EnerSys

Ladies and gentlemen, thank you for standing by and welcome to the Q2 fiscal year 2024 NSS Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Lisa Hartman, Vice President of Investor Relations.

Good morning, everyone. Thank you for joining us today to discuss NRSYS second quarter fiscal 2024 results. On the call with me today are Dave Schaefer, NRSYS President and Chief Executive Officer and Andrea Funk, Endersys Executive Vice President and Chief Financial Officer. Last evening, we published our second quarter results and filed our 10-Q with the SEC, which are available on our website. We also posted slides that we will be referencing 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 those 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 Q&Q filed with the SEC. In addition, we will be presenting certain non-cap financial measures. particularly concerning our adjusted consolidated operating earnings performance, free cash flow adjusted diluted earnings per share, and adjusted EBITDA, which excludes certain items. For an explanation of the difference between the GAAP and non-GAAP financial metrics, please see our company's Form 8K, which includes our press release dated November 8, 2023. Now I'll turn the call over to Enrisys President and CEO, Dave Schaefer.

Thank you Lisa and good morning. We delivered solid results in the second quarter, achieving record gross margins as we continue to hold price, a reflection of the strong customer value of our solutions. We are executing our strategy for long-term growth, which resulted in impressive operating earnings, EBITDA and EPS expansion, and we continue to maintain a healthy balance sheet with another quarter of significant operating and free cash flow generation. We are delivering on our innovation roadmap and are excited to have received the initial order for 50 systems of our fast charge and storage solution from our launch customer, Landmark Dividend. I am very proud of our team's hard work and pleased with our momentum in this exciting new venture for Enersys. Please turn to slide 4. Before I go into details of our results, I'd like to start with a macro view of the environment and end markets we serve. The need for reliable, resilient, and sustainable power has never been more critical. Megatrends of digitization, automation, electrification, and decarbonization will only continue to fuel demand for our energy storage and power solutions. Consistent with our peers, communications networks customers have reduced capex as they digest existing inventory, manage their balance sheets, and plan for the next wave of network build-ups. The diversification of our business model and end markets is indeed a strategic advantage for Enersys, as inherent cycles and seasonality of the different markets we serve tend to offset each other and enable us the opportunity to invest in preparation for the next wave of demand surges. We fully expect the release of new network powering projects in calendar year 2024. In addition, with the transformation we've led over the past several years, we have further diversified our end markets, making us less reliant on a limited customer or market base. While communications and markets represent approximately one-third of NRCIS's revenue, our telecom and broadband business is a combination of network expansion and ongoing network resiliency investment. We also see positive demand trends continuing in data center. Coming out of this summer, we are seeing double-digit year-on-year increases in our order rates and our motive power and specialty segments. This provides further confidence in the long-term capabilities of our business and how the diversification of our model is the right strategy. Andy will provide details on our second quarter fiscal 24 performance and outlook, but I will first provide a few highlights. Please turn to slide five. Revenue of $901 million was consistent with our exceptionally strong prior year. Our performance was broadly in line with our expectations and largely driven by strong maintenance-free product demand within Motive Power and our ability to maintain pricing. For the second quarter, our overall book-to-bill was close to one, excluding telecom and broadband equipment orders. Adjusted gross margin in the quarter improved nearly 500 basis points over prior year to 26.6% due to our impressive price-cost capture and mix improvements combined with IRA benefits. Our gross margin was also supported by the continued easing of supply chain pressures. Adjusted operating earnings of $103 million and adjusted EPS of $1.84 both represent significant increases over prior year. Please turn to slide six. The team is making tremendous progress against our strategic priorities. Let me share a few highlights from the second quarter. Starting with innovate. We continue to make significant strides on our innovation roadmap. At Mobile World Congress in September, we launched our DPX distributed power system featuring our new InShield technology, which minimizes time-consuming and expensive connections to the electrical grid when deploying outdoor small cells. The DPX system enables operators to accelerate 5G deployment and expedite revenues for their 5G service. This important technology is a competitive differentiator that provides our customers with a unique advantage in the marketplace and which we expect will help drive growth in 2024 and beyond. In October, we were proud to announce that our Alpha Atom Outdoor Gateway, a DOCSIS 3.1-enabled OEM module, was recognized among the best in industry for its innovative design and value at the 2023 CableTech Expo. The ATOM Outdoor Gateway is an enabler for deploying 5G small cells across the cable broadband hybrid fiber coaxial infrastructure. and we were proud to announce a collaboration with Samsung to incorporate our gateway into their 5G CBRS strand small cell, which is designed for multi-system operators to deploy their mobile networks. We are optimizing the business, evidenced through our operational excellence initiatives, which will continue to drive our strong margin expansion. Our cost reduction efforts and specialty, including our exit from SILMAR, will begin to contribute to performance in the third quarter. We have undertaken additional footprint rationalization actions this quarter in energy systems. We recently announced the closure of our Spokane production facility in which we will be able to transfer capacity to our other facilities thanks to our EOS, or Enersys Operating System, lean tools. We also made the decision to exit our residential renewables business, which includes our Outback and Mojave branded products. This will enable us to focus our engineering efforts on higher growth and higher margin opportunities in commercial energy solutions for enterprise customers, such as fast charge and storage. And accelerating. We are making marked progress on planning for our new lithium battery gigafactory in the U.S. This factory will be a competitive advantage for Enersys, providing innovative battery solutions for both our commercial and U.S. government customers with independence from non-domestic cell suppliers. We have narrowed down our site selection and continue to pursue significant government funding to support this investment. We have also advanced our partnership agreement with Vercor. We are developing this project with a highly disciplined view on capital allocation, and we will not proceed without high confidence in achieving an accretive return on invested capital. Also consistent with our efforts to accelerate, I am pleased to announce that during the quarter we hired Jamie Gebbia as our Vice President, Corporate and Business Development, reporting to me. Jamie has extensive experience in corporate strategy, M&A, finance, and bringing tremendous capability to our team as we evaluate potential partnerships and acquisitions with continued focus on the best strategic opportunities and a highly disciplined approach to capital allocation. Please turn to slide seven. I could not be more proud to begin in earnest the launch of our revolutionary fast charge and storage business with our initial 50 system order from Landmark, including applications for demand charge reduction, utility backup power, and dynamic fast charging for electric vehicles. Enersys is delivering the only system combining energy management with 1.2 megawatt hours of energy storage capacity and a dynamic DC fast charging with parallel charging capabilities from a single pedestal. We look forward to updating you on sales growth in this area in the coming quarters. Please turn to slide 8. Along with our strategic framework, we remain highly focused on our sustainability goals. During the quarter, we were honored with the Distinguished Energy Efficiency Initiative of the Year Award as part of Environmental Finance's Sustainable Company Awards. The recognition was given specifically for water and energy reduction achievements related to the implementation of our EOS Lean Management Program. I would like to congratulate the team on this recognition for our commitment to sustainability and efficiency. Before I turn it over to Andy, I would be remiss if I didn't recognize some incredible leaders on our EnerSys team. As we announced in September, after an outstanding 30-year career in the broadband, telecommunications, renewable energy, and technology industries, Drew Zogby, president of our energy systems global segment, will retire on March 31, 2024. Drew has been pivotal in leading the energy systems business through a major transformation and positioning our company as an industry leader. Drew, we thank you for your dedication and leadership and wish you all the best in your next chapter. But not just yet, Drew will be helping lead in an executive advisory role for the next five months. Sean O'Connell has transitioned from president of Motive Power Global to 6C Drew. Sean had previously led our reserve power business prior to the Alpha acquisition. Sean has held a variety of leadership roles within the company and has introduced several transformative initiatives driving the Motive Power business's impressive performance, including significant revenue growth from our maintenance-free battery offerings, increasing operating discipline and OPEX flexing, driving innovative solutions, and delivering record operating earnings. Finally, I am pleased to announce Chad Uplinger has been named a Shawn Successor. Since 2017, Chad held the position of Vice President of Motor Power Americas and has played a pivotal role developing and executing our strategy to grow maintenance-free revenue. Over the past two decades, Chad has developed a proven track record and strong internal and external relationships which make him the ideal successor to lead the Motive Power global business. I will now turn it over to Andy to take you through our results and outlook in greater detail. Andy?