And Noah one of the things we haven’t done even though we’ve tightened up some CapEx, we did the restructurings, we noted earlier, we haven’t taken our foot off the gas at all on the new product development. So that’s the lifeblood of this business. And we’ve had some big recent good news. We noted in the first orders for the Touch Safety PX [ph] and our first orders for our new Hyperboost programs. These are both small and macro cell enablers. So there’s a lot of positive momentum. And when we talk to the customers, they keep telling us it’s coming, its coming, it’s coming. It’s just a sense of financial management and budget releases and so forth. Andy, do you have anything to add to that?
Andrea Funk: Just a few other things to give you some data points, Noah, and good to hear your voice as well. A couple of things you talked about dimensioning our telco – these telco broadband spending pauses for the full year ’24 probably cost us about $250 million of revenue. So maybe that is good to give you kind of the level set of the materiality. And in addition to the investment that Dave mentioned that, we’re continuing in our product development. And our product development teams in ES are busy, as is our service group, which really gives us a good indication that there’s – it’s going to come back, and we think probably come back hard. We’ve also continued our investment in inventory. So, we mentioned that we had a reduction in inventory again, but we are not cutting back on a reserve for telco broadband inventory.
There are long lead times there, and we believe when it comes back, it’s going to come back fast. So we probably have $60 million, $65 million of inventory that is just held in anticipation of when this resumes.
Noah Kaye: Very helpful. Let’s stick with this theme and thank you for mentioning the cost savings benefit for ’25. Are you substantially done at this point with transformational savings efforts in Energy Systems? I guess the question is really, at what point do you kind of decide, hi, mid-single-digit margins in this business, are unacceptable at any point in the cycle and do something more substantial?
David Shaffer: Yes. I would think, it’s fair to say that we’re not done. I think that’s a fair comment. And our goal, is and will always be, to have a minimum 10% return on sales on any business sector we’re involved in. So that’s the threshold. And as you know, this particular segment has gone through significant changes, between tariffs and supply chain issues. And then there’s a level of volatility that the telco equipment and our investment in Alpha has exposed us to a greater level of volatility than possibly, we’ve seen historically on the battery side. But that said, we agree with you whole heartedly that 10% remains the target. And Sean is very committed to that.
Noah Kaye: Okay. If I could sneak one more in. Dave, I thought your comments on the wireless charging products sounded pretty bullish. Can you help us think about, wireless charging products impact on motive growth? Do these have a better price point versus traditional chargers? Is there a share gain opportunity here to be dimensioned. Just help us think through the growth impact?
David Shaffer: I think wireless is – Noah the way I think of it, is wireless is an enabler for AGVs. I think the whole – so in the AGV areas, you tend to have a little more higher engineering content systems tend to be a little bit more bespoke. So, the margins – and the margin opportunities are a little richer versus some of the products that are the high-volume long runners. So, we think that higher AGV mix is better for margins, and particularly the wireless charging is a great enabler there. So, we’re excited about that space.
Andrea Funk: Yes. Noah, just a few things on motive power. Our motive power has just been a strong, reliable business for a long time, and we are really pleased with this ongoing profitability gains, by maintenance-free conversions, wireless charging, OpEx discipline. It’s a little tough when you try to do some Q-on-Q and year-on-year comparisons, because of the recent years of supply chain and labor issues. In fact, if you look at WITS data, you’re going to see a huge spike in orders as markets normalize, and then a big dip back down. But the shipment trends have been really, really consistent, and that’s the same phenomenon we see in our business. Our customers continue to face some headwinds as is evidenced, by the significant backlogs that are still holding.
In fact, as an example, one of our large value customers has 120-week lead times on the heart of the line forklifts. They had planned to add a second shift, to service this demand this quarter. That would have represented additional revenue for us this year. But due to continued manning and supply chain headwinds, they had to push out that additional capacity, including our orders into fiscal ’25. But we have no doubt and remain very confident in the volume and profitability growth opportunities, because of electrification, automation, megatrends, of which our products are critical enablers. And AGVs with Interact data saying 20% CAGR over the next several years, fuel cell conversions, and as you mentioned, wireless charging really provides some excellent additions for opportunities for us.
David Shaffer: Noah, I mean – and Andy’s dead on and just at the highest level, what we’ve really done is leaned into technology to try to improve our margins and our average selling prices and content in this business, and it’s working. And to Andy’s point, this from a volume standpoint, this has been reliable. But between these higher content, higher average selling prices, better margins, couple that with OpEx leverage. We just don’t think we need a lot more OpEx. These are the areas. And again, Sean was very committed on the OpEx side in this business. And we know he’s going to bring some of that to, his new assignment in Energy Systems. And so, I agree with everything Andy just said.
Noah Kaye: I appreciate the color. Thanks so much
David Shaffer: Thank you.
Andrea Funk: Thank you.
Operator: [Operator Instructions]. One moment for our next question. And it’s from Blake Keating with William Blair. Please proceed.
Blake Keating: Hi, good morning. This is Blake on for Brian.
Andrea Funk: Good morning, Blake.
Blake Keating: Good morning. I just wanted to ask about maintenance free. So this is the – you guys have delivered strong double-digit growth for the second quarter in a row, almost 20%. And then that’s on the back of almost 20% growth last year. Do you see this type of growth, adoption rate continuing? And then as kind of the second parter to that, as you mentioned in your prepared remarks, your margins have held up really well in motive. Is this kind of where you see margins continuing with this adoption rate to TPPL or is there going to be some giveback as pricing tailwinds normalize?
David Shaffer: I would say, Blake, that I don’t see any major change in the trajectory of the maintenance-free conversions. And as a reminder, maintenance free for us is a combination of both our TPPL and our new lithium motive power products. We just went through the budget approval process with our Board I guess that was last week, Andy. And we’ve got some pretty aggressive targets laid out in these areas. And that’s – obviously, our management incentive plans are tied to that budget in that cycle. So there’s a lot of continued focus in these areas. And so, I don’t see any major trends. And to your point, especially on the TPPL side, there’s some opportunities for some accretive margins. So these trends are – should continue to go forward.
Offsetting that will be regional pressures that, may occur in Europe or Asia. Those are the storms we weather every day. There may be commodity pressures or FX pressures, one never knows. But in terms of the neutralizing those macro impacts, this is a journey we’re continuing to stay on. And then the OpEx leverage piece as well. I know in the budget, the motive team did not really layer in much additional OpEx at all going into fiscal year ’25.
Andrea Funk: Did that answer the question?
Blake Keating: Yes. Sorry, I was on mute. And just lastly, you guys mentioned rebalancing the production lines in specialty, and that would take until fiscal ’25. Can you quantify what kind of tailwind that could potentially be? Or any additional color you can give? Thank you.
David Shaffer: I think that we’ve absorbed tremendous amounts of manufacturing variances this year that we didn’t have in our original budget. And a lot of that is associated with this transitioning from lines that, were sort of more bespoke for making just one type of battery. So certainly, as we get more flexibility in the business, this legitimately can add a significant material impact on our manufacturing variances. It’s just – and we’re ready just as much as the investors. We’re ready for this period to get over. It’s just been extremely – the lead times on the equipment and tooling has been really a gating factor in this transition. But as we move in that direction, Blake, there’s certainly upside opportunities not only from a revenue growth perspective, but also just from purely the flexibility, of being able to move volume more efficiently, between the various factories.
