EnerSys

Q4 2026 Earnings Call — May 21, 2026

Analyst Noah Kay (Oppenheimer): Hey, good morning. Thanks for taking the question, Will. Good morning. You know, I was looking back at last year's 4Q presentation, just thinking through the comps, and, you know, I then took a little time to read the strategic priorities that were laid out at the time, and so I'll just start off by saying, you know, nice job in the first year, folks. I just want to acknowledge that. Thank you so much. Thank you. A question on energy systems. So, you know, I think the point that you called out about the tough prior year comp on volumes is well taken, right? Volumes were up 8% last year. But just trying to understand how still we got to kind of flat volumes this year, given the comments around record XM shipments and what I assume was continued strength in data center. Just where were there any offsets? And then I think going forward, I mean, you know, volume comps are still, you know, a bit elevated for the next couple of quarters. So, you know, how are you thinking about kind of the profile of growth as we move into fiscal 27?

Executive Name (Title): Yeah, good morning, Noah. I'll be happy to take that. Thanks. Yeah, I think the thing that's important to keep in mind with energy systems is it's very much a project business. So while we look at our growth and there's a lot of opportunities to continue to grow, it's not always going to be linear quarter to quarter. If you look at data centers in the fourth quarter, it was actually flat year on year because we had a very strong Q4 of last year. So for the full year, we're up really high single digits. But it was just a tough comp on the data center piece that drug down, even though we know on an ongoing basis, I think we shared, we've got 36% higher orders year on year. So the momentum is certainly strong. I think it's just the project nature. And keep in mind also, Q4 of last year was right after tariffs were announced. And so it was before they were in effect. And as we said last year on the call too, we think there was some pull in of orders that came into Q4 of last year that also made that Q4 comp a little bit of a tough comp.

No, for me, you know, I would only add to that, while, you know, a step back in volume is never something to celebrate for sure, where I give my team internally a lot of credit. You know, I've been in the Enersys universe since 2003, so prior to the IPO, and I couldn't remember, and I asked the team, did they ever remember a time where the company could set records and do what we did with motive power being in a recessionary position. And we couldn't think of any. So we really feel good about the company's ability to continue to deliver for shareholders, even with such a primary segment for us taking a step back. But to your point, every bit of our focus is on growth. And we believe we have a lot of really good sales in the wind to generate that.

Analyst Noah Kay (Oppenheimer): Okay, thanks. And then, you know, Sean, I'm sure this is going to be a big focus at Investor Day. But, you know, I noticed in both the press release and prepared remarks the phrase in commissioning referring to both the data center UPS product and warehouse bests. Just to kind of put a little bit of a point on that, the difference between customer validation and customer commissioning, is there anything that we should read into that in terms of commercial readiness? Because when I think about commissioning, I think about a product actually being deployed in the field, going through commissioning and recognizing revenue. So we'd just love to kind of understand what exactly has been going on.

Executive Name (Title): Yeah, that's a great question. And, you know, you're right about the, you know, sort of the, you know, connotative differences in those words. We actually, when we set out to deploy this product a year ago, didn't exist a year ago, we said, listen, we're not going to do something like an engineering launch or a soft launch. You know, we've set our team that they don't get any credit unless they're shipping a product to a customer. So that's exactly what we've done. So in this case, you could see it both ways, validation and commissioning. They're using that battery. But we have a lot of work to do. And the reason we've tempered, you know, that you won't see revenue lift until fiscal, you know, meaningful revenue lift until fiscal 28th. You know, we have the OEM handoffs to get done, the communication. So it's not just one, you know, OEM GPS. It's the, you know, there's all the large primary providers, you know, the names you would know. We need to make sure that they feel comfortable with the communication there. And then on top of that, you know, you have the large hyperscalers have their own validation process for the product. So there's a lot of work to do once you've shipped a product. So that should help kind of offer a little clarity there. But we are – it is not a – It's not an A sample or a B sample. We've shipped a finished product to the customer. That's super helpful. I'll turn it over.

Analyst Greg Lewis (BDIG): Yeah, hi. Thank you, and thanks for taking my questions. I was hoping to talk a little bit about, you know, your outlook for the data center opportunity. I guess a couple questions. As we think about the fourth quarter, I'm always like, I know we talk about it sometimes sequentially, sometimes year over year. Any sense to think about what that growth rate is looking like? And then just as we continue to think about the data center opportunity, at least in other suppliers to this industry, mega trend you know some of the things we've been hearing is you know some of the gating factors around um the ability to to sell product is is kind of supply chain so kind of just be curious how you're thinking about positioning the supply chain um and and kind of how that's been playing out just just given the you know exponential growth we're seeing in this opportunity.

Executive Name (Title): Yeah, I'll start and I'll turn it over to Andy for growth rates, Greg. Thank you for joining us. We have spent a lot of time and energy and, you know, getting ready to perform in the area of TPPL. And this product, the way that it performs gives a, you know, you're sort of knocking on the bottom edge of a lithium-like experience without any of the inherent risks of lithium. And, uh, what's something that standard lead calcium can't do where the old lead technology can't do, uh, is, is answer these high demand rates. So sub five minute rates in some cases, some one minute rates, because they don't have the surface area reactivity, not to get too technical. So anyway, we've, we've built in that, uh, that, uh, capacity. And, uh, you know, we may have had other reasons for, for building in that capacity in past times, but, but it's, it's lends itself perfectly to this product, and that's an area of very high growth we're seeing, before we even talk about launching our lithium battery. So we feel very good about that supply chain. We also, you know, one of the things that we talked about on the call is the amount of dry powder that Enersys enjoys.

And when we talk to our customers and we talk to the supply base, what we're finding is that some of these items like lithium batteries in the cells are places of origin. They're very long supply chains, but it's compounded by folks that aren't putting that sort of investment together to make sure that they're getting more to these shores and are able to react to customer issues. We're spending a lot of time making sure that's in place. It's on our strategic roadmap, and we feel very good at the moment about barring any more wars and weird places or further supply shocks, we feel very good about our position to be able to deliver once we have validation on those products.

Executive Name (Title): Thanks, and Greg, I'll just continue a little bit with that as well. What actually we hear is one of the biggest gating factors to the new DCs is power availability, which I think what's exciting about that is that just adds to the strength and the value proposition we have with our BESF systems that we're planning on launching. And just the importance of energy storage overall as the world is facing these power shortages. That said, in data centers, as I mentioned, we're up high teens, mid-high teens this year. And actually, if Q4 of last year was normalized as far as the percentage of total revenue, it would have been the same in Q4. So again, there's a little bit of choppiness because of the project nature. As you know, we're just selling the lead acid batteries, which have, you know, I would say on an ongoing basis, it might be more like high single to low double digit growth opportunities. But then as our lithium offering that Sean just described begins to add, none of that is cannibalistic. That's just additional share of wallet in a fast growing market. So we're very excited about the opportunities going forward.

Analyst Greg Lewis (BDIG): Okay, super helpful. And then realizing that, um, that, um, you know, you called out some of the headwinds in, in mode of, um, power and on the transport and the, and the forklift side, you know, you know, that being said, um, you know, book, the bill went back over one orders were up. Um, so just kind of curious, is that kind of the early signs that, that things are getting better is maybe part of that spike in orders in the book, the bill is some of that just seasonality as we start the year.

Executive Name (Title): I think we're seeing a lot of green shoots we're seeing a lot of positive activity what we don't know and we're why we say we're cautiously often optimistic we don't have any operations in places like the middle east that uh where we're worried about you know a direct threat to revenue there but you know these these businesses uh motive power and transportation that are that have you know tend to correlate not not perfectly tend to correlate with gdp You know, we don't know what these things do long-term to GDP, energy prices, that sort of thing. So we're, you know, all of our demand signals look good. If you've looked at the public remarks of some of the forklift manufacturers that, you know, were down, you know, mid-teens over the course of the year, they're all seeing green shoots and expect strengthening throughout the year. So

at this time, we see that coming as well, and we know from talking to our customers that they delayed purchases to kind of let this situation in time work itself out.

So we have seen pent-up demand. We know that that is one of those things that can't be delayed forever, those purchases. So we're, again, cautiously optimistic, but we do see improving trends throughout the year.

Executive Name (Title): Yeah, and Greg, I can just give you a little bit of data to back that. While our sales were up 5% sequentially, down 9% year-on-year. It's a frustration. Our orders were up sequentially 19%. Motive power is just not a segment I worry about. I think there's a little bit of reaction to the macro going on, but looking forward, we expect some sequential seasonal Q1 step back in volume. That normally happens, but we think that actually could be muted if the early recovery begins to start taking place. I think as a result, Q1 could look a lot like Q4, which is not normal within Motive Power. We should have growth coming from there. And then longer term, the opportunities that we have on things like our Motive Power BESS, which we're more and more convinced there's just a compelling opportunity there. There's going to be a lot of opportunity there, which will also spur some incremental 45X as well. And this year, we'll begin to benefit from the Monterey closure, which should impact, again, both 45X as well as some savings within that segment.

Analyst Brian Trapp (William Blair & Company): Thanks for taking my question. Andy, first, I think you just said that the first quarter for Motive could look a lot like the fourth quarter. Is that right? And do you mean, so would we then expect volume to be up in the first quarter for motor?

Executive Name (Title): You know, we don't, I don't know, Brian, if you know, we don't give that specific of guides, but, you know, I think generally speaking, it's, you know, it's just encouraging. We're beginning to see the early signs of this recovery. Whether it happens kind of late Q1, early Q2, it's a little hard to tell, but, you know, you can see we've got the strength and the order growth and I'm optimistic. It just can't be that disconnected from GDP. And I think there's a pen of demand that we're going to start to unwind as well.

Analyst Brian Trapp (William Blair & Company): Yeah, okay. It's challenging to model because looking back at industry orders, we talked about industry orders in the December quarter being up 40% for forklifts, and then the volume was your business was down 10% in the fourth quarter. Everyone's trying to figure out, you know, does this business get back to growth in terms of volume in the next fiscal year? And I would say, I think we called that out as well. We do see that before the ending of this year, it's going to be a return to growth. You know, I'm confident in that. It is true that a lot of the normal indicators that we look at are, you know, a little bit out of balance. There's choppiness in it. And I think a lot of that is customer-mind behavior reactions to a lot of the macro volatility. But this is a good business. What we feel good about is that the volume decrease we had is less than what we see in the overall market. And the market can become disconnected from GDP. So there's some pent-up demand being created.

Analyst Brian Trapp (William Blair & Company): Okay, thanks. And then maybe just one more follow-up for now. Can you just go through the current situation with the lithium initiatives and lithium product rollout? You know, you're going after data center and, you know, warehouse and that with lithium. But the lithium plant is still in the works. And it sounds like the cells coming out of the lithium plant are going to be at least an area of focus is defense. Talk about drones and mobile soldier power being, you know, the source of demand for those cells. So I guess I'm just wondering, like, currently, where are the cells coming from for your lithium products, and how do you transition that over to the new plant, and when eventually, I guess?

Executive Name (Title): Yeah, so good morning, Brian and Sean. Thank you for joining us. Good to hear your voice. Yeah, so just to offer a little clarity there, you know, Enersys today makes nine chemistries of lithium batteries throughout our aerospace and defense complex. We also buy lithium batteries. And for us, with some of the larger lithium supply chains in the world, we will always do a make versus buy analysis because there's no one perfect chemistry, even within lithium, for every application. And we've, NRSYS for the entirety of our evolution, even in lead, have modified the lead chemistries to support different applications. In this case, because the cell is a part of a larger system, and the solution that that system is providing is the point, we, it becomes even more muted, you know, whether the cell origin is NRSYS or outside. So that'll be make versus buy. So in some of these commercial applications where we're using these cells that are ubiquitous or readily available in the world, they still have Asian supply chains where they are originating in places like China. And for the foreseeable future, that'll continue.

I think if you looked at the constituent raw materials 99% of the lithium iron phosphate constituent material supply chain is either in or owned by China, 99% in the world. Meaning if a battery was built in South Korea or Japan or in Detroit, that constituent material supply chain still originates there or if the cell is finished in China. So it's just a fact in the world that we're going to navigate until we can get that migrated over. The Greenville plant is for aerospace and defense, and we have a customer there that's willing to pay for value, that is willing to pay to guarantee supply, domestic supply. And it won't be subject to something like EV cell battery pricing in the world. So we have a much better de-risked position there. Those cells will be purpose-built for those applications. And so it'll make a lot of sense there. There is downstream potential. There are areas of the market that we don't yet play in in data center that those cells could have an application for. But for now, we're going to continue to buy those cells and incorporate for data center and BESS and incorporate into our end systems until there's a point that it doesn't make sense to do that.

Analyst Chip Moore (Odd Capital): Hey, good morning, everybody. Thanks for taking the question. Hey, I wanted to ask, you know, maybe follow up there around aerospace defense. I think you called out some pretty strong demand, and I think it was munitions and but just any more color around what you're seeing there and forward trends moving through the year.

Executive Name (Title): Yeah, so I'll start, Chip, and then I'll turn it over to Andy for what we're dimensioning. But our backlog continues to grow in areas like munitions. You only have to open Wall Street Journal and see what's going on in the world and what position the financial Defense Department is with the, you know, expended munitions and some of these programs. And we are, there's only a couple of people in the world that make those batteries. So, and we have this advanced technology in our lithium silicon cobalt disulfide, which is the highest energy you can get. And, you know, real estate's at a real premium on a defensive standoff weapon. So they need higher power in the same space and we can give it to them. So we're seeing robust demand there. We're seeing robust demand in soldier power. We continue to see, you know, Brentronics impress us and do a great job. The Rebel acquisition that we made, you know, the hybridized power systems, the future of the battlefield is electrified. And now the concern is how do we get the ability to charge rechargeable drones at the forward edge of battle, and the Rebel hyper system is right in the center of that conversation.

So we're seeing excellent demand signals there. We're seeing excellent demand signals in our space battery business, where we've got, you know, 15 billion hours or so in space without a single flaw, and the team's done a great job there. And what we've done is we've come up with the answer to Pete Hesget's desire to have commercially read available products. The team got very smart about a year ago and came together and made some standardized products that would reduce the cost and increase the speed going into satellite programs, and they're benefiting from that now. So really across the board. And then one of the things that have surprised us, we're seeing equal demand in the European theater to some of the demand signals in the United States. That's never happened as long as I've been with Enersys. And it speaks to, you know, some of the other allied military stepping up and making those investments. So we really feel good about this space.

Executive Name (Title): Yeah, I could just add a little bit of color to that too, Chip. You know, in A&D, our revenue was up mid-20%, both year-on-year and sequentially, with orders up sequentially about the same. The project nature of this business can cause some fluctuations. That's important to note, both in volume and mix. But, you know, the orders are really strong, as Sean mentioned, particularly munitions and space with their book to bill at 1.22. And while munitions backlog are increasing, we're going to really start seeing that translation to revenue and liquid reserves throughout fiscal 27 and thermal batteries to follow late this year. It is really a hot topic. The industry as a whole is working to increase capacity, and we're really uniquely positioned. So this is just an extremely exciting business to be in right now. Other thing I'd mention is the acquisitions are just going phenomenal. We're seeing some lift as well, looking at synergies, particularly in EMEA of these two businesses put together, as well as in the U.S. So good things ahead of us.

Analyst Chip Moore (Odd Capital): That's great. Super helpful. And look forward to hearing about Greenville as well. Maybe for my follow-up, maybe just more on the modeling side, you know, some of these inflationary pressures you talked about, seen some impacts there, obviously. Just, you know, talk about lags, you know, and sort of offsets with mix and some of the productivity benefits that are rolling through. Thanks.

Executive Name (Title): Sure, Tip, and I assume you're talking about overall. One thing I couldn't be more proud of, one of the first things Sean did when he took over as CEO is put together this dedicated task force. We're all over this. So we were early starts for filing for the refund because we got all the data, we got the playbook. This team then quickly was split on to the conflict that we have in the Middle East, trying to understand the impact, anticipate it, make sure we're doing the right mitigating activities. If you look at our Q4 year-on-year tariffs and free, we're up about $20 million. That's a pretty big number to absorb, confident that we were fully able to offset the pricing. When inflation first kicks in, you know, it might take a – sometimes it takes a quarter until you get normalized with the price pass-through, but, you know, because you've got the inventory flowing off and you've got orders already on your books. But we've done a tremendous job managing it. We see – probably this quarter, you know what? We look to say, how has the macro impacted us? My guess is it's not been overly material, but if this conflict hadn't happened, our results probably would have been a little bit better. We got maybe a couple million dollars of some higher costs directly related to the conflict that we saw. And again, we're on top of it. So I feel good about the outlook going forward.

Executive Name (Title): There are no further questions

at this time.

I would like to turn the call back over to Sean O'Connell for closing remarks. Sean?

Executive Name (Title): Thank you. Also, I'd like to thank everybody for joining us today and participating in our results. It was our pleasure speaking with you, and we look forward to talking with you soon. Thank you. This concludes today's call. You may now disconnect.

Q3 2026 Earnings Call — February 5, 2026

Analyst Noah Kay (Oppenheimer): Good morning. Thanks for taking the questions. Let's start with data center. You commented on the growth in the quarter, but also what you said is sort of healthy demand. I think looking at the pretty eye-popping CapEx expectations from the hypers and some of the orders growth rates we're seeing, um healthy feels like an understatement so can you talk about your own data center pipeline and how you think about that scaling in the quarters ahead?

Executive Sean O'Connell (President and CEO): Good morning, Noah. Listen, you know we're very excited about this opportunity obviously and you know if we look at it from a lead acid perspective let me start there. You know, we have a commanding market share in data center. It's over 50% in the United States, as an example. And we serve those same hyperscalers around the world. And we're seeing growing demand for higher density products. And so TPPL for us in this space is doing very well. What we're most excited about, though, for all of that strength and all of that growth, we have yet to release a lithium battery product into the marketplace. So for over 50% market share in the lead acid, for all the greenfield data centers that are going lithium, today we have 0% market share. So our product teams under Mark Matthews are doing a tremendous job to get that product over the finish line. We're not being very public about dates and that kind of thing because we'd rather have done it and told you about it than foreshadow something that we didn't deliver on. But that is a massive growth opportunity for us.

And it's the exact same customers that we're serving with that great growth in lead acid. So it's just a tremendous amount of upside for us and a tremendous amount of willingness on the side of the customer. Because with Enersys, it's not just the product. You get the before and after sale services and care, the logistics support, the staging support. So our customers are very keen to get us involved in that, and it's probably our largest opportunity to date.

Analyst Noah Kay (Oppenheimer): That's helpful. Thanks, Sean. You know, a hat tip to the team on the energy systems margins getting above 10%. Yeah, I think the slide deck talks about a sort of normalized margin improvement in 4Q. Maybe we can sort of put a little bit more context around what that normalized means. I know you don't, you know, quantitatively guide to segment margins, but just help us think about some of the puts and takes and what normalized could look like, given some of the comments around, you know, product makeshift and the like.

Executive Andy (Management): Good morning, Noah. This is Andy. Nice to hear from you. Consistent with what we've said in the past, as you know, our energy systems business is very project-oriented, which also has some mixed opportunities that can cause it not to be a pure linear progression. And as we talked about in Q3, we both had some pull-ins into Q2 that we had talked about on our last call. And then we had a couple customers that pushed out, one customer in particular, in order at the end of the calendar year into our Q4. So that put a little bit of pressure on our volumes in Q3 in energy systems, but also aided the margins a little bit. So what I would look at is if we normalized for that, we would continue with the improvement trajectory, but probably a little bit of that 10.5% OE margin in ES, some of that probably should have propped up Q2 a little more and propped up Q4. So if you normalize for that, you would continue to see an improvement. And we might be sub 10%, but not much. It'll still be in that trending in that direction. But I would expect probably a little bit of a step back in Q4, but a continuation of the improvement that we've seen so far to date. Does that make sense?

Analyst Noah Kay (Oppenheimer): It does. It's very helpful. You know, and maybe for the last one, just to touch on motive power. You know, we have seen some really strong, you know, demand trends in, you know, e-commerce and warehouse automation, trends that seems like it should play into your wheelhouse. So when do you think kind of this destocking ends and when do you think you start to see some inflection in mode of order rates?

Executive Sean O'Connell (President and CEO): Noah, this is why we've been so reticent for full year guidance, because it's just all the leading indicators have been tough for our forklift manufacturer OEMs, let alone us, on how to gauge this market. And of course, there was tariff exposure, and particularly in heavy steel, and then there were the interest rates, and just all sorts of things that affect these heavy capital purchases. With that being said, as we said in the prepared remarks, we know for sure this is pent-up demand. We saw evidence of this in December. We mentioned a 40% increase in December in the Americas in the trucking orders. To put that in perspective, about 22,000 units. That's a record December. We've never seen that kind of number. And it's not that the market just decided to grow that much. That's that pent-up demand. So where we're being careful, though, is we saw, you know, earlier this year, we talked about some strength coming back in. And historically, when motive turns, it's basically a linear climb out. This has been a little more choppy for us. But that 40% new truck order number is a big one for us. And you know typically and the reason we're saying hey you know it may take a couple of quarters of fiscal 27 to iron out that that's usually the lag time between trucks being ordered and our and our batteries being ordered but it's a very positive sign for us.

Executive Andy (Management): What I do feel good about is we know that we are outperforming the market. It's not lost share. Our industry data that we received showed that while our volume was down high single digits, the industry indicators were down low double digits in the quarter. So I think we're doing better than the market. Motive power is not a segment I really worry about. Chad does a tremendous job managing it. We know over time, as long as materials are moving, our products are needed. And, you know, as Sean mentioned, it will come back. It's a question of when. And I think the team does a great job managing through it.

Analyst Chip Moore (Ross Capital): Hey, good morning. Thanks for taking the question. Maybe I could ask about lithium factory. You know, I know you're limited on what you can say, but you sort of alluded to, you know, expecting, I think it was, you know, a favorable outcome. Just anything you can share there and, you know, how we might think about how the strategy has evolved and when we might see a final decision.

Executive Sean O'Connell (President and CEO): Thank you, and good to hear from you. We are very encouraged, I'll just say that, of where we're at in our discussions with the Department of Energy and the overall administration. You know, if you recall, and we go back to, you know, the beginning of this administration, what we saw were grants being canceled, projects being canceled, and, you know, we didn't know at the time that the batteries would survive the one big beautiful bill act, and all that is sort of ironed out. Now, the government priorities being clarified and then putting the people in place that they wanted to put in place on their side, you know, to get these initiatives across is what's taken all the time. But I'll tell you that our grant has remained intact, was never canceled. And, you know, we had a really strong audience with the government to talk about their new priorities. And what is that? It's secure domestic supply chains, free from foreign entity of concern content, particularly for the U.S. military and the Department of War. And of course, grid resiliency and electrification is still there, U.S. manufacturing and job creation.

But the really interesting thing for us is this has been a bipartisan supported issue. And I've said previously that if we could, in terms of what the plant does and what its purpose is, if we could point the whole thing at a secure supply chain for the military, we would. I'm not saying that that's where we're going to end up. And I don't want to get in front of the administration and determining yet what that looks like. What I can tell you right now is it's very positive. We believe we're in the final stages. We were hoping to have some information by a little more concrete by this call. But we can only go as fast as the customer on the other side, which in this case is the government. But we remain very optimistic about where this is trending.

Analyst Chip Moore (Ross Capital): Understood. I appreciate all that color. Thank you. And just maybe for my follow-up, just maybe more of a follow-up on Noah's question for motive and some of the pent-up demand. I mean, maybe it's similar dynamics for Class 8, I think, that you called out. Just maybe talk about, you know, your ability, both those markets, How do you think about the back half of next fiscal year if some of that demand starts to come back?

Executive Sean O'Connell (President and CEO): We are well positioned. The actions we've taken in our factories to be more efficient, to increase the effectiveness of our supply chains, the work we've done through tariff mitigation. We're ready. I mean, there's no question about it. And just to give you, you mentioned transportation. I didn't really give that color. We have a fleet operator, which is one of the largest in the U.S., and they operate over 400,000 tractors. And they told us today they have 50. They told us if they had to order today, they have some 50,000 tractors to order just to maintain the fleet as it is, without any additional growth. Think about that. So they've just delayed and nobody wants to go first because they don't know when this is going to turn back on. But they told us all of their conversations now with the OEM tractor providers and Class 8 OEMs is how fast can you restart? What does that look like? What does that pipeline look like? Because they know and they represent just a bit of color. That 412,000 tractors or 450, whatever that number is, they represent a number approaching 20% of their portion of the market.

So it just gives you an idea of the dimensionality of the number of tractors that need to be ordered now just to sustain the fleets out there due to the aging issue, let alone growth. So we're ready. We have ample capacity. We've got Missouri up and running. We've hit all of our milestones there that we committed to. We've got scrap coming down, productivity increasing, OEE looks good at our bottleneck points. So when those drivers turn back on for us, we can execute pretty quickly.

Executive Andy (Management): I'll just add a little bit more on to that one. One thing that's interesting, Chip, and good to hear from you, is you mentioned transportation right after motive power and wisdom. With invigorating our operating model, one of the things that we've been looking at is having Chad, who does a great job leading our Modus Power business, also begin to look at synergies that we have with our transportation business. And there's immense synergies there because, as you can imagine, you've got warehousing and distribution. You have both forklifts and trucking in there. We actually had a really nice quarter for transportation with the market still being soft. And I think that's aided by some of the benefits from this invigorated operating model, as well as the improvements to COE are having in our manufacturing costs, both absorption with a little bit of the volume pickup we had and Sean's monthly trips that he's taking out to Missouri. You know, I think you're really seeing improvements across the board.

And only other thing I've mentioned since we're talking about transportation, as you get into the whole specialty line of business, we couldn't be more pleased with our A&D business. That's an area where we mentioned our A&D backlog, I think up 27% year on year. Munitions in particular has had a 230% growth in their backlog year to date, really a 29% CAGR since we acquired the business in fiscal 19. So lots of opportunity in front of us with the geopolitical environment continue to drive this increase in defense budgets as well. So bright spot there for us.

Analyst Brian Drab (William Blair): Hi. Good morning, and thanks for taking my questions. I just wanted to talk about the energy systems segment first and the outstanding growth that you've seen at the data center. I think you set up 28%. If I look at that segment and think about, you know, I think data center revenue for you is over 400 million on an annual run right now. I think, Sean, that you had said it was around 425. You know, if data center's up 28%, I guess that implies or tells us that the balance of the energy system segment was down, you know, maybe low single digits to mid single digits. I'm just wondering, you know, that's being driven, I guess, mainly by dynamics and telecom and broadband, but I don't know if I missed it, but I didn't hear a lot of comments today yet on the call around telecom and broadband. So I'm just curious, what is happening in those end markets and what's the outlook in those end markets?

Executive Sean O'Connell (President and CEO): Good morning and good to hear from you, Brian. We, you know, I think Andy went into a bit on timing and margins. What I would tell you is that we see only positive signals in the rest of the segments there. Q3 to Q4 for us, because we are on this April to March fiscal, is always a little weird in the telecom space for us because you either have the communications folks trying to increase their year-end spend before the calendar year flip or they're deferring capex based on what their CFO is wanting them to do to restart it again in our fourth quarter, their first quarter. So, and then, you know, Andy mentioned earlier, too, we had the pull-in issue from Q2 into Q2 that, you know, if you normalize Q2 and Q3, it would look a little better. But all of the demand signals are good. You know, we don't talk about it because it's a small segment for us, but we have over 50% market share in power utility. And that specific application for us is electric substation switchgear control. That business is up 15% and just doing very, very well. So we see very positive demand signals.

I'll tell you, the engineering team, particularly under the Center of Excellence Realignment, is doing a fantastic job with the next XM product. You know, the broadband people are under the same pressure everybody else is under. You know, they're trying to plan for more expensive energy, more frequent outages. And so that product achieves a lot of that for them. So we've been in trials and co-developing that with a key customer partner. So I would tell you that there's all positive demand signals for us there. You know, you're probably just picking up on a little of that year-end choppiness and project staging.

Executive Andy (Management): And just to echo that, Brian, and good to hear from you. As we mentioned, this business is project-driven. There's some large customers. So when you look at growth rates quarter by quarter, both with volatility in last year as well as volatility in this year quarter to quarter, you see some spikes up and spikes down. But I would expect our comms business overall in 26 will be up, you know, mid single digits. Our data centers will probably be up high teams year on year. So, you know, quarter to quarter because of some of these, you know, you have a customer year end, you got budgets, you got a project that completes early or you're behind, you can have some shifts quarter to quarter. But the trajectory is really in good shape. And I would say, while we're not in kind of this robust build out like we've seen maybe in some of the past communications expansion, it's more slow and steady, continues to improve this fiscal year. We probably won't be back at the fiscal 24 level, but we're, we'll be trending towards it with opportunity in 27 to get above.

Analyst Brian Drab (William Blair): Okay. And the guidance for energy systems and the, or I guess the guidance for the revenue overall, does that imply for the fourth quarter? Like, would I be correct in thinking that energy systems revenues up a little year over year and motives down a little year over year or any detail there you can help with?

Executive Andy (Management): You know, we don't guide specifically line of business by line of business, but I can give you a little bit of color on each if that would be helpful, Brian. Whatever you want to give would be great.

Executive Andy (Management): Sure, sure. I'll give you a little and hopefully this will help. Energy systems will continue to see some growth from data centers, although again, as we mentioned, the choppiness prior year is probably a little bit of a tough comp. The comms network refresh will continue with the build-out to enable the AI data delivery necessary, but at this measured pace. And again, some of those push-outs that we had will be materialized, so that'll benefit us. Just as the Q3 volume with pressure to margins were aided, that is quarterly phasing that'll be normalized so you'll get a little bit more of the pickup from the volumes as we talked about but a little bit of pressure from the margins quarter on quarter. Our cost actions are holding and again normalizing towards double digit margins so very pleased with the progress and as you know we've talked about several quarters service having been a headwind for us it's now we believe we've turned the corner and going to start to be become a tailwind important part of our strategy going forward. In most mode of power again, I would use hesitant is probably the best word to describe the market.

We see that continuing into fiscal 27 and we had a 0.9 book to build in mode of power, but it we're really returning our backlog or to pre COVID levels. So there's more book and ship business. And, um, you know, again, we, as Sean mentioned, we definitely see pent up demand there that, uh, it's just a question of when that's going to be unloaded. There's going to be the Q4 seasonal volume list that always happens, so we'll benefit from that. We continue to see customer enthusiasm in our maintenance-free solutions, and we will also see some higher cost pass-through from tariffs as our cost optimization opportunities and volume grows. Our moderate closure, as we mentioned, is ahead of plan. We substantially closed that one month early. you'll probably begin to see that benefit in starting around the middle, maybe second quarter or third quarter of next year as we work through the inventory that we had. But that, along with the BESS opportunities, you know, there's a great article we just read about how 15% of warehouse operators costs are their operating expenses are energy, and they're asking us for these solutions. So that's on the horizon for next year.

And specialty, I think not unreasonable to expect double-digit AOE Q3 that we saw and beyond as our A&D business continues strength. Aftermarket transportation picks up, and the lead asset COE is driving cost improvements in both trans through automation and the growing benefits of the restructuring. So hopefully that was a little color that could help.

Analyst Brian Drab (William Blair): Yeah, thanks, Sandy.

Analyst Greg Lewis (BTIG): Yeah, I thank you and good morning. A lot's been covered. So I guess, Sean, I'll ask a little bit about, you know, the rollout of the UPS system in lithium. I mean, you mentioned that, you know, you're 50% in TPPL. You know, I guess around the rollout, I mean, I imagine it's, I know it's something you've been looking at since last year. As we think about the go-to-market strategy, I guess a couple things is clearly there's demand. How should we think about Enersys entering this market as a new entrant? Is this going to be, like, how competitive is that landscape? Clearly there's a lot of growth to be had. And then just also around that, I'm kind of curious how we can think about that ramping, i.e., hey, we start having a solution maybe this spring. Are we selling out that quickly and then we ramp? Or just if you could kind of talk about how we should be thinking about the rollout of that lithium UPS solution later this year.

Executive Sean O'Connell (President and CEO): Hi, Greg. Good morning, and thank you for calling in and joining us. It's a great question and the right question. Lithium as a technology does some very interesting things for the user, but it also carries risks that lead acid does not carry. And as such, it's the adoption rate for it, to your point, I think to your question, is that you get trials in the field and these centers are so large, that the amount of power that you're generating or the amount of power that are going through the systems is substantial. So what you would expect to see for us is trials, which have already pretty much been pre-agreed by our customer base. Again, I mentioned earlier, there's a lot of pull through from our customers, and it's more than just the product. It's how we handle them. It's how we service them. It's our global presence. So there's a high desire for our customers. This isn't something we're going out and trying to pitch. But with that being said, we have to get through these trials. They have to get comfortable with the technology. We have to be sure that we're making the little tweaks because our battery doesn't go in isolation.

It's communicating with the OEMs, UPS systems, and you know the big names and who they are. So that all takes a little bit of time. So what we suspect is that when the trials come in, that'll be probably a, let's call it a six-month period for that fine-tuning and that customer comfort. And then we begin to get into the project queue. And then, of course, the other issue there for us that we have to mitigate is that these data centers are planned a long time in advance, and lead times are long. So when we get into that too, you shouldn't expect a hockey stick ramp in the first year, but a steady growth for us climbing out. And just to give you some context, there are really only one to two other credible lithium providers in the space today. And so it's not a crowded or mature field. And again, we have a lot of pull through from customers, but I don't want to dimension it that there'll be this astronomic ramp for UPS. It will take a bit of time.

Executive Andy (Management): And just real quick on motive in terms of the upward price. I know you called out in the slide deck about the maintenance-free solution growing. Just kind of curious, what drove that price mix? And I'm curious, was any of that kind of just tariff pass-through?

Executive Andy (Management): Well, tariff pass-through would be at a lower margin, and we are starting to begin to see more of the tariff impact coming through. We had a nice margin in Q3 26, again, at 14.9 up year on year and up sequentially. A lot of the volume softness that we saw was in our flooded business. And so that mix really helped us. We think those are the smaller manufacturers, smaller warehouses that are feeling some of the pressure. And those are the ones we think that are kind of holding back and driving some of the mixed benefit we're seeing. Plus, of course, our restructuring efforts are holding.

Analyst Greg Lewis (BTIG): Absolutely. Okay. Thank you very much.

Executive Sean O'Connell (President and CEO): Thank you, Greg. Nice to hear from you.

Executive Sean O'Connell (President and CEO): There are no further questions

at this time.

I will now turn the call back over to Sean O'Connell, President and CEO, for closing remarks.

Executive Sean O'Connell (President and CEO): Thank you, Bella. I'd like to thank you all for joining us today. We look forward to updating you again next quarter. Hope you have a great day. Thanks again. That concludes our conference call today. Thank you all for joining. You may now disconnect. Everyone, have a great day.