EnerSys (ENS) Q4 2026 Earnings Transcript

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DATE

Thursday, May 21, 2026 at 9 a.m. ET

Call participants

• President and Chief Executive Officer — Shawn O'Connell
• Executive Vice President and Chief Financial Officer — Andrea J. Funk
• Vice President, Investor Relations — Lisa Langell

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Takeaways

• Net sales -- $988 million, up 1% year over year, driven by a 4% price/mix benefit and a 3% foreign currency benefit, partially offset by a 6% organic volume decline.
• Adjusted gross margin -- 29.5%, down 170 basis points; margin compressed due to higher freight, tariff, and inflationary costs, with a net $20 million increase year over year.
• Adjusted operating earnings -- $154 million, up 1% with a 15.6% margin; excluding 45X benefits, flat year over year at a 10.9% margin.
• Adjusted EBITDA -- $173 million, up 3% ($6 million); margin up 40 basis points; excluding 45X, $126 million EBITDA, up 3% with a 12.8% margin (up 20 basis points).
• Adjusted diluted EPS -- Record $3.19 per share, up 7%; excluding 45X, record $1.96 per share, up 5%.
• Free cash flow -- $131 million in the quarter, up $26 million year over year; conversion rate 170%, and 459% excluding 45X.
• Yearly net sales -- $3.8 billion, up 4%, marking an all-time high.
• Yearly adjusted operating earnings -- $540 million, with $159 million 45X benefit; excluding 45X, $382 million (10.2% margin, a record).
• Segment results – Energy Systems -- Revenue $426 million, up 7%; adjusted operating earnings $42 million, up 23%; margin at 10%, a 130 basis point improvement, aided by record XM product sales.
• Segment results – Motive Power -- Revenue $370 million, down 6%; adjusted operating earnings $53 million, down 21%; margin at 14.2%, down 280 basis points, reflecting ongoing market softness.
• Segment results – Specialty -- Revenue $102 million, up 8%; adjusted operating earnings $9.6 million (up 20%), with a 90 basis point margin expansion to 9.4%; strong aerospace and defense performance offset lower transportation volumes.
• Book-to-bill ratio -- 1.1x, highest in nearly four years, with all business lines posting fourth-quarter orders above revenue.
• Order momentum -- Motive Power and Transportation posted sequential and year-over-year order growth; Specialty segment Transportation orders up over 30% year over year.
• Capital expenditures -- $13 million in the quarter; full year $80 million; projected $70 million for fiscal 2027 as TPPL investment cycle moderates.
• Shareholder return -- 410,000 shares repurchased in the quarter for $69 million; total $409 million returned to shareholders in the fiscal year, $876 million authorization remaining.
• Liquidity and leverage -- $440 million cash, net debt $684 million (down $100 million); leverage ratio at 1.1x EBITDA.
• Manufacturing rationalization -- Tijuana closure and Monterrey closure to yield $20 million and $19 million savings (including 45X) in fiscal 2028 and 2027, respectively.
• Q1 guidance -- Net sales expected at $915 million to $955 million; adjusted diluted EPS of $2.80 to $2.90 (including $42 million to $47 million 45X benefits); excluding 45X, $1.61 to $1.71 EPS.
• Full-year 2027 outlook -- Adjusted operating earnings growth (excluding 45X) expected to outpace revenue growth.

Risks

• Management highlighted "elevated freight and other inflationary pressures" emerging in the fourth fiscal quarter and expects these costs to persist if geopolitical conflict in the Middle East continues.
• Tariffs remain a material risk, with total tariff exposure around 22% of U.S. sourcing and an annualized estimate of $70 million premitigation.
• O'Connell acknowledged that "heightened economic uncertainty" is beginning to impact customer purchasing behavior, contributing to softer demand in certain segments.

Summary

EnerSys (NYSE:ENS) delivered record adjusted earnings per share, strong free cash flow, and all-time high annual revenue, supported by price/mix, operational discipline, and cost actions. Margin compression occurred across businesses due to higher freight-, inflation-, and tariff-related costs, but profitability and cash generation remained solid as restructuring, new product launches, and lithium/data center initiatives advanced. Order momentum improved the book-to-bill ratio to 1.1x, with Specialty and Motive Power showing early recovery signs and Energy Systems benefiting from renewed demand in telecommunications and AI-driven infrastructure. Segment-level margin improvements in Energy Systems and Specialty contrasted with margin pressure in Motive Power, while management emphasized a positive outlook for fiscal 2027, targeting earnings growth in excess of revenue, and reiterating disciplined capital allocation and return of capital to shareholders.

• Management disclosed early commissioning of lithium data center and warehouse battery solutions, with the expectation that meaningful revenue lift will not occur until fiscal 2028 due to OEM handoffs and hyperscaler validation processes.
• O'Connell explained, "we have rescoped the strategy for our lithium cell factory in Greenville, South Carolina," concentrating on U.S. aerospace and defense applications with domestic, FUC-compliant supply chains as the driving rationale.
• The company reported that order growth and increasing backlogs in munitions, soldier power, and space batteries position EnerSys to benefit from rising global defense budgets, with "In A&D, our revenue was up mid-20 percent, both year on year and sequentially with orders up sequentially about the same."
• Even with a 9% year-over-year volume decline in Motive Power, sequential orders were up 19%, supporting Funk's comment that "ending of this year, it is going to be a return to growth" for the business.
• EnerSys began receiving tariff refunds in May, which are excluded from guidance and will not be recognized in business-line results.
• Freight and tariff costs increased by $20 million year over year in the fourth quarter, but price improvements and cost management offset most of the impact, according to Funk.

Industry glossary

• 45X: IRS Advanced Manufacturing Production Credit provided for domestic manufacturing of battery components, delivering credits directly to cost of sales and cash flow.
• TPPL: Thin Plate Pure Lead battery technology used in high-rate, short-duration discharge applications, particularly suitable for data centers.
• BESS: Battery Energy Storage Systems for large industrial, warehouse, or grid-scale energy storage applications.
• XM products: EnerSys’ proprietary flagship power solutions, primarily for telecom and data center backup applications.
• COE: Center of Excellence; organizational units focused on supply chain and operational improvements.
• FUC compliant: Fully U.S.-compliant sourcing for defense/aerospace supply chains, as referenced in industrial policy and grant criteria.

Full Conference Call Transcript

Lisa Langell: Good morning, everyone. Thank you for joining us today to discuss EnerSys' fourth quarter and full fiscal year 2026 results. On the call with me are Shawn O'Connell, EnerSys' president and chief executive officer and Andrea J. Funk, EnerSys' executive vice president and chief financial officer. Last evening, we published our fourth quarter and fiscal year 2026 results and our 10 k with the SEC, which are available on our website. We also posted slides that we will be referring to during this call. The slides are available on the presentations page within the Investor Relations section of our website.

As a reminder, we will be presenting certain forward looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward looking statements for a number of reasons. These statements are made only as of today. For a list of forward looking statements and factors which could affect our future results, please refer to our recent Form 8-Ks and 10-Ks filed with the SEC. In addition, we will be presenting certain non GAAP financial metrics particularly concerning our adjusted consolidated operating earnings per performance free cash flow, adjusted diluted earnings per share and adjusted EBITDA which excludes certain items.

For an explanation of the difference between the GAAP and non GAAP financial metrics, please see our company's Form 8 k which includes our press release dated May 20, 2026. Now I will turn the call over to EnerSys CEO, Sean O'Connell.

Shawn O'Connell: Thank you, Lisa, and good morning. Please turn to slide 4. During today's call, we will review our fourth quarter and full year fiscal 2026 results, update you on our energized strategic framework and demand trends, and close with guidance for the first quarter of fiscal year 2027. Please turn to Slide 5. In the fourth quarter, we delivered our highest quarterly adjusted EPS with and without 45X, on our second highest quarterly revenue and strong free cash flow. Driven by favorable price mix, ongoing OpEx discipline, and the impact of our accelerating stock buybacks.

We ended the year with full year record sales, adjusted gross profit, adjusted operating earnings, and adjusted diluted earnings per share all before the benefit of 45X. It is notable that our ability to generate this level of earnings during the year in which demand in the electric forklift and transportation markets was down is a testament to the effectiveness of our energized strategic framework, the strength of our diversified business, and our renewed ability to perform across varied demand conditions going forward. We have structurally enhanced our business and are well positioned to deliver further value. Please turn to Slide 6. In fiscal 26, we implemented our energized strategic framework and are seeing meaningful benefits across the business.

Starting with optimizing our core, This quarter, we announced the closure of our Tijuana, Mexico facility, the shift of production to our Springfield, Missouri plant which we expect will generate approximately $20 million of incremental 45X benefits beginning in fiscal 2028. We also substantially completed our previously announced plant closure in Monterrey, Mexico in which we expect to yield approximately $19 million of savings in fiscal 2027 and have already seen early realization of related incremental 45X benefits this quarter. These 2 projects will further optimize our manufacturing footprint maximize 45X tax benefits, support the continued transition to our higher margin higher performance solutions, and mitigate future risks associated with tariffs. All while better serving our customers.

We are also invigorating our operating model to improve execution speed strengthen alignment across the organization. As an example,, our centers of excellence delivered early working capital improvements through better collaboration of our supply chain and purchasing teams contributing to our strong free cash flow. Additionally, work progressed to accelerate our growth through new product developments and deeper service and software capabilities, 2 top priorities on our road map. Our lithium data center solution and battery energy storage solutions for warehouse operators both advanced into customer commissioning this quarter. As these launches gain traction in upcoming years, we expect the driver of our earnings improvement to shift increasingly from margin expansion toward top line growth.

Over the past year, we have refined our overall go to market strategy to bring new products to market faster new customer focused projects, optimize product design, streamline supply chain, and the competitive advantage of our technology stack particularly for our lithium solutions. As part of this evolution, we have rescoped the strategy for our lithium cell factory in Greenville, South Carolina with an increased focus on applications for customers that value secure, domestic, FUC compliant, supply chains particularly within aerospace and defense markets.

The growing need for electrification across defense platforms, drones, counter drone systems, and soldier power applications continues to reinforce the strategic importance of trusted US based battery manufacturing cap We have made meaningful progress in discussions with the Department of Energy regarding our revised plan. and are now in the final stages of the grant process. Our updated approach leverages more established and commercially proven cell technology, which we believe significantly derisks the program reduces complexity, enables a faster path to production. While we cannot disclose additional details on the planned facility until the award process is complete, we are currently expecting a more focused manufacturing footprint aligned with our competitive advantages and our customer value proposition.

As such, we believe that the extra time will ultimately work to our shareholders' advantage. Please turn to slide 7. While the macro environment remains dynamic, we have taken actions needed to manage related exposures. Over the past year, our tariff task force has worked across the business, to diversify supply chains, increase sourcing flexibility, and prioritize manufacturing in region for region. Our total tariff exposure remains stable at around 22% of US sourcing and an annualized estimate of $70 million before mitigations. As we believe additional Section 22 tariffs announced in February will have an impact roughly equal to the reversed IEPA tariffs.

We have filed for reimbursement on all IEPA tariffs we are currently able to and began receiving funds for this month. Those refunds are not included in our guidance and will not be presented in the lines of business earnings. We are beginning to see both direct and indirect impacts from the conflict in the Middle East, consistent with what others across our markets are experiencing. Although we do not have operations in that region, we saw some direct impact in the form of elevated freight and other inflationary pressures emerge in the fourth fiscal quarter and would expect to continue as long as the conflict persists.

While we are confident in our ability to mitigate those higher costs, there may be some temporary pressure until costs are recovered. The more significant risk remains the effect of heightened economic uncertainty on customer buying patterns of which we experienced a bit this quarter. Across both trade policy and geopolitical disruption, our focus remains the same: actively manage what we can control, mitigate both direct and indirect costs, and preserve the flexibility to respond as conditions evolve. Please turn to slide 8. All of our end markets are showing encouraging signs yet conditions remain dynamic. We are seeing strong underlying momentum in data centers, communications, and defense applications, while navigating softer but improving forklift and transportation markets.

While volumes are down overall after the strong prior year comp, Q4 posted our highest book-to-bill in nearly 4 years at 1.1x, with all lines of business Q4 orders outpacing revenue. The early signs of improving trends we mentioned in our previous earnings call for Motive Power and Transportation have continued. With Q4 representing a sequential and year over year improvement in orders for both businesses. The geopolitical factors that could impact customer purchasing behavior remain. But deferred investment in aging fleets and battery replacements is not sustainable. Thus the strength in order activity we are beginning to see.

We are cautiously anticipating orders to continue to trend positively, gradually increasing through our fiscal 27 with a return to growth expected in both markets as the year progresses led by Motive Power. In communications, we saw strong orders and record shipments for our broadband power supplies driven by continued DOCSIS 4.0 build out as the need for additional power is driving network refreshes. We anticipate these encouraging demand trends to persist as customers modernize network infrastructure replace aging equipment, and invest in more reliable backup power and resiliency capabilities to support growing data traffic and connectivity needs. In data centers, we continue to see healthy demand as customers invest in AI infrastructure and data center expansion.

Todd's data centers have an increasing need for higher energy density and faster demand response. Our TPPL technology is more suited to these high rate short duration discharges that can exceed the capabilities of traditional lead acid designs. While a majority of greenfield data centers are adopting lithium, robust demand remains for lead acid solutions where we have a leading market position as evidenced by our high teens fiscal 26 year on year growth. Our new data center lithium battery will enable us to capture incremental and accelerating share of wallet while delivering solutions to our customers that best fit their needs regardless of technology.

Within aerospace and defense, we saw particular order growth in munitions and space this quarter and we continue to see robust underlying demand with increasing global defense budgets. And a compelling long term trajectory. We enter fiscal 2027 cautiously optimistic around the broader demand environment while continuing to focus on areas within our control including executing with ongoing operational rigor driving manufacturing and supply chain efficiencies, and accelerating our targeted high value new product launch initiatives. Reflecting on my first year as CEO, I am proud of our accomplishments.

Our enhanced focus on our core end markets, where our deep customer relationships and leading market share positions afford us the right to win provides clarity on the targeted growth opportunities where we are doubling down to expand our share of wallet. EnerSys is ideally positioned to address global secular trends including limited availability, increasing costs, of both energy and labor, AI acceleration, and increasing defense spending all of which require reliable integrated stored energy solutions. During our Investor Day on June 11th, we look forward to sharing an update on our strategic priorities, our technology road map, and how our focus team is accelerating our profitable growth opportunities.

I want to thank the entire EnerSys team for the dedication, and execution they bring every day in delivering the solutions and performance our customers depend on. Now I will turn it over to Andy to discuss our financial results and outlook in greater detail. Andy?

Andrea J. Funk: Thanks, Sean. Please turn to slide 10. Net sales came in at $988 million, up 1% from prior year, driven by a 4% benefit from price/mix, a 3% benefit from foreign currency translation, partially offset by a 6% decrease in organic volume. As a reminder, our prior year Q4 was positively impacted by some customer pulling in volume in advance of an announced tariff. In Q4 26, all lines of businesses saw sequential volume improvement with total company volumes up 7% quarter over quarter. We achieved adjusted gross profit of $292 million, down $12 million or 4% versus the particularly strong prior year period as higher freight, tariffs and inflationary costs weighed on performance.

Q4 26 adjusted gross margin of 29.5% was down 170 basis points with 45x and 190 basis points without 45X versus a very strong prior year comp. Gross margin in the quarter was in line with recent historical averages despite the margin dilution of the pass through of tariffs and higher freight costs, were a net $20 million year on year net of us having produced more products in region for region. OpEx in the quarter improved as a result of our cost reduction initiatives, with a net $14 million year over year. Our adjusted operating earnings were $154 million in the quarter, up 1% versus the prior year with an adjusted operating margin of 15.6%.

Excluding 45X benefits, adjusted operating earnings were roughly flat versus prior year with an adjusted operating margin of 10.9%. Adjusted EBITDA was $173 million, an increase of $6 million or 3% versus prior year, with adjusted EBITDA margin up 40 basis points. Excluding 45x, adjusted EBITDA was $126 million, up $3 million or 3% year on year with an adjusted EBITDA margin of 12.8% up 20 basis points from the prior year. Adjusted diluted EPS was a record of $3.19 per share, a 7% increase over the prior year, which had been our previous record earnings. Excluding 45X, adjusted EPS was $1.96 also a record, up 5% versus prior year.

Our Q4 2026 effective tax rate was 22% on an as reported basis, higher than prior periods on a 1-time impact from restructuring and tax law changes and 20.4% on an as adjusted basis before the benefit of 45X compared to 18.9% in Q4 2025 and 22.4% in the prior quarter on geographical mix of earnings, which can vary quarter to quarter. We expect our full year tax rate on an as adjusted basis before the benefit of 45X for fiscal year 2027 to be in the range of 21.5% to 23.5%. Full year net sales of $3.8 billion, an all time high, were up 4% year over year.

We generated adjusted operating earnings of $540 million, including $159 million benefit from the IRC 45X tax credit. Excluding the 45X benefit, we generated record adjusted operating profit of $382 million and realized our highest full year adjusted operating margin at 10.2%. Adjusted diluted EPS was $10.56 per share, an increase of 4%, and adjusted diluted EPS before 45X benefits was a record $6.41 per share an increase of $0.82 versus prior year. Let me now provide details by segment. Please turn to Slide 11. In the fourth quarter, Energy Systems revenue increased 7% from the prior year to $426 million, driven by strong price/mix, a positive FX impact and volume growth in Power Electronics.

Adjusted operating earnings increased 23% from prior year to $42 million, primarily reflecting the benefits of favorable price mix from a richer mix of products and OpEx savings from our restructuring efforts. Adjusted operating margin of 10% increased 130 basis points versus prior year, bolstered by record sales of our flagship XM products which we expect to continue although perhaps not at the elevated levels we saw in Q4. Longer term, we anticipate continued data center growth and ongoing network investments to support incremental data traffic stemming from AI, both of which we are well positioned to benefit from. Although the project nature of this business can cause fluctuations quarter to quarter.

Motive power revenue decreased 6% from the prior year to $370 million, with lower volumes from ongoing market softness partially offset by FX tailwinds and favorable price mix. Motive Power adjusted operating earnings were $53 million, down 21% from the prior year, resulting in adjusted operating margins of 14.2% or a 280 basis point decline versus prior year. OpEx savings and improvements in price mix were offset by lost leverage on lower volume and higher freight and tariff costs. Maintenance free product sales were 30.4% of Motive Power revenue mix compared to 29.3% in Q4 fiscal 25. Longer term, Motive Power remains well positioned for growth supported by electrification, automation, and strong demand for our maintenance free and charger solutions.

Specialty revenue increased 8% from the prior year to $102 million, driven by favorable price/mix, particularly in A&D, early contributions from the REBEL acquisition, FX tailwinds partially offset by lower transportation volumes. Specialty adjusted operating earnings were $9.6 million, up 20% versus the prior year, driven by continued strong performance in our A&D business. Adjusted operating margin of 9.4% increased 90 basis points year over year while being impacted by lower transportation volumes. Indicative of the market dynamics we previously discussed. While transportation sales were down high single digits, orders were up over 30% year-on-year, providing indications of an early but bumpy start to the recovery in demand.

We continue to have confidence in reaching sustained mid to high teens margin performance within this segment, although the progression may not always be linear due to timing of recovery and transportation and the project nature of A&D. Please turn to slide 12. Operating cash flow of $144 million, offset by CapEx of $13 million, resulted in strong free cash flow of $131 million in the quarter, an increase of $26 million versus the prior year same period. Free cash flow conversion in the quarter was 170%. Excluding the benefit of 45X to earnings and cash, free cash flow conversion was 459%.

For the full year, free cash flow was $468 million, with conversion of 159%, excluding 45X, free cash flow was also impressive at 236%. Our Q4 and full year cash flow conversions were elevated in part by accrued expenses recognized in our GAAP earnings related to the cost optimization initiatives we undertook this year. Primary operating capital decreased to $877 million versus $932 million in the prior year on improved receivable collections and inventory efficiency, measured internally by POC as a percentage of annualized sales, improving 170 basis points versus prior year after absorbing the impact of tariffs and tariff pass through in both our inventory and accounts receivable balances.

As we continue to invigorate our operating model, our COEs are focused on further enhancing working capital discipline which we expect will unlock additional value for our shareholders over time. As of March 31, 2026, we had $440 million of cash and cash equivalents on hand Net debt of $684 million represents a decrease of $100 million since the end of fiscal 25. Our leverage ratio of 1.1x EBITDA remains well below our target range of 2 to 3x. Please turn to Slide 13.

Capital expenditures were $13 million in the quarter, ending fiscal year 26 with $80 million in spend and an expectation of about $70 million in fiscal year 2027 as we have completed our heavier investments in TPPL capacity flexibility we continue to selectively focus on the highest return, highest impact investments. During the fourth quarter, we purchased 410 thousand shares for $69 million at an average price of approximately $171 per share. We also paid $9.6 million in dividends. We have $876 million in our buyback authorization as of May 20th.

We continue to be judicious in our share buyback activity, Our buybacks in addition to the dividend underscore our long standing commitment to returning value to our shareholders with a total of $409 million returned during the year, Please turn to Slide 14. As we look ahead to fiscal year 27, we are encouraged by the strength we are seeing in data centers, communications, and aerospace and defense We maintain cautious optimism on forklifts in class 8 as we have started to see encouraging demand conditions and anticipate seeing volume recovery improving through the year.

Our Q1 outlook reflects typical seasonality with strength in price mix and continued benefits from our energized strategic framework but also lingering market hesitation in forklifts and transportation in response to the macro environment. For the first quarter of fiscal 2027, we expect net sales in the range of $915 million to $955 million, with adjusted diluted EPS of $2.80 to $2.90 per share which includes $42 million to $47 million of 45X benefits to cost of sales.

Excluding 45X, we expect adjusted diluted EPS of $1.61 to $1.71 per share For the full year, we continue to expect adjusted operating earnings growth excluding 45X benefits to outpace revenue growth supported by ongoing OpEx discipline, sustained price mix strength and strong or improving markets across our businesses. We remain focused on strength in execution, operational rigor, driving long term shareholder value. While the broader macro environment continues to present some variability in certain end markets, we are encouraged by the momentum we are seeing across the entire company.

We believe the actions we have taken to simplify the organization improve manufacturing and supply chain efficiency, and prioritize high return growth initiatives have positioned the company well for the future. Supported by our strong balance sheet, healthy cash flow generation and disciplined capital allocation, we remain confident in our strategy and our ability to capitalize on long term opportunities and deliver incremental shareholder value. We look forward to sharing more with you at our upcoming Investor Day. 3 weeks from today at the New York Stock Exchange. With this, let's open it up for questions. Operator?

Operator: Will now begin the question and answer session. If you would like to ask a question at this time, And again, please limit to 1 question and 1 follow-up. And our first question comes from the line of Noah Kaye with Oppenheimer. Noah, please go ahead.

Analyst (Noah Kaye): Hey, good morning. Thanks for taking the questions. Morning. I was looking back at last year's Q4 presentation, sticking through the comps, and I then took a little time to read the strategic priorities that you laid out at the time. And so I will just start off by saying nice job in the first year, folks. Just want to acknowledge that.

Shawn O'Connell: Thank you so much.

Andrea J. Funk: Thank you.

Analyst (Noah Kaye): A question on energy systems. So I think the point that you called out about the tough prior year comp on volumes, you know, 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 how are you thinking about kind of the profile of growth as we as we move into fiscal 2027?

Andrea J. Funk: Yes. Noah, I will be happy to take that. Thanks. Yeah. I think the thing that is important to keep in mind with energy systems is very much a project business. So while we look at our growth and there is a lot of opportunities to continue to grow, it is 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, you know, for the full year, we are up, you know, really high single digits.

But it was just a tough comp on the data center piece that scrubbed down even though we know on an ongoing basis. I think we shared we have got 36% higher orders year on year. So the momentum is certainly strong. I think it is 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. Yep. Noah.

Shawn O'Connell: For me, I, you know, I would only add to that. While, you know, step back in volume is never something to celebrate for sure, Where I give my team internally a lot of credit, I have been in the EnerSys universe since 2003. So prior to the IPO, And I could not 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, you know, recessionary position. And we could not 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, you know, taking a step back. So but, to your point, every bit of our focus is on growth, and we have a we believe we have a lot of really good sales in the way and to generate that.

Analyst (Noah Kaye): Okay. Thanks. And then, you know, Sean, I am sure this is going to be a big focus at Investor Day. But, you know, I noticed in both the press release and your prepared remarks, the phrase commissioning referring to both the data center UPS product and warehouse BESS. So just to kind of put a little bit finer 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 would just love to kind of understand what exactly, has been going on.

Shawn O'Connell: Yeah. that is a great question. And you know, you are 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, it did not exist a year ago. We said, listen. We are not going to do something like an engineering launch or a soft launch. You know, we have set our team, they do not get any credit unless they are shipping a product to a customer. So that is exactly what we have done. So in this case, you could see it both ways, validation and commissioning.

They are using that battery But we have a lot of work to do. And the reason we have tempered you know, that you will not see revenue lift until fiscal-- meaningful revenue lift until fiscal 2028. Yeah. We have the OEM handoffs to get done, the communication So it is not just 1 OEM's UPS. it is the you know, there is all the large primary providers you know, the names you would know. Need to make sure that they feel comfortable with the communication there. That and then on top of that, you know, you have the large hyperscalers have their own validation process for the product.

So there is a lot of work to do once you have shipped the product. So, that should help kind of offer a little clarity there. But we are it is not a-- it is not an A-sample or a B-sample. We have shipped a finished product to the customer. that is super helpful. I will turn it over.

Andrea J. Funk: Thanks, Noah.

Operator: And your next question comes from the line of Craig Lewis with BTIG. Craig, please go ahead.

Analyst: Yes. 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. You know, I guess a couple questions. You know, as we think about the fourth quarter, I am 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, you know, at least in other suppliers to this megatrend.

You know, some of the things we have been hearing is, you know, some of the gating factors around, the ability to sell product is the supply chain. So I would just be curious how you are thinking about positioning the supply chain, and kind of how that is been playing out just given the, you know, exponential growth we are seeing in this opportunity.

Shawn O'Connell: Yeah. Hi, I will start, and I will turn it over to Andy for growth rates, Greg. Thank you for joining us. We 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 are sort of knocking on the bottom edge of a lithium like experience without any of the inherent risks of lithium. And, what is something that standard lead calcium cannot do or the old lead technology cannot do, is answer these high demand rates. So sub-5-minute rates, in some cases sub-1-minute rates because they do not have the surface area reactivity-- not to get too technical.

So, anyway, we have we have built in that capacity. And, you know, we may have had other reasons for building in that capacity in past times, but it lends itself perfectly to this product. And that is an area of very high growth we are seeing before we even talk about launching our lithium battery. So we feel very good about that supply chain. We also you know, 1 of the things that we have 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 supply base, what we are finding is that you know, some of these items like lithium batteries and the-- and the cells are placed of origin, the very long supply chains. it is compounded by folks that do not-- that are not putting that sort of investment together to make sure that they are getting more to these shores and are able to react to customer issues, spending a lot of time making sure that is in place it is on our strategic road map, and, we feel very good at the moment about, with the-- 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.

Andrea J. Funk: Thanks. And, Greg, I will just continue a little bit with that as well with actually we hear is 1 of the biggest gating factors to the new DCs is power availability, which I think what is exciting about that is that it just adds to and strengthens the value proposition we have with our BESS that we are planning on launching, and just the importance of energy storage overall as the world is facing. These power shortages. That said, in data centers, it is as I mentioned, we were up, high teens, mid to 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 is a little bit of choppiness because of the project nature. As you know, we are 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 double digit growth opportunities. But then as our lithium offering that Sean just described begins to add, none of that is cannibalistic. that is just additional share of wallet in a fast growing market. So we are very excited about the opportunities going forward.

Analyst: Okay. Super helpful. And then realizing that you called out some of the headwinds in motive power and on the transport, and the forklift side. That being said, you know, book to bill went back over 1.0. Orders were up. So just kind of curious, is that kind of the early signs that things are getting better, or is maybe part of that spike in orders in the book to bill? Is some of that just seasonality as we start the year?

Shawn O'Connell: Well, I think we are seeing a lot of green shoots We are seeing a lot of positive activity. What we do not know, and we are why we say we are cautiously optimistic we do not have any operations in places like the Middle East that we are worried about, you know, a direct threat to revenue there. But, you know, these businesses, motive power and transportation that have-- tend to correlate not perfectly, but tend to correlate with GDP. You know, we do not know what these things do long term to GDP energy prices, that sort of thing. So we are we are, you know, all of our demand signals look good.

If you have 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 are 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 they delayed purchases to kind of let this situation in time work itself out. So we have seen pent up demand. We know that is 1 of those things that cannot be delayed forever, those purchases. So we are, again, cautiously optimistic, but we do see improving trends throughout the year.

Andrea J. Funk: Yeah. And, Greg, I can just give you a little bit of data to back that. You know, while down 5% sequentially, down 9% year-on-year, as a frustration, our orders were up sequentially 19%. Motive power is just not a segment I worry about. I think there is a little bit of reaction to the macro going on, but looking forward, there is-- 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 are more and more convinced there is just a compelling opportunity there. there is going to be a lot of opportunity there, which will also spur some incremental 45X as well. And this year, we will begin to benefit from the Monterrey closure. Should impact again both 45X as well as some savings within that segment. Okay. Great. Super helpful. Thank you very much.

Operator: Thanks. And our next question comes from the line of Brian Drab with William Blair and Company. Brian, please go ahead.

Analyst (Brian Drab): Thanks for taking my question. Andy, first, I think you just said that first quarter for Motive could look a lot like the fourth quarter. Is that right?

Shawn O'Connell: And do you mean Yeah. So would we then expect volume to be up in the first quarter for Motive?

Andrea J. Funk: We do not-- I do not, Brian, if you know, we do not we do not give that specific of guides. But, you know, I think generally speaking, it is-- you know, it is just encouraging. We are we are beginning to see the early signs of this recovery. Whether it happens kind of late Q1, early Q2, it is a little hard to tell, but you know, you can see we have got strength in the order growth. And you know, I am optimistic. It just cannot be that disconnected from GDP. And I think there is a pent up demand that we are going to start to unwind as well.

Shawn O'Connell: Yeah.

Analyst (Brian Drab): Okay. Yes. it is challenging to model because I am looking back at the industry orders. I mean Yeah. We talked about industry orders in December quarter being up 40%. And then for forklifts, and then the volume was your business was down 10% in the fourth quarter. So it is just everyone's trying to figure out, you know, does this business get back to growth in terms of volume? In the next fiscal year?

Andrea J. Funk: For and I and I would say, I think we called that out as well. We do see that the ending of this year, it is going to be a return to growth. I am confident in that.

Shawn O'Connell: It is true. A lot of the normal indicators that we look at are a little bit out of balance. there is choppiness in it. 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 is some pent up demand being created. Okay.

Analyst (Brian Drab): Thanks. And then maybe just 1 more follow-up for now. Can you just go through the current situation with the lithium initiatives and lithium product rollout. You are 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, source of demand for those cells. So I guess I am 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?

Shawn O'Connell: Yeah. So good morning, Brian. it is 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 9 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 is no 1 perfect chemistry even within lithium for every application. And we have EnerSys for the are 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 system is providing is the point. We it becomes even more muted the you know, the whether the cell origin center system or outside. That will be a make versus buy. So in some of these commercial applications, where we are using these cells that are ubiquitous or readily available in the world. They still have long supply chains. Where they are originating in places like China. And, you know, for the foreseeable future, that will 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% of 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. If the cell is finished in China. it is, it is it is just a fact in the world that we are going to navigate until we can-- until we can get that migrated over. Greenville plant is for aerospace and defense. And we have a customer there that is willing to pay for value that is willing to pay to guarantee supply domestic supply.

And, it will not be subject to something like EV, cell battery pricing in the world. So we have a-- we have a much better derisked position there. Those cells will be purpose built for those applications, and so it will make a lot of sense there. There is downstream potential You know, there are areas of the market that we do not yet play in data center. That those cells could have an application for. But for now, we are going to continue to buy those cells and incorporate, for data center and BESS, incorporate it into our end systems. And until there is a point that it does not make sense to do that. Okay.

Great. that is really helpful. Thanks, Sean.

Andrea J. Funk: Thanks, Andy.

Shawn O'Connell: You are welcome. Thanks, Greg.

Operator: And our next question comes from the line of Chip Moore with Roth Capital. Chip? Please go ahead.

Analyst (Chip Moore): Hey, good morning, everybody. Thanks for taking the question.

Shawn O'Connell: Hi, Jessica.

Andrea J. Funk: Hey.

Analyst (Chip Moore): I wanted to ask, you know, maybe follow-up there. Around aerospace and defense. I think you called out some pretty strong demand, and I think it was munitions and space, but just any more color around you know, what you are seeing there and forward trends, moving through the year.

Shawn O'Connell: Yeah. So I will start, Chip, and then I will turn it over to Andy for what we are dimensioning. But our backlog continues to grow in areas like munitions. And, you know, you only you only have to, you know, open Wall Street Journal and see what is going on in the world and what position, you know, the department is with the expanded munitions and some of some of these programs. And we are there is only a couple of people in the world that make those batteries. So and we have this advanced technology in our lithium silicon cobalt bisulfide which is the highest energy you can get.

And, you know, real estate is at a real premium, on a defensive standoff weapon, so they need higher power in the same space and we could give it to them. So we are seeing robust demand there. We are seeing robust demand in soldier power. We continue to see, you know, Brentronics are in process and do a great job. The Rebel acquisition that we made, you know, the hybridized power systems. The future of the battlefield is electric 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 are seeing excellent demand signals there. We are seeing excellent demand signals in our space battery business, where we have 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 have done is we have come up with the answer to DOD's desire to have commercially-run 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 are benefiting from that now. So, really, across the board.

And then 1 of the things that has surprised us, we are seeing, equal demand in the European theater to some of the demand signals in the in The United States. that is never happened as long as I have 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 the space. Yeah.

Andrea J. Funk: I could just add a little bit of color to that too. In A&D, our revenue was up mid-20 percent, both year on year and sequentially with orders up sequentially about the same. Yeah, a project nature of this business can cause some fluctuations. that is important to know, both volume and mix. But the orders are really strong, as Sean mentioned, particularly munitions and space with their book to bill at 1.22x. And while munitions backlogs are increasing, we are going to really start seeing that translation to revenue and liquid revenues throughout fiscal 2027. 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 are really uniquely positioned So this is just an extremely exciting business to be in right now. Other thing I would mention is the acquisitions are just going phenomenal. We are seeing some lift as well looking at synergies, particularly in EMEA, of these 2 businesses together as well as in the US. So good things ahead of us.

Analyst (Chip Moore): that is great. Super helpful. 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 seeing some impacts there, obviously, just talk about lags and sort of offsets with mix and some of the productivity benefits that are rolling through. Thanks.

Andrea J. Funk: Sure, Chip. And I assume you are talking about you know, overall. 1 thing I could not be more proud of, 1 of the first things Sean did when he took over as CEO is put together this dedicated tariff task force. You know, we are all over this. So we were early starters for filing for the refund because we got all the data. We got the playbook. This team then quickly was put on to the conflict that we have in the Middle East trying to understand the impact, anticipate it, make sure we are doing the right mitigating activities.

If you look at our Q4 year on year tariff and freight, up about $20 million that is a pretty big number to absorb, confident that we were fully able to offset the pricing. When inflation first kicks in, it might take sometimes it takes a quarter till you get normalized with the price pass through, but you know, because you get the inventory flowing off and you got orders already on your books. But, we are done a tremendous job managing it. We see probably this quarter, and we look to say how has this macro impacted us.

My guess is it is not been overly material, but if this conflict had not happened, our results probably would have been a little bit better. We have got maybe a couple million dollars of some higher cost directly related to the conflict that we saw And again, we are we are on top of it, so I feel good about the outlook going forward.

Analyst (Chip Moore): Excellent. Very much.

Operator: 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?

Shawn O'Connell: Thank you. I would like to thank everybody for joining us today. and participating in our results. it is our pleasure speaking with you, and we look forward to talking with you soon. Thank you.

Operator: This concludes today's call. You may now disconnect.

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