, wow, there's so much out there, there really isn't that much out there. There's everything is committed and our volume is as proud as we are, our volume is nothing compared to the electric car market. And so it's very difficult for us to control our own destiny. And as you'll see lithium is so critical to our forward road map we felt this was the opportunity. And part of that, and this again, gets to that word accelerate, this Inflation Reduction Act is doing that. We have been on a path for so long to focus on 100-watt hour per liter type performance in batteries, high volumetric energy density for years. But the IRA now gives us this opportunity to push faster without getting Andi upset with our debt ratios, right? We don't want to be in a position where she's in my office, thumping her foot because we're getting out of our comfort zone. And so this is really a great opportunity for us to start to move faster with things we desperately need to do without putting our shareholders in an uncomfortable position. And so you'll hear more about this as time progresses, it's early, Benoit. We've got a lot of work to do. We've had dinner together the last 2 nights. We know we have a tremendous amount of work to do, but we just couldn't be more excited about having a domestic supply chain. And as part of this, as EnerSys, we are wholly committed, wholly committed to investing the proceeds from IRA to accelerate our production of 100-watt hour per liter or higher batteries in the United States. That is how this money is going to be used. So it really accelerates the global energy transition in our part of that. So I got to get this right. If you're going to talk the talk, you need to walk the walk. I got that mixed up yesterday when we were talking about this. But it -- we are so important in the ESG journey of so many of our customers. Shawn's customers, making a decision between a gas-powered truck or an electric truck. What a big role that, that can have in terms of decarbonization, Drew's customers choosing between a diesel generator or a battery pack for extended run time. You'll hear about his case study. we are -- this is our -- this is what we do. But as a manufacturer, as an employer, again, we have to walk the walk. And so Christine, Sam they're here, you'll talk to them about our journey we're on. As in terms of our environmental stewardship, the commitments we've made that I've personally made to making on our greenhouse gas emissions, on our water intensity and we've got progress that we're so proud of. Sam, I'm so happy with the sustainability update that we just issued. And I think the goals we've aligned to are aggressive but certainly achievable. Patrice, your team has been very supportive. And part of this is also what we're doing for DEI. And we've got Nicole here I see she can speak to you about our journey. We're particularly proud about how much we've moved in terms of women and leadership in the company. By no means are we done. And we've got so much work to do, but it's not through a lack of attention or focus. And I can tell you, I've got a management team that is wholly committed and fully supportive of everything we're trying to do on our journey. So -- and just from a governance perspective, this does report into the Board. It's becoming part of our compensation and the way we're measured. So again, we're going to continue to live and breathe this throughout our culture every day. Here's the leadership team. We're all here. And I picked everybody. So this is -- except Joe, I inherited Joe. But other than Joe, this is a team I built. And I'll tell you the things that are important to me and I think each one of these people embodies. Everyone on this page is extremely ethical, that is so important for us, and it's a common thing. When I look at that picture right there, I can tell you that's a shared trait. Everyone on this page is extremely intelligent. And finally, and this one -- everyone on this screen works their tail off. So it's a hard-working group. And again, I'm particularly proud, especially since I hired most of them. So next slide, our Board, we have a great Board. And the -- it's been a great combination I don't know if you've been paying attention, but every board member we've added over the past few years since I've been CEO, we've intentionally recruited Board members that are going to help shape and advance our strategy. So we brought in people from very important markets, Caroline from the 5G world in her role. She's one of the thought leaders for 5G in the world. Rudy, we brought in from National Grid. So he could help Joern and I kind of shape our thinking as it relates to the fast charge and storage. Steve Fludder has energy stores. So these additions we've made have all been very intentional, and we will continue to do that. We have 2 board members that are getting towards the end of their tenure. And I can only tell you that we will continue to use the same strategies like we just did with Tammi with her, she and Patrice really talk a lot about Lean and operational excellence. We'll continue to recruit folks that we think can help drive the company forward. So this -- I'll let Andi get the numbers. I mean I'll let her go through. These are the targets we've laid out for fiscal year '27. The points we've got listed here. I just want to reiterate, we have a very resilient business model. We have a very good company, generates ample cash, but we've got tremendous growth opportunities through our technology investments we've made since 2016. So we have a clear strategy to accelerate as these new products come to market as we grow without growing OpEx. We've got lots of opportunities. Andi will get in more there. That goes with margin expansion as well. We'll talk about the balance sheet and capital allocation. She's going to give you a lot of details there. I don't want to steal any of her thunder. So we're in a unique position. And again, I can't tell you that how important the experience and the deep customer relationships are to my level of optimism about the path forward. So with that, Drew, I'm going to turn it over to you. Drew Zogby is our President of Energy Systems.

Well, thanks, Dave, for the intro, and it's great to be here with everybody. I'm Drew Zogby, President of our Energy Systems Global business unit. I've been with the enterprise 15 years, going on 15 years because I was President of Alpha Technologies for 10 years prior to the acquisition. And now I've been able to lead the integration and creation of the Energy Systems Group for the past 5 years. I've had about 35-plus years in the communications infrastructure industry. It's been exciting from the early days of fiber optics coming into the market then wireless and high-speed data across the different networks out there. But now my enthusiasm and optimism and excitement about the market has never been higher because connectivity has never been more important to society and certainly to all the industrial segments, we support, along with the importance of efficient available resilient power. Nothing happens without an energy underpinnings, and we're right there leading that chart. So I'm going to share with you our story, talk about the markets and our focus, and our strategy and really capitalizing on these. So when you really look at the portfolio, we start with the needs in the market. Essential energy, critical power is necessary across all the segments, certainly that we're focused on. All of them are deploying more and more intelligent devices and across all of the industries that we are operating in. Connectivity, bandwidth consumption is as important as ever. Increase bandwidth requires increases in power. So we're able to continue to support that proliferation that growth by adding more power to the market that is necessary to enable these workflows. Now we also do it with the complete system solution. It's important that the customers that are deploying these have a partner that can put it all together, and we can put it all together, and that is the underlying need. In addition, reliability and resiliency are critical across the board when things go down, everything really comes to a halt. And so the resiliency through our energy storage integration and intelligence, provide that assurance of service delivery or workflow enablement. And again, no power, no business, nothing operates. And so this is why our importance, our relevance is ever increasing to our customers and into the marketplace. Just a snapshot of the business. So we're a $1.7 billion global business unit. We operate in all the markets that Dave mentioned around the world. We've had consistent growth in our revenue and our margins and earnings as an operating unit. We have well over 1 million systems currently in place that are being actively monitored, managed, et cetera. Our key market segments that we focus on: communication networks, data center and industrial power, industrial energy, and industrial communications. Our customer base is marquee. We have great relationships with the likes of Comcast and Charter, T-Mobile and Verizon. Apple and Amazon on the data side, Microsoft and all different types of utilities and intelligent transportation and rail across the globe. We bring to those markets a capability that pulls from a global portfolio of solutions in power conversion and energy storage and integration, and actually services to create unique solutions that fit their business model. We can pull on this global expertise but through Patrice's organizations around the world, we're able to deliver and fulfill locally. It's a very important capability. So we can create solutions very quickly from our global portfolio, deliver them locally, makes us stand out. Again, you see our portfolio power systems, energy storage/batteries, the ability to integrate in different types of enclosures and then tying it all together with services. A snapshot of how we look at the markets. We solve our customers' critical powering use case needs. We look at their network architecture. Presented here is just a snapshot of how an architecture may look in a 5G network or a high-speed broadband residential delivery system or data center edge compute architecture. In every case, it doesn't matter if it's wireline or wireless, indoor, outdoor, core or access, small cell or macro. We will work with our customers to tailor a solution that meets that application need. So for instance, small cell, there's 4 ways at least that will solve it. We can do it through an addition to a macro site. We can do it through a local placement of an antenna. We can do it through this unique touch-safe DPX system that you can see in the showcase, where we can do rapid deployments, a lot of the [ tower cos ] want to do, or even in the cable network, we're able to hang in antennas using our power systems and our DOCSIS communications right under the hybrid fabric coax out there. So many, many things that we can do to solve the problems that we target. The critical industry needs are pretty straightforward. We're the trusted partner with the expertise and the portfolio that's unmatched. We work in a consultive selling arrangement with our customers. We have key account management deployed worldwide. We understand their needs. We work to provide the best possible solution. We use that word a lot. We bring together the power conversion, the resiliency through backup. Scalability. We work with our customers so that they can maximize their deployment of their capital expense budgets. Optimize the operating expense that they have through having everything as efficient as possible as intelligent as possible and then help them with their resiliency requirements, which I'll share are becoming more and more pronounced and we're uniquely positioned to be able to solve them. David mentioned the modularity the building blocks, Joern's organization, our team in engineering are constantly solving the technical problems, but through solutions that can be repurposed across the enterprise. And in our case, we have our energy storage solutions that are interoperable with our power systems that can be packaged for the indoor/outdoor applications. Again, picture that network architecture drawing I had there, to fit in all of those. Then we move up the chain into more specificity. Is it an AC or a DC powered system, and then it's completed ready for that particular use case. And most importantly, besides our own interoperability is the connection or operability alignment, with what our customers are going to deploy in their overall, say, network operating systems, et cetera. So we have a great portfolio that we're able to tailor around the different applications and markets that we serve. Big markets. When you look at the overall critical infrastructure markets around the world, big numbers, right? Data center, telecom, broadband, industrial, communications, all these elements. Within all of that, we still see like 5% of all that spend could be considered critical power system investments. So as you boil it down, we still have a lot of opportunity to move forward. We have a great position. Some of our markets, we have extremely high market share. We've been in them a long time. They've been a high focus. There's many others where we have a great opportunity within certain segments and then globally to expand share and take advantage of these opportunities. In every case, critical power is a premier need that the customers do no longer have the expertise in-house to solve themselves. We believe that we can solve most of these critical powering problems or challenges faster and cheaper, than they can do themselves in-house and better than any competitor can do. So why we win? We win because we have the best solutions. We can solve the complete critical powering need better than anybody else in the industry. We deploy the reach into the market with the consultive selling, with the services team, with our technical expertise that can really dial in exactly what the customers need. We have great relationships. Again, Dave mentioned, we've been in this business a long time. The customers know us. They trust us. We have a seat at the table. We work with them to help them get new technology functioning. We are a key technology enabler with our critical powering systems. We sit and understand where the networks are going, and we provide the different solutions that make them happen. Our technology base is great. Under Joern's leadership we've brought in a higher order of design, modular pieces that are interchangeable. I'll show you a project where we were able to repurpose things from the motive power group right into one of our markets, we wouldn't have been able to do that with a previous approaches to things. Responsiveness, we are an adaptive, agile organization. We focus on the customer. We move to the opportunity at the speed that's necessary and we constantly challenge the teams to put winning first, customers first and looking internally for all the things that we can do a little better and a little faster. And again, our global scale, nobody has reach like we do. We can deliver in almost any key market around the world, a complete system and do it efficiently and a lot of time sharing technology that we have from one to the other. When we look at the 3 pillars of strategy, it's core to what we do at Energy Systems. From innovation and looking at that first pillar, we're constantly evolving the product lines higher efficient, more intelligent, better interfaces with the energy storage and the power conversion. All of that is in a constant ongoing innovation string that we have to create the new products and meet the latest market needs. We're always optimizing, right? Digitizing our back office fully utilizing our operations and supply chain facilities and repurposing the designs that we've created in engineering. And certainly, from an acceleration standpoint by moving fast, we're able to get more attention with the customers, more market share and challenging the teams internally to compete on time as much as anything else. Some examples I'm going to share. I'm excited as I could stand here all day and talk about these. But we always look at that use case, the best way to solve it in the most complete way even ways that the customers may not have thought of. And then we bring in that localization capability and fulfillment. I'm going to talk to you specifically about a unique project that we've completed in California because of an extended runtime mandate due to the wildfire shutdowns Dave mentioned. Also one of our small cell and 5G powering solutions that we call HyperBoost. But we're doing a lot of other interesting really cutting-edge solutioning right now. I have noted there some on the industrial power side that are interesting. So let me talk first about this HyperBoost project. Here's the problem. Thousands of existing macro cell sites out there. 5G needs to be deployed. 5G radios take a lot more power than 4G radios, right? More bandwidth, more power. There's no extra power availability at the sites. We have to add more power to the site. But the amount of power needed at the top of the tower would require a ton of copper wire to get it up there. Onerous, not practical, not cost effective. Customers came to us with a challenge. We solved it with the HyperBoost system. We run the power at a much higher voltage so that we don't need as much copper to support the radios. Help them deploy within their same footprint within that same set of restrictions that they had, so they could move on. And so this is one, for instance, where we partnered with 3 or 4 of the key leaders out there. We work in their labs. We get it prototyped. We're already in the field trial, and we'll be deploying this product by the end of the calendar year. Just one example of the way that we go to market and we win in the market. But now I'd like to play a video covering this California project. I think you're going to like what you see, and I can't wait to talk about it after it's over. [Presentation]

What a great project. So this is the quick story. State of California has the wildfire issue because the old grid line snap in bad wind conditions, mandate comes down, we're going to shut down the grid to prevent these occurrences preemptively for up to 72 hours. Then what do we do for the population, their critical needs. We're not really considered. So another mandate came down from the PUC, it said all the communication network providers need to provide 72 hours of backup when we shut the grid down. So for a big cell site, which, for instance, we would support, we can put a big generator there. It's easy to control. It's easy to manage. That's how they meet their mandate. In the cable TV market, it's a highly distributed architecture. There's thousands of power supplies, 1 for like every 1,000 homes in the market. How to do it, is a trick. You don't want to put out generators that can cause a wildfire because they're sitting in some dry grass right next to where the power supply may be. So we were able to work with the customers because we design the power supplies, we monitor the power supplies, and we know exactly what's going on with the load profiles and what it would take to provide 72 hours of backup. We were able to analyze the problem, take on the challenge with like 1 year to do it. And the great thing we're able to do is we're able to look at the chemistry performance of our thin plate pure lead which was able to solve the problem in a number of the cases. And then where the load profile of the dam was greater, we needed a higher density, we were able to bring our lithium solution in for the rest of it. That lithium solution was only able to be brought forth that quickly because it is something that was repurposed from what was done in the motive development group. So we were able to sit with the clients, solve the problem, develop the product, get new UL listings and get the first local municipality approvals to put lithium and stationary applications all within a year. And we're doing half the work ourselves, meaning our services teams are actually getting the permits doing the installation and commissioning. So we're about halfway into a $200 million project. And the great thing about this, this is state of California, that's their mandate. But many, many other jurisdictions will want that ability to have an extended run time. It doesn't have to be 72 hours. We can make it 24 hours. We can make it anything. Great project. Only EnerSys could do it. We're very proud of it. And it's, again, halfway done, and it will continue to be a great success for us. So when we look across to the future and supporting the growth model, there's no doubt that the core markets we serve, the importance they place on critical power and energy deployment and resiliency gives us that tailwind to meet the growth opportunities that we are targeting and committed to. There's many things going on. The small cell build-outs are going to be coming next. We're just sort of wrapping up a lot of the macro site small cells are coming next. We have the need in the market. We have the right portfolio. We have the great key account relationships. We have the ability to fulfill and we will be taking advantage of this ongoing need of critical power being a key technology enabler. So we look forward to sharing more with everybody in the showcase. But with that, I will turn it over to Shawn O'Connell, Motive Power President.

I hate being the guy that goes after a great video. It's always a tough thing to follow. I'm Shawn O'Connell, President of Motive Power Global. My journey began with EnerSys more than 20 years ago as a customer, and I had a power integration business on the West Coast of the United States, integrating EnerSys products. I made a good exit from that business, and I had a chance to join as an employee. And the reason I did when I was delivering products to customers, I never felt like EnerSys was just selling their product. I felt like they were partnering with me to do the most important thing when a battery is involved, and that's making sure the customer is never without power. This group is fanatical passionate about that. It remains that way to this day, and it was contagious for me. In the latter half of my career with EnerSys, I served the management capacities throughout our business. So I believe I have a real good idea of how we create value in our appreciable end markets, and it's sort of a unique perspective. Today, it's my pleasure to talk to you about our Motive Power Segment. And our Motive Power Business is powering material handling devices, and it's a long recognized leader in doing this. And what I hope you'll take away from here today through the course of this presentation is we're not just providing a battery we're providing end-to-end solutions with a goal in mind of helping our customers achieve operational outcomes at the lowest possible ownership cost. We're just as fanatical about our process as we are our products. So we have this [indiscernible] customer focus on how a customer experiences the journey with us, and it's a journey that we wrap in data, begins and ends with data. I think the other thing that should resonate with you today is we know exactly what's happening in our space. Dave mentioned the deep domain knowledge, and we have a very clear vision about how we're going to continue to unlock value through the energy transition. So Motive Power at EnerSys, Dave described this well. It is the systems, the components, the software, the management, sales and service, supporting predominantly the forklift industry. That's our largest application. And we don't care if the operator is being removed for automation, it's becoming an autonomous mobile robot, an automated guided vehicle. That's still our application. And applications like it, mining equipment, ground support equipment, like the luggage handlers at the airports. Floor care equipment in retail stores. These are all motive applications. Business is about $1.5 billion for us. We're approaching $200 million in operating earnings this last year. We have, as Drew said, blue chip customers in over 120 countries and we have a leading global market share, and this is a blend. The number you see is a blend. We have places like North America where this is more like 50% market share where one out of every 2 solutions is an EnerSys solution in the end device. Another little interesting tidbit. Forklifts are classified throughout the world as off-road electric vehicles by the regulatory people. If you think of it, a forklift as an electric vehicle and you look at the amount of charge points we have around the world every day, we probably have more muscle memory in charging electric vehicles in most companies on the planet. Keep that in mind when you hear from Joern later on fast charge and storage. This is an extraordinarily exciting time to be in this space. All of the buzz you hear about passenger vehicle electrification, the energy transition. This is happening of forklifts, moving away from internal combustion. Many of the reasons are the same. You've heard decarbonization. But think about this whole environmental health and safety aspect of a warehouse. Forklifts are inherently, they have inherent safety issues. Warehouses are confined spaces. So running internal combustion with the noxious fumes isn't the most pleasant experience inside a warehouse. And certainly, lithium and new battery technology is enabling more of the electrification to occur. On top of this, and Dave mentioned this, warehouse operators are struggling with the same labor constraints the rest of us are struggling with. And it's very difficult to achieve any sort of efficiency or scale when you can't get labor. So what does the future of the warehouse look like? It's very -- it's highly automated. It's electric. And if you're going to have batteries and there's nobody there to work on them, you're going to need a highly maintenance-free experience. Secondarily to that, if there's nobody in this warehouse, if it's fully automated, there's nobody there to plug something in or fill something. So in our case, for batteries, you need wireless charging. And clearly, you need the ability to remotely monitor and manage these systems from afar, if there's not going to be people there. We need to keep this fully automated warehouse in mind when we talk strategy in a second here. EnerSys leverages some key differentiating strengths, and I want to share a couple of them with you. One, we are designing a closed-loop system, the battery system, the charging system, the battery management software and system. Our service platform that supports this, everything has been designed by us and implemented to work together. That might sound simple. It's actually very unique in our industry. There's a lot of people packaging components that they're not the origin of. And believe me, it matters when it comes to the system functioning properly. The second thing we do is we offer 3 chemistries from a battery perspective. it's not one size fits all in battery. It just doesn't -- I'll explain this in a little bit more detail in a moment. Finally, when we bring the customer on the journey with us, and I said it begins and ends with data, we're able to support customers in the same way no matter what technology they use with us anywhere in the world, largely with EnerSys own people. Again, this is a massive differentiator for us in the marketplace. So let's talk about our strategy and boil it down to the simplest terms, but I want you to recall that fully automated warehouse. What have we been doing? We've been working on and deploying world-class maintenance-free solutions to get us to that fully automated future. We stand alone with a thin plate pure lead offering, and we have the highest safety rated, highest performance lithium battery in our industry. Now we can't just have that have the maintenance-free battery without a robust charging network. And we are launching this year, and you'll see it outside here in the product showcase, our wireless charger. And some of you came to the ProMat Show, and you saw the line and how deep it was around this wireless charger and the buzz that it's generating in our industry. Finally, we've been making a more robust cloud management platform to be able to manage these systems exactly as the user is going to need to do in the future. How do we optimize the solution? Begins and ends with data, our application knowledge and we get the customer-specific site data. We'll even come in and do power studies on their equipment. We'll put monitors on how exactly they're using their equipment. Think of like a solar power study. And we take that data and we tailor an exact solution based on their stated needs hierarchy of what's going to give them the best, again, operational outcome at the lowest possible ownership cost. How we accelerate this, once the user sees the value of this solution, they really come to understand it, what do they want to do next? Well, they want to deploy it throughout their network and unlock that value in every one of their sites. And think of a large OEM or globally positioned user, anywhere in the world, EnerSys can snap to and help them unlock that value at scale, at speed. Let me touch again on the 3 chemistry strategy because this is really important and a really powerful part of our differentiation. The old adage, if you only have a hammer as a tool, every problem looks like a nail. It's not one size fits all. So let me just describe them so you understand. A flooded lead-acid legacy battery. It's a workhorse does a great job. It's maintenance intensive. At the end of a shift, you either have to swap it out or have a prolonged charge to use it again. On the other side of the spectrum, you have lithium-ion, very, very good. It demonstrates its value very well in those very tough applications but it's 3x to 5x the cost of that legacy technology. And in some cases, you need other infrastructure investments such as fire suppression, different insurance considerations. So there's other things to consider when going to that technology. In the middle, EnerSys stands alone in our industry with thin plate pure lead technology. And we can deploy this, as Dave mentioned, in light- to medium-duty applications so it can't do everything, but it can do a great many of the applications in our space. Here's the thing. We don't care where we're going to end up. We start the customer at the same trailhead for their journey with us. We come in, we model their site. We ask them what they need. Based on that, we may tailor one or more of these solutions in what we call a hybrid solution that they can operate and extract value and achieve the results that they want. And at the end, we wrap them in the same data package using our eConnect app, which I'll describe. So the user experience, no matter which technology [ wires ] you're using, identical. So it's a very easy management environment for our end customers. So I'd like to put these concepts together for you in a couple of case studies. The first is a corrugated packaging manufacturer who's got a few sites, they, based on where they're at, want to be fully electric by 2026. Their needs hierarchy. At the top of it, they had environmental health and safety concerns. I mentioned that at the beginning of the presentation. Followed by the lowest possible ownership cost. They were running all propane trucks internal combustion. They were told externally. The only way you can do this is with a lithium solution. We came in, we modeled the site with EnSite and we determined certainly some of their applications needed to go lithium. But a great many of them could be TPPL, and we could deliver the same experience with both technologies in a hybrid application. This -- going with TPPL, which is at a lower cost point than lithium, we were able to save the customer in the first site hundreds of thousands of dollars. We didn't stop there. Part of our service and that journey with us, we came in and we trained their operators on how to most efficiently make use of those systems. Charge on brakes, charge at lunch, so that they were achieving the operational outcome that they wanted. The customer was so happy with this. They contracted back with EnerSys where we're still monitoring their sites in the background and staying on this continuous improvement journey with them. The second case study is a little different. Second case study was already electric using a legacy technology. It's a massive home improvement retailer, a name you would know. And they operate in this particular region, 23 distribution centers. Each distribution center has 300 to 400 batteries. Each battery, each operator on each shift goes in the back and they change out a battery. They have to get a fresh one. It takes up to 30 minutes for operator, then there's dedicated maintenance personnel, a dedicated maintenance room. And then they also spend 15 to 20 minutes adding water to each of those 300 to 400 batteries every week. It's very expensive. We came in, we modeled this site -- their first distribution center with EnSite. We determined the entire distribution center could be served by TPPL. We deployed the TPPL. They were able to do opportunity charging. They could get rid of the maintenance area. They could dedicate the labor back to revenue-producing activities not have the time wasted for each operator for each battery and they blew us away with the ROI. They came back and they told us over a 4-year cycle, we saved $1.5 million per distribution center, save. Multiply that by 23 distribution centers is $34 million in savings. What do you suppose they wanted to do next? They wanted to accelerate. They want to now go into their retail stores. By the way, there are thousands of those. And think about the power of this. Think about when all of our users unlock this value and realize what they're really accomplishing by going with our solution and therein lies the EnerSys opportunity. Now I told you that we use data. And I just want to give you a visual representation of what this ecosystem looks like. Now we have a whole cadre of devices that collect, monitor, aggregate, analyze, disseminate information. But the center of all of this is our eConnect app. And here's what it does. Locally, it gives the operator everything they need to know about managing their truck for their shift, state of charge, state of health, and they could get it on a dashboard, their smartphone. But when we get to the fleet manager, they're using the eConnect app, and they can see their entire fleet wherever EnerSys products are being operated with this system, and they can manage the macros to make sure their company is getting the overall value they were looking to achieve. EnerSys is in the background of this. In some cases, we're being contracted as a first case study to monitor these sites and be a part of that environment. We're also using this data to inform and administer warranty, make sure everybody is staying honest with one another. And in the end, we're taking this data and we're further informing new product introduction, new products, new services because we're expanding that deep domain knowledge and expertise. So again, it's a very exciting time to be in this space. We are the leader. We're extending our leadership because we are offering solutions that enable outcomes. We're not just selling the product. We're laser-focused on the customer and their journey with us, and that is embedding stickiness. We know where it's headed. We know how we're going to continue to extract value. And incidentally, last Investor Day, I was here and we promised you we would double our maintenance-free share of revenue in the next 4 or 5 years. We've done that. We went from a little under 10% to a little under 20% today. We have empirical data that suggests we should be able to continue on this trajectory and do the exact same thing over the next 4 years. So that's our goal and what we're going to try to deliver on. I really appreciate the opportunity to share with you today. Very, very happy to be in this space. And I'd now like to turn the floor over to my colleague Mark Mathews, Senior Vice President of Specialty.

All right. Thank you very much, Shawn and Drew. It's exciting to be able to talk to you here today. Mark Mathews, just to give you -- let me go back one. Just to give you a background for me. So I am a lithium battery guy. I've been 27 years doing lithium batteries. And as I've gotten older, and I've seen what our teams are doing in specialty, with engineering, particularly in space and automotive, I'm glad I moved to sales a few years ago. It's probably best for everybody that I'm in that position. So I talked to Dave 2016, '17, and I came visit Shawn and Dave and saw the vision of what EnerSys wanted to be. And it was -- I fell in love with it. I think this company is on a great trajectory. And for me to be a part of this and to be able to take what I've learned in aerospace and defense and work with these other team partners to move that forward is a really big deal. So I'm excited to share what we have with you today and walk you through what we're doing in specialty. So you see Ford trucks and you see CPSC and it's awesome. We're going to lead off with the James Webb telescope because that's what we power in Specialty. So I promise this is the last time I told this interface that we're powering is probably the coolest device ever made, but it was a big deal for us. We have lithium-ion technology to be developed over many years. That technology was actually part of the James Webb telescope. You're going to see us talk about Artemis out there and getting to [ Mars ]. So a lot of the lithium ion technology that we've developed is into that. So when that came up and flew up into space and finally opened up, it was a combination of excitement and relief to make sure the battery was working. So a very, very great opportunity for us. But it leads us into who we are. So specialty, we solved unique problems for customers. And because of that, we're an innovator. So we focus, as Dave said, we're really 2 different pieces of a business put together. We are medium and heavy-duty trucking and we're -- the other side we're in aerospace and defense. And there's some similarities there, we'll talk to. But the key for us is that we do things with electrochemistry, and we do things with smart electronics that enable our customers to do really hard projects. We are really proud of what we do in aligning with customers. We think of ourselves as someone has a question at the Raytheon or a Daimler or a Lockheed Martin about a battery, when they come to us, we say, "we are your battery arm. We are the person who's going to answer this question about your power system. So we've integrated our technology road maps. I'm a huge technology road map fan. We have them for our systems, and we go to present that to our customers, get their technology road maps and then integrate those 2 together. And what that does is it collects a very clear strategic vision for where we're going to go. So we know not only where we need to be now to solve today's problems. We need to know where we need to solve the defense problems or the trucking industry's problems 5 years from now. And we're already working on those solutions today. So when those new trucks or new systems come out, we are aligned with them with the product ready to go. So you'll learn a lot about that as we talk about what we're doing today. At a glance, I always start with the middle. We're a 60-40 split exactly, we checked it a couple of times to make sure that number is right because it's really clean. 60-40 split between transportation and aerospace and defense. 2 years ago, that wasn't that way. 2 years ago, we're actually a little bigger in defense. We -- as you're going to learn, we have a huge opportunity in the transportation markets. And that success that we've had has caused that 60% to grow. In the future, we're going to grow both entities. But transportation will go faster. We're going to show you why. When you think about what transportation is, it really is best-in-class power and energy, and I've combined into power and energy, and you understand why, for the heavy-duty markets. I think Class 8 trucks, and we'll talk about that in a second. For aerospace and defense a little bit different. So we have the largest fleet in the world, which is the Department of Defense, we make 70% of the factory batteries that go under tactical vehicles. So we have already dominated that market. And then we had this other piece of it that we're very proud of, which is the [ lithium ] piece. So that's going to be missile defense agency that's going to be aviation. We're going to take urban air mobility opportunities in front of us and space. And the stat I'd like to give about our lithium technology is we are now over 5 billion cell hours in space without a failure. So we're talking about things that can't fail. We understand that and we've been able to accomplish that with our lithium ion technology. So when we talk about why does our batteries? Why does thin-plate pure-lead makes so much sense for the transportation industry. You have to understand what's happened in the industry over the course of the last 15 years. What's happened is batteries have gone, the vehicles have increased more and more time and effort on increasing electronic loads on those vehicles. So we see hotel loads, TVs, refrigeration, air conditioning. At the same time, there's regulation now that doesn't allow us to have an auxiliary power unit on those trucks. So when they turn off and they are idle, they have to turn off, they run off the battery. What that did was kill traditional batteries, batteries that were designed to start vehicles, no longer could handle the deep cycling loads and the backup energy and reserve power loads that was needed, and they started to see significant downtime in the field where batteries are failing because they put all this additional power requirements on them. Thin plate pure lead perfect for this. This is what we do well. This is what this chemistry does well. It not only has great power capability, but it also cycles much better than traditional flooded lead acid. So we're able to put these applications in and work with the fleet. So we started to talk to the fleet owners, that's people like Penske, Freightliner, Prime Truck Inc., and say, what are your touch points? What are your pain points? Interesting, our pain points are, we're spending a lot of money every year towing vehicles in or not making shipments because the batteries are dying. And we said we got this. We'll prove to you we can make this happen. Keep that in mind as we talk about the next stage of how this is going to go forward. On the Aerospace and Defense side, it's a very similar problem in the Department of Defense. So you have these vehicles that were designed and MRAP or a Humvee that was designed to operate in a certain way. We dumped a ton of electronics on it, tracking electronics, GPS electronics. We're charging soldiers off of it now because everything is going to be chargeable on the [ soldier ] side. And with that, what we've done is we've killed those batteries. So now they want thin-plate pure-lead to be able to have the [ SignoWatch ] capabilities. So when they park their watch, they don't have a heat signature, which is probably pretty important if you're in a vehicle, in an environment, a combat environment. So they've moved over to thin pure lead. That's why you see all this transition. So 2 very different markets that had the same problem and both solved with our thin pure lead applications. And then for the lithium side, it's really about creating unique applications for a really difficult environment. So when we talk about our lithium ion capability. What it is, is it's designed to be a 0 volt. It's a patented technology we have. It gets 50,000 cycles before it dies. And we use the example of our [ Proba-1 ], one of the first satellites we made in our Culham facility in the U.K. was post last 7 years. It just turned 21, and we went out partying with it a couple of weeks ago. So it's lasted way longer than we thought it could last. So that's a big win for us. So if I get anything across to you today, I want to make sure this slide makes sense. So what we talked about is what's happened on the vehicle market. So when we look at our service addressable market, we're talking about aerospace and defense, and then we're also talking about really the medium and heavy-duty trucking market. And what we've talked about is this fleet drive to solve this problem they had with batteries dying in the field. What we've been able to do is convince those fleets to order new trucks from the Prime, so the Daimler and Navistar and PACCARs, they're defining that we want an Odyssey battery or thin pure lead battery in those vehicles. So what that happened is you see on the right-hand side there, 31% of North American batteries bought or North American trucks bought have our thin plate pure like technology in them. So one out of every 3. And when you think about a Class 8 truck, that's a truck that has 6 batteries in it, right? Those 6 batteries, that truck is designed to last 15 to 20 years. Our batteries aren't going to last 20 years. Our battery is going to last more like 4 to 5 years, way longer than the previous version, but they are going to be changed. So we've been successful in doing all the hard work to get the fleets to say we want this battery. We've got 1 in the OEMs. Our next phase in this business unit is to make sure when those batteries come up for replacement that we have a like-for-like battery placement on the shelf. So we had to work really hard with Patrice and his team to develop a distribution center to get batteries on the shelf in 4 to 5 days. So when someone comes in and wants to change out the battery or do a tune up on their truck, we have an Odyssey battery [indiscernible] they replace. Because if it does, they will replace like-for-like, so we can make them replace that battery. If we're successful, and we will be successful in this. When we're successful, I should say, if we can get the OEM percentage and the aftermarket percentage to be the same just on what we know already at the current level of OEM penetration, that's a $630 million opportunity for us. So that as we say, we know what our plan is. Our plan is to take advantage of the hard work we've already done and make sure we have the batteries in the right hands at the right time to backfill that. We're also going to talk about we added intelligence to the batteries to make it even a little bit more sticky. But in general, this is what we tried to do is to create this like-for-like replacement model in the aftermarket. So how do we win? I would love to tell you it's great sales leadership, but actually, it's products. So we win because our product works better. It's very simple. And then we win with building confidence. So one of the challenges we had is as our products are performing better, we need to prove the customers that it's going to work. So we'll talk about a case study in a minute, but kind of to pull it ahead a bit, we needed to put intelligence in the batteries to give people confidence this battery is actually going to last 5 years. This battery is going to go 4 years without needing to be replaced because it was such a new -- a game-changing concept in this industry. So as we've done that, we put intelligence in the battery, that's created stickiness in the aftermarket and a better pull-through strategy for us. We also, on aerospace and defense, do the similar type of things. We try to create value with our customers and align with those road maps, and then we have 1 piece that really makes us unique in the aerospace and defense markets, and that's our ability to scale. So when you talk about doing these unique programs, we have, as a company, large enough capability to put infrastructure in place to make the investments in place to support the growth that Aerospace and Defense has in the battery market. So we see the combination of commercial and defense production at scale. The best example globally of that is our Warrensburg facility. We're making Odyssey and tank batteries or tactical vehicle batteries side-by-side on the same lines, well, 2 different lines. But same technology, same lines, and that allows the defense department to have confidence they have a U.S. manufacturing that can meet their volumes if they need to. And that's a really big deal for us. as we go forward in this marketplace. So just like Shawn, Drew and Dave, I happen to have a slide that says innovate, optimize and accelerate, which is great. We'll go through this quickly. So innovate for us, I have a case study, we're going to talk about what we've done with our intelligent technology. So that's the eConnect technology we're talking about. Optimize is about making sure we can service this transportation market from a distribution perspective, and accelerate is we need to make more batteries to be able to service a market that's dying for our product. So we'll start with the first one, the easy one. This is the largest manufacturer of trucks in the world. Class 8 trucks. This is the European division came and they were having a really big problem with return on batteries. This failure was hitting the OEM is a big problem. So we said, let's look at this and take a step back. Let's take advantage of what Joern's created with his [ bowcasting ] principles and what Drew and Shawn are already doing monitoring. And let's create a chip that we put in every battery and that battery is going to tell you what the life and health of that battery is. So when you look at it with a Bluetooth app, you can say this battery is going to last this long. These 6 batteries are good. What we found was 2 things. One, people gained a lot of confidence in our products. The second thing is that we could troubleshoot issues way better than we have it. So we've really accelerated the troubleshooting capability of this OEM to say, we now understand that we have a charging issue on this vehicle or this has been abused in a certain way. And what they saw is their failure rate drop tenfold. So they saw us now we're well under 0.5% of returns for that product when it was into the low digit percentages before. Huge win for us, huge win for the OEM, huge win for the fleets. And great, the best thing is it gained a lot more confidence to align those technology road map. So now this customer relationship that we have with this customer is phenomenal, and we're going to take this what we've done with this intelligent battery and make that the standard for EnerSys the next 5 years. Everybody is going to have an [ age chip ] so we can do exactly the same thing with this customer to an entire industry. We're going to change the industry with this technology. The next one is probably more straightforward, but a lot more work and Patrice gets to do a lot of this work. So I always smile at him when I say it was really creating a distribution center. So we've been used to at EnerSys, dealing with very large customers. But we've never really dealt with the speed that we needed in the aftermarket, especially for Transportation division. So we were having orders coming up from the OEMs. They would give us 4 or 5, 6 weeks or even 6 months lead times on what their needs were. And then we started to see this aftermarket hit, and we were struggling to support them because they need -- they need batteries ordered and shipped within 2 days. So we invested in a distribution center in Springfield, right next to our plant, literally across the railroad tracks from our plant in Springfield. And what we've been able to do in -- we kicked this off at the end of last year. And in Q1, we went from having fill rates of 50% to 60% to now 100%. So we now get an order in, we get it on a shipment and we get it out and delivered within 5 days. That customer confidence is what's going to enable us to win the aftermarket. We have to be able to do that. And I also should make Andi happy and make sure I mentioned that the aftermarket is much better margin. So it also makes our margins better as a business. So it's strategic for us to make this a success. We've made the investments to make a success, and we have the ability to continue to expand this distribution capability and service these customers and really eliminate the warranty claims we have in that business. So really, what is the last piece that I want to talk about is how do we know we're doing well? How do we know we're successful. And what do we need to do? So when you talk about aerospace and defense, we know we're successful when the next emerging markets like urban air mobility are coming to us and asking us for our products, asking us for their help. So we see some of the largest new next-generation electric helicopters or electric UAVs is what we would call them, looking for us for advice. How do we take what we learned in space and the reliability of the space and make it successful on an urban air mobility product. That's an exciting piece for us. The other exciting piece for us is how do we -- the demand is so strong for our product, how do we deliver more and more. So Patrice and everything he's going to talk about today is about getting more TPPL batteries out so we can address this aftermarket and be successful there. And then finally, it's about integrating the overall team. So you heard John and -- Shawn and Drew talk a lot about moving to lithium, right? We are the biggest fans in Specialty of them becoming successful in lithium because that frees up more TPPL capacity for our segment. So it's a very aligned strategy that we have here and then we look at the outcome. So what we've seen is significant growth, 17% year-on-year growth in transportation in the last year, 40% in EMEA. We identify in aerospace and defense, here are the programs we need to win, and we make sure we win those. We are winning every program that we go after because of the technology we have and our ability to scale. So really, it's an exciting time for us. And as I kind of wrap up, I kind of want to say what can you expect out of specialty over the next 5, 7 years, 5 years in this case? What you are going to expect is a lot of growth? We have great markets and we have great products to differentiate themselves. We're going to see double-digit growth in Specialty. You're going to see us get over 20% of that aftermarket share, and we're not going to be satisfied until we get that aftermarket share and the OEM share aligned because that's really the natural fit. And we're going to keep our customers very happy and enable things to happen. That not only make goods and services transmitted safely, but really something near and dear to our heart is keep the world safe and keep America and our allied country safe through our aerospace and defense efforts that we make by providing technologies to keep the war fighter in our countries and our cities as safe as possible. So -- with that, that's all I had, and I think we're going to take questions, so we'll switch to questions Thanks, right now. So Lisa says I'm right, so I'm doing it right. That's good.

Thanks, Mark, and we're going to have Dave, Shawn and Drew also join us on the stage. And while we're getting the stage set up, just reminder to please wait for our mic runners. We have Charlotte over on that side, and Nate will be joining us and I can help as well. And again, I'll be taking some questions from the website. And -- all right. So Noah, and then also we'll follow up with Greg.

All right. Everyone situated. Okay. Noah Kaye from Oppenheimer. Drew, I'll start with you. There isn't an electrical equipment manufacturer out there who isn't talking about IRA, decarbonization and just the need to build out utility transmission distribution, all the support infrastructure for electrification and the energy transition. Similarly, and I think especially after NVIDIA a week and half ago, there isn't anyone with a data center vertical that isn't talking about growth in hyperscale. And so I guess with those 2 end markets in mind, I just want to better understand how they factor into the outlook that you provided, right? I mean when we think about the total revenue CAGR for the segment. Maybe just benchmark for us how communications versus data center versus power networks sits in the mix today? And what you see for those last 2 in terms of growth rates?

Yes. So first of all, you have programs that wind down as new programs are coming in. So we have to always remember that our CAGR is based a little bit on that. So things do wind down. So in telecom in the communications space right now, a lot of what we've been doing is kind of getting through a lot of the initial broadband rollouts. And now we'll wait for the DOCSIS 4.0 rollout to come out next, that's being teed up right now. So that will be a good pop for the broadband business. On the 5G side, we've been sort of through this first phase of the initial macro cell facilitation of the antennas now we got to see that densification occur. So when we nail the numbers, remember, we're balancing both of those. In both those segments, we play completely. We sell the full suite of everything, services, batteries, power, enclosures, the whole thing. The data side, we still are finishing off the line. So right now, we're really a battery supplier with some services. So as we fill out our line even more, that gives us some upside opportunity there. But the important opportunity is this edge compute and alliances between the hyperscalers like the AT&T, Amazon, the Verizon Microsoft come together, that starts to look a lot more like an access play with some core. So we'll be able to tap into it. So off-line or separately, we can talk specific percentages and all that, but that's sort of how we see the drivers going to hit the numbers.

Okay. And then, Mark, that was really entertaining. Just looking at the targets for aftermarket, and I think you even alluded to it, sometimes you must feel like the last man in the queue here for the TPPL. But just talk to us about the visibility, what you're assuming in terms of ability to grow your TPPL access or TPPL-based revenues that get you to those targets?

Yes. So I think that's been the focus for us as a team is to how do we, we bought the acquisition of North Star. We've done a lot of investment in automation there to be able to get more batteries out, you're starting to see. Patrice is going to talk to it today. The improvements we're making there in terms of getting batteries out. It is what keeps me up at night is being able to we have this great opportunity for market, and we want to make sure that we're able to fulfill that aftermarket because that trust is key. We have -- the key for us in achieving that $500-plus million or getting us to over $1 billion in a segment, was gaining the confidence of those AutoZone, NAPA, people that are going to be carrying these products, and that's a fill rate metric. So as we start to get that fill rate up to 100% they're going to continue to push us to bring more, to bring more on, to bring more stores on, more locations on. And it's about speed to us because we don't want to miss this first cycle. So if you think about -- this has only been a business unit for 3 years. We've been doing this for a long time, but the focus is only 3 years as a Specialty business unit. So our focus is making sure that we are projecting and being aggressive with the targets to get TPPL capacity out there and then get these guys transition to lithium, so we can get more of their capacity as well.

And just a quick follow-up, and then I'll turn it over. Thanks. I'd be remiss if I didn't ask you to help us frame how long the tail is for that $630 million aftermarket opportunity. I mean if you think about the number of replacements on a Class 8 truck over its lifetime. And you think about the fact that -- I mean, there's some [indiscernible] requirements and starting requirements even in electrified and fuel cell trucks. I mean how long a time horizon are you looking at for that part of the business?

So we've looked at this. We see very clear visibility for this market for 20 years. right? I think what we know, particularly on the Class 8 side, as electrification happens, that is the most difficult element to electrify is over-the-road trucking because of the size and weight of those loads. We are already engaged in the next-generation truck designs with batteries, as you mentioned. But we see a very long tail here. And it's -- we're at 31% now of the OEM share. We are not -- our goal is not to stop there, but our goal is to get that aftermarket share with the margins associated with that up to that level and then kind of grow them in parallel together.

Dave I had a kind of a broader question. Clearly, when you think about building up the business, you're focused on profitability and really not chasing. I think in your prepared -- you started off mentioning hey, we need 3x as much electricity in the future than we, I guess, have today. As you think about mode of -- and energy systems and kind of growing those markets to match the electricity production kind of -- how do you think about that? And is that potentially a gating factor in growth in either of those markets? And is it potentially an opportunity? One of the things that we're hearing is that some companies are looking to kind of go behind grid because maybe they're a little nervous about having access to electricity to charge their forklifts. Any kind of broad thoughts around that?

I guess I haven't done the math yet to see what CAGR is required to triple the electricity by 2045. But I suspect that CAGR is probably not dissimilar from the ones the guys put up. So I -- we track extremely well with electrical demand, electric uses. The competing issue is efficiency, especially in the chipsets. How more -- How much more efficient are they getting electrically. So it -- but I agree that if we're truly going to achieve these targets in the sense, so the -- and we haven't talked about it yet, but you'll see here in talking about. If we really want to be successful in this country with electric vehicles, we're going to have to really figure out this charging piece. It's -- and so part of -- a big part of that tripling of electricity is going to be in this arena of EV charging. And we feel strongly and you're going to hear that we think battery energy storage is a critical part of making sure the grid is ready for this sort of dramatic increase in demand. So we just -- across the board, we feel well positioned to take advantage. I think the CAGRs are well aligned with these opportunities. And will it be a smooth 7%, I don't -- I haven't done the math yet. But whatever the number is, would it be a smooth no. It will come in fits and starts, obviously. But the general message, I wanted to make sure that we all understood is that our business aligns so well with electricity and the future has never looked brighter in terms of these electrification initiatives. Every customer, Shawn and Drew and Mark, we talked to, has some sort of electrification journey they're on.

Greg Wasikowski from Webber Research. A quick question on the Verkor MOU. So is it fair to assume that we could expect to see like a 50-50 JV is kind of the end goal with that MOU? And then to that end, how would CapEx and credit sharing ultimately work there? I know it's early, but to the extent you can comment.

Yes, that's early. It's probably not going to be a 50-50 JV. No one's in charge of a 50-50 JV. So those aren't my favorite. They -- we will find the right deal structure. It's not -- it's too soon to talk about that right now. In terms of the capital requirements, the IRA is a great accelerant as I spoke to in terms of providing a source of funding for this initiative. Mark has been very busy talking to different states. There's a lot of excitement about these sorts of growth opportunities, the jobs, the quality of jobs that these sort of opportunities provide. So we anticipate additional funding. And then as you know, in D.C., especially this administration is super committed to decarbonization to electrification. And so there's other opportunities that we're not prepared to announce. I think what's important for me, and this is what the Board -- we all discussed with the Board at the last meeting, is we don't think it's appropriate to pursue this opportunity if it's going to put us into a debt position, which we're not comfortable with. So that's what's really critical to me is making sure that we have enough external funding so that we can do this in those normal leverage windows 2x to 3x. So -- and then, of course, where we are in that range depends on what the broader market conditions are like, what is the volatility, what are the interest rates like. Right now, we're at the low end of that range, it seems like the right place to be today. But that's the key to me. And I'm extremely optimistic that between IRA and the focus, Joern said to me last night, I knew it was just before dinner. I said, why would we ever do a new product introduction for a battery that was less than 100 watt hours per liter again. And he laughed and he said, "Dave, since I've been CTO, we haven't done a new product introduction for a battery less than 100 watt hours per liter. So this is a journey we've been on. And we've always -- we've never really put a big focus on gravimetric energy density, watt hours per kilogram. You hear that a lot from the EV guys because they're so worried about the range of the car. But for us, it's -- everybody wants a smaller cabinet. Everybody wants a lower height so they can see over it. It's always about space. So this is a journey we're on. So we were extremely pleased when that's the criteria that was identified as part of the IRA. So -- that's -- and Verkor, Joern and Mark between the 2 of them have deep relationships. We've assessed a lot of different chemistries, a lot of different teams. I mentioned earlier the bigger companies are so obsessed with the high volume, low complexity electric vehicle drivetrain products. That's just not who we are. It's not -- you'll never hear that as long as I'm CEO as part of our market positions, those margins are just too skinny. The volumes are great. But the -- our focus is in a different place. But -- so and in Verkor has been, we think, well aligned as a technology, a cutting-edge technology, and a young, hungry team. So we're excited about the opportunity.

Great. Dave, one more, if I could. Would you mind speaking to the differences in IP between lithium-ion and TPPL? Because I know the TPPL is different with the -- how difficult it is to replicate that process. So just curious how it's different for lithium-ion.

Sure. So the portfolio of IP on TPPL, TPPL has been around a long time. So it's -- there's not a ton of IP protection at the manufacturing level. The difficulty is the manufacturing equipment and the expertise just because of how Ductile Pure Lead is. It's just very soft, very difficult to manufacture. So our competitors that have attempted to do this have struggled. So that competitive moat has been in place for a significant amount of time. There is some intellectual property. Mark talked about the ACE chip. This is -- we just never have enough time in these things, but this is so cool what they're doing is they're embedding this in there, and it's cheap. Yes and it's -- and you use a Bluetooth on your phone to just really extract valuable data about the product. So that's new. That's got some IP protection. On the lithium side, we're starting to put together a pretty significant portfolio. A lot of our IP has been about how to safely package these very high energy density cells. How do you get through these exhaustive UL requirements or flame propagation has been one that's really challenging with the more energy you put in the cell, the more challenging these tests could be. So that's where a lot of RP has been. Verkor certainly has got a lot of intellectual property. They're putting into the settlement and chemistry and the cell manufacturing. So it's an exciting opportunity to combine the strengths of the 2 companies. And I can't stress enough, I mentioned earlier, having that -- I have to be frank and fair. Our current lithium cell suppliers are excellent, but they're Chinese. And that's -- as we go forward and as we push deeper into his markets and his opportunities, we have to have a domestic source. It's not a choice. It's just -- it's important, and it's also embedded in some of the funding we intend to receive that with the IRA and so forth. The whole intention of this is to bring that manufacturing here. So in my mind, IRA isn't about whether something is going to be a battery project or whether we're going to use batteries, it's really about where you're going to make the battery, and trying to bring that epicenter back away from such Asia concentricity. We have excellent suppliers today. And again, we'll continue to work with them in global areas. But as we push into some of these defense applications, hybridization of some of these military vehicles, some of the satellite, a lot of these areas, we just can't. We just can't use those cells. And then certainly, COVID exposed for all of us how fragile these long supply chains can be. And now as we look at some of the geopolitics and some of the tensions in the South China Sea specifically, it even becomes more incumbent for us to secure that domestic supply chain. So that's what all of this is about. There's some smart folks in Washington that have put this on the right course. And luckily, I just feel blessed and that's why as we chose the theme for this and the word accelerate, this truly is an accelerant for a journey we were already on.

We have a couple of questions that have come in from the webcast. First being, what percent of energy storage business today is lithium-ion?

It's relatively small. In terms of Mark's business, you've got what percentage of your...

It's about 20% of our total business.

20% of your business. Shawn, it's still in. And Drew, this is very new for us. So it's below single digit -- single-digit type percentage. But a lot of the forward opportunities and a lot of the road map opportunities, specifically the fast charge and storage which Joern is going to talk about after the break. These are -- a lot of the forward look is lithium based. And that again is why we see the need for this domestic supply chain.

And I'd just chime in, there still relatively small in the scale of our total business, part of the extended runtime protection project that Drew was talking about today, half of that is lithium based, and that wasn't what you were talking about. And some of that part of -- a lot of that is in our backlog, and we are excited that it's just starting to be installed yesterday...

Yesterday, right, Joern?

First install happened yesterday, and that was all limited by UL and local permitting. So that all cleared and we got one in.

Good.

So it's a related question, and you touched on it just a few minutes ago with the other question, but another that came in is asking, what is the difference about your lithium product offering versus competitors? So thinking about what we have today?

The -- we are not focused on the lithium cell chemistry. We are a systems company. And so the value and the differentiation we get is by controlling every element of the design. So beyond the cathode chemistry and the anode chemistry, it's about the charging systems, the communications, the control systems, the ambient conditions. And so the real differentiated value for us is controlling the design of the entire system. You heard it all morning today about the systems approach. And I want that to be sort of my legacy is putting the system EnerSys. And so I don't -- whether somebody wants to compete on how many molecules of nickel you need relative to how many molecules of cobalt or whether it has cobalt or not, that's not where we want to differentiate ourselves. We want to provide fully turnkey, highly valued, highly unique, customizable systems, and that's the approach we're taking. And we're off to just an exceptional start, and this is the acceleration I talked about. This is how we can start. And today, and I mentioned this and I'll say it again, today, it's been all rocks and the It's been so much of this engineering efforts without the revenue. But yesterday -- yesterday, we finally installed our first [indiscernible] modules for the customer. So this is all brand new, and that's why we talk about Accelerate.

Excellent. Well, that's all we have -- the time we have for this Q&A session. We are going to take a 10-minute break. Again, please take time to meet some of our subject matter experts in the product showcase, get some coffee. We will be back here at 10:25. So those on the webcast, please rejoin us in 10 minutes as well. Thank you. [Break]

We're going to get started with the next few presenters. So if everybody can come back in and get settled and welcome back to everybody on the webcast. I'm going to invite Patrice to come up and start this off. Here you are.

Thank you, Lisa. Welcome back. So I'm Patrice. I'm in charge of operations. How do we define that? It's an integrated supply chain. So we start with strategic sourcing, supply chain, manufacturing, distributing, all of that is basically mostly in our plants and distribution centers. I also own one global function we call EOS, so the EnerSys Operating System, which is basically an internal lean organization. So prior to joining EnerSys, I've spent over 20 years in lean and operational excellence at Schaeffler and Pentair. And what I'm the most proud of at EnerSys, is how we drive accountability for performance. And I would like to show you this based on one example of our plant in Arras, France. Over the past 5 years, we have implemented our EnerSys Operating System, and we are continuously improving our operations and have built a solid foundation in this. We have a proven playbook. And I will show you this based on that Arras example. And all the initiatives we take are basically to be able to deliver those $600 million revenue growth in TPPL over the next 3, 4 years and also cost reduction of about $40 million in the same time frame. So I will focus a lot on TPPL. You heard a lot of our TPPL from the 3 line of businesses. And for that, I will take this Arras example, which is producing TPPL. So the key takeaway here on this slide is basically you get what you measure. That's what we experienced. So our side is a great example on processes we have implemented. And when I mean processes, I mean, technologies we had in plant in that -- in place in that plant. So when I joined EnerSys about 5 years ago, we already had the state-of-the-art technology in Arras, which means the right machines to produce our products. But we saw a lot of opportunities to get more efficiencies out of those equipment. So we implemented the EnerSys Operating System to have a process for continuous improvement. And how we did that is we took one of our core processes we have in our house of lean to the house of EOS, and we call that managing daily improvements. So we have standardized KPIs, in fact, 7 where we focus on people and KPIs, customer KPIs and shareholder KPIs. The way we structure that is very important because we first want the right thing for our people. So they take care of our customers, first with delivering the right quality and then to be on time, not the opposite. Otherwise, the product is coming back. And then with some lean techniques, we focus on cost productivity and then on a better position on inventory because with stabilized and synchronized processes, you can reduce your inventory level. So those standardized KPIs are one level down in a tracking system where we track the trend of all those KPIs, and then we part out those opportunities. This is very important to us. Why? Because we have limited resources, and we want to focus on the important things first. Those are the first part in the Pareto. So we don't want to work on the last part of the Pareto which is a lot of distraction. But on those first bars on the Pareto, we want to use that 80-20 road, which is focused on the first thing, and those ones do them right, so that with 20% of the resources, you generate 80% of the benefit of it. So we really go down to the root causes. And there, we have then a tracking system to track the execution on accountability board. By applying those tools, we have improved cycle times, which is the run rate at the machine, the number of batteries we get out of the machine, but all the labor productivity mostly through improved equipment efficiency and how did we improve that equipment efficiency. It's a lot about reducing setup times, implementing -- preventive maintenance, reducing scrap levels. All of that resulted basically in 30% more output in our Arras plant without new equipment, without automation. That playbook, we were doing right in Arras over the past 3, 4 years is exactly what we want to do in each of our sites. So Arras is now our best-in-class TPPL side, and we use that as a center of excellence for all our TPPL plants we have across the world. So this is to show you what we did in Springfield. So you heard about that NorthStar acquisition. NorthStar acquisition for me in operations, it's 2 factories in Springfield, Missouri. So over the past year since the acquisition in Springfield, we made about double of the volume out of those 2 factories. A lot of new equipment is going into those factories. The good thing for us is, at the beginning, you have a lot of start-up experience to acquire in those factories, but we exactly know how to do it. It's exactly what we do in Arras. So with that center of excellence, we have people even from Arras coming to help Springfield each 6 weeks to give them task and what needs to be done to improve those processes. So those technologies are exactly the same, and these actions will basically allow us to achieve another 70% -- minimum 70% more revenue out of those 2 factories in Springfield. So I talked about what was done in Arras, which is continuous improvement. But what we also do is adding some automation. I will take one example in the lead prep area. When I say lead prep, this is where we produce the plates who are then going into stacks, who are going into batteries. So that lead prep area is basically, if you simplify that. It's a multi-alloy caster and then after perforators. So when we acquired NorthStar in -- for 2020, they had multi-alloy casters and perforators. So in the Springfield 2 factory, 2 casters and 4 perforators. When we add capacity, we do not copy and paste that technology. We copy and paste the state-of-the-art technology we have in ours. Which means when we add capacity in lead prep, we had a Concaster. A Concaster is not just replacing 3 perforators, but it's also doing casting in line with what the perforators are doing, all of that on a wheel. The other good thing about that is in the past, think about the perforator here. At the beginning of the machine, you have the coil going through the machine. And on the other side, you have the perforated coil. All of that is removed. No more handling to change over those wheels because the Concast machine starts as a multi-alloy caster, where you just have leads going into the machine. And on the other side, you have the perforated coil coming out of the machine. And why do you have 4 wheels at the end of the machine? It's basically because the perforator is running into 2 wheels. And when those are full, you have a guy in parallel, removing those 2 ones, setting 2 ones up, while the Concast is continuing to -- is continuously producing the other 2 wheels. So no more downtime to change over or to set up those wheels, which will give you automatically 15% more capacity for free because setting up the front and the end of the line was 9 to 10 minutes, which was automatically 15% downtime. We have that now for free on top to 3x the output of that equipment. So it's just one example of upgrades. And why I'm saying one example because we did a lot of order upgrades. So NorthStar never produce their own oxide. We are now investing or we did invest already, and we continue to invest to produce our own oxide. We are investing in higher speed assembly lines than what they had, where we also do with the productivity. So a lot more to come. Some of the technologies are in. Other ones will go in to accelerate the output for TPPL. You heard with passion. Mark asking for more TPPL capacity. So we also accelerate our CapEx rate. And you will hear from Andi later on that in the past, we were never reaching about $100 million of investments per year. This year and the next years, we will go above the $100 million and more likely to $120 million per year in CapEx. So our goal is basically to achieve the same efficiencies, same productivities as the best-in-class plants we have. So it's a great opportunity for us for the future. So in a nutshell, in closing, I just want to reiterate some key points. So we are executing EOS and implementing those tools to drive productivity across all the sites. It's implemented everywhere. We just have some different maturity levels. So we have 10% to 20% best-in-class sites where we have good maturity. And the rest is basically all which will help us to get more out of those equipments. More out is equipment efficiency, but also labor efficiency. It's less waste in general, like less scrap. And reducing waste is good for everything. Even they mentioned even for sustainability, it's good to reduce the waste. So all of those improvements will result in getting $600 million more revenue out of those TPPL plants. It is just TPPL. And at the same time, just for TPPL, we will get automatically $40 million savings. So thank you very much for your time. I hope you enjoyed it, and I would like now to give it over to Joern Tinnemeyer who is driving our new product development. Joern?

Well, good morning, everyone. So Dave hired me back in 2016, and he asked me to be part of this transformation process, going from what was mainly a flooded lead acid company, as you stated, to moving towards a systems company, an industrial technology company. And what an incredible ride this has been. And I think we're just starting to open the door to these brand new opportunities that are in front of us. Prior to coming to EnerSys, I was already part of a company with massive hypergrowth. A little company we know today as CATL. I was one of the early employees and today, that's become the largest lithium-ion manufacturer in the world. I started my career in the battery business about 25 years ago, a little bit while it was in grad school, as a summer job and for me, summer hasn't ended yet. So this morning, you heard Shawn and Drew and Mark speak about these brand-new awesome cool innovations, wireless charging. We have this extended run-time device with this high volumetric energy density. And all of this, what the commonality between these systems is the platforms that they depend upon. And those platforms are made of these modular systems. Those modular systems allowed us to create that rapid innovation. It was all of that hard work that came in prior in advance of that, that now allow us to turn around and create these look after and attack these brand-new opportunities. The other thing it gives us, of course, is scale. We're not just a motive power company or a telecom company or a UPS company. We can spread this across our entire enterprise, giving us a massive level of advantage. When we talk about these modules, we build all of these modules or these Lego pieces ourselves, the battery management system. We design the hardware, we design the software for these systems. The power modules, the lithium iron power modules, we designed those power modules. For the power conversion, the DC-DC conversion, DC-DC systems, the AC-DC conversion systems, those are our designs right into the software and the IoT stack. Those are our software devices that go into that. This enables us to create these optimized end-to-end solutions specifically designed for our customers to fit their needs. This is very different from what we have in terms of our competitors who are really looking at buying systems together, buying an energy storage system or buying a power conversion system and really then creating a system of compromises. The thing that really excites me about technology, though, is the new revenue that it can start to generate for a company. Take lithium, for example. Lithium is provides us with a different type of chemical assortment than what we have with our lead acid batteries. Think about what we can do with that and say, for instance, Shawn's business, where we can start to look into vehicles potentially that we couldn't address before with lead acid. Another thing that we can do is start to enter new swim lanes. For instance, DC fast charging, something I'd like to talk to you about today. So when it comes to electric vehicles, let's think about where we are in that adoption cycle today. If we look at overall, there's less than 5% of vehicles today are electrified. If we look at the entire global population. This means at this stage, we're still at that very early stage of adoption. If you buy an electric vehicle today and you ask someone, "Well, how do I charge that vehicle?" They just say, "Well, just charge it at home." It's one of those devices they'll probably sell you from where you're buying your vehicle from, an electrician puts it in. And it's a device that's very similar to the power outlet, is very similar that you would stick your -- And you would connect that to your vehicle. And there's an onboard charger in that vehicle that actually charges the battery. But the only thing that you really have bought is not a charger. What you bought is an elaborate extension cables with sensing technologies to it, a very commoditized system. This is what we call a level 1 and level 2 charger and they can only charge at rates high enough that, that onboard charger will allow, typically requiring a full overnight charge. And if you have a level 1, it could take days to charge your vehicle, which is fine for today with some of the early adoption cycles. And if you want to go a little bit further and say you want to have a beach vacation and you want to take that car away from your home, then typically, you'll start to address what are called fast charger networks. What is a fast charger? Fast chargers anything above 50 kilowatts, and you'll also see things like ultrafast chargers, things about 150 kilowatts. What differentiates this is, of course, the power that's being used. And what they're doing is not using that onboard charger anymore, they're interacting directly with the vehicle battery system. That's very different. Now all of a sudden, I have to worry about much higher voltages. I have to worry about the current that I'm feeding into that system that is very different from those commoditized Level 2 chargers. There's a huge different step change in complexity of what you have to do. And let's talk a little bit about what does kilowatts even mean? If I'm charging at 150 kilowatts in your home, a dryer, hairdryer, toaster, they're about 1 kilowatt of power. If I put on 150 kilowatt and stick in that vehicle, it's 150 dryers, I'm turning on simultaneously. The average North American home uses 7 kilowatts of power, air conditioning loads, lighting loads that you have in your house. If I put on that 150-kilowatt charger, 22 homes are going on instantaneously onto that network. That is a tremendous amount of power. And as such, these systems have been placed, these fast chargers, relatively close to where you have access to high-voltage lines, easy areas. And that's why you typically will also find them behind stores, close to where the energy is, right next to the garbage bin, exactly where you want to park. The problem is or what starts to happen as we start to have more and more adoption starting to occur in the industry, let's start to look at this picture 3 years, 5 years from now. We heard already this morning where Dave spoke about, what Elon Musk said, "We need more power in the future." If we look at the state of California, a recent study out of Nature Energy indicated that for one of the utilities, 68% of freestanding homes in California cannot actually install a Level 2 charter just because they wouldn't have the power. There's a high degree of congestion that can start to happen. The transformers will start to heat up. High voltage or the low-voltage distribution system, will it be insufficient to supply the power to those plays to those homes. Meaning all of a sudden, today, with that low adoption that might be possible to charge at home, but it's not for the mass market. If we also look about -- if we look at how much energy generation is coming in, a lot of that is renewable, a lot of that is solar. A lot of people say, "Well, I'll just charge at night." Well, what don't I have at night? I don't have the sun at night. So that means all of a sudden, this whole concept of charging at home starts to move these peaks in a different direction, again, something that we're not reinforcing the grid with. If I live in a multiunit dwelling say, a condominium with over 300 suites in this. And everybody or 30% of those people want to drive in with a shiny brand-new car, say, in 3 years from now, where we think about the new adoption rates of new vehicles will be around 30%. I need to bring in 1 megawatt of power into that building in order to charge those vehicles. So we believe that the solution where a lot of people are using today cannot be mapped forward into the future. What we believe is that a lot more usage will come through with fast charging. And it won't be what we think of it today, where you drain your entire vehicle and then fuel up at some fueling station until your vehicle is full. No. What will happen is that, that behavior will start to change. We believe that when you go shopping, when you buy your groceries, when you buy your coffee, when you get your lunch, when you get your haircut, anywhere where you're dwelling for 15 to 30 minutes, and you plug in your vehicle, you'll start to get a high degree of charge, 4 miles per minute or 6.5 kilometers. And this is what we believe. So when you're there in that shopping center for 20 minutes or 30 minutes, you're getting those 120 miles of charge coming in. So there's 2 customer journeys though that we can start to explore and need to achieve to create a really awesome product for. The one customer journey, of course, is the vehicle owner, the person that actually plays into the vehicle. And the second customer journey is the asset owner. We need to make sure that we intersect those journeys together, and like I said, really provide the best possible experience for them. So let's take a look at that second one. Let's take a look at the asset owner. And that's that picture, that graph that you see here with the large peaks coming in. And those are essentially those battery systems or those vehicles looking in. And remember, it's not for one charger at 150 kilowatts. This will be 4, 8 chargers. So not only you're thinking, I'm not just putting on 22 homes, I'm starting to plug in a little village as these vehicles start to come in. This is starting to create these peaks. The grid was never really designed to have massive levels of these peaks coming in. And so the way that the utilities are reacting to this is changes in peak rates, different times of day, charging differently for that electricity. We anticipate that those peak rates will increase 3- to 5-fold in the next few years as more and more of these systems go on in order to change behavior of the people and the behavior of these usage patterns. What's more, there's also something called a demand charge. A demand charges the sort of upper level power limit. And if a user exceeds that power limit, they will be -- for 15 minutes, they will be charged for that access. These type of extra surcharges can almost double that individual's electric bill. When we talk to customers about installing a DC fast charger to see those peaks. And very quickly, that discussion changes from a DC fast charge discussion to an energy management discussion. Let's take a look a little bit about the journey from the customer who is actually plugging in. A recent study from the Bay Area also published last year indicated that over 60% of those charges didn't function when people plugged in. For numerous issues, cable was broken. In certain cases, the cable was stolen. The display was destroyed or couldn't function or they couldn't see anything. When they attach the cable into the vehicle, there wasn't an interface. It didn't communicate with the vehicle properly. Or when they try their payment system on it, the payment system didn't function. Can you imagine, you just came back from your beach. You're in the last few miles of state of charges left. You're nervous. You're trying to find where the next DC fast charger is, you finally found one and you plug in and it doesn't work. It's a horrible situation. So how can EnerSys help here? What you already heard Shawn today talk about that he's been and his team has been charging electric vehicles for years, forklifts. And this is not just some elaborate extension cable, but this is actual proper AC-DC conversion that we're doing, in essence, a Level 3 charger hooking into directly to a vehicle battery in industrial applications, and we're doing this at scale. We're charging over 10 gigawatt hours a year already about this, making us one of the largest, as Shawn said, vehicle chargers for this particular segment in the world. Drew already talked about the segments that he's working on for the extended run time, the high-energy density systems that we're developing. So we know how to create those batteries and those batteries will start to lower those peaks that we just saw on the last slide. Software side. We've already been working a lot on edge computing. We have our devices already on all of our new systems where we can already calculate variables that are necessary where we understand what we need to bring to the cloud rather than putting on unnecessary data onto the cloud. What's more is the decision the devices can decide on their own in order to protect themselves. To that, we're adding significant level of stacks of artificial intelligence in order to aid prediction, and I'll go into that a little bit further. So this is what this device and this energy ecosystem is starting to look like. Think of this as an energy device. Think of this as an energy device that you can start to load on applications to. Applications like DC fast charging, applications like peak shaving, applications like demand charge reduction, applications such as virtual power plants by using standards like open AVR and having bidirectional capability, the ability to sell energy back to the grid again. All of these different type of applications also give you applications of winning revenue or saving or cost savings for electricity pricing. What this is, is that each one of those may not provide you a compelling enough business case, but by combining and stacking these systems, it absolutely does. So let's talk about the system. First of all, isn't it beautiful? It's an awesome looking charge. It's absolutely great. So one of the things that we have around this is, of course, again, this constant theme of modularity. And this is, again, that separates us from some of our competitors. A, a lot of our competitors are not sitting in this very high-power space. And those competitors, a lot of them that do cobble together those systems. We control this system. We can control how many power modules or DC-DC converters do we need. When we can control how many energy storage or how large that energy storage system has to be. It's right now, this type of adoption is going to be heterogeneous. It's going to be clumpy as we start to move through this. So there's going to be certain areas that have very high adoption of EVs. And you may want to have as many petal stools as you want, but perhaps your energy demand still are relatively low. And so that means you don't really have to emphasize the energy storage or it could be the other direction. You're already experiencing these peak demands or these peaks going through, and you may want to have as much energy storage as possible, but maybe you just don't have as many EVs kind bought yet. And you can allow that system to grow. You can use your capital cash flow as the system experience changes with that user. And this is something you can do with our system. It's not one-size-fits-all that we're developing. The other thing that we're doing is that you see in this is because we're using a battery, it doesn't mean that you have to have all of that high power being connected in. You don't have to supply the system with 600 kilowatts of power. You can supply it with much less, not therefore, requiring a transformer and therefore, not requiring these high voltage or high-power lines coming directly to that system to save significantly on installation costs and permitting time for the device. And we talk about installation. Once the pad is laid on the ground and the frame is on the ground, we can install in less than 1 day that entire system. What you're seeing there is just modules on steroids. It's just these massive modules that we then start to put in and we can grow with that customer. Let's look at those modules in a little bit more detail. The energy storage component of this, or energy storage cube is approximately 600 kilowatt hours of power, which we can expand over to 1.1 megawatt hours of power. What's very different here is the size. Dave spoke a lot about our concentration of volumetric energy density. And what we're trying to do is squeeze as much energy density into this as possible. You can add energy storage for those device. And typically, when we think about energy storage, we think about these big massive sea containers. Imagine having a couple of sea containers in a parking lot in front of a nice restaurant. It just doesn't work. You need to make sure that, that system is as small as possible. You want to -- I already mentioned the fact that people are putting these energy storage or sorry, the charging infrastructure behind buildings next to the garbage bin. This type of device brings it forward. It brings the power to the customer where you want it by creating that energy storage device or making it the smallest power as possible. The other piece behind this, of course, is the power conversion side of this. We have centralized power conversion. This again, differentiates us from some of our competitors that push all of that into one device, the AC-DC, and then the DC-DC conversion to the vehicle, we have all of that centralized. This allows us to spread that energy to the petal stools how we wish it to be spread. The other advantage that it gives us is as you add more petal stools, it actually is much more economical to place these systems inside of it. We also have this ability, and I already talked about it about virtual power plant. We have full bidirectional capability, meaning that at low times a day or when solar is connected to the system, the system can then sell that energy back again during peak demands, if not required by the building or the charging infrastructure, again, creating a never revenue chain for this device to occur. How do we make all of this happen? Of course, that's done with our software envelope that we've placed this in. The system is always connected. We have full digital twins, where we can figure out exactly down to the cell level, what that cell is doing. And then moving that back up again in terms of advanced prognostics, where we can tell in advance what's happening to the system and do we need to replace anything on the system. Remember that reliability, remember that customer that just came back from the beach and now was stranded at that fast charger. This is something that we want to avoid with this type of system and this type of technology. What's really exciting, though, about this is also the artificial intelligence that we're adding to this. There is a real-time component where we can actually establish what is the best power output. Should it be from the grid? Should it be from what stored already, say, overnight at cheaper rates? Should it be from solar coming in? And how do you mix that? That's done automatically in real time. What's more is we can tell in advance, 6 to 12 hours in advance what the predictability is of that cycle. For example, if it's a hot day in July, and it's hooked into a grocery store, we can tell that we know that around 3:00 or 4:00 that load will be really high. And at that point, a demand charge may come in. We can predict that demand charge in advance and throttle down on the charging early on into the day to make sure that, that power is available late in the day. These are massive benefits for our customers. When we talk about customers and we talk about markets, this is one of the most exciting parts of this. People talk about once-in-a-career time of events happening. Well, this is really once in a century style of change that's going on. There was no other time that we saw such upheaval within the industry since probably we've gone from horse and carriage to internal combustion engine. There's hundreds of billions of dollars that are being spent today not only on just the vehicle platforms that we see, but think about all the announcements of all the lithium cell factories, the supply chain that's necessary to go into that. The entire infrastructure that needs to change as a result of this is literally trillions of dollars that will be spent on this field. If we look at the DC fast charging component alone in the next 8 years to 7 years, we believe that, that will be $270 billion specifically in the marketplace that I just addressed in this. This is accelerated by the bipartisan infrastructure law of $7.5 billion here in the United States. The result of this is that we believe that looking out in FY '27, that the contribution -- extra contribution compared to already the awesome businesses that Drew and Shawn and Mark talked to, on top of this, we can create an additional revenue stream of $400 million to $700 million. From the numbers that you just saw, that's not even heroic. In general, when we think about NPIs within that same financial year, we believe that 20% to 30% of our revenue will be generated by those NPIs. That is that investment playing forward and paying forward for EnerSys. And I think this, to me, is just the beginning. If you look at what we've done in the last little while with the rapid innovation, these end-to-end solutions, these deep system-level solutions that we're bringing in because of our knowledge from our customers and the acceleration that we can have with future technologies, I couldn't be more excited about the future of EnerSys. Thank you very much. And with that, I'd like to introduce Andi Funk, Executive VP and CFO.

Thanks, Joern, and thanks to all of you for being here today. I see a lot of familiar faces, and I really appreciate your time and interest in hearing an update to our story. My name is Andi Funk. I have been with EnerSys for 4 years, the past 1.5 years as our CFO, and I love working at EnerSys because of our fantastic culture, our incredible teammates, the importance of our products for electrification, network powering, energy management and sustainability. And I'm really, really excited about our transformation and our significant earnings growth road map, which we'll share with you today. Before EnerSys, I spent 5 years as a CEO and 2 years as the CFO of Cambridge Lee Industries, a $500 million copper tube manufacturer and distributor. And in total, I've worked about 30 years in various operational and finance roles at Carpenter Technology, Bell Atlantic, Ernst & Young, Various Med-device and pharmaceutical companies in addition to the organizations I just mentioned. And I also serve on the Board of Directors of Crown Holdings traded on the New York Stock Exchange. As you've seen from the presentations today, our products are critical enablers of numerous global megatrends, and I will show you how this accelerated growth manifests in our revenue projections. In addition, we are expanding profits. This is driven by maintenance-free conversions, as you heard in Shawn's area; as well as channel mix improvements, as you heard in Mark's area; and in Drew's area, a lot of it is driven by richer mix from higher electronics and in all of our lines of business, higher software tech content. It's also driven by EOS savings, as Patrice showed just in tinplate curled alone, and we have EOS savings through our entire manufacturing organization as well as through our entire company where EOSs is really a way of life for us. And as well as positive operating leverage. We've made a lot of investments in our future, which we're about to see the return come through. And importantly, due to our healthy cash flow generation, we have a very flexible balance sheet and clear capital allocation priorities, which will further support our ability to achieve our long-term financial targets and maximize shareholder value. But first, I'd like to take a look back at our financial performance over the last few years. From fiscal year '20 through fiscal year '23, our revenue has enjoyed a CAGR of 6% from growing markets and a richer mix, including over $500 million of incremental maintenance-free thin plate pure lead and lithium sales. I should note that our revenue growth has been inflated from significant price increases during a period of unprecedented inflation in which we absorbed approximately $450 million of zero margin price/cost recapture. That pressures almost 200 basis points on our margins. This recapture offset a strong U.S. dollar, which reduced revenue by almost $100 million, as well as approximately $300 million of delayed revenue growth that's pushed out to future years during COVID shutdowns. Over the past 3 years, our adjusted operating earnings grew by a CAGR of approximately 4%, during a period in which we have made solid progress and set the stage for future earnings growth, by improving mix for maintenance free conversions, reducing costs from EOS and flooded lead acid factory consolidations, such as our Hagen and Ooltewah plant closures, exercising discipline and maintaining positive operating leverage despite significant investments in new products and solutions, such as those that Joern shared with you that the benefit is yet to come. And also in the fourth quarter of fiscal '23, we realized $17 million of IRA benefits, which I'll discuss further with you in a few minutes. These results are all the more impressive when you consider that our adjusted operating earnings were suppressed by foreign exchange pressure, lagging price cost recapture, supply chain headwinds, particularly with our higher-margin electronics business, mostly in area and delayed revenue due to these COVID shutdowns. Our adjusted EPS CAGR of 4.5% was driven by that AOE growth as well as share repurchases, offset by interest rate headwinds. Now let me provide you a little more context on our EPS growth. Bridging fiscal year '20 to fiscal year '23, you can see the incredible impact of this unprecedented inflation that pressured our EPS by over $8 per share. I'm really, really proud of how our team overcame this and to dealt with this unprecedented COVID-related headwinds over the past 3 years. The macro is the macro, but we refused to underperform. And while we can't control inflation and supply chain market dynamics that most industrials faced, we successfully navigated these unchartered waters by fully offsetting these cost increases with over $8 per share of favorable price/mix gains. I want to reiterate that despite over $8 per share of favorable price of cost increases, we were able to offset all of that and then some. So due to our deep customer relationships, our proprietary tech solutions, our disciplined price cost management and our EOS operational excellence toolkit. Importantly, we have largely worked through these headwinds. Despite costs continuing to mount our Q4 '23 net price recapture was $20 million favorable over Q4 '20, an annualized run rate of $80 million or approximately $1.60 per share of price/mix over costs since fiscal year '20. Although everything in our bridge is just dwarfed by this incredible price cost dynamic, we did also absorb investments in fast charge and storage and other key new products and solutions. We exercised discipline in maintaining positive operating leverage, and we realized one quarter of IRA benefits. Strong execution enabled us to more than overcome these unprecedented market dynamics and achieve record sales, achieve record operating earnings and achieve record adjusted EPS of $5.34 per share in fiscal year '23. To provide some context, theoretically, our adjusted EPS CAGR could have been in the 20% range over the past 3 years if it weren't for these extraordinarily challenging macro headwinds that we successfully overcame. While we're proud of our record results, we have plenty of runway ahead, and we are prepared to capitalize on our incredible growth and operational improvements in the next few years. To support our growth, we are well positioned to capture these opportunities in front of us given a very strong and flexible balance sheet. Our current leverage is 1.8x EBITDA. And while we have a longer-term target range of 2 to 3x, for now, we're focused on the lower end of the range due to market uncertainty as well as the current interest rate environment. Looking out, we have approximately $600 million undrawn on our revolver, approximately $300 million of cash on hand and favorable credit ratings with significant cash flow opportunities going forward from earnings growth, primary operating capital normalization and full year IRA benefits of which we can all put to work to accelerate our strategic priorities. Now I'd like to turn to talk to our future and the financial impact of the drivers of value creation my colleagues presented to you earlier this morning. When you pull together the topline growth that Drew, Sean and Mark showed you from the high-growth markets that we participate in, in which our products and services are critical enablers of multiple global megatrends, we expect to realize a 4-year CAGR of 8% to 10%. This will be achieved by both market and share growth as well as the richer mix of sales from higher tech and software content products, maintenance-free solutions, more favorable channel mix, new product introductions and capacity expansion. A key product introduction is certainly our fast charging storage launch that Joern just spoke to, which will still be in the early phases of ramp in fiscal year '27 with much more headroom in the years to come. Overall, we're excited to accelerate growth in diverse end markets and have significant opportunities to continue to compound our growth. Let me now share with you how this accelerated growth translates into expanding profits for our shareholders. Beginning with $322 million of adjusted operating earnings exiting fiscal year '23, we anticipate benefiting from that 8% to 10% topline CAGR as a result of both volume and the richer mix of sales. After factoring in improvements from EOS and OpEx leverage as well as the full year impact of IRA funding and the still early launch contributions from fast charge and storage, we get to an AOE range of $750 million to $850 million in fiscal year '27. From an EPS standpoint, starting with the $5.34 per share in fiscal '23 and adding in those adjusted operating earnings' growth, we adjusted down for interest and tax assumptions using current interest rates and slightly higher tax rates before the tax-free impact of the IRA funding on higher debt and expanding profits. We plan to maintain leverage in the 2x EBITDA range. Due to EBITDA growth, this drives approximately $1 billion of additional debt over fiscal '23 levels as well as incremental tax net of those IRA benefits. This accumulates to an adjusted EPS range of $11 to $13 per share in fiscal year '27. In addition, we will be evaluating multiple value-creation opportunities given our significant cash generation, the IRA benefits and potential incremental borrowing proceeds. While upside and timing will largely depend on our investment choices and the duration of return from those investments using a conservative return on excess cash flow equal to our cost of capital and a minimum, our EPS would increase by an incremental $5 per share over time from the reinvestment of that cash flow. Importantly, we're extremely well positioned for significant free cash flow generation with our earnings' growth, our primary operating capital normalization and the IRA benefits, while absorbing the primary operating capital and CapEx investments needed to launch our fast charge and storage. In addition to free cash flow generation, as mentioned, we also estimate having additional approximate $1 billion of debt over fiscal '23 levels after factoring in the cash flow which collectively will provide us plenty of headroom and dry powder to accelerate our strategic initiatives and provide any necessary buffers we may need. Given significant cash flow generation and borrowing capacity ahead, maintaining our disciplined cap and clear capital allocation approach will be critical. And indeed, our capital allocation priorities remain consistent. First, we anticipate investment CapEx of approximately $110 million to $120 million per year in the next few years to support investments in organic growth, including continued thin plate pure lead capacity expansion as well as state-of-the-art equipment and technology to provide sustainable solutions, automation and achieve EOS cost savings and operational improvements. Importantly, we are also investing in our lithium strategy to grow and better control supply, and we may accomplish this with incremental organic investments and/or through strategic M&A and partnerships as we noted in our press release last night regarding our MOU with Verkor. Strategic M&A could include portfolio transformation of system solutions, opportunistic tuck-ins and other investments to accelerate our lithium structure and strategy and secure our lithium sourcing. After targeting leverage at the lower end of 2 to 3x EBITDA, we are committed to a competitive dividend yield as well as buying back stock to offset share dilution and create shareholder value. Strategic and the critic acquisitions have always been a part of EnerSys' growth DNA. Since 2004, when we went public, we have acquired 32 companies for $1.3 billion. Acquisitions will continue to be an important element of our capital allocation going forward. However, I want to assure you that acquisitions will align with the strategic priorities we have laid out which could include, as mentioned, securing domestic lithium supply, accelerating our technical evolution, adding differentiated technologies and/or increasing energy solutions capabilities. We have no planned surprises for you, and we continue to target a debt leverage range of 2 to 3x EBITDA. Now for our latest and very important catalysts, the Inflation Reduction Act. The IRA is a law that went into effect on January 1, 2023, and will be a law through December 31, 2032, with phaseouts in years 8 to 10. The advanced manufacturing tax credit, or IRC Section 45X includes benefits for third-party sales of energy-dense U.S. manufactured battery cells and modules. This incentive reinforces the critical importance of our products and solutions and also validates the strategy we have already been executing against. Over the past 5 years, we have been investing to expand our capacity of energy-dense batteries, and that's why we are now in an advantaged position. Importantly, the bulk of our domestic thin plate pure lead production and a portion of our flooded lead-acid batteries already qualifies for these tax credits. These incentives will not only enable us to invest to accelerate our lithium strategy, which is key to our fast charge and storage launch, but will also enable us to invest to better control our supply chain overall. These are important points that I would like to emphasize. The IRA reinforces the critical importance of our products and solutions and incentivizes us to accelerate our strategy as the law intended to expand their domestic production capacity of qualifying batteries, including our proprietary maintenance-free lithium and thin plate pure lead technologies. We recorded $17 million of IRA benefits in the fourth quarter of fiscal year '23 and conservatively anticipate value to EnerSys of $80 million to $120 million per year in years 1 to 7 and $40 million to $60 million per year in years 8 to 10. The benefit is recorded as a reduction to cost of sales and is not subject to taxation. Now given our fiscal '23 results overview and the growth drivers we discussed today, I want to now summarize with an overview of our longer-term financial targets. As mentioned, we anticipate accelerating our sales CAGR from approximately 6% in fiscal year -- in the 3-year period ending fiscal year '23 to 8% to 10% through fiscal year '27 as we benefit from high-growth markets linked to multiple global megatrends, a richer sales mix, new product introductions with additional upside from the possibility of a steeper ramp-up in fast charge and storage. We expect our adjusted operating margin will improve from approximately 9% in fiscal year '23 to 14% to 16% in fiscal year '27, reflecting the richer mix of products and channel sales, EOS cost improvements, OpEx leverage and accretive fast charge and storage launch and the full year impact of the IRA. This will result in an adjusted EBITDA going from $388 million in fiscal '23 to $850 million to $950 million in fiscal year '27 and adjusted EPS accelerating from $5.34 per share to $11 to $13 per share in fiscal year '27 before any positive impact from reinvesting our excess cash flow and borrowings. Our proven ability to overcome market challenges such as the massive COVID-related headwinds of the past 3 years as well as the significant opportunities in our markets, technologies and strategic initiatives we discussed today gives us confidence that these targets are well within our reach. We plan to continually update you on the progress against these targets as well as the milestones Patrice, Drew, Mark, Shawn and Joern laid out for you today on an ongoing basis. We are all focused on strong execution to ensure we meet our long-term financial targets. But if there's anything we've learned over the past 3 years, it's that things don't always go as planned. Fortunately, as Dave likes to say, given our resilient business model, we have a lot of shots on goal, and we're well positioned to address macro uncertainties. While there are risks related to the possibility of a recession, additional geopolitical concerns and network build-out delays, we also see upside opportunities, including fast charge and storage ramping faster, small cell network build-outs accelerating and additional lithium opportunities. The key is we are always proactively managing this business. For example, even if there is a recession, we have a playbook ready to execute. So let me speak to our recession playbook. Important considerations to keep in mind are that our specialty and Energy Systems businesses are not as GDP cycle exposed. Energy Systems follows network build-out cycles of its own which, fortunately, as Drew mentioned, will be fueled over the next several years by initiatives such as 5G and small cell build-out, the need for backup reserve power and the Rural Digital Opportunity Fund in which the government is committed to expanding service in unserved and underserved markets. Specialty, as Mark mentioned, is comprised of aerospace and defense with all its cool products which does not currently have an outsize risk of a downturn and transportation for which our growth is paced only by our TPPL capacity, as he mentioned, our higher-margin aftermarket opportunities. For Motive Power, when GDP is up, more materials handled and vice versa in a recession. That said, there are some key things to consider. First, Shawn does a tremendous job of managing this business through cycles. For example, during the COVID year, when the world completely shut down, Motive Power revenue dropped 14% from $1.350 billion in fiscal year '20 to $1.160 billion in fiscal year '21, but then rebounded in fiscal year '22 to approximately 1% above pre-COVID levels. Amazingly, Motive Power adjusted operating earnings only decreased $5 million on that $190 million drop in sales, then improved by $30 million to 15% higher than pre-COVID levels in fiscal year '22 on extraordinarily tight OpEx management and maintenance reconversions under Shawn's watch. Importantly, during the same period, both Energy Systems and Specialty revenue continued to grow every single year. It's also worth noting that Motive Power has many levers to pull to help offset the impact of a recession and has a less exposed position right now than in years past. First, we currently have record backlog in all of our lines of business, but in Motive Power, in particular, it's roughly 2x historic sales coverage levels. Two, there are multiple global initiatives we spoke with you today that will buffer our growth from a downturn including U.S. movements to onshore activity and related material handling in which we enjoy about 50% of the U.S. market share; electrification mandates for environmental reasons, with Motive Power internal combustion engines being replaced with electric forklifts, such as those that our batteries energize; efforts to reduce manual labor due to tight labor markets which makes our maintenance-free offerings that much more attractive to customers, and indeed, even during that year, where Motive Power revenue dropped, we continued to grow our Motive Power thin plate pure lead revenue at higher margins. We have closed -- number three, we've closed 2 flooded Motive Power plants in Hagen, Germany and also in Tennessee in the past 2 years through a lot of our EOS toolkit, which reduces our fixed factory overhead and enables us to be more nimble to volume fluctuations. And four, we're entering this upcoming period with nearly $500 million per year of elevated costs from the unprecedented inflation I discussed earlier. If there were to be a recession, it would likely be accompanied by some deflation. And those headwinds return to tailwinds in both our earnings, our margins and even more so, our cash flow. While our primary operating capital has always been a reliable source of significant cash generation in a downturn, we have made intentional decisions to invest in strategic inventory buffers these past 2 years, to offset the supply chain challenges we faced that would further monetize in a recessionary period. And five, finally, as evidenced by our past successes, navigating a market slowdown, we have had lots of experience flexing operating expenses, which is somewhat easier to achieve in Motive Power which does not require as much fixed cost R&D overhead as our Energy Systems line of business. So, in conclusion, I hope it's been clear that our team is really, really excited, and we're very confident in EnerSys' ability to achieve our impressive longer-term financial targets and to maximize shareholder value. We will focus on execution in order to accelerate growth in diverse and expanding end markets with products that are critical enablers of multiple global megatrends. We will expand profit through a richer mix, EOS and OpEx leverage. And finally, we will leverage our strong and flexible balance sheet with clear capital allocation priorities to drive innovation and continued transformation. Thank you for your time. I will now turn it back over to Dave.

I wrap up. I do want to say a special thank you to Lisa and Charlotte and the [ Corben ] team. There's a lot of work that goes into an event like this, and let's give them a round of applause. Thank you. Thank you very much. Key takeaways, just kind of bringing it home before we open it up with Q&A. Accelerating growth, a lot of diversity in the end markets, expanding end markets and a lot of favorable alignment with global megatrends. Expanding profit, you just heard a lot from Andi about the mix, the products; Patrice, we've got $40 million right there on the line and then the OpEx leverage. I know that Shawn and Drew and Mark are all committed to doing more with what they have today. There's no reason we can't continue to drive the business on OpEx leverage. And then the balance sheet just enables us to do things that some of our competitors just don't have that flexibility. They just don't have the tool set, the availability, the capital that we do and the opportunity to continue to operate in very manageable levels of debt in this macro environment we exist in. So great opportunities there. So again, I want to thank everybody who's participating with the webcast, everyone who came here today. Thank you very much. And I believe we're going to open this up for more questions and answers. So thank you very much. And let give us a second to get set up.

We're going to have all the presenters come back up on stage. Thank you. I like that our team waits for my direction. That's good. And then meanwhile, just a reminder that we do have the mic runners and please wait for the microphone to ask your questions so that we can hear you in the room and on the webcast.

I just want to check the structural integrity of the stage before we all get up there. I think we should be okay. It's better to spread the weight out. Okay, we ready? I'll be the Guinea pig here.

We'll start in the room. Anybody in the room want to kick off? Charlotte's got Greg over there.

Well done. Today it's a really, really interesting presentation. On the guidance, I just wanted to clarify, of course, I think in the last earnings call, we spoke to a $0.40 or $0.50 per share benefit for the tax credits. Is that what is embedded going through FY '27, like is that assumed to be flat? And then can we connect the dots on the wordage on pre-excess capital reinvestment. Is that kind of what that means using those funds for excess manufacturing capacity then the credits end up becoming much more of a portion? But what's shown on the base case, is it that $0.40 or $0.50 a quarter about $62 a year kind of thing?

Good question. So the $0.40, $0.50 is a little lighter. That's -- I think that's around $19 million in the quarter. And as we said, probably about $100 million to $120 million, our first quarter and our second quarter were a little bit lighter because if we sell product out of inventory, you don't get the credit. And then on top of that, we do have growth in thin plate pure lead and lithium projected. We've been conservative in growing it to incorporate that growth simply because we don't know what any unintended market consequences could be. And so we chose to be -- with our whole model, we chose to be intentionally conservative. So I hope that answers your question on the IRA piece. And then on the reinvestment, we expect -- our goal is to make the most -- the best allocation decisions of our shareholder capital that we're entrusted with. So we expect that we'll probably keep the leverage around 2x EBITDA, but we're not exactly sure where we're going to redeploy that capital. So we built that into our model. We built the interest expense for that debt level, which kicks off about $1.4 billion. You can see from the cash flow model and then about an incremental $1 billion of borrowing, that gives us about $2.4 billion available. We mentioned the $110 million to $120 million of CapEx. We figure about $500 million of that goes into CapEx. And the excess capacity, we could use that to accelerate our strategy, be it lithium, a lithium plant and acquisition, whatever, we're not sure yet where that will be redeployed. So that's where we sit. If you just use the cost of capital, you probably get about a $5 lift very conservatively on your EPS. But depending on what investment we choose, when the return is, if we're building a plant, the plant might not be done, something like that. We didn't want to build that directly into the model. But we do have the interest expense in the model. Does that help?

Yes. Thanks, Andi. And then, Joern, on the EV charging, so many questions, right? Really exciting, but I'll just keep it to one. Can you speak to the applications for fleet, specifically buses, medium heavy-duty trucks? Some of the issues that they're running into on taking such a large load at one time and how your guys' solution can ultimately solve that problem? And then I'll turn it over and I can always circle back.

Yes. No, sure. And thanks for the question. So with fleets right now, a large part of the problem is, do you have access where those fleets are being charged? And is there sufficient power? Very similar to what I just stated about the condominium example I gave or the neighborhood example that I gave, do you have congestion there? And so therefore, the battery system that's hooked in can really help in those cases. Probably one of our closer matches that we have, though, is where the trucks are going in and out, where they're coming back to the depot and staying there for lunch, during that lunch period, they can charge right back up again, again, using that energy storage device to pump that power in and then go off on to their next call in the afternoon. And we're seeing a lot of headway moving into that direction. But -- and a lot of the attention that we're playing to today, though, is REITs is looking at those real estate investment opportunities. Those places that I spoke about, those 15, 30 minutes of dwell time where we can quickly push in that charge and help those customers along their way.

And just to add a little bit of color. Mark, one of your OEM customers came to us with their version of a Class 8 electric truck. And if I remember that right, you told me they needed 750 kilowatts to do a fast recharge. They were trying to get a charge like [ 45 ] 750 kilowatts, unpredictable load drops out of the grid. That's like throwing 2 grocery stores onto the grid every time they plug in one of those trucks to charge. So we just -- it's the -- I think I'm not as sophisticated as Joern, the -- I have to think of that system as like a massive shock absorber to protect the grid from these pulses or shocks that are going to come in. And it's the unpredictability of that charging which is so hard for these utilities to provision the energy for. And then that will just continue to grow as electric vehicle penetration ramps up. So the fleet opportunities are fantastic. We've got a meeting coming up.

That's right. In about a month.

A couple of weeks or -- yes, on a fleet opportunity, which we're excited about. So great question.

Thanks again. I did have a question, and I was hoping each -- we could go through each segment, Motive, Energy Systems and Specialty. As we think about aftermarket services throughout the day, you've touched on data analytics, software overlay, is there any way to kind of think about where that's headed over the next, I guess, 3 to 4 years versus where it is today on a -- at a segment level?

Well, I could start with Motive. If you look at our service business today, it's about 10% of revenues. And if you accept that we've achieved 20% maintenance-free mix, you would think that we still have 80% traditional lead acid. If you look at our service business over time, it's been the maintenance activities that would go into everything I talked about today, watering, changing out batteries, this type of thing, and it's very tactile. If you look at the 20% mix that's occurred, we're switching and moving into that data management environment and that remote monitoring environment. And the user doesn't want to just eliminate the labor involved in maintaining the battery, any warm body that can get their hands on, they want generating revenue for their business. So even those monitoring activities, they're wanting to defer externally. So you'll see in the case of Motive Power, our mix turned to more remote monitoring, where we can actually decrease truck rolls, increase efficiency and have a larger recurring revenue streams.

Yes, I can go next before you go, Drew. It's going down the line. It's same thing for us. So we're seeing, as we talked about, the e-connect system, the h-chip that we're putting in all of our batteries in Specialty as we go forward, particularly in the transportation markets. A little bit of a different challenge for us is that we're going to have this data. A lot of it wants to flow through the truck OEMs. They want to control that data and then control the replacement of information and some of the -- even the stores and the aftermarkets that are looking for like an auto zone or NAPA, would love to have that into their apps, they can have come back to their store by wiper blades and the battery. So we're seeing that plant in a lot of ways. What we want to make sure is we have that data so we can optimally use it between our customer base and ourselves to make that sale come through back to our way.

We have the largest percentage of sales to our total revenue streams. We have kind of presale, all that type of work with the post sale. Preventative maintenance piece is significant. We do a lot of, of course, readiness in the network. So we're constantly doing monitoring or different other types of data capture and preventative maintenance activities so that we do kind of a just-in-time versus a just-in-case upgrade. We also do a lot of scheduled critical facilities programs, so we do scheduled maintenance and then what we're there, we'll do demand maintenance, and then we have provisions for emergency maintenance, which we do a lot during the natural disasters and things like that. So we actually have in-house produced software tools to track projects, to asset manage and things of that sort. So it's becoming a bigger part of the business. And the customers have less and less capability to do it themselves.

Maybe I can just add one thing. With the DC fast charging, something I didn't mention is, if you recall, there was this massive software layer that's associated with it. So what we're working with, with our customers is a subscription service for that as well. So there's a subscription service for the authentication procedures that, for instance, will happen to release that energy once and making sure that we can identify that user properly. It's the [ NOC ] that's there. There's a cloud resource with this information that drives through their CRM system. And then just the basic maintenance just to keep up with the vehicle upgrades as they go in and making sure that we have that constant compatibility. That, we believe, is going to be set up in a subscription service moving on.

Lisa, I think it was an accident, but all the line guys are on one side, staff on the other. Today, we really do all like each other.

Go ahead.

I want to ask a couple of questions a little bit in a devil's advocate kind of way. And the first one really starts with leverage, which is something you both mentioned a couple of times. If I back out the expected benefit from IRA in 2027, that still implies something like 25% incremental EBIT on $1.5 billion of growth. And if we look back at the history of the company, that hasn't really been the case. You can go back a decade. And so can you talk to us about the levers to get those incrementals? What gives you visibility and what should give investors confidence?

Well, a lot of it is mix and OpEx leverage as well. Those are major drivers. And these more sophisticated systems are intended to yield higher margins than the traditional less engineered content products [ remadable ]. So the journey has been all about this very topic. It's about pushing the margins and again, the scaling of -- I think all of us are committed to these growth initiatives without any sort of significant increase in our operating expenses. So when I look at some other companies that are similar to us or in aligned areas of business, I look at their gross margins, and I turn my nose up and then I look at their EBITDA margins, and I go hmm and it's just because of the scale they've achieved and there's no reason we can't achieve similar goals. So I don't think anyone was heroic in their margin. What we've included, it was a bottoms-up model. I had nothing to do with it. I saw the numbers not short -- not long before you did, frankly, and I didn't want to have any finger on the scale. But we've got tons of work to do. You know that adapting to whatever the market throw at us is certainly part of that. Patrice has his hands full getting that young team in Missouri executing to the same level as the team in France. So plenty of opportunities, plenty of challenges, but there's no -- nothing -- there's nothing in the model. We don't believe in our sales as we would have included it.

That's helpful. And I think especially, you pointing out that OpEx is expected to remain fairly flat at current levels since that's as an absolute level, not a percentage of sales.

There are certain portions of it on the G&A side that are going to change, but I think the -- and some selling, but commissions and so forth in some of our channels, but a lot of our selling expenses are direct sales people. So I think it's very manageable that OpEx leverage.

Okay. Very helpful. And the second one is really around battery manufacturing -- lithium-ion battery manufacturing. I think -- is this going to be a good business to be in for the company just because the government is giving money right now, that doesn't necessarily mean that it won't get commoditized and some of those benefits are trashed away, where does this make sense for EnerSys?

I think the prism you have to look at it through, we're a systems business. And in Joern system that lithium-ion sale is -- it depends on what the system -- but it's, let's say, it's 25%-ish of the bill of material cost. So I mean, that's already starting to dimension what this means to us. So that's only a portion of our cost of sales. But having design control and having supply chain control have really turned out to be something I might have underestimated in 2016 is our ability to control those elements. I kind of felt like lithium cells would be ubiquitous and we could always find them somewhere. That's just not the case. These are sophisticated. Our needs are precise. We've limited our scope because of the safety considerations and the performance considerations to a certain type of cell and the access to that and the supply chain assurance we need drives us to this decision. If I was only in the business of selling lithium-ion cells, you and I can arm wrestle over whether this is an accretive type of decision. But if it's about controlling the design and controlling the supply chain to ensure that we can deliver the systems reliably, safely and at manageable costs than it absolutely is the right decision for us. And given the IRA and the acceleration that, that provides, it was a path my head and the board's head were on anyway, Noah. And the IRA is not the reason that -- I can show you my performance reviews from the Board over the last 2 years. And part of that has been nailed down your supply chain on lithium-ion cells, be cognizant of the geopolitical risks. We learned from what we did in COVID with these fragile supply chains. And if you're going to build a business case on the future that's largely based on this availability, then we darn well need to put together a plan. And as Mark -- certainly a lot of the opportunities that we have in the funnel require domestic sourcing, they're government-related projects. So it's the right decision, Verkor's the right partner, and we're excited about the future.

I have a question that came in from the webcast. And this one is for you, Mark. You were talking about the opportunities that you have in aftermarket and the question is, what are the margin opportunities for that business compared to your -- the OEM?

Yes. So it's a great question. That's why we love the aftermarket as the margins are better. Typically, we see anywhere from 5% to 8% better margins on the aftermarket than we do on the OEM side.

Another question that's come in is for you, Patrice, walking through your goals on operational excellence and the opportunities you put out on cost savings, the $35 million to $45 million. The question is asking if the EOS rollout is focused only on TPPL? And I know that particular cost savings metric was related to TPPL but can you talk about the overall EOS savings and work that you've been doing for the company?

Thanks, Lisa. Thanks for the question. Yes, for sure, U.S. is rolled out in all our plants and all our distribution centers. So the system is in place, the opportunities is having a bit of adherence in the plant of better acceptance, empowering the teams to deliver more locally which the Japanese are calling Kaizen versus the Kaikaku things, which are the strategic things we are discussing here. So yes, we get benefits out of all the plants. I took TPPL and through Arras as an example because a lot of focus today is on maintenance-free where TPPL is part of but we are driving that through all the plants. I could have taken another example, which is a turnaround we made in Richmond, for example, where we do conventional business, all in all, the TPPL U.S. savings represents about 60%, 65% of what we have in the model of U.S. savings.

Lisa, it was about 2 weeks ago, Shawn sent me a text, he had a bunch of the sales folks down in Richmond. And the feedback was extraordinary. I don't even know if I had a chance to talk to you about the feedback but Richmond is -- it's so different than it was. And we had so many bumps along the way. But that Richmond probably gives me as much confidence that Patrice knows what he's doing is anything. It's a different factory. The new distribution center there, it's running through whether new, Philipp, the SAP system is just adding value, it took too long to get there, but it exemplifies what these EOS programs can bring us.

And we recently received some awards for that plan as well, right?

Exactly. Several ones, not just one. So the latest one we received was on energy efficiency. So as you know, we saved up for a lot on the sustainability goals. One of them is related to reduce the energy intensity in our plans. And our goal is to go to minus 25% up to 2030. In Richmond, we already achieved 24% already now.

A question for Joern on the Battery Energy storage system. Can you just give us a little bit more color on who you think the most typical customer is going to be? Is it going to be the property owner? Is it going to be a gas station? Is it going to be a utility? Could it be a tenant in the building that puts one of these in and can count it as tenant improvements? Just a sense for who you think the customer will end up being.

Sure. Great question. And I hope all of them. But if we start to concentrate on it, it's like I said, I think the first part is already going to be those places of 15, 30 minutes. I also mentioned that there is a lot of low-hanging fruit that's already been used up, say, by DC fast charge, wherever there was a lot of power that was present. They place that there are certain OEMs they have said I want to make sure I can have vehicles travel across countries while I place them across a number of corridor items, right? But I think it's those property owners that we're going directly after. So those property owners that may own that shopping center, that may own the property where that grocery store is located, that building owner, it may be those building owners of the companies that they want to move towards. So these are the ones that we're addressing. I mentioned REITs as one of them, real estate investment trusts are one of the primary targets that we're going after. And we believe that's where the greatest benefit will start to come together, that those 2 customer experiences. You can imagine that someone is buying something in that grocery store and if I spent another 5 minutes, I can get another 20 miles on my vehicle maybe I'll buy the site and I'm going to improve a little bit more. They're starting to see these type of advantages also coming into those plays. So -- but I think it's just a wealth of opportunities.

And we've said from the beginning, because this is new for us, that we wanted to limit the scope of where we started. And so these real estate REITs is absolutely where we decided to start. And this initial launch customer has taken a little longer than we had expected. And the reason is -- but as Andi alluded to, with the 45 extra credits for us, there's also now tremendous new energy incentives out there, and that's such an evolving landscape that -- and there's been -- and this -- the need -- this particular customer, it's becoming such a relevant portion of their justification and payback, these systems are darn near paying back for themselves. Now you never want to base too much of your business plan on incentive schemes because incentive schemes go away in the long run. But in the short run, there's certainly ample opportunities to start to prime the pump. And if we're effectively -- if we really think about especially given the limitations of bringing on new energy sources that we're all going to have to think differently and act differently about how we use electricity. And the beauty of battery energy storage is it decouples when you make electricity and when you use electricity. And that's the true value of these systems, and I talked about the shock-absorbing aspect of that. We are never going to get where we need to go without battery energy storage. And we just feel extremely well positioned to take advantage of that across all of the lines of business we have.

On that topic, another question that's come in from our webcast attendees is timing of contribution from DC fast charging for Joern. How much more clear is that becoming for you?

So our start of production, we've slated for September this year. And so right now, we believe that the first order will come in this quarter. So we're probably going to be sold out relatively quickly on these units.

One more. I'll take one more. Go ahead, Noah.

Thank you. The $35 million to $40 million number for yield improvement from TPPL, what is that capturing given that margins presently are depressed? What does that number mean?

Yes. So keep in mind, the $35 million to $40 million is just really for our Missouri plans. And the way -- so Patrice's presentation was focused on the TPPL and really taking what we've done in Arras and bringing that over to the Missouri plants, which, to me, what gives me so much confidence in it is we're already achieving that in Arras. So we're just -- after we normalize for depreciation and local pay rates and tax rate and benefits, that's what the opportunity is if we could be performing at the same level. So we've got -- that would drop to the bottom line as cost savings. But on top of it, that would also fuel some of the additional revenue that Patrice was referring to coming out of thin plate pure lead that Mark is eager to get his hands on. In our overall financial model, we have about 3x that savings built in but about 1/3 of that then gets offset with inflation as well. So I don't know if that answered your question, Dana.

So that means, for example, aligning the change over time of the machine, adjusting the scrap level to what we're used to do in our getting the labor productivity, the efficiency on the machines, everything normalized what Arras is doing. And we do similar things also in other plants like we did not speak about a system plant. So in [ Suhani ] for example. So that's 1 acquisition coming through the [ IFA ] acquisition. So there, we had a first role of improvements where it is about creating continuous flow in the cell and then making the material flow around the cell. So with doing that, we were able basically to reduce the square foot we needed for the assembly in the factory by half. That allowed us basically to take some volume out of a Burnaby plant in Canada to move it there. And now we just did that again. All of that is allowing us to get the organic growth over the next years without brick-and-mortar in those factories. So we will get a lot of order fixed costs absorption automatically.

I just want to also add too. Because I think Patrice touched on the most important thing, which is the experience level of our Missouri team relative to our French team. There's an experience gap that will close over time. The other thing that he didn't mention, which I certainly would have if I was in your shoes, but I'll do it for you, is that piece of equipment that he showed, which was going to take you from 2 multi-alloy casters and 4 perforators into 1 machine which is going to take out lots of heads. That damn thing took over 2 years to get delivered because of all the craziness in PLCs. And I mean, it was literally -- we waited -- that thing was supposed to have been in a whole fiscal year prior but we waited for that machine, and we took the bullets along the way.

Because of COVID and because of the lead times increases in the electronic chips, which for that equipment supplier was that the PE could not get the PLC to assemble the machine. So instead of getting a machine in 10 months, which was prior COVID, it took us 2 years to get the machine and that will normalize again. So which means next CapEx, we're basically getting into those plans, we'll get the return on investment much more fast in the future again.

But that $40 million is not benefiting from that $600 million of hope for growth. That's more static analysis based on where you are today.

It's scrap and productivity closing that gap, it's not the incremental drop-through of gross profit.

Yes, right.

Again, on TPPL, would you say that the conditions on the ground with labor, labor retention, productivity of labor are now more conducive for the forward look to [indiscernible] is that a technical word?

In German, you say ja nein, which is 50%, yes and 50% no. So why? We believe that, that labor scarcity we had overcovered, that will continue, which means we invest also a lot in automation, yes? And when you think about a Comcast machine, it's all the form of automation. We do similar things on the assembly lines. We do similar things on the pasting lines as well. If you take the pasting line, North ahead when we acquired them and the pasting line we now have, when you look at it, you believe it's the same machine. It's just running 50% to 60% much more faster. The bad thing about that is you generate scrap faster when people don't know what they have to do. That's why it's so important with the center of excellence to get all of that now how in to be able to produce good plates. And those are our nice opportunities.

Dana, when we bought NorthStar, their turnover was 120%?

160%.

160% per year. So we baked into the acquisition model, negative synergies for increasing pay rates because we knew that would be an issue. And then you have the tight labor markets coming out of COVID on top of it. If you compare Arras plant, 30% of the people in the Arras plant are there less than 3 years in Springfield, 30% are there more than 3 years.

No, the other way around.

Yes, the other way around, sorry. So 70% of the employees in Arras are there more than 3 years and 70% of employees in Springfield are there less than 3 years. And so as Dave mentioned, making thin plate pure lead which is a great moat for us, which is why other companies -- we've got this advantaged position. It's hard to make. And so you need people who are trained, you need CapEx investment. So it's -- and we know how to do it, that's on our journey.

A question on Energy Systems, the margin compression there, perhaps with the complexity from Alpha as well as the supply chain challenges has been most dire for a long-term shareholder. Would you describe where you are on your confidence, scale on where you need to get back to and how we can be confident that you'll get back to it?

Sure. I mean a lot of what we did during the supply chain pressure was to maintain supply continuity and it cost us dearly. But we needed to do that to keep our key accounts where they needed to be. And they were pretty good about [indiscernible] giving us enough price relief, but we could not get ahead of it quick enough. We did way beyond what we had expected in spot buys, the freight rates to get material over was there. So a lot of that is subsiding, and I think we're already seeing it. I think our sequential gross margin improvements have been very noteworthy. Same with our operating earnings. I think those will continue. We'll see that normalize very shortly.

And one last question about competition. You folks have been through quite a bit in the last several years. What has it been like for your competition? And how would you say you have or have not gained competitive advantage so that you gain more of the benefits, respectively, compared to other folks that you compete with?

Well, I'm on the [ Eurobet ] Board of Directors. So I get to see all the CEOs in Europe, and then I'm on the Batteries Council International. And I would say, judging by the gray hair that we all have accumulated over the past few years, it's been a tough period amongst the battery producers. I think the explosive inflationary pressures have been broadly felt across the industry. In terms of the customers that are really dramatically exposed to our competitors, excuse me, or channel partners or frenemies, whatever we want to say, some have just really boomed during this push on electrification. The growth rates are extraordinary and their supply chains are the only thing that are bottlenecking them. And then we've had other channel partners that have suffered badly because they didn't get pricing in place soon enough, fast enough and they got [indiscernible]. So it's a broad assortment of pressures, but I think we have fared extremely well throughout the course of this in terms of price recovery. And then really in terms of sticking to our knitting and staying on the strategic initiatives we laid out. So there's nothing we've talked about here that we haven't talked about in the past. And we've just stuck to our knitting through some extraordinary distracting periods, some inflationary craziness. And yet we've continued to invest in the fast charge on storage and wireless charging in the touch-safe program, the Hyperboost program, we just kind of bit the bit a little bit and gotten through this, and I'm extraordinarily proud of this team for weathering the storm and getting us now into a position to accelerate where my head's been for some time. That's my job to get out in front, and we're really getting to where I wanted to be.

And we'll take our last question from the web and that is in your long-term targets, is there a way to say how much of that uplift in profitability is in your control?

Well, I think that in the case of Andi's sensitivity analysis, you can see most of her sensitivity was related to a negative macro environment, especially felt through Shawn's business, and she stepped through that. So that element is in our control in the sense that we have a playbook that we're going to run as we respond to those macros. In terms of the supply chain pressures, we've onshored or at least brought onshore, a dramatic amount of our electronics relative to where we were pre-COVID. So we're in a much better position there today. So I would say that the things that are in our control, certainly, the performance we talked about with closing the gap between Missouri and France in terms of scrap and productivity is within our control, getting these -- once we get these orders turned around, getting them executed, staying on the maintenance-free journey obviously executing and the art of opportunities. I mean, most of this or much of this is in our control. But of course, like every company out there, you can't control the macros, all you can do is manage tool.

Yes. And I would just add one thing to that. We've taken, I think, a new philosophy of recognizing that everything isn't always going to go perfectly. And so we did attempt to be more conservative and built in some placeholders for risk into our projections as well.

That's all the time we have. So we are going to break into lunch over in the product showcase and we'll be back there until 1:00. Any final words, Dave?

No. Again, thank you all for your attendance, your interest in the company and hopefully, you share the same enthusiasm. And I have to say, we're also committed to Investor Relations. So we're going to continue to push in this area as well and make sure that we continue to be as transparent as we can as we go forward. So thank you very much.