EnerSys Q3 2026 EnerSys Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 EnerSys Earnings Call
Speaker #1: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to EnerSys Q3 fiscal 26 earnings webcast and conference call.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to EnerSys's Q3 Fiscal 2026 Earnings Webcast and Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. We do request for today's session that you please limit to one question, and one follow-up. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Lisa Langel, Vice President, Investor Relations and Corporate Communications. You may begin.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to EnerSys's Q3 Fiscal 2026 Earnings Webcast and Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.
Speaker #1: have been placed on mute to prevent any background All lines noise. After the speakers' answer session. We do request for today's session that you please limit to one question and one follow-up.
Operator: We do request for today's session that you please limit to one question, and one follow-up. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Lisa Langel, Vice President, Investor Relations and Corporate Communications. You may begin.
Speaker #1: If you would like to ask a question during this time, simply press remarks, there will be a question and star, then the number one on your telephone keypad.
Speaker #1: To withdraw your question, press star one again. to Lisa Langell, Vice President Investor Relations and Corporate Communications, you may begin.
Speaker #2: Good morning, everyone. Thank you for joining us today to discuss
Lisa Langell: Good morning, everyone. Thank you for joining us today to discuss EnerSys's fiscal third quarter results. On the call with me are Shawn O'Connell, EnerSys President and Chief Executive Officer, and Andi Funk, EnerSys Executive Vice President and Chief Financial Officer. Last evening, we published our third quarter results with the SEC, which are available on our website. We also posted slides that we'll be referring to during this call. The slides are available on the Presentations page within the Investor Relations section of our website. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. These statements are made only as of today.
Lisa Langell: Good morning, everyone. Thank you for joining us today to discuss EnerSys's fiscal third quarter results. On the call with me are Shawn O'Connell, EnerSys President and Chief Executive Officer, and Andi Funk, EnerSys Executive Vice President and Chief Financial Officer. Last evening, we published our third quarter results with the SEC, which are available on our website.
Speaker #2: EnerSys fiscal third quarter results. On the call with me are Shawn O'Connell, EnerSys President and Chief Executive Officer, and Andrea Funk, EnerSys Executive Vice President and Chief Financial
Speaker #3: Last
Speaker #3: evening, we published our third quarter results with the SEC, which are available on Officer. our website. We also posted slides that will be referring to during this call.
Lisa Langell: We also posted slides that we'll be referring to during this call. The slides are available on the Presentations page within the Investor Relations section of our website. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. These statements are made only as of today.
Speaker #3: The slides are available on the Presentations page within the Investor Relations section of our website. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances.
Speaker #3: Our actual results may differ materially from these forward-looking statements for a number of reasons. These statements are made only as of today. For a list of forward-looking statements and factors which could affect our future results, please refer to our recent Form 8-K and 10-Q filed with the SEC.
Lisa Langell: For a list of forward-looking statements and factors which could affect our future results, please refer to our recent Form 8-K and 10-Q filed with the SEC. In addition, we will be presenting certain non-GAAP financial metrics, 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 February 4, 2026. Now I'll turn the call over to our CEO, Shawn O'Connell.
Lisa Langell: For a list of forward-looking statements and factors which could affect our future results, please refer to our recent Form 8-K and 10-Q filed with the SEC. In addition, we will be presenting certain non-GAAP financial metrics, particularly concerning our adjusted consolidated operating earnings performance, free cash flow, adjusted diluted earnings per share, and adjusted EBITDA, which excludes certain items.
Speaker #3: In addition, we will be presenting certain non-GAAP financial metrics particularly concerning our adjusted consolidated operating earnings performance free cash flow, adjusted diluted earnings per share, and adjusted EBITDA which excludes certain items.
Speaker #3: 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 2026.
Lisa Langell: 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 February 4, 2026. Now I'll turn the call over to our CEO, Shawn O'Connell.
Speaker #3: February 4th. And I'll turn the call over to our CEO,
Speaker #3: Shawn O'Connell. Thank
Speaker #4: you, Lisa, and good morning. Please turn to slide four. During the call today, we will provide an overview of our third quarter results, share progress on our energized strategic framework, update you on the latest demand trends we are seeing in our diverse end markets, and provide guidance for our fourth quarter.
Shawn O'Connell: Thank you, Lisa, and good morning. Please turn to slide 4. During the call today, we'll provide an overview of our Q3 results, share progress on our energized strategic framework, update you on the latest demand trends we are seeing in our diverse end markets, and provide guidance for our Q4. Please turn to slide 5. We delivered strong earnings in the Q3, with Adjusted Diluted EPS ex 45X of $1.84, up 50% year-over-year and a company record for our third fiscal quarter. Net sales were up 1%, in line with the low end of our guidance range, as strong price mix and favorable FX offset lower volumes.
Shawn O'Connell: Thank you, Lisa, and good morning. Please turn to slide 4. During the call today, we'll provide an overview of our Q3 results, share progress on our energized strategic framework, update you on the latest demand trends we are seeing in our diverse end markets, and provide guidance for our Q4.
Shawn O'Connell: Please turn to slide 5. We delivered strong earnings in the Q3, with Adjusted Diluted EPS ex 45X of $1.84, up 50% year-over-year and a company record for our third fiscal quarter. Net sales were up 1%, in line with the low end of our guidance range, as strong price mix and favorable FX offset lower volumes.
Speaker #4: Please turn to slide five. We delivered strong earnings in the third quarter with adjusted diluted EPS X45X of $1.84, up 50% year over year and a company record for our third fiscal quarter.
Speaker #4: Net sales were up 1%, in line with the low end of our guidance range as strong price mix and favorable FX offset lower volumes.
Speaker #4: Earnings growth outpaced revenue growth driven by favorable product mix, pricing discipline, and our cost improvement efforts, resulted in adjusted operating earnings up 34% and adjusted EBITDA up 30%.
Shawn O'Connell: Earnings growth outpaced revenue growth, driven by favorable product mix, pricing discipline, and our cost improvement efforts, resulted in Adjusted Operating Earnings up 34% and Adjusted EBITDA up 30%, both excluding 45X. We continue to be excited about mounting growth catalysts across all of our end markets, though near-term softness persists in Motive Power and transportation. A few highlights from our lines of business. Energy Systems delivered its first double-digit AOE margin on modest sales growth. Despite slightly lower year-on-year sales, Motive Power margins remained in line with prior year. And finally, Specialty delivered remarkable performance improvement, with sales up high single digits and AOE more than twice that of prior year, resuming double-digit AOE margins for the first time in 3 years.
Shawn O'Connell: Earnings growth outpaced revenue growth, driven by favorable product mix, pricing discipline, and our cost improvement efforts, resulted in Adjusted Operating Earnings up 34% and Adjusted EBITDA up 30%, both excluding 45X. We continue to be excited about mounting growth catalysts across all of our end markets, though near-term softness persists in Motive Power and transportation. A few highlights from our lines of business.
Speaker #4: Both excluding 45X. We continue to be excited about mounting growth catalysts across all of our end markets, though near-term softness persists and motive power A few highlights from our lines of and transportation.
Speaker #4: business. Energy systems delivered its first double-digit AOE margin on modest sales growth. Despite slightly lower year-on-year sales, motive power margins remained in line with prior year, and finally, specialty delivered remarkable performance improvement with sales up high single digits and AOE more than twice that of prior year, resuming double-digit AOE margins for the first time in three years.
Shawn O'Connell: Energy Systems delivered its first double-digit AOE margin on modest sales growth. Despite slightly lower year-on-year sales, Motive Power margins remained in line with prior year. And finally, Specialty delivered remarkable performance improvement, with sales up high single digits and AOE more than twice that of prior year, resuming double-digit AOE margins for the first time in 3 years.
Shawn O'Connell: Free cash flow in the quarter was also particularly strong, and we are pleased to return $94 million in capital to our shareholders this quarter through share repurchases and dividends. Please turn to slide 6. Through our energized strategic framework, we are continuing to further optimize our core, invigorate our operating model, and accelerate our growth. We are capturing realignment savings as planned, and our centers of excellence are continuing to improve execution, speed, and consistency. We are also progressing on some of our key growth verticals. The reduction in force actions we announced in July are now largely complete, and we are committed to preserving these savings by disciplined cost management going forward. The closure of our Monterrey battery plant is substantially complete, with all manufacturing transitioned to our Richmond, Kentucky, facility in November, one month earlier than planned.
Shawn O'Connell: Free cash flow in the quarter was also particularly strong, and we are pleased to return $94 million in capital to our shareholders this quarter through share repurchases and dividends. Please turn to slide 6. Through our energized strategic framework, we are continuing to further optimize our core, invigorate our operating model, and accelerate our growth. We are capturing realignment savings as planned, and our centers of excellence are continuing to improve execution, speed, and consistency.
Speaker #4: return $94 million in capital to our shareholders this Free cash flow in the quarter was also quarter through share repurchases and dividends. Please turn to slide six.
Speaker #4: Through our energized strategic framework, we are continuing to further optimize our core, invigorate our operating model, and accelerate our growth. We are capturing realignment savings as planned and our centers of excellence are continuing to improve execution speed and consistency.
Speaker #4: We are also progressing on some of our key growth verticals. The reduction in force actions we announced in July are now largely complete, and we are committed to preserving these savings by disciplined cost management going forward.
Shawn O'Connell: We are also progressing on some of our key growth verticals. The reduction in force actions we announced in July are now largely complete, and we are committed to preserving these savings by disciplined cost management going forward. The closure of our Monterrey battery plant is substantially complete, with all manufacturing transitioned to our Richmond, Kentucky, facility in November, one month earlier than planned.
Speaker #4: The closure of our monterey battery plant is substantially complete, with all manufacturing transitioned to our Richmond, Kentucky earlier than planned. We expect to facility in November, one month begin realizing the benefits savings work their way through our inventory.
Shawn O'Connell: We expect to begin realizing the benefits mid-fiscal 2027 as the savings work their way through our inventory. We've turned the corner on our services improvement, having delivered revenue and margin expansion over the past two quarters in this important growth vertical. This is a direct result of improved execution, enabled by deploying new project management tools to bring real-time visibility, clear communication, and tighter project control. We are also seeing encouraging momentum in our new product development pipeline, aided by our invigorated operating model, in which we have enhanced alignment between our engineering teams, Centers of Excellence, and lines of business. This renewed collaboration is helping us accelerate innovation, focusing on expanding our share of wallet in our core markets where we have a right to win.
Shawn O'Connell: We expect to begin realizing the benefits mid-fiscal 2027 as the savings work their way through our inventory. We've turned the corner on our services improvement, having delivered revenue and margin expansion over the past two quarters in this important growth vertical. This is a direct result of improved execution, enabled by deploying new project management tools to bring real-time visibility, clear communication, and tighter project control.
Speaker #4: our services improvement, having delivered We've turned the corner on revenue and margin expansion over the past two quarters in this important growth vertical. This is a direct result of improved execution enabled by deploying new project management tools to bring real-time visibility, clear communication, and tighter project control.
Shawn O'Connell: We are also seeing encouraging momentum in our new product development pipeline, aided by our invigorated operating model, in which we have enhanced alignment between our engineering teams, Centers of Excellence, and lines of business. This renewed collaboration is helping us accelerate innovation, focusing on expanding our share of wallet in our core markets where we have a right to win.
Speaker #4: We are also seeing encouraging momentum in our new product development pipeline, aided by our invigorated operating model in which we have enhanced alignment between our engineering teams, centers of excellence, and lines of business.
Speaker #4: This renewed collaboration is helping us accelerate innovation focusing on expanding our share of wallet in our core markets where we have a right to win.
Speaker #4: From battery energy storage systems to next-gen power electronics, TPPL, and lithium solutions with embedded software, we are developing products that solve our customers' most critical energy challenges.
Shawn O'Connell: From battery energy storage systems to next-gen power electronics, TPPL, and lithium solutions with embedded software, we are developing products that solve our customers' most critical energy challenges. Although the progress on optimizing our core is already becoming evident in our financial results, I am most excited about the speed and focus we're making on our new product development initiatives. While this work won't materially impact revenue in the next few quarters, the milestones achieved represent important building blocks for our future growth. We will have more to share on our long-term technology roadmap during our Investor Day on 11 June. We have also made notable progress aligning our planned lithium cell factory with current administration priorities, and we believe we are close to finalizing our updated plan with the Department of Energy.
Shawn O'Connell: From battery energy storage systems to next-gen power electronics, TPPL, and lithium solutions with embedded software, we are developing products that solve our customers' most critical energy challenges. Although the progress on optimizing our core is already becoming evident in our financial results, I am most excited about the speed and focus we're making on our new product development initiatives.
Speaker #4: Although the progress on optimizing our core is already becoming evident in our financial results, I am most excited about the speed and focus we're making on our new product development initiatives.
Speaker #4: While this work won't materially impact revenue in the next few quarters, the milestones achieved represent important building blocks for our future growth. We will have more to share in our long-term technology roadmap during our investor day on June 11th.
Shawn O'Connell: While this work won't materially impact revenue in the next few quarters, the milestones achieved represent important building blocks for our future growth. We will have more to share on our long-term technology roadmap during our Investor Day on 11 June. We have also made notable progress aligning our planned lithium cell factory with current administration priorities, and we believe we are close to finalizing our updated plan with the Department of Energy.
Speaker #4: We have also made notable progress aligning our planned lithium cell factory with current administration priorities. And we believe we are close to finalizing our updated plan with the Department of Energy.
Speaker #4: Progress has been slower than anticipated. But we believe the extra time will result in very favorable outcomes adapted to current market dynamics. We will provide updates when our plans are finalized.
Shawn O'Connell: Progress has been slower than anticipated, but we believe the extra time will result in very favorable outcome adapted to current market dynamics. We'll provide updates when our plans are finalized. Please turn to slide 7. We continue to manage the impact of tariffs on our bottom line. In Q3, we fully offset the tariffs realized in our P&L through proactive supply chain actions and pricing strategies. While we anticipate continuing policy shifts, our total exposure remains stable at around 22% of US sourcing, with our estimated direct tariff exposure unchanged from last quarter at around $70 million annualized for fiscal 2026. Our task force and lines of business continue mitigating risk and enhancing supply chain optionality. Please turn to slide 8.
Shawn O'Connell: Progress has been slower than anticipated, but we believe the extra time will result in very favorable outcome adapted to current market dynamics. We'll provide updates when our plans are finalized. Please turn to slide 7. We continue to manage the impact of tariffs on our bottom line. In Q3, we fully offset the tariffs realized in our P&L through proactive supply chain actions and pricing strategies.
Speaker #4: Please turn to slide seven. We continue to manage the impact of tariffs on our bottom line. In the third quarter, we fully offset the tariffs realized in our P&L through proactive supply chain actions and pricing strategies.
Speaker #4: While we anticipate continuing policy shifts, our total exposure remains stable at around 22% of US sourcing, with our estimated direct tariff exposure unchanged from last quarter at around $70 million annualized for fiscal 26.
Shawn O'Connell: While we anticipate continuing policy shifts, our total exposure remains stable at around 22% of US sourcing, with our estimated direct tariff exposure unchanged from last quarter at around $70 million annualized for fiscal 2026. Our task force and lines of business continue mitigating risk and enhancing supply chain optionality. Please turn to slide 8.
Speaker #4: Our task force and lines of business continue mitigating risk and enhancing supply chain optionality. Please turn to slide eight. Our diversified business model is proving its resilience, as positive demand signals across most of our end markets help offset near-term softness in tariff-sensitive industries such as forklifts, and Class A trucking.
Shawn O'Connell: Our diversified business model is proving its resilience as positive demand signals across most of our end markets help offset near-term softness in tariff-sensitive industries, such as forklifts and Class 8 trucking. Both Q3 orders and backlog were up sequentially and year-over-year in all business segments except Motive Power and transportation, illustrating the near-term dynamic conditions we are seeing market to market. In Motive Power, industry data for forklift orders in December were up 40% versus prior year, a leading indicator for us, which gives us optimism. However, we are not yet confident a firm recovery is underway, as our battery orders were up only 1% sequentially, and thus we expect this slowness may continue into mid-fiscal 2027. In transportation, Class 8 trucking is still at the bottom of the cycle, but we are managing the impact through pricing, cost improvement, and aftermarket growth.
Shawn O'Connell: Our diversified business model is proving its resilience as positive demand signals across most of our end markets help offset near-term softness in tariff-sensitive industries, such as forklifts and Class 8 trucking. Both Q3 orders and backlog were up sequentially and year-over-year in all business segments except Motive Power and transportation, illustrating the near-term dynamic conditions we are seeing market to market.
Speaker #4: Both Q3 orders and backlog were up sequentially and year over year in all business segments except motive power and transportation. Illustrating the near-term dynamic conditions we are seeing market to market.
Speaker #4: In Motive Power, industry data for forklift orders in December were up 40% versus the prior year. That's a leading indicator for us, which gives us optimism.
Shawn O'Connell: In Motive Power, industry data for forklift orders in December were up 40% versus prior year, a leading indicator for us, which gives us optimism. However, we are not yet confident a firm recovery is underway, as our battery orders were up only 1% sequentially, and thus we expect this slowness may continue into mid-fiscal 2027. In transportation, Class 8 trucking is still at the bottom of the cycle, but we are managing the impact through pricing, cost improvement, and aftermarket growth.
Speaker #4: However, we are not yet confident a firm recovery is underway, as our battery orders were up only 1% sequentially, and thus we expect the slowness may continue into mid-fiscal '27.
Speaker #4: In transportation, Class A trucking is still at the bottom of the cycle, but we are managing the impact through pricing, cost improvement, and aftermarket growth.
Speaker #4: Based on conversations with our customers in both trucking and logistics, we understand that fleets are aging and investment is being deferred through delayed ordering cycles, which translates into pent-up demand.
Shawn O'Connell: Based on conversations with our customers in both trucking and logistics, we understand that fleets are aging and investment is being deferred through delayed ordering cycles, which translates into pent-up demand. This underinvestment is unsustainable, and when our customers need to ramp up swiftly in future quarters, we will be prepared to address the demand associated with the technological deficit that has been created. In communications, our customers are updating their networks and planning upgrades. We are continuing to see constructive momentum as they review the need to replace aging equipment across their installed base and improve capabilities to meet the expanding consumer and government demand for quicker and more reliable data delivery and backup power. Our data center business remains strong, with Q3 sales up 28% over prior year.
Shawn O'Connell: Based on conversations with our customers in both trucking and logistics, we understand that fleets are aging and investment is being deferred through delayed ordering cycles, which translates into pent-up demand. This underinvestment is unsustainable, and when our customers need to ramp up swiftly in future quarters, we will be prepared to address the demand associated with the technological deficit that has been created.
Speaker #4: This underinvestment is unsustainable, and when our customers need to ramp up swiftly in future quarters, we will be prepared to address the demand associated with the technological deficit that has been created.
Speaker #4: In updating their networks and planning communications, our customers are upgrading. We are continuing to see constructive momentum as they review the need to replace aging equipment across their installed base and improve capabilities to meet the expanding consumer and government demand for quicker and more reliable data delivery and backup power.
Shawn O'Connell: In communications, our customers are updating their networks and planning upgrades. We are continuing to see constructive momentum as they review the need to replace aging equipment across their installed base and improve capabilities to meet the expanding consumer and government demand for quicker and more reliable data delivery and backup power. Our data center business remains strong, with Q3 sales up 28% over prior year.
Speaker #4: Our data center business remains strong, with Q3 sales up 28% over the prior year. Despite the acceleration we've seen to date, the data center market remains in the early stages of a multi-year growth cycle, driven by the rapid expansion of AI workloads and a rising need for energy resilience.
Shawn O'Connell: Despite the acceleration we've seen to date, the data center market remains in the early stages of a multiyear growth cycle, driven by the rapid expansion of AI workloads and a rising need for energy resilience. Our customers rely upon our solutions to help safeguard essential energy infrastructure. While deployment timing can vary by affecting quarterly trends, we look forward to continuing to benefit from the critical role our products play in the AI development super cycle and compounding that impact with new product offerings in the future. The dynamic geopolitical environment continues to drive an increase in global defense budgets and demand for next-gen power technologies for both tactical and mobile soldier applications, as well as military drones. As such, AAD activity remained robust in the quarter. Overall, we're pleased with our earnings strength and margin performance, reflecting our renewed discipline, execution, and operational rigor.
Shawn O'Connell: Despite the acceleration we've seen to date, the data center market remains in the early stages of a multiyear growth cycle, driven by the rapid expansion of AI workloads and a rising need for energy resilience. Our customers rely upon our solutions to help safeguard essential energy infrastructure. While deployment timing can vary by affecting quarterly trends, we look forward to continuing to benefit from the critical role our products play in the AI development super cycle and compounding that impact with new product offerings in the future.
Speaker #4: Our customers rely upon our solutions to help safeguard essential energy infrastructure. While deployment timing can vary by affecting quarterly trends, we look forward to continuing to benefit from the critical role our products play in the AI development supercycle and compounding that impact with new product offerings in the future.
Speaker #4: dynamic geopolitical environment continues to The drive an increase in global defense budgets and demand for next-gen power technologies, both tactical and as military drones.
Shawn O'Connell: The dynamic geopolitical environment continues to drive an increase in global defense budgets and demand for next-gen power technologies for both tactical and mobile soldier applications, as well as military drones. As such, AAD activity remained robust in the quarter. Overall, we're pleased with our earnings strength and margin performance, reflecting our renewed discipline, execution, and operational rigor.
Speaker #4: As such, A&D activity remains robust in the quarter. Overall, we're pleased with our earnings strength and margin performance, reflecting our renewed disciplined execution and operational rigor.
Speaker #4: As we look ahead, our teams are aligned around the actions that will drive long-term value, including organic innovation and strategic opportunities to expand our capabilities.
Shawn O'Connell: As we look ahead, our teams are aligned around the actions that will drive long-term value, including organic innovation and strategic opportunities to expand our capabilities. We are highly confident in our focused growth strategy, supported by durable secular demand trends, including the growing need for energy security and high-performance energy storage solutions. Now I'll turn it over to Andi to discuss our financial results and outlook in greater detail. Andi?
Shawn O'Connell: As we look ahead, our teams are aligned around the actions that will drive long-term value, including organic innovation and strategic opportunities to expand our capabilities. We are highly confident in our focused growth strategy, supported by durable secular demand trends, including the growing need for energy security and high-performance energy storage solutions. Now I'll turn it over to Andi to discuss our financial results and outlook in greater detail. Andi?
Speaker #4: We are highly confident in our focus growth strategy supported by durable secular demand trends including the growing need for energy security and high-performance energy storage solutions.
Speaker #4: Now, I'll turn it over to Andy to discuss her financial results and outlook in greater detail. Andy?
Speaker #2: Thanks, Shawn. Please turn to slide $919 10. Net sales came in at million, up 1% from prior year, driven by a 3% benefit from price mix, a 2% benefit from foreign currency translation, partially offset by a volumes.
Andi Funk: Thanks, John. Please turn to slide 10. Net sales came in at $919 million, up 1% from prior year, driven by a 3% benefit from price mix, a 2% benefit from foreign currency translation, partially offset by a 4% decrease in organic volumes. We achieved adjusted gross profit of $278 million, down $22 million year-on-year, but up $19 million or 8%, excluding 45X benefits. Note that 45X credits in the third quarter of last year were $75 million and included a one-time catch-up of $36 million, compared to $35 million in the third quarter of this year. The prior year catch-up impacts the year-over-year comparison of our adjusted gross margins and adjusted earnings, clouding the impressive year-on-year improvement excluding these benefits....
Andi Funk: Thanks, John. Please turn to slide 10. Net sales came in at $919 million, up 1% from prior year, driven by a 3% benefit from price mix, a 2% benefit from foreign currency translation, partially offset by a 4% decrease in organic volumes. We achieved adjusted gross profit of $278 million, down $22 million year-on-year, but up $19 million or 8%, excluding 45X benefits.
Speaker #2: We achieved adjusted growth profit of $278 4% decrease in organic million. Down $22 million year on year but up $19 million or 8% benefits.
Speaker #2: Note that 45X credits in the third quarter of last year were $75 million, and included a one-time catch-up of $36 million. Compared to $35 million in the third quarter of this year, the prior year catch-up impacts the year-over-year comparison of our adjusted gross margins and adjusted earnings, clouding the impressive year-on-year improvement excluding these benefits.
Andi Funk: Note that 45X credits in the third quarter of last year were $75 million and included a one-time catch-up of $36 million, compared to $35 million in the third quarter of this year. The prior year catch-up impacts the year-over-year comparison of our adjusted gross margins and adjusted earnings, clouding the impressive year-on-year improvement excluding these benefits....
Speaker #2: Q3 26 adjusted gross margins of 30.2% was up 110 basis points sequentially and down $280 basis points versus the prior year. Excluding 45X, adjusted gross margin was up 150 basis points sequentially and up 170 basis points versus prior year.
Andi Funk: Q3 2026 adjusted gross margins of 30.2% was up 110 basis points sequentially, and down 280 basis points versus the prior year. Excluding 45X, adjusted gross margin was up 150 basis points sequentially, and up 170 basis points versus prior year. OpEx in the quarter improved as a result of our cost reduction initiatives. As expected, we realized approximately $15 million in Q3 from these actions and anticipate similar savings in Q4. Our adjusted operating earnings were $142 million in the quarter, up $13 million versus the prior quarter, and down $13 million versus the prior year, with an adjusted operating margin of 15.5%.
Andi Funk: Q3 2026 adjusted gross margins of 30.2% was up 110 basis points sequentially, and down 280 basis points versus the prior year. Excluding 45X, adjusted gross margin was up 150 basis points sequentially, and up 170 basis points versus prior year.
Andi Funk: OpEx in the quarter improved as a result of our cost reduction initiatives. As expected, we realized approximately $15 million in Q3 from these actions and anticipate similar savings in Q4. Our adjusted operating earnings were $142 million in the quarter, up $13 million versus the prior quarter, and down $13 million versus the prior year, with an adjusted operating margin of 15.5%.
Speaker #2: OpEx in the quarter improved as a result of our cost reduction initiatives. As expected, we realized approximately $15 million in Q3 from these actions and anticipate similar savings in Q4.
Speaker #2: operating earnings were $142 Our adjusted million in the quarter, up $13 million versus the prior quarter, and down $13 million versus the prior year, with an adjusted operating margin of 45X benefits, adjusted operating earnings increased 28 million or 34%, with a record adjusted operating margin of 11.7%, up $290 basis points versus the prior year.
Andi Funk: Excluding 45X benefits, adjusted operating earnings increased $28 million or 34%, with a record adjusted operating margin of 11.7%, up 290 basis points versus the prior year. Adjusted EBITDA was $160 million, a decrease of $12 million versus prior year, while adjusted EBITDA margin was 17.4%, down 150 basis points versus prior year. Excluding 45X, adjusted EBITDA of $125 million, a company high, was up $29 million or 30% year-on-year, with a company record adjusted EBITDA margin of 13.6%, up 300 basis points versus the prior year. Adjusted diluted EPS was $2.77 per share, a decrease of 11% over prior year.
Andi Funk: Excluding 45X benefits, adjusted operating earnings increased $28 million or 34%, with a record adjusted operating margin of 11.7%, up 290 basis points versus the prior year. Adjusted EBITDA was $160 million, a decrease of $12 million versus prior year, while adjusted EBITDA margin was 17.4%, down 150 basis points versus prior year.
Speaker #2: Adjusted EBITDA was $160 million, a decrease of $12 million versus prior year, while $17.4%, down $150 basis points versus prior year. Excluding 45X, adjusted EBITDA of $125 million accompany high, was up $29 million or 30% year on year, with accompany record adjusted EBITDA margin of $13.6%, up $300 basis points versus year.
Andi Funk: Excluding 45X, adjusted EBITDA of $125 million, a company high, was up $29 million or 30% year-on-year, with a company record adjusted EBITDA margin of 13.6%, up 300 basis points versus the prior year. Adjusted diluted EPS was $2.77 per share, a decrease of 11% over prior year.
Speaker #2: Adjusted diluted EPS was $2.77 per share, a decrease of the prior 11% over prior year. EPS was $1.84 per share, up 50% versus prior year and also a third quarter record.
Andi Funk: Excluding 45X, adjusted EPS was $1.84 per share, up 50% versus prior year, and also a third quarter record. Our Q3 2026 effective tax rate was 14.9% on an as-reported basis and 22.4% on an as-adjusted basis before the benefit of 45X, compared to 23.3% in Q3 2025 and 23% in the prior quarter on geographical mix of earnings, which can vary quarter to quarter. We continue to expect our full year tax rate on an as-adjusted basis before the benefit of 45X for fiscal year 2026 to be in the range of 20% to 22%. Let me now provide details by segment. Please turn to slide 11.
Andi Funk: Excluding 45X, adjusted EPS was $1.84 per share, up 50% versus prior year, and also a third quarter record. Our Q3 2026 effective tax rate was 14.9% on an as-reported basis and 22.4% on an as-adjusted basis before the benefit of 45X, compared to 23.3% in Q3 2025 and 23% in the prior quarter on geographical mix of earnings, which can vary quarter to quarter.
Speaker #2: Our Q3 26 14.9% on an as-reported basis, and 22.4% on an as-adjusted basis before the benefit of 45X compared to 23.3% 23% in the prior in Q3 25 and quarter on geographical mix of earnings, which can vary quarter to quarter.
Speaker #2: Our Q3 26 14.9% on an as-reported basis, and 22.4% on an as-adjusted basis before the benefit of 45X compared to 23.3% 23% in the prior in Q3 25 and quarter on geographical mix of earnings, which can vary quarter to effective tax rate was We continue to expect our full-year tax rate on an as-adjusted basis before the benefit of 45X for fiscal year 2026 to be in the range of 20 to 22%.
Andi Funk: We continue to expect our full year tax rate on an as-adjusted basis before the benefit of 45X for fiscal year 2026 to be in the range of 20% to 22%. Let me now provide details by segment. Please turn to slide 11.
Speaker #2: Let me now provide details by 11. In segment. the third quarter, energy Please turn to slide systems revenue increased 3% from prior year to $400 price mix and a positive million, primarily driven by strong by the anticipated softer SX impact, partially offset volumes due to the customer pull-ins we noted last quarter and some deferred year-end capex spend, both of which propped up this segment's third quarter margins.
Andi Funk: In Q3, Energy Systems revenue increased 3% from prior year to $400 million, primarily driven by strong price mix and a positive FX impact, partially offset by the anticipated softer volumes due to the customer pull-ins we noted last quarter and some deferred year-end CapEx spend, both of which included lower margin product sales that propped up this segment's Q3 margins. Adjusted operating earnings increased an impressive 67% from prior year to $42 million, reflecting the benefits of favorable price mix from a richer mix of products, OpEx savings from our restructuring efforts, and the service margin improvements Sean noted earlier on the call. Adjusted operating margin of 10.5% increased 400 basis points versus the prior year.
Andi Funk: In Q3, Energy Systems revenue increased 3% from prior year to $400 million, primarily driven by strong price mix and a positive FX impact, partially offset by the anticipated softer volumes due to the customer pull-ins we noted last quarter and some deferred year-end CapEx spend, both of which included lower margin product sales that propped up this segment's Q3 margins.
Speaker #2: Adjusted operating earnings increased an impressive 67% million. Reflecting the from prior year, to $42 included lower margin product sales that richer mix of products, benefits of favorable price mix from a OpEx savings from our restructuring efforts, and the service margin improvements Shawn noted earlier on the 10.5% increased call. $400 basis points versus prior year.
Speaker #2: Adjusted operating earnings increased an impressive 67% million. Reflecting the from prior year, to $42 included lower margin product sales that richer mix of products, benefits of favorable price mix from a OpEx savings from our restructuring efforts, and the service margin improvements Shawn noted earlier on the 10.5% increased call.
Andi Funk: Adjusted operating earnings increased an impressive 67% from prior year to $42 million, reflecting the benefits of favorable price mix from a richer mix of products, OpEx savings from our restructuring efforts, and the service margin improvements Sean noted earlier on the call. Adjusted operating margin of 10.5% increased 400 basis points versus the prior year.
Andi Funk: While we expect some variability in margins quarter to quarter due to the project nature of this business, the overall trajectory of this segment remains very encouraging. Motive Power revenue decreased 2% from prior year to $352 million, with lower volumes from ongoing market softness more than offsetting FX tailwinds and favorable price mix. Motive Power Adjusted Operating Earnings were $53 million, roughly flat to prior year, resulting in Adjusted Operating Margins of 14.9%, up 20 basis points versus prior year, with OpEx savings mostly offset, but they lost leverage from lower volumes. Maintenance-free product sales increased 5% year on year and were 29% of Motive Power revenue mix, compared to 27% in Q3 of 2025.
Andi Funk: While we expect some variability in margins quarter to quarter due to the project nature of this business, the overall trajectory of this segment remains very encouraging. Motive Power revenue decreased 2% from prior year to $352 million, with lower volumes from ongoing market softness more than offsetting FX tailwinds and favorable price mix.
Speaker #2: quarter to quarter due to the project nature of this business, the overall trajectory Adjusted operating margin of encouraging. of this segment remains very Motive Power revenue decreased 2% from prior year to $352 million, with lower volumes from ongoing market softness more than offsetting SX tailwinds and favorable price million, roughly flat to prior earnings were $53 mix.
Andi Funk: Motive Power Adjusted Operating Earnings were $53 million, roughly flat to prior year, resulting in Adjusted Operating Margins of 14.9%, up 20 basis points versus prior year, with OpEx savings mostly offset, but they lost leverage from lower volumes. Maintenance-free product sales increased 5% year on year and were 29% of Motive Power revenue mix, compared to 27% in Q3 of 2025.
Speaker #2: year, resulting in adjusted operating margins of 14.9%, up 20 basis points versus prior year, with OpEx savings mostly offset but they lost Motive Power adjusted operating leverage from lower volumes.
Speaker #2: Maintenance-free product sales increased 5% year on year and were 29% of Motive Power revenue mix, compared to 27% in Q3 of '25. As supplies and capital investments for many in the logistics market continue, we expect improving but still soft volumes in Q4, with this trend likely continuing into the first quarter or two of fiscal '27.
Andi Funk: As supplies and capital investments for many in the logistics market continues, we expect improving but still soft volumes in Q4, with this trend likely continuing into the first quarter or two of fiscal 2027. Longer term, Motive Power remains well positioned for growth, supported by electrification, automation, and strong demand for our maintenance-free and charger solutions. Specialty revenue increased 8% from prior year to $168 million, driven by a 4% benefit from price mix, a 2% increase in organic volumes, a 1% FX tailwind, and a 1% contribution from the Rebel acquisition. As Sean mentioned, Specialty's Q3 2026 adjusted operating earnings of $20 million were more than double that of prior year.
Andi Funk: As supplies and capital investments for many in the logistics market continues, we expect improving but still soft volumes in Q4, with this trend likely continuing into the first quarter or two of fiscal 2027. Longer term, Motive Power remains well positioned for growth, supported by electrification, automation, and strong demand for our maintenance-free and charger solutions.
Speaker #2: Longer term, Motive Power remains well-positioned for growth, supported by electrification, automation, and strong demand for our maintenance-free and charger solutions. Specialty revenue increased 8% from the prior year to $168 million, driven by a 4% benefit from price mix, a 2% increase in organic volumes, a 1% SX tailwind, and a 1% contribution from the Rebel acquisition.
Andi Funk: Specialty revenue increased 8% from prior year to $168 million, driven by a 4% benefit from price mix, a 2% increase in organic volumes, a 1% FX tailwind, and a 1% contribution from the Rebel acquisition. As Sean mentioned, Specialty's Q3 2026 adjusted operating earnings of $20 million were more than double that of prior year.
Speaker #2: As Shawn mentioned, specialties Q3 26 adjusted operating earnings of $20 million were more than double that of prior year. Adjusted operating margin of 11.8% was up $560 basis points, as this quarter reflected ongoing strength in A&D and transportation aftermarket growth, from manufacturing cost improvements and softness, as well as benefits restructuring efforts.
Andi Funk: Adjusted operating margin of 11.8% was up 560 basis points, as this quarter reflected ongoing strength in A&D and transportation aftermarket growth, helping offset the Class 8 OEM softness, as well as benefits from manufacturing cost improvements and restructuring efforts. As we've shared previously, this segment is capable of sustained double-digit margins, and our efforts to accomplish this are taking hold with additional opportunity in front of us. Please turn to slide 12. Operating cash flow of $185 million, offset by CapEx of $13 million, resulted in strong free cash flow of $171 million in the quarter, an increase of $114 million versus the prior year same period. This increase was aided by the expansion of the company's receivable purchasing agreement during the quarter.
Andi Funk: Adjusted operating margin of 11.8% was up 560 basis points, as this quarter reflected ongoing strength in A&D and transportation aftermarket growth, helping offset the Class 8 OEM softness, as well as benefits from manufacturing cost improvements and restructuring efforts. As we've shared previously, this segment is capable of sustained double-digit margins, and our efforts to accomplish this are taking hold with additional opportunity in front of us.
Speaker #2: As we've shared previously, this segment is capable of sustained double-digit margins, and our efforts to accomplish this are taking hold with additional opportunity in front of us.
Andi Funk: Please turn to slide 12. Operating cash flow of $185 million, offset by CapEx of $13 million, resulted in strong free cash flow of $171 million in the quarter, an increase of $114 million versus the prior year same period. This increase was aided by the expansion of the company's receivable purchasing agreement during the quarter.
Speaker #2: Please turn to slide 12. Operating cash flow of $185 million offset by capex of $13 million resulted in strong free cash flow, of $171 million in the quarter.
Speaker #2: An increase of $114 million versus the prior year same period. This increase was aided by the expansion of the company's receivable purchasing agreement during the quarter.
Speaker #2: Free cash flow conversion in the quarter was $190%. Excluding the benefit of 45X to earnings in cash, free cash flow conversion was $300%, and without the impact of the expanded receivable purchasing agreement, still over $120% free cash flow conversion.
Andi Funk: Free cash flow conversion in the quarter was 190%. Excluding the benefit of 45X to earnings and cash, free cash flow conversion was 300%, and without the impact of the expanded receivable purchasing agreement, still over 120% free cash flow conversion. Primary operating capital decreased slightly to $934 million versus prior year on the benefits of our expanded receivables purchasing agreement, with our working capital efficiency measured internally by primary operating capital as a percentage of annualized sales, improving 70 basis points versus prior year after absorbing the impact of tariffs in our inventory and accounts receivable balances. As we continue to invigorate our operating model, our COEs are focused on further enhancing working capital discipline, which we expect will unlock additional value for our shareholders over time.
Andi Funk: Free cash flow conversion in the quarter was 190%. Excluding the benefit of 45X to earnings and cash, free cash flow conversion was 300%, and without the impact of the expanded receivable purchasing agreement, still over 120% free cash flow conversion.
Andi Funk: Primary operating capital decreased slightly to $934 million versus prior year on the benefits of our expanded receivables purchasing agreement, with our working capital efficiency measured internally by primary operating capital as a percentage of annualized sales, improving 70 basis points versus prior year after absorbing the impact of tariffs in our inventory and accounts receivable balances. As we continue to invigorate our operating model, our COEs are focused on further enhancing working capital discipline, which we expect will unlock additional value for our shareholders over time.
Speaker #2: Primary operating capital decreased slightly to $934 million versus prior year, on the benefits of our expanded receivables purchasing agreement, where their working capital efficiency measured internally by primary operating capital as a percentage of annualized sales, improving 70 basis points versus prior year, after absorbing the impact of tariffs and our inventory and accounts receivable balances.
Speaker #2: As we continue to invigorate our operating model, our COEs are focused on further enhancing working unlock additional value for our shareholders capital discipline, which we expect will As of December 28, 2025, we had $450 million of cash and cash equivalents on $743 million represents a decrease of hand.
Andi Funk: As of December 28, 2025, we had $450 million of cash and cash equivalents on hand. Net debt of $743 million represents a decrease of approximately $38 million since the end of fiscal 2025. Our leverage ratio remains well below our target range at 1.2x EBITDA. Our balance sheet is strong and well positions us to invest in growth and navigate the current economic environment. During this period of heightened geopolitical uncertainty, we anticipate maintaining our net leverage at or below the low end of our 2 to 3x target range, providing us with ample dry powder for our capital allocation choices and to remain nimble to absorb any macroeconomic dynamics that may impact us. Please turn to Slide 13.
Andi Funk: As of December 28, 2025, we had $450 million of cash and cash equivalents on hand. Net debt of $743 million represents a decrease of approximately $38 million since the end of fiscal 2025. Our leverage ratio remains well below our target range at 1.2x EBITDA. Our balance sheet is strong and well positions us to invest in growth and navigate the current economic environment.
Speaker #2: End-of-fiscal net debt for '25. Our leverage ratio remains well below our target range, at 1.2 times EBITDA. Our balance sheet is strong and well-positioned to invest in growth and navigate the current economic environment.
Speaker #2: During this period of heightened approximately $38 million since the geopolitical uncertainty, we anticipate maintaining our net leverage at or below the low end of our 2 to 3 times target range, providing us with ample dry powder for our capital allocation choices and to remain nimble to absorb any macroeconomic dynamics that may impact us.
Andi Funk: During this period of heightened geopolitical uncertainty, we anticipate maintaining our net leverage at or below the low end of our 2 to 3x target range, providing us with ample dry powder for our capital allocation choices and to remain nimble to absorb any macroeconomic dynamics that may impact us. Please turn to Slide 13.
Speaker #2: Please turn to slide 13. During the third quarter, we repurchased 672,000 shares for $84 million, at an average price of approximately $128 per share.
Andi Funk: During Q3, we repurchased 672,000 shares for $84 million at an average price of approximately $128 per share. We also paid $9.6 million in dividends. We have approximately $931 million in our buyback authorization as of February 3. We continue to be judicious in our share buyback activity. Our buybacks, in addition to the dividend, underscore our long-standing commitment to returning value to our shareholders. Our M&A pipeline for small and mid-sized tuck-in acquisitions remains active, supporting continued growth and innovation across the business. We are focused on ensuring alignment with our disciplined, strategic, and financial criteria of any M&A. Please turn to Slide 14. As we navigate the current environment of mixed end market demand trends, we remain optimistic but cautious about the near-term outlook.
Andi Funk: During Q3, we repurchased 672,000 shares for $84 million at an average price of approximately $128 per share. We also paid $9.6 million in dividends. We have approximately $931 million in our buyback authorization as of February 3. We continue to be judicious in our share buyback activity. Our buybacks, in addition to the dividend, underscore our long-standing commitment to returning value to our shareholders.
Speaker #2: We also paid $9.6 million in dividends. We have approximately $931 million in our buyback authorization as of February 3. We continue to be judicious in our share buyback activity.
Speaker #2: Our buybacks, in addition to the dividend, underscore our long-standing commitment to returning value to our shareholders. and mid-sized tuck-in acquisitions Our M&A pipeline for small remains active, supporting continued growth and innovation across the business.
Andi Funk: Our M&A pipeline for small and mid-sized tuck-in acquisitions remains active, supporting continued growth and innovation across the business. We are focused on ensuring alignment with our disciplined, strategic, and financial criteria of any M&A. Please turn to Slide 14. As we navigate the current environment of mixed end market demand trends, we remain optimistic but cautious about the near-term outlook.
Speaker #2: We are focused on ensuring alignment with our disciplined strategic and financial criteria, of any M&A. Please turn to slide 14. As we navigate the current environment of mixed-end market demand trends, we remain optimistic but cautious about the near-term outlook.
Speaker #2: Year over year, our Q4 outlook reflects continuing positive price mix, the benefits of OpEx improvement from realization of our restructuring efforts, healthy demand in data center and A&D, steady improvement in communications, and continued volume softness in Motive Power and transportation, relative to the underlying market needs.
Andi Funk: Year-over-year, our Q4 outlook reflects continuing positive price mix, the benefits of OpEx improvement from realization of our restructuring efforts, healthy demand in data center and A&D, steady improvement in communications, and continued volume softness in motive power and transportation relative to the underlying market needs. For the fourth quarter of fiscal 2026, we expect net sales in the range of $960 million to $1 billion, with Adjusted Diluted EPS of $2.95 to $3.05 per share, which includes $37 million to $42 million of 45X benefits to cost of sales. Excluding 45X, we expect Adjusted Diluted EPS of $1.91 to $2.01 per share, up 10% year-over-year at the midpoint of the range. Our CapEx expectation for the full year fiscal 2026 remains approximately $80 million.
Andi Funk: Year-over-year, our Q4 outlook reflects continuing positive price mix, the benefits of OpEx improvement from realization of our restructuring efforts, healthy demand in data center and A&D, steady improvement in communications, and continued volume softness in motive power and transportation relative to the underlying market needs.
Andi Funk: For the fourth quarter of fiscal 2026, we expect net sales in the range of $960 million to $1 billion, with Adjusted Diluted EPS of $2.95 to $3.05 per share, which includes $37 million to $42 million of 45X benefits to cost of sales. Excluding 45X, we expect Adjusted Diluted EPS of $1.91 to $2.01 per share, up 10% year-over-year at the midpoint of the range. Our CapEx expectation for the full year fiscal 2026 remains approximately $80 million.
Speaker #2: For the fourth quarter of fiscal 2026, we expect net sales in the range of $960 million to $1 billion, with adjusted diluted EPS of $2.95 to $3.05 per share, which includes 37 million to 42 million of 45X benefits to cost of sales.
Speaker #2: Excluding 45X, we expect adjusted diluted EPS of $1.91 to $2.01 per share, up 10% year on year at the midpoint of the range. Our CapEx expectation for the full year fiscal 2026 remains approximately $80 million while we are encouraged by the company's overall trajectory and areas, we continue to see the impact of the dynamic macro environment on customer buying patterns.
Andi Funk: While we are encouraged by the company's overall trajectory and momentum in several key growth areas, we continue to see the impact of the dynamic macro environment on customer buying patterns. Consistent with our Q4 outlook and expectations we set at the beginning of the fiscal year, we expect full year adjusted operating earnings growth, excluding 45X benefits, to outpace revenue growth, supported by ongoing OpEx savings, sustained price mix strength, and improving, though still soft, motive power volumes. Operational efficiencies aligned with our energized strategic framework are taking hold, with continued progress in process optimization, capital allocation discipline, and manufacturing performance. These actions are positioning the business for long-term top line growth and margin expansion. In closing, this quarter showcased the strength of our operating model and the discipline of our team, delivering record results, advancing our strategic priorities, and positioning us well for fiscal year 2027.
Andi Funk: While we are encouraged by the company's overall trajectory and momentum in several key growth areas, we continue to see the impact of the dynamic macro environment on customer buying patterns. Consistent with our Q4 outlook and expectations we set at the beginning of the fiscal year, we expect full year adjusted operating earnings growth, excluding 45X benefits, to outpace revenue growth, supported by ongoing OpEx savings, sustained price mix strength, and improving, though still soft, motive power volumes.
Speaker #2: Consistent with our fourth quarter outlook and expectations we set at the beginning of the fiscal year, we expect full-year adjusted operating earnings growth, excluding 45X benefits, to outpace revenue growth, supported by ongoing OpEx savings, sustained price/mix strength, and improving, though still soft, Motive Power volumes.
Speaker #2: Operational efficiencies aligned with our energized strategic framework are taking hold, with continued progress in process optimization, capital allocation discipline, and are positioning the business for manufacturing performance.
Andi Funk: Operational efficiencies aligned with our energized strategic framework are taking hold, with continued progress in process optimization, capital allocation discipline, and manufacturing performance. These actions are positioning the business for long-term top line growth and margin expansion. In closing, this quarter showcased the strength of our operating model and the discipline of our team, delivering record results, advancing our strategic priorities, and positioning us well for fiscal year 2027.
Speaker #2: These actions long-term top-line growth and margin expansion. In closing, fifth quarter showcased the strength of our operating model and the discipline of our team, delivering record results, advancing our strategic priorities, and positioning us well for fiscal year 27.
Speaker #2: We have clear priorities, aligned leadership, and momentum in the areas that matter most to our long-term value creation. With this, let's open it up for questions.
Andi Funk: We have clear priorities, aligned leadership, and momentum in the areas that matter most to our long-term value creation. With this, let's open it up for questions. Operator?
Andi Funk: We have clear priorities, aligned leadership, and momentum in the areas that matter most to our long-term value creation. With this, let's open it up for questions. Operator?
Speaker #2: Operator, At this time, I would like to remind everyone in order to ask a question, press Star, then the number one, and your telephone keypad.
Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Noah Kaye with Oppenheimer. Please go ahead. Your line is now open.
Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Noah Kaye with Oppenheimer. Please go ahead. Your line is now open.
Speaker #2: We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment. To compile the Q&A roster.
Speaker #2: Your first question comes from the line of Noah Kay with Oppenheimer. Please go ahead. is now open.
Speaker #2: Your line
Speaker #3: morning. Thanks for taking the questions. Let's start with data center. You commented on the said is sort of healthy demand. I think looking at the pretty eye-popping CapEx orders growth rates we're expectations from the hypers and some of the seeing, healthy feels like an understatement.
Noah Kaye: Good morning. Thanks for taking the questions. Let's start with data center. You know, you commented on, you know, the growth in the quarter, but also what you said is sort of healthy demand. I think. Looking at the pretty eye-popping CapEx expectations from the hypers, and some of the orders growth rates we're seeing, healthy feels like an understatement. So can you talk about your own data center pipeline and how you think about that scaling in the quarters ahead?
Noah Kaye: Good morning. Thanks for taking the questions. Let's start with data center. You know, you commented on, you know, the growth in the quarter, but also what you said is sort of healthy demand. I think. Looking at the pretty eye-popping CapEx expectations from the hypers, and some of the orders growth rates we're seeing, healthy feels like an understatement. So can you talk about your own data center pipeline and how you think about that scaling in the quarters ahead?
Speaker #3: So, can you talk about your own data center pipeline, and how you think about that scaling in the quarters?
Speaker #3: ahead? Yeah.
Shawn O'Connell: Yeah. So no, it's Shawn. Good morning. Good to hear your voice. Listen, you know, we're very excited about this opportunity, obviously. And, you know, if we look at it from a lead-acid perspective, let me start there. You know, we have a commanding market share in data center. It's over 50% in the United States, as an example, and we serve those same hyperscalers around the world. And we're seeing growing demand for higher density products, and so TPPL, for us in this space, is doing very well. What we're most excited about, though, for all of that strength and all of that growth, we have yet to release a lithium battery product into the marketplace.
Shawn O'Connell: Yeah. So no, it's Shawn. Good morning. Good to hear your voice. Listen, you know, we're very excited about this opportunity, obviously. And, you know, if we look at it from a lead-acid perspective, let me start there. You know, we have a commanding market share in data center. It's over 50% in the United States, as an example, and we serve those same hyperscalers around the world.
Speaker #4: So no, it's Shawn. Good morning. Good to hear your voice. Listen, we're very excited about this opportunity. Obviously, and if we look at it from a lead-acid perspective, let me start there.
Speaker #4: We have a commanding market share in data center. It's over 50% in the United States as an example. And we serve those same hyperscalers around the world.
Speaker #4: And we're seeing grower demand, growing demand for higher density products and so TPPL for us in this space is doing very well. What we're most excited about, though, for all of that strength and all of that growth, we have yet to release a lithium battery product into the marketplace.
Shawn O'Connell: And we're seeing growing demand for higher density products, and so TPPL, for us in this space, is doing very well. What we're most excited about, though, for all of that strength and all of that growth, we have yet to release a lithium battery product into the marketplace.
Speaker #4: So for over 50% market share in the lead-acid, for all of the greenfield data centers that are going lithium, today we have 0% market share.
Shawn O'Connell: So for over 50% market share in the Lead Acid, for all the greenfield data centers that are going lithium, today, we have 0% market share. So our product teams under Mark Matthews are doing a tremendous job to get that product over the finish line. We're not being very public about dates and that kind of thing because we'd rather have done it and told you about it than foreshadow something that we didn't deliver on. But that is a massive growth opportunity for us, and it's the exact same customers that we're serving with that great growth in Lead Acid. So it's just a lot...
Shawn O'Connell: So for over 50% market share in the Lead Acid, for all the greenfield data centers that are going lithium, today, we have 0% market share. So our product teams under Mark Matthews are doing a tremendous job to get that product over the finish line.
Speaker #4: teams under Mark Matthews are doing a tremendous job to get So our product line. We're not being very public that product over the finish about dates and that kind of thing because we'd rather have done it and told you about it than foreshadow something that we didn't deliver on.
Shawn O'Connell: We're not being very public about dates and that kind of thing because we'd rather have done it and told you about it than foreshadow something that we didn't deliver on. But that is a massive growth opportunity for us, and it's the exact same customers that we're serving with that great growth in Lead Acid. So it's just a lot...
Speaker #4: But that is a massive growth opportunity for us. And it's the exact same customers that we're serving with that great growth in lead-acid. So it's just a lot, a tremendous amount of upside for us.
Shawn O'Connell: A tremendous amount of upside for us and a tremendous amount of willingness on the side of the customer, because with EnerSys, you get, it's not just the product, you get the before and after sale services and care, the logistics support, the staging support. So, our customers are very keen to get us involved in that, and it's probably our largest opportunity to date.
Shawn O'Connell: A tremendous amount of upside for us and a tremendous amount of willingness on the side of the customer, because with EnerSys, you get, it's not just the product, you get the before and after sale services and care, the logistics support, the staging support. So, our customers are very keen to get us involved in that, and it's probably our largest opportunity to date.
Speaker #4: And a tremendous amount of willingness on the side of the customer because with EnerSys, you get it's not just the product, you get the before and after sales services and care, the logistics support, the staging support.
Speaker #4: Customers are very keen to get us involved in that. And it's probably our largest opportunity to—
Speaker #4: date.
Speaker #3: That's helpful. Thanks,
Noah Kaye: That's helpful. Thanks, Shawn. You know, hat tip to the team on the Energy Systems margins getting above 10%. Yeah, I think the slide deck talks about a sort of normalized margin improvement in Q4. Maybe we can sort of put a little bit more context around what that normalized means. I know you don't, you know, quantitatively guide to segment margins, but just help us think about some of the puts and takes and what normalized could look like, given some of the comments around, you know, product mix shift and the like.
Noah Kaye: That's helpful. Thanks, Shawn. You know, hat tip to the team on the Energy Systems margins getting above 10%. Yeah, I think the slide deck talks about a sort of normalized margin improvement in Q4. Maybe we can sort of put a little bit more context around what that normalized means. I know you don't, you know, quantitatively guide to segment margins, but just help us think about some of the puts and takes and what normalized could look like, given some of the comments around, you know, product mix shift and the like.
Speaker #3: the energy systems margins, getting above 10%. I think the slide deck talks about a sort Shawn. A hat tip to the team on improvement in of normalized margin 4Q.
Speaker #3: Maybe we can sort of put a little bit more context around what that normalized means. I know you don't quantitatively guide to segment margins, but just help us think about some of the puts and takes and what normalized could look like given some of the comments around product mix shift and the
Speaker #3: Maybe we can sort of put a little bit more context around what 'normalized' means. I know you don't quantitatively guide to segment margins, but just help us think about some of the puts and takes, and what 'normalized' could look like, given some of the comments around product mix shift and the like.
Speaker #5: Sure. Good morning, Noah. This is Andy. Nice to hear from you. Consistent with what we've said in business over the past—as you know, our Energy Systems is project-oriented, which also has some mixed opportunities that can cause it not to be a pure linear progression.
Andi Funk: Sure. Good morning, Noah. This is Andi. Nice, nice to hear from you. Consistent with what we've said in the past, as you know, our Energy Systems business is very project oriented, which also has some mix of opportunities that can, that can cause it not to be a pure linear progression. And as we talked about in Q3, we both had some pull-ins into Q2, that we had talked about on our last call, and then we had a couple customers that pushed out, one customer in particular, an order at the end of the calendar year, into our Q4. So that put a little bit of pressure on our volumes in Q3, in Energy Systems, but also aided the margins a little bit.
Andi Funk: Sure. Good morning, Noah. This is Andi. Nice, nice to hear from you. Consistent with what we've said in the past, as you know, our Energy Systems business is very project oriented, which also has some mix of opportunities that can, that can cause it not to be a pure linear progression.
Speaker #5: And as we talked about in Q3, we both had some pull-ins into Q2 that we had talked about on our last call. And then we had a couple of customers that pushed out.
Andi Funk: And as we talked about in Q3, we both had some pull-ins into Q2, that we had talked about on our last call, and then we had a couple customers that pushed out, one customer in particular, an order at the end of the calendar year, into our Q4. So that put a little bit of pressure on our volumes in Q3, in Energy Systems, but also aided the margins a little bit.
Speaker #5: One customer in particular, in order at the end of the calendar year, into our Q4. So that put a little bit of pressure on our volumes in Q3 in margins a little bit.
Speaker #5: So what I would look at is we normalized improvement trajectory, but probably a little bit for that. We would continue with the of that 10 and a half percent OE have propped up Q2 a little more and propped up Q4.
Andi Funk: So what I would look at is if we normalized for that, we would continue with the improvement trajectory, but probably a little bit of that 10.5%, AOE margin in ES, some of that probably should have propped up Q2 a little more and propped up Q4. So if you normalized for that, you would continue to see an improvement, and we might be sub 10%, but not much. It'll still be in that trending in that direction, but I would expect probably a little bit of a step back in Q4, but a continuation of the improvement that we've seen so far to date. Does that make sense?
Andi Funk: So what I would look at is if we normalized for that, we would continue with the improvement trajectory, but probably a little bit of that 10.5%, AOE margin in ES, some of that probably should have propped up Q2 a little more and propped up Q4.
Andi Funk: So if you normalized for that, you would continue to see an improvement, and we might be sub 10%, but not much. It'll still be in that trending in that direction, but I would expect probably a little bit of a step back in Q4, but a continuation of the improvement that we've seen so far to date. Does that make sense?
Speaker #5: So, if you normalize for that, you would margin and ES, some of that probably should continue to see an improvement. And we might be sub-10%, but not much.
Speaker #5: It'll still be in that trending in that direction, but I would expect probably a little bit of a step back in Q4, but a continuation of the improvement that we've seen so far to date.
Speaker #5: Does that make
Speaker #5: sense? It does.
Noah Kaye: It does. It's very helpful. You know, and maybe for the last one, just wanna touch on Motive Power. You know, we have seen some really strong, you know, demand trends in e-commerce and warehouse automation, trends that seems like it should play into your wheelhouse. So when do you think kind of this destocking ends, and when do you think you start to see some inflection in Motive order rates?
Noah Kaye: It does. It's very helpful. You know, and maybe for the last one, just wanna touch on Motive Power. You know, we have seen some really strong, you know, demand trends in e-commerce and warehouse automation, trends that seems like it should play into your wheelhouse. So when do you think kind of this destocking ends, and when do you think you start to see some inflection in Motive order rates?
Speaker #3: It's very helpful. And maybe for the last one, just on a touch on motive power. We have seen some really strong demand trends in e-commerce and warehouse, automation, trends that seem like it should play into your wheelhouse.
Speaker #3: Thinking about when this kind of destocking ends—so, when do you think you start to see some inflection in motive order?
Speaker #3: rates? I'll take that again.
Shawn O'Connell: You know, it's... I'll take that again. Noah, it's Shawn. This is why we've been so reticent for full year guidance, because it's just all the leading indicators have been tough for our forklift manufacturer OEMs, let alone us, on how to gauge this market. And of course, there was tariff exposure and particularly in heavy steel, and then there were the interest rates and just all sorts of things that affect these heavy capital purchases. With that being said, as we said in the prepared remarks, we know for sure this was pent up demand, that as these trucks age, if there was zero growth in logistics, which there won't be, that just to keep the fleet moving today that exists, they have to order trucks. We saw evidence of this in December.
Shawn O'Connell: You know, it's... I'll take that again. Noah, it's Shawn. This is why we've been so reticent for full year guidance, because it's just all the leading indicators have been tough for our forklift manufacturer OEMs, let alone us, on how to gauge this market. And of course, there was tariff exposure and particularly in heavy steel, and then there were the interest rates and just all sorts of things that affect these heavy capital purchases.
Speaker #4: No, it's Shawn. This is why we've been so reticent for full-year guidance because it's just our forklift all the leading indicators have been tough for manufacturer OEMs, let alone us, on how to gauge this market.
Speaker #4: And of course, there was tariff exposure and particularly in heavy steel. And then there were the interest rates and just all sorts of things that affect these heavy capital purchases.
Speaker #4: With that being said, as we said in the prepared remarks, we know for sure this is pent-up demand. That as these trucks age, if there was zero growth in logistics, which there won't be, that just to keep the fleet moving trucks.
Shawn O'Connell: With that being said, as we said in the prepared remarks, we know for sure this was pent up demand, that as these trucks age, if there was zero growth in logistics, which there won't be, that just to keep the fleet moving today that exists, they have to order trucks. We saw evidence of this in December.
Speaker #4: today that exists they have to order in December. We mentioned a 40% We saw evidence of this increase in December in the Americas in the trucking orders.
Shawn O'Connell: We mentioned a 40% increase in December in the Americas, in the trucking orders. To put that in perspective, about 22,000 units. That's a record December. We've never seen that kind of number, and it's not that the market just decided to grow that much. That's that pent up demand. So, where we're being careful, though, is we saw, you know, earlier this year, we talked about some strength coming back in, and historically, when motive turns, it's basically a linear climb out. This has been a little more choppy for us. But that 40%, new truck order number is a big one for us.
Shawn O'Connell: We mentioned a 40% increase in December in the Americas, in the trucking orders. To put that in perspective, about 22,000 units. That's a record December. We've never seen that kind of number, and it's not that the market just decided to grow that much. That's that pent up demand.
Speaker #4: To put 22,000 units—that's a record December. We've never seen that kind of number. And it's not that the market just decided to grow that much.
Speaker #4: That's that pent-up demand. careful, though, is we saw earlier this year, we talked about some strength coming back in. And historically, when motive turns, it's basically a linear climb out.
Shawn O'Connell: So, where we're being careful, though, is we saw, you know, earlier this year, we talked about some strength coming back in, and historically, when motive turns, it's basically a linear climb out. This has been a little more choppy for us. But that 40%, new truck order number is a big one for us.
Speaker #4: This has been a little more choppy for us. But that 40% new truck order us. And typically, and the reason we're saying, "Hey, it may take a couple of quarters of fiscal '27 to iron out," that's usually the lag time between trucks being ordered and our batteries being ordered.
Shawn O'Connell: And, you know, typically, and the reason we're saying, "Hey, you know, it may take a couple of quarters of fiscal 2027 to iron out," that's usually the lag time between trucks being ordered and our batteries being ordered, but it's a very positive sign for us.
Shawn O'Connell: And, you know, typically, and the reason we're saying, "Hey, you know, it may take a couple of quarters of fiscal 2027 to iron out," that's usually the lag time between trucks being ordered and our batteries being ordered, but it's a very positive sign for us.
Speaker #4: But it's a very positive sign for us.
Andi Funk: Yeah, and I-
Andi Funk: Yeah, and I-
Speaker #3: Very helpful. Yeah. Go ahead, Andy.
Brian Drab: Very helpful.
Brian Drab: Very helpful.
Andi Funk: Just adding a little bit onto what-
Andi Funk: Just adding a little bit onto what-
Brian Drab: Go ahead, Andi.
Brian Drab: Go ahead, Andi.
Andi Funk: What Sean said as well, Noah, if it's okay. One thing, while we're not thrilled with obviously the volume being down, what I do feel good about is we know that we are outperforming the market; it's not lost share. Our industry data that we received showed that, you know, our, while our volume was down, you know, high single digits, that the industry indicators were down low double digits in the quarter. So, you know, I think we're doing, we're doing better than the market. Motive Power is not a segment I really worry about. Chad does a tremendous job managing it. We know over time, as long as materials are moving, our products are needed. And, you know, there's, as Sean mentioned, it will come back.
Andi Funk: What Sean said as well, Noah, if it's okay. One thing, while we're not thrilled with obviously the volume being down, what I do feel good about is we know that we are outperforming the market; it's not lost share. Our industry data that we received showed that, you know, our, while our volume was down, you know, high single digits, that the industry indicators were down low double digits in the quarter.
Speaker #5: okay, one thing. Well, we're It's adding a little bit onto it. What Shawn said as well. Noah, if it's not thrilled with, obviously, the volume being down.
Speaker #5: What I do feel good about is we know that we are outperforming the market. It's not lost share. Our industry data that we received showed that, while our volume was down mid-single digits, the industry indicators were down low double digits to high single digits in the quarter.
Speaker #5: So I market. Motive power is not a think we're doing better than the segment I really worry about. Chad does a over time, as long as materials are moving, our products are tremendous job managing it. needed.
Speaker #5: So I market. Motive power is not a think we're doing better than the segment I really worry about. Chad does a over time, as long as materials are moving, our products are tremendous job managing it.
Andi Funk: So, you know, I think we're doing, we're doing better than the market. Motive Power is not a segment I really worry about. Chad does a tremendous job managing it. We know over time, as long as materials are moving, our products are needed. And, you know, there's, as Sean mentioned, it will come back.
Speaker #5: And there's, as Shawn mentioned, it will come back. It's a question of when. And I think the team does a great job managing through it.
Andi Funk: It's a question of when, and I think the team does a great job managing through it.
Andi Funk: It's a question of when, and I think the team does a great job managing through it.
Speaker #3: Great. Thank you very much.
Brian Drab: Great. Thank you very much.
Brian Drab: Great. Thank you very much.
Operator: Your next question comes from the line of Chip Moore with Roth MKM. Please go ahead.
Operator: Your next question comes from the line of Chip Moore with Roth MKM. Please go ahead.
Speaker #1: line of Chip Moore with Roth Your next question comes from the ahead.
Chip Moore: Hey, good morning. Thanks for taking the question.
Chip Moore: Hey, good morning. Thanks for taking the question.
Speaker #4: Good morning, Chip. question.
Shawn O'Connell: Good morning, Chip.
Shawn O'Connell: Good morning, Chip.
Speaker #6: Maybe I could
Speaker #6: Hey, Shawn, could I ask about the lithium factory? I know you're limited on what you can say, but what you sort of alluded to was a favorable outcome, I think.
Chip Moore: Maybe I could ask - Hey, Shawn, if I could ask about lithium factory. You know, I know you're limited on what you can say, but you sort of alluded to you know, expecting, I think it was, you know, a favorable outcome. Just anything you can share there and, you know, how we might think about how the strategy has evolved and when we might see a final decision?
Chip Moore: Maybe I could ask - Hey, Shawn, if I could ask about lithium factory. You know, I know you're limited on what you can say, but you sort of alluded to you know, expecting, I think it was, you know, a favorable outcome. Just anything you can share there and, you know, how we might think about how the strategy has evolved and when we might see a final decision?
Speaker #6: Just anything you can share there and how we might Capital.
Speaker #6: Strategy is, please go over how it has evolved and where we might see a final decision.
Speaker #6: strategy is Please go evolved and where we might see a final
Shawn O'Connell: Yeah, I'd be happy to do that. Thank you, and good to hear from you. We are very encouraged, I'll just say that, of where we're at in our discussions with the Department of Energy and the overall administration. You know, if you recall, and we go back to, you know, the beginning of this administration, what we saw were grants being canceled, projects being canceled, and, you know, we didn't know at the time that the batteries would survive the One, One Big Beautiful Bill Act, and all that is sort of ironed out.
Shawn O'Connell: Yeah, I'd be happy to do that. Thank you, and good to hear from you. We are very encouraged, I'll just say that, of where we're at in our discussions with the Department of Energy and the overall administration. You know, if you recall, and we go back to, you know, the beginning of this administration, what we saw were grants being canceled, projects being canceled, and, you know, we didn't know at the time that the batteries would survive the One, One Big Beautiful Bill Act, and all that is sort of ironed out.
Speaker #4: do that. Thank you. And good to hear from Yeah. I'd be happy to you. We are very encouraged I'll just say that of where we're at in our discussions with the Department of Energy and the back to the beginning of this We know canceled, projects being canceled, and we didn't know at the time that the batteries would survive the one big beautiful bill act.
Speaker #4: administration, what we saw were grants being And all that has sort of ironed out. Now, the government priority is being clarified and then putting the people in place that they wanted to put in place on their side to get these initiatives across, is what's taken all the time.
Shawn O'Connell: Now, the government priorities being clarified and then putting the people in place that they wanted to put in place on their side, you know, to get these initiatives across, is what's taken all the time. But I'll tell you that our grant has remained intact, was never canceled. And you know, we had a really strong audience with the government to talk about their new priorities. And what is that? It's secure domestic supply chains, free from Foreign Entity of Concern content, particularly for the US military and the Department of War. And of course, grid resiliency and electrification is still there, US manufacturing and job creation. But the really interesting thing for us is this has been a bipartisan supported issue.
Shawn O'Connell: Now, the government priorities being clarified and then putting the people in place that they wanted to put in place on their side, you know, to get these initiatives across, is what's taken all the time. But I'll tell you that our grant has remained intact, was never canceled. And you know, we had a really strong audience with the government to talk about their new priorities.
Speaker #4: But I'll tell you that our grant has remained intact. It was never canceled. And we had a really strong audience with the government to talk about their new priorities.
Shawn O'Connell: And what is that? It's secure domestic supply chains, free from Foreign Entity of Concern content, particularly for the US military and the Department of War. And of course, grid resiliency and electrification is still there, US manufacturing and job creation. But the really interesting thing for us is this has been a bipartisan supported issue.
Speaker #4: And what is that? It's secure domestic supply chains, free from foreign entity of concern content, particularly for the US military. And the Department of War.
Speaker #4: And of course, grid resiliency and electrification is still there. US manufacturing really interesting thing for us is this has been a bipartisan supported issue.
Shawn O'Connell: And, you know, I've said previously that if we could, you know, in terms of what the plant does and what its purpose is, if, if, if we could point the whole thing at a secure supply chain for the military, we would. I'm not saying that that's where we're gonna end up, and I don't want to get in front of the administration, and, and, you know, determining yet what that looks like. What I can tell you right now is it's very positive. We believe we're in the final stages.
Speaker #4: And I've said previously that if we could, in terms of what the plant is, if we could point the whole secure supply chain for the military, we think that it would.
Shawn O'Connell: And, you know, I've said previously that if we could, you know, in terms of what the plant does and what its purpose is, if, if, if we could point the whole thing at a secure supply chain for the military, we would. I'm not saying that that's where we're gonna end up, and I don't want to get in front of the administration, and, and, you know, determining yet what that looks like. What I can tell you right now is it's very positive. We believe we're in the final stages.
Speaker #4: I'm not saying that that's where we're going to end up. And I don't want to get in front of the administration and determining yet what that looks like.
Speaker #4: What I can tell you right now is it's very positive. We believe we're in the final stages. And we were hoping to have some information by a little more concrete by this call.
Shawn O'Connell: We were hoping to have some information by, you know, a little more concrete by this call, but we can only go as fast as the customer on the other side, which in this case is the government, but we remain very optimistic about where this is trending.
Shawn O'Connell: We were hoping to have some information by, you know, a little more concrete by this call, but we can only go as fast as the customer on the other side, which in this case is the government, but we remain very optimistic about where this is trending.
Speaker #4: But we can only go as fast as the customer on the other side, which in this case is the government. But we remain very—
Speaker #4: optimistic about where this is trending.
Speaker #6: Understood. I appreciate all that color, thank you. And just maybe for my follow-up, just maybe more of a follow-up on Noah’s question—for motive and some of the pent-up demand.
Chip Moore: Understood. I appreciate all that color. Thank you. And just maybe for my follow-up, just maybe more of a follow-up on Noah's question, for motive and some of the pent-up demand. I mean, maybe a similar dynamics for Class 8, I think that you called out. Just maybe talk about, you know, your ability, both those markets, you know, how you think about the back half of next fiscal year, if some of that demand starts to come back. Thanks.
Chip Moore: Understood. I appreciate all that color. Thank you. And just maybe for my follow-up, just maybe more of a follow-up on Noah's question, for motive and some of the pent-up demand. I mean, maybe a similar dynamics for Class 8, I think that you called out. Just maybe talk about, you know, your ability, both those markets, you know, how you think about the back half of next fiscal year, if some of that demand starts to come back. Thanks.
Speaker #6: I mean, maybe a similar dynamic for Class A, I think that you called out. Just maybe talk about your ability, both those markets, how you think about the back half of next fiscal year, if some of that demand starts to come back.
Speaker #6: Thanks.
Shawn O'Connell: Yeah. Well, we are well positioned. You know, the actions we've taken in our factories to be more efficient, to you know, increase the effectiveness of our supply chains, the work we've done through tariff mitigation, we're ready. I mean, there's no question about it. And just to give you... You mentioned transportation. I didn't really give that color. We have a fleet operator, which is one of the largest in the US, and they operate over 400,000 tractors, and they told us today, they told us if they had to order today, they'd have some 50,000 tractors to order just to maintain the fleet as it is, without any additional growth. Think about that.
Shawn O'Connell: Yeah. Well, we are well positioned. You know, the actions we've taken in our factories to be more efficient, to you know, increase the effectiveness of our supply chains, the work we've done through tariff mitigation, we're ready. I mean, there's no question about it. And just to give you... You mentioned transportation. I didn't really give that color.
Speaker #4: Well, we are well Yeah. positioned. The actions we've taken in our factories to be more efficient, to increase the effectiveness of our supply chains, the work we've done through tariff mean, there's no question about it.
Speaker #4: mitigation, we're ready. didn't really give that color. We I you you mentioned transportation. have a fleet operator, which is And just to give US, and they operate over 400,000 tractors.
Shawn O'Connell: We have a fleet operator, which is one of the largest in the US, and they operate over 400,000 tractors, and they told us today, they told us if they had to order today, they'd have some 50,000 tractors to order just to maintain the fleet as it is, without any additional growth. Think about that.
Speaker #4: And they told us today one of the largest in the they have 50 they told us they had to order today they have some 50,000 tractors to order just to maintain the fleet as it is without any additional growth.
Speaker #4: Think about that. So, they've just delayed, and nobody wants to go first because they don't know when this is going to turn back on.
Shawn O'Connell: So they've just delayed, and nobody wants to go first because they don't know when this is gonna turn back on. But they told us all of their conversations now with the OEM tractor providers and Class 8 OEMs is how fast can you restart? What does that look like? What does that pipeline look like? Because they know, and they represent just a bit of color, that 50,000 or that 412,000 tractors or 450,000 whatever that number is, they represent a number approaching 20% of their portion of the market. So it just gives you an idea of the dimensionality of the number of tractors that need to be ordered now, just to sustain the fleets out there due to the aging issue, let alone growth.... So we're ready.
Shawn O'Connell: So they've just delayed, and nobody wants to go first because they don't know when this is gonna turn back on. But they told us all of their conversations now with the OEM tractor providers and Class 8 OEMs is how fast can you restart? What does that look like? What does that pipeline look like?
Speaker #4: But they told us all of their conversations now with the OEM tractor providers and FAST. Can you restart? What does that look like? Class A OEMs—is how, what does that pipeline look like?
Speaker #4: Because they know, and they represent just a bit of color, that 412,000 tractors or 450, whatever that number is, they 20% of their portion of the market.
Shawn O'Connell: Because they know, and they represent just a bit of color, that 50,000 or that 412,000 tractors or 450,000 whatever that number is, they represent a number approaching 20% of their portion of the market. So it just gives you an idea of the dimensionality of the number of tractors that need to be ordered now, just to sustain the fleets out there due to the aging issue, let alone growth.... So we're ready.
Speaker #4: Dimensionality of the number—so it just gives you an idea of, you know, to represent a number approaching now just to sustain the fleets out there due to the aging issue, let alone growth.
Speaker #4: So we're ready. We have ample capacity. We've got Missouri up and running. We've hit all of our milestones there that we committed to. We've got scrap coming down, productivity increasing, OEE looks good at our bottleneck points.
Shawn O'Connell: We have ample capacity. We've got Missouri up and running. We've hit all of our milestones there that we committed to. We've got scrap coming down, productivity increasing, OEE looks good, you know, at our bottleneck points. So, when those drivers turn back on for us, we can execute pretty quickly.
Shawn O'Connell: We have ample capacity. We've got Missouri up and running. We've hit all of our milestones there that we committed to. We've got scrap coming down, productivity increasing, OEE looks good, you know, at our bottleneck points. So, when those drivers turn back on for us, we can execute pretty quickly.
Speaker #4: So when execute pretty those drivers turn back on for us, we can quickly.
Andi Funk: Yeah, and I'll, I'll just add a little bit, a little bit more onto that one. One thing that's interesting, Chip, and, and good to hear from you, is you, you mentioned transportation right after motive power. With, with invigorating our operating model, one of the things that we've been looking at is having Chad, who does a great job leading our, leading our Motive Power business, also begin to look at synergies that we have with our transportation business. And there's immense synergies there, because as you can imagine, you've got, warehousing and distribution, you have both forklifts and trucking in there.
Andi Funk: Yeah, and I'll, I'll just add a little bit, a little bit more onto that one. One thing that's interesting, Chip, and, and good to hear from you, is you, you mentioned transportation right after motive power. With, with invigorating our operating model, one of the things that we've been looking at is having Chad, who does a great job leading our, leading our Motive Power business, also begin to look at synergies that we have with our transportation business.
Speaker #3: interesting, Chip, and good to hear from little bit more onto that one thing that's you is you mentioned transportation right after motive power with invigorating our operating model.
Speaker #3: Been looking at is heavy CHAD, who—one of the things that we've—motive power business, also begin to look at synergies that we—and there's immense synergies there.
Andi Funk: And there's immense synergies there, because as you can imagine, you've got, warehousing and distribution, you have both forklifts and trucking in there. We actually had a really nice quarter for transportation, with the market still being soft, and I think that's aided by some of the benefits from this invigorated operating model, as well as the improvements to COE are having in our manufacturing costs, both absorption with a little bit of the volume pickup we had and Shawn's monthly trips that he's taking out to Missouri.
Speaker #3: Because, as you can imagine, you've got warehousing and distribution. You have both forklifts and trucking in there. We actually had a really nice quarter for transportation, with the market still being soft.
Andi Funk: We actually had a really nice quarter for transportation, with the market still being soft, and I think that's aided by some of the benefits from this invigorated operating model, as well as the improvements to COE are having in our manufacturing costs, both absorption with a little bit of the volume pickup we had and Shawn's monthly trips that he's taking out to Missouri. You know, I think you're really seeing improvements across the board. And only other thing I'd mention since we're talking about transportation, as you get into the whole specialty line of business, we couldn't be more pleased with our A&D business. That's an area where you know, we mentioned our A&D backlog, I think, up 27% year-over-year.
Speaker #3: And I think that's aided by some of the benefits from this invigorated operating model, as well as the improvements to COE are having in our manufacturing costs, both absorption with a little bit of and Shawn's monthly trips that he's taking out the volume pickup we had to Missouri.
Andi Funk: You know, I think you're really seeing improvements across the board. And only other thing I'd mention since we're talking about transportation, as you get into the whole specialty line of business, we couldn't be more pleased with our A&D business. That's an area where you know, we mentioned our A&D backlog, I think, up 27% year-over-year.
Speaker #3: I think you're really seeing improvements across the board. And the only other thing I'd mention, since we're talking about transportation, is you get into the whole specialty line of business.
Speaker #3: We couldn't be more pleased with our A&D business. That's an area where we mentioned our A&D backlog—I think up 27% year over year.
Speaker #3: Munitions in particular has had a 230% growth in their backlog year to date—really a 29% CAGR since we acquired the lots of opportunity in front of us with the geopolitical environment business in fiscal '19.
Andi Funk: Munitions, in particular, has had a 230% growth in their backlog year to date, really a 29% CAGR since we acquired the business in fiscal 2019. So lots of opportunity in front of us with the geopolitical environment continuing to drive this increase in defense budgets as well. So bright spot there for us.
Andi Funk: Munitions, in particular, has had a 230% growth in their backlog year to date, really a 29% CAGR since we acquired the business in fiscal 2019. So lots of opportunity in front of us with the geopolitical environment continuing to drive this increase in defense budgets as well. So bright spot there for us.
Speaker #3: So, continuing to drive this increase in defense budgets as well. So, bright spot there for us.
Speaker #6: Fantastic. both.
Speaker #6: Fantastic. both. Appreciate all the color. Thanks.
Chip Moore: Fantastic. I appreciate all the color. Thank you both.
Chip Moore: Fantastic. I appreciate all the color. Thank you both.
Speaker #6: Thank you Thanks,
Shawn O'Connell: Thanks.
Shawn O'Connell: Thanks.
Andi Funk: Thanks, Chip.
Andi Funk: Thanks, Chip.
Operator: Your next question comes from the line of Brian Drab with William Blair. Please go ahead.
Operator: Your next question comes from the line of Brian Drab with William Blair. Please go ahead.
Speaker #1: From the line of Brian Drab with William Blair. Please go ahead. Your next question comes:
Speaker #1: ahead. Hi.
Brian Drab: Hi, good morning, and thanks for taking my questions. I just wanted to talk about the Energy Systems segment first and the outstanding growth that you've seen in data center. I think you said up 28%. If I look at that segment and think about, you know, I think data center revenue for you is over $400 million on an annual run right now. I think, Shawn, that you had said it was around $425 million. You know, if data center's up 28%, is it... I guess that implies or tells us that the balance of the Energy Systems segment was down, you know, maybe low single digits to mid single digits.
Brian Drab: Hi, good morning, and thanks for taking my questions. I just wanted to talk about the Energy Systems segment first and the outstanding growth that you've seen in data center. I think you said up 28%. If I look at that segment and think about, you know, I think data center revenue for you is over $400 million on an annual run right now.
Speaker #7: questions. I just Good morning. And thanks for taking my systems segment first. wanted to talk about the energy And the outstanding growth that you've seen in data center, I think you said up 28%.
Speaker #7: If I look at that segment and think about, I think, data center revenue for you is over $400 million on an annual, run right now, I think, Shawn, that you had said it was around 425.
Brian Drab: I think, Shawn, that you had said it was around $425 million. You know, if data center's up 28%, is it... I guess that implies or tells us that the balance of the Energy Systems segment was down, you know, maybe low single digits to mid single digits.
Speaker #7: If data center is up 28%, I guess that implies or tells us that the balance of the energy system segment was down maybe low single digits to mid-single digits.
Brian Drab: And I'm just wondering, you know, that's being driven, I guess, mainly by dynamics in telecom and broadband, but I don't know if I missed it, but I didn't hear a lot of comments today yet on the call around telecom and broadband. So I'm just curious, what is happening in those end markets, and what's the outlook in those end markets?
Brian Drab: And I'm just wondering, you know, that's being driven, I guess, mainly by dynamics in telecom and broadband, but I don't know if I missed it, but I didn't hear a lot of comments today yet on the call around telecom and broadband. So I'm just curious, what is happening in those end markets, and what's the outlook in those end markets?
Speaker #7: wondering, that's being driven, I And I'm just guess, mainly by dynamics and telecom and broadband, but I don't know if I missed it, but I didn't hear a lot of comments today yet on the call around telecom and broadband.
Speaker #7: So I'm just curious markets and what's the outlook in those
Speaker #4: Yeah.
Shawn O'Connell: Yeah. Good morning, and good to hear from you, Brian. We, you know, I think Andi went into a bit on timing and margin normalization. What I would tell you is that we see only positive signals in the rest of the segments there. Q3 to Q4 for us, because we are on this April to March fiscal, is always a little weird in the telecom space for us because you either have the communications folks trying to increase their year-end spend before the calendar year flip, or they have- or they're deferring CapEx based on what their CFO is wanting them to do, to restart it again in our fourth quarter, their first quarter.
Shawn O'Connell: Yeah. Good morning, and good to hear from you, Brian. We, you know, I think Andi went into a bit on timing and margin normalization. What I would tell you is that we see only positive signals in the rest of the segments there.
Speaker #4: Good morning and good to hear from you, end markets? Brian. I think Andy went into a bit
Speaker #4: on timing and margin normalization. what is happening in those end What I would tell you is that we see only positive segments there. signals in the rest of the Q3 to Q4 for us, because we are on this April to March because you either have the communications the telecom space for us folks trying to increase their year-end spend before the calendar year flip, or they're deferring CapEx based on what to do to restart it their CFO is wanting them again in the R4 quarter.
Shawn O'Connell: Q3 to Q4 for us, because we are on this April to March fiscal, is always a little weird in the telecom space for us because you either have the communications folks trying to increase their year-end spend before the calendar year flip, or they have- or they're deferring CapEx based on what their CFO is wanting them to do, to restart it again in our fourth quarter, their first quarter.
Speaker #4: Their first quarter. So, and then Andy mentioned earlier too, we had the pull-in issue from Q2 into Q2—that if you normalize Q2 and Q3, it would look a little... signals are good.
Shawn O'Connell: So, and then, you know, as Andi mentioned earlier, too, we had the pull-in issue from Q2 into Q2, that, you know, if you normalize Q2 and Q3, it would look a little better. But all of the demand signals are good. You know, we don't talk about it because it's a small segment for us, but we have over 50% market share in power utility, and that specific application for us is electric substation switchgear and control. That business is up 15%, and just doing very, very well. So we see very positive demand signals. I'll tell you, the engineering team, particularly under the Center of Excellence realignment, is doing a fantastic job with the next XM product. You know, the broadband people are under the same pressure everybody else is under.
Shawn O'Connell: So, and then, you know, as Andi mentioned earlier, too, we had the pull-in issue from Q2 into Q2, that, you know, if you normalize Q2 and Q3, it would look a little better. But all of the demand signals are good. You know, we don't talk about it because it's a small segment for us, but we have over 50% market share in power utility, and that specific application for us is electric substation switchgear and control.
Speaker #4: We don't talk better. But all of the demand about it, because it's a small segment for us, but we have over 50% market. That specific application for us is electric substations, switchgear, and control.
Speaker #4: That business is up, doing very, very well. Seeing very positive demand, so we see signals. I'll tell you, the engineering—15% of excellence realignment is—and just doing a fantastic job with the next XM. People are under the same pressure.
Shawn O'Connell: That business is up 15%, and just doing very, very well. So we see very positive demand signals. I'll tell you, the engineering team, particularly under the Center of Excellence realignment, is doing a fantastic job with the next XM product. You know, the broadband people are under the same pressure everybody else is under.
Speaker #4: Everybody else is under. They're trying to plan for more expensive energy, more frequent outages. And so that share in power utility and product achieves a lot of that for them.
Shawn O'Connell: You know, they're trying to plan for more expensive energy, more frequent outages, and so that product achieves a lot of that for them. So we've been in trials and co-developing that with a key customer partner. So I would tell you that there's all positive demand signals for us that there, you know, you're probably just picking up on a little of that, year-end choppiness and, you know, project staging.
Shawn O'Connell: You know, they're trying to plan for more expensive energy, more frequent outages, and so that product achieves a lot of that for them. So we've been in trials and co-developing that with a key customer partner. So I would tell you that there's all positive demand signals for us that there, you know, you're probably just picking up on a little of that, year-end choppiness and, you know, project staging.
Speaker #4: So we've been in trials and co-developing that with a key customer partner. So I would tell you that there's signals for us there. all positive demand You probably just picking up on a little of that year-end choppiness and project staging.
Speaker #3: Yeah. And just to echo that, Brian and good to hear from you. As we mentioned, this business is project-driven. There's some large customers. So when you look at growth rates quarter by volatility and last year as well as quarter, both with volatility and this year quarter to quarter, you see some spikes up and spikes down.
Andi Funk: Yeah, and just to echo that, Brian, and good to hear from you. As we mentioned, this business is project driven. There's some large customers. So when you look at growth rates quarter by quarter, both with volatility in last year as well as volatility in this year, quarter to quarter, you see some spikes up and spikes down. But I would expect our comms business overall in 2026 will be up, you know, mid-single digits. Our data centers will probably be up high teens year-on-year. So, you know, quarter to quarter, because of some of these, you know, you have a customer year-end, you got budgets, you got a project that completes early or you're behind, you can have some shifts quarter to quarter, but the trajectory is really in good shape.
Andi Funk: Yeah, and just to echo that, Brian, and good to hear from you. As we mentioned, this business is project driven. There's some large customers. So when you look at growth rates quarter by quarter, both with volatility in last year as well as volatility in this year, quarter to quarter, you see some spikes up and spikes down.
Speaker #3: But I would expect our comms business overall in '26 will be up mid-single digits. Our data centers will probably be up high teens year-on-year.
Andi Funk: But I would expect our comms business overall in 2026 will be up, you know, mid-single digits. Our data centers will probably be up high teens year-on-year. So, you know, quarter to quarter, because of some of these, you know, you have a customer year-end, you got budgets, you got a project that completes early or you're behind, you can have some shifts quarter to quarter, but the trajectory is really in good shape.
Speaker #3: So quarter to quarter, because of some of these you have a behind, you can have some shifts quarter to quarter. But the trajectory is really in good shape.
Speaker #3: a project that completes early, or you're Continues to improve. This fiscal year, we probably '24 level, but we'll won't be back at the fiscal '27.
Speaker #3: And I would say while we're not in kind of this robust build-out like we've seen maybe in some of the past communications expansion, it's more slow and steady.
Andi Funk: And I would say, while we're not in kind of this robust build-out like we've seen maybe in some of the past communications expansion, it's more slow and steady, continues to improve. This fiscal year, we probably won't be back at the fiscal 2024 level, but we'll be trending towards it with opportunity in 2027 to get above.
Andi Funk: And I would say, while we're not in kind of this robust build-out like we've seen maybe in some of the past communications expansion, it's more slow and steady, continues to improve. This fiscal year, we probably won't be back at the fiscal 2024 level, but we'll be trending towards it with opportunity in 2027 to get above.
Speaker #3: above.
Speaker #7: Okay. And To get energy systems and the or I guess the guidance for the revenue overall, does that imply for the fourth quarter would I be correct in thinking that energy systems revenue is up a little year over year and motives down a little year over year, or any detail there you can help with?
Speaker #7: the guidance for
Brian Drab: Okay, and the guidance for Energy Systems and the, or I guess, the guidance for the revenue overall, does that imply for Q4? Like, would I be correct in thinking that Energy Systems revenue is up a little year-over-year and Motive's down a little year-over-year, or any detail there you can help with?
Brian Drab: Okay, and the guidance for Energy Systems and the, or I guess, the guidance for the revenue overall, does that imply for Q4? Like, would I be correct in thinking that Energy Systems revenue is up a little year-over-year and Motive's down a little year-over-year, or any detail there you can help with?
Andi Funk: You know, we don't guide specifically line of business by line of business, but I can give you a little bit of-
Andi Funk: You know, we don't guide specifically line of business by line of business, but I can give you a little bit of-
Speaker #3: specifically line of business by line of We don't guide business, but I can give you a little bit of color on each if that would be helpful,
Brian Drab: Yeah
Brian Drab: Yeah
Andi Funk: -color on each, if that would be helpful, Brian. In energy-
Andi Funk: -color on each, if that would be helpful, Brian. In energy-
Speaker #7: Whatever you want to give would be
Brian Drab: Whatever you want to give would be great. Yeah.
Brian Drab: Whatever you want to give would be great. Yeah.
Speaker #7: great. Yeah.
Speaker #3: Sure. In energy. Sure. I'll give you a help. we'll continue to see some growth from data Energy systems, centers, although again, as we mentioned, the choppiness prior year is probably a little bit of a tough comp.
Andi Funk: Sure, sure. I'll give you a little, and, and hopefully this will help. Energy Systems, we'll continue to see some growth from data centers, although again, as we mentioned, the choppiness, prior year is probably a little bit of a, a tough comp. The comms network refresh will continue with the build out to enable the AI data-driven, AI data delivery necessary, but at this measured pace, and again, some of those pushouts that we had will be materialized, so that'll benefit us. Just as a Q3 volume with pressure to margins were aided, that is quarterly phasing, that'll be normalized. So you'll get a little bit more of the pickup from the volumes as we talked about, but probably a little bit of pressure from the, from the margins quarter-over-quarter.
Andi Funk: Sure, sure. I'll give you a little, and, and hopefully this will help. Energy Systems, we'll continue to see some growth from data centers, although again, as we mentioned, the choppiness, prior year is probably a little bit of a, a tough comp.
Andi Funk: The comms network refresh will continue with the build out to enable the AI data-driven, AI data delivery necessary, but at this measured pace, and again, some of those pushouts that we had will be materialized, so that'll benefit us. Just as a Q3 volume with pressure to margins were aided, that is quarterly phasing, that'll be normalized. So you'll get a little bit more of the pickup from the volumes as we talked about, but probably a little bit of pressure from the, from the margins quarter-over-quarter.
Speaker #3: Refresh will continue with the build-out to enable the comms network, the AI data delivery necessary, but at this measured pace. And again, some of those push-outs that we had will be materialized, so that benefit, which was pressured to margins, were aided us.
Speaker #3: Just as a Q3 volume that is quarterly phasing, that'll be normalized. So you'll get a little bit more of the pickup from the volumes, as we talked about, but probably a little bit of pressure from the margins quarter on quarter.
Speaker #3: Our cost actions are holding, and again, normalizing towards double-digit margins. So very pleased with the progress. And as you know, we've talked about several quarters service having been a headwind for us.
Andi Funk: Our cost actions are holding and, and again, normalizing towards double-digit margins. So very pleased with the progress. As, as you know, we've talked about several quarters service having been a headwind for us. It's now we, we believe we've turned the corner and, and gonna start to be a, become a tailwind, an important part of our, our strategy going forward. In Motive Power, again, I would use hesitant as probably the best word to describe the market. We see that continuing into fiscal 2027, and we had a 0.9 book to bill in Motive Power, but we're really returning our backlog more to pre-COVID levels, so there's more book and ship business. And, you know, again, we... as Sean mentioned, we, we definitely see pent-up demand there, that, it's just a question of when that's gonna be unloaded.
Andi Funk: Our cost actions are holding and, and again, normalizing towards double-digit margins. So very pleased with the progress. As, as you know, we've talked about several quarters service having been a headwind for us. It's now we, we believe we've turned the corner and, and gonna start to be a, become a tailwind, an important part of our, our strategy going forward.
Speaker #3: It's now we believe we've turned the corner and going to start to be become a tailwind, an important part of our strategy going forward.
Speaker #3: In motive power, again, I would use hesitant. It's probably the fiscal '27. We had a 0.9 book to bill in motive backlog more to pre-COVID levels.
Andi Funk: In Motive Power, again, I would use hesitant as probably the best word to describe the market. We see that continuing into fiscal 2027, and we had a 0.9 book to bill in Motive Power, but we're really returning our backlog more to pre-COVID levels, so there's more book and ship business. And, you know, again, we... as Sean mentioned, we, we definitely see pent-up demand there, that, it's just a question of when that's gonna be unloaded.
Speaker #3: So there's more book-and-ship business. And again, as Shawn mentioned, we definitely see pent-up demand there; it's just a question of when that's going to be unloaded.
Speaker #3: There's going to be the Q4 seasonal volume lift that always happens. So we'll benefit from that. We continue to see customer enthusiasm, and our maintenance-free we will also see some higher cost pass-through from solutions and tariffs as our cost optimization opportunities and volume mentioned, is ahead of plan.
Andi Funk: There's gonna be the Q4 seasonal volume lift that always happens, so we'll benefit from that. We continue to see customer enthusiasm in our maintenance-free solutions. We will also see some higher cost pass-through from tariffs as our cost optimization opportunities and volume grows. Our Monterrey closure, as we mentioned, is ahead of plan. We've substantially closed that one month early. You'll probably begin to see that benefit starting around the middle, maybe Q2 or Q3 of next year, as we work through the inventory that we had. But that, along with the BESS opportunities, you know, there's a great article we just read about how 15% of warehouse operators' costs are their operating expenses are energy, and they're asking us for these solutions.
Andi Funk: There's gonna be the Q4 seasonal volume lift that always happens, so we'll benefit from that. We continue to see customer enthusiasm in our maintenance-free solutions. We will also see some higher cost pass-through from tariffs as our cost optimization opportunities and volume grows. Our Monterrey closure, as we mentioned, is ahead of plan.
Speaker #3: We substantially closed that one month early. You'll probably begin to see that benefit maybe second quarter or third quarter of next growth. had. But Our monterey closure, as we that along with the BESS a great article we just read about opportunities, there's how 15% of warehouse operators' costs are their operating expenses are energy.
Andi Funk: We've substantially closed that one month early. You'll probably begin to see that benefit starting around the middle, maybe Q2 or Q3 of next year, as we work through the inventory that we had. But that, along with the BESS opportunities, you know, there's a great article we just read about how 15% of warehouse operators' costs are their operating expenses are energy, and they're asking us for these solutions.
Speaker #3: And they're asking us for these for next year. And specialty, I think not unreasonable to solutions. So that's on the horizon Q3. That we saw and beyond.
Andi Funk: So that's on the horizon for next year. And Specialty, I think, not unreasonable to expect double-digit AOE for Q3, that we saw and beyond, as our A&D business continues strength. Aftermarket transportation picks up, and the Lead Acid COE is driving cost improvements, in both trends through automation and the growing benefits of the restructuring. So hopefully that was a little color that could help.
Andi Funk: So that's on the horizon for next year. And Specialty, I think, not unreasonable to expect double-digit AOE for Q3, that we saw and beyond, as our A&D business continues strength. Aftermarket transportation picks up, and the Lead Acid COE is driving cost improvements, in both trends through automation and the growing benefits of the restructuring. So hopefully that was a little color that could help.
Speaker #3: As expected, double-digit AOE for our A&D business continues strength. Aftermarket transportation picks up, and the lead-acid COE is driving cost improvements in both trans through automation and the growing benefits of the restructuring.
Speaker #3: So, hopefully, that was a little help.
Speaker #7: Yeah. Thanks, Andy. color that could both.
Brian Drab: Yeah. Thanks, Sandy. Thank you both.
Brian Drab: Yeah. Thanks, Sandy. Thank you both.
Speaker #3: Okay.
Andi Funk: Okay.
Andi Funk: Okay.
Speaker #1: Thank you, Brian. The last
Shawn O'Connell: Thank you, Brian.
Shawn O'Connell: Thank you, Brian.
Operator: Your last question. Your last question comes from the line of Greg Lewis with BTIG. Please go ahead.
Operator: Your last question. Your last question comes from the line of Greg Lewis with BTIG. Please go ahead.
Speaker #2: Your last question comes from the line of Greg Lewis with BTIG. Please.
Speaker #2: go ahead.
Speaker #8: Yeah. I thank you and
Greg Lewis: Yeah, hi, thank you and good morning. A lot's been covered, so I guess, Shawn, I'll ask a little bit about, you know, the rollout of the UPS system in lithium. I mean, you mentioned that, you know, you're 50% in TPPL. You know, I guess around the rollout, I mean, I imagine it's- I know it's something you've been looking at since last year. As we think about the go-to-market strategy, I guess a couple of things is, clearly there's demand. How should we think about EnerSys entering this market as a new entrant? Is, is, is this gonna be... Like, how competitive is that landscape? Clearly, there's a lot of growth to be had.
Greg Lewis: Yeah, hi, thank you and good morning. A lot's been covered, so I guess, Shawn, I'll ask a little bit about, you know, the rollout of the UPS system in lithium. I mean, you mentioned that, you know, you're 50% in TPPL.
Speaker #8: about I guess, Sean, I'll ask a little bit the rollout of the UPS that you're 50% in around the rollout, I mean, I TPPL.
Greg Lewis: You know, I guess around the rollout, I mean, I imagine it's- I know it's something you've been looking at since last year. As we think about the go-to-market strategy, I guess a couple of things is, clearly there's demand. How should we think about EnerSys entering this market as a new entrant? Is, is, is this gonna be... Like, how competitive is that landscape? Clearly, there's a lot of growth to be had.
Speaker #8: imagine it's I know it's something you've been looking at since last I guess year. As we think about the go-to-market strategy, I guess a couple of things is clearly there's demand.
Speaker #8: How should we think about EnerSys entering this market as a new entrant? Is this going to be system in lithium? I mean, you mentioned landscape?
Speaker #8: be how competitive is that Clearly, there's a lot of growth to be had. And then just also around that, I'm kind of curious how we can think about that ramping, solution maybe this spring, or are i.e., hey, we start having a we selling out that quickly and then we ramp?
Greg Lewis: And then just also around that, you know, I'm kind of curious how we can think about that ramping, i.e., hey, we start having a solution maybe this spring. Are we selling out that quickly and then we ramp, or like, just if you could kind of talk about how we should be thinking about the rollout of that UPS, the lithium UPS solution later this year?
Greg Lewis: And then just also around that, you know, I'm kind of curious how we can think about that ramping, i.e., hey, we start having a solution maybe this spring. Are we selling out that quickly and then we ramp, or like, just if you could kind of talk about how we should be thinking about the rollout of that UPS, the lithium UPS solution later this year?
Speaker #8: Or just if you about the rollout of that lithium UPS solution later this year.
Speaker #1: Hi, Greg. Good morning. And thank you for calling in and joining us. It's a great question. And the right question. Lithium as a technology does some very interesting things for the user, but it also carries risks that a lot of asset does not carry.
Shawn O'Connell: Hi, Greg. Good morning, and thank you, thank you for calling in and joining us. It's a great question, and the right question. You know, lithium as a technology does some very interesting things for the user, but it also carries risks that lead acid does not carry. And as such, you know, it's the adoption rate for it, to your point, I think to your question, is that you know, you get trials in the field and, you know, these centers are so large that, you know, the amount of power that you're generating or the amount of power that's going through the systems is substantial.
Shawn O'Connell: Hi, Greg. Good morning, and thank you, thank you for calling in and joining us. It's a great question, and the right question. You know, lithium as a technology does some very interesting things for the user, but it also carries risks that lead acid does not carry.
Speaker #1: And as for it to your point, I that you get trials in the field and these centers are so think to your question, is large that or the amount of power that are going through the the amount of power that you're generating substantial.
Shawn O'Connell: And as such, you know, it's the adoption rate for it, to your point, I think to your question, is that you know, you get trials in the field and, you know, these centers are so large that, you know, the amount of power that you're generating or the amount of power that's going through the systems is substantial.
Speaker #1: So what you would expect to see for us is trials, systems is much been free, pre-agreed by our customer base. which have already pretty Again, I mentioned earlier there's a such, the adoption rate customers.
Shawn O'Connell: So, what you would expect to see for us is, you know, trials which have already pretty much been pre-agreed by our customer base. Again, I mentioned earlier, there's a lot of pull-through from our customers, and it's more than just the product. It's how we handle them, it's how we service them, it's our global presence. So there's a high desire for our customers. This isn't something we're going-... and trying to pitch. But with that being said, we have to get through these trials. They have to get comfortable with the technology. We have to be sure that we're making the little tweaks because our battery doesn't go on isolation. It's communicating with the OEMs, UPS systems, and you know the big names and who they are.
Shawn O'Connell: So, what you would expect to see for us is, you know, trials which have already pretty much been pre-agreed by our customer base. Again, I mentioned earlier, there's a lot of pull-through from our customers, and it's more than just the product. It's how we handle them, it's how we service them, it's our global presence. So there's a high desire for our customers.
Speaker #1: And it's more than just the product. It's how we handle them. It's how we service them. It's our global presence. So there's a high desire for our customers.
Shawn O'Connell: This isn't something we're going-... and trying to pitch. But with that being said, we have to get through these trials. They have to get comfortable with the technology. We have to be sure that we're making the little tweaks because our battery doesn't go on isolation. It's communicating with the OEMs, UPS systems, and you know the big names and who they are.
Speaker #1: we're going out and trying to This isn't something pitch, but with that being said, we have to get through these trials. They have to get comfortable with the technology.
Speaker #1: We have to be sure that the battery doesn't go in isolation. It's communicating with the OEMs' UPS systems. And you know the big names and who they are.
Speaker #1: So that all takes a little bit of time. So what we suspect is that when the trials come in, that'll be probably a, let's call it a six-month period for that fine-tuning and that customer comfort.
Shawn O'Connell: So, that all takes a little bit of time. So what we suspect is that when the trials come in, that, that'll be, you know, probably a, let's call it a 6-month period for that, that fine-tuning and that customer comfort, and then we begin to get into the project queue. And then, of course, the other issue there for us, that we have to mitigate, is that, these data centers are planned, you know, a long time in advance, and lead times are long. So when we get into that queue, you shouldn't expect a hockey stick ramp in the first year, but a steady growth for us, climbing out. And just to give you some context, there are really only 1 to 2 other credible lithium providers in the space today.
Shawn O'Connell: So, that all takes a little bit of time. So what we suspect is that when the trials come in, that, that'll be, you know, probably a, let's call it a 6-month period for that, that fine-tuning and that customer comfort, and then we begin to get into the project queue.
Speaker #1: And then we begin to get into the project queue. And then, of course, the other issue there for us that we have to mitigate are is that these data centers long.
Shawn O'Connell: And then, of course, the other issue there for us, that we have to mitigate, is that, these data centers are planned, you know, a long time in advance, and lead times are long. So when we get into that queue, you shouldn't expect a hockey stick ramp in the first year, but a steady growth for us, climbing out. And just to give you some context, there are really only 1 to 2 other credible lithium providers in the space today.
Speaker #1: shouldn't expect a hockey stick ramp in the first year, but a planned a long time in advance. And lead times are steady growth for us So when we get into that queue, you context, there are really climbing out.
Speaker #1: And just to give you some
Speaker #1: other credible lithium providers in the space today. And so it's not a crowded or of pull-through from customers, but I don't want to dimension it that there'll be this astronomic ramp for UPS.
Shawn O'Connell: So it's not a crowded or mature field. And again, we have a lot of pull-through from customers, but I don't want to dimension it that there'll be this astronomical ramp for UPS. It will take a bit of time.
Shawn O'Connell: So it's not a crowded or mature field. And again, we have a lot of pull-through from customers, but I don't want to dimension it that there'll be this astronomical ramp for UPS. It will take a bit of time.
Speaker #1: It will take a bit of
Speaker #8: Okay. Great. And then Andy, real
Greg Lewis: Okay, great. And then, Andi, real quick on motive in terms of, you know, the upward price. And, you know, I know you called out in the slide deck about the maintenance-free solution, you know, growing. Just kind of curious, what drove that price mix? And, I'm curious, was any of that kind of just tariff pass-through?
Greg Lewis: Okay, great. And then, Andi, real quick on motive in terms of, you know, the upward price. And, you know, I know you called out in the slide deck about the maintenance-free solution, you know, growing. Just kind of curious, what drove that price mix? And, I'm curious, was any of that kind of just tariff pass-through?
Speaker #8: of the upward
Speaker #8: Solution, time, price—can you talk about the maintenance-free price mix? And I’m curious, was any of that, I know you called out in the slide, pass-through?
Speaker #3: Well, tariff pass-through would be at a lower margin. And we are starting to begin to see more of the tariff impact coming through. We had a nice margin in Q3 '26.
Andi Funk: Well, tariff pass-through would be at a lower margin, and we are starting to begin to see more of the tariff impact coming through. We had a nice margin in Q3 2026, again-
Andi Funk: Well, tariff pass-through would be at a lower margin, and we are starting to begin to see more of the tariff impact coming through. We had a nice margin in Q3 2026, again at 14.9, up year on year and up sequentially.
Speaker #3: Again, at 14.9 up year-on-year and up sequentially. A lot of the volume softness that we saw was in our flooded business. And so that mix are the smaller manufacturers, smaller warehouses that are feeling some of the really helped us. pressure.
Speaker #3: Again, at 14.9 up year-on-year and up sequentially. A lot of the volume softness that we saw was in our flooded business. And so that mix are the smaller manufacturers, smaller warehouses that are feeling some of the really helped us.
Greg Lewis: Mm-hmm.
Andi Funk: At 14.9, up year on year and up sequentially. A lot of the volume softness that we saw was in our flooded business, and so that, that mix really helped us. We think those are the, you know, the smaller manufacturers, smaller warehouses that are feeling some of the pressure, and, and those are the ones we think that are, are kind of holding back and, and driving some of the mix benefit we're seeing.
Andi Funk: A lot of the volume softness that we saw was in our flooded business, and so that, that mix really helped us. We think those are the, you know, the smaller manufacturers, smaller warehouses that are feeling some of the pressure, and, and those are the ones we think that are, are kind of holding back and, and driving some of the mix benefit we're seeing.
Speaker #3: And those are back and driving some of the mixed the ones we think that are kind of holding We think those seeing. Plus, of course, our restructuring efforts are
Greg Lewis: Okay.
Greg Lewis: Okay.
Andi Funk: Plus, of course, our restructuring efforts are holding.
Andi Funk: Plus, of course, our restructuring efforts are holding.
Speaker #3: holding. Sure.
Greg Lewis: Sure. Absolutely. Okay, thank you very much.
Greg Lewis: Sure. Absolutely. Okay, thank you very much.
Speaker #8: Okay. Thank you very
Speaker #8: much.
Speaker #3: Thank you. Nice to hear from Thank you, Greg.
Andi Funk: Thank you, Greg.
Andi Funk: Thank you, Greg.
Shawn O'Connell: Thank you.
Shawn O'Connell: Thank you.
Andi Funk: Nice to hear from you.
Andi Funk: Nice to hear from you.
Speaker #2: Yeah. No further questions at this time. I will now turn the call back over to
Operator: There are no further questions at this time. I will now turn the call back over to Shawn O'Connell, President and CEO, for closing remarks.
Operator: There are no further questions at this time. I will now turn the call back over to Shawn O'Connell, President and CEO, for closing remarks.
Speaker #2: CEO for closing
Speaker #2: remarks. Thank you, Bella.
Shawn O'Connell: Thank you, Bella. I'd like to thank you all for joining us today. We look forward to updating you again next quarter. Hope you have a great day. Thanks again.
Shawn O'Connell: Thank you, Bella. I'd like to thank you all for joining us today. We look forward to updating you again next quarter. Hope you have a great day. Thanks again.
Speaker #1: I'd like to Absolutely.
Speaker #1: today. We look forward to updating you again next quarter. Hope you have a great day. Thanks
Speaker #1: again. That concludes our
Operator: That concludes our conference call today. Thank you all for joining. You may now disconnect. Everyone, have a great day.
Operator: That concludes our conference call today. Thank you all for joining. You may now disconnect. Everyone, have a great day.
