EnerSys

optimizing our cost structure to flex through cycles, improving productivity through automation and flexibility, and advancing our transformative strategic priorities, such as our planned domestic lithium plant, our new fast charge and storage business, and accretive bolt-on acquisitions like Brentronics. Positive demand signals and opportunities, combined with focused execution, gives us optimism in our ability to deliver our full-year financial projections. While overall orders were down slightly year over year, order rates improved over the course of the quarter. The quality of our backlog is healthy, with the first sequential increase in energy systems backlog in eight quarters, offset by seasonal declines in mode of power and specialty. Andy will give detail on our first quarter fiscal 25 performance and outlook, but I will first provide a few more highlights and business drivers behind the results. In energy systems, Sales were down compared to prior Q1, driven by declines in communications, partially offset by robust data center demand, where we see ongoing opportunities with our high discharge energy storage data center solutions. We believe our communications customers have more than worked through their inventory surpluses, and the deferred spending that is occurring is unsustainable to maintain network resiliency. We believe this has created pent-up demand that we expect will begin to materialize throughout this fiscal year, with a pickup in quarter-end orders pointing to the beginning of a recovery now being underway. In the quarter, Energy Systems achieved $7 million of sequential cost savings as a result of the significant cost-improvement actions we implemented over the past two quarters. However, these savings were masked by lower sales with a weaker product mix, particularly from delayed customer spending on high margin power electronics. As a result, we only saw a modest sequential improvement flow through to adjusted operating earnings in Q1. We expect full visibility of these actions in the second quarters as volumes begin to pick up. We also conducted another round of price increases across the business, reset contracts, and adjusted tier pricing to contractors. Q1 book-to-bill in energy systems was favorable at greater than 1, driven by North America communications at 1.09. We exited the quarter seeing encouraging order trends in telco, but expect broadband recovery to be a second-half fiscal 25-story based on current backlog orders and project flows. Motive power was a bright spot, with volumes and margins increasing versus the prior year, driven by consistent customer demand in logistics and warehousing, and continued customer enthusiasm over our higher margin proprietary maintenance-free offerings. Customers are adopting our higher energy, dense solutions that provide them with longer-term cost savings through operational efficiency, lower labor costs, and lower water and energy usage compared to traditional batteries and chargers. Our maintenance-free solutions have grown to 24% of total motive power sales in Q1 versus 19% in the prior year. Industry data supports our expectations of mid- and long-term expansion. For example, a leading industry association's confidence index shows current conditions during the second quarter of 2024 improved versus last quarter, and the future conditions index grew well above the threshold indicative of expansionary conditions. Our backlog remains well above pre-pandemic levels, although we saw a slight reduction in backlog with book-to-bill at 0.9%, on summer month seasonality and some advanced orders in Q4 after an announced price increase. In specialty, revenue and adjusted operating earnings in the quarter were down, with performance impacted by a dramatic softening of activity in the broader Class A truck OEM market, not specific to Enersys. Our customers, both OEM and fleets, are indicating that volume should increase in the back half of our fiscal year as shipping tonnage rebounds in the California Air Resources Board CARB 27 deadline approaches. Aerospace and defense demand remains strong with a solid order backlog and several aerospace and defense opportunities in the pipeline. Our A&D business will, of course, be further bolstered by our recently closed acquisition of Brentronics. Adjusted operating earnings were impacted by the drop in Class 8 OEM volumes and increased costs related to underabsorption in our plants, also resulting from the lower communications and transportation volumes. Despite the timing of the resumption of Class 8 orders, we have a significant opportunity in front of us with transportation to our trucking aftermarket channels in the premium automotive market with our retail and aftermarket partners. We are actively working with these customers in building the necessary inventory to achieve the required service levels with the appropriate product mix which will enable us to accept higher margin business. We expect this ramp to begin in the second half of our fiscal year. As discussed last quarter, our Missouri plant's output is improving and we will begin to install new lines that will afford us increased and more flexible production capacity in the fall. The incremental volume with better cost absorption will further drive earnings expansions on top of the accretive impact of Brentronics. In our new ventures line of business, we are in the final testing phase of our first commercial-ready fast charge and storage system, which we are prepping for delivery to our launch customer site in Canada in the coming weeks. Please turn to slide 5. The team is making exciting progress on our strategic priorities. Let me share some of the highlights from our first quarter, starting with Innovate. In our mode of power products, we are preparing to launch our Nexus 48-volt heavy-duty lithium batteries and we received our first order for two units. We also received our first orders for 22 Nexus outdoor chargers this quarter. This product has the opportunity to be a game changer as customers convert from internal combustion to electric lift trucks in outdoor applications. With regulations such as CARB, which aimed to phase out gas-powered forklifts in favor of zero-emission technologies. The shift to electric forklifts is becoming increasingly significant. In energy systems, our DPX outdoor fault-managed power supply received a critical UL certification, and we are leading the industry by being the first company to receive certification for a Class IV outside plant solution. We continue to focus on optimizing the business as well. As we mentioned last quarter, we have taken specific actions to improve performance and efficiency, particularly in energy systems. We have optimized our footprint and organization, conducted targeted restructuring, invested in high-speed flexible production capacity, and streamlined our operations. We are continuing to advance on our TPPO manufacturing flexibility initiatives in Missouri, yielding further productivity improvements in the quarter, and are focused on scrap rates, assembly performance, and SIOP execution, driving a nearly $100 million reduction in inventory versus prior year on top of operational cost improvements. Our investments in production flexibility remain on track for completion in the second half of the fiscal year. And accelerating. We continue to advance on the development of our lithium ion cell gigafactory, We are formalizing our collaborative relationship with Vercor, making investments to support their growth, and progressing on the key agreements which will support our factory operations. We recently met with the U.S. Department of Energy to review our application for additional funding for our plant. We look forward to learning the results of these funding allocations, which are expected to be announced in the coming weeks. At that point, we will share with you the full project budget and timeline. We've updated our model to include the recent tariff announcements, which has further solidified our make versus buy justification. Please turn to slide six. On July 26th, we were pleased to announce closing our acquisition of Brentronics and to welcome the team into Enersys. This acquisition, which expands our presence in critical defense applications, broadens our lithium product offerings, strengthens our product development capabilities, provides incremental growth opportunities, and is immediately accretive to earnings. As previously disclosed, in calendar year 2023, Brentronics generated approximately $100 million of sales with EBITDA margins around 25%. We are implementing a detailed integration plan that has been developed over the past several months with a dedicated cross-functional team from both Enersys and Brentronics. Our priority is to ensure minimal disruption commercially and operationally while we rapidly execute corporate and back office integration. Please turn to slide seven. On the governance front, last week we held our annual shareholder meeting where our stockholders elected two new members of our board, Mr. David Hobbiger and Ms. Lauren Nozenberger. David is the CEO of JD Power, a provider of data analytics, software, and consumer intelligence. David has a demonstrated history of driving change within industry-led security protocols globally. Lauren is the Executive VP and Chief Innovation Officer at SAIC, a provider of engineering, digital, artificial intelligence, and mission solutions across the defense, space, civilian, and intelligence markets. Lauren is a globally recognized thought leader and change agent in technology, digital modernization, and cybersecurity. I am pleased to welcome David and Lauren to our Board of Directors, whose expertise and skill sets are well matched to our industrial technology transformation. It is with sincere thanks and deep gratitude that we say farewell to long-standing Board members Art Katsaris, our Chairman for the past eight years, General Robert Magnus, and Juan Chung. We truly appreciate their commitment and 53 collective years of dedicated service. And we congratulate Paul Tufano, our new Board Chair. I will now turn it over to Andy to take you through our results and outlook in greater detail. Andy?

Thanks, Dave. Please turn to slide nine. First quarter net sales of $853 million were down 6% from prior year, driven by a 3% decrease in volume due to the temporary market headwinds in communications and Class 8 OEM markets that Dave discussed, as well as 2% price mix pressure from lower proportionate sales of higher margin power electronics and an FX headwind of 1%. We achieved adjusted gross profit of $238 million, down $5 million year-on-year, including a little over $30 million of IRA benefits booked as a reduction of cost of goods sold in the quarter. Q1 adjusted gross margin improved by 120 basis points versus prior year to 28% due to higher IRA benefits. As you may recall, In the third quarter of fiscal year 2024, we validated an expansion of our batteries that qualify for IRA credits. Excluding the IRA benefits, adjusted gross margin was down a little over 50 basis points year over year due to the impact of lower proportionate power electronic sales that I just mentioned. Our adjusted operating earnings were $106 million in the quarter, slightly lower than in the prior year. with an adjusted operating margin of 12.4%. Excluding the IRA benefits, adjusted operating margin declined a little over 100 basis points year-on-year. This decline is attributable to the temporary softness in the communications and Class 8 OEM end markets, net of cost improvements Dave mentioned earlier. Adjusted EBITDA was $121 million, a slight decrease of approximately $1 million versus prior year, while adjusted EBITDA margin was 14.2%, up 70 basis points versus prior year on the expanded IRA benefits. In line with our guidance range, adjusted EPS for the first quarter was $1.98 per share, an increase of 5% over prior year. Excluding the IRA benefits, adjusted EPS was down over 15% versus the prior year. In the first quarter of fiscal 2025, Our effective tax rate was 11.6% on an as-reported basis and 20.8% on an as-adjusted basis before the benefit of the IRA compared to 17.6% in Q1 24. Let me now provide details by segment. Please turn to slide 10. In the first quarter, energy systems revenue declined 15% from prior year to $361 million primarily driven by the lower volumes and price mix pressure previously mentioned on top of FX headwinds. Adjusted operating earnings of $19 million improved sequentially on lower revenue as we saw the benefits of our cost reduction efforts but were $11 million lower than prior year on the soft market conditions. Adjusted operating margin of 5.3% was up 60 basis points sequentially but decreased 170 basis points versus the prior year. We are beginning to see favorable signals in key energy systems and markets, with increasing order trends giving us optimism for sequential improvement throughout the end of the fiscal year. Please turn to slide 11. Versus prior year, motive power revenues increased 4% to $366 million on a 6% volume increase partially offset by price mix and FX. The reduction in price mix is due to the elimination of a zero margin utility adder that was in place last fiscal year when European utility costs had spiked. Motive Power again reported strong adjusted operating earnings this quarter, contributing $56 million, up 11% over prior year. Adjusted operating margins were near record highs at 15.3%, up 90 basis points versus Q1 24. Despite mixed macro signals, we remain optimistic about the growth opportunities in Motive Power as we introduce new customer solutions, the overall demand trends remain healthy, and our proprietary maintenance-free products continue to support our customers' growing needs for automation, electrification, and decarbonization solutions. Please turn to slide 12. Specialty revenue decreased 6% from prior year to $126 million on 3% lower volume and a 3% reduction in price mix. Q125 adjusted operating earnings of $4.9 million were half of prior year's AOE, with adjusted operating margin of 3.9% down 350 basis points. As Dave mentioned, margins in this business were pressured by the impact of lower Class 8 OEM transportation volumes and the impact of underabsorption in our Missouri plants. We made progress in our Missouri factory operations performance during the quarter and have line of sight to continued improvement this fiscal year, which will be more visible when communications and transportation lines pick up and we're able to enjoy better absorption of our plant overhead costs. Although Class 8 OEM transportation demand weakened this quarter, given the significant incremental transportation aftermarket opportunities, and broad strength of A&D end markets, combined with the enhanced high-speed flexible capacity expansion we anticipate in the coming quarters, we remain optimistic about our opportunities and specialty. On July 26, we closed on the acquisition of Rentronics, which is adding profitable growth to our existing business, and we will discuss the impact of the acquisition further as part of our guidance. Please turn to slide 13. Operating cash flow in the quarter was a positive $10 million, with primary operating capital increasing slightly on transportation inventory bills to prepare us to take on aftermarket demand in the second half of the year. Receivables were again a positive as we focused on collections. Operating cash flow also absorbed normal year-end variable compensation, rebates, and incentives payout as is typical in our first fiscal quarter. As noted last quarter, the full benefit of the IRA credits will not have the full positive impact on our cash flow until our fiscal year 2024 tax filings are finalized and we receive our first 45X expected tax refund from the IRA of approximately $100 million near the end of fiscal 2025. Lower operating cash flow from typical year-end payouts and delayed IRA monetization combined with elevated capex of $36 million including approximately $9 million from the purchase of land in South Carolina for a planned lithium plant, resulted in negative adjusted free cash flow conversion during the quarter. As of June 30, 2024, we had $344 million of cash and cash equivalents, and our net debt of $565 million represented a reduction of approximately $125 million from prior year. Our credit agreement leverage ratio was 1.1 times EBITDA. Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. Note that although we incurred approximately $200 million of cash outlay for the Bremtronics acquisition in the second quarter, we anticipate our net leverage will remain well below the low end of our two to three times target range, providing us with ample dry powder for our capital allocation decisions. Please turn to slide 14. During the first quarter, we paid $9 million in dividends and repurchased approximately $12 million in shares. We currently have approximately $121 million remaining in our buyback authorization. During the quarter, we funded our investment of $11 million in VRCOR Series C round and made our initial milestone payment per our prototype agreement in July. We continue to screen for additional attractive bolt-on acquisition opportunities, like Bratronics, which meet our discipline, strategic, and financial criteria. Please turn to slide 15. Our Board of Directors recently approved an increase in our quarterly dividend to 24 cents per share, up from 22.5 cents per share. As part of our discipline capital allocation strategy, We are committed to a competitive dividend that grows with earnings, excluding IRA benefits, over time. We have ample room in our balance sheet to remain flexible to meet our business needs, and we will continue to allocate capital with the goal of delivering optimal returns to our shareholders. Please turn to slide 16. We remain optimistic about the trajectory of our business and are particularly pleased with our continued ability to maintain pricing. While mixed market dynamics remain, we are seeing positive demand indicators and are pursuing incremental market opportunities. In addition, we have taken substantial actions to improve our overall margin profile and are beginning to see the benefits of these actions in our financial results. As a result, we remain cautiously optimistic in our fiscal year 2025 financial targets and are increasing the midpoint of our full year fiscal 2025 revenue guidance by $60 million and our full year fiscal 2025 adjusted diluted earnings per share guidance by 25 cents per share to include the incremental benefits of our acquisition of Brentronics on top of the base business expectations that were in our previous guidance. Our fiscal second quarter 2025 guidance range is $880 million to $920 million of net sales with adjusted diluted EPS of $2.05 to $2.15 per share. Our guidance anticipates a modest sequential improvement in North America communication spending and energy systems, modest transportation aftermarket growth and specialty, and incremental revenue and earnings from Brentronics. Our fiscal year 2025 guidance range is now $3,735,000,000 to $3,885,000,000 of net sales, up from prior guidance of $3,675,000,000 to $3,825,000,000. Adjusted diluted EPS is now $8.80 to $9.20 per share, up from prior guidance of $8.55 to $8.95 per share, and with a pre-IRA tax rate of 20% to 21%. Our CapEx expectation for the full year fiscal 2025 remains in the range of $100,000,000 to $120,000,000 This does not reflect significant additional spending on our planned domestic lithium plant. We plan to provide an update on the status of the plant and impact to our fiscal 25 expectations later this quarter. In summary, we are confident that the foundation we have put in place, coupled with the investments we have made in our transformation, will deliver accelerating financial returns. The global concern over energy scarcity will persist. as major trends drive a swift rise in the demand for reliable power. As a key provider of energy systems and storage solutions, EnerSys is well positioned to take advantage of this growth opportunity. We remain focused on delivering long-term value to our stockholders. With this, let's open it up for questions. Operator?

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