Q4 2024 EnerSys Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the fourth quarter 2024 EnerSys earnings conference call.
Okay.
Speaker Change: Good day, and thank you for standing by walking through the fourth quarter 2020 for Enersys earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session I need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You'll then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Hartman. Please go ahead.
Speaker Change: Please be advised today's conference is being recorded I would now like to turn the conference over to speak to date Lisa Hartman. Please go ahead.
Lisa Hartman: Good morning, everyone. Thank you for joining us today to discuss EnerSys' fourth quarter and full year fiscal 2024 results. On the call with me today are David Shaffer, EnerSys President and Chief Executive Officer, and Andrea Funk, EnerSys Executive Vice President and Chief Financial Officer. Last evening, we published our fourth quarter and fiscal year 2024 results and filed 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.
Speaker Change: Yeah.
Speaker Change: Good morning, everyone and thank you for joining us today to discuss <unk> fourth quarter and full year fiscal 2024 results.
Speaker Change: On the call with me today are David Shaffer, Enersys, President and Chief Executive Officer, and Andrea Funk, Enersys Executive Vice President and Chief Financial Officer last evening, we published our fourth quarter and fiscal year 2024 results and filed our 10-K with the SEC, which are available on our website. We also posted.
Andrea J. Funk: Slides that we will be referring during this call. The slides are available on the presentation page within the Investor Relations section of our website.
Lisa Hartman: The slides are available on the presentations page within the investor relations section of our website. As a reminder, we will be making 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 because these statements are made only as of today. For a list of forward-looking statements and factors that could affect our future results, please refer to our current 10-K filed with the SEC.
Andrea J. Funk: A reminder, we will be presenting forward looking statements on this call and.
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 current 10-K filed with the SEC.
Lisa Hartman: In addition, we will be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance, free cash flow, adjusted diluted earnings per share, and adjusted EBITDA, which excludes certain items. For an explanation of the differences between the GAAP and non-GAAP financial metrics, please see our company's Form 8-K, which includes our press release dated May 22, 2024. Now, I'll turn the call over to EnerSys President and CEO, Dave Schaefer.
Andrea J. Funk: And we will be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance free cash flow adjusted diluted earnings per share and adjusted EBITDA, which excludes certain items for an explanation of the differences between the GAAP and non-GAAP financial measures.
Speaker Change: Please see our company's form 8-K, which includes our press release dated May 22020 for now I'll turn the call over to Andrew Smith, President and CEO, Dave Schaeffer.
David M. Shaffer: Thank you, Lisa, and good morning. Please turn to slide four. EnerSys delivered a strong finish to the fiscal year with our balanced business portfolio generating solid results in the fourth quarter. Adjusted earnings per share for the quarter of $2.08 was at the high end of our guidance range, and revenue of $911 million was in line with our expectations, with the diversification of our end markets helping to offset some of the continued softness in telecom broadband spending.
Speaker Change: Thank you Lisa and good morning.
Speaker Change: Please turn to slide four.
Speaker Change: And our CIS delivered a strong finish to the fiscal year with our balanced business portfolio generating solid results in the fourth quarter adjusted earnings per share for the quarter of $2 eight.
David M. Shaffer: It was at the high end of our guidance range and revenue of $911 million was in line with our expectations with the diversification of our end markets, helping to offset some of the continued softness in telco broadband spending with.
David M. Shaffer: We generated adjusted gross margin improvement and adjusted operating earnings growth versus the prior fourth quarter by maintaining pricing on top of increased IRA benefits. Fiscal year 2024 marked a year of several exciting developments toward our long-term strategic goals as we took decisive actions to successfully navigate through a challenging environment. For the full year, revenue was $3.6 billion, down 3% year-over-year, but our adjusted gross margin, adjusted operating earnings, and adjusted earnings per share increased even before the impact of expanded IRA benefits.
David M. Shaffer: We generated adjusted gross margin improvement and adjusted operating earnings growth versus the prior year fourth quarter by maintaining pricing on top of increased IRA benefits.
Speaker Change: Fiscal year 2024 marked a year of several exciting developments towards our long term strategic goals as we took decisive actions to successfully navigate through a challenging environment.
Speaker Change: For the full year revenue was $3 6 billion down 3% year over year, but our adjusted gross margin adjusted operating earnings and adjusted earnings per share increased even before the impact of expanded I already benefits. We remain focused on what we can control driving price mix improvements.
David M. Shaffer: We remain focused on what we can control, driving price mix improvements, optimizing our cost structure to flex through cycles, and improving productivity through automation and flexibility while delivering new high-tech solutions for our customers. We are seeing healthy demand in our end markets, with the exception of communications networks. Although we have not seen telco broadband capex spending fully return, we have seen some encouraging signals in overall company order rates, which were up 4% year-over-year, and total book-to-bill above 1.
Speaker Change: <unk>, our cost structure to flex through cycles, and improving productivity through automation and flexibility, while delivering new high tech solutions for our customers.
Speaker Change: We are seeing healthy demand in our end markets with the exception of communications networks, Although we have not seen telco broadband capex spending fully return we have seen some encouraging signals and overall company order rates, which were up 4% year over year with total book to Bill above one.
David M. Shaffer: Andy will give details on our fourth quarter fiscal 24 performance and outlook, but I will first provide a few more highlights and business drivers behind the results. In Energy Systems, adjusted operating earnings improved sequentially as a result of us delivering our cost improvement actions faster than anticipated. We're actively adjusting our cost structure to be more resilient to cyclicality by making changes that will improve the overall margin profile of this business in both down and up cycles, leveraging our market position and proprietary customer solutions.
Speaker Change: Andy will give details on our fourth quarter fiscal 'twenty four performance and outlook, but I will first provide a few more highlights and business drivers behind the results.
Andy: In energy systems, adjusted operating earnings improved sequentially as a result of us delivering our cost improvement actions faster than anticipated.
Andy: Actively adjusting our cost structure to be more resilient to cyclicality by making changes that will improve the overall margin profile of this business in both down and up cycles, leveraging our market position and proprietary customer solutions. There are plenty of reasons to be excited about our energy systems business, we're focused on.
David M. Shaffer: There are plenty of reasons to be excited about our Energy Systems business. We're focused on meeting the increased needs of our data center customers, now 10% of our total revenue, with global demand accelerating. Industry research shows that AI-fueled data center growth will see hyperscale capacity double every four years.
Andy: The increased needs of our data center customers now 10% of our total revenue with global demand accelerating industry research shows that AI fueled datacenter growth, we'll see hyperscale capacity doubling every four years enersys batteries, including our proprietary thin plate pure lead technology are a recognize.
David M. Shaffer: EnerSys' batteries, including our proprietary thin-plate PureLED technology, are a recognized leader in uninterruptible power systems, or UPS. These are the very heart of the data center, where we enjoy a large share in some of the largest data center markets. Looking at the rising demand for the electrical grid, industry analysis shows that in the U.S. alone, there will be a need for some $2 trillion of investments to meet the growth of data centers, renewables, and vehicle electrification.
Andy: As leader in Uninterruptible power systems or UBS.
Andy: The very heart of the data center, where we enjoy a large share in seven of the largest data center markets looking at the rising demand on the electrical grid industry analysis shows that in the U S alone.
<unk> needs to be some two trillion dollars of investments to meet the growth of data centers renewables and vehicle electrification.
David M. Shaffer: EnerSys has a commanding market share in battery backup at all stages of electrical power generation and distribution, and we stand to benefit from our solid and common presence in these infrastructure investments. Realizing this AI-based data growth, we know that consumers will demand ubiquitous access, and as such, the last mile of consumer access will, in many cases, be delivered by communication service providers.
Andy: <unk> has a commanding market share in battery backup in all stages of electrical power generation and distribution and we stand to benefit from our solid and common presence in these infrastructure investments.
Andy: Realizing this AI based data growth, we know that consumers will demand ubiquitous access and as such the last miles consumer access what many cases be delivered by communication service providers for fiber to coax comparable wireless Enersys has solutions to assist our customers empowering this.
David M. Shaffer: From fiber to coax, copper to wireless, EnerSys has solutions to assist our customers in powering this next generation of content delivery. As an example, we see increasing interest in our DPX small cell densification platform for its ability to allow for multiple nodes to be delivered with a single utility feed over standard existing twisted pair telephone lines. Indeed, we are quite optimistic about our future ability to deliver increasing shareholder value through growth in our energy systems business.
Andy: Generation of content delivery as an example, we see increasing interest in our <unk> small cell densification platform for its ability to allow for multiple nodes to be delivered with a single utility feet over standard existing twisted pair telephone lines.
Andy: We are quite optimistic about our future ability to deliver increasing shareholder value through growth in our energy systems business.
David M. Shaffer: In motive power, revenue came in above our plan as we continue to realize robust maintenance-free conversions. Our maintenance-free solutions achieved another record quarter at 25% of total motive power sales in Q4, and a record 22% for the full year. The broader market demand remains healthy, with WITS shipments data showing positive trends across all three regions. Order rates have also returned to or surpassed pre-pandemic growth CAGR rates. Europe, in particular, has experienced a strong post-pandemic recovery in orders, while the North American market is still dealing with a larger-than-normal backlog of truck orders and longer lead times for some of the popular models.
Andy: In motive power revenue came in above our plan as we continue to realize robust maintenance free conversions are maintenance free solutions achieved another record quarter at 25% of total motive power sales in Q4, and a record 22% for the full year the broader market demand remains healthy with words.
Andy: Once data is showing positive trends across all three regions order rates have also returned to or surpassed pre pandemic growth CAGR rates Europe. In particular has experienced a strong post pandemic recovery in orders, while the North American market is still dealing with a larger than normal backlog of truck.
Andy: Orders and longer lead times for some of the popular models, although supply chain constraints are improving they continued to affect some material handling Oems. Despite these challenges the industry remains optimistic about strong shipment performance throughout 2024 and beyond Consequently, we anticipate some.
David M. Shaffer: Although supply chain constraints are improving, they continue to affect some material handling OEMs. Despite these challenges, the industry remains optimistic about strong shipment performance throughout 2024 and beyond. Consequently, we anticipate some fluctuations in order trends but see increased demand as we move into the new fiscal year.
Andy: Fluctuations in order trends, but see increased demand as we move into the new fiscal year.
David M. Shaffer: In specialty, we saw record order rates in the quarter and a slight improvement in adjusted operating earnings driven by improving performance out of our Missouri factories and lower freight costs. Aerospace and defense remains extremely robust, marked by a recent large contract for our 6T batteries at a substantial price increase. We are focused on filling our Missouri capacity with our transportation aftermarket products as our investments in production flexibility are on track for completion in the second half of the fiscal year.
Andy: In specialty we saw record order rates in the quarter and a slight improvement in adjusted operating earnings driven by improving performance out of our misery factories and lower freight costs Aerospace and defense remains extremely robust marked by a recent large contract for a 60 batteries at a substantial price.
Andy: We are focused on filling our Missouri capacity with our transportation aftermarket products as our investments in production flexibility are on track for completion in the second half of the fiscal year.
David M. Shaffer: In our new Ventures line of business, we are progressing towards delivering our initial fast charge and storage systems in late summer with enhanced energy storage and software capabilities. Our sales pipeline is growing, and we are very excited to see this new line of business gaining momentum. Please turn to slide five.
Andy: And our new ventures line of business, we are progressing towards delivering our initial fast charging storage systems in late summer with enhanced energy storage and software capabilities. Our sales pipeline is growing and we are very excited to see this new line of business gaining momentum.
Andy: Please turn to slide five the team is consistently executing to deliver on our strategy strategic priorities, let me share some highlights from our fourth quarter starting with innovate.
David M. Shaffer: The team is consistently executing to deliver on our strategic priorities. Let me share some highlights from our fourth quarter, starting with Innovate. In our mode of power products, we are advancing the development of our next-gen charger, which offers advanced features such as over-air updates, energy management, and high energy efficiency. We are currently in the demonstration phase with customers and look forward to commercializing this technological advancement. Last week, three of our Energy Systems TPPL products for data centers, industrials, and utility and markets were recognized at the Electrical Review and Data Center Review Excellence Awards.
Andy: And our motive power products, we are advancing the development of our Nexgen Charger, which offers advanced features such as over air updates energy management and higher energy efficiency. We are currently in the demonstration phase with customers and look forward to commercialization of this technology technological advancement.
Andy: Last week three of our energy systems TPP L products for data centers Industrials and utility end markets were recognized at the electrical review and Datacenter Review Excellence Awards I'm proud that our power safe SBS XL Tubal was awarded the 2024 <unk>.
David M. Shaffer: I'm proud that our PowerSafe SBS XL 2V was awarded the 2024 Energy Storage Product of the Year award, which features the longest design life for stable grid applications, high energy density, and much reduced hydrogen emissions relative to previously installed flood batteries.
Andy: <unk> storage product of the year, which features the longest design life for stable grid applications high energy density and much reduced hydrogen emissions relative to previously installed swept batteries.
David M. Shaffer: We also continue to focus on optimizing the business. We are maintaining a transformational mindset focusing on cost discipline and efficiency across the organization, and particularly in energy systems. We have increased the scope of our energy systems restructuring and identified opportunities to streamline our operations through shared services, which will make our business more efficient and better serve our customers. These cumulative actions are expected to result in $47 million of hard annualized cost savings to be realized in fiscal year 25 and an improvement of approximately $40 million over that already realized in fiscal year 24.
We also continue to focus on optimizing the business, we are maintaining a transformational mindset focusing on cost discipline and efficiencies across the organization and particularly in energy systems. We have increased the scope of our energy systems restructuring and identified opportunities to streamline our operations through.
Andy: Shared services, which will make our business more efficient and better serve our customers. These cumulative actions are expected to result in $47 million of hard annualized cost savings to be realized in fiscal year, 'twenty, five and an improvement of approximately $40 million over that already realized in fiscal year <unk>.
David M. Shaffer: With our optimized organization and footprint in energy systems, we are well positioned to capitalize on the growth opportunities ahead at elevated margins when our communication network customers resume normal spending patterns. Our TPPL manufacturing flexibility initiatives in Missouri are underway with noticeable productivity improvements in the quarter. We've begun to see sustainable improvements in our Springfield II factories since February, driven by refocusing manning, managing loading between plants, and increasing efficiency for SKUs. However, we will only be able to realize substantial profitability improvements when all three Missouri factories are fully loaded.
Andy: Four with our optimized organization and footprint in energy systems, we are well positioned to capitalize on the growth opportunities ahead, and elevated margins, what our communication network customers resumed normal spending patterns.
Andy: Our TPP, our manufacturing flexibility initiatives in Missouri are underway with noticeable productivity improvements in the quarter.
Andy: We've begun to see sustainable improvements in our Springfield to factory since February driven by refocusing Manning managing loading between plants and increased efficiency for Skus. However, we will only be able to realize substantial profitability improvements when all three Missouri factories are fully loaded looking ahead.
David M. Shaffer: Looking ahead, we remain on track for tooling and production line upgrades to unlock additional flexibility and cost absorption, enabling increased capacity for specialty products in the second half of fiscal year 25, and Xcelerator. With growth trends including generative AI driving demand for power electronics and battery backup solutions, we saw increased traction in data centers, as previously mentioned. Sales to data center customers in the Americas were up 14% year-over-year and up 50% versus fiscal year 22.
Andy: We remain on track for tooling and production line upgrades to unlock additional flexibility and cost absorption, enabling increased capacity for specialty products in the second half of fiscal year 'twenty five.
Andy: And accelerating with.
Andy: With growth trends, including generative AI deriving demand for power electronics and battery backup solutions. We saw increased traction in data centers as previously mentioned sales to data center customers in the Americas were up 14% year over year and up 50% versus fiscal year 'twenty two we expect there.
David M. Shaffer: We expect this trajectory to continue and are exploring new solutions for these customers, which will enable us to expand both our offering and our current participation in this high-growth market. In the mode of power, we leveraged our in-site data analytics and Nexus TPPL solutions to prove our ability to accelerate a large national retail customer's sustainability initiatives through transitioning from our flooded lead acid to proprietary TPPL batteries, which will be implemented across 600 locations.
Andy: Its trajectory to continue and are exploring new solutions for these customers, which will enable us to expand both our offering on top of our current participation in this high growth market and.
Andy: In motive power, we leveraged our insight data analytics and <unk> solutions to prove our ability to accelerate a large national retail customers sustainability initiatives through transitioning from our flooded lead acid to proprietary T PPL batteries, which will be implemented across 600 locations.
David M. Shaffer: We won this award as the pilot sites demonstrated annual cost-saving opportunities between seven and $10 million, while enabling our customers to reduce their carbon footprint by approximately 2,800 metric tons per year. We continue to advance the development of our lithium-ion cell gigafactory, selecting Greenville, South Carolina, and securing state and local funding totaling over $200 million. We have progressed on the readiness phase of this project, including purchasing land in Greenville, commencing an environmental evaluation of the site, and testing material from domestic and allied country suppliers to enable a Department of Defense-compliant and reliable supply chain. We have asked the Department of Energy for additional funding, with awards expected to be announced in August of 2024. Please turn to slide 6.
Andy: Patients. We won this award as the pilot sites demonstrated annual cost saving opportunities between $7 million $710 million, while enabling our customers reduce their carbon footprint by approximately 2800 metric tons per year.
Andy: We continue to advance on the development of our lithium ion cell Giga factory, selecting Greenville, South Carolina, and securing state and local funding totaling over $200 million.
Andy: We have progressed on the readiness phase of this project, including purchasing land in Greenville, commencing in environmental evaluation of the site and testing material from domestic and allied country suppliers to enable a department of defense compliant and reliable supply chain we.
Andy: We are obliged to the department of energy for additional funding with awards expected to be announced in August of 2024.
Andy: Please turn to slide six.
David M. Shaffer: On the topic of our lithium technology roadmap, subsequent to the end of the quarter, we were pleased to announce our agreement to acquire Brentronics, which will expand our presence in critical defense applications, broaden our product offerings, and strengthen our product development capabilities. This acquisition will accelerate EnerSys' progress in expanding our lithium product offerings, growing revenue, and profitability, while advancing towards our fiscal year 2027 targets. We're working on detailed integration planning, which will ensure that the integration process is seamless for our customers from day one post-close. We look forward to welcoming Brentronics' team into EnerSys at closing, which is anticipated near the end of our first fiscal quarter, subject to regulatory approval. Please turn to slide 7.
Andy: On the topic of our lithium technology roadmap subsequent to the end of the quarter. We were pleased to announce our agreement to acquire <unk>, which will expand our presence in critical defense applications broaden our product offerings and strengthen our product development capabilities. This acquisition will accelerate enersys is progress in expanding our live.
Andy: Damn product offerings growing revenue and profitability, while advancing towards our fiscal year 2027 targets. We are working on detailed integration planning, which will ensure that the integration process is seamless for our customers day, one post close we look forward to welcoming <unk> team into the Enersys at closing.
Andy: As anticipated near the end of our first fiscal quarter subject to regulatory approval.
Andy: Please turn to slide seven.
David M. Shaffer: Aligned with our strategic framework, we remain highly focused on sustainability. This week, we published our updated annual sustainability report, which highlights our progress towards our objectives. Furthermore, emphasizes the way in which our sustainability focus and our products help our customers to meet their own sustainability targets. Our 2023 accomplishments include reducing our absolute scope of emissions by 4.2% from calendar year 22, marking an overall 25% reduction since calendar year 19, and a 15% reduction in energy intensity since calendar year 2020. We also disclosed our scope 3 emissions for calendar years 22 and 23.
Andy: Aligned with our strategic framework, we remain highly focused on sustainability. This week, we published our updated annual sustainability report, which highlights our progress towards our objectives and Furthermore, emphasizes the way in which our sustainability focus and our products help our customers to meet their own sustainability.
Andy: Targets. Our 2023 accomplishments include reducing our absolute scope one emissions by four 2% from calendar year 'twenty, two marking an overall, 25% reduction since calendar year, 19, and a 15% reduction in energy intensity since calendar year 2020.
Andy: We also disclosed our scope three emissions for calendar year, 'twenty, two and calendar year 'twenty three.
Andy: We also earned several awards and recognition for our environmental and social initiatives across the organization.
Speaker Change: I am proud of our team's accomplishments underscoring our commitment to sustainability energy efficiency and innovation within the manufacturing industry.
David M. Shaffer: We also earned several awards and recognition for our environmental and social initiatives across the organization. I am proud of our team's accomplishments, underscoring our commitment to sustainability, energy efficiency, and innovation within the manufacturing industry. In closing, I'm proud of all we've accomplished in fiscal year 24. From launching a new line of business with a world-class high-tech battery energy storage system, growing maintenance-free share and motive power, undertaking a bold transformation and restructuring in energy systems, making significant progress on our path to constructing our own domestic lithium plant, to agreeing to add Rentronics to our specialty portfolio. These accomplishments are giving us much to be excited In the past, energy was cheap, plentiful, and reliable. However, this is no longer the case.
Speaker Change: In closing I am proud of all we've accomplished in fiscal year 'twenty four from launching a new line of business with a world class High Tech battery energy storage system.
Speaker Change: Growing maintenance free share in motive power.
Speaker Change: We're taking a bold transformation and restructuring in energy systems, making significant progress on our path to constructing our own domestic lithium plant.
Speaker Change: To agreeing to add <unk> into our specialty portfolio, we've come a long way from our history as a lead acid battery focused company.
Speaker Change: These accomplishments are giving us much to be excited about in fiscal year 2025 and beyond.
Speaker Change: In the past energy was cheap plentiful and reliable. This is no longer the case, so as a society, we must rethink the way we manage energy the global grid infrastructure can no longer support the power consumption driven by energy transition and the electrification of everything energy scarce.
David M. Shaffer: So, as a society, we must rethink the way we manage energy. The global grid infrastructure can no longer support the power consumption driven by the energy transition and the electrification of everything. Energy scarcity will be an ongoing concern further impacted by the climate and global decarbonization policies. This will require renewable energy coupled with energy storage to enable reliable distribution.
Speaker Change: <unk> will be an ongoing concern further impacted by the climate in global de Carbonization policies. This will require a new renewable energy coupled with energy storage to enable reliable distribution.
David M. Shaffer: We are delivering best-in-class technologies, intelligent batteries, and revolutionary energy management systems that are solving the problems of today and the future. We have the engineering expertise and customer relationships to capitalize on what's to come. I am confident FY25 will demonstrate the potential of all the investments we have made in our transformation, reflecting the targets we laid out on Investor Day last June. Indeed, our future is bright. I will now turn it over to Andy to take you through our results and outlook in greater detail. Thanks, Dave.
Speaker Change: We are delivering best in class technologies, intelligent batteries and revolutionary energy management systems that are solving the problems of today and the future.
Speaker Change: We have the engineering expertise and customer relationships to capitalize on what's to come I am confident FY 'twenty five will demonstrate the potential of all the investments we have made in our transformation reflected in the targets, we laid out our investor day last June and need our future is bright.
Andy: I will now turn it over to Andy to take you through our results and outlook in greater detail Andy. Thanks.
Andrea J. Funk: Thanks Dave. Please turn to slide 9. Fourth quarter net sales of $911 million were down from the prior year but in line with our expectations, driven by a 6.9% decrease in volume due primarily to temporary telecom broadband spending pauses, as well as a 1.3% FX headwind. Overall, we maintain our price mix while benefiting from a reduction in inflationary pressure. We achieved a deducted gross profit of $255 million, up $9 million year-on-year, including $36 million of IRA benefits booked as a reduction to cost of goods sold in the quarter.
Andy: Thanks, Steve Please turn to slide nine.
Andy: Fourth quarter net sales of $911 million were down from prior year, but in line with our expectations driven by a six 9% decrease in volume.
Andy: Similarly, the temporary telecom broadband spending pauses as well as a one 3% FX headwind.
Andy: Overall, we maintain price next while benefiting from a reduction in inflationary pressures.
Andy: We achieved adjusted gross profit of $255 million up $9 million year on year, including $36 million of IRA benefits booked as a reduction to cost of goods sold in the quarter.
Andrea J. Funk: Q4 adjusted gross margin improved 310 basis points over the prior year to 28% due to IRA benefits as well as solid price retention. Excluding the IRA benefits, adjusted gross margin was 24.1%, up 100 basis points year-over-year due in part to a reduction in freight and commodity costs even after absorbing the margin math impact of higher cost pass-throughs. Our adjusted operating earnings were $109 million in the quarter, a $2 million improvement over the prior year, resulting in an adjusted operating margin of 12%.
Andy: Q4, adjusted gross margin improved 310 basis points over prior year to 28% due to IRA benefit as well as solid price retention.
Andy: Excluding the <unk> benefit adjusted gross margin was 24, 1% up 100 basis points year over year due in part to a reduction in freight and commodity costs.
Andy: After absorbing the margin impact of higher cost pass through.
Andy: Our adjusted operating earnings were $109 million in the quarter at $2 million improvement of a prior year, resulting in an adjusted operating margin of 12%.
Andrea J. Funk: Excluding the IRA benefits, we achieved adjusted operating earnings of $73 million, down $17 million versus the prior year, with an adjusted operating margin of 8%, 110 basis points lower year-on-year. This decline is entirely attributable to the telecom broadband temporary spending pauses met due to the early impact of the $47 million of annualized hard cost improvements Dave mentioned earlier. Adjusted EBITDA was $124 million, and the adjusted EBITDA margin was 13.7%, an increase of $6 million and up 180 basis points, respectively, versus the prior year. Full year net sales of $3.6 billion were down 3% year over year.
Andy: Excluding the IRA benefit we achieved adjusted operating earnings of $73 million.
Andy: Down $17 million versus prior year with an adjusted operating margin of 8% 110 basis points lower year on year.
Speaker Change: This decline is entirely attributable to the telecom broadband temporary spending positive net of the early impact of the $47 million of annualized hard cost improvements Dave mentioned earlier.
Speaker Change: Adjusted EBITDA was $124 million and adjusted EBITDA margin was 13, 7% an increase of $6 million and up 180 basis points, respectively versus prior year.
Speaker Change: Full year net sales of $3 $6 billion were down 3% year over year.
Andrea J. Funk: We generated an adjusted operating profit of $450 million, including $136 million benefit from the Inflation Reduction Act IRC 45X tax credit. Adjusted Diluted EPS was $8.35 per share, an increase of 56%. Please turn to slide 10.
Speaker Change: We generated adjusted operating profit of $450 million, including $136 million benefit from inflation reduction Act IRC 45 ex tax credits.
Speaker Change: Adjusted diluted EPS was $8 35 per share an increase of 56%.
Speaker Change: Please turn to slide 10.
Andrea J. Funk: In line with the high end of our guidance range, adjusted EPS for the fourth quarter was $2.08 per share, an increase of 14% over the prior year. Adjusted EPS excluding the IRA benefit was $1.20, a 15% decrease over the prior year's $1.40. In the fourth quarter of fiscal 24, our effective tax rate was 8.5% on an as-reported basis and 20.2% on an as-adjusted basis before the benefit of the IRA, compared to 16.8% in Q4-23. Please turn to slide 11.
Speaker Change: In line with the high end of our guidance range adjusted EPS for the fourth quarter with $2 eight per share an increase of 14% over prior year.
Speaker Change: Adjusted EPS, excluding the IRI benefit with a $1, 20% to 15% decrease over prior year's $1 40.
Speaker Change: In the fourth quarter of fiscal 'twenty four our effective tax rate was eight 5%.
Speaker Change: As reported basis and.
Speaker Change: And 22% on an as adjusted basis before the benefit of the IRR compared to 16, 8% in Q4 23.
Speaker Change: Please turn to slide 11.
Andrea J. Funk: Adjusted EPS for the full year was $8.35 per share. Adjusted EPS excluding the IRA benefit was $5.05, up 3% over the prior year's $4.92 cents, despite the 3% net lower revenue. Let me now provide details by segment.
Speaker Change: Adjusted EPS for the full year was $8 35 per share adjusted.
Speaker Change: Adjusted EPS, excluding the IRA benefit with $5 five.
Speaker Change: Up 3% over prior year at $4 92.
Speaker Change: The 3% net lower revenue.
Speaker Change: Let me now provide details by segment please.
Andrea J. Funk: Please turn to slide 12. In the fourth quarter, energy systems revenue declined 19% from the prior year to $369 million, primarily driven by the lower volumes previously mentioned and FX headwinds, partially offset by improvements in price mix. Adjusted operating earnings of $17 million improved sequentially on flat revenue, but they were $12 million lower than the prior year. Adjusted operating margin of 4.7% was up 90 basis points sequentially, but decreased 180 basis points versus the prior year.
Speaker Change: Please turn to slide 12.
Speaker Change: In the fourth quarter energy systems revenue declined 19% from prior year to $369 million, primarily driven by the lower volumes previously mentioned and FX headwinds, partially offset by improvements in price mix.
Speaker Change: Adjusted operating earnings of $17 million improved sequentially on flat revenue, but were $12 million lower than prior year.
Speaker Change: Adjusted operating margin of four 7% was up 90 basis points sequentially, but decreased 180 basis points versus prior year.
Andrea J. Funk: Please turn to slide 13. Compared with the prior year, Modus power revenues increased 3% to $395 million on a 5% volume increase and 1% acquisitions increase, partially offset by price mix and FX. The reduction in price mix is due to the elimination of utility adder in the quarter with any negative impact to profit offset by lower utility costs realized in Q4-24 as well.
Speaker Change: Turn to slide 13.
Speaker Change: Versus prior year motive power revenues increased 3% to $395 million on a 5% volume increase and 1% acquisitions increase partially offset by price mix and FX.
Speaker Change: The reduction in price mix is due to the elimination of utility adder in the quarter with any negative impact to profit offset by lower utility costs realized in Q4 2004 as well.
Andrea J. Funk: Motive Power again reported strong adjusted operating earnings this quarter, contributing $58 million, up 15% over the prior year. Adjusted operating margins were 14.7%, up 160 basis points over Q4-23, with the lower utility costs I just mentioned, as well as reductions in commodity and freight costs versus the prior year. We are very optimistic about the growth opportunities in motive power as our proprietary maintenance-free and wireless charging solutions support our customers' growing needs for automation, electrification, and decarbonization solutions. Please turn to slide 14.
Speaker Change: Motive power again reported strong adjusted operating earnings quarter.
Speaker Change: CBD $58 million up 15% over prior year.
Speaker Change: Adjusted operating margins were 14, 7% up 160 basis points for Q4, 'twenty three with the lower utility costs I, just mentioned as well as reductions in commodity and freight costs versus prior year.
Speaker Change: We are very optimistic about the growth opportunities in motive power as a proprietary maintenance free in wireless charging solution.
Speaker Change: Our customers' growing need for automation electrification and decarbonization solution.
Speaker Change: Please turn to slide 14.
Andrea J. Funk: Specialty revenue decreased 1% from the prior year to $146 million on flattish volume and a 1% reduction in price mix, with capacity constraints limiting the growth potential of this line of business. Q4 24 adjusted operating earnings of eight and a half million dollars were down $1 million from the prior year with an adjusted operating margin of 5.8% down 80 basis points. Margins in this business continue to be pressured by the impact of higher fixed cost absorption related to plant loading issues as we retool capacity from telecom and broadband to enable more transportation product sizes.
Speaker Change: Specialty revenue decreased 1% from prior year to $146 million on flattish volume and 1% reduction in price mix with capacity constraints limiting the growth potential of this line of business.
Speaker Change: Q4, 24, adjusted operating earnings of $8 $5 million were down $1 million from prior year with adjusted operating margin of five 8% down 80 basis points.
Speaker Change: Margins in this business continued to be pressured by the impact of higher fixed cost absorption related to plant loading issues as we reach full capacity from telecom and broadband to enable more transportation product sizes.
Andrea J. Funk: As Dave mentioned, we made progress in the quarter with specialty volumes up 11% and adjusted operating earnings up $1 million sequentially, and we have line of sight to continued improvement this fiscal year. Given the strength in transportation and aerospace and defense and markets, combined with the enhanced capacity, flexibility, and expansion we anticipate in the coming quarters, we are very optimistic about our opportunities and specialty. In addition, we look forward to integrating Brentronics in the coming months, which will add profitable growth to our existing business, the impact of which is not reflected in any of the numbers or projections we are sharing with you today. Please turn to slide 15.
Speaker Change: As Dave mentioned, we made progress in the quarter with specialty volumes up 11% and adjusted operating earnings of $1 million sequentially and have line of sight to continued improvement this fiscal year.
Speaker Change: Given the strength in transportation and aerospace and defense end markets combined with enhanced capacity flexibility and expansion, we anticipate in the coming quarters, we are very optimistic about our opportunities in specialty.
Speaker Change: In addition, we look forward to integrating <unk> in the coming months, which will add profitable growth to our existing business the impact of which is not reflected in any of the numbers or projections. We are sharing with you today.
Speaker Change: Please turn to slide 15.
Andrea J. Funk: A particular bright spot for us this quarter continues to be our cash flow, thanks to earnings growth, as well as our commendable management of working capital. We reduced inventory by $57 million versus Q3-24, achieving our lowest inventory balance in nine quarters, driven by a targeted reduction in specific raw material and product categories, while maintaining inventory reserves in energy systems to be prepared when a telecom broadband recovery occurs. We were also able to improve collections efforts on receivables and extend supplier payments, which is quite an accomplishment in a high interest rate environment.
Speaker Change: A particular bright spot for us this quarter continues to be our cash flow. Thanks to our earnings growth as well as our commendable management of working capital.
Speaker Change: We reduced inventory by $57 million versus Q3, 'twenty four achieving our lowest inventory balance in nine quarters, driven by a targeted reduction in specific raw material and product category, while maintaining inventory reserves and energy system to be prepared when a telecom broadband recovery.
Speaker Change: Kurt.
We are also able to improve collections efforts of receivables and extend supplier payments, which is quite an accomplishment in a high interest rate environment.
Andrea J. Funk: Our primary operating capital reduction generated $204 million of cash in fiscal year 24, approximately half of which was driven by lower sales, with the other half driven by focused efforts across the organization. I should note that the full benefit of the IRA credits will not materially impact our cash flow until our fiscal year 2024 tax filings are finalized, and we receive an expected tax refund of approximately $100 million near the end of fiscal year 2025.
Speaker Change: Our primary operating capital reduction generated $204 million of cash in fiscal year 'twenty for approximately half of which was driven by lower sales with the other half driven by focused efforts across the organization.
Speaker Change: I should note that the full benefit of the IRI credits will not materially impact our cash flow until our fiscal year 2020 for tax filings are finalized and we received an expected tax refund of approximately $100 million, maybe end of fiscal year 2025.
Andrea J. Funk: CapEx was $27 million in the fourth quarter and $86 million for the full year. In the quarter, we achieved an adjusted free cash flow conversion rate of 128%. As of March 31, 2024, we had $333 million of cash and cash equivalents, and our net debt of $511 million represented a reduction of approximately $225 million from the prior year. As a result, our credit agreement leverage ratio improved once again to one times EBITDA.
Speaker Change: Capex was $27 million in the fourth quarter and $86 million for the full year.
Speaker Change: In the quarter, we achieved an adjusted free cash flow conversion rate of 128%.
Speaker Change: As of March 31, 2024, we had $333 million of cash and cash equivalents and our net debt of $511 million represented a reduction of approximately $225 million.
Speaker Change: <unk> from prior year.
Speaker Change: As a result.
Speaker Change: Credit agreement leverage ratio improved once again to one times EBITDA.
Andrea J. Funk: Our balance sheet remains strong and positions us very well to invest in growth and navigate the current economic environment. We anticipate slightly higher leverage in Q1 2025 as a result of approximately $200 million cash outlay for the planned Pentronics acquisition, but we expect their net leverage will remain below the low end of our 2 to 3 times target range. Please turn to slide 16.
Speaker Change: Our balance sheet remains strong and positions us very well to invest in growth and navigate the current economic environment.
Speaker Change: We anticipate slightly higher leverage in Q1 25, as a result of approximately $200 million cash outlay for the planned <unk> acquisition, but we expect our net leverage will remain below the low end of our two to three times target range.
Speaker Change: Please turn to slide 16.
Andrea J. Funk: During the fourth quarter, we paid $9 million in dividends and repurchased $13 million in shares. We currently have approximately $116 million remaining on our buyback authorization. Please turn to slide 17.
Speaker Change: During the fourth quarter, we paid $9 million in dividend and repurchased $13 million in shares weaker.
Speaker Change: We currently have approximately $116 million remaining on our buyback authorization.
Speaker Change: Please turn to slide 17.
Andrea J. Funk: We remain optimistic about the trajectory of our business and are particularly pleased with our ability to maintain pricing. While we are seeing a healthy demand trend in the majority of our end markets, we have taken substantial actions to improve the overall margin profile of our energy systems business, despite the cycles experienced in network powering markets, as previously discussed. We're providing some updates to our guidance metrics, which we believe will provide a clear view of our anticipated financial performance.
Speaker Change: We remain optimistic about the trajectory of our business and are particularly pleased with our ability to maintain pricing.
Speaker Change: While we are seeing a healthy demand trends in the majority of our end markets. We have taken substantial action to improve the overall margin profile of our energy systems business. Despite the cycles experienced in network power market as previously discussed.
Speaker Change: We are providing some updates to our guidance metrics, which we believe will provide a clearer view of our anticipated financial performance.
Andrea J. Funk: Our fiscal first quarter 2025 guidance range is $860 million to $900 million of net sales and adjusted diluted EPS of $1.93 to $2.03 per share on slightly lower volume driven by the seasonality of business. Our fiscal 2025 guidance range is $3,675,000,000 to $3,825,000,000 of net sales and adjusted diluted EPS of $8.55 to $8.95 per share with a pre-IRA tax rate of 20 to 21%. We anticipate ongoing volume growth in motive power and specialty with the return to normalcy occurring throughout the year in telecom broadband markets and further earnings expansion from the margin improvement actions taken in energy systems.
Speaker Change: Our fiscal first quarter 2025 guidance range is $860 million to $900 million of net sales and adjusted diluted EPS of $1 93 to $2 <unk> per share on slightly lower volume driven by the seasonality for our business.
Speaker Change: Our fiscal 2025 guidance range is $3 billion $675 million to $3.825 billion of net sales and adjusted diluted EPS of $8 55 to.
Speaker Change: To $8 95 per share with the pre IRA tax rate of 20% to 21%.
Speaker Change: We anticipate ongoing volume growth in motive power in specialty with a return to normalcy occurring throughout the year in telecom broadband market and further earnings expansion from the margin improvement actions taken in energy systems.
Andrea J. Funk: We also expect to benefit from continued maintenance-free conversion in modes of power and increased capacity flexibility with better cost absorption and a reserve factory for specialties. Our CapEx expectation for the full year fiscal 2025 is in the range of $100 million to $120 million. Please turn to slide 18.
Speaker Change: We also expect to benefit from continued maintenance reconversion and motive power and increase capacity flexibility with better cost absorption in our reserving factories for specialty.
Our capex expectation for the full year fiscal 2025 is in the range of $100 million.
Speaker Change: To $120 million.
Speaker Change: Please turn to slide 18.
Andrea J. Funk: Before we close, I would like to provide an update on our progress towards the fiscal year 27 goals we issued at Investor Day in June of 2023, which are, in aggregate, on track. Note that when we issued those targets, we highlighted certain areas which we had anticipated could push our results to the upside or to the downside. Network buildout delay was one of the potential risks that materialized; on the upside, our eligibility for expanded IRA benefits has materialized as well. Although our sales CAGR is below the targeted range, we are only one year into this four-year plan.
Speaker Change: Before we close I would like to provide an update on our progress towards the fifth fiscal year 'twenty seven goal, we issued at Investor Day in June of 2023, which in aggregate are on track.
Speaker Change: Net debt when we issued this target we highlighted certain areas, which we had anticipated could push our results to the upside or to the downside.
Speaker Change: Network Buildout delay with one of the potential risks that has materialized.
Speaker Change: On the upside our eligibility for expanded IRA benefits has materialized as well.
Speaker Change: Although our sales CAGR is below the targeted range. We are only one year into this four year plan or.
Andrea J. Funk: Our fiscal year 25 guidance and longer-term forecast gives us confidence that our financial and operational goals remain achievable. I should note that our adjusted EPS actual results for fiscal year 2024 and projected for fiscal year 2025 are both above what we had contemplated in the strategic plan presented at our investor day. We reiterate our expectations for fiscal year 27 EPS to be in the range of $11 to $13 per share, with upside from the reinvestment of our excess cash flow, such as the return on our planned Brentronics acquisition, which will be accretive to that EPS target range.
Speaker Change: Our fiscal year, 'twenty, <unk> guidance and longer term forecast gives us confidence that our financial and operational call remain achievable.
Speaker Change: I should note that our adjusted EPS actual results for fiscal year 2024, and projected for fiscal year 2025 are both above what we had contemplated in the strategic plan presented at our Investor day.
Speaker Change: We reiterate our expectation for fiscal year 2017, EPS to be in the range of $11 to $13 per share with upside from the reinvestment of our excess cash flow such as the return on our planned <unk> acquisition, which will be accretive to that EPS target range.
Andrea J. Funk: In summary, we are confident that the foundation we put in place this year, coupled with the investments we have made in our transformation, will deliver accelerating financial returns in the coming years. As Dave mentioned, energy scarcity will continue to be a global concern with megatrends driving a rapid increase in demand for reliable power. As a critical supplier of energy systems and energy storage solutions, EnerSys is strategically positioned to capitalize on this growth.
Speaker Change: In summary, we are confident that the foundation, we put in place this year, coupled with the investments we've made in our transformation will deliver accelerating financial returns in the coming years.
David M. Shaffer: As Dave mentioned energy scarcity will continue to be a global concern with negative trends driving rapid increase in demand for reliable power.
David M. Shaffer: A critical supplier of energy systems and energy storage solutions.
Speaker Change: <unk> is strategically positioned to capitalize on this growth.
Andrea J. Funk: We look forward to welcoming the Brentronics team into the EnerSys family in the upcoming month. As we look to fiscal 2025 and beyond, we remain focused on achieving the targets we set at our Investor Day and delivering long-term value creation to our stockholders. With that, let's open it up for questions. Operator. Thank you, ladies and gentlemen.
Speaker Change: We look forward to welcoming the <unk> team into the <unk> family in the upcoming months as.
Speaker Change: As we look to fiscal 2025 and beyond we remain focused on achieving the targets, we set at our Investor day, and delivering long term value creation to our stockholders.
Speaker Change: With this let's open it up for questions.
Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A list. Our first question comes from Noah Kaye on behalf of Oppenheimer. Your line is open.
Speaker Change: Operator.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move as well.
Speaker Change: Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Noah Kaye with Oppenheimer. Your line is open.
Noah Duke Kaye: Good morning, nice quarter. How are y'all?
Hey, good morning nice quarter.
Speaker Change: How are you all thank you for providing the sales in full year guidance.
Noah Duke Kaye: And now we get to ask you about it.
Noah Duke Kaye: So if we if we just start with.
Noah Duke Kaye: Energy system.
Noah Duke Kaye: Thank you for providing the sales and full year guidance. Now, we get to ask you about it. So if we just start with energy systems, to make sure we're thinking about this right. So if we embed the $40 million uplift you called out from the cost savings and even just sort of hold revenues flat year over year, that would get us to sort of 8% margins for 25. And that would be the margin target for the down cycle.
Speaker Change: Sure we're thinking about this right.
Speaker Change: So we embed the $40 million uplift you called out from the cost savings.
Speaker Change: Any sort of holding revenues flat year over year that would get us to 8% margins for 25 and that would be the margin target for the down cycle. So a is that kind of the right ballpark to be thinking about in terms of what the guidance contemplates.
Speaker Change: B, how should we think about sort of the phasing of.
Speaker Change: That margin improvement as you capture some of the benefits from these actions.
Noah Duke Kaye: So A, is that kind of the right ballpark to be thinking about in terms of what the guidance contemplates? And B, how should we think about sort of the phasing of, you know, that margin improvement as you capture some of the benefits from these actions?
Speaker Change: Yes, I know a good good too good to.
Speaker Change: Good to talk to you today good to hear your voice.
Andrea J. Funk: Yeah. Hi Noah.
Speaker Change: As you know this telco broadband Sunquest has really been significant for us. So just first to level set before answering your questions.
Andrea J. Funk: Good to talk to you today. Good to hear your voice. You know, as you know, this Telco Broadband Fend Plus has really been significant for us. So, you know, just a level set before answering your questions.
Speaker Change: Revenue was down on telco broadband about $200 million year in Europe, with a $100 million within the fourth quarter.
Andrea J. Funk: Revenue was down on Telco Broadband, about $200 million a year in Europe, of which $100 million was in the fourth quarter. And, you know, overall, we'd expected about $100 million of growth for the full year. You know, our diversified end markets protect us somewhat. But just to give you an order of magnitude, the impact on us from this pause was in the vicinity of about $0.50 per share, a negative impact in Q4 alone, and about $1.50 per share for the full year.
Speaker Change: Overall, we had expected about $100 million of growth for the full year.
Speaker Change: Our diversified end markets protect us somewhat but just to give you order of magnitude the impact of us from this pause was in the vicinity of about <unk> 50 per share negative impact in Q4 alone and about $1 50 share for the full year.
Andrea J. Funk: So getting back to your question on the actions Dave mentioned, and I'll just, you know, kind of reconcile that to what we've said previously, last quarter we talked about $27 million of savings, $4 million coming from the consumer renewables exit, $6 million from the Spokane closure where we consolidated with Suwannee, and about $17 million of RIFs. This quarter, we enacted an additional $20 million. Most of these actions have already been fully completed.
Speaker Change: So getting back to your question on the actions, Dave mentioned and I'll, just kind of reconcile that to what we've said previously last quarter, we talked about $27 million of savings 4 million coming from the consumer renewables to exit 6 million from the Spokane closer where we consolidated with Suwannee in about $17 million of risk this quarter, we enacted.
Speaker Change: An additional $20 million most of these actions are already fully.
Speaker Change: Completed so they will be in the results for the full fiscal year next 25.
Andrea J. Funk: So they will be in the results for the full fiscal year next 25. And we're exploring further actions like, you know, appropriate pricing strategies. We're restructuring contracts. We're exploring ways to leverage AI to drive productivity.
Speaker Change: And we're exploring further actions like appropriate pricing strategies, where restructuring contracts, we're exploring ways to leverage AI to drive productivity and with all of these are committed committed to really reshaping the margin profile of the L. O b to like 8% to 10% in a down cycle, and then 12 months to 15% in an upcycle.
Andrea J. Funk: And with all of these, we're committed to really reshaping the margin profile of the LOB to like 8 to 10% in a down cycle and then 12 to 15% in an up cycle, with real confidence that it's going to come back and we won't need to add most of those costs. So the actions will improve both the floor and the ceiling of the margin profile throughout the cycle. As far as 25 and the guidance we gave, you know, we really look at it kind of as a we don't expect that by the end of the year we're going to be anywhere near where we would have been had this pause not occurred.
Speaker Change: With more confidence that it's kind of come back and we won't need to add most of those costs. So the actions will improve both the floor and the ceiling of the margin profile throughout the cycle as far as 25 in the guidance we gave.
Speaker Change: We really look at it kind of is.
Speaker Change: We don't expect that by the end of the year, we're going to be anywhere near.
Speaker Change: Where we would have been had this pause not occurred but we do expect steady recovery throughout the course of the year. So as the trough really happened to us in Q3, and Q4 of our fiscal year in Q1 and Q2, we only saw early signs of it our Q1 and Q2 in Enersys and energy systems will be down.
Andrea J. Funk: But we do expect steady recovery throughout the course of the year. So as the trough really happened to us in Q3 and Q4 of our fiscal year, and Q1 and Q2, we only saw early signs of it. Our Q1 and Q2 in energy systems will be down year on year, and Q3 and Q4 should have some improvements as we're starting on that trajectory. Yeah, and Noah, just.
Speaker Change: Year on year in Q3, and Q4 should have some improvements as we're starting on that trajectory.
David M. Shaffer: Yeah, and Noah, just, this has always been a cyclical business. I've been at this for a long time, and telecom, of all the businesses we serve, probably has the most cyclicality. And what Sean and I talk about is really making sure to hold the games, as when revenue starts to come back, that we have to sustain these restructuring initiatives that Andy just went through. And we all know, and this cycle, as we've said before, has been particularly troublesome because of overstocking and coming out of COVID because of the interest rate environment.
Speaker Change: Yes and no.
Speaker Change: Yes.
This has always been a cyclical business second at this a long time in Charlotte.
Speaker Change: Telecom of all the businesses, we serve probably has the most cyclicality and whats, Sean and I talk about it.
Speaker Change: Really making sure to hold the gains as when the revenue when the revenue starts to come back that we have to sustain these restructuring initiatives.
Speaker Change: Andy just went through.
Speaker Change: We all know.
Speaker Change: This cycle as we've said before has been particularly troublesome because of overstocking that coming out of COVID-19 because of interest rate environments, but.
David M. Shaffer: But as you look at everything that's happening in the digitization space and all the investment that's going into data centers, that last mile of delivery is critical to get this information in and out of our hands.
Speaker Change: But as you look at everything Thats happening in the in the Digitization space and all the investment that's going into data centers.
Speaker Change: That last mile of delivery is critical to get this information in and out of our hands and that's where these networks communications systems are vital and will be continued to be.
Speaker Change: Our strategic and important investment areas.
Speaker Change: So that's what our focus is so I hope that's enough color on Es.
Noah Duke Kaye: Thanks. Just a few clarifications. Does the CapEx guide for 25 include any material outlays for the Gigafactory?
Speaker Change: Okay. Thanks.
Speaker Change: Just a few clarification the Capex guide.
Speaker Change: 25 include any material outlays for the Giga factory.
Andrea J. Funk: Yeah, not yet.
Speaker Change: No not yet okay.
Noah Duke Kaye: Okay. All right. All right. So we'll, we'll, we'll find out if that's all.
Speaker Change: Okay, Alright, alright, so we'll find out in August.
David M. Shaffer: Yeah, but Noah, what we have done, and I just want to give you what we've been trying to do with the lithium factory, is I want to hit the starting line running. That's been the whole objective.
Speaker Change: No what we have done and I just wanted to give you what we've been trying to do.
Speaker Change: On the lithium factoring is I wanted to hit the starting line right. That's been the whole objective. So we've made a series of <unk>.
David M. Shaffer: So we've made a series of controlled actions, taken a series of controlled actions to make sure that we don't start once the DOE awards are made in August. That's where we really want to hit the starting gate running, as I noted. And we've got lots of examples of things we've done. We made a $10 million investment in a piece of property down in Greenville, South Carolina. We secured $200 million in grants from the state of South Carolina.
Speaker Change: Controlled.
Speaker Change: Actions taken a series of controlled actions to make sure that we're not starting once the awards are made in August that's where we really want to hit the starting gate running as I noted and we've got lots of examples of things. We've done we've made a $10 million investment in peace property down in Greenville, South Carolina with secured.
Speaker Change: $200 million in grants.
Speaker Change: The state of South Carolina.
David M. Shaffer: We've already started the environmental assessments. We started building some teams. We made a $10 million Series C-Round investment into VertCorp.
Speaker Change: We've done we've already started the environmental assessments. We started building some teams up we made a $10 million series C round investment and divert core so we've been busy.
David M. Shaffer: So we've been busy. And again, the idea and what we're really wanting to do in anticipation of the DOE and anticipation of final board approval, we want to make as much progress as we can, but doing it in a controlled fashion. So we're trying to do everything we can in advance. Yeah, Noah. I should probably clarify in response.
Speaker Change: And again, the idea and what we're really wanting to do.
Speaker Change: In anticipation of the Dol and anticipation of final board approval, we want to make as much progress as we can but doing it in a controlled fashion. So we're trying to do everything we can in advance so that's where our heads at yes, no no I should probably clarify response at the 10 million dollar land investment.
Andrea J. Funk: The $10 million land investment would fall under the lithium plan, although our plan is to not break ground until after we get board approval. The make-versus-buy decision is becoming very compelling. We've employed outside consultants to help to clean up and really validate all of the assumptions that we have in our model. As we've mentioned before, while we believe this would really de-risk our lithium supply chain, which is strategic to our long-term strategic plan, our intention is to only move forward if this is going to be accretive to our long-term 15% ROIC targets.
Speaker Change: <unk>.
Speaker Change: Would fall under the lithium plant, although our plan is to not break soil until after we get board approval.
Speaker Change: The make versus buy decision is becoming very compelling. We've we've employed outside consultants to help to clean up and really validate all of the assumptions that we have in our model.
Speaker Change: As we've mentioned before while we believe this would really derisk, our lithium supply chain, which is strategic to our long term strat plan. Our intention is to only move forward. If this is going to be accretive to our long term, 15% ROIC targets.
Andrea J. Funk: So when the board officially approves this, if and when the board officially approves it, which we expect would happen after we learn of our DOD potential funding, we'll be happy to share more of the financial implications and statistics on this exciting venture for Yeah, I get the last piece of that, Andy. No, just one more thought. These recent announcements on tariffs is really just going to make importing lithium that much more expensive.
So when when the board officially approved if and when the board officially approved which we expect would happen after we learned of our potential.
Speaker Change: Potential funding, we will be happy to share more of the financial implications and statistics on this this exciting venture for us.
Speaker Change: Yes, I guess, the last piece of that and.
Speaker Change: Just one more thought these recent announcement on tariffs is really just going to.
Speaker Change: It's in general it's going to make.
Speaker Change: Importing lithium that much more challenging and it just accelerates the need for this project.
Noah Duke Kaye: without a doubt. Thank you for that. I just want to ask the last quick question on data centers, which is, you know, the number one topic on the planet right now. And now 10% of the company's sales. First of all, understanding what the mix of business looks like today.
Speaker Change: Yes.
Speaker Change: Thank you for that I just wanted to ask a last quick one on data center, which is the number one topic on the planet right now.
Speaker Change: And now 10% of the company sales.
Speaker Change: First of all.
Speaker Change: Understanding what the mix of business looks like today.
Noah Duke Kaye: Understand it's primarily, you know, the batteries for for UPS. I would expect most of that would be TPPL. Curious to know how it's sort of evolving TPPL, lithium, et cetera. But but really, the broader question is.
Speaker Change: And it's primarily the batteries for for UBS.
Speaker Change: I would expect most of that would be.
Speaker Change: <unk> curious to know how it sort of evolving PPL with your et cetera, but really the broader question is how do you think about opportunities for wallet share gain and content expansion in the data center build out beyond the battery supply where are the opportunities for the company.
David M. Shaffer: Well, I think you nailed it in terms of our key presence in there right now is really a combination of TPPL and our traditional products, so it's both. We have very commanding market share positions in North America and in Western Europe, not so, you know, not as much in other parts of the world.
Speaker Change: Thank you nailed it in terms of our key presence in there right now is really a combination of <unk> and our traditional product. So it's both we have a very commanding market share positions in North America and in Western Europe.
Speaker Change: So not as much in other parts of the world and we are absolutely seeking wallet share opportunities, it's a big focus with our M&A team.
David M. Shaffer: And we are absolutely seeking wallet share opportunities. It's a big focus of our M&A team. And, as you probably figured out, when we did the alpha deal, we really didn't get much out of that. That's more on the network side, that last mile side, not so much. So really, the M&A attention is there, product diversification, so adding additional. We, I made a note about that new 2-volt SBS product, which is going to be really helpful in that market segment, and then some new lithium products that we're working on. So that's, I think the battery piece we've got a really good line of sight on, and in terms of the wallet share, we've got work to do, and that's, it's a key M&A focus.
Speaker Change: And but as you probably figured out when we did the alpha deal, we really didn't get much out of that that's more on the network side that last mile side not so much so really the M&A attention is there product diversification so adding additional.
Speaker Change: A note about that new tool.
Speaker Change: <unk> product, which is going to be really helpful. In that market segment, and then some new lithium products that we're working on so that's.
Speaker Change: So I think the battery piece, we've got a really good line of sight on and then in terms of the wallet share that we've got work to do and Thats a key M&A focus.
Andrea J. Funk: Yeah, I think I think Dave you hit it all. It's the two pieces.
David M. Shaffer: Yes, I think I think Dave you hit at all.
Speaker Change: The two pieces there is the growth in our lead acid business in the data center switch.
David M. Shaffer: There's growth in our lead acid business and in data centers, which we're in with all the big customers. So we've got a great presence exploring NPIs as well as acquisitions. But on top of that, you know, it's this last mile delivery, like as this data market's data centers just proliferate; all that data needs to get into the hands of you and me. And that's what really gives us confidence that telco broadband, there's, we're not concerned about the growth rates that we put out in our strategic plan, we really see this pause as temporary, and everything is going to be driving growth into those markets over time.
Speaker Change: With all the big customers. So we've got a great presence.
Speaker Change: Exploring NPI as well as acquisitions, but on top of that this last mile delivery like ADCETRIS data market data centers, just proliferate all of that data needs to get into the hands of you and me and that's what really gives us confidence that telco broadband.
Speaker Change: We're not concerned about the growth rates that we've put out in our strat plan, we really see this positive temporary everything is going to be driving growth in today's markets over time.
Unknown Speaker: Unknown Speaker
Noah Duke Kaye: Thank you so much. I'll turn it over to them. Thanks, guys.
Speaker Change: Thank you so much I'll turn it over.
Operator: Again, ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from Blake Keating with William Blair. Your line is open.
Speaker Change: Thanks, Josh.
Speaker Change: Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone one moment for our next question.
Speaker Change: Our next question comes from Blake Keating with William Blair. Your line is open.
Blake Stuart Keating: Hi, good morning. This is Blake on for Brian.
Blake Stuart Keating: Hi, Good morning. This is Blake on for Brian.
Blake Stuart Keating: So I wanted to ask on the guidance, what are the puts and takes to getting to the low end versus the high end of revenue and EBITDA guidance?
Blake Stuart Keating: Good morning, So I wanted to ask on the guidance.
Blake Stuart Keating: What are the puts and takes to getting to the low end versus high end of revenue and EBITDA guidance.
Andrea J. Funk: Yeah, in terms of the revenue guidance, and I guess subsequent to that, the biggest explanation for the range is still just a little bit of uncertainty as we go forward with telco broadband. Right now, what we have modeled at the midpoint of that is some modest sequential growth in the revenue line in our ES sector, and then layered in, in combination with that, are the hard cost savings that we called out earlier.
Blake Stuart Keating: Yes.
Speaker Change: In terms of the revenue guidance.
Speaker Change: And I guess subsequent to that the biggest.
Speaker Change: The explanation for the range is still just a little bit of uncertainty as we go forward with the telco broadband right now what we have model to the midpoint of that is some modest sequential growth in the revenue line in our Es sector.
Speaker Change: And then layered in in combination of that is the hard cost savings that we called out earlier. So that's what we have in the midpoint, but the range.
Andrea J. Funk: So that's what we have in the midpoint, but the range was really mostly a reflection of just a little bit of uncertainty as to what this recovery and timing is going to look like. Andy, is there anything else? Yeah.
Speaker Change: It was really mostly a reflection of just there's still a little bit of uncertainty as to what this recovery and timing is going to look like Andy is there anything else yeah.
Andrea J. Funk: Yeah, I'd be happy to give you a little bit more color, Blake, on the full year, especially since it's the first time that we're introducing revenue and full-year APF, which has really been a goal of Dave and mine for about the last two years, but with all the volatility in the markets, we feel now is the right time to add it. In the full-year guidance, you know, we do think telco broadband will have some ongoing softness, as we mentioned, but with a steady, you know, recovery throughout the course of the year, that's probably the one that's most uncertain. Motive power and specialty markets remain very healthy.
Speaker Change: I'd be happy to give you a little bit more color Blake on the full year, especially since it's the first time that we are introducing revenue and full year EPS, which were really it had been a goal of Dave in mind.
Speaker Change: Since our since about the last two years, but with all the volatility in the markets. We feel now is the right time to add it.
Speaker Change: In the full year guidance, we do think telco broadband there'll be some ongoing softness as we mentioned, but with a steady recovery throughout the course of the year, that's probably the one that's most uncertain motive power and specialty markets remain very healthy.
Andrea J. Funk: We should have some motive power lithium growth. The way that'll play out in the results, it's going to show us maybe an expanded volume impact but a pressuring price mix just because it's got a higher cost pass-through. We expect to have our initial fast charge and storage revenue, which we're extremely excited about. And in line with what we've talked about at StratPlan, we fully expect ongoing mix improvements for maintenance-free conversions in motive power, which is happening faster than we had anticipated.
Speaker Change: We should have some motive power lithium growth the way that will play out in the results, it's going to show as maybe an expanded volume impact, but pressuring price mix just because it's got a higher cost pass through we expect to have our initial fast charging storage revenue, which were extremely exciting about and in line with what we've talked about its strat plan, we fully expect.
Speaker Change: The ongoing mix improvement from maintenance free conversions in motive power, which is.
Speaker Change: Which is happening faster than we had anticipated we.
Andrea J. Funk: We expect growth in the aftermarket and specialty as we unlock some of the capacity in Missouri. And we'll get some mix impacts as power electronics begin to come back into energy systems in the second half of the year, but again, that's one of the areas that there's a little more uncertainty on. We'll continue to leverage OPEC's discipline.
Speaker Change: We expect growth in the aftermarket in specialty as we unlock some of the capacity in Missouri, and we will get some mix impacts as power electronics begin to come back and energy systems in the second half of the year, but again, that's one of the areas that there's a little more uncertainty will.
Speaker Change: We will continue to leverage opex discipline, the aggressive energy systems margin improvement actions should see the benefit as we've talked about and we will have be making some additional fast charging storage investment throughout the course of the year.
Andrea J. Funk: The aggressive energy systems margin improvement actions should see a benefit, as we've talked about, and we'll be making some additional fast charge and storage investments throughout the course of the year. Our IRA benefits, again, just to reiterate, $120 to $160 million per year, as previously communicated. Where it falls within the range will really depend on volume and mix.
Speaker Change: Our IRA benefits again, just to reiterate $120 million to $160 million per year as previously communicated.
Speaker Change: Where it falls within the range will really depend on volume and mix.
Andrea J. Funk: You know, as a reminder, telco broadband batteries bring higher credits. As we mentioned, the pre-IRA tax rate was 20 to 21 percent versus the 18.9 percent in 24. There's a slightly higher rate there on discrete, you know, the geography of earnings and the impact of the global minimum tax, you know, the pillar tax coming into play. We have not baked Brentronics into the guidance, and that will depend on when we actually close, which we expect will be near the end of our first quarter, maybe slightly before or slightly after. I hope that that helps.
Speaker Change: As a reminder, telco broadband batteries bring higher credits.
Speaker Change: We mentioned priore tax rate, 20% to 21% versus 18, 9% and 24.
Speaker Change: Slightly higher right there on discrete the geography of earnings and the impact of the global minimum tax and other pillar tax coming into play we have not baked <unk> into the guidance and that will depend on when we actually close which we expect will be near the end of our first quarter, maybe slightly before slightly after I hope that helps.
Blake Stuart Keating: Yeah, yeah, helps a lot. Thank you for the detail. And then on Brentronics, you guys called out that it plays in the lithium portable space. Is that an adjacent market, the port of the portable market? Is that an adjacent market you guys are looking to enter? You know, are you able to leverage? Do you expect to be able to leverage Brentronics technology to other business lines for other adjacencies as well?
Speaker Change: Yes, yes. It helps a lot. Thank you for the detail.
Speaker Change: And then on Brian Sonics, you guys called out that it plays in the lithium portable space is that in an adjacent market reported the portables market is that an adjacent market you guys are looking to enter.
Speaker Change: Are you able to leverage do you expect to be able to leverage <unk> technology to other business lines for other adjacencies as well.
David M. Shaffer: Absolutely. It's very exciting in terms of their focus and ours. Aligned customers, a lot of aligned technology, but not a lot of product or customer overlap. Their focus has mostly been on soldier power, so smaller packs for radios, GPS locators, all the things, and then the chargers that are associated with it. They've got some really cool charging products that marry up with these portable power products. And then they have developed a lithium 6T battery, which is really a building block for old and future, larger, military, forward-based powering, energy storage systems, vehicle powering, and it just aligns well.
Speaker Change: Absolutely.
Speaker Change: Yes.
Speaker Change: It's very exciting in terms of their focus and ours.
Speaker Change: Our wind customers a lot of line technology, but not a lot of customer or not a lot of product or customer overlap. There focus has mostly been on.
Speaker Change: One soldier powering so smaller packs for radios GPS locators, all the things and then the charges that are associated with it they've got some really cool charging products that area for these portable power products.
Speaker Change: And then they've got.
Speaker Change: They developed a lithium <unk> battery, which is really a building block.
Speaker Change: And for all future larger.
Speaker Change: Military.
Speaker Change: <unk> based powering.
Speaker Change: Energy storage systems vehicle power and it just aligns well, where our strength has been mostly historically on the vehicle side submarine side. So great great potential sales synergies as we look forward as you noted very good engineering.
David M. Shaffer: And the other piece I think that's really important to me is that as we've spent time with their teams, and culturally, that group over there, it's a very warm culture and very focused on their folks, and so I just feel like culturally it's going to integrate very well. Jamie and the team are really jumping in. We want to start integrating from day one. As Andy noted, we've got to wait to get through this regulatory period, but in the meantime, we don't want to have any disruption.
Speaker Change: Synergistic capabilities and the other piece I think thats really important to me is as we spent time with their teams and culturally that group over there it's very warm culture.
Speaker Change: And very very focused on their folks.
Speaker Change: And so I just feel like culturally it is going to integrate very well, Jamie and the team are really jumping in we want to start integrating day one as soon as Andy noted, we've got to wait to get through this regulatory period, but in the meantime, we don't want to have any disruption my instructions, obviously as not to disrupt and make it any different for the customer so.
David M. Shaffer: My instructions, obviously, are not to disrupt or make it any different for the customer. So, really exciting opportunities, and one of the other really neat products that caught my attention is that they're working on battery packs, big battery packs, for directed energy weapons, which is really another way of saying laser beams that are going to shoot down drones and other options. So, just a lot of exciting opportunities at Brontronics.
Speaker Change: Really exciting opportunities.
Speaker Change: One of the other really need products that caught my attention.
Speaker Change: As Theyre working on battery packs Big battery packs for directed energy weapons, which is really another way of saying laser beams that are going to shoot down.
Speaker Change: Drones and other options so.
Speaker Change: Just a lot of exciting opportunities in front of <unk>.
Andrea J. Funk: Yeah, and you know, as Dave mentioned, the strategic fit is really exciting. We have a history of working together. So this is not a new company to us, which gives us a lot of confidence in the cultural fit. In fact, as you may recall, we recently announced that Brentronic and EnerSys recently won a co-development $6 million DIU Defense Innovation Grant to establish a domestic supply chain for lithium cells. So we've got, you know, synergies on sales, cross selling, and ultimately, opportunities for synergy and capacity expansion in the future as the business grows, but we did not really use synergy as a story for the valuation metrics. And as a reminder, it was about a $208 million purchase price, and they have approximately $100 million in annual revenue. And, you know, we bought them at an 8.7 multiple, so immediately a creative
Speaker Change: As Dave mentioned, the strategic fit is really exciting we have a history of working together. So this is not a new company to us which gives us a lot of confidence in the cultural fit.
Speaker Change: In fact, you may recall, we had announced that Brent Tronic and Enersys recently won a co development $6 million <unk> defense innovation grant to establish a domestic supply chain for lithium cells. So we've got synergies on sales cross selling ultimately opportunities for synergy on capacity.
Speaker Change: Expansion in the future as the business grows, but we did not really use synergy is a story for the valuation metrics.
Speaker Change: And as a reminder, it was about a $208 million purchase price they have approximately $100 million of annual revenue and.
Speaker Change: We bought them at $8 seven multiple so immediately accretive.
Blake Stuart Keating: Got it, understood. I'll pass it along. Thank you. Unknown Speaker.
Speaker Change: Got it understood I'll pass it along thank you.
Operator: One moment for our next question. Our next question comes from Greg Wasikowski with Weber Research and Advisor. Your line is open.
Speaker Change: Yes.
Speaker Change: One of them for the question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Greg Lukowski with Weber Research and Advisory your line is open.
Greg Wasikowski: Hey, good morning, David, and Andy. How are you doing?
Speaker Change: Hey, good morning, David Andy how are you doing.
David M. Shaffer: Good, Greg. Great.
Greg Wasikowski: Hey, Greg how are you doing Greg.
Unknown Attendee: Unknown Attendee: Yes, I'm doing great. Just one quick one from me. Other ones have been asked already. I'm just curious with tons of margin improvement over the last year or two, and then lots of moving pieces here with the acquisition, energy systems, volatility, and fast charging growth. I'm just curious. As we look ahead, what would you say would be your targeted steady-state gross and operating margin targets, maybe with and without the IRA credits just to get a sense of, you know, if we ever reach a steady state, but just an idea of how you guys look at it long-term and where you'd like to sit. Yeah,
Speaker Change: He is doing great.
Speaker Change: Just one quick one from me other ones have been asked already.
Speaker Change: Curious with.
Speaker Change: Tons of blended margin improvement over the last year or two and then lots of moving pieces here with the acquisition of energy systems volatility fast charging growth.
Speaker Change: Just curious.
Speaker Change: As we look ahead what would be.
Speaker Change: Say would be your targeted steady state gross and operating margin targets, maybe with and without the IRA credits just to get.
Speaker Change: If we ever reach a steady state, but just.
Speaker Change: As an idea of.
Speaker Change: How you guys look at it long term and where you'd like to set.
David M. Shaffer: Yeah, Greg, it was interesting, Andy and I had a conversation the other day about what is normal, and kind of what we got back to is it's really the CAGRs for the revenue CAGR ranges that we laid out in our investor day model most recently. So that for us, and we have just tremendous confidence about the EF getting back on track to what we laid out. There's just too much out there, there's too much digitization, there's too much investment yet to be made in small sales not to think that that is inevitably going to come back.
Speaker Change: Yeah, Greg It was interesting we had a conversation to Andy and I'm here today as to what is normal.
Speaker Change: And kind of what we got back to us.
Speaker Change: It's really the CAGR is the revenue CAGR ranges that we've laid out in our Investor Day model. Most recently, so that for us and we have just a tremendous confidence about the EES getting back on.
Speaker Change: On track to what we laid out there is just too much out of it as two months Digitization theres too much investment yet to be made in small cells not to not to think that that is inevitably going to come back. So that's what we're using so our kind of baseline for normalcy is what we laid out of them in that investor.
David M. Shaffer: So that's what we're using. So our kind of baseline for normalcy is what we laid out in that investor day model. And clearly, there are puts and takes, but we remain very consistent and committed to what we put out there. Andy, is there anything else I missed?
Speaker Change: Today model and clearly Theres puts and takes but we remained very consistent and committed to what we put out there and these are anything else I mean, yes.
Andrea J. Funk: Yeah, you know, Greg, obviously we're not, we're reiterating the targets that we set out, and I believe they're well within reach. As you recall, our fiscal 27 operating margin target was 14 to 16%, and you know, we finished fiscal 24 at 12.6%.
Speaker Change: Obviously, we're not.
We are reiterating the targets that we set out and I believe they are well within reach.
Speaker Change: Our fiscal 2007 operating margin target with 14% to 16%.
Speaker Change: And we finished 24 at 12, 6% we fully.
Andrea J. Funk: We fully expect the incremental margin improvement efforts that we had mentioned previously, you know, motive power maintenance, free conversion, specialty aftermarket, higher margin, energy systems, the power electronics, OPEX leverage by not growing our operating expenses at the same rate as revenue, particularly after we load on things like our fast charge and storage revenue that we've been investing in and lithium revenue that we're now just starting to benefit from, as well as the lean initiatives that Patrice is So, again, we're still bullish on our fiscal 27 targets in the aggregate.
Speaker Change: Back to the incremental margin improvement.
Speaker Change: Efforts that we had mentioned previously in a motive power maintenance free conversion specialty aftermarket higher margin.
Speaker Change: Energy systems, the power electronics Opex leverage by not growing our operating expenses at the same rate as revenue, particularly after we load on things like our fast charging storage revenue that we've been investing in in lithium revenue that we're now just starting to benefit from as well as lean initiatives that Patrice is leading with our Eos.
Speaker Change: Work.
Speaker Change: So again.
Speaker Change: We're still bullish on our fiscal 2007 targets in the aggregate and.
Andrea J. Funk: And, you know, that's where we think we'll be exiting 27 as a new normal going forward. Yeah, Greg, a big part of this is the performance in our TPPO factories. And as you know, the downturn in ES was very, very rapid.
Speaker Change: That's where we think we'll be we'll be exiting 'twenty seven is it new normalcy going forward, yes, Greg Big part of this is the performance of our <unk> factories.
Speaker Change: As you know.
Speaker Change: Yeah.
Speaker Change: Downturn.
Jerry: Yes. This is Jerry.
Jerry: Very rapid.
Jerry: And that's.
David M. Shaffer: And that did cause us to retool and refocus. You see signs of improvement in our results this quarter. We still have more work to do, and ultimately, all our forward investments are gonna be more flexibility in our factory so that we can adjust or adapt to these market shifts. But this one was very, very rapid, and it's been a challenge for us, but I'm pleased with the progress. And later this year, we're gonna have the ability to make whatever the market needs.
Speaker Change: That did cause us to retool and refocus you see signs of improvement in our results. This quarter, we still have more work to do and ultimately all of our <unk> forward investments are going to be more flexibility in our factories. So that we can adjust or adapt to these market shifts but this one.
Speaker Change: This one was very very rapid and it's been.
Speaker Change: Been a challenge for us, but I'm pleased with the progress and.
Later this year, we're going to have the ability to make whatever the market needs.
Greg Wasikowski: Yep, always puts and takes, but that's a helpful context. Appreciate it, guys. I'll follow up with Andy offline on a few more later on. Thank you.
Speaker Change: Yes.
Speaker Change: Puts and takes.
Speaker Change: Helpful context, I appreciate it guys I'll follow up with Andy outlined a few more later on thank you great. Thanks, Greg.
David M. Shaffer: Great. Thanks, Greg.
David M. Shaffer: And I'm not showing any further questions at this time. I'd like to turn the call back over to Dave for any closing remarks.
Speaker Change: And I'm not showing any further question at this time I'd like to turn the call back over to Dave for any closing remarks.
David M. Shaffer: Thanks, Kevin. Well, I just want to thank everybody for joining us today, and if there are any additional questions, then everyone have a great week.
Kevin: Thanks, Kevin well I just wanted to thank everybody for joining us today.
Speaker Change: If theres no additional questions and everyone have a great week.
Operator: We did have one person just queue up; did you want to go ahead and take that real quick?
Speaker Change: We did have one person just queue up if you will.
David M. Shaffer: Oh, sure. I'm sorry about that. Go ahead. But, for one moment.
Speaker Change: Great.
Speaker Change: Oh sure I'm, sorry about that go ahead I'm all for one moment.
Operator: Our next question comes from Tyler Dimato with BTIG. Your line is open.
Our next question comes from caller demand with <unk>. Your line is open.
Tyler Dimato: Hey guys, thanks for squeezing me in here. I appreciate it. I just want to follow up on some of the comments surrounding the targeted raw material reductions and really just broadly supply chains and maybe just kind of address the state of play in the supply chain markets, any puts and takes surrounding it, you know, maybe just what you're seeing generally broadly for different reasons or just any key colors there. I would appreciate it. Thank you, guys.
Speaker Change: Hi, Tyler.
Tyler: Hey, guys. Thanks for squeezing me in here I appreciate it.
Tyler: I just wanted to follow up on some of the comments surrounding the targeted raw material.
Tyler: And really just broadly supply chains, and maybe just kind of.
Speaker Change #100: The address the state of play.
Speaker Change #100: Supply chain market any puts and takes around maybe just what youre seeing generally.
Speaker Change #100: Raleigh and different reasons, just any key colors there.
David M. Shaffer: Yeah, I would say in general, for our supply chains, most everything is normalized. I don't know that from an EnerSys perspective; I'll hear some noise once in a while about certain chipsets or something, but in general, our supply chain is back to where it was. I think some of our customers, though, especially in the forklift material handling sector, are still struggling, and boy, some of the lead times that they're still experiencing are crazy. I've heard numbers like 18 months on certain sizes.
Speaker Change #101: Appreciate it thank you guys.
Speaker Change #102: Yes, I would say in general for our supply chains. Most everything is normalized I don't know that from an <unk> perspective of your some noise once in a while about certain chipsets or something but in general our supply chain is back to where it was I think some of our customers though.
Speaker Change #102: Especially in the forklift material handling sector are still struggling and why.
Speaker Change #102: Some of the lead times that they are still experiencing their crazy I've heard numbers like 18 months on certain sizes. So there is still pockets of supply chain constraints and pressures.
David M. Shaffer: So there are still pockets of supply chain constraints and pressures, so that's more on the demand side for us, and that impacts how we, when they order products and how long they sit in backlog for us, but those are my biggest, that's what's on my radar screen. Andy, is there anything from a commodity or supply chain that's on your radar screen? Yeah, I would say, you know, just a few other notes.
Speaker Change #102: So that's more on the demand side for us and that that impacts how we.
Speaker Change #102: When they order products and how long they sit in backlog for us, but those are my biggest.
Speaker Change #103: That's what's on my radar screen, Andy is there anything from a commodity or supply chain thats in your radar screen.
Andrea J. Funk: Freight's been a bright spot, you know, particularly air and ocean freight. We've seen some improvements there. Commodity costs overall, some are down, some are up, but in the aggregate, they're down. We've had a little bit of a spike in lead. Now it's crossed over a buck, but, you know, that's certainly manageable within our internal processes to be able to control. As we mentioned, utilities. If you recall last year, we had utility costs spiking, particularly in Europe, and we implemented a utility adder. This year, we don't have that. I think that's one of the items that we called out. Last year, we had a $5 million utility adder.
Speaker Change #103: Just a few other notes.
Speaker Change #104: It's been a bright spot.
Andy: Particularly air and Ocean freight we've seen some improvements there commodity costs overall.
Speaker Change #105: Some are down some are up within the aggregate theyre down we've got a little bit of a spike in led now it's crossed over a buck, but that's certainly manageable within our internal processes to be able to.
Speaker Change #105: Control as we mentioned utilities, if you recall last year, we had.
Speaker Change #105: Utility costs spiking, particularly in Europe, and we implemented a utility at her this year, we don't have that I think thats one of the items that we called out.
Speaker Change #105: Last year, we had a $5 million utility added or as an example, this year, we don't have that but we also don't have the utility costs.
Andrea J. Funk: As an example, this year, we don't have that, but we also don't have utility costs. So that'll show up as a negative price mix but an improvement in cost. So more than anything, you know, we show these charts both internally at every one of our LOB meetings, as well as present them to our board of directors. Last quarter, we had these huge spikes in cost, and then to catch up with our price mix, those things are all leveling out.
Speaker Change #105: That will show up as a net negative price mix, but a improvement in cost.
Speaker Change #105: So more than anything we show we showed these charts both internally at every one of our meetings as well as presenting to our board of directors previous quarters. We have these huge spikes in cost and then the catch up with our price mix. Those things are all leveling out so cost tends to be now pretty flattish in <unk>.
Andrea J. Funk: So cost tends to be pretty flattish now, in fact, in some cases, a slight improvement. And the price mix, other than these nuances of impact on things like lithium and the utility adder remover, it's just the mixed improvements that we're seeing, particularly the strong maintenance-free conversions in motive power. Does that make sense?
Speaker Change #105: In some cases of slight improvement and the price mix other than these nuances of impact on things like lithium and utility added remover.
Speaker Change #105: It's just the mix improvements that we're seeing particularly the strong maintenance free conversions and noticed power does that help.
Tyler Dimato: Yeah, no, very helpful. Thanks for parsing that out on the supply and demand side as well. I really appreciate the time. Thank you.
Speaker Change #106: Yeah, no very helpful. Thanks for parsing that out on the supply and demand side as well that really appreciate the time. Thank you.
David M. Shaffer: All right. Thank you.
Operator: And I'm not showing you any further questions at this time.
Cotter: Alright, Thank you Cotter.
I'm not showing any further questions at this time.
David M. Shaffer: All right, Kevin. Kevin, thank you very much. Everyone, thanks for joining the call, and we'll see you in 90 days.
Cotter: Alright.
Kevin: Kevin. Thank you very much everyone. Thanks for joining the call and we'll see a 90 days have a safe Memorial day weekend.
David M. Shaffer: Have a safe Memorial Day weekend.
Speaker Change #108: Ladies and gentlemen. This concludes today's presentation you may now disconnect and have a wonderful day.
Speaker Change #108: Okay.
Speaker Change #108: [music].
Speaker Change #108: Okay.