Q1 2025 EnerSys Earnings Call

August 8, 2024

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Operator: hear an automated message advising that your question is on hold. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lisa Hartman, VP of Investor Relations.

Lisa Hartman: Good morning, everyone. Thank you for joining us to discuss EnerSys' first quarter fiscal 2025 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 first quarter 2025 results and filed our 10-Q with the SEC, which are available on our website. We have also posted slides that we will be referencing during this call.

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 certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements 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 recent 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 difference between the GAAP and non-GAAP financial metrics, please see our company's Form 8-K, which includes our press release dated August 7, 2024. And with that, I will turn the call over to Dave. Thank you, Lisa.

David Shaffer: Thank you, Lisa, and good morning. Please turn to slide four. In the first quarter of our new fiscal year, we delivered EPS at the midpoint and revenue slightly below the low end of our guidance range. Our balanced business portfolio, price stickiness, and disciplined OPEC spending are helping to mitigate uneven demand across key end markets. Gross margin was 28 percent, and adjusted operating earnings were slightly lower than the prior year due to net volumes and mixed headwinds, which were largely offset by cost improvements and increased IRA benefits.

David Shaffer: The current macro environment has influenced several of our customers towards more cautious spending patterns, which has created pockets of order delays for us, but we are not experiencing cancellations. Although some of the first quarter's market headwinds are expected to persist into our second quarter, we see promising demand indicators and positive momentum across our business for the second half of the fiscal year. We remain focused on what we can control, driving price mix improvements, optimizing our cost structure to flex through cycles, improving productivity through automation and flexibility, and advancing our transformative strategic priorities, such as our planned domestic lithium plant, our new fast charge and storage business, and accretive bolt-on acquisitions like Brentronics. Positive demand signals and opportunities, combined with focused execution, give us optimism in our ability to deliver our full-year financial projections. While overall orders were down slightly year-over-year, order rates improved over the course of the quarter.

David Shaffer: The quality of our backlog is healthy, with the first sequential increase in energy systems backlog in eight quarters, offset by seasonal declines in mode of power and specialty. Andy will give detail on our first quarter fiscal 25 performance and outlook, but I will first provide a few more highlights and business drivers behind the results. In energy systems, sales were down compared to the prior Q1, driven by declines in communications, partially offset by robust data center demand, where we see ongoing opportunities with our high-discharge energy storage data center solutions. We believe our communications customers have more than worked through their inventory surpluses, and the deferred spending that is occurring is unsustainable to maintain network resiliency.

David Shaffer: Andy will give detail on our first quarter fiscal 25 performance and outlook, but I will first provide a few more highlights and business drivers behind the results. Q1 book-to-bill in energy systems was favorable at greater than 1, driven by North America communications at 1.09. We exited the quarter seeing encouraging order trends in telco but expect broadband recovery to be a second-half fiscal 25-story based on current backlog, orders, and project flows. Adjusted operating earnings were impacted by the drop in Class VIII OEM volumes and increased costs related to underabsorption in our plants, also resulting from lower communications and transportation volumes.

David Shaffer: We believe this has created pent-up demand that we expect will begin to materialize throughout this fiscal year, with a pickup in quarter-end orders pointing to the beginning of a recovery now underway. In the quarter, Energy Systems achieved $7 million of sequential cost savings as a result of the significant cost improvement actions we implemented over the past two quarters. However, these savings were masked by lower sales with a weaker product mix, particularly from delayed customer spending on high-margin power electronics.

David Shaffer: As a result, we only saw a modest sequential improvement flow through to adjusted operating earnings in Q1. We expect full visibility of these actions in the second quarters as volumes begin to pick up. We also conducted another round of price increases across the business, reset contracts, and adjusted tier pricing to contractors. Q1 book-to-bill in energy systems was favorable at greater than 1, driven by North America communications at 1.09.

David Shaffer: We exited the quarter seeing encouraging order trends in telco, but expect broadband recovery to be a second-half fiscal 25-story based on current backlog, orders, and project flows. Motive Power was a bright spot, with volumes and margins increasing versus the prior year, driven by consistent customer demand in logistics and warehousing and continued customer enthusiasm over our higher margin proprietary maintenance-free offerings. Customers are adopting our higher energy-density solutions that provide them with longer-term cost savings through operational efficiency, lower labor costs, and lower water and energy usage compared to traditional batteries and chargers.

David Shaffer: Our maintenance-free solutions grew to 24% of total Motive Power sales in Q1, versus 19% in the prior year. Industry data supports our expectations of mid- and long-term expansion. For example, a leading industry association's confidence index shows current conditions during the second quarter of 2024 improved versus last quarter, and the future conditions index grew well above the threshold indicative of expansionary conditions. Our backlog remains well above pre-pandemic levels, although we saw a slight reduction in backlog with book-to-bill at 0.9 on summer month seasonality and some advanced orders in Q4 after an announced price increase. In specialty, revenue and adjusted operating earnings in the quarter were down, with performance impacted by a dramatic softening of activity in the broader Class A truck OEM market, not specific to EnerSys.

David Shaffer: Our customers, both OEMs and fleets, are indicating that volume should increase in the back half of our fiscal year as shipping tonnage rebounds as the California Air Resources Board CARB 27 deadline approaches. Aerospace and defense demand remains strong, with a solid order backlog and several aerospace and defense opportunities in the pipeline. Our A&D business will, of course, be further bolstered by our recently closed acquisition of Brentronics. However, adjusted operating earnings were impacted by the drop in Class VIII OEM volumes and increased costs related to underabsorption in our plants, also resulting from lower communications and transportation volumes.

David Shaffer: Despite the timing of the resumption of Class VIII orders, we have a significant opportunity in front of us with transportation through our trucking aftermarket channels in the premium automotive market with our retail and aftermarket partners. We are actively working with these customers to build the necessary inventory to achieve the required service levels with the appropriate product mix, which will enable us to accept higher-margin business. We expect this ramp-up to begin in the second half of our fiscal year.

David Shaffer: As discussed last quarter, our Missouri plant's output is improving, and we will begin to install new lines that will afford us increased and more flexible production capacity in the fall. The incremental volume with better cost absorption will further drive earnings expansions on top of the accretive impact of Brentronics. In energy systems, our DPX outdoor fault-managed power supply received a critical U.S. certification, and we are leading the industry by being the first company to receive certification for a Class IV outside plant solution.

David Shaffer: As discussed last quarter, our Missouri plant's output is improving, and we will begin to install new lines that will afford us increased and more flexible production capacity in the fall. The incremental volume with better cost absorption will further drive earnings expansions on top of the accretive impact of Brentronics. In our new ventures line of business, we are in the final testing phase of our first commercial-ready fast charge and storage system, which we are prepping for delivery to our launch customer site in Canada in the coming weeks. Please turn to slide five.

David Shaffer: The team is making exciting progress on our strategic priorities. Let me share some of the highlights from our first quarter, starting with Innovate. In our realm of power products, we are preparing to launch our Nexus 48-volt heavy-duty lithium batteries, and we received our first order for two units. We also received our first orders for 22 Nexus outdoor chargers this quarter. This product has the opportunity to be a game changer as customers convert from internal combustion to electric lift trucks in outdoor applications, and with regulations such as CARB, which aim to phase out gas-powered forklifts in favor of zero-emission technologies.

David Shaffer: The shift to electric forklifts is becoming increasingly significant. In energy systems, our DPX Outdoor Fault Managed Power Supply received a critical U.S. certification, and we are leading the industry by being the first company to receive certification for a Class IV outside plant solution. We continue to focus on optimizing the business as well. As we mentioned last quarter, we have taken specific actions to improve performance and efficiency, particularly in energy systems. We have optimized our footprint and organization, conducted targeted restructuring, invested in high-speed, flexible production capacity, and streamlined our operations.

David Shaffer: We are continuing to advance on our TPPO manufacturing flexibility initiatives in Missouri, yielding further productivity improvements in the quarter, and are focused on scrap rates, assembly performance, and SCIOF execution, driving a nearly $100 million reduction in inventory versus the prior year on top of operational cost improvements. Our investments in production flexibility remain on track for completion in the second half of the fiscal year, and we are Accelerating. We continue to advance in the development of our lithium-ion cell gigafactory.

David Shaffer: We are formalizing our collaborative relationship with Vercore, making investments to support their growth, and progressing on the key agreements which will support our factory operations. We recently met with the U.S. Department of Energy to review our application for additional funding for our plant. We look forward to learning the results of these funding allocations, which are expected to be announced in the coming weeks. At that point, we will share with you the full project budget and timeline. We've updated our model to include the recent tariff announcements, which have further solidified our make-versus-buy justification. Please turn to slide six.

David Shaffer: On July 26th, we were pleased to announce the closing of our acquisition of Brentronics and to welcome the team into EnerSys. This acquisition, which expands our presence in critical defense applications, broadens our lithium product offerings, strengthens our product development capabilities, provides incremental growth opportunities, and is immediately accretive to earnings, As previously disclosed, in calendar year 2023, Brentronics generated approximately $100 million in sales with EBITDA margins around 25%. We're implementing a detailed integration plan that has been developed over the past several months with a dedicated cross-functional team from both EnerSys and Brentronics.

David Shaffer: On July 26th, we were pleased to announce the closing of our acquisition of Brentronics and to welcome the team into EnerSys. This acquisition, which expands our presence in critical defense applications, broadens our lithium product offerings, strengthens our product development capabilities, provides incremental growth opportunities, and is immediately accretive to earnings. As previously disclosed, in calendar year 2023, Brentronics generated approximately $100 million of sales with EBITDA margin

David Shaffer: We're implementing a detailed integration plan that has been developed over the past several months with a dedicated cross-functional team from both EnerSys and Brentronics. Our priority is to ensure minimal disruption commercially and operationally while we rapidly execute corporate and back-office integration. Please turn to slide 7. On the governance front, last week, we held our annual shareholder meeting, where our stockholders elected two new members of our board, Mr. David Habegger and Ms. Lauren Nozenberger.

David Shaffer: Our priority is to ensure minimal disruption commercially and operationally while we rapidly execute corporate and back-office integration. It is with sincere thanks and deep gratitude that we say farewell to long-standing board members Art Katsaris, our chairman for the past eight years, General Robert Magnus, and Wan Chung. We truly appreciate their commitment and 53 collective years of dedicated service. And we congratulate Paul Tufano, our new board chairperson. I will now turn it over to Andy to take you through our results and outlook in greater detail.

David Shaffer: David is the CEO of JD Power, a provider of data analytics, software, and consumer intelligence. David has a demonstrated history of driving change within industry-led security protocols globally. Lauren is the Executive VP and Chief Innovation Officer at SAIC, a provider of engineering, digital, artificial intelligence, and mission solutions across the defense, space, civilian, and intelligence markets. Lauren is a globally recognized thought leader and change agent in technology, digital modernization, and cybersecurity.

David Shaffer: I am pleased to welcome David and Lauren to our Board of Directors, whose expertise and skill sets are well-matched to our industrial technology transformation. It is with sincere thanks and deep gratitude that we say farewell to longstanding board members, Art Katsaris, our chairman for the past eight years, General Robert Magnus, and Wan Chung. We truly appreciate their commitment and 53 collective years of dedicated service. And we congratulate Paul Tufano, our new board chairperson. I will now turn it over to Andy to take you through our results and outlook in greater detail.

Andy: First quarter net sales of $853 million were down 6% from the prior year, driven by a 3% decrease in volume due to the temporary market headwinds in communications and Class VIII OEM markets that Dave discussed, as well as 2% price mix pressure from lower proportionate sales of higher-margin power electronics and an FX headwind of 1%. Excluding the IRA benefits, adjusted EPS was down over 15% versus the prior year. Let me now provide details by segment.

Andrea Funk: Please turn to slide nine. First quarter net sales of $853 million were down 6% from the prior year, driven by a 3% decrease in volume due to the temporary market headwinds in communications and Class 8 OEM markets that Dave discussed, as well as 2% price mix pressure from lower proportionate sales of higher-margin power electronics and an FX headwind of 1%. We achieved an adjusted gross profit of $238 million, down $5 million year-on-year, including a little over $30 million of IRA benefits booked as a reduction of cost of goods sold in the quarter.

Andrea Funk: Q1 adjusted gross margin improved by 120 basis points versus prior year to 28% due to higher IRA benefits. As you may recall, in the third quarter of fiscal year 2024, we validated an expansion of our batteries that qualify for IRA credit.

Andrea Funk: Excluding the IRA benefits, adjusted growth margin was down a little over 50 basis points year over year due to the impact of lower proportionate power electronic sales that I just mentioned. Our adjusted operating earnings were $106 million in the quarter, slightly lower than in the prior year, with an adjusted operating margin of 12.4%.

Andrea Funk: This decline is attributable to the temporary softness in the communications and Class 8 OEM end markets, net of cost improvements Dave mentioned earlier. Adjusted EBITDA was $121 million, a slight decrease of approximately $1 million versus the prior year, while adjusted EBITDA margin was 14.2%, up 70 basis points versus the prior year on the expanded IRA benefit. In line with our guidance range, adjusted EPS for the first quarter was $1.98 per share, an increase of 5% over the prior year.

Andrea Funk: Excluding the IRA benefits, adjusted EPS was down over 15% versus the prior year. In the first quarter of fiscal 2025, our effective tax rate was 11.6% on an as-reported basis and 20.8% on an as-adjusted basis before the benefit of the IRA compared to 17.6% in Q1-24. Let me now provide details by segment. Please turn to slide 10.

Andy: In the first quarter, energy systems revenue declined 15% from the prior year to $361 million, primarily driven by the lower volume and price-mix pressure previously mentioned on top of FX headwinds. Adjusted operating margins were near record highs at 15.3%, up 90 basis points versus Q1-24. Despite mixed macro signals, we remain optimistic about growth opportunities and motive power as we introduce new customer solutions, the overall demand trends remain healthy, and our proprietary maintenance-free products continue to support our customers' growing needs for automation, electrification, and decarbonization solutions.

Andrea Funk: In the first quarter, energy systems revenue declined 15% from the prior year to $361 million, primarily driven by lower volumes and price-mix pressure previously mentioned on top of FX headwinds. Adjusted operating earnings of $19 million improved sequentially on lower revenue as we saw the benefits of our cost reduction efforts but were $11 million lower than the prior year on the basis of soft market conditions. Adjusted operating margin of 5.3% was up 60 basis points sequentially but decreased 170 basis points versus the prior year.

Andrea Funk: We are beginning to see favorable signals in key energy systems and markets, with increasing order trends giving us optimism for sequential improvement throughout the end of the fiscal year. Please turn to slide 11. Versus the prior year, Modus Power revenues increased 4% to $366 million on a 6% volume increase, partially offset by price mix and FX. The reduction in price mix is due to the elimination of a zero margin utility adder that was in place last fiscal year when European utility costs spiked.

Andrea Funk: Modus Power again reported strong adjusted operating earnings this quarter, contributing $56 million, up 11% over the prior year. Adjusted operating margins were near record highs at 15.3%, up 90 basis points versus Q1-24. Despite mixed macro signals, we remain optimistic about growth opportunities and motive power as we introduce new customer solutions, the overall demand trends remain healthy, and our proprietary maintenance-free products continue to support our customers' growing needs for automation, electrification, and decarbonization solutions. Please turn to slide 12. Specialty revenue decreased 6% from the prior year to $126 million on 3% lower volume and a 3% reduction in price mix.

Andrea Funk: Q125 adjusted operating earnings of $4.9 million were half of prior-year AOE, with an adjusted operating margin of 3.9% down 350 basis points. As Dave mentioned, margins in this business were pressured by the impact of lower class 8 OEM transportation volumes and the impact of under-absorption in our Missouri plants. We made progress in our Missouri factory operations performance during the quarter and have line of sight to continued improvement this fiscal year, which will be more visible when communications and transportation volumes pick up and we're able to enjoy better absorption of our plant overhead costs.

Andy: As Dave mentioned, margins in this business were pressured by the impact of lower class 8 OEM transportation volumes and the impact of under-absorption in our Missouri plants. We made progress in our Missouri factory operations performance during the quarter and have line of sight to continued improvement this fiscal year, which will be more visible when communications and transportation bonds pick up and we're able to enjoy better absorption of our plant overhead costs.

Andrea Funk: Although Class VIII OEM transportation demand weakened this quarter, given the significant incremental transportation aftermarket opportunities and broad strength of A&D end markets, combined with the enhanced high-speed, flexible capacity expansion we anticipate in the coming quarters, we remain optimistic about our opportunities and specialty.

Andrea Funk: On July 26, we closed on the acquisition of Rentronics, which is adding profitable growth to our existing business, and we will discuss the impact of the acquisition further as part of our guidance; please turn to slide 13. Operating cash flow in the quarter was a positive $10 million, with primary operating capital increasing slightly on transportation inventory bills to prepare us to take on aftermarket demand in the second half of the year.

Andrea Funk: Receivables were again a positive as we focused on collections. Operating cash flow also absorbed normal year-end variable compensation, rebates, and incentives payout, as is typical in our first fiscal quarter. As noted last quarter, the full benefit of the IRA credits will not have the full positive impact on our cash flow until our fiscal year 2024 tax filings are finalized, and we receive our first 45X expected tax refund from the IRA of approximately $100 million near the end of fiscal 2025.

Andy: Operating cash flow also absorbed normal year-end variable compensation, rebates, and incentives payouts, as is typical in our first fiscal quarter. Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. Please turn to slide 14. During the first quarter, we paid $9 million in dividends and repurchased approximately $12 million in shares.

Andrea Funk: Lower operating cash flow from typical year-end payouts and delayed IRA monetization, combined with elevated CapEx of $36 million, including approximately $9 million from the purchase of land in South Carolina for a planned lithium plant, resulted in a negative adjusted free cash flow conversion during the quarter. As of June 30, 2024, we had $344 million of cash and cash equivalents, and our net debt of $565 million represented a reduction of approximately $125 million from the prior year. Our credit agreement leverage ratio was 1.1 times EBITDA.

Andrea Funk: Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. Note that although we incurred approximately $200 million of cash outlay for the Bertronix acquisition in the second quarter, we anticipate our net leverage will remain well below the low end of our two to three times target range, providing us with ample dry powder for our capital allocation decisions. Please turn to slide 14. During the first quarter, we paid $9 million in dividends and repurchased approximately $12 million in shares.

Andrea Funk: We currently have approximately $121 million remaining in our buyback authorization. During the quarter, we funded our investment of $11 million in VRCOR Series C rounds and made our initial milestone payment under our prototype agreement in July. We continue to screen for additional attractive bolt-on acquisition opportunities, like Bartronics, which meet our discipline, strategic, and financial criteria. Please turn to slide 15.

Andrea Funk: Our Board of Directors recently approved an increase in our quarterly dividend to $0.24 per share, up from $0.225 per share. As part of our disciplined capital allocation strategy, we are committed to a competitive dividend that grows with earnings excluding IRA benefits over time. We have ample room in our balance sheet to remain flexible to meet our business needs, and we will continue to allocate capital with the goal of delivering optimal returns to our shareholders. Please turn to slide 16.

Andy: We have ample room in our balance sheet to remain flexible to meet our business needs, and we will continue to allocate capital with the goal of delivering optimal returns to our shareholders. As a result, we remain cautiously optimistic about our fiscal year 2025 financial targets and are increasing the midpoint of our full year fiscal 2025 revenue guidance by $60 million and our full year fiscal 2025 adjusted diluted earnings per share guidance by 25 cents per share to include the incremental benefits of our acquisition of Brentronics on top of the base business expectations that were in our previous guidance.

Andrea Funk: We remain optimistic about the trajectory of our business and are particularly pleased with our continued ability to maintain pricing. While mixed market dynamics remain, we are seeing positive demand indicators and are pursuing incremental market opportunities. In addition, we have taken substantial actions to improve our overall margin profile and are beginning to see the benefits of these actions in our financial results.

Andrea Funk: As a result, we remain cautiously optimistic about our fiscal year 2025 financial targets and are increasing the midpoint of our full year fiscal 2025 revenue guidance by $60 million and our full year fiscal 2025 adjusted diluted earnings per share guidance by 25 cents per share to include the incremental benefits of our acquisition of Brentronics on top of the base business expectations that were in our previous guidance. Our fiscal second quarter 2025 guidance range is $880 million to $920 million in net sales, with adjusted diluted EPS of $2.05 to $2.15 per share.

Andrea Funk: Our guidance anticipates a modest sequential improvement in North America communication spending and energy systems, modest transportation aftermarket growth and specialty, and incremental revenue and earnings from Brentronics. Our fiscal year 2025 guidance range is now $3,735,000,000 to $3,885,000,000 of net sales, up from prior guidance of $3,675,000,000 to $3,825,000,000. Adjusted diluted EPS is now $8.80 to $9.20 per share, up from prior guidance of $8.55 to $8.95 per share and with a pre-IRA tax rate of 20% to 21%. Our CapEx expectation for the full year fiscal 2025 remains in the range of $100 million to $120 million. This does not reflect significant additional spending on our planned domestic lithium plant.

Andy: Our guidance anticipates a modest sequential improvement in North America communication spending and energy systems, modest transportation aftermarket growth and specialty, and incremental revenue and earnings from Brentronics. Our CapEx expectation for the full year fiscal 2025 remains in the range of $100 million to $120 million. This does not reflect significant additional spending on our planned domestic lithium plant. We plan to provide an update on the status of the plant and its impact on our fiscal 2025 expectations later this quarter.

David Shaffer: We plan to provide an update on the status of the plant and impact on our fiscal 2025 expectations later this quarter. In summary, we are confident that the foundation we have put in place, coupled with the investments we have made in our transformation, will deliver accelerating financial returns. The global concern over energy scarcity will persist as major trends drive a swift rise in the demand for reliable power. As a key provider of energy systems and storage solutions, EnerSys is well positioned to take advantage of this growth opportunity. We remain focused on delivering long-term value to our stockholders. With that, let's open it up to questions.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Noah Kaye of Oppelheimer and Company. Your line is now open.

Operator: Please stand by while we compile the Q&A roster.

Noah Kaye: Morning, thanks for taking the questions. I hope everyone's doing well.

Noah Kaye: And we continue to appreciate the full year guidance. And I have a related question to that, just around the back half growth expectations. And I think you were going through some of that in the assumptions on slide 16. But you know, at the midpoint of Guide, it's roughly a $300 million step up in revenue from the first half to the second half. And I'm just curious to understand how you think about bridging that gap.

Noah Kaye: We should have something like, I guess, a $25 million tailwind, first half versus second half from Brentronics, right? Having that for the full half, maybe some FCNS revenues. But what are the main drivers to consider that drive that step up? It sounds like a lot of it might come from specialty.

Operator: who will then hear an automated message advising that your hand is raised.

Operator: To withdraw your question, please press star 1, 1 again. Please be advised that the day's conference is being reported.

Lisa Hartman: I would now like to hand the conference over to your first speaker today, Lisa Hartman, VP of Investor Relations. Good morning, everyone. Thank you for joining us to discuss EnerSys' first quarter fiscal 2025 results. On the call with me today, our David Shaffer, EnerSys President and Chief Executive Officer and Andrea Funk, EnerSys Executive Vice President and Chief Financial Officer. Last evening, we published our first quarter 2025 results and filed our 10Q with the SEC which are available on our website.

David Shaffer: Well, that's some of it, Noah. This is David. Good morning. I would say ES recovery certainly is part of that, and I'll let Andy kind of add some dimensions here in a minute as she gets organized. The specialty piece and then continued stability in our mode of power businesses really are the main pieces that buttress that. But Andy, do you want to dimension that for Noah? Yeah, good morning, Noah.

Andrea Funk: Yeah, good morning, Noah. It's nice to hear your voice. Well, we carved out the braintronic separately, so you do see it. And really, if I want to go through each one of the lines of business, I'll give you a little bit of color. Energy systems, we see increasing demand throughout the balance of the year. It's going to be driven by improvements in wireless that we're mostly seeing, and some further margin expansion from power electronics, as well as strength and data centers.

Lisa Hartman: We also posted slides that we will be referencing during this call. The slides are available on the presentation's page within the Investor Relations section of our website. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. These statements are made only as of today. For a list of forward-looking statements and factors that could affect our future results, please refer to our recent 10K filed with the SEC.

Andrea Funk: So that's slow and steady, similar to last quarter, except that we are now seeing robustness coming in in the order book, where we hadn't been seeing that previously. In motive power, we'll have the normal second-quarter seasonality pressure, particularly in EMEA during the holidays, but we are seeing some strong order and quote activity, which gives us optimism. We expect to continue to benefit from the motive power conversions and some NPIs like wireless and outdoor chargers, but the lithium add-on will show a little bit of exaggerated volume and some pressure on price mix. In specialty, the second quarter is seasonally lower.

Lisa Hartman: In addition, we will be presenting certain non-gap 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 difference between the gap and non-gap financial metrics, please see our company's form A.K., which includes our press release dated August 7, 2024.

Andrea Funk: We'll benefit from about one month of the creative impact of braintronics. We're cautiously building that in, because obviously there's some transition-related activity that'll happen when you first bring them into our fold, but things are going really well there. We don't see material growth in the aftermarket or premium auto picking up until the second half. Industry data and some customer feedback, the upcoming carb regulations that Dave mentioned, they all give us the optimism that the class 8 OEM pause is temporary, but we do believe we'll be able to take on additional aftermarket volume when we've got the right inventory on the shelf and when our Missouri plant expansion is complete, which is really a second half story.

David Shaffer: And with that, I will turn the call over to tape. Thank you, Lisa. Good morning. Please turn to slide four. In the first quarter of our new fiscal year, we delivered EPS at the midpoint and revenue slightly below the low end of our guidance range. Our balanced business portfolio, price-stickingness, and discipline op-expending is helping to mitigate uneven demand across key end markets. Gross margin was 28%, and adjusted operating earnings were slightly lower than the prior year due to net volumes and mix headwinds, which were largely offset by cost improvements and increased IRA benefits.

Andrea Funk: The additional capacity is going to give us flexibility at lower cost through automation and enable better full plant cost absorption, but that's really going to be late in this fiscal year. We expect some fast charge and storage incremental revenue and to get some OPEX leverage, mostly on those aggressive actions that Sean took in place, but offset by some of the additional spending on fast charge and storage as we ramp. IRA remains $120 to $160 million per year, and as we mentioned, tax rates are a little bit higher, 20 to 21 percent in line with Q1, but higher than fiscal 24 on discrete geography of earnings and really the impact of the global minimum tax.

Andy: The additional capacity is going to give us flexibility at lower cost through automation and enable better full plant cost absorption, but that's really going to be late in this fiscal year. We expect some fast charge and storage incremental revenue and to get some OPEX leverage, mostly on those aggressive actions that Sean took in place, but offset by some of the additional spending on fast charge and storage as we ramp. IRA remains $120 to $160 million per year, and as we mentioned, tax rates are a little bit higher, 20 to 21 percent in line with Q1, but higher than fiscal 24 on discrete geography of earnings and really the impact of the global minimum tax.

David Shaffer: We remain focused on what we can control, driving price-mix improvements, optimizing our cost structure to flex through cycles, improving productivity through automation and flexibility, and advancing our transformative strategic priorities, such as our planned domestic lithium plant, our new fast charge and storage business, and a creative bolt-on acquisitions like printronics. Positive demand signals and opportunities combine with focused execution gives us optimism and our ability to deliver our full-year financial projection. While overall orders were down slightly year over year, order rates improved over the course of the quarter. The quality of our backlog is healthy, with the first sequential increase in energy systems backlog in eight quarters, offset by seasonal declines in mode of power and specialty.

Unnamed: Very comprehensive and helpful. Thanks.

Noah Kaye: Very comprehensive and helpful. Thanks.

Unnamed: Maybe just a bit more color on where within ES you're seeing that pick-up in orders. You mentioned wireless, but wondering if it's primarily, you know, the traditional macro base station type, you know, powering opportunity, anything in small cell, you know, just sort of characterize it. And you pointed out, I think, a couple of times in the prepared remarks and even just now, when you get the power electronics coming back in, really, really strong leverage expected on that. You know, is that mostly a back half story in your view?

Noah Kaye: Maybe just a bit more color on where within ES you're seeing that pick-up in orders. You mentioned wireless, but wondering if it's primarily, you know, the traditional macro base station type, you know, powering opportunity, anything in small cell, you know, just sort of characterize it. And you pointed out, I think, a couple of times in the prepared remarks and even just now, when you get the power electronics coming back in, really, really strong leverage expected on that. You know, is that mostly a back half story in your view?

David Shaffer: Any will give detail on our first quarter fiscal 25 performance outlook, but I will first provide a few more highlights and business drivers behind the results. In energy systems, sales were down compared to prior Q1 driven by declines in communications, partially offset by robust data center demand where we see ongoing opportunities with our high discharge energy storage data center solutions. We believe our communications customers have more than work through their inventory surpluses and the first spending that is occurring is unsustainable to maintain network resiliency.

David Shaffer: Right. I would say, um, let's talk about it in a little different way.

David Shaffer: Really, whether it's hybrid fiber-coaxial networks or wireless networks, the things that we see are there's network expansion, projects, and investment opportunities, and then there's network resiliency investments. What we're seeing come back across both sides, wireless and in the HFC networks, is the resiliency spending that we noted to you that you can only defer that for so long. And so that's the first piece to have come back

David Shaffer: We believe this has created pent-up demand that we expect will begin to materialize throughout this fiscal year with a pickup in quarter end orders pointing to the beginning of recovery now being underway. In the quarter, energy systems achieved $7 million of sequential cost savings as a result of the significant cost improvement actions we implemented over the past two quarters. However, these savings were massed by lower sales with a weaker product mix, particularly from delayed customer spending on high margin power electronics.

David Shaffer: I would say wireless resiliency has come back first, but we're starting to see some really good momentum building in the HFC network resiliency investments. And then in terms of projects and capacity expansions, we have ongoing dialogues about private networks, small cell projects, any number of projects, but that is the piece that really has acutely slowed down relative to the kind of that momentum we had during the, you know, a year or so ago.

David Shaffer: As a result, we only saw a modest sequential improvement flow through to adjusted operating earnings in Q1. We expect full visibility of these actions in the second quarters as volumes begin to pick up. We also conducted another round of price increases across the business, reset contracts, and adjusted tier pricing to contractors. Q1 booked a bill in energy systems was favorable at greater than 1 driven by North America communications at 1.09. We extended the quarter seeing encouraging order trends in telco but expect broadband recovery to be a second half fiscal 25 story based on current backlog orders and project flows.

David Shaffer: But the resiliency piece, which, again, similar to motive power, it's that replacement, it really helps to buttress us when the expansion and the new activity slows down a little bit. So that's where it's come back the most. And in terms of small cell projects, there is a lot of dialogue, but no real revenue drivers for me to talk to you about yet, but certainly many projects afoot.

Andy: Yeah, no, I can add a little bit of more color. This was the first time that our backlog increased in eight quarters. We America Telco Broadband booked a bill with 1.09 in the quarter. Our July bill in America was 1.1.

Andrea Funk: Yeah, no, I can add a little bit more color. This was the first time that our backlog increased in eight quarters. We, America Telco Broadband, booked a bill with 1.09 in the quarter. Our July bill in America was 1.1.

David Shaffer: Motive power was a bright spot with volumes and margins increasing versus the prior year driven by consistent customer demand and logistics and warehousing and continued customer enthusiasm over our higher margin proprietary maintenance free offerings. Customers are adopting our higher energy dense solutions that provide them with longer term cost savings through operational efficiency, lower labor costs, and lower water and energy usage compared to traditional batteries and chargers. Our maintenance free solutions have grown to 24% of total mode of power sales in Q1 versus 19% in the prior year.

Andrea Funk: So, you know, last quarter, we said this was kind of the wild card, and the pace of the recovery is still a little uncertain. But we said last quarter we weren't seeing it in our order book. Right now, we are starting to see it in our order book.

Andy: So you know, last quarter, we said this was kind of the wild card, and the pace of the recovery is still a little uncertain. But we said last quarter that we weren't seeing it in our order book. Right now, we are starting to see it in our order book.

Andrea Funk: So we're cautiously optimistic, very proud of the aggressive, bold actions that Sean took to improve the overall margin of EF, both in the peaks and valleys. And we feel very confident that we're going to be getting to eight to ten percent in the down cycle, not quite there yet. But we're confident that it's in reach. And, you know, even on an eight million drop in revenue sequentially, we did have a 60 BIP improvement. We're a little disappointed.

Andy: So we're cautiously optimistic, very proud of the aggressive, bold actions that Sean took to improve the overall margin of EF, both in the peaks and valleys. And we feel very confident that we're going to be getting to 8 to 10% in the down cycle, although not quite there yet.

David Shaffer: Industry data supports our expectations of mid and long-term expansion. For example, a leading industry association's confidence index shows current conditions during the second quarter of 2024 improved versus last quarter and the future conditions index grew well above the threshold indicative of expansionary conditions. Our backlog remains well above pre-pandemic levels although we saw a slight reduction in backlog with book debil at 0.9 on summer month seasonality and some advanced orders in Q4 after an announced price increase.

Andy: But we're confident that it's in reach. And you know, even on an $8 million drop in revenue sequentially, we did have a 60 BIP improvement. We're a little disappointed.

Andrea Funk: You didn't see the full $7 million cost improvements because they were masked by the volume recovery and further mixed pressure. But just to give you perspective, as Dave is mentioning, XM orders in the month of July were higher than the entire Q1. XM, as you know, is one of our proprietary power electronics products.

Andy: You didn't see the full $7 million cost improvement because it was masked by the volume recovery and further mixed pressure. But just to give you perspective, as Dave is mentioning, XM orders in the month of July were higher than the entire Q1. XMs, as you know, are one of our proprietary power electronics products.

Andy: Q1 represented the lowest revenue for these products in eight years, so even before the Alpha acquisition. This wasn't, you know, just I would say the low end of a cycle. This was, we really believe this was the trough.

Andrea Funk: Q1 represented the lowest revenue for these products in eight years. So even before the alpha acquisition, this wasn't, you know, just I would say the low end of a cycle. This was, we really believe this was the trough.

David Shaffer: In specialty, revenue and adjusted operating earnings in the quarter were down with performance impacted by a dramatic softening of activity in the broader class A truck OEM market, not specific to antersis. Our customers of OEM and fleets are indicating that volume should increase in the back half of our fiscal year as shipping tonnage rebounds in the California Air Resources Board car 27 deadline approaches. Aerospace and defense demand remains strong with a solid water backlog and several aerospace and defense opportunities in the pipeline.

Andy: And I think that, again, gets into that resilience investment we're talking about. And these kinds of expenses can only be deferred for so long. It's a perfect example.

Andrea Funk: And I think that, again, gets into that resilience investment we're talking about. And these kinds of expenses can only be deferred for so long. It's a perfect example.

Andy: And I would say in our Q1, that's probably the piece that surprised us the most, given, as Andy just noted, when we built our forecasts out, that was the lowest revenue on that skew in eight years. I mean, it was a crazy quarter in that sense. But you can only defer this for so long. The outlook has improved dramatically, and we're cautiously optimistic about the second half.

David Shaffer: And I would say in our Q1, that's probably the piece that surprised us the most, given, as Andy just noted, when we built our forecasts out, that was the lowest revenue on that skew in eight years. I mean, it was a crazy quarter in that sense. But you can only defer this for so long. The outlook has improved dramatically, and we're cautiously optimistic about the second half.

David Shaffer: Our AND business will of course be further bolstered by a recently closed acquisition of Ajusted operating earnings were impacted by the drop in Class 8 OEM volumes and increased costs related to underabsorption in our plants, also resulting from the lower communications and transportation volumes. Despite the timing of the resumption of Class 8 orders, we have a significant opportunity in front of us with transportation to our trucking aftermarket channels in the premium automotive market with our retail and aftermarket partners.

Noah Kaye: I really appreciate the detail and transparency here. I'll take all my additional questions offline. Thanks.

Operator: Thanks, Noah.

Gregory Lewis: Thank you. The next question is going to be from Greg Lewis from BTIG. Your line is now open.

Gregory Lewis: Yeah, hi, thank you, and good morning, and thanks for taking my questions. Andy, when you kind of, just real quick on the guidance, I think in your prepared remarks, you were talking a little bit about, you know, maybe opportunities in North America for motive and energy systems to kind of recover here in the second half. Any kind of, as we think about the guidance, in any way, or how should we be thinking about, you know, the kind of trajectories in Asia and Europe? Is that similar, or do we have kind of a different macro outlook for those two areas?

David Shaffer: We're actively working with these customers and building the necessary inventory to achieve the required service levels with the appropriate product mix, which won't able us to accept higher margin business. We expect this ramp to begin in the second half of our fiscal year. As discussed last quarter, our Missouri plant's output is improving and we will begin to install new lines that will afford us increased and more flexible production capacity in the fall. The incremental volume with better cost absorption will further drive earnings expansions on top of the accretive impact of Brentronics.

David Shaffer: Greg, I'll start and let Andy get a little organized here. But in terms of the regional look, I would say that Asia and Europe have been a better news story in the last couple of quarters. And we've seen some stability in both those regions. And the outlook, I guess, for Asia is pretty good based on some of the numbers I've seen. For us, as you know, it's really not big enough to drive major changes in the overall performance of the business. But I would say there's regional stability. It's the Americas piece that was probably a little bit slower.

David Shaffer: In our new Ventures line of business, we are in the final testing phase of our first commercial ready fast charge and storage system, which we are prepping for delivery to our launch customer site in Canada in the coming weeks. Please turn to slide 5. The team is making exciting progress on our strategic priorities.

David Shaffer: Let me share some of the highlights from our first quarter, starting with Innovate. In our mode of power products, we are preparing to launch our Nexus 48 volt heavy-duty lithium batteries and we received our first order for two units. We also received our first orders for 22 Nexus Outdoor Chargers this quarter. This product has the opportunity to be a game-changer as customers convert from internal combustion to electric lift trucks in outdoor applications. With regulations such as CARB, which aim to phase out gas powered foreclips in favor of zero emission technologies, the shift to electric foreclips is becoming increasingly significant.

David Shaffer: But as it relates to motive specifically, I would say the feedback we're getting from both our channel and our sales folks is continuing to be positive. And in a lot of the electrification projects that are afoot, we mentioned the new outdoor chargers, which allow us to push electric fork trucks even into new, different applications. These are a lot of the key momentums that we're building. And, of course, the maintenance-free conversions

David Shaffer: Andy? Yeah, I can.

Andrea Funk: Yeah, I can give you a little bit more color just by geography, if that's helpful, Greg, and nice to hear your voice as well. We typically in EMEA have a little bit of a step back going into the second quarter, as you know, during the summer holidays. But if I look year on year, you know, there's a little bit of top-line growth. We took out the utility adder that we mentioned, but from a profitability standpoint, they're, you know, more than 2X their operating earnings that they were, so doing really well there.

David Shaffer: In energy systems, our DPX Outdoor fault managed power supply received a critical UL certification and we are leading the industry by being the first company to receive certification for a class for outside plant solution. We continue to focus on optimizing the business as well. As we mentioned last quarter, we have taken specific actions to improve performance and efficiency, particularly in energy systems. We have optimized our footprint and organization, conducted targeted restructuring, invested in high speed flexible production capacity, and streamlined our operations.

Andrea Funk: I think Chad's doing a lot of things on his motive power value selling that we've done in the Americas, bringing that into the rest of the world. And Sean's certainly looking at ways of globalizing ways that we can look at, you know, things like data centers globally and telecom customers taking similar approaches and similar sales strategies. APAC tends to be a smaller region for us, but we've really focused there on de-risking and finding ways that we can use our plants to benefit, like, in-region sourcing. And so it's overall going well. Americas tends to be our biggest piece of the business. That's why we focus on that, and it's certainly the most profitable.

David Shaffer: We are continuing to advance on our TPPO manufacturing flexibility initiatives in Missouri, yielding further productivity improvements in the quarter, and our focused on scrap rates, assembly performance, and science execution driving a nearly $100 million reduction in inventory versus prior year on top of operational cost improvements. Our investments in production flexibility remain on track for completion in the second half of the fiscal year, and accelerating.

David Shaffer: We continue to advance on the development of our lithium ion cell gigafactory. We are formalizing our collaborative relationship with VIRCOR, making investments to support their growth, and progressing on the key agreements, which will support our factory operations. We recently met with the US Department of Energy to review our application for additional funding for our plant. We look forward to learning the results of these funding applications, which are expected to be announced in the coming weeks. At that point, we will share with you the full project budget and timeline. We have updated our model to include the recent tariff announcements, which has previously identified our make-versus-by-justification. Please turn to slide six.

Unnamed: Yeah, no doubt. And then, and then thank you for that. And then I did want to touch on data centers. I mean, clearly, there's a data center megatrend happening.

Gregory Lewis: No doubt. And then I thank you for that.

Gregory Lewis: And then I did want to touch on data centers. I mean, clearly there's a, you know, data center megatrend. ENS has kind of always provided backup power to data centers. You know, I guess what I'm trying to figure out is, you know, it's in the news a lot.

David Shaffer: You know, these are multi-year projects. And so I guess what I'm kind of curious about is, you know, as ENS has been booking data center work for the last, you know, I don't know how we'll, a couple quarters, I don't know if you can talk about it a year, a couple quarters, however you want to kind of frame it up here. You know, could you talk about maybe that rate of change now?

David Shaffer: On July 26th, we were pleased to announce closing or acquisition of Brentronics and to welcome the team and the EnerSys. This acquisition, which expands our presence in critical defense applications, rods are lithium product offerings, strengthens our product development capabilities, provides incremental growth opportunities, and is immediately accretive to earnings. As previously disclosed in calendar year 2023, Brentronics generated approximately 100 million of sales with EBITDA margins around 25%.

David Shaffer: And then, you know, if I'm building a data center and I'm talking to ENS in the summer of 2024, for an opportunity like that, when does ENS really start realizing revenue from, you know, that data center contract that they, that you win to provide power, you know, in, I guess, Q3 of 2024?

David Shaffer: We are implementing a detailed integration plan that has been developed over the past several months with a dedicated cross-functional team from both EnerSys and Brentronics. Our priority is to ensure minimal disruption commercially and operationally while we rapidly execute corporate and back-soft back office integration.

Unnamed: Well, you know, at a high level, data centers are obviously a great market for us, and it crosses both our traditional product ranges as well as into our TPPL range. And I would say, and this varies, Greg, by product type, but I would say that my best guess is that we have about a six-month notice period, at best, when it comes to a new opportunity. So I can, and I'll have Lisa or Charlotte Circle back with you after I, you know, we'll talk to Sean and make sure that that is the right number.

David Shaffer: Right. Well, you know, at a high level, data centers are obviously a great market for us, and it crosses both our traditional product ranges, as well as our TPPL range. And I would say, and it varies, Greg, by product type, but my best guess is that we have about a six-month notice, at best, when it comes to a new opportunity. So I can, and I'll have Lisa or Charlotte Circle back with you after I, you know, we'll talk to Sean and make sure that that is the right number.

David Shaffer: Please turn to slide seven.

David Shaffer: On the governance front, last week we held our annual shareholder meeting where our stockholders elected two new members of our board, Mr. David Haviker and Ms. Lauren Nasenberger. David is the CEO of JD Power, a provider of data analytics, software, and consumer intelligence. David has a demonstrated history of driving change within industry-led security protocols globally. Lauren is the executive VP and chief innovation officer at SAIC, a provider of engineering, digital, artificial intelligence, and mission solutions across the defense, space, civilian, and intelligence markets.

David Shaffer: But when I was back doing that, it's been a few years, it was about a six-month heads-up. We would start to see it in our order book, and then, depending on the product type, you know, maybe a six- to eight-week lead time after that. So that's sort of the advanced notice as we would probably see.

Unnamed: But when I was back doing that, it's been a few years, it was about a six-month lead time. You would start to see it in our order book, and then, depending on the product type, you know, maybe a six- to eight-week lead time after that. So that's sort of that advanced; that's about as advanced notice as we would probably see. And I know there's been in the news, and we're getting feedback from our customers. There's tons of growth and opportunities. There have been some supply chain issues, not with batteries or not necessarily EnerSys, but just in general. There have been some.

David Shaffer: And I know there's been, in the news, and we're getting feedback from our customers, tons of growth and opportunities. But there have been some supply chain issues. Not with batteries or not necessarily EnerSys, but just in general, there's been some projects that we've heard about that are getting delayed for various construction regions or architectural steel. So it's never smooth. There's always a little bit of choppiness in any quarter, but the key underlying demand drivers for data centers continue to be a very, very big bright spot for us. Historically, though, revenue-wise, it's just not been...it wasn't big enough to offset the slowdown we saw in the communications piece. But it's been a very good growth story for us.

David Shaffer: Lauren is a globally recognized thought leader and change agent in technology, digital modernization, and cyber security. I am pleased to welcome David and Lauren to our board of directors, whose expertise and skill sets are well matched to our industrial technology transformation.

David Shaffer: It is with sincere thanks and deep gratitude that we say farewell to long-standing board members, Mark Katzeris, our chairman for the past eight years, General Robert Magnus and Juan Chunk. We truly appreciate their commitment and 53 collective years of dedicated service.

David Shaffer: And we congratulate Paul to final our new board chair.

Andrea Funk: I will now turn it over to Andy to take you through our results and outlook in greater detail. Andy? Thanks, Dave. Please turn to slide nine. First quarter net sales of $853 million were down 6% from prior year. Driven by a 3% decrease in volume due to the temporary market headwinds and communications and class 8 OEM markets that Dave discuss, as well as 2% price mix pressure from lower proportionate sales of higher margin power electronics and an FX headwind of 1%.

Andrea Funk: Yeah, and Greg, just to provide some color, Q1 was up about 5% in data centers, and I think we've got a little more opportunity. But our full year, we're projecting to be up double digits, you know, well over double digits. And keep in mind, there are a few things.

Andrea Funk: We achieved adjusted gross profit of $238 million down $5 million year including a little over $30 million of IRA benefits booked as a reduction of cost of goods sold in the quarter. Q1 adjusted gross margin improved by 120 basis points versus prior year to 28% due to higher IRA benefits. As you may recall, in the third quarter of fiscal year 2024, we validated an expansion of our batteries that qualify for IRA credits. Excluding the IRA benefits, adjusted gross margin was down a little over 50 basis points year over year due the impact of lower proportionate power electronics sales that I just mentioned.

David Shaffer: So, you know, our batteries are the last item to be purchased for the new data center. So there's a little bit of this delay, as Dave was mentioning, but it's a great product. We're continuing to look at both NPIs, as well as potential bolt-on acquisitions, considering the valuations, making sure that we're not buying at the peak. But on top of that, just this explosive AI and data center growth impact our communications market, the last-mile delivery, we know that's going to impact that network resiliency and build-out that Dave spoke about.

Andrea Funk: Dean. Our adjusted operating earnings were $106 million in the quarter, slightly lower than in the prior year, with an adjusted operating margin of 12.4%. Excluding the IRA benefits, adjusted operating margin declined a little over 100 basis points year on year. This decline is attributable to the temporary softness in the communications and class 8 OEMN markets met of cost improvement Dave mentioned earlier. Adjusted EBITDA was a $121 million, a slight decrease of approximately $1 million versus prior year, while adjusted EBITDA margin was 14.2% up 70 basis points versus prior year on the expanded IRA benefits.

David Shaffer: And also, grid pressure, which provides more of an opportunity in the future for our BESS and our new ventures, the land business, and the importance of that. So this kind of is the whole story of EnerSys and why we're so well-positioned for the long-term. Yeah, great.

Gregory Lewis: And Greg, I don't know if you started using this AI, some of these products, but it's mind-blowing what it can do. It really is, it's a little frightening, but it's really exciting.

David Shaffer: No doubt. Thank you for the time. Have a great day.

Operator: Wonderful. Thank you.

Operator: And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. The next question that we have comes from the line of Brian Drab from William & Blair. Your line is now open, Brian.

Brian Drab: Thank you. I just wanted to see if we could talk a little bit more about the lithium business, the lithium plant, and I'm just thinking about the timing of some of these things. So I know that, you know, you've got this exciting opportunity in the fast charging and storage, um, you know, hoping to get that business into the 400 to 700 million revenue range by fiscal 27, which is basically calendar 26, which is really not that far away all of a sudden.

Unnamed: Thank you. I just wanted to see if we could talk a little bit more about the lithium business, the lithium plant, and I'm just thinking about the timing of some of these things. So I know that, you know, you've got this exciting opportunity in fast charging and storage. But how do you think about getting the lithium cells that you need for that opportunity?

Andrea Funk: In line with our guidance range, adjusted EBITDA for the first quarter was $1.98 per share, an increase of 5% over prior year. Excluding the IRA benefits, adjusted EBITDA was down over 15% versus the prior year. In the first quarter of fiscal 2025, our effective tax rate was 11.6% on an as-reported basis, and 20.8% on an as-adjusted basis before the benefit of the IRA compared to 17.2% in Q124.

Brian Drab: And, you know, how do you think about, you know, getting, you know, getting the lithium cells that you need for that opportunity? Building this lithium plant. You've also got these lithium ion cell tariffs that are increasing by 25% in 2026. Morning, Dave. Dave, if you could just go through some of the, you know, the planning steps and the timeline and talk about the risks to getting up to volume production when you want to.

Andrea Funk: Let me now provide details by segment. Please turn to slide 10. In the first quarter, energy systems revenue declined 15% from prior year to $361 million, primarily driven by the lower volumes and price mix pressure previously mentioned on top of FX headwind. Adjusted operating earnings of $19 million improves sequentially on lower revenue as we sell the benefits of our cost reduction efforts, but we're 11 million lower than prior year on the soft market conditions.

David Shaffer: Right. Well, the key for us and what we've tried to do is to do as much as we can to hit the starting line at full speed. So that's been the intense focus without overly committing anything until we have the final look as to what we think potentially a grant from the Department of Energy would contribute to the business plan. So that's why we haven't given you more detail yet as we await to see how that's going to work out.

Andrea Funk: Adjusted operating margin of 5.3% was up 60 basis points sequentially, but decreased 170 basis points versus the prior year. We are beginning to see favorable signals in key energy systems and markets, with increasing order trends giving us optimism for sequential improvement throughout the end of the fiscal year.

David Shaffer: But, you know, Andy mentioned that we bought some land down in Greenville, South Carolina. We've been working very hard with Vercor on the new prototype line for the Grenoble factory to get everything running and debugged there for our particular cell design.

Andrea Funk: Please turn to slide 11. Versus prior year, most of power revenues increased 4% to $366 million on a 6% volume increase partially offset by price mix and FX. The reduction in price mix is due to the elimination of a zero margin utility adder that was in place last fiscal year when European utility costs had spiked. Motive power again reported strong adjusted operating earnings this quarter, contributing $56 million up 11% over prior year.

David Shaffer: The engineers have been very, very busy. We've done the environmental site assessments. We've gone out, we've hired or identified general contractors, architects, and environmental support companies. Andy and I were in D.C. in July.

David Shaffer: We had a very productive meeting with the Department of Energy, and we hope to hear something in the coming weeks. So, we're doing as much as we can without, as we prepare, we started to fill some leadership positions, key leadership positions. We brought in a leader who's had experience both in Europe and in South Carolina, specific experience building lithium ion factories. So, we've been very, very busy. And then, in terms of the timeline, and Andy, do you want to kind of give some of the dimensions of spending and timelines? Yeah.

Andrea Funk: Adjusted operating margins were near record highs at 15.3% up 90 basis points versus Q124. Despite mixed macro signals, we remain optimistic about the growth opportunities and motive power as we introduce new customer solutions, the overall demand trends remain healthy and our proprietary maintenance free products continue to support our customers growing needs for automation, electrification and decarbonization solutions.

Andrea Funk: Please turn to slide 12. Specialty revenue decreased 6% from prior year to $126 million on 3% lower volume and a 3% reduction in price mix. Q1, 25 adjusted operating earnings of $4.9 million were half of prior years AOE with adjusted operating margin of 3.9% down 350 basis points. As Dave mentioned, margins in this business were precious by the impact of lower class 8 OEM transportation volumes and the impact of under absorption in our Missouri plants.

Andrea Funk: You know, I'd say, Brian, you brought up a really important point, you know, the tariffs and other model assumptions, but the 25 percent tariffs coming out of China, we factored that into our model. We're working with a strategy group out of Europe who've done other lithium plant startups to really tighten and refine our model, and it's becoming all the more exciting and compelling that this is, this looks like a really good opportunity for EnerSys.

Andrea Funk: We made progress in our Missouri factory operations performance during the quarter and have line of sight to continued improvement this fiscal year, which will be more visible when communications and transportation volumes pick up and were able to enjoy better absorption of our plant overhead class. Although class 8 OEM transportation demand weakened this quarter, given the significant incremental transportation after market opportunities and broad strength of A&D and markets, combined with enhanced high speed flexible capacity expansion, we anticipate in the coming quarters, we remain optimistic about our opportunities and specialty. On July 26, we closed on the acquisition of rentronics, which is adding profitable growth toward existing business and we will discuss the impact of the acquisition further as part of our guidance.

Andrea Funk: I think one of the things we're considering is if we're fortunate enough to get the DOE's investment, we would make adjustments to the plant to be able to meet their requirements, and if we don't, we'd probably have to make adjustments so that it wouldn't have to incur those extra costs. So, that's what we're really assessing, and our goal is, as soon as we find out whether we get this grant, we will provide timelines and budgets and share them with everyone.

Andrea Funk: We're very excited about what this opportunity is, and you're right, a big chunk of the difference for us versus other lithium plant startups, and I think you're aware of this, but perhaps other new investors to our story might not be. We don't need, you know, aggressive off-take agreements. We will be our only customer of the output, and fast charge and storage would be a big portion of where some of the lithium cells would go.

Andrea Funk: Please turn to slide 13. Operating cash flow in the quarter was a positive 10 million dollars with primary operating capital increasing slightly on transportation inventory bills to prepare us to take on after market demand in the second half of the year. Receivables were again a positive as we focus on collections.

Andrea Funk: Right, but there are plenty of new products, there's product catalysis, there's ample opportunities to load the factory. We've just been a little hesitant to outline the final budget and timing, as Andy noted, until we know the full scope of what the requirements are for the DOE grant, and once that's ironed out, then we will, and I think we're weeks away.

Andrea Funk: Operating cash flow also absorbed normal year-end variable compensation, rebates, and incentives pay out as is typical in our first fiscal quarter. As noted last quarter, the full benefit of the IRA credits will not have the full positive impact on our cash flow until our fiscal year 2024 tax filings are finalized and we receive our first 45x expected tax refund from the IRA of approximately $100 million near the end of fiscal 2025.

Brian Drab: Okay, okay, thanks, and I'll just ask one more small question for right now. I just want to ask a point of clarification on the guidance. So the $60 million increase in revenue, is that specifically and only associated with Brentronics? Because I'm just thinking about, you know, Brentronics was $100 million in revenue approximately in 2023. And, you know, if I do $60 million, and it's going to contribute for eight months, it seems to imply that, you know, Brentronics revenue would be like $90 million this fiscal year.

Brian Drab: And I just wonder if there's an explanation for that discrepancy, or if Brentronics revenue is down a little, or any thoughts there? Yeah, no. We're very bullish, very excited about Brentronics. But as you can imagine, you know, part of my job, Brian, is to make sure we're conservative when there's uncertainty.

Unnamed: Because I'm just thinking about, you know, Brentronics was $100 million in revenue approximately in 2023.

Andrea Funk: Lower operating cash flow from typical year-end payouts and delayed IRA monetization, combined with elevated captex of $36 million, including approximately 9 million from the purchase of land in South Carolina for a planned lithium plant, resulted in negative adjusted free cash flow conversions during the quarter. As of June 30th, 2024, we had $344 million of cash and cash equivalents and our net debt of $565 million represented a reduction of approximately $125 million from prior year. Our credit agreement leverage ratio was 1.1 times the EBITDA.

Andrea Funk: So it's a new company. We kind of discounted June, you know, July, and August; we bought it mid-July, end of July, and we discounted August because there's a transition, you know, with any acquisition, there's usually a little bit of pull-in. We had a full week for the physical inventory. It's the first time they had done a physical inventory. It went extremely well. The culture, the management team, the mindset, and the results were all very strong.

Andrea Funk: Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment.

Andrea Funk: Note that although we incurred approximately $200 million of cash outmay for the broad tronic acquisition in the second quarter, we anticipate our net leverage will remain well below the low end of our two to three times target range, providing us with ample drive powder for our capital allocation decision. 14. During the first quarter, we paid $9 million in dividends and repurchased approximately $12 million in shares. We currently have approximately $121 million remaining in our buy-back authorization.

Andrea Funk: But, you know, you never know fully. And so we've intentionally been a little bit on the conservative side. There's a little bit of seasonality as well. Q4, Q1 tend to be, you know, they're a little bit stronger. So we know that Q2 and our Q2 and our Q3 are probably going to be the lighter revenue, just on a historic basis for them. And so we have it ramping up into the fourth quarter.

Andrea Funk: During the quarter, we funded our investment of $11 million in Vercours Series C-Round and made our initial milestone payment per our prototype agreement in July.

David Shaffer: And we're, you and I are headed over there next week, Andy.

David Shaffer: Yeah, we're going to do a little, I think August 21st is when we're going to be there to do a celebration. We had Mark and his team on site the day of close.

Andrea Funk: We continue to screen for additional attractive bolt-on acquisition opportunities like patronics, which meet our discipline, strategic and financial criteria. Please turn to slide 15. Our Board of Directors recently approved an increase in our quarterly dividend to $0.24 per share, up from $22.5 per share. As part of our discipline, capital allocation strategy, we are committed to a competitive dividend that grows with earnings excluding IRA benefits over time.

David Shaffer: We, it's a great team. It's just a tremendous fit. Very excited about the great stuff.

Brian Drab: We had a great start, so we couldn't be more excited. Yeah, that all makes sense. Thanks a lot.

Brian Drab: Okay, that all makes sense. Thanks a lot.

Unnamed: Yeah, that all makes sense. Thanks a lot.

Greg Wasikowski: Our next question comes from the line of Greg Wasikowski from Weber Research and Advisory. Your line is now open.

David Shaffer: We have ample room in our balance sheet to remain flexible to meet our business needs, and we will continue to allocate capital with the goal of delivering optimal returns to our shareholders. Please turn to slide 16. We remain optimistic about the trajectory of our business and are particularly pleased with our continued ability to maintain pricing. While mixed market dynamics remain, we are seeing positive demand indicators and are pursuing incremental market opportunities.

Greg Wasikowski: Hey, good morning, David, and Andy. Hey, just to put a finer point on that last question. Is there any other puts and takes with the 25 guidance move? You know, so maybe to ask another way, in the absence of Brentronics, do you think that there'd be any guidance shifts for FY25 or would it be more or less the same?

Andrea Funk: Yeah, I think this early in the fiscal year, we still have confidence in our full-year guidance, so we didn't make any changes to our underlying base. I mean, we might have done a little shifting internally, but overall, you know, we still have cautious optimism and are able to hit our full-year numbers. You know, I think we're looking at the news just like everyone else is, and obviously it's an election year, there's a lot of things going on, but we look internally at our signals, and our order book is looking good. Mode of power, for example, just to give you a little bit of cover, a little bit of color.

David Shaffer: In addition, we have taken substantial actions to improve our overall margin profile and are beginning to see the benefits of these actions and our financial results.

David Shaffer: As a result, we remain cautiously optimistic in our fiscal year 2025 financial targets and are increasing the midpoint of our full-year fiscal 2025 revenue guidance by $60 million and our full-year fiscal 2025 adjusted du-loaded earnings per share guidance by $0.25 per share to include the incremental benefits of our acquisition of Brentronics on top of the base business expectations that were in our previous guidance. Our fiscal second quarter 2025 guidance range is $880 million to $920 million of net sales with adjusted du-loaded EPS of $2.5 to $2.15 per share.

Andrea Funk: Our backlog coverage is still 50% higher than pre-pandemic levels. In Q1, our book-to-bill was 0.9, a little bit below one, so, you know, was that a reason for concern? About half of that was seasonality, half was orders that were pulled in advance of a 331 price increase. In the first week of August, we had a 1.4 book-to-bill. So, you know, overall, it just feels very healthy to us. So, we're, as is everyone on the street, trying to be very alert to look for any signals.

David Shaffer: Our guidance anticipates a modest sequential improvement in North America communication spending and energy systems, modest transportation aftermarket growth and specialty, and incremental revenue and earnings from Brentronics. Our fiscal year 2025 guidance range is now $3,735 million to $3,885 million of net sales up from prior guidance of $3,675 million to $3,825 million. Adjusted du-loaded EPS is now $8.80 to $9.20 per share up from prior guidance of $8.55 to $8.95 per share and with the pre-IRA tax rate of 20 to 21 percent. Our CAPEX expectation for the full year fiscal 2025 remains in the range of $100 million to $120 million.

David Shaffer: And I'd say the keen focus for me and our leadership is on pricing and Cost Control right now with some of this macro uncertainty. So there's reason to be cautiously optimistic about the EPS, even if the top line has some issues with some of these macro uncertainties. But there's an intense focus on our part on pricing and cost control.

Greg Wasikowski: Okay. Okay, thanks, guys. And then I always like to ask about the fast charging product. So Dave, could you characterize the backlog there, how that's developed in the past couple quarters, and how demand is trending, and then any updated thoughts on crossing into other business lines as well?

David Shaffer: This does not reflect significant additional spending on our planned domestic lithium plant.

David Shaffer: We plan to provide an update on the status of the plant and impact to our fiscal 25th expectations later this quarter, in summary.

David Shaffer: All excellent questions. So the customer is on site right now at the factory signing off on the first unit. The first units always take a little longer. Then, I would say the initial focus with the customer is on the first five units which will be installed this quarter, and the progress is... And Andy, unless something changed in the last couple of days, that's the last data point I'm working with, but... And then, really, at that point, our initial launch customer is going to start to refresh what their site identification is and layer in.

Andy: All excellent questions. So the customer is on site right now at the factory signing off on the first unit. The first units always take a little longer. Then, I would say the initial focus with the customer is on the first five units which will be installed this quarter, and the progress is... And Andy, unless something changed in the last couple of days, that's the last data point I'm working with, but... And then, really, at that point, our initial launch customer is going to start to refresh what their site identification is and layer in. So there's... I don't want to say we're in a hold with our launch customer. We're just...

David Shaffer: We are confident that the foundation we have put in place, coupled with the investments we have made in our transformation, will deliver accelerating financial returns. The global concern over energy scarcity will persist as major trends drive a swift rise in the demand for reliable power. As a key provider of energy systems and storage solutions, EnerSys is well positioned to take advantage of this growth opportunity.

David Shaffer: We remain focused on delivering long-term value to our stockholders.

Operator: With this, let's open it up for questions. Operators? Thank you.

David Shaffer: So I don't want to say we're in a hold with our launch customer. We're just – they want to make sure, as I would, in their shoes, to make sure everything's running smoothly and as planned. And they've already identified, as we've mentioned to you prior, there are literally hundreds of sites that they've identified that they want to bring this project into. In addition to our launch customer, I would say the opportunity for quoting has been very bullish.

Andy: They want to make sure, as I would, in their shoes, to make sure everything's running smoothly and as planned. And then they've already identified, as we've mentioned to you prior, there are literally hundreds of sites that they've identified that they want to bring this project to. In addition to our launch customer, I would say the opportunity for quoting has been very bullish, and there's a tremendous amount of excitement. I think what makes us unique and what our team has done an exceptional job with is these underlying energy management benefits of using energy more efficiently at nighttime versus daytime with and without renewable sources.

Operator: At this time, we will conduct the question and answer session. As a matter to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. So draw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Noah Kaye: Our first question comes from the line of NOAAK of Oppahimer and Company. Your line is now open. Good morning. Thanks for taking the questions. Hope everyone is doing well. And we continue to appreciate the full year guidance. And I have a related question to that. Just around the back half growth expectations. And I think you were going through some of it in the assumptions on slide 16. But you know, at the midpoint of guide, it's roughly a $300 million step up in revenue from the first half to the second half.

David Shaffer: And there's a tremendous amount of excitement. I think what makes us unique is, and what our team has done an exceptional job with, these underlying energy management benefits of using energy more efficiently at nighttime versus daytime, with and without renewable sources. It's the integration of the DC to DC fast charters, which really makes it more efficient.

Andy: It's the integration of the DC to DC fast chargers that really makes our product unique, so that's what's drawing a lot of attention to this. So a lot of positive momentum, the engineering piece, the oil testing, customer acceptance, knock on wood, everything's moving. And we should see more clarity from our launch customer and a release of more orders as we get through this first phase.

Noah Kaye: And just curious to understand how you think about bridging that. We should have something like, I guess, a $25 million tailwind first half versus second half from Brentronics, right, having that for the full half, maybe some F-C-N-S revenues. But what are the main drivers to consider that drive that step up? It sounds like a lot of it might come in specialty. Well, that's some of it. No, this is David. Good morning.

Noah Kaye: I would say it's ES recovery certainly is part of that. And I'll let Andy kind of add some dimensions here in the matter that she gets organized, the specialty piece, and then continued stability in our mode of power businesses, really are the main pieces that buttress that. Andy, do you want to dimension that for now? Yeah, good morning, Noah. Nice to hear your voice. Well, we carved out the Brentronics separately, so you do see.

Noah Kaye: And really, if I want to go through each one of the lines of business, I'll give you a little bit of color. Energy systems, we see increasing demand throughout the balance of the year. It's going to be driven by improvements in wireless that we're seeing mostly, and some further margin expansion from power electronics, as well as strength and data centers. So that's slow and steady as similar to last quarter, except that we are now seeing the robustness coming in in the order book, where we hadn't been seeing that previously.

Noah Kaye: In mode of power, we'll have the normal second quarter seasonality pressure, particularly in media on the holidays. But we are seeing some strong order and quote activity, which gives us optimism. We expect to continue to benefit from the mode of power conversions and some NPI's like wireless and outdoor chargers, but the lithium add-on will show a little bit of exaggerated volume and some pressure on price mix. In specialty, second quarter is seasonally lower.

Noah Kaye: We'll benefit from about one month of the cost of sleep building that in, because obviously there's some transition related activity that'll happen when you first bring them into our fold. But things are going really well there. We don't see material growth in the aftermarket or premium auto picking up until the second half. Industry data, and some customer feedback, the upcoming car regulations that Dave mentioned, they all give us optimism that the Class 8 OEM pause is temporary, but we do believe we'll be able to take on additional aftermarket volume when we've got the right inventory on the shelf and when our Missouri plant expansion is complete, which is really a second half of the year story.

Noah Kaye: The additional capacity is going to be of a flexibility at lower cost through automation and enable better full plant cost absorption, but that's really going to be laid in this fiscal year. We expect some fast charging storage incremental revenue and to get some op-ex leverage, mostly on those aggressive actions that Sean took in place, but offset by some of the fast charge and storage additional spending as we ramp. IRA remains $120 to $160 million per year, and as we mentioned tax rates, a little bit higher, 20 to 21 percent in line with Q1, but higher than fiscal 24 on discrete geography of earnings and really the impact of the global minimum tax.

Noah Kaye: [inaudible] I hope that helps. Very comprehensive and helpful, thanks. Maybe just a bit more color on where within ES, you're seeing that pickup in order. You mentioned wireless, but you're wondering if it's primarily the traditional macro-based station type, powering opportunity, anything in small cell, you sort of characterize it and you pointed out I think a couple of times that prepare remarks and even just now when you get the power electronics coming back in, really, really strong leverage expected on that, is that mostly a backup story in your view?

Noah Kaye: Right. I would say let's talk about it in a little different slice. Really, whether it's a hybrid fiber coaxial networks or wireless networks, the things that we see is there's network expansion projects and investment opportunities and then there's network resiliency investments. What we're seeing come back across both sides wireless and the HFC networks is the resiliency spending. We noted to you that you can only defer that for so long and so that's the first piece to have come back.

Noah Kaye: I would say wireless resiliency has come back first. We're starting to see some really good momentum building in the HFC network resiliency investments and then in terms of the projects and the capacity expansions, we have ongoing dialogues in private network small cell projects, any number of projects, but that is the piece that really has acutely slowed down relative to that momentum we had during the year or so ago. But the resiliency piece, which again, similar to Motive Power, it's that replacement.

Noah Kaye: It really helps to buttress us when the expansion and the new activity slows down a little bit. That's where it's come back the most. And in terms of small cell projects, a lot of dialogue, but no real revenue drivers for me to talk to you about yet, but certainly many projects afoot. Yeah, no, I can add a little bit of more color. This was the first time that our backlog increased in eight quarters.

Noah Kaye: We, America, last quarter, we said this was kind of the wild card and still the pace of the recovery is a little uncertain, but we said last quarter, we weren't seeing in our order book right now, we are starting to see it in our order books. So we're cautiously optimistic, very proud of the aggressive bold actions that Sean took to improve the overall margin of ES, both in the peaks and valleys.

Noah Kaye: And we feel very confident that we're going to be getting to 8 to 10 percent in the down cycle, not quite confident. That's in reach. And even on 8 million drop in revenue sequentially, we did have a 60-bit improvement. We're a little disappointed. You didn't see the full 7 million cost improvements because it was mass with the volume recovery and further mixed pressure. But just to give you perspective, as Dave's mentioning, XM orders in the month of July were higher than the entire Q1.

Noah Kaye: XM is one of our proprietary power electronics products. Q1 represented the lowest revenue of these products in 8 years, so even before the ALFAC position. This wasn't just the low end of a cycle. We really believe this was the trough. And I think that, again, gets into that resiliency investment we're talking about, and these kind of expenses can only be deferred for so long. It's a perfect example. And I would say in our Q1, that's probably the pace that surprised us the most given.

Noah Kaye: As Andy just noted, when we built our forecast out, that was the lowest revenue on that skewed 8 years. It was a crazy quarter in that sense. But you can only defer this for so long. The outlook is improved dramatically, and we're cautiously optimistic about the second half. Yeah, really appreciate the detail and transparency here. I'll take all my additional questions offline. Thanks. Thanks, Noah. Thank you.

Greg Lewis: The question for our next speakers, our next question is going to be for Greg Lewis from BCIG. Your line is now open. Yeah, hi. Thank you, and good morning, and thanks for taking my questions. And when you kind of just feel real quick on the guidance. I think in your prepared remarks, you were talking a little bit about maybe opportunities in North America in mode of energy systems to kind of recover here in the second half.

Greg Lewis: Any kind of, as we think about the guidance in any way, or how should we be thinking about, you know, the kind of the trajectories in Asia and Europe? Is that similar or do we have kind of a different macro outlook for those areas? Greg, this is, I'll start and let Andy get a little organized here. But in terms of the regional look, I would say that Asia and Europe have been a better news story last couple of quarters.

Greg Lewis: And we've seen some stability in both those regions and the outlook, I guess, you know, for Asia is pretty good based on some of the numbers I've seen. You know, for us, as you know, that it's really not big enough to drive major changes in the overall performance in the business. But I would say there's regional stability. It's the Americas piece that was probably a little bit slower. But as it relates to mode of specifically, I would say the feedback we're getting from both our channel and our sales folks is continued to be positive.

Greg Lewis: And a lot of the electrification projects that are afoot, we mentioned the new outdoor chargers, which allows us to push electric pork trucks even into new different applications. These are a lot of the key momentum that we're building. And of course, the maintenance free conversions, Andy. Yeah, I can give you a little bit more color just by geography, if that's helpful, Greg, and nice to hear your voice as well. We typically in a Mia have a little bit of a step back going into the second quarter, as you know, on the summer holidays.

Greg Lewis: But if I look year on year, you know, there's a little bit of top line growth. We took out the utility adder that we mentioned, but from profitability standpoint, there are more than two acts of their operating earnings that they were. So doing really well there. I think Chad's doing a lot of things on his mode of power value selling that we've done in the Americas bringing that into rest of the world.

Greg Lewis: And Sean certainly looking at kind of globalization of ways that we can we can look at things like data centers globally and telecom customers taking similar approaches and similar sales strategies. APAC tends to be a smaller region for us, but we've really focused there on de-resking and finding ways that we can use our plant to benefit like in region sourcing. And so it's overall going well. America tends to be our biggest piece of the business.

Greg Lewis: That's why we focus on that and certainly the most profitable. No doubt. And then thank you for that. And then I did want to touch on data centers. I mean clearly there's a data center mega trend happening. You know, the ANS is kind of all we've provided back up power to data centers. You know, I guess what I'm trying to figure out is, you know, it's in the news a lot. You know, these are these are multi-year projects.

Greg Lewis: And so I guess what I'm kind of curious about is, you know, as as as the NS has been booking data center work for the last, you know, I don't know how we a couple quarters. I don't know if you can talk about it a year, a couple quarters, however you want to kind of frame it up here. You know, could you talk about maybe that rate of change now? And then, you know, if I'm building a data center and I'm talking to the NS in the summer of 2024 for for an opportunity like that, when the when does the NS really start realizing revenue from, you know, that data center contract that they that you win the provide power.

Greg Lewis: Or, you know, in I guess in Q3 of 24. Right. Well, you know, is at a high level data centers is obviously a great market for us. And it crosses both our traditional product ranges as well as into our TPPL range. And the, I would say, in it varies, Greg, by product type. But I would say that my best guess is that we have about a six month notice at best when it comes to a new opportunity.

Greg Lewis: So I can, and I'll have Lisa or Charlotte Circle back with you after I, you know, we'll talk to Sean and make sure that that is the right number. But when I was back doing that, it's been a few years, it was about a six month heads up, we, you would start to see it in our water book. And then depending on the product type, you know, maybe a six to eight week lead time after that.

Greg Lewis: So that's sort of that advanced. That's about advanced notices, we would probably see. And I know there's been in the, in the news and, and we're getting feedback from our customers. There's, there's tons of growth and opportunities. There's been some supply chain issues, not what batteries are not necessarily anarchists. But just in general, there, there's been some. A project that we've, we've heard about that are getting delayed for various construction regions or architectural steel.

Greg Lewis: So it's never smooth. It's, there's always a little bit of choppy this in any quarters, but the key underlying demand drivers for data centers continues to be a very, very big bright spot for us. Historically, though, it's just the revenue wise, it's not been, it wasn't big enough to offset the slowdown we saw in the communications piece. But it's been, it's been a very good growth story for us. Yeah, Greg, just a bright little color.

Greg Lewis: Q1 was up about 5% in data centers. And I think we've got a little more opportunity that our full year we're projecting to be up double digits. We, you know, well over double digits and, and keep in mind, there's a few things. So, you know, our batteries are the last item to be purchased for the new data center. So there's a little bit of this, you know, delay as Dave was mentioning.

Greg Lewis: But it's a great product. We're continuing to look at both NPI's as well as potential bolt on acquisitions, considering the valuations, making sure that we're not buying at the peak. But on top of that, just this explosive AI and data center growth impacts our communications market, the last mile delivery, we know that's going to impact that network resiliency and build out that Dave spoke about. And also grid pressure, which provides more of an opportunity in the future for our BESS and our new ventures on business and the importance of that.

Greg Lewis: So this kind of is a whole story of the inner system why we're well, so well positioned for the long term. Greg, I don't know if you started using this AI, some of these products, but it's mind blowing what it can do. It really, it's a little frightening, but it's really exciting. No doubt that. Thank you for the time. Have a great day. Thank you, too, Greg. One time.

Operator: Thank you, another reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Brian Drab: The next question that we have comes from the line of Brian Drab from William and Blair. Your line is now open Brian. Okay, thank you.

Brian Drab: I just wanted to see if we could talk a little bit more about the lithium business, the lithium plant, and I'm just thinking about the timing of some of these things. So I know that, you know, you've got this exciting opportunity in the fast charging and storage, you know, hoping to get that business, you know, go into the 400 to 700 million revenue range by fiscal 27, which is basically calendar 26, which is really not that far away all of a sudden.

Brian Drab: And, you know, how do you think about, you know, getting, you know, getting the lithium cells that you need for that opportunity, building this lithium plant. And you've also got these lithium ion cell tariffs that are increasing 25% in 2026.

David Shaffer: Sorting Dave, if you could just go through some of the planning steps and the timeline and talk about the risks to getting up to volume production when you want to. Right. Well, the key for us and what we've tried to do is to do as much as we can to hit the starting line at full speed. So that's been the intense focus without overly committing anything until we have the final look as to what we think potentially a grant from the Department of Energy would contribute to the business plan.

David Shaffer: So that's why we haven't given you more detail yet as we await to see how that's going to work out. But, and, you know, Andy mentioned that we bought some land down in Greenville, South Carolina. We've been working very hard with Vircor on the new prototype line for the Grenoble factory to get to get everything running in debug there for our particular cell design. The engineers have been very, very busy. We've done the environmental site assessments.

David Shaffer: We've gone out with hired or identified general contractors, architects, environmental support companies. Andy and I were in DC in July. We had a very productive meeting with the Department of Energy and we hope to hear something in the coming weeks. And so we're doing as much as we can without, as we prepare, we started the staff, some leadership, key leadership positions. We brought in a leader who's had experience both in Europe and in South Carolina, a specific experience building, lift him, iron factory. So we've been very, very busy.

Andrea Funk: And then in terms of the timeline and Andy, do you want to kind of give some of the dimensions on spending and timelines? Yeah. You know, I'd say Brian, you brought up a really important point, you know, the tariffs and other model assumptions, but the 25% tariffs coming out of China. We factored that into our model. We're working with the strategy group out of Europe, who's done other lithium plant startups really tight and refine our model.

Andrea Funk: And it's becoming all that more exciting and compelling that this looks like a really good opportunity for ENERCIS. I think one of the things we're considering is if we're fortunate enough to get the, to be a steward of the DOE's investment. We would make adjustments to the plant to be able to meet their requirements. And if we don't, we probably have to make adjustments so that it would, we wouldn't have to incur those extra costs. So that's what we're really assessing.

David Shaffer: And our goal is as soon as we find out whether we get this grant that we would provide timelines and budgets and share with everyone, we're very excited about what this opportunity is. And you're right, a big chunk. The difference for us versus other lithium plant startups. And I think you're aware of this, but perhaps other new investors to our story might, might not be. We don't need, you know, aggressive offtake agreements.

David Shaffer: We will be our only customer of the output with fast charging storage would be a big portion of where some of the lithium cells would go. Right. But there's, there's, there's plenty of new products. There's product catalyzation. There's, there's, there's ample opportunities to load the factory.

Brian Drab: We've just been a little hesitant to outline the final budget and timing as Andy noted until we know the full scope of what the requirements are for the DOE grant. And once that's ironed out, then we will. And I think we're weeks away. Okay. Thanks.

David Shaffer: And I'll just ask one more small question for right now. I just want to ask a point of clarity on the guidance. So the 60 million increase in revenue. Is that specifically and only associated with Brent tronics because I'm just thinking about, you know, Brent tronics was 100 million in revenue approximately in 2023. And, you know, if I do 60 million in the it's going to contribute for eight months, it seems to imply that, you know, Brent tronics revenue would be like 90 million in this fiscal year.

David Shaffer: And I just wonder if there's a explanation of that discrepancy or Brent tronics revenue is down a little or any thoughts there. Yeah, no, we're very fully very excited about Brent tronics. As you can imagine, you know, part of my job, Brian, is to make sure we're conservative when there's uncertainty. So it's a new company. We kind of discounted June, you know, July and August. We bought it in July and the July and we discounted August.

David Shaffer: Because there's a transition, you know, with any acquisition that is usually a little bit of pulling. We had a full week for the physical inventory. It's the first time they had done a physical inventory. It went extremely well. The culture, the management team, the mindset, the results were all very strong. But, you know, you never know fully. And so we've intentionally been a little bit on the conservative side. There's a little bit of seasonality as well.

David Shaffer: Q4Q1 tend to be, you know, a little bit stronger. So we know that Q2 and our Q2 and our Q3 are probably going to be the later revenue just on a historic basis for them. And so we have it ramping up into the, into the fourth quarter.

David Shaffer: And we're, you and I are headed over there next week, Andy. Yeah, we're going to do a little, I think it's August 21st is when we're going to be there to do a celebration. We had Mark and his team were on site today of close. We, it's a great team. It's just a tremendous fit. Very excited about the outcome. 100th grade start. So we're, we couldn't be more excited. Yeah, that all makes sense. Thanks a lot. Thank you.

Greg Wasikowski: Our next question comes from a line of Greg Wasakowski from Webber Research and Advisory. Your line is now open. Hey, good morning, David Andy. Hey, just to put a finer point on that last question, is there, is there any other puts and takes with the 25 guidance moves, you know, so maybe to ask another way. In the absence of rentronics, do you think that there be any guidance shifts for FY 25 or, or be more or less the same?

Greg Wasikowski: Yeah, we, I think this early in on the, on the fiscal year, we still have confidence in our full year guidance. So we didn't make any changes to our underlying base. I mean, we might have done a little shifting internally, but overall, you know, we, we still have cautious optimism and being able to hit our full year number. You know, I think we're looking at the news just, just like everyone else is and obviously it's an election year.

Greg Wasikowski: There's a lot of things going on, but we look internally at our signals in our order book is looking good. Motive power, for example, just to give you a little bit of cover, a little bit of color, our backlog coverage is still 50% higher than pre pandemic levels. In Q1, our book to bill was 0.9, a little bit below one. So, you know, was that reason for concern about half of that with seasonality, half with orders that were pulled in advance of a 331 price increase.

Greg Wasikowski: First week of August, we had a 1.4 book to bill. So overall, it just feels very healthy to us. So we're, as is everyone in the street, we're trying to be very, it's very alert to look for any signals. And overall, we're feeling pretty good. And I'd say that the keen focus for me and our leadership is on price, and Cost Control right now with some of this macro uncertainty. There's reason to be cautiously optimistic about the EPS, even if the top line has some issues with some of these macro uncertainties.

Greg Wasikowski: But there's an intense focus on our part for pricing and cost control. Understood. Okay. Thanks guys. And then I always like to ask about the fast charging product. So Dave, could you characterize the backlog there? How that's developed in the past couple quarters and how demand is trending and then any updated thoughts on crossing into other business lines as well?

David Shaffer: All excellent questions. So the customer is at site right now at the factory signing off on the first unit. The first unit's always take a little longer. Then I would say the initial focus with the customers on the first five units, which will be installed this quarter. The progress is in India. I'm less something to change the last couple days, that's the last date of point I'm working with. And then really at that point, our initial launch customer is going to start to freshen what their site identification are in layer.

David Shaffer: And so I don't want to say we're in a hold with our launch customer. We're just, they want to make sure, as I would in their shoes, to make sure everything's running smoothly and as planned. And then they've already identified, as we've mentioned to you prior, there's literally hundreds of sites that they've identified, that they want to bring this project into. In addition to our launch customer, I would say the opportunity in quoting has been very bullish.

David Shaffer: And there's a tremendous amount of excitement. I think what makes us unique is, and what our team has done an exceptional job with, is these underlying energy management benefits of using energy more efficiently at nighttime versus daytime, within without renewable sources. It's the integration of the DC to DC fast chargers, which really makes our product unique. So that's what drawing a lot of attention to this. So a lot of positive momentum, the engineering piece, the oil testing, customer acceptance, knock on wood, everything's moving.

David Shaffer: And we should see more clarity from our customer and a release of more orders as we get through this first phase. Yeah, I mean, I think that the exciting as our customer remains very enthusiastic. It's just a ramp for these types of products, can be a little choppy. So, you know, we do need to make sure that the units get delivered, they get the permitting. And so, you know, it's contemplated in our revenue range as far as, you know, when will actually be booking the revenue.

David Shaffer: Yeah, that makes sense. Do you think that is it fair to say that the pipeline is maybe on hold a little bit just in terms of actual conversion to customer, right, to kind of waiting for this first chunk of units to be operational out in the field? Is that fair to say? So I'd say the way the way to characterize it, with our initial launch customer, let's say they've identified literally hundreds of sites, but in terms of them releasing purchase orders to us for those sites, they've identified that piece is on hold until we get through this early validation phase.

David Shaffer: And once they get comfortable that everything's working as planned and we're hitting the marks, they're going to start to release more sites to us, which will start to show up in our backlog. So I don't want to, but from an overall perspective in terms of pipeline, I would say we are actively and very busy on creating new opportunities beyond our initial launch customers. Miller. Got it. Okay. All right. Thanks your time today, guys. Thank you. Thank you, Greg. Thank you.

David Shaffer: This concludes the question and answer session. I would now like to turn the call back over to Dave Shaffer for closing remarks. Thanks, Hailey. And I want to thank everybody for your interest in Anderson's today. And we look forward to doing this again in 90 days. Have a good day. Thank you back. Thank you for participating in today's conference.

Operator: This does conclude the program. You may now disconnect. Thank you, Greg. [inaudible] Thank you.

Operator: Thank you.

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