David Shaffer - President and Chief Executive Officer Michael Schmidtlein - Executive Vice President and Chief Financial Officer

Michael Gallo - C.L. King John Franzreb - Sidoti and Company Noah Kaye - Oppenheimer Brian Drab - William Blair John Franzreb - Sidoti

Thanks, Nicole. Good morning and thank you for joining us.

On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer. Last evening, we posted slides on our website that we will be referencing during the call this morning.

If you didn't get a chance to see this information, you can go to the webcast tab in the Investors section of our website at www.enersys.com. I'm going to ask Mike Schmidtlein to cover information regarding forward-looking statements.

Thank you, Dave, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and views regarding future events and operating performance and are subject to uncertainties and changes in circumstances.

Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are applicable only as of the date of this presentation.

For a list of factors, which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in our quarterly report on Form 10-Q for the fiscal quarter ended July 1, 2018, which was filed with the U.S. Securities and Exchange Commission.

In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our Company's Form 8-K, which includes our press release dated August 8, 2018, which is located on our website at www.enersys.com.

Now let me turn it back to you, Dave.

Thanks, Mike. I will begin on Slide 3.

We were pleased to announce first quarter earnings of $1.17 per share which were at the middle of our guidance range of a $1.15 to $1.19. Sales increased 8% year-over-year with 5% coming from strong organic growth.

Our Motive Power business is doing well in all regions. In Reserve Power the Americas continues to be strong.

The strength is coming from the telecommunications, broadband, transportation and aerospace and defense markets, which order significant quantities of Thin Plate Pure Lead or TPPL products. EMEA reserve sales and orders are down year-over-year which has allowed us to use their excess TPPL manufacturing capacity to supply in the United States.

In Asia orders are down year-over-year due to China Tower. Year-over-year quarterly gross profit increased by $2 million as a result of strong organic growth despite commodity cost increases that created a $4 million headwind even after recognizing selling price recovery.

In an effort to offset continued raw material cost pressure, our selling price recovery actions averaged approximately 75% of total commodity cost inflation during the most recent quarter. The 75% pricing recovery in this quarter is lower than our fourth quarter’s recovery of 85% due to the sequential spike in lead costs flowing through this quarter.

I would add that the cost of commodities that flow through our P&L this quarter were higher than any quarter in fiscal year 2018, as well as the highest in seven years. However, the lead prices have since declined and we are likely to see those benefits starting early in the second half of fiscal year [29] (Ph).

Please turn to Slide 4. I want to briefly review our global businesses.

As mentioned, we experienced a strong 5% global organic growth in our first quarter. Recent reserve power sales and order trends continue to be robust in the Americas driven mainly by increased orders for our industry leading Thin Plate Pure Lead batteries in all product groups.

We have seen an increase in our enclosure sales. As I detailed on our last call, there is a build out in telecommunications for network infrastructure and preparation of future 5G deployments and greater data traffic which should provide tailwind for our businesses for some time.

This is for both batteries and enclosures. Next broadband and CATV or Cable TV are spending for network upgrades as they invest to meet DOCSIS 3.1 data download speed standards.

Sales and orders for the transportation business continue as we expand into additional long-haul truck fleets in automotive retail store chains. And finally orders for batteries used for military tactical vehicles continue to be strong.

In the first quarter, the Americas motive power business also experienced healthy sales growth and orders have continued to be strong in recent months. Over half of the volume growth came from new products.

In addition, sales of our Nexus pure maintenance free motive power battery more than doubled in the first quarter compared to last year's first quarter. As previously mentioned EMEA also experienced heavy motive power growth similar to the Americas.

Most of the growth came from new products. In the first quarter EMEA experienced over 100% year-over-year sales growth of our Nexus pure maintenance free motive power battery, which customers have continued to rave about.

EnerSys believes that the motive power market will move globally away from traditional flooded batteries in the maintenance free solutions overtime. The combination of our Nexus pure TPPL as well as the Nexus ion and lithium solutions will securely position EnerSys for the future.

Moving on to EMEA’s reserve power business, year-over-year sales in the first quarter were flat, primarily due to the positive impact from foreign currency exchange rates and higher prices offset by lower volume. Organic volume decreased year-over-year, which was mainly due to the temporary Thin Plate Pure Lead manufacturing capacity constraints.

Opportunities in telecommunications and uninterruptible power systems are picking up in the Middle East. These types of opportunities can be somewhat lumpy as we experienced last year in our third fiscal quarter.

In the European long-haul truck and bus transportation market customers are very excited about our recently introduced Thin Plate Pure Lead product; they are realizing the same performance in value proposition that U.S. fleet carriers recognized a couple of years ago.

These batteries will last much longer than conventional truck batteries due to their ability to handle high temperature exposure, as well as on road vibrations. This is just one of the exciting growth opportunities for the EMEA region as a result of our innovative new product set.

Asia’s motive power continued its double-digit organic sales growth during the first fiscal quarter, the growth in the Chinese electric fork truck market is truly astounding. Here is an example.

For the three quarters of April, through June of calendar [27] (Ph) China’s electric fork truck orders were at 80% of the United States’ order rate. However, during April through June of this calendar year, Chinese electric fork truck orders were 110% of U.S’s order rate.

Simply amazing. We expect this market to continue to grow rapidly as electric forklift trucks are still only 35% of the total Chinese new forklift truck market.

Similar to the Americas this percentage should approach well over 60% in time. In addition, at these new electric forklift trucks age, they will require replacement batteries created the second wave of growth in this market.

Our Indian operation has transitioned to motive power from reserve power and has exported its first motive power products; and these motive power start up will certainly help absorb some of the fixed and overhead costs that have been weighing down our Asia results. Asia’s reserve power organic sales in the first quarter were down double-digits as China Tower began the government mandated use of recycled lithium backup batteries.

While we expect to continue experiencing the near-term impact from this transition we are accelerating our strategy to replace this volume with increased sales to Chinese telecommunications OEMs for their global operations along with the increased value in the rapidly growing Southeast Asia region. In the U.S., aerospace and defense business strong growth patterns continue.

We received two major lithium battery orders for long-term contracts for major defense OEMs for missile defense systems, and space batteries. In order to fulfill these orders, we have added the second shift at our Tampa, Florida facility.

There are additional large, long-term contract opportunities that we are hopeful to secure in calendar year 2018. Recently, we announced a new five year contract with the U.S.

Navy to supply up to $75 million of TPPL submarine batteries. This contract value is 15% higher than the previous contract.

Even with these recent order wins we are still engaged with customers and opportunities over $100 million and other new projects mainly in the space, ammunition and medical areas. We continue to actively quote and design products for the lithium segment that we expect to result in strong organic growth over the next three to five years.

Please turn to Slide 5. We will continue to provide investors with metrics pertaining to key initiatives and cost assumptions that we introduced at our Investor Day in February 2017.

Since the end of fiscal year 2017, we experienced commodity cost increases which appear to have peaked in this recent quarter. This commodity cost pressure has mapped the significant progress we have made in cost-reduction savings.

But as I mentioned earlier, if the price of lead remains below a $1 per pound we should experience gross margin expansion and incremental earnings growth starting early in the second half of fiscal year 2019. The significant cost reductions have more than financed the increased costs associated with the Company's transformation into lean initiatives, new modular product and systems development and system enhancements such as SAP, salesforce and success factors.

Please turn to Slide 6. I will now provide an update on the progress we have made on our strategic initiatives.

Our lean initiatives, which we call the EnerSys Operating System or EOS is providing the cultural change initiative that we targeted when we launched more than a year ago. Our push to make continuous improvement way of life that EnerSys is taking hold.

EOS strategic initiatives now span more than 70% of our facilities, and lien is becoming ingrained in the way we operate. EOS activities are successfully decreasing factory flow times, raw material and work and progress inventory levels and direct labor costs throughout most sites under transformation.

As an example, the first Americas motive power manufacturing facility introduced the lien about a year and half ago has reduced factory flow time by 25% raw materials and work in progress inventories are turning 30% faster and 10% of the factory floor space was freed up. And we have identified even more opportunities to improve at that facility.

In EMEA, EOS is providing the management tools and framework to identify and implement reserve power productivity and capacity improvements. Additionally, engineering product cost reduction efforts have been successful of identifying several million dollars in potential savings in both existing and new products.

More importantly, we are defining the EnerSys's global standards and the frameworks for managing factories and the continuous improvement process. Based on successes to-date and expectation going forward we continue to increase our rate of deployment for EOS globally.

We will initiate EOS in all Americans non-aerospace and defense factories and in Australia by year-end ahead of our original schedule. In EMEA, we have already launched at our final planned factory.

We maintain our fiscal 2019 total target for $30 million in gross non-related cost improvements with Q1 having achieved approximately $7 million. We continue to discuss our exciting variant modular approach to the new lithium and TPPL product offerings with our customers.

There is significant interest in reviewing and testing these new maintenance-free products. We consistently receive positive feedback from our customers regarding wireless charging and the adoption of the ISO 26262 safety standard.

As we have communicated previously EnerSys will be launching our initial modular lithium variant at the end of calendar year 2018 in the motive power market. This product is not just one item, but rather it is the start of multiple pieces of a broad product family or platform of products.

The technology will be the same, but the application will vary different. We are unaware of anyone in our industrial markets that will have the quality and depth of advanced chemistry products as well as service that EnerSys will offer.

We will continue to build on this progress through continued investment in R&D as we drive further lithium innovation. In addition, we continue to be very active on the M&A front.

Our focus remains on acquisition candidates that would complement our growth, product differentiation and technology development. We have increased our due diligence expenses in the last quarter in advancing deals.

In summary, I’m pleased with our first quarter results, especially given the higher year-over-year and sequential increases in commodity costs. That said, while we began experiencing commodity cost increases at the end of fiscal year 2017, the spot price for lead appears to have peaked in this recent quarter, commodity cost net of selling price increases should become a tailwind starting early in the second half of fiscal 2019.

Motive power is enjoying good growth in all regions in the world and our new maintenance free Nexus product is setting the standard for the industry. Our EOS transformation is going very well and as I meet with our employees all around the world who have embraced this strategy, I remain very excited about its positive impact in future of EnerSys.

And now I will ask Mike Schmidtlein to provide further information on our results and guidance.

Thanks Dave. For those of you following along on our webcast I'm starting with Slide 7.

Our first quarter net sales increased 8% over the prior year to $671 million due to a 5% increase in volume, a 2% increase from pricing and 1% increase from currency. On a regional basis, our first quarter net sales in the Americas were up 11% to $393 million and Europe’s net sales were up 6% to $210 million while Asia decreased 2% in the first quarter to $68 million compared to the prior year.

The Americas enjoyed a 9% increase in volume and 2% from pricing. Europe had a 2% pricing increase and 4% of positive currency; in Asia, volume decreased 7% while pricing and currency increased 1% and 4%, respectively.

On a product line basis, net sales for motive power were up 9% year-over-year at $347 million while reserve power was up 6% to $324 million. Motive power had a 5% organic volume increase, a 2% increase in price and 2% currency benefit.

Reserve power generated a 4% increase in volume and a 1% increase in price and 1% in foreign currency. Please now refer to Slide 8.

On a sequential basis, first quarter net sales were down 2% compared to the fourth quarter of fiscal 2018, driven by a 3% currency decline and offset by a 1% increase in price. The Americas region was up 3%, while Europe and Asia were down 8% and 9%, respectively, on a product line basis motive power was down 4% while reserve power was flat.

Now a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures and analyzing our Company's operating performance specifically excluding highlighted items.

Accordingly, my following comments concerning operating earnings, my later comments concerning diluted earnings-per-share exclude all highlighted items. Please refer to our Company's Form 8-K, which includes our Press Release dated August 8, 2018 for details concerning these highlighted items.

Please now turn to Slide 9. On a year-over-year basis adjusted consolidated operating earnings in the first quarter decreased approximately $3 million to $68 million with the operating margin down 130 basis points due to the dilutive impact of rising commodity costs on margins and earnings.

The 5% increase in organic volume from the prior year along with 12 million in pricing was not enough to offset 16 million higher commodity costs and increases in other operating costs. On a sequential basis, our first quarter operating earnings were down $5 million primarily from higher commodity costs.

Operating expenses when excluding highlighted items were at 14.6% of sales for the first quarter compared to 14.7% in the prior year. We currently expect fiscal 2019 operating expenses to be in the 14.5% range, excluded from operating expenses recorded on a GAAP basis our net charges of $2.8 million primarily related to the EMEA’s restructuring and professional fees for due diligence on M&A opportunities.

In addition the $2.8 million in net charges related operating expenses, we excluded 0.5 million in inventory write-offs associated with our recent withdrawal of manufacturing reserve power product in India. Excluding those charges our Americas’ business segment achieved in operating earnings percentage of 12.6%, which was 280 basis points below the 15.4% first quarter record of last year.

Higher volume and pricing only partially offset the impact of higher led cost. On a sequential basis, Americas’ first quarter decreased 40 basis points from the 13% margin posted in the fourth quarter primarily due to higher volume in pricing.

Americas’ OE dollars were down approximately $5 million from the prior year, but flat with the prior quarter. Europe's operating earnings percentage of 8.2% was up from last year’s 6.9%, but lower than last quarter's 9.7%.

OE dollars increased $3 million from the prior year, but decreased $5 million in the prior quarter in EMEA. The operating earnings percentage in our Asia business declined 250 basis points in the first quarter of this year to 2.2% operating profit from a 4.7% income in the first quarter of last year and was also down from last quarter's 2.5%.

Asia's OE dollars were down approximately $2 million from the prior year and down approximately 0.5 million sequentially. Please move to Slide 10.

As previously reflected on Slide 9, our first quarter adjusted consolidated operating earnings of 68 million was the decrease of 5% in comparison to the prior year. Our adjusted consolidated net earnings of $49.7 million was comparable to the prior year.

The results reflect higher volume, pricing and cost savings and lower taxes and foreign currency losses offset primarily by 16 million in higher commodity costs. Our adjusted effective income tax rate of 19% for the first quarter was slightly lower than the prior quarter and the prior year's rate of approximately 20%.

Discrete tax items caused most of these variations. We continue to expect fiscal 2019's rate to be between 18% and 20%.

EPS increased 4% to $1.17 on slightly higher net earnings and lower shares outstanding. we expect our fiscal quarter of 2019 to have approximately 42.75 million of weighted-average shares outstanding.

As a reminder, we have not exercised $100 million authorized by our Board of Directors last November for share repurchases. Please now turn to Slide 11.

Now some brief comments about our financial position and cash flow results. Our balance sheet remains very strong, we now have $513 million on hand in cash and short-term investments as of July 1, 2018, with over $540 million undrawn from our credit lines around the world.

We generated $26 million in cash from operations in the first quarter of fiscal 2019. Our credit agreement leverage ratio is just above 0.7 times.

Capital expenditures were 16 million in the first quarter of fiscal 2019, we expect full-year spending of approximately $70 million to $80 million for this fiscal year. Please now turn to Slide 12.

The table on Slide 12 provides additional details of our fiscal 2018 and 2019 impact from the new Tax Act. As I previously mentioned, our first fiscal Q1 effective tax rate was 19% and was as expected and should remain around 18% to 20%.

We have not made any final determination at this time as to how much of our cash we might repatriate in this fiscal year, but will likely be between $250 million and $400 million, including the $112 million we returned in Q1. We expect to generate adjusted diluted net earnings per share of between a $1.14 and a $1.18 in our second quarter of fiscal 2019, which excludes an expected net charge of $0.06 per share from continuing our restructuring programs and acquisition activities.

We anticipate our gross profit rate in our second fiscal quarter of 2019 to be between 24% and 25%. As many of you know, we defer recognition of raw material purchase price variances on a two to three month FIFO method to better align with our revenue.

In addition, due to the impact of our lead hedges and our lead suppliers one month deferral of average monthly prices, the recent drop in spot rates for lead won't improve our results until mid Q3. Consequently, our gross profit rates will not improve appreciably until our fourth fiscal quarter.

We believe our global manufacturing footprint and supply chain gives us flexibility to adapt to changing economic tax and trade conditions. We currently anticipate no more than $5 billion of impact to operating earnings in fiscal 2019 from recent tariff actions between the United States and China, with approximately $1 million impact in Q2.

If these tariffs continue, we believe our adjustments in our products origin will largely mitigate their impact before the end of fiscal 2019. In conclusion, we are pleased with our organic growth in order rates and look forward to declining commodity costs.

Now, let me turn it back to you Dave.

Thanks, Mike. Alright, Nicole, we can open up the line for any questions.

Just a bigger picture question when we look at gross margins, I guess when I look at the $25 million or so you took out last year and this year when I look at where spot price is today and I look at your mix of premium product. Is there any structural reason that you think you wouldn't be able to get back the 2017 gross margin levels, assuming you are able to continue to grow your volumes and just assuming led stay today's prices?

No. I think Mike that premise is absolutely correct, although it will be in fiscal 2020 before you see those kind of numbers again.

I tried to give because of some of the cloudiness if you will, of how the changes in led cost impact our P&L and the timing of it that is why I gave a little additional insights into gross profit rate percentages for the remainder of this fiscal year. I would expect to see the rates that we have experienced in Q1 and should experience in Q2 probably get slightly better in Q3 and then get appreciably better by that, I would say maybe 100 basis points better.

And that is going to then get you - you still need another 150 bips to get into those 2017 numbers. But I think that is an expectation that is reasonable.

Yes. And Michael the other piece to beyond the commodity story is the success we are seeing with the premium product mix, you know that is always been core to our strategy.

And if anything that is accelerated of late, not slowed, so we are fairly optimistic that between the commodity relief and the favorable mix your comments about getting back to those margins is feasible. And just the caveat being that is with led staying somewhere in those zip coded it’s in right now.

Just on the demand side, I mean very strong quarter in terms of volume growth that was achieved despite obviously you still have capacity constraint on TPPL how logic would you say that those constraint kind of limited your volume growth, in other words how much kind of pent up demand is there where as you get that capacity outlined you will be able to even perhaps grow it at an even faster rate.

I think the place we felt that most strongly was probably in the EMEA reserve power sector, there is the lead times we had to quote just knocked us out. And really what it comes down to is, it’s our ability to get more aggressive in the transportation sector is what it really comes down to.

Right now we have got as many orders as we can handle, the sales guys are - they have got new accounts teed up. So I'm fairly confident that as we bring on Thin Plate Pure Led capacity, we are going to be able to sell it out fairly quickly.

Unfortunately these new lines that we are putting in, once coming in at the end of this calendar year, they just take a long time. And it's a bit frustrating for the sales team, obviously you want to make hey when the sun is shining, but needless to say there is plenty of upside it will just come down to the rate at which we can get this production capacity expanded now.

And we noted in the prepared remarks that a big part of what we are doing with the lean focus in Europe is to try to at least get better optimization and better utilization of our existing capacity. So that is a keen focus.

But I don’t want a dimension that too aggressively. I just don't know how much more we can do there, but from a demand standpoint Michael, there is plenty of transportation sector growth out there.

Thank you.

I wanted to focus a little bit also on the organic growth, but more so in the Americas. 9% was kind of substantial, can you kind of parcel out what markets or product lines are driving the growth that would be helpful?

Sure, we will take them one-by-one. Telecom and broadband are really key and we have been talking about for several quarters consecutively now, what we see are these customers preparing for higher amounts of data track and whether it’s from 5G, the broadband markets.

They are really spending money right now, or starting to spend money in order to increase the speed, it’s a bit of a speed race and so people are having to buttress their networks to accommodate these higher speeds, these higher speeds use more power and more power means more backup power. So that sector is live and well in the U.S.

We don't see quite that activity level in Europe yet, but we suspect that will lag in a year or two. And transportation sector as I was just saying to Michael, the product is working really well.

The customers are seeing the benefit and it really just comes down to our ability to produce and how much of that market we can go after. I have been shocked.

I think you have seen some of the trucking statistics, shortage of drivers. Certainly Mike didn't call it out in his prepared remarks, but we are feeling pressure on the freight lines, our freight costs are going up, the trucking companies are really in a strong position right now.

So that over the road trucking market is being a key part of the growth. Defense spending, we have seen increased spending for tactical vehicles things like trucks and tanks for the military and again this is another sector that is embraced our Thin Plate Pure Lead technology.

And then on the motive power and this is where we have seen some really exciting growth on Thin Plate Pure Lead. I mean that business is doubling over year-on-year and we expect it's going to be close if not more than 10% of our revenue in the motive power sector.

So it's just exciting and I think we called the right shot this time. I was with a major customer yesterday and I think we have called the right shot in terms of maintenance free, customer experience.

And so I was with our CTO, we went up and spent time with the customer and we have been getting very good accolades that we are on the right track with what we are doing. So we just need to do it faster, we are pushing this hard as we can and on the new product side I'm really proud of the team, I want to give a shot out to the guys, they are very committed to maintaining these launch dates.

So those are kind of the key areas in the U.S. sector.

Our motive just globally has been great, but its green in the U.S. markets specifically for EnerSys its pretty much green on the dashboard in every sector.

So Dave, when you think about the telco part of that spend, is it going to be a constant kind of growth rate or is it going to be a lumpy kind of a spend. How does that play out as we start this transition?

Any color would be helpful here.

Alright. So capacity constraints are going to limit some of the lumpiness, especially on the battery side.

We think that the new products and the new lithium products are going to help us. We are trying to line up our supply chain.

I was over in Asia two weeks ago I guess and just trying to make sure that we have got our supply chain lockdown. So that is going to help uncap some growth.

And so we think the customers are ready for some of these new products. So that is going to help on the Thin Plate Pure Lead.

We just got push through on the capacity constraints, so that is going to be constrained a bit. The enclosure piece were in good shape.

Our enclosure business has been much, much stronger. So we think there is good opportunity.

And that is going to be probably one of the lumpier pieces as these telecommunications build out those, they tend to be real peaks and valleys. So that will be where the lumpiness comes.

But, I think given the capacity constraints and some of the approvals, I think it’s going to be a more of a steady - slower like we have been seeing for the last quarters, a couple of quarters be more like that then a hockey stick.

Okay. And one last question.

In your prepared remarks, I’m not sure if I heard this correctly. Did you say you were exporting some products from Europe to the U.S.

and if so what were you exporting?

Those are mostly supporting the telecommunications and broadband market demand in the U.S. So its Tin Plate Pure Lead batteries.

Okay. alright, thank you for taking my questions.

I will get back into queue.

So could you call out for us either by segment or region where you experience that $4 million price cost headwinds and what is your ability to put price through stronger in that area in the event that we see some sort of reversal from the current [indiscernible] prices?

So we make sure - you wanted to know where the 4 million of net of cost.

Yes, net price cost headwinds, right. And maybe implied by kind of the segment earnings trends, but just any color you can give would be helpful.

Well, so the bulk of that is obviously in the Americas with some in Europe. Europe has the additional cloudiness of having not just currency exchange rates, but cross currency exchange rates because of the fact that we manufacture in Poland and so product produced with base currency is [lot] (Ph) into euros.

But by and large, most of this put this cost is U.S. based, it’s for no other reason, because of the size of that manufacturing footprint and their sales growth that is Europe’s at this time.

Yes. And Noah it’s principally U.S.

dollar, we have got cash through pricing in other parts of the world. In the U.S.

we have much less of it and lead actually popped up on us and got ahead of some of where we had gotten pricing to, it since reversed. So we have definitely picked up some pressure, but if we can stay where we are at.

I’m fairly optimistic that the price stickiness in the U.S. is fairly good.

Historically that is held up, so we are optimistic that it should follow prior trends, but we are behind the eight ball for sure. Especially right I don’t know if you caught in my prepared remarks.

I want to highlight, this quarter we just got through was the highest commodity costs slug that we have had in years and years. So it's just because of the - all the things Mike called out with FIFO and [M plus one] (Ph) buying contracts and tolling agreements with different lead suppliers is a fairly significant lag between stock prices and how it works through our P&L.

And I thought if you go to the transcript Mike gave a lot of color on hedging of course, I mean he mentioned hedging. But Mike gave a lot of color and he is really trying to help you guys with your models that there is a lot of -- we just got to manage the lag.

I know it’s frustrating, but it will just take some time for this to work itself out, but this first quarter we just got through was a brutally high quarter on commodity costs.

A little more color, I mean if you look just to the year-over-year where Americas had the biggest decline of 280 basis points, so clearly, they are the biggest commodity cost versus pricing impact. So it's actually slightly more than $4 million as attributable to the Americas.

Okay. I mean I look at the sort of the price trends last year in America, you were kind of at that 3% level on.

Is that kind of the right kind of price level you want to be at for this year is sort of can we be again sort of in a 3% type range, I know were 2% in the first quarter?

Well I think, because the comps will change depending on when those pricing actions were initiated, so the comps get tougher as you get further along. What I would say is our expectation is beyond the second quarter, you should see parity there on out where the pricing is at or above commodity costs on a year-over-year basis.

Okay. CapEx question.

I think in 4Q you guided to around 85 million spend for the fiscal year, now kind of signaling bit of reduction there. Can you kind of comment around that and where you might have decided to trim?

Well the 85 is what we typically, in the Investor Day we referenced that for typically annual CapEx spending and the execution will - our biggest investment is the major investment in the Thin Plate Pure Lead line which is still going full throttle. So, I think if we are at 70 to 80 versus the 85, a lot of it is going to depend on how quickly that line progresses and gets installed.

So 85 is not outside of the realm of possibility, but I will tell you historically I think it's fair to say that we tend to have appetites. Our eyes are bigger than our stomachs when it comes to how much we can spend in capital and we typically have a trend where we missed the full-year by about 10 million.

So that is part of the thought process that went in there.

Yes understood. And then one more Dave, I think near the end of the prepared remarks you talked about some increased spending on due diligence on the M&A environment.

Can you talk about what you are seeing in the M&A environment? is there elevated activity?

What is causing it, what areas just sort of the thought process there that now may be a more attractive environment?

Yes, I just think that the areas we have outlined historically and especially focused on at Investor Day of where we want to spend money, you know companies that fit the direction of configured systems, the product roadmap that we laid out energy storage just all of these areas that we have been consistently about nothing's changed. And it's just we continue to push every day on this front.

You can see from the spending we have been busy, but you know as well as I do, there is just no guarantees in this world and there is certainly a lot of difficulty controlling the timing of it. But just take for assurance that this management team still looks in values M&A as a fantastic opportunity to leverage our balance sheet to drive growth for our shareholders.

I think we kind of went from fishing with a net to fishing with the spears. So we are much more - we have identified targets that we specifically want and actively go after those targets rather than be more reactive when we see offering memorandum passed over by people brokering businesses that are for sale.

But to Dave's point we do remain busy.

Okay. Thanks so much for the color.

So first just on M&A I guess I wanted to build on that question. What types of companies are most of interest at this point?

Again, it's really just if you go back to the investor day and just trying to drive into those areas of the roadmap that take us what we have identified as key areas of growth and more integrated system mindedness, I think is really key to what we are trying to do. And you know we just see the customers are changing, the market is changing, the expectations are changing.

So we just want to modernize our product portfolio and we think that those are the kind of opportunities and they have to fit hand in glove with our technology roadmap. And that is where our focus continues to be.

Okay. Thanks.

And then quite a bit of discussion on gross margin obviously understandably and I’m wondering if you could put a final point on what gross margin could be in the second half of the year, maybe given some assumptions like lead price remains where it is, volume growth is kind of mid-single digits, can your gross margin get through the 26% level in the second half of the year or better than that?

Well as I gave my guidance for the next quarter and kind of some less specific, but generalities for the second half of the year, in addition to the lead cost based on how we incur it and pay for it, we also contemplated the tariffs that I mentioned in my remarks towards the end. So we have that pressure as well that we have assumed, but I'm not certain, I think the exit rate at the end of the fourth quarter, will be getting close to that range.

But I guess I would say that that still have a lot of things that that will be dependent upon. But, let's say 26 in Q4 is a reasonable number.

And then I know you mentioned the 5 million approximate impact from tariffs, that is for fiscal 2019 and would that be kind of - how would that trend in the - I think you said you had 1 million impact in the current quarter and how does that kind of trend during the year?

I would say for the next three quarters you would see like 1, 3, 1, I think by the fourth quarter, we largely changed the sourcing of our products and that will be the last quarter, based on what we know about tariffs today that we would expect an impact.

And Brian just there has been so much noise about tariffs, we are only commenting on what we have seen in terms of the HF codes that have been published, so I know there has been a lot of continued - I don’t want to use bluster that sounds negative, but there is continued discussion of even higher tariffs. So what we have dimensioned so far are the ones and I guess you would calibrate that with maybe the $200 billion sanction list, but that is a moving target.

But I think the most important comment that Mike made is that we have suppliers, we have factories inside the China and outside of China and so it's really just for us the aggravation of moving things around and really may be moving some of the European customers into China and some of the U.S. customers out of China into Vietnam or Thailand or somewhere else.

So, it’s easy enough for us to do. But certainly it can't happen overnight and we have got to work through inventories and so forth, so it's frustrating.

We just like the goalpost to get set and one [indiscernible] that we pretty confident we can adjust accordingly.

Alright. Understood.

Thanks for taking my questions.

Yes. I just want to talk about some of the Asia opportunities and what is going on there.

Talk a little bit about refilling of the business in China Tower that you lost for the numbers are down. In the quarter, how much of this is - and also I know you are doing transition in India to a motive power product from a reserve power product.

May be little bit about what the plan is and addressing the Indian market in total, I know there is a lot there, but I just wanted up there.

Okay. No its great.

Let's just start in India. So at Investor Day I think our biggest miss versus the Investor Day plan to date has been the India telecommunications market.

We just really got our head handed to us in that market. So we just didn't have the right products, didn’t have a right footprint.

and we got a retool and so we drop back and where were you thinking our best line of attack for the India telecommunications market. It’s a great opportunity, but we have taken some restructuring hits and we have really found an opportunity to get that factory.

I think I’m looking at Mike I think probably India drive the P&L as much as $7 million last year was a big, big number, and we think that these actions we have taken are certainly going to stem some of that bleeding. Mike is that was about the right dimension for India?

Its, well you are certainly in the range, that maybe to high-end of the range, but I would certainly...

Okay, I’m not too far off it. So that is really been the focus.

And in Asia markets so Southeast Asia, Australia places like that which were great motive power markets for us, we have often exported out of Europe to support those markets and so we see an opportunity right here to support those regions with the India factoring in those business plans with very accretive than attractive. So that is where our foot, we have got those first export shipments done, the factory looks great and so we feel like that piece is leveling out, but really, we have got to comeback.

We still believe in India telecommunications market. So then if we rotate up into China where we are still extremely positive about the China motive power market that the emergence of the middle class that is going as we outlined at the investor day.

It’s very much inline the electrification initiatives. I just got back I was over in China a couple of weeks ago and every place I was in China, I had blue skies except for when I cross the beyond sea river into Shanghai.

That was sort of the same old same old, but everywhere else I was and I was in four cities the skies were blue so the [indiscernible] administration is doing some very good things for the environment and part of that is using electric vehicles be it forklift trucks or cars and certainly battery energy storage systems are an enormous leg of that. So I remain very optimistic about China, but and you know this because you have been on us for a while, we rely heavily on that China telecom business for too long and it’s time to get this thing retooled.

So China motive power good, telecom bad, but the opportunities outside of the telecom remain very buoyant and then the rest of Asia I would say there has been no significant departure from normal growth rates to product mix.

Just a quick thought, any feedback on the lithium reused batteries in the buses that they are using over there is, is there anything initial...

I will give you a little market intelligence we get, it's not gone well. Everything is so open over there, there is actually web portals where you can see what all the product types are being bought.

So it's all very transparent and so we know exactly what they are doing and it's gone very poorly, the whole initiative. So we will see what happens, but we are of the mindset, hope is in a strategy and we are not going to just sit back and wait, if it comes back great.

If it doesn't that is okay too, we are going to find something else. So I would - I want the team in Asia to stay upbeat, it's tough right now.

Transformation is never easy, but we will come through the other end.

Great. Thanks a lot.

I appreciate the color.

Okay.

Well Nicole, I just want to thank everybody who took the time to attend the call today and just everyone have a great day. Take care.