EnerSys Q2 FY2025 earnings call

• Leadership Succession: David Shaffer announced his retirement as President and CEO effective in May 2025, with Shawn O'Connell named as his successor. Shawn has been promoted to President and Chief Operating Officer immediately and will assume the role of President and CEO in May 2025.
• Quarterly Performance: Second quarter net sales were $884 million, down 2% from prior year. Adjusted gross margin was 28.7%, up over 200 basis points versus prior year. Adjusted operating earnings were $115 million, up over $10 million versus prior year. Adjusted EBITDA was $129 million, an increase of approximately $13 million versus prior year.
• Strategic Priorities:
  • Selected for a $200 million Department of Energy Award to partially fund the planned lithium giga factory and received Board approval to proceed with the project.
  • Integration of Bren-Tronics acquisition is exceeding expectations.
  • Installed the first fast charge and storage system at the launch customer site.
  • Continued to deliver cutting-edge new product introductions, such as EnVision CONNECT solution and EnerSys ABSL lithium-ion space battery.
  • Investments in TPPL production flexibility across Missouri plants are progressing according to plan, set to be complete by the end of the fiscal year.
  • Published detailed climate action plan roadmap to achieve Scope 1 neutrality by 2040 and Scope 2 neutrality by 2050.

Energy Systems

• Revenue declined 10% from prior year to $382 million in the second quarter, primarily driven by lower volumes and price mix pressures. However, revenue was up over $20 million sequentially, the first increase in six quarters as improvement was seen in challenged end markets. Adjusted operating earnings were $24 million, improving for the third consecutive quarter, with an adjusted operating margin of 6.4%.

Motive Power

• Revenue increased 3% to $367 million versus prior year, largely driven by volume growth. Motive Power reported strong adjusted operating earnings this quarter, contributing $58 million, up 8% over prior year, representing the highest Q2 ever. Adjusted operating margins were at record highs of 15.7%.

Specialty

• Revenue increased 9% from prior year to $135 million, driven by a 12% positive impact from the Bren-Tronics acquisition and a 1% increase in price mix, partially offset by a 4% decline in organic volume. Q2 2025 adjusted operating earnings of $8 million were up approximately $2 million versus prior year with an adjusted operating margin of 5.4%

• Fiscal 2025 revenue guidance range lowered to $3,675 million - $3,765 million net sales versus prior guidance of $3,735 million - $3,885 million.
• Fiscal 2025 EPS guidance range tightened to $8.75 to $9.05 per share versus prior guidance of $8.80 to $9.20 per share.
• Fiscal third quarter 2025 net sales guidance range is $920 million to $960 million with adjusted diluted EPS of $2.20 to $2.30 per share.
• Full fiscal year 2025 CapEx expectation remains in the range of $100 million to $120 million after absorbing incremental spending on the planned domestic lithium plant.

• Market uncertainty persists, including uncertainties related to the Presidential election affecting decision-making.
• Soft demand in communications and transportation markets, and FX pressure.
• Delays in fast charge and storage system deployments due to technical elements of the UL certification process and site prep issues from customers.
• Inventory challenges in the Class 8 truck market impacting Specialty segment margins.

Q: Can you give a little more detail around what is causing some delay in the fast charging and storage? And how many units have shipped from that initial order of 50? And is it still just the one customer landmark that we're talking about at this point?

A: Yes, still just talking about a landmark to start. The main source of delay is the technical elements of the UL certification process and site prep issues from the customer's perspective. There's one system in the ground, a few more ready to go, and the goal is to have 15 ready to go this fiscal year.

Q: Can you put a little bit of a finer point on what you're seeing in the communications market in telecom? Sounds like orders are picking up and I might have missed the growth rate in orders maybe sequentially. If you could give us an idea how much orders improved sequentially or year-over-year?

A: We're seeing a recovery in orders. Revenue was down 10% year-on-year but orders were up 30% year-on-year. In particular, Comms America book-to-bill was 1.09 in Q2 of 2025 versus 0.57 in Q2 of 2024, indicating a sequential increase. Expect to be in the 8% to 10% range by the end of this fiscal year with upside opportunity as expansion starts to kick in.

Q: Just as we think about Specialty margins, which have been up sequentially and margins across the board are improving. Kind of looking back and trying to see how can we think about margin progression kind of from this kind of mid-single digits to that kind of high single-digit, low double digits that we saw a couple of years ago?

A: The Class 8 situation had a slowdown due to inventory levels. Inventory situation is improving, and with the post-election environment, things are expected to improve. The aerospace and defense piece of Specialty is healthy with a solid order book, and Bren-Tronics acquisition is going extremely well. Also, Missouri plants' TPPL production flexibility investments will provide incremental capacity and lower cost, leading to margin improvement over time.

Q: How could this transition administration impact both the finalization and the timing on funding of the contract for the gigafactory?

A: We don't anticipate any change with regards to timing or likelihood of the DOE award. The schedule includes buying Greenville land in Q1, de negotiations expected to be complete before January 2025, breaking ground in late calendar Q2 2025, beginning construction in third quarter 2025, commissioning the building at the end of calendar 2027, and starting production Q2, Q3 of calendar 2028. Reimbursement is likely on about a one quarter delay, and the bulk of it would be booked as a reduction to the basis of the assets.

Q: You provided a lot of color here on the organic trends. You also mentioned Bren-Tronics outperformance. It looks like on a partial quarter basis about 16 million, contribution to 2Q sales. You quarterlies that and then annualize that that that's kind of around 100 million which it did last year. So just comment on any seasonality in that business and what you expect the business to do in sales this fiscal year.

A: We haven't provided specifics on seasonality. Orders for Bren-Tronics have been fantastic, and there's upside potential from there. The team is phenomenal, and synergies with EnerSys have been greater than expected, with high expectations for the business going forward.