EnerSys

Q1 2027 Earnings Call — August 13, 2026

Analyst: Noah Kay (Oppenheimer): Good morning. Thanks for taking the questions. Hope you're all doing well. Maybe I'll start with a two-parter on the data center business. You mentioned orders are up 80% year-over-year this quarter. I know orders in this business can be lumpy. Can you put some context around that, trailing 12-month orders growth or backlog growth? That's the first part. And then, Shawn, I thought you sounded pretty firm on the newly launched lithium-ion product contributing to revenues next year. Should we take that to mean you already have orders in hand or visibility to orders materializing short-term?

Management: I'll start, Noah, and then I'll turn it over to Andy for a word of backlog history. But we knew going in, as we've socialized previously, that we had a wide open door to step through for just introducing this technology relatively through our same customers and sales channels because these are high-trust environments. So we, you know, we were sort of just, you know, playing catch up to get the product ready. And we've been going through the validations and approvals as we socialized. But yeah, I think our boat activity and our market activity is robust. And as a result, you know, we've already got the first 100 systems on the water priming the pump in the supply chain. So we've spent a lot of time while we were doing the approvals, getting the supply chain set up, getting the service technicians trained, getting the sales channel ready. So we are fairly confident that the timeline we socialized is going to materialize in that way for us.

I'll take the question on the data center orders. No, it's a good one. Obviously, we were really pleased. Strong increase, 80% year on year. That said, a lot of these orders extend out 12 to 36 months. The real positive to me with that, Noah, is that lead has a long tail. It's got staying power. Our TPPL data center revenue will continue for some time. We've got a lot of visibility into it. We've made a lot of progress with our noir. We have, you know, 100 orders or so in place with our supplier. We've had over 110,000 campaign impressions. We have over 500 units in active quotation. So there's a lot of excitement and enthusiasm. We don't think that's going to be anything until fiscal 28 story from a revenue standpoint. But the lead will continue. We're getting visibility into a long time demand signals and then will be incremental on top of that. Hope that helps.

Analyst: Noah Kay (Oppenheimer): It does. Thank you. And then on the lithium plant, you shared that assumption of mid-20s ARR for the plant economics. Possible to understand, at least at a high level, the assumptions driving that target IRR? And then how should we be modeling net capex related to the plan for fiscal 28, because that'll certainly drive CapEx increase versus 27.

Management: Yeah, I think part of the challenge to think about with this, Noah, we didn't get payback on it yet. There's some requirements that we have in the fact that we're getting the DOE grants, which we're very pleased with the trust that the Department of Energy and Department of Work placed with us. I mean, your customer's investing that amount of money for you to build capacity for them. It's very encouraging. But that's that there's some upfront requirements on things like environmental and NEPA that will pace the timing of when we're able to get started. We're saying that we think it's going to be mid next year that the CAPEX starts, the actual construction starts. And there is reimbursement that comes, it looks like it's going to be coming on a one quarter lag. Again, some of that is a little bit outside of our control. That said, we have no doubt we're going to be able to handle the CapEx requirements of the plant with our ongoing cash flow. It's not going to have any impact on leverage other than leverage wouldn't continue to go down because of the plant. So we don't have more information

at this time, but I hope that helps to explain some of the timing.

Analyst: Noah Kay (Oppenheimer): It does, thanks. And then just looked at the first part of that, any color on the IRR, just because that would assume, I think, a nice amount of growth really coming from that plan and its ability to support the growth that you've talked about in PPS.

Management: Yes. Yeah, I mean, there is a real value for FEOC compliance sales in the A&D space. This is of critical importance for national security. So I think there's a couple things that says we've got a long history of receiving grants from the A&D and receiving grants from the government for A&D business. We've worked very closely with them. I think we mentioned, you know, we've got six plants in the U.S. currently manufacturing A&D plants much of the growth of which has been funded through investments and this will allow us to have very valuable products that have this FEOC compliance so I think there's a you know pricing that comes along with that and this also allows us to continue to grow with and expand into new areas in A&D that were not as active like like the large diameter drone batteries continuing with our drone counter. So there's both incremental revenue and margin expansion associated with this plan. And we've not built into the modeling, but we've received a lot of interest in expanding this even further and in discussions on that going forward.

Analyst: Noah Kay (Oppenheimer): All right, well, congrats on all the traction, and I'll turn it over.

Management: Thanks, Noah. We're excited about it. Thank you, Noah. Good to hear your voice.

Analyst: Trevor Saar (William Blair): Hey, thanks. This is Trevor on for Brian here. I was hoping to get a little bit more detail if we can on implied margin expansion sequentially in the second quarter. It looks like the revenue growth at the midpoint, again, sequentially is about 2.5%, but EPS growth at the midpoint is about 12% sequentially. Can you just kind of shed some light on how we should think about margin and expansion into the second quarter?

Management: Yeah, I'll be happy to take that one as well, Trevor. As we talked about both on our last call as well as on Vestor Day, we see that early in this fiscal year, a lot of our earnings growth is going to be driven more by margin expansion. And then as we get towards the end of this fiscal year, you'll start to see some of our growth kick in. It's going to begin with recovery and material handling. The transportation recovery is already beginning to be over way. A lot of our other markets continue to have growth like A&D and data centers. But the new product introductions aren't going to start to kick in, mostly till fiscal 28. And as you look through the balance of this fiscal year, you're going to see a lot of the items we talked about, like the annualization of the adjustments we made with ERIS last year. You see the beginning of our 45x benefits from closing our plant in Monterey. We might see a little bit of some of the benefits from closing our Tijuana plant. We also had announced two other facility rationalizations this quarter with our Bellingham facility, our Brazil closure. So those items, and then just this company's being managed differently.

A lot more cross-discipline and strong operational initiatives as part of our Energize strategy. So you'll continue to see that growth as well as mix improvements. So we're going to be launching our Gen 2 lithium in our material handling business, which I'm very excited about. You see within our NIS business an increase in the power electronics. Keith, with Dan leading it, is doing a tremendous job with our service business. That had been headwinds in the past. Now it's starting to turn into tailwinds. And it's also a real critical component to a lot of our strategy on what makes CenterSys unique, things like data center. It is our service network, our ability with BAS, having the service teams out there. So that growth in both top line and margin of service is not just something that is impacting our current results, which we're excited about, but it's going to be an enabler of a lot of the growth initiatives that Shawn's kicked out. So I hope that helps to explain some of the things we're seeing. If you need more color or any more questions, I'd be happy to take those as well.

Management: Trevor and Shawn, good morning. I would just add one thing and explain it very well. On the 2% top line growth, we always have some summer seasonality during this period in spite of the material handling pressure that we've seen over the last couple of cycles. So that's fairly typical for us in a normal year.

Analyst: Trevor Saar (William Blair): Makes sense. That's helpful. Thank you. If I could ask one more actually just on that service business. Could you give us a little more detail on the size, growth, and margin contribution in that and maybe what you've done and the work you've done in the background to turn that from what you just said handy into a headwind into a big contributor?

Management: Yeah, Trevor, I'll start and then I'll turn it over to Andy. So I'll start on what we've done and the importance to the business. If you look at our strategic framework that we talked about at Investor Day, the two things we're trying to solve for customers are energy security and labor scarcity. And it's along that adage of we're going to run out of electricians before electrons. So we've been building the plumbing over the past year of putting in very disciplined, project management and upskilling our labor force. So if you look at what we do, you can kind of, you know, we call it service, which kind of invokes ideas of attach rates and, you know, repetitive aftermarket and that kind of thing. But there's a big component of our business that is actually on the implementation side, electrical, very specialized electrical construction. And as you might imagine, you know, you can get that very right or very wrong in the details. So what they've done, and Keith and Andy mentioned Dan Cohey in that business, is put all of that plumbing in place, that high level of discipline. We've invested in new project management software, and the teams are just doing a remarkable job upskilling that entire segment for us. But that'll turn it over to Andy for some of the numbers.

Management: Yeah, when I look, Trevor, at services, what we're referring to primarily here is our network information system services. You can see our total services revenue and margin in our queue and you can you can see the improvement there but really the turnaround that we're looking at is in the NIS business where we had some headwinds and it's such a key aspect to the growth and the value proposition that we have to customers and is a differentiating factor. If you look in in our network information systems you know and I'll always give specifics down to this level but you know, you're talking revenue up, you know, around 20% in the quarter, year on year. So really nice improvement in revenue, as well as total interstice margins with our services area being up about 100 bits. I would say even more in the NAS division. And a lot of that is just, again, really disciplined management. Keith is an extraordinary operator and he's putting that kind of discipline into the NAS business under Shawn's leadership. We're managing it tighter and making sure that we're ready for a lot of the opportunities in our headlights, things like that NIS Services Department division helping our BAS installation. So it's an exciting and very strategic area for us going forward.

Analyst: Trevor Saar (William Blair): Sounds great. Thank you.

Management: Thanks, Cheryl.

Analyst: Jeff Osborne (TD Cowan): Good morning, Jeff.

Management: Morning, Jeff.

Analyst: Jeff Osborne (TD Cowan): Just a couple quick ones on my side. Maybe just starting with motive power. It's been weak for a while. I know you've seen cycles in the past. How do you ascertain sort of where we are in the cycle? You felt comfortable that things were rebounding. Are you looking at substitution effects? We're just getting a lot more questions from investors on sort of the sustained weakness in that core segment.

Management: Yeah, Jeff, I'll start. You know, we have a lot of leading indicators that we look at. We get the truck order data from the forklift market, both internationally and domestically in the America's market. We have that. Then we have, you know, we typically lag our forklift customers, you know, between, you know, half a quarter to a quarter when they start seeing the truck orders and when we see the battery orders. And so we look at that. We, of course, have conversations with those same customers. Most of them don't split out and report publicly the, you know, the individual results of the forklift division.

So if you're looking at one of the you know larger OEMs that are embedded in a bigger company they don't give you that color but we do have some public ones uh like HY that just released their results and you can see that they you know they uh in spite of being down I think 16 percent year on year they had a two percent increase but their truck orders are way up and they're seeing those green shoots now and we're that's kind of consistent with what we're hearing across the board in the industry and obviously between the three classes of forklifts, people are positioned differently depending upon the OEM they are. So the markets haven't been totally even. But we look to those things and all of those indications for us and those customer conversations are positive. And so it gives us a high degree of confidence.

Also, we have data going back to the 90s, very solid data about what happens after an economic recession period, material handling. There's only been three of them. and this one's a little goofy because of you know coming out of COVID and supply chain shocks and build-ups and normalizing but typically those recoveries for us you know when we see these indicators they are you know they they follow fairly quickly so that that's giving us some confidence there.

Management: Yeah I'll give a little bit of more more data behind that you know as well and Shawn mentioned the Hyster Yale report. They also did note that first half calendar year 26 would mark the financial low point for them. They had the strongest booking quarter in three years this last quarter. So all really good signals. Our customers also continue to give us great signals. That said, it's choppy. Industry data showed positive order trends for our Q4 26 and then dropped to negative 8% with shipments this past quarter. There's a lot of volatility. If you recall in the last quarter, we had called out that we thought Q1 could look very similar to Q4, which is unusual. And of course, that didn't materialize. So the lag is frustrating for us. We do build a risk factor into our guidance because we knew that market recovery is outside of our control. We track our performance versus market. We are in line with market. But I think it's a positive sign that we have this are all in record order despite that continuing to feel the pressure. We are seeing signals that it's coming back.

When it's going to come back, that's the question, whether it's going to be our Q2 or we're thinking it's more a Q3 story. Another aspect to it, which I think is an exciting element to this as well, we have some great new products on the horizon, both with chargers and Gen 2 lithium. So as we are depleting our stock of our old offerings, and our customers are waiting for those products to come out, which will be a second half story. That might be impacting a little bit for us as well. Nice thing is our Gen 2 lithium, which is an LFP solution versus the NMC we had in our previous version, has a much more attractive price point for our customers, which we feel will allow us to pick up a lot more volume there, and is at significantly higher margins. So I think there's a lot of good news in front of us. I'd be lying if I didn't say we weren't a little frustrated that it's taken as long as it has. But overall, I'm not concerned at all the outlook here. Our products are necessary to move goods around the world, and it can't stay down long.

Analyst: Jeff Osborne (TD Cowan): Just one, I appreciate the detail there, Andy. One follow-up on Motiv and then you had one on data center. On the material handling side, are you seeing, since you brought up lithium, any acceleration in the shift from lead to lithium?

Management: I would tell you that we're seeing, you know, the same conversion rate we've seen. And I would just, you know, reiterate that, you know, this is pent-up demand on the forklift side. They can't, you know, these are typically leases. They can extend the lease. But what starts to happen is you start to see a lot of breakdown of maintenance items. So, it can't go on forever. But our typical maintenance-free conversion, which Unfortunately for us, we're uniquely positioned. We have our TPPL offering and lithium offering. That's been fairly steady for us, so there's no big movements there. We're just seeing really market effects at the moment. You know what? One other thing worth mentioning too, Shawn, I know we've talked about this. We believe there's a correlation, which is why we did the resegmentation between the transportation and the forklift. These are large capital purchases. They both experienced this downturn coming out of a lot of the macro volatility. And transportation is starting to come back really strong. We were 20% revenue growth in the quarter. Orders that we had year on year in transportation were up 91%. Now, of course, that's often a low point with orders as it was declining last year. there's great momentum there so that's just another signal that gives us confidence that the capital markets for forklift trucks are going to start to turn as well.

Analyst: Jeff Osborne (TD Cowan): Good stuff and just very quickly on the data center side a lot has been answered there but just two clarifications one are we still shooting for UL certification either late this year early next calendar year is part one of the question and part two now that you've socialized it with customers. You have the units coming in for training and whatnot and testing. Do you have any further comments that you can share about expectations for margins, just given you have a third party manufacturing for you folks?

Management: Yeah, I would tell you that we are right on track with our plans for UL and our validations. We feel very good about that. And, you know, if you look at how our product delivery has been going and You know, it's a close parallel, but how quickly we were able to get UL and NFPA certification on our BESS system, which is a more complex system, it just speaks to how we're operating differently. So we have a high degree of confidence in our UL journey on the data center and noir side.

Management: And on the second part of the question?

Management: Yeah, on the margins. So go ahead. You know, we expect margins in line with our TPPL and higher margin offerings than lead and early indications from customers. We think we're going to have a high degree of confidence achieving that. The other issue and the other real benefit that we have is not comparing lithium to lead, but lithium to lithium. We're releasing a system that can do in two cabinets what the competitor's lithium battery now does in five. So we have a real value conversion opportunity from that five to two that is a big differentiator in the market and as well as saving a premium on that data center space. That's my general service network.

Management: And turn it up back around. Thank you, folks. That's all I have.

Analyst: Greg Lewis (BTIG): Yeah, hi, thank you and good morning and thanks for taking my questions. Shawn, I was hoping you could talk a little bit more about the A&D opportunity. You know, you mentioned the factory, the facility being built, you know, and just the relationship Enersys has with, you know, the U.S. government. I'm kind of curious you know how also just given you know a lot of headlines about you know drone as is accelerating you know drone warfare drone anti-drones beyond the U.S. and realizing that's a big opportunity how should we be thinking that about that over the next couple years even it may be as we think about NATO and the broader opportunity?

Management: Yeah so uh Good morning, Greg. Thank you for joining us. Look, we have an extraordinary opportunity in front of us. And if I had one big takeaway from Investor Day, you know, I got a lot of comments that we haven't talked enough about our position there. But our position with the defense apparatus is strong. And one of the reasons is, you know, if you look at what we've done with TPPL, you know, that powers nuclear submarines and how we've have taken the developments out of one technology and expanded that into a commercial basis. So we don't tend to rely totally on the government apparatus. And we've been successful in doing that across end markets, including leveraging defense markets to sell back into commercial areas. So they like that. They like our stability. They like our balance sheet. We have a lot of permanence that they can rely on and trust. And then because of the fact that we've stayed very active in places like liquid reserve and thermal batteries, that's a very narrow field and it really well positions us. The Brantronics acquisition added to that and of course what we're doing in our space business.

So if you look across what's happening in the world with the drone powering ecosystem, the Ukraine conflict showed everybody that the future of the battlefield is going to be much different. You had a very small army hold off a 3 million person army because of these cheap drones in the supply chain. And so that has woken up all of the governments around the world. And I think that extends into the second part of your question. Some of our most compelling growth in A&D this year has come from our European business. We've had segments of our allied countries in Europe, NATO allies, outpace for the first time in our evolution our America's business. And it just speaks to our reach and what we're able to do. So we're actually expanding capabilities in places like northern France in our Ross facility to support what Prentronics is doing there, for example, with the French government and the French Ministry of Defense. So we see a lot of runway internationally with the Not just the U.S., but with allied countries as well.

Management: Yeah, just to give some data behind Shawn's answer, our growth rate in Europe in 26 versus 25 was 2x. It's probably going to be pretty close. We mentioned our six plants in the U.S. in our prepared remarks, but as Shawn mentioned, we also produce A&D batteries for our allied nations in both the U.K. and in France as well. and, you know, there's opportunities around the world.

Analyst: Greg Lewis (BTIG): Okay, great. And then realizing, you know, I guess I have a question around data center, but I guess a little different. You know, as the architecture evolves, you know, I guess they've started rolling out or converting some data centers to 800 volt and as that changes, I guess the legacy way a UPS system was kind of I guess it was big and now they're going to be I guess more smaller focused on rack does that how does that change or I should say does that change the revenue opportunity however you guys per megawatt or per location Is that an opportunity to actually drive more revenue out of a data center as this switch happens for kind of the same product?

Management: Unequivocally, you know, just one point of clarification. We are seeing a lot of movement towards very large systems, centralized systems, and it's just without getting too technical on this call, maybe we do a tech talk later or something, but it depends on what type of data center it is whether it's you know large language training model whether it's inference whether it's storage so it depends on what they're trying to achieve will influence the architecture as I've said before 800 volts we love that because for us it doesn't change much it may give us the opportunity in a centralized system to just sell more cells as we put more cells in parallel we have a long history in managing these voltage ranges and so we're quite used to that. And then to your point about distributed rack systems and what we think of, we use the term BBU business. We've historically not played there because of, it's typically been these packs that involve small cells that are put into those packs in a rack system. We see that there could be some potential future opportunity for us out of the Greenville plant when we're manufacturing our own cell to have a compelling offering in the BVU space, which gets back to my answer to your last question about the Defense Department loves us because we tend to commercialize what we co-develop or develop with them or for them. And we see data centers as a big opportunity for offtake in Greenville downstream.

Analyst: Greg Lewis (BTIG): Super helpful, thank you.

Management: Yep, good to hear your voice.

Management: There are no further questions

at this time.

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

Management: Thank you, Ben, and thank you all for joining us today. We look forward to speaking with you again soon and want you to have a great day. This concludes today's call. Thank you for attending. You may now disconnect.

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.