Q1 2027 EnerSys Earnings Call

August 13, 2026

Speaker #1: Hello everyone. Thank you for joining us, and welcome to the Q1 financial year 27 EnerSys Earnings Conference call. After today's prepared remarks, we will host a question-and-answer session.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Q1 Fiscal Year 2027 EnerSys Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lisa Hartman Langell, Vice President, Investor Relations and Corporate Communications. Lisa, please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Lisa Hartman-Langell, Vice President, Investor Relations and Corporate Communications.

Speaker #1: Lisa, please go ahead.

Speaker #2: Good morning, everyone. Thank you for joining us today to discuss EnerSys' first quarter fiscal 2027 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 Officer.

Lisa Hartman Langell: Good morning, everyone. Thank you for joining us today to discuss EnerSys' first quarter fiscal 2027 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 first quarter fiscal year 2027 results with the SEC, which are available on our website. We also posted slides that we will be referring to during this call. The slides are available on the presentations page within the investor relations section of our website. As a reminder, we will be presenting certain forward-looking statements on this call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. These statements are made only as of today.

Speaker #2: Last evening, we published our first quarter fiscal year 2027 results with the SEC, which are available on our website. We also posted slides that we will be referring to during this call.

Speaker #2: 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 #2: 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 8K and 10Q filed with the SEC.

Lisa Hartman 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 12 August 2026. Now I'll turn the call over to EnerSys CEO, Shawn O'Connell.

Speaker #2: 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 #2: For an explanation of the difference between GAAP and non-GAAP financial metrics, please see our company's Form 8-K, which includes our press release dated August 12, 2026.

Speaker #2: Now I'll turn the call over to EnerSys CEO Shawn O'Connell.

Speaker #1: Thank you, Lisa, and good morning. Please turn to slide 4. During today's call, we will review our strong first quarter results, share progress advancing our long-term growth initiatives, discuss our recently announced U.S.

Shawn O'Connell: Thank you, Lisa, and good morning. Please turn to slide 4. During today's call, we will review our strong first quarter results, share progress advancing our long-term growth initiatives, discuss our recently announced US lithium manufacturing facility, and close with second quarter guidance. Please turn to slide 5. In the first quarter of fiscal 2027, we again delivered record financial results, which were driven by favorable price mix, higher volumes, ongoing OpEx discipline, and stock buybacks enabled by our exceptional free cash flow conversion. Our Network Infrastructure Solutions and Precision Power Solutions businesses both performed very well during the quarter, supported by strength across our key growth markets, including data center, communications, and defense. At the same time, the Industrial Mobility Solutions business saw initial recovery in the transportation market, while material handling demand is expected to improve in the back half of this fiscal year.

Speaker #1: lithium manufacturing facility, and close with second quarter guidance. Please turn to slide 5. In the first quarter of fiscal 2027, we again delivered record financial results, which were driven by favorable price mix, higher volumes, ongoing OPEX discipline, and stock buybacks enabled by our exceptional free cash flow conversion.

Speaker #1: Our network infrastructure solutions and precision power solutions businesses both performed very well during the quarter. Supported by strength across our key growth markets, including data defense.

Speaker #1: At the same time, the industrial mobility solutions business saw initial recovery in the transportation market, while material handling demand is expected to improve in the back half of this fiscal year.

Speaker #1: Our overall performance demonstrates the value of our end market diversification and the positive impact of our energized strategic framework. Please turn to slide 6.

Shawn O'Connell: Our overall performance demonstrates the value of our end market diversification and the positive impact of our EnerGize strategic framework. Please turn to slide 6. At our Investor Day in June, we outlined how we are focusing on markets where we have the right to win while applying our differentiated technologies to address our customers' energy and labor challenges. As a reminder, we compete in a variety of diverse end markets that are collectively growing faster than GDP. We expect EnerSys top-line growth to outpace these end markets through targeted growth initiatives that will expand our share of wallet, leveraging our leading market positions and deep customer relationships. Our three large growth bets, Battery Energy Storage Systems for warehouses, lithium batteries in data centers, and aerospace and defense investments, build on our established capabilities and customer relationships.

Speaker #1: At our investor day in June, we outlined how we are focusing on markets where we have the right to win, while applying our differentiated technologies to address our customers' energy and labor challenges.

Speaker #1: As a reminder, we compete in a variety of diverse end markets that are collectively growing faster than GDP. We expect EnerSys' top line growth to outpace these end markets through targeted growth initiatives that will expand our share of wallet leveraging our leading market positions and deep customer relationships.

Speaker #1: Our three large growth bets: battery energy storage systems for warehouses, lithium batteries and data centers, and aerospace and defense investments build on our established capabilities and customer relationships.

Speaker #1: I would like to share recent proof points of the progress we are making, which we expect will accelerate our growth beginning next fiscal year.

Shawn O'Connell: I would like to share recent proof points of the progress we are making, which we expect will accelerate our growth beginning next fiscal year. In Industrial Mobility Solutions, we are pleased to share our Fortext 172 kilowatt-hour BESS received UL and NFPA 855 approval. This represents an important step in the permitting process required for commercial deployment. The Fortext system extends our material handling position from powering forklift trucks to optimizing energy across the warehouse. EnerSys forklift batteries, Synova chargers, and Fortext BESS will create an integrated energy ecosystem that delivers peak shaving and enhanced uptime. This synergistic relationship and deep existing installed base uniquely positions us to bring a BESS solution to the material handling space, while also strengthening the value proposition of our forklift batteries to our customers.

Speaker #1: In industrial mobility solutions, we are pleased to share that a Fortis 172-kilowatt-hour bus received UL and NFPA 855 approval. This represents an important step in the permitting process required for commercial deployment.

Speaker #1: The Fortis system extends our material handling position from powering forklift trucks to optimizing energy across the warehouse. EnerSys forklift batteries, Sonnova chargers, and Fortis bus will create an integrated energy ecosystem that delivers peak shaving and enhanced uptime.

Speaker #1: This synergistic relationship and deep existing installed base uniquely positions us to bring the best solution to the material handling space while also strengthening the value proposition of our forklift batteries to our customers.

Speaker #1: Within network infrastructure solutions, momentum in our service offerings was a meaningful contributor to the division's top line growth and margin improvement in this quarter.

Shawn O'Connell: Within Networked Infrastructure Solutions, momentum in our service offerings was a meaningful contributor to the division's top-line growth and margin improvement this quarter. The capabilities and operating model we are building in NIS will support broader aftermarket service opportunities across EnerSys, including our BESS warehouse deployments. In data centers, we continue to enjoy solid growth, with Q1 top line expanding in the low teens year over year, in line with our expectations of high single digits to low teens growth for fiscal 2027. We look forward to expanding our share of wallet with these same customers in the faster-growing lithium portion of this market. We progressed the commercialization of our DataSafe Noir lithium offering, which has been met with strong customer enthusiasm since the official launch in June, particularly for its energy density and cost-competitive advantages, and that it will be coupled with our established service performance.

Speaker #1: The capabilities and operating model we are building in NIS will support broader aftermarket service opportunities across EnerSys, including our best warehouse deployments. In data centers, we continue to enjoy solid growth, with Q1 top line expanding in the low teens, year over year, in line with our expectations of high single-digit to low teens growth for fiscal 27.

Speaker #1: We look forward to expanding our share of wallet these same customers in the faster-growing lithium portion of this market. We progressed the commercialization of our data-safe noir lithium offering, which has been met with strong customer enthusiasm since the official launch in June, particularly for its energy density and cost-competitive advantages and that it will be coupled with our established service performance.

Speaker #1: This differentiated lithium solution will begin to have a meaningful impact on our revenue growth beginning in our next fiscal year expanding our opportunities with customers who already know us, trust us, and rely on our global service network.

Shawn O'Connell: This differentiated lithium solution will begin to have a meaningful impact on our revenue growth beginning in our next fiscal year, expanding our opportunities with customers who already know us, trust us, and rely on our global service network. Last but certainly not least, we are very excited to announce the finalization of our Department of Energy grant, an important milestone in our aerospace and defense growth strategy. The planned facility will expand our ability to support mission-critical defense applications with a secure US-based supply chain. I will discuss this opportunity in greater detail on the following two slides. Please turn to slide 7. Aerospace and defense represents one of our most compelling long-term growth and margin expansion opportunities, with our recent segment realignment providing enhanced visibility and focus on this strategic portion of our business.

Speaker #1: And last, but certainly not least, we are very excited to announce the finalization of our Department of Energy grant—an important milestone in our aerospace and defense growth strategy.

Speaker #1: The plan facility will expand our ability to support mission-critical defense applications with a secure U.S.-based supply chain. I will discuss this opportunity in greater detail in the following two slides.

Speaker #1: Please turn to slide 7. Aerospace and defense represents one of our most compelling long-term growth and margin expansion opportunities, with our recent segment realignment providing enhanced visibility and focus on the strategic portion of our business.

Speaker #1: Defense platforms increasingly require greater mobility, mission duration, and power density driven by demand for advanced batteries and drones, counter-drone munitions, missile defense, and soldier power.

Shawn O'Connell: Defense platforms increasingly require greater mobility, mission duration, and power density, driven by demand for advanced batteries in drones, counter-drone munitions, missile defense, and soldier power. The origin of these advanced batteries is of crucial importance as the United States and allied nations look to reduce reliance on components sourced from foreign entities of concern, or FEOC. EnerSys has been the leading provider of integrated systems, application engineering, reliability, and life cycle support to these demanding applications over nine chemistries of lithium batteries currently manufactured in our six US CMMC and ITAR-compliant production facilities today. We expect this steep demand growth to be more durable as geopolitical priorities evolve. The economics of warfare have transformed, and higher volume, lower-cost, battery-reliant technologies such as drones and counter-drone systems are driving mounting demand for incremental energy storage capacity that does not exist today.

Speaker #1: The origin of these advanced batteries is of crucial importance as the United States and allied nations look to reduce reliance on components sourced from foreign entities of concern, or FEOC.

Speaker #1: EnerSys has been the leading provider of integrated systems, application engineering, reliability, and lifecycle support to these demanding applications over nine chemistries of lithium batteries currently manufactured in our six U.S. facilities.

Speaker #1: CMMC and ITAR-compliant production facilities today. We expect this steep demand growth to be more durable as geopolitical priorities evolve. The economics of warfare have transformed, and higher volume, lower-cost battery-reliant technologies such as drones and counter-drone systems are driving mounting demand for incremental energy storage capacity that doesn't exist today.

Speaker #1: We conservatively expect annual market growth in the range of 9% to 11%, with above-market opportunity in front of us as we expand our offerings in this space.

Shawn O'Connell: We conservatively expect annual market growth in the range of 9% to 11%, with above-market opportunity in front of us as we expand our offerings in this space. Aerospace and defense contributes to the unique value that the diversification of our business model provides to our investors and is a key area of strategic growth for us, including our planned DOE-supported lithium and advanced technologies campus, which I will discuss next. Please turn to slide 8. In July, we reached an important milestone with the US Department of Energy, securing financial support for our refined defense-focused lithium cell manufacturing plant in Greenville, South Carolina, which will also serve as a campus for our Lithium and Advanced Technologies Center of Excellence. This investment will strengthen our domestic lithium strategy, while helping support customers that increasingly require US-based and FEOC-compliant supply chains for critical applications.

Speaker #1: Aerospace and defense contributes to the unique value that the diversification of our business model provides to our investors, and is a key area of strategic growth for us, including our planned DOE-supported lithium and advanced technologies campus, which I'll discuss next.

Speaker #1: Please turn to slide 8. In July, we reached an important milestone with the U.S. Department of Energy securing financial support for our refined defense-focused lithium cell manufacturing plant in Greenville, South Carolina.

Speaker #1: Which will also serve as a campus for our lithium and advanced technologies center of excellence. This investment will strengthen our domestic lithium strategy while helping support customers that increasingly require U.S.-based and FEOC-compliant supply chains for critical applications.

Speaker #1: Rather than investing in lithium battery capacity for broad commercial consumption, we chose to focus this facility on the applications where domestic production creates the greatest customer value and where we believe EnerSys has the strongest competitive position.

Shawn O'Connell: Rather than investing in lithium battery capacity for broad commercial consumption, we chose to focus this facility on the applications where domestic production creates the greatest customer value and where we believe EnerSys has the strongest competitive position. In addition to dramatically de-risking the offtake of our planned incremental capacity, this focused direction enables us to preserve flexibility to the most efficiently sourced technologies that best meet our customers' needs in markets where FEOC compliance is not a priority. Our new lithium plant will produce high-energy density cells to support manned platforms, soldier power, space, and autonomous systems, further supporting the electrification of the battlefield. Importantly, it will also enable a closed-loop ecosystem for drone powering and recharging.

Speaker #1: In addition to dramatically de-risking the offtake of our planned incremental capacity, this focused direction enables us to preserve flexibility to the most efficiently sourced technologies that best meet our customers' needs and markets where FEOC compliance is not a priority.

Speaker #1: Our new lithium plant will produce high-energy density cells to support manned platforms, soldier power, space and autonomous systems, further supporting the electrification of the battlefield.

Speaker #1: Importantly, it will also enable a closed-loop ecosystem for drone powering and recharging. Consider a system with Brytronics drone battery packs and chargers, powered by Rebel hybridized power systems, which, in turn, are powered by Brytronics batteries—with the cells of all those batteries produced in our new plant.

Shawn O'Connell: Consider a system with Bren-Tronics drone battery packs and chargers powered by Rebel hybridized power systems, which in turn are powered by Bren-Tronics batteries, with the cells of all those batteries produced in our new plant. We expect our new lithium plant to have an initial annual production capacity of approximately 1 gigawatt hour, purpose-built to the unique requirements of defense applications. This level of energy production reflects a high quantity of small format cells and precision requirements for these applications. The production of these cells requires specialized equipment and security protocols that meet national defense requirement, which is a very different scope than a commercial or other specialized lithium cell manufacturing facility. While measured in gigawatts, the plant appears considerably smaller than our initial plans. We will actually be producing a higher quantity of these smaller batteries than the quantity of larger batteries contemplated in our original scope.

Speaker #1: We expect our new lithium plant to have an initial annual production capacity of approximately 1 gigawatt-hour, purpose-built to the unique requirements of defense applications.

Speaker #1: This level of energy production reflects a high quantity of small format cells and precision requirements for these applications. The production of these cells requires specialized equipment and security protocols that meet national defense requirement, which is a very different scope than a commercial or other specialized lithium cell manufacturing facility.

Speaker #1: While measured in gigawatts, the plant appears considerably smaller than our initial plans, we will actually be producing a higher quantity of these smaller batteries than the quantity of larger batteries contemplated in our original scope.

Speaker #1: In addition, the campus will provide us expansion opportunities for future growth, footprint optimization, and the specialized requirements of lithium and other advanced chemistries across all our end markets, where we manufacture or source the cells.

Shawn O'Connell: In addition, the campus will provide us expansion opportunities for future growth, footprint optimization, and the specialized requirements of lithium and other advanced chemistries across all our end markets where we manufacture or source the cells. We have not yet included the value of these incremental opportunities in our financial modeling. The revised DOE grant provides approximately $150 million towards the facility's estimated $650 million cost. We expect EnerSys' net investment of approximately $500 million to be funded entirely through operating cash flow. In addition, as previously announced, EnerSys has been awarded a comprehensive incentive package through South Carolina and Greenville County valued at approximately $200 million, which includes a combination of short-term and long-term incentives that will help support ongoing operations of the plant. We believe this disciplined investment will meet critical customer needs and generate compelling long-term returns.

Speaker #1: We have not yet included the value of these incremental opportunities in our financial modeling. The revised DOE grant provides approximately $150 million toward the facility's estimated $650 million cost.

Speaker #1: We expect EnerSys net investment of approximately $500 million to be funded entirely through operating cash flow. In addition, and as previously announced, EnerSys has been awarded a comprehensive incentive package through South Carolina and Greenville County valued at approximately $200 million, which includes a combination of short-term and long-term incentives that will help support ongoing operations of the plant.

Speaker #1: We believe this disciplined investment will meet critical customer needs and generate compelling long-term returns. Construction is planned to begin in the first half of fiscal 2028, with full production expected approximately three years after construction begins.

Shawn O'Connell: Construction is planned to begin in the H1 of fiscal 2028, with full production expected approximately three years after construction begins. We expect to generate an internal return in the mid-20s for this investment. With DOE support now secured, we are moving into the next phase of the project. Our near-term priorities include advancing local grant process, completing NEPA and permitting requirements, refining capital timing, and establishing the appropriate execution governance. We look forward to providing additional updates as key milestones are achieved. Please turn to slide 9. Across our markets, demand for our solutions is building, and our teams are focused on delivering for our customers. Q1 2027 orders were up 7% versus prior year, with our book-to-bill at 1.06, and backlog relatively flat versus prior year and up 2% sequentially.

Speaker #1: We expect to generate an internal return in the mid-20s for this investment. With DOE support now secured, we are moving into the next phase of the project.

Speaker #1: Our near-term priorities include advancing local grant process, completing NEPA and permitting requirements, refining capital timing, and establishing the appropriate execution governance. We look forward to providing additional updates as key milestones are achieved.

Speaker #1: Please turn to slide 9. Across our markets, demand for our solutions is building, and our teams are focused on delivering for our customers. Q1 '27 orders were up 7 percent versus prior year, with our book-to-bill at 1.06 and backlog relatively flat versus prior year and up 2 percent sequentially.

Speaker #1: For IMS, our collective end markets are showing areas of resilience that support a measured look at growth. Versus prior year, Q1 27 transportation orders nearly doubled, while material handling orders were down high single digits.

Shawn O'Connell: For IMS, our collective end markets are showing areas of resilience that support a measured look at growth. Versus prior year, Q1 2027 transportation orders nearly doubled, while material handling orders were down high single digits. We maintain a high degree of confidence that material handling demand will improve later this fiscal year, and pent-up demand will drive IMS to full year growth versus prior year. We also expect to recognize the first revenue from our next gen lithium offering in the H2 of the year, bolstering our optimism. In NIS, communications delivered strong demand and record shipments again as DOCSIS 4.0 upgrades are driving additional power needs and network powering refreshes, a trend we anticipate continuing as these upgrades are essential to support growing data traffic and connectivity needs.

Speaker #1: We maintain a high degree of confidence that material handling demand will improve later this fiscal year and pent up demand will drive IMS to full year growth versus prior year.

Speaker #1: We also expect to recognize the first revenue from our next-gen lithium offering in the second half of the year, both serving our optimism. In NIS, Communications delivered strong demand and record shipments again, as DOCSIS 4.0 upgrades are driving additional power needs and network powering refreshes.

Speaker #1: The trend we anticipate continuing is that these upgrades are essential to support growing data traffic and connectivity needs. We also received very strong data center orders in the quarter, up over 80 percent versus prior year, with deliveries extending into the future.

Shawn O'Connell: We also received very strong data center orders in the quarter, up over 80% versus prior year, with deliveries extending into the future, increasing our visibility in this project-based business and reinforcing the multi-year demand opportunities for our lead-based offerings. As market discussions are increasingly focused on resilience, energy efficiency, deployment speed, and life cycle support rather than lowest acquisition cost, our TPPL solutions are well positioned to continue to deliver on these demands and will only be supplemented by the addition of our new DataSafe Noir lithium offering as we expand our share of wallet with our existing customers in this high-growth space. In PPS, our aerospace and defense bookings are not as meaningful given the project award basis of this business. Our 24% year-on-year revenue growth was driven by increases across our A&D products, particularly our counter-drone powering liquid reserve batteries and missile defense powering thermal batteries.

Speaker #1: Increasing our visibility in this project-based business and reinforcing the multi-year demand opportunities for our lead-based offerings. As market discussions are increasingly focused on resilience, energy efficiency, deployment speed, and lifecycle support rather than lowest acquisition cost, our TPPL solutions are well positioned to continue to deliver on these demands and will only be supplemented by the addition of our new data-safe noir lithium offering as we expand our share of wallet with our existing customers in this high-growth space.

Speaker #1: In PPS, our aerospace and defense bookings are not as meaningful given the project award basis of this business. Our 24 percent year-on-year revenue growth was driven by increases across our A&D products particularly our counter-drone powering liquid reserve batteries and missile defense powering thermal batteries.

Speaker #1: Demand for these offerings is projected to continue to accelerate at least through 2030, driven by stockpile depletions and the evolution of battery-dependent drones and counter-drones in modern-day warfare.

Shawn O'Connell: Demand for these offerings is projected to continue to accelerate at least through 2030, driven by stockpile depletions and the evolution of battery-dependent drones and counter-drones in modern-day warfare. In conclusion, we delivered a strong start to the year. We remain focused on executing against the priorities we outlined at the Investor Day with speed and discipline. We are already seeing the benefits of our more focused organization through progress in key areas of growth, stronger cost control, and improved cash discipline. I want to thank the entire EnerSys team for their dedication, innovation, and unwavering commitment to delivering to our customers every day. Now I'll turn it over to Andi to discuss our financial results and outlook in greater detail. Andi?

Speaker #1: In conclusion, we delivered a strong start to the year. We remain focused on executing against the priorities we outlined at the Investor Day with speed and discipline.

Speaker #1: We are already seeing the benefits of our more focused organization through progress in key areas of growth, stronger cost control, and improved cash discipline.

Speaker #1: I want to thank the entire EnerSys team for their dedication, innovation, and unwavering commitment to delivering to our customers every day. Now I'll turn it over to Andy to discuss her financial results and outlook in greater detail.

Speaker #1: Andy?

Speaker #2: Thanks, Shawn. Please turn to slide 11. Net sales came in at $936 million, up 5 percent from the prior year, driven by a 3 percent benefit from price mix, a 1 percent benefit from volumes, and a 1 percent benefit from foreign currency translation.

Andi Funk: Thanks, Shawn. Please turn to slide 11. Net sales came in at $936 million, up 5% from prior year, driven by a 3% benefit from price mix, a 1% benefit from volumes, and a 1% benefit from foreign currency translation. During the quarter, we realized $31 million or $0.63 per share of tariff refunds related to previously paid IEEPA tariffs, creating a one-time positive impact on our results. As a reminder, tariff refunds were not included in our Q1 2027 guidance and are not included in the operational results presented for our lines of business. We achieved gross profit of $313 million, up $60 million or 24% versus prior year period. Our Q1 2027 gross margin of 33.5% was up 510 basis points. Excluding the tariff refunds I just mentioned, gross profit increased 12% and gross margin was up 180 basis points over Q1 2026.

Speaker #2: During the quarter, we realized $31 million, or $0.63 per share, of tariff refunds related to previously paid IEPA tariffs, creating a one-time positive impact on our results.

Speaker #2: As a reminder, tariff refunds were not included in our Q1 2027 guidance and are not included in the operational results presented for our lines of business.

Speaker #2: We achieved gross profit of $313 million up $60 million or 24 percent versus prior year period. Our Q1 27 gross margin of $33.5 percent was up $510 basis refunds I just mentioned, gross profit increased 12 percent and gross margin was up 180 basis points over Q1 26.

Speaker #2: We also enjoyed $9 million of expanded 45X benefits in the quarter, largely driven by the closure of our Monterrey, Mexico plant and the transfer of production to our Richmond, Kentucky facility.

Andi Funk: We also enjoyed $9 million of expanded 45X benefits in the quarter, largely driven by the closure of our Monterrey, Mexico plant and transfer production to our Richmond, Kentucky facility. Excluding the tariff refunds and our 45X benefits, we delivered gross margin of 25.2%, up 110 basis points versus the prior year. Beginning this quarter, we made the decision to exclude non-cash stock-based compensation expense from our adjusted operating earnings, adjusted EBITDA, and adjusted diluted EPS metrics in order to better reflect the underlying performance of the business and align more closely with our technology peers. Prior year periods have been recast to reflect this change in this presentation. So all metrics I will provide to you today reflect the results, excluding stock comp expense in both periods for an apples-to-apples comparison.

Speaker #2: Excluding the tariff refunds and our 45X benefits, we delivered gross margin of 25.2 percent up 110 basis points versus the prior year. Beginning this quarter, we made the decision to exclude non-cash stock-based compensation expense from our adjusted operating earnings adjusted EBITDA and adjusted diluted EPS metrics in order to better reflect the underlying performance of the business and align more closely with our technology peers.

Speaker #2: Prior year periods have been recast to reflect this change in this presentation, so all metrics I will provide to you today reflect the results excluding stock comp expense in both periods for an apples-to-apples comparison.

Speaker #2: These adjustments were $7.6 million for Q1 '27 and $7.2 million for Q1 '26, and provided a lift to our adjusted EPS of $0.16 and $0.15 per share in Q1 '27 and Q1 '26, respectively.

Andi Funk: These adjustments were $7.6 million for Q1 2027 and $7.2 million for Q1 2026, and provided a lift to our adjusted EPS of $0.16 and $0.15 per share in Q1 2027 and Q1 2026, respectively. Our adjusted operating earnings were up 47% versus the prior year, with adjusted operating margin improvement of 550 basis points. After normalizing for the one-time impact of the tariff refund, adjusted operating earnings were up 22% with 45X and up 21% excluding 45X, with margin improvement of 220 basis points and 140 basis points respectively. Adjusted EBITDA was up 50% versus prior year, with adjusted EBITDA margin up 630 basis points. After excluding the tariff refunds, adjusted EBITDA was up 27% with 45X and 26% excluding 45X, with margin improvement up 300 basis points and 230 basis points respectively. Adjusted diluted EPS increased 65% over prior year.

Speaker #2: Our adjusted operating earnings were up 47 percent versus the prior year with adjusted operating margin improvement of 550 basis points. After normalizing for the one-time impact of the tariff refund, adjusted operating earnings were up 22 percent with 45X and up 21 percent excluding 45X with margin improvement of 220 basis points and 140 basis points respectively.

Speaker #2: Adjusted EBITDA was up 50 percent versus prior year with adjusted EBITDA margin up 630 basis points. After excluding the tariff refunds, adjusted EBITDA was up 27 percent with 45X and 26 percent excluding 45X with margin improvement of 300 basis points and 230 basis points respectively.

Speaker #2: Adjusted diluted EPS increased 65 percent over prior year after excluding the tariff refunds, adjusted EPS was up 36 percent with 45X and 42 percent excluding 45X.

Andi Funk: After excluding the tariff refunds, adjusted EPS was up 36% with 45X and 42% excluding 45X. Our Q1 2027 effective tax rate was 13.7% on an as-reported basis and 21.8% on an as-adjusted basis before the benefit of 45X, compared to 21.4% in Q1 2026 and 20.4% in the prior quarter. We expect our full-year tax rate on an as-adjusted basis before the benefit of 45X for fiscal year 2027 to be in the range of 21.5% to 23.5%. In summary, our core results, excluding tariff refunds, normalizing for stock-based compensation accounting changes, and both with and without 45X benefits, broke Q1 records across net sales, gross profit, adjusted operating earnings, adjusted EBITDA, and adjusted EPS, further demonstrating how the underlying earnings power of our business continues to improve. Please turn to slide 12.

Speaker #2: Our Q1 27 effective tax rate was 13.7 percent on an as-reported basis and 21.8 percent on an as-adjusted basis before the benefit of 45X, compared to 21.4 percent in Q1 26 and 20.4 percent in the prior quarter.

Speaker #2: We expect our full-year tax rate on an as-adjusted basis before the benefit of 45X for fiscal year 2027 to be in the range of 21.5 to 23.5 percent.

Speaker #2: In summary, our core results excluding tariff refunds normalizing for stock-based compensation accounting changes and both with and without 45X benefits broke Q1 records across net sales, gross profit, adjusted operating earnings, adjusted EBITDA, and adjusted EPS, further demonstrating how the underlying earnings power of our business continues to improve.

Speaker #2: Please turn to slide 12. As previously mentioned, our 45X benefits in the quarter increased as we realized the benefit of proactively transitioning production from Mexico to our existing facilities in the US.

Andi Funk: As previously mentioned, our 45X benefits in the quarter increased as we realized the benefit of proactively transitioning production from Mexico to our existing facilities in the US. We received a $115 million US federal tax refund in the quarter, which further bolstered our strong cash flow. In Q1 2027, we also recognized $31 million in tariff refunds, of which we received approximately $16 million in cash, with the remaining cash receipts expected in upcoming quarters. Our estimated annual tariff exposure remains materially unchanged despite the continuously evolving tariff policy environment, and we remain confident in our ability to manage that exposure through the pricing, sourcing, and operational actions that we have already implemented and continue to monitor and proactively mitigate. These actions and the work of our tariff task force position us well to manage changes in the trade environment. Let me now provide details by segment.

Speaker #2: We received a $115 million U.S. federal tax refund in the quarter, which further bolstered our strong cash flow. In Q1 '27, we also recognized $31 million in tariff refunds, of which we received approximately $16 million in cash, with the remaining cash receipts expected in upcoming quarters.

Speaker #2: Our estimated annual tariff exposure remains materially unchanged, despite the continuously evolving tariff policy environment, and we remain confident in our ability to manage that exposure through the pricing, sourcing, and operational actions that we've already implemented and continue to monitor and proactively mitigate.

Speaker #2: These actions and the work of our tariff task force position us well to manage changes in the trade environment. Let me now provide details by segment.

Speaker #2: Please turn to slide 13. In the first quarter, Network Infrastructure Solutions revenue increased 9 percent from the prior year to $428 million, driven by strong volume growth and favorable price mix.

Andi Funk: Please turn to slide 13. In the first quarter, Network Infrastructure Solutions revenue increased 9% from prior year to $428 million, driven by strong volume growth and favorable price mix. Adjusted operating earnings of $45 million increased 50% from prior year, reflecting the benefits of favorable price mix, higher volumes, and disciplined expense management. Adjusted operating margin of 10.5% increased 280 basis points versus prior year, primarily driven by continued high demand for power electronics, robust data center demand, and both volume and margin expansion in our service offerings. Industrial Mobility Solutions revenue decreased 3% from prior year to $407 million, with lower volumes from material handling market activity partially offset by transportation volume recovery as well as favorable price mix and FX. IMS adjusted operating earnings were $38 million, down 11% from prior year, resulting in adjusted operating margins of 9.3%, down 70 basis points versus the prior year.

Speaker #2: Adjusted operating earnings of $45 million increased 50 percent from prior year reflecting the benefits of favorable price mix higher volumes and disciplined expense management.

Speaker #2: Adjusted operating margin of 10.5 percent increased 280 basis points versus prior year primarily driven by continued high demand for power electronics, robust data center demand, and both volume and margin expansion in our service offerings.

Speaker #2: Industrial mobility solutions revenue decreased 3 percent from prior year to $407 million with lower volumes for material handling market activity partially offset by transportation volume recovery as well as favorable price mix and FX.

Speaker #2: IMS adjusted operating earnings were $38 million down 11 percent from prior year resulting in adjusted operating margins of 9.3 percent down 70 basis points versus the prior year.

Speaker #2: Price mix and cost improvements for temporarily offset by loss leverage on our lower volumes. Longer term, electrification automation and demand for maintenance-free batteries and chargers support the IMS growth opportunity.

Andi Funk: Price mix and cost improvements were temporarily offset by loss leverage on our lower volumes. Longer term electrification, automation, and demand for maintenance-free batteries and chargers support the IMS growth opportunity. We remain confident that these important industrial end markets will see notable improvement in demand trends in the coming quarters, and our confidence is corroborated by customer conversations and industry data. Precision Power Solutions revenue increased 24% from prior year to $101 million, primarily driven by strong volume growth and favorable price mix. PPS adjusted operating earnings were $18 million, up 48% versus prior year, driven by favorable price mix and higher volumes. Adjusted operating margin of 18.2% increased 280 basis points year over year on ongoing A&D strength, particularly counter-drone and missile defense. We continue to have confidence in robust top-line growth and incremental margin expansion within this important and strategic segment. Please turn to slide 14.

Speaker #2: We remain confident that these important industrial end markets will see notable improvement in demand trends in the coming quarters and are confidence is corroborated by customer conversations and industry data.

Speaker #2: Precision Power Solutions revenue increased 24 percent from the prior year to $101 million, primarily driven by strong volume growth and favorable price mix. PPS adjusted operating earnings were $18 million, up 48 percent versus the prior year, driven by favorable price mix and higher volumes.

Speaker #2: Adjusted operating margin of 18.2 percent increased 280 ongoing A&D strength, particularly counter drone and missile defense. We continue to have confidence in robust top line growth and incremental margin expansion within this important and strategic segment.

Speaker #2: Please turn to slide 14. This was just an outstanding cash flow quarter. Operating cash flow of $230 million offset by capex of only $12 million resulted in free cash flow of quarter versus negative $32 million in prior year Q1.

Andi Funk: This was just an outstanding cash flow quarter. Operating cash flow of $230 million, offset by CapEx of only $12 million, resulted in free cash flow of $218 million in the quarter versus -32 million in prior year Q1. Cash flow was strengthened by the receipt of our US federal tax refund of $115 million, as well as increased earnings, elevating free cash flow conversion in the quarter to 187%. Even excluding the benefit of 45X to earnings in cash, free cash flow conversion was still an impressive 140%, largely attributable to the enhanced focus on working capital optimization by our centers of excellence. Primary operating capital decreased to $858 million versus $993 million in the prior year on both the benefits of our expanded receivables purchasing agreement, which we executed in Q3 of last year, as well as the team's continued focus on working capital improvements.

Speaker #2: Cash flow was strengthened by the receipt of our US federal tax refund of $115 million as well as increased earnings elevating free cash flow conversion in the quarter to $187 percent.

Speaker #2: Even excluding the benefit of 45X earnings in cash, free cash flow conversion was still an impressive 140 percent largely attributable to the enhanced focus on working capital optimization by our centers of excellence.

Speaker #2: Primary operating capital decreased to $858 million versus $993 million in the prior year on both the benefits of our expanded receivables purchasing agreement which we executed in the third quarter of last year as well as the team's continued focus on working capital improvements.

Speaker #2: Our working capital efficiency measured internally by POC as a percentage of annualized sales improved an exceptional 490 basis points versus prior year. This is yet another example of energize in action and the enhanced approach to cost and cash discipline across the organization as we execute on optimizing our core.

Andi Funk: Our working capital efficiency, measured internally by POC as a percentage of annualized sales, improved an exceptional 490 basis points versus prior year. This is yet another example of EnerGize in action and the enhanced approach to cost and cash discipline across the organization as we execute on optimizing our core. As of 5 July 2026, we had $531 million of cash and cash equivalents on hand. Net debt of $522 million represents a decrease of over $160 million since the end of fiscal 2026. Our leverage ratio remains well below our target range at 0.8 times EBITDA, providing us more than ample dry powder for capital allocation flexibility. Please turn to slide 15.

Speaker #2: As of July 5th, 2026, we had 531 million dollars of cash and cash equivalents on hand, net debt of $522 million represents a decrease of over 160 million dollars since the end of fiscal 26.

Speaker #2: Our leverage ratio remains well below our target range at 0.8 times EBITDA. Providing us more than ample dry powder for capital allocation flexibility. Please turn to slide 15.

Speaker #2: We remain committed to a disciplined capital allocation strategy that balances organic and inorganic investment in the business with consistent returns to shareholders including a competitive dividend that grows at the earnings excluding 45X benefits and share repurchases under expanded board authorization.

Andi Funk: We remain committed to a disciplined capital allocation strategy that balances organic and inorganic investment in the business with consistent returns to shareholders, including a competitive dividend that grows with earnings, excluding 45X benefits, and share repurchases under expanded board authorization. Capital expenditures were $12 million in the quarter versus $33 million in Q1 2026. As Shawn shared earlier, we anticipate construction on the lithium plant to begin in H1 of fiscal year 2028. As such, our expectation for $70 million in CapEx for fiscal year 2027 remains unchanged. During Q1, we purchased 219,000 shares for $50 million at an average price of approximately $229 per share and have nearly $900 million remaining in our buyback authorization. Additionally, the board has increased our quarterly dividend by 10% to $0.2875 per share for Q2 of fiscal 2027.

Speaker #2: Capital expenditures were $12 million in the quarter versus $33 million in Q1 26. As Shawn shared earlier, we anticipate construction on the lithium plant to begin in the first half of fiscal year 2028.

Speaker #2: As such, our expectation for $70 million in capex for fiscal year 2027 remains unchanged. During the first quarter, we purchased 219,000 shares for $50 million at an average price of approximately $229 per share and have nearly 900 million dollars remaining in our buyback authorization.

Speaker #2: Additionally, the board has increased our quarterly dividend by 10 percent to $28.75 per share for the second quarter of fiscal 2027. Our buybacks in addition to our consistent and growing dividend underscore our long-standing commitment to returning value to our shareholders.

Andi Funk: Our buybacks, in addition to our consistent growing dividend, underscore our longstanding commitment to returning value to our shareholders. We continue to evaluate accretive bolt-on acquisition opportunities that align with our discipline, strategic, and financial criteria, and that would strengthen our customer intimacy, enhance technical capabilities, expand our share of wallet, and accelerate our strategy in areas where we have a right to win. Please turn to slide 16. Our Q2 outlook reflects continued strength across data centers, communications, and aerospace and defense, as well as the recovery in transportation that is underway. Note that our prior year revenue had an unusually high proportion of sales phased in Q2, impacting year-over-year comparisons.

Speaker #2: We continue to evaluate a creative bolt-on acquisition opportunities that align with our disciplined strategic and financial criteria and that would strengthen our customer intimacy enhanced technical capabilities expand our share of wallet and accelerate our strategy in areas where we have a right to win.

Speaker #2: Please turn to slide 16. Our second quarter outlook reflects continued strength across data centers, communications, and aerospace and defense, as well as the recovery in transportation that is underway.

Speaker #2: Note that our prior year revenue had an unusually high proportion of sales based in the second quarter, impacting year-over-year comparisons. We expect stronger year-on-year revenue growth in the second half of the fiscal year, supported by the start of a recovery in material handling on top of the robust momentum across our other key end markets.

Andi Funk: We expect stronger year-on-year revenue growth in the H2 of the fiscal year, supported by the start of a recovery in material handling, on top of the robust momentum across our other key end markets. In line with our previous communications, as we progress through fiscal 2027, we expect to see our earnings growth to be primarily driven from margin expansion in the H1, with a shift to higher top-line growth towards the end of fiscal year 2027. For the Q2 of fiscal 2027, we expect net sales in the range of $955 million to $995 million with adjusted diluted EPS of $3.15 to $3.25 per share, growing 21% versus prior year at the midpoint, which includes $42 million to $47 million of 45X benefits to cost of sale.

Speaker #2: In line with our previous communications, as we progress through fiscal 2027, we expect to see our earnings growth primarily driven by margin expansion in the first half, with a shift to higher top-line growth towards the end of fiscal year 2027.

Speaker #2: For the second quarter of fiscal 2027, we expect net sales in the range of $955 million to $995 million with adjusted diluted EPS of $3.15 to $3.25 per share growing 21 percent versus prior year at the midpoint which includes $42 million to $47 million of $45X benefits to cost of sales.

Speaker #2: Excluding 45X, we expect adjusted diluted EPS of $1.95 to $2.05 per share up in the 25 percent range versus prior year. We remain confident in our ability to generate strong cash flow invest in growth and return capital to our shareholders.

Andi Funk: Excluding 45X, we expect adjusted diluted EPS of $1.95 to $2.05 per share, up in the 25% range versus prior year. We remain confident in our ability to generate strong cash flow, invest in growth, and return capital to our shareholders. With this, let's open it up for questions. Operator?

Speaker #2: With this, let's open it up for questions. Operator?

Speaker #1: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Noah Kaye with Oppenheimer. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Noah Kay with Oppenheimer.

Speaker #1: Your line is open. Please go ahead.

Speaker #3: Good morning. Thanks for taking the questions. Hope you all doing well.

Noah Kaye: Good morning. Thanks for taking the questions. Hope you're all doing well.

Speaker #4: Good morning, Noah.

Andi Funk: Good morning, Noah.

Shawn O'Connell: Good morning, Noah.

Speaker #5: Good morning, Noah.

Speaker #3: Maybe I'll start with a two-parter on the data center business. You mentioned orders are up 80 percent year over year this quarter. I know orders in this business can be lumpy.

Noah Kaye: Maybe I start with a two-parter on the data center business. You mentioned orders are up 80% year-over-year this quarter. Can you put some context around that, trailing 12-month orders growth or backlog growth? That is the first part. Shawn, I thought you sounded pretty firm on the newly launched lithium ion product contributing to revenues next year. Should we take that to mean you already have orders in hand, or visibility to orders materializing short term?

Speaker #3: Maybe can you put some context around that? Trailing 12-month orders growth or backlog growth. That's the first part. And then Shawn, I thought you sounded pretty firm on the newly launched lithium ion product contributing to revenues next year.

Speaker #3: Should we take that to mean you already have orders in hand or visibility to orders materializing short term?

Speaker #5: Yeah. I'll start, Noah, and then I'll turn it over to Andy for order backlog history. But we knew going in, as we've socialized previously, that we had an open a wide open door to step through for just introducing this technology relatively through our same customers and sales channels.

Shawn O'Connell: Yeah, I will start, Noah, and then I will turn it over to Andi for order backlog history. We knew going in, as we have socialized previously, that we had a wide open door to step through for just introducing this technology relatively through our same customers and sales channels, but because these are high trust environments. We were sort of just playing catch up to get the product ready, and we have been going through the validations and approvals as we socialized. Yeah, I think our quote activity and our market activity is robust. As a result, we have already got the first 100 systems on the water priming the pump in the supply chain. We have spent a lot of time while we were doing the approvals, getting the supply chain set up, getting the service technicians trained, getting the sales channel ready.

Speaker #5: But because these are high-trust environments, we were sort of just playing catch-up to get the product ready, and we've been going through the validations and approvals as we socialized.

Speaker #5: But yeah, I think our quote activity and our market activity is robust and as a result, we've already got the first 100 systems on the water priming the pump and the supply chain.

Shawn O'Connell: Yeah, I think our quote activity and our market activity is robust. As a result, we have already got the first 100 systems on the water priming the pump in the supply chain. We have spent a lot of time while we were doing the approvals, getting the supply chain set up, getting the service technicians trained, getting the sales channel ready. We are fairly confident that the timeline we socialized is going to materialize in that way for us.

Speaker #5: So we've spent a lot of time while we were doing the approvals, getting the supply chain set up, getting the service technicians trained, getting the sales channel ready.

Speaker #5: So we fairly confident that the timeline we socialized is going to materialize in that way for us.

Shawn O'Connell: We are fairly confident that the timeline we socialized is going to materialize in that way for us.

Speaker #4: And I'll take the question on the data center orders, Noah. It's a good one. Obviously, we're really pleased strong increase 80 percent year on year.

Andi Funk: I will take the question on the data center orders, Noah. It is a good one. Obviously, we were really pleased. Strong increase, 80% year-on-year. That said, we continue to say that we expect our lead acid revenue on data centers to be up in the high single to low teens growth. A lot of these orders extend out 12 to 36 months. The real positive to me with that, Noah, is that lead has a long tail. It has got staying power. Our TPPL data center revenue will continue for some time. We have got a lot of visibility into it. We have made a lot of progress with our DataSafe Noir. We have 100 orders or so in place with our supplier. We have had over 110,000 campaign impressions. We have over 500 units in active quotation. There is a lot of excitement and enthusiasm.

Speaker #4: That said, a lot of these we continue to say that we expect our lead asset revenue on data centers to be up in the high single to low teens gross.

Speaker #4: A lot of these orders extend out 12 to 36 months. The real positive to me with that, Noah, is that lead has a long tail.

Speaker #4: It's got stain powder. Our TPPL data center revenue will continue for some time. We've got a lot of visibility into it. We've made a lot of progress with our noir.

Speaker #4: We have 100 orders or so in place with our supplier. We've had over 110,000 campaign impressions. We have over 500 units in active quotation.

Speaker #4: So, there's a lot of excitement and enthusiasm. We don't think that's going to be anything until fiscal '28 from a revenue standpoint, but the lead will continue.

Andi Funk: We do not think that is going to be anything until fiscal 2028 story from a revenue standpoint. But the lead will continue. We are getting visibility into a long time demand signals, and then the DataSafe Noir lithium will be incremental on top of that. Hope that helps.

Speaker #4: We're getting visibility into a long time demand signals and then the noir lithium will be incremental on top of that. Hope that helps.

Noah Kaye: It does. Thank you. Then on the lithium plant, you shared that assumption of mid-20s IRR for the plant economics. Possible to understand the, at least at a high level, the assumptions driving that target IRR? Then how should we be modeling net CapEx related to the plant for fiscal 2028? Because that will certainly drive CapEx increase versus 2027.

Speaker #3: It does. Thank you. And then on the lithium plants, you shared that assumption of mid-20s ARR for the plant economics. Possible to understand the at least at a high level the assumptions driving that target IRR.

Speaker #3: And then, how should we be modeling net CapEx related to the plant for fiscal '28? Because that'll certainly drive CapEx increase versus '27.

Speaker #4: Yeah. I think part of the challenge to think about with this, Noah, we didn't get payback on it yet. There's some requirements that we have in the fact that we're getting the DOE grants, which we're very pleased with the trust that the Department of Energy and Department of War has placed with us.

Andi Funk: Yeah, I think part of the challenge to think about with this, Noah, we did not get payback on it yet. There are some requirements that we have in the fact that we are getting the DOE grant, which we are very pleased with the trust that the Department of Energy and Department of Defense have placed with us. Your customers investing that amount of money for you to build capacity for them, it is very encouraging. That said, there are some upfront requirements on things like environmental and NEPA that will pace the timing of when we are able to get started. We are saying that we think it is going to be mid-next year that the CapEx starts, the actual construction starts, and there is reimbursement that looks like it is going to be coming on a one quarter lag. Again, some of that is a little bit outside of our control.

Speaker #4: I mean, your customers investing that amount of money for you to build capacity for them. It's very encouraging. But there's some upfront requirements on things like environmental and NEPA that will pace the timing of when we're able to get started.

Andi Funk: That said, there are some upfront requirements on things like environmental and NEPA that will pace the timing of when we are able to get started. We are saying that we think it is going to be mid-next year that the CapEx starts, the actual construction starts, and there is reimbursement that looks like it is going to be coming on a one quarter lag. Again, some of that is a little bit outside of our control. That said, we have no doubt we are going to be able to handle the CapEx requirements of the plant with our ongoing cash flow. It is not going to have any impact on leverage other than leverage would not continue to go down because of the plant. So, we do not have more information at this time, but I hope that helps to explain some of the timing.

Speaker #4: We're saying that we think it's going to be mid next year that the capex starts that the actual construction starts. And there is reimbursement that comes it looks like it's going to be coming on a one-quarter lag.

Speaker #4: Again, some of that is a little bit outside of our control. That said, we have no doubt we're going to be able to handle the capex requirements of the plant with our ongoing cash flow.

Andi Funk: That said, we have no doubt we are going to be able to handle the CapEx requirements of the plant with our ongoing cash flow. It is not going to have any impact on leverage other than leverage would not continue to go down because of the plant. So, we do not have more information at this time, but I hope that helps to explain some of the timing.

Speaker #4: It's not going to have any impact on leverage, other than leverage wouldn't continue to go down because of the plant. So, we don't have more information at this time, but I hope that helps to explain some of the timing.

Speaker #3: It does, thanks. And then, just with the first part of that, any color on the IRR, rather? Just because that would assume, I think, a nice amount of growth really coming from that plan and its ability to support the growth that you've talked about in PPS.

Noah Kaye: It does. Thanks. Just with the first part of that, any color on the IRR, just because that would assume, I think, a nice amount of growth really coming from that plan and its ability to support the growth that you have talked about in PPS.

Speaker #4: Yeah, I mean, there is a real value for FEOC-compliant cells in the A&D space. This is of critical importance for national security. So, I think there's a couple of things that say we've got a long history of receiving grants from the A&D—and I mean, receiving grants from the government for A&D business.

Andi Funk: Yeah. There is a real value for FEOC compliant cells in the A&D space. This is of critical importance for national security. So I think there are a couple things that says we have got a long history of receiving grants from the government for our A&D business. We have worked very closely with them. I think we mentioned, we have got six plants in the US currently manufacturing A&D plants, much of the growth of which has been funded through investments. This will allow us to have very valuable products that have this FEOC compliance. So I think there is a pricing that comes along with that. This also allows us to continue to grow with and expand into new areas in A&D that were not as active, like the large diameter drone batteries, continuing with our drone counter. So there is both incremental revenue and margin expansion associated with this plan.

Speaker #4: We've worked very closely with them. I think we mentioned we've got six plants in the US currently manufacturing A&D plants much of the growth of which has been funded through investments and this will allow us to have very valuable products that have this FEOC compliance.

Speaker #4: So I think there's a pricing that comes along with that. And this also allows us to continue to grow with and expand into new areas in the A&D that we're not as active like the large diameter drone batteries continuing with our drone counter.

Andi Funk: This also allows us to continue to grow with and expand into new areas in A&D that were not as active, like the large diameter drone batteries, continuing with our drone counter. So there is both incremental revenue and margin expansion associated with this plan. We've not built into the modeling, but we've received a lot of interest in expanding this even further and in discussions on that going forward. That would just further increase the return on this plan.

Speaker #4: So there's both incremental revenue and margin expansion associated with this plan. And we've not built into the modeling, but we've received a lot of interest in expanding this even further.

Andi Funk: we've not built into the modeling, but we've received a lot of interest in expanding this even further and in discussions on that going forward. That would just further increase the return on this plan.

Speaker #4: And in discussions on that going forward, that would just further increase the return on this plan.

Speaker #3: All right. Well, congrats on all the traction and I'll turn it over.

Noah Kaye: Well, congrats on all the traction. I'll turn it over.

Speaker #4: Thanks, Noah. We're very excited about it.

Andi Funk: Thanks, Noah. We're excited about it.

Speaker #5: Thank you, Noah. Good to hear your voice.

Shawn O'Connell: Thank you, Noah. Good to hear your voice.

Speaker #1: Your next question comes from the line of Trevor Saar with William Blair. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Trevor Saar with William Blair. Your line is open. Please go ahead.

Speaker #6: Hey, thanks. This is Trevor on for Brian here. I was hoping to get a little bit more detail if we can, on implied margin expansion, sequentially, in the second quarter.

Trevor Saar: Hey, thanks. This is Trevor on for Brian here. I was hoping to get a little bit more detail, if we can, on implied margin expansion sequentially in Q2. It looks like the revenue growth at the midpoint, again, sequentially, is about 2.5%, but EPS growth at the midpoint is about 12% sequentially. Can you just kind of shed some light on how we should think about margin and expansion into Q2?

Speaker #6: It looks like the revenue growth at the midpoint, again, sequentially, is about two and a half percent. But EPS growth at the midpoint is about 12 percent sequentially.

Speaker #6: Can you just kind of shed some light on how we should think about margin and expansion into the second quarter?

Speaker #4: Yeah, I'll be happy to take that one as well, Trevor. As we talked about both on our last call as well as yesterday, we see that early in this fiscal year, a lot of our earnings growth is going to be driven more by margin expansion.

Andi Funk: Well, I will be happy to take that one as well, Trevor. As we talked about both on our last call as well as on Investor Day, we see that early in this fiscal year, a lot of our earnings growth is going to be driven more by margin expansion. Then as we get towards the end of this fiscal year, you will start to see some of our growth kick in. It is going to begin with recovery in material handling. The transportation recovery is already beginning to be over with. A lot of other markets continue to have growth like A&D and data centers. But the new product introductions are not going to start to kick in mostly till fiscal 2028.

Speaker #4: And then as we get towards the end of this fiscal year, you'll start to see some of our growth kick in. It's going to begin with recovery and material handling.

Speaker #4: The transportation recovery is already beginning to be overweight, while a lot of other markets continue to have growth, like A&D and data centers. But the new product introductions aren't going to start to kick in mostly until fiscal '28.

Speaker #4: Now, as you look through the balance of this fiscal year, you're going to see a lot of the items we talked about, like the annualization of the adjustments we made with our risk last year.

Andi Funk: As you look through the balance of this fiscal year, you are going to see a lot of the items we talked about, like the annualization of the adjustments we made with our RIF last year. You see the beginning of our 45X benefits from closing our plant in Monterrey. We might see a little bit of some of the benefits from closing our Tijuana plant. We also had announced two other facility rationalizations this quarter with our Bellingham facility, our Brazil closure. So those items, and then just this company is being managed differently. A lot more cost discipline and strong operational initiatives as part of our EnerGize strategy. So you will continue to see that growth as well as mix improvements. So we are going to be launching our Gen 2 lithium in our material handling business, which I am very excited about.

Speaker #4: You see that the beginning of our 45X benefits from closing our plant in Monterey. We might see a little bit of some of the benefits from closing our Tijuana plant.

Speaker #4: We also had announced two other facility rationalizations this quarter with our Bellingham facility, our Brazil closure. So those items and then just companies being managed differently.

Speaker #4: A lot more cost discipline in strong operational initiatives as part of our energized strategy. So you'll continue to see that growth as well as mixed improvements.

Speaker #4: So we're going to be launching our Gen 2 lithium in our material handling business, which I'm very excited about. You see within our NIS business an increase in the power electronics.

Andi Funk: You see within our NIS business an increase in the power electronics. Keith, with Dan leading it, is doing a tremendous job with our service business. That had been headwinds in the past. Now it is starting to turn into tailwinds. It is also a real critical component to a lot of our strategy on what makes EnerSys unique, things like data center. It is our service network, our ability with BESS, having the service teams out there. That growth in both top line and margin of service is not just something that is impacting our current results, which we are excited about, but is going to be an enabler of a lot of the growth initiatives that Shawn has kicked out. I hope that helps to explain some of the things we are seeing. If you need more color, any more questions, happy to take those as well.

Speaker #4: Keith, with Dan leading it, is doing a tremendous job with our service business. That had been headwinds. In the past, now it's starting to turn into tailwinds.

Speaker #4: And it's also a real critical component to a lot of our strategy on what makes Enersys unique, things like data center. It is our service network.

Speaker #4: Our ability with BAS, having that service teams out there. So that growth in both top line and margin of service is not just something that is impacting our current results, which we're excited about, but is going to be an enabler of a lot of the growth initiatives that Shawn's kicked out.

Speaker #4: So I hope that helps to explain some of the things we're seeing. If you need more color or have any more questions, I'd be happy to take those.

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

Speaker #5: Trevor and Shawn, good morning. I would just add one thing. Andy explained it very well. On the 2% top line growth, we always have some summer seasonality during this period in spite of the material handling pressure that we've seen over the last couple of cycles.

Speaker #5: So, that's fairly typical for us in a normal year.

Speaker #6: Makes sense. That's helpful. Thank you. If I could ask one more, actually, just on that service business, could you give us a little more detail on the size growth and margin contribution in that?

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

Speaker #6: And maybe what you've done and the work you've done in the background to turn that from what you just said Andy into a headwind into a big contributor?

Speaker #5: Yeah. Trevor, I'll start and then I'll turn it over to Andy. So I'll start on what we've done and the importance of the business.

Shawn O'Connell: Yeah, Trevor, I will start and then I will turn it over to Andi. I will start on what we have done and the importance to the business. If you look at our strategic framework, we talked about it Investor Day. The two things we are trying to solve for customers are energy security and labor scarcity. It is along that adage of, we are going to run out of electricians before electrons. We have been building the plumbing over the past year of putting in very disciplined project management and upskilling our labor force. If you look at what we do, we call it service, which kind of invokes ideas of attach rates and repetitive aftermarket and that kind of thing. There is a big component of our business that is actually on the implementation side, very specialized electrical construction.

Speaker #5: If you look at our strategic framework, we talked about investor day. The two things we're trying to solve for customers are energy security and labor scarcity.

Speaker #5: And it's along that adage of we're going to run out of electricians before electrons. So we've been building the plumbing over the past year of putting in very disciplined project management and upskilling our labor force.

Speaker #5: So if you look at what we do, you can kind of we call it service, which kind of invokes ideas of attach rates and repetitive aftermarket and that kind of thing.

Speaker #5: There's a big component of our business that is actually on the implementation side—electrical, very specialized electrical construction. And as you might imagine, you can get that very right or very wrong in the details.

Shawn O'Connell: As you might imagine, you can get that very right or very wrong in the details. So what they've done, and Keith and Andi mentioned Dan Cohey in that business, is put all of that plumbing in place, that high level of discipline. We've invested in new project management software. The teams are just doing a remarkable job of upskilling that entire segment for us. With that, I'll turn it over to Andi for some of the numbers.

Speaker #5: So what they've done—and Keith and Andy mentioned Dan Cohee in that business—is put all of that plumbing in place at a high level of discipline.

Speaker #5: We've invested in new project management software. And the teams are just doing a remarkable job upskilling that entire segment for us. With that, I'll turn it over to Andy for some of the numbers.

Speaker #4: Yeah. When I look, Trevor, at services, what we're referring to primarily here is our Network Information System services. You can see our total services revenue and margin in our Q, and you can see the improvement there.

Andi Funk: Yeah. When I look, Trevor, at services, what we're referring to primarily here is our Network Information System services. You can see our total services revenue and margin in our Q, and you can see the improvement there. But really the turnaround that we're looking at is in the NIS business where we had some headwinds, and it's such a key aspect to the growth and the value proposition that we have to customers, and is a differentiating factor. If you look in our Network Information Systems, I always give specifics down to this level, but you're talking revenue up around 20% in the quarter year-on-year. So really nice improvement in revenue as well as total EnerSys margins with our services area being up about 100 bits. I would say even more in the NAS division. A lot of that is just, again, really disciplined management.

Speaker #4: But really, the turnaround that we're looking at is in the NIS business, where we had some headwinds. It's such a key aspect to the growth and the value proposition that we have for customers, and it is a differentiating factor.

Speaker #4: If you look in our network information systems, and I'll always give specifics down to this level, but you're talking revenue up around 20% in the quarter.

Speaker #4: Year on year, so really nice improvement in revenue as well as total EnerSys margins, with our services area being up about 100 basis points—I would say even more in the NIS division.

Speaker #4: And a lot of that is just, again, really disciplined management. Keith is an extraordinary operator and he's putting that kind of discipline into the NIS business under Shawn's leadership.

Andi Funk: Keith is an extraordinary operator, and he's putting that kind of discipline into the NIS business under Shawn's leadership. We're managing it tighter, and making sure that we're ready for a lot of the opportunities in our headlights, things like that NIS services department division helping our BESS installation. So, it's an exciting and very strategic area for us going forward.

Speaker #4: We're managing it tighter. And making sure that we're ready for a lot of the opportunities in our headlights, things like that NIS services department division helping our BAS installations.

Speaker #4: So, it's an exciting and very strategic area for us going forward.

Speaker #6: Sounds great. Thank you.

Trevor Saar: Sounds great. Thank you.

Speaker #2: Thanks, Trevor.

Shawn O'Connell: Thanks, Trevor.

Speaker #4: Thank you.

Andi Funk: Thank you.

Speaker #1: If you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Jeff Osborne with TD Cowan.

Operator: If you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Jeff Osborne with TD Cowen. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Speaker #7: Thank you.

Andi Funk: Morning, Jeff.

Speaker #2: Just a couple of.

Speaker #7: Morning. Morning. Just a couple of quick ones on my side. Maybe just starting with mode of power, it's been weak for a while. I know you've seen cycles in the past.

Shawn O'Connell: Morning, Jeff.

Jeff Osborne: Morning. Just a couple quick ones on my side. Maybe just starting with Motive Power. It has been weak for a while. I know you have seen cycles in the past. How do you ascertain where we are in the cycle? You felt comfortable that things were rebounding. Are you looking at substitution effects? We are just getting a lot more questions from investors on the sustained weakness in that core segment.

Speaker #7: How do you ascertain sort of where we are in the cycle? You felt comfortable that things were rebounding? Are you looking at substitution effects?

Speaker #7: We're just getting a lot more questions from investors on the sustained weakness in that core segment.

Shawn O'Connell: Yeah, Jeff, I will start. We have a lot of leading indicators that we look at. We get the truck order data from the forklift market, both internationally and domestically, in the Americas market. We have that. Then we typically lag our forklift customers, between half a quarter to a quarter when they start seeing the truck orders and when we see the battery orders. We look at that. We of course have conversations with those same customers. Most of them do not split out and report publicly the individual results of the forklift division. If you are looking at one of the larger OEMs that are embedded in a bigger company, they do not give you that color. But we do have some public ones, like Hyster-Yale that just released their results.

Speaker #5: Yeah. Jeff, I'll start. We have a lot of leading indicators that we look at. We get the truck order data from the forklift market, both internationally and domestically, in the Americas market.

Speaker #5: We have that. Then we typically lag our forklift customers between half a quarter to a quarter. When they start seeing the truck orders and when we see the battery orders, and so we look at that.

Speaker #5: We, of course, have conversations with those same customers. Most of them don't split out and report publicly the individual results of the forklift division.

Speaker #5: So if you're looking at one of the larger OEMs that are embedded in a bigger company, they don't give you that color. But we do have some public ones, like HY, that just released their results.

Speaker #5: And you can see that they in spite of being down, I think 16% year on year, they had a 2% increase but their truck orders are way up and they're seeing those green shoots now.

Shawn O'Connell: You can see that in spite of being down, I think, 16% year-on-year, they had a 2% increase, but their truck orders are way up, and they are seeing those green shoots now. That is kind of consistent with what we are hearing across the board in the industry. Obviously, between the three classes of forklifts, people are positioned differently depending upon the OEM they are. The markets have not been totally even. But we look to those things and all of those indications for us and those customer conversations are positive. So it gives us a high degree of confidence. Also, we have data going back to the 90s, very solid data about what happens after an economic recession period in material handling. There has only been three of them.

Speaker #5: And that's kind of consistent with what we're hearing across the board in the industry. And obviously, between the three classes of forklifts, people are positioned differently depending upon the OEM they are.

Speaker #5: So the markets haven't been totally even. But we look to those things and all of those indications for us and those customer conversations are positive.

Speaker #5: And so we it gives us a high degree of confidence. We always also we have data going back to the '90s very solid data about what happens after an economic recession period, material handling.

Speaker #5: There's only been three of them. And this one's a little goofy because of coming out of COVID and supply chain shocks and build-ups and normalizing.

Shawn O'Connell: This one's a little goofy because of coming out of COVID and supply chain shocks and buildups and normalizing. But typically, those recoveries for us, when we see these indicators, they follow fairly quickly. That's giving us some confidence there.

Speaker #5: But typically, those recoveries for us when we see these indicators, they are they follow fairly quickly. So that's giving us some confidence there.

Speaker #4: Yeah. I'll give a little bit of more data behind that. As well, and Shawn mentioned the highest REO report. They also did note that the first first half calendar year '26 would mark the financial low point for them.

Andi Funk: Yeah. I'll give a little bit of more data behind that as well. Shawn mentioned the Hyster-Yale report. They also did note that H1 calendar year 2026 would mark the financial low point for them. They had the strongest booking quarter in three years this last quarter. All really good signals. Our customers also continue to give us great signals. That said, it's choppy. Industry data showed positive order trends for our Q4 2026, and then dropped to -8% with shipments this past quarter. There's a lot of volatility. If you recall in the last quarter, we had called out that we thought Q1 could look very similar to Q4, which is unusual. Of course, that didn't materialize. The lag is frustrating for us.

Speaker #4: They had the strongest booking quarter in three years this last quarter. So all really good signals. Our customers also continue to give us great signals.

Speaker #4: That said, it's choppy. Industry data showed positive order trends for our Q4 '26 and then dropped to negative 8%, with shipments this past quarter.

Speaker #4: So there's a lot of volatility. If you recall in the last quarter, we had called out that we thought Q1 could look very similar to Q4, which is unusual.

Speaker #4: And of course, that didn't materialize. So the lag is frustrating for us. We do build a risk factor into our guidance because we knew that market recovery is outside of our control.

Andi Funk: We do build a risk factor into our guidance because we knew that market recovery is outside of our control. We track our performance versus market. We are in line with market. I think it's a positive sign that we have this record quarter despite that continuing to feel the pressure. We are seeing signals that it's coming back. When it's going to come back, that's the question. Whether it's going to be our Q2 or we're thinking it's more a Q3 story. Another aspect to it, which I think there's an exciting element to this as well, we have some great new products on the horizon, both with chargers and Gen 2 lithium.

Speaker #4: We track our performance versus the market. We are in line with the market. But I think it's a positive sign that we have this record quarter, despite continuing to feel the pressure.

Speaker #4: We are seeing signals that it's coming back. When it's going to come back—that's the question. Whether it's going to be our Q2, or we're thinking it's more a Q3 story.

Speaker #4: Another aspect to it, which I think there's an exciting element to this as well, we have some great new products on the horizon, both with chargers and Gen 2 lithium.

Speaker #4: So as we are depleting our stock of our old offerings and our customers are waiting for those products to come out, which will be a second half story, that might be impacting a little bit for us as well.

Andi Funk: As we are depleting our stock of our old offerings and our customers are waiting for those products to come out, which will be a second-half story, that might be impacting a little bit for us as well. Nice thing is their Gen 2 lithium, which is an LFP solution versus the NMC we had in our previous version, at a much more attractive price point for our customers, which we feel will allow us to pick up a lot more volume there and is at significantly higher margins. I think there's a lot of good news in front of us. I'd be lying if I didn't say we weren't a little frustrated that it's taken as long as it has. But overall, I'm not concerned at all the outlook here. Our products are necessary to move goods around the world, and it can't stay down long.

Speaker #4: Nice thing is our Gen 2 lithium, which is an LFP solution versus the NMC we had in our previous version, has a much more attractive price point for our customers, which we feel will allow us to get pick up a lot more volume there.

Speaker #4: And is that significantly higher margins. So I think there's a lot of good news in front of us. Be lying if I didn't say we weren't a little frustrated that it's taken as long as it has.

Speaker #4: But overall, I'm not concerned at all the outlook here. Our products are necessary to move goods around the world, and it can't stay down long.

Speaker #7: Perfect. Just one. I appreciate the detail there, Andy. One follow-up on mode and then had one on data center. On the material handling side, are you seeing since you brought up lithium, any acceleration in the shift from lead to lithium?

Jeff Osborne: Perfect. I appreciate the detail there, Andi. One follow-up on motive, and then had one on data center. On the material handling side, are you seeing, since you brought up lithium, any acceleration in the shift from lead to lithium?

Shawn O'Connell: I would tell you that we are seeing the same conversion rate we have seen, and I would just reiterate that this is pent-up demand on the forklift side. These are typically leases. They can extend the lease, but what starts to happen is you start to see a lot of breakdown of maintenance items. So it cannot go on forever. But our typical maintenance-free conversion, which fortunately for us, we are uniquely positioned, we have our TPPL offering and lithium offering, that has been fairly steady for us. So there are no big movements there. We are just seeing really market effects at the moment.

Speaker #5: I would tell you that we're seeing the same conversion rate we've seen, and I would just reiterate that this is pent-up demand on the forklift side.

Speaker #5: They can't. These are typically leases. They can extend the lease, but what starts to happen is you start to see a lot of breakdown on maintenance items.

Speaker #5: So it can't go on forever. But our typical maintenance-free conversion, which fortunately for us, we're uniquely positioned. We have our TPPL offering and lithium offering.

Speaker #5: That's been fairly steady for us. So there's no big movements there. We're just seeing really, really market effects at the moment.

Speaker #4: You know what? One other thing worth mentioning too, Shawn, I know we've talked about this. We believe there's a correlation, which is why we did the resegmentation between the transportation and the forklifts.

Andi Funk: One other thing worth mentioning, too, Shawn, I know we have talked about this. We believe there is a correlation, which is why we did the resegmentation between the transportation and the forklift. These are large capital purchases. They both experienced this downturn coming out of a lot of the macro volatility, and transportation is starting to come back really strong. We were 20% revenue growth in the quarter. Orders that we had year-on-year in transportation were up 91%. Now, of course, that is off a low point with orders as it was declining last year, and there is great momentum there. So that is just another signal that gives us confidence that the capital markets for forklift trucks are going to start to turn as well.

Speaker #4: These are large capital purchases they both experienced this downturn coming out of a lot of the macro volatility. And transportation is starting to come back really strong.

Speaker #4: We were 20% revenue growth in the quarter. Orders that we had year on year in transportation were up 91%. Now, of course, that's off a low point with orders as it was declining last year.

Speaker #4: And there's great momentum there. So that's just another signal that gives us confidence that the capital markets for forklift trucks are going to start to turn as well.

Speaker #7: Good stuff. And just very quickly, on the data center side, that lead has been answered there, but just two clarifications. One, are we still shooting for UL certification either late this year or early next calendar year?

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

Speaker #7: Is part one of the question. And then part two—now that you've socialized it with customers, you have the units coming in for training and whatnot and testing—do you have any further comments that you can share about expectations for margins, just given you have a third party manufacturing it for you folks?

Speaker #5: Yeah, I would tell you, we were right on track with our plans for UL. And our validations—we feel very good about that. And if you look at how our product delivery has been going, and if it's a close parallel with how quickly we were able to get UL and NFPA certification on our BESS system, which is a more complex system, it just speaks to how we're operating differently.

Shawn O'Connell: Yeah, I would tell you that we are right on track with our plans for UL and our validations. We feel very good about that. If you look at how our product delivery has been going, it is a close parallel, but how quickly we were able to get UL and NFPA certification on our BESS system, which is a more complex system, it just speaks to how we are operating differently. So we have a high degree of confidence in our UL journey on the DataSafe Noir side. On the second part of the question?

Speaker #5: So we have a high degree of confidence in our UL journey on the data center and war side. And on the second part of the question?

Andi Funk: Yeah, on the margins. So go ahead.

Speaker #4: Yeah, on the margins. So, go ahead.

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

Speaker #5: Yeah. We expect margins in line with our, sort of, our TPPL and higher-margin offerings than lead. And early indications from customers—we think we're going to have a high degree of confidence achieving that.

Speaker #5: The other issue and the other real benefit that we have is not comparing lithium to lead, but lithium to lithium. We're releasing a system that can do in two cabinets with the competitor's lithium battery now does in five.

Speaker #5: So we have a real value conversion opportunity from that 5 to 2 that is a big differentiator in the market. And as well as saving a premium on that data center space.

Andi Funk: Not to mention our service network can turn it effect around.

Speaker #4: That's mentioned our service network. Can turn it up back around.

Jeff Osborne: Thank you, folks. That's all I had.

Shawn O'Connell: Hope that. Yep. Thank you.

Speaker #7: Thank you, folks. That's all I had.

Speaker #5: I hope that. Yep. Thank you.

Operator: Your next question comes from the line of Greg Lewis with BTIG. Your line is open. Please go ahead.

Speaker #7: Your next question comes from the line of Greg Lewis with BTIG. Your line is open. Please go ahead.

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

Speaker #8: Yeah. Hi. Thank you, and good morning. Thanks for taking my questions. Shawn, I was hoping you could talk a little bit more about the A&D opportunity.

Speaker #8: You mentioned the factory, the facility being built. And just the relationship Enersys has with the US government. I'm kind of curious how also just given a lot of headlines about drone as accelerating drone warfare, drone anti-drones, beyond the US and realizing that's a big opportunity, how should we be thinking about that over the next couple of years, even maybe as we think about NATO and the broader opportunity?

Shawn O'Connell: Yeah. Good morning, Greg. Thank you for joining us. Look, we have an extraordinary opportunity in front of us, and if I had one big takeaway from Investor Day, I got a lot of comments that we haven't talked enough about our position there. Our position with the defense apparatus is strong, and one of the reasons is, if you look at what we've done with TPPL that powers nuclear submarines, and how we've taken the developments out of one technology and expanded that into a commercial basis. We don't tend to rely totally on the government apparatus. We've been successful in doing that across end markets, including leveraging defense markets to sell back into commercial areas. They like that. They like our stability. They like our balance sheet. We have a lot of permanence that they can rely on and trust.

Speaker #5: Yeah. So good morning, Greg. Thanks for joining us. Look, it's we have an extraordinary opportunity in front of us. And if I had one big takeaway from investor day, I got a lot of comments that we haven't talked enough about our position there.

Speaker #5: But our position with the defense apparatus is strong, and one of the reasons is, if you look at what we've done with TPPL—that powers nuclear submarines—and how we've taken the developments out of one technology and expanded that into a commercial basis.

Speaker #5: So we don't tend to rely totally on the government apparatus. And we've been successful in doing that across end markets, including leveraging defense markets to sell back into commercial areas.

Speaker #5: So they like that. They like our stability. They like our balance sheet. We have a lot of permanence that they can rely on and trust.

Shawn O'Connell: Because of the fact that we've stayed very active in places like liquid reserve and thermal batteries, that's a very narrow field, and it really well positions us. The Bren-Tronics acquisition added to that, and of course, what we're doing in our space business. If you look across what's happening in the world with the drone powering ecosystem, the Ukraine conflict showed everybody that the future of the battlefield is going to be much different. You had a very small army hold off a 3 million person army because of these cheap drones in the supply chain. That has woken up all of the governments around the world. I think that extends into the second part of your question. Some of our most compelling growth in A&D this year has come from our European business.

Speaker #5: And then, because of the fact that we've stayed very active in places like liquid reserve and thermal batteries, that's a very narrow field, and it really well positions us.

Speaker #5: The Medtronics acquisition added to that. And of course, what we're doing in our space business. So if you look across what's happening in the world with the drone-powering ecosystem, the Ukraine conflict showed everybody that the future of the battlefield is going to be much different.

Speaker #5: You had a very small army hold off a 3-million-person army because of these cheap drones and the supply chain. And so that has woken up all of the governments around the world.

Speaker #5: And I think that extends into the second part of your question. Some of our most compelling growth in A&D this year has come from our European business.

Shawn O'Connell: We've had segments of our allied countries in Europe, NATO allies, outpace, for the first time in our evolution, our Americas business. It just speaks to our reach and what we're able to do. We're actually expanding capabilities in places like northern France in our Arras facility to support what Bren-Tronics is doing there, for example, with the French government and the French Ministry of Defence. We see a lot of runway internationally with not just the US, but with allied countries as well.

Speaker #5: We've had segments of our allied countries in Europe—NATO allies—outpace, for the first time in our evolution, our America's business. And it just speaks to our reach and what we're able to do.

Speaker #5: So we're actually expanding capabilities in places like Northern France and our RAS facility to support what Medtronic is doing there, for example, with the French government and the French Ministry of Defense.

Speaker #5: So we see a lot of runway internationally with not just the US, but with allied countries as well.

Andi Funk: Yeah, just to give some data behind Shawn's answer, our growth rate in Europe in 2026 versus 2025 was 2X. It's probably going to be pretty close, and it's off a smaller base. We mentioned our six plants in the US in our prepared remarks, but as Shawn mentioned, we also produce A&D batteries for our allied nations in both the UK and in France as well. There's opportunities around the world.

Speaker #4: Yeah. And just to give some data behind Shawn's answer, our growth rate in Europe in 2026 versus 2025 was 2x. It's probably going to be pretty close.

Speaker #4: Not a smaller base. We mentioned our six plants in the US in our prepared remarks, but as Shawn mentioned, we also produce A&D batteries for our allied nations in both the UK and France as well.

Speaker #4: And there's opportunities around the world.

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

Speaker #8: Okay. Okay. Great. And then realizing I guess I want to I have a question around data center, but I guess a little different. As the architecture evolves, I guess the started rolling out or converting some data centers to 800-volt.

Speaker #8: And is that changes the, I guess, the legacy way a UPS system was kind of I guess it was big and now they're going to be I guess more smaller focused on rack.

Speaker #8: Does that how does that change or I should say, does that change the revenue opportunity however you guys per megawatt or per location? Is that an opportunity to actually drive more revenue out of a data center?

Speaker #8: Is this what happens for kind of the same product?

Shawn O'Connell: Unequivocally. Just one point of clarification. We are seeing a lot of movement towards very large systems, centralized systems. Without getting too technical on this call, maybe we do a tech talk later or something, but it depends on what type of data center it is, whether it is large language training model, whether it is inference, whether it is storage. So it depends on what they are trying to achieve will influence the architecture. As I have said before, 800 volts, we love that. Because for us, it does not change much. It may give us the opportunity in a centralized system to just sell more cells as we put more cells in parallel. We have a long history in managing these voltage ranges, so we are quite used to that. Then to your point about distributed rack systems and what we think of, we use the term BBU business.

Speaker #5: Unequivocally, just one point of clarification. We are seeing a lot of movement towards very large systems—centralized systems. And it's just, without getting too technical on this call—I mean, we could do a tech talk later or something—it depends on what type of data center it is, whether it's a large language training model, whether it's inference, whether it's storage.

Speaker #5: So it depends on what they're trying to achieve; that will influence the architecture. As I've said before, 800 volts—we love that, because for us, it doesn't change much.

Speaker #5: It may give us the opportunity, in a centralized system, to just sell more cells as we put more cells in parallel. We have a long history in managing these voltage ranges.

Speaker #5: And so we're quite used to that. And then, to your point about distributed rack systems and what we think of, we use the term BBU business.

Shawn O'Connell: We have historically not played there because of, it is typically been these packs that involve small cells that are put into those packs in a rack system. We see that there could be some potential future opportunity for us out of the Greenville plant when we are manufacturing our own cell to have a compelling offering in the BBU space, which gets back to my answer to your last question about the Department of Defense loves us because we tend to commercialize what we co-develop or develop with them or for them. We see data centers a big opportunity for off-take in Greenville downstream.

Speaker #5: We've historically not played there because it's typically been these packs that involve small cells that are put into those packs in a rack system.

Speaker #5: We see that there could be some potential future opportunity for us out of the Greenville plant, when we're manufacturing our own cell, to have a compelling offering in the BBU space. This gets back to my answer to your last question about the Defense Department—they love us because we tend to commercialize what we develop with them, co-develop, or develop with them or for them.

Speaker #5: And we see data centers as a big opportunity for offtake in Greenville downstream.

Greg Lewis: All right. Super helpful. Thank you.

Speaker #8: Right. Super helpful. Thank you.

Shawn O'Connell: Yep. Good to hear your voice. Thanks for calling.

Speaker #5: Yep, good to hear your voice. Thanks for joining.

Andi Funk: That is great.

Operator: There are no further questions at this time. I will now turn the call back to Shawn O'Connell, President and CEO, for closing remarks.

Speaker #1: There are no further questions at this time. I will now turn the call back to Shawn O'Connell. President and CEO for closing remarks.

Shawn O'Connell: Thank you, Ben. Thank you all for joining us today. We look forward to speaking with you again soon and want you to have a great day.

Speaker #5: Thank you, Ben. And thank you all for joining us today. We look forward to speaking with you again soon. Once again, have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.