Good day and thank you for standing by. Welcome to the Q4 2021 EnerSys Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instruction]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. David Shaffer, President and CEO. Please go ahead.

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

Thank you, Dave, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based management's current expectations and views regarding future events and operating performance and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are applicable only as of the date of this presentation. For a list of factors which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 7, Management's Discussion and Analysis of financial condition and results of operations set forth in our annual report on Form 10-K for the fiscal year March 31, 2021, which was filed with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release dated May 26, 2021, which is located on our website at www.enersys.com. Now, let me turn it back to you, Dave.

Thanks, Mike. Please turn to Slide 3. Consistent with our last call, we generated strong results during the period due to rapidly growing demand for our products and services. We reported fourth quarter fiscal 2021, adjusted earnings of $1.30 per diluted share, a 17% increase over the fourth quarter of last year. Our Motive Power business saw another quarter of solid revenue and earnings improvement and our Specialty segment continued its positive momentum, bolstered by strong demand for our transportation products. Energy Systems benefited from telecom driven 5G growth in the Americas, delivering solid revenue, but following short on earnings, which I will address -- soon address. Cash flow was, again, strong this quarter, producing a record year and leaving us on very solid financial footing. Although the world has begun returning to some sense of normalcy, we continue to confront ongoing headwinds created by the COVID-19 pandemic. We have seen continued availability constraints in recruiting new employees and select raw material shortages, particularly in resins and electronic components. Prices have been sticky, but always lag rapid cost increases. Our team is responding to the near-term shortages and hiring challenges and expects steady improvement as the supply chain settles down and the rest of the world accelerates. I'd now like to provide a little bit more color on some of our key markets. Please turn to Slide 4. Let's start with our largest segment, Energy Systems, which faced several input cost pressures during the period, including higher tariffs, increased commodity prices and expedited freight costs. In addition, our customers continue to struggle with chip and labor shortages that have slowed their build rates, but we expect improvements from these broad upstream and downstream supply chain issues in the back half of the calendar year. EnerSys is participating in the mid-spectrum…

Thanks, Dave. For those of you following along on our webcast, we have provided the information on Slide 9 for your reference. I am starting with Slide 10. Our fourth quarter net sales increased 4% over the prior year to $814 million, due to a 4% increase from volume and 2% from currency gains, net of a 2% decrease in pricing. On a line of business basis, our fourth quarter net sales in Energy Systems were up 11% to $349 million, and Specialty was up 16% to $132 million, while Motive Power revenues were down 6% to $333 million. Motive Power suffered an 8% decline in volume, along with a 1% decrease in pricing, net of 3% increase in FX. The prior year Motive Power fourth quarter revenues benefited from our recovery of the September 2019 fire in our Richmond, Kentucky facility. Energy Systems had a 12% increase from volume and a 2% improvement from currency, net of a 3% decrease in pricing. Specialty had 16% in volume improvements along with 2% offsetting impacts from positive currency and lower pricing. We had no impact from acquisitions in this quarter. On a geographical basis, our net sales for the Americas were up 4% year-over-year to $557 million, with a 6% more volume and 2% less pricing. EMEA was up 2% to $203 million, despite 3% volume and pricing declines due to an 8% improvement in currency, while Asia was up 19% at $55 million on 9% volume and 10% currency improvements. Please now refer to Slide 11. On a sequential basis, fourth quarter net sales were up 8% compared to the third quarter, driven by 9% volume improvements, net of a 1% price decline. On a line of business basis, Specialty increased 21% with our TPPL continuing to provide more capacity…

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

[Operator Instructions]. Your first question comes from the line of Noah Kaye.

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

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

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

And Noah, the supply chain issues, as I noted, were upstream and downstream. So we're getting some pressure, but our pressures -- our customers are getting some pressure, too. So one of our big telcos couldn't get chips for their radio. So they had a lot of -- their order for the power systems is on hold. So we're -- I think we're feeling it the same way as everybody else. The business just came back too fast. But the feedback we're getting is mostly -- as we noted, it should slowly improve.

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

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

Yes, depending on which piece you are comparing it to or what base period. But typically, the drag we are seeing is the tariffs add a couple of million dollars per quarter. The freight, which is primarily a freight rate increase is probably in that same footprint. Some of the manufacturing variances, which at least in Q4, still have the incurred variances from as early as October of last year when we were still a little deeper in the grips of the pandemic. So as we move forward, beyond there that those manufacturing variances going into, let's say, particularly as we move into Q2, where we have the current levels of operations and volume benefiting, you're going to see a nice expansion there. Some of the other things that will drive margin expansion as we go through the course of this year is going to be a number of price increases, which we have done recently, which as they move through the order book, will start to impact late in, let's say, June of this year. So starting this upcoming month, you'll start to see some pricing moving through. You're going to see the fact that for all of our factories moving up from some, let's call them, deep and COVID type utilization rates where you were running at 50% to 70% capacity, we'll move back into their normal 80-plus percent capacity. So across the -- our factories, you would expect to see that. And the one that's been the biggest drag, and this has been well-known and well-publicized when we bought the NorthStar business, which included 2 factories in Springfield, Missouri. We knew that those factories based on the NorthStar book of business we're drying up quickly. But we bought them for their TPPL capacity and not their book of business. So as we've made that integration move some EnerSys product in there, done some transitions of their product to be closer to their end customers. And then we've added the high-speed line in the second of their 2 factories. Right now, that drag has been $5 million to $6 million per quarter, which we expect to abate as we go through the end of this fiscal year. So that's a big piece.

Energy Systems took a big chunk of that.

Yes. They have in terms of their allocation of that variance. As I mentioned in my remarks, the Hagen restructuring will be generating $20 million of benefit, 1/4 of $20 million of benefit in our fourth quarter. So that's a big upside. We've made some transfers in our contract manufacturers to move them out of China, to move them into other non-Chinese locations, including Mexico, where we would, therefore, not have to pay the tariffs, which are now 25% to 30%. We would shorten that supply chain, cut down our freight costs. So we think that is going to add to our benefit. And we do think, from a mix standpoint, some of our highest -- the best business we have typically is in our outside plant in the Energy Systems, particularly Alpha. And that outside plant revenue has been mostly weather-related, but for other COVID reasons has been slower than normal. We would expect that to expand now that it's the time where that kind of work does go on, and we've seen evidence of that. So we would expect a normal margin improvement just from the normal cycle seasonal cycle that we'd see.

Yes. And Noah, just a couple of points just to add to what Mike said is, the Energy Systems business, the quote cycle is much longer than the other 2 businesses. So we'll put propose lock because it's very project oriented. So the price changes have always been slower in that business to push through. So there's some lag on that, that there's some note. And then clearly, our Energy Systems business is with a higher inclusion of electronics has been exposed much more to the tariff pressures. So that business has caught a lot of this. But as Mike kicked off, we've got good line of sight and a lot of pressure on the teams. COVID made competition for CMs moving out of China. It just slowed everything down, but we do have good line of sight, and that's why we remain confident things are going to slowly get better.

Yes. A lot of questions that I'll probably take off line, I guess in the interest of sharing the ball. But let me ask just 1 more that I've been getting from some investors. I think November 2019, feels a lot of us like a really long time ago, but you did mention the Investor Day, Dave. And so maybe can you just help us calibrate where we are now versus sort of that outlook from Investor Day? Is it fair to say that some of those targets for 2024 have been pushed a few years to the right? How would you kind of gauge states the trajectory as companies on here in terms of earnings power?

Noah, it's Mike. I would say because we refreshed this last September, October, which was not completely through the pandemic, but had most of it in our rearview mirror. So our assessment was that it probably pushed us a year out overall. And none of the premises that we -- or the takeaways that Dave enumerated in his remarks about increasing maintenance-free motive power sales with NexSys iON and PURE, growing the portfolio of products in Energy Systems, increasing TPPL for transportation, reducing waste through EOS. All of those were still there. We are -- in Dave's remarks, commented about how important we thought that the new, I'll call it, battery storage and DC fast charge initiative is, how much potential is out there. So I would say beyond the fact that the pandemic year kind of was just a dead space in some respects for advancing some of these initiatives. I would say it's -- you can still take that model and add a year to it, and you'd be there.

Your next question comes from the line of Greg Wasikowski.

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

I think it's -- the biggest pressure for us is the ramp in Springfield, Missouri. We've just needed to hire a lot of folks, and this is direct labor, mostly direct skilled labor. And yes, it's just -- I think it's the same issues that many companies are facing in the U.S. right now. Obviously, the COVID fears of returning to work, some of the benefits, extended unemployment benefits. It's -- we're not immune from all of those pressures. So it's the same thing for us. Most acutely felt in Springfield. Though we see it in Poland, we see it in France, we see it around the world. But for us, the most acute pressure is in Missouri.

But -- and don't forget the acute pressure that our suppliers are feeling because piece part availability becomes -- can become fire drill distractions as you try to do workarounds for that. So it's not just us. It includes our supply chain, including getting drivers and trucks aligned for getting shipments out in a timely fashion.

Got it. Yes, that's helpful color. And then for the lithium ion, last quarter, we talked about ramping in material handling through fiscal '22 with introductions coming in resi storage and telecom, presumably over the course of the next year, with the meaningful revenue contributions towards the end of fiscal '22 into fiscal '23. Is that still the general timeline? Or could we see these supply chain constraints and labor issues meaningfully affect that rollout? Or alternatively, could you see -- if you continue to see positive reception there, could you maybe accelerate that timeline and roll out into other business lines?

I -- we're not - I'm not hearing the labor narrative on any of those initiatives. We currently have our lithium facility in the U.S. is handling everything, but we are ramping up a site in Asia and also a site in Europe. So we're going full steam ahead. The feedback on the motive side has been very positive. And as you noted, it's the same core technology we're using in telecom and data center and really, that system I spoke of, the energy system with the fast-charging capability is also based on the same technology. So it's broad-based. And I would say, if anything, we're more excited than we've ever been about the potential.

Your next question comes from the line of John Franzreb.

Good morning, Dave and Mike. Guys, I want to talk about pricing. You touched a little bit on it. But in Slide 10, all 3 segments were down year-over-year. And best I could tell, both the commodity costs are up and volume is up. Can you just explain to me why that happened?

Well, John, remember on that slide, it's a combination of both pricing and it is a combination of mix. So there's -- it's a little bit of a tale of 2 stories. The -- on the pricing side, our pricing typically lags the lead cost structure by about 3 to 4 months. And lead costs have more recently risen, but if you went back 4 or 5 months, they were declining. So you've got that tail, which is while your lead costs are going up in the near term, the revenue adjuster is reflecting a period earlier, which is putting a little bit of compression, particularly in those lines of business that use those pass-through mechanisms, which is about 30% of our revenue now. So it's not huge, but it is notable. And then the other piece is mix and what you're selling and the service work that you're doing and what margins that you have, Dave, I don’t know, you can probably…

Yes. I would say on the Energy Systems piece, what we've experienced is some of the shortages we've been feeling have been on some of our higher-margin products. So we've been pushing more because of availability, and it's the work we have to do right now on service and some of the lower-margin stuff. So that -- so yes, I'm glad Mike cleared that up because it's really price/mix. And so that's been a big part of it on the Energy Systems side.

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

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

And we did have -- one of the things that the NorthStar sellers did slightly before they started their process was engaged or contracted with a couple of good-sized players in a couple of different markets for pricing to get a healthy book of business, which was at low-margin business. And for one of those big players, that term or that agreement is pretty much up. And so we anticipate a significant either increase in price or the ability to take the volume which we had to dedicate it to higher-margin business. So we're going to see a nice -- just in that one alone because it's a fairly good size entity that we should see an improvement on that one just based on a lapse of time and being able to move out of a pre-acquisition agreement in -- on the NorthStar side.

And that contract would have been -- there's one in Specialty and 1 in ES. So it's an excellent point. We're starting to get out from underneath those.

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

It's hard to judge. The order data, which we usually provide on WITS is extraordinary. But when you look at the shipments data tells a much different story. In fact, I think throughout the course of the year-to-date shipments are actually down because of supply chain shortages at the truck OEMs. I know that they're working through that. They have very complicated supply chains. And so the feedback we're getting is pressure. All of the OEMs are putting more pressure on us and asking us to ramp and be ready to handle it as they can expand their production capabilities. And then there was some recent -- this announcement about some internal combustion engine business on forklifts in the news that is going to maybe even put more pressure on electric demand for electric forklift trucks, some emissions issues. So yes, it's -- the signals are all very positive. The backlog is very strong, and it's just a question of how quickly these OEMs can get their supply chain stuff ironed out.

Yes. And that, Dave, made that point that some of the truck data is up as high as 86% year-over-year on a 3-month trailing, but their orders have actually slightly declined. So it's the shipments -- I'm sorry, their shipments have actually slightly declined. So it's going to -- it's taking them time to catch up. And obviously, our battery sales are more linked to their shipments than their order intake, so.

Right. Great. Okay. And I guess 1 last question. Just on the fast charging technologies. Can you just give a sense of context of how quick your fast charging existing technology is? And how much quick you have to make it in order to be fit to be vital for a commercial electrical vehicle?

Yes. It's -- I probably need to get a good way of simplifying it because the engineering [in me], it just depends on how state of charge of the battery, the type of car, the -- all of the cars charge at much different rates, like the Porsche Taycan can really take -- charge extremely well, but other cars can't handle it. But in general, you can think roughly, most electric cars have like an 18-kilowatt charger on board. So typically, what people are doing is just plugging that charger into AC power. And it takes literally hours to recharge, to fully recharge a battery. What we're doing is we're actually charging the battery directly. So it's DC fast charging. So we're going around that onboard AC charger. We're charging the batter directly. And again, as I said in my remarks, our goal is to be able to provide as much juice as any car can handle. But at their fastest charge rates, you can see people starting to get enough range added to their vehicle in 10 or 15 minutes, which, again, we're trying to create that experience more similar to refueling at a fuel station. So -- but yes, as I said, it's going to turn hours into minutes a lot of -- in most cases. It's very, very exciting. But what's -- John, what's really great about the project is that, that same investment, that same energy system also has a day job. It's also helping the customer save electricity. It's also being a renewable integration. It can be slaved with other systems to create a virtual power plant for the utility. It's amazing all the functionality this 1 investment can handle. And that's why these commercial real estate guys are so keenly interested and they're pushing us and they're pushing us hard.

Your next question comes from the line of Brian Drab.

Can we just talk a little bit more about the second half of the fiscal year? And one thing that stood out to me in that long list of items that you gave us in terms of what could help margins in the second half of the year was, so $5 million to $6 million, I think, OpEx drag or cost drag from NorthStar and per quarter. And that -- I mean on an after-tax basis, that seems to translate to like $0.08 or $0.10 a quarter, just that 1 item. And then you listed a bunch of other items that would help margins. And then you also said, I think that revenue would be potentially $50 million higher in the third and fourth quarter relative to the first half run rate. So -- and then you get, obviously, operating leverage on that. So I'm just -- it seems like you could see material -- a material step up in earnings in the second half of the year in terms of the quarterly run rate. And I just want to clarify that or get you to comment further on that.

Mike can get you some better dimensions. I think the -- it wasn't OpEx, it's manufacturing variances. So it's in the cost of sales area. And the factors were under-loaded when we bought them. And we are ramping. And as I said in my remark, I’ve said, we're well behind our ramp schedule that we had put into the Investor Day model, and that's all related to COVID, purely. And -- but what we said in the Investor Day model is we were going to, by fiscal year '22, increase our TPPL production capacity to $1.2 billion in revenue. And from a -- at that time, we were sitting at about $650 million. I feel pretty good right now that we will exit our fourth quarter at a $300 million-plus run rate for TPPL expansion. And so we're well over -- we're more than halfway of where we wanted to be. And the other thing we're trying to do, which is going to, again, help us this drag is we worked with the Board last week at the meeting, and we actually got permission to accelerate some of the CapEx on TPPL to help alleviate some of this pressure. Frankly, demand has exceeded our best case expectations we use for the model. So all of this And then the stabilization, getting the folks hired, the training, the productivity, scrap rates, everything has been really kind of lousy frankly from that factory, but it's getting better, it's getting better every day. And again, I'm really excited about being in the -- being on that $1.2 billion pace. And then with additional CapEx, we can continue to grow that revenue. So Mike, do you want to add more color?

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

And -- so on -- you just said Q4 20% to 25% higher than Q1. Is that what you just said?

That's what I just said.

And kind of progressing not so linear -- not necessarily in a linear fashion from 1Q to 4Q but kind of stepping up in the second half, I imagine third quarter and fourth quarter might be similar. Is that fair or no?

Well, I guess it's not too -- you don't have a line for H1 and then a line that's higher on the board for H2. I would say that there's two lines where Q2 is better than Q1, but there is a step-up to go to Q3, which then improves to Q4.

So a lot comes down to resins. Some of our best margin products were just out of, and it's because there's a shortage globally of polycarbonate, which is blended into our resins. So it's -- I think Mike is a little hesitant to tell you what the shape is because we don't really know when some of that resin availability is going to open up. We're hearing in the summertime. So -- but yes, I would say largely, you captured it that probably Q3 will be better than Q2, and Q4 should be better than Q3.

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

We should have been by now -- we should have already been on the $1.2 billion according to the original plan. So as such, you can say that top-line has been impacted probably, let's say, for the past few quarters, the top-line is probably $200 million light annually, and then you put that on a per quarter basis. And then as Mike said, the manufacturing variances been huge and $5 million to $6 million a quarter is a huge number.

And sometimes it's a story, you can oftentimes hire the people but to retain them past that, say, 90-day training period where they're really starting to provide a return on that investment of training, the work -- a lot of times people find, well, I was getting paid more than I might be able to do sitting at home. But in light of the level of work activity, I think I'm going to go back to sitting at home. So the retention is a little bit.

Yes, that’s part of it. We don't want to get too deep into why -- the psychology of it, but we fully expect with the vaccine rates, with things starting to settle down, that there's going to be a general -- more confidence and our HR people are confident that things are going to get better.

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

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

But it is mostly personnel related. There are some capital spend gating items, which in our most recent Board of Directors meeting, our Board authorized the acceleration of some of that spend, so that we could meet that. But -- so it's -- but to Dave's earlier point, we expect to exit nearly at full capacity.

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

Yes, I do. I think small cell has been deprioritized by couple of big carriers. They -- everyone's put more emphasis on mid spectrum versus where we thought we would be with small cells when we did the Alpha acquisition. We've been pretty busy on the mid spectrum buildout. So we're fine. We just need -- we need the supply chain issues to settle down. On the small cell, we got 2 good plays, 2 good shots on goal. One is the gateway products, and we just got our first significant order yesterday, frankly, for some gateway products for one of our MSO carriers to start to install radios right on their HFC backbone. So the gateway gives them not only a way to backhaul the call traffic, but also provides the power. So yesterday was a big day. Drew was really excited. And then on the flip side, the other major project we have on small cell is our project with Corning, and they've been an unbelievable partner. I even have sort of regular calls with their CEO so that we stay calibrated. And I think Wendell and I are both extremely excited about the program. And again, though, it's -- the millimeter wave spectrum has been a little bit behind schedule where we thought it was going to be prior. Mike, is there anything you want to add?

Well -- and don't forget, we also mentioned in Dave's remarks about the opportunity that just recently came up through the California Public Utility Commission for some of that grid resiliency, which -- and network resiliency is really going to fill a lot of the gap, the hole that, that higher spectrum range if it gets pushed out would nicely fill that.

Yes, I think that will help, but that's mostly related to the wildfires and the power shutdown. So the CPUC is asking for longer standby type network critical sites. It's well over a $50 million opportunity. It's here and now. And I think that just kind of gets to the -- no, I made this comment many quarters ago, and it's -- this business is a little bit peaky. It's there's high watermarks, and we're going into one of those periods without for right now. So that's why we have to get some of the supply chain stuff ironed out. So we expect to come back off this low cycle we've been on. And unfortunately, everybody is trying to come back too fast and it's just catching all the supply chains off guard. But we're -- I think that opportunity alone, even without the 5G narrative is big.

[Operator Instructions]. Your next question comes from the line of Jacob Green.

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

It's a great question, frankly. And it would -- mechanically, it would work because they're the same modules. So it's not something we're focused on right now. That's -- but it's great food for thought. The way this is rolling out, the system, we sent and we included a picture of, we need to get 100 of those systems done quickly. And that's what we're working on, we've got a nice supply chain partner, nice contract manufacturing partner lined up, and they've been fantastic. We've got to get 100 systems out as fast as we can. And then as I noted, if things go well and they go according to plan, this customer has identified $1 billion of potential sites where they want to install this kind of system. So a lot's going to depend on how these first 100 go. And then after the first 100, we -- the engineering team -- and we just put in reps, we’re hiring a new group just dedicated to going to a costed down version. So the initial prototype is probably much more expensive than what we'll be selling in the end because we just wanted to get something out fast. But now -- and everything I'm talking about is just 1 customer. And as I said in my remarks, I think the Biden administration is wildly committed. I think this new EV incentive that they're talking about -- Mike, was it $12,000?

$12,500.

$12,500. We think that, that incentive can have a very meaningful impact on how many people choose electric. So we think that this administration is very committed. So we like the timing here. And again, it's really -- the system is amazingly similar to, frankly, 1 of our forklift batteries.

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

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

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